OA 03: Frequently Asked Operating Agreement Tax Questions by GPs & LPs with Kaylyn Deaver, CPA
June 29, 2021
149. How You Can Build Wealth via Health Savings Accounts (HSAs) & SD Retirement Accts w Nathan Long
July 13, 2021

July 6, 2021

148. Why Rental Real Estate Investing Won’t Make You Rich and State of the Market with Mark McMahon

In this episode, we’re joined by Mark McMahon. Mark has spent over 25 years as a contractor and the last 12 years as a realtor, flipper, and landlord in Southern California. Mark and his wife have flipped over 500 homes and now own over 40 units of their own.

This episode is sponsored by our free Tax Smart Investors Facebook Group.

Full Transcript:
This podcast has been transcribed using AI, please excuse spelling, grammatical, and other errors.

Thomas Castelli 0:00
You’re now listening to the real estate CPA podcast.

Brandon Hall 0:04
Your source for all things real estate, accounting and tax. Here we reveal our secrets that can save you 1000s in taxes, streamline your accounting process and help grow your business. Stay tuned to hear insightful interviews with industry experts, successful real estate investors and current clients on what strategies they use to grow their business, and how they steer clear of Uncle Sam.

Thomas Castelli 0:31
Hi everyone, and thanks for tuning in Brandon Hall in Thomas Castelli here today with Mark Mahone. Mark has spent over 25 years as a contractor and the last 12 years as a real tour flipper and landlord in Southern California. Mark and his wife Yoko have flipped over 500 homes and now own over 40 units of their own. In this episode, we discuss how Mark bounced back from bankruptcy in 2009 to build a real estate flipping business that funds the acquisition of his rental properties. We also discuss why rental real estate investing alone won’t make you rich and speculate on the current state of the market. Before we dive right into today’s episode, we do want to remind everybody about the tax smart real estate investor Facebook community. There are currently over 2300 members and counting with a ton of great conversations on real estate investing and tax is taking place right now with real estate investors of all levels to join visit facebook.com/group/tech smart investors or simply search tech smart real estate investors on Facebook to join today. We’ll see you there. But for right now we’re going to dive right into today’s episode. Hey, Mark, thanks so much, Tim. Time to come on the show today. Would you be able to give our listeners a little information on your background and how you got involved with real estate?

Mark McMahon 1:38
Yeah, absolutely. I was never involved in real estate before probably 2009 ish around there. When I started working for the banks doing rose, so I really it was one of those things I just stumbled into. I didn’t like have this passion for real estate. It wasn’t like oh my god, I want to be a real estate guy. I was a contractor that lost everything in the recession, you know, including my cars, and they hadn’t taken so long to repossess a house, I would have lost that too. But I still have it today, thank goodness. And I couldn’t find work. You know, when the recession hit, we lost all of our contracts. People didn’t want room additions, they didn’t want landscaping, any of that stuff. So after struggling and bouncing around the bottom for a while we kind of got a I think going with the banks where we go in and repo houses, change the locks, do the repairs. And it’s called Property Preservation. And I noticed that there was a lot of agents driven around an awful nice cars. And it turns out, I got to know a few of them. And they were actually buying some of the houses. And of course I never I never really entertained that thought. Just sometimes you really don’t think there’s any way out. And and I the thought of buying real estate was just ridiculous to me at that time. But real estate and of itself seemed kind of interesting. So I talked to a few people, someone turned me on to a an investment club, I was lucky enough to sit down next to a guy and this was I mean, it’s it’s a long story. I’m really trying to abbreviate it. My wife had kind of gone back to Japan with our youngest son to get away from the crap going on. My wife’s Japanese, her parents are there. And I was kind of left alone broke not knowing what to do. And I went to this investment club meeting sat down next to a guy that was flipping mobile homes. And a light bulb went off in my head for some strange reason. And I went out and bought a mobile home. Like three or four days later, I hit up all the mobile home parks and somebody stupidly sold me one because they thought I really knew what I was doing. And I bought it for $100. And that was the start of our, you know, our investment career as a wow.

Brandon Hall 3:39
Wow, that’s incredible. $100 I can’t even imagine, I don’t even know if you can buy a mailbox for $100 anymore, but

Mark McMahon 3:46
it really truly, truly wasn’t worth more than $100 at the dollar. Yeah, I have skills.

Brandon Hall 3:53
Okay, so. So at the beginning, before we started recording, you kind of said that you went through this bankruptcy and you said that it’s not as bad as it seems. Can you tell us a little bit about what you mean by that? Because bankruptcy to me, it seems extremely stressful, probably shameful. Probably emotional, but like, how do you how’d you get through it? And what do you mean when you say it’s not as bad as as it seems? Okay, that

Mark McMahon 4:21
the bankruptcy itself is as bad as it seems. So it is it truly it truly is because, you know, pretty much put your life on hold for 10 years. I know there’s gonna be people that have comments on that. It’s like, No, you can do this and do that you can fix your guys seriously. You can’t get a loan. So we had to invest in real estate for 10 years without any bank financing. And that was tricky. It’s still tricky today. 12 years later, but the thing I meant by that was, it wasn’t so bad because even though it was the lowest point of my life, I fondly look back at that now not fondly. Hmm. Let me find a better word. I look back I think to myself, you know, if I hadn’t gone through that I wouldn’t be where I’m at today, I’d still be where I was before the recession hit, which was living a comfortable lifestyle in debt up to my eyeballs. But we were happy. I mean, we were happy. But I’m 58. And there’s no way in hell without a pension or retirement fund that you can live happily, you know, at my age, without having something put away. I’m so I was naive. And if it hadn’t happened, I wouldn’t have done what I did. I’d still be doing the same thing, probably, I’m assuming.

Thomas Castelli 5:38
Makes a lot of sense. To me since Yeah, I get a lot of sense. Because I feel the same way sometimes about certain things that happen in my life that get you had to go through that challenge to get to a place that you know, when you look back at it, you’re happy went through because you’re in a better place, and maybe you you wouldn’t have been in it. Had you not that makes sense. So yeah,

Mark McMahon 5:56
yeah, yeah. And only the people that have gone through it and got out of it can understand it. It’s the old adage, you know, you eventually if you’re digging a hole, you’re just digging along, and you’re getting worse off and worse off and worse off, eventually, you got to throw the shovel out, right, you got to stop digging. And that’s exactly what happened to me. I had done such a deep hole and had lost so much and almost lost my wife, and everything that was near and dear to me. And I finally just said that was that just the catalyst was that one weird little thing going to that investment club, it was called the investment club for women. Right? So I mean, I shouldn’t have even been there in the first place. But I got invited, went sat down next to that guy, and it just, I don’t want to say he changed my life, because that’s too simple. But it was a series of things and just a series of failures over like a two year period that changed it. And that was just the tipping point. It was like, either I do this, or, you know, who knows what I would have done? I don’t even know, probably don’t even want to talk about that part. But

Brandon Hall 6:58
so what are you doing differently now? You know, going through this bankruptcy experience? What are you doing differently these days to ensure that you don’t have to go through that again?

Mark McMahon 7:11
Good question. That’s a really good question. Because I see so much of what I’m going to talk about happening right now. And and I do want to talk about that. And I know you guys have your agenda. But I would love to talk about that a little bit. Because it’s a public service. Please do so I live within my means. I live within my means I’m the white t shirt, blue jean guy. I mean, if you look at all my stuff, that’s what I am. And that’s what I want to be known as I drive a pickup truck I live in I live in a nice house, it’s expensive as hell, but just because it’s gone up in value, it’s not because I paid that much for I’ve stayed relatively the same over the past 12 years, I’ve not changed my lifestyle a lot, a little, you know, I go to a nicer restaurants and take better trips and own a vacation home in Hawaii. And you know, I mean, I’ve got some stuff that I didn’t have before. But that principle of living within my means are well below them is something that is probably the most important lesson that I learned. And I don’t ever want to go back to being massively in debt, and just on the edge of broke.

Brandon Hall 8:14
Now, what is massively in debt? Because I think about this sometimes, right? If I go buy a million dollar apartment complex that has a pretty good debt coverage ratio, from a cash flow perspective, and I put 20% down. So I take an 100k loan, am I putting myself massively in debt?

Mark McMahon 8:35
Um, that would all depend on how realistic you were with your numbers. There’s seven ways to Sunday to run numbers on an apartment complex. And I do it a certain way. And it’s really conservative. So that just depends on how, you know, I find myself listening to people fooling themselves right now there go, I got another one. And it’s like, oh, Lord, tell me about it. And it’s Oh, yeah, yeah, I got it for this, I’m gonna burn it. And I’m gonna take money out and buy another one. And it’s like, oh, boy, you know? I guess it’s, it’s not having stupid debt, right, which is credit cards and cars and things like that. And I have car debt. I have car debt only because I got it low enough that I can invest that money in something else, because I invest. But if you’re not investing, and you’re getting that car loan, because you think, Oh, well, you know, I’m only paying 3% on the car loan, I can get 7% in the stock market. But how many people really invest? I mean, they’re not they say that, but they don’t do anything about it. So they’re not really doing anything. So I play that game a little bit with myself, but for the most part, we carry no debt except for real estate debt. Low Level debt or leverage on real estate is not its debt, but it’s certainly good debt, not bad debt. Right. So something that throws off cash flow, it’s appreciating. There’s tax advantages to it, which of course you guys are experts at not me. That’s great. That’s awesome data, but don’t be stupid about it and do what a lot of D A lot of people are doing right now where they’re, they’re pushing their numbers to make them work and they’re bragging about how much they own. They’re looking at their door count more than they’re looking at their debt ratios. And that’s scary, right? I mean, we see a lot of that right now.

Brandon Hall 10:16
Yeah, that’s actually a really interesting, interesting takeaway, because you do see that a lot. We’re, we’re big on Facebook, we’ve got this Facebook group called Tax smart real estate investors, if you’re listening, you should go join it. We’ve got about 2300 people on it at this point, which is really cool. But there are a bunch of those Facebook groups out there that I mean, there, there’s a couple dedicated certain strategies, and you see him, that’s all they push. It’s just like, how many units how many doors. But I like you, I want to see you show me your p&l, I want to know what your what your numbers actually look like, at the end of the day, after 12 months, or 24 month run. That’s what I’m curious about. Because I wanted the same thing about the whole the bur strategy. And now this is me, I’ve deployed at one time. So I’m by no means an expert at this. And I’m probably very ignorant and naive when it comes to the birth strategy. Specifically,

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Mark McMahon 11:07
I doubt I doubt that I

Brandon Hall 11:09
Well, okay. I just don’t want anybody listening be like it successfully run the burn strategy you don’t know you’re talking to. And I don’t I don’t know what I’m talking about with the birth strategy, cuz I’ve only done it once. But I do wonder about that, you know, it’s the Okay, I’m going to buy I’m going to rehab, I’m going to cash out of this new appraised value, which is a great strategy to create cash to continue buying real estate. But, you know, NCAA always in the back of my mind has been that debt load, though. It’s just the Yeah,

Mark McMahon 11:37
I think what happens is it almost becomes competitive. And you know, a lot of my contemporaries talk about the bur method. And I always tell people, you know, I don’t know if you remember Rick from real estate old school, he is a very close friend of mine, he passed away last year, and we did a show we do a show on Wednesday nights at five on my Instagram, and and we did it for a long time anyway, he always said, I’ve been doing the burr method forever. And it’s like, yeah, it’s it’s just a twist on an old thing. You buy something, you fix it, you rent it out. And then you refinance. It, it’s no, it’s people use that term. Like, it’s a magic thing. But it’s fine. You know, I’m okay with that. But I think what happens is a lot of people take out as much as they can, so they can go do it again. And I have a thing that I use called the 40% rule. And you guys may or may not agree with it. But that’s okay, it works for me for 12 years, I’m going to buy a rental property, it has to cash flow, after taking 40% of the rent for expenses, not including debt. So I’ve got my debt plus 242. So if it’s $1,000, I’m taking $400 Off the top for capex management, utilities, property taxes, blah, blah, blah, blah, blah. And then I’m taking the debt off of it. So I mean, you can see you’re not left with a lot if you buy something today. So not a lot of properties are going to hit those numbers. So therefore they don’t work game over. And it makes it so simple. When you’re looking at a rental property just to have those numbers. You can do it in two minutes, you can analyze a property and go okay, do I need to do a deeper dive on this? And if it doesn’t, if it doesn’t hit those numbers, then screw it, you walk away, just walk away.

Brandon Hall 13:24
I’m just calculating one of my recent rental purchases, and it does meet your rule. So I feel good to sell this thing.

Mark McMahon 13:35
Well, I’m not advising that necessarily. But it’s a good barometer, right. So it’s a good barometer. And I don’t live off my rental income by any stretch of the imagination. I do not. I live off of wholesaling, I live off the flipping. I don’t watch my rental income for the most part. I’d rather rather use that to pay down debt or let it stack up or whatever. I don’t need to touch it right now. So this idea, you know, it’s funny, I think you did an article on bigger pockets a year and a half ago or so. I think you were talking about the bur method or something I honestly I actually was researching you guys this morning a little bit. And I think it was something you wrote about how people think that real estate is this get quick, rich thing get rich, quick thing. And it’s not it takes a long time to do it. And there was a lot of I can’t say any bad words here. I’m I’m very foul mouth, but I’ll just keep it I’ll keep it clean. There was a lot of people that gave a lot of pushback on that. They didn’t want to hear it all my money on real estate. Yes. Very few people I know that make a lot of I make a lot of my rentals. I do but I don’t live on it. And I do it because I’ve been around for 12 years. So anyway, yeah, there’s just so few people that really become super successful in real estate and that’s sad, but it’s True. And people tend to glom on to him. I mean, you look on Instagram, and there’s so many guys that look like they’re killing it. And everybody thinks like, Oh, I’m behind, I gotta get on board, I got to do this birthing and buy as many as I can. And really, there’s very few people that are successful in real estate. There’s some people that do well at it, but super successful, you know, 100 units. Plus, it’s really rare. It’s really rare. But really, quite frankly, you only need 20 To do what you want to do for most people.

Brandon Hall 15:29
Yeah, that article that I wrote, it was back. I wrote it back in 2017. But they, they BiggerPockets keeps re publishing it. And so like, moves the date up. And I guess I did it again recently, but the article is, investing in rentals won’t give you or won’t make you massive wealth or something. Yeah, yeah. Well, yeah. But the whole the whole premise of the article was that investing in rentals is a great way to build wealth and preserve wealth. But if you want to get like Grant Cardone level wealth, I mean, how to Grant Cardone get to where he’s at, it wasn’t investing in real estate, it was sales, it was running a business. And that was my point. Yeah. And you know, what’s been interesting about that article, though, so if you looked at it yesterday, cuz I know cuz I had somebody hit me up on LinkedIn yesterday. And I was like, man, you’re causing quite a stir on bigger pockets, as I really haven’t written for them in years. Like they’d rescinded out in their newsletter. And I’m looking at the comments and I’m seeing all the pushback people like this guy does know, he’s talking about yada, yada, yada, and all that stuff. But what’s interesting is that they don’t have they must have reset their comments because they don’t have the the historic comments. Because over the years, as that article gets republished, and sent out to the BiggerPockets, newsletter, and community or via the newsletter and sent out to their community, the tone has changed. It’s been really interesting to watch. And so I told him, I was I was like, yeah, just go read the historical comments. It’s like, there are none. And I looked, and I was like, oh, there are none. The cars from back in 2017. We’re all like, yeah, 100% Agree, like rentals are great, but you got to have a high paying job, or you’ve got to be running the business in order to build really significant wealth that you did roll into rental real estate. And over time, as the market has heated up, and as these like internet gurus have just like, popped up everywhere. It’s turned into this, like you don’t know what you’re talking about rentals are amazing. But guys, like we have 700 Real Estate clients, they all have rental property, I can assure you, there’s there’s, I think one out of the 700 that has built an incredible amount of wealth. With rental real estate, we have a lot of clients that have built incredible amount of wealth with real estate, but not with rental real estate, they invest in rental real estate, but that’s not the primary in generating tool, to to build wealth to invest in real estate. So I don’t know if I could publish the data. If I went to all of our clients and ask them for their permission to publish all of their income information, which they won’t give me, I could prove this out to you. So what I’m saying, what I’m trying to say here is that you could you can build massive wealth with rental real estate. But like you said, Mark, I just, I think it’s really difficult to do, it just requires too much capital to really build it out. Whereas if you spent the same amount of time trying to scale a business income stream, imagine trying to pour your heart and soul into scaling a wholesaling business or a real estate agent business over the span of 1015 20 years, you’re going to create an income stream, if you’re good at it, you’re going to create an income stream of half a million dollars. And that is how you then roll into the rental real estate and build that massive wealth.

Mark McMahon 18:35
Well, I mean, we’ve done it, we’ve done it, I totally agree with you. We were we stumbled across private money in probably 2010. Accidentally, and we’ve been able to cultivate that side of our business a lot. One of the girls that works for us, she’s full time, money in money out, that’s what she does. For her job she has she’s the investor relations person. And that has been obviously a game changer. I talk about it a lot. It’s ever elusive. I get whenever I talk about it, you know, people say hey, can you refer me to some of your private lenders? It’s like, well, no, it doesn’t work that way. The private for a reason because we worked for him and but I understand that if you don’t understand the concept, I get it. I’m not laughing at those people. I just it’s like, okay, I have to explain it. So there is that. I mean, there are ways there are so many ways that you can make money in real estate without money. And, you know, a lot of folks think that you have to have money up front you have to have a little bit but not a lot. I mean, if you did I wouldn’t have gotten started because I didn’t have any I had $100 and that was what I started with. And then I got a credit card. I don’t know why. I had lost all my credit cards. And I got a credit card in the mail for like 20 I don’t believe in divine intervention. I don’t believe in luck. I don’t believe In any of that, it just happened for 2500 bucks. And I use that and a little bit more money from my poor mother to flip that mobile home. But then after that we learned about private money. And, you know, within two years, it took two years, but within two years, we were making money flipping houses with other people’s money $0 out of our pocket. And I know a lot of people cringe when people say that, I am not saying that that is easily repeatable. I’m not saying that anybody can do it, because they can’t, you have to be able to get out there and talk to people and have the guts to set it. You have to have the guts to be able to make the ask without asking. It’s like, you know, how do you say you’re rich without saying you’re rich? You know, it’s you, there’s a certain way to do it. And you get good at it over time. But for the most part, yes, you have to have a job, you have to be able to get money to buy your first house. And then eventually, you might be able to figure out how to leverage and do things like that. But it takes time. It does take time. Long answer.

Thomas Castelli 21:03
So okay, it kind of sounds like you took that mobile home park, you leveraged it, you leverage that experience to start flipping houses on a more full time basis that generate the income for you to start investing in rental property. So what if we fast forward to today? What is your primary activity in 2021?

Mark McMahon 21:22
We’re doing I mean, we’re not prolific flippers. But where we live, we make good money flipping in Southern California. So we do about one a month. Sometimes, sometimes we’ll have two or three going at one time for at one time. We wholesale quite a bit. That’s been, we were late to the party on that. I always thought it was a dirty business. And now I realize it’s a viable business that a lot of sellers need, they don’t have any other way out of their house, a lot of the people that we buy houses from have been procrastinating for so long, if we hadn’t come along, the House would have fallen down and they would have been left with nothing or, you know, it’s not a noble cause by any stretch. But it certainly is something we just serve a purpose. And now that I see that we’re embracing it. So we do a few of those a month. And probably we’re bumping up that game, we’re spending a lot of time and effort cultivating new people, we have a bootcamp that we do, that teaches people how to find houses. And that’s very helpful to build our business. And it’s helpful to teach people how to start their own business. We do some education. And that’s via the bootcamp. Basically, what we do is we don’t teach people how to become rich off real estate, we teach people how to find houses, because I think the end all be all end all of real estate is finding properties. It seems like disposing of properties is the easy part. But finding them is the hard part, figuring out the contracts and everything else. So that was what we had after 12 years. That’s kind of what we boiled it down to So our business, I’ve got two guys full time that do well, actually, six guys full time that do all on market purchasing. And that is they buy houses on the MLS. And then we’ve got a group of right now 17 People that do cold calling door knocking and driving for dollars to find off market houses. And then we’ve got some other stuff we’re getting ready to start so we’re, I’m spread really thin, but I’m having fun.

Thomas Castelli 23:35
It’s interesting, you know, kind of shifting gears just a tad, you know, in the California market, we have a lot of clients who are actually based out of California for you know, for whatever reason, there’s a number of reasons but they often say that it’s tough to find deals in California and you often see them investing out of state you know, maybe in Nevada, Texas, or just you know anywhere Florida you know, wherever so I guess how do you view the California market? Is it tough to be in, in the real estate doing wholesaling, flipping, etc. In California because that prices are so high.

Mark McMahon 24:07
Everything’s hard, man. Everything’s hard. I don’t care where your life is hard work is hard. Business is hard. I know you’re not asking that I’m not being sarcastic. But everything is so flippin hard. I’m so busy doing so good without cussing today, I’m really doing well. It’s all what’s inside your head and how hard you want to work and and I’m gonna do some some cliche stuff here. The problem with most people is they see something and they go, Wow, I can do that. And it doesn’t happen in a week and they give up. You know, it takes my guys an average of four months to get their first deal. Four months and that’s working 30 hours plus a week. So that’s why people in California aren’t finding deals and I would be happy to talk to anybody that says they can’t find a deal because I have this kind of standing argument with a lot of people that’s impossible. I’ve been looking making offers I know, but you’re just not doing it right. And you’re not working hard enough. It’s the same way everywhere, though deals are really hard to come by everywhere right now. Yeah, you can cash flow a little better out of state. And and I do look out of state. You know, I don’t know why I did it. But I started investing in California and Hawaii, and probably the two toughest states to cash flow in. And, you know, we do okay, if I invested in Oklahoma, if I invested the same amount of money in Oklahoma, my cash flow would be off the charts right now, I could easily retire. So, California is a tough market for owning rentals if you’re buying them right now. Right. But if you’re just looking for properties to flip, if you’re looking for properties to wholesale, to other flippers, there’s a lot of people that have a lot of money that are just looking to park their money in property right now. You know, look at open door, look at Zillow, they’re buying houses add value, right, they’re buying houses at 100% of value right now, sometimes a little bit more, because they want to build up their war chest of single family rentals. So there’s no excuse for not making it anywhere other than the fact that you’re not working hard enough. And you’re not applying yourself to the core principles of getting real estate, which is pick up the damn phone and dial it. And do it again and do it again and do it again and do it again and do it again. And then get up in the morning. Start again. That’s it, it’s as easy as that recipe for success is pick up the damn phone.

Brandon Hall 26:27
You mentioned open door and they they’re buying properties in Raleigh, North Carolina, which is where I live, but they they buy like a single family home, they come in and they clean it really nice cleaning. And they put it back on the market for like a $12,000 increase.

Mark McMahon 26:44
Well see open door has a different concept. You know, you got your black rocks and some of these other mills that are buying houses to hold on to open door. They make a very, very small profit margin, but they’re making money on escrow. They’re making a $12,000 kick on the purchase. They’re also charging 5% when they buy your house. So it’s incremental income, and they’re buying a lot of them. So they’ve got a lot of institutional money, which we all know, isn’t real money, right? institutional money. You guys know more about this than I do. But I mean, they’ve got $1 They can loan five. So it’s funny money and they know how to play the game they made. They made friends with the right people. I’m not jealous of them. I’m just it’s it’s astounding. I love watching guys do stuff like that, because it’s like, kind of cool, right?

Thomas Castelli 27:31
Yeah, no, it’s it’s definitely interesting. All the different things that you see going on all the different strategies there are out there. Yeah, I do. Since we do we are talking about you know, how tough it is to find deals in this particular market, you know, having gone through, say, you know, the recession of, you know, back in, you know, the late 2000s. And now, you know, many people think we’re probably, you know, before COVID, before COVID-19, dalt, were pretty much towards the peak of this market. And COVID kind of threw things for loop lower interest rates and people not spending their money. Now, also, you had the housing market go up in many places, significantly over the last, you know, year and a half or so, where do you think we stand today in terms of the overall market? You know, I guess on a more macro level, it’s, you know, I know it varies from from nation. Oh, yeah.

Mark McMahon 28:18
We can go macro micros too hard. As I don’t know what’s gonna happen everywhere. I don’t know, man. My stock answer is I don’t have a crystal ball any more than anybody else does. But am I being a little more cautious right now? Sure. I mean, we’re not doing full blown rehabs, we’re doing rehabs. We’re doing hotel, whatever, whatever catchphrase you want to use? Seems like the prudent thing to do right now. It seems like the smart thing to do. But do I think we’re gonna crash hard? It depends. Here’s what would be the catalyst for that. Obviously, interest rates go up and a lot of houses hit the market. So what does that really do? Statistics I don’t have at my elbow right now. But the rate of homeownership right now, people that own their houses outright people that have more than, you know, 30 or 40%. Equity is pretty high. And I don’t remember the numbers. You guys might know him offhand. But it’s really, really high 60 70% or some crazy number like that. So do I think prices are going to drop? Yeah, I think they’re going to level off and maybe drop but do I think it’s going to put a lot of people in trouble not as much as last time for sure. And I think whatever happens is going to be much quieter. I think the banks are a little bit smarter this time. They’ll parse them out the guys like me, they’ll say Hey Mark, you know, we know you’ve got you know, some buying power. Probably not me, I’m not that guy. But there’s guys out there that have a lot more buying power than me. And they’ll go hey, look, do you want to take on this? You know, house are these houses and they’ll get swallowed up? They will get swallowed up? And I think a lot of the hedge funds that are cash heavy right now are going to continue to swallow up houses. I see this weird weird push towards A lot of single family rentals right now, you know what’s been going on for a few years ever since the recession. And it’s it’s white hot, right? Right now people are buying them up like crazy. Is that enough to change the market, not unless they put them all back on the market, but I don’t think they’re going to, I really don’t. So I see a correction in the future. I mean, it could happen tomorrow could happen in two years. But I don’t see prices going the way they’re going for much longer just because it’s not sustainable, even though everybody says it is. And I also think that the housing shortage may be a little bit blown out of proportion. The funny thing is, is when we when we hit 2007, we had maximum amount of houses built the United States, there was full tracks of houses that couldn’t be sold at that time, we had built so many houses, if you look at a graph, we built so many houses we were we were so far above our average for house building, and then it plummeted down in 2008 2009 2010 2011 2012. And it’s made this really shaky climb back up, but I don’t think we’re short of houses, as everybody says we are. I just think people say stuff to keep things going. So my advice to everybody is, don’t take my word for it, really go online and do some research. But don’t go on YouTube, and don’t go on Instagram to find your information. Find people that are talking about this stuff that really know about it, don’t I mean, don’t listen to a guy like me, right? I mean, I’m nobody, I’m no expert. I mean, I am but in my mind, find out people that really know these numbers, these guys that know crunch numbers that know this stuff, and find out what they’re saying, look at their graphs, look at their charts, make your own conclusions. It’s like when people vote for somebody because they like dogs, it’s the same thing. You know, you’re you’re seeing somebody online is like, I really like his opinion, you like his opinion, because it fits what you want it to fit. So be careful with that be really, really careful.

Thomas Castelli 32:03
That’s great advice. You don’t have to go and you know, find the data, find good, reliable sources, economist and publications that you can trust, and then you have to make your own decision. Because to your point, everybody’s gonna have their own opinion, they’re gonna look at their data, interpret it their own way. And just because they’re interpreting it, the way that favors your position doesn’t mean that it’s right, it just what you want to hear it couldn’t be wrong. And now you’re making your decisions based off information because you don’t want you may not want to know,

Mark McMahon 32:30
I mean, it’s like looking at your, it’s like, Well, okay, guys, this is a great example, I sometimes don’t want to look at my books. I really don’t. Like I don’t think I want to look at January, no, I think I’ll wait till February, when those checks come in January, it’s gonna make me feel bad. And I think people do the same thing. They don’t want to see the truth, because it’s not convenient, doesn’t fit their narrative. And the funny thing is, if you look at, like, I’m a real estate agent, too. And we make a little bit of money every year listing our flips, and listing some houses for other people. If you talk to my real estate group of friends, things are going great, there’s no chance in hell, it’s gonna slow down because we got a shortage of houses. There’s all these charts and graphs that prove that prices are going to keep going up that the market can continue, and everything else. And then you look at the doomsday guys, and everything’s pointing down, right. So everybody’s got an agenda, and it’s whatever clickbait decided to click on, you’re gonna get. So that’s why you have to go to something else, you have to go to a different source. I mean, I, that’s the scary thing. Scan for

Brandon Hall 33:31
me is bias. It’s exactly what it is confirmation bias. It’s confirmation bias. I like that I’m right. Yeah, yeah, you could see it actually, in your own organization, you know, you you you build a firm like we’ve built and you’ve got to teach your employees how to not have confirmation bias, because they everybody has confirmation bias. Everybody wants to be right. That’s really the problem. At the end of the day, everybody wants to be right. And so think about the power of that if you’ve told somebody to somebody, something, you are going to be way more behind that something, whatever that opinion was, than if you hadn’t told anybody at all. And so what happens is people just start, they start going down a path, they start saying it and they start believing it. And then they only that they look for information that supports it. That’s why you see polarizing politics these days, too. Because social media, I don’t know if you’ve watched, what is it? What is that Netflix, the social? Yeah, dilemma, the social dilemma. Yeah. They will literally feed you what you want to see to further your confirmation bias, which creates the polarity that we see today. But we see it in tax too, because we have clients that are new clients that will call us up. And they’ll say I’m going to be a real estate professional. That’s where we see it all the time. I’m going to be real estate professionals like no you’re not you can’t be real estate professional. You don’t meet the test. I meet the test. I went to this course or this group and they took the test like well, we’re telling you, you don’t hear the rules, then you got to find them on it. And so you got to be really careful in And this goes, it goes way beyond investing, it goes to like, I don’t know, your family and different discussions that you have. And it just, you could see confirmation bias everywhere. So you just got to always try to, it’s hard to like pull back and really ask, Am I right? Here are my beliefs right here? What other information can I be looking at, to get a gut check?

Thomas Castelli 35:20
Cognitive Dissonance is what comes next, that confirmation bias. Once you find that information that is wrong, you start to feel very uncomfortable with it, you start to second guess you know, all your assumptions and everything. And I think people would rather live in a sea of very comfortable confirmation bias and face the cognitive dissonance that’s actually going to help you maybe get to the adolescence.

Mark McMahon 35:42
I totally agree. People don’t want to know the truth. They want to know their truth. And I mean, I think all of us that have half a brain have known that forever. It’s so here’s, here’s my opinion, I hope I’m wrong about a lot of things. But I have a funny feeling. I’m not right, you know, I’ve lived long enough to know that, you know, when when stuff goes up, like it’s been going up, it’s got to come down, right? That’s an uncomfortable truth for me. I hope I’m wrong about it coming down. But I suspect I’m right. And it’s not because I’m an expert. It’s just because I’ve been around for a while. And most people, like take our real estate salespeople, they want prices to keep going up. And rightly so, car dealerships want prices to keep going up. Construction, people want the price of their services to go up. Everybody wants their stuff to go up. Makes sense, right? They make more money. But it can’t just can’t do that it’s not sustainable. And so eventually, it has to come down. I hope I’m wrong, but I don’t think I am.

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Thomas Castelli 36:47
Hello, sooner or later, it will come down just a matter of when right?

Mark McMahon 36:52
Well, what do you guys? I mean, I know you’re interviewing me, but what do you guys think?

Thomas Castelli 36:56
My personal opinion on is when they do raise interest rates, when the Fed raises interest rates, which they’re going to have to eventually, yeah, just given what’s going on with the economy in the broad scale things, there’s going to be probably some form of downward pressure on prices, simply because, you know, mortgage rates are going to be higher, people will be able to buy less real estate, therefore, there’s gonna be less demand, probably, and they’re not gonna be able to buy as much so the price is gonna come down. Now. That’s my opinion, that’s when you just look at the interest rates, but also to take a look at supply to on any given market. And that’s very micro. So someone I was reading recently, there’s like two different cycles, you have to watch out for real estate. There’s the financial cycle, so the interest rates and all that. And then there’s the physical cycle, which is the actual demand for any given market. And you know, what is the supply coming on, because what happens is, when everything’s fully absorbed, the prices will start to go up, right, the rental rate, the rental price will start to go up, assuming there’s the demand. And you will start building, building, building, building, building all the supply that comes onto the market, and it pushes the rental prices down, because there’s a lot of supply. So basically, what I’m trying to say is, I think at the financial level, there’s going to be that increase in interest rates at some point over the next two or three years, if not sooner, and you know, that’s going to put downward pressure on prices, that what happens in each individual market is, you know, it’s too much to say at a macro level. But that’s my that’s my two cents.

Mark McMahon 38:21
Yeah, no, I, I would have to agree.

Brandon Hall 38:24
I don’t have a big opinion on this, just because I don’t know what to think there’s just so many different things that you can look at and draw conclusions based on the folks that I’ve spoken with about this. And it’s been numerous, it seems like the general consensus is that there will be a softening in prices, because like you said, they just can’t keep running up, eventually you’re going to tap out people’s ability to afford homes. And if that’s going to happen at some point, I don’t know when it’s going to be but jobs and income levels are not increasing as fast as housing prices are increasing. So at some point, there’s going to be some sort of flattening there. But for me personally, I just I just look for good deals. I don’t try I like to pay attention to local markets. And then in the just look for just keep a pulse on it look for good deals, and I just got just got 10 duplexes under contract with my parents were watching this. Yeah, but I’ve been sitting on cash for three years, three years about three years. Not participating because I kept going man, it’s gonna it’s running up. It’s running up so expensive, can’t find a good deal. I bought some good deals back in like 2015 and those spoiled me from a cash cash perspective. Yeah, yeah. It’s been sitting around doing nothing and, and Tom and I’ve had multiple conversations about this for him like I’m getting antsy, and I’ve been saying this for years, I’m getting antsy and this inflation’s crushing me and then all that stuff. But now it’s all of a sudden for me, literally, within a week has paid off because I had the capital to go and acquire this, this 10 Duplex deal. And, you know, to your point, you don’t actually need a ton of capital to get started in real estate. But I’m kind of, you know, I was like looking for those bigger deals, something bigger to take down and was just not having. I wasn’t looking very hard. I should also say that, yeah, I haven’t been looking very hard, but it doesn’t kind of fell in our laps. And because I was sitting on the cash and just really, really patient was able to go and tackle it.

Mark McMahon 40:35
Yeah, I like that, that that’s a smart way to buy. There’s the shotgun approach, which a lot of people are taking right now, which is buy everything and, you know, this one will cover that one. And, and you know, it’s going to appreciate and the rents are going to go up. And there’s, you know, going in like a surgeon, and being careful. And I think there’s somewhere in the middle is a good place to be. And, like I don’t know, anybody that’s become very wealthy without taking chances. I really don’t. But even what you just did is taking chances. Yes, still still a chance.

Brandon Hall 41:08
Yeah. And it’s in the interest of full disclosure, and you know, cuz I like your personality on on Instagram being real with people. I sent out an email, if you’re not on the tax smart newsletter. It’s a free newsletter we send out every Thursday, on the email that I sent out two weeks ago, I told people about this three unit property that I have in Hickory, North Carolina, and I bought the property for $91,000. Now it’s worth like, 260k. This, I bought it in 2015. And I’ve been blown away at this appreciation because Hickory, North Carolina is not a market that you would expect that level of appreciation. But when I sent out the email, I was like, Yeah, this is the only property I’m never gonna talk about, you know, because I’m gonna start my Instagram channel. Do all that stuff, not gonna talk about my failures. But I did buy a three and a property in Baltimore, Maryland, back with when my wife worked at Under Armour. And in we it was a three in the properties. We lived in one unit rented out the other two, we live rent free, like the other two units paid for everything. But when I sold that I sold that back in 2019. Yeah, 2019 I ended up losing $11,000. So this stuff is like, this stuff’s hard. It’s not it’s not easy. And Mark, you’re totally right. You got to you can take shotgun approach, you can be super precise, or you can kind of be somewhere in between. And, yeah, it’s like a big learning learning thing for me. Well, that’s also

Mark McMahon 42:31
it is, and you know, I’ve made money and lost money. I mean, I talk about, you know, I’ve probably lost roughly a million dollars since I started. Pretty much just money out of my pocket. And, of course, thankfully, I’ve made more than that. But that’s a big hit. But the fact that you went through that, you know, proves the point. And it doesn’t really matter. Real estate is a volume game. And if people don’t understand that, they probably shouldn’t get into it. Because you’re never going to have cash flow that’s consistent with three houses, it’s just not going to happen. And you can get some sense of consistency at about 20 doors, whether it’s houses, or houses and apartments, or just apartments. But that’s where it starts getting more consistent. I’ve only got 43. And that even has consistency issues at times. It’s like what seriously three air conditioners this week seriously? Or what we’ve gotten all the way through covered now three people are claiming COVID. At that now what? So there’s always going to be something and that’s why I don’t rely on my rental income. I will rely on my rental income when I win. And if I retire, and I will probably quadruple my portfolio. Not probably I will quadruple my portfolio. But I’m going to do it smart. I’m not gonna do it stupid.

Thomas Castelli 44:00
That makes a ton of sense. So, you know, this has been a fantastic conversation. I know this is another one of those interviews that’s been that went really well. And it’s been it’s really exciting. And we can’t wait to release it out there to everybody. But our listeners wanted to get, you know, get in touch with you or learn more about what you have going on what would be the best way for them to do that?

Mark McMahon 44:21
Yeah, absolutely. Best way is through Instagram. We are pretty prolific on there. And we do respond to every DM and we actually make comments we respond to every comment. So I’m at Mark McMahon real estate on Instagram, and I believe on Mark McMahon real estate on YouTube. And those are the two best ways to get a hold of me and you can see kind of what I’m about and if we’re a good fit, follow me and I’ll share what happens in my daily daily outings with real estate and we’ve got a crew here of very young people that work with us you As you’re young, but my crew is younger, they’re, they’re all under 25. And except for my wife and her assistant, they are all very young, very on fire. very savvy young people, and I’m very blessed to have them with me. I’m so lucky. Gosh, crazy. Crazy what’s happened since they’ve all come on? So,

Thomas Castelli 45:20
absolutely got a great team behind you. So we’re gonna go ahead and drop that into the show notes for everybody wants to follow Mark, I know I’m gonna add him to my Instagram, Taylor Bruckner, he one of our partners, he recommended it so like I said, we put this out there very cool.

Mark McMahon 45:32
Yeah, tell tell him I said thank you. I appreciate that. Yeah, that’s cool. Yeah, no, guys, this was great. I enjoy it. I wish we could have talked about taxes a little bit, but, you know, we’ll have to do that another time. Next time. Yes. Yes, for sure. Alright guys,

Brandon Hall 45:48
thanks for listening to today’s show. If you enjoyed the show, please find us on iTunes and leave us a review. You can also email us at contact at the real estate CPA comm with any feedback or topic suggestions. We are always taking on new clients and with the new tax laws in play. You really don’t want to navigate this alone. Let us help you save money on taxes with your accounting and CFO needs. To become a client navigate to our client page at the real estate CPA calm and fill out a webform with as much detail about your situation as possible. Thanks so much for listening. Have a great rest of your week.

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