Two Cars, No Brains | Ep.02 - Decision Making 101

Two Cars, No Brains | Ep.02 - Decision Making 101

The TCO Method ™ May 9, 2023 10:51 am

Andy McQuade brings us the story of Two Cars, No Brains in the first real episode of The TCO Method ™.

The first concepts of The TCO Method ™ are explained and applied in this episode and shows how to look at purchases through the window of the Total Cost of Ownership in order to reduce long-term expenses associated with owning an asset.

The goal – to help you Massively Increase Your Net Operating Income ™

Video & Transcript

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The TCO Method ™
Episode 02 
Two Cars, No Brains – Decision Making 101
Hosted by Andy McQuade

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Welcome to the TCO method, the only show focused on helping you massively increase your net operating income.

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I am Andy McQuade and I want to thank you for tuning in to this first episode of the TCO method.

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Today we’re going to talk a little bit about something I like to call two cars no brains.

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Yes, two cars no brains.

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It’s catchy. People are probably going to get ticked at me for talking about it this way, but it is what it is.

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Without further ado, let’s get right into it.

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The TCO method is something I created over the last four years.

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I guess I created it over two and a half years because it’s been a thing since the end of 2021.

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The TCO method takes a whole bunch of different business practices and crunches it into a format for real estate that helps owners, operators and investors make more money by doing things a little bit better in their real estate operations every single day.

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In case we didn’t talk about it on the last episode, the introductory episode, episode zero.

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Apologies for the loud motorcycle that just drove by my house while I’m filming this.

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In any event, the TCO method, TCO stands for Total Cost of Ownership.

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The plan is for disposition of the property or portfolio change depending on whether the plan is to keep it for 20 years or if you’re going to flip it and sell it in a year.

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It doesn’t matter if we’re talking about a single family home, duplex, quad, six up, ten up, makes no difference.

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The principles that apply to my bread and butter cookie cutter customer, which is commercial multifamily, right, hundred plus doors at a complex sweet spots 300 to 650 or more.

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But obviously there’s not a lot of 650 door apartment complexes out there using it yet, but the best success has always come off of those because it scales the best.

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In any event, this show is dedicated to discussing and teaching some of the stuff that goes into operating properties for income.

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But I don’t want to talk about tenants unless it’s talking about how to make more money from tenants being in the property or how to make more money by reducing the costs incurred by having tenants in your property.

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Or how to operate your property in a way that puts more money to the bottom line across over a dozen, maybe 15 different lines on your P&L.

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Right, net operating income includes everything except for your capital expenditures cash reserves and income taxes.

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Now, the problem is that for the last call it 14 years quantitative easing and near zero interest rates and all those other things have made real estate very profitable.

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The problem with that has been that that profitable real estate was being operated in a way that throughout operational best practices and standards that have been established for 40 or more years prior to that zero interest rate made it so bad business ideas and bad operational practices still made money.

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Free money is stupid. If you don’t agree that all that free money is the reason why we’re seeing bank collapses is the reason why we’re seeing investors being told that their distributions have been paused is the reason why we’re seeing capital calls on syndicated properties, whether it’s industrial multi-family, whatever.

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Free money and a lack of understanding of reality and bad risk management practices are why the industry is suffering the way it’s suffering now.

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Okay, you don’t have to like it. If you don’t agree with me send me an email. Tell me why you don’t agree with me. Give me facts.

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I said this on the last preview episode. I’m saying this now email me podcast at tco method dot com.

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I’ll either talk about it on the show or I’ll respond in an email.

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However, if you just gonna email me and tell me I’m stupid and then I’m wrong and then you need to back it up tell me why I’m stupid and wrong and if I think your argument is good, I’ll change my mind and I’ll talk about it on the show.

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If you don’t think that that’s you know if you’re not gonna bother to do that if you don’t think that that’s worth your time and don’t bother emailing me because if you’re just gonna call me ugly, I knew that already.

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The face made for radio which is why I’m doing this podcast.

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I just happened to be putting it up on YouTube to because I’m gonna have guests and stuff and I want to get in the habit and make sure recording is good so anyway.

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We’re gonna talk a little bit about politics occasionally on this show.

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If you’re just tuning in for the first time, thank you very much. I am Andy McQuade.

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I am the creator of the TCO method. I wrote a book on it which is an out yet.

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Three orders should be going live in the next few weeks.

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If you’re interested, go to and take a look.

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I teach some courses on the TCO method.

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I’ve been involved in the local Home Builder Association here in Rochester, New York. I am very involved with local real estate investors association here in Rochester, New York.

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And I have been involved in real estate and construction in various forms since 1997.

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I’ve been involved in the work of the TCO method for 20 plus years of that as a provider of goods and services and the last four years as a consultant providing services to large multi family operators that are looking to make more money improving their NLI.

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The TCO method massively increases your NLI and that operating income and that’s what the show is focused on.

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I want everyone in my audience, which is probably three people right now.

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But everyone in my audience, I want you to understand that the show is made specifically for real estate operators, investors and owners that are looking to do things a little bit differently to make some money.

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Right times your tough costs have gone through the roof for the last two years, interest rates are stupid. NLI is a big problem.

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Lots and lots of operators are being surprised right now by the fact their insurance has doubled in some cases.

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Lots of operators are being surprised by the fact that they have to now pay more in property taxes for that property that they just put a note on and registered with the county office.

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That’s double or triple what they paid for that property like hey guys surprise your property value goes up and you record a mortgage at the county.

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Your taxes are going to go up. I don’t know how else to explain it.

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It’s not a hard concept and yet we still manage to miss it.

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Stuff happens we get busy right lots and lots of operators out there majority of operators in real estate.

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Get very very involved in their business and they forget that they need to take a step back and work on their business.

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It’s like not being able to see the forest through the trees all these cliches that everybody says and blah blah blah.

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You can’t see the forest in the trees well no you probably can’t because you’re literally standing in front of a tree staring at it from three inches away.

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It’s not your fault I mean it is your fault but it’s easy to get sucked in to the day to day of your business and not actually realize that you’re so focused on the day to day that you’re not doing the thing is you need to do to hit your goals.

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Everybody wants to make money that’s always a goal. Yeah right you’re correct everybody wants to make money and yet.

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Over three dozen customers that I’ve worked with last four years that are specifically in real estate I’m not talking about.

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You know the big three consulting firms I’m not talking about the banks that I talk to I’m not talking about the investors that the banks call me and have me speak to.

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About certain products and states I’m not talking about any of the crazy weird you know projects I’ve done before I’m just talking about.

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In the day to day operations that I walk into that are specifically involved in real estate all of them want to make more money right.

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Every single one that I’ve done a project for is lighting money on fire because they don’t actually understand what everything costs them.

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And this is why this episode is called to cars no brains.

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And I don’t know that I’m going to tell everybody what my episodes are called beforehand but this one seemed to be a good hook so I’m going to talk about to cars no brains what is to cars no brains.

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To cars no brains is an adapted story from a client that I’ve done work for.

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Where they had a choice to make specifically a project manager doing a construction project but it was a direct employee right because sometimes we.

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See that some of these larger operators more experienced operators will bring an internal team into do a rehab on a house or an apartment or whatever because you get more you know you get more cost controls you get more right off in some cases but more importantly you can guarantee quality of work.

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You can make sure that you’ve got control on the job and supply chain you can make sure that things are done to the satisfaction of you know your operational standards etc etc so there’s a lot to go into deciding whether or not you’re going to operate a rehab or a turn or a green up or a cat backs project with your own crew and a lot of that is understanding what the skill sets of your crew is and some are better than others right priorities change.

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So the industry as a whole in case you’ve been asleep.

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As seen costs skyrocket so there’s a lot of pressure to get things done quickly.

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Number one because of the delays that have littered this this industry for the last three or four years thanks to the pandemic number two.

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Because the cost of labor has gone up so the faster you can turn a project the you know the more money you stand to make because you’re you’re going to have less downtime you’re going to be able to lease that unit get somebody in there and make more money so time is money money is money right utilities are money labor is money overhead is money it’s all money everything’s money.

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And it should be. And yet and yet I constantly see these businesses that just like money on fire because they’ve always done it that way and that’s always the answer.

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I like this because I’ve always done it this way or I like this because I found it on XYZ or I do things this way because it’s always work for us in the past.

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But then when you sit down with them and you you kind of open up the books and you look at what they’re doing and maybe some of the alternates that have come out in the last.

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5 or 10 or 15 years depending on how established this operator is.

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And you can show them on paper like legitimately what you’re doing is costing you.

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5 figures a year one item that you’re using in your properties.

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And there’s almost always pushback right there’s almost always I’ve been doing this forever and I know what I’m doing and I’m never wrong.

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Okay those people aren’t coachable and I won’t work with those people 9 times out of 10.

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Sometimes they just haven’t looked at it in the right light and you can usually figure that out when you sit down with them within the half hour to 45 minutes.

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There are some people who will religiously and I say religiously like I’ve never seen them not.

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Like religiously step over dollars to pick up pennies.

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It just is what it is you can’t fix those people.

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Okay and I don’t waste my time like trying to help them like if they want to change what they’re doing.

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They need to actually show that they’re going to do what I’m telling them to do.

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Because the job of a consultant is to go into a customer’s office and to leave them in a better position than before you walked in the door.

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Like when I complete a project I want to make sure that my client has the results that we talked about.

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It does not help me to go in and consult on something and have things stay the way they were.

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Like that’s not good for me. That’s not good for my name or my reputation. It’s not good for my customer because then they’ve paid me for something they didn’t get.

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Now have I had clients that have hired me to help them with things where the things we talked about didn’t happen? Yeah of course.

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It happens.

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But it also happens with an understanding of I’m one dude this is your show. I mean this is my show.

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This is the TCO method. This is my podcast. But this is your show as in this is your business operation.

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And I can tell you what you need to do.

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I can show you how to do it. I cannot force you to do it right.

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I also can’t force your employees to buy into it when you’re not looking.

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There’s a reason why I only talk to V-level C-level in owners.

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Because when I start talking about hey we’re going to do this thing called the TCO method.

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And we’re going to completely change how you think about how you run your operations on maintenance, capex, purchasing and procurement.

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If you even have a procurement which most don’t, eyes glaze over when you say procurement more on that later.

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But when you go into an office and you talk to what we call in sales gatekeeper.

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You say hey I’m here I want to talk to Bob and Bob I want to save you money.

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Well if that gatekeeper is a secretary their job is to keep you the heck out of the Bob’s office.

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If that gatekeeper you’re talking to is somebody whose job is going to be directly impacted by what you tell the boss.

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They’re going to do everything in their power to keep you away from that boss.

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And you might talk to somebody you might walk in the door and you might say something like hey.

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I’m here to save you money and I can do it in this and this and this and this and this and here’s what my older old customers have said.

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And here’s all the cool stuff I’ve done and this is where I’ve been and who I’ve worked with and la la la la la.

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If you walk into that boss office and you make it look like that dude that’s running their out there maintenance crew or that dude who runs their capex crew or that office manager looks like they’ve been asleep at the switch for the last five or 10 years.

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You’re never going to get to see that boss.

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That’s reality.

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There’s a lot of ego and construction. There’s also a lot of I’ve been doing it this way for forever and why should I change if it works.

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Like I get it.

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But in case you haven’t looked around times are tough right now.

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No one wants to fire their people because you can’t find people to replace them.

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No one wants to go out and get rid of a vendor that’s been with them for 25 years.

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The cost of making changes like that is astronomical when you actually look at it on paper. It’s stupid.

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How much money goes away.

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But if you’re operating a business to make money.

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To put food on your table and your employees table.

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Why wouldn’t you at least look.

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At a way to make five or six or more figures every single year.

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A TCO method is focused on making more money by increasing N.O.I.

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through better decision making without having to terminate employees.

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You don’t have to lay anybody off. You don’t have to fire anybody unless they’re a complete screw up who refuses to change.

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The goal of TCO method is not to increase N.O.I. through deferred maintenance.

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Or through cutting labor head count. Those are not the goals of the TCO method.

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You may be able to reduce head count potentially.

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But instead of reducing head count, why aren’t we doing what smarter businesses are doing outside the real estate industry.

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Where when we have unused hours when we were paying somebody to not be productive.

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Why aren’t we creating ways for them to be more productive.

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Why aren’t we taking people with downtime and putting them on things that can help make the company more money or address more issues.

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All of these things go into two cars, no brains.

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We’re going to go back and talk a little bit about this decision maker at this property management firm.

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Who had a choice and was offered two options.

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And we’re going to reframe this in the interests of privacy for my clients or potential clients in this case.

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Where they could have purchased vehicle one.

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Vehicle one is $20,000 as one year warranty.

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We’re making this up. Okay, it’s not really a car.

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If there was a car out there that came with a one year warranty from the factory, no one would buy it.

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But all things being equal, this is a story. Just run with it.

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Car 2 is $35,000.

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Car 1, 20, car 2, 35. They look the same.

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They take the same amount of gas.

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Car 2 gets way better gas mileage. Car 1 gets 20 miles to a gallon.

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Car 2 gets 35 miles to a gallon.

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Okay, car 1 is $20,000. Car 2 is $35,000.

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See the thing here? 20, 35, 23, or anyway.

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For those of you not watching on YouTube, I’m waving my hands around because that’s what I do when I talk.

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So it is what it is. Anyway, car 1, with the one year warranty that was 20 grand that gets 20 miles to a gallon,

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also has predictable maintenance that needs to be done to it.

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I’m not just talking oil changes, right? That’s part of the daily, whatever.

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But there are certain things that are known to fail on vehicle 1.

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Now, all things being equal, vehicle 1 and 2 look the same. Same brand, let’s say, same company.

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You’re going to buy it from the same dealer. Same relationship.

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Okay? So, level to playing field.

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More money.

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Better warranty. It’s the $35,000 vehicle 2.

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That one’s got a 5-year warranty. Okay?

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So you got a 1-year warranty, 5-year warranty.

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But we know that this vehicle, both of them, they’re going to require oil changes, they’re going to require gas,

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they’re going to require new tires, brakes, all the things that aren’t covered by warranty, right?

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Just operational stuff.

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We also know that anything that breaks is going to be on you after your 1 for the $20,000 car.

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The $35,000 car. That one, you’re not going to own the stuff that breaks unless you break it by getting in a car accident

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or hitting it with a sledgehammer, right? Or… or… if… you know, you neglect it in some way where they can say your warranty is void vehicle 2.

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So we know things are going to start failing because we do some research, right?

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Vehicle 1 is known to have, you know, bad wheel hubs. And they start going bad and I’m sorry for anybody who’s listening to this who’s not a car person.

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It just is what I do, sorry. And won’t all be car analogies, I promise. This is the only car analogy I have planned so far.

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Anyway, we know that car 1 is going to have a bad wheel hub. We know that car 2 is going to have a bad wheel hub.

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They bought it from some second rate factory in China. I don’t know what to tell you. In any case, they use the same wheel hub on both vehicles.

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And it’s a problem for vehicle 1 because it’s out of warranty in a year. So you’re going to pay the materials and the labor to correct that problem when it fails before your wheel falls off while you’re driving it on the highway.

00:24:55,000 –> 00:25:04,000
Vehicle 2, well we know it’s going to have the same problem but it’s going to be free. And we’re not going to have to pay the maintenance, the labor or the materials for that for up to five years.

00:25:04,000 –> 00:25:09,000
Cool. And we’ll just say that’s the only problem with it.

00:25:09,000 –> 00:25:19,000
We’re not going to get into the fact that vehicle 1 gets 20 miles to a gallon. Well, after about three years, I’m just going to go down.

00:25:19,000 –> 00:25:30,000
I think it’s going to go from 20 miles to a gallon to like 15 because there’s just stuff that wears out that needs to be replaced.

00:25:30,000 –> 00:25:38,000
And most of the time it’s not going to get replaced. So you’re just going to deal with the 15 miles to a gallon for vehicle 1.

00:25:38,000 –> 00:25:50,000
Vehicle 2? Vehicle 2 doesn’t have that problem for 15 years. Forget the warranty being five years. It just doesn’t happen to vehicle 2 for 15.

00:25:50,000 –> 00:26:05,000
So there’s that. Now, looking at this on paper, I’ve got a $20,000 vehicle. I’ve got a $35,000 vehicle. That’s 15 grain. That’s a lot of money.

00:26:05,000 –> 00:26:19,000
Right. And I’m going to drive the average mileage. I’m going to drive 12,000 miles a year. So I’ve got vehicle 1 at 20 miles to a gallon right now because we’re not two or three yet.

00:26:19,000 –> 00:26:30,000
And I got vehicle 2 that gets 35. And we’re going to do 12,000 miles for both. And I said, I’m not going to do math in the introductory episode or the preview episode. I said, I’m not going to do math and I’m not.

00:26:30,000 –> 00:26:39,000
So we’re just going to say vehicle 2 from a fueling standpoint costs a lot less to take care of.

00:26:39,000 –> 00:26:46,000
Pay that bill because it’s going to get a lot more miles per tank. So a lot fewer tanks to fill up than vehicle 1.

00:26:46,000 –> 00:26:51,000
Okay. How long you going to keep the vehicle for? That matters.

00:26:51,000 –> 00:26:54,000
Are you going to keep this vehicle for a year?

00:26:54,000 –> 00:27:00,000
Because maybe if you’re only going to keep the vehicle for a year, the $20,000 vehicle is better by.

00:27:00,000 –> 00:27:04,000
Well, why do you say that, Andy? That doesn’t sound right.

00:27:04,000 –> 00:27:14,000
Why would you want to pollute like that, Andy? I’m not talking about pollution. This is strictly numbers that can be proven out on paper involving the finances of operating.

00:27:14,000 –> 00:27:21,000
We’re not getting into secondary issues right now. That’s for another day.

00:27:21,000 –> 00:27:28,000
Vehicle 1 might only get 20 miles to a gallon, but I’m only going to keep it for a year.

00:27:28,000 –> 00:27:32,000
I’m not going to have to pay for that wheel hub that’s going to fail on year 2.

00:27:32,000 –> 00:27:48,000
Okay. I’m not going to have to really worry about spending an extra $15,000 to offset the cost of vehicle 2 on vehicle 1 because I’m going to get rid of it in a year.

00:27:48,000 –> 00:27:54,000
So, if I’m going to keep it for a year, it makes more sense to buy the $20,000 vehicle.

00:27:54,000 –> 00:27:57,000
And you just deal with the fuel until you unload that vehicle.

00:27:57,000 –> 00:28:00,000
But you’re only keeping it for the warranty period that’s gone.

00:28:00,000 –> 00:28:04,000
Now when you’re comparing vehicle 1 and vehicle 2,

00:28:04,000 –> 00:28:07,000
and you’re looking at the cost over 5 years, right?

00:28:07,000 –> 00:28:10,000
So let’s still assume we’re getting rid of it when the warranty runs out.

00:28:10,000 –> 00:28:14,000
We’re not going to keep it past warranty. We’re not going to drive the wheels off of it.

00:28:14,000 –> 00:28:22,000
Okay. I remember this is called two car’s no brains. We’ll get to the stupid shortly.

00:28:22,000 –> 00:28:29,000
Vehicle 2 has a 5-year warranty, right? Vehicle 1 has one year.

00:28:29,000 –> 00:28:31,000
We know we’re going to get a wheel hub every 2 years on vehicle 1.

00:28:31,000 –> 00:28:41,000
And we’re going to pretend that that’s the only issue other than a year 3 fuel usage goes up because you’re going to lose 5 MPG.

00:28:41,000 –> 00:28:50,000
Okay. So in year 1, costs are equal with the exception of the vehicle 2 having a higher car payment.

00:28:50,000 –> 00:28:56,000
Okay. And vehicle 1 is going to spend more in gas.

00:28:56,000 –> 00:28:59,000
So let’s call that a wash on year 1 and 2.

00:28:59,000 –> 00:29:09,000
And in year 2, vehicle 1, the $20,000 20 MPG failing wheel bearing as a wheel bearing fail.

00:29:09,000 –> 00:29:14,000
And it doesn’t fail while you’re driving on the road and you don’t kill anybody, there’s no insurance claim.

00:29:14,000 –> 00:29:18,000
You’re lucky. You get it fixed, call it a thousand bucks.

00:29:18,000 –> 00:29:26,000
Okay. Vehicle 2 has the same problem. 35,000, 35 MPG to a gallon.

00:29:26,000 –> 00:29:33,000
That repairs free. No labor, no materials. Got it.

00:29:33,000 –> 00:29:40,000
And then another year goes by and all of a sudden your gas mileage on vehicle 1 goes down to 15.

00:29:40,000 –> 00:29:45,000
Okay. Wheel bearing still got half its life left.

00:29:45,000 –> 00:29:48,000
And the vehicle still going strong at 35 MPG.

00:29:48,000 –> 00:29:52,000
What you’re spending on the 2 vehicles now has shifted, right?

00:29:52,000 –> 00:30:02,000
Your annual expense for your payment for the $20,000 car is now equivalent to what you’re spending on the 35,000.

00:30:02,000 –> 00:30:07,000
Your four, another wheel bearing, dang it.

00:30:07,000 –> 00:30:11,000
So your wheel bearing, now you’re too deep and guess what inflation.

00:30:11,000 –> 00:30:16,000
So now that wheel bearing costs you $1,200 bucks this year to repair.

00:30:16,000 –> 00:30:18,000
Dang, that stinks.

00:30:18,000 –> 00:30:20,000
All things are equal.

00:30:20,000 –> 00:30:24,000
It’s looking really bad for vehicle 1 right now.

00:30:24,000 –> 00:30:27,000
I think it was cheaper. It’s falling apart. I had to pay for those repairs, probably.

00:30:27,000 –> 00:30:29,000
Okay. Your five comes along.

00:30:29,000 –> 00:30:33,000
All repairs are still covered. Still getting 35 MPG.

00:30:33,000 –> 00:30:36,000
This thing’s a freaking gelopy over at vehicle 1, right?

00:30:36,000 –> 00:30:39,000
It’s just depreciated like crazy. It’s just it’s garbage.

00:30:39,000 –> 00:30:44,000
It’s, it’s yeah, I’m not going to name any brand names because I’ll get in trouble with somebody.

00:30:44,000 –> 00:30:48,000
So now you’ve got these two vehicles.

00:30:48,000 –> 00:30:51,000
And when you go to total everything up, right?

00:30:51,000 –> 00:30:55,000
Your pain, I’m off. It’s the end of your five. Both loans are gone.

00:30:55,000 –> 00:31:02,000
If you’re buying a vehicle with a 72 month loan or longer, you’re doing it wrong.

00:31:02,000 –> 00:31:11,000
Okay. If you’re loan outlast your warranty, you’re doing it wrong. The end.

00:31:11,000 –> 00:31:24,000
All right. Anyway, you’ve now spent more money overall on vehicle 1 than 2 at the end of your five.

00:31:24,000 –> 00:31:28,000
Interest rates were the same.

00:31:28,000 –> 00:31:32,000
Payments were obviously different because they were different dollar amounts.

00:31:32,000 –> 00:31:38,000
But the maintenance in the day to day operations killed you on vehicle 1.

00:31:38,000 –> 00:31:40,000
Now we’re going to apply this into property management.

00:31:40,000 –> 00:31:45,000
We’re going to apply this into a product that was purchased for a property.

00:31:45,000 –> 00:31:53,000
And then we’re going to look at it at scale across say 700 doors.

00:31:53,000 –> 00:32:00,000

00:32:00,000 –> 00:32:10,000
So now you’re going to take a difference in cost annually.

00:32:10,000 –> 00:32:14,000
And you’re going to multiply it out by the number of units.

00:32:14,000 –> 00:32:19,000
And you’re going to multiply it out by the number of years you plan to own that property.

00:32:19,000 –> 00:32:28,000
So all things being equal, if you’re holding that property for one year, that $20,000 car looks really good.

00:32:28,000 –> 00:32:33,000
Because you’re not spending anything extra above and beyond what the other one would have except for a little bit of fuel.

00:32:33,000 –> 00:32:41,000
But the fuel is offset by, you know, the extra gas mileage for the other vehicle that the other vehicle gets.

00:32:41,000 –> 00:32:48,000
So you’re getting better mileage, but you’re not going to make $15,000 back in better mileage in a year.

00:32:48,000 –> 00:32:55,000
It’s just not going to happen unless your gas is $42 a gallon, which I’m sure is where we’re heading at some point in the America in the future.

00:32:55,000 –> 00:33:02,000
But right now we’re dealing in reality, not in the maybe’s.

00:33:02,000 –> 00:33:07,000
So for a one year hold, vehicle is really nice.

00:33:07,000 –> 00:33:12,000
Especially at scale, you saved yourself a ton of money.

00:33:12,000 –> 00:33:20,000
Cheaper is better, right? Look at my NOI. I had to spend the money anyway. I maximized my profit.

00:33:20,000 –> 00:33:30,000
Because this particular feature, you know, until we look at a long term play over two or three years of NOI, we don’t know what that’s really going to look like.

00:33:30,000 –> 00:33:40,000
We’re just hoping to hit that 50% so that we can say this is a good operation. We’re at 95% occupancy and we’re good to go.

00:33:40,000 –> 00:33:44,000
This particular thing doesn’t add to the value of the rent. It just does not.

00:33:44,000 –> 00:33:49,000
You cannot raise rent because you installed this car into your property.

00:33:49,000 –> 00:34:01,000
So now let’s look at it from an investor standpoint at a five year hold.

00:34:01,000 –> 00:34:04,000
And then we’re going to go to 15.

00:34:04,000 –> 00:34:11,000
Five years down the road, this particular thing at scale is now costing you more money in a roading your NOI.

00:34:11,000 –> 00:34:20,000
Because you’re using more utility, more gas, you’re spending more money on repairs more regularly.

00:34:20,000 –> 00:34:29,000
And you know for a fact that you’re going to continue to spend more for the foreseeable future and you’re watching it a road your NOI.

00:34:29,000 –> 00:34:33,000
So opportunity cost is a real thing even in real estate.

00:34:33,000 –> 00:34:53,000
So you have to look at what is what is my decision from five years ago costing me today as opposed to the NOI I could have added to this property which doesn’t just reduce costs which increases my take home what I keep.

00:34:53,000 –> 00:35:03,000
But it also takes and affects what you didn’t get to keep.

00:35:03,000 –> 00:35:08,000
You have to weigh opportunity cost in a long term play.

00:35:08,000 –> 00:35:10,000
You have to.

00:35:10,000 –> 00:35:20,000
And in this particular case, you’re talking about five figures a year.

00:35:20,000 –> 00:35:40,000
That’s like raising rents by six figures. That’s like adding almost n times the value in NOI or in asset costs from that extra NOI that you’ve now lost.

00:35:40,000 –> 00:35:49,000
Because you chose a product that was okay for a year is now disintegrating on your five or costing you more money on your five.

00:35:49,000 –> 00:35:54,000
And when you look at it over 15 years.

00:35:54,000 –> 00:35:58,000
You go well, how did that really look?

00:35:58,000 –> 00:36:09,000
What did that really cost me and it really cost you over a million dollars.

00:36:09,000 –> 00:36:38,000
Just in NOI not in potential property value not in what else could I be doing with that money to make more money not in how much maintenance time that that product cost me where those maintenance guys could have been doing something that helps me make more money like doing an internal rehab unit turn.

00:36:38,000 –> 00:36:44,000
CapEx something that helped me raise the rent.

00:36:44,000 –> 00:36:50,000
Instead, they’re off fixing the car and changing the wheel hub.

00:36:50,000 –> 00:37:01,000
You need to weigh all the decisions on what you’re purchasing on what the disposition is for the you know what the disposition plan is for that particular property.

00:37:01,000 –> 00:37:09,000
But also what is this going to do to my business over the next five years. What is this going to do to my business over the next 10 years.

00:37:09,000 –> 00:37:13,000
And again, if you’re only going to hold the property for a year, it makes no difference who cares.

00:37:13,000 –> 00:37:17,000
But if you’re going to hold this thing for 15 years, 20 years.

00:37:17,000 –> 00:37:21,000
If you can extend the useful life of it, like who’s going to keep car 15 years.

00:37:21,000 –> 00:37:25,000
I do. But I don’t buy cheap junky cars.

00:37:25,000 –> 00:37:30,000
I know what those are going to cost me and it’s cheaper than a car payment every single year.

00:37:30,000 –> 00:37:49,000
However, what if you had something you could put in an apartment that you don’t have to change it as part of your unit turn because it’s still doing what it was supposed to do with no issues after seven years or eight years, whatever your your useful life is for your for your apartment run else.

00:37:49,000 –> 00:37:56,000
You know, why would you not want to have something that doesn’t and again it doesn’t increase the rent.

00:37:56,000 –> 00:38:06,000
You can’t say I put this in and I’m going to charge you more. It’s not like a granite countertop or a hardwood floor or tile or you know really fancy light fixtures or something that adds curb appeal.

00:38:06,000 –> 00:38:10,000
You can’t charge more money for this. You have to have it. It’s just a purpose.

00:38:10,000 –> 00:38:14,000
But you’re not going to get paid more because you’re using this one versus that one.

00:38:14,000 –> 00:38:19,000
That’s not where it comes in that the play is on what’s that impact here on a Y.

00:38:19,000 –> 00:38:29,000
And why would you want to spend the 35,000 now as opposed to the 20,000 now to put this thing in.

00:38:29,000 –> 00:38:39,000
And it’s all about that opportunity cost that I know why you want to make sure that you’re adding value to the property somehow with every single decision you make.

00:38:39,000 –> 00:38:50,000
It needs to meet compliance for whatever the municipality is and whatever your standards are and whatever insurance company forces down your throat. Right. You need to make sure that it’s not hideously ugly and it’s not going to reduce the value.

00:38:50,000 –> 00:38:53,000
You need to make sure it does the job it needs to do is your tenant’s not complain.

00:38:53,000 –> 00:39:04,000
You need to make sure that your maintenance is minimized need to make sure that your utility use if you’re paying for it is minimized.

00:39:04,000 –> 00:39:12,000
But you also want to make sure that it’s not going to have premature failure issues that are going to cost you more down the line.

00:39:12,000 –> 00:39:16,000
And then it’s not going to perform you know, performance isn’t going to degrade over time.

00:39:16,000 –> 00:39:21,000
So this particular guy we’re going to go back and recall Bob.

00:39:21,000 –> 00:39:25,000
Pop paid for the $20,000 one.

00:39:25,000 –> 00:39:35,000
And three years after doing that, lo and behold, Bob gets a bill because there was an unexpected repair.

00:39:35,000 –> 00:39:41,000
Oh, they’re paying for the gas, but all of a sudden the gas bill went up by $20,000 in a month.

00:39:41,000 –> 00:39:46,000
And the utilities like, yes, sorry man, you’ve used it. You’re paying for it.

00:39:46,000 –> 00:39:56,000
Don’t really care if it got just evaporated or used by a tenant that didn’t care. Like it’s gone is gone. You’re paying the bill.

00:39:56,000 –> 00:40:13,000
It doesn’t really matter whether you had control over it or not. And then Bob’s like, wow, that decision to buy those $20,000 cars was really a mistake because all of a sudden one of them or two of them something went wrong that we weren’t planning on it wasn’t a wheel bearing and all of a sudden it cost me an extra 20 grand in a year.

00:40:13,000 –> 00:40:18,000
And I’m stuck with that bill. Yeah, you are.

00:40:18,000 –> 00:40:22,000
Cost of audience risk management.

00:40:22,000 –> 00:40:26,000
It’s the thing you need to do it. You need to pay attention to it.

00:40:26,000 –> 00:40:31,000
If you want specifics on what the product is, I’m in email

00:40:31,000 –> 00:40:41,000
I’m going to thank you for listening to two cars, no brains because that’s what we’re talking about today.

00:40:41,000 –> 00:40:48,000
And I say no brains. I love Bob’s great. Except for the fact that we told Bob that something like this would happen.

00:40:48,000 –> 00:40:54,000
And as much as I like saying, I told you so, Bob. I told you so.

00:40:54,000 –> 00:41:01,000
You could have paid a little bit more than to save over the life of that product.

00:41:01,000 –> 00:41:06,000
Oh, and that product actually didn’t have a five year warranty. It had a 15 year warranty.

00:41:06,000 –> 00:41:15,000
And it didn’t have the problem that happened to the $20,000 car. It actually can’t happen to the $20,000 car.

00:41:15,000 –> 00:41:27,000
So there’s a lot of things that go into it and having some knowledge of how things work and why things work the way they work and why something might cost $15,000 more

00:41:27,000 –> 00:41:31,000
could have a benefit if you’re in it for the long play.

00:41:31,000 –> 00:41:38,000
If you’re in it for the race to the bottom and you just want to make your money now, you’re not going to like this show at all.

00:41:38,000 –> 00:41:46,000
And I encourage you to unsubscribe for everybody else. Thanks for tuning in. I appreciate your time.

00:41:46,000 –> 00:41:53,000
Next time, I think it’ll be, I don’t know when it’s going to hit next episode. It’s going to be good.

00:41:53,000 –> 00:41:57,000
We’re not going to have a guest that’s just going to be running on Alphigan.

00:41:57,000 –> 00:42:06,000
But make sure you tune in because it’s going to be Tuesday and Thursday every single week until the end of time.

00:42:06,000 –> 00:42:14,000
Hopefully, I’m definitely not going to be the guy who makes three podcasts and never makes another one because that’s embarrassing.

00:42:14,000 –> 00:42:21,000
Thank you for tuning in to the TCO method. The only show helps you massively increase your net a lot.

00:42:21,000 –> 00:42:36,000


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