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Buying His First Rental at 19 by Doing What Most Newbies Are Afraid to Do

Buying His First Rental at 19 by Doing What Most Newbies Are Afraid to Do

by | Oct 2, 2024 | Investing, News Feed

How hard is it to buy a rental property in 2024? With all the buzz around high interest rates and soaring home prices, you’d think that investing in today’s market is a lost cause. But if a nineteen-year-old can take down his first real estate deal with very little education or experience, there’s no reason why you can’t invest, too!

Welcome back to the Real Estate Rookie podcast! After learning about FIRE (financial independence, retire early), Elijah Berg realized that wealthy people had something in common. They weren’t just investing in stocks; they also owned real estate! Determined to follow in their footsteps, Elijah started saving for a down payment and built his buy box. Next, he found an investor-friendly agent and lender to help him find and fund his property. Eventually, he found a diamond in the rough—a duplex in an A-class neighborhood.

Tune in as Elijah walks you through his first deal and shares some personal finance tips that helped him prepare for his first investment. In this episode, you’re going to learn why time in the market is still more important than timing the market, and why new investors shouldn’t allow fear of the unknown to stop them from investing in 2024!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
We have heard from our rookie audience that you would like to hear more from true rookies. And today we are bringing on a guest who has one property that he purchased within the last year. Of course, he hopes to eventually retire from real estate, but he is just getting started. He is definitely the inspiration we might all need right now that buying real estate after the low pandemic interest rate is still very possible. This is the Real Estate Rookie podcast. I’m Ashley Kehr, and I’m here with Tony J Robinson.

Tony:
And welcome to the show where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Now Elijah, welcome to the podcast brother. Super excited to be chatting with you today, man.

Elijah:
Hi Tony. Thank you. It is more than a pleasure to be here with you guys

Tony:
At 19 years old. It’s an incredible accomplishment to already be investing in real estate.

Ashley:
Yeah. Elijah, to start the show off and you went into mention your 19 year, so what were you doing before you bought your first property?

Elijah:
A little background about me. I work at m and t Bank. I’m the vocal custodian there. I’m a boxer, registered boxer within raised gym. I do a lot of fishing, play video games sometimes, but not so much then. So that’s kind of why I came dressed like this and not my suit that I wear at the bank to show I’m not some guy with a top hat and a monocle and I’m just like a normal kid. Most people are calling me a kid still, but I’m kind of an adult now. So I learned fire, financially, independent, retire early after doing some digging.

Ashley:
So Elijah, just real quick, when you discovered fire, what made you decide that you were going to use real estate as your vehicle to reach that financial independence?

Elijah:
And I knew during when I was doing penny stocks and trading all that, I knew there’s no way all the big money getters, there’s no way all the big fish are sitting here doing this. There has to be something different and it’s real estate, which it is crazy enough to think that. And honestly, with it being real estate, I think you have to kind of find your own Why? Just because real estate was kind of the top end. Me starting off in residential, my end goal is to be commercial, eventually move to hotels and big syndications like that. So that’s the end goal. But starting small like this, you got to realize that you have to find love in this. I wouldn’t be doing, there’s the reason why I quit trading and investment and stuff like that. I didn’t love it. I had no control over that variable. In real estate, you have a lot of control. It’s a lot more forgiving and I actually love it. I love saying that I’m the landlord. I love going to my property, rehabbing it every day. It’s something that I love. I’m building quite literally an empire. This is an empire. This is why I love it.

Tony:
Now, Elijah, I’m super curious man, because we have a lot of folks who are, you said you’re 19, but we have a lot of folks who are in their twenties, thirties, forties, fifties, sixties, who haven’t yet figured out how to save the capital that’s required to actually go out and purchase real estate. And these are people who have maybe had two or three decades on you to actually save that money. So I think the biggest question for me right now is how did you as a teenager accumulate enough capital to actually go out there and buy something?

Elijah:
Yeah, that’s a really good question, Tony, which it’s kind of like a caveat, kind of like a trick question kind of because you got to think of it like me being so young, thankfully I took the path out to learn this and I never grew up on bad debt. I didn’t have the time to learn how to improperly use a credit card or how to take on bad debt. And then now I’m in some rabbit hole. I’m the most frugal person ever. When I go to the grocery store, I only go there to get what I need and then I’m out. I’m not getting bag of chips and all this because all that stuff, even though it’s small, it really does add up over time. Instead of driving to my fishing spot, I’ll go ride my bike to my fishing spot. That’s how frugal that I’ll really get.
So yeah, I was 14. Yeah, I would say I was 14 when I first started. I would say a job. I was mowing my neighbor’s lawn for money on the weekend, and then at 16 I actually got my working papers. I worked at Dunkin Donuts for a long time. Well, not a long time, only two years just to save up as much for my car. And then after I bought my car, I was like, wow, I just worked all that time just to buy this car and now my money’s gone. I have a car, but now I have no money.

Ashley:
You didn’t have that gratification of the kind of reward. Yeah.

Tony:
Elijah, I want to go back to your point though about the saving piece because again, the initial capital is where a lot of folks get stuck. So obviously you’re working full-time at 16 years old, which is amazing. But maybe what were some specific personal finance tips that you employed that you can maybe share with the Ricky audience to help them save for that first deal?

Elijah:
Yeah, so going back to how I said because of my age, I really wanted to not start off on the wrong track, taking on huge student loan debt, taking on huge credit card debt and doing all this nonsense. I kind of took the time out to really study and how I can save as much as I possibly can from the initial starting point when I bought my car and went from zero in my head was because I’m so young, I don’t have any bills, I don’t have anything, bills my gas and food that I wanted to really get. So I said in my head, I’m saving everything I can to put this money in because in order to make money, you have to spend money. So I’m saving the most that I can in order to hopefully project me somewhere into wherever I want to be one day, which is here. And from that time, I had no clue it was going to be real estate. I had no clue I was going to buy my house, which is really crazy to think about how in that short amount of timeframe that I switched from saving as much as I can to hopefully use it one day to better myself to now investing in real estate.

Ashley:
After a quick break, we’re going to hear more about how Elijah sourced his first property with an investor friendly agent. Do you need a great agent too? Go to biggerpockets.com/agent. Welcome back to the show. Elijah, when you were saving, did you have a number in mind or did you do any kind of research, get a pre-approval to know how much capital you actually needed to buy your first property?

Elijah:
So I never actually had a budget starting. I invest in Liverpool, New York, which is right across from Syracuse, New York, not that far from Buffalo, which is again, it’s super crazy to be here, Ashley, and he is like, you’re not even that far away. It’s only a couple hours. But yeah, I knew I didn’t want to invest in a single family I knew wanted to go multifamily, literally only about a five or 10% difference between buying a fourplex and buying a single family unit and maintaining it and managing it apart from the cost and why not? So I was hoping to get a fourplex, but the market here in Liverpool was kind of hard for that. So I settled for the duplex, which going back to knowing your market kind of, that’s what I mean. You kind of have to know your market and where you’re buying because with my DTI knew that I needed to have the initial capital, which depending on what loan you’re using, that’s going to be however much you’re going to be putting down.
I needed to have my personal reserves, six months of personal reserves. I wanted to have 5% reserves for the property in case a heater goes out, whatever goes out, I still have that initial reserve set aside, not counting it within the cashflow reserve, CapEx, whatever. That’s kind of when I refine, I didn’t know, okay, what loan product do I really want to use in order to minimize my initial down payment, which is at the end all be all is going to keep more money in my pocket at the end of the day. So at that time, that’s right. When the new Fannie Mae, Freddie Mac, 5% down, that new loan came out.

Ashley:
The conventional one?

Elijah:
Yep. Yeah. Yep. Conventional 5% down Freddie Mae and Fannie Mac. So we used that. And at the time, which is no longer available right now, there was a DL grant for first time home buyers, which my loan officer very recommended me to use. Otherwise my DTI would be way too high for me to afford this. So with those two, that’s how we really initially afforded purchasing the property using that grant, which is no longer, I’m sure other banks have it. I mean T doesn’t right now. So it was only distributed per bank for first time home buyers. So I was really lucky to get a part of that.

Ashley:
Did your loan officer tell you about this grant?

Elijah:
Yes, yes, she did.

Ashley:
Oh, cool. Yeah. Awesome.

Elijah:
That’s the one thing I didn’t know about real estate is you could have an agent who’s not really an investor agent, they’re going to go to the house and they’re going to show you cabinets and stuff like that. They’re not going to really show you the divot in the ceiling. That’s going to be a big CapEx problem or how the area is that’s going to be in the market rent. So with my lender, I knew I wanted to have a real estate investor friendly landlord lender, which me working at the bank, I literally sat right across from her on Wednesdays. So it was a lot easier to communicate with her versus having to do it over email or everyone call it like that.

Ashley:
And for anyone who isn’t sitting right next to a lender, you can go to biggerpockets.com/lender. And I think when you are talking with lenders, that is a great question to add to that initial consultation is do you have any grants available? Great question to add.

Tony:
Just one follow up to that too. And Elijah, you make a great point, and Ashley and I have talked about this in the podcast before, but as you are shopping for especially your first real estate deal, when you go talk to lenders, don’t necessarily tell them, Hey, this is the loan product that I want. The goal and the better strategy is to say, Hey, here’s the goal of what I’m trying to accomplish. I want to buy a small multifamily, and when you say Liverpool in the Liverpool area, and hey, what do you think is the best loan product for me? And then let them assess your entire situation and say, well, hey, Elijah, you’re actually a first time home buyer, so we can use this and we can combine it with this, and now you’ve got a really low cost loan product to use. So important thing you walk into the bank and you say, here’s my goal. Don’t walk into the bank and say, here’s a loan product that I want to use.

Elijah:
Exactly. They’re going to stick you with that.

Tony:
Yeah, yeah. They’ll just give it to you. Right. So Elijah, we have a sense of the buy box. We have a sense of the kind of debt that you used, but I like to maybe get into some more specifics about the property itself. So we know it’s a duplex. How did you actually find this deal?

Elijah:
Yeah, so it was actually through my realtor who I found on BiggerPockets.

Ashley:
Awesome. We love that. In the forums or on the agent finder?

Elijah:
On the agent finder, what I did is I put in my, okay, I’m going to get into something that you shouldn’t do in a second, but Steven, thank you so much for everything. I wouldn’t be here without you, which I found him on the BiggerPockets. So again, what I did do, which I don’t think you should do, is I went on the agent finder and I messaged every single one of the agents to kind of just find who I really wanted to work with. Because before I got into finding an agent, one of my workers at the bank kind of recommended me to an agent, but he was one of those agents who aren’t really a real estate investor agent. So after messaging all of those agents on the BiggerPockets forum, I was kind of like, okay, I want to go view. How am I going to know?
How are you going to work for me? If we’re just sitting here talking, we’re not actually viewing their properties. And I’m actually glad I did this, which I’m not recommending again. So I visited a property with one of those agents, correct, and I told them from the very beginning that this is my first property I want to, and I’m talking to multiple other agents just so I can see how things go. So viewing the first property, the first agent, I’m not going to say any names or anything like that. He was kind of just the other agents kind of just let me walk through. He wasn’t really showing me, look at this dip in the ceiling, that’s going to be a huge CapEx problem. Look at the foundation. That’s going to be another huge CapEx problem. He was kind of just letting me walk out and feel it out the same.
So I was like, okay, maybe that’s just how it is, maybe it’s not. So I went to go review it with the other agent. This wasn’t Steven, and it was kind of pretty much the same thing. And I was like, okay. But the moment I talked to Steven, it was a game changer. Within my first couple sentences, I was like, I’m kind of trying to escape the rat race. I see my path through real estate. And he was like, oh my gosh. A lot of people talk to him and they want to go view properties and all this stuff, but they haven’t even read a book of Rich Dad Port Avenue or something like that. They haven’t begun to get their first step of self-education before trying to go out and do all this stuff. So the very moment that I even spoke to Steven and walked into the property, he was like, look at this, look at that.
Look at this, look at that. You don’t want this, you don’t want that. I wouldn’t buy this. I wouldn’t do that. And that’s the realtor who I wanted. I got a little bit backlash from that because working with Steven after that, the other two realtors who I kind of was like, okay, not to really say I don’t want to work with you anymore, but kind of just terminating the relationship, not like that I owe them anything. I was only viewing the property. You only get the money off of the sale, off of the property, and I kind of got a relationship backlash or that, why are you talking to this realtor when you’re talking? You know what I’m saying? Yeah.

Tony:
And Elijah, you said that you don’t recommend doing it that way, but honestly, I think there’s a lot of value in getting a good feel for an agent before you actually decide to work with them. Now, I’m not a real estate agent, so don’t quote me on this, but obviously with the legal changes, the NAR settlement that happened earlier this year, I’m almost certain now that before an agent can even show you a property, you have to sign a buyer’s representation agreement now. So that exact strategy might be a little bit more difficult, but there’s still other ways, I think, to suss out who the agents are and which ones you want to work with. So it sounds like Elijah, this investor-friendly agent that you met through bp, they were the ones that found that duplex for you. And was it just listed on the MLS?

Elijah:
Yep. We visited, it was every single weekend for that initial, it was January towards the beginning of January where I was like, okay, when am I? I’m done waiting in time to pull the trigger. Met Steven from then until April. We were visiting properties every single weekend, and so it was this one property, it just came on the market. He sent it to me and he was like, I think we should check this out. I was like, okay, let’s go check it out. And the moment we got there, it’s an A class, I would say it’s an A class neighborhood. It is definitely a class neighborhood. It was very good walkthrough and all that. And at the end of the walkthrough he was like, yeah, we’re not getting this. There’s no chance. It was just that good. And he was like, I myself would put an offer on this if you don’t. So that was kind, okay, I got to do this. But he was like, we’re not getting this. So he is like, do you still want to put an offer on this? I was like, yeah, well why not?

Ashley:
Yeah, you might as well try

Tony:
Elijah. One quick follow-up question. When did you actually close on this property?

Elijah:
It was July 31st

Tony:
Of this year?

Elijah:
Yes.

Tony:
Awesome. So the reason why I ask that is because there’s a lot of real estate investors who say that there are no good deals on the MLS, but I think you just proved that depending on your strategy, depending on your location, depending on your kind of business plan, there are very much still deals available directly on the MLS. And kudos to you for using that. It was an easy resource for you.

Elijah:
Yes, definitely. I do think it’s a little bit of luck because there was 10 investors who looked at the property before me, and I’m technically not the first place winner, the first place buyer. His lender couldn’t, or his lender decided, you can’t afford this. So they backed down to the second place buyer who was me. So in some way I think it was kind of luck, but not really, because I’m the one who put in this time, dedication, education and determination, blood, sweat, and tears to actually be here. So in some way I think it’s a little bit of a mix.

Tony:
Alright guys, we have to take our final break, but more from Elijah on how to break into today’s market as a rookie right after this. Alright, let’s jump back in with Elijah.

Ashley:
So what was the actual asking price of this property?

Elijah:
So it was 165,000 and I put in an offer 180, which was my highest that I was going to go.

Ashley:
And did they accepted it right away or did you have to counter with them at all?

Elijah:
Yep. So because the first place winner, I’m not sure how much he offered, it was probably way above 180, but his lender said, Nope, you can’t afford this. So they kind of just went down to the second solution.

Ashley:
So then they came back to you. And that is why it is always so important to put an offer in because you never know what could happen if there is an offer higher than you, because I’ve had that happen before too, where something happens and they come back to me and say, you know what? We’d actually like to take your offer. So such a great idea. Patience put in that offer no matter what, and thank goodness you did. Yeah. Okay. So now you’ve got this property. What were you looking at as far as the rehab? How much did you estimate for the rehab and how much did it actually cost to do the rehab on the property?

Elijah:
So that’s kind of something that I’m still in the middle. I’m myself am doing the rehab. I inherited one side of the unit, so I don’t plan on rehabbing that until the tenants move out. The other unit, the first time I walked into there, I was like, oh my gosh, I’m going to have to rip down this wall. There’s a lot of cracks in the wall and stuff. I’m going to have to rip up this floor. The floors were completely shot when I said, oh my gosh, I’m going to have to rip down all these walls to all the cracks and stuff like that. I didn’t realize that the walls were plaster and not drywall. So all I had to do was scrape and joint and whatever. It’s not drywall or it’s water. Damn drafted tape, take it all out. And the floors were just extremely well worn.
I didn’t have to take ’em up. All I have to do is take a drum stander to it. So it’s simple stuff like that, which kind of saved me from the moment that I purchased this property. And I’ve been doing rehab on this every day. I’ve spent probably $10 on just stuff, even only $10 because most of the stuff I’ve already had, or I’m just getting from my mentor, working under his wing for a long time. I’m kind of just using his tools. I thought I was going to have buy all these sheets of sheet rock, go in there, take all it. But in reality, it’s just a lot. Nothing’s hard. It’s just a lot of tedious work, like scraping the walls and then taping and then jointing, and then painting over that and then drum sanding, applying the polyurethane, stuff like that. It’s really just tedious work. Nothing’s hard or really that expensive.

Tony:
Should learn a lot Elijah is what it sounds like, man.

Elijah:
Yeah, it’s a lot of YouTube university,

Tony:
A lot of YouTube university, which is good. I guess one last follow up question. You said the purchase price was 180, and I know you had the grant that assisted with the down payment. So Elijah, what was your actual out of pocket expense to purchase the property?

Elijah:
Like my cash to close or what my loan value is right now?

Tony:
Your actual cash to close, how much did you have to bring to the table?

Elijah:
So my cash to close was around, it was 19, around 19,000.

Ashley:
And that was with closing costs? Everything.

Elijah:
Yep. Everything,

Ashley:
Yeah. Very nice. For a conventional loan. And what was your interest rate on this loan?

Elijah:
It was, so I was supposed to have a lower interest rate because I’m an employee of the bank, but because I was able to get that loan, they’re like, nah, you can’t. That’s the funny thing about underwriters

Ashley:
Can’t double dip.

Elijah:
Yeah. So it was 6.5.

Tony:
That’s actually pretty good.

Elijah:
Historically, this is what a lot of people don’t see is historically interest rates were a lot higher than some six, seven, even 8%. And even worrying about that small interest rate, the appreciation of your house appreciates by 5% every year. So while you’re worrying about some 6% interest rate there, property of your house of the value is going up by 5% each year. So it doesn’t really, a lot of people don’t really get that part.

Ashley:
Tony, I think one takeaway for you here is that Sean needs to get his next job at the bank while he’s in high school so that he gets a discount on interest rate to buy houses for you. There you

Tony:
Go. So Elijah, I guess what would you say, because you’ve taken this deal down in a time when a lot of people with maybe more life experience, with maybe more cash, with maybe more resources have been sitting on the sidelines because they feel that 2024 isn’t the time to invest in real estate. I guess, what would you say to those folks you think that maybe right now is not the best time,

Elijah:
Not the best time to be sitting on the sidelines,

Tony:
Not the best time to invest in real estate?

Elijah:
Honestly, you just question really why? Because in my eyes, 2024 is kind of the golden age to be investing in real estate. So there’s people who think that not investing right now is going to get you anywhere because the interest rates and all this stuff. Investing in real estate is not about timing the market, it’s about time in the market. So it doesn’t really make sense to be sitting on the sidelines. And I kind of thought that that was my ideology too, is if I just wait it out and wait for the interest to go lower and stuff like that, things’ are going to get a lot better. But how I just saying it’s about time in the market, that’s how you make the most money is through cashflow and appreciation and outweighing all those other stuff that of course is going to affect the market that you don’t really have a controllable variable over kind of getting over that fear is what is really going to determine to turn the tables. The discussion I had with my mentor LaShaun is it was like I took a year of just going through financial education, how to actually manage the property, accounting, insurance, stuff like that. A whole year of just educating myself before and obviously saving the capital to actually pull the trigger to LaShawn. It was kind of like, why? What are you waiting for?
And the end all be all, it was just fear. And to him he was like, what are you afraid of? And it’s just all the other variables that everyone like, what if the house burns down? Or what if this goes on and I don’t have enough money saved up? But at the end of the day, that’s just fear. As long as you’ve saved, as long as you’ve done what you needed to do on your terms of due diligence, then that should all be taken care of. At the end of the day, if that ever does come up,

Tony:
Elijah, you bring up fear, which I think is an important thing for us to probably close out with. But fear is sometimes a good thing, right? Because if you are operating inside of your comfort zone, you’re typically not fearful. But if you’re operating inside of your comfort zone, you’re also not growing, you’re also not getting better. So if both of those statements are true, then the only way that you can grow as a person, as a real estate investor, as an entrepreneur is to step outside of your comfort zone, which always induces a little bit of fear. And I think the question for the Ricks that are listening is what kind of person do you actually want to be? Do you want to be the person who continues to let their fears counsel the action, the actions that they do or that they don’t take? Or do you want to let your goals and your visions be the thing that drives your next step? So I know a lot of folks are sitting on the sideline, they have that fear, but guys, fear is a good thing because it means you’re stepping into something new. And for you, Elijah, again, super impressive. You’re able to break past that and do that scary thing, and obviously it’s worked out pretty well for you.

Elijah:
Yes. To add on to that really quick, Tony, me being a boxer, there’s not really anything scarier than getting up into that ring and knowing the guy across from you is trying to knock your head off. So how Mike Tyson’s trainer Cusato said, everybody has fear, and if you don’t have fear, then either you’re lying or something’s wrong and you should go to the hospital like a deer. Yeah, like a deer in the middle of the woods. Once he hears that twig of a snap, he’s gone. That fear keeps him alive. Just like how it keeps us humans alive. It’s a natural instinct like what you should be using. And that’s how Mike Tyson really became who Mike Tyson was. He used that fear like a fire and fire can either burn your house down or you can cook your food. So that’s kind of how I use my fear.

Ashley:
Elijah, thank you so much for joining us today. We’re going to link your information into the show notes. If you’re watching on YouTube, it’ll be in the description. Thank you so much for taking the time, giving back, and sharing your journey and providing so much information to the rookies that are listening today.

Elijah:
Yes, I’m really glad that you guys were able to listen to me today. Hopefully I can be that beacon of light to people around my age or people of all ages who are kind of just lost in the dark and really need that push of motivation. At the end of the day, I’m not that lion who’s up top. I’m still that lion. I still have that hunger. I’m still climbing the hill. Once you’re up top, you’re up top. So I’m still climbing that hill. You always got to be hungry. You always have to strive. You always got to better yourself.

Ashley:
I think anyone who’s over the age of 19 is probably thinking right now. I wish I would’ve started when I was 19,

Elijah:
And that’s what everyone is saying to me, which is why I am

Ashley:
There. Might be a little remorse and regret listening to this episode too. But Elijah, congratulations on making such smart decisions at such a young age. Thank you again for coming onto the episode. I’m Ashley, and he’s Tony. Thank you so much for listening to this episode of Real Estate Ricky.

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In This Episode We Cover:

  • How Bryan snowballed $20,000 into eleven properties (in under four years)
  • Building your real estate portfolio faster by moving to a low-cost-of-living area
  • How to get your spouse on board with your real estate investing dream
  • Using a HELOC (home equity line of credit) to fund more real estate deals
  • How to pivot to another investing strategy when things don’t go to plan
  • Why you always need an exit strategy whenever you buy a new property
  • And So Much More!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Buying His First Rental at 19 by Doing What Most Newbies Are Afraid to Do

The “Lazy” Landlord’s Guide to Finding (And Keeping) Tenants & Raising Rents

by | Sep 27, 2024 | Investing, News Feed

Finding, screening, and placing new tenants for your rental property is not only difficult—it’s expensive! Want to attract the best tenants in town and ensure that they stick around for the long haul? You won’t want to miss this episode!

Welcome back to the Real Estate Rookie podcast! As the self-proclaimed “lazy investor,” Dion McNeeley wants to have long-term tenants and as little turnover as possible. Today, he’s going to share the tips, tricks, and tactics he uses to keep tenants around for not just months or years but decades. The best part? He’s not doing anything the average investor can’t do. By implementing these same strategies, you can find high-quality residents and reduce turnover!

Of course, not every investor can devote twenty hours to their real estate business each week. Fortunately, Dion offers some portfolio-saving advice that will allow you to become a more hands-off investor. You’ll hear about a strategy that will have tenants asking YOU to raise rent, as well as a crucial document that could protect your investment when inheriting tenants. Finally, you’ll learn why retention isn’t always the best option and when to let a tenant go.

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
Hey rookies. A question we get all the time is how to best handle purchasing a tenant occupied property to make sure the handover goes smoothly. Today, we’re going to give you a step-by-step guide for this process and make sure your investment property is set up for success. This is the Real Estate Rookie podcast. I’m Ashley Kehr and I’m here with Tony J Robinson

Tony:
And welcome to the podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. So guys, obviously it goes without saying that. To help us with this how to episode, we have to bring back on the binder strategy King Dion McNeely. Now you guys may recognize him because he’s been on the podcast before, but we’re so excited to have Dion on again. So Dion, welcome back to the Rookie podcast.

Dion:
Alright, I appreciate the invite so much. I actually watched your guys’ content a lot. I learned from a lot of the guests, I learned from you guys and this is a topic I’m super glad that you reached out for because some of the things that I do, I do kind of backwards to what seems traditional. An example would be most landlords want their leases to end in the winter. Most landlords will want a vacant property. They want to buy a property that’s vacant that they can set up the way they want it to and get brand new fresh area market rents or be the top rental in the area. I invested while working full time was a single parent with three kids. They were younger when I started and I didn’t have time for all of that. So my goal was to buy properties with tenants in place.

Dion:
I’ve done both. I’ve purchased vacant and I’ve purchased with the tenants living there, and I much prefer the tenants living there. It’s kind of where the binder strategy came from was because you generally buy rents or below area average. And so I have a pretty good system of when I buy a property and there’s tenants in place, here’s the check marks of all the things I go through to make sure that it’s a smooth acquisition. Because so many people when we look at a property, they focus on math, they think, what’s my yield? What’s my return going to be? And I’m looking at if I buy this property, how’s it going to make my life better?

Ashley:
So Deanne, let’s start with before you even acquire a property, what should a buyer know before they’re looking at properties, when they’re considering buying a tenant owned property or tenant occupied property?

Dion:
So when you’re hunting for properties, always knowing your end goal and making sure that the property meets what you’re planning to do. If you do short-term midterm storage, rv, I’m the super lazy person. I want to buy a tenant that I talk to once every two or three years, so I do long-term tenants and I want low tenant turnover, so I’m actually looking at properties considering physical aspects of the property to me are almost as important as the math. I want to get the yield I’m looking for, but I want to make sure that the physical aspects of the property are going to help limit tenant turnover. And there’s kind of a checklist of things that I do. I like side-by-side properties. I do small multi-family. I don’t want tenants living above or below another. I want garages in the middle so you don’t even have shared living walls.

Dion:
I want washer dryer hookups inside each unit because anybody using a shared laundry or a laundromat is just waiting for the next place to open. I want a lot of space, so two bedrooms or more a garage or a carport or something because more space means or more stuff less likely to move. I want to look at the physical aspects of the area, make sure it’s not next to a landing strip for an PL or a train or a loud pub. And then there’s good off street parking. So all of the things that make a tenant want to stay, I like pet friendly fenced yards and there’s no difference between a fenced yard and a pet friendly fenced yard other than I called it pet friendly and they put that in the actual photo on the listing. The photo shows the fence yard, and I put in the words pet friendly fenced yard. I get a ton of applicants because I accept pets just like the other landlords do, but I actually have the words in the picture saying it’s pet friendly.

Tony:
I just want to comment on that really quick. That’s such a genius idea because we started adding fences to some of our short-term rentals. For that reason. We had a lot of people that were coming with their pets and were like, we were getting feedback. They couldn’t let ’em out because there was no fence. We started putting fences around our properties, but we never went back and said, Hey, we’ve got a pet friendly fenced yard. So small little marketing piece, but I feel like that it probably goes a long way

Dion:
And I’m also looking for tenants that want to stay and one of the reasons why I allow pets a couple of things, you get pet rent because you’re going to have possibly pet damage in the future. I’ve had one pet damage in over a decade and it was less than $200. I’ve had thousands of dollars in kid damage. So with allowing pets, you also get to charge a premium on your rent because there’s less units available that allow pets. And also allowing pets that never have to deal with somebody arguing that they have an ESA animal because they printed out a piece of paper that took five minutes to find online. I just allow pets don’t charge a pet fee or pet rent if they have an ESA animal, but at least they don’t have to have that argument. And when people have pets, they’re less likely to move because even if the human moves with the animal, it’s a pet relocation. So I have longer term tenants, a higher rent possible pet rent, and my goal, remember is to make my life easier and less tenant turnover with happy tenants helps do that.

Ashley:
Okay, so Dion, now that we kind of found out your buy box for when you’re looking for properties, are there any legal obligations we should know about before actually purchasing a property with the tenants already in place?

Dion:
One of the things that I really like about buying properties with tenants in place, and it’s the majority of the time for me, my targeted search really is, Tony, you mentioned you’ve done the bur and you guys have both done rehabs. If a tenant is in place, a tenant is already living there. Now this isn’t a hundred percent of the time, it’s been a hundred percent of the time for me, but that means the water runs, the power’s on. There is a subfloor, right? The basics of it being habitable are assumed because there’s already somebody living there. So I don’t have to do the big rehab or the big repairs or find a tenant. So that’s the benefits to me. The drawback is you’re bound by the existing lease, right? The new buyer doesn’t come in and say, I’m the new owner, let’s get a lease together.

Dion:
You have to find out which lease is already in place and if there is no lease, you’re bound by what your state’s laws are and in most cases it means they’re just considered a month to month tenant. So I’ve looked at properties before and while I never look at the lease or the current rents to run my math to figure out if it’s a good or a bad deal because in my mind area average rents set rents not in agreement between two people. That’s a unique point versus area average rents is what’s going to probably be happening with that property in the years to come. And I’ve seen where a seller tries to protect their tenants and they go, I’m selling the property, so let’s sign a new 12 month lease at a really low rent to protect you so the new buyer because you’re bound by that lease.

Dion:
And that blew the deal up for several people. They looked at that and they said, oh, I’m not buying it with those long low leases. What I did is I looked at the, so in this case rent should have been 18, one lease was signed at 15 and one was signed at 1250. So I could actually run the math and go, so for this first year I’m losing $300 a month here and what is it $550 a month here? What does that equal in a year? How does that impact my yield calculation if I had that expense to buy this property? So it didn’t kill the deal for me. It said, what price adjustment would I make or what concession would I ask for to allow these leases not to blow up the deal? Because you are bound by those leases and you want to make sure that you look at those to see is the tenant responsible for taking care of the yard?

Dion:
Because in my case with small multifamily and all but one of my properties, the tenants handled their section of the yard and I want to know if it’s in the lease that a services provided, I would consider that in my cost or I had one time that I would like to meet the tenants during the walkthrough either with the inspection, the appraisal, or when I’m giving my landlord introduction letter and interact with the tenants to make sure that when you get that estoppel agreement where you get the tenant’s information, contact info, and then something that almost everyone misses that I all ask for in the estoppel is you get the tenant’s explanation of what the rent is, especially if you’re buying from somebody who doesn’t have a lease. You want to make sure what the landlord is saying and what the tenant is saying aligns with each other and the tenant let me know, my rent is higher by $200 a month because I didn’t pay a deposit.

Dion:
So what the end of this year, I expect my rent to come down $200 a month because my deposit’s paid. That wasn’t written in the lease, it just had the rent. That was a verbal agreement between the seller and the tenant that I wouldn’t know if it didn’t have that interaction with the tenant. And so that’s one of the reasons why their current lease, what they’re paying for. Rents aren’t used in my equations. I use area average rents. What would this unit rent for if this tenant and this seller weren’t involved? And that’s how I know if the math makes sense or not.

Tony:
Hey, we’re going to take a quick break, but when we get back, Dion is going to talk about his binder strategy and why this is such a powerful tool to use when you’re purchasing a tenant occupied property.

Ashley:
Welcome back to the show. We are here with Dion. So Dion, I want to highlight for anyone listening as you’re talking about lease agreements and finding out from your state what is legal, what is not, and if you’re going to be creating new leases before you even purchase a property, go to biggerpockets.com/leases and you can actually view leases by state to see what some of the requirements or what is acceptable for your state for lease agreements. If you’re a BiggerPockets Pro member, you get these for free. So go ahead and take a look at those or you can go ahead and purchase ’em for whatever state that you need. But go to biggerpockets.com/leases. I wanted to explain real quick, you threw out a buzzword that also can be found on biggerpockets.com/glossary for all of the terms and definitions we talk about here at BiggerPockets, but estoppel agreement.

Ashley:
So if you’ve been a long time listener, you know that Tony learned how to spell this word on this podcast. But to explain real quick, the estoppel agreement is something that you can ask tenants to fill out before actually purchasing the property. You most of the time should ask the current owner for their permission to send this information to their tenants, but it’s basically just a form for them to fill out, like Deon said, with all of their information and you’re going to use the information they provide to compare it to the lease agreement or if there is no lease in place, what the owner of the property is telling you is true. So who owns the appliances, who pays for what utilities, things along that. So it gives you something to compare to who is saying who, so that you don’t walk into a property thinking that you’re running your numbers, not having to pay any utilities, but then you purchase the property and the tenant says, oh no, I don’t pay the utilities either. So an estoppel agreement is a great thing to put in place and to have filled out before you actually purchase a property.

Tony:
So I think one of the thing I want to focus on to there, Dion, is that you’ve been fortunate enough where most of the properties that you’ve inherited tenants with that they were in livable condition, but I’ve definitely walked some properties in my time where people are living there and I think I’m somewhat shocked and surprised by the conditions that I’m walking into. We actually walked a property, we were looking at flipping last year and my wife was pregnant at the time and she got two steps into the front door and she’s like, I’m just going to wait in the car because it was that bad inside. So I think there’s always maybe a little bit of room in there to maybe do a little bit of rehab, but I just wanted to call that out for folks. Every landlord might be stepping into something different. But I guess let’s talk about the transition piece, Dion, because I think that’s what a lot of folks maybe get worried about when they actually buy property with an existing tenant and you on it already. But I guess what are some of the best practices for taking over a tenant occupied property so that you can start off with the smoothest transition possible?

Dion:
So I talked a little bit about the landlord introduction letter and when you interact with the tenants, you didn’t get to screen these tenants, you don’t know their credit score, you don’t know their work history, you don’t know their eviction history or criminal history. If you check that and you don’t know if you want to keep these tenants, they might be great. They might be the reason the owner sold and they might be living in bad conditions because they didn’t let the previous owner in to do any of the repairs. So you end up with a situation, Tony, where you walk and you’re like, wow, why would you live like this? They might be the reason. So what I don’t do right away is try to get a lease signed immediately in the first couple of months, right? I am known for the binder strategy where I get my tenants to ask me to raise the rent.

Dion:
I specifically like targeting rents, rentals with tenants in place because their rents are usually low. Now, I don’t want to do a rehab, I don’t want to do a tenant flip. I don’t want to find tenants. I don’t want to do all of the work that’s involved there. I was working full-time, had three young kids, and so having tenants in place, I can do this binder strategy and show area average rents, have them ask the tenant, what do you think is fair for rents? If you do that right away, you might lock in a long lease with someone you don’t want to keep. So for two months, this is your opportunity to vet those tenants because why do we run credit and why do we check eviction history? Because we want to make sure they’re going to pay their rent on time. We want to make sure that they don’t keep getting evicted because of noise complaints.

Dion:
So you don’t know that yet. So in those two months, do you get noise complaints? Do they call you for super trivial things? That’s my two months period to figure out if I want to keep the tenants. So then I will do something like sign a new lease or use the binder strategy in those two months to make the transition go as smooth as possible. I also do things that the previous landlord probably wasn’t doing. One of the reasons why they were selling is they’re usually older, tired, don’t want to take care of the property. They were afraid of raising rents on a good tenant. So instead of losing a good tenant, they lost a good asset, which is now the thing that I acquired. So I’ll do things that like upgrade and maintain the property, which for me is coded locks. I target class C properties specifically and it’s kind of rare to have coated locks and class C properties.

Dion:
Tenants are just used to having keys, so it’s kind of an upgrade. I put in motion sensor LED, exterior lights, which improves the safety of the place, modernizes the look a little, and then I actually do something that I’ve had people tell me never to do. I ask the tenants if they owned the property, is there something they would fix? And my friends have said, don’t do that. They’re going to ask you to add a bedroom or pave the driveway. It’s never been that. What I’ve had is tenants say if I had a screen door, I’d be able to leave the door open in the summary, it’d be really nice. Spend $150 on a screen door, have a really happy tenant. So for those two months I got to vet the tenants and the tenant saw that I’m going to maintain the place I care about what they want fixed.

Dion:
I got a to-do list from the inspection, so I had any things taken care of. Then the conversation with the binder strategy or setting the rents goes much better because the tenant’s happier and most tenants live in fear of getting kicked out. They were expecting an N 12 letter, right? They were expecting the landlord to say, here’s your notice I’m selling the property. You’ve got to go because so many investors want to buy a vacant property. So to find a tenant who survived not getting that N 12 notification where they’ve got to move, so they’re living there wondering if you bought it and your owner occupying and have to kick them out or wondering if you want to kick ’em out so you can rehab it. They know their rent is low, and when you have those two months go by where they’re paying the same rent, you’ve done repairs and then you sit down to have a conversation with them, their stress level is so low that the conversation goes a lot better than if you tried to do it in that first week where you’re giving a landlord introduction letter where a lot of people focus on here’s how I like to be paid.

Dion:
And that to me I think is kind of a mistake. The landlord introduction letter should start with, here’s how I like to be communicated with. Here’s my contact information. I use handyman and contractors for repairs. When you’re giving the letter, you can also put at the bottom and say, here’s the date that the sale closed on. Make sure you don’t pay the previous landlord if you do go to pay your rent, here’s the version the way that I like to have rent paid, so you can talk about it. I just wouldn’t start with it. And when you’re getting the estoppel or giving the landlord introduction letter, the things that are missed is how many times have you gone to your tenants when you buy a property or people that are thinking of doing this and gotten a copy, a picture of their id, you have people fill out a form and sign a form, but you don’t know who they are.

Dion:
So I get a photocopy, I take a picture with my phone of their driver’s license or their id and the one that has saved me twice now in a decade get emergency contact information. This seems odd as a landlord to want emergency contact information, but I closed on a property and that’s our most nervous time as an investor when we just closed on a property and there’s tenants in place. What if I just bought a six month eviction that’s been going on for six months and now starts again with me? So you want to make sure your communication goes well. And in that first week, I couldn’t get a response from the tenant, wouldn’t answer the door, wouldn’t answer the phone number that I had, the email didn’t work, and so I go to the emergency contact and they find out, oh yeah, they’re at a convention, they’ll be back on Tuesday or something, and just that little thing took away all my stress of this tenant is ghosting me to, oh, they’re on a trip. I’ll solve everything next week. When they get back with that transition going, well, I’ve get emergency contact, get a copy of their photo when you can of their id when you can try to see the situation from the tenant side. Have you ever been a renter and had your property sold? People say it was sold out from under me. That doesn’t sound good. It can be a good thing if a new owner comes in and actually starts taking care of things and your opinion matters to them.

Tony:
Yeah, Deanna, it’s a complete 180 I think from how a lot of real estate investors go about building that relationship and it’s almost like there’s the Gary Vaynerchuk book, what is it? Punch Punch or Jab, jab Hook, whatever it’s called, but it’s like you give a lot of value first and then there’s the big ask, but because you built up that goodwill, people are more receptive to it and it’s almost like say you get hired for a job and they love you during the interview process and on day one you go in and ask for a raise, it’s like you haven’t even proven yourself yet, but you’re asking for more money. It is kind of a similar thing. So I love the idea of giving a lot of value first and then going in for the ask. Now, Deanna, I know you mentioned earlier about your tenants ask you to increase the rents on them. So you briefly mentioned the binder strategy. I guess if you can break down from folks who didn’t listen to your first episode, what is the binder strategy and why is that such an important thing I guess to follow as you’re onboarding a new tenant?

Dion:
So I present the binder, which I actually have one here that I did recently.

Tony:
Yeah, so make sure you’re watching on YouTube so you can actually see the physical binder that Dion’s holding up right now. The Goodall three ring binder,

Dion:
And this can be done through the mail. So when I do this with section eight, I don’t go take a binder to the housing authority. I actually do this through email too, but it looks almost exactly like this with screenshots and you do exactly what Ashley did. You’re going to educate them and say, Hey, here’s some comps. There are pictures in here of the rentals in the area that are the same bedroom count. The front page is a picture of the property from Zillow or Redfin that has the current estimated value and you share with the tenant your rent made sense to the previous owner or when my taxes and insurance were based on the previous value, but do you see what the current value is? That’s what my taxes and insurance are based on now, and here’s the area average. If you had to move, this is what the rentals will go for because a lot of tenants, maybe they haven’t looked at rentals in a while, they don’t realize how much rents have gone up.

Dion:
Tenants do not care about your expenses, and I can prove it. If we had a property that was paid off and we had a property with a mortgage and we were in the same market and we wanted to rent them out, we would rent them for the same amount. The tenants don’t know that you have a mortgage and don’t care. They don’t care about your property taxes, your insurance. The reason I show ’em the binder with that information on here is because it shows transparency. You can literally open up a web browser, go to Zillow and see exactly what I’m showing you here. You can go to apartments.com or Craigslist or Facebook marketplace, wherever I got these screenshots from, and you could find these same rentals to verify what I’m showing. And then here’s the magic. When you send the email, the last line or when you hand the binder over the last sentence is what rent do you think is fair?

Dion:
Because what tenant, especially one living in fair of their property being sold out from under them has ever been included in the conversation of setting their rents. So to the point of no, I’ve never had one say, I can’t pay the rent we are now, I want it to go down. It’s possible because it’s an ongoing conversation that they suggest too small of an increase, right? They say, well, let’s go $50 and I wanted 200 because they’re 600 off of the area average or whatever. Well, you can draw this on paper or I can do it in the air with my hands. I can say, here’s where you’re at currently with rents. Here’s where area average is. The amount that you suggested does seem really fair to you, but you see how far off it is from what would be fair for me. And then I’ve had them suggest a higher amount that’s as close as I’ve come to somebody having a disagreement with it.

Dion:
What’s most common is, and I literally got this text and just did a post. This is from somebody who watches my content. They said, okay, now I’m just going to read this text right off the screen. Just did the binder strategy with unit C, who was paying $950 a month including water and trash. That was the current rent. When they closed, tenant asked for rent to go to 1950. We agreed on 1900 plus water and trash. So the tenant suggested a new amount. The owners brought it down $50 to adjust the water and trash. They were so happy when we said the first payment on this new rate won’t happen until October. They teared up. We all left the meeting feeling light and great, thank you for your guidance and help. The idea is a massive increase to the rent where the landlord, if you suggested a $50 increase is a jerk.

Dion:
That tenant basically doubled their rent because they saw how good their deal was. They saw the area average rents, like Ashley said, they know I have to pay a deposit, I have to move before I even get my deposit back. Now they have happy tenants. The rent isn’t at area average. The tenant didn’t suggest to go what they probably found as 23 or 2,400 as area average, but they more than split the difference. And you have happy people on both sides. And the main reason for me is, and this is a marketing tactic, and the idea is if you’re marketing something, you have to tell people what you get out of it. If they don’t know what you’re getting out of it, they’re going to assume that it’s a scam that’s worse than what the reality is. So with rentals, I say, look, I don’t want to displace you.

Dion:
The best outcome would be if you move, I get area average rents, but I then have to rehab the place, update the thing, find a tenant, do all this extra work. I don’t want to displace you and I don’t want to do that. So what do you think is fair? I’m actually showing what I get out of it is I get to keep you in place. I’ve already shown you I fix and update things that it needed to be done, but I’m not going to rip out and put in new cabinets or put in all new flooring while you’re here. I might have to do that if you move out. So it makes my life easier and you get to stay in your place. So it makes that transition to the new ownership easier for me. Money-wise, easier for me. Time-wise takes a lot of the stress off of the tenant and I mean this is probably to me the thing that makes it easier to find cash flowing rentals on the MLS, but it’s all of the other things that makes retiring off rentals for me possible, right?

Dion:
Because David Green recently put out a post on Instagram saying replacing your W2 with cashflow from rentals is a terrible idea. Changed my mind. And he talked about $5,000 in income from your job and $5,000 in income from your rentals being totally different. And he’s right. Rentals can be as complicated or as simple as we make it, and for me it’s finding the ways targeting the properties before I even buy them to make the investing simple so that it’s easier for me because it has to be easy and don’t take this wrong. If I had to be good at investing, I would quit. What I have to be is average and do it for a long period of time. I didn’t invest to create another job, so I wanted properties that would keep tenant turnover low. The binder strategy helps with that. And then I have systems in place.

Dion:
One of the last things I’ll do when I purchased a property with tenants in place, and this is missed by a lot of people because there’s already existing tenants, is contact the utility companies and put in place what is called a landlord policy. So if this tenant ever moves out or ends their lease and moves out, water doesn’t get shut off and I don’t have a water heater burn itself in the winter or I don’t have a pipe freezer or a leak that runs forever or something. There’s power on when handyman or maybe me too lazy to do it, but handyman or contractor goes there to actually fix or do something since there’s a tenant turnover going on and getting that landlord policy in place on the utilities gives me more peace of mind so that in the future, 2, 4, 6 years from now when something changes, it’s already set up.

Ashley:
Dion, during this whole negotiation with the residents, are you actually doing this in person, this conversation? Is it happening through mail, email, text, phone calls, and what is your recommendation of how to actually present the binder strategy and then how to negotiate from there? That’s

Dion:
A great question and I want to present it from my perspective, right? So six years in the Marine Corps, eight years in law enforcement, I’m comfortable being alone with tenants in their house. Not everybody should feel that way. Not everybody has situational awareness. Maybe you don’t want to do it at their house. So I would have a meeting at a public place to have the binder strategy. I’ve done this in restaurants, especially if it was a tenant who has a weird schedule, but it was easier to just meet at a specific time at a restaurant. I’d like to do it in the place to see, it’s a possibility to see what the inside looks like, but meet publicly. If you’re not comfortable with that, I prefer to do it in person with the binder because there’s a nuance to conversation. If you’re going to do it, you could do it through Zoom.

Dion:
I have a gentleman and his mom who moved to Guam and they’re on a contract. We did their binder renewal while they’re in Guam to do this through Zoom. Email works for section eight especially because what you want to do is do the work for the section eight counselor and with section eight I’ll actually have one of the pages in here is right off fair market rents what section eight, we’ll pay for that bedroom count in that county and section eight has, you can just Google fair Market rents and go on there. It actually the information for next year ask to come out by October. And ironically 2025 data is already out. So you can see what Section eight is doing next year.

Ashley:
Stay tuned after one final break for more on how you can set up your investment property for success.

Tony:
All right, thanks for sticking with this guys. Let’s get back into it. I guess what I want to know from you, Dion is looking long-term, what strategies should an investor consider for tenant retention or just transitioning to new tenants in general?

Dion:
I like tenant retention mathematically. Sometimes tenant turnover is the best thing and every time I sign a lease with a tenant, I own small multifamily, right? I don’t have a huge portfolio. I’m at 18 units now. I retired in 22 with 16 units, produces a little over 200. In 22, it was $204,000 in profit from 16 rental units. So I have a small portfolio with the right amount of cashflow, it takes me about 50,000 a year to live. So I’m not looking to continue to grow the portfolio. It will slowly grow as cash piles up, but my goal is to keep tenants in place long term even though the first conversation I have with tenants, as I say, you shouldn’t be renting, this is a duplex you’re living in. Did you know that you can buy one of these with the same loan you would go and buy a house with and then you can rent out the other side and reduce how much you’re spending.

Dion:
And I’ve had that conversation with every tenant for over a decade now, two tenants in that decade have purchased houses. Nobody’s bought a duplex matter how many times I tried to say that this is what it can do to you. They’ve bought houses. One was fairly recently. And so coming in with that, letting the tenants know, look, I would rather you got on the property ladder and proved your life than if I had a tenant. Starts the relationship off on such a positive note that I have tenants for the longest one is the tenant was in the property 26 years when I bought it, I bought it in 2016. They’re still there.

Dion:
My goal is that the tenants are there as long as I own the property, even though sometimes a tenant turnover would mean I could new cabinets, new flooring, spend 10 grand and add a bunch to their, I had a tenant move out this one where they bought a house, I had a closet. One bedroom becomes a two bedroom. I go from one bedroom rents to two bedroom. I was never going to do that while they were living there. How rude would that be to come in, I’ve improved your place, something you didn’t need or ask for, so your rent’s going to go up a thousand dollars a month, that would be terrible. But if they move out and I now have a two bedroom and I rent it for a thousand dollars a month more than it was before, it was like $800 a month more. Actually that’s okay with me. I’ll handle that tenant turnover for that big of an increase to rents.

Ashley:
Let’s go with the scenario of, because we actually had this happen where somebody has literally lived there since the property was built in 2002 and the only tenant that has been in this property the whole time, and they recently asked to have the unit painted, but they didn’t want to have to move their furniture away from the walls for the painter to come in. They wanted us to provide somebody or have the painters come and move their furniture, put their furniture back because we offered to pay for the painting. There was a couple other things they wanted done and they are still paying market rent because we’ve renovated all the other units. So they are not even close to paying what that is. And so we did say there would be a small increase in your rent because everybody else that has a new apartment pays more and they actually declined because they didn’t want that small increase, but they also didn’t want to move their furniture. So what is your advice for those gray areas and those situations that come up where you are trying to provide a solution but the tenant doesn’t agree and just ends up staying where they are. But also I feel like I do feel guilty as to like, well yeah, you’ve been a great tenant, you’ve always paid on time for the last 12 years, actually longer than that, 22 years and now you, we’d love to do something for you, but kind of like the ask just doesn’t work out.

Dion:
Please, please take this in the light. That’s incentive. I’m trying to help you, right? I watch you all the time. I have a ton of respect for you. But when you said something earlier about you had the tenant in place for six years and didn’t raise the rent, imagine the precedents you sent with that tenant that any increase going forward is a change. So you’ve had this tenant in for 22 years. They are below area average rents. They might be a good use of the binder strategy to explain why their rent might need to go up again, they don’t care about your expenses.

Ashley:
Well, to be clear, this one has had an increase, I think every, it’s an apartment complex so it doesn’t increase every two years, but small incremental increases. But all the renovated ones have been listed once. They’ve been renovated for a lot more. So she is used to an increase I guess on this case. Yeah.

Dion:
Okay. Right. No, I like it. So as a landlord that’s had it that long, I think I have repainted places with tenants in place and it’s not very easy. I have a hack for this. I also have a hack for if you have an issue where the place like you have a plumbing issue where they can’t take a shower for a day or two. I’ve heard a lot of people say, well, I put my tenant my first time I did it. I put my tenants in a hotel until this situation was resolved. This is an ongoing conversation where you’re trying to solve the problem. These are the ways to do it. The last time I had this issue, I did a gym membership for the tenant for one month. So it cost me a little more a subscription, but just one month gym membership. And I said, Hey look, while they’re fixing, because it’s a one bathroom unit while they’re doing this, you can’t take a shower for a couple of days, but here’s a gym membership so you can go take a shower. Tenant was happy. So you can negotiate those kinds of things.

Ashley:
That’s a great idea. Yeah, because done that, we set up tenants in hotels for different issues. But yeah, that’s a really good idea.

Dion:
Thank you. And so a lot of people, we think in landlord terms of if I’m going to have work done, I have a contractor, if it’s handyman work, they’re going to fix some trim or something. I go to Thumbtack and I hire a handyman. If it’s plumbing, I want a license plumber, I want to get the permits done. If it’s electricity, I want electrician. If it’s a roofer, I want to make sure it’s a roofing company that has roofing insurance. But when we’re looking at something like paint the normal go-to would be, well, how much would the painter charge to move furniture? Now think of the painting contractor that has the painters that their shoulders hurt because they’re painting all day and they say, Hey, can you move this couch? Can you move the fridge? Can you do this? Versus here’s my hack for when I paint or do work requires that two guys and a truck, if you ever go to move, because I house hack and I’m way too lazy to move my own stuff.

Dion:
I like to go to work and come home and all my stuff is in the new place whenever I do that. But you go online and you look up your local delivery company of two guys in a truck. I wouldn’t use the big nationwide ones. I think they’re called College Hunks or something else like that. But find your local one where it’s two people or five people that have little box trucks and they move people for a fee. They rent two guys and a truck for somewhere between 90 and the high end, 150 bucks an hour. And you say, I want to hire you guys to do a move. You’re going to come in the morning and you’re going to move everything away from the walls and you’re going to come back in the afternoon, you’re going to move everything back, or you’re going to come back the next day and move it all back.

Dion:
You’re going to charge me your hourly rate. You might get a trip charge if they have to come twice, but a few hundred dollars to have that problem solved so that the painting can be done without painting the two or $3,000 that a painter’s going to tack onto a big job if they’re workers that they know, they’re going to have to handle the emotional outcry of a worker having to do more work than what’s expected of a painter. Because I’ve seen massive things like a stairwell off by four inches and there’s a sign on the wall saying, painter will fix it. Don’t mess with the painters. They’re going to charge you a ton. But if you’re going to have that issue, that’s my hack for almost any major work that you need done. Find your two guys in a truck that are local to your area and develop a relationship with them.

Dion:
Use them for when you move, recommend them to your friends. But use that for if you’re going to do, because I’ve got a tenant purchased it, they had carpet in place and the carpet was seven or eight years old and they wanted new flooring. And my original response is, I’ll totally put LVP, I put LVP everywhere I own and once it’s vacant, but with you living here, it’d be really hard. You would have to move all of your furniture. And she says, I just can’t do that. And this is where a couple months later, I thought I had to move me. Maybe they can move her twice. And so they just moved all her stuff so the phone could be done, moved all her stuff back. So it would work for painting exactly the same.

Ashley:
Yeah, and we kind of did something offer the tenant, but I think where we messed up is we offered the tenant, here are some people you can contact, like moving companies or we have a disposal company we work with that would move stuff, but we gave them their information to contact. So maybe just spending the couple hundred dollars to have us pay for it and set it up would’ve been more valuable than giving the information to them and just the inconvenience to them of having to call and set out. The only thing that I would be curious about as to how that works out with insurance and liability as far as our insurance company doesn’t cover any of the tenant’s personal belonging. So if something did happen during the moving process as to how, if we hired the company, if there would be any pushback on us, if for some reason their insurance didn’t cover the tenants things because we were the one.

Ashley:
So that would be the only piece I would be actually curious about. But I think my mistake there was not trying taking the time to figure that out and that we should have provided that service for the couple hundred dollars you’re saying it would’ve cost to actually have the painting done. So cool. Yeah, see, I always learn new things on these episodes and that’s how I love having the guests on. It’s definitely an advantage to being one of the hosts on the Real Estate Rookie podcast, so I love it. But Dion, thank you so much for coming on today and for sharing your experience and for sharing your advice on the binder strategy. Everyone has learned so much today and hopefully they’ll be able to also send you a message letting you know that they put the binder strategy into effect and have had an amazing experience keeping those tenants in place.

Ashley:
So if you want to learn more about Dion, you can go to our show notes and we’ll have his information linked there. Make sure you visit biggerpockets.com/leases if you would like to find a lease agreement to use for your new tenant for the property you’re acquiring, or maybe you just want to update your current leases in place. I’m Ashley, and he’s Tony. Thank you guys so much for watching listening. Whether you’re on your favorite podcast platform or on YouTube, make sure to like, subscribe or leave us a review on your favorite podcast platform. We’ll see you guys next time on Real Estate Rookie.

Help Us Out!

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!

In This Episode We Cover:

  • How to ensure that your best tenants stay at your rental property long-term
  • How to get tenants to ask for a rent increase with the “binder strategy”
  • The agreement you MUST have in place when inheriting tenants
  • How to properly vet tenants before offering them a lease renewal
  • Retention versus turnover (and when it’s time to let a tenant go)
  • What you should know before raising rents on Section 8 tenants
  • And So Much More!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Buying His First Rental at 19 by Doing What Most Newbies Are Afraid to Do

7 Properties in 10 Years by Turning 1 Home’s Equity Into an Entire Portfolio

by | Sep 25, 2024 | Investing, News Feed

This assistant principal slowly and steadily used home equity to invest, helping him acquire seven properties in just over ten years. These properties have now seen sizable appreciation, and he has hundreds of thousands of dollars in equity, all thanks to taking it slow and making the right moves on the right rental properties. This might be one of the most repeatable paths to wealth out there, and you can copy it to a tee to build wealth, too!

James Likis got his start where many rookie investors do—house hacking. Except it started WAY before he was an adult. James remembers his family house hacking as a kid, which prompted him to buy, not rent, as soon as he started looking for his own place to live. After house hacking for years, he saw his equity grow and later used this one property to buy his dream home, which would help him build even MORE equity.

James has used this equity-recycling strategy to buy over a million dollars worth of real estate, and it all started from ONE house hack. You can do it, too, and like James, you may begin searching for even more affordable housing markets where your dollar can stretch further. Today, he’s sharing how he used his home equity to grow his real estate portfolio, why he decided to invest out of state, and a specific home renovation loan he used to turn his second property into a fully-renovated, high-appreciating family home!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
To be successful in real estate, you don’t need a massive portfolio. You also don’t need to buy several properties a year or have hundreds of thousands of dollars in capital to get started. Today’s guest shows the power of slowly building a portfolio of seven properties over 10 years focused on appreciation and not cashflow. This is the Real Estate Rookie podcast. I’m Ashley Care, and I’m here with Tony Jay Robinson.

Tony:
And welcome to the show where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Now, today we’re going to discuss why house hacking is such an incredible option and how to do it even when you have a family, how to leverage a cash out refinance in a HELOC to scale your portfolio. And lastly, why appreciation is the focus of our guests today’s portfolio. So welcome to the show, James Ku. Super excited to have you, brother.

James:
Thank you for having me guys. I listen to you all the time. It’s a pleasure to be here,

Ashley:
James, to kind of start off the show, give us a snapshot of your life, where you’re based, what career you’re in, and then we can kind of go into your real estate journey.

James:
Sounds good. So again, my name’s James. I live in Boston, Massachusetts, born and raised locally. I’m a former teacher, now assistant principal of a big K to eight school in Boston public schools. And so yeah, I’ve got started real estate investing a long time ago and sort of slowly grown it from there. So excited to talk with you all about it.

Tony:
James, one super important question before we move on with this podcast. So I’m a southern California native. Obviously I’m a huge Lakers fan. I think the million dollar question here is are you a Boston Celtics fan?

James:
Tony, I’m really sorry for you and your life choices in some regards. Yes, I am a Celtics fan. You got that right? I’m feeling really good. Basking in my championship glow. Oh yeah,

Tony:
You guys had a good year, man. I’ll give it to you.

James:
We’re ready for another one, boy. Hey, we’re after it. No, I love my cs, so they spur me on. They inspire me with their excellence in my real estate investing too.

Ashley:
Okay, so were you a teacher when you started actually investing or were you an assistant principal at that time?

James:
Yeah, no, I was a teacher at that point. Actually, the way I got started was growing up my parents had owned a condo and that’s where I was born, that’s where we lived. And when my brother was born, that’s where we lived and then sold that condo to buy a two family and that’s where I grew up and where they still live. And so very early on I was aware that there was somebody who lived next door that they were helping pay for the house and I thought, oh, this is a great idea. And sort of growing up, one of the things that always stood out to me from my dad is that he was really disappointed that they had sold their condo. And so I was like, okay, going forward, I know I want to own property, I know I want to have something for myself, but also this makes sense numbers wise as something that could work. I’m a former math teacher, the numbers all make sense to me in terms of house hacking at that point. Didn’t know the term, but I was like, that’s what I want to get into. So that was in my second year of teaching, coming out of a master’s program, did a couple years of teaching and bought my first property a condo in Boston.

Ashley:
We kind of talked about your first strategy is house hacking and you kind of led into why you chose house hacking because you learned growing up that someone else could help pay the bills for you. So when you first started this, you went after this first property, was there a reason why at that point in time you decided now is the time for me to start investing in real estate?

James:
It was good timing. It was 2013, so we’re coming out of the crash and Boston did better than a lot of other places in that regard, but it was actually, I was looking and saw that if I was going to rent, then my now wife then girlfriend, Ivy Rose, I was looking to move closer to her and I was looking at prices and I was like, I’m going to be paying a little bit more to rent than I would to own and if I own and have a couple of roommates, I’m going to be paying a lot less money. So that’s what got me started there. It wasn’t until later that I started really taking on real estate investing as versus just home ownership. At that point it was more like I wanted to own a home. I knew that if I had some roommates it would make it more affordable. So later on is where I got more into the real estate investing bug per se.

Tony:
And was that first house act, James, was it a single family home where you just rented out the rooms or was it multifamily, duplex, triplex or whatever?

James:
Yeah, so in a lot of multifamilies in the city in Boston are triple deckers, so it’s three condos stacked right on top of each other. So it was a three bed, one bath condo that I moved into had two roommates, two friends who moved in with me and right off the bat I went from paying what my mortgage at that point would’ve been about 1700, 800, $1,800 to paying about 300 out of pocket myself. They were getting a good deal on rent, I was getting a really good deal. So it was a win-win situation and I did that for about five or so years where I had roommates and then eventually my now wife moved in as well. But so we house hacked that for a while and that really gave us a lot of flexibility, helped us do a lot of other things financially while we were getting our foundation set.

Ashley:
What was the next step after that your now wife moves in, how long did you stay there and then when did you move on to the next property?

James:
Yeah, we were in that condo for about six and a half years and a couple years before that. So we bought it in 2013 or I bought it in 2013 and then come 2019 we’d been looking for a two family for a while. Again, that was sort of anchoring back to my parents. That was the goal was like, let’s get a two family, let’s keep this single or let’s, let’s keep this condo. We’ll be in a really good spot. At that point we’d been really patient, we’d been looking on the MLS, seeing different two families that had come on for about two years. Made a couple offers but weren’t being super aggressive. And then we stumbled upon the place that we’re in now, which has a ton of space compared to a typical place in Boston. And at that point we were thinking we were going to use a home equity line of credit and somebody introduced me to a cash out refinance, had never heard of that before. So we went ahead and lined that up, did that while we were still in the condo and pretty much within a month and a half turned around and bought the two family that we live in now. And so that’s where we got a little bit more into it. And then shortly after that is when I was introduced to BiggerPockets and then we sort took off from there with more real estate investing bugs. So

Ashley:
I need you to break down the comparison there of the HELOC and the cash out refinance. And why was the cash out refinance actually better for you in this situation?

James:
So a home equity line of credit is where you’re using your house as collateral and you effectively, a line of credit is similar to a credit card where you can use it or not use it, but it’s secured by your property. And so they’re looking at your total loan to value your mortgage plus the home equity line of credit amount versus the value of the property. And that’s something you can use and then repay however you want. A cash out refinance is when you’re getting a brand new mortgage and they’re giving you a difference in cash at that point and then you’re carrying that new mortgage going forward. So I’d only known about a home equity line of credit. I was not BiggerPockets educated at that point. I’d only learned about that from my parents as well. And I thought that was sort of the only way to tap into the cash.

James:
And at that point I knew back in 2013, I bought our condo for 357,000 and I knew it was worth upper 500 600 at that point. And so I knew that there was a lot of cash sitting in there that I could do something with. I just didn’t know the way to get to it. And so that’s where at that point, as it’s still being our primary residence, doing a cash out refinance allowed us to still get a really competitive rate on a 30 year fixed rate mortgage. And so we decided at that point, let’s take the cash out versus going with a home equity line of credit where we would have to sort of pay that off over time as well just roll it up in a new mortgage instead.

Tony:
One follow up question on the difference, we get this question a lot on the rookie replies, should I heloc, should I cash out refi? And for a lot of people, at least right now, if you locked in a 3% interest rate, maybe refinancing into a six doesn’t make as much sense. But I guess when you looked at the numbers for yourself, what did you see in the refinance that made it more attractive than the heloc?

James:
Absolutely. What I saw was the interest rate was going to be about the same. We were in historically low interest rate environment, well I guess it got even lower in the pandemic, but we were in at that point a historically low interest rate environment, so we weren’t going to take a big hit on the interest rate. And I knew that when we moved out because that was the plan is we were going to do the cash out refinance while it was still our primary residence, which it wasn’t going to for long because we knew we were going to move into this new two family that we’re in process on that at that particular point, the cash we could use would be more advantageous going into that new property. Even though the condo at that point when we went to go rent, it was effectively cashflow neutral. There was no big spread there. It was effectively just paying for itself, but that was five years ago, so it’s looking better now, but at that point it was like as long as it can handle itself and allow us to continue to own and control that property, then we’re going to feel like that’s a win. And so that’s sort of how we thought about it in terms of that trade off.

Ashley:
So kind of looking forward here, house hacking has been your strategy. Have you ever gotten shiny object syndrome to go after anything else?

James:
Yeah, all the time.

Ashley:
How do you control that

James:
Right now? Not, I mean we got a couple different projects going on at this point. The big thing for me has been we went from being really patient and really sort of diligent. So like I said, the condo was about six and a half years. We’ve been in this two family for five, we’re not going anywhere. I’ve got two boys, we’re all growing up here. This is the house that they’re going to be in. But with shiny object syndrome, the ideal long distance real estate investing always really stood out to me. The numbers made sense to me and as I hit a point of thinking about more of what do I actually want to do with real estate? How can this be something that really supports us as a family now and later, that’s where we started thinking more about going long distance and that’s ultimately what we decided to do long distance with long-term rentals.

Tony:
So tell us a little bit more about that transition going from the second house hack where you’ve kind of laid your roots that you don’t want to upend and do another house hack. How did you make that transition into going long distance? I think a lot of people love the idea of investing in their own backyard, but when it turns into going somewhere that they maybe don’t know is intimately, there tends to be a little bit more fear, a little bit more hesitation around that. So maybe walk us through what steps did you take to build up the confidence to do that remotely?

James:
At that point, a friend had introduced me right after we closed on the two family to BiggerPockets and so that was fall of 2019 and I’ve listened to thousands of podcasts, read books, been in the forums, just trying to educate myself as much as possible, the comfort with long distance real estate investing, give David Green a shout out for his book on that in particular. Going through that and just understanding the steps made a lot of sense to me. Hearing case studies from other folks who are doing it, I’m like, okay, this is a thing people do. It’s not like I’m the first person to do this. And just looking at the numbers and thinking about it, those were the big things. And at that point too, having a family having, by the time we started investing long distance, we had at that point a 3-year-old and a 1-year-old.

James:
Another big thing for us is Boston is a high cost of living area. The numbers on the condo are really exciting, but it also comes with a bigger mortgage payment every month and I knew going long distance we would be at a lower price point, but still in a quality neighborhood the numbers would work out in terms of what the rent was versus the value. And so it was just looking at it and sort of thinking about the trade-offs there and deciding, you know what, that is something that we want to try and do. I talk to folks a lot about it when they hear that I invest long distance, they’re like, but you haven’t seen the house. And I’m like, I’ve been in a lot of houses as I was looking for my condo with my two family. I know I don’t know as much as an inspector.

James:
I don’t need to be there to confirm that that’s just a fact that I already have. They’re going to be there, they’re professionals and really just setting up those win-win situations where we have multiple professionals involved. We know that if we execute this successfully, everybody’s going to benefit those. The those team dynamics are things that I rely on the lot going into the long distance and also frankly, being a dad, being busy as an educator as well. Another thing is instead of me going and driving somewhere locally to walk a property and see where we’re at with a project, I can just ask somebody to take a video and send it to me. I watch the five minute video, I feel pretty good about what’s going on. So there’s efficiencies there that come in too when you do long distance while there’s, in terms of how hands-on you are, there are also benefits in terms of how hands-on you actually need to be and still getting the information that you need. So those were things that made me comfortable to think about going long distance to begin with.

Tony:
James, you laid out a lot of great points there, but the one that I want to quickly highlight is the whole inspector thing. Nationally, I talk about this a lot in the podcast as well. It’s like, especially as a new investor, how much value are you going to provide above and beyond what an experienced investor friendly real estate agent will provide? What an experienced, maybe a general contractor, if there’s rehab work that needs to be done that they’re giving to you in their bid and that an experienced property inspector will give and an appraisal report, all these different things, people going through the property. So I love to hear that. I do want to know in Boston, when you went long distance, what market did you actually land on?

James:
We went Kansas City to start. That’s where we’ve got my wife and I, we used a home equity line of credit that time to fund two long-term rentals in Kansas City. And then from there we’ve continued to scale up and grow there as well in addition to looking at my wife’s from Grand Rapids, Michigan, so that’s another market that we’re looking at now and getting active in as well.

Tony:
How did you guys land on Kansas City? What was it about that market that made you say, Hey, out of all 19,000 cities, this is the one that makes sense for us?

James:
Again, just like looking at the numbers we did go through, we got started with a turnkey provider just because we thought the extra set of eyes as we talk about building a team and having that mutual accountability would be helpful and just looking at the price to rent ratio more or less and saying, okay, we think this will make sense. We’re seeing there’s good inventory that’s both on the MLS and off that we can pay attention to here. And so that’s sort of what took us there. Honestly, Tony, at that point it was weighing multiple markets and then also sort of swimming in all this knowledge of things I could put to use. But until we actually picked the market, there was only so much we were going to do. And so I’m a big believer on you just make a choice, you go forward with it, you learn through it and that it’s not about necessarily maximizing a return or trying to get the best deal possible. It’s like if I start and continue the work there, I know I’m committed to doing this and so I know ultimately I can have things shake out the way I need them to shake out for me and my family.

Ashley:
Stay tuned after a break for the details on how James pulled equity out of his primary residence to grow his portfolio out of state. You’re hoping to invest out of state, you will need a team to help manage your properties. Go to biggerpockets.com/property manager to learn more. Okay guys, welcome back to the show. We’re joined by JA kus.

Tony:
James, if you can just really quickly define what exactly is an FHA 2 0 3 K loan because I think some people maybe know FHA, some people don’t. What is that? And I guess why were some of the contractors not so eager to work with you?

James:
The FHA parts comes from a federally, it’s a federal program. The 2 0 3 K loan is, it has to be your primary residence and you’re getting money as part of your new mortgage to do the renovations and whatever kind of scope of work you would like to do in the property to bring it up to the quality that you want it to be at. And so the reason contractors don’t particularly love that is because they, instead of getting paid any amount of money upfront, they’re getting paid on these draws after the work they’ve done is complete. That’s not how every contractor wants to work. So that’s sort of one of the hangups for folks is that there’s going to be another set of eyes. I think most contractors are fine with that, but the actual pay structure and when they’re getting paid and how they’re getting paid, those were things that I think were a hangup for a lot of the contractors we spoke with.

Ashley:
So let’s go back to the financing piece of things here. So you got your first house hack and then the second one you did the cash out refinance on your first house hack, deployed those funds. And did you just use those funds or did you get a type of loan product to purchasing that second property?

James:
Yeah, the second property was a little bit of more of a project necessarily than we knew we were getting ourselves into. We did an FHA 2 0 3 K loan, so we did roll pretty much all the cash we pulled out of the condo as the down payment. And so an FHA 2 0 3 K loan is where it rolls the renovation costs into the mortgage ultimately. And that’s another process where you’ve got sort of a third party involved with the bank in terms of paying attention to the work that’s being done. And so that was a major renovation that we’d done, the house that we moved into to really make it the home that we knew we wanted to be in. And so that’s how we sort of got the home that we wanted even though we didn’t find it that way when we first got there.

Ashley:
So before we move on to how you funded your other properties, what are some things that we need to know today about going through that loan process with that loan? What are some things you wish you would’ve known ahead of time?

James:
First thing when you start calling contractors, when you’re using that kind of loan, tell them you’re using an FHA 2 0 3 K loan. I didn’t even at that point, another example of, I didn’t even know the exact name. I thought we were doing a renovation loan and then as we got deeper, they were like, no, it’s called a 2 0 3 K loan. A lot of contractors not interested in a 2 0 3 K loan turns out. So we were scrambling to get a contractor in and get a bid and get everything approved. The big things are you have the support of somebody who comes in and gives you a full scope of work based off of what you would like to do. And then you’re vetting contractors who are giving bids off of that. There’s a draw process where that same person comes out and inspects the work and make sure it’s sort of not necessarily up to code because there’s still inspectors who are doing that, but making sure the work, if they said they put in flooring, making sure there actually is flooring put in before they’re releasing draws.

James:
And so it was definitely, we learned by doing it, I would do it again. It was stressful. I don’t know exactly how we got all the way through it, but it ended up turning our home from a four bed, two bath to a four bed, three bath with a hole renovated upstairs with a master suite that didn’t exist before, added another bathroom up there, which is really wonderful as well for having family visiting and had a rental unit on the first floor that was already in good shape, but did some minor more cosmetic things down there as well.

Ashley:
Okay. So after this house hack and you decided you wanted to go investing out of state, where did you get the funds to go and deploy into these markets?

James:
So at that point we then started using a home equity line of credit on our primary residence. So our new two family, that’s where we got the capital from. And our thinking on that was, I know this is not like a, I wouldn’t say people should do exactly what we did, but we used the home equity line of credit to fund down payments rather than a quicker turnaround on that capital. And our thinking was at that point we had the rental income from the condo, we had the rental income from downstairs. We felt like we’re in a pretty sound financial place and on our personal finances side of things and the trade-off was basically we’ve been doing all this learning about real estate investing. We’re really finding this as something that my wife and I are interested in. We see it as a hobby that makes us money and it’s something that we know we want to do long term.

James:
And so the trade off is do we wait a couple years where we’d have a down payment to buy another property long distance or do we use that home equity line of credit and just sort of use the cashflow from our portfolio overall to help pay that off. And so that was the trade off we decided to make is we went with the home equity line of credit to fund it so that we could start getting into it and start learning our lessons sooner because I knew that whether we waited another couple of years and bought our first property long distance or did it sooner, we’re going to have the same growing pains either way and just wanted to move that timeline up in terms of getting right into those growing pains and learning as much as we could as quick as we could.

Ashley:
I just want to point that out as having that option available, but making the comparison. So in reality you could be taking a chunk of money every month from your paychecks and setting it aside in a savings account, but instead of doing that, you drew off your line of credit and now you’re taking that chunk of money and you’re paying back your line of credit every month. So this definitely is a tool that can be used, but as you said, you were in a good financial position, you had your other income streams coming in plus your W2 job. So I just want to give that with a word of caution, but also a great tool of how to leverage debt to build wealth. So from that moment when you decided to buy those long-term properties, how long has it been and how much have those properties appreciated over that timeframe?

James:
So that was spring of 2022, so we’re two and a half years in Kansas City continues to be a pretty steady market, the appreciation’s five or 6% a year, I think the last couple. So properties that were, I think when we bought ’em, they’re around one 60 ish each. The two that we got now, they’re around 180, so it’s nothing crazy. They’re cash flowing a couple hundred dollars a month, they take care of themselves. We’ve had a couple sort of bigger rehab pieces or bigger repair pieces that we’ve had to do with one of the properties in particular that’s hurt it a little bit, but again, I’m looking at it as I’m holding these properties for a long time. I’m doing it to build wealth. I don’t need, the thing I need the cashflow to do is to help me hold the properties so I don’t have to sell them at the time. I don’t want to sell ’em, but I don’t need the cashflow for anything else right now. That’s just sort of a long-term play that we’re just sitting on and letting them do their things, let rent continue to increase, which it has been doing out there in Kansas City in addition to here in Boston. So just sort of playing that slow and steady game.

Tony:
James, do you have a specific cashflow number that you are shooting for right now

James:
In terms of for myself as a overall number I would like to get to, getting to somewhere like $5,000 a month would allow me some flexibility in my work life. But on each individual property, are you asking individual property?

Tony:
Both, yeah, I mean overall and I guess individual if you’ve got targets there as well.

James:
I think on the individual properties front, that’s where I want to make sure if we’re at least like a hundred to $200 at a starting point, once I’ve accounted for vacancy maintenance, CapEx, et cetera, I feel good about moving forward with that deal provided that the properties in an area that I feel good about investing in. And then overall looking to just continue to build a portfolio where we can get to a place where we can create some work flexibility for myself or my wife. My wife’s not interested in leaving teaching anytime soon. I could do for maybe not working full time, but we’ll see when we can get there. The goal is to do that in the next few years and just to sort of be again, slow and steady with getting a little bit more aggressive with some of the work that we’re doing now in terms of setting up a partnership as well.

Ashley:
James, I also bought my first property in 2013. It wasn’t a house hack, it was a duplex as an investment property, but I had never even bought a primary residence yet for myself at that point. But just over that timeframe from 2013 to 2022, so almost 10 years, I did sell a couple of the properties that I had first initially bought and just over that timeframe, some of them doubled in value and I was able to sell them and then to take that money, that capital and put it into something better. So I started off with these small little cheap properties and kind of maintained them. They had very little cashflow. It was not a lot at all, some more than others, but it was after that waiting game, I was able to sell them for way more money than I expected. And that really at that timeframe really opened my eyes to, there is a second side of investing that I want to tap into more is the appreciation because I never bought for appreciation to start, I never looked at that. It was all cashflow like I want to quit my job, I want to quit my job.

James:
No, I hear you completely, Ashley. It was actually August was a cool month. So we track our properties on Redfin and I got an email at the beginning of the month with the condo that I’ve been referencing. So it’s 11 years later and I get a little notification and it’s telling me the new value that they think of the property and it’s officially doubled in value. So it took 11 years, that’s about 6% a year, but that’s a property that helped me and my wife pay for our wedding, helped pay it off for student loans when we did our cash out, refinance helped us was the down payment to buy our two family that we live in now, which has generated a whole lot more equity that we’ve then used that equity to invest long distance with. And now we just opened up another home equity line of credit on that property as an investment property that as we are starting to transition now into thinking both about the long-term rentals but also doing some fixing flips as well. And so now we’ve got another big old chunk of money that we can access out of that same property. So my wife says it’s the gift that keeps on giving. She’s like, we’re never selling that property. I was like, we might sell it one day, but right now it’s treatment’s pretty good.

Tony:
Alright, we have to take the final break, but more from James on how he’s building his long-term wealthy real estate. Alright, let’s jump back in guys.

Ashley:
Well James, look at all the things that you were able to do just with that first property and I think that’s a great part of this episode is that you don’t have to have a large portfolio to really make a difference in your life. So I want to go back to the house hacking piece and some people listening may think that it is not possible to house hack with a family. What would your response be to that? I

James:
Think it definitely you should consult with your spouse as a starting point, but after you consult with your spouse, I think that it depends. This is all like trade-offs on comfortability versus profitability to some degree. In our case, we’ve got a two family house where we live on the second and third floors and somebody runs the first floor. And so other than having to go up an extra flight of stairs, it doesn’t cause much friction. I’m not at a point in my life with having two boys under six. I don’t know that anybody would want to share rooms in our home anyways, but we definitely wouldn’t want to take that approach. But that’s why a two family had always appealed to us is having that second unit that is a standalone unit that’s separate from our own home. And so I think it is, I know that I know how beneficial it’s been over the long run for us both when we started doing it in the condo and now doing in the two family.

James:
The rental income from downstairs pays for over half of our total monthly costs with the mortgage and it allows us to live far more cheaply for the amount of space we have in the city than we would be able to do otherwise. And so those are things where it’s not for everybody, but I do encourage anybody who’s interested in talking with me about buying a home for the first time, I’m like, you might think it’s crazy, but having a roommate having a second unit, these are things that if you do that, I think you will ultimately look up a few years from now and be very happy that you did. So I’ve encouraged some folks to go that route, but don’t put too much pressure on people, especially if that’s not the thing that they necessarily feel like they want to do.

Tony:
James, I want to get some of the details about the actual purchase. So we know that when you bought it, it was a four two, you did the renovations to turn it into really nice four three, but what was the initial purchase price and then how much did you have to invest into the rehab?

James:
Yeah, so we got it down. It came on in the summer. It was just sort of like a slow market and the property popped back up as a price adjustment and my wife was like, we should really go check it out. And at that point we’d had a son was about to turn one, it’s the middle of the dog days of summer and we’re like, sure, we’ll go check it out. We came to the property, nobody else is here. We’re looking around, we’re like, this is a ton of space. These kitchens are updated, this is a good start. And so the price had we were able to negotiate it down, we ended up paying 8 87, which is a crazy number in many markets, but for a two family in Boston, it’s not too crazy. And then with the FHA, the 2 0 3 K loan portion, our rehab was about 150,000 for the work that we did as well. And so for the down payment, we came in at sort of a random number around I think technically like 12% with the money from that cash out refinance that we brought over.

Tony:
So the total then loan balance was the, I think 8 87 plus the one 50

James:
Minus whatever. We came with a down payment at that point. So I think it was around, came to about eight 80 I think is where we started with the total balance and that’s where, just off the bat, even at that we were going to be paying about $3,000 per month I think at that point out of pocket plus the rents that we were getting from downstairs and knew that we had some different levers that we could pull as we move forward to reduce that monthly cost.

Tony:
And what is that same two family worth today?

James:
We’re around 1.3 million now, so bought it for just under nine, did some renovations. So like I said, it’s been a good equity play and we’re in a neighborhood in Boston that continues to appreciate, it’s just going to keep on marching, so we feel good about where we’re at with it.

Ashley:
James, before we wrap up here, I’m curious about the management of doing the rehab. So give us some tips and tricks that you’ve learned to managing contractors to do a $150,000 rehab.

James:
That one learning by doing again, tried to be over here about once a week at the same time we were doing, we had contracted out a lot of the more major stuff, but we were doing painting, doing things that are a little bit more cosmetic. And so just being involved, being in communication, I think that’s one of the strengths. Just thinking about as a real estate investor, what are the superpowers, what are the things that you’re particularly good at? Building really strong relationships, having clear communication and being somebody who follows up. Those are some of the things that for me, stand out as things that I know I bring to the table. And so we were fortunate that we had a contractor who mirrored a lot of that back. We went through a process of just talking to different folks we had gotten a bid from.

James:
We did get lucky to some degree in terms of picking the right person there, but just being somebody who’s present continues to talk, ask questions, but doesn’t micromanage. That’s a big thing for me with contractors is it’s like ask questions, but be clear. You’re asking it because you’re curious, not you’re actually asking to tell them. Sometimes you do have to tell contractors what to do, certainly, but I do think having more of a curiosity and an orientation to just making sure that we’re on the same page are things that are really beneficial, whether you’re doing it locally or long distance. I think those are things that really serve you well.

Ashley:
Thank you so much, Tony. Any last questions before we wrap up?

Tony:
No, I feel like we had a lot of the important things, James and I just want to echo what you said earlier about how you build confidence going long distance because for a lot of people, they live in markets that are like California, that are Boston, that are expensive to try and buy rental properties in. So building that confidence to go out of state I think is a lever that maybe more people needs to get comfortable trying to pull.

James:
I completely agree, and I think it’s also, I think a thing that sort of getting to my why a little bit in terms of the real estate investing side of things is that as you think about getting started and if you want to go forward and you find real estate interesting, it’s something you want to do. I think those are key elements to it and you can figure it out and you can build the relationships to get the things done that you want. For me personally, I never thought I was going to buy properties in Kansas City, Missouri that I’ve been to one time in my life. That wasn’t a thing that I ever thought I was going to do, but the more I learned and the more I just thought about how that could really serve my family and just having different things that have come up over the last couple of years, I lost my job unexpectedly.

James:
At one point my mom’s had some health difficulties. We had a brother-in-Law who passed away, who had young kids. Also, it’s just sort of like I was sitting there continuing to think about real estate and I’m like, might as well get started. It’s something that I want to do. It’s things that I want to invest in. I want to set my family up and if the worst thing is that I’m going to have to build relationships with some contractors and maybe fire them or I’m going to have to work through a couple real estate agents to find the right one, or I’m going to have to argue with an inspector over something that they found. It’s like those all seem pretty worth it. Given that with just a few purchases, again, I’ve gotten more active in the last couple years, but just buying one property, buying a second, those are things that fundamentally alter the financial trajectory of your family.

James:
And if you do have kids, set your kids up for something different than what they had been on before. And so for me, digging into those relationships, working through those problems with folks, dealing with whatever headaches come up, those are just things that I just can tick off my list. I know that at the end of the day I’ve got some properties under our control that are going to pay for themselves, going to set my family up, going to set my boys up and are things that are just really worth it for me to invest that time in and that those challenges are just well worth it for me.

Ashley:
James, what an insightful way to end this episode today. And I 100% agree with you. As you were talking, I was thinking about getting uncomfortable and how some things you just don’t want to do or you get that uncomfortable feeling, but if you really look at the scope of things that it really is worth it to do these different things as a real estate investor, to have that reward, to have that feeling of financial freedom to build wealth for your family or whatever your why is what you’re trying to reach is doing. These things aren’t that bad once you look at the big picture

James:
A hundred percent. And I love our tenants locally and I manage those properties myself, and every single time I get a text message from one of ’em, I’m like, oh my God, what happened now? But it’s like that’s a momentary thing and we’ll get it solved, whatever we need to do. And it is just, there are little problems if you take the big picture. They’re just little steps along the way.

Ashley:
Well, James, thank you so much for coming on to the episode today. We really appreciate it, great insight and knowledge of your investing journey. We really appreciate you taking the time to share with us today.

James:
Absolutely. Thank you both for having me.

Ashley:
If you’d like to be a part of the rookie community, make sure you join the Real Estate Rookie Facebook group. You can also find us on YouTube and make sure you are following us on your favorite podcast platform. I’m Ashley. And he’s Tony. And we’ll see you guys on the next episode of Real Estate Rookie.

Watch the Episode Here

https://youtube.com/watch?v=7_IusfcQUCc

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In This Episode We Cover:

  • Why you DON’T need to rush to build a successful rental property portfolio 
  • Using home equity to invest and cash-out refinances vs. HELOCs
  • The easiest way to start investing in real estate that rookies should try
  • Home renovation loans and what you MUST know before using an FHA 203(k) loan
  • Why focusing on investing for appreciation (not JUST cash flow) will make you wealthy
  • Long-distance real estate investing and buying in more affordable housing markets
  • And So Much More!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Buying His First Rental at 19 by Doing What Most Newbies Are Afraid to Do

How to Hire a Virtual Assistant for Real Estate Investing for Just $5/Hour

by | Sep 23, 2024 | Investing, News Feed

Want to work less, make more, and do it all by spending as little as five dollars per hour? Great! You’ll need to know how to hire a virtual assistant for real estate investing. Doing so can free up hours (or even days) of your time per week, letting someone else, who might have even more experience than you, help grow your business/real estate portfolio while YOU focus on the things YOU do best. Not only that, virtual assistants are often cheaper, faster, and better at tasks you’ve considered only for full-time employees.

We use virtual assistants daily in our real estate businesses and wouldn’t accomplish half as much as we do without them. These crucial team members are so integral to growing your real estate portfolio that we decided we needed an entire episode dedicated to them. So, we brought a former virtual assistant, now leader of HireTrainVA.com, Valentina Brega, to the show to share her advice on vetting, hiring, and training a top-tier (but surprisingly affordable) virtual assistant.

Valentina stresses (and we agree) that EVERY rookie real estate investor NEEDS a virtual assistant to scale faster. She’ll teach you when the right time to hire one is, exactly how much they cost, what type of work you should delegate out to a virtual assistant, where to find a virtual assistant, and the virtual assistant-vetting checklist you can use to find one who will help take your business to new heights!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
Managing your first few real estate deals can feel like a juggling act, finding properties, handling paperwork, coordinating with contractors, managing tenants, the list goes on. But what if I told you there’s a way to streamline all of that and focus on what really matters? Growing your portfolio, hiring a virtual assistant could be the game changer that takes your real estate business from chaos to control. And today we’re diving into why every rookie investor should consider bringing one on board. This is the Real Estate Rookie podcast. I’m Ashley Care, and I’m here with Tony j Robinson.

Tony:
And welcome to the podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Now today we’re joined by Valentina Brega, who started as a remote assistant when she immigrated to the us, and now leads a team of over 100 virtual assistant. So Val, super excited to have you on the show today.

Valentina:
I am so excited to be here. Thank you for having me on.

Tony:
Guys, what we’re going to get into today, we’re going to talk about how to hire a virtual assistant that will help scale your real estate portfolio. Ways to filter how a virtual assistant will be an asset to you and tasks you can hand off to a virtual assistant today.

Ashley:
Okay, so Valentino, we want to learn a little bit more about you first. So tell us how you went from doing remote work to actually building out your own business of virtual assistants.

Valentina:
This is kind of an interesting story because I never thought that I would be working remotely. That was not in the plans. So the idea, like you mentioned, I moved to the United States in 2018. We immigrated here after my husband won the green card lottery. I dunno if you know this is a thing, I’m not from here. I’m originally from Eastern Europe and people from other countries can apply to get the green card here and the chances of being selected are really, really minimal. It’s a lottery. It doesn’t matter how well you speak English, it doesn’t matter how educated, it’s a lottery because they try to give everyone the opportunity to come to the states. And we’ve been applying for years, years, years. And it was like refuse, refuse, refuse. At that time when we came here, I had just had my daughter, she was two months old When we found out that we won the green card lottery, I’m like, congratulations, we got the green card and as happy as we were back then.
But it was also stressful because what do we do in the us? How do we know what we can have in Europe? What are we going to do in the us? You’re not given a place to stay a job or anything like that. So we got here, we don’t have a house to stay. Well, we did have a place to stay for a while, but we didn’t have a place of our own or something to call a home or permanent. We didn’t have a car, no jobs, no rental history. No one would rent us anything because we have nothing, no credit score because we don’t have that in our country. So we are completely like zero. Nobody knows anything about us when we come here to the states. And on top of that, we found out that we only have $400 in our pocket to rely on.
So we couldn’t access our funds from back home for, we called the bank, it’s like our credit card doesn’t work, our debit card doesn’t work. And they said, oh yeah, you should have mentioned that you’re leaving the country. You have to be here present to access that money. I was like, we’ll lose the green card if we do that, we can’t do that. So we literally had $400 in our pocket. It’s like, this is swim or sink, this is it. And then I remember this real estate opportunity I was looking on indeed, and they were looking for somebody to answer the phones and I’m like, wow, that would be great. This is work from home. That would be great. But wait, I don’t have any experience in real estate. Why would they take me? I don’t know anything about real estate. I didn’t know what the word ballpark meant.
I thought it was a park where people play ball. I just like to tell you how much of a rookie I was in real estate myself. So that tab was open on my browser for days. I didn’t have the courage to apply. And then one day I said, you know what? Worst thing they can say is say no, I’m going to go ahead and apply. So I had the interview with the CO of the company and after that interview I told my husband, this is it. This is the company for me. We were so aligned with the core values, with our vision with it was just the perfect, perfect opportunity and it was great. This was my initial remote assistant, so to say, my work from home experience, and that was before Covid, that was 2018. So it was perfect. That’s kind of how I got started.
I stayed with the company for three years and we made millions of dollars. I was promoted to in a sales role as well, overseeing the acquisition reps. I understood so much about real estate that I had other investors come to me and say, can you teach my team everything? How are you making millions for this company? Teach my team how you do that. After a while, I said, you know what? I’m not unique. There’s nothing special about me. I can find people like me from around the world who would also be hungry, who would also be motivated, who would also love to have the opportunity to work on the US market. So that’s kind of how I started finding one person to people. We had success and then it got to where we are right now, three and a half years later, and we have placed hundreds of virtual assistants with companies and they generated tens of millions of dollars for our collective clients. It was meant to be the stress that I had initially. Everything was, it was just meant to be, I think. But that’s kind of my journey, how I started here and how it got here.

Ashley:
Valentino, what an inspiration you are. First of all, just having $400 in your pocket and like you said, like sink or swim and you’re hungry. You had to make it work. So I’m curious, from everything that you have learned working for this real estate company, training thousands of people, why do you think that a rookie investor just starting out needs to hire a virtual assistant to be on their team?

Valentina:
It really depends on where they are in their journey. I have worked with so many beginners, so many rookies, a lot of people, they have their W2 job and they don’t have a lot of time. Okay, so in that case, it makes sense to hire a virtual assistant. In other cases, because you’re at the beginning of your journey, you may not know as much about real estate or you’re still in the learning process. There are virtual assistants who have done the same job for years. They might know more about lead generation or lead nurturing or how to talk to people on the phone than a rookie investor will. There’s actually two reasons why you would hire a va. One if you’re so good at your job, but you shouldn’t be doing this job, so you delegate it to someone who can do it at 80% of your level, or you delegate up, you delegate it to an expert. And if you’re a beginner, you can find virtual assistant who have done this for years. But what I said it depends on your journey is if you have the time and if you want to go through this learning process, you can. It’s just that what I’ve seen is people scale match faster when they have somebody on their team, when they have somebody to work with, when they don’t feel like an island, they don’t feel alone.

Tony:
Valentina, I guess, let me ask, when you say lead generation, there’s a lot that goes into that. So what maybe specifically are you seeing virtual assistants do within lead gen that’s maybe valuable for Ricky, who’s just getting started out?

Valentina:
I don’t think that investors should be spending their time cold calling for the reason that you would hear a lot of, no, no, no, no, no, I’m not interested. Maybe. No, no, no. Yes, right. A lot of effort goes into finding that one yes or that one maybe. And I think as a real estate investor, your time is better spent elsewhere. You need to make connections. You need to build a rapport with maybe some agents or finding deals or managing the contractors or flipping or whatever it is that’s moving the needle and bringing revenue to your company, not cold calling. This can be outsourced for as little as $5 an hour. So if you are doing this, you’re basically saying, Hey, my time is worth $5 an hour and it’s not. You could do a lot more than this. So this is something that VAs can help with lead generation.
They can cold call, they can find out who has a house they would like to sell, get some information about the condition of the property, their motivation, what’s happening in their life, or maybe they know somebody else who wants to sell. That’s just one way. Another way is some investors send out a direct mail. Again, somebody needs to pick up those incoming calls and there are third parties who offer this service, but you need somebody who follows up with leads, who manages the CRM, who makes sure that no leads fall behind. If someone says, I need to speak to my wife, call me back in one week, we need to make sure somebody does call back that seller. So this is something that a virtual assistant can do as well because in real estate investors, they have a lot on their plate and they will forget to follow up with leads. I’ve seen this happen countless times.

Ashley:
Before we jump into how to hire your first virtual assistant, we’re going to take a quick break, but stick around because when we come back we’ll walk you through the exact steps to find a vet and onboard a VA that can take your workload off your plate and help you scale faster. So don’t go anywhere.

Tony:
Alright, welcome back guys. Let’s jump back in with Valentina Brea. So Valentina, I guess let me ask because Ashley and I both use virtual assistants pretty extensively in our businesses right now, but I think there’s also a question of when is the right time? And I get this question a ton from folks as well. It’s like, Tony, when should I actually get that first virtual assistant? I always tell folks, especially if you want to scale, if you want more than one or two properties, doing it at property one is a lot easier than doing it at property 10, 20, 30 because there’s a lot more to teach and show at that point. But you’ve obviously placed a lot of virtual assistants. What do you think is maybe the ideal timing for a rookie? Should they do it at the beginning or wait until they have a few deals done?

Valentina:
Here’s a mistake that a lot of people make. I think they want to put together everything perfect. They need to have a perfect system like I’m going to do this myself, learn the system and then I’m going to hire a virtual assistant. If you’re just starting out, you are building the system from the point you are right now. Once you get a deal under contract or two deals, you’ll be at a different level. So then your system will look different from a different angle. So I say don’t focus too much on the systems, but instead focus on getting results. So I agree with you, I think you scale faster if you do it with someone else, but even if you want to do it by yourself, if you are tight on money or anything like that, actually if you don’t have a lot of money, I think VAs are a very affordable way of learning how to be a better leader and how to scale faster.
But if you want to do it yourself, the role that I personally have for me is I’m going to do something for three months before it needs to be off my plate. So let’s say for example, copywriting, I’m going to do this myself for three months, but then this is not something that I should be doing as a business owner. So it’s the same thing for you, set yourself a deadline if you want to do it on your own, at what point do you have to be and what results do you want to see at that point? And if you’re not there, you need to find someone to help you with that.

Tony:
And Valentina, Ash and I were just talking about this on a recent podcast episode, but at least for me in my business, I keep a list of the things that I don’t want to do anymore. And literally there’s a list of stop doing these things. And as I kind of find the right people, a lot of times virtual assistants, I’m able to delegate that work off to them. But I guess when I think about it, there’s kind of two ways to build a business. You have bottom up and you have top down. Top down is when you go hire some COO and you say, Hey, go build this company for me, way expensive to do it that way because you got to hire people from the beginning with a lot of skillset to do all the things that they need to do. And you’re hiring experts who know, who know how to get those things done. Bottom up is kind of what you described where you’re starting doing everything, you’re wearing all the hats, and as the business grows, you start to pull people in. So I think for a lot of folks who are listening to the Ricky Podcast, the bottom up approach probably makes more sense because it’s more cost effective. And I think leveraging those virtual assistants is a great way to pull those people in

Ashley:
Valentina. I can see a lot of listeners right now thinking this would be amazing, this is great. I’d love to have people do these tasks for me, but what is the cost? So how does the pricing differ than if they were going to go and hire someone in in-person, maybe part-time or full-time? What does it actually cost to have a virtual assistant and do you have to pay any benefits? Kind of give us an overview of the difference of hiring a virtual assistant compared to somebody that would be working in-house with them.

Valentina:
So one of the main benefits, and I hear this question a lot, like what about taxes? What about how do I do this? So are they 10 99, are they W2? And I can’t give tax advice, but as far as my knowledge goes, and I say that this is a business expense, they’re not US residents. So 10 99 doesn’t apply. It is a write off. So it’s a business expense. So that means it’s much easier for you as an employer. You don’t have to deal with so much paperwork when you work with virtual assistants, of course you also don’t have office space because everyone works remotely. The virtual assistant is responsible for the technology, for computer, for internet speed, for phones, for everything. And in fact, when we hire virtual assistants, we make sure that they have good computer specs, good internet, all of that because they say, Hey, you expect from the company to pay your monthly salary, but they also have expectations from you and the quality of your work is on you, so you need to make sure you have the right computer and all of that.
So this is so much easier for employers from that point of view. In terms of benefits, you don’t have to, but I use it for my company, I encourage you to use it, but you don’t have to. Virtual assistants are happy to get a good hourly rate that makes sense for them. And a good hourly rate for them would be anywhere between five to $8 an hour, again, depending on their expertise. And there’s a lot to talk about the rate, but what I can say here in a nutshell, just because someone requests more doesn’t mean they’re necessarily better than those who are between five and eight. But if somebody requests two an hour, they might be beginners. They might not be the talent that you’re looking for. Just something that we’ve noticed from our experience.

Tony:
Yeah, I think that hits on it for sure. Valentina. I guess there’s different ways that you can structure the payment as well. So Ashley, I’m curious for you, for the virtual assistants that are on your team, are you paying them by the hour? Are you paying them just like a monthly salary? Are you paying them by project? How have you set it up inside of your business?

Ashley:
So I have it two waves. One is hourly, so they submit their hours every week and they’re paid and it actually charges right to my credit card. So I’m getting the reward points for that. That’s

Tony:
Actually smart. I don’t know why we’re not doing that.

Ashley:
And then for my property management company, I do have one virtual assistant who’s salary. She works 40 hours every week.

Tony:
Same for us. We have some VAs that are just on salary, same amount every month, and we expect full-time work. Some of my Airbnb virtual assistants are hourly because they have different shifts that they work, and we have some that are just kind of either project based, we’re not always using them, but maybe a small thing here this month, a small thing there next month. So we’ve kind of seen the whole gamut and I think that’s the important thing for people to understand is that you don’t have to upfront commit to paying someone 40 hours a week to get started. You could start with a small project first. If we go back to the lead generation that Valentina was talking about, it’s like, Hey va, I’m going to give you 5,000 leads as a project and I want you to dial all these leads and set as many appointments as you can. And once you’re done with that, then we can maybe decide what to do moving forward. So there are ways to scale into it as opposed to just starting with full-time work to begin with.

Ashley:
Yeah, I just want to recap right there, what we’ve learned so far about a rookie being able to hire a virtual assistant is that you can just use it as needed, use an assistant as needed. You don’t need to have to commit to anything. So even if it’s just an hour worth of work each month, you are able to hire someone to do that for you. Just that one little thing that annoys you or you constantly forget about actually doing and then have to pay a penalty fee or whatever it may be. And then the second thing is the cost. It is more affordable for a rookie investor starting out to hire someone at a lower rate than you would if you had to hire somebody in the states. For example, our maintenance person, we have workers’ comp insurance, we have disability, we have payroll taxes, we have all these different things added on that actually, even though his hourly rate is I think $40 an hour above that, there’s a lot more added expense to it, plus the commitment of I am guaranteeing you so many hours every single week, even if there’s not that much work to do.
So I think those are two. One of the really big benefits is the low cost of entry to getting a virtual assistant and then also not having to fulfill tasks for them as much as you would if somebody was on salary or somebody was working for you for a certain amount of period of time for that many hours.

Valentina:
And there are different types of virtual assistants. There’s general VA who can do a lot of things. They might know things at a superficial level, so like bookkeeping, they wouldn’t know how to do something more advanced. But entries and keeping track of expenses, they can do that. So general VAs can help with a lot of things. There’s also niche VAs. So if you need a video editor, that’s all they do. If you need a bookkeeper, we have people who just only do bookkeeping, like very advanced. They know QuickBooks, they have certifications, all of that. So it really depends on what you need because if you think about this, you work with virtual assistants, they’re people, they work on themselves, they learn, they acquire. So it really doesn’t make a difference if you hire locally or if you hire internationally, just internationally, you have a bigger pool of talent.
There’s a bigger pool of talent than hiring within a 20 mile radius from your office. So if something doesn’t work out with one va, you can find someone else because the pool is so much bigger. Because this is so attractive to virtual assistants, you will have a ton of people applying to your job ad you post a job at anywhere, people will be flooding your inbox. Doesn’t mean they’re good. They apply because they want that $5 an hour and because you choose someone, oh, there’s just $5 an hour, what did I expect? Of course they’re not good quality. No, that just means you haven’t picked a good one because everybody’s competing for the role. But if you do a little more digging, you will find the right person who will just be a game changer for your company.

Ashley:
And that’s another great point right there too, is that if the person isn’t working out, it’s a lot easier and smoother process to kind of transition into somebody else and fulfilling that role.

Valentina:
100%,

Ashley:
Yes.

Tony:
So I guess I want to throw a question to you Valentina, because I’m sure for a lot of the folks that are listening, the gear is returning, right? But I think we understand the impact that a virtual assistant can have. We understand that we can do it in a very cost effective way, but I guess the next question that comes to mind is how can I actually find these virtual assistants? So where are you going? What may be platforms or services are you using to source these virtual assistants? And then what steps are you kind of taking I guess as you’re going through the interviewing process?

Valentina:
So because we are an agency, a company that focuses on that, we actually have boots on the ground in a lot of countries we hire from everywhere in the world. So we have local connections, local relationships that help us source the best candidates. But if you want to do this on your own, there’s a lot of Facebook groups that you can go into just type virtual assistants work and you will find a ton of groups like that. Also, of course, online jobs, pH, it’s very popular. You do have to pay for that, a monthly fee to get virtual assistants. If you’re looking for someone in Latin America, for example, again, Facebook could probably, Facebook groups would be a very good place for you to start. Like I said, there will be groups that have tens of thousands of people there just because it doesn’t mean they’re all good. We interview a hundred people to find one or two good ones. Our selection rate is so small, how you interview them, how you vet them, that’s where the secret lies.

Tony:
The volume I think is super important for us. The last virtual assistants that we hired, we had to hire two, and I just posted this on online jobs pH, we had over 200 people apply. I think it actually captured at 200. We had 200 applicants of that. We had I think 80 or so that kind of filled out the survey that we walked them through. And then of those survey applicants only like 30 actually completed it. And then of those 30 only, I think five of them had good enough applications like surveys for us to want to interview in person. Then we hire two out of 200. And that’s a pretty consistent thing that we’ve seen as we go to hire. So you’ve got to have a really big top of funnel. So I love your idea of not just leveraging the Upwork with the online jobs.ph, but going into the Facebook groups, having those local connections because that gives you a bigger top of funnel to get the right number of people at the bottom.

Valentina:
Absolutely, and that’s what we do. That’s what we do all day and a half people on my staff who that’s what they do, they just vet people because like you said, the majority are not good. They apply generically everywhere and they don’t pay attention to what you specifically ask. So they just go for that hourly. So it’s up to you to find a good candidate.

Ashley:
We have to take one final break, but more on the impact of hiring VA after this.

Tony:
Alright guys, welcome back to the show.

Ashley:
So how are we vetting, what are the questions we should be asking? Because I do not like the hiring process. I do not like interviewing anyone. I don’t like the awkwardness of being on the zoom call with trying to think of questions to ask. So I am awful at that side of it. So please enlighten us with what are some things to ask someone during the interview process?

Valentina:
Well Ashley, I have good news for you if you follow what I’m about to tell you. You don’t have to speak with that many people on Zoom. So this is what we do. Let’s say we put a job ad somewhere. We have a hundred people, and you’re absolutely right, Tony, like a hundred people. The funnel gets smaller and smaller. The first thing that we do, of course writing the ad, we talk about our core values. We want to make sure that we speak to the person we want to attract. So first of all, understand who you want to attract. If you want an amazing salesperson, you have to imagine that amazing salesperson and speak their language. If you want somebody to do cold calling, you have to speak that language. So we put our core values in the ad, we talk about who we are, and I actually say there, if you don’t see yourself in those values, don’t apply because we wouldn’t be a good match.
I actually put it there and then at the end I give them a task When they apply to apply for this role, send us an email at such and such email address and with the following subject line, my favorite core value is, and put blank, whatever your core value is. And a lot of people disregard this instructions or a lot of people actually got some responses like, my favorite core value is blue or orange. I’m like, okay, well maybe you’re not detail oriented or your English is not good enough. So in any of these cases, this is not good enough. That’s not so I don’t open every single email. I don’t give people a second chance because I want people who want this. So people who read the entire ad, they understand what I’m looking for. So when we get a hundred emails for example, that’s what I have one of my VAs do.
She eliminates automatically everyone who doesn’t follow the instructions. And then the second part that we do also in the ad we put to apply, send us a voice recording, especially if this is a voice position, like cold calling or taking inbound calls. I don’t even look at resumes. I don’t invite people at interviews with ai, with templates. They can have a perfect resume. I don’t want to fall in love with a candidate. I just want to keep it very simple. So then the funnel gets even smaller here and then we give them a test before we invite them to an interview. And this is a crucial part that people are missing. This is so important. You give them a little test because I can guarantee you the majority of people will bail when you give a test. They will not show up, they will not report, they will not give it to you.
And it can look different. Let’s say if you’re looking for a copywriter, you can give them a little sample to write a sample email for whatever campaign you have. For cold callers for example, you actually do have to get them on an interview and we have a role play and I give them tough objections. I’m not giving my house away. Why are you calling me? You guys are low balling me all of this. And I want to see how that cold caller handles rejection and how they handle being in uncomfortable situations. If you give them a test for whatever position you need, email management for example, you ask them, Hey, how would you manage my email? Okay, this is my situation. I open my email, I have 6,000 a hundred messages. What are your steps? How are you going to take care of that? And you can see if they use chat, GPT, you can see if they use superficial answers.
Everyone will say, oh, I’ll create folders. Everyone says that, but I need something. I need to learn something new from the person that I’m going to hire. If I don’t learn anything new from you and I’m not the expert and I expect you to be the expert, then you’re not the person that I need for this position. When you eliminate people like that, you only interview a couple of good ones that have potential and ideally the ones that have submitted your test. For example, video editing. Before I interview anyone, I give them one of my reels in raw and I say, Hey, make that look nice. Put captions, put some music. I don’t want you to work for free. I don’t want you to do the whole thing by yourself. Just do one minute 30 seconds. I want to see your skillset, I want to see how you’re thinking about this. And that’s where a lot of people bail. But then the ones who do follow through and who give me a good result, that’s the ones I talk to in an interview.

Ashley:
What a great process. I feel like everyone listening and myself included, could go through and write down this checklist of like, okay, I’m ready to start hiring. Here’s my funnel that I’m going to start going through to get to the narrow sense of candidates and how you said that you want to learn something from someone. And I hired somebody for, because I literally had a light bulb go off when I told them what I was doing and I told them how I wanted them to do it. And they were like, actually, I recommended you do it this way because you’d be saving money, blah, blah, blah. And I was like, oh my God. Wow, this is so great. You’re hired.

Tony:
So we talked a lot Valentina about what VAs can do, how to source them, how to interview them, but I guess as Ricky’s maybe think long-term and because obviously for a lot of folks listen to this podcast, they they’re working on that first deal, but some may be working on deals number two, number three and number five. So when someone wants to start scaling, I guess what roles do you see or maybe how can a virtual assistant contribute to that?

Valentina:
I always say that if something can be done on a computer or on the phone, it can be done by anyone anywhere in the world. So depending on what you need in the company, I would actually say if you especially have a couple of deals, then this works the process, you have the system, you just need to repeat it more often. So I would say the investors should focus on what’s bringing them more revenue and then delegate everything else. The little things to virtual assistance, like I said, lead generation or if they have a property management company, tenant complaints or tenant applications, that can be done by a virtual assistant as well. Tony, you mentioned the fact that you delegated things you don’t like. There’s actually an exercise for that, the four quadrants, and you put different activities that you do in different quadrants. The first one is things I love to do and I’m great at it, and I would do it no matter what.
Second one things I like, and I’m okay at this, I like it. The third one is things I don’t like, but I’m good because I’ve been doing this for so long. So for example, payroll, I don’t like the whole process and all of that, but I’m good. I’ve done it for so long. And the fourth quadrant is things I’m not good at. They are important, but I’m not good at and I don’t like doing them. So you start delegating those and you work your way backwards from quadrant four to three to two to even one. Even if you like something, you love something and you’re great at it. Doesn’t mean it has to be on your plate, but you want to get to that. You don’t want to delegate that first. You want to get through things that are important, but you’re not the expert.
Don’t focus on improving your weakness. So social media is important. We need visibility online. And you say, but I need to learn social media. I’m going to dedicate a couple of weeks to learning this. No, you don’t focus on improving your strengths, not don’t work on your weakness because your weakness is somebody else’s strength instead of you spending so much time learning something you’re not good at, which is in quadrant four in that case, right? It just makes sense to delegate it to someone for whom these same activities in quadrant one, they love it. They would do it every day,

Ashley:
And it frees up so much of your own time to actually focus on what’s going to move the needle for your business, what’s going to help you grow and scale? Where is the money actually being made, not doing the bookkeeping or doing these little tasks that can be handed off?

Valentina:
Exactly. You stay in your genius zone and you have so much clarity when you’re not in the nitty gritty because you lose perspective when you’re doing this and that and you stay busy, but you’re not productive. And how many days have we had those like, oh man, I did this. Yeah, but did that move the needle for your company? Yeah, you clean your email, you did this, you did that, but what is this doing revenue wise for you? Did you stay busy or are you actually productive? This gives you clarity and perspective.

Tony:
Valentina. I guess last question we have for you. I mean, I feel like we’ve done a pretty good job of encouraging Ricky’s or at least opening their eyes about the impact that a good virtual assistant can have in your real estate business. But for the rookies who were still on the fence about hiring a virtual assistant, what advice would you give to them to take that next step?

Valentina:
What got you here might not get you where you want to be. Your business grows as much as you grow. So if you are on the fence, where are you going to be in one year? You might grow a little bit or you might be stuck in the same position. Hiring a virtual assistant is an affordable way, inexpensive way to learn more about scaling, to go faster, to free up your time so you can work on one little moving activities. It just makes sense. You need to have a good team in place to scale. If you think of any successful companies, any companies that you look at, no one has made it all by themselves. They have a team in place, and even if they do it themselves, then I guarantee they’re leaving money on the table by not hiring a team, by not having someone on board. So if you’re on the fence, I think the risk of not getting a virtual assistant is higher than getting one. There’s always this fear of hiring people, whether you hire locally, whether you hire internationally, what if that it’s people? Whatever happens when you hire VA is not exclusive to VAs. It can happen the same thing when you hire people here locally, but it’s just much more expensive. The cost of not hiring is higher than the cost of hiring and giving yourself that chance to go to the next level.

Ashley:
Yeah, we actually had somebody local who was fulfilling the role that my VA is now, and my VA does 20 times better of a job than the person that we had. We were paying them a lot more. We had them on payroll, so there was payroll, taxes, all these different things. So for me, building my business, having these VAs have made it so much more affordable and just my operations and processes so much better. Having virtual assistants and having to worry about having boots on the ground people here all the time, giving them enough work, fulfilling all of their needs for benefits and health insurance and all that stuff. But I don’t think that my property management company would be as successful as it is without the use of virtual assistants at all.

Valentina:
Absolutely, 100%.

Ashley:
Well, Valentina, thank you so much for coming on today and giving us all this insight on hiring virtual assistants. We’re going to link your information into the show notes, so anyone that wants to reach out to you to talk more about this, they can go ahead and find you.

Valentina:
I love it. Thank you so much.

Ashley:
For anyone listening, make sure you join the Real Estate Rookie Facebook group, and if you are a rookie investor, maybe you just got your first deal, maybe you just got your second deal and you would love to be a guest on the show, to give us some insight into what it’s like being a rookie fresh in the journey of the first couple of deals, go to biggerpockets.com/guest and fill out the form to be on one of our episodes. I’m Ashley. And he’s Tony. Thank you guys so much for watching or listening. We’ll see you guys next time on the Real Estate Rookie Podcast.

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In This Episode We Cover:

  • How to get the highest return on investment (ROI) from renovations and amenities
  • Converting your short-term rental into a medium-term or long-term rental
  • How to choose the best investing strategy for your market (and when to pivot!)
  • The best exit strategies for a BRRRR (buy, rehab, rent, refinance, repeat)
  • When to use a home equity line of credit (HELOC) versus a cash-out refinance
  • And So Much More!

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Boost Your Rental Returns with These High-ROI Renovations (Rookie Reply)

Boost Your Rental Returns with These High-ROI Renovations (Rookie Reply)

by | Sep 20, 2024 | Investing, News Feed

Do you want extra cash flow? Higher appreciation? More bookings? A few high-ROI renovations or new amenities could pay off in a HUGE way. But which projects will give you the best bang for your buck? Stay tuned because we’re sharing some of our favorite additions in this episode!

Welcome back to another Rookie Reply! Are you using the wrong investing strategy? Maybe short-term rental regulations are cutting into your revenue, or your long-term rental isn’t cash-flowing. We’ll discuss how to choose the best strategy for your market, when to pivot, and how to flex between multiple strategies for the highest return. Finally, we’ll dive into the BRRRR method (buy, rehab, rent, refinance, repeat) and compare several exit strategies for tapping into your home equity—from cash-out refinancing to DSCR (debt service coverage ratio) loans!

Looking to invest? Need answers? Ask your question on the BiggerPockets Forums!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley :
Let’s get your questions answered. I’m Ashley Care and I’m here with Tony j Robinson.

Tony:
Welcome to the Real Estate Rookie Podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Now, today, guys, we’re dive in back into the BiggerPockets forum to get your questions answered and listen, the forms are the absolute best place for you to go as a rookie to get all of your real estate investing questions answered by tons of experts. So today what are we going to discuss? We’re going to talk about the projects that might give you the highest ROI on your fix and flip, how to convert your short-term rental to a midterm rental or a long-term rental and how to know which strategy will work best for your portfolio, and then what options do you have to exit out of a bird deal. So let’s get into our first question.

Ashley :
Okay, so I’m in the BiggerPockets forums and the question I found here is what’s the one renovation you’ve found to bring the highest ROI return on your investment in your fix and flip projects? So Tony, you’ve done more flips than I have, but what is something that you are doing in each of your flips that is bringing you value and giving you a better return?

Tony:
We’re probably unique because a lot of our flips have been turnkey short-term rentals. So we’ve kind of had to balance between ROI from an after repair value perspective, which is what a usual flipper thinks about. But then we also have to think about ROI from a revenue perspective as a short-term rental. So maybe I’ll talk first about the short-term rental side of things and then we can kind of zoom out to just general flipping and what that looks like. But from a short-term rental, what we’re really looking at is what are the amenities or experiences that we can add to try and make our property outperform the other potential options that guests might have in our city? And we just recently added an in-ground pool to one of our properties, and that was a pretty big expense. We’ve seen a good return from it. We’ve converted a lot of garages into really cool game rooms and we’ve seen really good returns on doing things like that. Even smaller things like a bassinet or a high chair, things that people need as they’re kind of saying at a short-term rental. So when we’re looking at the Airbnb industry, we’re not just thinking about the value of the home, but what can we add that’s going to allow us to charge the highest dollar rate on a nightly basis?

Ashley :
Okay, so Tony, how much money are you actually investing? What is the cost of adding these things to your property?

Tony:
It’s going to vary, right? I mean the pool that we just put in, that was about a hundred grand, but after that was our first time we’ve built our own pool. We learned a lot through that process. Now I know we could probably do it for about 60 grand if we would’ve maybe shopped around and chose some different options. The garage conversions to game rooms we’re typically spinning between 10 to 15 K to do those, and that’s labor, all the stuff that goes into it as well. So it varies a ton, and I know people who put gyms at their property and that’s going to be several thousand dollars. I have a friend who bought, I think he spent like 15,000 bucks on real arcade games to go into his game room and it was like the cars you can drive when you’re at whatever, Dave and Busters.

Ashley :
Oh cool.

Tony:
So you can get his extreme or crazy as you want, but for us, we’ve done as little as a couple thousand bucks all the way up to six figures. Now,

Ashley :
I guess I could talk about the long-term rental side and then we can kind of go into the flip side if we’re flipping a property. But for long-term rental, we’re looking for durability for return on our investment when people move out, we don’t want to have to replace the carpets, we don’t want to have to replace the countertop. So we’re finding the most durable material that’s going to last the longest and that’s going to be tenant proof as you may call it, so that it’s a long lasting. We also want something that is going to stay in style for a long period of time. So we don’t want the newest and greatest whatever cabinet color is the best right now. First of all, we would never do white cabinets in an apartment. I think maybe we’ve done it twice in a couple of apartments, but other than that, we kind of stick with just a basic standard wood look or a gray look, something that isn’t going to get a ton of marks and stuff like that and get scuffed up very easily, but also something that can kind of be timeless for a little while and match many different things.
So that’s definitely one, or I guess two things is durability of the materials that we’re using to last long and also something that’s not going to be in style right now, but next year it’s going to be out of style. Nobody’s going to want that look in their kitchen or their bathroom.

Tony:
I guess if we look at just the general flipping side, Ashley, I think a lot of what we said both for the short term and the long term kind of applies to if you’re just generally flipping a home as well. But I think what you really want to focus on is what are the comps in your area support? Because every neighborhood’s going to have, I think an upper limit on how much that home is going to sell for it. It doesn’t matter how nice you make it this area, this city is only going to support X. So I think looking at the comps to really see, hey, what is it that they offer? And then trying to identify how you can pull those things back into the property that you’re flipping. So for example, we just wanted our contract on a flip. We’re supposed to be closing, I’m thinking in 10 days or so, and it’s actually a cabin we’re not going to sell as a short-term rental.
It’s just going to be a second home for someone in this town. And as we were looking at the comps, there’s one that’s sold, I dunno less than a mile away, very similar square footage and bedroom bathroom count. But what we saw with that property, that was the really cool selling point, is that it had this really, really nice wraparound deck and our property has one, but it’s a little old, it’s a little beat up. So we’re going to be putting a decent amount of money into that nice wraparound deck because when you’re looking at the photos, when you see what pops, that was just the strong curb appeal of that property. We’re saying, okay, cool, how can we match that? And we’re just always looking at the comp to see what can we take, what do we need? How can we be competitive? And we’re letting that dictate what we put into the actual flip that we’re doing.

Ashley :
Yeah, that’s such a great point as being market specific. So you really need to understand your market and what amenity, whether it’s a short-term rental and long-term rental flip is going to make a difference. Amenity or materials you use. For example, I went out to Seattle before and they do not use vinyl siding. Vinyl siding is cheap. The flippers there are saying like, no, we would never put vinyl siding on a property where literally around me, that’s what everybody uses is vinyl siding. So understanding those differences too, that if I was going to go and flip in Seattle and I didn’t understand the market, I probably would’ve went if I was on my own, I would’ve put vinyl siding because that’s standard in my area and not knowing the difference. So really understanding your market right now for the flip that I’m doing, the biggest thing is having the kitchen and the bathroom remodeled.
That is where the money is at for this market. There’s a lot of older homes in this area that are being sold without any updating. So to find a home that’s been already updated is kind of hard to find. And when they do come available, those are what are selling really fast. So to kind of save money on this flip, we didn’t do a lot with the bedrooms, the living room or the dining room. We cleaned up the hardwood floors, so we didn’t even refinish them, we just cleaned out. My contractor went through and kind of res sanded where scratches were and stuff like that, and then he put a new sealant over it and we kind of maintained the same color of the floors and then we painted the walls, we painted the trim, and then the kitchen and the bathroom is really where we spent our money.
Another area in my market is the basement. So almost every property has a basement and if you can find a way to make the basement feel livable, usable, even if it’s just for storage, but it’s somewhat nice, it’s going to make a huge difference compared to a property that has an old dingy basement. So we put the rest of our money into the basement, we took a half bath and all we did was we took the toilet from the upstairs and put that downstairs. All it needed to do was be cleaned up. We put a new a hundred dollars vanity from Lowe’s in there and we put some LVP, which didn’t cost a lot because it’s so tiny down there. And then we redid the ceiling in the basement and then we’re putting new flooring down and just painted it. And it was not a lot of money, but it’s going to look like you now have an additional thousand square feet of livable space for this property. So that was definitely a huge value add, even though it’s not going to be marketed with that extra thousand square feet, when people come in and view this home, they’re going to see, wow, we can actually really do something with this basement. So kitchen, bathroom, basement.

Tony:
Yeah, actually that brings up a really good point too of either increasing the square footage, which I think is a little bit more difficult because now you’re doing additions, but if you can get more with your existing square footage, a lot of times that can add value to the home as well.

Ashley :
Tony, that’s great. Looking at properties where there is that extra space to add value, because a lot of times people are sighted and they’re just looking at, well, this is a two bedroom house, I need three bedrooms, let’s pass. That’s not in my buy box. Let’s go look at the three bedrooms. So you can save a lot of money by finding, looking at, we’ve had guests on that say, I look at properties where the square footage seems a lot bigger than it should be for only having two bedrooms or three bedrooms, whatever it may be.

Tony:
Last thing I’ll say on the ar v piece is if you can get your hands on a couple of appraisals from your area, either maybe other people who are flipping in that market or if you’ve got an agent that’s willing to share, if you can get your hands on a couple of appraisals, I found that you get a tremendous amount of value by seeing what an appraiser does on a specific property because now you get to see how are they valuing different things within the home. How much of an increased value are you getting for each additional square footage in your lot size, how much additional value you’re getting for each additional square footage on the actual property of the home, the condition, right? Like a condition versus a B condition versus a C condition, whatever it may be. So if you can get your hands on one of those, I feel like that gives you a lot of insight into how appraisers kind of judge things in your market and you can make more informed decisions about what to add, what to remove, et cetera.

Ashley :
We’re going to take a short break, but when we come back, we are going to talk about how to switch your real estate investing strategy if your current portfolio isn’t performing well.

Tony:
Alright guys, welcome back. So our second question here is about short term rentals and medium, medium-term rentals or MTRs. So this question says I have an SDR short-term rental in a resort town, but the city’s new stricter policies have really cut into my revenue. I’m thinking about switching over to the MTR, which stands for medium-term rental or LTR, long-term rental with furniture included in this area. People usually rent for one to 12 months and the rent is 30 to 50% higher than an unfurnished long-term rental. Has anyone else made the switch from ST to MTR slash ltr? Did it lead to more damage to the furniture slash property and ended up lowering your ROI? I’ve gotten an inquiry from a family with a mid-size dog. So Ashley, I guess have you done, because none of my short-term rentals would work as midterm. They’re all in real vacation spots. No one’s really going to these cities for a month or two at a time, but have you with any of your properties done the medium term rental?

Ashley :
Yeah, so I have two short-term rentals that I do arbitrage with. So I don’t own them. I actually rent them and they’re in a 40 unit apartment complex. And the first one I had was always a short-term rental, but when I opened up the second one, I did it as a medium term rental. And what we ended up doing was we got our first booking, we had someone stay for about four months and that was amazing. And then after that we had a little bit of a gap before the next person came in. So what we did was if it got close to when somebody was going to be done with their medium term stay and we didn’t have anyone booked yet for a midterm rental or we still had a month gap, we would fill those in with short-term rentals during that time period until the next medium term person came into that property.
And that actually worked really well using that flexing strategy. So we found out that our, during the fall and during the summer our big months when we have people coming in and staying and over the summer, it’s because we get a lot of contractors that come through here. So we’ve had contractors and then we’ve also had grandparents that will come in and rent the property that want to come and visit their family, visit their grandkids for the summer. So during the summer we’ve actually turned both of those units into the last couple of summers into midterm rentals because we’ve been able to get that during our busy midterm rental season. But it actually has been quite a while since we’ve actually had a traveling nurse in the property. We haven’t even had anyone book as a traveling nurse in probably a year and a half I would say. So don’t think that you’re limited to just traveling nursing. Usually the big stigma of going on to furnish finder looking for traveling nurses, look at other job industries that could be in your area too, that could be bringing people into that area that just need the midterm housing

Tony:
Flexing between short term and midterm. It’s a great strategy if your market supports it, but honestly, it kind of feels like the person who asked this question, they’ve already done the homework, they know that they’re going to get upwards of 50% more rent. It almost seems like their concern is more so around the damage that they said. Did it lead to more damage to the furniture and property ended up lowering your ROI? So Ashley, maybe you can educate me here because again, I don’t dabble in the long-term rental side of things, but with the short-term rental, one of the options that you have is that you can make it a requirement for your guest to purchase damage protection when they book your place. So if someone books, they’ve got to pay a non-refundable fee of whatever, 79 or a hundred bucks, and that covers up to three to $5,000 of damage and it’s right, and if for whatever reason there’s damage, then I get to just bill against that 5,000 that they paid the $79 insurance for it’s damage protection. Do you know if you can, and obviously it’s going to vary from state to state and every state’s kind of different with their long-term rental rules, but do you know at least for where you’d run your long-term rentals, can you make that a requirement for your tenants as well to purchase damage protection when they come into your place?

Ashley :
Honestly, I don’t know. That’s a great question. I know that we’ve had a guest on here from New York and Buffalo, and she actually got her landlord policy to cover damage from her tenant that she didn’t need to even go after the tenant’s insurance. Her own policy did, and I remember her saying specifically that the tenant or the insurance person was saying like, oh, don’t worry, we’ll find the person and we’ll be going after him directly. And I will say from personal experience, having the short-term rental and cleanings all the time and someone not staying there longer, our cleaner definitely has more work cut, cut out for her after a midterm rental guest comes. Just like the place is not taken care of as well. We’ve found from quite a few of our guests rather than the short-term rental guests,

Tony:
They’re settling in and treating it like home at that point, right?

Ashley :
Yeah.

Tony:
But yeah, I guess to the person who asked this question, if the damage piece is what you’re concerned about, like Ashley said, landlord policy, that might be helpful to you. The only reason why I might shy away from that is because sometimes with these insurance policies, there’s deductibles if there’s too many claims and maybe they increase your rates or they non-renew, but if you can kind of put the onus on the person who’s checking in to get their own damage protection and it saves you a little bit of headache, so check with a real estate attorney in your estate, your area, see what those rules are around enforcing that because I know you can do it on a short term. Medium term is a little bit of a gray area, but I think that will be an easy way to make sure that you’re protecting your RO.
I think the last thing I’ll say though, Ashley, and you can speak to this from your midterm stay guess, is that even if there’s a little bit more wear and tear from the medium term rental, it’s typically not going to be to the point where you’re now losing that additional 30 to 50% in extra revenue that you’re generating, right? It’s not like, Hey, I made an extra 50%, but this guess costs me an extra 65% in damage. If you’ve done the homework and you know can get that additional revenue, I’d say don’t worry too much about the damage, right? It’s far and few between and there are ways to kind of mitigate that risk. So if the reward is worth the risk, which in this case it seems like I’m probably pulling the trigger. So guys, we absolutely love talking about real estate and we love answering all of your questions with you and we would very much appreciate if you get the follow button on whatever podcast player it is that you’re listening on, and if you’re on Apple Podcast, leave us a review. The more reviews we get, the more folks we can reach and we’re all about helping folks here at the Rookie podcast. Alright, in our next question we’re going to discuss how to pull equity out of your B.

Ashley :
Okay, so we got our final question from the BiggerPockets forums. I’m looking for some advice on an exit strategy for a bird deal. So buy, rehab, rent, refinance, and repeat. I’ve done this method once before, but this time I’m a bit torn on the best approach I’m looking to buy again in the next six months. So here’s the situation. I own a home in San Diego. It’s currently worth about 1.05 million. Since the A DU is built, I owe 680 K on the mortgage at 4.25% with my monthly payments around 5,500. The property generates 7,500 in monthly income, 5,200 from the main house and 2300 from the A DU. My broker is advising me to do a cash out refinance and to switch to A-D-S-C-R loan. So this is a debt service coverage loan. Then move the property into my LLC. I’m hesitant because current interest rates are around 8% and I was originally considering a HELOC due to these high rates.
Given the high rates, would you recommend sticking with the HELOC or does the DSCR loan make more sense in the long run? I’d appreciate any thoughts or experience you have with similar situations. Thanks in advance. Okay, so Tony, first let’s break down an A DU. So an A DU is an additional dwelling unit that is built on the same parcel as a single family home or any kind of property really. So you have the main house and then you have the A DU that is built. So this could be added on an additional dwelling unit. So it could be like the garage was transformed into an additional unit. Most of the time if it’s detached from the property, it’s a dad do a detached additional dwelling units. So this one we’re going to assume is attached to the property, so it’s kind of like two units here we’re talking about.

Tony:
I guess a few other terms we should maybe define here as well is HELOC and cash out refinance, just to folks understand here, but a HELOC is a home equity line of credit. So think of this as almost like a credit card, but you are pledging the equity in your home as collateral for this debt and you only pay for what you use. So if your balance is zero, you’re not paying anything. If your balance is more than you’re paying more on what you owe, but your original loan stays in place with the heat lock. A cash out refinance is basically replacing your existing mortgage with a new mortgage. So you pay off the old mortgage, you establish a new mortgage, and you get to keep the difference between the old balance and your new balance is cash in your pocket tax free. So those are the two options we’re kind of considering here. And I guess here these options, ash, I mean four and a quarter on the interest rate doing 7,500 from rental income expenses of about 5,500. So he’s netting about two grand, maybe a little less when you take tack on expenses and repairs and maintenance and whatnot. Feels like a pretty good deal.
I don’t know if I see the benefit in doing a cash out refinance when the heloc, because you’ve got a decent amount of equity, there is what, 400 grand almost an equity that you got there. I would probably lean towards the heloc so I can keep that good four and a quarter rate in place. What are your thoughts?

Ashley :
Yeah, so I would like to know more about what your strategy is, what your goals are for the future. So what is the reason you want to refinance? Do you have a plan to purchase another property down the road and you want to be able to use this money as the down payment or you actually want to use this to make a cash offer on a property. So I think that can kind of weigh into your decision here as to what you’re going to do with the money. So one thing to look at first is if you put the property into an LLC and you do A-D-S-C-R loan, the debt now is going to come off of your personal credit and it’s going to go, the LLC is going to now be the owner of the loan and it’s not going to show up on your credit, which is great.
So maybe if your plan is to go and buy a new primary residence and you want to lower your debt to income, then this may be an actual good option for you because it’s going to take away that debt and you’re going to have a higher or less debt to income, which will be better for getting approved for a higher loan rate. So that’s one thing to think about if you are concerned about your debt to income. So the next thing is what are you going to use that cash for? So if you’re going to use that cash for a down payment on a property and then you’re going to go and get a loan. If you do a heloc, you are going to have to make when you run your numbers that the property you’re purchasing can support the HELOC payments and can support the payments to the new mortgage that you got.
And you also want to make sure that the loan product you’re getting will allow you to borrow the money from your HELOC to actually put down the down payment for this next property because sometimes they want to see that you have cash and you’re not borrowing more money to actually go and buy this property. The next thing is if you are actually just going to this 400,000, you have an equity, you’re able to pull that out you and you’re going to get the line of credit, you’re able to use that to purchase a property in full and do another deal with it and you’re just going to pay back the line of credit within six months, then I would definitely go that route. If you’re just going to use the HELOC for a short period of time and then go ahead and pay the HELOC back, that makes a lot of sense to actually do it that way. I have two HELOCs on that covers three of my rental properties and that’s what I use to fund. Pretty much all of my rehabs are those HELOCs and I take the money off to pay for the rehab, and then once the property is refinanced, then I pay the HELOCs back and they sit and I’m not paying any payments while I don’t have a property that I’m rehabbing.

Tony:
He did say at the beginning of the question that he’s looking to buy again in the next six months. And I guess my assumption there is that it is another bird deal. And like you said, Ashley, if that’s the case, I think doing the heloc, leveraging it in the exact same way that you just described is probably the best route because even if we do a cash out refinance, say you get an 80% loan to value, which is probably pretty common for most refinances, maybe because it’s A-D-S-C-R, maybe they’ll let you go a little bit higher, who knows? But say we do 80%, we’re talking just over 800 k is what that new loan balance is going to be. You owe 680, so we’re not even talking about $200,000 that you get back by doing a cash out refinance. Actually, just for the HELOCs that you have, what LTV are they typically allowing you to go to? I feel like I’ve been quoted some that’s like 90%, sometimes even more than that.

Ashley :
Yeah, I honestly don’t know off the top of my head what that was. It’s been several years since I actually took them out. I don’t remember what the properties appraised for at that time and what it was that I got. I know one property, and this was in 2017, I think I got this HELOC maybe 2018. The property appraised for 130 and I was able to get 108,000 for the line of credit, which I still have today. So Tony, whatever the math is on that, I can’t do that

Tony:
Pretty close. But I mean it’s just something to consider, right? Is that you want to also understand how much access to capital that you’ll get because even with the cash out refinance, we’re not tapping into all of that equity. So there’s still some room there, but if I’m this person, I’m probably going the HELOC route using that to fund my next bar.

Ashley :
Well, and two, I think that if the property is in your personal name, you’re going to get better terms than you would if you go ahead and put the property into an LLC. So I would think keeping the property in your personal name is beneficial for funding purposes unless you are actually looking to lower your debt to income and then maybe it’s beneficial to move it to the LLC, then just have an umbrella policy on that property to protect you for liability reasons.

Tony:
I guess the only last thing to comment on HELOC versus cashout refi. Ashley said you got your HELOC in 2017. What was the rate then? What is it now? Ballpark, if you know?

Ashley :
So the rate, this is really sad to talk about the rate then started out at 4.5% and now it’s at 10%,

Tony:
Right? So that’s probably the downside with the HELOC is that it’s a variable rate and it’s going to adjust depending on market conditions. And obviously we’ve seen interest rates go up pretty dramatically over the last couple of years. Had you done a cash out refinance at that time, whatever that rate was that you locked in in 2017, which four and a quarter, maybe a little bit more if you’re doing a refinance, whatever it may be, that would’ve been the rate moving forward. So pros and cons there as well. But I mean you got a four and a quarter on the actual mortgage, I’m probably going to leave that there and not touch it.

Ashley :
Okay, so you guys remember, if you want to get involved in the community, like all these real estate investors submitting questions, go to biggerpockets.com/forums. Thank you guys so much for listening to today’s rookie reply. If you love our show, make sure you leave us a review and follow us on your favorite podcast platform. If you’re watching on YouTube, make sure you are subscribed to the Real Estate Rookie YouTube channel. I’m Ashley. And he’s Tony. And we’ll see you guys on the next episode of Real Estate Rookie.

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In This Episode We Cover:

  • How to get the highest return on investment (ROI) from renovations and amenities
  • Converting your short-term rental into a medium-term or long-term rental
  • How to choose the best investing strategy for your market (and when to pivot!)
  • The best exit strategies for a BRRRR (buy, rehab, rent, refinance, repeat)
  • When to use a home equity line of credit (HELOC) versus a cash-out refinance
  • And So Much More!

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.