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Stay-at-Home Mom to “Accidental” Investor with a $600K/Year Business

Stay-at-Home Mom to “Accidental” Investor with a $600K/Year Business

Want to invest but fear you don’t have enough money to get started? Building a profitable real estate business could be the answer. This strategy allowed today’s guest to not only scale her portfolio but also develop skills to level up her own rental properties AND bring in $600,000/year!

Welcome back to the Real Estate Rookie podcast! Today, we’re joined by the “accidental investor,” Terri-Leigh Huleis. Married with three children, Terri and her husband didn’t have enough money to buy a house…or so they thought. After moving from California to a more affordable market, Terri was able to make her dream of homeownership a reality. Little did she know that this was just the beginning of her real estate journey. It wasn’t long before Terri had turned her passion for interior design into a $600,000/year business—one that has allowed her and her husband to scale in very little time!

After being diagnosed with a brain tumor in 2016, Terri lives every day as if it’s her last. This self-starter’s story is filled with all kinds of helpful nuggets you can use on your own journey—from finding creative ways to fund home renovation projects to setting up an Airbnb in four weeks or less. Stick around until the end to hear about the top amenities you’ll want to add to your short-term rental in 2024!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Tony:
This is Real Estate Rookie Show 412. Now, do you want to build a business in real estate to launch your investing journey? Then you’ve come to the right place. My name’s Tony j Robinson, and 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. And our rookie guest today, Terry Helis, is a self-starter who’s not afraid to roll up her sleeves and get to work. Now she’s built a business that has actually helped scale her real estate portfolio, and she’s going to break it down for you, Ricky, listeners, A to Z, so you feel equipped to start doing the same thing after listening to this episode. So Terry, welcome to the Real Estate Rookie podcast. Super excited to have you on.

Terri-Leigh :
Thanks, Tony. I’m excited to be here.

Tony:
Now before we dive in and kind of get to the business that helped you scale your real estate portfolio, I guess I want to know what did you have to do to even get into real estate investing?

Terri-Leigh :
So I like to pull myself the accidental investor. We had to do quite a few things. It was a rocky start. It was not one of those Cinderella stories. Basically, we had to move out of state. We were living in California at the time. Real estate was way too expensive. So we relocated to Minnesota,

Tony:
Which is every Californian’s dream destination of leaving the beautiful Suns kiss California to go to Minnesota

Terri-Leigh :
Before the Minnesotans kill me. It was actually wonderful, really beautiful. They were such nice people, but negative 45 winters, we escaped with all fingers and toes, thank goodness. So yeah, we moved states. That was step number one. I was so desperate to buy real estate in California. We had two babies at the time. It just wasn’t happening. I was not finding anything in any area that we wanted to be in. So I had this wild idea of let’s move to a market we can afford to just buy a primary house. So we chose Minnesota, Minneapolis, beautiful city. I started touring open houses behind my husband’s back. He was not ready to buy a house. I found one that I absolutely loved and I said, this is what we got to do. And him being him so practical, he’s like, well, here’s a checklist. If you want to buy a house, these are things you’re going to have to do.

Terri-Leigh :
And we had only been married a few years at that time and he didn’t know me well enough because I took that to heart and I wrote myself a little list and I got to work just a few of them. One of the task was that I had to kind of get a side hustle and bring some money in. So I started babysitting. I had two young kids of my own at the time, ended up having a third, and then I took on somebody’s little baby boy and started making some money on the side. So that check and his eyes grew wider. And then I had to figure out how we would qualify for a loan. I got to work, started calling the banks, started figuring out who would accept us as a one income family. Obviously the little side hustle was for my husband’s peace of mind, not for the bank, but I did it.

Terri-Leigh :
I found a bank who would give us a loan. We had extensive student loans at the time, so I didn’t know who we would look attractive to, but tick did it. His eyes grew even wider. And then we had never being renters before. We had never done any DIY. We didn’t know what the costs were, but I would stay up till 2:00 AM just Googling, using online calculators. What does a tiler cost? How do you tile paint properly? What are the best types of products to use? So very quickly I was able to check off that checklist, went to my hubby and I was like, okay, now you have to buy me a house.

Tony:
I want to pause there. I want to pause there, here because some good information that you share because I think one of the things that a lot of Ricky Investors struggle with is that if they’re married, one of them is kind of going down the rabbit hole of listening to the podcast and watching YouTube videos and following everyone on social media. But the other spouses still just going about their normal daily life. And we get a lot of people who ask, how can I get my spouse on board? And I’ve never heard it put the way that you did where you basically said, well, husband, what boxes do we need to check to make you feel comfortable moving forward? And then once you got that list, you just go out and execute. And it’s such a simple solution to a problem that a lot of people struggle with.

Terri-Leigh :
It was definitely one of our challenges. And he will be the first to admit he’s not right here right now. He’s actually in California, but he’ll be the first to admit that it has always been a struggle of ours. I’m the move forward person. And it’s also hard because I was also historically never the moneymaking person in our relationship. And sometimes I think if you’re making the money, you kind of have the authority to make some of those decisions. I would make them anyway and just drag him along, but in order to create that comfort for him, which is really important, I think in a marriage, he was able to provide what he needed in order to get there so that I didn’t feel like I was clubbing him over the head and dragging him caveman style. And it worked.

Tony:
And it worked and it worked. Right, you said, so to continue your story, you said, after I did all these things, you’re like, you got to buy me a house. So what does that process look like from there?

Terri-Leigh :
So yeah, I just started going to more open houses. Obviously the house that I fell in love with when I first got that idea into my head was long gone. But I met a great realtor in Minneapolis and he started taking us around to houses that we would qualify for. We found one that we loved. It was in a fantastic area. It needed a lot of work. And from listening to BiggerPockets and from Googling all of those 2:00 AM Google sessions, I knew that in our situation we needed something where we could put some work into it. Force equity. I wasn’t a real estate investor yet, but I think the wheels were turning and I kind of knew what the good things were going to be for us. So it had space for our family, it had lots of room for improvement, and it was in a fantastic area, and it was also in budget like number one. So we ended up making an offer and we got the house and we got started right away, much on a full renovation, full budget, budget renovation.

Tony:
Budget renovation. So just give me the quick numbers. How much do you think you put into the rehab and then was it a successful kind of live in flip or what was the end result there? Yeah,

Terri-Leigh :
So that actually became our strategy. Little did we know that it was an actual thing, but it was like the live-in flip. So we bought the house for I think $248,000. It was a four bedroom, three bath in the Diamond Lake neighborhood in Minnesota. And we did the entire renovation on credit card points. We had kind of been dabbling a little bit in that. My husband had just graduated with his master’s, it was a second degree. He’s in medical devices. And we knew we’d always known how to budget, how to save, how to be smart. We were anti credit cards for credit cards, but very pro credit cards for using them for the things that you would kind of spend anyway and getting all those points. So we spent a total of, I think $32,000 on that house. And every last dollar of that was credit card points and cash rewards for bonuses and that kind of thing. And it ended up going really, really well because we ended up selling just under two years later. We went out of contract, we closed at the two year mark, but we can talk about that in a minute. And we sold that house for $325,000. So we walked away with a nice chunk of money, patted ourselves on the back, started calling ourselves investors, and paid off our entire student loan chunk and moved on to the next one.

Tony:
Sounds like this was really the perfect first deal. You were able to execute on this business plan, this vision you had laid out, and it led you into, like you said, becoming true real estate investors. So I want to get into more of your backstory and how you started to pivot into these support businesses to generate more income in your real estate business. But first, we’ll take a quick break to hear a word from our show sponsors all gu, we are back from our quick sponsor break and we’re here with Terry and she just talked us through how she convinced your spouse to get on board with real estate investing and how that first deal was actually a pretty successful one. So Terry, I’m curious, I know you ended up transitioning into a real estate related business. I guess what happened during this journey of that first live-in flip that maybe made that light bulb go off that you actually want to start a business not just for real estate investing, but that supported real estate investors?

Terri-Leigh :
Sure. So bittersweet experience, I got diagnosed with a brain tumor in 2016. I had just given birth to my third child. It all came crashing down in a huge shock of anxiety and stress and am I going to be here for my kids? What am I even doing with my life? Ended up having a successful surgery in 2017 down at Mayo Clinic. And when I woke up from the surgery, I had just this realization and I wasn’t sure if I was going to wake up. It was right against the carotid artery. And they said that they would have to be super aggressive in order to handle it all. But I woke up and the first thing I thought actually was my husband’s going to have to buy me a hobby farm. And second was, I’m going to live every day as if it’s my last. I don’t want to be stressing the small stuff anymore. I’m not going to play small. I have dreams, I have great plans for my family and now’s the time to make it happen. So yeah, bittersweet story, but it ended up just being the catalyst for more than I could have ever imagined.

Tony:
Yeah. Well first I’m super glad to hear Terry, that it was a successful surgery and that you’re able to recover from that. And I also think there’s a lesson to be learned there that for everyone that’s listening, I would hope that they don’t wait for that kind of life altering experience to take control of the life they want to live. And let the fact that you’re hearing Terry’s story motivate you to start making those changes today. Because we all have, I think, the ability to change our lives in the direction that we want. Sometimes we just lack the courage or the sufficient motivation, but we all have that ability. So Terry, you have this obviously kind of almost traumatic experience, but you turn it into a positive. So you say you wake up and you want to start living life on your own terms. So what does that lead you into exactly?

Terri-Leigh :
So he did end up buying me the hobby farm, by the way, it’s hard to say no when somebody comes back from that, but I had always sort of dabbled in interior design. I had been the one handling all the finishes on our renovation on that Minneapolis house on the hobby farm. Again, that was a top to bottom renovation. We added rooms. It was a pretty extensive remodel. We added bathrooms and that kind of thing. And I just fell in love with this skill and I realized it was something that I kind of wanted to do for other people. I had run out of my own money, so I wanted to start doing it for other people. And our realtors at the time, they were kind enough to see the talent, the people who we were involved with. We had friends who were realtors as well. They kind of started asking, well, will you do this for our clients? Do you do this for our clients? And I’d just be like, I do. I sure do. I can. And that began that whole make it till you make it thing where I just started saying, yep, sure will do. And then followed up with actually doing it and doing it well.

Tony:
So to clarify for our listeners, the business you decided to start was a design focused business. And what was the niche that you were focusing on? Was it helping people with remodels or,

Terri-Leigh :
Yeah, so we were doing interior remodels, hard finishes. I was doing furnishing as well, but the hard finishes, the things that actually really add value to a property were the things that really, really interested me. So we started doing that for residential properties. We were doing renovations for real estate investors and real estate agent clients, that kind of thing. And we loved it. Interior design for residential was really fun. It was pretty lucrative, but the more we started buying our own properties and the more resource success as investors, that’s just I thought, how do I blend these two worlds? How do I mix their interior design with investing and merge them together? Because I think that’s when the people work the way that I do are the most successful is when you’re got a focused passion as opposed to doing this here and this here. And so that’s how we got into working with investors. I hadn’t yet heard of short-term rentals. It was not even on my radar until we moved to Colorado, but there was eventually a pivot into short-term rental design, obviously.

Tony:
So Tara, you said that you ended up transitioning when you made the move to Colorado to start focusing on short-term rentals in the Airbnb space. I guess what drove that pivot and what opportunity did you see there versus the initial client base you were working with?

Terri-Leigh :
Sure, and this one has two fourths to it. The opportunity obviously comes from being in a highly visited tourist area. We’ve got Denver, we’ve got the Rockies, we’ve got so much around us there in Colorado that there’s a lot more investment in short-term rentals there. So I think it just naturally started coming onto my radar. We also started investing in Colorado. We have a very successful short-term rental up there called Store Bale. And so I think I just started hanging around with the right people. I got involved with some really, really awesome investor focused real estate agencies who to this day are some of my biggest referrals, and I just love them so much. And I think I was just put in the right rooms with the right people and it was just a natural fit because I had this natural talent and this natural drive for investment since I was an investor too.

Terri-Leigh :
And then just met all these super inspiring people who all knew, super inspiring people, and it just became this melting pot of just investor love. And I won’t lie, it’s also extremely lucrative financially. And the whole reason why I started a side business and why I really ramped up on it. I have four kids. I want to be able to support them, and in order to do that, I need to be able to buy real estate. And my husband’s W2 can only go so far. We could only take out so many mortgages and leverage so much debt. And so I figured if I want to keep buying houses, and he also told me in no uncertain terms if I wanted to keep buying houses that we would have to qualify for, and in order to do that I needed an income. And so that was the driving factor, my kids and then money, everybody needs it.

Tony:
So I want to get into the nuts and bolts of for our rookies that are listening, how to actually start maybe a design business like yours. So maybe what are some of the prerequisites, Terry, that a person would need to have to launch a short-term rental focused design business? Or I guess just an investor focused design business in general?

Terri-Leigh :
Sure. So design experience is great. I don’t think you need a formal education and we’re going to shop cars and people there, but I didn’t have one. But I do think that experience in the industry is really important, whether you’re a property manager, whether you’re a designer, whether you own a short-term rental and you know what it is that these projects are going to require to be successful, that’s number one right there. That’s going to help you on your journey and be able to allow you, maybe you don’t have it all figured out, but you’re going to come with so much value already. It’s going to be okay to charge people for services because you’re going to have something to offer.

Tony:
I definitely want to get into the pricing and how to know how much to charge people. I feel like that’s an important part of it. But you’ve mentioned a few things that maybe people should know before they jump into starting this business of, you talked about being an investor yourself and how beneficial that could be. You talked about knowing the space and the market and things of that nature. I guess what are maybe some other things you’ve seen that someone might want to put in place as they look to launch this short-term rental design business or again, just general design business?

Terri-Leigh :
So I think networking is going to be your key, especially when you’re investor focused because it’s not like you could just post an ad on Facebook anywhere and find your people. We’ll talk a little bit about what short-term rental design is in a little minute and that’s targeting your ideal guests. And I think if you’re trying to start a interior design business focus towards investors, well, you’re going to have to find your ideal client, and that’s investors. So that means networking. That means hanging around in the right rooms with the right people so that you can get the clients that are going to find value in your service and who are going to need your service and who are going to pay for it because everybody will take your advice for free, but investors understand the value of putting money towards their projects.

Tony:
So let’s talk a little bit about your pricing strategy, Terry, because you mentioned that I guess, how do you identify how much to charge a client for design services?

Terri-Leigh :
So there’s a couple different ways you can do it. I’ll tell you the way we do it, we are scope based, so it’s based on the square footage, the bedrooms, and then what the client wants from the property. So is it going to be amenity heavy? Where is the location? Are we going to be a game garage? Are we going to be including ski racks and snowboard racks and boot warmers and saunas, that kind of thing. That’s how we do it. We call that a scope based price. And then another way to do it, which I think designers are more familiar with in the residential design space, is hourly so they can project how many hours a project is going to take. We personally, I don’t think it’s a bad way to do it, but I don’t do it because as an investor myself, I want bottom line. So I need to know for sure how much I’m going to be spending on this project or we’re going to hit 40 hours and maybe the work won’t be done and I haven’t budgeted thought of or I’m not happy to spend another 20 hours worth of work. So it is very different. Neither is right or wrong. Our scope based focus works really well with our ideal clients and it sits well with

Tony:
Me in terms of how much revenue you’re actually able to generate, I guess how much money does a business like this make, Terry?

Terri-Leigh :
Sure. So again, I think it’s going to depend on your location. Denver, Colorado are very lucrative market. We can take four to six projects a month. We’re charging between eight to $10,000 per project, sometimes more for some of our bigger Aspen veil Breck properties. But if you do the math on that, and my math is so horrible, we’re grossing between 400 to $600,000 a year. And then netting not too much less than that because this kind of business can be set up in a way where your overheads are really, really small. It’s just me and my assistant. I’m down in Florida right now working from my pool. You can kind of go as big or as small as you want to go, but for me, I like to keep it simple. I like to service my clients well and I don’t need all of the bells and whistles.

Tony:
So I just want to make sure I heard you right. You said somewhere in the neighborhood of 600 KA year annually is what you’re projecting this business will do. Yeah, that is fantastic. I don’t know if you mentioned this, but what were you doing for work before?

Terri-Leigh :
Nothing. I was a stay-at-home mom before babysitting basically. And then the residential firm. So the residential firm was moneymaking, but we were probably making somewhere between 120 to $160,000 a year. I was not focused in the business. I took clients as they came. It was really fun. It was enjoyable. I was getting my feet wet. And then when we really doubled down, and I mean we really doubled down and my husband is, he works at W2, but he’s also very focused into helping me build the business just on the backend when we really double down. We four and a half x the business in about eight months, and it has been extremely lucrative for us. And I think the more time, the more energy you put into it, the more you can make. We just pivoted to design only. Whereas we were doing installs before with installs, we were sort of capped at the amount of projects we could take doing design only. And I have six design assistants who work with me currently. We could take on as many projects as we want, as many as I can mentally handle with four kids, but it can go anywhere. I highly, highly recommend.

Tony:
So I want to talk about that because you said we really doubled down and we were able to grow the business in a very short period of time. So when you say doubled down, Terry, what exactly what does that mean? What did you do to double down and what can rookies do if they want to follow that same roadmap?

Terri-Leigh :
Sure. I’m not a process based person. It is not my personality. I am airy fairy, go with the win. Do what’s fun, get the good fields. My husband, who actually is in business development for medical devices, he’s like, Nope, you are wasting so much time when a project would come in, I would handle it this way, and then we would quote it out that way, and then we’d build a new spreadsheet for that client. We didn’t have our best Airbnb basics at the time, so everything was just taking double as long and it didn’t have a clear process, and I couldn’t outsource anything because it was all here. And when we doubled down, we really put the time, the energy and focus into creating processes. So now when we get a client call, that first client call to when we deliver a project, we’re able to do that in four weeks, completely done, completely finished, the property is ready for photography, you’re out the door. So four weeks per client is unheard of. It’s exceptional. And what’s in those four weeks is just super, super smooth. Everything has a form, everything has a template, everything has a checklist. If I want somebody to do something, there’s a Google document to show them how to walk it through so that I’m not on the phone trying to explain things to people. When I say double down, we put the work in on the backend to make it easier on the front end, and that was just wildly freeing for the business.

Tony:
Now, one of the things that’s I think critical to any business is customers, right? And you talked a little bit about how your network is funneled into your business, but what are you and what can other rookies do to help build that client base?

Terri-Leigh :
So again, in my business it has just been networking. We do zero paid marketing in our business. Number one, when we get a client, we service them exceptionally well. When things go wrong, we make it right. When things get hard, we make it easier for them. We offer a five star service that has meant that every single client we’ve ever worked with has put on a referral and their referrals have put on referrals. So that’s just a self perpetuating part of our business. Then real estate investor meetups that we go to the real estate agencies who we work with. Even if I’m not interested in buying a property, I’m going to go to open houses, I’m going to go to the events that my real estate agents put on because I want to support them. I end up meeting people, and when you’re in front of mine and you’re standing in front of people, you’re going to be at the tip of their tongue.

Terri-Leigh :
You’re going to be the one that they’re referring. So that’s pretty much we have done. You could also just make yourself a value in real estate Facebook groups or online groups like that offer good advice. Go on BiggerPockets and start commenting. I wouldn’t pitch yourself of course, but people are going to get to know you and what you do based on the knowledge that you’re offering so that you don’t have to pitch yourself. That’s also been super helpful. And just be open. We offer any client a mini vet of their property. So say jmo is looking at 1, 2, 3 Main Street in Ohio, and he wants to know how much it’s going to cost him to turn it into short-term rental. What themes are going to do well there? He just wants to know what I think about it. Anyone, anyone is able to email us and say, contemplating this, this is my budget.

Terri-Leigh :
Is it doable? We’ll do a mini dive into who’s coming to the area, what they’re spending per night. We’ll take a look at the Zillow listing or whatever listing site it’s on, and we’ll put together a brief little capture of what it’s going to cost the client that is exceptional value and they don’t owe us anything. We’re just good luck with it. Let us know what you do. If they hire us, fantastic. If they don’t, we’ve done our good de for the day. And again, we’re going to be at the tip of those people’s tongue when they’re at a meetup and they know somebody who’s trying to hire a designer. So just offer a value, offer value, offer value.

Tony:
Say you’re brand new at this, right? And maybe you don’t already have a portfolio of properties you’ve designed or a client base you can refer to. How can someone, what steps should someone take to start building relationships with those agents so that they are top of mind when someone does come up and they need design support?

Terri-Leigh :
I would say the best, your best bet is obviously owning a short-term rental yourself is going to just put you light years ahead. If you don’t, we’ll talk about that in a second, but if you do put it together in a way that you’re proud of, put it together in a way that your skills are going to show. And that doesn’t mean that it has to be the world’s most impressive, most expensive because you’re going to appeal to somebody. There is a client out there who needs your level of service and then put that forward to the agent that helped you buy the house. Say, Hey, look what we did here. This is what we’re looking to do. If that’s not an option and you don’t already own property, maybe you’ve arbitraged show your arbitrage property. If that isn’t an option either, then get on Canva, create a mood ski chalet Aspen, the Aspen ski house, HAUS, because people love to do that.

Terri-Leigh :
Put together a mood board on Canva of the finishes you would choose of the paint colors, of the vibe of the amenities, and just start doing that whenever inspiration hits, create a portfolio of concepts, put that out there. Maybe offer them for free to investors that I hate offering things for free because we’re worth so much more, but really that’s a baby free, that’s not doing a whole short-term rental design for somebody for free. But I think those are great tools to get yourself out there and show people that you’re willing to put in the work.

Tony:
Tara, I love the idea of the concepts and sharing that if you don’t necessarily have a portfolio yet. Because sometimes rookies that are listening, maybe they haven’t even done their first deal yet, but they have this design skill that will maybe give them the capital to buy that first deal. So I think you laid out an incredible game plan for them to start building that potential client base. Now I want to get into how to actually what goes into the launch of an Airbnb design, because I’ve done a few myself. I know how involved that process is. So I want to hear your take on it. But first, we’re going to take a quick break to hear a word from our show sponsors and then we’ll be right back.

Tony:
Alright, we are back here with Tara and she just gave a masterclass on how to source clients and how she’s doing 600 KA year with literally no paid marketing, which is insane to me. So Tara, I want to get into the actual, the launch of the Airbnb of the design process. So you said you can do it in four weeks, which again, we set up a lot of Airbnbs and that is a pretty tight turnaround time, especially if it’s a bigger property with a lot of amenities and things like that. So walk us through what steps are you doing within those four weeks to be able to deliver so quickly?

Terri-Leigh :
So yeah, like I said, it’s a four week process. Number one is our discovery week. So we are meeting with the client, having that initial call, finding out their budget, using our SER design questionnaire. We also find out what styles they like, not that we’re necessarily going to go with their style because it’s directed to the ideal guest, kn not the client. We are going to look at the address, how many people they want to sleep, do they want to be pet friendly? Do they want TVs in every room? We also then schedule the onsite walkthrough of the property where we go in, we walk it, we take in what’s the conditions of the walls, the floors, the carpet, the countertops. Do these things need to be changed? Are they in good condition? We do a 3D capture as well, because we only visit the site once.

Terri-Leigh :
This is pivotal to our four week process. We only visit that site once ever in the design process. So we do the 3D capture with detailed, detailed captures so that we are able to sit on our computers or me or my design assistants can sit on our computers wherever we are in the world and design. We can zoom in, we can measure windows, we can measure walls, we can measure for rugs, we can do all of that. We do that in that discovery week. Week two is the start of our design week. So we are starting to build design boards in Canva. No, we don’t use any complicated software because we have these six design assistants and because some of us come from a non formerly trained design background, canvas is super easy to understand. It’s super easy for our clients to see. It’s clean, it’s crisp, we love it.

Terri-Leigh :
We’re building the design concepts there. So we’re going to have living room, there’s a rug, there’s a cart, there’s a lamp, there’s a sofa, there’s artwork, there’s a wool color. It’s a really nice visual for the clients to see. Alongside that Canva board, we’re building a master list. We use Google sheets. I’m giving you all my tips here. We use Google sheets and we build out room by room, link by link, description by description, price by price, this massive spreadsheet so that our clients always have a running telly of everything. So if we speck a couch that’s $4,000, they’re like, heck no, granny Tilda has one. I can use hers. They can just eliminate the quantity. It adds that money back into the budget and we can use it for other things. So we do that. That’s design week. We go back and forth. We’re looking at their Pinterest boards, we’re sending them Pinterest boards sort of into the beginning of the third week.

Terri-Leigh :
The client has reviewed the master list, they’ve reviewed the budget, they’ve looked at their concepts. They’re like, we love this. It’s going to target our guests. It’s in budget. You’re doing great. We then go into the ordering and delivery part of it. We can handle ordering for our clients in the install when we’re offering install services. We would do that all the time, but the clients can then take that master list, click each link, go to the vendor, add to cart. There’s a status column that says order it. It can be changed to shipped. It can change to delivered. It can change to complete, right? The client’s then ordering absolutely everything in that master list with the design plan. They’re also getting a guide that helps them walk through these steps. So Amazon, it’s tricky. Once you get over 60 items in a cart, boots, items out, we have that as a note in there, right?

Terri-Leigh :
Stop ordering here, you’re going to lose your items. All of that is very, very clearly laid out with that. Also in there guide, it’s going to be like, now’s the time to order your dumpster. Go for a 30 foot. Don’t bother breaking down boxes by yourself. Just get the freaking dumpster. It’s going to have, hire your painter, hire your build team. Here’s what to look for in a build team. Now’s the time to regret that shower. We have that old kind of broken up for them. The vendors we use for most of our clients, because we have a very honed in client avatar. We’re shopping retail, so Wayfair, crate and Barrel, Amazon, CB two, those kinds of vendors also works with our timelines. So you’re looking at between two hours for some of the Amazon stuff to be delivered to about 20 days for some of the West Elm sort of more high-end items to be delivered in the guide.

Terri-Leigh :
The packages come, we suggest that our clients pull in packages once or twice a week. Works really well in our markets. Maybe in your market. You don’t want to package sitting there for six days. So take that into consideration and so will we when doing your design, load those all up into the garage and make a dedicated install week. So that’s that final week, five to seven days of peer install where you’re opening boxes, moving them to the correct rooms and which rooms they belong to because you’ve got these lovely concept boards that you print out and stick on the door and your floor plans stick on the door and you’re unboxing, you’re unpackaging, you’re building furniture, you’re putting it in the location it belongs. You’re following your guide when you’re open a painting, you’re like, where the heck does this go? 60 inches from the floor?

Terri-Leigh :
That kind of thing. You’ve got it all kind of laid out. You’ve also hired a handyman. If you’re not handy at all, he comes on day four, as per your schedule we put together for you of that install week, and he’s hanging curtain rods, he’s hanging TVs, he’s hanging artwork, he’s hanging code hooks, that kind of thing. You’re building, building, building. And then day seven of that final fourth week, maybe a little bit longer, maybe going into five weeks, if you’re more of like West Elm Creighton Barrel sort of items, you have your Airbnb cleaner scheduled to the property. They’re making your beds, they’re steaming your curtains, they’re cleaning the insides of your drawers, they’re stocking the propane in your fire pits. By that following Monday, you are ready for photography, everything, stock, coffee, spoons, knives, plates, bowls, cups. We even do parchment in tinfoil. All of those are in that first sort of design package that we put together for you, and it’s because of that very strict schedule that you can or cannot follow. It’s going to hurt you if you don’t, but it’s up to you guys. If you can’t get it in and you you’re building on the weekends, that’s totally fine. You’re just not going to get that four week install time. But that’s pretty much the schedule that we follow

Tony:
And what a super detailed process here. I can tell that you’ve got this really dialed in for yourself. There’s a few questions that I have, but just a few that I want to circle back to. I love, love the 3D capture that you mentioned back on week one. What software tech are you using for this? Is it like a Matterport that you bought and you’re going out there and getting these yourself, or are you sending someone to do that matter port or is it some other technology that you’re using? Yeah,

Terri-Leigh :
So in Colorado, since we have boots on the ground and here in Florida where I am right now, and we are setting up here, we have boots on the ground. So we use a 3D capture app on an iPhone. It’s great. It’s called 3D app, and then we use QBI casa that goes off public records and a brief scan that you do of the room to work on detailed floor plans. That’s what we do when we’re doing projects out of site in Tennessee, Georgia, that kind of thing. We will hire a Matterport photographer to come and do the Matterport capture for us, and we just build those costs into those projects. You’re looking at about, I dunno, $300 for the capture.

Tony:
Super cool. So we have a designer that we work with, Brianna Michelle, who does a lot of our designs.

Terri-Leigh :
I know we follow each other on Instagram.

Tony:
Yeah, Bri’s great. She’s fantastic. So her process is pretty similar to yours as well. But we’ve done some remote stuff and usually we’ll just send our handyman to get measurements, but I love the idea of doing just the Matterport when you’re not there because it gives you a better sense of the space. So something to think about for sure. So one of the thing I want to ask you is for the install, because I know this can be a challenge for people, but what have you found is maybe the best place to go to source the local handyman that’s do all of the build out and the install of the furniture?

Terri-Leigh :
So again, in our basis, in our hubs where we are, we have a presence. We have people who we’ve been using for ages, so we just keep repeat business and we’ve actually helped people grow businesses, and it’s something we’re super passionate about. But if you don’t have that, then Thumbtack thumbtacks a great option. You’re going to kiss a lot of frogs. Some people are not going to show up, but you’re going to find the good ones. And when you find the good ones, latch onto them, pay them well. We always pay above market rate because I firmly believe that when you treat people well, they’re going to treat you well, and it’s worked out so far. So we use Thumbtack a whole

Tony:
Lot. Now, one last question here before we wrap up here. What tips do you have for rookies who maybe want to improve the performance of their existing Airbnbs?

Terri-Leigh :
Oh, that’s a good one. So it’s funny because I’m a designer, and for a long time it was design, right? Just have a cohesive design and you’re going to do exceptionally well. And that is so important, yes. But number one, identify who your ideal guest is, and it’s not your ideal personally. It’s who’s going to spend the most money and book the most stays at that property. Find out what is going to put them over the edge over somebody else, and it’s usually an amenity. Amenities have the biggest return right now in short-term rentals. So pick the amenities that you can afford. Pick the amenities that suit your property, that suit your capabilities and your timeline and go for them. It can be as simple as a $250 gas propane fire pit or pick a board court got to be mentioned, or a hot tub or asana. But amenities are the number one performing component of short-term rentals right

Tony:
Now. So you mentioned a couple last question then we’ll wrap here, but what amenities are you seeing maybe giving the best returns?

Terri-Leigh :
So because I’m in a mountain environment, hot tubs, hot tubs, they do so well in one of our properties. We do not have a hot tub up there. We just didn’t want to maintain it. The property does exceptionally well. And we were considering just buying another one, and we sat down, we worked at the numbers, we’re like, why should we invest all that money in another property when we could literally take $12,000, get a beautiful hot tub with a view, and it’s going to make as much in returns, 40 to $50,000 more per year than some of our lesser performing properties. So hot tubs do exceptionally, exceptionally well. Game rooms are another one that does. I can’t even explain to you how well for a $250 ping pong table and a $300 fuse bowl table, put it into a corner, put it into a garage with some fun paint and lighting, if you have a garage that doesn’t need to accommodate a car and you’re going to be happy.

Tony:
Well, Terry, I very, very much enjoy today’s conversation. And you shared just not only tactical things about how to improve your real estate portfolio, but also how to build the side hustle that can support your real estate business, and for you to go from a stay at home mom to running a business that’s doing over half a million dollars a year with very high gross margins. It’s an incredible accomplishment, and I appreciate you sharing that. So with our listeners today.

Terri-Leigh :
Yeah, thanks Tony. Thanks so much for having me. I’m super passionate about short-term rentals, investing and design inside hustles. So anytime I get to talk about it, I will.

Tony:
So guys, thank you so much for listening. Terry did a phenomenal job again, talking about how to build a real estate business or a business that supports your real estate investing, but also is in real estate, and how you can follow those same steps. So appreciate all of our Ricky’s hanging out with us today. Now on whatever podcast player it is that you’re listening on, YouTube, apple, Spotify, wherever it may be, be sure to give us a follow or like And biggest thing, guys, if you’re enjoying the show, if you’re enjoying the Ricky Podcast, take a few minutes and share it with a friend. One of the best ways to find new content to consume is from that trusted recommendation from a friend. So if you’re enjoying the podcast, take this episode, share with someone else. But that is it for today, guys. My name’s Tony j Robinson. If you want to find out more info about me, about Terry, check the show notes for this episode’s description and I will see you guys on the next episode of the Real Estate Rookie Podcast.

Watch the Episode Here

https://youtube.com/watch?v=zE0r_Xs13w0

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In This Episode We Cover:

  • How Terri grew an interior design business that pulls in $600,000 per year
  • Using credit card rewards to fund an ENTIRE home renovation project
  • How to start a business that allows you to buy even MORE real estate
  • Landing your first interior design clients (even if you don’t have a portfolio!)
  • How to design an Airbnb, step by step, in just four weeks or less
  • The hottest amenities to add to your short-term rental in 2024
  • And So Much More!

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Connect with Terri:

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected].

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

Stay-at-Home Mom to “Accidental” Investor with a $600K/Year Business

How to Buy a Home (or Entire Neighborhood) With Your Friends and Family

Imagine living in a home where your next-door neighbors are your best friends or family members. We know you’ve thought about it before—starting a compound with all the people you love, everyone helps each other, watches each other’s kids, the community stays safe, and you barely have to drive! This is exactly what co-ownership homes, co-buying, and co-living can do for you! But getting a dozen or so people together to do a real estate deal can be a little tricky; that’s why we have Phil Levin, founder of Live Near Friends, on the show to help.

Phil lives in his own housing “cluster” with nineteen (yes, nineteen) of his closest friends. He believes that being near your loved ones helps you live a happier, safer, and more contented lifestyle—and we agree! There are massive positives to living in a neighborhood with your friends. We’re talking free babysitters, consistent helping hands, less driving and more walking, and, of course, being able to see your best friends almost every day of the week. But practically, how does one start building a community like this?

Phil walks through the different setups anyone can try to begin living with and around their friends and family, from co-buying with one or multiple others to starting a “minihood” and making your own part of the block, or building an ADU (accessory dwelling unit) for a close friend or two to live in. He even talks about the rising demand for this type of co-living and what developers and real estate agents can do to make serious profits from this growing trend.

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Dave:
Do you know that thing that seems to happen within every group of friends where you start talking about living together, maybe buying some acreage and putting up a compound, or starting some sort of co-living situation? I know this has happens with me, my friends, and some people in my family. Henry, have you ever heard this?

Henry:
Oh man, we have talked about this all the time, but it never happens because life happens and it pretty much sounds expensive, right?

Dave:
Yeah, it does. And no one takes on the actual work and legwork of making this actually happen. But today we’re gonna talk to an investor who is making this happen. Hey everyone. Welcome to the BiggerPockets Real Estate podcast. I am Dave Meyer. He is Henry Washington. Henry, thanks for being here.

Henry:
Hey, man. Happy to be here. Thank you so much. Yeah. Today we’re talking with Phil Levin and we’re talking all about the value of living near or renting near groups of your friends. So we’ll talk about the ins and outs of how you can coy a house or co rent a house, and we’ll talk about how investors can capitalize on the increasing demand for people who want to live near their friends and family. I know I actually did this by accident when I bought my first condo, and it was one of the greatest living experiences I’ve had in my lifetime.

Dave:
That’s super cool. I’m very interested to hear about your story, Henry and Phil’s story. So let’s bring ’em on. Phil Levin, welcome to the show. Thanks for being here.

Phil:
Hey, great to be here. Thanks for having

Dave:
Me. So I understand your story that we’re gonna just talk about today begins with a conversation you had with your then girlfriend who is a behavioral scientist. Take us back to scene. Tell us how you got this whole thing rolling.

Phil:
Yeah, yeah, yeah. You know, so you, you think life’s gonna turn out one way and then it turns as it turned out a different way. Um, this is definitely one of those experiences. So my, my wife’s a behavioral scientist. Um, she studies what makes people happy and healthy and we end up testing a lot of her ideas, sort of in our, in our own life. Um, and the big one was when we were having sort of the like, let’s move in together conversation for the very first time. And, you know, I, I thought we were gonna go do quote the normal thing and like, go get an apartment together. Uh, just the two of us. But she had other ideas. Um, and so she, she told me about this thing called the law of proximity. Um, and it’s sort of like the, like rule of her life and the law of proximity is that we, we are like highly influenced by what we surround ourselves with.
And so like if we move near a, uh, a pizza shop, we’re gonna get fat. If we move near a gym, we’re gonna get fit. Um, and if we surround ourselves with great people, we’re gonna live a happy, healthy, well supported life. And so she sort of said the important thing is not like what our like physical space looks like that we live in. The important thing is what’s around us. And we’re always gonna design our housing to sort of be around the people we wanna be around and, and actually care less about the physical space itself. Um, and so we ended up, uh, you know, first moving into like a big house with like nine of our friends when we were like younger. Um, now that we’re a bit older and we’re, we’re having kids, uh, we have a different setup. So where we have, uh, uh, 10 housing units sort of in a cluster, um, very close together and we have, uh, 19 of our friends and, and five kids all under the age of three all living together.

Henry:
Yeah. So I think this is really cool mostly because, uh, this is something that we are now looking at doing now that my wife and I have two kids and our, our her parents, my in-laws have like 50 acres. And so now we’re looking at ways that we can purchase some of that acreage so that we can build a house out there just so that we can raise our children around their grandparents. And uh, that’s just a unique perspective, but a lot of people are interested in this lifestyle. I think a lot of people consider this or look at this as homesteading, but it’s less about like the farming aspect and like living off the grid. It’s more about just being around the people you care about. Is that what I’m hearing?

Phil:
Yeah, that’s exactly

Henry:
Right. Yeah, I mean, I think that’s perfect. ’cause I think a lot of people’s like, uh, apprehension or barrier or entry to this is that land costs a bunch of money and building a bunch of houses cost a bunch of money and I want to do this, but I don’t know how. So what are some of the like modern ways or the different ways people can try to coordinate and live close to their friends and family?

Phil:
Yeah, let me maybe give you a couple of form factors, um, that we sort of see out there. Um, so one is something that we call the mini hood. And by we, I mean my company live near friends, uh, which is we, we are helping people do this. Uh, so, uh, the mini hood is essentially where you take a small radius. So you basically draw a circle. Um, and we tend to like a 10 minute walk radius, which is where we sort of see as like very close. Um, and you just tell all your friends and family and your people, hey, buy or rent a home inside that circle. And like some people might want a bigger home, some people might wanna rent, some people might wanna buy. Um, people have different amounts of money, but like everyone can sort of find the space that they want within that circle.
A second form that we see is a, uh, actually renting multiple units in an apartment building. You know, so right, right now, like multifamily, uh, is sort of, is sort of getting killed a bit. Uh, there’s a lot of vacancy in these buildings. Uh, it’s pretty easy to go up to a building and say, Hey, you know, me and my two friends or my two family members are gonna take three units off your hand. Um, will, will you do this? And like, most likely, not only will they do it, they’re gonna give you a big discount. Uh, another form we see particularly in sort of expensive coastal markets is you have a lot of these new, um, a DU laws, um, that are coming on the books. So it, it’s very easy now to like build an extra unit on a property. Um, and so a form factor we see a lot of this is like, you got the house and then you’re building the extra unit for one of your friends or your family members. That’s

Dave:
Super interesting. Phil. I never really thought about the idea of like collectively bargaining for rent. Like if you have a several units that you’re interested, and as Phil stated and we’ve talked about on this podcast many times, multifamily is facing this glut of supply right now where a lot of inventory is coming online all at once. And so people will, you know, operators and multifamily are willing to do deals. And that’s just a very interesting option. If you are thinking about, uh, you know, renting a property, maybe you can do that. Or if you’re a multifamily operator, maybe you can find a way to fill up some of your vacancies by working with a group that wants to be, uh, living together.

Phil:
Yeah, it’s actually this, um, for, for the multi-family operators, Dave, there, there’s a stat out there, which I think they should all know. Um, that if someone has a close friend or family member living in their building, they’re 30% more likely to renew their lease Whoa. Than the average person. And so if you think about like, you know, the biggest cost to an operator is turnover. Like, you know, I I think you can actually give a lot of your economics, um, and discounts in order to get this, um, and, and still actually come out on top as an operator.

Dave:
That’s super interesting. So even if you were to give sort of like a, you know, a move in discount or even a a a reduction in rent to get three units, you might be getting three people who are gonna stay for five years instead of for one year or two years.

Phil:
That’s right.

Dave:
Super interesting. So I, I do wanna get into sort of the economics in it a little bit. But you know, you started this conversation talking about how, you know, this is good for people. Like what are some of the benefits to living near your friends? Are there any like quantifiable or measurable things that you can share?

Phil:
Yeah, so I, I, I can tell you some of the stats, but maybe I’ll just share some of the like, anecdotes from my own life just ’cause like a lot others, I work on this ’cause I’ve experienced it and I’ve seen how good it is for me. Um, and Henry, you talked about you have two kids. Um, so we, uh, we, we all live at, um, close enough to each other where we’re within baby monitor distance. Um, which means that like we can hand the baby monitor to one of our neighbors and say like, you watch the kid, which isn’t a big deal, you’re just like holding onto this thing. Um, and then me and my wife Kristen can just leave. We can just go out, we don’t have to hire a babysitter. Um, and I can do that pretty much every single day. We want to do it sort of on no notice. And so like, think about what people pay for babysitting or think about people like stuck in their homes with their kids at night. So basically after 7:00 PM we just get the go and it’s ’cause we have a friend next door. It’s a huge lifestyle change, uh, because of that like one choice.

Dave:
So you’re saying basically your kids go to bed, you walk next door, you give your neighbor the baby monitor and says, you know, if the kid wakes up and needs something, go over there. Meanwhile we’re gonna just go do something else. That’s

Phil:
Right. And like our friends, they know our kid, right? They’re, they’re our next door neighbors. Uh, they’re close to arcade, our kid knows them. So like, if, if something happens, which usually doesn’t, um, they can walk in and there’s like a familiar face. Um, and it’s just not that big of a deal to do that for them.

Dave:
I don’t have kids, but I imagine that would be a lot of financial saving and just good for your relationship.

Henry:
First of all, this is huge and like I do this, but like, it wasn’t intentional. So like our sister-in-law lives with us. And so sometimes we’ll just say, Hey, can you keep an eye on the monitor? And then my wife and I’ll go hang out. And it’s been a blessing to our marriage. It’s been, uh, amazing. And I know not everybody kind of gets a a, a live-in nanny, but you explaining this co-living situation, like people can curate this environment for themselves. And I’m telling you like it’s a game changer for like, when you just need that moment to get away from the house. And, uh, it’s funny, it’s funny this, it, it can, it is an economic benefit, right? ’cause you’re not paying for childcare. But I’d say it’s, it’s a far greater marriage benefit. Yeah. . Uh, and maybe you don’t pay for as much marriage counseling, so I mean there’s a financial benefit there as well. . Yeah. Well

Phil:
Let’s actually talk about the marriage benefit. I I, I think I’ve seen that too. So it’s like, you know, you get a little t with your partner happens sometimes, like the ability to just to like sort of like walk outside and just like walk into your friend’s house and like sit down and talk about, have a beer like right on the spot as opposed to playing the coordination game of like, Hey, when you free next week, oh no, no, good for me. How about two weeks? No, no. You know, that thing that people do, um, that sort of like disintegrates friendships over time. Um, you know, IIII think having the like, spontaneous, um, you know, unplanned social interaction is like sort of the way that we’re like meant to, meant to live it. It’s really just a question of how much coordination and design you want to do in your life.

Dave:
That’s so funny. I was actually just reading a book and they were just talking, it totally not related to real estate, but they were just talking about like, when you don’t like people, humans just love doing favors for each other. And when you don’t ask for help, you’re like robbing someone else of the opportunity to have that fulfilling experience of helping someone that they care about. We’ve now learned how people living together or close by one another can be positive for the investor, landlord, tenant, everyone. But what are the sort of quantifiable benefits that come from this, this and more after the break?

Henry:
Welcome back to the BiggerPockets podcast.

Dave:
Alright, so, uh, you mentioned something about Co-buying ’cause I think that is sort of a, a common idea right now with, with interest rates. So high housing affordability at, at the lowest point it’s been since the 1980s, I think for, you know, uh, for people home buying, it’s a, it’s an interesting idea that I’d love to talk to you about. And as an investment option too, we hear a lot more people, we usually just call it a partnership in real estate investing, but I guess if you’re living there, it’s sort of coying. So, uh, can you just tell us about like what Co-buying is and who it might be good for?

Phil:
You’re, you’re right to sort of like split these as like, you know, Co-buying as a, as an investment versus coine as a, as a lifestyle. And I I think they’re, they’re, they’re trying to achieve different things. Um, so Co-buying as an investment is trying to achieve financial returns. Um, Co-buying as a lifestyle is trying to, you know, make for yourself the best lifestyle possible. Um, and those are two different goals. Um, you know, I I I think, I think you need to think a lot about the who. So like, you really want to make sure you’re going to this with a person that you, you trust than a person that you’re gonna like set up life with. Um, so for a lot of people, this is a family member. For some people it’s a good friend. Um, I think, you know, parents who are like having kids around the same time, for me that’s like a very nice setup.
You do nanny shares together, um, and, uh, and make much like, make life much easier on yourself in in that, in that time. Um, so I-I-I-I-I think there’s like two sort of broad ways that you might want to think about structuring this. Um, so the first way is that you’re both, you’re both sort of like 50 50 buyers in the thing. So let’s take the example of a duplex. It’s like both you’re buying it, uh, you’re gonna live in one unit, I’m gonna live in the other unit. Uh, there’s a couple sort of legal structures that like allow for this. Um, so A-A-T-I-C uh, tenancy in common is one of them. Um, where essentially you’re just like splitting up the space and saying, that’s your space. That’s my space. Um, you can actually sell a TIC share separate, so I, I could sell my share to someone else externally.
And then that’s actually a fairly common thing to happen in a lot of markets. Um, but there’s another way of doing it, which actually we see, which is, you know, oftentimes like the two people are not on the same financial footing. You might have like the friend or the family member who actually just has like, a lot more means than the other one is like a fairly common thing. And in that case, you wanna explore something slightly different. And so something that we see a lot is like, you know, let’s say Dave, you’re the person with the money. You’re gonna buy the thing and I’m gonna pay you rent and we’re both gonna like, live together. Um, and of course there’s like a little bit of awkwardness maybe around the fact that I’m paying my friend rent, but we’re friends and we can work this out and, and we get to set up life together. Uh, and so you’ve essentially created like, you know, your own primary home in one of the units and an investment property in the second unit, but instead of a random person, you need to manage and have all the pains of that with it. It’s your buddy and you might actually be willing to like charge a little less rent for your friend. Like they’re gonna help with the maintenance, they’re not gonna cash the place.

Dave:
Yeah. ’cause they’re probably gonna take care better care of it than than a random person. Yeah.

Phil:
Um, so that, that might be a good idea, but financially and in terms of, in terms of your happiness. Got

Dave:
It. And Phil, I I understand that you are also a developer, right? So you’re, you’re developing these types of communities, or tell us about that.

Phil:
Yeah, so I, uh, I I come from a real estate development background. Um, I was one of the founding team members of cul-de-sac, um, which is developing sort of like large scale neighborhoods from scratch. Um, and we, we do, we do walkable neighborhoods. Um, so there, there’s, there’s, there’s no cars in them. Um, so the, the first one’s in Tempe, Arizona, uh, it’s a $200 million development. A thousand people are gonna live there. Um, so I sort of come from the, like the big real estate development background, but my, but what I’m working on live Near Friends is it’s a platform for like small scale developers and small scale people to like set up these sort of arrangements for themselves. So I’ve sort of gone to the other end of the spectrum, um, having seen like how painful and how long it takes to actually develop big real estate. And, and, and I’m now working on like, how do you get like thousands and tens of thousands of people to develop like small real estate and actually have it be like a different theory of like how you, how you bring things to scale in the market.

Dave:
So what, can you give us an example of like, what does one of these small scale developments look like?

Phil:
We basically want to become the Airbnb of this category of housing, which we call proximate housing. Um, and so we wanna make it easy for a developer or a home flipper to sort of say like, Hey, like there’s demand for this sort of thing in my market and I can see the demand. I can like log onto the platform and look at it and, and know that if I build this thing or if I flip this thing for this purpose, um, there will be a customer on the other end who, who’s gonna buy it from me or rent it for me.

Dave:
And have you d have you done like a bunch of these so far?

Phil:
Um, I, I have done a few of them in my personal life sort of as a, as a, as a solo developer. Um, so actually the, the place we live now in Oakland is a version of this. And, uh, living near friends will be launching sort of this, the, this feature soon. Um, so we’re not yet working with developers. Um, but what I would say is like, you don’t need us to get started. Um, so if you think there’s demand for this sort of thing in your market, you can start building towards it for it and, and, and, and see if there’s any, any customers. So, you know, think about like the, the, the duplex that right now is sort of like set up for two strangers. It’s like if you flip that, how can you sort of set up so it’s actually a fit for two people that know each other as opposed to two people that don’t know each other. So like something we see is like yards. So like people will like create like two crappy yards when they could have created like one great yard. That’s an example of a way that you would like design for two people that know each other rather than strangers.

Henry:
I, uh, my brain immediately went to putting those two doors, like in adjoining hotel rooms.

Dave:
Yeah, absolutely. Where you can open it if you want to. Yeah,

Phil:
Yeah. Totally. Totally.

Henry:
To kind of summarize this from an a real estate investor standpoint, do you think this is a niche that like an investor could look into potentially buying property and then giving yourself the option to make it more functional for people to rent from you who want to do this kind of coordinated, uh, co-living experience where you have the option to rent it traditionally to two strangers, but if you also set it up where maybe, you know, there’s a gate in between both fences or there is a door, an adjoining door inside the, the unit or some other amenities that appeals to people who would look to live close to their friends, and then you can market it to those people if you want to, but you could also market it it traditionally, because you’re right, if somebody’s gonna live or if somebody’s 30% more likely to renew their lease if they’re living by friends or family, that’s absolutely something that interests me as a property owner. But you’ve gotta, you also have to be able to do it in a way where you’re not violating any fair housing laws by marketing this property.

Phil:
Yeah. And, and like to that point, so we actually saw, um, a few weeks ago there, there was a, um, there was a property in, in Berkeley about 10 minutes from where, where I live now that had, that had two homes on a lot. Um, and uh, I had three different groups of people text me being like, I’m putting an offer on this thing, there’s nothing else like this. And uh, it ended up going for $800,000 over list.

Dave:
Oh my God. Wow.

Henry:
Over list.

Phil:
Over list.

Dave:
That’s rare because for a lot of, uh, two properties and a lot, you can’t get conventional financing for that. Yeah.

Phil:
So this, uh, I I I think in many cases you actually can, so like, you know, it, it’s uh, you know, anything under four units you should be able to get, you know, reasonably conventional and financing. Um, but uh, yeah, I think, I think, I think the owners were surprised. Uh, my friends are all, all lost out to somebody else who outbid them. Were definitely surprised. and, uh, the, uh, yeah, and I think, I think there’s just like a lack of this, this type of housing in the market and there’s a demand for it. Uh, and you know, part of the reason is remote work is a fairly new thing. So it’s like beforehand you would’ve been playing the game of like, oh, I wanna live with this person, but they have a job there and I have a job over there, we can’t do it. Now. People have a lot more freedom to choose where they want to live and you know, they no longer have to like orient that search around their job, which means they can, they can now orient their search around people. And so the, we think there’s gonna be a lot more demand for this sort of housing type and there’s just very little supply of it, which is I think why you’re seeing this. Like, homes go for 800,000 over list if they, if they allow for it.

Dave:
We do have to take a quick break, but more from Phil Levin when we return.

Henry:
Welcome back to the show. We’re here with Phil Levin. Yes. So let’s try to put this into some perspective for people. So if I’m an investor and I’m interested in, um, creating spaces for this, A what should I be putting into these homes? B, how should I be determining if I have demand for my market for this? And then how do I get this product in front of them?

Phil:
So well let’s maybe first talk about the like form factor. So, um, right now you may have an investor or a developer who’s trying to build a large home on a single lot. Um, I think the question I wanted to ask themselves is, would it be better off developing two or three smaller homes on that same lot and and marketing them, marketing them sort of all, all as one? Um, and Henry, I think you’re asking a great question, which is how do you, how do you test that? Like how do you know there’s demand for that? Um, one thing you can actually do is you could actually test out and, and ad for it even before you’ve built it. So like go, go run a Facebook ad saying like, you know, three, three homes on the lot for , you know, good for friends. Um, and, and see if you get clicks.
Um, and that might be a good way of sort of testing some in your local market before you make a big investment. Um, another way is you can go back and like, look at similar things that have gone for sale in the past. So like, you know, has there been a property that looks like the thing you might want to build? Um, how did it do, did it sell? Did it sell for for more than list or not? Um, and, and, and that’ll give you a sense of like, you know, might there be a latent un untapped market for this, um, where, where you are.

Dave:
Got it. Great. Well, Phil, is there anything else you think our audience of investors should know about this model that you’re developing and working on or anything they should be thinking about?

Phil:
Let, let lemme maybe mention the story for real estate agents.

Dave:
Oh yeah, good call.

Phil:
If you’re, if you’re a buyer’s brokerage agent right now, uh, things are scary. Yeah. The latest rolling. So maybe one small silver lining. So we, I tell you, we live in this sort of like, uh, cluster of homes in Oakland. Um, and what this looked like is we had eight of our friends buy homes near us. They all use the same couple agents to do that. And so essentially this one lead, which is like me and my wife for these agents turned into $300,000 of commission for the buyer’s agents. So you get to be the agent for the friend group, uh, not just the agent for the person it’s getting, it’s getting like multiple per one. And we don’t know any agents out there who are positioning themselves as having this as their specialty and we think there should be more of them. Uh, so living your friends, my company is gonna be working to build a network of agents in different cities who are gonna specialize in this type of transaction, which is you’re representing the friend group or the family and trying to all do things together. And you can get a two for one, a three for one, a four for one if you become that person for that group. And, and for us it was, it was eight homes, $300,000, uh, just from the sort of the one, the one lead.

Dave:
Wow. That’s pretty awesome. I don’t, yeah, that I, I don’t know anyone else who is, uh, going to be, who presents themselves that way, but that’s kind of like the dream, right? Just get eight, eight commissions at once.

Phil:
Come, come talk to me if you, if you wanna start doing this .

Dave:
Alright Phil, well thank you so much for sharing your story with us, super interesting projects that you’re working on here. And for anyone who wants to learn more about Phil and his Company, we will of course put all of the contact information in the show notes below. Thanks again, Phil.

Phil:
Hey, thanks guys. This was fun.

Dave:
Yeah.

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In This Episode We Cover:

  • Co-ownership, co-living, and co-buying explained and how to live with your best friends
  • The massive benefits of living near family and friends (especially if you have kids!)
  • The “law of proximity” and boosting your lifestyle by co-living with more happiness and less stress
  • Creating a “minihood” where you and your friends all live within walking distance
  • How real estate developers can get a jump on this fast-growing co-ownership trend 
  • 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.

Stay-at-Home Mom to “Accidental” Investor with a $600K/Year Business

How to Prepare Your Rental Property for Tenants

If you’re like many property owners, you want to use your investment property to make rental income. But before you can get to the cash flow part, you likely need to rehab and prepare the rental property for potential tenants. 

Rehabbing a home isn’t the same as preparing a home for rental, though. Not all homes require rehabbing, but all rental properties must be prepared for prospective renters.

There’s a lot to know about owning rental property, and landlords must understand their rights and tenants’ rights to meet any legal requirements when preparing a home for a new renter.

These details can guide you through rehabbing your residential rental property as a real estate investor and getting it ready for new tenants so you can get your home on to the rental market sooner—and potentially increase the monthly rent.

How To Rehab Your Rental Property

Once you’ve purchased a rental home, it’s crucial to make the necessary repairs and updates to ensure it’s safe and meets local rent regulations for tenants. 

Starting with a thorough plan is essential, especially when setting a rehab budget. Factor in all anticipated work and material costs, and if possible, overestimate to accommodate any unexpected expenses.

How To Prepare a Home for Renters

Now that you’ve completed your rental home rehab, you can start preparing the property for renters. This is the stage where you add beautification to the rental house, like planting a bed of fresh flowers or making sure the windows sparkle. 

There are things you can do in each room of the house to get it ready for the next tenant that could also help increase the monthly rent:

Bedrooms

When a tenant moves out, you may have to clean the carpets in the bedrooms. Some landlords put hardwood floors in the bedrooms to avoid cleaning carpets regularly, but hardwood floors need to be cleaned as well, and they can get scratched and scuffed. You may also need to touch up the paint and fill holes in the walls caused by hanging pictures and hooks.

Inspect the bedroom windows to ensure they open and close and that screens are in place. If the windows need coverings, you may have to replace these before new tenants move in. Touch up moldings and baseboards, and ensure the door functions and looks good.

Bathrooms

In a rental property, prepare the bathrooms by ensuring the faucets work and there are no leaks. Check to make sure the toilet looks clean and functions properly. Replacing broken or chipped mirrors or sinks is an inexpensive way to make a bathroom look more appealing to potential renters.

You can also do preventative maintenance while you’re preparing the property. Look under the cabinets in the bathrooms to inspect the pipes and ensure that the sinks are draining as they should. Make sure all the outlets and switches work. Hire a professional electrician or plumber if any issues or concerns need attention.

Living and family rooms

Living and family rooms often get a lot of wear and tear because they can be the most-used rooms in a house. It’s not just a less-than-ideal tenant who can cause property damage. 

Accidents happen to even the best tenants, and these accidents might not leave your property in the same condition after you rent it out. Unfortunately, the living areas can get the brunt of the issues that renters cause.

So you need to be ready to properly prepare these rooms for new tenants when you’re a landlord. You may have to clean or replace carpets, apply a fresh coat of paint to the walls, clean or replace window coverings, and repair doors or windows that don’t work. You can also check that all the light bulbs in any lighting fixtures are working properly.

Kitchen

The kitchen is another room renters use a lot. When you prepare the kitchen for the next renter, you’ll want to check that the appliances are all working. Things to check include:

  • Is the fridge getting cold? 
  • Does the freezer make ice? 
  • Can the oven get hot? 
  • Do all the burners on the stove work? 

Make sure you check all of these things as you look over the kitchen at your property.

New appliances aren’t cheap, so getting landlord insurance or a home warranty can sometimes be helpful. These can offset the costs of making expensive repairs on a rental property. Still, you should talk to a landlord insurance agent about getting the coverage you need and want so that your policy or warranty covers appliances.

You might need to replace the linoleum if it’s damaged, but a good scrubbing should usually do the trick. Look over the cabinets, and open all the doors and drawers to ensure they work. Test the smoke and carbon monoxide detectors, and replace them if needed—you can do this throughout the house.

Exterior

Once you’ve completed preparing the home’s interior for rental, you can move to the property’s exterior. 

Here are some important tasks:

  • Clean up and remove any junk or garbage that previous tenants may have left.
  • Check the siding to make sure it’s clean and free of damage.
  • Examine the windows, looking for water damage, leaks, and broken glass.
  • If there’s a chimney, have it cleaned, and make sure it’s structurally sound.

Add curb appeal to the home by trimming bushes, cutting trees, planting flowers, or putting potted plants around the property. People will judge a home within the first few minutes of seeing it, so sprucing up the exterior won’t cost much money, but could attract a tenant to the place you’re renting sooner.

Bonus areas

If your rental property has a garage, shed, pet area, or another bonus spot that not all rentals have, you must also prepare these areas for rent. Any parts of the property included in the lease agreement should be ready for a renter. 

You may need to have the floor cleaned or repaired in the garage, while a shed may be full of someone’s old yard tools or boxes. Get rid of any signs of past tenants who may have been renting the house.

How To List Your Property

Listing your rental property and finding a tenant is the next step in preparing it to rent. This step takes some work and investigation. You’ll need to know where to set your rental rate, whether you need to include lawn care, and how to screen tenants. 

Most landlords take care of maintenance, repairs, and property management tasks independently until they own a few other rentals. But a landlord can use these tips to help them list their property and find a tenant who will pay the monthly rent.

Take photos

Most people seeking housing today do it online by looking at photos, so you’ll want to ensure you have stellar property images. Hiring a professional real estate photographer who knows the current market may even be worthwhile. They can photograph the features of your house that they know are popular right now to help it stand out.

Use marketing tools

There are several ways a landlord can advertise their rental properties. Knowing the best marketing tools for your unit can help you target the people with the most interest in renting your house. Social media is an excellent tool for marketing real estate, but traditional methods like putting a sign in the yard can also be surprisingly helpful. 

How and where you market a home for rent depends on the home’s location and rental rate. You may need to try various marketing tools before you find the ones that work for you.

How to Find the Right Tenants

Selecting the right tenants for your rental property is essential for a stress-free, profitable landlord experience. Making the right choice can lead to long-term rental relationships, timely payments, and well-maintained homes, while the opposite can result in costly and time-consuming challenges.

Screen applicants

Before renting a property, landlords must screen tenants—such as through a background check service and a comprehensive rental application—to weed out anyone who may not pay rent or are more likely to damage a house. Of course, you also have to prohibit discrimination when finding a prospective tenant, so make sure you’re familiar with laws for landlords and tenants when screening tenants.

Understand landlord tenant law

Being well versed in the landlord tenant laws of your city is critical to your long-term success. These laws, such as the Fair Housing Act, not only dictate the rights and obligations of both parties but also provide a framework for resolving disputes that may arise during the tenure of the lease. 

A thorough comprehension of these regulations ensures that you maintain a fair, lawful relationship with your tenants. Ignorance or negligence in this area can lead to legal complications, strained relationships, and potential financial penalties. 

Familiarizing yourself with local rental laws can save you from costly mistakes and solidify your reputation as a trustworthy and professional landlord.

Create a rental agreement

A rental or lease agreement is a contract between a renter and a landlord stating what the tenant will pay each month and what the homeowner provides. The lease agreement needs to include the rental rate, the lease’s duration, whether pets are allowed, and all the details pertinent to the real estate transaction. 

You can use a generic rental or lease agreement, but have a lawyer look it over to ensure the lease can protect you and your property. Without this, should something go wrong, your rental income is at risk.

Property Manager vs. Self-Management

You must decide whether to self-manage your properties or work with a property manager or management company. Doing the job yourself means you need a good grasp of landlord-tenant laws, eviction laws, and the legal issues that could arise from a lease. You’ll also be responsible for collecting rent, doing maintenance, taking care of repairs, marketing, and renting the unit.

A property manager handles most of the details associated with renting a house. Many property management companies can tailor their services to your needs by offering some or all of what you want. A property management company can write a lease agreement for prospective tenants, handle the rent money, and hire the lawn care service. 

A property manager also knows how to navigate the rental market, and their services can be well worth the money. Yes, it costs money to hire a property manager, but it can actually boost your rental income over the long run.

Final Thoughts

Preparing your home for renters takes time if you decide to manage the property yourself.

You might want to manage your rental property if you only own a few, but as you grow your real estate business, it may be worth considering working with a property management company. You can let them help you prepare a home for renters, so you can continue your wealth-building strategy.

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

Stay-at-Home Mom to “Accidental” Investor with a $600K/Year Business

5 Insights on the Current State of Commercial Real Estate That Investors Must Know About

This article is presented by Walker & Dunlop. Read our editorial guidelines for more information.

If you are, or thinking about, investing in commercial real estate, what should you know about the commercial real estate market right now?

Well, the answers very much depend on who you ask. What’s very clear is that two opinions are much better than one. All the officially available data—construction rates, macroeconomic factors, and consumer sentiment reports—point toward a booming market.

It takes an experienced and independently-minded expert to read between the lines and question some of the data and the conclusions about it. That’s exactly what Dr. Peter Linneman did during the recent episode of the Walker Webcast. 

Full disclosure: His take on what’s in store for commercial real estate may not leave you feeling very optimistic, but it’s guaranteed to open your eyes to some of the issues shaping the sector. His insights (supported by solid research) may even save you from making some costly investment mistakes in the coming years.

1. True Rental Growth Is Lower Than CPI Rates

If you’ve been following the recent CPI coverage, you will have noticed that one core CPI marker seems to be continually driving inflation up: the rental market. In April alone, the shelter component of the core CPI was showing an increase of 0.4%, or 5.5% year over year.

For an investor in the rental market, this would seem like good news because the obvious translation of these figures is: Rents are growing; therefore, the rental market is a safe bet right now.

The reality is far less clear-cut. There are a couple of serious flaws in how the shelter segment of the CPI is calculated. One of them is the fact that actual rents include both old and new leases, which can skew the numbers significantly. According to several studies, the inclusion of rents, regardless of when the lease was signed, leads to a data lag of 12 to 18 months.

The other problem with the CPI calculation method is that it relies on the OER number for a third of its data. The OER, or Owners Equivalent Rent, estimates the amount of rent a property could generate based on its current value and relies on surveys of current homeowners. As such, it’s a number based entirely on people’s perceptions of current home values, not accurate valuations.

Unsurprisingly, the vast majority of homeowners have a wildly inaccurate perception of how much their homes are worth. According to Fitch Ratings, this occurred in 90% of the country’s metropolitan areas as of the end of 2023. On average, homeowners overestimate their home values by 11%.

Without these inflated metrics, the true rate of rental growth is much more modest. Zelman (a Walker & Dunlop Company) tracks actual single-family rental rates, and they’re up just over 3% year over year. 

2. The Office Space Sector Is in Trouble

The dramatic decline in demand for rental spaces during the pandemic has been well documented. And yet the projected return of office workers to office spaces was supposed to rebalance the office space market. Peter Linneman was one of several prominent economists predicting this return, but, as yet, this migration back to the office hasn’t materialized.

According to a study by the McKinsey Global Institute, office attendance has stabilized at 30% below pre-pandemic levels, and the office space real estate sector is following a consistently downward trajectory. The Institute estimates that demand for office spaces will have fallen by 13-38% between 2019 and 2030.

Apart from this very obvious factor that is triggering a decline in the office space sector, there are issues with how the construction and banking industries are handling the situation that are compounding the unfavorable conditions.

The construction industry is responding to the office space crisis in a way that is profoundly counterintuitive. Instead of slowing down the pace of construction, Dr. Linneman points out that there is $80 billion being poured into new office construction. The idea, apparently, is that commercial developers are hoping to entice companies to the most innovative and high-end office spaces. That is despite the fact that all indicators suggest that the issue is not with outdated office spaces but with changing work patterns.

Finally, the reluctance of lenders to take office buildings back through foreclosure could spell further issues down the line. Banks are preferring to restructure commercial loans instead of foreclosing. This is understandable since they don’t want to have to pour even more funds into the increasingly unprofitable real estate sector, but it is making it harder for investors to move on from this type of investment if it shows signs of failing.

3. Consumer Confidence May Be Wobbling

There’s a lot that’s been said over the past year about the remarkable resilience of consumers in the face of continued uncertainty about the economy. The narrative goes like this: unemployment is low, there are jobs, and credit card spending is high, but that’s actually an indicator of a strong economy. People may not be able to buy homes, but they’re spending on vacations, consumer goods, and eating out, which seems to paint a picture of people who are, by and large, feeling positive about their finances.

This positive assessment does not tell the whole story, however. The unemployment rate figure, in particular, is unreliable since it doesn’t take into account everyone who is currently un- or underemployed. That’s mainly because the figure presented by the US Bureau of Statistics relies on the Current Population Survey. As we’ve seen with the case of rents and home valuations, surveys do not provide accurate figures.

A more accurate unemployment rate may be much higher than the 3.9% April figure given by the Bureau of Labor Statistics. Peter’s own calculations bring that rate closer to 6.6%, almost double the official figure. If that number is closer to the truth, the overall picture of consumer confidence begins to look a lot less rosy. That’s not to mention the fact that the Consumer Confidence Index is showing a consecutive decline as of April. Currently, it’s at its lowest level since July 2022 and considerably lower than its peak levels in 2019. The effects of the pandemic on people’s finances may be more widespread and longer lasting than official economic readings like to admit. 

4. Multifamily Development is About to Slow Down

This is not the news any real estate investor wants to hear right now. Multifamily has been touted as a lucrative investment strategy, not least because the housing crisis is boosting demand for new multifamily starts.

However, there are further factors affecting the multifamily sector than just the supply-demand dynamic. The biggest among them is the fact of the rising construction and insurance costs coupled with stagnant or slowing rental growth. Developers are catching on to the fact that investors are more and more wary of increasing costs. Insurance costs, in particular, have risen sharply over the past year. 

Another factor that is slowing down the multifamily sector is what Peter refers to as the “not in my backyard” mentality many people have about having multifamily developments in their areas. This opposition has led to the upholding of zoning laws that restrict multifamily development and, in some areas has banned them altogether.

Overall, recent research suggests that multifamily development will begin to slow starting in 2026. It doesn’t make it a bad investment option per se, just not the housing holy grail it has sometimes been presented as.

5. The End-of-Year Federal Funds Rate Outlook is Still Uncertain

Finally, what every investor wants to know right now is whether the Fed will deliver the much-anticipated rate cuts this year. With so many contradictory narratives about what the economy is really doing, it’s understandable that so far, the Fed has been hesitant to promise anything definitively. 

Let’s have the good news first. Inflation is coming down, and if we take into account the potentially fictitious housing inflation figures based on OER, it could be a lot lower than the Fed currently believes. Peter’s thinking is that ‘‘the Fed will eventually come to terms with that at some point this year.’’ 

Now, the potentially not-so-good news. Because interest rates only truly affect the housing and auto industry segments of the economy in the short term, the Fed may simply not care enough to cut rates so long as the rest of the economy is doing well. They may well opt for the cautious approach and keep interest rates exactly where they are for now.

This article is presented by Walker & Dunlop

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The Walker Webcast is in the top 1.5% of podcasts globally and has over 10 million views. The webcast brings brilliant minds from broad and varied backgrounds to engage in conversation with our CEO, Willy Walker.

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

Stay-at-Home Mom to “Accidental” Investor with a $600K/Year Business

Seeing Greene: How to Avoid High Down Payments and When to BRRRR vs. Buy New

One of the biggest hurdles to rental property investing? High down payments. Most lenders want you to come to the table with twenty to thirty percent down, but with home prices averaging around $400,000, it might not be easy to come up with $80,000 to $120,000 on your next deal, especially with today’s high cost of living. So, how do you skirt the high down payment requirements while still locking up solid real estate deals? We’re showing you how in today’s Seeing Greene!

First, a Hawaii investor struggles to scale his real estate portfolio with the state’s significant down payment requirements. David and Rob give him some creative ways to still get deals done. A median-income-earning new investor wants to know whether to buy a new construction home or BRRRR his way to wealth. Then, we debate whether a high down payment with cash flow beats a low down payment with negative cash flow. Looking for a better interest rate on your next deal? We’ll share the seller finance strategies you can use to buy off-market properties, plus whether or not you can buy two houses at once with the same preapproval.

Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can jump on a live Q&A and get your question answered on the spot!

Support today’s show sponsor, Rent to Retirement, by checking out their turnkey rental properties for sale!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

David:
This is the BiggerPockets Podcast show, 9 61. What’s going on everyone? This is David Greene, your host of the BiggerPockets podcast here today with Rob Abasolo with a Seeing Green episode where we arm you with the information that you need to start building long-term wealth through real estate today. In today’s show, we’ve got some amazing fire questions that you are going to love as well as some high energy and some wise insight. We’re going to be talking about if you should build or bur your first duplex, how to approach an out-of-state investor that owns rentals in your area that may not want ’em the right way to negotiate seller financing, how much house you should buy, what you can do to save more money, how that money should be spent, if you should always put the biggest down payment possible or not, Hawaiian real estate and more.

Rob:
We also cover how much of a softie I am and maybe how landlording isn’t cut out for me or maybe how I’m not cut out for Landlording.

David:
If you would like to be featured on seeing Green, head over to bigger p.com/david where you can leave your question and make sure you subscribe to the show if you like it. All right, let’s get to our first caller.

Justin:
Hey David. My name is Justin Ossola. I’m from Annapolis, Maryland. Head. Quick question for you about the SDR market. I know you do a significant amount of investing, especially in luxury parts of the country. That’s what I do as well. I’ve got two investors that I work with. They’re my brothers. We just purchased two luxury condos in a pretty high-end part of the country. Cashflow positive, phenomenal investments. We’re really excited. We want to acquire more. The only problem is that in this market, pretty much the only way to get a lender through a local lender and they require 30% down payment, which is very steep, and we are limited to the amount of properties that we can acquire by the amount of cash reserves that we have. So we could probably continue going down the path of picking up two, three, maybe four of these every year given the cashflow that we’re getting from the two that we just purchased, as well as our own cash reserves. But I wanted to ask you if you had any recommendations for how we could acquire more properties for less. Down 30% is pretty steep. Are there other lending options that I’m not thinking about? I do have a broker. I’ve asked him this question. He’s kind of stonewalled me and typically when that happens, I’ve learned that I’m just not asking the right person. I know you’re an expert in this space in luxury s str, so I thought I’d ask you any help you can provide would be great. Thanks a lot.

David:
Yes, yes. Justin. I am the expert in luxury sts. I’m actually the expert in luxury everything. Rob himself would tell you I have, I sit on a throne of the imported ivory with the finest meats and cheeses in all of the land surrounding me. Just kidding, Rob. Oh, let’s get into it. Justin, first off, I’ll give my thoughts and I’ll let Rob weigh in with his. I don’t know that it’s terrible that you got to put 30% down to buy real estate. It sounds terrible to us because we’re used to 20% being a lot and thinking we should get away with three to 5% down, but that’s not normal in most parts of the world. Do you want to buy real estate? You do need money to do it, and I do think this is becoming the new normal, which is why so much of my advice has been around starting a business, saving your money and making more money so you have more money to put into the real estate that you’re going to buy.
It is true that you run into these issues with Hawaiian real estate in particular where you have to use Hawaiian lenders. In fact, as you mentioned, I did buy two luxury condos out there and I would’ve bought so much more. Rob, you would’ve loved the situation I was in. It was during Covid and Hawaii had stopped people from traveling into the state and no one knew how long this moratorium was going to last. So they’ve got these condos that were selling for half a million. Well, they were listed for like 700. I was writing offers at 500,000 and I was getting counters and I was putting ’em in contract at like five 50. The problem was it took so long to close with these Hawaiian lenders that 90 day escrows took place and by the time I finally closed and wanted to go buy more, they had opened up the moratorium.
People were traveling back to the state and you weren’t able to get these crazy good discounts from short-term rental owners that were bleeding. They couldn’t fill their units. So yeah, it’s normal. It has to do with Hawaiian laws that want to protect Hawaiian residents. They want to keep the business in Hawaii, so if you’re a mortgage broker out there that you have to actually be on the island for a certain period of time before outside brokers can use you. And most of the time, especially with these condos that they’re in, what they’re called as AO aos, which are kind of like HOAs in Hawaii and lenders won’t lend on those unless it’s these specific Hawaiian banks. So you’re kind of stuck with that scenario. I don’t think you’re going to get around it. One option would be raising private money, putting that into buying the property and just paying out some dividends, the people that you borrowed the money from. The other is you could look for some DSCR lenders that may be lending in those areas. I am betting you could use that. I don’t know if they’ll work within the AO aos. Those can be tricky. What are you thinking, Rob, when you hear about this dilemma?

Rob:
Well, I think 30% is high and just like he said, it is going to stop him from being able to buy more properties because I think if you put 30% down on two properties, that’d be the equivalent of buying three properties with 20% down. I mean obviously there’s a few more nuts and bolts there. It’s not exactly, it doesn’t exactly work out that way, but I guess first and foremost, I’m going to say maybe explore a different market. I think that’s a big, very prohibitive to have to put down 30%, although it would make you cashflow better, but your cash on cash return would probably go down quite a bit. If you had to put an extra 10% down on a luxury property B, option B, that is, I would probably try hitting the phones and maybe doing some seller finance. I think this is probably the most underrated aspect and the most underrated way to acquire properties.
You could get away with putting down anywhere from zero to 20% with the seller finance deal. I’m not saying it’s easy. If it was easy, everybody would be doing it, but if you were diligent with it and you were making phone calls and you were calling agents on properties that have been listed for like 60 to 90 days, you could have some success there. I’ve locked down a couple of seller finance properties. I love them. They make me question whether I want to use a bank ever again because it really is a much simpler process. But I mean, I would explore a different market or I would maybe try doing some seller finance at the end of the day

David:
Or maybe build your portfolio where you’ve got some stuff going on in Hawaii and then you’re balancing that out with some stuff in different parts of the country. And here’s why I say that. Hawaii is what I call a high risk, high reward market. Now, the property might be low risk, low reward, but the market itself, you get high appreciation. Like you said, you’re getting really good cashflow, but people don’t travel to Hawaii when they’re afraid or when we’re in a recession. And so when the economy’s doing well, wealthy people are traveling to Hawaii, your units are going to be booked. When the economy’s not doing well, one of the first things that gets canceled is a trip over the ocean for six hours. I would love to see you balance out some of these high-end luxury short-term rentals that you’re buying with some more boring duplexes, triplexes, fourplexes in maybe the south or the Midwest, just a market that’s a little bit more predictable so that you’re not all in one area in case we do have an issue like the country goes to war or we enter into a bad recession or even a depression and you’re stuck with nowhere to sell these properties too and no way to be able to get the revenue.
So sometimes in life we look back and we see the things that were hurdles that stopped us from moving forward were actually blessings in disguise. You just didn’t feel it in the moment, but I mean, congratulations on doing well buying these assets.

Rob:
One more little thing, I forgot that this is a luxury flip. When I said my answer, I would say, while you could put zero to 10% down on a seller finance property, it doesn’t mean that you should. I mean that ultimately means that you’re leveraging yourself a ton at that ratio, especially on a luxury property. And the reason you don’t want to necessarily leverage yourself at full 100% capacity on something like that is that if you ever sell it, you’re going to have to come out of pocket. If you ever sell it in the next couple of years, you’ll likely have to come out of pocket at the closing table to sell it, to pay realtor fees, broker fees, all that stuff. So I would probably be seeking out something where you could put 10 to 20% down. I think that’s going to be more realistic, especially on the luxury high end stuff. You’ll still likely have to put 20% down, but it’s still going to be less than that 30%. I think 20 is always going to be that, I dunno, that golden ratio for high cashflow and then you have money in it, the stakes are high, you have to treat it as a real investment. Obviously less is better, but 20% down on a luxury, I’d feel pretty comfortable in that range.

David:
I think that’s a great point you made, Rob, is the equity in a property is actually your cushion for when something goes wrong. It’s a form of risk mitigation.

Rob:
Totally. Yeah. Yeah, no, I think a lot of people get into the no money down starry-eyed phase where they’re not really developing a healthy relationship with debt, and I think, yeah, you still have to work for your down payment and still do things the old fashioned way, even if it is something like seller financing, in my opinion. Anyway.

David:
Yeah, this was a great question. I’ve never really thought about it from this perspective, but we tend to look at down payments like there’re this burden, this obstacle, oh, I have to deal with the down payment. But really the more down payment that you put in, the more cushion you have. If something goes wrong, it’s a defensive metric. It protects you in building your wealth in the same way that I talked about cashflow protects you from foreclosure down payment, protects you from swings or something that could go wrong in the property where you have to get out from underneath it. You can if you have enough. Now, in the past we were printing so much money in the real estate market was doing so well that wasn’t as important. Defense didn’t matter as much because everything was going so well. But now that we’ve sort of fallen back into more of a sane housing market, I think that we need to include a little more defense in the algorithm of how we make our decisions of what we buy.

Rob:
Totally. Yeah, yeah, yeah. Good question.

David:
Alright, coming up, we have a community member looking for the most efficient way to get started and talking through an aha down payment moment. We’re going to be right back after taking a quick break, so don’t go anywhere. All right, welcome back. So far we have covered luxury st. A new way to look at down payments in real estate, why Hawaiian real estate is the way that it is, and now we’re going straight into the forums on bigger p.com and if you’re interested in checking out the forums, much like my haircut, it’s free. Dave Smith from the BiggerPockets Forum says, I’m looking for advice on trying to figure out the most financially efficient way to get into real estate investing. I’m an automotive mechanic currently making just shy of $30 an hour and I have about 35,000 saved up due to still living at home.
I live in Eugene, Oregon where the average home price is about four 70 K. Small duplexes in need of work appear to be obtainable for around the high three hundreds to mid four hundreds As a first property, I’m leaning towards a multifamily home, likely a duplex due to my budget. I’m trying to decide between doing the bur method while living in one half and renting out the other or building a duplex from the ground up. I’m a handy person who would be able to perform much of the home renovation myself on a new build. I’d be able to do some of the work post framing. The process of building a new home is relatively intimidating, but I have heard that in Oregon it can be cheaper to build than buy all advice is greatly appreciated. Alright, Rob, speaking of slightly or relatively intimidating, that sounds terrifying to me. What are you thinking?

Rob:
Yeah, so I kind of mapped it out for him. I think both are great options if he can afford it. Just for some numbers here, he’s got $35,000, which could be 20% of a $175,000 purchase. Now on a brrrr, if you were to go out and get hard money, oftentimes you still have to put something down, right David?

David:
Okay, that’s tricky. You’re going to put something down to buy it for sure, but after the refinance, I think what you’re saying is you’re still going to leave something in it. Is that what you’re asking me?

Rob:
No, no. I mean if you’re going to go out and get hard money on a brrrr, I mean I guess there are a lot of hard money lenders that may loan on the entire amount, but typically don’t. Hard money lenders like to have some skin in the game.

David:
Oh, I see. For the hard money loan. Yeah. Your best case scenario for most bridge lenders that I’ve seen is you’re going to put 10% down. Many of them will let you wrap the rehab into the actual acquisition. That’s what we’re doing at my lending company. Usually though, 15% is where most of ’em are going to be unless you’re really experienced.

Rob:
So if you could put 10 to 15% down, that ups it quite a bit because $35,000 is effectively a $350,000 home that he could refi. So I actually, I like that option because on the flip side of this, he’s asking if he should do a new construction from the ground up. Well, I guess my question would be knowing that $35,000 is 20% of $175,000, which is what he would basically need to do with a new construction loan, I don’t know if that’s going to build him a full on duplex with land in Oregon. I don’t know how expensive. It’s all purely based on what area of Oregon, but one 70 5K doesn’t seem like that big of a construction budget for me for what he’s trying to do. So for that reason alone, I’d say he gets a little bit more leverage and into a more feasible real estate scenario executing a brrrr. What do you think?

David:
I am terrified of someone that has never built a house before just trying to build from the ground up. When he made the comment I could do work post framing.

Rob:
Oh yeah,

David:
Right.

Rob:
Been there.

David:
There’s a lot that happens. You’ve got all of your infrastructure that has to be built. You’ve got your rough in plumbing, your electrical, your foundation that has to be built. The framing itself, I mean it’s great that you’re a handy person and you can step in when you’ve got maybe sheet rock and some finishes are going to be done. Maybe I’ll come up with an analogy of how that’s not, it’s kind of like me as an uncle, but I’m great with kids, but I don’t have to actually have the kid all the time. Your parents would understand.

Rob:
But with that said though, you do actually have the ability to apply a lot of those soft costs and money that you’ve spent on land and everything towards your down payment. I mean, it kind of depends. It’s not always like that, but if you spend $35,000 worth of expenses, sometimes they will take that into consideration. Mostly on the land though, not typically on soft costs.

David:
And in addition to that, you’re going to have architectural costs, engineering costs, and my favorite part of real estate, you get to play with the city. Local governments are the best. They have amazing service. They’re all very concerned with making sure that they make their constituents happy, they’re passionate about their job, and they’re working very hard to achieve promotions and harmonious relationships with the voting block. So that alone is the reason to get into a new construction build. I’m kidding. I’m being a little facetious here. Here’s what we’re getting at. You don’t know what you don’t know when you try to build a house, so I would much rather that you started burning, make some connections with contractors, move those connections into home builders or a contractor that’s built homes. Sit down with them and go through the whole process of what building a house is like and then when you can see all the cards, make the decision on where you want to make your bet.

Rob:
Yeah, yeah, I was going to say it’s a good answer and I was just going to ask, I mean obviously I mapped it out kind of back to the napkin here, but what could he do with $35,000 in a bur scenario?

David:
Not going to build a house.

Rob:
No, no. Yeah, definitely not a house, not a new construction brrrr. I think he’s going to need more money for that, but could he feasibly do a brrrr with that amount of money?

David:
Yeah, I would combine house hacking with brrrr and I would just extend your timeline when you’ve got a lot of capital, it just means you could get the same things done in a short period of time. You could get a lot of people involved in many hands make light work. So with $35,000, he said these houses are around four 70, you might be able to get one for a little bit less, I guess high three hundreds to mid four hundreds, you can put 3% down on one of these small multifamilies even up to five or 10%. If you had to get in on a fixer upper, fix up the unit that you’re living in or fix up one of the other units and rent it out. Fix up the unit that you’re living in as you save money, keep fixing them up slowly. Then just follow the valuation When you think that there’s enough value to justify a refinance, you go in there and you refinance into another primary residence loan and you pull some of the equity out. I mean, it may not happen in six months, like everybody wants a bird to happen in, but it’s definitely better than waiting and then you can get some of that money back out and put it into the next one and just house hack again. I guess you’re just combining house hacking and bur together

Rob:
A house bur

David:
Yeah,

Rob:
I like it. A

David:
Buring a primary residence.

Rob:
There you go. I

David:
Dunno. We’re going to have to workshop this.

Rob:
No, I like that. That’s good. A Bri Mary residence. Hey, that’s the 18th book you’re working on for BiggerPockets right now, right?

David:
That’s right. You guys all heard it here the first time that David Green ever actually came up with his own description without Brandon Turner. It took me about five years, but I got one. Alright, browse hacking with David Green and Rob Abba solo, the next BiggerPockets podcast. Here’s what I’d like to say to you Dave Smith from the forums. First off, well done for saving $35,000 and living at home. I love that you’re working in an area in Eugene where the wages aren’t super high so the going gets slow. Just consider if you could put yourself into a different auto mechanic shop that’s a little more challenging. Maybe you’re going to be working on European cars and it’s not like a Honda Civic and so they pay a little bit more because you become a more skilled mechanic. Maybe you’re going to have to be an apprentice at a new place and learn new skills, but look at where you might make more money as a mechanic or even consider moving somewhere where they pay more and bringing those skills.
I know in California we have a really big shortage for blue collar type workers and the are high people don’t realize this, but traveling nurses in Northern California make considerably more than a hundred dollars an hour and that’s before their overtime. Wow. So they can be making 150 to $200 an hour as a traveling nurse in this area because the cost of living is really high. I’m not against people moving to areas where they can make more money and then saving it and then taking that money into a different part of the country where it’s going to stretch further. So you’re doing great with your saving and your real estate investing, but don’t be afraid to mix up how you’re making the money or how you’re saving the money or what you’re doing to get it to accelerate your process of saving money.

Rob:
But I’m going to say, I mean he makes $30 an hour is basically 60,000 a year. He’s got $35,000 saved up on a $60,000 a year salary. Very commendable, my friend. That’s very impressive.

David:
Hell yeah. That’s why I’m saying if you could get up to 90 to a hundred thousand dollars a year and still spend the same money you’re spending, you could maybe double how much you’re saving and then cut in half the time it would take to get down payments for the next properties and over a 10, 15, 20 year period of time, that’ll have some very significant impact on your net worth.

Rob:
Yeah, I think for anyone listening that might’ve listened to that, they might’ve been like, oh, the answer is make more money. A lot of people get mad at that, but I think you actually laid out a very logical plan. It takes a little bit of pain in the short term though, right? If he’s making $30 an hour, he’s going to have to go apprentice somewhere that’s going to be a nicer car or mechanic shop or whatever. He might make less until he makes more. So there is a little bit of sacrifice there, but what he’s getting out of it is $30,000 more a year with the $15 an hour pay bump, just like you were saying. So there’s definitely a path there, but it’s not necessarily an easy one, but very commendable overall that he’s been able to do it thus far. Alright,

David:
Our next forum question comes from Dave Hart. I think something clicked with me when I heard you guys say that. Any deal can cashflow depending on how much money you put down versus how much you finance. Well, well didn’t see this coming. Did

Rob:
He listen to the first question already? That was fast.

David:
This is very fast reviews that we’re getting here. The idea that a property doesn’t cashflow is scary. Would it be fair to think of this as I’m making that additional down payment over time as opposed to putting the money into the property when you purchase, if I can buy a property with 20% down, it has a negative $200 a month of cashflow that’s hypothetically the same as putting 25% down that has a breakeven cashflow. I’m just investing that additional 5% of the purchase price in monthly installments. It keeps more cash in my pocket in the short term. I just have to be disciplined with reserves to cover those monthly payments and have enough on hand for maintenance and repairs. All this, assuming that the down payment percentage doesn’t negatively impact my mortgage rate, PMI, et cetera. Am I thinking about this right and are there other aspects or risks that I’m not seeing with this approach?
Dave? I’ve thought very similar thoughts. Okay, so I’m not telling you to buy a property that loses $200 a month, but I am saying yes, you’re thinking about it, right? It is true that if a property cash flows at 30% down, you could put 10% down and you’d be losing money, but you’d be keeping $20,000 that could be invested into something else. It’s absolutely true and when rates were lower, you could borrow money at a cheaper rate and so it made more sense to just borrow as much as you could and put as little down as possible as rates are going up, putting more down starts to make more and more financial sense. Rob, I’m sure you’d agree if rates were at 16%, we’d be telling people you need to put a very big healthy down payment down. Every podcast would be about don’t be stupid, put money down on a house, don’t even use a loan. That would just be like a common trope that would be going around. Now when it comes to actually doing this in practice, putting less money down to keep more money for yourself and losing $200 a month, most of us are going to be hesitant to say, yes, you should do it if you’re going to do this. This is only for the financially

Rob:
Savvy.

David:
Yeah, savvy powerful is what I was thinking. You got to be in a place where 200 bucks a month is almost something you wouldn’t notice. If you’re going out to eat five times a week at really nice restaurants and you could cut it down to four and save 200 bucks a month, this is a thing that those people can be doing. This is actually something wealthy people do. They buy houses in the Hamptons and in Malibu and they wait and the equity climbs really fast because they can afford to put the money into the house. But the majority of listeners on our podcast are not having caviar with Kevin Spacey in Malibu. They’re trying to climb their way out of working at Jiffy Lu by investing in real estate and that’s why we usually don’t recommend people do this.

Rob:
Okay. One little thing here that I’m going to toss in because everything that you said makes sense and I think you’re a little bit more on the right track. I think the way that he might be off a little bit is he equates losing $200 as, Hey, instead of spending the 5% down, I’m just reinvesting it back into the property and I’m paying 5% over time, but really that’s going to amount to probably 10 or 15% over time simply because the extra $200 a negative cashflow that he’s paying isn’t going directly to principal. As a matter of fact, it’s mostly going to interest and so for that reason, it’s not like one-to-one not like, oh, I’ll just put the 5% in by losing 200 bucks. He’s just basically paying to interest at that point, so it’s close. It’s just not exactly that. I wanted to point that out.

David:
Thank you for catching that. That’s why I bring you here to seeing green Rob because sometimes I’m seeing green, but you are seeing black and it all comes together and it makes

Rob:
Sense. I’m seeing sense.

David:
Yeah, you’re seeing sense. That’s it. I didn’t get that. What he was saying that the money that he’s losing, he was saying I’m paying the principal down by that much. If there was no interest on the loan, that would be correct, but because there’s so much interest in an amortized loan, then that’s where you’re wrong. Dave, you’re welcome. Thanks for showing up. Rob has your back. You gave us good content and if you have a question like this one, then you’ve been listening to the podcast and thinking, Ooh, I wonder if it works like this. Head to biggerpockets.com/david, leave your question, let us answer it. We would love you. Alright, let’s check out some comments that came in over on. The first one comes from Crystal Bar future landlords watching not raising rent consistently and fairly is a huge mistake. Don’t fall in that trap. You’re not doing anyone a long-term favor if you do that.

Rob:
Oh, I don’t know. I don’t think it’s that black or white. Yeah, I’m going to say this as a short-term rental focused person, I don’t have to deal with this because the rate that I charge is the rate that people agree to. I’ll be the first person to say long-term landlord, I’m the worst person for this job. I’ve done it and I’m very sympathetic and I work with my tenants. I don’t know, I guess I’m making it seem like that’s a bad thing, but I would say if you had a really good tenant that you’ve built a good rapport with and you have had an awesome experience with and you cashflow very nicely, I think it’s okay to not gouge them on price, on rent increases. If you’ve got the consistency of an amazing tenant, I don’t know, am I too soft? As the millennials people say it,

David:
Yeah, you’re a hundred percent wrong. Let me give you guys a good strategy if you like what Rob said, but you also understand that you want to raise rents, raise the rents to as much as you can possibly get, and then choose to credit back to your tenants every month the amount that you want to help ’em with. So the lease needs to say what current rents are and then it is in your control if you want to kick somebody back $300 a month. But if you don’t do that, if the lease says a number that’s 300 bucks less than market rent when you go to sell your house to somebody else, it’s not going to be worth as much. When you want to raise the rents to another amount, you’re not able to. If the relationship you have with your tenant changes, there’s limits on how much you can jump it up. So it is very smart to keep them at market rate as close as you can get to that and then just choose to give somebody a credit as opposed to limiting how much you can collect in the first place.

Rob:
That’s fair. I just don’t think anybody’s going to do that. I mean it sounds good. I think what you’re saying makes sense, but I’m like who’s going to actually at the end of the month credit them? And I’m not even saying don’t raise rent because I think the lease kind of lays it out. You sign a 12 month lease and you say, Hey, if you choose to renew, rent will go up three to 5%. I think that’s kind of black and white. I think what I’m saying is if you get to this point where you’ve had an awesome tenant and they’re like, Hey, I genuinely, if you’re going to lose the tenant over that three to 5% and you really like the tenant, I think that’s where I’m coming in with. I think I would rather just have the security of someone that pays on time. I’ve also had tenants that didn’t and lemme tell you, charging more and making more money for a tenant that pays me. I hate that over someone that is super secure and pays me secure every single month on time. I will take that nine times out of 10. Alright,

David:
We’re going to be going to a break, but right when we get back, we have two questions coming up. How to approach a fellow landlord to acquire more deals and if you should buy one or two homes based on what you qualify for, all that and more right after this break. All right, welcome back. Thanks for taking the time to support the sponsors that help bring you this content by listening to our ads. And remember, if you’re listening to this episode and you love to see green, make sure that you subscribe to get notified when these episodes come out that tells us a BiggerPockets that this is the kind of content that you want. All right, our next question comes from Brandon Goli.

Brandon:
Hi David. My name is Brandon and I live in a suburb outside of Richmond, Virginia. I have a few questions about negotiating seller finance deals in the current market for long-term rentals. My wife and I are new to real estate investing and are looking to get started with our first investment property. We currently own our primary residence and have a little over 200,000 in equity. However, we’re looking to turn this property into a long-term rental when we move, since it should cashflow in our market, which is pretty difficult to do with home prices and rents where they are currently. We recently found out that there is another house in our neighborhood that is owned by an out-of-state investor, and after doing some research, we found out he owned several in the area and has owned them for 30 plus years, and so we’d like to approach him to see if he would be interested in offloading any of his portfolio. Just wanted to ask your advice on how to approach that conversation and if you have any recommendations on negotiating seller financing deals as well as any additional due diligence that we should be aware of or thinking of for these types of transactions versus a conventional transaction. Really appreciate the advice and really enjoy the podcast. So thanks a lot.

David:
He asked a great question, how do you approach a fellow landlord about buying one of their properties? Rob, let’s say that I’m approaching you and I want to buy one of your amazing properties because you are the short-term rental expert in all of the land. And to accompany my fine source of meats and cheeses that I’m surrounded with, I’d like a couple of trophy properties. How would you like me to bring it up with you?

Rob:
So typically, I mean the typical progression here, do you want to get on the phone with the landlord? I mean obviously you want to meet them, but it’s going to take a little bit of time here and you want to build a little rapport. You don’t want to go straight into will you seller finance this because you’re asking for a very personal thing and you’re basically the seller’s acting as the bank and you’re basically asking them to trust you. Some random person. So this is a people business and building a relationship with that person is important. Talk to them. Don’t lead straight into will you sell or finance a house. Now, typically what we’ll do is we’ll talk to ’em about the house, what they’re looking to do, and then we’ll ask them if they’re willing to sell on terms. This is something that my good friend Pace Morby has shown me, and usually that brings to light a question like, well, what do you mean by that?
What are terms? And you’re like, well, hey, basically you would act as the bank and you would be the person that takes payment from me. And then you start to want to list the actual benefits for the seller in this case, because the seller has the option of people going out to a bank the normal way and buying their house cash and they can get one lump payment right then and there from a typical buyer. Now in 2024, interest rates are really, really, really high and that buyer pool might be a lot smaller. So things that you can tell the seller to make it sound beneficial to them because it can be is, Hey, we can close fast. We can negotiate the exact terms that you want. We can amortize it over 15, 20, 25, 30, 35, 40 years. You can set the interest rate with the seller. But the big key here for a lot of people is they don’t like to pay taxes or capital gains on their property.
And so when you go the seller finance route, you can approach the seller and say, Hey, if you finance the property to me, you’ll not be taxed the lump sum on the purchase price. You’ll be taxed on the income that I pay you every single year. And so that’s where you can start listing off some of the benefits for the seller themself. That’s how I was able to do it. I was actually in his exact situation where I bought a property in my neighborhood, 100% seller financed. I only had to put down 10%. And when I asked the seller, Hey, why are you doing this? He was like, well, I can’t sell it. It’s not going to cashflow for a typical investor and I don’t want to pay taxes on it. Truthfully, I’ll probably be dead when this loan is over, but I don’t care because I don’t want to pay the taxes. I would really try to build rapport and really help them understand the benefits of seller finance versus making it seem like it’s such a beneficial deal for you. I think that’s where you can kind of get into a weird situation where it feels like, oh, well, you’re getting all the upside. Why would I do this for you? Does that make sense? It

David:
Does. And I would add to this, I don’t love the, I’d like to buy your houses with seller financing. I love, I like to buy your houses. Let’s come to terms and then add how do you feel about seller financing Once you see that there’s motivation there to sell and maybe you sweeten the deal for them in some way if they agree to add the seller financing component. So if you open with, Hey, I’d like to buy your houses with seller financing, that’s kind of a bit of a turnoff. They don’t know you yet. They are taking a risk. You’re not all the upsides for you. If you say you’d like to buy the houses, you come to terms on a price and some conditions and they say, you know what? I can throw in a little bit extra. If you can do seller financing, here’s how it would work. Now there’s already a little bit of rapport. You’re more likely to present that to them in a way where they see that there is some upside, maybe the purchase price is a little bit higher or something else.

Rob:
So one other thing that I think also on that note is he said that this was in his neighborhood, that this was someone in his area that he wants to buy from. So I think let them know that you’re a neighbor. When I close my seller finance property, I said, Hey, I’m Rob. I live over on blah blah, blah and blah, blah, blah. I’m actually a neighbor to this house. I would love to buy it one, two, he’s actually in a very good spot because this person is an investor, meaning the investor knows how investing works and how real estate works, meaning that real estate should cashflow. And so what you can do is you can go to that seller and say, Hey, listen, I can’t buy this conventionally because the interest rate is 8% right now and at 8% I’m actually going to lose $700 a month.
And if you can put it in those terms where they understand, well, dang, if all of the investors are going to be out simply because they’re going to lose money, I’m never going to sell this house. So what you can say is, or like you said, let’s come to terms if you’re willing to sell our finance, this to me at 3%, that’s the interest rate that I got. I’m actually going to be able to now cashflow a thousand dollars a month now this is a great deal for me. I’ll pay whatever down payment you want or I’ll amortize it or whatever. I just want it to cashflow. Now in that instance, when I told that to the seller, he was like, well, cashflow, sometimes you lose money in real estate. That’s how it works. I was like, I don’t don’t want to lose money. I want cashflow.
And he is like, all right, I’ll do 3%. So I think that’s kind of approach it as an investor and show them your underwriting so that you’re not just kicking tires. If they feel like you’re kicking tires and trying to get one on them, you’re not going to close the deal. Yeah, we actually had an episode with Cody Davis who is a master at seller financing. It was episode 5 54 on getting 81 units with no bank debt, and he had an amazing approach. So go listen to that episode if you want more nuggets on how to do seller financing.

David:
All right, our next question comes from Sarah Knight. Hello David and Rob. My husband and I qualify for a home loan of roughly $800,000, but are considering instead purchasing two homes without buying power. Would it be possible to instead get approved for or take out two mortgages for roughly $400,000 each? We would likely use one as a primary residence and could utilize his VA loan and another as a short-term rental vacation home and would put 20% down. Thanks in advance. Love your show. All right, Sarah, so you’re trying to figure out the debt to income ratios. I would say it’s probably close. You could probably get close to two, 400,000 house. It might be a little bit less, but I don’t know if it’s going to be a huge difference. So if you don’t need an $800,000 home, let me put it another way. You should never buy as much house as you can just because it’s the most that you could buy. You should always get the best deal you could get. If there’s a great deal at 800,000 that’s worth a million, hell yeah, go for it. But don’t spend $800,000 just because you are able to spend $800,000.

Rob:
Yeah, it’ll be a little less than $400,000 each just because you’re going to add on the expense of insurance to each one of them. And your debt to income ratio is what comes to play. Typically, I believe the rule of thumb for most lenders is they want your debt to income ratio to be 45% or less. Check me there, David. Is that about right?

David:
No, it could be less than that sometimes. It depends if it’s like a primary residence or if it’s an investment property, I would say like 40 to 45%.

Rob:
Okay. Yeah, 40 to 45%. So that’s pretty much what it’s going to come down to. If you take on two mortgages, do those put you over that threshold? So you’ll want to work with your lender to just make sure that whatever properties you buy keeps you under that 40 to 45% and that you can still qualify. What I would hate is for them to buy the short-term rental investment property first, like they’re planning here, and then not actually be able to buy the primary residence that they wanted or dreamed of because they kind of use their DTI too much for the investment property. So just think through that beforehand.

David:
Yep. And another thing to think about when you buy a property, whether it’s 400,000 or $800,000 you’re taking on the debt, but when you then make it a rental, you’re able to claim usually 75% of whatever your lease states that you’re getting for rent. So even though you’ve taken out that debt, you get more income because you can include the rent that you’re receiving from the tenants as your income. So you may not qualify for a full $800,000 again next year, but you will still qualify for the majority of it because you’re getting income from the tenant.

Rob:
Beautiful. Love.

David:
All right. We’ve covered quite a few topics today, which is awesome, including a smaller down payment, but negative cashflow, should you or shouldn’t you do it? Something that many families have argued about over the Thanksgiving dinner table, and we’ve now equipped you to win that argument. If you should build or brrrr a duplex as a handyman and how to earn more money and save more money while you’re at it. How to approach outstate investors that own rentals in your area, the right way to bring up seller financing and the wrong way to bring it up

Rob:
And how much house you should buy. Just because you can qualify for a certain amount doesn’t mean that you should buy that

David:
Much. If you like this show, do us a favor, subscribe to the channel, hit the notification bell so that you get told whenever there’s a new podcast coming out. And help us keep making it. Head over to bigger p.com/david and submit your question to be featured on Seeing Green because we wouldn’t have a show without you. And last but not least, let us know in the comments what your favorite part of today’s show was and at a timestamp, if you don’t mind. So other people know what they should check out if they’ve got a short period of time. And we will keep an eye out for that and maybe get you featured in the YouTube section on a future Seeing Green. I’m David Green, he’s Rob Abuso. You can find our information in the show notes, so give us a follow and send us comments about what you think about the show. We love having you and we’ll see you on the next episode. This is David Green for Rob, the luxury short-term rental specialist. Abolo signing up.

Watch the Episode Here

https://youtube.com/watch?v=6k7RbXO1mYo123

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In This Episode We Cover:

  • How to get around high down payment requirements on your next deal
  • BRRRRing (buy, rehab, rent, refinance, repeat) vs. buying new build homes
  • Weighing the pros and cons of a high down payment with higher cash flow
  • The ONLY type of investor who should purchase negative cash flow properties
  • Seller financing 101 and how to find these hidden deals with rock-bottom rates
  • Buying two houses with the same preapproval and whether it’s even possible
  • 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.

Stay-at-Home Mom to “Accidental” Investor with a $600K/Year Business

How I Live Rent-Free and Car-Free: My Journey to Zero Housing and Transportation Costs

The two largest expenses for most households are housing and transportation. In fact, they account for over half of the average household budget. The BLS Survey of Consumer Expenditures found that in 2022, the average household spent 33.3% of its budget on housing and 16.8% on transportation. 

Knock out those expenses, and you instantly have a savings rate of over 50%. Imagine how quickly you could build wealth if you put half of every paycheck toward investments like real estate? 

I don’t have to imagine. My wife and I live entirely on her (modest) income and save and invest all of mine. Over the last five years, we’ve quintupled our net worth. 

Before you write me off as a nut or a FIREbug, hear me out. Admittedly, I’m a bit of both—but that’s why these crazy ideas are so much fun. 

From Two Cars to Zero

Once upon a time, my wife and I each owned a car, like most American couples. But cars are expensive, and that goes beyond making car payments. 

Owning a car means not just making monthly payments on a car loan but also paying for auto insurance, gas, repairs, maintenance, and parking. The annual cost to own a new car is over $12,000. Yikes.

In 2015, my wife and I moved overseas to Abu Dhabi. We initially just assumed we would each rent a car because that’s what people do, right? Every adult has their own car, end of story. 

But we paused and actually bothered to ask ourselves: Do we actually each need a car? She would be commuting a half hour to the school where she’d work, but our apartment was in a somewhat walkable area. Could I get by without a car during the workday? 

We decided to try sharing a car and see what happened. Within a few days, it was clear we needn’t have worried. 

Then in 2019, we moved to Brasília. We asked about housing options, and the school said most teachers live within a 20-minute walk of the school. So we paused to think once again: Could we live without a car at all? 

The city is walkable, with countless restaurants, cafes, bars, and grocery stores within walking distance of our apartment. Again, we decided to try it. 

Sure enough, we lived quite comfortably without a car. We walked, biked, and occasionally Ubered where we needed to go. If we wanted to have a weekend getaway, we rented a car. 

Last year, we once again moved to a new city. In Lima, Peru, my wife once again needs to commute to work by car, but this time we decided to go in on a carpooling agreement with another teaching couple. 

I don’t miss having a car one bit. In fact, I dread moving somewhere with a “drive everywhere” mentality. 

Getting Rid of a Car

What does it take to get rid of a car? It requires intentionally planning where you live. 

It helps to move somewhere walkable. You can extend your mobility radius by biking as well. I often ride a bike or electric scooter to get around our city. 

Cohabitating as a couple also helps. It’s a lot easier for two people to share one car than for a single adult to live carless. 

Plus, telecommuting also helps. I can work from anywhere, although in practice, I opt to work from a co-working space. That still leaves plenty of options for living within walking or biking distance from “the office.” 

The bottom line: To comfortably live with one less car—or no car at all—you have to choose where you live with intentionality. But it can save you five figures a year, which you can put toward reaching financial independence

And that says nothing of the health benefits of walking or biking over driving. There’s a pithy quote floating around the interwebs: “Driving costs you money and makes you fat; biking saves you money and runs on fat.” I love it. 

Getting Rid of Your Housing Payment

You have plenty of options to shed your rent or mortgage payment.

In our case, we enjoy free housing provided by my wife’s employer. It’s a great perk of working in international education. 

But you don’t have to be an international educator to enjoy employer-provided housing. Plenty of jobs come with free housing. Do a little internet research to see what jobs you might like that offer this benefit. 

The more common practice among BiggerPockets readers is house hacking, of course. That could mean the classic multifamily house hacking model, where you buy a two-to-four-unit property, move into one unit, and rent out the others. Or it could mean any number of other house-hacking strategies. 

When I bought my first home years ago, I rented out a spare bedroom. My housemate’s rent covered three-quarters of the mortgage payment. 

A friend of mine rented out a bedroom and bathroom in her apartment on Airbnb. She found that if she rented it for two long weekends each month, it covered most of her rent. 

My cousin rented her entire apartment out on Airbnb. Whenever someone booked it, she crashed with her fiancé. 

My cofounder at SparkRental and her husband hosted a foreign exchange student. The monthly stipend covered their mortgage payment.

“Get creative as you brainstorm ways to house hack,” Brian Meiggs, founder of BeerMoney.co, tells BiggerPockets. “Could you rent out storage space? Parking space for a car, RV, or boat? Could you set up an ADU at your home inexpensively? Keep researching ideas until you find a way to knock out your housing payment.” 

Don’t Write Off “Rentvesting”

The first property I ever bought wasn’t a home. It was a rental property. 

Likewise, today, I live in a rented apartment on another continent. Do I worry about missing out on homeownership? Absolutely not—because I own an interest in over 2,500 units spread across the U.S. 

You can invest in real estate without being a homeowner. You can house hack without being a homeowner. 

Stop fixating on homeownership as the only option, the thing that the Joneses do. “From a cash flow perspective, your home is a liability, not an asset,” notes Chad Ackerman of Left Field Investors, in a conversation with BiggerPockets. “The less you spend on it, the more you have each month to put toward real investments like investment properties, real estate syndications, stocks, notes, or funds.”

Chad should know. He and I share a passion for passive real estate investing, particularly syndications and notes. 

These are the kinds of investments we go in on together in SparkRental’s Co-Investing Club. We meet every month, vet a passive investment together, and club members can fractionally invest with small amounts if they like. 

By investing small amounts each month, you can dollar-cost average your real estate investments. And nowhere does it say that you have to be a homeowner to do it. 

Intentionality and Lifestyle Design

You can have anything you want in life. But you can’t have everything. 

I get to spend 10 months of the year overseas, enjoying free housing, a lower cost of living, and outstanding travel. As a trade-off, I can’t swing by my dad’s house for dinner on a random Tuesday or go to my nephews’ baseball games. 

You can choose to live somewhere that doesn’t require you to own a car. You can find ways to get rid of your housing payment. It may require a trade-off, but until you explore all of your options, you haven’t made a conscious, intentional decision about whether the trade-off is worth saving thousands of dollars a month. Is it worth reaching financial independence years earlier than you would have if you just kept going on autopilot?

Bring these decisions out of the shadows, and shine some uncomfortable light on them. You may still decide you want to keep doing what you’ve always done but make these decisions intentionally. Calculate just how much you could save by ditching your housing payment or a car. Calculate how many years that would shave off reaching your goals. 

If you could quit your day job in five years instead of 10, would it be worth making some changes? Only you know the answer.

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