Ashley:
This is Real Estate Rookie episode 338. My name is, Ashley Kehr, and I’m here with my co-host, Tony J. Robinson.
Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week we bring you the inspiration, motivation and stories you need to hear to kickstart your investing journey and if you’re watching this on YouTube I might look a little bit different today. I’m pulling a bit of a, Clark Kent, I brought out my glasses. Ashley, didn’t even recognize me today. She hopped on and she was like, “Well, who is this person and where is my co-host?”
Ashley:
I mean, you’re saying, Clark Kent. But I’m pretty sure I said nerdy or dorky, but okay.
Tony:
They’re one and the same. One and the same. But no, all jokes aside guys. We got a good episode today where we’re hitting you guys with another Rookie Reply and we’ve got four questions that we’re going to cover today. We talk a little bit about if you’re in that stage of choosing your market, what are those data points that you should be looking at to know if a market is a good market or not? Which is an important thing to consider today especially in 2023 if you’re thinking about investing. We talk a little bit about paying contractors. What’s the right way to do that without getting maybe scammed by a contractor and how do you make it easy on yourself as well?
Ashley:
Yeah. And we talk a little bit about credit card hacking and how you can incorporate that into your contractors paying for materials for your rehabs and your projects. Then we talk about liens on properties, foreclosure, pre-foreclosure and we give a couple examples of properties that I’ve purchased that are in foreclosure or were foreclosed on and what it was like dealing with the bank. So if these are things you are interested in this is the episode for you and as always, no matter what your strategy, what your experience, we always try to educate you and leave you little pieces of nuggets that maybe there’s one aha moment per an episode that we help you have. So if you have any of those aha moments, we would love for you to please leave us a rating and review on your favorite podcast platform or on YouTube and let us know what you have learned from the rookie podcast and maybe someone will read it and be inspired to take action on their real estate journey.
Before we bring on your Rookie Reply questions, this could be the last episode that, Tony, and I record together before baby comes. So even though when this actually airs, baby will be here.
Tony:
Baby will be here for sure.
Ashley:
But we are counting down the days before, Tony, is on his paternity leave and we’ll have separation anxiety from not seeing each other every single week on Zoom, sometimes twice a week. So there’ll be lots of FaceTiming with the baby, I’m sure.
Tony:
A baby girl.
Ashley:
Yeah. So if you haven’t already make sure you congratulate, Tony, because by the time the airs he’ll have a little newborn baby girl.
Tony:
Exciting times, guys. Well with that, let’s get into today’s questions.
Ashley:
Okay, today’s first question is from, Blake Kretsinger. I did not say that wrong. Kretsinger. Kretsinger, maybe one of those are correct. Okay. Blake’s question is, “What are some metrics you use when identifying potential markets to invest in? I’ve determined that long distance investing is my best bet as my home market, the DFW is a pricey one. I’m looking to utilize the BRRRR strategy and I’m looking to identify several markets with a lower cost of entry. The main factors I’m assessing as of now are population growth, medium home price growth, crime levels, average household income growth and job growth. What would you add, take out of my analysis?” Tony, I see you vigorously writing down notes. What do you got?
Tony:
So I think there’s a few pieces to this, right? So Blake, first it’s a fantastic question and one that I think a lot of rookies are thinking about. So I’m glad we get to discuss this but before we even get into hey, what are the data points I should be assessing when I’m looking at a market? I think the first question you have to ask yourself is, what is my motivation as a real estate investor? What is the actual purpose that I have for investing in real estate? And typically, there’s three big buckets that you kind of fall into. There’s cashflow, there’s appreciation and there’s tax benefits. Right? Cashflow, appreciation, tax benefits, and usually you’re trying to balance those three and if you’re investing in short-term rentals there’s a fourth one which is vacation. So maybe you just want to subsidize the cost of you owning a vacation home somewhere, but cashflow, appreciation, and tax benefits. So between those three I’d say gauge which one is most important, second important, third important.
So kind of prioritize those into a list and then that’s going to help you determine what are the underlying metrics that are more important to you. Because you have population growth, median home growth, crime levels, household income, job growth, etc. But what if your goal is really just cashflow right now today? Then maybe you’re not as concerned about average median home price growth, right? Because that’s not as important to you. What you’re really focused on is how do I maximize my cashflow? And if that’s your ultimate, ultimate goal, then maybe you’re not even as concerned about crime levels. Because you’re like I’m fine going into a war zone if I can get a 40% cash on cash return on a traditional long-term rental. So I think the first piece is understanding which of those three is most second and third most important. What are your thoughts, Ash?
Ashley:
So a while ago, Steve Rosenberg, another investor and he does a lot of business coaching and consulting and we sat down and we actually made a market analysis worksheet as to like here are the things that you should be looking at when analyzing a market. So I’m just going to read them off real quick, and it was really interesting to see our different perspectives as to what was more important to each of us and then we kind of combined them. So look at three different job industries, you want to make sure that there’s not just one industry that supports the towns. Because if that facility closes, then majority of people are out of work and they’re relocating. So you want to look at the three major job industries that are there, population growth, average home value, average rent, the price to rent ratio. So how much are you purchasing these properties for and what would be the rent that you’d get out of it? The tax assessment percentage, so how much are you paying in property taxes? What’s the percentage based on the home’s appraised value? The utilities, if there’s anything unique.
So around here, a lot of homes are heated with natural fuel. So we have lines that are run from the road just like you’d get your electric or whatever and then the gas heats your house, the natural gas. And sometimes there is not that available and you actually have to get propane tanks and hook them to the house and then you have to have a propane truck come and fill the propane tank. So looking at different things like that as to are there unique things that may determine the home’s value? It definitely is a lot more convenient to have natural gas supplied to your house than actually having to come and get your propane tank refilled. So different things like that. Then seasonal maintenance, are you going to have to worry about snowplowing? Are you going to have to worry about the snow load on the roof? Specialty insurance, are you in a flood zone? Are there hurricanes? Are there kind of natural disasters that happen? You have to have specialty insurance, earthquake insurance. The average age of renters, average income of renters.
You want to make sure that the average people in that market can actually afford what you would want to list your unit for rent. Average education level, percentage of homeowners verses percentage of renters. The crime statistics and the school district rating, the average age of property. So if you don’t want to get into renovating a 1900s home, don’t buy in an area where the majority of them where I live are from the 1900s. The average vacancy rate in the area for other landlords and then are there multiple exit strategies? So if you were buying this as a short-term rental, would it also work as a long-term rental or vice versa? So those are the things that we had on our list and I’m going to give you two resources to find a majority of this data without having to go and search for it. The first one is brightinvestor.com, where you can put in the zip code, the neighborhood that you’re looking in and it’ll give you a lot of this market research and then the other one is neighborhoodscout.com where it’ll give you a wealth of information too.
There are some free capabilities that you can… Some information you can pull from these or you have to pay. So I think NeighborhoodScout, you can pay per zip code or something and I think it’s like 20 bucks and you can get the full report. So those are my two recommendations as to someplace to get you started so you’re not having to find and Google and search every single little piece of information.
Tony:
That was a great breakdown, Ashley, of all of the different data points to look at and the insurance one really hit home with me. So for those of you that have been listening to the podcast for a while you know that part of the reason that my Shreveport house, that deal kind of fell apart was because the flood insurance premium quadrupled from one year to the next and almost immediately made that house unprofitable. So understanding those nuances I think are pretty important. But everything that, Ashley, just went over… I guess let me take a step back. There are two types of data that you want to consider when you’re considering a market to invest into. You have your quantitative data and then you have your qualitative data. So quantitative is everything that, Ash, just talked through. Right? Like vacancy, job growth, flood insurance premiums, things like that. Right? Your qualitative information, your qualitative data, that comes from conversations. So that’s you talking to local property managers in that market and getting a sense of hey, where do you feel this market is moving?
What are the pockets that work well? What are the pockets that don’t work well? Where should I avoid? Where should I focus on? Talking to local real estate agents in that market, right? A good agent should know their markets like the back of their hand. I love my agent in Joshua Tree because this guy is just an encyclopedia of everything happening in and around that city. He knows what laws are getting passed, he knows what the city council’s talking about, he’s just tapped into everything. So a good agent can also give you a lot of that qualitative information and then the third place to look for that is other real estate investors in that market. So go to your local meetups, right? Get active in Facebook groups that are local to your city and try and have conversations with folks to understand what has their journey been like? Because the data’s going to point to one thing, right? The data’s going to paint one type of story. But you can really get that full picture by talking to someone and really understanding their unique experiences because there’s always fuzziness in data.
You can never be 100% certain just by looking at numbers, but you can build that confidence in your decision by talking to someone that’s investing in that market. So if I wanted to invest near Buffalo, New York. I’m not just going to look at the data, I’m going to go to, Ashley. I’m going to say, “Ashley, give me the playbook. What should I be focusing on? What pitfall should I avoid?” And, Ashley, could probably rattle those off the back of her hand because she’s done it so many times. So you want to look for the quantitative and the qualitative data.
Ashley:
And I think some of the… When you’re deciding what markets to actually analyze start where you have those kind of opportunities. Whether maybe it’s your hometown, so you know some of the streets, you know the areas, you know what’s good and bad or you have a boots on the ground, you know somebody that you can ask those questions too. Just an idea, it may not work out to be the market that works for you but that’s a great place to start is where you have those advantages.
Tony:
Just one caveat that we should add to that too is that it’s good to have both. I see some mistakes that some people make is that they only rely on the qualitative data and that they don’t focus enough on the quantitative. So just because someone says Orlando Florida is a great place to buy a short-term rental or St. Louis, Missouri is a great place to flip a home. Just because you see that on TikTok or Instagram or YouTube or wherever, don’t let that be the only data point that you use to then go out and invest all your money into that market. So the qualitative is a good balance, but you want to make sure that you’re still getting both of those.
Ashley:
And verify data.
Tony:
And verify.
Ashley:
Yeah.
Tony:
Yeah.
Ashley:
Okay, so the next one is from, Inca Comstock, and this question is going to sound dumb but hey, no dumb questions here. “If a contractor lets you buy materials with your personal credit card, how do you do this? And you’re out of state. Do you just have to go with him and purchase materials with them? What options are out there?” So this is where, how much do you trust your contractor where you actually make them an authorized user and they get their own credit card to use and you know what transactions are coming from them. Because it’s a credit card that has their name on it and to add someone as an authorized user you don’t typically need their social security number or anything like that. You just need their name and address to have them added on, if they don’t want it to impact their credit.
You can do that, but another option is to actually buy the materials online with your credit card and have it ready to be picked up at the store and they will go in and be able to pick up the order and you would just add them as the person that’s picking up the order. That I think is one of the best ways to do it out of state, you don’t want to actually give them your credit card to do it that way.
Tony:
We’ve done both of those. Our guy, Nacho, who’s done all of our flips, he’s an authorized user of one of our credit cards. But same, usually like Home Depot you can have your credit card on file if you’ve got the… What is it? Like the pro account or whatever it is. Your contractor can just walk in and say, “Hey, I’m here for this job.”
Ashley:
And charge it.
Tony:
And yeah, they can charge it. And that’s a big reason why we’re kind of selective on which vendors we buy from. Sometimes our designer who we work with, she creates amazing designs but sometimes she picks these somewhat obscure places to get the selections from and we like places that we can always order online, that ship fast. So ideally we can even save our contractor the trip of going to the store to pick that stuff up, we try and buy everything online and just ship it directly to the property to save a lot of that headache. I guess one other option you could do, say that maybe the store you’re buying from is a local shop that doesn’t process orders online. If you’ve got maybe a more tech-savvy contractor that you’re working with, they could just invoice you say they’re using QuickBooks or something. They could invoice you, you could use their credit card to pay their invoice and now they’ve got the cash from that invoice payment to go out and pick up the materials. So another option in case you want to go that way.
Ashley:
The only thing with doing it that way then is that the contractor is paying the credit card fees.
Tony:
Or they’re just marking you up.
Ashley:
Yeah.
Tony:
Yeah, so whatever those fees are maybe tap on an extra 100 bucks or something like that. Well one thing that you said, Ash, that kind of brings up another question is you said if you add your contractor it doesn’t impact their personal credit. Do you always set it up as a business credit card or do you sometimes use personal credit cards? What’s your mix for funding the rehabs?
Ashley:
I definitely do business credit cards, because those sign up bonus points are amazing and so yeah, I always do a business credit card and, Daryl, does a lot. He handles pretty much all the project management for materials and things like that. But there was a couple, so he will usually order it online, have it ready for pickup. Or he’ll go and do the order and just go shopping or whatever and bring it to the property if it’s a department turnover or whatever for the contractor. But last year, over the winter there was two contractors I each gave a credit card to and all I had was keep the receipts in an envelope for me and then at the end of the project they had a budget and their budget was based on their labor and their materials. So I think they went over maybe $63 or whatever, but he paid that out of pocket that that was over the budget whatever.
And so I just had them save every receipt and then also anything that they needed to return to make sure it got returned and give me the receipt for the return and then I just would scan them all into QuickBooks. And now, Daryl, does all of that too where every receipt goes into QuickBooks with the ScanSnap and then it’s just assigned to whatever property it was for. But we just gave our short-term rental manager a credit card so she can go on Amazon and in our Amazon account and order stuff and it gets sent right to the cleaner’s house and then the cleaner will be the one that takes it to the property for us and so we actually added her as an authorized user on our credit card. So it’s me, it’s Daryl, and then it’s her for this one LLC and I like the fact that when the statements come I can have that kind of glance over as to how much each person is charging instead of just giving somebody my credit card or whatever.
Making them the actual authorized user. Because it’s not like anybody checks at a store that it’s actually you using a credit card. So technically you could just give them any credit card, especially if it is an LLC. No one’s looking at the actual name on the credit card, but I think it gives them a more sense of accountability is like this card has your name on it and it was used to purchase this.
Tony:
Yeah, there’s some increased accountability there for sure. One thing you mentioned though was the Amazon piece, and I just want to share this with people because it’s been really helpful for us from a bookkeeping perspective. But we have Amazon Prime, but there’s Amazon Business Prime and the way that we set it up is that you can have different groups. So each one of our business entities is set up as a different group inside of Amazon business and then you can assign your different team members, users, vendors, whoever to specific groups. And then whenever they go to make a purchase on Amazon you can set it up so that before they can complete that purchase they have to include the information you need for bookkeeping. So for us, they always have to tag what property that purchase is for and then they have to tag the account number inside of QuickBooks. So like is this consumable supplies? Is this whatever, repairs and maintenances? What is it? So that way our bookkeeper at the end of each month, instead of having to chase down receipts and do all this stuff she also has access to Amazon.
She can see all the receipts there, she can pull a report at the end of the month that’s itemized by expense that shows what property was it for and then what was the associated account number. That little hack alone sounds super simple but it saved us a ton of administrative time of managing receipts for Amazon specifically. So now Amazon’s got us, all of our consumable supplies we pretty much only buy it through Amazon because it’s really streamlined the process of the bookkeeping and accounting for us.
Ashley:
Yeah. That’s what we did too for the short-term rentals is we added a completely separate group and it’s definitely made it a lot easier. But did you know that with Amazon Prime Business, they don’t include Prime Video anymore? You got to pay extra for that now? It used to be included.
Tony:
I did not know that.
Ashley:
And I don’t have a personal Prime account, so I had to shell out the 11.99 for Prime Video.
Tony:
Ashley, you don’t have a personal Prime account? Or you just order it all through the business?
Ashley:
Yeah. I have one of the groups is me personally along with my four siblings, that’s my contribution to my family. My brother has the Netflix, I contribute Amazon Prime and yeah.
Tony:
Yeah, I got to set it up that way. Because we have Apple TV+, we have Prime or we have Amazon Prime, we’ve got Disney+, ESPN, Hulu, that whole bundle. It’s ridiculous now, we’re spending almost as much on these streaming services as we were on traditional cable and we still have cable which makes no sense.
Ashley:
Yeah.
Tony:
Yeah.
Ashley:
We just had to buy YouTube TV because that was the only way we could watch football games is that. Because last year we were streaming after we have to download this to watch the game and then we’d forget to cancel it and then we’d have to pay for it, but yeah.
Tony:
That’s how they get you.
Ashley:
Yeah. But one thing with the credit cards too, which we’ve actually talked about quite frequently is using the reward points on them too. So you had mentioned at Lowe’s you can do the Lowe’s business pro account or whatever and sometimes with some of their programs they have many different ones. The same with Home Depot is you use their credit card that they offer, like the Lowe’s credit card and you get 5% back or whatever it may be. But you want to weigh out what’s more important to you. So I don’t use the Lowe’s credit card anymore, we use usually it’s the Chase Business Preferred card or whatever where the signup bonus is 100,000 if you spend $5,000 within the first three months, something like that and that’s about 1,000 in travel right there. So that’s something to be cautious of too, is take advantage of those points that the credit card offers.
Tony:
I got to share a story because I was so frustrated when I did this. But we signed up for, I think it was an American Express card for one of our LLCs and got the card and we have a little booklet at home with all of our credit cards inside of it. I put it inside of that booklet and I just forgot about it, didn’t even remember that we had it and I missed the window to spend the $5,000 to get those bonus points. So it’s like I applied for this card and didn’t even get to use it and then I finally went to go use it for something and it got declined. I was like, “What the heck is going on?” It was a relatively small purchase amount and they’re like, “Oh, if you don’t use the card we actually reduce your spending limit down to something like…” It was like $500 if you didn’t use it fast enough. So I was like, “What the heck am I going to do with this card now? $500?” So anyway.
Ashley:
You’d go out to dinner.
Tony:
Yeah, right.
Ashley:
Then pay it off immediately before you use it again.
Tony:
Yeah.
Ashley:
Yeah, I just did one and actually I am always afraid of that of missing… So I always have to go through and look like when did I sign up for this, whatever. So I just opened one a couple of weeks ago and I put a calendar invite as to like here’s the last 30 days to hit that spend. So a reminder to myself to go in, see how much I’ve spent so far and I have 30 days before the statement ends or whatever to make sure that I reach that.
Tony:
That’s a really good idea.
Ashley:
Yeah.
Tony:
I feel like I need a Monday board that has all my credit cards inside of it because we have so many different entities that we’re spinning off right now. I feel like I need someplace to keep it in line.
Ashley:
Let’s see. Our next question is from, Charles Simon McAnte, “First time buying a property and placing it for rent right away instead of living there in the beginning, then turning it into a rental. So I have two questions. Do you have to wait until closing date to place it on the market for rent? It’s currently vacant. Second question, after closing do you turn on all utilities for a few days under your name then switch it to the tenant or do you just wait to have a tenant?” So the first question, which is a really good question is typically yes you do have to wait. There could be the circumstance where you put that into your contract with the seller but what happens if you don’t end up closing on the property? So first of all, make sure you have permission from the actual owner to list that unit for rent if you do decide to do that. Because you could get into a lot of trouble listing a unit for rent that you don’t even own yet, they call those people scammers.
So I would get permission from the seller to do that and get something in writing saying that it is okay and make it very clear that the house is not available for showings or whatever until a specific date in the listing. And I would not accept any kind of application or deposit or anything until you actually own the house.
Tony:
Ash, what do you think about using the coming soon feature that you see on some listing platforms? So maybe, Charles, could list the property but not like you said really allow anyone to do anything. But they can see the photos, they can submit their interest but not necessarily apply. What are your thoughts on that?
Ashley:
Yeah. So in AppFolio, they have what’s called Guest Cards. So it’s like the first step of somebody being interested where they fill out a little bit of information about themselves and that could be a great first step. Is you’re just collecting your list so that when you do close you can contact these people and say I’m doing showing this day or start to say that it’s now available. But yeah, I think that’s a great idea to do the coming soon for sure. I didn’t even think of that. Okay, for the second part. “After closing, do you turn on all utilities for a few days under your name then switch it to the tenant or do you just have to wait for a tenant?” Utilities and insurance When acquiring a property, you guys would be so proud of me. I closed on a property on Friday and everything was done at least four days in advance. Usually it’s the day before. But for this, so think about it especially since it’s vacant and you’re going to want to show the unit and you most likely won’t have a tenant lined up.
Because you’re not showing it before you own it, is you want to have the lights on, you want to have the gas on. Here’s what has happened to me a couple of times when I forgot to switch the utilities is that I then own the property. Well, the person that sold me the property they call and say, “I no longer own this property.” If nobody else has called to switch it into their name, the utilities get shut off. So when the utilities are shut off especially for gas, when they come and turn them on they give you a timeframe from 8:00 AM to 5:00 PM that they will be there and someone has to be there to let them in. There also has to be some kind of appliance in there like a stove where they can turn it on to make sure it lights the gas, everything is good and they also check all the pipes for gas leaks. So if you have a little tiny gas leak, a little pinhole, they’ll not turn your gas on.
It is way better to have a plumber come in and assess the pipes while the gas is on so that you don’t have to go through the whole thing and they will actually red tag your property and you have to wait until you can get a plumber to fix it and then you have to pass a whole inspection to get your gas actually turned back on. So having utilities stay on is worth you putting it, making that phone call and sometimes you can do it just online too you don’t even need to call anymore. Put it into your name those couple of days and some utility companies even have a landlord program. So every time somebody moves out of your property, they will automatically resort it back to your name and then you don’t even have to call anymore when somebody moves out to switch it back into your name. They’ll just switch it back until the new tenant calls to put it into their name too and it also keeps you listed as the owner of the property if there’s any problems or things like that.
So I recommend doing that in advance once you know the closing date. So if you know you’re closing on the 15th, call. Even if it’s two weeks before call and say it’s 15th, you can always change it or worst case scenario, you’re paying the electric for an extra day or something like that.
Tony:
Or what can happen is, which is what happened to me. I think I shared this story, but I had a property that was selling and for the buyer’s inspections I had to turn some of the utilities back on and one of those utilities was… I think it was the gas company and I turned it back on, forgot to call to turn it back off and I think eventually they ended up shutting it down. But they sent the final bill to the property instead of to me and I ended up going to collections for a $200 gas bill, because I never got notification that it was still running. So I actually just got that removed from my credit report after fighting with them for a year. So if you are going to do it just make sure that you’re like, Ashley. That you’re planning it out correctly and that you’re not like me and forgetting that you have these utilities turned on at certain properties.
Ashley:
Yeah, and I didn’t get anything sent to… Actually, I think I did get one thing sent to collection. When I left my property management company I found out there was a lot of bills that weren’t being paid, things like that and a couple of them were utility bills. Where tenants had moved out and they put it into my name and the billing address was the property management company. They got the bills, they had to get the notices, things like that.
Tony:
Didn’t send them to you.
Ashley:
Yeah, and this was even when they were managing it. It wasn’t like they were done yet, this bill was from January and they managed until May. So that I remember, and I remember getting the letter that it… I think it was going into collections or something and I’m like calling. I’m like, “What is this even for? I don’t even know.” And yeah, so nerve wracking.
Tony:
That’s the worst feeling to be surprised that you’re going into collections. I was literally applying for a refinance and my lender calls me he’s like, “Hey, Tony, we’re still going to be able to close. But your interest rate isn’t going to be what I told you because you’ve got this collection account.” I’m like, “Collections? I’ve never missed a bill in my life like what are you talking about?” And yeah, anyway. Learn from my mistakes, just be on top of that because it can hurt you in the long run if you’re not.
Ashley:
Yeah. My one business partner, he was going to buy a new business with his dad and he had to be approved. It was like a franchise thing and he had to be approved by the franchise and he was denied and it was because he had a Spectrum cable bill that was unpaid from when he lived in one of his dad’s apartment complexes and stuff and it was just like this whole thing and he paid immediately. But he was so embarrassed because it went to this franchise group he’s trying to start this business with and everything, it was mortifying.
Tony:
You can’t even pay an internet bill and you want to buy a franchise. But just, if you do find yourself in that situation you can get it removed from your credit report. You have to ask for what’s called a deletion letter. So basically I called these people I said, “Hey, look. I’m happy to pay you your money, I just need a deletion letter.” And part of the beef was that I wanted the deletion letter before I actually paid it, that way I could make sure that I actually got it. But they were just paying hardball, so eventually I just paid them the money upfront and they sent the deletion letter afterwards and you submit that deletion letter. They’ll do it as well, but then you could submit it yourself to the credit bureaus to actually show that it’s paid in full and it comes off of your credit report.
Ashley:
Oh, yeah.
Tony:
So yeah, I learned a lot about removing things from your credit report.
Ashley:
You know what? I’m glad you went through that experience so that if that does happen to me I know what to do now.
Tony:
You don’t have to freak out about it now.
Ashley:
Yeah, okay. Let’s go on to our next question here. This one is from, Kristen Marks. “Good morning everyone, thanks for adding me.” So this must be a question from our Real Estate Rookie Facebook group. You want to leave a question? You can definitely leave it into the group or you can go to biggerpockets.com/reply. Kristen, says, “I’m new to real estate investing and have a question. If I am looking at a pre foreclosure and there are liens against the property, can I still buy the property from the buyer or do I have to go through any lawyer or get it okayed from the bank? Thanks in advance, I’m excited to be starting this journey.” Tony, have you ever bought anything in a foreclosure or pre-foreclosure?
Tony:
I have not. But I think it might be even good, Ash, to define a few of these terms. Right? So what is foreclosure? What’s a lien and kind of what does that process look like? So foreclosure is when a person who owns a home or someone who is paying a mortgage. Right? They have debt, they have a mortgage against their property and if they stop paying that mortgage payment the bank then comes in and repossess the property. So they take ownership back and they foreclose on the person that owns the property, right? So it’s for failure of payment on your mortgage and then the bank now owns that property and then they want to get it sold as fast as they possibly can. Pre-foreclosure is like the step right before the bank takes it back because banks they don’t want to be in the business of owning real estate. Right? They’re in the business of lending money and making money on the money that they lend.
So if they can find a way to short sell that property if it’s necessary or whatever they can do to get out of it before they actually have to foreclose and take full ownership, they’ll do that. So that’s that pre-foreclosure process and then a lien itself is basically… I guess, how would you describe a lien? It’s like someone has a claim against a property.
Ashley:
Money is owed to that person and when the property sells they are entitled to payment from the sale of that property.
Tony:
Great definition.
Ashley:
So one common one is you have a line of credit, so you have your mortgage and then you go and get a line of credit for $10,000. So if your house sells, you have to pay back that $10,000 or whatever the balance is due on your line of credit. Or there’s also, what is it called? A contractor’s lien or is it-
Tony:
A mechanics lien.
Ashley:
Mechanics lien. I was like I know it’s not contractor, what is it? So if you have somebody that comes and does work on your house and you don’t pay them for that, they can go ahead and put a mechanic’s lien on your property too.
Tony:
So anyone that has a mortgage right now, whether you realize it or not you have a lien against your property. Right? So before you go off say you sell your property and maybe you bought it for $200,000 you’re selling it for a million bucks. If you still have a mortgage in that property, you don’t get that full million you’ve got to go back and pay off your original lender first so that’s a lien.
Ashley:
And that’s what when you are going and getting title work done you’re paying for that when you close on a property, this is what they’re doing is looking for liens on the property. Another type of lien too is a judgment lien, so this doesn’t even have to do with anything with the property. So I had a tenant that trashed a unit, they moved out, they used a lot of back rent, we evicted them. But I also went to small claims court and did a judgment against them and they now have… So it’s valid for 10 years. If they sell a property, a vehicle, anything that’s in their name, those funds from that have to go and pay my judgment and it’ll last for 10 years. We might be on year 10 right now, I don’t know. But close to and I think it’s maybe year eight, then I don’t see myself getting anything from it.
Tony:
Let’s just cross your fingers, Ash, they win the lotto or something and they come into this big chunk of money and then you get paid out.
Ashley:
I did see them at Verizon shortly after that all happened and they’re in their buying a brand new iPhone or whatever and I remember them like waving at me saying, “Hi.” And I was fuming. I was like, “How can you even look me in the face right now?” And I didn’t wave back. I literally think that I shook my head at them with disgust.
Tony:
Man, that’s another reason why I like long distance real estate investing because if I ever do have to evict someone I don’t have to worry about bumping into them at Target.
Ashley:
Ever see them? Yeah, true. Okay, so there’s all these different types of liens. There’s consensual liens, purchase money security liens, statutory liens, non purchase money security liens. All these different liens that can be on the property and that’s where you want to have your title work done and sort of seeing what these liens are that come up. You can do a little research yourself if you’re just scoping out a property and don’t want to pay to have all this title work done because you’re not under contract or anything. If you go to PropStream will usually tell you if there’s some kind of bank lien on it by big financing on it. If there’s a first lien for the mortgage, if they have a home equity loan or a line of credit that’s on there too. Or sometimes even if there’s a private money that financed the purchase of the house, something like that. Then you can also go to the county clerk records and you’re able to pull up documents from that. So you would actually type in the seller’s name and it would give you some documents that would show…
Sometimes it will come up and show different liens that have been filed against that person in that county. So I would start with the county the property is in and look for anything that comes up with their name too, you can get quite a bit of information from the public record of county clerks.
Tony:
So have you ever purchased, Ashley, a property that has a lien against it?
Ashley:
Well, all the time because there’s mortgages.
Tony:
Yeah, I guess beyond the traditional lien. But say something that’s got a judgment lien or maybe a mechanic’s lien or you can have a lien for unpaid property taxes. Just like have you purchased any property with a different type of lien?
Ashley:
Yeah. So I am sure there’s probably some that I don’t even know about, because it was just I’m paying for the property and then the attorneys have the money in escrow and they’re like okay… When I get my closing statement it would say, okay. The property I just closed on it was like we need five different cashier’s checks, we couldn’t wire the money. They wanted the cashier’s checks and I had to get five different cashier’s checks and one was going to the seller’s attorney, one was going to my attorney, one was going to the title company, one was going to the clerk’s office and one was going to the seller’s estate. But it could be one is going to KeyBank, one is going to the private moneylender. I’m sure that’s probably happened where there’s been different liens on the property of what’s being paid off and I’m just oblivious to it. Because it’s just something that’s handled through the attorneys and it’s on the seller’s end and the purchase price covers it and it’s not me accumulating those liens during the purchase, they’re being paid off.
The one property that we purchased subject to, it was a farm and we took over the payments for the mortgage from the seller. That’s what subject too is when you take over the existing mortgage and it stays in the seller’s name, but there was back taxes on it and there was a mechanics lien on the property. The mechanics lien wasn’t a lot but the back taxes I think were like $20,000. Paying off the back taxes, the mechanics lien and then also catching the person up on their mortgage payments that were past due. That was less money than if we would’ve went to a bank and put a down payment on an investment property. So that deal ended up working out great for us and that was part of the leverage. If that person would’ve went and sold that property on the open market they would’ve been underwater. They wouldn’t have had enough equity to actually pay those back taxes and they were in pre-foreclosure.
We initially approached the bank about doing a short sale, and that was our first idea and then I learned about subject to. We had a guest on the podcast who had done it and this was even before I had heard of, Pace Morby. We had someone on that talked about it and I was like, “Please send your documents, I’m going this to my attorney to see if we can do this.”
Tony:
This is, Kevin Christensen, right?
Ashley:
Yes, that’s who it was. Yeah.
Tony:
Yeah.
Ashley:
And so we paid off the mechanic’s lien and we paid off the back taxes and then paid to catch up the mortgage so that it was no longer in default and then we were able to deed the property into our name. So that was a property that was in pre-foreclosure but then we did a property… I actually bought a property that was in foreclosure, the bank actually listed it on the MLS. That was a slow grueling process working with the bank to try to close on this property, it was very slow moving. It’s just somebody at the bank that’s working on it, it’s not a motivated seller trying to get this deal closed. The bank owned it and I don’t even know what was owed on the property when they took possession of it, it sat for a couple of years vacant before we had even purchased it.
Tony:
I was trying to see if I could find our episode with, Kevin Christensen. It was early in the archive, so maybe our producers can help us out here. But he’s also exceptionally super active in the Real Estate Rookie Facebook group. So if you just search, Kevin Christensen, in the Real Estate Rookie Facebook group you’ll see some good stuff and I’m sure he’s probably even posted his episode inside of there as well. But yeah, really just heart of gold that guy and big on just giving back to people.
Ashley:
Yeah, it was show number 51.
Tony:
51, wow. Man, that was early, early on.
Ashley:
Yeah. February 10th, 2021.
Tony:
Yeah. Because I think my first episode was 39 or something like that.
Ashley:
Oh, yeah.
Tony:
Yeah. We barely even knew each other at that point, Ashley.
Ashley:
That was probably right around when we met in person, right?
Tony:
Probably.
Ashley:
It was in the winter the first time we met in person, going to BiggerPockets.
Tony:
Going to BP. Yeah, going to the headquarters. How so much has changed, right?
Ashley:
Now, you’re having a baby.
Tony:
Now we’re having a baby, now you’re sleeping in my son’s bedroom when you don’t have anywhere to crash. Yeah.
Ashley:
Okay. Well, thank you guys so much for joining us for this week’s Rookie Reply. I’m, Ashley, at Wealth From Rentals and he’s, Tony, at Tony J. Robinson, and we will be back on Wednesday with another guest.
Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!
Opinion: CoreLogic’s Selma Hepp on the effects of ‘pandemic migration’
The COVID-19 pandemic has had a profound impact on the way we live and work. One of the most significant changes has been the rise of remote work, which has allowed many people to move to new locations in search of a better quality of life. This has led to a phenomenon known as “pandemic migration.”
While the term may suggest a trend of increased mobility, the latest U.S. Census data on mobility during the pandemic shows continuation of long-term decline in the share of households that have moved each year.
Prior to the 1980s, annual migration rates averaged 20% and has fallen to 8.7% recently. But what appears to have changed are the distances that people move, with the median distance more than tripling in 2022 from the decade prior. Also, one-quarter of homebuyers traveled over 470 miles to find their new home.
Increasing numbers of longer-distance moves across counties and states have supported clear population shifts over the course of the pandemic as people have flocked to smaller towns and rural areas in search of more affordable housing and a slower pace of life.
And while there are a host of factors that influenced migration patterns, including politics, monetary and fiscal policies of different regions, the increase and ability of remote work was a significant motivator for many households. In fact, the share of work done from home increased from 8% in 2019 to 30% in 2023 – a rate at which remote work appears to be stabilizing.
Economic implications of mass worker migration
While it is too early to say what the long-term impact of pandemic migration will be, the migration of workers has important implications for economic outcomes of U.S. cities, wage inequality and housing markets in general.
Following the 1980s, we have seen a trend of clustering of higher-wage, college-educated workers in a select group of super-star cities, such as San Francisco, Seattle, Boston, Los Angeles, which have been cradles of technology and innovation.
However, the economic dominance of a limited number of cities has been a critical driver of income inequality nationally and varying home prices across markets.
In trying to understand what drives migration, several well-known academic papers have argued that migration decisions are largely driven by the following: wages, cost of housing and amenities.
While workers in big cities have higher wages, when accounting for cost of housing (usually manifested in smaller housing and longer commutes), their real wages are lower. but they get to enjoy the big-city benefits.
Despite the excitement that big cities offer, their attractiveness has been compromised in recent years by increasingly more unaffordable housing, long commutes and worsening crime and homelessness. It was not surprising to see households starting to leave large cities during the pandemic when desirable city amenities, such as bars, restaurants and concert venues were not available.
The outmigration led by remote work resulted in an important economic shift currently underway – decentralization of higher-wage, college educated talent from very expensive cities such as San Francisco, Los Angeles, Seattle and others, to smaller metro areas which didn’t previously serve as economic engines of production and consumption.
As these workers and firms cluster in smaller cities, they develop their own agglomeration economies and positive knowledge spillovers, i.e. co-location of talent and creative workers results in economic and knowledge benefits to local economies and its residents. This can result in increasing income for all residents in the new city, not just the newly relocated worker.
Teleworking also improves access to high-paying jobs for workers who previously didn’t have the access if they didn’t live in a big city. Over time, redistribution of higher-wage workers to smaller areas can reduce income inequalities between super-star cities and smaller cities.
That doesn’t mean absolute wage equalization across metro areas as cities that were already productive continue to offer relatively higher wages (as they remain more unaffordable), but the wage gap between workers in the new location would be reduced.
Outmigration’s notable impact on the housing market
In addition, outmigration from urban areas means that demand for housing and home prices in centers have been challenged while demand for housing in suburban and smaller cities has intensified.
As a result, in San Francisco metro, the epicenter of pandemic outmigration, home prices have only increased 6% from the onset of the pandemic, while in the cities in the South (such as Tampa, Austin, Nashville, Raleigh, Austin – to name a few) that grew notably due to pandemic migration, home prices have risen 40%, and as much as 70% in some markets, during the same period.
While these stark differences in home-price changes reflect some equalization of housing markets, the differences in their median home prices are still wide. More expensive cities, such as San Francisco, still hold median home value at about $1.4 million, while median price in Tampa is about a third of that at $450,000.
In addition to inter-metro convergence of home prices, the demand resulting from remote work has led to narrowing of intra-metro home prices as prices in suburbs and exurbs of large cities saw relatively higher appreciation over the last few years compared to the urban center.
Again, while San Francisco metro (which encompasses San Francisco city/county and San Mateo County) saw an increase, home prices in San Francisco city alone were down 1% since the onset of the pandemic, while they were up 32% in suburban Contra Costa County.
And while home prices are unlikely to fully converge, slower growth of home prices (and decline) in urban centers of large cities offers improved affordability, particularly to lower income workers who can now move closer to the city and save on commuting cost and housing.
On the other hand, there has been a growing concern that affordability in fast-growing smaller cities leads to gentrification of households who are being priced out by high-income migrants. And there is some truth to that too as recent migration data shows relative outmigration from cities with outsized home price growth in recent years.
Where are those households moving then? They are moving further out to urban fringe and more affordable towns – and with it extending the boundaries of cities but also urban sprawl.
How migration will affect long-term home prices
Decentralization of income across cities could lead to a more balanced demand across regions and smaller dispersion of home price both across cities and within a city.
High-cost cities would see some declines, while more affordable markets see higher home price gains. Given the overarching trend of migration to more affordable regions where it is easier and less costly to build, overall impact on home prices may result in a slight decline of national home prices long-term, or a slower rate of appreciation.
What does this mean for super-star cities?
Although big cities are at an important historical juncture, a demise is not a threat particularly as many large cities see population return post-pandemic. But, while some perks that made cities attractive may follow remote workers out of urban centers, fewer commuters would reduce pollution and congestion which would help boost desirability of urban centers.
Demand for commercial space may decline (further) and drag down its prices, but commercial real estate will likely be creative in finding new uses for the space, which may drive more creativity, mixed-use developments and incubate 24-hour-cities that will spur demand for urban living again and overall utilization of commercial space.
There are other implications to consider. For example, decentralization of workers also means fewer transit riders and erosion of tax base. Large cities are already struggling with decline of ridership and the impacts of transit budgets.
As for loss of tax base, while urban centers will lose the revenue, smaller towns where remote workers are moving to will see improvement in their tax base and capital to improve public services, education and institutions that have been in decline for decades.
Dr. Selma Hepp, PhD, is Chief Economist at CoreLogic.
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14 real estate trends Gen Z buyers are looking for
Baby boomers and millennials have dominated the home-buying conversation in recent decades, but a new generation of homeowners is browsing online listings, heading to open houses and planning their home-buying budget.
Gen Z — born between 1997 and 2012 — is making waves in the market with their approach to homebuying. Here are 14 real estate trends Gen Z buyers won’t pass up.
1. Smart home technology is not optional
Gen Z marks the first generation of true digital natives. This group was raised on technology and expects their homes to be outfitted accordingly.
Gen Z homes should come standard with smart-home technology, such as smart thermostats, motion-sensing security systems with notifications, and lighting and environmental controls that can be adjusted from a mobile phone. Voice-activated assistants, such as Alexa or Google Home, are also a plus.
Gen Z is a mobile-first generation, so all tech needs to be optimized for their devices. This applies to marketing available homes on the market. To capture Gen Z’s attention, make sure there are options to communicate digitally and that virtual home tours are available on demand.
2. Gen Z likes to stay close to home
With the continued trend of remote work and little desire for a long commute, Gen Z buyers are moving to homes in walkable communities with nearby amenities. Full-time or part-time remote workers in this generation might even go for smaller homes near coworking spaces or business facilities.
3. Gen Z wants a separate space for business
One thing Gen Z likes to keep behind closed doors is their work. For those who work remotely full time and can’t utilize a coworking space, a dedicated home office is a must. A home office doesn’t need to be extravagant, but being able to shut the door on a workspace when the day is done is a must for a generation that strives to accomplish a proper work-life balance.
4. Gen Z prefers an open floor plan
Gen Z likes the flexibility that open floor plans provide, and they feel better about their homes when they are open and expansive.
5. Outdoor space is important
Another side effect of the pandemic is a desire for functional, comfortable outdoor space. A balcony, patio, terrace or rooftop deck is a huge draw for a generation that views these spaces as a place to relax, entertain and maintain a small garden.
6. Sustainable, energy-efficient homes are not optional
Gen Z buyers prioritize eco-friendly and energy-efficient homes. This generation wants to save money on utilities, but they also want to do what they can to be more gentle with the environment.
Gen Z buyers will look for homes with solar panels and energy-efficient appliances and finishes. Bamboo flooring, recycled glass countertops and energy-efficient windows are all attractive incentives for the Gen Z buyer.
7. Inclusive communities matter
Gen Z is not like previous homebuying generations, who valued homogeneous neighborhoods with like-minded people. Gen Z values diversity and inclusivity. They want their neighborhoods to reflect their values and are more likely to seek vibrant, multicultural areas with a mixed bag of socioeconomic inhabitants.
As a result, they might be more open to neighborhoods in transition or those being managed and improved by community-based organizations.
8. They need more affordable housing
Even though Gen Z buyers are mentally ready to become homeowners, the financial challenges associated with buying a home are real. Although some enterprising and lucky Gen Z home buyers locked in incredibly low mortgage rates during 2020 and 2021, those who weren’t ready to buy now have to contend with interest rates as high as 8%.
In addition to high interest rates, low housing stock means homes are still expensive. Consequently, Gen Z buyers may be open to alternative types of housing that their parents and grandparents shunned. Tiny homes, co-living spaces and shared housing arrangements are ways to reduce the cost of homeownership, as well as negotiating real estate agent commission.
9. Gen Z prioritizes aesthetic appeal
Gen Z is among the most visually motivated and stimulated generations. They love a beautiful space, and they believe the visual aspect of their home reflects who they are. Homes that are not visually appealing may not get attention from Gen Z, so agents should help these buyers see the renovating and redecorating possibilities to match their personal aesthetic.
10. Easy renovations are key
For spaces that might not be immediately appealing, Gen Z wants those that can be easily renovated. They prize move-in ready homes that can be updated with fresh paint, new flooring and modern fixtures. They aren’t necessarily interested in a property that needs a complete renovation.
11. Flexible design matters
Flexible design goes beyond rooms with multiple functions or a layout that can be easily changed. Think walls that can be knocked down or added without too much fuss.
12. Gen Z will move for the right home
Like their millennial forebears, Gen Z is willing to relocate for the right home. These moves are usually to more diverse coastal cities with employment opportunities and good walkability, but many in this generation are also moving inland to well-designed communities that are more affordable.
13. Gen Z buyers are more educated
When it comes to home-buying education, it’s not the college degree that matters. Gen Z is so comfortable and versed in the digital landscape that these buyers are some of the most educated clients. They know how to navigate virtual open houses, manage electronic documents and handle complicated internet searches. They come to agents knowing how to find and view homes, but they still have questions.
14. Gen Z wants professional guidance
Even with their digital capabilities, Gen Z knows that homebuying is a complicated, sometimes daunting, undertaking. From securing a mortgage to navigating closing, the entire process is fraught with potential roadblocks. That’s why this generation isn’t scared to ask for help. They are looking for affordable real estate professionals who understand them and their needs.
Luke Babich is the CEO and co-founder of Clever Real Estate.
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How to Find RARE Rentals by Buying Properties
Finding an investment property in preforeclosure can feel like uncovering a diamond in the rough, as the seller may be more motivated to get a deal done faster and for less. However, there’s one crucial thing you should be aware of BEFORE you take action on your end. Hint: you could pay a few extra costs to score a RARE deal!
Welcome back to another Rookie Reply! In this episode, Ashley and Tony talk about buying properties in preforeclosure—including when it makes sense to buy a property “subject to.” They also go over the most important data points to analyze when choosing your market, as well as how to avoid jumping the gun when listing a new property for rent. Finally, home renovation projects can be tricky when you’re an out-of-state investor. Our hosts share how they purchase materials, as well as their go-to investing hack that will save you a fortune!
Ashley:
This is Real Estate Rookie episode 338. My name is, Ashley Kehr, and I’m here with my co-host, Tony J. Robinson.
Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week we bring you the inspiration, motivation and stories you need to hear to kickstart your investing journey and if you’re watching this on YouTube I might look a little bit different today. I’m pulling a bit of a, Clark Kent, I brought out my glasses. Ashley, didn’t even recognize me today. She hopped on and she was like, “Well, who is this person and where is my co-host?”
Ashley:
I mean, you’re saying, Clark Kent. But I’m pretty sure I said nerdy or dorky, but okay.
Tony:
They’re one and the same. One and the same. But no, all jokes aside guys. We got a good episode today where we’re hitting you guys with another Rookie Reply and we’ve got four questions that we’re going to cover today. We talk a little bit about if you’re in that stage of choosing your market, what are those data points that you should be looking at to know if a market is a good market or not? Which is an important thing to consider today especially in 2023 if you’re thinking about investing. We talk a little bit about paying contractors. What’s the right way to do that without getting maybe scammed by a contractor and how do you make it easy on yourself as well?
Ashley:
Yeah. And we talk a little bit about credit card hacking and how you can incorporate that into your contractors paying for materials for your rehabs and your projects. Then we talk about liens on properties, foreclosure, pre-foreclosure and we give a couple examples of properties that I’ve purchased that are in foreclosure or were foreclosed on and what it was like dealing with the bank. So if these are things you are interested in this is the episode for you and as always, no matter what your strategy, what your experience, we always try to educate you and leave you little pieces of nuggets that maybe there’s one aha moment per an episode that we help you have. So if you have any of those aha moments, we would love for you to please leave us a rating and review on your favorite podcast platform or on YouTube and let us know what you have learned from the rookie podcast and maybe someone will read it and be inspired to take action on their real estate journey.
Before we bring on your Rookie Reply questions, this could be the last episode that, Tony, and I record together before baby comes. So even though when this actually airs, baby will be here.
Tony:
Baby will be here for sure.
Ashley:
But we are counting down the days before, Tony, is on his paternity leave and we’ll have separation anxiety from not seeing each other every single week on Zoom, sometimes twice a week. So there’ll be lots of FaceTiming with the baby, I’m sure.
Tony:
A baby girl.
Ashley:
Yeah. So if you haven’t already make sure you congratulate, Tony, because by the time the airs he’ll have a little newborn baby girl.
Tony:
Exciting times, guys. Well with that, let’s get into today’s questions.
Ashley:
Okay, today’s first question is from, Blake Kretsinger. I did not say that wrong. Kretsinger. Kretsinger, maybe one of those are correct. Okay. Blake’s question is, “What are some metrics you use when identifying potential markets to invest in? I’ve determined that long distance investing is my best bet as my home market, the DFW is a pricey one. I’m looking to utilize the BRRRR strategy and I’m looking to identify several markets with a lower cost of entry. The main factors I’m assessing as of now are population growth, medium home price growth, crime levels, average household income growth and job growth. What would you add, take out of my analysis?” Tony, I see you vigorously writing down notes. What do you got?
Tony:
So I think there’s a few pieces to this, right? So Blake, first it’s a fantastic question and one that I think a lot of rookies are thinking about. So I’m glad we get to discuss this but before we even get into hey, what are the data points I should be assessing when I’m looking at a market? I think the first question you have to ask yourself is, what is my motivation as a real estate investor? What is the actual purpose that I have for investing in real estate? And typically, there’s three big buckets that you kind of fall into. There’s cashflow, there’s appreciation and there’s tax benefits. Right? Cashflow, appreciation, tax benefits, and usually you’re trying to balance those three and if you’re investing in short-term rentals there’s a fourth one which is vacation. So maybe you just want to subsidize the cost of you owning a vacation home somewhere, but cashflow, appreciation, and tax benefits. So between those three I’d say gauge which one is most important, second important, third important.
So kind of prioritize those into a list and then that’s going to help you determine what are the underlying metrics that are more important to you. Because you have population growth, median home growth, crime levels, household income, job growth, etc. But what if your goal is really just cashflow right now today? Then maybe you’re not as concerned about average median home price growth, right? Because that’s not as important to you. What you’re really focused on is how do I maximize my cashflow? And if that’s your ultimate, ultimate goal, then maybe you’re not even as concerned about crime levels. Because you’re like I’m fine going into a war zone if I can get a 40% cash on cash return on a traditional long-term rental. So I think the first piece is understanding which of those three is most second and third most important. What are your thoughts, Ash?
Ashley:
So a while ago, Steve Rosenberg, another investor and he does a lot of business coaching and consulting and we sat down and we actually made a market analysis worksheet as to like here are the things that you should be looking at when analyzing a market. So I’m just going to read them off real quick, and it was really interesting to see our different perspectives as to what was more important to each of us and then we kind of combined them. So look at three different job industries, you want to make sure that there’s not just one industry that supports the towns. Because if that facility closes, then majority of people are out of work and they’re relocating. So you want to look at the three major job industries that are there, population growth, average home value, average rent, the price to rent ratio. So how much are you purchasing these properties for and what would be the rent that you’d get out of it? The tax assessment percentage, so how much are you paying in property taxes? What’s the percentage based on the home’s appraised value? The utilities, if there’s anything unique.
So around here, a lot of homes are heated with natural fuel. So we have lines that are run from the road just like you’d get your electric or whatever and then the gas heats your house, the natural gas. And sometimes there is not that available and you actually have to get propane tanks and hook them to the house and then you have to have a propane truck come and fill the propane tank. So looking at different things like that as to are there unique things that may determine the home’s value? It definitely is a lot more convenient to have natural gas supplied to your house than actually having to come and get your propane tank refilled. So different things like that. Then seasonal maintenance, are you going to have to worry about snowplowing? Are you going to have to worry about the snow load on the roof? Specialty insurance, are you in a flood zone? Are there hurricanes? Are there kind of natural disasters that happen? You have to have specialty insurance, earthquake insurance. The average age of renters, average income of renters.
You want to make sure that the average people in that market can actually afford what you would want to list your unit for rent. Average education level, percentage of homeowners verses percentage of renters. The crime statistics and the school district rating, the average age of property. So if you don’t want to get into renovating a 1900s home, don’t buy in an area where the majority of them where I live are from the 1900s. The average vacancy rate in the area for other landlords and then are there multiple exit strategies? So if you were buying this as a short-term rental, would it also work as a long-term rental or vice versa? So those are the things that we had on our list and I’m going to give you two resources to find a majority of this data without having to go and search for it. The first one is brightinvestor.com, where you can put in the zip code, the neighborhood that you’re looking in and it’ll give you a lot of this market research and then the other one is neighborhoodscout.com where it’ll give you a wealth of information too.
There are some free capabilities that you can… Some information you can pull from these or you have to pay. So I think NeighborhoodScout, you can pay per zip code or something and I think it’s like 20 bucks and you can get the full report. So those are my two recommendations as to someplace to get you started so you’re not having to find and Google and search every single little piece of information.
Tony:
That was a great breakdown, Ashley, of all of the different data points to look at and the insurance one really hit home with me. So for those of you that have been listening to the podcast for a while you know that part of the reason that my Shreveport house, that deal kind of fell apart was because the flood insurance premium quadrupled from one year to the next and almost immediately made that house unprofitable. So understanding those nuances I think are pretty important. But everything that, Ashley, just went over… I guess let me take a step back. There are two types of data that you want to consider when you’re considering a market to invest into. You have your quantitative data and then you have your qualitative data. So quantitative is everything that, Ash, just talked through. Right? Like vacancy, job growth, flood insurance premiums, things like that. Right? Your qualitative information, your qualitative data, that comes from conversations. So that’s you talking to local property managers in that market and getting a sense of hey, where do you feel this market is moving?
What are the pockets that work well? What are the pockets that don’t work well? Where should I avoid? Where should I focus on? Talking to local real estate agents in that market, right? A good agent should know their markets like the back of their hand. I love my agent in Joshua Tree because this guy is just an encyclopedia of everything happening in and around that city. He knows what laws are getting passed, he knows what the city council’s talking about, he’s just tapped into everything. So a good agent can also give you a lot of that qualitative information and then the third place to look for that is other real estate investors in that market. So go to your local meetups, right? Get active in Facebook groups that are local to your city and try and have conversations with folks to understand what has their journey been like? Because the data’s going to point to one thing, right? The data’s going to paint one type of story. But you can really get that full picture by talking to someone and really understanding their unique experiences because there’s always fuzziness in data.
You can never be 100% certain just by looking at numbers, but you can build that confidence in your decision by talking to someone that’s investing in that market. So if I wanted to invest near Buffalo, New York. I’m not just going to look at the data, I’m going to go to, Ashley. I’m going to say, “Ashley, give me the playbook. What should I be focusing on? What pitfall should I avoid?” And, Ashley, could probably rattle those off the back of her hand because she’s done it so many times. So you want to look for the quantitative and the qualitative data.
Ashley:
And I think some of the… When you’re deciding what markets to actually analyze start where you have those kind of opportunities. Whether maybe it’s your hometown, so you know some of the streets, you know the areas, you know what’s good and bad or you have a boots on the ground, you know somebody that you can ask those questions too. Just an idea, it may not work out to be the market that works for you but that’s a great place to start is where you have those advantages.
Tony:
Just one caveat that we should add to that too is that it’s good to have both. I see some mistakes that some people make is that they only rely on the qualitative data and that they don’t focus enough on the quantitative. So just because someone says Orlando Florida is a great place to buy a short-term rental or St. Louis, Missouri is a great place to flip a home. Just because you see that on TikTok or Instagram or YouTube or wherever, don’t let that be the only data point that you use to then go out and invest all your money into that market. So the qualitative is a good balance, but you want to make sure that you’re still getting both of those.
Ashley:
And verify data.
Tony:
And verify.
Ashley:
Yeah.
Tony:
Yeah.
Ashley:
Okay, so the next one is from, Inca Comstock, and this question is going to sound dumb but hey, no dumb questions here. “If a contractor lets you buy materials with your personal credit card, how do you do this? And you’re out of state. Do you just have to go with him and purchase materials with them? What options are out there?” So this is where, how much do you trust your contractor where you actually make them an authorized user and they get their own credit card to use and you know what transactions are coming from them. Because it’s a credit card that has their name on it and to add someone as an authorized user you don’t typically need their social security number or anything like that. You just need their name and address to have them added on, if they don’t want it to impact their credit.
You can do that, but another option is to actually buy the materials online with your credit card and have it ready to be picked up at the store and they will go in and be able to pick up the order and you would just add them as the person that’s picking up the order. That I think is one of the best ways to do it out of state, you don’t want to actually give them your credit card to do it that way.
Tony:
We’ve done both of those. Our guy, Nacho, who’s done all of our flips, he’s an authorized user of one of our credit cards. But same, usually like Home Depot you can have your credit card on file if you’ve got the… What is it? Like the pro account or whatever it is. Your contractor can just walk in and say, “Hey, I’m here for this job.”
Ashley:
And charge it.
Tony:
And yeah, they can charge it. And that’s a big reason why we’re kind of selective on which vendors we buy from. Sometimes our designer who we work with, she creates amazing designs but sometimes she picks these somewhat obscure places to get the selections from and we like places that we can always order online, that ship fast. So ideally we can even save our contractor the trip of going to the store to pick that stuff up, we try and buy everything online and just ship it directly to the property to save a lot of that headache. I guess one other option you could do, say that maybe the store you’re buying from is a local shop that doesn’t process orders online. If you’ve got maybe a more tech-savvy contractor that you’re working with, they could just invoice you say they’re using QuickBooks or something. They could invoice you, you could use their credit card to pay their invoice and now they’ve got the cash from that invoice payment to go out and pick up the materials. So another option in case you want to go that way.
Ashley:
The only thing with doing it that way then is that the contractor is paying the credit card fees.
Tony:
Or they’re just marking you up.
Ashley:
Yeah.
Tony:
Yeah, so whatever those fees are maybe tap on an extra 100 bucks or something like that. Well one thing that you said, Ash, that kind of brings up another question is you said if you add your contractor it doesn’t impact their personal credit. Do you always set it up as a business credit card or do you sometimes use personal credit cards? What’s your mix for funding the rehabs?
Ashley:
I definitely do business credit cards, because those sign up bonus points are amazing and so yeah, I always do a business credit card and, Daryl, does a lot. He handles pretty much all the project management for materials and things like that. But there was a couple, so he will usually order it online, have it ready for pickup. Or he’ll go and do the order and just go shopping or whatever and bring it to the property if it’s a department turnover or whatever for the contractor. But last year, over the winter there was two contractors I each gave a credit card to and all I had was keep the receipts in an envelope for me and then at the end of the project they had a budget and their budget was based on their labor and their materials. So I think they went over maybe $63 or whatever, but he paid that out of pocket that that was over the budget whatever.
And so I just had them save every receipt and then also anything that they needed to return to make sure it got returned and give me the receipt for the return and then I just would scan them all into QuickBooks. And now, Daryl, does all of that too where every receipt goes into QuickBooks with the ScanSnap and then it’s just assigned to whatever property it was for. But we just gave our short-term rental manager a credit card so she can go on Amazon and in our Amazon account and order stuff and it gets sent right to the cleaner’s house and then the cleaner will be the one that takes it to the property for us and so we actually added her as an authorized user on our credit card. So it’s me, it’s Daryl, and then it’s her for this one LLC and I like the fact that when the statements come I can have that kind of glance over as to how much each person is charging instead of just giving somebody my credit card or whatever.
Making them the actual authorized user. Because it’s not like anybody checks at a store that it’s actually you using a credit card. So technically you could just give them any credit card, especially if it is an LLC. No one’s looking at the actual name on the credit card, but I think it gives them a more sense of accountability is like this card has your name on it and it was used to purchase this.
Tony:
Yeah, there’s some increased accountability there for sure. One thing you mentioned though was the Amazon piece, and I just want to share this with people because it’s been really helpful for us from a bookkeeping perspective. But we have Amazon Prime, but there’s Amazon Business Prime and the way that we set it up is that you can have different groups. So each one of our business entities is set up as a different group inside of Amazon business and then you can assign your different team members, users, vendors, whoever to specific groups. And then whenever they go to make a purchase on Amazon you can set it up so that before they can complete that purchase they have to include the information you need for bookkeeping. So for us, they always have to tag what property that purchase is for and then they have to tag the account number inside of QuickBooks. So like is this consumable supplies? Is this whatever, repairs and maintenances? What is it? So that way our bookkeeper at the end of each month, instead of having to chase down receipts and do all this stuff she also has access to Amazon.
She can see all the receipts there, she can pull a report at the end of the month that’s itemized by expense that shows what property was it for and then what was the associated account number. That little hack alone sounds super simple but it saved us a ton of administrative time of managing receipts for Amazon specifically. So now Amazon’s got us, all of our consumable supplies we pretty much only buy it through Amazon because it’s really streamlined the process of the bookkeeping and accounting for us.
Ashley:
Yeah. That’s what we did too for the short-term rentals is we added a completely separate group and it’s definitely made it a lot easier. But did you know that with Amazon Prime Business, they don’t include Prime Video anymore? You got to pay extra for that now? It used to be included.
Tony:
I did not know that.
Ashley:
And I don’t have a personal Prime account, so I had to shell out the 11.99 for Prime Video.
Tony:
Ashley, you don’t have a personal Prime account? Or you just order it all through the business?
Ashley:
Yeah. I have one of the groups is me personally along with my four siblings, that’s my contribution to my family. My brother has the Netflix, I contribute Amazon Prime and yeah.
Tony:
Yeah, I got to set it up that way. Because we have Apple TV+, we have Prime or we have Amazon Prime, we’ve got Disney+, ESPN, Hulu, that whole bundle. It’s ridiculous now, we’re spending almost as much on these streaming services as we were on traditional cable and we still have cable which makes no sense.
Ashley:
Yeah.
Tony:
Yeah.
Ashley:
We just had to buy YouTube TV because that was the only way we could watch football games is that. Because last year we were streaming after we have to download this to watch the game and then we’d forget to cancel it and then we’d have to pay for it, but yeah.
Tony:
That’s how they get you.
Ashley:
Yeah. But one thing with the credit cards too, which we’ve actually talked about quite frequently is using the reward points on them too. So you had mentioned at Lowe’s you can do the Lowe’s business pro account or whatever and sometimes with some of their programs they have many different ones. The same with Home Depot is you use their credit card that they offer, like the Lowe’s credit card and you get 5% back or whatever it may be. But you want to weigh out what’s more important to you. So I don’t use the Lowe’s credit card anymore, we use usually it’s the Chase Business Preferred card or whatever where the signup bonus is 100,000 if you spend $5,000 within the first three months, something like that and that’s about 1,000 in travel right there. So that’s something to be cautious of too, is take advantage of those points that the credit card offers.
Tony:
I got to share a story because I was so frustrated when I did this. But we signed up for, I think it was an American Express card for one of our LLCs and got the card and we have a little booklet at home with all of our credit cards inside of it. I put it inside of that booklet and I just forgot about it, didn’t even remember that we had it and I missed the window to spend the $5,000 to get those bonus points. So it’s like I applied for this card and didn’t even get to use it and then I finally went to go use it for something and it got declined. I was like, “What the heck is going on?” It was a relatively small purchase amount and they’re like, “Oh, if you don’t use the card we actually reduce your spending limit down to something like…” It was like $500 if you didn’t use it fast enough. So I was like, “What the heck am I going to do with this card now? $500?” So anyway.
Ashley:
You’d go out to dinner.
Tony:
Yeah, right.
Ashley:
Then pay it off immediately before you use it again.
Tony:
Yeah.
Ashley:
Yeah, I just did one and actually I am always afraid of that of missing… So I always have to go through and look like when did I sign up for this, whatever. So I just opened one a couple of weeks ago and I put a calendar invite as to like here’s the last 30 days to hit that spend. So a reminder to myself to go in, see how much I’ve spent so far and I have 30 days before the statement ends or whatever to make sure that I reach that.
Tony:
That’s a really good idea.
Ashley:
Yeah.
Tony:
I feel like I need a Monday board that has all my credit cards inside of it because we have so many different entities that we’re spinning off right now. I feel like I need someplace to keep it in line.
Ashley:
Let’s see. Our next question is from, Charles Simon McAnte, “First time buying a property and placing it for rent right away instead of living there in the beginning, then turning it into a rental. So I have two questions. Do you have to wait until closing date to place it on the market for rent? It’s currently vacant. Second question, after closing do you turn on all utilities for a few days under your name then switch it to the tenant or do you just wait to have a tenant?” So the first question, which is a really good question is typically yes you do have to wait. There could be the circumstance where you put that into your contract with the seller but what happens if you don’t end up closing on the property? So first of all, make sure you have permission from the actual owner to list that unit for rent if you do decide to do that. Because you could get into a lot of trouble listing a unit for rent that you don’t even own yet, they call those people scammers.
So I would get permission from the seller to do that and get something in writing saying that it is okay and make it very clear that the house is not available for showings or whatever until a specific date in the listing. And I would not accept any kind of application or deposit or anything until you actually own the house.
Tony:
Ash, what do you think about using the coming soon feature that you see on some listing platforms? So maybe, Charles, could list the property but not like you said really allow anyone to do anything. But they can see the photos, they can submit their interest but not necessarily apply. What are your thoughts on that?
Ashley:
Yeah. So in AppFolio, they have what’s called Guest Cards. So it’s like the first step of somebody being interested where they fill out a little bit of information about themselves and that could be a great first step. Is you’re just collecting your list so that when you do close you can contact these people and say I’m doing showing this day or start to say that it’s now available. But yeah, I think that’s a great idea to do the coming soon for sure. I didn’t even think of that. Okay, for the second part. “After closing, do you turn on all utilities for a few days under your name then switch it to the tenant or do you just have to wait for a tenant?” Utilities and insurance When acquiring a property, you guys would be so proud of me. I closed on a property on Friday and everything was done at least four days in advance. Usually it’s the day before. But for this, so think about it especially since it’s vacant and you’re going to want to show the unit and you most likely won’t have a tenant lined up.
Because you’re not showing it before you own it, is you want to have the lights on, you want to have the gas on. Here’s what has happened to me a couple of times when I forgot to switch the utilities is that I then own the property. Well, the person that sold me the property they call and say, “I no longer own this property.” If nobody else has called to switch it into their name, the utilities get shut off. So when the utilities are shut off especially for gas, when they come and turn them on they give you a timeframe from 8:00 AM to 5:00 PM that they will be there and someone has to be there to let them in. There also has to be some kind of appliance in there like a stove where they can turn it on to make sure it lights the gas, everything is good and they also check all the pipes for gas leaks. So if you have a little tiny gas leak, a little pinhole, they’ll not turn your gas on.
It is way better to have a plumber come in and assess the pipes while the gas is on so that you don’t have to go through the whole thing and they will actually red tag your property and you have to wait until you can get a plumber to fix it and then you have to pass a whole inspection to get your gas actually turned back on. So having utilities stay on is worth you putting it, making that phone call and sometimes you can do it just online too you don’t even need to call anymore. Put it into your name those couple of days and some utility companies even have a landlord program. So every time somebody moves out of your property, they will automatically resort it back to your name and then you don’t even have to call anymore when somebody moves out to switch it back into your name. They’ll just switch it back until the new tenant calls to put it into their name too and it also keeps you listed as the owner of the property if there’s any problems or things like that.
So I recommend doing that in advance once you know the closing date. So if you know you’re closing on the 15th, call. Even if it’s two weeks before call and say it’s 15th, you can always change it or worst case scenario, you’re paying the electric for an extra day or something like that.
Tony:
Or what can happen is, which is what happened to me. I think I shared this story, but I had a property that was selling and for the buyer’s inspections I had to turn some of the utilities back on and one of those utilities was… I think it was the gas company and I turned it back on, forgot to call to turn it back off and I think eventually they ended up shutting it down. But they sent the final bill to the property instead of to me and I ended up going to collections for a $200 gas bill, because I never got notification that it was still running. So I actually just got that removed from my credit report after fighting with them for a year. So if you are going to do it just make sure that you’re like, Ashley. That you’re planning it out correctly and that you’re not like me and forgetting that you have these utilities turned on at certain properties.
Ashley:
Yeah, and I didn’t get anything sent to… Actually, I think I did get one thing sent to collection. When I left my property management company I found out there was a lot of bills that weren’t being paid, things like that and a couple of them were utility bills. Where tenants had moved out and they put it into my name and the billing address was the property management company. They got the bills, they had to get the notices, things like that.
Tony:
Didn’t send them to you.
Ashley:
Yeah, and this was even when they were managing it. It wasn’t like they were done yet, this bill was from January and they managed until May. So that I remember, and I remember getting the letter that it… I think it was going into collections or something and I’m like calling. I’m like, “What is this even for? I don’t even know.” And yeah, so nerve wracking.
Tony:
That’s the worst feeling to be surprised that you’re going into collections. I was literally applying for a refinance and my lender calls me he’s like, “Hey, Tony, we’re still going to be able to close. But your interest rate isn’t going to be what I told you because you’ve got this collection account.” I’m like, “Collections? I’ve never missed a bill in my life like what are you talking about?” And yeah, anyway. Learn from my mistakes, just be on top of that because it can hurt you in the long run if you’re not.
Ashley:
Yeah. My one business partner, he was going to buy a new business with his dad and he had to be approved. It was like a franchise thing and he had to be approved by the franchise and he was denied and it was because he had a Spectrum cable bill that was unpaid from when he lived in one of his dad’s apartment complexes and stuff and it was just like this whole thing and he paid immediately. But he was so embarrassed because it went to this franchise group he’s trying to start this business with and everything, it was mortifying.
Tony:
You can’t even pay an internet bill and you want to buy a franchise. But just, if you do find yourself in that situation you can get it removed from your credit report. You have to ask for what’s called a deletion letter. So basically I called these people I said, “Hey, look. I’m happy to pay you your money, I just need a deletion letter.” And part of the beef was that I wanted the deletion letter before I actually paid it, that way I could make sure that I actually got it. But they were just paying hardball, so eventually I just paid them the money upfront and they sent the deletion letter afterwards and you submit that deletion letter. They’ll do it as well, but then you could submit it yourself to the credit bureaus to actually show that it’s paid in full and it comes off of your credit report.
Ashley:
Oh, yeah.
Tony:
So yeah, I learned a lot about removing things from your credit report.
Ashley:
You know what? I’m glad you went through that experience so that if that does happen to me I know what to do now.
Tony:
You don’t have to freak out about it now.
Ashley:
Yeah, okay. Let’s go on to our next question here. This one is from, Kristen Marks. “Good morning everyone, thanks for adding me.” So this must be a question from our Real Estate Rookie Facebook group. You want to leave a question? You can definitely leave it into the group or you can go to biggerpockets.com/reply. Kristen, says, “I’m new to real estate investing and have a question. If I am looking at a pre foreclosure and there are liens against the property, can I still buy the property from the buyer or do I have to go through any lawyer or get it okayed from the bank? Thanks in advance, I’m excited to be starting this journey.” Tony, have you ever bought anything in a foreclosure or pre-foreclosure?
Tony:
I have not. But I think it might be even good, Ash, to define a few of these terms. Right? So what is foreclosure? What’s a lien and kind of what does that process look like? So foreclosure is when a person who owns a home or someone who is paying a mortgage. Right? They have debt, they have a mortgage against their property and if they stop paying that mortgage payment the bank then comes in and repossess the property. So they take ownership back and they foreclose on the person that owns the property, right? So it’s for failure of payment on your mortgage and then the bank now owns that property and then they want to get it sold as fast as they possibly can. Pre-foreclosure is like the step right before the bank takes it back because banks they don’t want to be in the business of owning real estate. Right? They’re in the business of lending money and making money on the money that they lend.
So if they can find a way to short sell that property if it’s necessary or whatever they can do to get out of it before they actually have to foreclose and take full ownership, they’ll do that. So that’s that pre-foreclosure process and then a lien itself is basically… I guess, how would you describe a lien? It’s like someone has a claim against a property.
Ashley:
Money is owed to that person and when the property sells they are entitled to payment from the sale of that property.
Tony:
Great definition.
Ashley:
So one common one is you have a line of credit, so you have your mortgage and then you go and get a line of credit for $10,000. So if your house sells, you have to pay back that $10,000 or whatever the balance is due on your line of credit. Or there’s also, what is it called? A contractor’s lien or is it-
Tony:
A mechanics lien.
Ashley:
Mechanics lien. I was like I know it’s not contractor, what is it? So if you have somebody that comes and does work on your house and you don’t pay them for that, they can go ahead and put a mechanic’s lien on your property too.
Tony:
So anyone that has a mortgage right now, whether you realize it or not you have a lien against your property. Right? So before you go off say you sell your property and maybe you bought it for $200,000 you’re selling it for a million bucks. If you still have a mortgage in that property, you don’t get that full million you’ve got to go back and pay off your original lender first so that’s a lien.
Ashley:
And that’s what when you are going and getting title work done you’re paying for that when you close on a property, this is what they’re doing is looking for liens on the property. Another type of lien too is a judgment lien, so this doesn’t even have to do with anything with the property. So I had a tenant that trashed a unit, they moved out, they used a lot of back rent, we evicted them. But I also went to small claims court and did a judgment against them and they now have… So it’s valid for 10 years. If they sell a property, a vehicle, anything that’s in their name, those funds from that have to go and pay my judgment and it’ll last for 10 years. We might be on year 10 right now, I don’t know. But close to and I think it’s maybe year eight, then I don’t see myself getting anything from it.
Tony:
Let’s just cross your fingers, Ash, they win the lotto or something and they come into this big chunk of money and then you get paid out.
Ashley:
I did see them at Verizon shortly after that all happened and they’re in their buying a brand new iPhone or whatever and I remember them like waving at me saying, “Hi.” And I was fuming. I was like, “How can you even look me in the face right now?” And I didn’t wave back. I literally think that I shook my head at them with disgust.
Tony:
Man, that’s another reason why I like long distance real estate investing because if I ever do have to evict someone I don’t have to worry about bumping into them at Target.
Ashley:
Ever see them? Yeah, true. Okay, so there’s all these different types of liens. There’s consensual liens, purchase money security liens, statutory liens, non purchase money security liens. All these different liens that can be on the property and that’s where you want to have your title work done and sort of seeing what these liens are that come up. You can do a little research yourself if you’re just scoping out a property and don’t want to pay to have all this title work done because you’re not under contract or anything. If you go to PropStream will usually tell you if there’s some kind of bank lien on it by big financing on it. If there’s a first lien for the mortgage, if they have a home equity loan or a line of credit that’s on there too. Or sometimes even if there’s a private money that financed the purchase of the house, something like that. Then you can also go to the county clerk records and you’re able to pull up documents from that. So you would actually type in the seller’s name and it would give you some documents that would show…
Sometimes it will come up and show different liens that have been filed against that person in that county. So I would start with the county the property is in and look for anything that comes up with their name too, you can get quite a bit of information from the public record of county clerks.
Tony:
So have you ever purchased, Ashley, a property that has a lien against it?
Ashley:
Well, all the time because there’s mortgages.
Tony:
Yeah, I guess beyond the traditional lien. But say something that’s got a judgment lien or maybe a mechanic’s lien or you can have a lien for unpaid property taxes. Just like have you purchased any property with a different type of lien?
Ashley:
Yeah. So I am sure there’s probably some that I don’t even know about, because it was just I’m paying for the property and then the attorneys have the money in escrow and they’re like okay… When I get my closing statement it would say, okay. The property I just closed on it was like we need five different cashier’s checks, we couldn’t wire the money. They wanted the cashier’s checks and I had to get five different cashier’s checks and one was going to the seller’s attorney, one was going to my attorney, one was going to the title company, one was going to the clerk’s office and one was going to the seller’s estate. But it could be one is going to KeyBank, one is going to the private moneylender. I’m sure that’s probably happened where there’s been different liens on the property of what’s being paid off and I’m just oblivious to it. Because it’s just something that’s handled through the attorneys and it’s on the seller’s end and the purchase price covers it and it’s not me accumulating those liens during the purchase, they’re being paid off.
The one property that we purchased subject to, it was a farm and we took over the payments for the mortgage from the seller. That’s what subject too is when you take over the existing mortgage and it stays in the seller’s name, but there was back taxes on it and there was a mechanics lien on the property. The mechanics lien wasn’t a lot but the back taxes I think were like $20,000. Paying off the back taxes, the mechanics lien and then also catching the person up on their mortgage payments that were past due. That was less money than if we would’ve went to a bank and put a down payment on an investment property. So that deal ended up working out great for us and that was part of the leverage. If that person would’ve went and sold that property on the open market they would’ve been underwater. They wouldn’t have had enough equity to actually pay those back taxes and they were in pre-foreclosure.
We initially approached the bank about doing a short sale, and that was our first idea and then I learned about subject to. We had a guest on the podcast who had done it and this was even before I had heard of, Pace Morby. We had someone on that talked about it and I was like, “Please send your documents, I’m going this to my attorney to see if we can do this.”
Tony:
This is, Kevin Christensen, right?
Ashley:
Yes, that’s who it was. Yeah.
Tony:
Yeah.
Ashley:
And so we paid off the mechanic’s lien and we paid off the back taxes and then paid to catch up the mortgage so that it was no longer in default and then we were able to deed the property into our name. So that was a property that was in pre-foreclosure but then we did a property… I actually bought a property that was in foreclosure, the bank actually listed it on the MLS. That was a slow grueling process working with the bank to try to close on this property, it was very slow moving. It’s just somebody at the bank that’s working on it, it’s not a motivated seller trying to get this deal closed. The bank owned it and I don’t even know what was owed on the property when they took possession of it, it sat for a couple of years vacant before we had even purchased it.
Tony:
I was trying to see if I could find our episode with, Kevin Christensen. It was early in the archive, so maybe our producers can help us out here. But he’s also exceptionally super active in the Real Estate Rookie Facebook group. So if you just search, Kevin Christensen, in the Real Estate Rookie Facebook group you’ll see some good stuff and I’m sure he’s probably even posted his episode inside of there as well. But yeah, really just heart of gold that guy and big on just giving back to people.
Ashley:
Yeah, it was show number 51.
Tony:
51, wow. Man, that was early, early on.
Ashley:
Yeah. February 10th, 2021.
Tony:
Yeah. Because I think my first episode was 39 or something like that.
Ashley:
Oh, yeah.
Tony:
Yeah. We barely even knew each other at that point, Ashley.
Ashley:
That was probably right around when we met in person, right?
Tony:
Probably.
Ashley:
It was in the winter the first time we met in person, going to BiggerPockets.
Tony:
Going to BP. Yeah, going to the headquarters. How so much has changed, right?
Ashley:
Now, you’re having a baby.
Tony:
Now we’re having a baby, now you’re sleeping in my son’s bedroom when you don’t have anywhere to crash. Yeah.
Ashley:
Okay. Well, thank you guys so much for joining us for this week’s Rookie Reply. I’m, Ashley, at Wealth From Rentals and he’s, Tony, at Tony J. Robinson, and we will be back on Wednesday with another guest.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
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All-cash transactions gain traction amid high mortgage rates: Redfin
In September, all-cash purchases represented one-third of the U.S. home purchases, compared to 29.5% a year ago, according to a Redfin report. It’s the highest share of all-cash transactions recorded since 2014.
Cleveland posted the highest share of all-cash purchases in September, reaching 49.2% of all transactions. West Palm Beach and Jacksonville in Florida followed with 49% and 46.2%, respectively. Oakland, California, and San Jose, California, as well as Seattle posted the smallest share of all-cash transactions at 18%, 18.2% and 20.3%, respectively.
For this analysis, Redfin analyzed county records across 40 U.S. metropolitan areas since 2011. Redfin classified purchases as all-cash when transactions had no mortgage loan information on the deed.
“High mortgage rates are exacerbating inequality between people who own homes and people who don’t,” Redfin Senior Economist Sheharyar Bokhari said.
Affluent Americans (or investors) are the only ones who can bypass the sting of high mortgage rates by paying all cash. Home sales were down 23% year over year, but all-cash deals only fell 11%, according to Redfin’s analysis.
Meanwhile, buyers offer bigger down payments to lessen the cost of monthly payments
In September, buyers were typically putting down 16.1% of the median purchase price, amounting to $60,980, up 15% from a year earlier. That’s the highest down-payment percentage since June 2022.
Geographically, metros in California such as San Francisco, San Jose and Anaheim, posted the highest down payment percentages. In those cities, the typical buyer put down 25% of the purchase price. Meanwhile, Virginia Beach, Virginia, Detroit and Philadelphia had the lowest down-payment percentages, with 3%, 7.4% and 8.9% respectively.
It is worth noting that some buyers are using equity from the sale of their previous home to make a relatively larger down payment on their new purchase. Meanwhile, first-time homebuyers are facing real affordability challenges.
FHA loan usage increases in September
As sellers field fewer offers, buyers with FHA loans may have greater luck to close on a home. In September, government-insured FHA loans represented a little over 15% of U.S. mortgaged home sales, up from 14% a year earlier but down from 16.3% in April 2023.
Meanwhile, military VA loans represented 6.3% of the total mortgaged home sales, down from 6.8% a year earlier. Conventional loans remain the most common type of mortgage, making up over 75% of all loans.
Overall, Riverside and Providence in Rhode Island, along with Las Vegas, saw the highest concentration of FHA loans. In cities with a notable military presence, VA loans have high usage. This included Virginia Beach, Virginia (41%), Jacksonville, Florida (16.6%) and Washington, D.C. (15.2%). Cities in California, including San Francisco, San Jose and Anaheim, posted the smallest share of FHA and VA loans usage.
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Point, Redwood Trust issue $139M home equity investment securitization
Redwood Trust and home equity fintech lender Point have closed on a $139 million bond secured by 1,577 home equity investment (HEI) contracts.
The two companies issued the first-ever securitization backed entirely by HEIs in 2021, a bet that rising home-price appreciation can benefit consumers in the short-term and investors in the long-term.
Point closed on its first bond issuance rated by DBRS Morningstar on Oct. 31. One $117 million tranche of the bonds has a single-A rating while the other at $22 million has a triple-B-minus rating.
“The financing of HEIs through the development of a liquid and efficient market for rated HEI bond issuance will prove to be a pivotal moment in housing finance, one that will bolster both homeownership and overall financial health in this country,” Eddie Lim, co-founder and CEO of Point, said in a statement.
Meanwhile, Eoin Matthews, co-founder of Point, told The Wall Street Journal that the firm expects to complete several bond deals per year.
In October, Unlock Technologies, another home-equity investment firm, and Saluda Grade, a private real estate investment firm, completed the first-ever securitization rated by DBRS Morningstar.
The rating agency, which was the first to provide a rating for the asset class, published a new methodology for HEIs in July 2023. Unison, another HEI firm, is working on its first deal, too, The Wall Street Journal reported.
The rating of those securities is supposed to attract new pools of capital to the HEI asset class, such as insurance companies and money managers who are restricted to investing in rated investment-grade securities.
Redwood sees this securitization as a major milestone to provide more liquidity to the space, allowing HEI companies to assist more homebuyers. While Americans sit on approximately $32 trillion in home equity, only 50% of homeowners can tap into that wealth.
Nomura Securities International Inc. was the sole-structuring agent for the issuance.
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Lawmakers introduce affordable manufactured housing community bill in House, Senate
Democratic lawmakers in the U.S. Senate and U.S. House of Representatives are introducing a new bill to the legislature today designed to both “preserve” and “revitalize” manufactured home communities across the United States.
Spearheaded by U.S. Senators Catherine Cortez Masto (D-Nev.), Jeanne Shaheen (D-N.H.) and Tina Smith (D-Minn.), U.S. Rep. Suzanne Bonamici (D-Ore.) introduced the bicameral legislation in the House.
Following up on the 2022 creation of the Preservation and Reinvestment Initiative for Community Enhancement (PRICE) grant program that has a similar goal to the new proposal, Sen. Cortez Masto’s bill would make the PRICE program permanent and provide funding for home improvements and neighborhood upgrades for eligible Americans on an annual basis.
“Manufactured homes are critical for many families, and my legislation would help communities keep lot rents affordable and make vital infrastructure improvements,” said Sen. Cortez Masto in a statement provided to HousingWire. “I’ll keep working with my colleagues to address the affordable housing crisis and keep families in their homes.”
The program could also help to address critical housing inventory shortages across the nation, one factor contributing to affordability challenges for American families, according to Rep. Bonamici.
“Manufactured homes are often more affordable than other housing, but many manufactured housing communities do not have funds to upgrade and repair basic infrastructure such as water and sewer systems, and they typically do not own the land beneath their homes,” she said.
“I’m pleased to work with Senators Cortez Masto and Shaheen to introduce the PRICE Act, which will make the PRICE grant program permanent and protect a crucial source of funding for preserving manufactured housing,” Bonamici added.
If enacted, the bill would ask the U.S. Department of Housing and Urban Development (HUD) to implement “a competitive grant program to award funds to eligible recipients to carry out eligible projects for improvements in eligible manufactured home communities,” according to a draft version of the bill obtained by HousingWire.
Grant funds would “assist in carrying out a project for construction, reconstruction, repair, or clearance of housing, facilities and improvements in or serving a manufactured home community that is necessary to protect the health and safety of the residents of the manufactured home community and the long-term sustainability of the community,” the draft bill reads.
“U.S. Sens. Cortez Masto and Shaheen and U.S. Rep. Bonamici have heard the voices of low-income homeowners in ‘mobile’ home communities,” said Resident Owned Communities (ROC) USA President Paul Bradley in a statement to HousingWire. “These are the stories of hardworking families and retirees who simply want to live in resilient and healthy communities, which is something that most Americans take for granted thanks to public investment.”
Last week, the Federal Housing Administration (FHA) updated appraisal requirements for the valuation of manufactured homes certified under Fannie Mae’s MH Advantage and Freddie Mac’s CHOICEHome programs.
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A Deep Dive Into the Nitty-Gritty Details of Preferred Equity
Have you been following our discussions on preferred equity? This has produced some questions on deal structure, terminology, and a desire to see some examples. I’ve discussed the case for preferred equity and why there’s a limited time window here. In addition, I overviewed a recent preferred equity deal in my last article.
I’ve covered a lot, but I haven’t provided all the basic terminology investors need to comprehend all these deals.
BiggerPockets has long been an educational site. As such, we may sometimes get nerdy on details that are of little to no interest to the general real estate investor. This is one of those occasions.
So, we’re going to take some time in this post to break down the definitions for commercial real estate preferred equity investments. But I’m not just going to bore you with definitions. I’m going to explain the term and then tell you how it worked in a real-life preferred equity investment.
The Terms and the Investment
This opportunity was a $3.5 million preferred equity investment in the acquisition of a value-add multifamily project with an experienced sponsor in the Virginia Beach area. I’ll state our definition and then, in italics, explain how that term would work in this investment.
Current pay rate
The portion of the coupon rate that is paid from operations.
Current pay rate of 9%. This current pay is actually reserved in advance for one year, and the reserved capital could be invested in Treasuries, which are currently paying about 5%. This could enhance potential returns for this investment.
Accrual
The accrued portion of the coupon rate that is paid at a capital event.
Annual accrual of 8% compounded. (The current pay plus accrual totals a 17% coupon rate.)
Personal guarantee
A contractual guarantee by the sponsor or key principal to cover the preferred equity in the event of a default. This is similar to a full-recourse personal guarantee on a loan.
A personal guarantee would be signed by three key sponsors for this investment.
Forced sale provision
The preferred equity partner’s right to affect the marketing and sale of the asset(s) if any default provisions are triggered.
The forced sale provision in this investment would allow the investor to force the sale of the asset if certain provisions (such as reserves, debt service coverage ratios, etc.) aren’t met. The preferred equity investor could force a sale that could theoretically harm common equity to protect their position.
Cash flow sweep
The preferred equity partner’s right to all cash flow from operations until the cash flow covers current pay entirely, until a predetermined global DSCR is achieved, or until the preferred equity partner is paid off.
The sponsor agreed to this backup reserve account, which would make cash flow from operations inaccessible to the sponsor until certain hurdles are surpassed.
Capital improvement reserves
Funds earmarked for capital improvements that are held back by the preferred equity partner and released in draws as progress is made. Sometimes, the draw approval will require results from former improvements to be achieved in regard to rent growth or expense reduction.
The reserve account in this investment holds the sponsor accountable for executing their plan. But it could also compound returns since it could be invested in Treasuries that may contribute about 5% to preferred investors.
MOIC floor
AKA minimum multiple. A minimum multiple on invested capital that is triggered if the preferred equity is paid off before that multiple is achieved through the coupon rate. This is similar to a prepayment penalty on a loan.
The MOIC floor on this investment is 1.30x, which equates to a total minimum profit of 30%. If the sponsor pays off the preferred equity in 18 months as planned, this should result in a 20% annualized return (rather than the coupon rate of 17%).
If you’d like more preferred equity definitions, you can visit the preferred equity page on my website.
The Bottom Line
At this strange point in the economic cycle, it’s gratifying for many investors to access investments like this. These investments are generally hard to access by individual investors and provide theoretically lower risk, robust cash flow, and strong total annual returns.
We’d love to hear your feedback and answer your questions on preferred equity and anything else.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
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UWM’s profits grow in Q3 as margins improve, volumes decline
UWM Holdings Corporation, the parent of United Wholesale Mortgage (UWM), produced lower mortgage origination volume in the third quarter of 2023 than the previous quarter – and more declines are expected to come. But volumes in Q3 came in at higher margins, close to the levels seen prior to the company’s Game-on pricing initiative that squeezed competitors out of the wholesale space.
That’s one of the reasons UWM was able to deliver its second consecutive quarterly profit, and it was boosted by positive performance in its servicing portfolio, according to documents filed with the Securities and Exchange Commission (SEC) on Wednesday.
The Pontiac, Michigan-based lender announced a non-GAAP adjusted net income of $234.7 million in the third quarter, compared to $175.9 million in the previous quarter. The company’s GAAP net income in Q3 was $301 million.
“While others choose to dwell on high mortgage rates and low housing inventory, at UWM, we remain focused on growing our market share and the broker channel,” Mat Ishbia, chairman and CEO, said in a statement. “We are investing in new technology and hiring new team members to ensure that we are prepared for the eventual turn in rates.”
In a call with analysts, Ishbia said UWM in the third quarter “hired over a thousand team members” and has plans to hire more again in the fourth quarter.
Ishbia said UWM was operationally profitable this quarter, which “almost no mortgage company in the country can say.” He added that the lender made more money in Q3 than “many of our competitors that are refi-focused have made all year.”
UWM originated $29.7 billion in mortgage loans in the third quarter of 2023, lower than the $31.8 billion in the second quarter of 2022 and the $33.5 billion originated during the third quarter of 2022. UWM’s primary rival Rocket Mortgage originated $22.2 billion from July to September.
UWM originated $25.9 billion in purchase loans in the third quarter, a decrease from $28 billion in the second quarter of 2023 and $27.7 billion in the third quarter of 2022. The company said it’s on track for its biggest purchase year ever.
The company’s total gain-on-sale margins increased to 97 basis points in Q3 2023, compared to 88 bps in Q2 2023 and 52 bps in the third quarter of 2022. Margins were close to the 99 bps level before the launch of the Game-on pricing initiative in June last year.
Ishbia told analysts that the company set its margins daily and will always control margins in a positive way.
The servicing business
Mortgage servicing rights (MSR) boosted the company’s performance in Q3 2023, with a $92.9 million increase in fair value. The company had $281.4 billion in unpaid principal balance of MSRs as of Sept. 30, 2023, compared to $294.9 billion as of June 30, 2023.
UWM CFO Andrew Hubacker told analysts the company has generated just under $1.7 billion in net proceeds from MSR sales this year. In addition, the company has “continued to opportunistically sell MSRs” to fund operational capital liquidity needs.
UWM ended the third quarter with $900 million in cash and self-warehouse.
Looking ahead, UWM anticipates the fourth quarter production to be between $19 billion and $26 billion. Gain-on-sale margins are expected to be between 75 bps and 100 bps. The company anticipates 2023 production to be between $103 billion and $110 billion.
Analysts at Jefferies said that the outlook reflects fourth-quarter seasonality and that UWM continues to capitalize on its improved market positioning following the Game-on initiative.
“We consider UWMC’s ‘game-on’ strategy as a success as we have seen exits from wholesale from numerous (and meaningful) competitors over the past year,” the analysts wrote in a report. “While UWMC was sacrificing margins to grow market share and force competition out at the end of last year, the company appears to be reaping the benefits of this strategy this year, despite the persistence of challenging market conditions.”
During the call with analysts, Ishbia commented on the guilty verdict of the landmark Sitzer/Burnett commission lawsuit case, which sent shockwaves across the real estate industry.
According to Ishbia, there’s a lot of talk about it, “but also there’s a lot of work to be done before anything actually ever changes if something ever does change.” He said UWM understands all the implications of the case and is confident in the company’s ability to take advantage of it in a positive way.
UWM shares were trading at $5.50 on Wednesday morning, up 7.93% from the previous closing.
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FHFA aims to overhaul FHLBank system ahead of 2032 centennial: report
On Tuesday, the Federal Housing Finance Agency (FHFA) released a report that examines the Federal Home Loan Bank (FHLBank) system, looking back at its 90-year legacy and offering a series of transformative goals the agency hopes to reach before its centennial in 2032.
“The Federal Home Loan Bank System is a critical component of the nation’s broader housing finance system,” said FHFA Director Sandra Thompson in a statement. “FHFA is focused on ensuring that the FHLBank System serves as a stable and reliable source of liquidity in support of its housing finance and community development objectives – and does so in a safe and sound manner.”
Aims of the report
The 114-page report examines the background and mission of the system, as well as overviews of its aim to supply liquidity, housing and community development alongside a status update for its operational efficiency, structure and governance.
The report also looks ahead to offer thoughts on ways to improve its functions in the housing finance sector, sourcing its conclusions based on “robust public engagement over the course of the past year, including listening sessions and regional roundtables as well as multiple opportunities for written input from stakeholders.”
The agency drew on feedback released through public engagement and conducted its own internal analysis, including recommendations for “how the FHLBank System could effectively fulfill its mission,” the agency said.
“FHFA expects the initiative to continue as a multi-year, collaborative effort with stakeholders to address the recommended actions in the report.”
Selected findings and proposed actions
“[F]or complex and varied reasons, there has been a decreased focus on housing-related activities by many institutions that are members of the FHLBank System,” the report explained. “These changes, taken together, highlight the need for (agency) to clarify the mission of the System so the FHLBanks are held accountable for serving their public purpose.”
The report found that FHFA must distinguish the role of the FHLBanks in providing secured advances from the Federal Reserve’s financing facilities, “which are set up to provide emergency financing for troubled financial institutions confronted with immediate liquidity challenges.”
The FHLBank system lacks the resources to serve as a “lender of last resort for troubled members” with elevated borrowing needs over a short time.
Because of this, members are encouraged to coordinate their needs with “primary regulators and the Federal Reserve Banks to ensure their members’ borrowing needs continue to be met when they no longer satisfy the FHLBanks’ credit criteria.”
Housing and community development goals
The FHLBanks system provides advances based on the acceptance of housing collateral and also supports housing finance more directly through the purchase of single-family mortgages through certain affiliate programs.
In this area, FHFA aims to expand its focus on housing and community development through three key actions.
These include “requiring the FHLBanks to establish mission-oriented collateral programs that could improve their support of sustainable housing finance and community development products that lack a reliable secondary market outlet.”
Increasing FHLBanks’ engagement with “mission-oriented members,” including community development financial institutions” (CDFIs), is a goal, as is “re-evaluating the definition of long-term advances” that are currently restricted to “fund residential housing finance.”
The system’s operational efficiency is another improvement target. FHFA aims to ensure “the FHLBanks are structured to be efficient and stable moving forward.”
Membership eligibility requirements should also be changed to “promote sufficient mission orientation, while ensuring the safety and soundness of the System,” FHFA said.
Housing industry responses
Responses from certain housing industry associations were mixed.
Pete Mills, SVP of residential policy and strategic industry engagement at the Mortgage Bankers Association (MBA), said that the report “fails to engage in a more meaningful examination of the potential benefits of diversifying the FHLB system through the expansion of membership to other critical providers of mortgage origination, servicing, and investment activities.”
FHLBanks would benefit from “a membership base that better reflects today’s housing finance system, including independent mortgage banks (IMBs), who originate and service most mortgages, and mortgage REITs, which are important long-term holders of mortgages and mortgage-backed securities,” Mills added.
The Community Home Lenders of America (CHLA) directed some of its response at Ginnie Mae.
“In light of FHFA’s decision to defer to Congress on IMB membership in the FHLB system and the continued obligation of IMB servicers to act as bankers to defaulted mortgage borrowers, it is more important than ever for Ginnie Mae to expand the existing PTAP liquidity facility for solvent lenders, so they can meet higher advance responsibilities in turbulent markets,” said Scott Olson, executive director of CHLA.
Ryan Donovan, president and CEO of the Council of Federal Home Loan Banks, which represents all 11 member institutions of the system, said it has already begun moving proactively based on public feedback that contributed to the report.
“Our members know they can count on us through all market conditions, and the overwhelming sentiment from FHFA’s review was that stakeholders want more, not less, from the FHLBank System,” Donovan said.
“[T]he FHLBanks have already begun responding to stakeholder feedback and have voluntarily increased their commitment to affordable housing and community development by 50 percent above the statutory minimum and are exploring ways to further support [CDFIs].”
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16 real estate prospecting ideas, tips & tools for 2023
Real estate prospecting is a necessary activity for agents aiming to build a robust pipeline of buyer and seller leads. It involves identifying and connecting with individuals who might be interested in buying or selling property sometime in the future. It could be next week, it could be next year. There are numerous methods an agent can use to prospect, some traditional and others that leverage technology.
Through consistent and strategic prospecting, agents can create a steady flow of leads, ensuring continuous business opportunities. The objective is to build relationships, understand the needs of potential clients, and position yourself as a go-to resource when they are ready to buy or sell real estate. By dedicating time and effort to prospecting, agents not only sustain their business but also contribute to a healthier real estate market and community.
What is real estate prospecting?
Real estate prospecting refers to a series of strategic activities done by real estate agents or brokers to identify and attract potential clients who are interested in buying, selling, or leasing properties. The objective is to generate leads and build a pipeline of prospective business opportunities to sustain and grow their real estate business. This process can include a variety of strategies and methods, such as cold calling, direct mail campaigns, online advertising, social media marketing, community engagement, and networking events.
Agents who are successful at prospecting are able to establish relationships, understand the needs of potential clients, and position themselves as the trusted real estate professionals in their market. In an ever-changing real estate landscape, effective prospecting is essential for agents to maintain a steady flow of business and income.
When it comes to prospecting, there are two major buckets, digital and traditional. As you can probably guess, digital prospecting leverages online platforms and technologies to generate leads. This includes using social media, email marketing, online advertising, and maintaining a professional website to attract and engage potential clients.
Traditional prospecting involves more direct or physical methods like cold calling, door knocking, direct mail campaigns, and hosting open houses or community events. While digital methods allow for a broader reach and the ability to analyze data for better targeting, traditional methods offer a personal touch and the opportunity to build relationships through face-to-face interactions.
Both methods have their own set of advantages and can be effective when tailored to your preferences and the behaviors of your target audience. Real estate agents often find a balanced approach, integrating both digital and traditional methods, to be the most effective strategy for successful prospecting. Here are some different methods that real estate agents use to prospect for leads.
Active and passive real estate prospecting are two different approaches towards generating leads and potential business opportunities for agents. Active prospecting, as the name suggests, is a more direct and aggressive approach where agents proactively reach out to potential clients. This could be through cold calling, door knocking, or direct mail campaigns.
Active prospecting requires a significant amount of time, energy, and often a thicker skin to handle rejection. However, it often yields quicker results as it entails direct engagement with potential buyers and existing property owners. With active prospecting, agents initiate conversations, nurture those leads, and work diligently to convert those leads into clients.
On the other hand, passive prospecting is a more subtle, long-term approach. It often involves establishing and growing a strong personal brand and presence in the community (real world and digital). This strategy may include activities like content marketing, social media engagement, and search engine optimization to attract potential clients to the agent instead of reaching out to them directly.
Over time, as agents share valuable information and establish themselves as a knowledgeable resource in the local market, they attract people who are interested in buying or selling properties. Passive prospecting usually requires a longer time to see results, but it can lead to more sustained and organic growth in business, with clients reaching out due to the reputation and trust the agent has built in the community.
Real estate prospecting ideas
Social media feeds
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Circle prospecting
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Facebook lives
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Expired Listings
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Lead generation website
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FSBOs and FRBOs
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Social media advertising
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Community events
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Email Marketing
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Open Houses
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Content Marketing
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Client referrals
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Real estate listing platforms
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Print Media
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Virtual tours and webinars
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Sponsorships
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Real estate prospecting is an ongoing task essential for agents who aim to keep their business thriving in a competitive market. It involves exploring various creative and effective strategies to identify and connect with potential clients. Some popular prospecting ideas include hosting local community events, using social media marketing, engaging in content marketing through blogs or newsletters, and leveraging referral networks.
Traditional methods like cold calling, door knocking, and direct mail campaigns also continue to be used. By diversifying prospecting methods and tailoring strategies to the local market and personal strengths, agents can cultivate a broad spectrum of leads and opportunities. It’s about blending tried-and-true methods with innovative approaches to not only reach a wider audience but also to establish a memorable presence in the real estate market.
Social media feeds
Like it or not, people spend a lot of time on Facebook, Instagram, LinkedIn, and YouTube. Recent stats show that the average person spends 2 hours and 32 minutes on social media. Using your social media feeds for real estate prospecting is a powerful way to connect with potential clients and showcase your expertise in the industry. The people are already hanging out there. Why not join them?
Best practices include creating and sharing valuable, relevant content that addresses common concerns or interests of buyers or sellers. This could include market trends, home maintenance tips, or neighborhood highlights. One often overlooked piece of using social media is to engage with the audience by responding to comments and messages and sharing user-generated content when appropriate.
Consistent posting, using a mix of media types like images, videos, and articles, and using targeted hashtags can significantly increase visibility and follower engagement. One thing I look for when evaluating an agent’s social media feed is how much of their personality they are showing. If all they do is share “just listed” and “just sold” posts, it’s a snooze-fest. I want to know about you, what you like, what you do, who you help, and where you get your coffee.
SEE ALSO: 30 real estate social media post ideas (+ popular agents to follow)
Facebook lives
Using Facebook Live for real estate prospecting is a dynamic way to engage with a broader audience in real-time, showcasing properties, and sharing market insights. Going live on Facebook gives me the sweats, but if you are comfortable in front of the camera, it can be a great way to engage people. Best practices include scheduling live sessions in advance and promoting them across various platforms to garner a larger viewership.
An added benefit of using Facebook Lives is that you can repurpose them and share them in your feed for people to watch later. It can almost serve as an archive of the information you’ve shared and allows for continued engagement even after the live session has ended.
Using a call-to-action, like encouraging watchers to reach out for a private consultation or to visit an open house, can help convert interested viewers into potential leads. By presenting yourself as an approachable and knowledgeable agent through Facebook Live, agents can foster trust and attract more business opportunities.
Lead generation website
Creating and maintaining a website designed for lead generation is critical in digital real estate prospecting. An effective website should have a clean, professional design with intuitive navigation to allow visitors to easily access the information they need. Nearly all real estate agents have what’s called an IDX feed on their sites.
In addition to providing information, you want to make sure that your website has clear call-to-actions (CTAs), such as contact forms, newsletter sign-ups, or free consultation offers, positioned prominently on the page. An experienced web developer can also make sure that your site employs SEO (Search Engine Optimization) strategies.
High-quality, relevant content such as blog posts, market reports, and property listings will not only provide value but also improve search engine rankings. Incorporating testimonials and reviews will help build trust with prospective clients. For capturing leads, integrating CRM (Customer Relationship Management) software to collect and manage visitor information is crucial.
SEE ALSO: 6 best real estate lead generation websites for 2023
Social media advertising
Social media advertising is a powerful tool for generating real estate leads due to its wide reach and precise targeting capabilities. This is different than just posting on your own page or feed. Advertising costs money, and is specifically designed to reach your ideal clients. Platforms like Facebook and Instagram allow real estate agents to create targeted ad campaigns to showcase listings, virtual tours, and other real estate services to specific demographic groups or geographical areas.
By crafting compelling ad copy and using attractive visuals, agents can capture the attention of potential buyers and sellers, and hopefully stop the scroll. All the major social media platforms have lead generation features, meaning agents can collect contact information directly within the ad interface or direct traffic to a landing page on their website.
Analyzing ad performance through the platforms’ analytics tools is crucial for optimizing campaigns and ensuring a good return on investment. By blending engaging content with precise targeting and analytics, social media advertising can significantly accelerate real estate lead generation efforts.
SEE ALSO: The ultimate guide to real estate lead generation ideas for 2023
Email marketing
Email marketing is a powerful method for real estate lead generation as it is a direct communication with potential and existing clients. Agents can build a mailing list by offering valuable resources like market reports or home valuation tools in exchange for contact information. It is also possible to purchase lists, although this method feels a little spammy to me.
Regular email newsletters featuring new listings, market updates, and helpful real estate tips can keep your audience engaged and informed. Personalization is key in making recipients feel valued. Any agent can throw together a generic newsletter, and trust me, it’s easy to tell when that’s the case. When you use personalized subject lines and content tailored to the recipient’s interests or location, you significantly improve open and engagement rates.
Segmented email campaigns targeting different types of buyers or sellers, or tailored to different stages of the buying or selling process can be highly effective. A strong call to action, urging recipients to get in touch or visit your website, is crucial for converting email engagement into tangible leads. By consistently delivering valuable, relevant content and using data analytics to refine your email strategies, you can build a robust pipeline of real estate leads through email marketing.
Content marketing
Content marketing as a real estate prospecting strategy involves creating and distributing valuable, relevant, and consistent content to attract and engage a clearly defined audience. The ultimate objective is to generate leads that you can continue to nurture with your relevant content. Through blogs, articles, infographics, and videos, agents can provide answers to common questions, insights into the local real estate market, or tips on buying or selling homes.
By offering valuable content, you position yourself as an authority in the field, building trust with potential clients. Content marketing helps in improving your website’s SEO, making it more visible to people searching for real estate information online. Integrating lead generation mechanisms within your content, like newsletter sign-ups, free consultations, or downloadable resources, can help capture lead information for follow-up.
Additionally, promoting your content through social media and email marketing can extend its reach and bring more traffic to your website. By offering value and establishing a strong online presence through content marketing, real estate professionals can generate qualified leads and continue to nurture them using their CRM.
Real estate listing platforms
Real estate agents can and should leverage online real estate platforms such as Zillow and Realtor.com. They are powerful sites that potential clients are already familiar with and using in their real estate searching. High-quality photos, detailed descriptions, and virtual tours can attract potential buyers and renters browsing these sites.
By actively engaging with users through the Q&A and review sections, agents can establish credibility and trust, which are important when it comes to converting leads into clients. Regularly updating their profiles with recent sales and positive reviews can also help agents build a robust online presence, encouraging direct inquiries.
Additionally, these platforms often provide data analytics, enabling agents to refine their strategies and focus on the most effective practices for their target market, ensuring their resources are invested wisely to maximize lead generation.
Virtual tours and webinars
Real estate agents can harness the power of virtual tours and webinars to generate leads by offering prospective buyers an immersive and informative online experience. Virtual tours allow agents to showcase properties in high-definition detail, providing a 360-degree view that helps potential clients visualize themselves in the space without the need for physical showings.
Showcasing your property or yourself virtually can attract a broader audience, extending beyond local prospects to out-of-town buyers, automatically increasing the lead pool. Agents can promote these virtual tours through social media, email marketing, and their personal websites to capture leads. Additionally, hosting webinars on topics like home buying tips, market trends, or financing options positions agents as knowledgeable resources in the industry.
By requiring registration to access these webinars, agents can collect contact information and follow up with attendees who have demonstrated interest, nurturing these leads through to potential sales. These strategies not only foster lead generation but also help agents to build rapport with prospects in a scalable and efficient manner.
Circle Prospecting
Circle prospecting in real estate is a targeted approach where agents identify and reach out to individuals within a specific geographic area or community, often surrounding a recently sold or listed property. Effective circle prospecting involves researching and understanding the local market conditions and the specific needs or concerns of homeowners in the area. Tools like SmartZip can be infinitely helpful in locating the ideal area.
Prior to any phone calls or door knocks, it’s advisable that you have a clear value proposition that addresses how you can assist individuals in meeting their real estate goals. Communication can be through various channels and should be personalized to resonate with the residents. Maintaining a friendly, non-intrusive approach while offering genuine assistance or information can help in building rapport.
As with all lead generation strategies, it is important to follow up and nurture these relationships over time, not just when there is an immediate business opportunity. Tracking interactions in a CRM like FollowUpBoss, and ensuring consistent communication will help in establishing trust and positioning oneself as the go-to real estate professional in the community.
SEE ALSO: 28 real estate circle prospecting ideas, tips, tools & scripts
Real estate prospecting letters
One traditional way that agents do circle prospecting is with real estate prospecting letters. These are an old-school, but effective method of generating buyer and seller leads. Best practices begin with a well-crafted, personalized message that addresses the recipient by name, and possibly references their property or neighborhood.
The content should be clear, concise, and compelling, offering a distinct value proposition and explaining how you can assist with their real estate needs. It’s advisable to include recent success stories or market statistics to build credibility. The letter should have a strong call to action, encouraging the recipient to contact you for a consultation or to attend an open house event. Professionally designed letters with high-quality images and a clean layout are more likely to capture attention.
It’s often helpful to follow up the letter with a phone call or email, where appropriate, to further engage potential clients. Additionally, tracking responses and analyzing which messages are most effective will help refine your approach for future mailings. Through a well-thought-out, personalized approach, real estate prospecting letters can significantly contribute to lead generation efforts.
Real estate prospecting postcards
Similar to letters, real estate prospecting postcards are a cost-effective and visually appealing method to capture the attention of potential buyers and sellers. If you choose to mail prospecting postcards, they should be professional, eye-catching, and reflective of your brand. A clear, compelling message is crucial, highlighting your unique value proposition and possibly showcasing recent successes or local market statistics.
It’s advisable to use high-quality images, especially of properties you’ve recently sold or listed. Encouraging recipients to contact you for a free consultation or to visit your website, can help in generating leads. Providing multiple contact options like your phone number, email, and website URL increases the likelihood of a response. Many agents these days also use QR codes as an easy and effective way to track their marketing efforts.
As with any type of direct mail, it’s helpful to target a specific geographic area or demographic to make your message resonate more. Consistency in sending out postcards can help in building recognition and trust over time. By combining a well-designed postcard with a targeted, consistent distribution strategy, real estate agents can effectively generate and nurture leads.
Expired listings
Leveraging expired listings can be a good way to generate seller leads as it targets individuals who have already expressed an interest in selling their property. Tools like REDX can help you locate expired listings and provide their contact information.
Best practices begin with a well-researched approach. This includes understanding the possible reasons why the listing expired and having a plan on how you could better serve the seller’s needs. Prepare for any and all objections.
Initial contact should be tactful, empathetic, and focused on offering solutions rather than criticizing previous listing efforts. It’s recommended to prepare a compelling value proposition explaining how your services differ and how you plan to successfully sell the property. Offering a no-obligation consultation can provide an opportunity to discuss your strategies in person and build trust with the potential client.
The sellers of these listings may harbor some negative feelings toward real estate agents since their previous one was unable to sell their home. It’s important to maintain a professional demeanor when speaking with them. Being patient, and providing clear communication throughout the process can help convert an expired listing into a successful seller relationship.
Target FSBOs & FRBOs
You’ve likely seen a For Sale By Owner sign on a home while you were driving around the neighborhood. This is a seller who wants to save commission costs and thinks they can do everything an agent can, but cheaper and better. If you plan to target these types of leads, get your game face on.
Targeting For Sale By Owner (FSBO) and For Rent By Owner (FRBO) listings can be a viable strategy for finding seller leads, as these individuals have already expressed a desire to sell or rent their properties. Offering valuable market insight, a complimentary home evaluation, or helpful selling tips can provide immediate value and open the door to further conversation.
It’s advisable to have a well-prepared pitch explaining the benefits of working with an agent, such as broader market exposure, professional marketing, and assistance with negotiations and legal requirements. Tailoring your message to address the unique challenges and concerns of selling or renting a property independently can also resonate well. And just as with all prospecting strategies, don’t forget to follow up.
Host community events
Hosting community events is an engaging way to generate buyer and seller leads while establishing a strong local presence. Begin with a well-planned event that provides value or entertainment to the community, such as a home buyer seminar, neighborhood clean-up, or local market fair. Some of these will have costs associated, but others can be done for free.
Promote the event extensively through social media, local newspapers, community boards, and other local channels to ensure a good turnout. Collaborating with local businesses or other professionals can also broaden the reach and add value to the event. At the event, provide opportunities for attendees to register or leave their contact information for follow-up. It’s also helpful to have informational materials available, showcasing your real estate services, recent successes, and available listings.
Engage with attendees in a friendly and approachable manner, offering your expertise and assistance with their real estate needs. Following the event, reach out to the leads gathered, expressing your thanks for their attendance and offering further assistance. By hosting a well-organized, valuable community event and following up effectively, real estate agents can foster positive relationships with potential buyers and sellers.
Sit open houses
Hosting open houses is a traditional yet effective method for real estate prospecting. It gives you an immediate opportunity to engage with potential buyers or sellers and connect with them over shared interests. In my early years as an agent, I would always volunteer to work open houses for other agents. It was a super successful prospecting strategy for me, I typically had an 80% conversion rate with leads from open houses.
Promoting the open house on social media, real estate listing sites, and your own website, as well as offline through signage, flyers, and postcards in the community, will help to attract a larger audience. On more than one occasion, I’ve had someone come to an open house and tell me that they came because they saw me post about it in my Instagram stories!
On the day of the event, present a welcoming atmosphere and be prepared with informative materials about the property, the local market, and your services. It’s beneficial to have a sign-in sheet or digital registration system to collect contact information for follow-up. Engage with attendees in a friendly and professional manner, answering questions and offering insights. Post-event, prompt follow-up is crucial to nurture the leads generated; thanking attendees for their time, asking for feedback, and offering further assistance can help build a rapport and keep you top-of-mind for their real estate needs.
Always ask agents in your office or network if they need open house coverage. Another way to find available open houses is through apps like DoorsOpenConnect, a platform where agents list available open houses that they need to have covered.
Seek client referrals
Getting referrals from past clients is a highly effective method for generating buyer and seller leads. Just like when someone tells you the best pizza place in town, real estate referrals come with a level of trust and credibility. Establishing a strong rapport with clients from the outset, providing exceptional service throughout the transaction, and maintaining communication post-transaction are fundamental steps for encouraging referrals.
Although it may feel awkward, it’s encouraged to openly request referrals, letting satisfied clients know that your business thrives on word-of-mouth and asking if they know anyone looking to buy or sell property. Providing referral cards or a digital referral form can make it easy for clients to pass along contacts. Hosting client appreciation events or sending personalized gifts or cards during holidays or home purchase anniversaries can keep you top-of-mind and foster a positive ongoing relationship.
When receiving referrals, prompt follow-up is crucial. Follow up with the person who sent you the referral to show appreciation and with the referred individual to engage while the recommendation is still fresh. By cultivating strong relationships with clients and actively encouraging referrals, real estate agents can build a valuable network of potential buyer and seller leads.
Use print media
Now that we are deep in the digital age, using print media may seem almost prehistoric. Oddly enough, it’s seeing a comeback. Real estate agents can effectively use print media for lead generation by tapping into the traditional market and reaching demographics that prefer tangible materials.
Well-crafted flyers, postcards, and brochures with compelling visuals and concise, persuasive information about listings can be distributed in high-foot-traffic areas, mailed directly to targeted neighborhoods, or provided during open houses and networking events. Advertising in local newspapers and niche real estate magazines can put properties in front of a regional audience that might not be as active online but has a strong potential for investment or purchase.
Print media campaigns can be particularly effective when they include QR codes that link to the agent’s website or listing pages, bridging the gap between traditional and digital media and making it easy for interested parties to take the next step. This strategy allows real estate agents to expand their reach, personalize their approach to different markets, and cultivate a diverse lead pipeline.
Sponsor an event, charity or team
Have you ever seen the name of the local insurance company on the back of a kid’s Little League t-shirt? That’s sponsorship. Real estate agents can use community sponsorships as a strategic avenue for lead generation by enhancing their local presence and reputation. By sponsoring local sports teams, charity events, school functions, or community festivals, agents can demonstrate their commitment to the community and gain visibility among potential clients in a positive and engaging environment.
These sponsorships often come with the opportunity to display banners, set up informational booths, or distribute branded merchandise, which keeps the agent’s name and contact information in front of a captive, localized audience. It also provides a platform for agents to interact with the community in a non-sales environment, allowing for the natural building of relationships.
By aligning themselves with community values and interests, agents can foster a personal brand that resonates with the local market, further driving lead generation efforts. I’m always looking to get the most bang for my buck, so the nice thing about sponsorships is that they often create content opportunities for agents’ social media and newsletters too!
Pro tips for expert-level real estate prospecting
Expert-level real estate prospecting is about blending tried-and-true methods with innovative strategies to stay ahead of the competition. It’s likely that any of the agents you see who are super successful are using at least some of these strategies.
Leverage big data and analytics
Use advanced data analytics to identify buying patterns, hot neighborhoods, and demographic shifts. This can guide where to focus your marketing efforts and which prospects to target. One of the more robust tools on the market to help with this is Catalyze AI.
Build a strong online presence
Beyond just listings, create valuable content that positions you as a thought leader. Use SEO strategies to ensure your content ranks highly in search results, making it easier for prospects to find you.
Nurture relationships
Cultivate your current and past client relationships. Referrals are gold in real estate. Keep in touch through personalized communication, providing value long after the sale has closed. This can be through holiday cards, gifts, or just calling to say hi.
Have a hyper-local specialization
Become the go-to expert in specific neighborhoods or types of property. This specialization can differentiate you and make you the first point of contact for buyers in those areas. Show your value by being hyper-focused on one locale and engaged in online communities like NextDoor.
Use social proof
Encourage reviews and testimonials from past clients. Share stories of how you’ve helped clients successfully navigate the buying or selling process. Personal recommendations are worth their weight in gold. A Google Business profile is a great place to collect and share these.
Be smart about networking
Engage with local business groups, attend industry conferences, and join real estate investment meet-ups. Networking should be strategic, with a focus on building meaningful, reciprocal relationships. Many real estate agents are members of BNI (Business Networking International), but the real estate agent seat is so hard to get that I joke someone usually has to move or die for a new agent to get one.
Be consistent with follow-up
Persistence is key. Just because you’ve sent 10 emails doesn’t guarantee that the potential client has opened a single one. Have a follow-up system in place to stay top-of-mind with prospects without being intrusive. You can do this the old-school way with a spreadsheet and post-it notes (not recommended), or you can maximize the value of a CRM and let it do the heavy lifting.
Embrace video marketing
Create professional videos showcasing properties, offering virtual tours, or sharing market insights. Video is engaging and can be shared across multiple platforms, increasing your reach. You may think you are camera shy or don’t have anything to share on video, but believe me when I tell you that video marketing works. My real estate agent crush Ryan Serhant is living proof.
Perfect your elevator pitch
Always be ready to succinctly describe your value proposition in any setting, whether at a formal networking event or a chance meeting at a coffee shop. If you need help with this or just want to get more comfortable speaking to strangers, check out groups like Toastmasters.
Set goals
Setting goals is crucial when generating real estate leads as it provides clear direction and focus for your lead generation efforts. By establishing specific, measurable, achievable, relevant, and time-bound (SMART) goals, real estate agents can create targeted strategies and allocate resources more effectively.
By integrating these expert-level tips and tricks into your prospecting strategy, you can build a sustainable pipeline that helps grow your real estate business over the long term.
The full picture: real estate prospecting takes perseverance and a plan
There is no right or wrong way to prospect for real estate leads. I always suggest that you need to do what works for you. Otherwise, you will hate doing it and as a result, not do it! Ask other agents what strategies they like best or that have the most success, and test them out for yourself.
Come up with a plan, not just for what prospecting strategies you will use, but when you will do it, how you will do it, and how often you will do it. Many of the strategies we discussed take time. You’ve got to play the long game and not expect immediate results. Set some prospecting goals, whether daily, weekly, or monthly, and check in on them regularly. If you are a newer agent, use as many of the no and low-cost strategies we’ve discussed, like social media posts and sitting at other agent’s open houses.
Whatever you choose, stay consistent, stay persistent, and have fun with it!
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