Ashley:
This is Real Estate Rookie episode 314. Recently we’ve seen a lot of banks lower your interest rate if you pay points. So it’s almost like a buydown for your interest rate. So if you pay two points or three points, your interest rate has lowered and is now this. And this is where you have to go and actually do the math and long-term for the life of your loan, what is actually the better deal? My name is Ashley Kehr and I’m here with my co-host Tony 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 we’re back here in the Real Estate Robinson Studio with Ashley Kehr here in SoCal. So Ashley down from the northern parts of Canada, wherever she’s at to come hang out with us in Southern California. Her first time really doing LA. So we’re going to be in LA all day tomorrow at the Spotify studios. So we got to plan some cool things for you to do. I wish you would come during basketball season because I 100% would’ve taken you to a Laker game.

Ashley:
Oh my gosh, I’ll definitely come back to go to that.

Tony:
Have you ever been to-

Ashley:
I’ve never been to an NBA game. I’ve done college March Madness before, but never to an NBA game.

Tony:
LA Laker games are a different breed of basketball. Next time we got to plan it out so you come during basketball.

Ashley:
I’m going to make sure our producers need me back out here.

Tony:
Anytime between October and May.

Ashley:
Okay. Yeah, I’ve been to Newport Beach twice and that is my closest to LA, really.

Tony:
And technically, we’re in the suburbs. I’m like 45 minutes outside of LA, but we’ll be in the heart of it tomorrow.

Ashley:
And him joking that I’m close to Canada or in Canada, wherever I am from, the town that he lives in or the airport is literally the name of a place in Canada.

Tony:
So my hometown is Ontario, California and was actually founded by these two guys. I think they were brothers from Ontario, Canada. So yeah, we do have Canadian ties here.

Ashley:
I remember the first time me and Tony were coming to meet and we both sent our flight information to our producer, and I was like, Tony’s coming from Canada because it says Ontario, CA.

Tony:
CA. Yeah, it can go a little bit confusing. Cool. But we’re here to talk Rookie Replies again today. We got a slate of amazing questions as always, we talk a little bit about-

Ashley:
Paying points. What are points when doing a mortgage. Also, we talk a little bit about digital locks as to the benefits of doing them for a long-term rental and also the cons. And we kind of actually walk ourselves through an actual system or process as to the locks of how they could be done if you want to be as remote as possible for your long-term rental as far as changing the locks and having to put new handles on every time somebody moves in and out of your apartment.

Tony:
We talk cash out refinances on this episode too where we have two different questions about cash out refinances, what they are and how they work. And a few more questions that I think you guys are going to love. But before we get into today’s questions, I just want to share a recent review that we got for the Real Estate Rookie podcast. I think you guys are going to absolutely love this one. This is from someone by the username of Listener with about 12 Rs. The title says, “Get to the point,” and the review itself just says, “Please cut the fats.” And it is a glowing one star review. Well listener, jokes on you because Ash and I actually have been focused on cutting the fat. So you guys know I’ve competed in a few fitness competitions and Ashley actually now is turned a new leaf. We want to tell them what’s going on with you?

Ashley:
Yeah. So I hired a health and wellness coach, so I’m on week two so I can no longer eat past 7:00 PM and since I’m in California time, that deadline ended at 4:00 PM so I cannot have dinner with Tony tonight, but thank you for that review. It’s just giving me and Tony even more and more motivation to cut the fat.

Tony:
Cut the fat.

Ashley:
Gain some muscle.

Tony:
Yeah. I’m going to put that on a shirt. It’s just going to say cut the fat. Every episode is going to be like. It’s so funny, I don’t do this often, but I was looking at one of our YouTube videos. It was actually Olivia Tate’s episode. Olivia, she’s one of my students. So I was just really happy to see what their response was and inside of the comments someone commented and they were like, “Lol, does he ever change clothes?” And I replied, and I said, “Actually, no I don’t.” So if you guys are watching this on YouTube, the black teaser are all that I do, but I’m happy to because I’m rubbing off on Ashley with the black tank here today.

Ashley:
Yeah, I actually had a white shirt on that was a body suit, but I realized as the day went on that it actually looked like a white beater. I was like, I probably shouldn’t wear that.

Tony:
But here’s why I wear the black shirts. Have I told you this?

Ashley:
I think so.

Tony:
So okay, if you watch a lot of famous people, highly successful business people, you’ll notice that a lot of them wear the same exact outfits. Presidents have done this, Steve Jobs, Mark Zuckerberg, a lot of these people, and they credit it because it helps with decision fatigue. So for them, if you’re the president of the free world, you probably don’t want to spend too much time in the morning thinking about what are you going to wear. So you’ll see presidents kind of cycle through the same suit just with different ties every day. Zuckerberg was known for wearing just like a basic plain like bluish tee. Steve Jobs with the black turtleneck. And the reason they did that was because it was one less decision they had to make throughout the day. So for me, when I wake up in the morning, I go into my closet and there’s just nothing but black t-shirts. I just grab whichever one I see first, throw it on, and I go on with my day. So I literally waste zero mental energy about what I’m going to wear for the day. So that’s why I do it.

Ashley:
Talk about cutting the fat and here we are, Tony talking about his emotional choices. But I did think that I saw a video and I had to be an Instagram reel or something similar where someone was saying that I think it was Zuckerberg who talked about that actually was just joking. And then it turned into this trend that he wasn’t actually serious about the decision fatigue thing.

Tony:
So decision fatigue is real though.

Ashley:
Right, exactly. Yeah,

Tony:
There’s multiple books. I’ve read a few books on willpower, but one of them is called Willpower Instinct. One is called Willpower. And in that book, they talk about how if you can decrease the number of decisions that you make in a day, when it comes time to do the hard things throughout your day, you have more energy reserves to do that. So I try and cut down on as many decisions. I eat the same food every single day. I don’t think about what to pack for my lunch, I wear the same clothes, and I really just try and save my mental bandwidth for the stuff that’s most important.

Ashley:
I 100% agree because I don’t want to be the one to make the decision where we’re going to dinner. Just little things like that, just plan it for me. I 100% agree that it’s real. I was just saying I saw this video that Zuckerberg in that instant had just-

Tony:
Says he was like-

Ashley:
Yeah, and he was just joking, but then it became this big thing.

Tony:
Inspire the whole generation

Ashley:
When I was packing here, it took me forever to pack because I was like, I am only here for what, 24 hours? I don’t know what to wear. And our producers probably just cut that whole thing anyways. But I do want to give an Instagram shout out. This one is to Emma Kioko and her Instagram is Emma K-I-O-K-O. And Emma is talking about the Burr strategy and she also posts about property number two and posts pictures of it and is sharing her journey. So if you want to follow along with Emma’s journey, make sure you give her a follow at Emma Kioko, K-I-O-K-O.

Tony:
Last thing, real estate partnerships book. Ashley Kehr and I have co-authored one of the latest BiggerPockets titles. So if you want to get an advanced copy or get on the pre-order wait list, whatever it’s called, head over to biggerpockets.com/partnerships and you can get on the early release list. We’re going to pick one lucky winner who buys this book on pre-order or I think that you get a week or two afterwards. But if you’re one of the first people to buy this book, you get entered into a chance to be a guest on this podcast, on the Real Estate Rookie podcast. We’re picking one lucky winner to come sit here on this couch with me and Ashley to record this podcast with us. So again, biggerpodcasts.com/partnerships. And if you want to learn about how Ashley and I have used partnerships to scale our businesses, make sure you pick up the book.

Ashley:
And you’ll have to commit to come here sometime during basketball season so I can go into-

Tony:
So you can come to a Laker game.

Ashley:
Okay, our first question today on Rookie Reply is from Kevin Chu. I’m looking to purchase a rental property all cash and then doing a cash out refinance on that property to have funds to purchase more. In this scenario, would you have to wait the six month period to do the cash out refinance? So let’s talk about first that six month period. That waiting period is called a seasoning period. And this is where a bank will require you to wait before they will actually do a refinance on your property. And this is very common on the residential side of investing, especially if it’s your primary residence where a bank will look at the property and say, “There’s no way you could have added a $ 100,000 in equity on your property in six months,” but they make you wait that period of time before actually going and refinancing. And it does depend on different banks. There are banks that don’t have that waiting period, but typical is six to 12 months that you’ll have to wait from the date you purchase the property until you go ahead and refinance the property.

Tony:
And just a caveat to that, it is just if you’re doing a cash out refinance. You can do a rate and term and maybe we should even explain the differences. So there’s two types of refinances that you can do, like the two most common types. You can do a cash out refinance or you can do what’s called a rate and term refinance. With a rate and term refinance, you’re basically just taking whatever your current loan balance is and then you’re getting a new loan for that exact same amount and you’re just stretching it out like you’re basically amortizing that loan and possibly changing the interest rate. That’s why it’s called a rate in term refinance.
So say that I owe $100,000 on 123 Main Street and I want to do a rate in term refinance. And say, I don’t know, I have 20 years left of my mortgage and I’m currently at a 6% interest rate. So $100,000, 20 years left, 6% interest rate. I can do a rate and term refinance where I take that $100,000, convert it into a new mortgage, and now I get another 30 year term and I can say interest rates came down. Now I’m at like a 3%. So even though the loan balance is the same, if I’m taking that $100,000, I’m re-spreading it out over 30 years and I’m pulling down my interest rate, even though the amounts in question is the same, my payment should technically go down because of the interest rate and the term being expanded. So that’s the rate and term.
And then a cash out refinance is when you’re able to tap into the equity that you have in your property and the bank actually writes you a check for that equity. So say that you have $30,000 in equity when you refinance, you can get a check back for some or all of that $30,000. So that’s the difference cash out refi versus rate and term.

Ashley:
So one of the reasons someone might do this is because they went and rehabbed their property, fixed it up, and they want to pull their money back out that they invested into the property. So that’s why the question is most likely being asked because somebody is doing that. Says here they’re looking to purchase a rental property all cash, so they’re putting all of their money into it and then they want to go and pull all of their money back out. And you may say, why wouldn’t they just go get the loan ahead of time? Because sometimes it is a huge advantage to actually do a cash offer where the seller is more likely to accept your offer if it is all cash instead of getting that financing upfront. And also if you are buying below market value.
So if you’re going and buying that property for a $100,000 cash, but it’s actually worth $120,000, when you go and refinance, you can actually pull out the money you did and maybe even a little more depending on what it actually appraises for. Where if you went and just bought the property, you would have to put that 20% or even more down payment down on the property and then you don’t get that back unless you actually go and refinance again. And in that situation, you’re paying closing costs twice.

Tony:
Well, let me ask, sorry, just really quick. Because you’ve done a lot of commercial debt also, have you noticed it’s different on the commercial side? Are they more lenient on the six month seasoning or do you find that it’s the same on the commercial side also?

Ashley:
I don’t know if I’ve done a refinance on a commercial property within six months of purchasing it. I don’t think that I have. My big commercial property that I did a refinance on that one was the rehab took six months, so it was already over the time period. So I don’t think I’ve done one even within that time period, but I don’t think that there is really that seasoning period at all. But I’m not sure on that.

Tony:
Yeah. And honestly, I’m not sure what the purpose of the seasoning period is. We should maybe get a lender in here to answer that question for us. I don’t know if it’s like a Fannie Mae Freddie Mac thing where it’s like their requirement or if it’s just like why else would all of these banks adopt this same strategy? I would think there’s some kind of regulation or something. And when we say Fannie Mae and Freddie Mac, the majority of mortgages that are originated in America, a good portion of them are resold to Fannie and Freddie. And these are like quasi-government entities that dictate, hey, if we’re going to buy a loan from you as the originator, there are certain boxes that you need to check. And I’m saying I would assume that that’s probably where the six month seasoning comes from, but I don’t know, we might need to get a lender in here to answer it.

Ashley:
Yeah, I tried to google it real quick and it was just saying, what is a cash out refinance. It doesn’t actually say-

Tony:
Give the answer.

Ashley:
… why. I remember a real estate agent telling me before, and this wasn’t a lender, it was an agent saying that the lending authorities, the lending law wanted to put in there, there’s no way that your property could appreciate so much that you just bought it. That’s why there’s that waiting period, which is doesn’t really make sense but I don’t even know if that’s true. That was just somebody’s opinion.
Okay, our next question is from Austin Pesi. What’s up everyone. As of now, I’m a real newbie with getting into real estate investing. I do think I know a lot about real estate now, at least how some of the processes and numbers work. I love numbers, I’m an engineer. However, I’m curious about how a cash out refinance works. When you take the cash out refinance, are you paying a mortgage on the amount you took out or the entire ARV, the after repair value of the house? I appreciate this group. So let’s kind of go back there and break it down. Almost similar to our last question, a cash out refinance question. He’s wondering, when you take out the cash refinance, are you paying the mortgage on the amount you took out or the entire ARV of the house?
So the answer is the amount of the mortgage that you took out is the cash out refinance. So whatever your cash is that you’re taking out, plus any other debt maybe you had on the property that you’re paying off and rolling into this new cash out refinance, that is the amount of your loan. So say your property is worth a $100,000, you got it appraised and the bank is going to lend you $80,000 and that is the cash they’re going to give you is 80,000. Even though your ARV is 100,000, the after repair value, you’re only having to pay mortgage payments on that 80,000 because that is the cash that they are giving you.

Tony:
Yeah. And just like a caveat to that, so just continuing on with your example. You can choose when you’re doing a cash out refinance, if you have the spread how much cash you actually want to take out as long as you don’t exceed that 80% in this example. So again, going back to what Ashley said, say that you have a house and appraised for $100,000. The bank said, “Hey, we’ll give you a loan up to 80,000,” but say that you purchased the property and you rehabbed it and you only spent $50,000, so your all in cost is now $50,000. You have $30,000 in equity that you could potentially pull out. 80 minus 30 is 50. If you wanted to pull out all 30 and bring your loan balance up to 80, you could. If you wanted to say, “Hey, I only want five grand, so I’m going to get a loan for $55,000, now you pay off your $50,000 of your initial debt plus the 5K that you put in your pocket.
So it’s really up to you, even with the cash out refinance in terms of how much you want to pull out, don’t feel like you have to take it all. And you do see sometimes that investors that are either maybe more conservative or don’t want to increase their payment too much by getting a bigger loan, they won’t take it all out and they sometimes they’ll leave some equity in the deal as well. So instead of going up to that 80,000, they’ll keep it somewhere between 60 or 70.

Ashley:
Yeah, especially if the cashflow won’t cover that mortgage payment if you do take the full 80% out. Okay, the next question is from Miranda Weber. And just a reminder guys, if you want to submit a question, you can go to biggerpockets.com/reply and leave a question for us to answer on the show. So Miranda’s question is, do you guys pay for points when doing a mortgage? The only time I have paid for points is when using a hard money lender. So let’s talk about first what points are. I remember going into the bank when I was younger with my mom and they’d have a whiteboard and it would be like two points and they’d have things drawn and I was like, what does that even mean? So two points is almost like think of it as in a percentage. So if your loan is $100,000 and you’re paying two points on it, you’re paying 2% on it.
And depending on how the debt is structured, this could be something you pay when you sign up for the loan. So when you close on your property and you get the loan or you’re refinancing or whatever, when you take the debt on. If this is a hard money lender, this could be something you are paying when you exit the loan. So when you pay it off, a private money lender could spread out the points that you’re paying or the life of the loan. So you’re paying your interest payments every month, plus you’re paying an additional payment that is paying off those points. So it can be paid out different ways, but typically when you’re doing financing through a bank, it’ll be paid upfront those points. And what the points do commonly is there’s some kind of other benefit you’re getting to and then in return you’re paying those points upfront.
So recently we’ve seen a lot of banks lower your interest rate if you pay points. So it’s almost like a buydown for your interest rate. So if you pay two points or three points, your interest rate has lowered and is now this. And this is where you have to go and actually do the math and long-term for the life of your loan, what is actually the better deal? Also, banks have the no closing cost loans too, and that’s kind of the opposite. You’re not paying anything upfront, but you’re going to notice your interest rate is jacked up on that one. So they make their money somehow.
So as far as going through a bank and conventional lending, I’ve never paid any points. With my hard money lender, there were points paid upfront. It was one and a half percent. I actually got a hard money line of credit and it was one and a half percent I had to pay upfront. And then there was an exit fee. So if I ended up refinancing and didn’t refinance with the hard money lender that had long-term options, I had to pay I think 1% to actually exit their program. So it was on the front and the back end that I had to pay those points.

Tony:
Even if we just break down why the points are there, and if you’re a hard money lender and this information is incorrect, please reach out to me, correct me. But I’ve met a few hard money lenders and the way that their business works oftentimes is it’s not usually just them just sitting on mountains of cash. Usually they’ve gone out and they’ve raised capital from other investors. And say they go out and they raise whatever, $50 million, they’re going to loan that money out to flippers, real estate investors, whoever at a predetermined interest rate. But the hard money lender then has to give a return back to those investors. So in order to increase the spread between what they’re lending out and what they’re getting back, they charge the points as a way to generate additional revenue.
The points are also beneficial because a lot of times it’s not like a 30-year fixed mortgage where they’re getting interest payments forever, for three decades, they might be into a hard money loan for six to 12 months. So imagine if you lend money at 10% and you get that money back in six months instead of a year where you technically didn’t get your whole 10%, you got five. So the points are there as a way to add additional profitability to these hard money lenders. So just insights on why it’s there and why you typically don’t see those same points when you’re going to Bank of America to get a 30-year fixed mortgage.

Ashley:
And something else you may see that’s on the commercial side of lending is a commitment fee, and this is something else that’s paid upfront even before you actually get to the closing table too. So if you’re doing commercial lending, you’ll get a commitment letter from the bank saying, “Yes, we are going to lend on the property and these are the terms.” This is the approximate interest rate or these are the basis points that we’ll be factoring your interest rate on depending when your closing is and the life of the loan, if there’s a balloon payment, things like that. And then also the terms of the loan such as you need to provide us with financials every year. You need to provide us with your tax return, your LLC tax return, things like that. If there is a prepayment penalty, if you pay off your loan early, you’re going to be paying extra fees for that, an extra percentage.
But there is the commitment fee. So when you actually sign the letter that, yep, I agree to these terms, I want to continue with the loan, then you’re going to have to send in a check. It can definitely range. I don’t know what the average percentage on, but the last one I did, I think it was for another investor, I was helping him with it and he did the loan for 350,000 and I think the commitment fee was around $1,000 or $1,500. That adds up for each little loan. It’s not considered a point, but it’s that commitment fee that you have to pay in order for them to even continue to underwrite your deal.
The next question is from Kelly Gudall. Short-term rental versus long-term rental. And this is where me and Tony put on [inaudible]. How do you decide between the two? I just closed on a property that I’d planned to rent out long-term. It’s in a great short-term market and people keep saying we should really consider it. I ran the numbers and they look good. What percentage over your long-term rental income doesn’t make sense to go this route? It obviously would be more involved and costly upfront. I even really liked the idea of interacting with guests. After expenses, I’m looking at about 25% more profit year one and 40 to 50% more profit year two.
So the first thing I think of is looking at, and I think that Kelly already did this, as far as looking at what are the different expenses. And that she at least acknowledges that she would like to interact with guests because I think the operations of short-term rentals, sometimes people get into it and don’t realize what it actually is. So realizing that you might actually enjoy that is definitely a huge benefit into deciding. But also look at what your time commitment is going to be. So even if you enjoy doing that kind of break down, okay, you’re going to be making 25% more profit, but how much more of your time is going to be involved managing the short-term rental versus the long-term rental? And then kind of break that down to an hourly rate even.

Tony:
It’s a loaded question because there’s so much that goes into this. And Kelly, I think a lot of it does come down to personal preference. And like Ashley said, the fact you’ve already kind of thought through do you actually want to manage it, I think is important. A couple of things that I think to consider. First is can you legally short-term rent in your market? What is the sentiment for short-term rentals in that area? I don’t know st. Augustine as a city, I’m not even sure where it’s at on the map honestly, but the first thing I would do is-

Ashley:
It’s in Florida.

Tony:
I know it’s in Florida. Where’s Florida actually? No, but I think I would check with the city, understand the ordinances like, “Hey, if I want to legally operate a short-term rental in this city, what boxes do I need to check?” There are some cities where it’s like block by block like on this block you can on this block you can’t so need this kind of zoning versus this kind of zoning, you can’t. So really understand I think the policies first to help because you might look and realize you can’t even operate it as a short-term rental, and that would make this a moot conversation. The second thing I think I would look at is what is your ultimate goal when it comes to investing in real estate? When you get into the long-term rental space, the amount of time needed to manage that property. If you do it the traditional route where you rent out your entire home, and even if you get a property manager, you can dramatically reduce the amount of time it takes managing that property.
Short-term rentals, on the other hand, require much more active management. I can tell you a lot of our properties, they turn on average every two days easily, some of them less than that. So we might have 15 people stay at our property in one month. So do you have the desire to manage people at volume like that I think is a big question. And then ultimately it’s just like, I think the profitability is a big piece. If your goal is to try and really maximize cashflow in the short-term, in most situations, you’re going to do better with short-term rentals. If your goal is to maybe just maximize long-term appreciation, the tax benefit, and just kind of let it do its thing without it taking up two months of your time, then long-term rentals will be the better play. So a lot of it I think comes down to what your unique goals are. What is it that you’re trying to get out of investing in real estate?

Ashley:
Okay. Our next question is from Jaspreet Singh. What are some pros, cons of installing digital locks on your long-term rentals? Currently, every time a tenant moves out, we have to arrange for the locks to be changed or re-keyed and then be there to hand over the keys. I’m thinking to install just digital locks next time a tenant moves out so it’s easier to just change the code. What are some cons that I might be overlooking? The reason I haven’t done this yet is because none of my properties have wifi, my long-term rentals, except for one larger building. But other than that, it’s all up to the tenant to purchase their own wifi. So when somebody moves out, they’re shutting down that wifi and then while it’s vacant or being turned over, there is no wifi there. And then when the person moves in, they set up their own wifi. So that has been the reason that I haven’t done it. But Tony, I think you have solutions to that, I’m sure.

Tony:
Yeah. But even just thinking to Jaspreet’s question, it sounds like maybe Jas your thinking of not even giving a physical key. So there would be a key because even with the digital locks, you still have an actual keyhole, but you’re saying not even give the keys to the tenants and just let them use the codes. I mean, yeah, it is definitely a possibility. Even for us in our short-term rentals, we have the keyless entry pads at every single property, but we still have a physical key as a backup because sometimes those things don’t always work. The codes don’t work and something might happen or battery’s die and you need to get in. So I think you might potentially put yourself in a situation where if the batteries die or something happens, now your tenant is reaching out to you saying, “Hey, I can’t access the property.”
But to your point now she about the wifi, depending on which model you get, a lot of these keyless entry pads work without wifi. The keypad will always work whether or not it’s connected to the internet. So even if I’m at the property and there’s no internet at all, as long as I punch in the right key code, it’s still going to open. Remotely accessing it, you still need wifi to do that, but some of these, even if you’re close enough with your phone, I’m not sure how the technology works, but even if there’s no wifi, I don’t know if it’s Bluetooth or something, you can still access locks that way. So it’s possible I’d say, but I’d probably still want to have a backup physical key somewhere, Jaspreet, just in case things go off.
But to your point, I’m thinking about for you too, what we do for our guests when they check in is we send them a video of how to use the keyless entry pad. So even for you, say that you have a turnover and you don’t want to be there to reset it for them, just send them a video that says, “Hey, we’ve already master reset the lock. Here’s how you go in and set your own code and get it all set up.” And now you’re totally hands off on even the access piece. So there’s something to think about.

Ashley:
Yeah. Because that’s what I was thinking is it looks like they’re trying to not go to the property at all to do any of this. So I guess I’ll kind of give you what we do for our thing and it’s not completely remote. But it’s so when somebody moves out, the maintenance tech goes and meets them, and we actually use landlordlocks.com. And so we’ve been purchasing their locks and every turnover now we’ve been getting them onto a master lock system, but I know they sell the type of locks at Lowe’s too, where it’s just the core insert. So you have a master control key that will take the core insert out, and then you just replace it with another one. So you’re not changing the whole door handle, you just take out the core of the deadbolt and the lock and then you’re putting in the new one.
So they’re labeled like 003 core. We’re going to put the matching deadbolt key in there and that’s that key. The person moves out, we take it out with the master control lock and we’re going to put in 008 now or whatever. And you have all the keys and you got to stay very organized, make sure you have the keys to your locks and everything, but that way you’re not changing handles every single time. And with the previous property management company, it was like they were changing the door handle every single time, and it was what a waste of money.

Tony:
Money, yeah.

Ashley:
They’re very expensive. It is a lot cheaper just to buy the cores. But also if you get to the point where you have so many units, you can kind of reuse cores here and there and have those couple extra that bounce around. You can order a core insert that’s a different color. So I think we use all, I think it’s the chrome color or whatever, nickel, the nickel. And then also we have a brass insert, which is for maintenance and vendors. So while there is a turnover, we put that one in there. So you look at the door, you know that it’s being turned over, but also then that vendor isn’t getting a copy of a key for the future tenants apartment. And we’ve also changed the locks from the previous person moving out.

Tony:
And that’s from landlordlocks.com?

Ashley:
.com, yeah.

Tony:
Interesting.

Ashley:
So then we do that and turn that over. And then for example, we do like to do a move-in inspection with every single person. But what you also could do if you’re not going to be able to meet the person, maybe you already did the move in inspection, but you’re not giving them the keys or something. You can put one of those handle lockboxes on there that have a key code and you can put the set of keys in there and then just tell them what the code is for that lockbox. They can get the keys out themselves whenever they get there. Then you can take the lockbox off at any time and you can even attach it to the deck railing or something. And you can even have an extra set of keys in there in case they lock themselves out or something like that too.

Tony:
Yeah, I love the lockbox idea. I feel like every property should have a lockbox somewhere because you never know what’s going to happen.

Ashley:
Yeah. Yeah. Okay. Our last question today is from Julie Glazer. Is there a way to find out what a property sold for other than asking a realtor? Zillow and the assessor’s site doesn’t seem to be accurate. For example, I purchased a property in September and it’s not updated on Zillow for the price I paid. The assessor’s site had it appraised at 74,000, which is way over what it was actually worth given its condition. I called our recorder of deeds and they do have an online record search, but it’s $20 a day or $250 a month.
First, let’s talk about an assessor. When you go to the assessor’s website or you look on your tax bill and it says, “This property is assessed at,” this is just this person almost like an appraiser giving their opinion on what the property value is, which I’ve always seen, is less than what they actually list the market value of the property. So the sole reason of this is to calculate your property taxes. I’ve never seen any other use of your assessed homes value for other than property taxes. This is not something you want to look at to actually value a property. This is something you do want to look at when you are purchasing a property though, to see like, okay, they are saying the market value of the home is 100,000. They’re saying the assessed value is 72,000, but I just bought this property for $300,000.
So if the town decides to reassess in two years, my property taxes are actually going to go up because of that new purchase price, and it will probably bring up the market value, but I doubt the assessed value will go up to that exact 300,000. You also want to look at that if that value is higher than what you actually paid for it or what you actually think the appraised value of the property is or what it could sell for. Because you want to go to your assessor and go to what they have as grievance day to actually get your property taxes reduced and lowered. So going to the assessor site to find out what a property sold for, you’re not really going to find much information by asking what the assessed value is or what they have determined as the market value. And then as far as Zillow, I think a lot of us have looked and seen that Zillow is not accurate as far as their estimate or even their transaction history that they show. I bought a house for 54,000 and it said that the house sold for 540,000.
So the first place I would go that it’s free is to Google your county with GIS mapping system. So for example, where I live Erie County GIS of mapping system. So it pulls up a map and it shows all the little towns and you can put in your address, you can put in an owner’s name. You can kind of just zoom in and find a house, find a property, but it’ll show you the parcel lines and we’ll outline the parcels and usually tell you the street or the house number in that parcel. You go ahead and click on it and the information that you usually see is who the owner is, their mailing address, the property taxes. And then you may see the sales transaction history, which would give you your most recent sales price. It’s not always listed on there, but that’s one way to find it. And then also BiggerPockets has some software that you can use that we are so excited to be partnering with Invelo.

Tony:
Yeah. Invelo is a software data aggregator. So basically those records, Julie, you were talking about pulling for 20 bucks a day or $250 per month, Invelo has access to a lot of that same information. So you can use something like Invelo, PropStream is another option. But basically you go to these websites and you type in the address. And oftentimes it’ll show you the transaction history based on actual county records, not necessarily what Zillow thinks happened based on the MLS listings. It’s based on the actual county records typically. And that will show you what that property actually sold for. So I do a lot of research on websites like Invelo and PropStream, and I’ve been able to find pretty much all the information that you would need on someone. It’s kind of scary how much information you can find there.

Ashley:
In Buffalo, New York too, they also have a website called Buffalo Oars, O-A-R-S. And so other cities may have something similar where it also has data compiled from clerk records. And it also actually does a really good job of showing comparables too of houses that have sold and it’s all free to use. And if the property has any pictures that maybe an assessor took when they were appraising the property, exterior views, those I’ve seen to be found on there. They’re oftentimes better than doing the Google street view and kind of walking the streets with the little orange yellow guy.

Tony:
I got to check to see if we have something like that out here locally. One thing I do want to add though, and we haven’t seen this in every market that we invest in, but in some of our markets here in California, in addition, so you said earlier like, “Hey, if I buy this property for 500,000, last time it was assessed was 300, next time that they assess it’s going to go up.” They do that immediately here, at least in the part of California where I live, where as soon as a property changes hands, they’re looking for what that new purchase price was. They use that to determine their new assessed value, and they send you what’s called a supplemental tax bill. So I don’t know how they come up with this number. I’ve asked and haven’t really gotten a straight answer, but basically I think you’re paying the difference on what it was assessed for before, what it’s assessed for now that you own it and you have a year to pay that supplemental tax bill.
So when we first started investing out here in California, we kept getting these bills. We weren’t accounting for those initially, and they were big bills. I don’t know, $2,000 something that you had to pay, which can eat into your cashflow. So just something to be mindful of if you’re buying in a new city or a new county, also ask them like, “Hey, are there any fees or taxes that I would have to pay based on the property just changing hands?” And you might be surprised what they come back with.

Ashley:
Thank you guys so much for listening to 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 the guest. Thank you so much for listening, and we’ll see you guys next time.

Ashley:
This is Real Estate Rookie, Episode 313.

Tyrin:
In my mind, it was already set up, two different properties ready to go, just needed some cosmetic finish ups. But once we then got into it and a professional was actually able to go through the process the right way, I ended up spending maybe $20,000 extra out of pocket, because I’m thinking three to six months is a typical renovation and then I could refi out, because I had ended up going through a hard money lender, and it ended up actually taking two years.

Ashley:
My name is Ashley Kehr, and I am here with my co-host, Tony 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. Today’s episode, a little bit different from what we usually do. You’re still going to get a healthy dose of inspiration, but today’s episode is more so focused on the turbulent side of becoming a real estate investor. Our guest today, Ty Tyson, he shares his story about investing in Baltimore, and some of the challenges that came along with his first two deals.

Ashley:
Here’s a couple things that I pulled out from my notes that I really wanted to highlight. First, you guys know, we’ve been doing the side hustle segments. Ty actually talks about doing vending machines and how he purchased them and where he placed them, and it took him over 1,000 phone calls to actually find a place for them, and then also buying at auction. We really don’t talk about that a lot, so if you have an interest in buying at auction, this is where you’ll want to listen, and Ty gives really great information about what that process was like for him. And then Ty will go into talking about taking action too quickly. This is why I loved Ty as a guest, because he was very open and honest as to the mistakes that he made along the way, and then looking back at the lessons he learned and what he would do differently.

Tony:
I think the big takeaway from Ty’s episode is that it’s not always a clear and easy and simple path to success as a real estate investor, but we should all be prepared for those ups and downs, and just know and understand that it’s all part of the process. Really enjoyed Ty’s story, really enjoyed his whole demeanor, and I know you guys will all get some value from it.
Now, I want to quickly share someone that left a review for us, a five-star review on Apple Podcast. This one comes from Graziano11, and this person says, “I’ve been wanting to get into real estate, but unsure of how to get started. I was introduced to this podcast and community, and I am so glad that I was. I feel like you guys break down the confusing world of real estate investing and make it possible for people like me. Thank you for all the support and sharing of knowledge that you two provide. I look forward to the release of each episode.”
M. Graziano, we appreciate you. For all of our rookies that are listening, if you haven’t yet, please take a few minutes, leave us an honest rating and review on whatever podcast platform you’re listening to. The more reviews we get, the more folks we can reach and the more folks we can reach, the more folks we can help, which is what we’re all about here at The Rookie Podcast. Just last thing, so that review, M. Graziano, my seventh-grade science teacher, his last name is Graziano, so Mr. Graziano, if that’s you, that’s pretty cool. If it’s not you, then don’t worry about it.

Ashley:
Well, Ty, welcome to The Real Estate Rookie Podcast. Thank you so much for joining us today. Just start off telling us a little bit about yourself and how you got started in real estate.

Tyrin:
Well, for starters, I really want to thank you guys for having me on today. This is truly a full circle moment in my real estate journey. But I’m from Baltimore, Maryland, born and raised, I’m a registered nurse and a registered travel nurse, as well, and I’ve been in real estate for going on three years now.

Ashley:
What was that initial thing that made you want to get into real estate, or how you even discovered that there was such a thing as investing in real estate?

Tyrin:
Of course, everybody knows about real estate, and it was never really something that was tangible to me. It was just always a dream of something that I wanted to do when I got rich one day. But working in nursing, I’m going to be honest, through social media, they make it look really glitz and glammy, but when you’re in it, it’s just really tough mentally, physically, emotionally, and I was just like, “I can’t do this forever.” I wanted to create another stream of income that could ultimately replace my nursing income, so that I could get out of the field and create other opportunities to figure out what I really wanted to do. That really pointed me to real estate investing.
I had a buddy named Stanley who was the first nurse that I ever met who invested in rental properties, short-term and long-term, and just seeing him doing it, seeing his process, this was before the start of COVID, it was just something that I never really thought that I could do on my income that I was making. I’m like, “Bro, how are you doing it?” Or like, “What’s your secret?” It was simply, he gave me links to a couple BiggerPockets books and just told me, he said, “You’ve got to work nonstop. You’ve got to work as much overtime as you can and put that money into your real estate,” because at that time, I thought he might have had another job on the side or he might have gotten in another way, through family or somebody helping him out, but right at that time, COVID had struck and nurses, during the early and the peak of COVID, we were making upwards of $8,000 to $10,000 a week. I was able to use that money to accelerate my entry into real estate.
But during that time, what I didn’t know until I started reading the BiggerPockets books was I was house hacking. My home, I purchased my primary residence in 2018 after becoming a nurse, so I’ve always had my head on straight and knew that this is what you do, you go to school, you graduate, you get a house, and then I didn’t really know what was next. At that time, I’m like, “I want to cut out my primary mortgage because I will be traveling soon, and I’ll be traveling and I don’t want to have to pay for mortgages and rents in two different places,” so I end up renting out my basement. It has a separate entrance through the parking pad, it has a bathroom, and it’s a nice-sized, finished basement, so I was like, “I’ll put that on Airbnb or Furnished Finder, so that I could rent out to other travel nurses while I’m not home.”

Ashley:
I want to ask real quick, what are the books that you first read that gave you your first little education into real estate?

Tyrin:
You pulled my card. I should have had this prepared, because they’re all upstairs. But when I say I have literally almost every book from just the basics on getting into real estate and the different strategies. Brandon Turner, he’s like the Tom Brady in my real estate mind.

Ashley:
That’s a great analogy.

Tyrin:
I’ve got all of you guys’ books. I just recently purchased the Real Estate Tax Strategies, because I plan on using it into a business that I have created coming up.

Tony:
Ty, I’m so glad you mentioned BiggerPockets books, because this is the perfect time for me and Ashley to plug our new book. If you guys head over to biggerpockets.com/partnerships, you guys can get the Real Estate Partnerships book that Ash and I co-authored together. Ty, just going back really quickly to something that you said, it seems like what you said was after you graduated from college and you started working, you felt that that was like it, like that was all you knew how to do. You graduate from high school, go to college, get a degree, get a job, and that’s what you do for the rest of your life. But you said it was a friend that opened your eyes to the world of real estate investing, and I want to pause on that, because it’s such an incredibly important thing for people to understand the power that comes along with community.
A lot of people who are listening, they might be the only person in their immediate circle that is drinking the Kool-Aid of real estate investing and they haven’t yet found that community, but when you lack community, there are two challenges, really, that you face. First is that there’s this lack of attainability in your goals, because if the only person you see that’s having success as a real estate investor is the voice you hear on the podcast or the face you see on the YouTube videos or on social media and you don’t know anyone in your personal life, it almost makes that goal seem, not fake, but it’s this pie in the sky type thing where it’s like, “Are people even really doing this in real life?” But if you can’t see someone that you know, it makes it harder to believe that.
The second challenge with not having that community is when you get stuck on something. Almost every time that you start investing in real estate, something unexpected is going to happen, some challenge is going to present itself. If you don’t have a good community to help guide the way, when you get stuck, you’re going to think you’re the only person on the face of the planet that’s ever dealt with that issue, when in reality, it’s been solved and faced 1,000 times by someone else, but you just can’t see that. For all of our rookies that are listening, you’ve already taken the first step of listening to this podcast, but find other ways to continue to build your community.
We’ve got BPCON that’s coming up soon, find local real estate meetups, create a little mastermind with you and some of the folks that you know, but anything you can do to continue to build that community, you’re going to benefit greatly from being a part of that. I guess, Ty, let me ask this as a follow-up, Stanley, was he a coworker? How did you guys get connected, and how did he know that you would even be open to receiving that information about real estate investing?

Tyrin:
Stanley, I had met Stanley through the beginning of my career, when I initially started my personal brand, The Urban Nurse, and he also had a nursing brand that he was pushing, as well, but through our career, we just stayed in contact and followed each other on social media. But early on, he was posting the thick of him being in his real estate, like the contractors around and him signing leases and him signing his contracts and things, so I was literally living through him, in regards to the real estate. I would always contact him and hit him up, but I’m one of those people where I don’t want to just reach out for the sake of reaching out.
Through my upcoming in nursing and my nursing influence, I get a lot of people who ask me, “Hey, how do I become a nurse?” It’s like if you really wanted to become a nurse, you would put in the work yourself. We have Google that’s out here, and I’m willing to assist you with any questions through the process, but to tell you to how to become a nurse is to tell you how to do math, when there’s so many different aspects of it. But once I showed him that I was serious about it, I would read a book, come back to him, and ask him about certain details within the book. But once he opened my eyes up to BiggerPockets and that community, I then found out about the podcast, which then consumed my daily audio listening.
I then found out about the Facebook community, which then I was able to see people who, when I thought of a real estate investor, I thought of a guy in a suit, millionaire, who had money, but going into the BiggerPockets, whether it’s the rookies or the main page, you get to see real estate investors of all kind, and it really showed me that it was possible, because not only people of different demographics, but also people of different economic levels. You’ve got people who are coming in who are really making less than I am, but they’re still successful at it, so it’s like, “Oh, I really can do this. I’ve just got to figure it out.”
But the community is really important, like you said, because it shows you that there are people that you can connect with in this world around you, because when I was heavy in my BiggerPockets just content consumption, I would go to my friends and the people that were around me, and they would look at me like, “Thanks for the information.” I just felt like I was that crazy person standing up on a soapbox like, “We can all do this. Real estate is real,” and everybody’s just like, “Get out of here, man,” so that’s how that happened.

Tony:
You mentioned that you saw people who were making less money than you that were successful with this, I want to go back to that, but really quickly, something else you said, you said that as you were talking to this person, Stanley, you weren’t just asking him for advice. You said you would go out and take action, you’d read a book, you’d absorb a bunch of information, and then go back to him, after you’d already taken some action on your own end. I think that’s a really important thing for our rookie audience to understand, as well, is that if you want to reach out to someone that maybe has more experience than you, someone that could potentially mentor you, you have to show them that you are serious, and taking action, like what Ty did, is one way to do that.
But I want to go back, Ty, to what you said about the income piece. You said that travel nurses were making $8,000 to $10,000 per week during COVID, which is insane. I guess, for a lot of people, if you see your income go from whatever it was before to 8 or 10K a week, that’s a big jump for a lot of people. Did you experience lifestyle creep, or were you super disciplined in tucking all that money away?

Tyrin:
I would say my COVID journey was in three different phases. In the beginning, I initially went to New York at the peak of the pandemic, and that was after talking to Stanley, because he was in Houston at the time, which was another big hotbed, and he’s like, “Man, you’ve got to get out here. You’ve got to get this money, but you’re going to have to work.” I was working about 48 to 60 hours a week, really, at the peak, 60 hours a week, 12 hours a day, 7:00 P to 7:00 A. But at that time, my first contract, I had a beat-up car, I never purchased my own car, so it was really like that sudden wealth syndrome that I had encountered, where I’m like, “I’m getting all this money, I can pay that off.” It was like the idea of real estate investing was still not at reach because I hadn’t fulfilled all of my inner wanting to spend money and do different things.
I did splurge for a second, but after my initial New York contract, which was about six months, I was at home for about a month. I’m just thinking, all I really have to show for is this shiny car that’s sitting outside. At that time, I did dibble and dabble into different ventures, as far as investing. I bought two vending machines and I started that process, which had also gotten my entrepreneurial bug and that really heated me up. But I’m like, “I really don’t have anything to show for it, and here I am again, still thinking about my community and the people that I’m watching every day and listening to,” and I’m like, “I’m not aligning my actions with my values.” And then that’s when I went to Houston, which was probably the worst COVID experience that I had faced after New York, and I put my head down, I continued to study, and this time, during the second leg, was the main focus on leaving with a real estate property, buying my first real estate property.

Ashley:
Ty, I want to touch on those vending machines, because we’ve done a couple of side hustle episodes. What made you get into the vending machines and where did you even put them?

Tyrin:
If you guys remember, during COVID, there was either a vending machine course, a stock investing course, a fix and flip course, a Touro course, or crypto. There were some type of courses out there, and I’m like, “Vending machines, it’s an easy buy-in,” so I bought my first two machines for about 2,500 bucks each, just through my research, and the hardest part was finding a location. I called at least 1,000 different businesses, from barbershops to libraries, but at that time, I started to see hotels and a lot of places were starting to transition into creating their own internal stores, so it got really hard.
But I ended up, which at the time, I didn’t even know existed, but I found a marina, which is a boat dock for people who have boats in it, and ended up placing one there, and also found a military shipment warehouse that didn’t have vending machines and ended up putting a machine there. That was my first introduction into owning your own business, having to get the product and place them in the machines, and doing everything by myself while I’m on my break from a contract, so managing them from a distance and while I’m at home. With vending machines, if you don’t have volume, it’s really not worth the money for me, because it’s a lot of work that you have to put into it, but you don’t really have enough capital coming back in order to scale.

Ashley:
That’s super interesting. Are you still doing it now, or did you sell the vending machines?

Tyrin:
I sold the vending machines. I stopped everything. I stopped Airbnb, I stopped the Touro at the time, I stopped the vending machines, because you know what they say, a jack of all trades is a master of none. I’m like, “Again, everything has taken me away and distracted me from the one thing that I really wanted to invest in,” but that was because I was under the idea that, you know what they say, a millionaire has seven streams of income, so now that I was coming into this money, I was trying to create my different streams, when it was like they became a millionaire through one avenue and then was able to branch out into other streams of revenue, but I had to put all my eggs in one basket, and I just consolidated everything and just went all into real estate.

Ashley:
That is so important for everyone listening to go back and just hear that piece again, that a millionaire becomes a millionaire off of that one strategy they’re focusing on, and then they go and they build out those seven income streams. If you look at a lot of successful investors, that’s what they did. They became successful at one thing, and then they started to branch out from that. Maybe it’s developing other pieces of their business, like a tech component or things like that, but it’s that one thing that they became really good at that made them the money that they could go and take risks investing in building out other businesses or other passive income streams. Ty, I want to get back to, you took your next contract in Houston and you decided, “I’m going to get my first deal.” Did you buy your first deal in Houston, or what was the market you selected and why?

Tyrin:
I’m kind of fearful of long-distance real estate investing, just because I have a control issue, so just having to be able to get to the property if I needed to, that’s important to me.

Ashley:
But let me ask you this, what would be one situation where you would need to get to the property?

Tony:
Read my mind.

Tyrin:
Simple things, like right now, having to get into the property for, I do Section 8 rentals, so having to get into the property so that one of the inspectors can just look over things and approve of the conditions of the house, but the key is not in the lockbox because one of my contractor’s workers took it home with him, so I have to use my key instead to let them in, so that I don’t miss my appointment and then have to pay another 80 bucks in order to have them come out.

Ashley:
Ty, I asked that because I was in the same position as you, as to I was very comfortable in investing close to me because of that same reason, if I needed to go to the property or if something like that happened, somebody needed to be let in or whatever it is, it was convenient for me to go in. But I just want to say that that’s a fear to overcome, that the goal should be, no matter where your property, is that it can operate without you having to actually go to the property. But I still invest very close to home. All of my properties are drivable, but I never do have to go to them. Anyone listening, just think about that, is your fear really a fear or is it just something that is convenient and comfortable for you?

Tony:
Ash, it makes me think of the concept, Robert Kiyosaki has it in the Cashflow Quadrant, where he talks about being self-employed versus being a business owner. When you’re self-employed, it means that you own your business, but you’re still working very actively in your business, like you’re the person that’s going to open up the lockbox at your property, whereas when you’re the business owner, you’ve set up system and processes and accountability to do those things for you.
One of the reasons that I actually like long-distance investing is because it forces you to think like a business owner and not like someone who is self-employed. My first property, I’m in California, was in Louisiana. I couldn’t go to the property to open it up for someone. I had to figure out systems and process to make it work. My first short-term rental, over 2,000 miles away from my house. We had to build the team, the boots on the ground, to make that happen. It became so much easier when we did buy closer because we had already built these systems and processes to manage remotely, so I think there is a tremendous benefit to being able to do that. Sorry, Ty, I didn’t mean to get you off track there, man. Actually, I just went off on a tangent, but-

Tyrin:
No problem. I definitely agree with that, but for me, I know, I’ve been living in Baltimore for the past 29 years of my life, and it’s a rental market. Not a lot of people own their homes here. It was really the long-term strategy I wanted because I didn’t plan on moving from Baltimore anytime soon, and I wanted to… My idea was building that 20-door safety net, where so I know the blocks individually, and Baltimore is very block by block. You can get a property where for a three-block radius, it’s beautiful, but just outside of that, it’s torn down, abandoned houses.
I knew this market like the back of my hand and it wasn’t really something that I had to do much research on, but also I had a closer connection to the real estate investing community in Baltimore, versus having to go out and find those individual pieces and team members to successfully run my real estate portfolio. I could come here and I could ask somebody, “Hey, do you know of a good person?” And easily get referrals. Through that was how I met one of my mentors, which is why I just feel like the Baltimore market is so up-and-coming, because I definitely believe in my city, but it’s just like a hidden gold mine to me and the people that live here who have access and knowledge to real estate.

Ashley:
You had an advantage investing in the Baltimore market, compared to somebody who was coming out-of-state and didn’t know the streets, and that is something very valuable to think of when deciding on a market, is where do you already have opportunity and advantages? A market you know well, because maybe you grew up there or you live there now, you’re going to know street by street, you’re going to know different things about the town, things like that, a huge advantage, and it is feasible for you to invest in a market that you already know.
I think where people get caught up is like, “I live in San Francisco, it’s so expensive to invest in. I can’t invest because my market is too expensive.” That’s where you need to overcome the fear of investing out-of-state. But Ty, like you said, you know everything about that area, which gives you that leg up, that gives you that advantage to help you find and analyze deals more efficiently. When you bought this first property, were you in Baltimore at the time or were you in Houston? Walk us along that first initial purchase.

Tyrin:
To lead you up to that, like I told you, I still had that new wealth syndrome, when I finally had saved up enough to buy my first property, but I didn’t know how long that this money would last. I always had that fear like, “One day, this well is going to dry up,” which was at fault to me and kind of ended up shooting myself in the foot. I was still out on contract out in Houston, and just going through my close, intermediate network, I reached out to a buddy of mine, who I literally saw him do a deal from top to bottom through Facebook.
He did the demolition, he did a lot of the renovations, and I really saw him hands-on, so I thought that he was somebody who had way more experience than me, but would be able to help me get in, and he was also a realtor at the time. I hit him up, connected with him, and I’m like, “I want you to help me find my first multifamily property.” I told him how much I had, which was about, at the time I had about 70 grand saved up. I did that within about three months, which is how much we were making, but-

Ashley:
That’s incredible.

Tyrin:
Yeah, but working 60 hours a week, 12 hours a day, it’s tough. I felt like I was doing a prison sentence, because it was just one of those TV skits where it’s just night and day, night and day, night and day, and you just lose track of time. But he was able to start to get boots on the ground and look at different properties, and I would meet up with him and go look at properties when I was in-between contracts, so I had a nice stretch off. I might work six days at the top of the week and then six days at the bottom of next week, and have be able to come home for three days to see my family. But the first day that I came home, he had showed me two multifamily units, and one of them was it just needed cosmetics, and it was arranged as a duplex.
Keyword, it was arranged as a duplex in the description, because we ended up going through the auction. The other one had a hole in it from top to bottom and was a complete renovation, we had to gut it down to the studs. But before buying them, I didn’t know the actual process of doing in-depth research into the property alone. I was just so focused on getting into real estate, getting into the game, that I had skipped a few steps, and that arranged as a duplex kind of came back to bite me in the behind, because it actually wasn’t legally permitted to be a duplex. It was set up just like I’m walking into two different apartments, but the actual permitting and zoning for it, it did not allow that.
It ended up being a single family, and then I ended up purchasing the other duplex, which was the full renovation, at the same time, because I was like, “I have this money now, let me get in. Once I get in, I can figure it out from there.” That’s one of my faults as an entrepreneur, I do the research that hypes me up, gets me ready, gets me going, and I don’t really think about the after effect of what I may or may not encounter and being prepared for that, especially as a new investor. I purchased both my properties, one for $60,000, the other for $80,000, through an auction. I laugh now, because I was so hungry to get into the game that I didn’t even go through the auction process. I just paid an additional fee, on top of the earnest money deposit, to be able to get the properties just to say I had them, I got what I need to get out of COVID, and then I can figure it out, but that’s when the storm started.

Tony:
A couple of questions, Ty, come to mind, but I think first question, what was the timing? Was it literally the same auction? What was the timeframe between purchase one and purchase two?

Tyrin:
Purchased one on March 31st and purchased the second on April 2nd-

Tony:
Oh yeah, so a few days apart?

Tyrin:
Yeah. It was literally signing back-to-back. I had to catch it while I was in town in-between my schedule, so I had to align the dates up to be simultaneous.

Tony:
It sounds like you knew a little bit about the properties, but usually with auctions, at least sometimes, you don’t have the ability to actually walk the property beforehand. Did you actually get to see inside and do inspections on these properties, or was it just kind of, hey, I can peek in through the window and hope all looks good?

Tyrin:
I was able to walk inside, but I wasn’t, well at the time, I should have brought an inspector with me, but I was relying on the experience of my friend who was walking through them with me and showing me the properties and just relying on his thumbs up or thumbs down. But I was able to walk through and see the properties, I just wasn’t able to reschedule for another day to also have an inspector come out and actually get in-depth to tell me what the numbers are, how much the rehab is going to cost, any issues that are there, or to even walk through the zoning and permitting aspects of it.
Got ahead of myself when going through the auction and trying to take advantage of the income that I had, because I was saving for real estate, but I was also paying for my living expenses, as well. I wanted to get in so bad. It was just like a burning desire to get into real estate, but my problem with that was I wanted to get into real estate for the idea and the concept that I fell in love with of being a real estate investor, but I really didn’t prepare myself for the work and the personal development that also is required to be a successful real estate developer through the ups and downs that you go through. Jumping off the porch and jumping off, I guess you’d want to say, jumping off the deck into waters that I really didn’t know how deep they were, but I was like, “We’re going headfirst, and we’re just going to get to that bridge when we cross it.”

Ashley:
Well, Ty, first, I want to thank you for your honesty as to opening up as to the mistakes and the lessons that you have learned. One thing I want to go through for anyone that’s not familiar is the actual auction process, as to how do you even buy a property at auction, and how did you find this property for auction? Can you just give us a quick, little tutorial on buying a property at auction?

Tyrin:
With having a realtor, he had access to the MLS and access to properties that were being auctioned off or that were pre-auctioned beforehand. He had all the in-depth knowledge of knowing where the properties were, when they were going up for auction, but they also had signs out in the front yard of the properties listing the auction date, listing access to the website. Essentially, you’ve got to pay a fee in order to get into the auction, and that fee is essentially like a deposit, essentially, to let them know that you do have the funds to purchase something, and they give you an auction date. But like I said, I didn’t even go through the process because I knew I wanted those properties, I put down the earnest money deposit, and paid the fee, which I also had to pay a little extra because I was getting the pre-auction price of it, because who’s to say if I would have actually went through with the process, I could have gotten it for cheaper or I could have gotten it for way more than what I did.

Tony:
Ty, so let me ask this, because it sounds like at least one of these properties did need a little bit of work. How much did you budget for rehab on these properties? Because you said you walked here without getting inspections done, didn’t have a GC walking with you, it was just this realtor person or friend of yours. How accurate were your initial rehab budgets versus what you actually ended up spending?

Tyrin:
I know when I tell my story, I always say, “People are going to kill me in the comments for this,” but I was actually going by… Like I said, I got ahead of myself because I’m like, “I’m a real estate investor now. I’m a boss. I’m that guy. I’m here.” As a nurse, a big word for us is delegation, so I’m like, “I’m delegating this to him,” but you can’t delegate something that you can’t essentially proofread or go over somebody’s work to know if they did or didn’t do it right or wrong. I’m like, “Hey, do you have, as far as a blueprint, as far as what the renovation costs would be, like averages?” He put up a workup for me, and he’s not a contractor, and gave me pretty much a very average rehab budget. For the $60,000 property, I had budgeted 70,000 for rehab, and then I ended up budgeting 40,000 for the property that I had gotten for 80,000, because in my mind, it was already set up as two different properties ready to go, just needed some cosmetic finish up.
But once we then got into it and a professional was actually able to go through it and go through the process the right way, I ended up spending maybe $20,000 extra out of pocket, out of my own money, to finish the projects, which is why it initially went from a six month, because I’m thinking three to six months is a typical renovation, and then I could refi out, because I had ended up going through a hard money lender to purchase the two properties, and I’m like, “I’ll be able to get these finished,” and it ended up actually taking two years, because now when it was time to actually get in it, the clock started ticking, but I’m still under this mentality that I’ve got them, I’m in, and I can take my time with them now that I have them.
But with that time comes property taxes, with that time comes fees from the city because your grass isn’t cut or you’ve got trash out in your yard that you didn’t put there or somebody might have dumped there because it’s a vacant property. There’s so many other things that came with it.. I’m going to be honest with you, it wasn’t until about eight or nine months into owning where I actually saw the clock ticking on my time. It’s like, “Bro, you’re eating into your profits right now. You’re eating into what you’re going to need to close on this property. You’re eating into your own money,” which I didn’t see at the point, because I’m like, “I’ve got this rehab budget that I have, and I could just pay just to keep the mortgage up,” because at that time, I was making $8,000, $10,000 a week.
And then that’s when the vaccine came out and things switched up and COVID numbers went from up here to down here, and so did the contract rates. Then I end up coming home, and it was like, “I’ve got to get these properties finished, because now I’m making half of what I was making,” but I still had the same expenses that I had during that time where I was making the most money ever, so the clock started racing. And then that’s when I was in the biggest storm of my life, in regards of managing and keeping up three properties, because I also had my primary mortgage at the same time, and trying to find the right people in order to help me with this process, because once I realized that the budget that I had created and the information that I was getting from my friend, I quickly realized that he’s not the person that I need to guide me through this journey.
That’s when we went out our separate ways, and it was finding the right person next. Going through one bad contractor, who was a family friend, into actually reaching out to my real estate network and trying to… Because I always heard that a good investor’s not really going to give up their guy, they’re not going to give up their contractor who it took them forever to find. I had a mentor who had actually referred me to a guy who was able to pretty much clean up my mess and stop the bleeding, but that wasn’t until in year two, after already getting a rollover fee from my lender and potential foreclosure, essentially, which was what the thought was in my head.

Ashley:
Can you just describe real quick what a rollover fee is and how you were notified that you’re at risk of foreclosure?

Tyrin:
Well, I wasn’t at risk for foreclosure, but mentally, now that the clock was ticking, I was like, “I do not want to lose this property, because I’m not going to be able to…” My rates were getting cut month by month, so I’m going from making 140 an hour to making 100 an hour to making 60 an hour, so it’s just like my income is coming down. They’re sending me an email like, “Here’s your monthly statement, here’s your monthly statement,” and when I got to month 11, I had called them, because I’m like, “I’m not even halfway finished.” They could see that the payments were still coming in, but the rehab budget wasn’t really being touched because there wasn’t much that I was doing with it.
They were like, “Oh, no problem, man. You’re making your payments. Everything is all good when you’re making the payments,” so they’re like, “No worries, just keep paying them.” At the time, my lender was charging me 13% interest-only fee on the full 80% of the property value and 100% of the rehab budget, so he was like, “Just keep paying, and then we’ll roll you over into a one-year loan.” I’m like, “Cool,” but then, once I got into year two and was now facing the obstacle of having to roll over into another year, it’s like, “I’ve got close to $6,000 in fees for each property that I have to now add onto my closing costs because it increases the value of my loan.”

Tony:
Ty, how did you end up navigating this whole thing? Well, first, I just want to commend you, because you said that you entered into the biggest storm of your life, and I think for a lot of people, when they get to that moment, that could be when they wave the white flag, they throw in the towel and they say, “This real estate investing stuff just isn’t real, Brandon Turner lied to us,” but you kept your composure and you muscled through. I just think it takes a certain level of grit to be able to do that, to be able to push through when things get hard, but I also want our rookies to understand that it’s that mentality that separates people who are truly successful in this business versus those that dabble and give up. I think every single person that’s big enough can talk about the failures and mistakes that they’ve made along the way.
James Dainard, who’s a friend of mine and Ashley’s, he’s also on the On the Market Podcast, but he says a lot of… I’ve heard him say many times that the only reason that he’s so knowledgeable in house flipping is because he’s made a ton of mistakes over the years. You hear that same story time and time again, so Ty, I appreciate you being vulnerable on the podcast, because I think it shows our rookies that it’s not always rainbows and butterflies, man. But how does this end? What happens, man? You have the pressure of things mounting and building. Are you able to refinance, do you finish the rehab? How does this story end?

Tyrin:
It literally came down to a photo finish, essentially. I ended up deciding to do the Section 8 long-term rental strategy. Let me not say, “I just muscled it up and I was strong through the process, man,” I had a lot of sleepless nights. I made myself sleep on the couch because of just pure shame in the position that I put myself in. There was a lot of blood, sweat, and tears that went in through weathering that storm, and also personal growth, because I don’t think maturity-wise, I was prepared to be essentially a business owner and owning real estate, and that was just the beginning phase.
I did put the properties up for sale for about a week, waving my white flag, but every time that I talked to somebody and told them my sob story, it was always like, they’re like, “Bro, you’ve got to finish. You’re either going to learn from this now, or you’re going to quit and then have to start over once you realize that you can do it, and then you get to that point again.” But he’s like, “We all went through it.” Every investor that I talked to had a story of a loss that they took, and it was just weathering that storm and getting to the end that you really learn from it, you really grow from it, and it gives you the confidence in order to go back into it.
I wasn’t the strongest through it, and I thank my wife during this time, as well, being a support system and helping me get through it, because I really probably, if it was just me by myself, I would have given up. But I ended up, like I said, through a mentor, finding a contractor, who, I mean, he did everything, because through my first contractor, there were a lot of corners cut. I was just listening to a person with experience who really didn’t have my best interests at heart, was really just trying to make money from it, and he cut a lot of corners and really set me back. Finding my new contractor, he was able to get my permits all signed off, he was able to fix the problems that the first contractor messed up, and he was able to get me my first tenants for my properties.
I had ended up starting the Section 8 process, which became another headache within itself, but finalized the Section 8 process, ended up refiing out of my hard money lender at, I want to say, a year and nine months, so with just a couple months left in my loan term, and that’s when I really hit like you get out of the storm, and then I ran into this wall, because it was like, “You’re here at the end, but because you didn’t do your numbers right from the beginning, you don’t have enough for closing.” I remember, I will never forget this day, I’m an avid golfer, and when I say that, I don’t mean I’m that good, but I love to play and I love to get better, but I’m out on the golf course, a nice, 250-yard drive down the middle, and I’m setting up for my approach shot, and I get a call from my lender.
He’s like, “Well, there’s a law in Baltimore City that essentially, the title company has to take an additional $5,000 to hold, just in case there’s any issues with the water bill and for people who haven’t paid their water bill.” That was $10,000 each property, and I only had 5,000 to my name from what I just had in my account, and then I had another 2,500 coming up the next week just from my job, but I had already used my 401(k) and my brokerage savings as the… You’ve got to have nine months of reserves in order to even refinance the property, which was something that I didn’t take into account, so I’m taking money from my emergency savings, putting money aside, or using my 401(k) and then my investment account that I just do my long-term holds in, and having to put that up in order to use that as reserves for the properties.
But luckily, I was able to, like I said, I was just like, “I’m going to have to give up my emergency fund just for this, and I will just have to build it back up because I’m at the end and I’ve got to cross this finish line.” I had to do whatever it took in order to do that, which is, when I look back and think about the Tyrin in the beginning of the process, I would have never done that because just my idea of investing and using money, I would have never given up or risked it all for the long-term outcome. I ended up closing on both properties, both of them are rented out. I have a two-year lease with Section 8 for my single family and I have one unit rented out for my duplex, which is covering the mortgage, plus some, so I really don’t have to worry about that financial burden of a mortgage, but I’m working on getting the second unit rented out now through Section 8, as well.

Ashley:
Well, Ty, I am glad that you had the endurance to go the course of those two years to get that done. I think some people don’t realize what can happen in real estate investing and that if there are obstacles that happen like that, there are ways to overcome them, and sometimes it just takes that hard work and that constant pushing, pushing, pushing. I really want to highlight again how you talked about community several times throughout this episode, and saying that you even listed the properties, put up your white flag and said, “I surrender, I’m done,” but the people that you surrounded yourself with kept you pushing and said, “You’ve got to finish this, man. You’ve got to finish it,” so that’s really awesome to hear. One thing I want to know is on these properties, after you finished the rehab, you went and refinanced, did they appraise for what you expected them to appraise for?

Tyrin:
Yeah. Each property ended up appraising for about $175,000, which is what I initially figured the ARV would be when first purchasing the properties. But because of COVID, the market was so out of whack and property values were going up, I had essentially, in my head, bumped up the property value according to what things were going for a year ago. Then a year later, property values are now down, and it ended up appraising for the actual amount that I thought it would appraise for, but because of my holding cost and additional repair costs, I still ended up being in the red when it came to my cash-on-cash return and things of that nature.

Ashley:
Well, thank you so much for sharing this with us. I think there’s a lot of valuable lessons to take away, but I also just love your persistence and your endurance to get these two deals done.

Tyrin:
Like I said, I’m so involved, as far as listening to BiggerPockets and hearing other people’s stories. I just want anybody out there to know it is possible, even if you’re just getting started or if you’re in the thick of the storm right now, everybody has been through it or there is somebody else going through it, so if you just, even if it’s anonymously, just reach out for help from somebody in the community that you know, trust, and has the experience and just use them as a shoulder to lean on in order to get through it. You can do this, and you’ve got to finish the race, you’ve got to finish the marathon.

Tony:
I just want to try and recap, Ty, really quickly, some of the lessons that I’ve heard as you were talking here, and let me know if I end up missing anything. We talked a little bit at the beginning about you not doing an inspection before you purchased both of those properties to really understand the nuts and bolts, not understanding the permitting of those homes and what was legally permitted versus what wasn’t, putting your faith maybe in the wrong person, per se, someone that didn’t really have the knowledge that they were claiming to have. You didn’t quite say this, but it’s like what some people do, Ty, is they get stuck in analysis paralysis, where they can’t get off the ledge, but you were almost on the other opposite end of that spectrum, where you dove all the way in. I guess, just one last question, knowing what you now know or going through what you’ve gone through, would you still have moved so aggressively to buy two properties at auction three days apart, or would you have maybe just bought one to start with?

Tyrin:
I heard the term analysis paralysis so much, I wanted to get ahead of it. I didn’t want to be stuck in the analysis paralysis, so that’s why I just ran and dove in blindly. But if I could do it over again, one, I would really seek out mentorship, which is something that’s important to me, because you don’t know what you don’t know. To be able to use other people’s experience and knowledge is really important, which is why, through my experience, my goal has really switched up from continuing to invest primarily into real estate and really diving into financial planning to help prepare aspiring and current investors, one, create a secure financial foundation for the uncertainties that I have encountered or that they may encounter on their journey, and having that guidance and shoulder to lean on from a planning perspective, because real estate has seeped into my personal life, because everything had to be on pause because of the financial impact that it was having on me.
I would just be more strategic with my planning and investing all around, making sure I had as much reserve as possible, because I’m going to be honest, the experience has maken me really way more risk-averse than what I was when I came in. I would just try to be more tactical with getting into the game, just getting one property, still having a cash reserve and enough amount to, if I did this one successful, maybe I could do the next one successfully, but I wouldn’t have to literally drain everything at the end, just to have to build it back up again. I would say, in summarizing that, just not leveraging myself from the beginning, because I will say that I’m one of those guys where if you challenge me to run through a wall, that’s all I’m going to focus on.
I’m hearing a lot of the guys through the different podcast episodes and from the Bigger… I had to stop listening to the BiggerPockets Podcast because it was so large at scale, the stories that I’m hearing from these people and the confidence that I’m gaining, the new ideas that I get, and really had to focus on rookies for people who are more at my level. But even within The Rookie Podcast, you guys got so many amazing investors, whereas though they’re doing four properties or doing bigger deals, and now, I would say by knowing this, I would really just stay in my lane, essentially. I would only do what I could handle or what I think I could handle, based on what the numbers say, and really just grow and get to that point, because real estate, it’s a lifestyle, it’s a long-term play, and it’s forever, so it’s like not rushing everything into one year as if it’s kind going to make or break me, because true wealth is built over time and through proper planning.

Tony:
Ty, what a great way to end your story there, brother, and really do appreciate you being so transparent about the ups and downs of this journey, because I do think that failures and setbacks are sometimes more instructional than people who are just successful all the time, so appreciate everything you shared about your story, man. I want to take us onto our next segment here, which is the Rookie Request Line. For all of the rookie’s that are listening, if you’d like to get your question featured on the show, head over to biggerpockets.com/reply and drop your question there, and we just might use in the podcast. Ty, are you ready for today’s question?

Tyrin:
I’m ready.

Tony:
Today’s question comes from Chuck Swisher. Chuck’s question is, “When looking at a property to possibly BRRRR, how do you go about figuring out what the ARV should be, and how do you find out how much you should spend on a rehab so you aren’t building a million-dollar home in a $100,000 neighborhood, that way, you can get all your money back when you refinance? Thanks in advance.” Ty, given that you just had this experience, what’s your advice for Chuck?

Tyrin:
My advice for Chuck would be to, one, once you’ve figured out the area that you want to BRRRR in, you should really figure out what the average prices are for the homes in that, I want to say two- to five-mile radius, so that you can see the comps are in the neighborhood. You want to get as detailed as possible into different properties that have the same, whether it’s room number, bathroom number, and square footage that your property has, and then figure out, once using what they sold for, that’s when you have an inspector come through and see what they’re going to charge you in order to actually do the rehab, and then you can figure out. Again, I would say go through multiple contractors and get different rates.
That was something I was fearful of doing in the beginning, as well, but get different rates from different contractors and see how much it would take to get it to, whether it’s… If you’re doing a BRRRR and it’s for your long-term rental, you really don’t have to put that much into it. It’s not a house that you’re going to be living in, it’s really for your tenant and more so your cashflow, so figuring out what that’s going to cost and then taking the average property values. I like to go to Zillow because I don’t have MLS access and just change my filters to all of the aspects of the home and then do it in the last six months to see what homes are actually selling for right now, and then using 70% of that to figure out pretty much what you will get back, well, I say 70% now, during COVID, it was 75, 80%, as far as your ARV, so that you can know how much and in what area you have to spend in order to still come out and be profitable when you refi.

Tony:
Love that breakdown, Ty. Guys, we’ve also got a… I’m pretty sure there’s a YouTube video on The Real Estate Rookie YouTube channel that talks about how to calculate ARV, so for those of you that want a more in-depth breakdown, as well, please check out The Real Estate Rookie YouTube channel. Ty, we are going to take it to our Rookie Exam. These are the three most important questions you’ll ever be asked in your life. Are you ready for the exam?

Tyrin:
I’m ready.

Tony:
Question number one, what’s one actionable thing rookies should do after listening to your episode?

Tyrin:
One actionable thing I think every rookie should do after listening to this episode is really taking a look in the mirror, seeing what lifestyle you see for yourself from real estate, and actually creating a plan to get to that point, and just day by day, getting 1% better. Tailoring that plan from a micro level to help you get to that macro level, so, making sure essentially, that your actions align with your values, because you might want to get in real estate, but the BiggerPockets book is sitting over in the corner and you haven’t touched it in a few days, or if you’re in the game right now, you’re not pretty much making your cashflow as efficient as possible. I would say take action and planning to where you want to get to, versus just getting in and being blind to what the future holds.

Ashley:
What is one tool, software, app, or system in your business that you use?

Tyrin:
I’m going to say the biggest tool is Facebook. We’re in a creator economy, essentially, and if you don’t have the network around you, having access to people who may be on the other side of the country who are willing to converse with you and respond and answer your questions. I’ve had people who live in Colorado, I’ve got on FaceTime with them, I’ve gotten on Zoom with them, just to be able to ask them questions and figure out what their perspective is on things, and that was simply from a, “Hey, I need some help. I need some help with what I’m going through,” just by posting it in the Facebook group, so I would say Facebook, honestly. From a technical standpoint, I like Stessa. I use that as keeping up with all of my expenses from a landlord perspective and an owner of a property, so that at the end of the year, I just click one button, it compiles everything, and I can just give that to my CPA.

Tony:
Love Stessa. For those of you that don’t know, Stessa is assets spelled backwards.

Ashley:
That still blows Tony’s mind.

Tony:
See, Ty didn’t know either.

Tyrin:
I didn’t know that either.

Ashley:
When I found out, too, it was like, “Ooh, yeah,” and I think a lot of people are like that.

Tony:
Clever. One other plug, you talked about the community piece, guys, all Rookie’s that are listening if you’re not in the BiggerPockets forums, there is a treasure trove of information in the BiggerPockets forums and there’s tons of people that are so active in the forums, as well. That’s actually how I found BiggerPockets initially, was through the forums, so make sure you guys check out the forums, as well. Last question for you, Ty,

Tyrin:
Where do you plan on being in five years?

Tyrin:
That’s a great question. In five years, I plan on, here I am, I might get a little ahead of myself, but in five years, I hope to be able to have retired early from nursing or gone a more PRN status, working very minimally, and really helping other investors succeed in real estate, whether that’s inspiring investors looking to purchase their first property or established investors who are looking to pretty much streamline their process and integrate their real estate portfolio into their financial plan and retirement.
I want to be able to just help as many people as possible, because at the end of the day, I’m still a nurse at heart, but really helping nurse and nurture people in the real estate space and really bridging the gap between healthcare and real estate to let other healthcare professionals know that you do have the opportunity of a lifetime while working in healthcare and having that job security, but to me, it’s not a sustainable long-term, just with the amount of work that you have to do. I don’t want to see people be all broken and bruised in the later years and not really have much to show for it, so helping people create that exit strategy to get to where they want and accomplish their goals. I hope I can be that person for someone in five years and help, my number is 100 people, but help as many people as I can.

Ashley:
Well, let’s give a shout-out to this week’s Rookie Rockstar, which is Tyler Borth. His first property is coming together. Unit two has already completed the rehab start to finish in seven days. There is going to be an 82% ROI, two of the three units on the property renovated within 60 days of closing. Tyler’s advice is, “Don’t let fears hold you back. The best way to learn is to do it.” Congratulations, Tyler, and thanks for being our Rookie Rockstar. If you want to be featured as our Rookie Rockstar, please leave a comment in The Real Estate Rookie Facebook group, or you can send a DM to Tony or I with your win or also your lesson learned. Well, Ty, thank you so much for joining us this week on Real Estate Rookie. Can you let everyone know where they can reach out to you and find out some more information about you?

Tyrin:
Thank you guys for having me. You guys can find me on Instagram @TheUrbanNurse, through LinkedIn, Tyrin Tyson. I’m primarily on YouTube, I have a YouTube channel called The Urban Nurse. We can always touch bases through DM through LinkedIn, Instagram, or shoot me a comment via YouTube, you guys can always find me there. I’m willing to talk to anybody, so if you guys need help with anything or just need advice, feel free to reach out.

Ashley:
Thank you so much for listening to this week’s Real Estate Rookie. I’m Ashley @wealthfromrentals and he’s Tony @tonyjrobinson, and we will be back on Saturday with a Rookie Reply.