Ashley:
This is the Real Estate Rookie Podcast, episode 277.

Tony:
You’ve learned so much on this first deal, Sarah, that I’m sure if we talk to Sarah today versus Sarah six months ago, you’re two totally different people when it comes to your knowledge of real estate investing. Even if you’re able to walk away from this deal eventually down the road at a breakeven, it’s still the multiple, the return on that is 10x, 100x because you’ve been able to learn and give yourself the tools you need to keep growing.

Sarah:
Thank you. I knew that this was just going to, hopefully it’d be just growing in equity and break even for a few years. That’s fine. It’s the digging myself into a hole right now, it’s just what’s-

Ashley:
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. Today, I want to give a shout-out to someone who goes by the name of Andrew. Andrew left us a five-star review on Apple Podcasts. His review reads, “Great host, amazing company, unforgettable information, BiggerPockets is one of the most altruistic companies I know. They provide so much value free of charge, and this podcast does not disappoint. Very knowledgeable guests and amazing host. Definitely worth checking out.”
If you haven’t yet, if you’re a part of the rookie community and you have not yet left an honest rating and review in whatever platform it is you’re listening to, please take the few minutes takes to do that. The more reviews we get, the more folks we can reach, and the more folks we reach, more folks we can help. That’s what we love doing here. I feel like we’ve been getting a string of really positive reviews as of late, Ashley, and it really helps my super tiny ego, my super sensitive ego when I hear all this positive feedback.

Ashley:
Sarah is a special guest today because I did a giveaway on the pre-order that when someone pre-ordered the book Real Estate Rookie: 90 Days to Your First Investment, one person would get to come on the show with me and Tony and we’d get to interview them, but also they could ask us some questions and how we can really help them on their journey. Sarah is completely honest that she bawled her eyes out yesterday and things are not going as she expected with the rehab of the property. We kind of go through what she has accomplished. She was stuck in analysis paralysis for a couple years, finally took action, and we talk about what that action is and how she found that momentum, and now that she’s into the property, something that has come up and how she’s going to work through it and overcome it.

Tony:
There’s one part of the episode where she gets super vulnerable and really just, we go into kind of a deep conversation about the challenges that come along with being a real estate investor. I’m so appreciative that she opened up to us in that way because I think it sheds a light on the part of real estate investing that doesn’t get talked about enough, and that’s the challenges and the doubt and the fear and how do you work through that. We spend, I think, a decent part of the episode just reframing those challenges that she’s going through and positioning them in a way that actually supports Sarah and her long-term goals of building wealth through real estate.

Ashley:
When Sarah first found out that she was the winner, she won this, she declined it actually. She said, “No, I don’t. I just got my first property under contract. I haven’t really done any real estate investing yet. I don’t think this is really for me.”
And so, I had someone email her back and say, just, “You are perfect. You’re in it right now.” We love how this podcast episode came out because she is literally in the nitty-gritty right now, and somebody who maybe did this a year ago or two years ago. There’s things that they’re not going to remember, things they’re going to forget as they’re telling their story, so I think listening to how this is impacting her right now, it can motivate you and inspire you, but also it can show you what some risks are.
Take a listen to today’s episode and take it with a grain of salt is that it’s not always going to be picture perfect. There’s not always going to be this huge win at the end, or maybe there still will be for her. We just don’t know yet. That was why I thought it was so intriguing and interesting to listen to somebody who’s kind of in the trenches of it right now on their first ever deal. Sarah, thank you for purchasing the Real Estate Rookie book too.

Sarah:
Oh, you know it.

Ashley:
I appreciate it.

Sarah:
I got it. I thought it was spam that I won this. I almost deleted it.

Ashley:
Well, we’re super happy to have you here. Tell us about before even real estate as to who you are and maybe what brought you to find real estate investing.

Sarah:
I’m an interior designer in San Diego, and about five years ago I started casually looking into real estate investment just for fun, looking at places I like to visit, and learning about money management and personal finance and mindset and figuring out how I could do it. I didn’t really know, I didn’t have any tools at the time, so I just look at expanders and people who have done it before and how I can do it. Three years ago, I found you guys and just gobbled up as much information as I could. I was buying all the books and watching the podcasts and YouTube and really trying to get as much information and catch up as I could.
Couple years after that, I started realizing I got some analysis paralysis going on here trying to be perfect and get everything and have this fear of failure. It was this mindset balance that I was trying to go through a lot and I watched a couple friends buy properties, and that really motivated me and lit a fire under me to like, okay, let’s get serious. Let’s start making some offers and take some action steps. I was meeting with realtors that I met through BiggerPockets and brokers and getting my spreadsheet lined and my cash flow, figuring out what I could do and what my strategy was. If one strategy didn’t work, I’d pivot and go over to another direction and explore that for a little bit and go over here.
About a year ago, I got serious and ended up, I put one offer in and got outbid by $5,000, but that was good practice. But again, then I pivoted to a different location that had a little bit less competition and it was closer to where I live, and the market started to change and I just kept the big picture perspective and thinking, okay, maybe this is less competition for me, and even though the interest rates are higher, I can re-file later and just made it work with what I had, and then made an offer a week after it was listed and it got accepted.

Tony:
Man, congrats.

Ashley:
I want to touch on real quick, one thing that you said that was really important, and you talked about the analysis paralysis. Then you said you got to the point where it’s like, okay, I have to take action. Right after that, you said you started making the offers, and that right there is just such a huge thing where people don’t even make the offers, they never even make it to that step as to feeling comfortable to putting offers in. Why do you think that you decided to make offers? What are some of the things that made you feel comfortable and confident that you’re ready to put those offers in whether they’re accepted or not?

Sarah:
It was scary, but I had seen a lot of places that I wasn’t really sold on and this one fit and I thought it was manageable and it fit in the cash flow for living in it for a year for me, and then doing a short-term rental after, so just running the numbers constantly. It did feel like a little bit of a stretch at the time. Being in California is a bigger investment for what you get.

Tony:
Congratulations, Sarah, on just taking that action because I think so many people get stuck at that phase, so the fact that you’re able to push through that I think is super impressive. But something else you mentioned outside of the analysis paralysis was the fact that you saw other people in your network who were taking that step, and that was part of what gave you the confidence to do it yourself. I think that’s such an important thing to call out, because for a lot of our rookie listeners, they’re on this island by themselves. They’re binge-watching or binge-listening to the podcast and they’re binge-watching the YouTube channel and they’re reading all the books, but then they look to their left and they look to their right, and they’re the only person that’s doing this in their current circle.
That’s why we stress so much, Ash and I, the importance of building your network so that there are other people around you who are going through that same journey. Whether it’s the BiggerPockets forums, the Real Estate Rookie Facebook group, joining some of the BiggerPockets boot camps, or other coaching programs, whatever you can do to surround yourself with people, that gives you the confidence to say, “Well, man, if Ashley and Tony can do it, I’m just as smart as those guys are, I’m sure I can do it too.” I love hearing that.
I want to talk a little bit more about your buy box, because you talked about shifting markets. You mentioned that before we started recording, that you live in San Diego, California, which is a pretty expensive market for most folks. I guess two questions, a, why not invest in your backyard? Was it just the price point or was it something else? Then, B, how did you solidify, okay, this is the type of market that I’m looking for because the country’s a big place. How did you narrow it down in one specific city?

Sarah:
I wanted to be local, and I felt like that was more manageable for me. But at the time when I was looking around San Diego, I thought, okay, maybe I can get a duplex and BRRRR it with an FHA, but I had my parents cosign with me, so that threw a little wrench in to the buy box. Then, I was just pivoting around condos. I only had about a $500,000, that was pushing it at the time too, limit. I had to make sure that I could cover the mortgage and how I would do that. It started to feel out-priced in my backyard for me. Then, I just went out to a vacation spot an hour and a half away that I love to visit and feels good. You get out of the city, it’ll draw people out to just regroup and get grounded and escape rough reality. It’s fun.

Tony:
Are you in Julian, California? I assume that’s the closest vacation spot to San Diego. Can you just describe what Julian is for folks that aren’t familiar with SoCal?

Sarah:
Julian is I think one of the only places around SoCal that’s four seasons. Right now, we’ve been hit with a lot of snow and a lot of rain, but then we’ll have super blooms in the spring and then a pretty dry summer, kind of like the desert about 95 degrees, and then goes into a beautiful fall where all the leaves change and it’s pumpkin picking and apple picking. It’s really family-oriented. There’s hiking, there’s a dark sky network.

Tony:
Sarah, I love, and I’m kind of leading because I wanted to follow up with this is that the majority of our listeners probably have never heard of Julian, California. Even for me, I’m an hour and a half north of you, and I never really heard of Julian either until I started knowing people in San Diego. But for people that are in south of where I’m at, everyone knows Julian. The reason I’m bringing this up is that every pocket of the country, every state has its own local regional spot where it’s like, “Hey, yeah, if I want to go to the snow, this is where we go.” Or, “Hey, if I want to go to the river, this is where I go.” Or, “Hey, if I want to go to the lake, this is where… If I want to go mountain biking…”
Every state has its own little area that caters to that traveler. And so, many people ask me, Tony, how do I find the right market? How do I know where to invest? Really, I say, it doesn’t really matter. You could pick any state. You could drop a pin on any map in any of the states in the United States, and you’re going to find at least one market that makes sense. The fact that Julian works for you I think is an important thing for us to call out to the listeners.

Sarah:
I heard somebody say that they put a pin where they live and they went out about an hour and then just went around a radius and like, “What’s manageable for me, Mexico, the ocean? Okay, over here.”

Ashley:
Sarah, what’s kind of the plans with this cabin then, this property? Can you tell us a little more about it?

Sarah:
One of the selling points was it was a two plus one upstairs and a studio downstairs. Having those two incomes eventually really helped the cash flow and made the price point worth it for me, and it just evenly balanced. As soon as I move out, then I hope to get a long-term renter in there just because I’ve listened to the communities where everyone’s investing and I want to provide some kind of local housing for people as well as using part of it for a vacation spot for people and create that balance.

Tony:
You’ve got the 2-1 upstairs, a studio downstairs. You’re currently living in the property, correct? Then, the plan is to rehab or how are you-

Sarah:
Yeah, I got a rehab. It’s more than I thought. There were a couple issues. There was an active leak when I put the offer in and they were dealing with their insurance. I was under the impression that everything would get fixed as they were going through and get the insurance to clear off. Then, they whittled it down to the cause of the leak being these upstairs doors upstairs on the patio and the basement studio is below it.

Ashley:
Oh, so it was coming in through the doors like the doors weren’t sealed and then coming down as a unit.

Sarah:
Well, Whoever put these doors in, wood doors without an overhang, so the wind and the water and snow just seeped in. They give me credit to replace the doors, got the property, ordered the doors, have them ready to be installed, and there’s still a leak. There’s so much water on the mountain, it’s just soaking wet. On my first day I got the keys, I shoveled two feet of snow off that 20-foot patio with a huge heavy shovel and was just… over them. Really, it was a mountain welcoming to me.

Tony:
That’s got to be one of the best welcome to real estate investing stories that I’ve heard on this podcast in a while. Like the day that you close, you have to shovel two feet of snow. That’s awesome.

Ashley:
Especially when you live in San Diego. For me, that’s normal to go to a property to do that.

Sarah:
No, I don’t do snow, really. Last time I was in Telluride for a friend’s wedding and I fell. Anyway, so it’s a learning curve and it’s fine, but it’s just now in the discovery phase of other things that I’m starting to need to put some more focus on and pivot my budget.

Ashley:
Are you having to remodel both units?

Sarah:
I was only planning on the upstairs. That would be like, because that’s the cabin vibe, it’s got the wood ceilings and the beautiful fireplace and really cozy.

Tony:
Just really quickly, Ashley, I just want to pick your brain. Obviously, Sarah, this is your first investment. Every time we buy a property, we learn something new. For me, I feel like, and it depends on the property, but I often try and get the seller to repair depending on what our goal is, but to repair certain things. If it’s something like aesthetic demos, I know I’m going to change that stuff myself anyway, so I’m not going to ask the seller to put a new flooring or redesign the bathrooms.
But for example, we just bought a property and we had the seller replace the septic tank because we knew that the septic tank was bad and it could’ve been on us. He just would’ve given us a credit to go out there and have it done ourselves post closing or to have the seller do it. We push really hard to have the seller repair it because there is that unknown of, okay, what if it’s more than the septic? What happens after that? Ashley, I’m just curious, when you’re buying deals, how do you determine what you’re going to solve and fix versus what you want to push towards the seller?

Ashley:
All of my properties are pretty much as is. They are so bad that you can’t even pick and choose for me to say, “I want this fix.” It’s just, come on Ash, look at this property. That’s not going to do anything to improve it. I never asked for anything to be done. Maybe if I started to focus more on things that weren’t as big of rehab projects, maybe I would ask for things, but I’m putting in my offers knowing that I’m going to have to be doing a lot of work and a lot of different things. The probably one thing I would ask for though is the septic and the well to be done. I think that is a great example.
When I flipped a house in Seattle, Washington, we purchased the property with no inspection, but we did ask for a sewer scope because in Washington, or at least in Seattle, if there’s some law or regulation where if the sewer line needs to be fixed to your house, if you are the new owner taking it over, you’re not grandfathered into some kind of thing or whatever. But if you are the current owner of the property and you go and make that repair that it’s a lot cheaper because you don’t have to do something, I don’t remember exactly what the law was. That was something the person I was partnering with, they always asked if there was something wrong with that sewer line connecting to the main. They would always ask for the seller to make that repair, even if they had to add on to the purchase price to cover the cost of it because it was so much cheaper to have the current owner purchase the property or repair that thing than to have you, as a new owner, do that.

Tony:
Cool. Awesome, Sarah. Obviously, that first deal is where you’re going to learn a ton, so I’m glad that we’re getting some good learning lessons from this one. I wanted to circle back quickly to the numbers on this deal. If you wouldn’t mind just walk us through what your purchase price was, what your total cash to close, and what you’re projecting for the rehab costs.

Sarah:
It was $500,000 and I did 5% down. Here’s where I messed up on my numbers. I only allocated 1.5% for closing costs when I should have probably put 3% down. I had spoken to probably four different lenders.

Ashley:
Why was that, Sarah? Was there something else that came up in your closing costs that made it double?

Tony:
Because I’m in California too, and I usually budget about 2% for our closing costs.

Sarah:
I don’t think I knew to pay a year in advance for insurance, and then four months for property tax or whatever that was. But what was good is I got a $9,500 credit from the seller that went right into closing costs, so it made it really even. After the inspection report, which raised some eyebrows, I called in a contractor to do a walk just to see, is this thing going to fall off the hill? Is this worth it? Am I going into a money pit? He’s like, “No, but there are some fixes that you’re going to want to do, and you could probably do it for $30,000. Then, furniture would be on top of that.” That’s what I broke down and I was constantly going back to these numbers, like each part that needed to be upgraded, what that cost would be, and then it made sense, but now that I’m in it.

Ashley:
Did you have an actual inspector come or you just used the contractor? You had both the inspection report and then the contractor. I think that’s a great mix to do if you can do both of those to get two different points of view. At this time, were there things that were different that the inspector said that should be done that maybe the contractor didn’t or anything like that?

Sarah:
A lot of the leak was pointed again to these French doors on the patio. They voluntarily put in a French drain behind the house at their cost of $11,000 to keep the water going away from the house. When I got in there, water was still coming underneath the house in that location. It could be the water heater, it could just be water coming from who knows what direction. I don’t know, but it makes me wonder because they didn’t disclose any subterranean water intrusion, why did they voluntarily put in an $11,000 French drain that wasn’t really done properly? It wasn’t down as deep as it needs to go either. It’s getting one plumber in, it’s just like, “Sell it immediately,” and one guy says, “Okay, let’s figure out what we can do to just keep moving along and take it in stages,” but it’s been overwhelming.

Tony:
One question I just want to ask because you kind of glossed over this, but as a first time investor, you were able to find a contractor to come walk your property with you, which is a challenge for so many new investors is finding the right contractor-

Ashley:
Even the experienced investors get someone to come.

Tony:
It’s good to get someone to actually show up. Can you walk us through, Sarah, how you found that person and what they charged you, if anything, to do that walkthrough with you?

Sarah:
Yeah, thank you for asking because when I pivoted over to Julian, I really wanted to use a local realtor, and she has been invaluable because she’s had bread and breakfast two or three different spots since the ’90s, so she knows people, she knows all the subs, she knows the best contractors. It was her high reference of a really good local contractor. He came out, I paid him $350, and then he gave me a report of here are things to address. Then, on the side he told me the estimate of what it would probably run, which is about $30,000. I know, I come from interior design and construction, I know those numbers just get out of hand. Part of me is just kicking myself for being naive or I don’t know.

Ashley:
What would you have done differently in that situation looking back now?

Sarah:
Yesterday, I was wishing that I was having buyer’s remorse and a lot of regret, and that was in the morning when that one plumber said, “I’ve dealt with people who just throw money into this situation and spend $70,000 and it’s just like you’re chasing your own tail.” But then, I talked to three other people later that day and I ended up talking to one guy who was trying to find the positive in the situation, say, “Look, let’s handle these three things. Let’s get the flood under control and get a wall up there and start to finish up the upstairs.”

Tony:
I just want to pause on this for a second because first, Sarah, I totally appreciate the transparency and the vulnerability here on the show, because these are things that so many of us struggle with as investors is like, “Man, am I making the right decision. Am I going down the right path? Did I just royally mess up?” These are all things that we struggle with at times. Just first know that you’re not alone. Let me ask this question first. How much cash flow annually were you anticipating to make on this first deal?

Sarah:
Upstairs, it’s probably only 52 because ballpark for the upstairs was like 250 a night at 50% occupancy, usually Thursday to Monday, it’s not as much as Joshua Tree area. That was just cutting it close a little bit with the long-term renter eventually, I thought that would be something stable, but when I move out and fix the downstairs, I got to short-term rental the downstairs just to recoup some money and have some pause, just have some pause down there that I have some days to come in and fix things if something’s going on.

Tony:
Here’s the reason I ask that question, because even if you’re able to break even on this first deal, even if you’re able to break even, in my mind, it still achieves its purpose because Ashley didn’t retire off of her first deal. I didn’t retire off of my first deal. David Greene didn’t retire off of his first deal. Beardy Brandon didn’t retire off of his first deal. Rob… I haven’t met a single person that did one deal and they were just like, “I’m done. I’m riding off into the sunset.”
The purpose of the first deal is to educate yourself. The purpose of the first deal is to give you the foundation and to give you the structure, to give you the confidence so you can go out and get your second deal and then your third deal and then your fifth deal, and then your 10th deal. You’ve learned so much on this first deal, Sarah, that I’m sure if we talk to Sarah today versus Sarah six months ago, you’re two totally different people when it comes to your knowledge of real estate investing. Even if you’re able to walk away from this deal, eventually down the road at a breakeven, it’s still the multiple, the return on that is 10x, 100x because you’ve been able to learn and give yourself the tools you need to keep growing.

Sarah:
Thank you. I knew that this was just going to, hopefully it’d be just growing in equity and break even for a few years. That’s fine. It’s the digging myself into a hole right now, it’s just what’s-

Ashley:
Well, I think too, you talked to that first plumber and he was like, “Sell it, get rid of it.” But you went and you talked to other people. There are people that would’ve just given up right then and there and just like, “It’s over. I need to list it. I need to basically give it away. I’m going to lose $50,000 on it, sell it for less than what I got it for.” But instead, that same day, you talked to other people, and I think that is such a major takeaway is don’t always rely on one opinion, one person that you went and you had other plumbers come and look at it. The fact that one of them was saying, “Let’s tackle these things first. Let’s get into it and take it steps by steps,” where maybe it’s more like taking it in these little parcels, these little segments can break it down for you and build out a plan.
And just like doing a full rehab, you want to have a plan in place, where myself, and I’m sure Tony too, where we have both done rehab projects where it’s like, “Okay, let’s just get it started. Let’s wing it.” But really, the best ones go where you have that plan in place, and I think that you’ve found a contractor that knows that too, where he can help you, let’s take it step by step and try to mitigate the damage. One thing that we have done is look at an issue and to see, okay, where’s something that we can, not even stop the bleeding, but slow the bleeding, so slow down the water that’s coming in and then work on actually stopping it. Then, what’s the actual solution to solving this complete problem so that it doesn’t happen again? That may take a little bit of time, but if you can keep working on the upstairs, because there’s no water coming into the basement, is there?

Sarah:
It’s in the basement.

Ashley:
I’m sorry, the upper one?

Sarah:
No, there’s no water coming in to the upstairs. It’s only the downstairs basement and it’s either the water heater, a subterranean, or maybe a leak from the patio into the storage unit next door.

Ashley:
I think part of it too is that you can still continue to work on getting that short-term rental operational, so then you have that income coming in to kind of offset some of these rehab costs that you may need to do to get that basement unit finished.

Sarah:
Exactly, and just wait for it to dry up next month. We have a couple rains coming in again. The good thing is that I came in knowing what this problem was going to be if. I would’ve bought it in the summer when it was dry and then this came and out of the blue, I would’ve been rocked, at least it was like got thrown in the deep end right away.

Tony:
Sarah, and there’s a reason I’m asking this question, but what are your long-term goals? Are you hustling to replace your income from your interior design business as fast as possible so you can exit that? Is real estate more of a long-term play where you’re looking to supplement your retirement? Help us understand the context of why you got started.

Sarah:
I will still work. I love doing interior design, but this is definitely a retirement goal. It’s figuring out how to diversify my assets and I’m in my 40s, I’m single, and I’m looking forward to what am I going to do for some stability in 25 years and collecting a portfolio that I can eventually have as passive income would be good, and some stability for me, I’d like to have my own home, but San Diego is… During COVID, it just got out of control. Everybody moved here.

Tony:
The reason why I ask about your goals, Sarah, is because I think that helps align or frame this first deal in an even better perspective because you don’t need this deal to work out today for you to feel financially stable. I think what you need to start asking yourself is, does this deal still make sense 5 years from now or 10 years from now or 15 years from now? Just the fact that you bought in a Southern California market, that by itself, assuming history continues the same trend it’s been on, it’s going to appreciate over the next 5, 10, 15 years. Even if you just hold onto this and it’s just break even for those 10 years and it’s just paying for itself, you’ve got an asset that’s wildly appreciated over that same timeframe, now you can refinance and now you can sell it and you’ve got so many different weights to happen to that equity. There are lots of ways to frame this, Sarah, where even though it seems scary in the moment, I still do think that there’s a lot of upside for you.

Sarah:
That’s what the contractor told me because I was looking at him, I’m like, “Am I buying a money pit? Tell me straight up.” He’s like, “No, get yourself in the market. Get your foot in the door and then just deal with it as it goes.” He’s like, “Look, this house has been here, it’s lasted this long. All of us are up here on the mountain.”

Ashley:
Well, Sarah, we really appreciate your honesty and also sharing what your experience has been like. There is nothing better than hearing someone’s story as they’re going through it instead of years later where if you were telling this same scenario two, three years from now, I bet there’s a lot of that that you would just forget about. It’s like childbirth. You have that first child and you’re like, “I’m never doing it again. That was so painful. That was awful.” Then, a year later like, “Oh, the baby fever.” It’s like, “Oh, that wasn’t so bad. I’m going to do it again.”

Tony:
I can totally relate to that feeling.

Sarah:
I might get a partner next time. I’m going to get a partner next time so everyone can have some [inaudible 00:32:31].

Ashley:
Was my first deal was with a partner because I was scared something like what you’re going through would happen. The partner I chose had a really good network of people who could help us and he also had a lot of cash savings. And so, I think for me, that was my security blanket when I first started is having somebody else to go through it where it wasn’t just me that if I fell down, there was someone else to fall down with me, I guess, in a sense, and just having those two minds to figure out what’s next. What’s your plan going forward and what can we help you with on this property or the next property?

Sarah:
I think getting the management software organized so that I can just get the flow and take a little stress off of me because now I’m having to focus a little bit more on rehab and staging it. I think you talked about Guesty or Hospitable, I’m not sure which one you guys, what works the best for you.

Ashley:
Tony, you can probably answer the short-term rental one better, and then I can touch on the long-term side.

Tony:
Absolutely, Sarah. There’s a few pieces of our software stack. I think the first piece that you need is some kind of channel manager or property management software. There are several out there. We use a company called Hospitable. Another big one is called Guesty. OwnerRez is another big one. I think just kind of finding the one that you feel is most intuitive to you, they all pretty much do about the same thing. I think it’s just the interface and usability that makes the most sense for you to choose one.
The second thing you absolutely need is a dynamic pricing tool. We use PriceLabs. AirDNA is another big one as well. There’s a couple other ones out there. Wheelhouse I think is another one that folks use, but if you want to maximize your revenue, typically you don’t want to use the pricing suggestions that Airbnb and Vrbo give you because Airbnb and Vrbo want their prices to be competitive, whereas us as the host want to maximize our revenue. Those goals are kind of at odds with one another.
Then, the third thing that we use just to help reduce some of the management workload is our digital guidebook. Giving guests both have written and video instructions on how to use the property, we found tremendously reduces the amount of questions that we get from folks and it reduced the amount of time we have to manage the property. Just quickly recapping, you need property management software, you need dynamic pricing tools and you need a digital guidebook.

Sarah:
Do you have a program that you use for the guidebook or do you do Airbnb’s guidebook?

Tony:
I don’t use the Airbnb functionality because we book on both Airbnb and Vrbo. If your guidebook’s only available through Airbnb, then anyone who books through Vrbo won’t have a guidebook. We typically go with a third party platform. I’ve seen some people that just do it in Canva, they’ll create a digital version in Canva that’s really aesthetically pleasing. Then, there are companies that offer digital guidebook services. Hostfully has a digital guidebook. Breezeway has a digital guidebook. I think some of these other PMS have digital guidebooks as well, but I prefer the software version because it’s a little bit easier to update it on the fly. You don’t have to print anything out and just send it to the guests when they check in.

Ashley:
I actually just hired, because up until this fall, I only had one short-term rental and my cleaner just took care of everything for it. She did all the messaging, everything. Then, as they started to add a couple more units, I decided that I should be more like Tony and I should put some systems in place. I actually hired somebody to do the research and I basically just told them what I wanted the software to do for me and they actually put it all together for me. we use Hostfully. We do the guidebook through Hostfully, but it’s also the property management software. We use that side of it too.
Then, we use RemoteLock to set up automated key codes for everyone that integrates into the messaging that we send to everyone as to what their key code is and automatically changes it for each person. Those are really the only two that we use that I know of, at least. She might have something else in there. Tony, for the cleaner, do you use something separate for your cleaner because I think we have that where it sends them an email when a new booking is and then they can accept it or decline it. I don’t know if that’s through Hostfully or not. How we have it set up, I’m not sure.

Tony:
A lot of the channel managers have some limited functionality to manage your cleaning staff and your maintenance staff. Initially, up until about four or five months ago, we handled that all through our channel manager. More recently, we added in a second software, or not a second software, our fourth software that’s specifically focused on our cleaning and our maintenance staff, and it’s called Breezeway. Gosh, I know we have an affiliate link I’ll share with you afterwards. Oh yeah, it’s breezeway.io/robinson. I think if you use that, you get 25% off or something like that.
But Breezeway is really cool because it integrates with your PMs. All of your bookings are populated into the calendar and it forces your cleaners to go through a checklist they have to complete in order to mark a clean as done. It actually requires them to submit photos as they’re going through the property and completing all of those steps. I can see, for example, one of the things that we were getting messages on from our guests was that there were no sponges, but we know that we’ve instructed our cleaners to leave sponges, so now in our cleaning checklist, they have to take a photo of the cabinet underneath the sink open so we can see that there are trash bags, dish pods and sponges underneath the sink. There’s a lot of functionality like that where it can help hold your cleaners accountable. We use Breezeway. It’s been really great for us.

Ashley:
Then, as far as when you turn the basement one into a long-term rental, I think Rent Ready is a great one just for having that one unit or even the first 10 units. They have every aspect that you need in the software such as collecting rent online, doing your bookkeeping, they have leases that you can sign electronically on there, just it’s very basic. You can pay for add-on such as if someone has a maintenance request, you can actually sign up for their call center where you have a dedicated number that the person calls and someone on their team troubleshoots it with them or dispatches a vendor that you would like them to use for whatever the problem is. There’s also Avail, there’s apartments.com, even Zillow has started to build out some kind of rent manager system.
Then, for another piece to doing the long-term management, it’s Rent Ready, Avail, apartments.com. Trying to think. I know there’s one other big one too that’s great for just starting out, but as far as growing and scaling, then there’s AppFolio, Buildium property where these ones have a minimum fee where it doesn’t really make sense until maybe you’re at 20 to 30 units to actually implement that software and they just have more bells and whistles. But the same thing with short-term rental or long-term rental, the software has so much automation in it that it makes it very easy to actually run your units remotely, and then manage them that way.
Also, too, look at just Googling different messaging too. Instead of having to think, okay, what should my message say to the guest when they book, or what should it say to somebody the day they move into their long-term rental unit? You can easily find samples online and then just tweak and tailor it to your property specifically. Then, as you add additional units, you just copy and paste and tweak it. A lot of times, the software will have templates too, at least in the long-term rental side, and so that it will automatically pull the tenant’s name, the property address, and input that, and you can send out everything to all your different units if you need to.
For example, there’s going to be someone snowplowing the driveway on this day and you want to send it to the four units in your quadplex, it will automatically put in each person’s name, things like that and send it out. I think integrating the short-term rental and the long-term rental property management software, it takes some time to get it set up, but the automation that it can provide will really, really help you. Like you said, you need to focus on the rehab side of bit.

Sarah:
Yeah, I would need to de-stress.

Ashley:
Tony, real quick, do you want to touch on just using virtual assistants to run some of these pieces of that too?

Tony:
Honestly, I think virtual assistants are probably one of the most underutilized team building aspects for real estate investors. It doesn’t get talked about enough. Right now, we have five VAs on our team. Three that focus on operations, two that focus on pricing and our software stack. One of my biggest regrets as a real estate investor was not hiring those folks sooner for the amount of cost that you have to pay these folks in comparison to the value that they provide. It’s a really big return on investment there, and they definitely allow you to scale up your business faster with a little less headache.
If you plan to build a decently sized portfolio, if you want more than one property and you know that you want more than one property, hiring those people on that first property makes it so much easier because now, you guys are learning together, you’re able to set those strong foundations so that way, you’ve got really tight processes at one property so when you get to 5 or 10, it’s just a matter of adding more units and not necessarily trying to scale your team at the same time.

Ashley:
The great thing too is that even if you have one property, you can find virtual assistants who are working for maybe 10 different investors with only a few units, so you can easily afford them because you’re sharing the cost basically because they’re working for a ton of other people, where maybe if you found somebody local, they want a part-time job that’s at least 20 hours or something like that. I think that’s a huge advantage too. Going on Fiverr or Upwork are two great places to start to look for the virtual assistants. Well, before we wrap it up, is there anything else that we can help you with?

Sarah:
No, I’m so appreciative of you guys. I’m getting feedback, but thank you guys. I really appreciate you for having me on.

Ashley:
We are so glad that you came on, and thank you again for purchasing the Real Estate Rookie book because it led you to us.

Sarah:
Never thought that would happen.

Ashley:
It was great to meet you and for you to share your journey and where would be the best place for people to follow you and keep updated on what you have going on with your duplex?

Sarah:
Well, I don’t post a lot, but I am on Instagram, @quesarara, Q-U-E-S-A-R-A-R-A.

Ashley:
You’ll have to share your journey. Post more on it. Hey, and before we close out, do you have an idea of when you want to take your short-term rental live?

Sarah:
By the end of May. That’s heavy season.

Ashley:
That’s soon. Okay, great. Well, we wish you the best of luck and thank you so much for taking the time to chat with us. Even though you’re a rookie, you’ve provided so much value to this episode, and I think a lot of people will take away some lessons learned, but also a lot of motivation and inspiration from you. Thank you for coming on. We appreciate it. Thank you guys. I’m Ashley, @wealthfromrentals, and he’s Tony @tonyjrobinson, and we will be back with another episode. See you guys soon.

Speaker 4:
(singing)

 

David:
This is the BiggerPockets Podcast Show, 750. You’re trying to find cash flow and what you said was quick or easy cash flow, that is even harder to find than regular cash flow. Now, I’m not going to deter you from real estate investing, but what I am going to say is we’re going to have to tweak the mindset a little bit here. You got to have time on your side in a situation like this, especially because the deal has to be extra good to not only cash flow, but to cover the money you’re going to spend on the loan when you take it out on the HELOC. I would probably lean towards house hacking, but not a situation where you’re sharing parts of the house. Look for something that your family can be okay with where you’re renting out different parts of the property, and the reason I say that is house hacking is going to allow you to reduce risk more.
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with a Seeing Greene episode. If you’re unfamiliar with these, they’re a little different than our traditional format where we interview a guest on how they built well through real estate. In these shows, I take questions directly from you, our listener base as you ask me what I would do if I were in your situation, or you seek wisdom and guidance in the decisions that you have to make. We have an incredible show for you today and I know you’re going to love it.
In today’s show, we cover why your financial foundation is more important than what you’re thinking and how looking to real estate to be the way that you make money as opposed to investment you’ve already made can be a mistake. We talk about when to pay off a HELOC and why, how HELOCs work, when to use them, and what to be aware of when using them, and we talk about how waiting tables may solve your systems problems in business and real estate investing, which leads us right into today’s quick tip.
Today’s quick tip is write down the steps or make a list of everything that you’re doing in your real estate investing business. Stick around and you will hear why you should do that. It’s at the end of the show, so make sure you listen all the way to the end, and I give you a very, very compelling argument for why you need to be systemizing the work you do in business and in investing. All this and more in a great show. If you’re watching on YouTube, don’t think it’s weird, you’re about to see a light turn blue. That happened because I keep forgetting to turn the light green before I do a Seeing Greene episode, but be patient with me, and if you’re listening to this on a podcast, you have no idea what I’m talking about and that is fine. You don’t need to. Pretend you didn’t hear that and I don’t make any mistakes. Let’s get to our first question.

Pat:
Hey, David. My name’s Pat, big fan of the show. I was listening to the episode from the other day about investing in expensive markets and it reminded me of the question I have about doing just that but as a recent college graduate and a first time real estate investor. I’m graduating this spring with a master’s in accounting and going to be working in the New York metro area, and I want to house hack something as soon as possible to get started investing in real estate. But New York’s high prices, their high taxes and the tenant-friendly laws made me hesitant to do that. I’m going to have a decent amount of money saved up and I’ll have a nice starting salary when I begin work, but I do have a little bit of student loans to pay off, so I was wondering what your opinion is on someone in my situation. Is it too risky to invest in New York as a first time real estate investor? Should I just save up money and rent as cheaply as possible? Basically, what are my options? Thanks.

David:
All right there, Patrick, very good question. Let’s dive into this. First thing that I want to say is don’t let that money burn a hole in your pocket. It’s okay to hold onto it. There’s nothing that says you have to make a huge decision right now. You’ve set yourself up. You put yourself in a really good situation in life, saving up a chunk of change and getting a really good job. I don’t want to see you lose that momentum that you’ve already built rushing into a deal. So, let’s start it off by just saying there’s no rush to go buy a property. I also like that you’re house hacking and you’re asking the right questions. You’re saying, “Hey, are the tenant-friendly laws in New York going to be something that is too much to overcome?” A lot of the laws that protect tenants do not apply when the landlord lives in the property as their primary residence.
I don’t know specifically New York laws, I’ve never lived there. I do think that that’s something you should look into. Just do a Google search about these tenant-friendly laws and see if they apply to someone who’s house hacking because many times, in many municipalities, when you live in the property and you’re renting out rooms or you’re renting out units, the laws that are against landlords don’t apply. It’s a weird little loophole in a lot of different cities, but I would look into that certainly.
The last thing I’d say is there’s other people that are house hacking In New York. The tenant-friendly laws are not always an issue. They typically become an issue if you’re buying in an area where you’re going to get less desirable tenants. There may be laws that protect tenants that make it harder for you as a landlord to get an eviction. Maybe you have to wait longer. Maybe it’s harder to raise the rent. I understand that. However, there are still consequences to tenants that don’t pay their rent or have to be evicted. They just take longer to come about.
One of the things that I’ve found in my journey of real estate investing is if you’re renting to people that have something to lose, they don’t want the consequences that come from an eviction, just like you don’t want the consequences that come from being a landlord and having to evict somebody. You have something to lose. You want to rent to tenants that have something to lose also. People with good jobs who care about their credit scores who make a decent income are much less likely to force you to evict them if they can’t pay their rent. Most of the time, if they can’t pay their rent, they’ll just leave. Worst case scenario in those cases is you get a broken lease. That’s not the end of the world. What you really want to avoid is the eviction or even worse, an eviction when they trash your property. So, keep that in mind. If you’re buying in a good area and you choose your tenant carefully, you pick someone who has a good job and they have something to lose, they’re less likely to cause these problems.
Now, as far as your limited capital, I don’t know enough about your finances to give you a straightforward answer, but I would like to see that you have a cushion of money after you put the down payment on the house. Now, I don’t know how much money you have, but I don’t think you should buy a house if it’s taken up all the money you’ve got. I want to see you build up 20, 30, $40,000 in savings in addition to the down payment of a property before you get in, just in case you do come across some of those first time landlord woes where you make some mistakes that are going to cost you a little bit of cash.
I also would like to see you get a running start and do well at your job before you put on the stress of being a landlord. It’s very important that when you start a new career, you make a good impression with your boss, that you learn your trade, that you build skills when it comes to that. I wouldn’t be opposed to seeing you throw yourself with abandon into being the best you can at your new career, and once you can finally exhale and you feel like you got that down, then look into real estate investing and just keep saving money in the process.
Last thing I want to leave you with, there’s no rush. You’re in a great situation. We don’t know what the market’s going to do. There’s deals out there, there’s opportunities out there, but there’s also, at this stage, no sign that it’s going to go back to being a fury anytime soon. So, you’ve got time on your side. Keep saving money, keep focusing on your career, keep hitting the fundamentals right. If you do see interest rates take a massive dropdown, maybe we make this more of a priority of finding a property. But if that’s not the case, just hang tight, stay the course, things are going your way, my man. All right, up next, we have two different HELOC questions. Let’s check them out. Our first question is a video from Brandon Diet in Denver.

Brandon:
Hey, David. Love the podcast and thank you for taking my question. Really looking to get involved in the investment property game. I got a $50,000 HELOC loan and I’m trying to figure out what is the best way to cash flow right away. I know you always say the first investment’s not going to be a home run. I would like to at least make it a double or a triple. So, I’m looking at a couple opportunities. I actually do live in Denver, Colorado, as you and I both know tough market to do anything with $50,000 in. So, I’m looking at places like San Antonio, Texas, and I’ve even looked into these short-term properties in Tula, Mexico. I kind of wanted to get your thought on terms of what you thought was the best way to go for a quick cash flow so then I can in turn use that money and get into the next property. Thanks, David.

David:
All right, Brandon, thank you for your question. Also, love the hairstyle. All right, you are in a bit of a dilemma. We’re just going to be honest here. You’re trying to find cash flow and what you said was quick or easy cash flow. That is even harder to find than regular cash flow, like clean cash flow is even harder to find than dirty cash flow. This is a very tough market to be investing in. You’ve got 50 grand to work with which isn’t going to give you a whole lot of breathing room, especially when it comes to down payment, closing costs, and money you want to keep in reserves. You mentioned in the video you have about $50,000. That doesn’t give you a ton of breathing room to make a down payment, pay your closing costs, and have some money set aside for reserves in case something goes wrong.
You also mentioned in the notes that I have here that you’re not into house hacking because you have a growing family. As if this wasn’t tricky enough, now you’ve got the additional payment that you have to make on that $50,000 loan that you’re looking to take out. So, this isn’t the same as just 50 grand that you’ve saved up. This is taking a loan of 50 grand. The cash flow has to be even stronger to cash flow after you pay back that second mortgage of the HELOC. Now, I’m not going to deter you from real estate investing, but I am going to say is we’re going to have to tweak the mindset a little bit here. This is going to be a very difficult endeavor. This isn’t just a, hey, what city should I invest in, what properties should I look for. You are competing with a country of people that are all trying to find cash-flowing properties right now and having a very difficult time due to the raised interest rates that we’ve had and the lack of supply that’s allowing sellers to not have to drop their prices.
This might be something that’s more of a marathon than a sprint. Okay? You’ve got access to that HELOC, that’s great. You’re listening to the podcast, that’s awesome. You’re gaining this information. It can be tempting to think, “I got to go do something.” You don’t got to go do something. There will come the right deal if you wait. You got to have time on your side in a situation like this, especially because the deal has to be extra good to not only cash flow, but to cover the money you’re going to spend on the loan when you take it out on the HELOC, and by the way, those are adjustable rate mortgages most of the time, which means that they can go up if rates go up.
Here’s what I’m getting at. You can use HELOCs to buy investment property, but it is more risky and an environment where it’s already really thin margins and it’s tough to make it work, I don’t like you taking on additional risk at this stage. I would probably lean towards house hacking, but not a situation where you’re sharing parts of the house. Okay? Look at some creative things where you buy a triplex and live in one unit or rent out the other two, or you buy a main house and rent out the ADU and rent out the basement. Look for something that your family can be okay with where you’re renting out different parts of the property, not sharing living space, and the reason I say that is house hacking is going to allow you to reduce risk more than anything. There’s also an inherent value in that you’re eliminating or reducing a mortgage payment so you’re not relying completely on cash flow to make the deal make sense.
Whichever road you take, I just want you to remember, this is a marathon, not a sprint. Take your time. All right. Our next video comes from Cory Budak.

Cory:
Hey, David. Quick question. So, we are in the infancy of our investing career. We have a pretty successful little short-term rental and currently doing a live-in flip to just buy and hold and rent out. With that, we have put a lot of money into this and also increased the value a lot. So, we took out a HELOC and we continued to add to the value of the home. We’re probably, we’re in about 355,000, but the home is probably worth closer to five, but our HELOCs went for 50 grand and we’ve only used about 30, 35,000 of that. My fiance is a real estate agent and she has closed some deals, so we have some money saved up as well that would actually be able to pay off the HELOC. My question is, should we do that because the credit line will be there for us any way to use that money to keep investing, or should we hold that money and just pay the interest down on the HELOC over 10 years and then maybe refinance it?
Our payment’s less than $200 a month which we can easily make, but I just wanted to know what would be the best case scenario because it’s kind of we don’t have to pay the interest if we don’t want to because we have the money to pay off the HELOC, but I just don’t know what the best case scenario would be for us. So, should we pay off the HELOC with the money that we have and use that to invest moving forward, or should we keep the HELOC at its current $35,000 and just pay the interest until we want to refinance in 10 years? Thank you.

David:
Cory, love this question, man. Thank you very much for reaching out here and asking it, and I’m actually able to give some practical advice finally, which is great. Yes, you should pay that thing off. Let me give you the logic behind why. First off, you’re currently paying $200 a month or close to $200 a month which you can afford, so you don’t have to pay it off, but you don’t need to be spending that. Over six months, that’s $1,200. Think about how many hours of work it would take to be able to earn $1,200. Also, think about what else could you invest that money in that would get you more than 200. If you’ve got opportunities, maybe consider spending it and buying some more property, but most likely you don’t have opportunities, so I’d pay that thing off.
Now, here’s, like you mentioned, you’ve got access to line of credit. You’re not actually losing anything by paying it off. You could just go take it back out again if you do come across a deal. So, it’s all in how you look at money. Money is a store of energy. I’ve been saying this a lot. When you keep that store of energy in your savings account, you’re going to pay interest to have access to it. When you put it back into the equity of your house, you now don’t have to pay interest, but you still have the store of energy. Whether you’re keeping it as equity or you’re keeping it as in savings, it’s all the same. The HELOC is just the door that allows you to move it from one to the other.
So, my advice would be to put it back into the equity of your home, pay off that loan, but keep the door open so if you do see an opportunity, you just pull it out and you use it then. This is a pretty straightforward solution and I love that you’re thinking this way and you ask that question. Make sure you keep us up to speed with what you ended up doing and if you found something else to invest that money in, I’d love to hear it.
All right, at this segment of the show, we are going to turn to the YouTube comments and I am going to share what you and other BiggerPockets followers have all been saying on YouTube. Reminder, I’d love to hear what you have to say. So, as you’re listening to the show, head over to YouTube and leave your comments for me to read on a future show. Our first comment comes from Professor X who says, “This was just perfect. The answer to the question/scenario about paying off properties was exactly what I needed. I’m going to keep working and enjoying living at the same time.”
I don’t know for sure, but I believe that this came from episode 735 and this was a person who was a real estate agent and was trying to figure out should I keep working or should I try to retire off of a handful of properties. They had some of that like work guilt that I call it where people feel bad that they’re working and they think that the point of life is to avoid work at all costs. So, when they have to go to a job and make some money, they think they did something wrong.
That’s just not my philosophy. I don’t think you should slave it away at a job you hate and I don’t think you should do something you don’t like. I do think you should pursue your calling in life, but that’s still a form of work. So, whether you’re working in a cubicle, you’re working in a commute, you’re working from home, or you’re working to help other people, it’s all work. You got to be doing something. So, in this case, they liked my advice that you should continue working, selling homes, helping people build wealth in real estate, and adding to your own nest egg in the process. Worry about quitting work when you no longer have a passion to do it. Thank you, Professor X.
Our next comment comes from EC. “David, I must commend you on the excellent and sincere advice you have provided as a real estate expert. Your analysis of the practical realities of the situation and the importance of avoiding complacency in our thinking can greatly enhance our portfolio growth over time. You are truly remarkable.” Well shoot, EC, you are welcome to follow me around and talk about me to other people as much as you want. I kind of like having this hype man here. Make sure you submit a video at biggerpockets.com/david. I’d love to answer one of your questions. Thank you.
Jared Hackston says, “Hey, David. Is your company able to offer loan product that allows a seller to carry part of the mortgage in second position? For example, I’d buy a primary residence for 700,000 if I get a mortgage for 400,000 and the seller carries 300 in second position. Can it happen? Challenge question. If not, how could a loan company or business make it happen? Thank you.” This is a very good question, Jared, and I’ve looked at this a few times. Most of the time, conventional loans will not let you do this. They just won’t give you a loan if there’s also going to be another loan in second position, and the reason is it’s going to affect your debt to income ratio, but that doesn’t mean that it cannot happen. Occasionally, we can find lenders that will do it or you can structure it after the loan is done, depending on what the terms of the loan are.
So, what I’d encourage you is to reach out to us at [email protected] and literally paste this into your email and I will have one of my loan officers see what products we have, and if they don’t have, they’ll bring that to me and my partner and we will go look for a lender that will do something like this so that we can help people like you. Great question and love the way you’re thinking. Thanks, Jared.
All right. Our next comment comes from S. Sue who says, “Thank you so much for the generous sharing of your knowledge. Could you please talk about how to prevent someone from stealing the title/deed to your property?” I’m so sorry that this happened to you. This is a very good question and it’s happening more and more in real estate. I’m working with our production team on trying to find an expert, maybe an attorney who could come onto the BiggerPockets’ main show and talk about how this happens and how you can be protected. So, thank you for your comment there.
And our last comment comes from Shalin7023. “First time in your channel. So far, good information and delivery. Very smart responses to the questions. We’ll check the channel out again.” Well, awesome. We got a first time listener and a new fan, so welcome Shalin to Seeing Greene. We are glad to see you here, and you just reminded me, once again I forgot to turn the light green behind me. All right, and we’re back with a green light. Welcome to the green light special of the BiggerPockets podcast, also known as Seeing Greene, where your host, David Greene, which is me, routinely forgets to turn the light to a different color behind him. Thank you for your patience. I will someday, I will someday remember and I’ll work this out.
Thank you for all the love and support as I share my own trials and tribulations. We’re a community and we help keep each other strong, and that’s something I love about BiggerPockets and this podcast. So, thank you for listening. Thank you for submitting your comments. Thank you for asking your questions, and thank you for making the show possible. If you would like to make sure that the show continues, please go to bigger podcast.com/david and submit your real estate questions.
Also, take a quick minute to like, comment, and subscribe on this YouTube channel. If you’re listening to it on a podcast app, take some time to give us an honest rating and review. Those help us a ton. We’re trying very hard to keep BiggerPockets the top real estate ranked podcast in the world, but there’s plenty of competition, and there’s always some new young gun trying to take us out, so with your support, we can maintain that top spot.
All right, let’s get back to the questions. We’re going to start with a reading question from Caleb Bryan in Salt Lake City. “Hi, David. I’m looking for advice on how I should start my investing career. I currently live in the Salt Lake City market and I’m renting a basement apartment for $1,100 a month with my fiance. I’m not in a great financial situation. I currently have about 12,000 in consumer debt and have no real assets to my name or a large sum of money for a potential down payment on a home. My fiance and I are currently qualified for an FHA loan in the 300,000 range, but that gets us very little here in Salt Lake. I’m in the process of getting my real estate license as a way to boost my income while holding onto my current W2 job as long as necessary. I’m struggling to decide on if I should focus all my energy and money on getting me and my fiance into a primary home as the area is booming and I would hate to lose out on all the potential equity, or if I should look into out-of-state investing where I can get into high cash flow rentals or is it not a good idea at all to look into investing until I’m completely out of debt?”
Well, this is a great question, Caleb. Thank you for asking it. Let’s get into this. First off, no, I don’t think you should go out of state and buy a property somewhere else because finding a high cash flowing property in this market is incredibly difficult and you might actually end up losing money, which is not a thing that I want to see happen, especially if you’re already not in a strong financial position. I am writing a book, it should be out in maybe a little under a year called Pillars of Wealth, How to Make, Save, and Invest Your Way into Financial Freedom, something like that. This is going to be a book written specifically for people like you, Caleb. I’m very excited about finally getting this book out. It’s not quite an autobiography, but it’s close to one as it shares examples from my life, stories of what I went through, how I looked at money, how I thought about money, how I saved money, how I made money, and giving advice for how you can make more money, save more money, and then ways you can invest it.
Long story short, I want to see everyone, not just you, but everyone, first put themself in a position of financial strength, then worry about real estate investing. I think it’s a mistake that people try to put themself in a position of financial strength by investing. You should do it first, then invest the money that you have. So, you’re house hacking right now. You’re spending $1,100 a month. You’re living with your fiance. You admit you’re not in a great situation. You got $12,000 of debt. You don’t have an amazing W2 job, and you’re working on getting your license.
Let’s break that down. First off, great job working on getting your license. You’re taking some positive steps in a good direction. Here’s a tricky little trick that I’ve seen get into people’s heads that screws them up. It’s when they have one plan to move forward. Okay? People say, “I am going to find an off market deal. I am going to buy a bunch of cash flow in real estate and retire. I am going to get my real estate license,” and they put all their chips on one bet. I have a path to get to financial freedom, and while you’re waiting, because it’s a long time to get that license or it’s a long time to find that off market deal or it’s a long time to find your first client as an agent, you have all of this potential to be making more money that you’re not taking advantage of because you’re only thinking about one thing.
Let’s break that. You’re studying to get your license. Cool. What are you going to do with the other 22 hours of your day? Let’s say you have eight of it for sleeping, which leaves you with 14 hours. Are you busting your butt all 14 hours to be the best version of Caleb that you can possibly be? When you go to your W2 job, are you bringing incredible energy, an amazing attitude, and a hunger and a thirst for excellence?
I don’t care if you’re standing at 7-Eleven ringing people up who buy Slurpees and chewing tobacco. Okay? Are you trying to upsell them sodas? Are you telling them about a special of chips? Are you stocking the store in between customers? Are you doing whatever you can to make your boss think you’re the best? Because here’s what I’ve found. If you’re not excelling and giving your very best at where you are in life right now, the real estate gods, the financial gods, however you want to look at it, they tend not to smile on those people, and what happens is when those people do achieve wealth, they lose it incredibly quick because they haven’t built a foundation with which to keep it.
So, what I tell everyone, this is not just for you, this is for every single human being listening, when you want more, the first thing you should look at is what are you doing with what you have. If you’re going to work and you’re striving for excellence, you’re doing the very best you can at your W2 every single day, you should be really good at that job, which means you can actually start looking for a job that pays better in the same field, and you’ll probably get it if you’re really good, or you could ask for a raise.
If you hate your job and you’re sandbagging it and you’re not given your best at what you’re doing, it’s going to be very difficult to pay off that $12,000 of debt. You’re probably not going to crush it as a real estate agent. You’re probably going to have the same struggles when you get your license that you had with the W2 job, plus now you have all the licensing and all the broker fees and the desk fees and the MLS fees and the lockbox fees and the national association, the California association or your state association and the local association. There’s a ton of money that comes with being a real estate agent. You’re going to be losing more. All right?
So, this really comes down to the approach we take to life, and I don’t want to see you pushing yourself to try to buy a property before you’re in a position of financial strength. Okay? So, you’re in a good situation. You’re only paying $1,100 a month. Let’s think about what we can do in life that will allow you to make more money in the situations you have now, before you worry about trying to bring real estate and get that involved when you don’t have a big cushion. I would love to hear what you think about this. Send us another video or give us another submission and let us know how your progress has been. Also, if you’re going to be getting your license, checkout my top producer series with BiggerPockets, Sold, Skill, and Scale. You can get those at biggerpockets.com/store.
Okay, and our last question of the day comes from Manny Escobar. Manny says, “My wife, Yvette, is a high producing real estate agent in San Antonio, Texas. She has come to the point where she needs to delegate. For example, she has three offers she needs to submit. Currently working with an attention-intensive client. It’s 8:15 PM and she has two more to go.” Oh, how I remember those days, Manny. “What are some tasks she can delegate to VAs or other staff for max efficiency? She does not necessarily want to be a broker, although open to it, but even as a loan agent, I know there are some tasks she can delegate to free her up for what she’s great at, client interaction, negotiating, et cetera. She’s been a one-woman show for three years and has a hard time conceptualizing the idea of not doing everything.” Been there before too. “A breakdown or list of tasks she can delegate and to whom would be greatly appreciated. Also, where can she find these team members? Thanks for your time, brother. You and BT changed my life and continue to, so I’m forever indebted.”
Oh my gosh, Manny, such a good question, man, and I’m excited for your wife. She’s probably going to hate you at first when you implement these changes and then really love you after they get put into place. All right, let’s break this down. First off, your wife needs to read my book Sold, Skill, and Scale because I talk about this ad nauseam in those books. Second off, there is a couple principles that I think your wife can benefit from. I learned a lot of this stuff, oddly enough, working as a waiter in restaurant. I’ve realized there were these patterns to waiting tables because I was always trying to wait as many tables as I could with as high ticket of people as I could as efficiently as I could because that’s how I made money.
So, when I became a real estate agent, I thought the same way. How do I work with as many clients as I can buying the most expensive houses that I can as efficiently as I can? You hit it right on the head when you said she’s good at client interaction and things like that. She’s not great at paperwork or filling out forms. Couple rules of thumb that I picked up working in restaurants, I could handle a lot of tables. I was what they called a strong server. I could get up to 12, 13 at a time and I did that many times. I could not take 12 tables all at the same time. I couldn’t even take five tables all at the same time.
There is a very big difference between when the tables come in. So, what you have is these bursts of what you called attention and intensive stuff. So, when a table first gets sat in a restaurant, you have to go get their drink order. Right? You have to hope that the hostess remembering to drop off their menus or they’re sitting there with nothing to do. You might want to start some appetizers. That’s usually the first interaction. You introduce yourself, you get their drink order, you ask about appetizers.
Once you put their drinks in or their appetizers in, assuming you’re at a restaurant where other people walk the food to the table, which was not the case the first restaurant I worked at, it was in the second, you bought yourself some breathing time. Now you can walk food to your other tables, you can take orders from other tables. There’s these things that get you really busy at one minute, like I can’t be taken the order from a six-person table and also be getting a drink order for another table or bringing them more sauce or making sure that their steak was cooked correctly or helping them get more wine. I can only do one thing at a time. But then after I get the order in and I put it in the computer, I got a long period of time.
So, part of being a good agent is spacing out when you do certain tasks. So, for instance, when your wife is writing an offer, I know this because I’ve trained agents for years now, they don’t plan ahead. They wait until there’s an emergency and then they try to get it all done in that moment. So, she’s probably getting on the phone and saying, “What do you want to do for an earnest money deposit?” And they’re saying, “What’s an earnest money deposit?” And then she’s explaining it. It takes a long time. Then they’re saying, “Well, how much do we have to do?” “Well, I don’t know. Let me call the listing agent.” Then she calls the listing agent. Now it’s 8:45 instead of 8:15. Then she calls our clients back, but they just put their kids in bed so they can’t answer the phone. Now it’s 9:30 and they finally answer the phone and they explained the earnest money deposit. Then they ask the question about the down payment and so on and so forth.
What we did, because this was a problem for me too, was when I gave a buyer’s presentation when I first started working with the client is I got the answers to all these questions then. I had a form I would fill out, the earnest money deposit is typically 3% of the purchase price, but oftentimes we can get away with much less. Are you okay with half of that? So, we’ll do about 1.5%. On a $300,000 house, that would be $4,500. Yes, that sounds good. Okay. I’m going to need you to give me your proof of funds right now so that when we write the offer, I have it on deck.
What your wife’s probably doing is waiting till it’s time to write the offer, then her client is having to get the proof of funds, which is a bank statement showing that they have the down payment, and your wife’s walking her through how to get on Chase or wellsfargo.com and get that paperwork, and they’re doing it at the same time that all the other tables are coming in. You see what I’m getting here? You got to be able to space this stuff out. That’s the first thing your wife can do before she even hires anyone is to not wait until the client is saying, “I want to do something.” Be the leader. Take the wheel. Get the information you need ahead of time.
The second thing you can do is make a list of everything that has to be done and see which of those things can be delegated. Now, writing an offer is one of the easiest things to delegate. You have somebody fill out all the paperwork and then you go and review it and make sure it’s good before you hit send to send it to the client. It doesn’t need to be your wife that fills in what the earnest money deposit’s going to be, what the address of the house is, what the parcel number is. You can easily have a virtual assistant or even an intern from her office.
If she’s a top producing agent, there’s some agent in her office that hasn’t sold a house for two years that’s saying, “Can you be my mentor? Can you be my mentor?” They’re running around looking for a mentor. Your wife needs to be that person’s mentor. Have her tell that person, “I’ll teach you real estate, but when I need something done, you’re going to do it. When I need offers filled out, you’re going to fill them out.” Have your wife show the person how to fill out an offer and then let them see how they do, and if they make mistakes, get rid of them and get another one.
But that’s pretty simple. The things that are probably killing her are going to be the conversation she’s having last minute. “We just looked at the house, we have to get the offer in by tonight,” and now she’s trying to do it at 10 o’clock at night. Smooth that stuff out by being more organized and doing it ahead of time. Another reason that your wife probably can’t fathom having other people help her with her work is that she doesn’t have a system already lined out of what’s going to happen. So, in her head, she has to do it herself because she doesn’t know how to delegate something to someone else.
What I did when I started the David Greene team is I took everything that I had to do in a listing and I made a list in a Google document. Okay? We were talking about buyers. Let’s talk about a listing, all the stuff I have to do before an appointment, all the stuff I have to do at an appointment, all the stuff I do after the appointment, then all the stuff I do to put the house in the MLS, then all the stuff I do once the house is in the MLS and it’s active, then all the stuff I do when it goes escrow, then all the stuff I do when it closes. Every time I had a transaction where something went wrong, I would go back to my list and say, “Where can I put something in here so this wouldn’t happen again? Where could I prepare the client for this earlier?” And so, I would put, have conversation about blank, right after a different step in the process, okay, and it smoothed itself out over a long period of time.
I then took this very long list and I color-coded it for all the things that my first assistant could do. Everything that was blue is what I did, everything that was red is what she did. So, we were working off the same list for all the different listings that we had, and it was very clear what I was doing and what she was doing. Then I finally ended up getting a CRM that would take that list, and it would, instead of us having to look at the list, it would delegate to her the 75 things out of the 125 things that she could do, and it would delegate to me the 50 things I could do. That CRM is called Brivity. It’s for real estate agents. That’s what we use. And then what would happen is she would just show up at work and in her tasks list would be her being assigned all the stuff she was doing for every single property we had, and it was very clear what she was doing that day. She didn’t have to say, “What am I supposed to do?”
That’s what your wife needs. Now, is that going to happen at once? No, but if it doesn’t happen, she’s going to be running in this hamster wheel for the rest of her life and you’re going to be wanting some wife time at 10 o’clock at night when she’s writing offers and you’re not going to be living that life of financial freedom that we’re all pursuing through real estate. It’s going to suck. So, we have to be disciplined in the beginning so that that doesn’t happen. Just like it sucks when you get sat with seven tables at one time, but you don’t say no because you want that money, you want to teach a hostess they can wait five minutes before seating you and make it more smooth.
Now, let me tell you how this can work if you’re a real estate investor. My friend, Andrew Cushman, who is a multi-family investor, and I routinely buy apartment complexes together, and we have a system that works very similar to this. There’s three phases, phase one, phase two, phase three. Phase one, we have a list of eight things that we do to analyze the area that the apartment’s in. We go to certain websites and we look to see what the median income is. We look at a flood map and see if it’s in a flood zone. We look at a crime map and we see what kind of crime it is. We look at rents of other apartments around and see if our rents are higher than theirs or lower than theirs. It’s all very high level stuff, but it’s documented very simply to do.
After that, we analyze the actual property. We look at the T12. We look at the demographics of who’s moving into the area. We look at the vintage of the property. We look at the size and number of units, the vacancy in the area, a little more detailed stuff. Okay? And then in phase three we get in really, really deep. The beauty of having this analysis numbered out on a document is we can have interns or people that work for us do the work and then report to us, well, really it’s reporting to Andrew because I’m busy making podcasts like this for you guys, what they found. Pretty cool, right?
So, once you have it spelled out everything that needs to be done and we even put links in the Google document, click here to go to the flood map, click here to check out the crime, click here to see what the Census Bureau says about where people are moving to. We can have another person that goes through, fills in all the information for us. Andrew looks at it and it takes him 30 seconds to give it a thumbs up or a thumbs down before moving into phase two.
Your wife could do the very same thing. It is all about being disciplined enough and doing the same things over and over and over. When you don’t know your process, when you don’t know what you’re doing, when you don’t know what you’re looking for, you just trust your gut and you end up waiting for the customers at the restaurant to raise their hand and say, “I want this, I want that, I want this, I want that,” and you run around trying to get them everything they need with no system in place. I’m a big fan of this. It’s one of the reasons I wrote the book Scale, which is the last in the top producing real estate agent series so that agents can learn how to turn their job into a business so that they’re not working until 10:30 at night every single night.
Manny, thank you so much for submitting this question and all of you who are listening, thank you for doing so. I want to see you make money in real estate, but I want to see you enjoy your life at the same time. It doesn’t have to be one or the other. Systems allow that to happen. If you like this show, please do me a favor, give us a five-star review wherever you’re listening to this podcast. Those mean a lot, and don’t forget to comment on the YouTube because I want to know what you thought about what I said, what questions people had, what questions you have, and what do you think about me forgetting to turn the green light on again. I’m definitely not going to be called the Greene Lantern if I keep forgetting this all the time.
All right, everyone, love ya. Thank you for being here. Thanks for choosing to get your real estate knowledge from me and BiggerPockets. We know you could be getting it anywhere and it means a lot that you come to us. You can find me at davidgreene24.com or on social media, @davidgreene24. You can also leave me a comment here on YouTube. Our production staff will check it out and will hopefully get you featured in the show. If you have time, watch another BiggerPockets video, and if you don’t, we’ll see you next week.