\n<\/p>\n
Still waiting to buy your first rental property<\/strong>? Everyone\u2019s been there. It can be nerve-racking not knowing where to buy<\/strong>, what makes a \u201cgood deal<\/strong>,\u201d and whether or not all your hard work will go to waste. Even investing experts like Ashley and Tony were nervous about taking their first step, which is exactly what they\u2019ll walk through on today\u2019s episode! If you\u2019re a rookie sitting on the sidelines, waiting to get into real estate, this is the episode for you!<\/p>\n Welcome back to another Rookie Reply<\/strong>! In this episode, we share exactly how to close an off-market deal when there\u2019s no real estate agent <\/strong>involved. Ever wondered how our hosts went from real estate rookies<\/strong> to real estate pros<\/strong><\/a>? Today, they share their first deal diaries. Learn how Ashley ended up buying the first property she EVER looked at and how Tony bought his first two properties with ZERO money down<\/strong><\/a>. Finally, we touch on the struggles of analyzing deals<\/strong><\/a> when you\u2019re just starting out, as well as choosing the right insurance policies for short-term rentals<\/strong><\/a>!<\/p>\n If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group<\/a>! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).<\/p>\n Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: \u00a0<\/p>\n<\/div>\n https:\/\/www.youtube.com\/watch?v=ZepKCI0YWfk<\/a>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span>?<\/span><\/iframe><\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email:\u00a0<\/i>[email\u00a0protected]<\/span><\/a><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is Real Estate Rookie episode 284.<\/p>\n
I really focused in on not just one city, but I was looking at specific zip codes within that city. Within those zip codes, I knew the street boundaries that I wanted to stay within to make sure I was super laser focused on one little niche. That allowed me to get much, much better, much faster, and much more accurate at analyzing deals in those markets, because instead of looking at this big, large set of potential properties, it was this smaller micro set that was easier to digest.<\/p>\n
My name is Ashley Kehr, and I\u2019m here with my co-host, Tony Robinson.<\/p>\n
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. I love the rookie replies because it takes\u2026 Obviously, we\u2019ve got amazing guests on all the other episodes, but it\u2019s cool to hear what our Rookie audience is thinking about, and what\u2019s stopping them from getting started or keeping going, and being able to dive into those questions head on.<\/p>\n
So today\u2019s question, we talk about a lot of different things for our Rookie replies. If you guys want to have your question submitted on here, you can always leave us a voicemail at 188-85-rookie. You can write your question in the Real Estate Rookie Facebook group, or you can send myself or Tony a DM at Wealth from Rentals or at Tony J. Robinson on Instagram, and we may play your question on the show. The first thing we\u2019re going to do today, the question is our first deal diary, as Tony had called it. We break down the first deals that we ever did. We talk about partnerships, and then we also talk about closing off-market versus on-market deals. What\u2019s the different paperwork you have to do? How do the processes vary?<\/p>\n
Then our last one here is actually about Short-Term Rentals, my bread and butter, and the liability that comes along with that and how to protect yourself, and get things set up the right way, so lots of good questions. Before we keep rolling here, I just want to give a quick shout out to someone by the username of Mrs. placidChaos. I\u2019d love to say five star review, and the review says, \u201cReal estate is something I\u2019ve wanted to invest in for several years now, but I\u2019ve been intimidated by the thought that I couldn\u2019t financially make it happen, but this podcast has shown me so many different avenues that can be taken, and I\u2019m confident I\u2019ll have my first property before the end of the year.\u201d
We are confident that you will as well, Mrs. placidChaos. If you\u2019re listening to the Rookie Show, and you\u2019re part of the rookie community, and you haven\u2019t yet left us an honest reading review on Apple Podcast or Spotify, please do. The more views we get, the more folks we can reach, and the more folks we can reach, the more folks we can help.<\/p>\n
With that, let\u2019s jump into our Rookie Reply questions.<\/p>\n
All right, so jumping into our first question, this one comes from Sean Gallagher. Sean\u2019s question is, \u201cI\u2019m new to investing, and was wondering what your first deal was. If you don\u2019t mind, also tell me how did you analyze the deal to determine if it\u2019s good or not?\u201d So first, deal diaries is what we\u2019re doing on this question, Ash. Why don\u2019t you go first? Give us the details of that first deal.<\/p>\n
My first deal was the first property I ever looked at. When I decided I want to be a real estate investor, there was one property that I saw on the MLS first, and so I contacted the agent that had listed it, and set up a time to go see it. She said, \u201cI just want you to know there are a lot of foundation issues and flooding that has happened on this property, and that\u2019s why it\u2019s been sitting on the market.\u201d That right there gave me cold feet, and I was like, \u201cYou know what? Nevermind. I don\u2019t want to see it.\u201d Then that\u2019s when I actually contacted my parents\u2019 friend who was a real estate agent, and said, \u201cThis is what I want to do.\u201d
So, I found a duplex in a market that I knew, because I was already a property manager there, and went and looked at it. I called the person who had already agreed to be my money partner. They wanted to start investing in real estate too, but didn\u2019t have the time, didn\u2019t have any knowledge about it. So, we both went together to look at the property. I ran the numbers, and when I say I ran the numbers, it was a pencil and a piece of paper and me being like, \u201cOkay, I know I can rent each apartment for $700 per month. My water bill is going to be this, because I contacted the village to ask approximately what the water bill would be.\u201d
I got some of the utility cost from the seller. I had my agent ask for that. Then I tried to think of any other expense, property taxes, insurance, and I was like, \u201cOkay, this will work.\u201d My payment was going to be to my actual partner. He was going to pay cash for the property, and then he would receive a mortgage payment from our LLC, so we were paying him directly, and we weren\u2019t paying a bank, which\u2026 Then he got 50% of the cash flow, so 5.5% on the capital he put into the property, and he was getting it fully paid back, amortized over 15 years plus the 5.5%, 50% of the cash flow. He was actually making out pretty good.<\/p>\n
Yeah, it\u2019s a good deal.<\/p>\n
I would never do that deal now, but it got me started. He put a lot of trust in me. He took his life savings, and dumped it into that property, so we created an LLC together. Once we got that property under contract, we started an LLC where we were 50\/50 on the LLC. Then we went to close on the property. I put in a little money for the rehab. It needed a split unit for AC and heat in the upstairs, so I ended up paying out of pocket for that, and then I think maybe the flooring I paid for. Then we had a couple other\u2026 We put new cabinets in, things like that, where he put in the money for that. Then that was just money put into the deal that we didn\u2019t actually pay ourselves back for.
We eventually sold the house, and made a good profit on it. The property did cash flow. I did make one mistake on that property, and that was I did not account for snowplowing. This property was outside of Buffalo, New York, and snowplowing is definitely something you need to pay for, or even if you have a tenant do it. So, I ended up, I think, discounting the lower tenant\u2019s rent. I can\u2019t even remember the amount, but they were in charge of shoveling the driveway since the driveway was used by both tenants of the duplex. That definitely hurt the cash flow a little bit.
It definitely wasn\u2019t a deal breaker, but\u2026 That was my first deal. It was definitely not my best deal, but after I got that first one, we closed on our second one, I think, maybe three months later. It was just from there, just really that propeller-<\/p>\n
Snowballs.<\/p>\n
Yeah.<\/p>\n
When did you close on that first deal, Ashley? What month? What year?<\/p>\n
It was September 2014.<\/p>\n
2014. Man, I didn\u2019t know it was in 2014. I didn\u2019t realize that. That\u2019s awesome. Then do you remember what the cashflow numbers were on that deal? How much were you making while you guys owned it?<\/p>\n
Oh God. When we first started out, it was only a couple hundred dollars we were getting in cashflow, because we were basically leveraging the whole thing. We paid, I think, 72,000 for it, and the mortgage was for 72,000 because we were paying my other partner back, so it was 100% leverage by him. I would never do that with a bank or whatever, but it was very minimal cashflow. Then we did the rehab and the upstairs, and then over the years, we were able to increase the rents. We didn\u2019t have a ton of capital expenditures on that property at all, but the lifetime we held it, we actually sold it in\u2026 2020, I think, is when we sold it, and we ended up selling it for 130,000, I think.<\/p>\n
That\u2019s pretty good.<\/p>\n
That property was definitely a great play for appreciation.<\/p>\n
Did You ever refi, or did you keep it with that debt to the partner?<\/p>\n
After we bought that property in February of 2015, we bought our second property, and that one, we used his cash again to purchase. Then when we bought our third property, we went and did a portfolio loan putting those two properties under one mortgage. We used that debt then to go and buy our third property. So, we had a mortgage on them, but we were still paying the partner. It was just\u2026 We just kept rolling over like that. The mortgage on property C, that ended up paying for the property D, and it just went through the line. That\u2019s how we had acquired our units at that time.<\/p>\n
So you\u2019re almost like\u2026 I mean, you were BRRRRing basically, right?<\/p>\n
Yeah.<\/p>\n
The true BRRRR where you\u2019re paying cash for it up front, and then refinancing and using that capital too.<\/p>\n
Yeah. So basically, we\u2019re just reusing and over\u2026 That same capital, we just kept reusing over and over again. So, we\u2019ve actually kept that loan going, and so throughout the years as the cashflow has done well on the properties, my partner would go to Vegas or different things like that. He would take some of that cashflow out, because we\u2019ve always just held it in there, or it would be he wanted to buy something expensive or whatever, and I would pay part of his mortgage off like, \u201cHere\u2019s 20,000. We\u2019re just going to take it off the mortgage over for you.\u201d
I looked the other day, and there\u2019s less than a year left on that mortgage, because we\u2019ve just accelerated the mortgage paydown on that. He is so bummed that he\u2019s not going to be getting that mortgage payment anymore.<\/p>\n
He\u2019s like, \u201cSlow down. Slow down. Slow down.\u201d<\/p>\n
But I\u2019m like, \u201cYou do understand. You\u2019re still\u2026 We end up getting more cash flow now, because we don\u2019t have your mortgage payment.\u201d<\/p>\n
That\u2019s awesome. Well, it sounds like a solid first deal. My first deal was back in October 2019. It was a single family house in Shreveport, Louisiana. Not Freeport, not Shreveports, but Shreveport.<\/p>\n
I\u2019ll still never remember.<\/p>\n
You\u2019ll never remember. I actually broke down the numbers in pretty excruciating detail back in episode 10 of the Rookie podcast when I was on as a guest, but I\u2019ll give you the cliff notes version here. So essentially, I found a bank in Shreveport that had a really cool loan product, where if you found a property where the purchase price and the rehab costs were no more than, I think, it was like 72.5% of the after repair value, they would fund the entire purchase and the rehab with a year-long note interest only, and then they would do the backend refinance to put you on permanent debt. So, I did that. I found a property. It was on the MLS listed for $100,000.
I locked it up, got under contract. We closed on it, spent another 60 or so thousand dollars to renovate the property, and then we refied it out, and appraised for $230,000. So, I was just was under that 72.5% on the refi, and I was basically into that deal for literally $0 out of pocket, and it was pretty cool. Then I found a property manager out there. I lived in California. The property was in Louisiana, so I found a property manager that got it leased up for me. I don\u2019t remember what we were renting it for anymore. I had the property for a year, and I ended up selling it, but I want to say the cash was pretty minimal.
It was $150 a month, I think, I was making after accounting for property management, some of the other fees. But again, it was $150 on $0 invested. So even though the actual dollar amount wasn\u2019t all that high, it was an infinite return, because I put no money into the deal. I did that same deal with that bank on two properties there in Louisiana.<\/p>\n
Tell us the rest of the story on that first one. So, what happened with it?<\/p>\n
I mean, so that first deal actually turned out really well. It was the second deal in Shreveport where we had the flood.<\/p>\n
We have many, many episodes talking about that second property.<\/p>\n
That\u2019s second property.<\/p>\n
But For the first one, what happened?<\/p>\n
I mean, so I held the property for a year. We had one tenant in there the whole time. There\u2019s a military basin in that city, and it was a military family that was there on assignment. They ended up getting orders to deploy somewhere else. So, they gave us notice. After that year, we\u2019d already transitioned into the short-term rentals. I was like, \u201cAh, I think I\u2019m just going to take my money, and sell the property.\u201d So, we ended up selling it, I think, for\u2026 It wasn\u2019t 230, even though it appraised for that much. I think we sold it for 215 or something like that.
I still got the check when I sold it, plus all the cashflow, plus the tax benefits. It was honestly a really good\u2026 I got on base with that first property, and it was a really good proof of concept for me that I could actually buy real estate, and collect money.<\/p>\n
So if you are doing that same thing, and say you\u2019re starting over but in today\u2019s market, do you think you\u2019d be able to find that same loan product, and make that same deal work?<\/p>\n
I don\u2019t know, because I actually contacted that bank. It wasn\u2019t even until I asked him about the loan products. I think I needed some paperwork or something for my taxes, and I was just chatting with the person at the bank. They\u2019re like, \u201cOh, actually, since COVID, we stopped doing that type of loan product.\u201d I don\u2019t even know if they offered that anymore. But if they did, I would\u2019ve 100% go after that deal, because it\u2019s such a low risk way to get into it. What was really cool was that the bank, they funded the entire purchase, but they also funded the rehab, but they funded the rehab in draws. So, it was four different draws that they allowed for the contractor to take.
The way that it would work is they did an appraisal before. Then they looked at the bid that the contractor gave me, and said, \u201cBased on the current condition of the property, and if you combine this with the bids the contractor gave you, here\u2019s what we think the property will be worth after you\u2019re done.\u201d So, they almost validated my ARV for me. Then during the construction process, before they would release a draw, they would send an inspector out to the job site to confirm that the work that the contractor said he was doing was actually done.
So, it was this second layer of like\u2026 It was almost like training wheels for my first deal, because I had this bank who had a vested interest in making sure that the project went well, who was\u2026 They were validating my numbers. They were inspecting the contractor\u2019s work. They were managing all the draw payments. They made it super, super easy for me. So if I could go back and do it again, I probably would.<\/p>\n
One thing I did learn about that, I met with this hard moneylender in Texas one time, and just he broke down everything about how hard money works and operates in all these different things, but they did the same thing, where they would have somebody inspect the property, and he kept pushing it and selling it. He\u2019s like, \u201cThis is a huge advantage to you,\u201d and it was. But the person that I was there with, he\u2019s like, \u201cAshley, keep in mind they\u2019re charging you for this service. They\u2019re charging you to send an inspector out. They\u2019re charging you all these fees for them to oversee the project. They\u2019re charging you a fee for a draw.\u201d
I don\u2019t know if it was exactly the same for your bank, but that\u2019s definitely something to be cautious of. That shouldn\u2019t be the only reason you\u2019re going to that bank to do that hard money, or to do that loan because of having that resource as an advantage. You may be able to pay a contractor or a real estate agent, or somebody else to be that oversight for you too, where it may be cheaper, more affordable.<\/p>\n
That\u2019s a great point. I think I was in a unique position, because they were just a local credit union, so they weren\u2019t a hard moneylender who needed to make their points on fees and all these other things. This is a person who\u2019s nine-to-five employee. They\u2019re just running out at their job, and the inspections and everything didn\u2019t come with any additional cost, because for them, they just wanted to make sure they were protecting the asset. So, it was a fantastic way for me to get started. Honestly, like I said, if that loan product still exists, I might go back to that city to buy another one. It wouldn\u2019t be in a flood zone, but I might go back to that city just to keep that ball rolling.<\/p>\n
I think my advice for somebody listening that maybe can\u2019t do the deal that Tony just did, because they can\u2019t find that loan product, is to go back to episode 280, which would\u2019ve been, I think, two weeks ago, we did a Pace Morby. We had him on for a Rookie Reply, and he breaks down creative financing, how to do subject two, and how to do seller financing. I think that is a great alternative in today\u2019s market to be able to get some zero-money-down deal by using those two strategies.<\/p>\n
Ash, we should also answer the second part of Sean\u2019s question is how did you analyze the deal to determine if it\u2019s good or not? I think Ash and I both have similar\u2026 Well, maybe not for your first deal, Ash. I know maybe yours is a little bit different, but for me, that first deal, I was already well entrenched in the bigger pockets community as just like a consumer. So, I was already listening to the OG podcast. I had read several of the BiggerPockets books. I was a pro member with my calculator, and I used the BP calculator to analyze every single property that I was looking at.
I think this was before BP had the BP Insights. So, I was using tools like Rentometer. I was looking on Craigslist and Facebook marketplace, and just trying to analyze what the potential rental revenue would be. I used those numbers to plug them into the BP calculator. Then I actually met with the local property manager, the one that I ended up hiring. I had them give me numbers on potential expenses for a property of that size. That gave me a lot of confidence. I feel like what helped me a ton as well, Sean, was that I really focused in on not just one city, but I was looking at specific zip codes within that city.
Within those zip codes, I knew the street boundaries that I wanted to stay within to make sure I was really just super laser focused on one little niche. That allowed me to get much, much better, much faster, and much more accurate at analyzing deals in those markets, because instead of looking at this big, large set of potential properties, it was this smaller micro set that was easier to digest.<\/p>\n
Mine is different actually. I didn\u2019t\u2026 I bought that property the end of 2014, and I did not discover BiggerPockets until 2017. For me, my only knowledge of analyzing a deal was because I was managing a 40-unit apartment complex in that same town. I had also previously worked as an accountant. I was an intern at an accounting firm all throughout college. I had graduated with an accounting and finance degree, and so I had a basic understanding or maybe more than basic understanding of financials, of the profit and loss statement, how to calculate cash flow for any business. So, I basically just took what I knew from accounting, and I looked, \u201cOkay, what\u2019s my income? What are my expenses?\u201d
Then to determine what my cash flow would actually be is, \u201cOkay, what\u2019s going to be my principal mortgage payment? Any other loans I\u2019m going to need to be paid back?\u201d That was the only way I knew how to analyze. As the property manager of that 40-unit apartment complex, I saw other expenses that may come up, what the property taxes were like for that town, just different things. So basically, experience from my accounting job and experience from being a property manager is I just figured it out how to analyze the deal.
Obviously, now, I don\u2019t analyze deals that way. I realize there\u2019s a lot more that goes into it, but at that time, I didn\u2019t know what cash on cash return was. I didn\u2019t know what ROI was. I didn\u2019t know what price to rent ratio was. I was just, \u201cIs this going to cash flow?\u201d That was basically it. That was my only metric, I guess, if the property would be a good investment or not.<\/p>\n
But you got to start somewhere, right? That first deal is one that got you going. Obviously, everyone listening to this podcast has the benefit of already being exposed to everything that BP has to offer, so leverage the podcast, leverage the calculators, leverage the community, leverage the books, leverage the YouTube channel. That\u2019s really going to give you the confidence to move forward and analyze correctly. Sean, hopefully that gets you started off on the right foot. Man, we\u2019re excited to hopefully see you get that first deal closed, and you either be a rookie rockstar maybe a guest on the podcast one day.
All right, so next question here. Aaron J. Nygaard is the person asking this question. I\u2019ve only heard the last name Nygaard one other time. Have you ever seen the show Fargo, Ashley?<\/p>\n
No, I haven\u2019t. I have at least heard of it. I\u2019m pretty sure that you and I have never ever watched the same show or movie except for Tommy Boy, only because I except made you.<\/p>\n
Except the Tommy Boy because you forced me. Fargo is\u2026 I think it was on FX. I watched it on Hulu. You can watch the whole first season, but it\u2026 I\u2019m not going to spill the beans, but it\u2019s literally probably one of my most favorite shows that I\u2019ve watched recently.<\/p>\n
Oh, really?<\/p>\n
The main character, his last name is\u2026 His name is Lester Nygaard. Anyway, not what today\u2019s question is about, but Aaron Nygaard, he says, \u201cWhat paperwork do I need to close an off-market deal, and why? If there are cash offers, can it all be done between me and the seller? Do you typically ask for an inspection period? Any help with these questions would be great. Thanks.\u201d Ash, I think we\u2019ve both purchased properties both on markets and off market. So, I guess, what paperwork do you typically use to set up your deals when you\u2019re going off? Actually, I guess we should take a step back, and just define\u2026
Pace actually did this when we interviewed him on whatever episode that was. I think it\u2019s maybe important for folks to understand what the difference is between on market and off market. So when you talk on market, those are properties that are typically listed by real estate agents that are on the MLS. So when you open up your phone on Zillow or Redfin or wherever, and you see all of those properties that are listed there, those are on-market properties. The vast majority of which have been listed by real estate agents. Off-market deals are properties that are not found on sites like Zillow, Redfin, et cetera, or are not listed on the MLS. Instead, there\u2019s some direct connection between the buyer and the seller.
It could be that she was a buyer. Maybe it\u2019s a neighbor of yours who\u2019s selling their property next door, and the two of you are just having a conversation. Maybe you\u2019re using a third party like a wholesaler, and the wholesaler is a person that\u2019s found the seller. Now, they\u2019re connecting you, the buyer, with the seller. But typically, it means that the properties are not listed publicly anywhere, and there\u2019s no real estate agents involved typically. That\u2019s the difference between on market and off market. The challenge with off market is that because there is no real estate agent, there is no one there to really guide the transaction to make sure that everything\u2019s done correctly, so that\u2019s the challenge.
Ash, what is your experience typically on the off-market stuff?<\/p>\n
I think it\u2019s also we should discuss\u2026 Depending on what state you\u2019re in, there\u2019s different ways to close on a property too. In New York State where I\u2019m from, you have to have an attorney to close on a property. In California where Tony is, you do not have to. You can go directly to the title company. In New York State, the attorney is the facilitator between you and the title company along with you and the seller\u2019s attorney. So for me, when I am purchasing an on-market deal, I have my real estate agent drop the contract. If I am purchasing an off-market deal, I have my attorney, usually her assistant, drop the contract.
So, she uses the same exact contract that a real estate agent would use, and fills it in for me. I just send an email with the information, so the property address, the seller\u2019s name, what LLC I want to put the property in, the mailing address I\u2019m going to use, what my offer is, any terms on the property. Then my attorney\u2019s assistant will go in and fill in all of that information, send it to me to look over, and then I usually DocuSign it. Then that\u2019s when I can present it to the seller, or send it over to the seller to sign. From there, I give my attorney the executed documents to sign documents. The seller gives their attorney those documents.
We have also put on the contract as to who each of our attorneys are. Then from there, the attorneys pretty much take over. They order the title work. They handle escrow, and they basically make sure each party is doing their part. Do I need proof of funds? Do I need a commitment letter from the bank after a certain date? Then they set up the closing date, and do the closing. That\u2019s the difference for me when doing on market as off market is I\u2019m just using a different facilitator in a sense, and I\u2019m really not\u2026 I\u2019m still pretty hands off in each situation. The big difference I see is if I do an off-market deal, is it just me, the negotiation with the seller, and being able to talk to the seller directly?
I actually think it\u2019s a huge advantage than having to tell my agent to tell their agent to tell the seller. I feel like sometimes it\u2019s playing telephone as to doing that. But whether I\u2019m doing on market or off market, usually, after the real estate contract has attorney approval in either situation and assigned and both attorneys approve, any situations that may come up before the property actually closes, I have found that it\u2019s best to have my attorney negotiate with their attorney to figure out a resolution for that instead of having my agent and their agent figure something out, or go back to the negotiation table or anything.
For example, if I have an inspection done, here are the things that I want fixed. I\u2019ll usually send it to my attorney to just say, \u201cCan we ask for five grand off because these are the things that are result of the inspection, whatever.\u201d Then they ask their attorney and things like that. So, I do try to keep it to one person instead of having my attorney and my agent trying to figure things out throughout the closing process.<\/p>\n
Ash, what\u2019s the typical cost if for your attorney? What fees do they charge on a usual transaction?<\/p>\n
Usually, around $1,200 is what I\u2019m paying right now to close on a property, and that includes the title work. I think my\u2026 The title insurance on that too, so I don\u2019t know exactly offhand what is the actual attorney fee on it.<\/p>\n
That\u2019s about what we pay our escrow company. Our process is super similar to you, but instead of using an attorney, we have a really good relationship with an escrow company that we like to use here in California. Whenever we have an off-market deal saying, \u201cWe just send them the details of the transaction, who the buyer is,\u201d if we\u2019re selling the property or who the\u2026 vice versa, just the details of both parties. They draft up all of the agreements, the documents. Typically, it\u2019s the same what we would get from a licensed agent here in California as well, because California has a California version of a purchase and sell agreement.
They draft it all up. They send out all the DocuSigns. They collect all the earnest money deposits. They\u2019re coordinating with title to get all the title work done and make sure everything\u2019s clean and clear there. They almost act as almost like a transaction coordinator, but for me personally for each deal that we do. I would encourage anyone that\u2019s listening, if you are doing an off-market transaction, even if you\u2019re not using a real estate agent, still find that qualified third party, whether it\u2019s an attorney if you\u2019re in a New York, or escrow company like how we use, or a title company, whatever it may be.
Find that company to help facilitate that transaction, and that\u2019s how you can make sure that you\u2019re checking all of the right boxes.<\/p>\n
One thing I do want to mention too, as far as the process, if you\u2019re buying commercial property, you most likely won\u2019t use the contract that real estate agents use like the statewide contract where real estate agents are just filling in the blanks. Usually in my situation, I use a commercial broker for commercial properties. Even though I\u2019m using him, he doesn\u2019t usually put together the contract. He will, but I usually have my attorney create the contract, because it\u2019s usually so specific as to what\u2019s included, what\u2019s not included, and different things like that.
That\u2019s also something to be cautious of where usually on the commercial side, there\u2019s not just that general generic contract where you\u2019re just plug and play the information. So, keep that in mind too if you\u2019re buying commercial property.<\/p>\n
Super valid point. There\u2019s just one other part of Aaron\u2019s question here. He says, \u201cDo you you typically ask for an inspection period?\u201d Aaron, typically, all of the things that you would have in a regular real estate purchase and sell agreement, you should also include when you\u2019re going off market. Obviously, it\u2019s really whatever you and the seller agree to, but you can include all those same things. So if you need an inspection contingency, if you want a financing contingency, whatever other things you want to include in that contract, you\u2019re more than welcome to.
You aren\u2019t limited to doing that just because it\u2019s an off-market transaction. So even for us, if we\u2019re buying something off market, depending on who the seller is or what the situation is, we typically still do include an inspection period, because we want to make sure that we\u2019re protecting ourselves, and buying this asset. We do have some wholesalers that we buy from where the EMDs are non-refundable on day one, but in those situations, we still want to make sure that we get eyes on the property before we put that EMD up to make sure that we\u2019re not walking into any unforeseen issues. But yes, you can totally, and you should, include an inspection period when you\u2019re going off market as well.<\/p>\n
For me, I haven\u2019t done an inspection in a long time, but I recently put an offer in on a property that I didn\u2019t get unfortunately, but it was the first time I put an inspection in a long time just because it was outdated, but it was very well taken care of. It just didn\u2019t look like it needed extensive rehab where properties have banned the last couple years have needed extensive rehab, and the market was just so competitive that I would skip the inspection on those, because I knew that I was going to be redoing everything anyways. It just gave me a leg up. I feel like the market is shifting, where you have that ability now to put that inspection period back in, and still be competitive in the market. But also, I think it very much varies on what kind of property you\u2019re going in and purchasing too.
When I flip the house in Seattle, Washington, one thing I learned there is if there is something wrong with the sewer line that goes from the main to the house, for some reason, there\u2019s\u2026 I can\u2019t remember exactly if it\u2019s a permit issue, or if it\u2019s something, but it has something to do with the cost of repairing that septic. So if Tony sold me a house in Seattle, and there ended up being something wrong with that sewer line, it would cost me a lot more to fix it than it would if Tony, as the current homeowner, went in to fix it. I can\u2019t remember exactly what that detail is, but you guys can ask James Dainer, because he\u2019s the one that I learned it from. He\u2019ll be able to rattle it off the top of his head the specifics.<\/p>\n
I wonder if it had something to do with maybe the assessed tax value of the property or something like when a property changes hands, they reassess it. Maybe that\u2019s how\u2026 I don\u2019t know. I\u2019m shooting in the dark here.<\/p>\n
Well, I\u2019m pretty sure it was the direct cost, the cost too, so I don\u2019t know if it was like you had to get a more expensive permit, or you actually had to get a permit where if you were the current owner, and you had already owned the property for so long or something, I don\u2019t remember, but it\u2019s just like those are little things you would never think of. So every single property, he does a sewer scope. He scopes that line, and what he does is he\u2019ll just say, \u201cOkay.\u201d He\u2019ll negotiate with the seller, and maybe one option is it\u2019s going to cost five grand for this to be replaced.
We will actually add five grand onto the purchase price if you go ahead and just do this repair before we close and pay for it, because it\u2019s going to cost us more. So, it\u2019s worth it for us to just pay you to get it done.<\/p>\n
Cool. Well, let\u2019s move on to our next question here. This one comes from Michael Bafudo. Michael\u2019s question is, \u201cJust went into contract on our first STR.\u201d Congratulations, Michael. \u201cBut we went into it as a second home. Wondering if I should take out renter\u2019s insurance or regular homeowners. If I take out renter\u2019s insurance, will it mess up my mortgage? If so\u2026 I take out regular homeowners. Does it cover renters in it anyways? Thanks.\u201d Michael, this is a great question. Renter\u2019s insurance is\u2026
Ashley, you can probably speak to this better than I can, but if I\u2019m understanding the question correctly, Michael, renter\u2019s insurance is typically what you make your tenants take out when they move into your property, not necessarily what you as the owner needs to take out on behalf of your tenants. I know every apartment I\u2019ve lived in, and even the long-term rentals that we did have, we had our tenants get their own renter\u2019s insurance, which covered the goods of theirs that were inside of that property. Now, what we do for all of our short-term rentals is we notify the insurance company that it is going to be used as a short-term rental. Even if you have a second home mortgage, you can still do that, because the short-term rental or the second home loan still allows you to rent out that property when you\u2019re not using it for personal use.
So, we still let our insurance companies know that it\u2019s being used as a short-term rental. They add some additional coverage to make sure that it accounts for the increased risk that comes along with having short-term rental occupancy. But in addition to that, what we also do is we got an additional umbrella policy to help with any potential liability that might come from that property. There are two resources I\u2019m going to give you, Michael, to help with the insurance piece. One company is called Steadily. They\u2019re an insurance broker in the short-term rental space. We\u2019ve heard really great reviews from folks in the space about being able to get pretty competitive short-term rental focused insurance policies through Steadily.
Then another company is called Proper Insurance. They specialize in short-term rental home insurance. They offer some additional things like revenue protection. So if you have an instance where your property goes down for some reason, they can recoup your revenue for you, but they also have liability protection for short-term rental host. That\u2019s my initial take. Ash, I don\u2019t know, what are your thoughts for Michael here?<\/p>\n
You said it exactly like you\u2019ll have to get the homeowner\u2019s insurance, because first of all, your mortgage is going to require it. If you don\u2019t have a mortgage on the property, you don\u2019t have to have insurance on it, I guess. You can be self-insured. I have actually bought a couple duplexes where the owner\u2019s like, \u201cOh, I don\u2019t have insurance on it. I\u2019m self-insured.\u201d So, you do have that option, but if you do have a mortgage on the property, the lender is going to require you to show proof of the insurance, and that it is paid every year, and you keep that policy in place.
They may have requirements too as to what kind of insurance you need to have, what kind of limits, what kind of coverage you actually need. As far as the short-term rental, I think, Tony, you couldn\u2019t have explained it better, is going to talk to an agent or a broker who is experienced in putting insurance on short-term rentals. Where I have seen it is that you have your homeowner\u2019s insurance, or maybe it is just an investment property for you. It\u2019s not even a primary home or a second home. It\u2019s just an investment property where you go and get a landlord policy with almost a short-term renter rider agreement that\u2019s added on to your policy. That\u2019s an extra cost.
That\u2019s one way I\u2019ve seen it written up too, but highly recommend having some coverage. For the LLCs, I don\u2019t have that umbrella coverage, but for anything that is in my personal name, I do have umbrella policies on those to go above and beyond any policy or any coverage that my regular homeowner\u2019s insurance coverage may not cover.<\/p>\n
Yes. You hit the nail on the head. The reason why we did that is because the majority of our short-term rentals are titles held in our personal name. So, we needed that extra layer of protection, because we don\u2019t have that LLC on title to separate everything there, so makes us sleep a little bit easier at night with that additional umbrella. But, have you ever actually had a claim against any of your insurance policies at any of your properties?<\/p>\n
No, knock on wood, I haven\u2019t. Good thing I\u2019m sitting at a wood table. But no, I have never had to make a claim. I did have to at the 40-unit apartment complex that I started out managing. We had severe water damage from an ice storm where ice built up on the roof, and then the ice started to melt, but the water had nowhere to go but into the roof and into the eaves. Then it caused $100,000 worth of damage for, I think, it was maybe eight apartments total that were all along this wall. It was an extensive project. We called a home remediation company where they come in. They rip out the drywall. They dry out the\u2026
Basically, you\u2019re down to the studs. They dry it out, and then they go back and rebuild the walls. What we did was we had hired somebody. I can\u2019t think of what the name is, but it\u2019s some kind of\u2026 It\u2019s not an insurance broker, but what he does is he\u2019ll come in, and he\u2019ll try and get you more money from the insurance company, so loss rents. If we have to put people up at a hotel, make sure that you\u2019re getting the maximum benefit from your policy. So, the insurance company originally offered to write a check for this to cover it, and we had him come in and actually get us more money from the insurance company, and then we had to pay him a percentage of what he got us over what we had originally got.
I can\u2019t think of what his job title was called, but if you do find yourself in a situation where maybe your policy isn\u2019t going to be covering what you thought it was going to be, it may be worth hiring someone like this, and giving them a cut because it\u2019s better to get a little bit more than no more at all.<\/p>\n
Ashley, what was the episode where we had the asset protection guide?<\/p>\n
I can\u2019t believe I don\u2019t know this offhand, because I give it out all the time.<\/p>\n
All the time.<\/p>\n
I\u2019ll look real quick.<\/p>\n
Look it over. Look. I\u2019ll share really quickly. We actually haven\u2019t had any claims against any of our insurance policies either, thank God, but I always do get somewhat nervous because obviously with the short-term rental space, we get people coming in and out. We have hot tubs at the majority of our properties. We have now an indoor pool at one of our properties, and those by themselves are just high-risk things to have. I\u2019m just always nervous of those things. That\u2019s why we wanted to make sure that we\u2019re really beefing it up. Did you find it?<\/p>\n
Yeah, it\u2019s episode 106, Brian Bradley. He\u2019s a asset protection attorney. He did two episodes with us, so I think it was 105 and 106 or 106 and 107. It was just such a wealth of information. We had to break them up into two episodes there.<\/p>\n
So if you want to be scared out of potentially ever buying your first long term or short-term rental, then definitely listen to those episodes. All right. Well, I feel like we got through a lot today already, right?<\/p>\n
Yeah. This is good. Thank you guys so much for joining us for this week\u2019s Rookie Reply. My name is Ashley at Wealth from Rentals, and he\u2019s Tony at Tony J. Robinson. We will be back on Wednesday with a guest.<\/p>\n