October 2022

© 2022 CNBC LLC. All Rights Reserved. A Division of NBCUniversal

Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes, and Market Data and Analysis.

Data also provided by

Ashley:
This is Real Estate Rookie, episode 228.

Tony:
I know so many rookies today would consider capital maybe as one of their biggest obstacles to getting started, but you got to start thinking outside the box. It’s like BPCON just happened. Hopefully, you’re at BPCON, shaking hands, meeting people, because I guarantee, out of the almost 3,000 people that went to BPCON, a certain percentage of those folks are lending money on a private basis and they have a good time doing it because it’s the most passive return they’re ever going to get in real estate investing. You just got to find the way to connect with those people.

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, information and stories you need to hear to kickstart your investing journey. We like to start the episodes off by shouting out folks in the Rookie audience who have left us honest rating and reviews on Apple Podcasts.
And this week’s review comes from Rags321, and Rags says, “Great podcast!” with an exclamation mark. “This is a great podcast for learning about real estate through so many different aspects.” So Rags kept it short and sweet but still left us five stars. So if you haven’t yet, please leave us a rating and review on whatever podcast platform it is you’re listening to. The reviews go a long way to helping us find new listeners. And the more listeners we find, the more folks we can help and that is our goal here at the Real Estate Rookie Podcast. Isn’t that right, Ashley?

Ashley:
And you know what I was just thinking of? So this is recorded after BPCON and we talk about the benefits of BPCON throughout this episode, but we’re headed there in a couple of days. And all I thought about while you were reading that review is, man, I need to get myself some muscle and force people into leaving us five star reviews while we’re there. Do it now.

Tony:
We’ll just walk around with a big QR code that links to the podcast.

Ashley:
Yeah. Oh, Darryl and Sarah just pushing people out of the way, “Did you leave a five star review? You can’t enter the conference.”

Tony:
That is such a good idea. So for BPCON next year as part of the registration process, there should be a toggle that says, “Have you left a review? Yes or no?” And if they say yes, then they can buy a ticket. And if they say no, then I don’t know, they’re not able to buy a ticket or it’s double the price or something crazy like that.

Ashley:
And obviously, this word, trademarking this idea right here. So it’ll only be used for our podcast on the market, not steal our idea.

Tony:
You guys are on your own.

Ashley:
But if you guys haven’t already, check out BiggerPockets’ newest podcast on the market with some of our good friends. It actually is a super great podcast.

Tony:
Such a great podcast.

Ashley:
Still number two to us of course, but definitely really interesting. And they don’t have boring banter. It’s actually interesting conversation going on there. So make sure you guys check them out if you haven’t already. So Tony, what’s new with you?

Tony:
Yeah, we are shaking, we’re moving. One of the things that I would love to do, maybe we can do this in front of our future Rookie Replies, is give you guys all an update on our Big Bear Hotel. So I would love to share the story behind that, but we just officially shut that deal down last week, so another buyer swooped in and took it away from us. So it’ll be a lot of, I think, good lessons for folks to hear as far as what we learned, what we do differently next time.
So licking my wounds from that defeat. But nonetheless, we’re still moving forward. We got a bunch of properties we’re setting up right now. I think probably we’re in the process of about to take live. I think what will be my favorite property in our portfolio is this really cool Mars themed property in Joshua Tree. And it’s got the same aesthetic as our usual tiny houses, but it’s actually a two-bedroom property. And it’s like, I’m just super excited for it. So we’re having a good time setting that one up and just all full steam ahead, the usual stuff.

Ashley:
Yeah, I think that would be a great Rookie Reply is talking about that deal because even me, I’ve had to back out of a campground deal and it was just sickening, and I felt awful losing that deal. And then somebody else swooped in and got it. But I think that it’s way better to not force a deal and that wasted time, the money, that was an opportunity cost of losing a little bit of time and a little bit of money compared to the large amount of money and time you could have wasted if you went through that deal and it not being a great deal too.
So social media, the impact it has on people’s lives, I could care less about somebody showing me their fancy things they have that. I have no interest in keeping up with the Joneses, that doesn’t bother me. But somebody talking about, “I never back out of a deal, I always close.” That’s like, “Oh, I had to leave a deal.” That makes me cringe at myself. But also, you never know what people are saying online, but I think it’s perfectly acceptable and should be made more of the norm that it is okay to go out of a deal if it’s not going to work anymore, instead of trying to force it.
And yeah, it does suck to be that person where the seller is like, “Geez, I had a buyer and they’re not buying it anymore. What the heck?” And they can trash talk you or whatever you want or something like that, I don’t even know. But I guess they’re happy they have another deal, but-

Tony:
I got another buyer.

Ashley:
Yeah. So it’s hard to swallow that when it does happen. But lessons learned are huge, I think, from that.

Tony:
Totally. Well, what’s new with you, Ash? What do you got going on?

Ashley:
So I actually have a lake house that I’m hoping to close on, I think, Friday. But I’d leave on my flight for BPCON Friday, and so I’m trying to get a really early morning closing scheduled here before I take off. So, hopefully closing on that. If not, it won’t be until a week and a half later because I’m pretty much gone all of next week to get it done. So that’s the new thing. And it’s going to be a short-term rental, just on a little lake near us here about 45 minutes from me now.

Tony:
Are there beavers there too?

Ashley:
No, at least I haven’t seen, but there is actually a dam. So the lake, it’s cool. There’s a dam there and they actually drain it. So I think it’s coming up October 2nd or October 3rd. They actually drain the lake. So it’s like a manmade lake. There used to be a town there and they actually picked up … It’s always flooded, so they actually picked up houses and moved it and then they dug it out and they turned it into a dam.
So every year they drain the lake and then they fill it back up in the spring and then everybody boats on it and stuff like that. But I’ve never been to it when it’s drained, and so I can’t wait to go and see it like basically this big crater. And there’s still some water that stays in the bottom of it because they don’t get all of it out, but you can walk around some parts of it and stuff like that.
So it’ll be interesting to see. But a really nice area, nice community, a small town that the lake is in. And I think there’s a lot of potential. There’s not a ton of rentals that are listed there. What are listed don’t have a ton of vacancy, but what I’ve learned is that there’s a lot of, people don’t even have to advertise because they have the same families that come every single year that rent it out and things like that. So I think this actually might be a good opportunity to … There’s a Facebook group for this lake and I think just even posting in the Facebook group as to, “Here’s this new short-term rental.”

Tony:
Oh yeah, I’m glad you mentioned that, Ash, because I feel like that’s … A lot of people when they want to break into real estate investing, they always want to go to the big hotspots. But even for Airbnbs, you can find success in smaller, secondary, tertiary markets because every pocket of every single state has these little spots where people go to spend a night or two to enjoy whatever that little location has to offer.
So even if me on the other side of the country, I’ve never heard of this spot, but everyone in that area knows and goes there. Then there’s an opportunity for you to have a successful short-term rental there too.

Ashley:
And I think part of the large opportunity, and I’ve learned this from my arbitrage, my units, the short-term rental arbitrage where I’m renting out an apartment in an apartment complex, a lot of our guests that stay are actually visiting people that live in the apartment complex. But they live in smaller apartments, one or two bedrooms and it’s family visiting and they maybe have five people or whatever and they can’t fit into their apartments. So they rent this unit when they’re visiting. So like Thanksgiving, Christmas, always book through there people visiting family that live in the apartment complex.
I think since we’ve had it, this would be our third or fourth Christmas and it’s been the same woman that has rented it every Christmas to visit her family that lives in the apartment complex. So the same with this lake house, is getting people that have a lake house already but want to have people come and visit, offering people in the community a discount code or whatever if they have friends or family that want to stay at their house if they can’t accommodate them into their own lake house too.

Tony:
I love that. Great lessons learned, great lessons learned. Well, we got a slew of good questions today as well. Our first question is all about how to fight back when an appraisal comes in short. Ash and I both dealt with that issue and no folks have dealt with that issue. What happens, and this is the second question which I think might be my most favorite, is like what happens if one tenant punches another tenant? How do you handle that as a landlord? And Ash and I kind of share our thoughts on that. And then the third question is about how to remain competitive when you’re going up against cash buyers because I think a lot of folks are feeling that pressure, especially in today’s environment.
So question number one today comes from a listener by the name of Lauren Murphy Niakhu and Lauren’s question is about appraisals. So Lauren says, “My husband and I are refinancing our primary residence, which was just built in 2019. We received the appraisal today and it’s almost $100,000 less than the first appraisal completed in February of 2020. Given the down payment we have in the house, even with the low ball appraisal, we still have over 20% equity.
I don’t want to be reactionary or emotional, but I’m kind of pissed. I haven’t heard from the lender yet, but I’m hoping it doesn’t affect our refi. Obviously, if it does affect the refi, I’ll try to argue against it. One of the three comps to choose was a 30-year-old house with updates. But even if the refi moves forward, is this appraisal something that would affect the future sale of our house when we’re ready to move on?”
So I love a good appraisal question, Ashley, so I’ll let you lead in first. What are your thoughts? Do you think this has an impact on her refi and her ability to sell them in the future?

Ashley:
Yeah, I think I’ll answer the latter question first is, is it going to affect the future sale of their house when they’re ready to move? First of all, this appraisal is not public knowledge, so this will be held in … You don’t have to disclose that appraisal number to anyone. When you are ready to sell your house, if the person is getting a loan when they purchase your property, they will have their own appraisal on the property.
Unfortunately, there is no consistency that the appraisal will turn out the same or turn out different. An appraisal has been considered to be more of an art than a science where it can vastly depend on who the appraiser is that is appraising the property. So yes, it could affect the future sale of your house.
So if you go and list this property and somebody puts in an offer to purchase it and they’re going to be using conventional financing and where the bank would like to have an appraisal on the property and easy math, let’s use a hundred thousand dollars for the purchase price, the bank is going to loan you up to 80% of that value, $80,000. But when it is appraised, it only appraises for $90,000. So now the bank is not going to loan them that $80,000 and that means they’re going to have to come up with more money, a larger down payment because the bank is only going to give them 80% of the appraised value, not what they’re purchasing the property for.
So to kind of go into your other question as to how to dispute this, Tyler Madden, an investor friend of ours actually did this on a recent property he just purchased where he actually was doing a refinance. He held the property for a year, rehabbed it, went through the refinance and he asked his bank to dispute it. He wrote a letter stating that he would like a second opinion on the appraisal. He had to pay to have another appraiser come in and appraise the property. But he also submitted supporting documents.
So if you can show some kind of proof as to maybe you actually have the cost of construction, your original contract with the contractor, if you know of other comps in the area that weren’t included in your property or if you can find out more information about the houses that were used for comps and maybe there was inaccurate information, bring all of this forward.
And with anything, when you are confronting someone that they had made a mistake, don’t throw it in their face and be like, “This is wrong, this is wrong. You did this, you should have done this, blah-blah-blah,” just show them here. I’d like to provide more information and kind of do it in a kindly manner. But you can definitely dispute or request to have an appraisal disputed, but it will depend on the bank. The bank can deny your request and in that time, that’s when you most likely would go to another bank to ask them to finance the loan and to get another appraisal done.

Tony:
Yeah. Ashley, so many good things you mentioned there. I’m just going to add a little bit. So she asked about, will this affect the refi? And Lauren, you said that you’re at about an 80% LTV based on that, the appraisal that just came in. So I don’t know how high of an LTV your bank is willing to go on that refi, but I feel like a lot of times it’s going to max out around that 80%. So you might not have anything left to refi if you only have 20% equity left in the house.
So it definitely could impact the refi. If they’re able to go up to like 85 or 90%, then you’ve got some room there. But obviously that $100,000 difference will impact how much money you’re able to pull out of the house. I think your point, Ashley, about trying to challenge the appraisal are a really good idea. We’ve done that, I think, two or three times successfully now. We actually just got another appraisal that came back on a house that we’re selling that came back super low. So we’re actively challenging that, literally, have a call after we finish recording today to work through that issue.
And things we’ve done is we pointed out some of the inconsistencies in the appraisal that came back. I think your point of them using a house is 30 years old versus a house that’s four years old. Those are two totally different types of construction. And typically, appraisers aren’t going to take a three-decade-old house with a three-year-old house. Those are two different types of houses that you’re looking at.
If you can find better comps within the same search radius, so let’s say they went out a quarter mile, if you can find recent comps that are better comps, I would use those as proof to say, “Hey, here’s something that I think was missed from this report.” And like you said, Tyler, I think given the scope of work for what he did, we’ve done that as well for some of our rehab. So all these things I think help play into the fact of whether or not you’ll be successful in challenging that appraisal.
And then I think, you talked about this as well, that art versus science. Anything that’s dependent upon a person’s opinion, there’s always going to be some sort of fuzziness around how they get to that number because you can send two, three, four appraisers to the exact same property, there’s a good chance they’re all going to come back with a very different opinion of value. And just a slight tangential story, but somewhat related. I know a builder. He builds in Southern California and when he builds his houses, they’re all the same exact property, same exact floor plans, same exact house, but he’s building them in different spots around the city.
So he’ll go. He’ll submit plans for four properties at a time. So he’s submitting four sets of the same exact plans to the county for them to check the plans. Those get submitted to four different plan checkers, same exact property, same exact plans. But guess what happens when he gets his comments back? Not one set of comments are the same thing. Every single plan checker is pointing out something different even though it’s the same exact build, and it makes no sense.
So he’s submitting revisions on plan A that he’s not submitting on plan B, and revisions on plan C that aren’t on plan D. So my point is, whoever goes out there, they’re going to see something that someone else might miss. So if you can point out some of those inconsistencies and things that they might have missed, I think it helps you.

Ashley:
Yeah, that’s definitely a great point. And some appraisals that I’ve done too is I’ll meet the appraiser when they go to the property and I’ll offer them information. So some people have said that they’ve tried to offer appraisers information, they don’t want it. They do their own thing and that’s fine, let them. Don’t push information onto them. But I’ve had appraisers like, “Oh wow, thank you.”
So there was one property, I owned a house down the street and I had had it appraised fairly recent. So I gave that appraisal a copy of that appraisal to the new appraiser that was coming in for this other property also with a list of what updates we had done to the property, how much it cost, things like that. I’ve also had appraisers ask me, “Oh, so what did you put in for new?” And I just tell him. He’s like, “A ballpark, what do you think it cost or whatever?” And just ask my opinion, and no proof. I don’t want to see no receipt or anything. They just ask and I just spew out on a number or whatever it was. And so yeah, it does widely vary depending on the appraiser.
I’m working on getting a hard money loan right now to purchase a property and it’s kind of a hard money lender, not really. They do hard money loans, but I’m actually doing a long-term loan with them. And so we’re having an appraisal on the property and when the appraisal was done, they told me that I could not have a copy of the appraisal yet. And I was like, “Okay, that’s really weird, I am entitled to that.”
But what they said was they were actually having a third-party fact checker go through the appraisal and make sure all of the information was correct. And once that verification was done, then they would send me a copy of the appraisal to look over. And I guess there was some kind of confusion and things that were missing and they had to have the appraiser revise the appraisal because of that, but ended up good. It was $13,000 over what I’m paying, so instant equity right there. So yeah, it just vary.

Tony:
And that happens, appraisers are people and sometimes they get things wrong. Our last successful challenge, they had the square footage off by, I think it was like, I don’t like a 20% difference in the square footage. They had us 20% smaller than what the property actually was. And obviously that has an impact on the value. So go through that appraisal with the fine tooth comb and if you can find some inconsistencies, point that out.
And then lastly, like Ashley said, if you can’t get that challenge successfully and your lender isn’t able to help advocate on your behalf, then maybe find another lender to do this refi with and maybe they’ll have a better chance of getting you the right appraisal.

Ashley:
If you haven’t done an appraisal yet, get a copy of someone’s appraisal. So anybody that has done a loan probably has a copy of their appraisal. So ask your friends and family if they don’t mind giving you one and just go through it and look because it does show almost the formula or kind of the guide of how they do put the appraisal number onto your property.
So you’ll see three to four comparable properties listed there and it’ll go as to what’s the bedroom count. And if your house has three bedrooms and the comparable has four bedrooms, they’ll subtract some off of your house because it’s not as comparable because it’s one less bedroom. And so you can go through and see the things that they actually look at when they’re adding or subtracting value from your property.
So take a look at that and you can probably Google appraisals too and look at them, but if you can find a friend or family member that has gone through an appraisal and get a copy of their report, it is very interesting to look through.
Okay, let’s move on to question number two. This question is from CJ Caneel. Does anyone have any information regarding a landlord’s responsibility for damages caused by a tenant renting a condo to another person on the premises? Specifically, if the HOA documents say a unit owner is liable for damages caused by the tenant, does that extend to intentional acts by the tenant that harm another person?
So for this question, are we assuming these are in the unit or are these in common areas even? I would think that in the unit, it would definitely be the owner responsible because a condo, you actually own your unit. But if this tenant were to go and do harm to someone else in the common area or do harm to the property in the common area, then yes it would be the owner’s responsibility of that unit. What are your thoughts on that?

Tony:
Yeah, that’s tricky because if I’m reading or understanding CJ’s question correctly, it sounds like one tenant hurt another tenant in some way, shape or form. He says, if one tenant causes damage to another person on the premises. So it sounds like maybe there’s some kind of altercation between two tenants. Is the landlord somehow responsible if tenant A beats up tenant B or something like that? And honestly, I do not know and it’s make … Are you not reading it the same way?

Ashley:
No, no. Now, I am. I see it. So if your tenant does damage to the property as the owner of the unit, I think the documents say that you are liable for that. So he does understand that. But what he’s asking is does it extend to intentional acts by the tenant that harm another person? So maybe let’s say that your tenant goes and punches another tenant in the face, are you liable for that?
The first thing I think of though is I feel like that’s not really an HOA issue. I feel like that’s a civil case.

Tony:
Or a criminal case.

Ashley:
Yeah, a criminal case. So I could see if there was maybe damage to the property where the HOA would come back after you, in which case you in turn would sue the tenant for the damages. So yeah, that stinks that you have to go and try and get your money back from the tenant. But as far as an intentional act to harm another person causing physical harm or emotional harm, I would think that would be a civil case against the tenant as the landlord.
So for example, if someone in my property that’s a tenant went and punched the neighbor, the neighbor would go after the tenant, would call the cops on the tenant, not on me. I could see the HOA moving for you to remove that tenant from the property. I could definitely see that in which if the tenant is doing this, it might be a good idea to get the tenant out.

Tony:
Yeah. And CJ, we don’t know what state you’re in or what city you’re investing in, so definitely consult with a local attorney if this is something that you’re concerned about. But yeah, I think I’d agree with Ashley where in most cases, if there’s some sort of physical altercation between one tenant and another, those two tenants would be held responsible, not necessarily use as a landlord now.
If someone is walking in the common areas and they trip over a step and hurt themselves, that’s a different scenario. But just one guy or girl walking up to another and called in some issues, I don’t think that would fall into your lap. But definitely consult with some legal professionals because Ash and I are, either one of us are attorneys or pretend to play one on podcasts.

Ashley:
The only way I can think of is if that person decides to sue you because you rented to that person, because people will sue for anything nowadays.

Tony:
That’s true. If this person had a history or something of violence and you didn’t catch that and maybe they were a threat to the community, who knows?

Ashley:
Yeah. So I think, Tony, is the best advice is consult an attorney. Better to be proactive than reactive. But I would think that it would be very hard for an HOA to monitor. That’s like saying that you’re responsible for another person’s actions. Why would anyone ever want to rent out their property if you are liable for their actions on another person? That’s a huge responsibility there.

Tony:
That’s a huge responsibility, huge responsibility. But it does make me wonder now though, like for Airbnb properties, I wonder if let’s say that my guest gets into a fight with the neighbor next door, I wonder if I could be held liable as the Airbnb owner for maybe something that the guest did like that, so something for me to think about. I got to make some phone calls after this to see what kind of liability we have.

Ashley:
Tony, along those lines, so I’m trying out new software for short-term rental. And one of them has the option where if you want to send almost a lease agreement or rental agreement to the person renting, that is probably something you could put in there. Obviously, there’s still ways people can sue you, even if you have them sign a waiver or something, but put in there that you’re not responsible for their actions or whatever, something like that. And they’re responsible for themselves and what they decide to do. But the second part of that is do you do that?

Tony:
It’s so funny. So we just had our short-term rental summit a few weeks ago and one of the speakers or two of the speakers were Sarah and Annette from the Thanks For Visiting podcast. Great podcast, you guys should definitely check them out. But they’re super dialed in with all their systems and they send rental agreements before every guest checks in. And they have it as part of their house rules on Airbnb and Vrbo, that if the guest doesn’t sign the rental agreement 24 hours before checking in, they can cancel their reservation without any kind of penalty.
So essentially someone will pay for the reservation, not fill out the rental agreement, they don’t get their money back. So we’ve been having some discussions and turned it around like, does it make sense to add a rental agreement as well? So we don’t do it yet, but after talking to a Sarah and Annette a couple weeks ago, it’s something that’s on our roadmap to add in for sure.

Ashley:
Yeah, super interesting because I really hadn’t thought about that. But then I did see their talk at the summit, it was really great information and then when it came up again with checking out the software. So yeah, I was just interested in that.
But I think that if this is something that you are worried about is being responsible for your tenant’s actions that especially short-term rental or even in your long-term leases, putting in some kind of clause that protects you. And the best place to get the proper wording for a clause like that is from an attorney. And it also probably varies based on what state you live in too, because some states, it’s a lot easier to sue people for frivolous things than it is in others.

Tony:
Awesome. All right, well, let’s keep rolling. We got one more amazing question to dive into and our third question today comes from Anthony Emerson. And Anthony says, “As a first time buyer, what are some ways to beat out a cash buyer?” This is a great question, Anthony. I think one that’s popped up multiple times both in the podcast and the Real Estate Rookie Facebook group. Here’s what I’ll say.
So a seller is motivated by one of three things. Its convenience, its speed and its price. A cash buyer, typically they’re going to beat you out by speed because if you’re a cash buyer, you don’t have to jump through all the hoops that a typical mortgage-backed buyer has to go through. There’s no appraisal process. You don’t have to if you’re paying cash. You can skip on a lot of inspections and you can close tomorrow if you really wanted to.
But when you’re buying with a traditional loan, you’ve got to go through the appraisal process. You’ve got to get your title work done. There are so many things that a traditional lender will want to see, which adds to that escrow period. So if a buyer is looking for speed, someone with cash will typically win.
The other thing that cash gives you, and I guess this is the fourth reason, is certainty. A lot of times, people can get pre-approved for a loan, but when they go out to actually close, some things pop up that prevent them from getting to the finish line. But if someone has cold hard cash in the bank, there’s a certain level of certainty that comes along with someone that has cash in the bank. So with cash, you get speed and you get certainty.
On the other side, ways that you can be competitive are with the actual price and with convenience. I met an investor one time that got a crazy good deal on a property because they offered to help the seller move. Seller had been in the house for her whole adult life, had accumulated a bunch of stuff and the thought of her having to leave was just overwhelming for her. But the seller just offered to hire a moving truck, and because they offered to help that person move, they added a certain level of convenience that allowed them to get that deal.
So if you can find what the pain point is for that seller and find a way to soften the blow or make that pain point a little bit easier, you’re giving them a level of convenience that might make them choose you over another offer.
And then the last thing you can do is the actual price. Some sellers are just motivated by what is the highest dollar amount that I’m going to give. You have to remember, on the seller’s side, they’re just going to get a check when you close. It doesn’t matter if it’s cash or if it’s with the loan, right? They just get a check at closing.
And even though the cash might come faster, even if that buyer has a loan that they’re getting on the property, the seller is still going to get a big fat check at the closing table. So if you can give them a bigger, fatter check, some people are motivated by that. So, speed and certainty, maybe you lose out to on the cash side but you can beat them out with offering a higher price and giving them a certain level of convenience.

Ashley:
Tony, that was great, great information. And to tell you, whenever you go off and giving this great information, all I do is imagine this turning into a nice Instagram reel on your Instagram account.
Oh, I only have a couple things to add to that, but I think those three things apply to any kind of property you’re going after. Every seller has one of those three things, or maybe a couple of those things that motivates them. So the advice I would give is to go for off-market deals. So you’re going to have less competition because it’s not listed on the MLS.
So, off-market deals you can find by driving for dollars, sending out mailers, calling people, word of mouth, telling anyone and everyone what you’re trying to buy. And maybe somebody’s cousin will come and say, “Hey, you know what? My cousin is selling this, and blah-blah. I thought of you because you were talking about it.”
I wouldn’t rely on that as your only lead source. I’m waiting for people to bring deals to you, but also wholesalers too. So the thing with wholesalers though would be is that a lot of times they will only accept cash purchases, but that’s not always the case. So that’s something to talk to a wholesaler up front is if you are financing the property if they would accept terms when purchasing a property.
What you can do is if you do find an off-market deal, and I think this is a big misconception sometimes, is that because you’re buying the property off market, the seller is going to expect you to close fast and to bring cash. And that is not true. That’s not the case. You can give them an offer of any type of financing that you have available to you. And it doesn’t mean you if you are getting a conventional loan, that you have to buy a property on the MLS.
So I think that’s a great route to go is to actually do some deal sourcing yourself, find a deal, and then make an offer on it where it’s just you offering and nobody else. So that there is that, they don’t have tons of people submitting offers by 10:00 PM on Sunday evening for whatever.
Another thing too I like about off market deals is that you’re talking direct to seller. So it’s a lot easier to find out what their motivation is. Where when you’re on the MLS, it’s you talking to your agent, talking to their agent, talking to the seller, and it’s like playing telephone. Even now I’m in New York state, you have to use attorneys to close and I’m doing an off-market deal on a lake house. And it’s like me to my attorney, to their attorney, to them.
And finally, we just called them and it’s like, “Whoa, whoa, no that’s not what’s happening. I don’t know why our attorney said this and your attorney said that,” like no. And we were able to, within 24 hours, get the deal back on the table and the ball rolling and moving. So I think there is an advantage sometimes to having a middle man when you’re working on a deal, but other times, it’s even better just to go directly to the seller and be able to talk to them and figure out what they want and what their motivation is.
And then you can negotiate from there, sit down with them, give them your offer. And if they’re like, “No, we don’t want to do it,” you can talk to them and say, “Okay, well what would be some things that would maybe make this deal happen for you?” Maybe it will work out, maybe it won’t, but don’t go into the deal just because you want the deal and don’t agree to their terms just to make it happen, because there will be other deals out there.
So definitely, try finding your own deals by going off market. There’s a lot of ways to do that, just even driving around looking at properties. One thing you will have to be careful of is that when you are looking for off-market deals, you will have to make sure that the bank will finance the property if you are using a loan. So if you’re using your FHA loan, you have to go through and do a kind of an FHA inspection. So this is separate from the inspector you hire. This is completely separate from that where they want to see the property as up to code.
I remember when my cousin purchased a property with an FHA loan, she had to install handrails going up the one stairs because it didn’t have it and stuff, before they would actually finance the property. So, do be careful of that that you’re looking at properties that would pass an FHA inspection or that the property would actually finance. Because if the property is too dilapidated, a bank may say, “You know what? We’re not going to touch that.”
And banks also have lending limits. I found that very common. A lot of banks won’t even give you a mortgage if it’s less than $50,000 too on the property. So watch out for those kind of things when you are going for those off-market deals. The best way to find out what property won’t work is to go directly to the lender that you’re using and ask what are properties that you stay away from or you won’t lend on. If it’s inhabitable, there’s no running water yet or anything like that, the bank probably will say, “Yeah, we don’t finance those type of properties. You have to get it livable, at least for us to finance.”

Tony:
Yeah, so many good things, Ashley. As I just want to piggyback on what you said about playing telephone, where it goes from you to your agent to their agent to them. The same exact thing happened to me on a deal we’re negotiating on this past summer where I wanted to present some updated terms to the seller. And the agent, he was a dual agent, so he was representing both the buyer and the seller in this situation. I was the buyer, the other person was the seller. And I said, “Hey, just pitch this to them and let’s see what they say.” And the broker was just so hesitant. He’s like, “I think I might make the deal fall apart and the seller is really antsy and I don’t want you to lose this deal,” so whatever.
I hang up from him, I just called the seller. And I say, “Hey, here’s what I’m thinking. What are your thoughts?” Without hesitation, they’re like, “Yes, let’s do it.” So it’s like sometimes if you can skip that middleman, it does help I think bring a more creative deal together. And it also helps build that relationship, I think, if you can talk to that person directly.
The other thing too is that it doesn’t necessarily have to be your cash. So Anthony, if you have friends or family or even hard money that you can go out and get, that will give you an opportunity to be a cash buyer in a way. Because cash just means like can you buy it without getting a traditional loan? So if you can go out and raise $500,000 from friends and family or go out and get hard money, now you’re able to close within the same timeframe that a cash buyer will.
And if you think about, I looked it up while we were talking, the S&P 500 is down 22% year-to-date. So the people that have had their money majority in the stock market are down 22% this year. So do you think that there might be an appetite for someone to say, “Hey, I’d rather give you a private money note at 10%, 12%, whatever it is, as opposed to leaving the stock market right now that’s taking a nose dive”? So there’s probably an appetite in today’s environment to say maybe private money lending is a better way for me to get a return on my investment because the S&P 500 has taken a nose dive.
So I think get creative, Anthony, doesn’t necessarily have to be your cash and see if there’s some other ways where you can get some cash but not be yours.

Ashley:
I’m going to give some unsolicited advice on the stock market right now. I am going to say if you do have money in the stock market even though it is down 22%, I would say-

Tony:
Don’t pull it out.

Ashley:
… leaving your money in there and let it ride it out, because if you look at the history of the S&P 500, it will go back up. And if you are losing money right now, you will lose money if you pull it out.
So a lot of people don’t follow that advice, they panic. So just to Tony’s point is those people that do pull their money out, great opportunity for you to make the money. And there are going to be, and probably already are tons of people that are pulling out of the stock market and kind of panicking. Just like in 2008, a lot of people did that. And if they would’ve left their money in, they would have a lot more than what they do have now because they did pull their money out.
So yeah, I think that’s a great point is you can offer a better return right now than a savings account, money market account, things like that, and even just someone putting their money into the stock market.

Tony:
And there’s probably a lot of people just sitting on cash too. It’s like a lot of people had equity. A lot of people sold homes over the last year. A lot of people refinanced over the last year. A lot of people pulled HELOC. So they just have this cash that they’re sitting on that they would like to put to work. They don’t want to put in the stock market because of how things are going. So if you can present them with a safer alternative investment strategy that gives them a better return, you can be a lifesaver.
I know so many rookies today would consider capital maybe is one of their biggest obstacles to getting started, but you got to start thinking outside the box. It’s like BPCON just happened. Hopefully, you’re at BPCON, shaking hands, meeting people, because I guarantee out of the almost 3,000 people that went to BPCON, a certain percentage of those folks are lending money on a private basis. And they have a good time doing it because it’s the most passive return they’re ever going to get in real estate investing. You just got to find a way to connect with those people.

Ashley:
Yeah, I think to add on to that too, if you do have money to invest, actually right now is a great time to put into the stock market because you’re getting stocks on sale. But once we get a lot of people will do that. But also if you are planning on retiring in the next couple of years, the stock market may not-

Tony:
Rebound.

Ashley:
… rebound in time when you are ready to retire. So this is also a great person to go after. Somebody who’s retiring in the next several years maybe doesn’t want to put any more money into the stock market and they want to put it into a nice safe investment with you. So what did we learn? We want to go after old people that are on the verge of retirement.

Tony:
We got to start doing presentations at the senior home, the geriatric centers. It’s where the best private money lenders are.

Ashley:
And you know what? It seems like, not even old people. If you’re retiring, hopefully you’re not that old because you guys are rockstar real estate investors and you were going to retire at the age of 30, 40 you a lot sooner than …

Tony:
So that’s the hot tip for today’s episode. You got to go to the senior citizen, local senior citizen, like community center in your city and do your presentation there to find your private money.

Ashley:
Okay, let’s really break this down and let’s go through the sold homes. Let’s look up people who have sold their homes. So look for the Dorothys, maybe the Carols, all of the old fashioned names that have sold their homes for cash for way more than they bought it for 30 years ago. They’re sitting on their lump sum of cash. Search what nursing home they’re at or long-term care facility and then that’s where you’re volunteering.

Tony:
There you go. That’s million dollar plan right there. You’re welcome to everybody.

Ashley:
Okay, so Tony, we’ve been our last episode, our first one doing these longer extended episodes, we had a little bonus content kind of talking about market interest rates. So did you have something that you wanted to touch on today that we could boring banter about?

Tony:
So BPCON just wrapped. And I know we’ve talked about this in the past before, but I think it’s always good to put networking front and center because I really do believe that that’s one of the most important things that a new investor can do to kickstart their investing journey. So I’m just going to share what someone can do if you are hesitant to network or maybe you feel like networking isn’t quite your cup of tea.
So first thing I’ll say is that you don’t have to be an extrovert to enjoy networking. I think I’m naturally an introverted person because I know I re-energize by being by myself. I need alone time to have my energy levels come back up. Whereas if you’re an extrovert, you need that people connection, that energy of other people being with you to feel re-energized. So I’m by nature an introvert.
But I still find joy in networking, and here’s typically what I’ll do. So even before I was Tony J. Robinson from the BiggerPockets Real Estate Rookie Podcast, and I was just going to meetups as Tony Robinson with the nobody-listens-to-my-podcast podcast, I would go into a room and I would find a group of people. And all I would say is like, “Hey, do you mind if I join you guys?”
And a hundred times out of a hundred times, they’re going to say yes. I’ve never been told, “No, you can’t join us.” And once you join into that group, it’s a simple question, ” So, hey, what brings you here today?” Or, “Hey, where are you at on your real estate investing journey?” And then people kind of go off and start telling you their story. And that’s how you build connections with people. And it’s not necessarily about meeting as many people as you can in the room, it’s more so about like, can I build a genuine connection with any of these people? And you never know where these little conversations or where these little connections might lead you.
I’ve shared in the podcast before that the only reason that we started investing in Airbnbs was because Alex Sabio … His name is Alex Sabio. He’s another investor here in southern California. He started buying Airbnbs and he and I met at a meetup. And after he bought his first one, he said, “I think you guys should buy one too.” Three weeks later, we close on our first cabin. So you never know where those connections will lead you.”So hey, can I join you guys? And where are you out in your investing journey?” Those two sentences will take you so far when it comes to networking.

Ashley:
The point you made about establishing a genuine connection was right on. I do think that sometimes people get over-concerned with, “Oh, I got to build my list of connections. I collect as many business cards as I can and enter them into some kind of data collection software so I can track the people that I’ve made a touch point with.”
But having, instead of meeting 20 people that night, talking to three people where you actually were interested in what they’re saying and the same back to you and you built a connection with them, that may be on your way to a friendship instead of just that business connection, that networking. That will be so much more valuable to you than looking at a list of 20 people that you met that night but can barely remember or put a face to a name as to who these people actually were.
You may make a note on the back of their business card, what they do or something like that, or one thing you learned about them. But the genuine connections are really what are going to help you. And also you can provide so much value to those people too.
And because you have that genuine connection, they’re actually going to want to help you and the same, and you’re going to want to help them because you truly care about them and you become friends or whatever that relationship has turned into. So I think right there was a huge takeaway. And sometimes when we talk about things on this podcast that are business-wise, I think of it too as even just in life in general.
As I’ve gotten younger but yet wiser, I’ve somehow learned that in life, I would rather have that core group of friends that are super genuine and best friends than have 50 friends that you don’t have that genuineness from because you’re just like trying to keep your friendship going with 50 people instead of those four or five people where you build that genuine connection. So I think that works in all aspects of life, I guess.

Tony:
So true.

Ashley:
Well, you guys, thank you so much for listening to this week’s Rookie Reply. My name is Ashley, and you can find me at WealthfromRentals, and he’s Tony at tonyjrobinson on Instagram. And please, if you are loving the new Rookie Replies, leave us a five-star review on your favorite podcast platform. We’ll see you guys back on Wednesday with a guest.

Buck Horne, Raymond James housing and REIT analyst, joins ‘Power Lunch’ to discuss how home prices will have to adjust, if the home price adjustment will be regional or national and more.

The Fed’s most recent increase to the federal funds rate has driven mortgage rates to their highest level since 2002. That was the goal—to increase the cost of borrowing to slow down the economy, which is still surging post-pandemic. So why are prices still 8.2% higher than they were last year? 

Pent-up demand and increased national debt are only partially to blame for inflation. Global supply chain issues and rising energy prices, which the Fed can’t control, are also contributing. And other potential factors are up for debate among economists. 

When the Fed began pushing up the federal funds rate, there were worries the central bank had taken too long to act. Some experts say the rate hikes are too aggressive and happening too quickly, as the full impact of the increases haven’t been realized yet. Other experts say the Fed’s actions simply won’t work. Meanwhile, workers are already feeling the pain of higher rents and unaffordable mortgages. But even if experts could agree on the primary driver of inflation, they don’t seem to have any solutions that could actually work.

Are High Corporate Profit Margins Driving Inflation?

Competition in the market typically prevents companies from overcharging consumers. But in recent decades, most U.S. industries have become more concentrated. Corporations can raise prices with little fear that other businesses can offer the same products for less—and it is the corporations with the largest market share and most power that are currently raising prices the most. Many economists are saying that corporations are taking advantage of the current inflationary environment by raising prices above and beyond what they would need to account for the rising costs of materials and wages.  

A report from the Economic Policy Institute revealed that, between April 2020 and December 2021, 54% of price increases in the nonfinancial corporate sector went toward corporate profits, while just 8% went toward increasing wages. That’s a sharp reversal from the period between 1979 and 2019 and seems to dampen the argument that labor costs are to blame for inflation.

One example of what appears to be corporate greed is the profit margins in the meat-processing industry, which is having a major impact on the cost of groceries. The four biggest companies in the industry reported a 120% increase in gross profits at the end of 2021 compared to before the pandemic. The CEO of Hormel Foods announced that the company would continue to increase prices, even though its operating income had increased 19% year-over-year as of the first quarter of 2022, in part because of its pricing power. 

Those who agree that corporate greed is a significant driver, which includes economists from The Brookings Institution and The Roosevelt Institute, contend that policy decisions should attempt to control it, such as increasing taxes on windfall corporate profits. But some argue that it’s boosted profit margins protecting the U.S. economy from a recession. 

There are also a few problems with the argument that fatter margins are driving inflation, according to other experts. The first is that corporations don’t need an excuse to be greedy. They will always charge the highest prices that the market will allow. When demand is high, and supply is low, it allows corporations to charge higher prices. Increased profit margins are, therefore, a result of inflation, not a cause. Corporations aren’t being especially greedy now, just as they weren’t being kind to consumers with their pricing when inflation was low. 

Similarly, monopolies were around before the pandemic, a Wharton professor argues. Oil and gas companies lost billions during the pandemic, revealing how susceptible even consolidated industries are to market conditions. Now, they’re profiting as a result of higher demand.

Furthermore, inflation is higher in certain high-demand industries (like used cars and major appliances). Some economists are wondering why haven’t we seen an equivalent rise in prices across the board if corporate greed is a primary driver, as it’s unlikely companies in certain industries are greedier than others. 

Analysts at the New York Fed also point out there’s nothing historically unusual about the current relationship between corporate profits and inflation and that gross profit margins don’t account for sales, general, and administrative costs. As this debate rages on, many businesses are faced with higher costs that cut into their profits, and net earnings are now falling for the S&P 500 when excluding energy companies. 

If fatter profit margins are contributing to inflation, they likely represent one of many factors affecting prices. In any case, most economists do not support the idea of legislation to control price gouging during a market shock. Historically, price controls have had negative consequences—for example, attempts to cap gas prices in the 1970s led to gas shortages and long lines at the tank.  

Are Trump-Era Tariffs Contributing to Inflation?

Economists tend to agree, based on historical evidence, that taxes on imports and exports decrease economic output and real wages. Though the intent of a tariff is to protect domestic jobs and increase revenue, it typically has the opposite effect. 

If another country can produce goods in a specific industry cheaper than the U.S., it might hurt employment in that industry. But if Americans can buy those goods for less, they have more spending power in general, which increases employment in other industries. Furthermore, when another nation’s profits from exports increase, the response is inevitably to spend more money on goods from the U.S. Free trade without tariffs results in a rise in U.S. revenue, employment, and real wages.

On the other hand, tariffs act as a tax on consumers by raising domestic prices. Plus, trade partners often retaliate with tariffs on exports from the United States. The Tax Foundation estimates that the latest trade war cost American consumers nearly $80 billion. But there’s debate about the size of the impact on inflation. 

U.S. tariffs on Chinese goods raised the consumer price index by 0.26 percentage points, so it seems removing them would have a minimal impact. But there’s also the indirect result of U.S. companies competing to reduce the cost of goods—perhaps reducing corporate profits in order to offer lower prices than foreign competition—which could eventually reduce the CPI by a full percentage point, according to the Peterson Institute for International Economics.

But the Economic Policy Institute contends that the timing is off for the tariffs to be considered a primary driver of inflation and that removing the tariffs could harm key industries during a global supply chain crisis. 

The causes of inflation are many and varied. It remains to be seen whether the Fed’s tools alone can tame the economy. A multi-pronged approach is more likely what’s needed. But often, attempts to manipulate the economy have side effects, and as the disagreement among economists reveals, it’s difficult to know which interventions are justified. 

The Impact of Inflation on the Housing Market and Investors

Whatever the primary cause of inflation may be, it has created an affordability crisis for prospective homebuyers. It’s not just that mortgage rates continue to creep up as the Fed raises the federal funds rate. Wages have also not increased enough to keep pace with inflation, and rising rents, groceries, and gas prices make it more difficult to save. And the volatile stock market has made American retirement and investment accounts less viable resources for purchasing real estate.

Yet most economists don’t expect a housing crash, even as prices cool in many markets. Prices are still higher than they were a year ago. There hasn’t been an increase in the supply of available homes or new housing starts. At the same time, Gen Z is approaching the typical age to pursue homeownership more financially prepared than millennials, so experts think demand will stay elevated or even increase. And current borrowers are much less likely to default than their peers who were approved prior to the 2008 crisis. 

It may be possible for corrections in housing prices to offset the higher mortgage rates. But current home prices, along with steep rates at a 20-year high, are making it difficult for new investors who count on financing to break into real estate. If the right deal comes along and the numbers work, most experts think you shouldn’t be deterred by worries of an impending housing market crash. But in the meantime, bolster your savings and consider passive cash investments in real estate. Ultimately, having a diverse portfolio of real estate and other investments will offer you the best protection going into a recession. 

On The Market is presented by Fundrise

Fundrise is revolutionizing how you invest in real estate.

With direct-access to high-quality real estate investments, Fundrise allows you to build, manage, and grow a portfolio at the touch of a button. Combining innovation with expertise, Fundrise maximizes your long-term return potential and has quickly become America’s largest direct-to-investor real estate investing platform.

Learn more about Fundrise

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

David:
This is the Bigger Podcasts Podcast, show 677.

Taylor:
For me, communication, trust is everything, and honor is a big character trait that I like to stress on is building something that’s based on honor and trust. Being able to meet people face to face, I think builds that kind of relationship. We’re not just an email address or a voice over the phone, but they know who I am and I know who they are, and it helps, and I think it kind of helps build that rapport with each other.

David:
What’s going on, everyone? It’s David Greene, your host of the BiggerPockets Real Estate Podcast, here today with another fantastic episode, and I am joined by my co-host Jamil Damji. Jamil, how’s it going?

Jamil:
Fantastic. I’m really, really stoked about today’s show. Taylor is an incredible guy, not only served our country and continues to just blow my mind with what he’s been doing, not only in real estate, but just as a dude in general. Love the guy.

David:
Yeah, this is a great example of a go-getter who’s doing a phenomenal job with simple techniques that he learned on the podcast that anybody can replicate. He’s in a strong rental market, he’s creative, he hustles, he looks for deals while walking his dog, I love that, doing two things at one time, time management, and there’s a lot of other stuff that you guys will get out of the show if you listen. I think it’s one of the more inspirational stories because, frankly, what Taylor’s doing anybody can do. But before we bring in Taylor, today’s quick tip is brought to you by Jamil Damji.

Jamil:
Thank you, David. One of the things that I really love about Taylor is really making sure that you’re doing business with honor and he epitomizes that in everything that he’s doing. Not only is he getting belly to belly with sellers, but he’s looking at how he can solve the problem, and not enough people are looking at how they can solve somebody’s problem in order to get them the best situation and the seller the best situation, and then on top of that, he’s sticking to markets that he really knows. This isn’t just throwing spaghetti at the wall and seeing what sticks. He’s going in with intention, he’s going in with honor, and he’s making it happen.

David:
Great point. Especially if you’re investing in a market where you live, that’s even more important because reputations get around. All right, let’s bring in Taylor. Let’s get these things started. Let me ask you, what is your story? How did you get into investing in real estate? Take me back to a young Taylor and what was going through your mind when you decided you want to get into the industry?

Taylor:
Yeah, of course. I don’t come from a entrepreneurial background at all. My dad did 30 years of government service. I went straight to West Point after high school, and I just went straight, got spit onto the army. My whole background has just been government service. It’s just been military time. Really, I had to find my way on my own. I just did a lot of podcast listening, a lot of education, just a lot of soul-searching to figure out what I was going to do after the army and then kind of real estate felt on my lap after doing all that research, and I just started buying property really.
It was super fun. It’s been an exciting journey. I’ve only been in real estate for a couple years now, but in those couple years we’re able to buy about 30, 31 doors, and my goal was I created an action plan for having three years, three years before my contract was up at the army, I wanted to get my financial freedom and be able to leave the army. Luckily we’ve been able to do that, and we’ve been able to meet our financial freedom number.

David:
Were you listening to podcasts at a certain point? Where did the seed get planted that you could hit financial freedom through real estate, especially while still in the service?

Taylor:
Yeah. What happened was is that back then, I met my now wife, we just got married this month, and we were thinking about leaving the army for, thank you, for a little while, just because active duty life is a little tough on family life. For those that kind of don’t know how it goes is you’re moving every couple, three years, you’re deploying a lot, you’re doing a lot of training rotations. And so, I was looking for a way out, but I didn’t know exactly what that looked like because like I said, all I knew was really the army. Once I got into podcasts, BiggerPockets was a big one I was listening to, it seemed like the way I can build cash flow, build wealth. All science kind of pointed towards real estate. Even though I had never financed anything at that point, I kind of knew that that’s the way I wanted to go.

David:
How did you find the first deal? Were you sitting in the barracks looking at Zillow when everybody else was goofing around? What was that moment like?

Taylor:
I was actually deployed, and so, I had some time on my hands, and that’s when I really started digging into some of that education. By the time I got back I knew I wanted to buy my first property, and so, I started off pretty easy. I used a VA loan when I got back and the VA loan is a powerful tool. I highly recommended for a lot of vets. There’s no other tool I can think of in the world where you can leverage a hundred percent of an asset. And so, I just bought a regular single family house, moved into it, and I did my first house hack, moved in another soldier in one of the bedrooms, and I actually lived for free that way because that rent offset the mortgage. I bought a pretty inexpensive house and I was able to pocket all of my BAH. It’s like a basic allowance for housing that the army gives me. That is what really kind of hit that light bulb was when I started pocketing all that BAH and offsetting my living expense.

David:
The first property that you bought, Taylor, what did it look like? Did you house hack? Did it cash flow, or did you just have to pay the mortgage?

Taylor:
Back then the market wasn’t too crazy. I think this was in 2020, so it wasn’t too, too crazy back then. I was actually able to negotiate the seller to cover all my closing costs. I bought this house with zero down. All my closing costs were paid for. I think I even got a check for 200 bucks and the property was just under 100k, so maybe $98,000 was when I paid for it. The mortgage is under $600, and then that room rented, rooms are renting for about $600 in that area. That one room I was renting out offset that entire living expense for me, and I was able to pocket my BAH that the army was giving me as well.

Jamil:
Taylor, it’s really interesting the launch pad for you to get into this, right? Because you’re one of those people that I think is uncommon listener to podcasts and consuming education or consuming content because you took what you were learning and found a way to take action, right? And for the people that are listening to this right now, I think this is one of the most important pieces of inspiration, right? How do you get yourself out of the content consumption portion of this and then take action to actually buy your first house? Because that decision is difficult for people to make. They’re constantly evaluating, they’re analyzing, they want to make sure I’m not making a mistake. They’ve got to feel like they’ve got it all right. You probably didn’t feel like you had it all right. How did you make that choice and what pushed you over the edge? Because I feel like if we can nail that down, there’s going to be a lot of people listening in right now who are looking for that moment, that moment that makes them feel like I think I’m ready to do this. When did you find yours?

Taylor:
Yeah, that was the toughest thing. I mean, I was a sponge absorbing all that education, but the application, taking action, it was really scary for me, especially being a government employee. In the army, if you want to know how to do something, there’s a manual that shows you how to do everything. Even there’s a career progression. You know exactly in five years, I’m going to be a captain, and I’m going to know exactly how much money I’m going to be making. It was a big mental pivot for me going from that mindset to an entrepreneurial mindset where I kind of have to figure out everything on my own. There wasn’t anybody to handhold me. It was that big mental pivot and I had to just believe in myself. I had to be able to take that risk. And so, after I did buy, that VA loan, I kind of saw some that power there, I decided to go ahead and believe in myself, and I bought my first BRRRR property.
I put pretty much every dollar I had saved into that first BRRRR. It was a big mindset pivot. I had to overcome a lot of self-doubt, those fears. I even liquidated what I had in my IRA because I didn’t have any money, just a couple months of paychecks to do this deal. Luckily, I believed in the numbers, and everything worked out, and so, with that one BRRRR and pretty much every dollar I had, I was able to recycle those funds, do more and more deals and have a nice cash flow on rental.

David:
Tell us, I understand you had a different type of loan that you got, like an SBA type that helped you get into these deals. Can you share what that was?

Taylor:
Yeah. For the house hack, it was just a VA conventional loan. When I did my first BRRRR, I went out and I found a hard money lender to get me into that deal. I’d maybe saved somewhere between 30 and $40,000 to do the down payment. I think they funded up to 80 or 85% of that loan to value and then they funded a hundred percent of the rehab. I just had to get into that deal with the down payment with those funds I had saved.

David:
Okay, so you’re got this first property, you’re renting out the rooms, it probably had to feel like this is too good to be true, like, I’m getting my whole thing covered just by renting out a room. You’re renting out to people that you know, so you don’t have this weird stranger danger thing going on. You guys are in the same culture. Everything’s just lined up for you. I’m sure you thought, “I’m just going to scale this. How hard could it be?” What was your thought process and then how did you get into the next deal?

Taylor:
Yeah, once I finished, once I did that house hack and that first BRRRR, that’s when everything clicked, and I was like, “oh I got this. This is not bad at all.” Again, I had all my funds back and then I started doing a lot more creative financing, and then after that I started doing a lot more direct to seller marketing as well to find these deals because for me, creative finance, I didn’t choose creative finance. Creative finance kind of chose me just because of in that financial position I was in.

Jamil:
Wow.

Taylor:
And so, I had to figure out how was I going to get into these houses because I didn’t have the funds to just put 20% down or go to the MLS or anything like that. I just knew I needed to find good deals and sellers that were willing to work with me and sell them on my story to help me get into these deals.

Jamil:
Creative finance chooses you. I absolutely adore that you said that because it can be a little confusing for people if they’re just getting into real estate investing to wrap their heads around, “Wait, I can get financing from a seller, or I can take over somebody’s property and leave the existing loan in place?” How did creative finance find you, and second, how did you wrap your head around all of the nuance and the intricacies that are necessary in getting one of these deals accomplished? Because in truth, they’re not that complicated, but they feel complicated, and I’m really interested to hear how you bridged that gap and were able to accomplish your first deal. I mean, for me, it took me a long time to get comfortable enough to do creative finance, and it sounds to me like it was your second at bat. How does that happen?

Taylor:
Yeah. I knew everything theoretically just from listening to podcasts like BiggerPockets or just googling things on the web. I knew everything in theory. I’m one of those guys that just needs to do it and just get smacked in the head a couple times to figure things out. And so, just by going into it and kind of starting ugly, just writing my own contracts on a Word document and just going to the title company and saying, “Hey, is this going to work for you?” So, just starting ugly and just trying it. There’s no harm in trying I feel like. The worst I can get is laughed at or a no.

Jamil:
What type of creative deal did you first do? Was it a sub to? What did you do, an owner finance? Walk us through that.

Taylor:
Yep. I’ve done a number of sub tos. That was one of my favorite go-to strategies. I was able to just, basically my favorite thing is walking my dog. I would walk the dog, I would just write down addresses and cold call if somebody’s home. Just, I would feel free to door knock, see what’s going on. But some of these sub tos, I was able to just knock on the door, talk to the seller, kind of build a little rapport there, and pitch a sub to. Even though I have never done a sub to, I knew enough about it to speak intelligently about it and somehow convince them that this was a good idea. I was able to get into those deals that way, otherwise I would not have been able to get into those deals.

Jamil:
For the audience that’s listening right now, if they’re questioning what’s a sub to, that’s essentially when Taylor took over a property with an existing loan in place and he was able to take that property, take title to the property, but leave the financing in place and basically make that his loan. Was that a large entry fee? Was it favorable terms? Did you overpay for the property? How did that all work? And the second thing is I got my first deal walking a dog as well, so you and I are kindred spirits.

Taylor:
Yeah, helps me keep the weight off, me and the dog. I’ll share this one particular deal. Basically the property was worth somewhere around 2, 215, something like that, and when I called this guy, he was really just motivated to get out of the property, and so, I told him our story. He was also a vet, we kind of bonded over that, we built rapport, and really it was kind of not a good situation for him, he just needed to get out of it. I told him, “Hey, the quickest way I can get you out of this deal is if we did a sub to.”
And so, he only owned about $100,000 on this property. I just was able to close on it without any funds. I just closed on it. I paid the title companies some closing fees, and I was able to step into this deal with no money down. Luckily, I had some cash. I did renovate it a little bit. It needed about $15,000 in repairs. But on the back end, I was kind of able to combine the BRRRR strategy and do a refinance on the back end to get my rehab money back, and then I actually profited too, almost like a flip. I got maybe like $25,000 profit after I paid myself and had a cash flank rental locked in a lower interest rate there as well.

David:
Yeah. We just interviewed Ashley Hamilton and she describes it as the reverse flip when you make a profit off a property that you keep. And so, what I like about this is you didn’t ask the question, which strategy should I use. You found an opportunity and you said, “What strategies do I have available to me to use?” You’re like, “I’m going to pursue a BRRRR. I’m going to pursue a subject to.” You found a motivated seller and you said, “I can use creative financing, I can use subject to, I can use my construction knowledge in a rehab, then I can refinance it. Oh, I took more money out this.” We started calling it a pilf because that’s how you spell flip backwards. Then Ashley came up with property I’d like to flip which is very funny when we did that episode. But you’ve got this toolbox of knowledge from listening to BiggerPockets podcasts, studying real estate investing.
The deal comes along and you didn’t have to say, “I need a mentor, I need a mentor, somebody tell me what to do.” Like, “Oh no, I’ve heard about this before. I’ve got these strategies lined up.” What I want to ask is because to me when I hear this, the most important part of this entire deal was finding that person that didn’t want to own an asset, and you did, what had they done wrong? What was going on with the deal? What was their motivation why they wanted to sell it and didn’t necessarily need to get any money out of it?

Taylor:
Yeah. I think the biggest piece was he was just kind of in a sticky situation, and when I talk to these homeowners, really what I’m looking to do is align myself against the problem and provide solutions. I don’t want to sell them on just the house, make it transactional. How I like to word it is it’s more of a relationship base. I’m selling them on who I am and I’m selling them as I’m selling the solution. I’m not just buying the house. And so, the problem was is I think they bought it when he was in a previous marriage and it didn’t end too well. That was the last I think thing they owned together, so it was kind of like the last thing tying them to that ex-marriage.
And so, I told him who I was. “I’m Taylor. Hey, I live a couple houses down from this one. I’m your neighbor. I’m still active duty army. I’m just looking to buy a couple properties to help me and my family out on our financial freedom journey, build a little generation of wealth.” I think other people really resonate with that story. And so, he said, “Hey, I don’t even need a profit. If you can get me out of this situation, I’ll be super grateful.” And so, we were able to create a win-win situation where he walks away happy, he doesn’t have that burden. It was essentially just a money coming out of his pocket every month. I was able to win with a nice cash flowing rental, and then the neighborhood won too because I made the neighborhood nicer as well.

David:
What’s worth acknowledging here is you didn’t find a person and ask the question how do I convince them they should do seller financing. That’s the wrong question, and a lot of people go that road. You found a person who already wanted to get rid of an asset and then you provided the solution of seller financing. There has to be a hunger there before you can provide the food. A lot of the listeners find a deal on Zillow and they’re saying, “Now how do I convince this seller to give it to me for no money down and let me take over their mortgages? How do I get this two-year-old that isn’t hungry and doesn’t want to eat?”How do I shove this down their throat?” and you just end up with a big mess, right? Jamil, have you had experiences like that too?

Jamil:
Absolutely. I love that you brought that up, David, because it’s so important that we approach any seller, whether we’re talking direct to seller or you’re working through a real estate agent. The facts are is that this specific house probably wouldn’t have been able to sell through a traditional real estate agent. There wasn’t enough equity in the deal to even pay commissions. When you think about this, Taylor is looking at the opportunity and he’s talking to this seller and he’s literally coming to them with, “Look, I want to be able to solve your problem and the only method that I can think of that can actually get you out of this house, that’s going to get you out of here without having to come to the closing table with money is if we do a sub to.” And I love the fact, I love the fact that you come in solution-based, relationship-based thinking. See this is how you create real opportunity. This is how you solve problems, and you brought so much value to the circumstance that at the end of the day, you were able to profit from it. I think that’s fantastic.

David:
That brings us to the next question here. The market has clearly shifted. You don’t have to go off market to find deals anymore, and my understanding is you’re still buying off market. So what is it about the off market approach that you like so much that has you going back to that well time and time again?

Taylor:
What I really love about the off market and getting that property under contract yourself is just the flexibility it provides you. I know on MLS you can still find some good deals nowadays, but when you’re able to lock up that property and be the first one to that seller, there’s so much you can do with it. You can wholesale it. You can wholetail it. You can flip it. You can buy and hold, sub to. I mean, the opportunities are endless there. I just love that flexibility of when I can lock up that deal myself and go ahead and kind of see how I want, what exit strategy I want to choose.

Jamil:
Taylor, what primary methods of lead generation are you doing to get in front of these sellers?

Taylor:
I’ve done a little bit of everything but right now what we’ve really been focusing on is SEO, PPC, kind of going into the online realm, and right now I’m in a big transition-

Jamil:
Internet deal.

Taylor:
Yeah, because before it was more a bootstrap. I was just walking the dog, writing down a couple of addresses, but it’s not scalable. Like I said, I’ve met my financial freedom number, so officially I’m getting out of the army next year and I’m going to be a real estate entrepreneur full-time. And so, now I’m trying to build an actual business. I have now a little bit of real estate knowledge, but now it’s another set of education I need to learn of how to build a business systems and a team around me so that we can consistently close deals every month.

Jamil:
Where specifically are you doing business? I understand that you’re in multiple markets. Walk us through those.

Taylor:
Yeah, I really like investing where I am locally. I know a lot of people can’t, don’t have that luxury, but I’m a very hands-on guy. I like to be a member of my community, shake hands, kiss babies, so I like to invest where I am. I’ve invested locally in North Carolina where I was last stationed. Right now I’m investing in Sioux Falls, South Dakota where I’m living currently. And then once we transition out of the army and we go full-time entrepreneur, we’ll be down around the Treasure Coast area of Florida where my wife’s from.

Jamil:
Do you find that when you’re looking at the markets that you specifically know, does it make it easier for you to understand and possibly get boots on the ground and be able to manage these if you get moved to another market or if you have to go to another city for whatever reason? Is that part of the strategy, part of the thinking process that leads you to it? Because North Carolina is great, but personally, I don’t even know anybody investing in South Dakota. So, it’s interesting because it’s not like a buzz market, right? I’m curious to find out some of the… Other than just being there geographically, are there other advantages to why you’re choosing these places?

Taylor:
Yeah. Well, one, I like both markets I invest in, but I just like the fundamentals. The first market, Fayetteville, North Carolina, it’s a military town, but why I really like it is just because it’s essentially in a bubble, a recession-proof bubble because the largest army base that we have is there. And so, anybody that wants to buy property there, if you’re renting to military families, they’re always going to get paid unless something really, really terrible happens to our government, but everyone’s going to keep getting paid and they’re going to be paying their rent.
And then here in Sioux Falls, South Dakota, it’s another great market which I would’ve never expected, but it’s a stable Midwest market that’s been continually going up throughout the years. There’s no crazy dips in the market, and just has a nice economy with healthcare, finance, and agriculture. And so, I like those market indicators, for one, and then two, I think for me it’s way easier to build a team on the ground because I can meet the property managers face to face, I can look at the contractors and see how they’re doing right here on site, and then once I leave I feel comfortable with those relationships I have built. I’m still buying in North Carolina. I’m buying here in South Dakota and still Florida. I still buy in those areas with those teams I set up.

Jamil:
You’re obviously working with people that you have deep relationships with and there’s a level of trust there, right? I think for me, when I am making purchases and I’m investing in specific cities, I remember when I first bought in Phoenix, Arizona, I was investing there because, A, proximity to Los Angeles, I was seeing that there was an opportunity there, I could get in at a good price. But what ended up ultimately happening was I was getting ripped off by my property manager, and I ended up having to move to Phoenix in order to take control of the situation. I was losing money. Literally, my property manager was taking cash rent from my tenants and telling me that the places were vacant, and there was a whole mess that I had to unravel when I got there. I love the fact that you’re working with people that you know and trust. How important do you think that is in building a business?

Taylor:
Yeah. For me, communication, trust is everything, and honor is a big character trait that I like to stress on is building something that’s based on honor and trust. Being able to meet people face to face, I think builds that kind of relationship. We’re not just an email address or a voice over the phone, but they know who I am and I know who they are, and it helps, and I think it kind of helps build that rapport with each other. But that really sucks that you got treated like that with your property manager in Phoenix. I did buy one turnkey property before and that was in a market in Alabama, similar situation to you where I had never seen it before, and I thought it would be easy, it’s just turnkey, and same situation, it was just terrible, terrible time. And so, I was like, “I’m never buying a property that I’ve never built a team out myself and just let it go on autopilot.” I know, I did get burned once with the same situation with a property in Alabama that with a team I had never met.

David:
Yeah, that story happens quite often unfortunately. As you’re looking for properties that you think will work, a lot of the time, those that buy a lot of properties, we just take for granted, we get a feeling like, “Oh that will work, that one won’t work.” And then the newbie who’s listening is like, “How did you know? I’ve analysed 700 deals this week and I don’t know which one’s good.” Can you share what your buy box looks like? What are the things that you’re just like, “Okay, that catches my attention. I don’t even want to look at this one.” And then how do you know which one to pursue?

Taylor:
Yeah. For each market I have a different buy box criteria. Again, for that one in Fayetteville, military town, first of all, I kind of look at the market and I identify who’s my clientele, who do I want to market these properties to. In Fayetteville, I love running to military families. I kind of target properties in not the top neighborhoods but something in the middle where they can get nice cash flow, but they’re still nice homes for military families that they can rent and live in comfortably, they don’t have to worry about getting shot at. I kind of rent in those areas, and I look for houses that are three bedrooms typically for military families, and I usually put nicer, higher level renovation just so that they’re happy as well.
Here in South Dakota, what I look for is we kind of switch strategies over to short-term rentals. That’s something we started last year, mid-term rentals. In Sioux Falls, we have two of the largest hospitals here in South Dakota right there in Central Sioux Falls. We’ve been buying small apartments in close proximity to those hospitals and renting them out mid-term, kind of short-term to those travel nurses. My wife a travel nurse. She kind of gave me the idea, and we outfit them with everything a travel nurse would need. And so, really proximity to those hospitals there for South Dakota here is for my buy box.

Jamil:
Taylor, what’s very interesting to me is that you’re working with primarily folks that you resonate with, people that have lived the same kind of life with you in active duty. I feel like there’s a real opportunity for you here to create a synergy where you can rent to some of these families and then educate them into home ownership themselves, maybe even getting them into a house hack. A community can be built out of this strategy. Have you thought of taking this the next step and bringing in or creating an army of other investors that you might be able to teach what you’ve learned and possibly get them into home ownership themself?

Taylor:
Oh, I would absolutely love that because the vet community is something I have just a big passion for helping. Of course, it’s where I came from. I have a ton of respect for all of my brothers and sisters in uniform service, and that’s what kind of gave me my start is there was some other vets that had their own kind of small course, and I took that course and that’s what helped me get that confidence to go ahead and start closing some deals. That’s something I want to do in the future is be able to help other vets and do something that I’m doing because I didn’t do anything special. It was just a lot of base hits that kind of got me to where I’m at now. But I think anybody can do this and even though with your busy active duty schedule or anybody on a W-2, they can find the time to go ahead and start doing what I’ve been doing.

David:
When you’re looking at an off market deal, what are some red flags that you see that would let you know, walk away from this one, it’s not worth it?

Taylor:
Yeah. Really, I always have my contractor that I trust walk these properties, and I like to stick to light cosmetic rehabs. Anything that’s going to be a complete gut job, usually anything that’s too old, 1960s and earlier, where we’re doing either foundation work or we’re ripping out walls and we’re replacing all the CapEx items, I stay away from those because those budgets can get out of hand very quickly. If I find something that usually is just maybe disgusting on the inside, you just got to clean it out, maybe slap on some new paint, floors, hardware, that is my bread and butter. Anything that’s too crazy, I would stay away from me.

David:
Jamil, what about you? Do you have anything when you’re approaching an opportunity, you got a fish on the line, you’re trying to figure out do I reel this thing all the way to the boat or do I cut bait that you’ve learned over your experiences, like, “Oh man, as soon as I see this I just know it’s not worth it, get out of Dodge”?

Jamil:
Yeah, there’s a few. First, foundation problems for me, they’ve been a nightmare to deal with. I have rarely had a foundation repair come in anywhere near what the original quoted number was. They always escalate. That for me is definitely one of those types of repairs that I won’t want to do. And then the other thing is anything that requires some kind of abatement. I found that when I’m getting into a property that might have a mold issue, that or asbestos, something that I know I’m going to have to have a professional company come in and doing an abatement here and then it’s going to be a situation where I have to disclose this process to a future buyer. For me, I found that that has always, even after you’ve completed the repair and you’ve got the city to come in and make sure that everything has been done to standard and code, there’s still always that piece of uncertainty for a buyer.
I’ve never been able to maximize my return on a deal like that because I’m literally having to go to my buyer and say, “I want you to trust that I fixed it all and this is all the documentation that says that it’s done,” but there’s always that thought in the back of their mind, “What if the mold is still here? What if the biohazard is still here and my family could be affected?” And for me, I think that that’s always created a problem for getting a return on investment. So, I’m staying away from foundation problems and anything that requires severe abatement.

David:
That’s really smart. And the other problem I think you have with the abatement issues, foundation issues, the stuff that Taylor was saying are non-cosmetic, the seller tends to want to overlook the significance of how much it would cost to fix that. The seller’s like, “Yeah, my kitchen’s old, you’re going to have remodel it.” They understand it. If you got to spend $65,000 to fix a foundation issue, it’s tough to get them to understand you got to take more than 65,000 off, plus the cosmetic issues, plus the profit I have to get in here. Now, it feels like they’re being gouged when they’re not. That’s the actual problem. And when you have a situation where it’s just cosmetic work, there’s usually a discount that they can live with and you can still make work. I think that’s really good.
It’s like when you get into that issue of the foundation issues, mold, what are some, like fire damage can be one of them. Sometimes a roof can end up in that situation, depending on if it’s a house that is not priced very high, the roof becomes a significant portion of it. On a million dollar-house, a roof’s not nearly as big of a deal. I’ve noticed the same thing is you just never see eye to eye. You end up with those irreconcilable differences and you spend all this time and it never goes anywhere. Taylor, I can see that you’re absolutely picking up steam here. Tell us a little bit about who makes up your team, and what is the first hire that you think someone should make if they want to do what you’re doing?

Taylor:
Yeah. For me, it’s almost tied between lender and contractor. Those were the two I would say were absolutely pivotal for me. Contractor really because I’m not the best guy to swing hammers. If you can find an honest guy that’s going to keep prices reasonable, he’s going to let you know exactly what he needs to do, not do anything extra or delay the timeline. To me contractor is going to be the make or break for keeping your projects under budget and within time, even though it almost never happens. And then number two, the lender, because my lender also educated me, and if you can understand the finance and the lending piece, they help me a lot figure out how to finance a lot of different projects. Once I had a good lender in my corner, I wasn’t worried about financing at all. I’ve been able to close deals and work around some things just for having a good lender right there in my corner.

Jamil:
For me, my team is always starting with my sister. She’s the project manager for any of our construction projects. I know that she’s got my best interest at heart because we share companies together, we share resources, and so, I’m positive that she’s going to be taking care of us. But aside from the swinging of the hammers and all of the physical things, right, there’s a massive team that helps me systemize the business, make sure that I’m doing things as efficiently as possible. Taylor, you mentioned that your team, beyond your trades, beyond your contractor, beyond the physical things, you’ve got this team of virtual assistants that are helping you generate your leads and make sure that you’re building a pipeline of opportunity. That is difficult to arrange and it’s difficult to track to make sure that you’re being efficient and that you’re actually getting a decent ROI. Walk us through that process of building your team to help you build your systems out and create a pipeline of deal opportunities for you.

Taylor:
Yeah. Really, it’s been me and a partner. I’ve been kind of figuring out more of the visionary side, he’s been a little bit more of the operations, but what we’re really looking for is what’s going to be our highest return on investments. Finding these VAs that are going to do all these calls because I used to do all the calls but quickly realized that’s not the best use of my time, so if I can get VAs to qualify these leads and then if I can close them, that would be the best use of my time. So, using VAs to supplement my time or I can afford using VAs to handle the back end on the disposition side. There’s lots of things that you can sub out to just really optimize your time and find what’s my highest and best use really.

Jamil:
How do you track everything? Are you using a CRM? Is there a specific methodology? What’s that look like?

Taylor:
To track all of our leads, right now we’re using Follow Up Boss as our CRM, and we’re also using a lot of key performance metrics to track what’s working, what’s not, what should we cut. We’ve cut some things like different Facebook ads, sites that we’ve been using just based on how much we’re paying and what are we getting back.

Jamil:
Are you finding that the direct to seller approach is a little bit… Sellers right now, they may not be aware of how the market has shifted, and it’s interesting to me that you’re very, very forward thinking with respect to, hey, I’m only going direct to seller and that’s my favorite way to build relationships and to create opportunities. Have you tried working through agents and going the on market route? Because personally I’ve been finding a lot of success and finding great opportunities working with realtors who actually know that the market is very frothy right now. I’m interested to hear your answer to this. Have you thought about possibly pivoting into working on market opportunities?

Taylor:
You know, I haven’t yet personally. I know there’s going to be a lot more opportunities coming up. I think we’re just good at what we do, and so, I kind of like to just hyperfocus on what works for us and become really good at it, become experts at that. But if there’s any opportunities that pop up on the market and the market is shifting, it’s something I would definitely look into in the future, but right now, off market’s working for us. We’re closing deals. We’re going to keep the train moving. We’re going to keep chugging.

Jamil:
It’s this what you know? Is this like, hey, this is what I know and I don’t want to fix it, I don’t want to break not broken? Is that a piece of it? I’m sorry, I might be drilling on you a little bit about this, but I feel like you’re missing a major opportunity to get out there and increase your possible deals. I’d be curious to see if you’d open that door, if you might find a wealth of opportunity for you.

Taylor:
Yeah. I actually do have a license and I do plan on using that too once I get down to Florida. But you might be right there. Especially now, there might be getting a lot more opportunities in that area, so I’m open to checking it out, for sure. We just haven’t done pretty much anything yet on market. But I think I might look into that and see if we have some opportunities coming our way.

David:
One thing I can see would be a potential hurdle, and I realize this when Jamil and I were having a conversation the other day specifically about how on market opportunities are now where more opportunity is sometimes, the biggest hurdle is you got to propose your solutions and communicate through usually not only one but two realtors. You got to sell your realtor on how to explain an off market, subject to, creative thing. Then their realtor has to understand it. Then their realtor has to explain it to the client in a way that makes sense, and everybody has to feel confident they’re still going to get a commission because if they think they’re not going to, they’re going to shoot it out of the sky. Jamil, do you have any advice for how you can navigate those waters?

Jamil:
Yeah. Dual agency, I am the huge fan. Here’s the thing. I believe that when I work through a buyer agent, I create friction in this situation because I have to sell my buyer’s agent on what I’m trying to accomplish, then that buyer’s agent has to go and communicate with the listing agent and explain to them what we’re trying to accomplish, and now it’s the telephone game, right? How much of what I’m saying is actually going to be communicated to the listing agent, and then how much of what that listing agent heard is going to actually fall into the seller’s ears.
And so, for me, I think the fastest way to get the appropriate message across is I’ll find the opportunity on the MLS, and I will go directly to the listing agent, and I will explain what I’m looking for, and I’ll have them represent me, and I’ll doubly incentivize them to do business with me because they can represent me as the buyer’s agent. They represent the seller as the selling agent. Now they’ve got an opportunity to either make 6% commission or refer back 3% to their seller. It could be a win-win-win for everybody and I don’t have to create that added layer of communication.
Taylor, I’m very curious about this concept of how you created your financial independence, and I think a lot of our BiggerPockets listeners are here for an understanding of how to do that, right? You’re a young man, and it’s so amazing to hear that you’ve been able to gain your financial independence. Walk us through how you make that decision and what it feels like right now because, look, for any of us that are out there right now, if you’re at a job that you may or may not dislike or you like your job but you think, “Hey, I would really like to spend more time with my family or I’d really like to pursue this other goal in life, but I just don’t have the financial capacity to do that,” Taylor, you’ve accomplished that. So, how did that happen?

Taylor:
Yeah, absolutely, and this is one of my favorite topics to hit on because it’s something I’m really passionate about. Once that real estate light bulb clicked for me, then I really dug in and created an actionable three-year plan because three years is what I still had left on my army commitment. I created an actionable three-year plan to replace my active army paycheck passively with real estate income. And so, now we’re about two years into that plan, and not only were we able to replace my active duty army paycheck, but we were able to double that, and so, we’ve more than exceeded what we needed to. I can confidently say once we get out of the service next year, I feel comfortable leaving without having to sacrifice putting food on the table for my family. But we can get out comfortably and I can focus on starting my real estate business.

Jamil:
Wow. I mean, you could retire, right? You could literally just dial it in if you wanted to at this point, right? I mean, if you’ve replaced your income, that is a life goal for a lot of people. I mean, I don’t know what I would do with myself. For my financial goals, I’ve hit them, but I just, I’d be too bored not to work, right? For me, I would always want to get off and keep doing things, keep growing, keep expanding my business and my life. But how does it feel, man? How does it feel to know that I can wake up tomorrow morning and I could just decide, “Hey, I don’t need to do anything today, it’s great”?

Taylor:
Man, it’s a big weight lifted off my shoulders, not having to worry about the financial piece, just putting food on the table, keeping the lights on. It enables me to pursue what I’m passionate about at that point. It’s not just working to get by. It’s working in something I’m passionate about. That’s doing real estate, and that’s talking to you guys, hopefully providing more content so other people can also move along on their financial journeys as well.

Jamil:
All right, let’s move on over to the deal deep dive. Basically go into a deal that you’ve done and walk through the mechanics, how did you find the deal, and really get into the meat and potatoes of an opportunity that you’ve taken advantage of, and have our listeners be able to follow along and see if they could create something like that.

Taylor:
Yeah, absolutely. I’ll go ahead and share one of my favorite deals. It was my first commercial deal that I just pulled off this year.

Jamil:
Taylor, so a commercial property, that’s different. I mean, gosh, you’re blowing my mind, left, right, and center here because you do things that are so outside of the box. Creative finance finds you, and then you jump into commercial. I mean, commercial again is so much different from residential. It is a completely different beast, valuation, how you add value to it, force appreciation, even exit is a completely different situation than single family. Walk us through that. First, how did you find the deal, how did you underwrite the deal, and then what was your plan with it, and how did you get out of it?

Taylor:
Absolutely. Jumping into this deal kind of had a similar background of me doing residential. I was actually walking my dog again and I wanted to buy-

Jamil:
Yes.

Taylor:
yeah, that dog.

Jamil:
What’s your dog’s name, by the way? It better be Money.

Taylor:
Leo.

Jamil:
Okay.

Taylor:
Yeah, cash money, huh. But yeah, Leo, he’s the key. Leo, get a dog, walk it, that’s going to be the key to your financial freedom journey. I wanted a mom-and-pop-style apartment, something small. I was looking for units in my local area, and I wrote down some addresses again, did some cold calling, trying to find the landlords. Again, I found one, and kind of built rapport with him, told him who I was. This guy, he owns a bunch of property in the area and I just sold him on me, again like I always do. “Hey, I’m a young guy, army guy, and I’m just looking to build financial freedom for my family and get a little extra cash flow coming our way.” He really liked my story, met up a couple times, awesome dude, and he agreed to sell me his commercial deal, and of course, this is my first time doing a million-dollar deal. Before I was doing maybe like $200,000

Jamil:
A million-dollar deal.

Taylor:
Yeah.

Jamil:
What are we talking about in numbers? Well, how much was this and how did you find the funding for it?

Taylor:
Yeah. Pretty much 1 million on the dot, and again I am used doing residential deals, maybe 200k or less. This is a big step out of my comfort zone, but it’s something I’ve always wanted to do and it was one of my goals. Luckily, I was able to make it work so that he carried a note to cover the majority of the down payment, and he also linked me to a local commercial lender. I was able to network with that lender. Through him, he put in a good word for me. He was able to underwrite the loan. I was able to get a seller back note to cover the down payment, and I even got a little bit more creative and collateralize some debt in another property we owned. And so, really I came into this deal with no money down and I just had to-

Jamil:
Again.

Taylor:
Yeah. Creative financing was the fundamental again. And that got me into this deal because there’s no way I would step into a million-dollar deal this early in my real estate career.

Jamil:
Now, for the folks that are listening right now, they might be thinking, “Okay, yeah, so you got into the deal with no money,” and that’s incredible. Creative finance dominates and wins again here, guys. But what kind of debt service are you looking at? Was it scary to get into a situation where you now have this monthly payment due? How did you play with or how did you figure out how to debt service? What was the plan?

Taylor:
Yeah. It was a little terrifying because I never spoke to a commercial lender before. I didn’t want to sound like a complete idiot to him. I was really nervous meeting him, but he was a really cool guy as well, and he also helped me educate myself as well. That’s kind of been a thing with these lenders, built a nice relationship where he not only lended to me, but they also taught me things along the way. And so, I was a little nervous taking on that debt, especially since there’s two mortgages on this property. But my game plan for this thing is why I truly believed in it because this house or this building is about a block away from a large hospital that my wife works at actually. We basically short-termed, STRed this entire building. We dramatically increased the NOI on this building just by converting those units to furnished units and renting to primarily travel nurses. I wasn’t worried about the debt service because I knew I had a nice plan to refinance on the back end before that balloon is due in I think five years or so.

Jamil:
What kind of property was this? Is it small multifamily? How many units are we talking?

Taylor:
Small multi. It was a package. It was eight-unit building with a lot with a single family house that’s next to it. So, a total of nine units.

Jamil:
A nine unit, and your plan was to rent it out to traveling nurses. You already had all that lined up. Was there a moment there where you were negative cash flow or was there any CapEx situation that you had to come out of pocket for? Because I know that you got into this deal with seller carry for the down payment. How much out of pocket did you have to come to improve the property to get it ready for the traveling nurses?

Taylor:
The reason why I really liked this building for the strategy was that it was essentially turnkey. I didn’t have to do any cosmetic updates or anything like that. It was a really nice looking building as is and had everything we needed. What was expensive was the furnishing, because we were furnishing like nine units up front, but they’re all one bedroom units so it’s not too terrible. I think we were able to finish all of them for about a little under five grand a unit. And so, that was where our money went was furnishing all these units up front. It took us maybe a couple months to get them all up and running. But now after that stabilization period, right now we’re sitting really pretty because they’re all on Furnished Finder or on Airbnb, and they’re all cash flowing very well for us.

Jamil:
You still own the property. Any plans to refinance out of it or are you planning to sell the property at any time?

Taylor:
Right now, I plan on keeping it, but I’ve kept everything almost. I haven’t hardly sold anything, and so, I always say, “Oh I might own this one forever.” But who knows? Maybe there’s going to be some awesome deals in Florida that are coming my way. We’ll see what I end up doing with it. But right now the plan is to keep it and refinance it, and we’ll see how the market goes and see if interest rates go down or anything. But right now we’ll plan to keep it and refinance it down the road, if we can improve what we did, improve that net operating income substantially, I think we’re going to have a nice cash out refinance on the back end waiting for us.

Jamil:
Any key lessons that you take away from a deal like this?

Taylor:
I think the key lesson for me here was just to not be afraid of the deal. I know the fundamentals are the same, even though the price tag is a lot higher than what I was used to. Just not let indecision and fear hold me back from doing the deal. And of course, using creative finance to figure out how to get into the deal because if I wasn’t able to talk between the lender and the seller and figure out a way to make it work for everybody, I wouldn’t been able to get into a deal this size.

Jamil:
Suggest or I would say that I think everybody listening right now considers you a hero, and every deal has a hero. Who would you say was the hero of this deal? Would it be the deal finder? Would it be the person on your team who negotiated or had got you in front of the seller? I know you actually were walking your dog to meet the seller, so that’s how that happened. But was the hero creative finance?

Taylor:
It was Leo the dog.

Jamil:
Hey, yes, of course he’s the hero.

Taylor:
He was.

Jamil:
I love it.

Taylor:
Yeah.

Jamil:
It’s so good.

Taylor:
Yeah, creative finance, man. It was just knowing how to use those tools to unlock the keys that we needed and using those tools to your advantage. Just like a tool, like a hammer to a construction worker or a M4 to a soldier, creative finance was the tool that it enabled me to get into this deal. This one’s going to help out the family a lot along our financial journey.

Jamil:
I love it. Before we get to the famous four, I’ve got one last question. Because the market has changed and the environment with the interest rates rising the way that they have, are you finding it harder to find deals right now?

Taylor:
You know, a little bit. I think things have kind of almost slowed down or maybe stagnated a little bit. I think people are a little more hesitant to sell their houses, and people maybe are a little bit more hesitant to buy. I think it has slowed down a little bit, but I think there’s still deals to be done, still money to be made.

Jamil:
Are you changing your strategy or outlook at all with respect to what’s been happening, and are you pivoting at all?

Taylor:
For me, it’s much stricter underwriting because now when I’m doing a BRRRR I need to analyze the deal not from a 4 or 5% interest, but I’m running at higher 7, 8% interest so that the underwritings, yeah, underwritings has gotten a lot more strict. I would say I’ve been a little bit pickier about what I’ve been keeping.

Jamil:
I think that’s absolutely a great strategy to have and it’s important to take note of that. So, I don’t know if our listeners are aware, but David Greene actually midway through this podcast decided he was hungry and went to go make a sandwich. But we always ask our listeners these four questions, Taylor, and I’d love to hear your answers to them.
(singing)
What is your favorite real estate book?

Taylor:
Right now, my favorite book that I just finished reading was this Financial Freedom with Real Estate Investing: The Blueprint to Quitting Your Job With Real Estate – Even Without Experience or Cash, which is totally who I was, and that was by Michael Blank. He kind of went into a lot of multifamily. That’s the book I read that kind of broke it down Barney style for me how to do a commercial deal. And after I read that book, a couple months later is when I went out, applied it, and closed that first commercial deal. So I have to give a shout out to that book.

Jamil:
Amazing. You’re an action-taker. The second question is what is your favorite business book?

Taylor:
This one was recommended to me by a good friend of mine who also has a nice wholesaling business, and it was Traction: Get a Grip on Your Business by Gino Wickman, and that was especially important to me right now because before I was just bootstrapping and doing real estate myself, and right now I’m in that pivotal moment where we’re building our business, a legitimate business where we’re trying to get consistent deals and build out those systems and build out that team. This book was our bible figuring out how to build those systems.

Jamil:
The next question is, especially for a guy like you that’s got so much going on, I mean, you are a massive action-taker, you learn something and then you go off and do it, does it leave you any time for special hobbies? I would imagine you must build rocket ships or something on your spare time, right? What do you do?

Taylor:
Yeah, right now, I’m kind of a robot. Between the army, man, and doing the real estate stuff, also trying to hit the gym. I’m kind of a gym guy, just like to lift things up and put them back down. Between those three things, eating and sleeping, it almost takes up like 95% of my time. But with that last 5%, I do love to spend quality time with my wife, Helen. And so, we’ll do anything together, either watching movies or go biking, anything. With that last amount of time, I give to my wife.

Jamil:
I would imagine one of your hobbies is also walking the dog, right? Because that dog, that Leo makes you a lot of money. Leo, that is a money puppy.

Taylor:
Yeah.

Jamil:
Awesome.

Taylor:
Yeah, I need to give him a promotion or something.

Jamil:
I would imagine you got to get him in a bigger house.

Taylor:
No, not yet.

Jamil:
Go buy him a new bed.

Taylor:
Maybe if I can figure out a creative financing strategy for a dog house, then we can get him into a nice one.

Jamil:
Oh my god. That’s great. Lastly, Taylor, what do you think sets successful people apart from those who give up or just don’t even get started?

Taylor:
Yeah. For me, getting started again with my story was the hardest part, making that mental pivot. For me, it was kind of establishing my why, why was I doing it, and for me, that was my family. It was for my wife to get out of the active duty army lifestyle where I was gone a lot, deploying, training, out in the field, and I wanted to get my time back and then be with my family. Once I really established my why and that kind of embodied me and took over in this business, that’s what really set me up for those long days with balancing the army and doing real estate because that why was able to keep me through and keep pushing me even through all the struggles and the long days.

Jamil:
Taylor, you are a phenomenal man and a amazing husband, I can tell, an amazing dog owner, and a genius real estate investor. I mean, you’ve just, you’ve really put it together, brother, and you’re taking action, and the fact that you consume a little bit of information, then you go off and do it, I think that should inspire everybody who listened in and tuned into this podcast today. I’m sure there’s a lot of people that are going to want to meet you and actually connect with you and possibly do deals with you. Tell us, where can people find you?

Taylor:
Yeah. Lately, I’ve really been trying to build up a little bit of a social media presence. I’m trying to be the most active on Instagram, and that’s just my name, taylorwing_, and so, that’s where I try to post what I’m actually doing because we’re doing a lot of cool projects, and people love to see the before and afters, and so, trying to be the most active on that Instagram handle.

Jamil:
Love it. Love it. I think you should also have a YouTube at some point because I truly believe there’s a community that you can build for people that are in active duty and helping them get into real estate investing. When people can find folks that are just like them doing the thing that might be the key to their financial freedom, I think there’s something there, and, Taylor, I’d love to help you do it. Folks, if you’d like to also follow me, you can find me on Instagram, @jdamji, @J-D-A-M-J-I. I also have a YouTube page, it’s just Jamil Damji. And on behalf of David Greene who is still eating a sandwich and the rest of us here at BiggerPockets, Taylor, we just want to thank you. Thank you for your service. Thank you for your time today, and thank you for taking action because I think that you’re going to inspire thousands of people who are going to hear your story and want to do the same. We loved having you on here, Taylor. Have a great day. David, what are you doing? We’re already done, bro.

David:
You guys are done?

Jamil:
Yeah. Yeah.

David:
I thought you were going to wait for me to go get a sandwich and come back. I even, I got you a PB&J, bro.

Jamil:
I mean, we were talking a lot of good stuff and away you went.

David:
Oh geez.

Jamil:
How was the sandwich?

David:
I’ll tell you in a minute.