January 2023

Dave:
Hey, everyone. Welcome to On The Market. My name’s Dave Meyer. I’ll be your host today, joined today by Kathy Fettke, James Dainard and Jamil Damji. How are all of you?

Kathy:
We are all sick, woo-hoo. It was a great party.

Dave:
Every single one of us is sick. I think we’re going to have a lot of muting of microphones.

Jamil:
I might have to take responsibility for it.

Dave:
It was Jamil’s fault apparently, but I wasn’t even at the party and I’m sick too, so I don’t know.

Jamil:
Well, that’s because we mailed it to you.

Kathy:
Oh, yeah.

Dave:
Well, thank you. I appreciate that. I really appreciate you in including me. It’s very thoughtful. Well, I actually wasn’t at the party, but I did get to do something very fun, which was I was in Madrid, Spain and I got to meet in person the entire team that edits this podcast, they all live in Madrid. I don’t even know if you guys know that.
But I went to go hang out with them and they’re extremely cool, fun people. They took me on a 10-hour tour of the inside of many bars in Madrid and I just wanted to give a shout out to Joel, Eliezer, Alexander and Anna, who are an incredibly talented team. It was a pleasure to meet them and I had a lot of fun with them. Very talented, passionate people who make this show possible. That was really cool for me and I just wanted to tell you guys about it.

Jamil:
Amazing. I had no idea that they were in Spain, but now we have to make a trip out there and go hang out.

Kathy:
Sounds like we have to.

James:
Are they sick of our voices yet?

Dave:
No. They were making fun of me the whole time. They’re like, “I feel like I have to put a frame around your face. That’s what I’m used to seeing you like. It’s weird seeing you.” No, they would love that. We should do that next time. Kathy, next time you’re in Portugal, just pop over to Madrid. It’s not far.

Kathy:
April.

Dave:
All right.

Jamil:
Did anyone say to you that you’re taller than they expected?

Dave:
No, probably said shorter knowing me.

Jamil:
I always get, “Oh, you’re thinner than I expected you to be.” I don’t know how to take that. I’m like …

Dave:
Well, they were probably already thinking you’re very thin and muscular, so even thinner.

Jamil:
I get, “You’re thinner than I thought,” and, “Your beard doesn’t look as terrible in person as it does on video.”

Dave:
What?

Kathy:
Nobody says that to you.

Dave:
Who thinks your beard looks terrible?

Jamil:
I have no idea, man. The Internet is fun.

James:
Well, let me see. I can’t even grow a beard.

Jamil:
That’s what happens when you’re one of the America’s best investors and you’re only 12, James.

Dave:
That’s like one of the BiggerPockets podcast headlines like, 150,000 units by 12 years old, featuring James Dainard.

James:
Profit and puberty.

Dave:
That could be your BP book pitch, James.

James:
I think I’m going to write that down.

Dave:
All right, well let’s get to today’s episode. As we wind down the year, we wanted to recap and sort of go back to actually one of the first shows we did, which we were picking best markets, worst markets. And so today, we’re going to talk about our predictions for the best and worst markets for 2023.
But before we do, Rocket Mortgage, one of the biggest mortgage companies in the country, just came out with their rankings of the top five markets for 2022. I want to throw these out there and see what you guys think about these before we get into our predictions for next year.
They said the number five was Charlotte, North Carolina. Did any of you pick them last year? I feel like someone might have.

Kathy:
I did.

Jamil:
Oh, you did?

Kathy:
Didn’t I?

Jamil:
Why do I feel like-

Dave:
No, Jamil. You had Austin in Denver. I remember that specifically.

Jamil:
Austin and Denver, that’s right.

Dave:
Because the final was just you against yourself.

Jamil:
Yeah. Charlotte?

Dave:
It’s Charlotte. Do you invest there, Kathy?

Kathy:
Yeah.

Dave:
How did it do this year?

Kathy:
Well, it got very expensive this year, so it became difficult to buy this year. But if you bought before this year, you did great.

Dave:
Nice. Then number four, we have at Nashville, which is sort of, I feel like perennially on everyone’s list of top markets. Then we had Raleigh, number three. Tampa, which I said, but got voted out early for number two, and Austin for number one, which I was kind of confused by. I think that’s actually what won in our competition last year. But would you guys think Austin was the best performing market this year?

James:
I mean if you look at those first two quarters in all those tech markets, they jumped so high. It’s like they had room to pull back and it was still going to be good. I mean, Scottsdale was kind of like that too. It was like Scottsdale, Austin, Seattle, LA, San Fran. They just shot up.

Dave:
Well, that’s a good question, James. You’ve been pretty honest about pullbacks in Seattle in your market, are they still up considerably over pre-pandemic levels prices in Seattle?

James:
Oh yeah. We’re substantially up from pre. I mean we’re still 5% up on this year in Seattle, but we were up 25% to 30% and there’s first two quarters. I know there was one month alone I was seeing some cities appreciate at 25% in one month. It was crazy. I had to triple check the data. I was like, wait, what happened? The median home price jumped 25% in one?

Dave:
That’s like a crypto coin.

James:
Yeah. I mean we’re still at least 30% up from 2020 or 25% to 30% in certain neighborhoods for sure. And so there’s still rapid growth. It’s just sliding back with the affordability right now.

Kathy:
Yeah, I mean that was kind of my comment last year is that this is a leveling out of a crazy manic pandemic-induced buying spree of last year. And so with so many things, when we see layoffs, when we see home prices coming down, it’s really just comparing to an abnormal year. And so if you could keep that in mind and maybe just compare numbers to 2019, people who bought in markets that really went up and are now coming back down to earth, if they bought this year, they might be feeling a little pain. But if you bought before that, you’re fine.
If you hold it, you’re fine. It’s just anytime you have to sell, if you’re forced to sell when it’s not good timing to sell, then that can be painful. But if you can hold, usually those hot markets come back and they become hot again.

Jamil:
I feel like if you bought a house in the peak time of 2022, it’s kind of like one of those nights you got really drunk at a party and things didn’t turn out the way that they should have and you want to forget it. And so that’s basically what happened.

Dave:
Is this what happened at your party last weekend, Jamil?

Jamil:
Maybe.

Kathy:
I left in time.

Jamil:
Listen, we all have the same sickness, and how that happened …

Dave:
I don’t know how to follow that up.

Jamil:
I put on a good party though, guys.

Kathy:
That was a good party.

Jamil:
Let’s be real.

James:
You know what? Everyone should go to Jamil’s meetups and parties. They’re the most fun things for real estate I’ve been to. It’s like, it is a vibe that is nothing I’ve seen at a real estate conference before or meetup.

Kathy:
I’m signing up.

Jamil:
All right, well definitely check those out.

Dave:
Okay, well let’s take a break now because, Jamil, you threw me off. Let’s take a quick break and then we’ll come back and talk about our predictions for 2023.
All right, let’s jump into our predictions, but before I ask you which markets you actually picked, can we talk quickly about what criteria you all used? We’re going to do our worst markets first and when Kailyn and I assigned you these, we didn’t really give definition what worst means. I’m curious, Kathy, what did you interpret that as? What did you think? How did you choose the market you chose?

Kathy:
I had to really give it some thought because with real estate, you can get super confused. There’s so much data coming from so many different angles and everybody’s got an opinion and that’s a hundred X every year as more and more people get into the industry. It can be very confusing. I just had to stop and say, for what? The worst market for what?
For me, my buying box, basically what I have always looked for are areas that cash flow with the hope of appreciation because there’s something going on in that area, there’s growth. And so I don’t need it to go up in price dramatically right away. I just want it to over time so that I know that I’m getting cash flow and appreciation because the double whammy is what can really make you wealthy.
For me, the worst market I chose was Detroit. Now Detroit came up on some lists as a great market for 2023. Again, it just depends on your buy box. I’m sure there’s Detroit investors listening who are like, “If you invest the way I invest, you’ll do great in Detroit,” because there is a lot going on and apparently has had some of the highest millennial growth there. There’s a lot of revitalization happening downtown. Some of the things I look for are there.
The reason I choose it as the worst for me is that they’ve had a population decline over decades. Yeah, decades. Detroit has seen a 61% decrease in his population since the ’50s. It used to be really quite like a New York kind of city, very popular city, but people are leaving and they’re going to wear my favorite market. One of my best markets is warmer climates, the Florida area. No, I didn’t tell you where in Florida, but warm climates with landlord friendly laws. This fits the buy box for me.
If I’m looking for buy and hold, cash flow, appreciation and growth, I want to be in an area where there’s job growth, population growth, infrastructure growth, rent growth, all those things. We’re not seeing it. But the biggest reason that I wouldn’t invest in Detroit is that they have this law, and it is a tough law, and I know it well.
In May of 2017, the city of Detroit announced its intention to implement a citywide effort to enforce tougher rental ordinance rules on landlords. Landlord rules really matter. Basically, you can get massively fined depending on which way you look at it. For renters, this is great, it means that landlords have to take care of their properties and fix things. But if you’re not aware of that, you can get really stuck.
We’re trying to sell three Detroit properties in our former fund. My last single family rental fund, we’re down to three Detroit properties that we’re having a really tough time selling. We can’t get the tenants out because landlord laws are really not in our favor there. The city comes in and inspects and tells us all these things we have to fix. Those fixes are costing a lot, $40,000 to $50,000. These are properties we only owned five years and we fixed them five years ago. They’re older. If you’re buying an older property in Detroit, you just have to know that the city inspectors may charge you.
For me, this is not a best market for me, it’s a worst market for me. I do think if you go in and you can get a great deal and you completely renovate it and you’ve got the budget for it and the reserves, you could get great cash flow. I just don’t think that you’re ever really going to see that market appreciate the way I like it to do in other markets.

Dave:
All right. Detroit is our first worst city. I know the former CEO and founder of BiggerPockets, Josh Dorkin, would definitely agree with you. He made a reputation of hating on Detroit for many generations.

Kathy:
I used to love it. I used to invest there and our fund bought a bunch of properties there and they cash flowed the whole time during the fund. They were wonderful for cash flow. It’s just when you’re trying to get out or if the city comes in and tells you to do a bunch of work you weren’t expecting to do. You just have to have lots and lots and lots and lots of reserves for older properties.

Dave:
Kathy, it’s a great point. Two or three years ago, I did this data analysis to look at appreciation versus cash flow for markets and I plotted them out. Basically, what we saw was that before the pandemic, most markets were either really good appreciation or really good cash flow and there were a few that were both, but they were modest for both. The outliers for good cash flow like Detroit were also outliers for bad appreciation.
And so you saw the other thing too. An outlier for appreciation like Seattle was also an outlier for bad cash flow a lot of the time, just on average. Since the pandemic started, all that got thrown out of the window and everyone has just seen both. But I do think as we go into 2023, we’re going to start going back to that normal sort of bifurcation in the market where some markets are really good for cash flow but don’t appreciate really and vice versa. Some will continue to appreciate but aren’t going to be places where you can easily find rental properties that meet the 1% rule, for example.
And so, it sounds like you agree. Detroit might be good for cash flow, but appreciation probably not going anywhere.

Kathy:
Yeah, I think it’s really important to look at how performance was before 2020. I know a lot of these cities have really redefined themselves in the last decade, but if you take say 2015 to 2019 and really look at the cap rates and what was happening in those markets appreciation-wise, those were good solid years for real estate. That will be a better metric for where we’re headed in 2023, I think.

Dave:
All right, well there we got one. James, how did you approach this and what city did you pick?

James:
I picked kind of a different city. I spent a lot of time researching all these markets and I’m like, you know what? I’m going back to the market that I had the biggest regret of not buying in 2009. And so I picked San Diego, California. The reason I picked San Diego is, A, and this has nothing to do with what we’re going through now because it’s a different thing, but I remember in 2009, the sky-rise condos went down to under 400 grand. These things were like you’d be up killer views, brand new, and you could buy them for under half million dollars and they were trading for over a million before the mortgage industry exploded.
But the reason I picked San Diego is I do think, A, I think San Diego is the best city on the West Coast. It is where you want to live for sure, but the problem is the income is just not there and what people can afford in the job market. It’s a really good place to move to if you have money, but if not, you’re going to struggle with a lot of the pricing around there.
And so what we’ve seen with the interest rates rising is the rates, we’ve already seen it go from a medium home price down over 10%. There’s been a drop from about 950 down 850. We’ve seen something very interesting to watch for and these are the markets I’m most cautious in right now are the ones that’s hockey stick up in that first two quarters at a crazy rate. San Diego definitely hits that. In March, they were up 30% and they were one of the top three appreciating markets for that month. It has retracted back 20% from March and it’s continuing to slide right now.
I think a lot of the reason that they have retracted back is the math just doesn’t quite make sense. Also, rents have dropped 5% since March as well. I do think the rents are falling because more the remote work. Why wouldn’t you want a remote work in San Diego if you could? That’s where I would want a remote work. And so as the workforce is going back to where they’re supposed to be working, all these things are starting to bring it back.
During the pandemic, living in a quality place was a big concern for most people and San Diego’s one of the best you can be in. And so I think people are just starting to leave a little bit and it’s starting to let things down. But to put it in perspective, you have to save … In San Diego, the average home buyer needs to save up $160,000 to buy a house. With the income that they’re making, they need to save a minimum of $13,000 per year to it. It is going to take them almost 8 to 12 years to save up for that 20% deposit. That doesn’t even keep track with the pricing going up during that time. With a median home price of $905,000, the household income should be $166,000 to afford that comfortably.
The problem is the median household income there is $70,000 and a lot of the actual jobs that are in San Diego are big … There’s not as much, and I picked San Diego because there’s not as much big business as there is in Austin, Seattle, San Francisco where there’s these big anchor tech companies that yes, they might be going through a downturn right now and laying off some people but they’re going to come back and these are companies that are not going away whereas they have a much more limited pool. Military is a big deal.
Now I do think if we are going into more conflict that the military could grow and that there is going to be, that could expand in San Diego because it’s the biggest military base there is, but it still doesn’t get you to the income for affordability. With rates being as high as they are, it’s just going to pull everything back because just people are not making enough money to buy. We’re seeing that right now.
If the rates continue to go up, which I do believe they will for at least the first two quarters, you’re going to see homes dropping price. 43% of all homes in San Diegos have cut their price this year. That is a substantial amount. That means people are either overpricing or even if they are pricing right, they’re just not selling for people can’t afford them.
The major pool of that they can’t afford that, those big companies are slowing down, like Qualcomm is a huge business there. That is one of their anchor employers. Qualcomm has froze their hiring right now. They have not announced layoffs yet as far as I could tell, but that’s usually the first step. You freeze your hiring and then there’s layoffs coming.
They have not predicted the layoffs but they are expecting the company internally is expecting that their shipments are going to decline in the double digit percentage for next year. They’re predicting that they are going to do less business as a company which is going to start laying off the people that are going to absorb a lot of these more expensive properties. And so all those things that when you get in a mix, I just see this stuff coming down. It’s way too expensive, we’re missing like $70,000 on the median home price to get people to really be able to afford. Then there’s other things that are just indicating that it’s way better to rent versus to buy. The cost to rent ratio is 30.38. In a healthy market, it’s like you want to be below 21.
It is so far out of whack right now that I think that San Diego could fall an additional 10% from where it’s at right now. That doesn’t mean that I wouldn’t buy in San Diego, it’s actually on my cities to slate to buy in. I just think that there’s going to be more opportunities. I don’t want to have the same regret I had in 2009 because I do think quality of living and people want to live there in general and that’s always going to drive growth.
They are also on a long-term basis predicting that San Diego’s economy is going to grow, I think they said 31% in the next 10 years or 20 years. And so they’re predicting growth. But in the short term for 2023, I think it’s going to retract back and I think all these expensive West Coast markets are going to continue to retract back. The thing you have to be careful about with the investors is when you’re playing in expensive markets, the retraction can really hurt. And so that’s why I put this as the worst market that I would invest in.

Dave:
Everyone loves leverage when you’re going up, and then when it goes down it hurts a lot.

James:
I mean it definitely hurts. Like what we were talking about before I got on the show, I finally sold a house that it took 150 days to sell and luckily I’m breaking even. I don’t even know how I’m breaking even. But we just sold the house for 450 grand, less than a house that we sold right around the corner when we bought that deal in the beginning of the year. And so you have to watch out for these slides and the slides are okay, you just have to prepare for them correctly.
But I do think San Diego’s going to have some issues. It’s just too expensive for what people make there. I do think people are always going to want to live there. Well, in addition to besides that expense, you have that California expense, the extra 13% income tax. There’s too many expenses going on that are eating up liquidity and that’s why I do think that it’s prone for a pretty big drop from here. I think another 10% is coming back.

Dave:
San Diego might be on your best markets for 2024 list?

James:
Yes. I actually think all those markets like Seattle. It’s Seattle, right? It’s a very similar … I like Seattle better than San Diego because there’s more jobs there. I like Austin better than San Diego because there’s more jobs and infrastructure there. But I do think all these cities that are having these massive retractions are great buying opportunities, especially after this second quarter. But you have to buy carefully. You can’t buy traditionally. If you’re buying traditionally, you’re going to get … I think you’re going to get burnt.
But as the markets keep free fall … I mean those are the markets that are going to have the most opportunity. The ones that are falling backwards are the ones that everyone just jumps out of. That’s where I really want to jump in. I probably will buy something in San Diego. I want to buy some short term rental stuff right down by the beach and PB. I know the condo market gets hammered and those are things that I’m looking for, is if I can buy it substantially below what it was worth, if I’m buying them 30%, 40% below that previous median home price, there’s runway for growth and equity gains in over a five-year period.
But like what Kathy said, it comes down to what is your strategy? My strategy isn’t high cash flow. I don’t like dealing with these small houses that can get you 10% to 15% returns because I don’t like those maintenance expenses. They can jeopardize my cash flow position. I like high growth markets because that’s where you make those big equity gains. Those equity gains have completely changed me as an investor and how I’ve been able to passively invest just based on those gains.

Dave:
All right. Well said. Actually when I was trying to think through this for best markets, I was thinking of doing a contrarian opinion and saying something like Austin, because I think it is going to go down 20% or 30%, but it has one of the best long-term growth potentials of any city in the country. And so maybe it is a great time to buy in Austin if to your point, James, you’re buying under market value and finding good value.
All right. Jamil, what about you? How’d you approach this?

Jamil:
Well, I loved everything that James and Kathy said. I agree that you have to look at it from the perspective of your investment strategy. We all know that I am a trader. I look at the real estate market in terms of how can I benefit, how can I get involved and where are my buyers? Where are my clients? Where are they looking to invest? Where are they running away from?
And so for the worst market of 2023, I’ve chosen Ventura County. Realtor.com predicts that it will drop in sales price by about 30%, 29.3%, 29.1% specifically is what their prediction is. That’s a significant amount of money. When you look at fix and flip, when you look at wholesale, when you look at opportunities for us to trade in property, if you’ve got declining market to that degree with all of the things that James was talking about, you’ve got the regular Southern California issues like the state tax, the migration in Ventura County is not, it’s flat, if anything.
And so how I look at a market like that, as I say, are my clients or are my buyers for fix and flip or are my wholesale buyers looking for opportunities in Ventura County right now? They’re not. For me, where we are not going to be investing marketing, where we are not going to be investing resources for boots on the ground to try to find some opportunities or to pick up opportunities for trade will be some of these higher value markets in southern California. But I do also agree that looking forward to 2024, as you had mentioned and as James had mentioned, there’s going to be a tremendous value, but you have to wait.
It’s a bad market for 2023, but coming off the tail end of that, if you can start buying in Q4 of 2023 and get them significantly below market, because at that point there’s going to be desperation, exhaustion. Sellers are going to be just, they’ll have had it. I feel if you can time your purchases right, you can make the worst market at 2023 your best market at 2024. And so I’ll be re-entering Ventura and some of those markets in Southern California towards the tail end of ’23.
But for now the worst market, Ventura County.

Dave:
It makes sense. Kathy, what’s your read on this California hate over here with getting James and Jamil? But really we’re seeing a lot of population leaving California and it’s very expensive. I feel like people have been saying California’s going to nose dive for decades and it never happens. As a resident and a native, what do you think the future holds for California in the next few years?

Kathy:
I am a native of many generations. My grandmother was one of the first people to swim … She swam across the Golden Gate Bridge. She was an Olympic athlete and would swim around Alcatraz. I really have my roots in California, and this is a conversation that has been had probably for a century. It’s just always the case when you have highly desirable world class areas, it will never be cheap and there will never be a lack of people who can afford it. It’s just that they’re volatile. These are volatile markets.
But San Diego, I mean it truly is one of the best places in the world to live or to have a second home. There are more people that would buy there or own there than work there. Obviously if you are trying to do a buy and hold, again, it just depends on strategy. But it’s almost like if you can do a long term flip, meaning maybe you buy something, you rent it out for a year or two where it’s kind of covering its cost. It probably won’t, it will probably still be negative but then do the flip later so you kind of got in low …

Jamil:
If you can never get the tenant out.

Kathy:
Right, there is that.

Dave:
Valid point.

Kathy:
But it always has bounced back, and you will make a lot of money if you hold. That’s why so many Californians are loaded and are bringing their money to other places because they made their money in housing in many cases.
If you live in California, so what I think of California, I would love to leave California. But I love the weather. I love everything about it except the politics and the prices. But it would be hard for me to go anywhere else and I think a lot of people feel that way who live there.

Dave:
All right, well yeah. I wouldn’t bet against the California market long term. It always bounces back. Oh, and one thing I do want to say when you were talking about that, that could be a very good opportunity for a live-in flip for people who want to do that. You get to live in California and then flip it down the road. If you live in it for two out of five years, you pay no tax. Good opportunity.
For mine, I wanted to pick a city that we don’t talk about a lot also on the West Coast, but was one of the hottest markets over the last couple of years. I picked Reno, Nevada. Do you guys know anything about Reno?

Kathy:
Just sold off our two subdivisions there just in time, so yes.

Dave:
Oh good. Well it went crazy over the last couple of years, so hopefully you did well there.

Kathy:
Sold right before rates went up, so that was good.

Dave:
Ah, nice.

Jamil:
Congrats.

Kathy:
Thank you.

Dave:
Because to me, Reno is one of these cities that just popped due to remote work. It’s a beautiful place. There’s no income tax. It’s right near Lake Tahoe, it’s really nice. But when you look at the economic fundamentals, it doesn’t really support all the growth that we’ve seen. Similar to what James was saying about San Diego, you just see a really not a high enough income level to support the prices. You don’t really see, unlike Seattle or Austin that has exceptional job growth and tech companies moving there, don’t see that to the same degree in Reno.
This is what to me going to be an interesting experiment because I think it grew a lot similar to Boise. I think it’s sort of a similar thing where people who wanted to live somewhere with a great quality of life decided to move there, but will have to see if the economy can support it once people are either called back to the office or salaries don’t rise at the same rates that they have been or there’s layoffs we’re starting to see.
Unfortunately for Reno, I don’t think it’s going to be doing pretty well over the next couple of years. It’s already seen the days on market go up by about 250% over the course of this year. We’re at days on market over 60, which is in any market pretty high. And price drops are over 45%. That’s my pick.

Kathy:
Well, I could tell you why we invested there, why we bought land there and built a lot of houses there because Tesla moved its battery factory there and there was just … Google was moving up there because it’s only about four hours from San Francisco, but it’s in Nevada, no state income tax. It just seemed like this is going to keep growing.
But like San Diego, it just lags. It just lags. It’s so strange why you would think for those reasons companies would move to Nevada just to avoid taxes. But it’s still a four-hour drive. If there was a speed bullet train or something, maybe it would be a different story, I don’t know. But it’s always lagging.

Dave:
The income just hasn’t grown there in the way that it would need to just support some of these prices.

James:
Don’t they run out of water? Isn’t there a huge water issue in Reno too, like it’s dry almost? I just remember I went to Lake Tahoe, they were talking about it. The water’s low and they’re trying to figure out how to get more water in.

Kathy:
I think in general, that was California.

Dave:
And Nevada.

James:
Well, it’s also crazy too when you go to Lake Tahoe, that property values because part of it is in Nevada and they call that millionaires row on that side because that’s where all the mega mansions go. I get what Kathy was doing. They want to get out of that income tax and it’s like, so you have properties that are worth millions and millions of dollars on one side and then just kitty corner, they’re worth 45% less because there’s no income tax.

Jamil:
No, that’s interesting.

Dave:
All right, well we’ve talked about the downside. Again, I think that some of these markets could be great in the future. We’re just talking about 2023, not forever. Let’s move on to markets that we do think are going to outperform or do well in the next year. Kathy, on the other side, you didn’t like Detroit. What do you like for next year?

Kathy:
Well, as you know, like I said, we always look at job growth, population growth and infrastructure growth combined with affordability. I want to be in markets that cash flow today and so you can hold these properties. They don’t have to cash flow a lot. This is a long-term play but cover their costs so that you’re really able to hold these as they appreciate.
Tampa really fits that for me. Tampa has completely redefined itself in the last decade. In fact just in 2021, there were nine companies that relocated their headquarters. There’s an article that says tech company relocations to Tampa Bay soar in 2021. 94 new companies were added to St. Pete’s pipeline. Lots of job growth and that’s really important to us.
Now with that comes population growth. In Tampa, it was 1.3% up last year. This is the important thing looking forward, it’s projected to grow 3.3% annually. The growth has just started. More than 128,000 new residents are forecast to move to the metro area. How on earth by next year, by 2024, there’s not enough housing for all those people.
We’re still buying houses in the one $150,000-$200,000 range just about 45 minutes outside of Tampa. I don’t like to be too far away from a major metro, but if it’s still driving distance and there’s still offices and jobs nearby. Just on the outskirts and out of flood zones and out of the hurricane zones, kind of more inland of Tampa, we are really finding amazing deals. I think if you could still get a house for $200,000, $300,000 in an area that’s growing like that, to me that’s a steal.
Median rent is $2,300 per month for a three-bedroom home. There’s a lot of markets where it might be a two-bedroom apartment or something. But according to Zumper, $2,300 for a three-bedroom home, that’s pretty good. Rents have increased by 16% last year, and 48% of households in Tampa rent rather than own. I think we can all agree that Florida in general is business friendly and landlord friendly. It meets all the things that I want. I’m not worried at all about buying in Tampa today.
Oh my gosh, for the properties that I own in the Tampa area, I get calls propped and texts probably every other day of people trying to buy those homes. There’s still a lot of activity.

Jamil:
That’s my fault.

Dave:
It’s Jamil, he’s calling you.

Kathy:
I know. I keep offering twice what it’s worth and no one’s taking it.

Dave:
All right. Well, I love Tampa too. That’s a very good pick. I mean I think there’s a lot of … Florida, it just seems to be this split city, split state. Some markets seem to be overheated right now, but markets like Tampa just seem to still have really strong fundamentals. We’ll have to keep an eye on that one.

Kathy:
I’ll just say one more thing and then add to it that the iBuyers are kind of backing off, so you have a little bit more opportunity to get in today and we’re finally starting to see the foreclosure sales kind of hit. There’s more opportunity there than there was, but all the same dynamics of growth that we like.

Dave:
Nice. All right. James, what about you? What do you like for next year?

James:
What I like for next year is … It’s funny when I was researching all this. There were a lot of the predicted markets that are going to perform really well in 2023. It’s all based off math equations. When I was looking at all these lists, I’m like, okay, I get it. It’s a very low price point. The median income is up. There’s low inventory, so they’re predicting growth. That totally makes sense.
But for me as an investor, I also like to buy stuff where people want to live. And so I picked Raleigh, North Carolina, which I know did really good this last year. The reason being is it is ranked on numerous lists as the best places to live in the United States. It was ranked number six recently and it has a ton of growth behind it. It had a 3.4% GDP growth in 2022 and the economics behind, it’s Riley and Durham County but there’s growth going on there. The population is increasing because people want to live in quality places but still keep their capital.
A lot of our friends, I know a substantial amount of people in the last 12 months that make good money, they have good careers and they reload out of California. The reason they did is because they were sick of giving away that 13%. They were sick of paying too much money for housing and they’re going to areas like this.
If you look at how affordable this is for the quality of living, so this is the sixth rank city of places to live that you can have a great life to live in. The median home price is $410,000, which did grow by 16% last year and that is my concern. It did have a lot of rapid growth. But the household income is $98,000. So people can afford to … They can move there, have a great life and still live comfortably.
Everybody that I’ve known, and I also go off of what are people saying. People have been reloading to Raleigh, North Carolina, Charlotte, and they love it. They love everything about it. That is a buzz, and as we go into a recession and things are costing more, people are going to look for area. They just want to enjoy life and live somewhere that they can raise their kids, and this is one of those hot places.
The other thing I liked is there is going to be an inventory problem, I believe. Since 2010 until now, they built 50% less houses than they did from 2000 to 2010. If you have growth going on there because the population is growing, just like Kathy said like it’s growing at a rapid rate, it has historically grown around 1.5%. It’s been growing near 3% the last three years. And so it has the buzz. This is where people are moving, there’s a lack of inventory and people can afford things.
Another interesting stat I saw and I was like, wow, this is pretty, it kind of blew my mind. 23% of people don’t have mortgages there. That’s how affordable it is. That totally caught me off guard. And so when you’re looking at a quality place to live, they have good income. The median home price is still very, very affordable. The schools are great. Charlotte, the big city next to it is growing rapidly. Those are all good things for long-term gains on a property, in addition to people want to live there.
The only thing that I did see that is a little concerning is the cost of rent. That’s something that I’m really looking at now in all my metrics when I’m looking at things. Is it way cheaper to live in a rental? It went from being around 16% to 17% to 19.65%. The gap is getting close on whether you could rent or buy, but that’s still below that 21-point threshold that they talk about.
There’s still a little bit more room, it still makes more sense to own than it does to rent. And so those are things that I think are really healthy for growth for 2023. People want to live there, they can afford it and it’s still cheaper or a better situation to buy. I think that it has a lot of room to grow.
Another thing I saw actually, the markets I’ve been watching are these hockey stick markets. Raleigh has jumped dramatically, but it only came down 5% instead of that 10% to 20% that we’ve seen in some of these tech markets. It didn’t quite grow at the same rate as San Diego, Seattle, Austin, it grew about half the rate. And so it’s kind of a more leveled out market, so there’s less of a hockey stick going on there.
But I’m going to really dig into this market. I like all the stuff I read on it. I know I like everything I hear about people, and I really do love markets where people want to live. Raleigh is one of them.

Dave:
Awesome. Yeah, I mean it’s anchored by very, very strong economy. Three of the largest research universities in the country, Duke, UNC, NC State are all in that area. When you have that kind of education level, you see a lot of companies moving there to take advantage of that workforce. So very, very strong economy there.
North Carolina has some weird rules about buying houses though where you have to like, what is it called? You have to pay some fee to take the house off the market. It’s putting earnest money down, but it goes hard immediately. Have you ever heard of this?

Jamil:
Option fee?

Dave:
Yeah, it’s like an option fee. Last year, they were like 20 grand before you even have an inspection. It’s crazy.

James:
Yeah, I was just talking to someone about that and they said, yeah, it’s like two earnest. There’s an earnest money and then there’s like a due diligence fee.

Jamil:
Yeah, it’s to curb wholesaling.

Dave:
Yeah. It’s crazy though because in a normal year, I talked to an agent down there because I was interested in buying in Durham. They were saying like in normal year, it’s like 500 bucks. So it’s like, all right. But last year with how competitive it got, it was like 20 or 25 grand. That was before you even got an inspector in there, before you even necessarily walk the property.
So if people were … I mean, that’s crazy. That’s why I just didn’t do it. But hopefully in this next year, it won’t be as competitive when you can do something like that.

James:
The buying conditions were so weird though. We used to write offers on homes. We write a five-day close, it’d be listed for 400 grand. We would write it up for let’s say $450,000, and we would write earnest money at $448,000 and release it to seller day after Mutual. We would write the weirdest terms we could do just to try to get that deal. They’re like, “Wait, what do you mean?” We’re like, “No, no, we’re going to give you all the money until we close for 2,000 bucks.”
We were trying everything just to lock a deal down. It was like, but I think that that will go away from what I hear from people that are buying there. It’s back down to 500 bucks. People aren’t throwing crazy numbers at it anymore.

Dave:
For sure it’s wild. But agree that it’s a very strong market. All right. Jamil, what do you got? What’s your favorite market for next year?

Jamil:
Well, again, looking at this from the perspective of a trader, so I’m looking for opportunities that are quick where my buyers can get in and do projects where they won’t get slammed and have a house sitting on the market for months and months and months where mortgage rates aren’t going to be a considerable situation. Now, looking at what we’ve seen, we are seeing across the United States in almost every market that prices are declining. However, there is a unicorn market right now that a lot of folks aren’t talking about where that’s not happening, and it is Hartford, Connecticut.
Hartford, Connecticut. Interesting, realtor.com is predicting that they will have a price appreciation in 2023 of 8.5%. Buyer demand is so strong there right now that they are still in multiple offers, situations on properties, and houses are selling 20% above list right now with mortgage rates where they are right now. That’s how strong the demand is. It’s crazy. It’s like everything that we were seeing leading up to this whole market shift, all the craziness in most of the markets across the United States, we’re seeing these multiple offer situations, it’s still happening in Hartford, Connecticut, which is crazy to me.
Beyond that, the median price over there is very low at 372, so it’s still relatively affordable. You’ve got strong migration. You’ve got New Yorkers moving there. You got people from Florida moving there. You got people from New England moving there. It’s got a lot of demand. And so people are moving there. There’s strong, strong, strong buyer demand. The mortgage rates didn’t affect it because we still have multiple offer situations.
Fix-and-flip is going to be very strong over there. Wholesaling will be very strong over there. We’re going to be doubling down our efforts as well as trying to establish more franchises in the area because I see heavy opportunity for wholesaling and fixing and flipping in this little unicorn submarket.

Dave:
This has to be the first time in BiggerPockets history anyone’s ever mentioned anywhere in Connecticut as a place to … I grew up not so far from here and just never even talk about Connecticut. But Hartford has been one, it’s a low price market. Just anecdotally, most of my friends who grew up in New York with me now moved to Connecticut, mostly to Stanford, Bridgeport, places close to the city.
But it’s a real thing. Hartford is kind of perfectly situated between Boston and New York. And so maybe you’re getting people from both of those higher price markets who just want somewhere in the northeast that’s a little bit less expensive.

Jamil:
They are. There’s jobs and industry there too because it’s the insurance capital of, I believe the world, the insurance capital of the world. Aetna’s got their headquarters there. Cigna’s got their headquarters there. We know that there’s strong opportunity in healthcare. There always will be. That’s one of the industries that we understand will always have a lot of demand and a lot of opportunity.
I think it’s one of these markets that we will look at in five years and say, who knew? Jamil did.

Dave:
Yeah. Connecticut has underrated pizza. I don’t know if anyone knows that, but has better pizza than people give a credit for. It’s very important.

Kathy:
It’s where my husband was born.

Jamil:
Wow.

Kathy:
Yeah.

Dave:
What, in Hartford?

Kathy:
Mm-hmm.

Dave:
Wow. All right. Maybe Jamil and Rich will have to go on a tour. All right. Well for mine, I wanted to do something similar to Jamil, a little contrarian, some places that people haven’t heard of or aren’t talking about so much. For some reason, maybe not in 2023, but I’m long on the Midwest. I think similar to how the Southeast over the last couple years has seen, this big pop, the weather is great, but also it’s just more affordable than the West Coast and the Northeast.
I think the Midwest also has that going for it. Doesn’t have the weather, I’ll give you that. But the Midwest is by far the most affordable part of the country now because the Southeast has gotten so much more expensive. The city that I like in the Midwest the most is Madison, Wisconsin. Never been there, but just on paper, it has really good population growth. It estimated grew 1.5% just this year. Its unemployment rate is at about 2%, which is much lower than the national average. It’s a highly, highly educated workforce.
To James’s point, I’m just going based on affordability. People can afford to live there and it has a high scores for quality of life, and it is still growing. It is still consistently growing 8% to 10% year-over-year, and it’s been doing that for the last several years and it’s shown no signs of slowing down over the last couple of months. I think this market is still going to keep growing over the next year. I don’t think it’s a fluke. I think it’s an affordable market, high quality of life and affordable, which as James said, sort of some of the key indicators for long-term performance for buy and hold markets.
I tried to do something a little bit weird and a little bit different, but I think Madison’s going to be a winner.

James:
Brutal winters.

Dave:
Yes, definitely. Brutal winters.

Kathy:
I know what he said, quality of life. I was like, it depends on how much you love cold.

Dave:
It gets rated high for quality of life, people like it there. But I guess those are all like James said, it’s a math equation. They’re like, what was your score on air quality and what was … It’s those things. You probably need to look into a little bit of the methodology.

Jamil:
When you live in perpetual summer like me here in Phoenix, I don’t mind seasons.

James:
I’ve had too many seasons. I don’t want them anymore.

Dave:
I went to school in upstate New York and it is absolutely brutal. I did not like it. It’s not for me.

Kathy:
Why do you think Rich moved from East Coast to West Coast?

Dave:
Yeah, exactly. But I just think generally, I think the Midwest has gotten hit hard and there’s other cities in the Midwest also I think are Chicago I believe will rebound over the next couple of years. I mean, I think it’s doing fine right now, but we’ll start growing again just because it’s so much more affordable than other big cities. There’s still really good jobs in these markets.

James:
Cool city too. I love Chicago.

Dave:
Last time I was there, Jane’s family lives there, and I was there over the summer. Man, that city is basically holding down inflation for the entire country. We were going out and we went and bought beers and they’re like $3 for a beer. We’d go get a sandwich, it’d be like $5.50. And I was like, this place is holding it down. There’s stable prices in Chicago since 1990. They’re just doing us all a favor.

Kathy:
Chicago’s a lot of fun.

James:
I ate lunch yesterday when I was prepping, doing some work and eating, I got a sandwich and a soda and it was $33. I was like, it’s ridiculous. What is going on? Yeah. I mean, now Chicago might jump up my list if it’s really that cheap.

Dave:
Honestly, it is. It’s so cheap there, I mean, relatively speaking. Was your sandwich good at least?

James:
It was good. It was prime rib dip. It was pretty good.

Jamil:
Oh, he failed to mention it was a prime rib sandwich. It makes sense.

James:
Yeah. It’s a wagyu beef.

Jamil:
Yeah, when you have wagyu between bread, it is going to be 33 bucks.

James:
But that was a $20 meal before the pandemic. That was like a $19.94 with a $3 tip on there.

Dave:
All right, well thank you guys. It’s been a lot of fun. Let’s just sum this up. Kathy’s picks were worst performing market for next year will be Detroit, but best will be Tampa. James had San Diego as the worst performing market, and his best was …

James:
Raleigh.

Dave:
Raleigh. There we go. Jamil picking Hartford for his best one, bringing a new state onto the map. He had Ventura County, California as his worst performing. For me, I think Reno’s going to take a hit, but Madison, Wisconsin is my dark horse for next year.
All right, well thank you all everyone. We would love to hear on the forums, we just put on the BiggerPockets forums a question to ask you what all you think the best and worst performing markets of 2023 are going to be. So if you want to interact with us or talk to other listeners about market potential for next year, make sure to visit the BiggerPockets forums. Just go to biggerpockets.com/forums and you’ll find it there.
Jamil, James, Kathy, thank you so much for being here. We appreciate you. We appreciate you all for listening, and we’ll see you next time for On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett. Produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media. Research by Pooja Jindal, and a big thanks to the entire BiggerPockets team.
The content on the show, On The Market, are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

Ashley:
This is Real Estate Rookie episode 249er. If you have an LLC or a corporation, 100%, you have to keep it separate because, or else you’re piercing that corporate veil that opens you up to liability. If you get sued, someone can say, “Well yeah, even though this property is owned by an LLC, the rental incomes are going into Tony Robinson’s personal account,” and that opens you up to a lot of liability. Where if you have the property in your personal name, you can co-mingle those funds by having it in the personal account that you do just have to track which ones are for business, which ones are for personal. My name is Ashley Kehr and I’m here with my co-host, Tony Robinson.

Tony:
Welcome to the Real Estate Rookie Podcast, where every week, twice a week, we give you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Today, I want to give a shout out some to someone from the Rookie audience who loved us a five-star review on Apple Podcast, goes by the username JustinG419. Justin says, “I feel like I finally found a real estate podcast that puts so many questions I have into perspective. This is a business I feel passionate about jumping into, and this podcast makes me feel like I can take this journey beyond just living comfortably.” Justin, we appreciate you. If you haven’t yet left us an honest rating review, please do. The more views we get, the more people we can help, and that’s always the goal here.

Ashley:
So we are live in Phoenix, Arizona right now. We are with our production crew in an Airbnb. Last night, we just did a meetup with over 200 investors from the Phoenix area and we actually had a couple people that flew in. So we interviewed Alexandra, who flew in from Fort Lauderdale, and then we met a couple that came from Ohio.

Tony:
Nick and Alexis flew in from Ohio. We appreciate you guys. And then another couple that flew in from California, Charles and Lele. So just so many great people that flew out just to come to this meetup. It was such a crazy cool experience. So if you guys wanted this to keep happening, we’re trying to persuade the BP team to keep this thing rolling, so get active in the Real Estate Rookie Facebook group. Say, “We want you guys to come to this city. We want you guys to come to this city.” The more support we get from you guys, the more often we can do this.

Ashley:
Yeah, it was really cool to network with everyone and just meet some of the rookie community and then also talk with experience investors too. So we did the meetup with Pace Morby and Jamil from On The Market. We got to sit down with Jamil and pick his brain on a couple things last night and it was really valuable.

Tony:
Also, a big shout out to Jamil because it was actually his birthday yesterday and he chose to spend his birthday evening hanging out with us at this meetup, so just goes to show how much Jamil care cares about the BiggerPocket community so we appreciate that.

Ashley:
Yeah, and it wasn’t us. It was all of the other people there that he wanted to spend it with.

Tony:
But Ash, we’re here for something special today, right? We’re talking about something special. So why don’t you show the people, if you’re watching this on YouTube, why don’t you show the people what you got?

Ashley:
So grueling year and a half. I finally have published my first book.

Tony:
Congratulations, Ashley Kehr, published author.

Ashley:
So it’s called Real Estate Rookie: 90 Days to Your First Investment. Basically, it just gives you the steps you need to take to purchase your first investment property.

Tony:
Before we get into the nitty gritty of the episode, just like how was it for you writing this book? Was it easy? Was it hard? Because some people say you get in front of the computer and it’s just like your brain goes blank. How was it for you?

Ashley:
Honestly, it went back and forth. At some point, I felt like all of this information in my brain, how can I articulate it onto a piece of paper? How can I even organize it and put into a piece of paper? Then other times it was just drawing a blank. I don’t even know how to even talk about this topic anymore. I just said what it is and what you need to do. So a big thing that I struggled with was I’m very analytical, so telling the stories that go along with it, that’s just not me. So that’s where I struggled.

Tony:
But how does it feel now to be holding this book in your hands?

Ashley:
Yeah, it’s still very surreal. So last night was really my first event with handing out copies. So someone came up to me to have them sign a copy and I was so excited. I was giddy and I take the book and I open it and Tony and Sara had already signed the copy of the book, but that just made for the best story ever. It was pretty great.

Tony:
She came up to me first. She’s like, “Can you sign my book?” I was like, “I didn’t write this.” She’s like, “I know, it’s okay. I just want you to sign it anyway.” I was like, “Okay, cool.”

Ashley:
Yeah, yeah, it was really funny. It was awesome. Yeah, so this book, it contains a lot of information about getting started in real estate investing. Everything that you read in this book, you can find on the internet. You can talk to other investors. The problem with real estate is there is so much information out there, information overload. There’s so many different strategies, so many different ways to finance a deal, to get a deal, all these different things. So what I tried to do is to build out these are the steps that you’re going to take and when you get to each step, think about these different scenarios or these different options and then you’re going to be able to build out what’s best for you. There’s homework. There’s checklists. We did a pre-order. If you were part of the pre-order, you got a whole bunch of these actual worksheets included in it.

Tony:
Yeah. So what are we going to talk about today? We got a nice slew of topics to talk about to get people ready for the new year.

Ashley:
So the topic that I picked out of the book, we’re going to dive deep into one of the chapters. This one is building a business. So real estate investing can oftentimes be a hobby or a side hustle to somebody. I really think it is important to run it like a business, so even if it’s just you’re purchasing your first property. It’s one property. It may not seem like it’s a business. You may be putting it into your personal name and not even opening an LLC. We’re going to talk about the reasons why you should still operate your rental property, your investment property, your flip, or whatever strategy you’re doing as a business.

Tony:
I think it’s so important for Rookie listeners to hear this because the best time to start treating it like a business is at the beginning. It is so much easier to set yourself up the right way when you have one property versus 30. We both experienced that where it’s like, oh man, if I would’ve done this a year ago, it would’ve been such a big difference and my business might be even further than it is had I done these things from the get go.

Ashley:
Because then you catch yourself having to backtrack and then you have to stop your growing and scaling and take time to, okay, we got to implement these things, put this in order.

Tony:
That’s literally where we’re at right now in our business where we’ve scaled so crazily over the past couple of years that the things that worked when we had five units aren’t working at 30. It’s like, okay, we need to stop before we add more units into the system because the system’s going to break. Now we’re going back and saying, “Okay, where are the things that are broken? How do we fix those? How are we supposed to make it more efficient?” So I think had we had those discussions early on, we could have saved ourselves.

Ashley:
Yeah, I met an investor last night at the meetup who was saying that this year, her goal, she’s not even going to buy any properties. She just wants to stabilize the large portfolio that she already has. She’s just grown and scaled so much and purchased so many properties that she’s like, I know that I can maximize my cash flow more. I know that I can make this more efficient and actually make more money off of them. I am just all over the place, so I’m going to take the time to really stabilize those properties so I know exactly this is my cash flow that I’m going to be getting, instead of constantly moving money around and upcoming repairs and expenses and just getting a better handle on how she’s running her systems and processes. Because when you have these things in place, it does save you money by doing some of these things.
For example, if you get a call that you need to have a toilet fixed or whatever, if you don’t have a contractor in place or somebody that you go to, you’re wasting time trying to find somebody, find somebody you never worked with them before, they’re maybe going to charge you a huge amount because they know it’s an emergency instead of already having that contact in place. Just simple things like that may save you money and you don’t even realize it. Or just taking the time to reevaluate your insurance every year. Am I still getting the coverage that I need? Do I need to shop my insurance out to actually save money? But that takes time and those are such easy things to be like just, every year, “Yep, my premium is paid, automatically deducted. Everything is good,” and not reevaluating things like that.

Tony:
Yeah, I think the biggest thing is treating your real estate investing like a business and not a hobby. And so many people come into this, especially rookies, where they’re so focused on and rightfully so around analyzing the deals and funding and all these other things, but what are the systems we need to put in place so that it is an actual business and not just a real estate investment? Because at the end of the day, we are still entrepreneurs. We’re entrepreneurs and it just happens to be that we’re in the real estate space. But if you talk to every other entrepreneur, they’re not just focused on building the widget. They’re focused on building the business that builds the widgets, right?

Ashley:
Yeah. I think before you even get too focused on building out the business system, you have to look at yourself too. As a new investor, it’s mostly likely going to be just you starting out. So one thing I highly recommend you do is do a time tracker on yourself. So one of the reasons you could be holding yourself back from getting started is that you don’t think that you have time. So I’d like to challenge you guys to do a time tracker where for the next week, even the next two weeks, you are tracking everything you do. So you wake up, you ready for work, you eat breakfast, you drive to work. You could even break down your work. If you have a W2 job, what you’re doing there to see if maybe there’s room to actually maximize your performance there.
Then when you get home from work, is it an hour of Netflix? Is it, oh my gosh, 30 minutes have been gone and I’m scrolling on Instagram? Is it I’m cleaning and that’s something that’s actually affordable for you to outsource and you know would make a better return of actually taking your time to find real estate, look at deals, analyze deals? So doing that time tracker can help you figure out where your wasted time is going and where you can find time to invest in real estate. Then once you actively have your property too, then you can take it a step further and see what are the time wasters. What are the things that I’m doing that are actually helping me move forward? So back to the cleaning example of your house. If you’re not finding time to analyze deals, you can outsource that. But if you take it into the business, one thing, and we’ll talk about this maybe later on in this episode about outsourcing, what are some things in the business you can outsource where you have a better chance of doing something else that’s going to bring that bigger return?

Tony:
So many good points and we’ve got a long slate of super important things to talk about. So you want to jump into the first one?

Ashley:
Yeah, yeah.

Tony:
Okay, cool. So we’ve got a lot of really good things to talk about today. So I want to jump into our next point here, which is financials. What’s your advice, Ashley, to all those rookies out there that are wrapped… First, define financials. Before we can talk about why, just what is it?

Ashley:
Okay, so your financials is basically the overview health of your business and it’s showing where the money is going. The two things that I think are super important to be able to read as far as financial statements go, and there are a ton of different financial statements; you can pull your cash flow report, you can pull a detailed rental income report showing what each tenant is paying, all these different financial reports, but the two that I think are most important to learn as a rookie investor is the profit and loss statement and also the balance sheet. So the profit and loss statement is going to show your total income that you’re receiving, so this would be your rental income, any pet fees, any other monthly charges or charges that you’re bringing in. Then your expenses are going to be what you pay for that property, so your property taxes, your insurance, any repairs or maintenance.
So any cash that you are paying out for the property, that is a tax write off that is directly an expense for that property, so even professional fees when you purchase the property, paying an attorney for that. And then the profit and loss is going to show at the bottom what your net income or your net loss is. So in a profit and loss statement, one thing to realize is this does not include any debt repayment. So your net income or your profit and loss, whatever that bottom line is, is going to be different than what your actual cash flow is. Then when you go into your taxes, one of the greatest tax advantages of being a real estate investor is depreciation. So your accountant, your CPA, will add in that depreciation, which isn’t actually cash coming out of your pocket in that year. So it’s important to know the difference between your cash flow because the cash flow is actually cash coming in and out, where your profit and loss is actually for tax purposes, mostly, and also underwriters, if you’re going to get loans who will want to see your profit.

Tony:
That’s interesting. I actually do show my mortgage payments on my profit and loss statement.

Ashley:
It would be the interest.

Tony:
So we show the principal and the interest as separate line items and then our taxes and insurance as well.

Ashley:
But when you do your tax return, when you do the profit and loss, the principal payments wouldn’t be on profit and loss.

Tony:
Wouldn’t be applied. Yeah, right, right.

Ashley:
So the interest, you can write off as an expense on the profit and loss, but not that principal payment of the mortgage payment.

Tony:
Well for me, I just like to see at the end of the month, okay, how did this property do?

Ashley:
Yeah, so really you’re doing an, even though you’re pulling a profit and loss statement, it really is a cash flow statement. Yeah, because doesn’t you don’t include depreciation.

Tony:
We don’t include that.

Ashley:
Yeah, yeah. Wait till that end of the year. Yeah, that would basically be the cash flow statement then. See, you’re learning new things. And then the other item is the balance sheet. So this is going to list your assets and your liabilities. So if you have ever figured out your net worth, this is somewhat similar. So how much cash is in your bank account? What did you purchase the property for? And then any liabilities. So what’s your mortgage amount for? Any other liabilities you have? Maybe you have a private money lender, things like that, or maybe you owe a vendor money. That would go under accounts payable, which would be listed on there. Then you’re taking your assets and you’re subtracting your liabilities from that to show your-

Tony:
How often are you pulling your balance sheet?

Ashley:
Actually, I really don’t. I like to look at the dashboard to look at what my bank account balances are, but I really don’t look at my balance sheet except for at the end of the year.

Tony:
I almost never did either, but we just hired a new bookkeeper and she now sends it out monthly. That’s been cool to see because I never really looked at it before, but she’s doing it on a monthly basis.

Ashley:
The thing that’s nice too is when you have a bookkeeper too, or even if you’re doing it yourself, is when you take the time every single month. So when you are making that loan payment, you’re separating the interest to show the interest is an expense, but then you’re also taking that principal paydown and you’re taking that principal paydown and subtracting it from your mortgage so that when you do get that snapshot, you’re seeing, wow, my mortgage balance is this exact amount every single month. There are a lot of people I see that do it at the end of the year. So they just throw those payments all into the mortgage paydowns, your balance looks low, and then at the end of the year, their bookkeeper accountant will go in and do that adjustment and move the interest to the interest line item. But then instead of doing it every single month, they’re doing it at the end of the year.

Tony:
I think this is why it’s super important to have a good bookkeeper. We had a virtual assistant as our bookkeeper for a while and she did a great, I think when our business was smaller, but as it’s scaled, I think it was way more complex than I have the knowledge to even teach her how to do these things. So we just recently invested in a much more expensive, someone who’s based here stateside, bookkeeper and she’s been with us for maybe two and a half months now. It’s already been a world of a difference, reporting, the accuracy of our books and hopefully come tax time, it’ll be so much easier to do our prep because the books are much cleaner.

Ashley:
Right and they’re just up to date. You don’t have that shoebox of receipts that at the end of the year you’re handing to your accountant, “Here’s everything I bought.”

Tony:
Try and figure it out.

Ashley:
“I wrote down they paid $600 per month times 12, so that’s how much income I had.” And then also when you’re doing your bookkeeping as doing those monthly bank reconciliations. So two great tools for investors to use to actually track all of their income and expenses and their financials is QuickBooks or Stessa. So QuickBooks is great, but it is used by so many different businesses. So if you are hiring somebody who has knowledge of QuickBooks, great, let them run with it. But if you’re going to do it yourself and you don’t have a lot of knowledge on bookkeeping, I highly recommend Stessa, that’s S-T-E-S-S-A, so assets spelled that backwards.

Tony:
I literally didn’t learn that until after a year of using it.

Ashley:
I know, and I feel like everybody was like… It blew everybody’s fine. But that is targeted towards real estate investors and it’s very specific so that you’re not overwhelmed with all these different choices of, okay, what should I label this expense for?

Tony:
I’ve been thinking about playing around with a short-term rental specific bookkeeping software because I love Stessa, but it was geared more towards traditional long-term rentals. As a short-term rental operator, I felt like there was some gaps there. So I don’t know, if you guys think I should launch a short-term mental accounting software, let me know.

Ashley:
I think that’s a huge yes. Actually at the meet up last night, me and Sara were having a conversation with someone about how the short-term rental market is still behind in software.

Tony:
Totally.

Ashley:
How it has definitely grown, but there still are a lot of gaps in it too. Then another guy was talking about medium-term rentals now, how there’s nothing that is specific to that. You’re juggling at least two different softwares to get that done.

Tony:
So if you’re a developer and you want to work with me on building this out, hit me up. All right, should we talk about maybe budgeting? What are your thoughts on budgeting as a rental investor?

Ashley:
So I think we harp on all the time as having those cash reserves and knowing what your monthly expenses are so that if you are not getting rental income, you can plan to pull out of your cash reserves to budget for it. So as your portfolio grows, this gets more complex, especially if you start bringing on team members and having a payroll to cover and having other people to pay. But as far as your set monthly expenses, you should know what that number is by looking at your profit and loss and knowing, okay, every month I know what these fixed expenses are.
So if you’re using the BiggerPockets calculator, when you ran your numbers on that deal, you already know. Then you have your variable expenses and that’s where you should be keeping an eye on how much extra am I actually spending from, maybe there’s a capital improvement coming on or a big repair or something that I didn’t expect, and planning ahead for some of those big ticket items. Or if you have that big ticket item, how are you going to pay back your reserves and replenish that reserve account too?

Tony:
Yeah, I think it’s such a small nuance, but super important because I think so many people forget about a lot of those expenses and especially outside of your normal operating expenses. We talked about this in a reply yesterday around just if you know that you’re buying a property that’s, I don’t know, 25 years old and the roof has never been replaced, maybe at some point you start thinking about setting money aside for the roof, right? Everything in your property has some level of serviceable life, your water heater, your appliances. We have to replace a garage door opener at one of our other properties. There’s so many little things that pop up. So keeping money set aside for those expenses that are non-regular is something a lot of rookies I think forget about.

Ashley:
And we had a question recently asking for the reserves account, how many accounts are people actually having? Are you setting the 10% vacancy reserves in one account, the repairs and maintenance savings in another, the capital improvements in another? Really, I think that’s a personal decision as to how well you can have self-control of, wow, there’s a thousand dollars in my account. You know what? I can actually take out some more cash flow this month. And then it’s like, oh, those were cash reserves. I’ll pay them back at some time. But if it’s out of sight, out of mind and you need it in that separate account that it’s not super accessible at, then yeah, you do that. So I think that’s more of a personal decision.

Tony:
We set ours up so that we have one reserve account for each property. So every property has its own operating expense account and then each property has its own reserves account. That way we have some separation because I don’t know, just for us, it makes-

Ashley:
And plus you have multiple different partners.

Tony:
Different partners as well. We almost have to set it up that way. Actually, for our properties that we don’t have partners on, we just have one reserve account for all of them. So I guess it depends on the partnership.

Ashley:
Yeah, that’s the same with me for my personal property. I just keep it into that LLC and then each partner have the different LLCs and we keep a minimum balance in those accounts.

Tony:
So let me ask you this question because it’s something we’ve been talking about recently, as well. We have a big bill that can’t be from one of the properties. I can’t remember what it was, but it ate up a lot at the reserves and we’re having discussions in terms of like, okay, do we just stop taking cash flow from the property until we build the reserves up? Or do we just continue putting away the five, 10% that we usually do? What do you do when you deplete your reserves?

Ashley:
I let it build back up. I stop taking… First of all, I really don’t take any cash flow out of my rentals. I reinvest it right now, but I build it back up to keep that minimum threshold because it gets replenished faster.

Tony:
So much faster.

Ashley:
And I just sleep better. Yeah, yeah, yeah.

Tony:
And that’s the conversation we’re having some of our partners. It’s like, hey, we know the next three months might be a little quiet, but after that, we’ll all feel better.

Ashley:
And actually, I’ve even moved money out of my personal account into it, so did a owner’s contribution into the LLC to replenish it back to that month. That shows on the financials that I took that cash flow out, I put some back in and then it doesn’t-

Tony:
That’s a smart way to do, right? You just replenish it and then just let yourself get paid back from the cash flow.

Ashley:
And also, you can do it instead of a owner’s contribution, you could also do it as the LLC owes you that money back too, that it’s a loan. So you set it up as an accounts payable, so the LLC owns you, pays you money. So that’s what we’ve done with my one partner, Joe, and one of our LLCs where we both put in some money and we actually set it up as loan payables back to ourselves and we’re earning 5 1/2% interest on that money we lent to the LLC. We get $302 each direct deposited into our bank account.

Tony:
That’s pretty smart though.

Ashley:
Instead of taking cash flow, I get a couple payments back of money that I’ve put into the property then.

Tony:
All right. Not to go too far off on a tangent, but now that money that you’re getting back, it’s no longer an owner’s distribution, but it’s active income on that-

Ashley:
The interest.

Tony:
Right, just the interest.

Ashley:
On the interest, yeah.

Tony:
Okay. All right. Interesting. There you go. So let’s talk a little bit about, on the same thread, you said you put some money in, but what are your thoughts on intermingling your personal finances with the business finances? Is it a hard line for you? Do you just have everything blended in together? I know some investors are like I have one account and all my business stuff is coming out of this account, all my personal stuff is coming out of this account. It’s all the same thing.

Ashley:
If you have an LLC or a corporation, 100%, you have to keep it separate because or else you’re piercing that corporate veil that opens you up to liability. If you get sued, someone can say, “Well yeah, even though this property is owned by an LLC, the rental incomes are going into Tony Robinson’s personal account,” and that opens you up to a lot of liability. Where if you have the property in your personal name, you can co-mingle those funds by having it in the personal account that you do just have to track which ones are for business, which ones are for personal. I still prefer, even when I had my rental properties in my own name, I opened just a second checking account in my personal name and just had it labeled Ashley Properties.
I still did all of the transactions through that, just because it’s easier on the bookkeeping because all of those expenses, all that income is for the property, instead of having to go through your bank statement every month and highlight this was for groceries, this was, oh, this was for repairs or you know what? I can’t remember. I had the plumber come to my house and I had them go to the property, which one was which. So I think it’s definitely easier on you, but also if you have the LLC or the corporation, you have to keep them separate. Then with a credit card too, I think it is so much easier to open a credit card that is specifically for your business. So you could open your credit card in your personal name and you could put the expenses on it, and then the company just reimburse you for those expenses you did. But for me, just the same thing of having to go through your credit card statement and highlighting this was for personal, this was for business.

Tony:
And the amount of effort it takes to open up that business account is so exceptionally level and in a lot of places you can get it for free. It’s like why wouldn’t you do it?

Ashley:
Think of all the points. You get the points too.

Tony:
So for us, we have a few credit cards for our business. We have one personal card, but we only use it for business expenses. So even though it’s in Tony Robinson’s name, all the charges on there are business charges. we also have business named credit cards. We have both, but same. And then I have a separate credit card that’s in my name, but just for personal stuff. But same thing, I never try and co-mingle those two because the bookkeeping is just so difficult to maintain and you make it harder on yourself, make it harder on your bookkeeper, make it harder at the end of the year when you’re doing your taxes. But just having that one account, you know everything is going to be for the business.

Ashley:
And if you have a bunch of different LLCs, having those separate credit cards for the LLCs too, so it’s not like, oh, I only have this credit card, but it goes to this LLC, so now this LLC owes this LLC money. There’s been circumstances where I’m at Lowe’s and it’s like, ugh, I don’t have the right credit card. What do I do? So I pay for it that I have to make notes to reimburse and I go home, transfer the money from that one to the other one.

Tony:
That’s the only downside is when you’re doing… Like for example, we just bought 30… There’s these devices we buy for our short-term rentals. We had to buy almost 30 of them. Each one was for a different property. Every property has its own account. we’re like, man, what is the best way to buy this? So essentially, we just paid for it once with our main business credit card, and we had to make payments, transfers from all the different property account. So it can get complicated sometimes, but I feel like in the long haul it makes more sense.

Ashley:
We’ll talk about, we can go into this now if you want, is talking about the bookkeeping and even outsourcing. What are some things you can outsource? That right there is a very easy example of something that you can outsource is if you are going to have multiple properties or multiple LLCs is how can you break out some of those expenses that apply to all the different properties? When I started self managing, I had my partnerships and I was doing all the self-managing. It got to the point where, okay, I’m doing a lot more work and there’s these expenses. I’m not going to go to the post office and buy a roll of stamps and then invoice each LLC for a third of the price of the stamps because I’m going to use the stamps for all of the mailings.
I’m not going to go and buy three different stamps and then oh, I got to make sure this stamp goes to this LLC. So what I did was I created a development company that acted as a property management company almost. So there was a property management fee paid to the management company that would cover a lot of that overhead that was spread out between the other ones. Then it wasn’t having to detail the breakdown of which ones do these go. But if you have several properties and then LLC them… Maybe you are updating your leases and you pay an attorney that lease fee, then you can go through and you can break out that payment to each property, so it’s divided out equally.

Tony:
See, I just want to talk a little bit about the outsourcing the bookkeeper piece because we’ve done that a few different ways. Initially, I was a bookkeeper in our business, which was not sustainable in any way, shape, or form. Then we hired someone overseas who was in the Philippines to take on our books. And more recently, we’ve hired someone here at stateside. Each phase has its own pluses and minuses, but here’s what I’ll say. If you do want to hire someone virtually overseas, they’re exceptionally inexpensive. I think we were paying our bookkeeper like six bucks an hour, which is crazy.

Ashley:
How long would you-

Tony:
We had her for two years.

Ashley:
But I mean, how much would it take her to do your books? How many hours a week?

Tony:
I think we had her capped at 20 hours a week, so it wasn’t even full-time work. I don’t even think she was hitting 20 hours every week. It depended. When we first started, she wasn’t. Now, she was, I think, working close to 40 hours a week. But the issue with going overseas is that you, as the owner, are the cap on how effective that person is. So they’re only going to be as effective as you can train them and teach them to be. I am not a CPA, so there were so many different things that were happening in our business that I didn’t have the technical understanding to educate her, RVA, on how to do that correctly. So now when we hired this professional bookkeeper, she came in, she’s like, “Tony, your books are a mess.” And I’m like, “Yeah, I can totally understand that,” but it’s because I didn’t give RVA the correct knowledge because I’m not a professional bookkeeper. I’m not a CPA.
So I was like, eh, just do this. Ah, just do that. You do that for a year, your books become a mess. So anyway, my point to the rookies is if you do want to go with the virtual assistant, I think it’s fine, but limit their scope to match your level of expertise. So now RVA, the only thing she really does, is take the receipts and apply them to the expenses. That’s all she does. I think she’s also downloaded mortgage statements and things like that. But anything beyond that, now it’s our stateside bookkeeper because she has the knowledge, she has the expertise, to really do that correctly.

Ashley:
So we kind of talked about having a key person, a bookkeeper, and then also the financials and how to track that and different ways you can use software. So I want to touch on more software because it can change your life as a real estate investor, just make your life so much easier. So first is project management software. So we both use monday.com.

Tony:
Love Monday. Monday, sponsor us, please.

Ashley:
Yeah. So monday.com, as you build out these boards where you can create checklists, you can track performance, KPIs, you can track your rehab, all of these different templates that you build out that you can use over and over again. Another one that I’ve used before is Asana. So actually, any of you listening, if you’re in the Real Estate Rookie Bootcamp, you do have… Actually, I created a template for a rehab that you can actually use for Asana. I had pulled it right out of there, but you can even take that information and build it into a Monday board or something like that too. Then another one that goes along with that is Loom.

Tony:
I was just about to say that.

Ashley:
So your operations manager actually sent me a Loom today of one of your Monday boards with a checklist.

Tony:
There you go. Yeah, I mean, so Loom, it’s a digital software on your computer. You can even do it on your phone. It allows you to record your screen and your voice while you do some kind of task on the computer. Loom has been so instrumental in our ability to systematize and create repeatable processes in our business because now whenever we do something, we record a quick video then we can share with everybody. Now here’s the process to use Loom effectively with Monday and this is what we’re doing in our business right now. It takes a lot of discipline from you as the investor to really build this out the right way. But what we do is, for example, what’s something that I just recently had to do? I had to send a payment to one of our vendors. Instead of me just hopping on there and doing it, I slowed down for a second, turned on Loom, hit record, and said, “Okay, here’s how you send a payment to a vendor through our business banking account.”
I go through all the steps, hit done, finish recording, and now I take that, I share with my team and I add it to a Monday board. And now the next time it happens, I can send it to my assistant and say, “Hey, send a payment to this person. Watch this Loom.” It sounds super simple, but there’s so many things you do as a real estate investor during the day for your business that you don’t realize can be systematized and repeated by someone else. You think that it’s only you because you’ve been doing it, but when you take the time to explain to someone, record it and document it, now anyone can do it. So we use-

Ashley:
Yeah. And being able to watch and listen is more effective than them reading the steps too, as to how to do something. We had Shelby Osborne, or she was on the OG podcast, and she talked about how every time she did something for the first time, she created a checklist off of it so that she never had to do anything twice and just remember how to do it because she always had a checklist that she would pull from to do it. She had set up these amazing systems and processes to make her into this very successful investor.

Tony:
Yeah, and Ash, you make a great point, because when you’re building your business, there’s all this, we call it tribal knowledge, where it’s inside of my head, it’s inside of your head, and if you need to do it, you can knock it out quickly. But tribal knowledge doesn’t translate well when you have new people you’re bringing on to the team and it makes it so difficult to outsource. So taking that extra five minutes to just hit record on Loom, type up a description and share with somebody else, now you’ve got this library of repeatable tasks you can hand off to other people.

Ashley:
And you’re already doing it instead of when it comes up and you want them to do it, of stopping what you’re doing and having to show them to do it. So yeah, it definitely a huge advantage. Another software that I want to go over is property management software. So I’ll maybe go over long term and you can share short term?

Tony:
Yeah.

Ashley:
Okay, so some of my favorites is of course, if you were a pro member for BiggerPockets, you can use RentRedi for free. It’s fully integrated with your BiggerPockets account, and it’s a great property management software. Some of the other ones I like are Buildium, AppFolio, and they’re more geared towards if you have over 50 units for your properties. And then there’s also avail.com too, or .co, avail.co. This rental property software is going to make it so much more effective and efficient for you.
Tenants can pay online. Maintenance requests can be submitted online. You can sign leases electronically. You can track your expenses through there. You can even in AppFolio, you can pay invoices with a click of a button. It has an online banking system fully integrated into it. You can then, once you receive maintenance requests, outsource that by sending an email. You can set up call centers through some of these where you’re not even receiving calls from your tenants anymore. They’re calling the call center where you have created these tasks, almost like we just talked about in Loom. You’re creating these tasks that at the call center, they’ll go through these steps when somebody calls to resolve the issue or they’ll outsource it to one of your contractors.

Tony:
Wait, so this is crazy. I didn’t know that they did that. So what you’re saying is that if you sign up for whatever company this is, they’ll give you a call center phone number, and then your tenants call that number and whoever’s on the other line will try and troubleshoot whatever issue it is that they have? That way your team, your boots on the ground, doesn’t have to deal with it?

Ashley:
Yeah. So you can call and RentRedi has this as an option, they’re added on features, but you’ll get your own specific unique phone number so that when the call is incoming, they know that it is for your property. They’ll take the tenant’s information and say the tenant is, “My outlets aren’t working in my kitchen.” They will say, “Okay, well can you go to the electric panel, check the breaker, do the breaker flip, and then we’ll take them through that process.” Then if it doesn’t resolve the issue, they’ll look at your vendor list and they’ll say, “Okay, you know what? We’re going to contact this electrician. They will give you a call to set up maintenance to schedule it.” So they document this whole thing, you get an email updating, letting you know there was this maintenance request come in and that they contacted the vendor, your preferred vendor, for that.

Tony:
That’s amazing.

Ashley:
It gets sent out. Yeah.

Tony:
That’s shockingly good.

Ashley:
Yeah. Property management software has come such a long way that I feel like you can do so much automation and just sit back and not even have a face to the person either. Even with doing showings, you can set it up now where you put a key code on the lock, you have the person schedule their showing. Some of the software has that capability where you set available times, whether you’re going to do it in person or if they’re going to go and show themselves. So you give them a window, here’s a code unique to you, please upload a photo of your license. And then especially if it’s a single family, you already have that Ring camera on there. You can see them coming in. But if not, you have their license, then you enter the key code. If they’re seeing the apartment and it’s a long-term rental, it’s vacant.
I mean, it’s not like they can steal anything from it or things like that. So then you have their code available for that hour window, and then the code erases so they can’t get back into the property. You send them the application online, they fill it out, okay, they’re approved. You do their screening online. You then send them to their lease to e-sign, and then the day they want to move in, they pay online for their payment. It goes through, okay, here’s your code to access your property. There’s so many cool ways to take advantage of technology for managing your rental.

Tony:
That’s crazy. I love that. I love hearing that. Well, let me talk on the short-term rental side. There’s a few property management softwares out there for short-term rentals as well. Some big ones are Guesty, Hospitable, OwnerRez is another big one. So there’s quite a few out there.

Ashley:
I just started using Hostfully.

Tony:
Yeah, Hostfully, as well. We use Hostfully for our digital guidebook, but they also have a property management arm as well. And same as you, they allow for so much automation around the guest communication. So right now our guests get a pre-built series of, I think, nine or 10 messages from the time that they book until the time, even after they check out. We don’t have to say anything to them. They get all the instructions on how to check in. They get instructions on how to use the property. They get instructions on what’s due when they need to check out. They get reminders to review the property once they leave. So all of that is automated.

Ashley:
Do you do any videos as to how they can use things?

Tony:
Oh, yeah.

Ashley:
Yeah?

Tony:
Oh, yeah. So we actually use Hostfully for that. So we have a digital guidebook, another great piece of software you guys should be using, and in our digital guidebook, it’s essentially video and written instructions for the entire property. So we’ll talk about, Hey, here’s how to use the hydraulic lift cover for the hot tub so you don’t break it. Here’s how to drive down the property when it’s nighttime and you can’t really find the driveway. We have all kinds of little videos to help people better use the property.

Ashley:
How to drive down the property?

Tony:
So we have one property where at nighttime it sits so far back from the road that you can’t see the property and people just drive past it all the time. So we have to say, “Hey, here’s this mailbox right here. If you see this mailbox, even though it’s not the numbers, this is the…” So anyway, we have to give instructions like that. And so yeah, it automates all the guest communication. We also use a lot of software around pricing. So pricing and managing your pricing is literally a full-time job at this point. We just hired two virtual assistants, actually, to help with our pricing as well. But there’s software that helps you optimize your listing’s pricing by looking at demand signals, by looking at supply, by looking at what your competitors are charging and so many other things to help make sure you’re maximizing your revenue.

Ashley:
Awesome. Cool. I wanted to go through some apps too as real estate investors that you can use. So the first one is Personal Capital. This is a personal finance app where you can actually link your bank accounts, your mortgages, even your property values, which they’ll take the Zillow’s Zestimate that we all know isn’t very accurate, but you can manually update it. And basically, it’s giving you a snapshot of your net worth. So it’s really cool. You can just refresh it every morning, see what your balances are at. You connect your mortgage account, it shows you what that balance is, how much you know still owe on your property, what your bank accounts are at. You can add your personal, you can add your business into there. So I find it very valuable to keep just a eye shot on what your financials are.

Tony:
I’ve used Personal Capital a little bit. My only knock, and I actually messaged their support team to ask about this, and they’re like, “Yeah, it’s not a feature yet,” was partial ownership in properties. Because I have so many properties where I own a percentage of them, so my net worth looks super inflated. I’m like, God dang, I’m rich. But in reality, it’s like, no, I’m only this much. That’s the only thing. But you can still go in and manually do that math to figure out what it is, but the fact that it updates automatically is super cool.

Ashley:
So another one has some time tracking tools for mileage. So QuickBooks has one that’s integrated called Time, and then-

Tony:
I use one called the MileIQ. I think Microsoft makes that. And that one’s cool because it automatically tracks all of your drives, so you don’t have to really log it. You just have to swipe left to whether it’s business or personal.

Ashley:
And then as far as organization and file management, the softwares we talked about for bookkeeping and for property management, they’re amazing and you can store all of your files in there, but the day that you decide to stop paying, it is extremely difficult to get all of those documents out. So I highly recommend storing your receipts, your leases, all your documents in a separate cloud storage.

Tony:
That’s why Monday’s cool though, because it allows you to attach the file directly to Monday or you can link to the Google Drive file. So what we do is we upload it to Google Drive and then attach that inside.

Ashley:
And link it, yeah, so it’s not like doing that double. Yeah. And then Google Voice is something else we use too for our business phone number. So when I was self-managing, that was what the tenants would call, that Google Voice number. So it’s integrated to my cell phone. You can hook it to a ton of other people’s cell phones. So right now we use it mostly for deal sourcing, so leads on deals and then short-term rentals, if for some reason somebody’s staying in a short-term rental has a problem, but it actually will ring to my phone and to my business partner, Daryl’s, phone at the same time. We have it set up so that it comes up saying that our development company has a phone call so that we know it’s not someone calling us personally, it’s our Google Voice number that’s calling. You can text through it, you can set up your own voicemail box through it and it’s free. I mean you can pay for added features, but free works.

Tony:
Yeah, we use it for our short term rentals too, and even our VAs have access to it, which is cool because they’re overseas and they still have access to everything that we would here at stateside.

Ashley:
Yeah, that’s a great point. I never thought about it being an advantage for that. And the other thing too I want to talk about is deal sourcing. So BiggerPockets just partnered with Invelo, which you can go through and find out information about properties, get leads on properties, and then there’s PropStream too, where it’s kind of the same thing, finding information to get those deals done. They both have apps that you can use. But BiggerPockets just partnered with Invelo, so if you’re a pro member, you get it. I think with the free version, you get pretty much everything you need as a rookie investor and then they have the added on features you can pay for, like anything else.
And then there’s an app that actually James Dainard showed me. So when he is rehabbing a property to flip, he’ll go through and do a punch list. So he’ll go through and blue tape everything. So when the contractors say that they are all done with the property, he goes through and tells them what actually still needs to be fixed. So maybe there’s a chip in a cabinet that needs some wood putty and a little touch up paint or they missed spots on the wall or there’s a piece of tile that isn’t installed correctly and is crooked, things like that and instead of just blue taping everything, because you can blue tape everything, you can leave, tell your contractor it’s blue taped. You come back, all the tape is ripped off, but what actually did we blue tape? There were so many.

Tony:
Right. What was there?

Ashley:
So what this app does on Punch List is you actually take a picture. So you can take a picture of the paint on the wall where you want it redone, and then you just add notes like, “Repaint living room wall on west side of house.” Then you go through and do all that and then you can actually print it from the app and then you give that list to your contractor and you have a copy of that too.

Tony:
We’re sitting in an Airbnb right now and I’m looking at this light switch over here and it’s actually sideways. I can tell this house has been renovated and I wonder if that was on their punch list and just no one ever noticed. It just got stuck that way.

Ashley:
Okay. And then another one that integrates with the Google Suite, so it links with my Google Calendar, is using Tasks. So just an easy, fast, simple way if somebody tells me something and I’m like, oh yeah, I have to do that. Just typing it into Tasks and then being able to check it off and then it disappears into the completed thing is just satisfaction.

Tony:
Totally.

Ashley:
And one of the last things that I forgot that I added on here as a joke and it’s still on here is you want some excitement in your life between end of August to January, download NFL Fantasy.

Tony:
There you go. That’s all you need to keep you sane.

Ashley:
Actually, surprisingly, you might find this pretty shocking, I’m actually number two in my league right now. Yeah.

Tony:
I played fantasy one time and I actually ended up winning the league and I just retired after that. I was like, that’s all I need.

Ashley:
Last year was my first year and I did awful, but this year, I am focused.

Tony:
There you go. Make it happen.

Ashley:
Well Tony, thank you for having me onto your show to talk about my new book.

Tony:
I appreciate you coming on. I’m sure the Rookie audience is going to love getting to know you a little bit more.

Ashley:
And you can find out some more information about me at WealthFromRentals on Instagram and check out my new book Real Estate Rookie: 90 Days to Your First Investment on the BiggerPockets Bookstore.

Tony:
And I just want to say, Ashley’s had tons of students to this point go through the 90 day bootcamp and we’ve had so many students that have had an amazing amount of success from that bootcamp. So now with the book, you guys are going to get that widespread. So if you haven’t picked up a copy, make sure you guys do.

Ashley:
Thank you, Tony. I appreciate that. So when this comes out, the book is actually still available for pre-order and if you pre-order through the BiggerPockets Bookstore, there’s actually some extra bonus items you get. Some of those are the worksheets from the bootcamp and a couple added that weren’t even in the bootcamp. Then also, you could win a three night stay in my A-Frame to come and visit in Buffalo and stay in the property and critique me as to things I could be doing in a short-term rental and say, “Tony would have a better ply toilet paper.”

Tony:
Charmin Ultra Soft.

Ashley:
Yeah, yeah. But the most exciting thing I think about the bonus content is that we are actually going to select somebody, well, it’s a sweepstakes, so somebody will be randomly selected who had pre-ordered the book to be our mentee. So we’re starting in this new episode series where we’re bringing on three mentees each quarter and we’re going to mentor them with whatever they need help with. So that could be. You could be one of the three mentees for a quarter two of 2023. You get to record with us on the podcast and basically be our best friends for three months. If you guys do decide you want to pre-order, we do have a 10% discount code. So you can either put in Ashley or Tony and we will definitely ask to see who you guys put in to know who you guys like better.

Tony:
Put Tony’s name because she’s already getting royalties on the books, so you can use my name.

Ashley:
You do realize you’re not getting any affiliate income off of that, Tony.

Tony:
I guess, nevermind. It doesn’t matter then.

Ashley:
I don’t think so, at least. We’ll make Tony feel good and it’s shorter to spell. You can check out faster. Thank you guys so much for joining us. I’m Ashley at Wealth From Rentals and he’s Tony at Tony J. Robinson and we will be back with an actual guest to provide you guys with more value. See you guys next time.

David:
This is the BiggerPockets Podcast show 710.

Antoinette:
If my goal is to keep this property forever and have it produce the max income that it can, that’s first priority. It can never be to, “Oh, it’s not working out with the city anymore. Time to sell.” No, I committed to this property. We are in a relationship. I said I was never letting it go so I had to find something else. It was the only option to me.

David:
What’s up, everyone? This is David Greene, your host of the BiggerPockets Podcast here today with my co-host, Rob Abasolo, bringing another great episode that is both inspirational, tactical, and practical. And yes, that rhymed too.
Today’s guest is Antoinette Munroe who has a fascinating story. She started off as a short-term rental investor, and then found out the area that she had bought these properties was going to make it very difficult or even impossible to manage them. And what she did to pivot ended up making her even more money than she was making before. You’re going to love it. You don’t want to miss today’s show. Rob, what was some of your favorite parts of Antoinette’s story?

Rob:
I think it’s always really nice to see how quickly someone can learn to change their strategy. A lot of people go into real estate with just one strategy. They’re laser-focused, but they don’t really bake in the contingency plans. And it was just really awesome to see Antoinette. It’s not like she necessarily had a contingency plan, but she adapted. And because she adapted, she’s actually making a lot more money now. So it’s just very fun to dig into that story.

David:
All right. Before we get to Antoinette, today’s quick tip is don’t despair when things go wrong. Ask yourself how you can pivot. Oftentimes, there’s an answer just on the other side of your problem. And if you just think a little differently, it will jump out. Antoinette didn’t have anyone else that told her what to do when regulations shut down her short-term rental. She thought on her own because she listens to lots of podcasts. So fill your mind with information, fill your tool belt with tools, and when things go wrong, you don’t have to freak out. The answer is often right on the other side of a pivot.
That being said, let’s bring an Antoinette. Antoinette Munroe, welcome to the BiggerPockets Podcast. How are you today?

Antoinette:
I’m amazing. Thank you guys for having me.

David:
Yeah, thank you for being here. Now, I understand you’ve already been on the BP Money Show. That was episode 295 if anybody would like to go listen to your interview there. Before we get into your story, I just want to ask, what was it like being interviewed on the BiggerPockets Money Show?

Antoinette:
It was like my holy grail. I’m a finance nerd first. So coming from the FIRE movement, or that’s Financial Independence, Retire Early, Money was the show that I started with. And the majority of my adult life, I was just focused on making good money decisions and learning about what to do with the dollars that I had. So that was always dream number one, let me get on the Money Show and meet Mindy and Scott.

Rob:
You said it was your holy grail. But the keyword there is “was” because now, we’re on the BiggerPockets Real Estate Podcast.

Antoinette:
Absolutely, that’s what happened. I transitioned from just a smart money person to becoming an investor. And to make that transition, I had to switch to BiggerPockets Real Estate.

Rob:
All right. Antoinette, can you tell us a little bit about your background, a little bit about your portfolio, and give us a snapshot of your real estate journey?

Antoinette:
Okay. I’m originally from Miami, Florida, currently living in Orlando. I was the college graduate, five-year MBA program graduate to take the highest job offer just on that track of do all the things that you’re supposed to do. Go to school, get a degree, get a good job. Somewhere along there, I stumbled upon Dave Ramsey and so I adopted debt free. It was just trying to do all the right things and check all the boxes. That’s it in a gist.

David:
I relate to you, Antoinette. People think of me as a real estate investor, and I am. But they think of me first as that. I don’t think that was actually my origin story. I was a save your money guy long before I was an invest guy. I was passionate about not spending money on things. My mind was geared towards seeing advertisers trying to trick me into buying stuff, looking at when I was in a bad mood, why do I feel like I need to go spend money to feel better? I was always into the philosophy and the psychology of money spending.
I didn’t become a real estate investor till the second part of my journey. So I like hearing the people who stories start this way because if you have a respect for capital, you understand the work that goes into it and the energy that you put into building it. You will approach real estate investing way different than the person who’s like, “I’m tired of being broke. I want to have some money. Let me go buy a house and try to figure out how it works.” Would you agree with that approach?

Antoinette:
Absolutely. I was the smart money, anti-salesperson. A salesman could never get me to buy something. But I was a salesman by career, so it was just the two weren’t lining up.

Rob:
Yeah. I always appreciate the introduction to the Dave Ramsey thing, because it’s always a progression. It’s like you got to clean up the financial situation, get it right, figure out your philosophy, and then go to the dark side. It’s very rare that it’s like there’s someone like me and David that do so much real estate and then we’re like, “Ah, you know what? We want to go debt free,” and then go the opposite direction. But I agree, David. I think that’s such a natural projection.
So what was that moment for you when you decided to pivot into this, I don’t know, not the opposite direction, but in this world of real estate where you are getting more into debt for obviously the benefit of more cash flow and appreciation and wealth and all that stuff?

Antoinette:
I’ll say that starting off with Dave Ramsey and finding that it was a little too strict, I probably mixed in some Clark, Howard, and Susie to create something that could actually fit for me as someone just coming out of the college into first time career. I didn’t want to suffer so much. And I didn’t have debt, too much debt to dig myself out of. So I was able to find a nice blend that made it comfortable.
But when I found the FIRE movement, and that’s Financial Independence, Retire Early if you aren’t following that, they talked about the multiplier or identifying your FIRE number and then saving your way to that number. And when the math worked out, I think at that time I was making $50,000. So the thought of saving $1 million over the course of 20, 30 years still seemed so unattainable to me and so farfetched that I couldn’t wrap my mind around how I would save that much on the salary that I had. But I did understand money management, controlling expenses, budgeting, so I felt like my path to FIRE couldn’t be saving to $1 million but it could be eliminating my expenses so that I didn’t need money as much, and then I would have flexibility to choose a different job or do something else. So I didn’t approach real estate with the objective of being a real estate investor. It was to make a better expense decision around what the highest percentage of expense was in my budget, and that was the home.

Rob:
And remind us, what were you doing for your 9:00 to 5:00 job initially? I’m not sure if you mentioned about what was your career goals and your trajectory at this point?

Antoinette:
I was working for one of the largest beverage companies in the US. I was a sales manager going through their management trainee program, and the last role with them before I left the company, I was a region manager covering the southern half of the US. So it was a solid career with great growth trajectory, it just didn’t align with my core values.

Rob:
And remind us, what’s your why? Because you mentioned that =you’re doing the FIRE and that the real estate investing thing. What’s the freedom that you’re after through the FIRE movement in real estate?

Antoinette:
The why was freedom, simply freedom, but freedom to choose what I did with my time, freedom of choice, freedom to not be stressed about money or how much money I needed or had. So it was just freedom across the board to wake up each day and decide what I wanted to do with my time.

Rob:
I’m curious, do you feel like you’re there? Do you have it? Have you reached it or are you working on it?

Antoinette:
No, I do. I do. Thanks to real estate investing, I’ve hit my version of FIRE and I do feel free. I’m very anti-alarm when I wake up. I have to wake up naturally. And then I just choose what I’m going to do for that day unless there’s a project going on and I have to plan just a little more. But even still, if it’s a project, it’s something that I chose because I would enjoy it and it would be fulfilling in some way, versus I have to get up every day and exchange time for money.

Rob:
Yeah, this makes a lot of sense. You mentioned that you were doing the MBA track and everything like that. Did you ever anticipate this, that you would be in this, I don’t know, niche or asset class or career? Or did you always want to be in the corporate world and in the 9:00 to 5:00 landscape?

Antoinette:
I knew I didn’t want the corporate world, but I didn’t have any examples of how to not do that. So I knew in order to not go back home to Miami Gardens and live with my family, I at least had to go to college and get a job to be able to take care of myself. But that was the extent that I knew. I’m first-generation college. My sister went before me, so there weren’t examples of how to create a different life than the one that we experienced growing up.
So I was checking the boxes like, “Okay, go to college, get a good job. These are the things I’m supposed to do.” And at the moment of getting the good job, I knew it didn’t fit for me. And I thought initially that I wanted to be an entrepreneur, but I would try to start side businesses while working and it was still a time for money trade. And then I realized I really don’t want to be an entrepreneur. I really want freedom. I’ll be a freedompreneur instead. And so the focus shifted on, “Okay, what things can I do to eliminate my need for money and give myself time back?”

Rob:
Yeah. Was there anything specifically that you did? Because obviously there’s a lot of things that you have to do from a budgeting standpoint, some of the fundamentals that you have to implement to get your financial situation right. Did you have some system or was there some habits that you were working on early on?

Antoinette:
Yes. The very first thing I did with my first paycheck out of college was to sit down and create an Excel spreadsheet with that income. And that was the beginning of developing what I call my budget ABCs, which is to automate, balance, and have some control set for that money. From the very first paycheck, I was allocating what money would be for expenses, savings, 401(k) match, and then also what would I be spending. My goal at that time was to pay off my student loans and any debts that I had so that I could have the opportunity to leave the job if I wanted to and then go chase a dream. So budgeting was the bedrock of all of it, just key financial principles, not making any major purchases in those early years so I could set a solid financial foundation for myself.
Those first three years, the first two years I knocked out all of my debt or student loans, and then that third year I was able to put 50,000 in the bank. Three years out of college, I’m debt free, I have $50,000. So now, whatever choices I decided to make from an investment standpoint, I was prepared to do so. And all of the habits and things that I built over that time period of working through that budget ABC system made me… It gave me the financial control that I needed, that I didn’t know I would need, as I started getting into real estate investing.

Rob:
Yeah. I think this is a skill that for most people we pick up, especially short-term rental people where we get into a short-term rental and every month, the income is always different and you don’t know. And then there’s some months where the income is super high and you feel like you’re really crushing it, and then you got the slow season. And then if you didn’t budget correctly, it can really come and bite you in the butt. So it’s a really nice foundation to come in and actually have your finances relatively tracked, have your bookkeeping up and running from the beginning. I know that you found a lot of success in the short-term rental world, right? That was a big bread and butter for you.

Antoinette:
Yes. Short-term rental mixed with house hacking, equal game changer. That’s the formula. It’s that simple. I thought I was just going to get roommates. But I tested out Airbnb, it seemed simple enough so I just jumped into that. And within that first month, my mortgage was paid and I was also cash flowing 1500 a month. And it was just on renting two bedrooms out of my primary home. So at that point, I wasn’t a real estate investor. I was just a person that bought a property because that was the next good money thing to do. And then wanting to eliminate my expenses, I rented out rooms in my home because that was another good money thing to do. And then it turned into an entire business that I learned. I had to learn how to operate and then scale. So I’m an unintentional real estate investor, but it’s been working out really well.

Rob:
I love this so much. I’m so jealous, by the way. I started out house hacking in 2014. And Airbnb was around, but it was so new really at that time to me. I didn’t even know about it really until 2017, 2018. But I remember house hacking my very first house that I ever bought. We could not really afford it. Somehow we got approved for it. And I remember one of my really good friends, I convinced him to move up to my city to basically intern at the agency I was at. And he was like, “Sure.” And I was like, “Oh. Well, we’ll charge you 400 bucks a month.” And I remember getting that first $400 paycheck from… Oh well, not paycheck, but rent from him. It felt like a paycheck because I wasn’t making really a lot of money at the time. And I remember thinking, “Oh my God, my mortgage is 1100 bucks. I just got paid $400. I really just paid $700 this month. This is crazy.”
But I know that there are a lot of people, I’m so jealous of you that you did the Airbnb thing and you were actually able to make probably a lot more. I always call this supercharged house hacking. So was that a interesting experience or was it like did you embrace it from the very beginning?

Antoinette:
It wasn’t a… I did a test run. I created a listing, I turned it on, let three reservations come through, and then I turned it off just to test and see. But after that first reservation, I walked back in the house and it looked like no one had been there but I had $500 in my bank account that wasn’t there before. And so it was a no-brainer just from that first experience. So I went all in on it. I kept the family room and the master bedroom. They were on this opposite side of the house. I stayed there so I had a good amount of separation. I wasn’t sharing any spaces with guests. And I started in the winter season in Florida. So it was just combination of right time, right house layout, and the willingness to just go for it.
And I told all my friends about it and everybody gave me every reason why they couldn’t house hack or why they needed… That wasn’t enough privacy for them and, “I can’t share space with strangers,” and, “What about my kids?” But they thought more about the reasons they couldn’t do it versus, “What do I have to do to make this work?” And so that’s generally my focus when I’m approaching something. What do I have to do to make it work? Because I want to achieve this greater benefit at the end versus focusing on all the reasons why it might be uncomfortable temporarily.

Rob:
Yeah. I think that is, it’s really, it’s sacrificing that short-term comfort for long-term gain. I always had to of talk my wife and romance her into the idea of house hacking because obviously, privacy is important. But when we moved to LA, I got so tired of wanting to rent an apartment. I was like, “We’re going to buy this house. We can’t afford it, but if we house hack, we’re going to be able to afford it.” And that really panned out to be the cornerstone of my entire portfolio and journey. So you’re doing this house hacking thing and you’re crushing it. At this point, are you like, “Okay, I’m all in. I’m going to start buying Airbnbs.” What comes after that first house hack?

Antoinette:
After that, I happened to tell another neighbor about it. They had this gorgeous cabana on the lake behind their house, and we were over for dinner one day and I was just like, “You know how much money is sitting in your backyard right now?” And I told them about what I was doing with the Airbnb and then set them up on it, and we got really close through that process. And then, but they were real estate investors. They had multiple properties. So I looked up to them as, “I want to do what you’re doing someday.” And then they looked at me like, “Oh my God, I can’t believe you figured out this Airbnb thing. We need to do what you’re doing.”
So they started telling all of their friends about it. And anytime we were introduced is, “Here are these budding real estate investors and here are all the cool things they’re doing.” And I’d go home and be like, “I’m not a real estate investor, but I guess I have to figure out how to do this now.” Because at some of those parties, someone would approach us and say, “Hey, we have some money and we’d be interested in investing.” So I think that was the point where I was like, “Okay. I have to figure out what being a real estate investor means and how to actually do that since people are looking at me that way, and now there are opportunities that are coming from it that I don’t want to miss out on.” So I think that was the catalyst behind figuring out how to actually become a real estate investor and build out that portfolio. And of course, the first strategy that I learned about was the BRRRR strategy, so we start with that one.

David:
Yeah. So you went from short-term rentals where you had initial success, which had to feel good because like you said, you stepped in at the best time in the market before it was saturated. It was fish in a barrel to a degree. So you had a very good experience with real estate, and then you probably recognize you have a knack for it. So your confidence is feeling good. What caused you to switch into the BRRRR and some of the group homes you were doing? Why did you move to a new niche?

Antoinette:
Short term was going really well, and when I started, it was not regulated within the city of Orlando. Shortly after we started, new regulations started to come in. There were requirements for you to live in the home, which worked for us while we lived in that home. But as we wanted to scale out that portfolio, it started to get tricky. We would always have to have multiple units where there was a full-time tenant at one point with Airbnb responsibilities to be able to Airbnb any other units in that. And after a while it just got to be too much to juggle, or I didn’t think it would be sustainable long term because now there are too many players involved and I can’t directly control everything.
I also wanted to keep a small portfolio because a part of the freedom that I was looking for, man, I didn’t want to work every day. If I built out this huge real estate portfolio, I just created another job for myself. I didn’t want to take that approach. So I’ve always looked for the best and highest use of the property, and I’m also big on having multiple exit strategies. I know they tell you, “Pick one niche, focus on that, get great at it before you switch,” but that didn’t really work for me. I needed to be more nimble, so I would always try to understand how I could operate three different things in any property at any given time. That way if one thing didn’t work, I had something else or another thing to switch to.
So group homes became that third piece. I knew that I could BRRRR that house and I could just rent it out full-time. I was short-term renting so we had that strategy. But once you do short-term rental, it can be difficult to find something that’s going to produce equal or more cash flow than that. But the group home model became that opportunity. Short-term rental is maybe a 2X strategy versus long-term rents. But with group home, we’re talking 3X or more. That’s more of unlimited a bit earning potential with a different options and services you can offer there.

Rob:
Okay. Give us a little bit of a snapshot just so that I know where you’re at now with your short-term rental journey. How far did you get to short-term rentals? And then we’ll get into the group home stuff here in a second.

Antoinette:
We went to nine rental units. And at that nine, one of them was arbitrage, the rest we owned. And at that point, it was enough for us to live the lifestyle we wanted to without having too many hours per week of work. Solid cleaning crew, handymen, and you’re good to go. But with the regulations changing in Orlando, I wanted to switch to a different asset or change the portfolio a little bit so we could have a little more stability. Of course, COVID happening. Fortunately for us, we were able to switch to midterm rental during that period and not experience much of a loss. But with the changes of regulations experiencing a pandemic, you just start to understand that anything can go wrong whenever it’s ready to. So the more diversity that you can add to the portfolio or other asset classes that you can tap into that are a little more resistant to those events, the better. And interstate group home.

Rob:
Yeah, I love this. I think that the pandemic really did shake things up for a lot of people in real estate, and really the people that came out on top were the one that were willing to pivot and pivot quickly. Because when you go into an asset class with a single strategy, well, if that strategy doesn’t work, then you start panicking. It seems like you have done a lot. What drives you to think of all of the different creative strategies? Do you just like having safety in diversity, or is it just genuinely a curious thing for you to go and explore all these different asset classes within real estate?

Antoinette:
I think the fun in all of this for me is creating and exploring different things. And the moment I figured something out, probably like the day I started short-term rental, I’m thinking about the next thing already. And it’s just that’s the fun in it for me, exploring, experiencing different things, and just testing stuff out. I don’t think I’ll ever be able to stick to one set thing because I do have the shiny object syndrome. And I used to fight it and try to be like, “Okay, just focus on one,” but I could not. So now I allow myself three shiny objects at a time. That seems to work for me, but I’ll always be looking for something else.

Rob:
Yeah. And so you got to nine, which is really impressive. A lot of people work their whole career to get to nine. How were you even scaling up? Were you self-financing it? I know you talked about maybe working with some investors. What was your strategy? Because this to me, I think, getting from one to nine is the hardest part of the journey.

Antoinette:
Slow and steady. I would buy one property a year. Each of those properties would either be two to three units. When you buy a multi-unit property, that helps speed up the timeline on scaling. But I went really slow. And I would listen to podcasts and how quickly other people scaled and felt like I wasn’t a good enough investor because I wasn’t moving as fast, but it was what worked for me. I would just buy one a year, making sure it was two to three units. I would do the BRRRR strategy. I’m getting them old and ugly. I’m spending a couple months doing the rehab, then refinancing out. So it took a while. One property a year is not that much and it’s pretty slow. So in four years with a combination of two to three units, it’s pretty easy to build that size portfolio.

Rob:
Yeah. So you do this thing where you’re sailing, you’re going slow, you’re scaling up, you get to nine, you’re crushing it. And then all of a sudden you’re like, “All right, I’m going to try something completely different and I’m going to go into group homes.” Why the change there?

Antoinette:
I heard about it. I was working with a contractor at the time who was in the process of creating a group home, and they were talking to me about the process for getting licensed but also the earnings potential on that home. And for me, nine units was already enough. 10 was going to be my cap. I didn’t want a large portfolio. Once they explained to me the breakdown of the earnings on the property and the different services you could offer within that to continue to increase earnings, I felt like that was the next best use for a single family property because I was already at short-term rental. I started at what I thought was the highest earning potential for a single family home, and I didn’t really know how I would scale up from that aside from building out the portfolio and adding units.
So when I found out about group home opportunity, and I was like, “Okay, this solves that problem. I don’t have to have more units. I can convert the units that aren’t in the most favorable either location for short-term rental to this other operation style, I guess, and still make the same that I’m making on short-term rental, but in most cases probably 3X and do some good while I’m at it.”

Rob:
Yeah, okay. Explain to us the concept of group homes. I imagine, is this similar or is this the same thing as residential assisted living?

Antoinette:
Yes. It’s the same. And depending on the agency that you’re licensed with or the demographic that you service, the name would look different. So you’ll hear residential assisted living, you’ll hear assisted living for senior care, foster home. All of these different styles are the same. The terminology just varies by the state that you’re in and the agency that license you. For me specifically, I’m licensed in the state of Florida and I’m servicing clients with mental and developmental disabilities specifically. And within that, some of them may require nursing care. So not only do we provide the home care service, we also provide nursing services within that environment as well.

Rob:
Yeah. I remember many years ago when I was just a wee real estate investor listening to BiggerPockets. Someone came in and spoke about residential assisted living and I was like, “Oh my god, this is… It’s crazy.” It was mind blowing because the numbers seemed to work out. And I remember for me, I was just very nervous to learn the logistics and the actual, the run of show, the day-to-day operations. Did you have any experience at all before you jumped in, or what was the learning curve like for you?

Antoinette:
I did not, but that is not a deterrent for me, not having experience, and it don’t stop no show. So just a basic conversation with what they were setting up, they gave me the website for where to apply and so I just started on the application process. You are required to take a lot of online trainings, so learning a lot of it was on the go. I spent some time volunteering in a group home so I could see what the day-to-day operations were like. And that volunteer experience, I learned a lot about staffing, the nursing care that comes with that, medical supplies, all of these things. It is far more not passive than short-term rental and real estate investing. It is a big difference in terms of the level of liability and responsibility and work that goes into it, but it’s commensurate with the earnings that you could make.
However, I’m building out the business with staff in mind so that it can be run by management, staff within the home and not necessarily me running the day-to-day. So upfront, it’s a lot of legwork. It took a year just to get through the application and licensing process for the property. And so we’ll spend the next year just learning the ropes.

David:
So you own the business and the property. You’re not owning the property and renting the business to somebody else to run, correct?

Antoinette:
Yes. I own the business, and then the property is owned by a separate business and that group home business rents the property from it. But in the end, it’s all me behind it.

David:
Yes.

Rob:
That makes sense.

David:
I got you, yes. So you have businesses that you own and one of them owns the property, one of them owns the business. But what I’m saying is you’re not renting it out, the home, to someone else that’s running it. You’re running the business yourself. Clearly that’s going to be a lot of work. And like you said, it’s probably more work than a short-term rental. Is the money so much better in that space compared to the short-term rentals that it’s worth the extra work?

Antoinette:
Yes.

David:
Okay.

Antoinette:
Short answer.

David:
Right.

Antoinette:
For example, with the agency that I’m registered with, depending on the level of the client that you’re servicing, they’ll have medium, moderate, extensive one, extensive two. Each of those change. And at each level, so at moderate level, I’m making maybe $1,000 more per client. And I can have up to five clients in my home than I would on the entire property if I rent it as a short-term rental. When I go to extensive one or extensive two, let’s just say we add 500 for each level, and that’s times five. So by far in a way, it exceeds what short-term rental would offer, but you do have much higher expenses. I now have a full staff. I have nursing staff. We have food expenses and other expenses in the operation of the business. But even after all those expenses are removed, I’m still making maybe 2 to 3X what the property would do on short-term rental. And I’m not fighting with the city anymore because this is fully licensed and regulated and zoned for it.

David:
Yeah. There’s also a lot more regulations that protect residential assisted living facilities. It’s considered, I’m trying to think of the right word, what’s the Act that deals with Americans? The ADA prohibits cities and HOAs from saying you cannot use this property for this purpose, versus short-term rentals where it’s very popular to get a neighborhood full of angry Karens yelling at you, “Not in my backyard. We don’t want these here.” So it is protected, and that is a good thing to keep in mind, especially if it’s more profitable than a short-term rental. I would’ve actually thought that they were on par. So that’s interesting to hear the business is doing better.
But you’re a full-on businesswoman. You’re hiring people, you’re managing staff, you’re dealing with scheduling people, the attitudes that come from human beings which is something that we often don’t think about with real estate. But if you’re in the short-term rental space or the residential assisted living facility space, you’re dealing with humans, and humans are complicated people. They can make things hard. So kudos to you for taking on that challenge. Is this something you see yourself scaling to get a lot of properties, or is this more of a “I don’t need a lot of them in order to make good money doing this” type of a situation?

Antoinette:
It’s really a solution to another existing problem. I had regulation issues with two properties that were Airbnb. Converting those two to group homes solves my regulation issues but also increases the income. And then the income from that business can funnel into another asset class, whether it’s going into getting a multi-family. So I’m not walking away from short-term rental completely, just I have two properties that it no longer works for so I needed a new use for it because I’m a hold forever kind of girl. I’m never going to sell them. I’d be switching these two properties and then taking the income from this new business to move into multi-family, to step into short-term rental markets that don’t have crazy regulations that are true vacation markets. But it’s still not long-term. It’s being built to sell, created as an agency so that I could get what I need from it, offer a lovely product, take do some good in my community, and then move on from that business to chase something else.

David:
Can you share what some of those regulation problems that you had were with the short-term rentals?

Antoinette:
Yes. When I started with short-term rental, there were no regulations. And then a bit through that, the city of Orlando started to require you to apply for a license. And with that, you had to live on site and be on site whenever you host it, which if you’re approaching short-term rental as a business, having to live in the property means you can only have one. And having to be there when it hosts meant that the freedom you’re supposed to get from real estate investing, you no longer have because you have to be on site hosting.
Fortunately for me, the neighbors weren’t much of a niche issue because they were using the property for their friends and family to visit them. But the city alone just not understanding that short-term rental could add value versus taking away, there was so much concern about taking rental units off the market, transient people in the neighborhood causing issues, not recognizing that I’m also of the neighborhood and this is doing good for me. It’s keeping the property nice, which impacts the value of my home and others in the neighborhood. So I think sometimes the way the municipalities view short-term rental, they forget that the persons operating them are people in their city as well and there is some benefit for us, and then that trickles down to the other people that are impacted by us.

Rob:
Yeah, that’s very true. This is just a reminiscent of my TikTok comments and my YouTube comments of people that say the same thing and I’m just like, “They think we’re these big, big bad investors that are just throwing up cardboard boxes and being like, ‘Rent this for $200 and paint my house before you check out.’” And I’m like, “If you just chatted with me for five minutes, you’d be like, ‘Oh, you’re just a regular guy that just owns homes.’” It’s funny that the regulation and the narrative is so anti-Airbnb sometimes. So that that’s a really good perspective though, that yeah, you are part of that community and it’s building you up. And by doing that, you’re building up your neighbors up and then you’re building up your community. That is a narrative unfortunately that is very much washed out by a lot of the negativity that I see often.
Is that something that is bothers you at all or do you just keep trekking on? Or what are your thoughts on that? Because I’m always, this is something we don’t really ever talk about, but is it something that drives you or is it something that makes you stop and rethink the entire strategy?

Antoinette:
I don’t stop and rethink it. It makes me fight for it. Being an Airbnb host led to also being an Airbnb ambassador, and a part of that is being the voice to tell the other side of the story. I’ll attend the city commission meetings to make sure that they’re hearing the counter-argument and it’s not just a bunch of angry people in there trying to shut something down. I think it’s important to show the other side of the story and be present for those things, interacting with the neighbors. So I’m very active within the neighborhood as well and open about what those houses operate as.
And so they use the property, so now, they’re getting to experience it firsthand and see the other side for themselves. So now, they’re less likely to be at that commission meeting saying, “No, we want to stop this. Get rid of it,” because now they have one down the block from them, and grandma’s coming every winter and she can just walk down the street. So I think sharing the benefits of what the short-term rental opportunity brings to the community is an important part of it as well.

Rob:
Well, I appreciate you chiming in about that. I agree with all of that. And that is to me always a funny thing, is people still use Airbnb but then they’ll be mad about it. So I agree. I think being an active voice is you’re doing your part. And I’m glad to hear you come and say that on the podcast because this is something that we don’t highlight nearly as much as we should. You also mentioned a little bit on your group homes, that you’re doing good there and you’re helping out the community in that aspect. Can you talk about that a little bit? Is that an important factor for why you’re in group homes, or is that just the cherry on top?

Antoinette:
I think it’s important, period. I don’t think there’s any business I want to walk into and there’s not something I can leave behind that’s greater than what I’m getting out of it. The same approach with Airbnb, making it feel very homely and being beautiful and top quality, high end, it’s the same approach for the group home. I set them up as if I were setting them up as a luxury Airbnb, and then it just so happens that the person staying there is going to be a client receiving services. So I want to make sure that those clients are receiving the best home environment I have to offer.
Within that, it’s having organic gardens in the yard so that they can get some outside therapy as well, versus just being in the home all the time. Having access to organic food and produce, these are all little things that you don’t necessarily get in the assisted living space because it’s more like a boarding house or a little older and not as well kept. I want this particular subset of the community to be able to experience the luxuries that they may not otherwise have available to them. And I think that’s important as well.

David:
I’m curious. You caught an L when the city came in and said, “You can no longer do this or we’re just going to make your life so miserable it’s not worth doing.” And you had the idea to pivot in using the same properties for a different purpose. That’s not natural. People don’t just on their own be like, “I’m going to change the entire asset class of the property, go through licensing, have construction done so that it can be held up to license, get the permits for a new thing.” Where did you get the idea to convert into the new use?

Antoinette:
A friend of mine was in the process of converting one. And if the numbers work, that’s enough for me to dig in. So with the numbers that they were sharing me, it sounded like a home run. The properties had already been completely updated because they were Airbnb first, so they were ready to go. I just had to go through the paperwork. So it didn’t seem too hard. All the hard stuff was already done. Now, I just have to fill out an application, take a couple online classes. It seemed simple to me, and I know I’m minimizing what the process entailed, but I think if my goal is to keep this property forever and have it produce the max income that it can, that’s first priority. It can never be to, “Oh, it’s not working out with the city anymore, time to sell. No, I committed to this property. We are in a relationship. I said I was never letting it go so I had to find something else. It was the only option to me.

Rob:
Antoinette, it’s really impressive to hear about all the different ways that you’re thinking about these new ventures. And I know that hearing about some of the missteps or some of the mistakes that you’ve encountered along the journey is equally as valuable to our listeners at home. Can you tell us about one of your real estate failures in this space or just along your journey in general?

Antoinette:
I’ll say I fail pretty regularly, so much so that it is nothing to be afraid of anymore. I just accept it as if something’s going to go wrong, it will happen. But the one that got the ugly cry out of me, I’ll tell you about that one.
It was a property that I bought in 2021. I had a home equity line on one of the properties. And I was in the process of refinancing that home, and I was going to use the dollars to purchase this new home that I was able to get three units out of and what is ultimately becoming the group home. And maybe two days before I was due to close on the refi, and of course five days after that I would’ve closed on that new purchase, the lender notified me that the refi was not going to happen.
It turned out through underwriting now, although I did everything I could to be ahead of it. Prior to putting it in the application, we did a soft underwriting to make sure that everything would pencil out before we even went down this road. But when we got to the final stage of under underwriting to get to the clear to close, the underwriter found that the way my properties were classified on my tax return essentially made all of the rental income wash out. So even though the properties were owned by my business and that’s what the rental income was being paid to, it was classified… I’m sorry, the properties were owned by me, but on the tax return they had it under my business. And because my business was reporting a business loss, it wiped out my rents.
I didn’t know there was this error on my tax return because I trusted my tax accountant to be on top of these things. But in the process of going through that refi, they sent a payoff to the bank that had my home equity line. So not only did I lose the dollars that I would’ve got from the refi, my plan B which was to just go and use the home equity line, that just evaporated as well. I walked into the bank to get the check and I got told that the account was frozen and I could not because I had moved out of that property. And for that particular lender, once you move, you could no longer use your home equity line. I didn’t know that. I learned do the BRRRR strategy, get the home equity line, and you can use this thing forever. Well, not with this particular lender. So in a space of 24 hours, my home equity line was gone, my refi had fallen apart, and I’m three days from closing on a property that I have a $10,000 escrow deposit on and I have no money.

Rob:
Well, I don’t know. Obviously that’s tough in the moment, but what did that really teach you moving forward? Is that a mistake that you think will ever happen again, or do you feel like you’re pretty guarded from that ever happening again? Because sometimes I feel like that’s a value that that’s hard to keep in mind with this type of scenario.

Antoinette:
Particularly I couldn’t have foreseen it. I thought I had done everything I could to anticipate things that could happen by doing the pre-underwriting before applying for that refinance application. By working with an accountant and having my finances managed by a professional, I thought I was doing everything I could. So in that case it could happen again. Because you could be making your best efforts and checking all the boxes to the best of your knowledge and hiring who you think are the right people, but you don’t know that it’s wrong until it hits the fan. So it very well could happen again. I don’t think I could prevent things from going wrong, but definitely that taught me that I could get through whatever went wrong.

David:
That sounds terrible that it was three or four days before closing and the deal almost didn’t work. What did you end up doing to be able to save that deal?

Antoinette:
Maybe for the first 15 minutes, I just sat in the car and screamed and cried because I didn’t know what I was going to do. But after I had my crying fit, I shot my Hail Mary. I had been talking to my boyfriend’s mom about doing a self-directed and partnering with us on some investments, but it had just been conversations. We never moved forward with taking steps to set that up at.
So I called her, explained to her what had happened, and asked her if she would still be interested in partnering on some investments and setting up that self-directed. I explained to her the risk, basically everything that I experienced so far with money evaporating. I broke down the deal to her, explained to her that it would be my intent for this to operate as the group home and gave her the, “I’ve never run a group home before. Here are all the unknowns, but here are the things that I do know. Worst case scenario, this can go back on the market and we can recoup everything,” and asked her if she was in or out. And she said she was in.
So that was my Hail Mary shot and she saved the day, quite honestly. If she had not been willing to lend and create that self-directed, I was out of sources to tap. However, it was going to take two weeks to get the account set up and the money transferred. So I had to call my network to find hard money that could turn it around within two days. I found a guy. They taxed me heavy, charged me 10% to hold dollars for 30 days. But it was what I had to do at the time or the best thing that I could figure out as a solution. So I went into temporary hard money on a 30-day loan, paid a premium for that, started the process of moving over her dollars from her IRA to a self-directed IRA, and then swapped it all out at the end of 30 days.
So I was able to close in two days. I probably paid a lot more for the money that I had to use than I expected to, but it had to happen. For me, that property, knowing that it was going to be the group home in the end, it was the right location, the right layout, everything else about it was right, it was worth fighting through to make sure I got to see that to the end.

David:
Why do you think she trusted you with that money? It wasn’t just money she had lying around. This is her retirement she’s planning on. Was it your track record with money and some of the decisions that you made in your past?

Antoinette:
Definitely that. I think everybody that knows me knows me as the money person. I’m either tight with the money, you can trust me with the money and I’m not going to squander it. But also if I say I’m going to pay you back, I will pay you back. But I asked her specifically why would she? And she said that she had never seen anyone write their own mortgage before, and she was referencing the first deal that she saw me do. So just being able to see that process, she was just like, if you can figure out how to create your own mortgage and then refinance that out in 45 days, I think you can figure out anything.

Rob:
That’s awesome. So did you end up… Was that the last time you ever worked with her, or does she still lend on any of your deals?

Antoinette:
She still lends. We still have that self-directed setup with access to, but actually we’re in the process of teaching her how to achieve a version of financial independence for herself. Two months ago, we just purchased her her first investment property. It was a single family home that we found off market for sale by owner. We’re converting it to a duplex so that half of it can be longer midterm rental and the other half can operate as Airbnb. And so this will be her first investment so that she can get some cash flow coming in and possibly consider retiring a few years early versus having to wait until she’s 67.

Rob:
Wow, that’s really, really, really cool. Now, you’re in this groove of the group home. What is your trajectory? What are you wanting to do? You admitted earlier you have shiny object syndrome. From the sounds of it, it sounds like group homes aren’t really Antoinette’s last stop. Do you want to sit in this moment and keep going the group home route, or are you starting to already expand?

Antoinette:
I’m already, I view group home as a five-year plan for me. Within five years, I’m exiting, whether that’s a sale or just putting in a different manager to operate. But I’ve already achieved financial freedom so I’m molding my lifestyle of sorts. So with the income from the group home, I’d like to diversify the asset, get into the multi-family asset class, which we have not yet, whether we’re purchasing a multi-family or partnering with the operator to bring that Airbnb strategy to the table, buying vacation rentals and true vacation markets. But those markets will probably be identified based on where we want to visit. So now, these become second homes that we can use for lifestyle enhancement.
But while we’re not there, it’s still making money. But I think in the end, it’s just the last few things I’m going to do are going to sure up where we are financially with the portfolio so that I could focus more on living. I want to get more into health and fitness. I might become a herbalist. I want to make enough income so that I could spend more time just fully living life exploring and learning different things.

Rob:
That’s cool. That’s really cool. Do you feel that your group home portfolio is relatively recession-resistant? Is this an asset class that that would worry you less than maybe something like a short-term rental or any other form of real estate?

Antoinette:
It would worry me less on the renter variability. Leases come and go. With a pandemic happening, we now know that short-term rental can shut down completely. But with these homes, this is someone’s home. They live there every day. And generally once a person’s placed, they are there unless they pass or have to relocate because their family’s relocating to another area. But these are probably the most long-term tenant that you’ll have in a property. So it doesn’t have that variability that we experience in long, medium, or short term. They come. And if they’re having a great experience and being well taken care of, they’re probably there to stay.

David:
That is fantastic. I love that. And you got the right approach when it comes to how you build a good business, is you’re asking the right questions. You’re not asking the question of, “How do I make my own life easier? How do I make myself a whole bunch of money?” You’re saying, “How do I provide something for someone else that’s better than my competition?” And you realize that the money will follow. And that’s a key thing that I really want to point out, is it’s so easy for people to listen to these podcasts and think, “Oh, she’s making all that money. How do I do it too?” And then they do a terrible job with the business and it doesn’t work out and they say, “Ah, the Airbnb doesn’t work. Short-term rentals don’t work. Assisted living doesn’t work.” But they were just asking the wrong questions. So appreciate you sharing what it takes to succeed.
With that being said, we’re going to move on to the next segment of our show. It is the world-famous Famous Four.

Speaker 4:
(singing)

David:
In this segment of the show, we ask every guest the same four questions every episode. I’m sure you’re familiar with this Antoinette because I know you are a big BiggerPockets Podcast fan. Question number one, what is your favorite real estate book?

Antoinette:
This question gives me so much anxiety because I have to admit to the world that I’ve never read a real estate book.

David:
Rob just found a spirit partner.

Antoinette:
That speaks to the power of BiggerPockets because I’ve been able to do all this just listening to the podcast, participating in the forums. Legit, that was enough for me to start and build this portfolio and to be successful up until this point. But my favorite business book is The Seven Signs of Highly Effective People by Stephen Covey. And I love the first one, begin with the end in mind. That’s my philosophy. Anything I’m starting, I’m always thinking about what’s the end goal and using that as my North Star to make sure that I complete those goals.

Rob:
Okay, love that. Next question. When you’re not out there crushing your pivots and going into awesome real estate niches that you’re absolutely dominating, what are some of your hobbies?

Antoinette:
My favorite hobby is salsa dancing. It is like if you haven’t tried it, please go and do it. It is absolutely life-changing. It’s a great workout. It’s a brain clearer. If you’re thinking about too much all day juggling all of these properties, go get on the dance floor. It all goes away.

Rob:
Nice. Yeah, I’ve been trying to invite David out to go salsa dancing with me, but he never responds to my text messages.

David:
I don’t feel safe yet. We took a trip to Mexico. It was a big step for us. I feel like things went okay. There was no catastrophe. Baby steps. We’re making our way into salsa dancing.

Antoinette:
Let me know. When you finally try it, take me with you.

David:
Yes, the pivot queen. Does salsa dancing involve pivoting? It’s like are your hips pivoting a lot and that’s why you like it so much? Because you’ve proven you’re such a good pivoter.

Antoinette:
Yes, everything pivots.

David:
There it is.

Antoinette:
Yes. Pivots, twist, turns, all of it.

David:
That’s right. Did we see any salsa dancing in Mexico, Rob? I don’t think we did.

Rob:
We did not. No salsa dancing. Just salsa dipping, my friend.

David:
Ba dum tss. Very nicely done, thank you. It’s BiggerPockets writers for teeing us up. This is becoming like Saturday Night Live, people writing our jokes for us. That was good. All right, my last question for you, Antoinette. What call to action do you have for our listeners?

Antoinette:
Call to action is take action. None of the excuses you can come up with are valid. You don’t know what’s going to happen if you never attempt to make it happen. So don’t let not having read a real estate book hinder you. Don’t let not having all of the answers hinder you. Get clear on a few key things and start taking action. You’ll figure the rest out as you go along. And it’s never as scary in practice as you think it is before you take the leap.

Rob:
Well lastly, Antoinette, where can people find out more about you?

Antoinette:
I am newly on Instagram as @fearlessandfreefi. That’s @fearlessandfreefi on Instagram. And you can also find out more about me on fearlessandfreefi.com.

Rob:
What about you, David?

David:
Find me @davidgreene24. Very boring, very easy to remember. Just remember that unnecessary val at the end of my name, the E. Greene with an E. How about you, Rob?

Rob:
You can find me over all social outlets @robylt, R-O-B-Y-L-T. And lastly, if you listen to this episode and you’re like, “Wow, Antoinette has it down. I love this podcast. I learned so much about it. I’m going to pivot. I’m inspired,” can we just ask for a simple five-star review on the Apple Podcasts platform or wherever else you download your podcast? It helps us get served to all the masses, and all we want to do is help change other people’s lives and help them invest in real estate.

David:
Absolutely. Antoinette, thank you so much for joining us today. Do you have any last words for our audience?

Antoinette:
Yes. It’s been an absolute honor to give back to the platform that’s given me so much, so thank you BiggerPockets. Thank you, Rob and Dave, for the opportunity to share. I’m an open book sharing whatever I can. There are a ton of freebies on our website, and I think I’ll send you guys some links too for a couple freebies to share with the audience because for this, it’s a full circle moment just being able to give back from what I got. So thank you again.

David:
Thank you. And again, if you liked Antoinette’s episode with us, go check out her episode on BiggerPockets Money. It was episode 295. This is David Greene for Rob “Pivot” Abasolo signing out.

The mixture of (relatively) high interest rates and economic volatility with the fact most homeowners have fixed, low-interest rate debt had induced what real estate economist Bill McBride refers to as the “sellers strike.” As should be expected on the heels of such stubbornness, developers are beginning a “builders strike” to follow suit.

As CNBC reported at the end of October, “Housing starts for single-family homes dropped nearly 19% year over year in September, according to the U.S. Census. Building permits, which are an indicator of future construction, fell 17%. PulteGroup, one of the nation’s largest homebuilders, reported its cancelation rate jumped from 15% in the second quarter of this year to 24% in the third.”

Rick Palacios Jr., the director of research at John Burns Real Estate Consulting, has an interesting thread on builder sentiments from around the county. It’s not exactly good.

Home builder commentary from our survey this month was about as negative as I’ve seen to date. Here’s some of the market color that jumped out…

— Rick Palacios Jr. (@RickPalaciosJr) November 9, 2022

A few samples include a builder in Boston saying, “October was exceptionally weak,” in Baltimore, “The market is terrible,” and in Wilmington, “The market is falling off a cliff,” etc. 

You get the idea.

Overall, single-family housing starts are falling rapidly. However, multifamily housing starts are, somewhat surprisingly, remaining relatively stable. It’s likely that multifamily building is propped up to a certain extent by government-subsidized LIHTC projects, but even still, they will likely decrease soon.

Of course, a major slowdown in building is to be expected. New construction is always heavily dependent on interest rates, and the Federal Reserve has brought the discount rate that underlies the mortgage market from 0.25% to 4.5% in less than a year. 

The reason the real estate market is unlikely to collapse is because, unlike in 2008, homeowners have low-interest fixed-rate debt, lending standards are relatively strong, and most have a decent amount of equity in their homes. Absolutely none of that has anything to do with the calculus developers use when deciding whether to build a property. In other words, the fundamentals holding up the housing market don’t apply to the market for new construction. Thereby, new construction is falling drastically and could possibly collapse. 

In other words, the builders are frustrated, and they are going on strike.

However, they can’t do so before finishing and liquidating what could become a minor boondoggle in the American economy: a new construction glut.

The Coming New Construction Glut

Already, a record 29% of homes for sale in the United States are new construction. Buyer cancellations increased 7.5% for new builds from September to October and showed no signs of abating. Months of inventory for new construction have increased over 50% from January of 2022 to October, from 5.7 months to 8.9 months. (Generally, six months of inventory is considered a balanced market). 

And while the amount of time it takes to sell new houses has typically outpaced existing inventory, the gap between the two has become quite pronounced. In October, there were only 3.3 months of inventory for existing inventory (still a seller’s market), only one-third of what it was for new construction.

Unfortunately, there’s no real reason to believe this is going to get better before it gets worse. While inflation has cooled a bit, the Fed has indicated they plan to keep rates high (relatively speaking) at least through 2023. 

But possibly more importantly, as Bill McBride points out, there are more housing units under construction now than there ever have been before! 

“Red is single-family units. Currently, there are 794 thousand single-family units (red) under construction…Blue is for 2+ units. Currently, there are 928 thousand multifamily units under construction. This is the highest level since December 1973!”

“Combined, there are 1.722 million units under construction. This is the all-time record number of units under construction.”

The increase in construction was in large part due to the nationwide housing shortage, which is predominantly what fueled skyrocketing housing prices over the previous few years. In addition to that, supply chain issues have delayed many projections causing a backlog of properties to remain under construction longer than was intended.  

Unfortunately, unlike homeowners who are rarely compelled to sell, builders have little choice. Sure, many will turn to rent these new builds, but the rental market is already starting to become saturated. For most, they’ll have no choice but to sell in what is a buyer’s market and what is likely to become substantially more of one.

Conclusion

With notable exceptions (most notably that which is government-subsidized, like LIHTC), it’s probably not the best time to start new development projects. If you are a developer in the middle of such a new build, it would be worth at least considering if it’s economically feasible to rent the property (or some of the properties if developing a subdivision). 

If selling is the only option, it would be wise to get ahead of the curve. While existing home prices probably will only fall a moderate amount over the next year, new home prices will likely sink substantially more. You don’t want to be caught chasing the market downward while you hold onto inventory. I would recommend leading the market and cutting your price upfront. Offering attractive incentives, such as interest-rate buy-downs (where the builder pays the lender to lower the interest rate for the buyer in the first year or more), should also be something to consider. 

Every investor and developer will take hits in this business at some point or another. It’s better to come to terms with that now than try to hold out hope that you can sell at the same price you could have when the typical homeowner was buying with interest rates in the 3% range. To hope the market shifts back to what it was six months ago will likely leave you holding the bag as holding costs eat away any profit you could have made. And after that, you’ll likely have to eventually sell for even less than the discount you could have offered upfront.

On the other hand, if you are looking to buy a home—particularly one to live in—and are frustrated with this meme being far closer to reality than such a buyer would prefer:

New homes would be something to look into. Particularly look for one’s offering rate buy downs. Either way, you will certainly have the upper hand in negotiations.

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

David:
This is the BiggerPockets Podcast show 709.

Ashley:
So what I did was took my experience, everything that I have learned since starting in real estate in 2013 is when I started and putting that all into a plan. So steps. So each chapter is basically a step as to it’s organizing what you can do. You can find all this information somewhere else and what I’ve tried to do is build it all together, take the important pieces and show you how to get your first year next property.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast. Here today with a special episode. I’ll be joined by fellow real estate investor and BiggerPockets Podcast host Ashley Kehr. Ashley is the co-host of the Real Estate Rookie Podcast, which she does with Tony Robinson where they help rookies to buy real estate. And today, Ashley’s going to be talking about the new book she has coming out through BiggerPockets, Real Estate Rookie: 90 Days to Your First Investment. So if you are a real estate investor or aspiring real estate investor that wants some help on getting your next property and contract, this book might be a great move for you.
In today’s show, Ash and I get into a lot of good stuff, including the steps from when you put a property and contract to the closing table and specifically what you should be looking for during due diligence, the rehab, the insurance provider, the closing table, and more. We give you some really good tips and you want to make sure you catch them all because a lot of these will save you some time and some money even if you’re an experienced investor.
Before we get to Ashley, today’s quick tip is see what is possible in 90 days as you overcome analysis paralysis and set a goal to start making progress on your first or your next deal. Just consider getting Ashley’s book. Even if you’re someone who already owns some real estate, this book can help you be better at doing it and the value you get compared to the price of a book is probably the best ROI you can get in the entire space. Designed to guide every rookie from goal setting to goal realization in record time, this step-by-step guide will skyrocket you from real estate rookie to real estate rockstar within three months. You can find the book biggerpockets.com/podrookie. All right, let’s get to Ashley.
Ashley Kehr, welcome back to the BiggerPockets Real Estate Podcast. How are you today?

Ashley:
Good. Thank you so much for having me back on. It’s been about a year, I think.

David:
Yeah. Now before we get into why you’re here, I do want to say I just got done recording a Seeing Greene episode, and I wanted to pull you in and give you a question Seeing Greene style. Here’s my question and I’m going to pretend like I am the BP listener and you get to be me here.
As a buyer, why does the closing date on a deal matter to me? I never understood the significance. Obviously, I’d want to close on a property generally sooner rather than later, unless we’re nearing the end of December and may as well start the next tax year more cleanly. But is there a strategy element here that I am missing that would help my deal look even more attractive to sellers?

Ashley:
Well, I think the first thing is, is that it can change. It’s variable and it depends on what the seller’s motivation is. So here in Buffalo in the winter, it snows. Nobody wants to move in the winter. So sometimes even offering a delayed closing can be seen as an advantage if you are putting in an offer because sellers don’t want to move and they’re thankful. Like our house is sold, we’re under contract, but we can stay here three more months until the weather is warm and then we’re going to close on the property. Or these people could already have a house in mind, they want to get into their new property. So putting in a quick closing, and I see that a lot more common is that people want to close quickly, they want to be done with the property they’re selling and they want to move on to the next thing in their life.
And when you go with a cash offer, you’re most oftentimes able to close quicker than if you’re doing conventional financing or even an FHA loan. You can close quicker if you’re using hard money. So a lot of times the closing date will actually tie into how you’re purchasing the property too.

David:
Yeah, this question came from Brit in Oregon and it was a little confusing because she says, “Obviously, I’d rather close on a deal sooner rather than later, but most buyers are in the opposite camp. They want more time. You need time to get your loan together, time to get all the organizations of moving together. In general, buyers would like a longer escrow period because they have more time for due diligence, more time to prepare and sellers want to close sooner.” So like you said, Ashley, in general, a shorter timeline is usually more advantageous for the seller, but you also made a good point that you shouldn’t assume that. You got to ask, well, what do the sellers want? Because if they can sell quicker, they’re less likely to have to make another mortgage payment or they’ll get the money faster for the next thing they want.
But sometimes they don’t want to sell quicker because they don’t have anywhere to go. Or like you said, they don’t want to be moving in the middle of winter. And that’s the thing the agents can do, they can make deals work, is they can find out logistics of each party and then put the deal together in a way that works for both people.

Ashley:
Yeah, I’ve even done before that the closing date can be determined by the seller. That I’m not putting into my offer that I want it to close in 30 days, especially on the commercial side when I’m doing a letter of intent and it’s a lot more flexible than sticking to a residential real estate contract that the seller can choose the closing date that there’s no firm and hard time that I need to close by.

David:
Yeah, that’s smart because that takes a lot of anxiety off the sellers because you never know oftentimes what they’re thinking. Good advice there.
So we haven’t talked to you for about a year. I know you’ve been hosting the Real Estate Rookie Podcast there with Tony and that’s been going fantastic. I’ve bumped into you two a couple of times, but tell me what else have you been up to in the last year of your life?

Ashley:
Some of the big things are buying cabins on land and kind of updating these cabins and turning them more into a modern, glamorous experience. I just recently completed an A-frame property that turned out beautiful. That’s kind of been my projects over the last year, doing four cabins and completely renovating them. Besides that, I’ve been hosting BiggerPockets bootcamps on landlording and just being a rookie investor. Once I started doing that, I decided to write a book. My book is coming out January 10th and it is called Real Estate Rookie: 90 Days to Your First Investment.

David:
This sounds pretty juicy. What can we expect to be inside this book?

Ashley:
Basically everything and anything you find in this book except for maybe my own personal experiences, you can find on the internet, you can find in other books, you can find on podcasts, you can find in newspapers, you can find talking to other investors. What I did was took my experience, everything that I have learned since starting in real estate in 2013 is when I started and putting that all into a plan. So steps. So each chapter is basically a step as to it’s organizing what you can do. You can find all this information somewhere else and what I tried to do is build it all together, take the important pieces, and show you how to get your first year next property.

David:
It’s kind of a blueprint, it sounds like. Just follow step one, step two, step three, and you’ll end up with a property.

Ashley:
Yes.

David:
Very cool.

Ashley:
And it’s happened. Doing the bootcamp is we basically did the same thing in the bootcamps. I co-host it with Tyler Madden and we have had so many people come and tell us that they have got their first property or maybe they were stuck after their first or second property and then they went on and took the bootcamp and they were able to get another property under contract. I was just in Phoenix at a BiggerPockets meetup. Tony and I did a live podcast there and two people just at that meetup had attended the bootcamp and came up to me and told me one had gotten one deal already and the other one had gotten two deals.

David:
Okay. So this works, right? Let’s dive deep into one part that new investors may not know about and this would be why a timeline’s important. So you recommend this 90-day timeline, this comes up in the bootcamps, it comes up in your book. What is it about the 90-day timeline that you think helps new investors make progress?

Ashley:
I think just setting a goal and setting a deadline for that goal. So if you want to get a short-term rental or you want a long-term rental or you want to purchase a property to flip, this gives you enough time to complete and go through all of the steps to actually get a property under contract. Depending on the state that you’re in, like New York, you’re most likely not going to close on a property because sometimes it takes 90 days just to close on the property even after you put it under contract. So depending where you live, by the time you actually close on the property, it may not be 90 days, but what we like to see is that you are making offers and you’re getting something under contract within 90 days.

David:
Okay, cool. So let’s dive deep into what’s actually going to be happening in this process and let’s start with when you actually get something in contract. So once the property’s in contract, a lot of people think the job’s done, “Yay! It’s in contract, I bought it.” No, you did it. This is a step and this is where the real work starts and one of the first things is the due diligence. So what do you recommend investors do when they start doing due diligence on the property that they just put in contract?

Ashley:
Before we even get into that, I just want to highlight how important it is to actually get the deal and it’s so exciting and can feel like such a relief, but what I found is that a lot of real estate contract is getting you to that point of finding the deal, how to source deals, analyzing deals, and then making offers. But a lot don’t highlight into what you do after you get the property under contract before you close. So this is where I took a lot of time in the book to explain and I have an acquisitions checklist that I put into the book and then dive deeper into each thing. So a very important part is your due diligence.
We’ve seen in the last couple years that a lot of people were waiving inspections on the property where they were just going in making offers and not really completing any due diligence, but there’s a lot of due diligence that can be done as far as a physical inspection of the property. There’s also due diligence that you can just do from behind a computer of finding out information and data. So some of those things are verifying property taxes, getting a quote on insurance, finding out what the premium would be on an insurance, what type of insurance you need on the property, and then you also have your title company doing the title work looking and seeing if there’s any liens or judgements in the past ownership on the property. Then there’s also going to the county clerk’s office or the town hall talking to the code enforcement officer, especially depending on the type of property.
So with me looking into property with land in rural areas where you’re running into having septics and wells on the property and it’s not hooked up to public utilities. So there’s actually some due diligence that goes into that is finding when was the last time the county inspected it? Does the county need to come out and do an inspection upon the sale? Do you need to replace it? How much is it going to cost?

David:
On the very first property I ever bought, nobody told me that the property taxes were higher than what they were estimated at. So it turned out it was an area, we call them Mello-Roos out here. I don’t know if you guys have that, but it’s extra taxes collected to pay for schools that have been created. Special assessments would probably be the technical term. And I thought the taxes would be $140 a month and they were like 450. It was over $300 a month on a house that I bought for 195,000. It wasn’t like a super expensive real estate where taxes were that high and it crushed the numbers and I didn’t even know that was a thing that could happen. I didn’t know you could have some houses with higher taxes than others. Is that one of the things that you’re talking about investors need to be aware of?

Ashley:
Yeah, and also ar In New York state they have the STAR savings program. It is your primary residence, you can get a tax credit on the property. If you are a farmer or you lease your land to a farmer for agricultural purposes, you can get a discount on your property taxes. The same too if you are a veteran. So if you go and pull the property taxes, you need to know who is actually living in the property now and how is the property held because you could be looking at that low property tax and not realize that that STAR savings amount that is taken off is actually because they live in the property and you’re going to use an investment property and then it’s going to increase.

David:
That’s exactly right. When I first started selling houses, one of the things I would do for my clients is I would pull the property up in the county tax assessor’s website. So you’d look for the assessor’s parcel number. That’s what APN means, if you’ve ever heard the phrase APN, or you could just put the address in and you could find the property and this is actually public information. You could see what your neighbors are paying for taxes, you can see what anybody’s paying. And it would show, okay, here’s what the actual amount that the county’s going to collect is going to be or the state. And then here’s all your special assessments, you’re going to get this, you’re going to get this, you’re going to get this and you see what the taxes are for the individual property and I’m assuming that’s where the STAR assessment would show up or the rebate in the case of it’s a primary residence homeowner.

Ashley:
Yeah, so that’s a great point of where you can actually go to find the property taxes. You can go to the county GIS mapping website. So just Google GIS mapping in your county, and it’s a free website that shows a map and then the parcels and you can actually just click on the parcels or search it. You can go to your town website and a lot of times they’ll have them on there. There are some rural towns that I invest in that don’t even have them on websites yet and you have to physically go to the assessor’s office to pull them. Then there’s other paid sites like PropStream too, which is $99 a month where you’re able to get the property taxes on there.
Just make sure that you’re verifying the property taxes, especially if you’re buying on the MLS or even if the seller is just telling you what the property taxes are, make sure you go and actually verify that data and that you’re getting up-to-date data on it too. So if the property taxes are from over a year ago, make sure you’re pulling the new ones too.

David:
Yeah, and many areas have taxes reassessed upon the sale. So in a handful of places I’ve seen, the tax assessor every 10 years or something comes in and says, “Here’s the value of the property.” They reset all the taxes based on that. But in most areas, when the property changes hands, they reassess it. So the purchase price right there. So another thing that happened on that first house is it had been sold in 2006 as new construction for 595,000. I bought it for 195. So even though I ended up paying more taxes than I expected based on the 195, they collected a buttload of taxes from me at closing through the escrow process because they assessed it at 5 95 still. Then when it was sold, the tax assessor came in and he said, “Okay, it’s worth 195.” It’s one third of the taxes. This guy’s going to pay than what the other people did.
But they had already collected more than that from me at the escrow, so they were supposed to refund it to me. It doesn’t happen commonly, but what they did was they sent it to the property instead of to me and my tenant actually forged the check, cashed it, and then paid me rent with my own money for three months in a row with that tax rebate. So no, when you’re buying the property, when you’re looking at what the taxes currently are, they are a percentage of the purchase price. You’re probably, in most cases, paying more for the house than what the seller paid when they bought it. So your taxes are going to be higher. You can’t look at the exact number and say that’s my taxes. You have to look at the percentage of the purchase price. Is that similar to how you’re teaching the rookies when you’re having them do this part?

Ashley:
Yeah, and I think another important piece to add on to the property taxes of pulling the information is your utilities too is verifying what they’re saying the water and sewer charge is, especially if you are going to be paying part of those as the landlord. And also finding out what kind of utilities are using. So around in here where I live and the areas I invest for the heat, it could be propane, it could be natural, gas or it could be electric, or I actually just bought a house that it was just three wood burning stoves in the property. So there’s very different ways of heating the house and different utilities, also different utility companies. So during that due diligence process, so not only verifying the property taxes but also verifying what types of utilities are on the property and then also the amounts for them too.
So if a property is not well insulated and heat is pumping out of the house and the gas bill is extremely high, even if you are not paying the gas bill, when you get a tenant into that property, they’re most likely going to ask you, “Do you know what the average utilities are for the property?” You can get this information by calling the utility company and asking for an average. They can’t give you exactly what somebody’s bill is, but they can give you an average over six months or a year. Make sure you take the full year, especially you live in an area with different seasons. Because if you’re calling in the fall and you get the last six months, it’s going to be summer. So you want the full year to see what that average bill is. But that’s definitely going to impact tenants coming into the house. You may be able to trick someone and lock them into a year lease, but if they have that super high utility bill because the property isn’t insulated well, then they’re most likely going to move out after that year to someplace more affordable.

David:
That’s a very good point. Now, what about after you’ve done some of that work and now you got to figure out is there a rehab happening. Does every house have a rehab? Do some properties have rehabs? How do you advise people in the book to go about doing your due diligence on the rehab portion of the deal?

Ashley:
Yeah, so the easiest part is, is that you can take your contractor through before you even offer on the property, but sometimes that is just not feasible. So that’s when during your due diligence period, before you close on the property is setting up everything so that the day you close, you’re ready to take action onto the property. So that could be if you have permission, and I always put this into my contracts. Even if I’m not getting bank financing, I do put a contingency in there that I can have access for a contractor and or appraisal. So that way if I end up going financing or hard money or something changes, I still have that opportunity to bring somebody into the property. So for an appraiser or for a contractor. And this usually is not a problem because most of the properties I’m buying are already vacant.
If there are tenants in place, it may be more difficult to get the sellers to agree to this or if maybe they live there as their primary. But it’s always worth asking and always worth a try so that you can take a contractor through to get a more thorough estimate than what you budgeted for. So when you’re doing your inspection or even your showing before you offer on it is take as many pictures as you can and then take a video of the whole house so that way you can go back through and you can really build your budget like okay, there’s 13 windows in the property, they’re all going to need to be replaced. This is what a window costs and how much the labor is to put into it. And you can go through room by room and really build out your estimate and build out that scope of work which you can then give to contractors.
So even if you can’t get them into the property, you can send them the videos, the footage, the scope of work and they can kind of give you at least a ballpark idea. And then right when you close, you’re going to be able to get them right into the property and hopefully have them lined up.

David:
That’s such good advice. It’s very common I’ll hear people get discouraged, “My contractor can’t walk the house during the seven days of due diligence that I have. I have to back out of it.” And I just think that’s crazy because most of the time they can’t give you a super detailed thing. But in Long-Distance Real Estate Investing, when I wrote that book, I talked about how I do this when I’m not even in the area. And I’ve done it recently. I bought a house in Blue Ridge, Georgia or a cabin that you mentioned. You’re buying those two.
And when we were there, I actually taught my agent how to do this when I’m not here. I’m not going to be there on all of these, so get your phone out, take a video, walk through the garage, go slow at these parts and say, “Here’s what he’s wondering. Can we put a bedroom here, a bedroom here? Where would we put the bathroom? We want to knock down this wall.” And he takes a video of the whole thing in case the contractor’s trying to figure out, could there be a load bearing issue in that situation? Then we walked up the stairs of the garage to where basically they had a living quarter set up and we showed this is what the finishings look like here, we want you to match it downstairs.
He gave me a super tight budget of what it would cost to do that just based off the video. Then I closed and then they went in and said, “Oh okay, here’s a few adjustments we have to make now that we’ve seen the property.” But I didn’t need them to walk the whole thing. And it’s much, much simpler than I think we think. And it doesn’t even occur to a lot of people to take a video and then send it to the people when they’re not there. Is that similar to the method that you have in place when you’re buying?

Ashley:
Yeah, definitely. And a common question, and you had said sometimes you can’t get your contractor out there, and I’m seeing this a lot with the rookies recently that they can’t get contractors to come out to the property, especially if they haven’t even closed on the property yet, or maybe they’re not even under contract yet, but they’re new investors, they just want to take every precaution as possible. So one thing that you can do is you can offer to pay a contractor to come through it. So if you are not sure if you’re going to use them or not and you’re having a hard time, you can get that. But also what I’ve been doing is I’ve been building my own scope of work.
So if you have some knowledge or you have somebody that has knowledge, maybe they’re not a contractor or can’t actually do the work for you, but they could walk the property for you and build out, here’s the things that you need to do, build that scope of work and then send it to the contractor. So you’re not asking a contractor for a detailed estimate on what they’ll do. You’re going to send them that scope of work and hand have them fill in the line items. Then if you are sending this to three different contractors, you have very comparable estimates then because you actually built it out. And then also you’re going to get feedback I’m sure, and they’re going to give you something you miss, things like that. But that will also show you who’s actually a great contractor that’s looking out for you too, that they’ll give their input.

David:
What are your thoughts on having your contractor and your home inspector go on the same day when you can line that up?

Ashley:
I don’t know. I’ve never thought about that actually. I’ve never done that. I mean, I don’t see a disadvantage to it.

David:
What would hopefully happen is the home inspector sees stuff and he’s like, “Hey, that needs to be fixed.” But the contractor might not have known that this outlet’s not working or hey… Oftentimes, you’ll find outlets are wired the wrong way or the actual electrical panel isn’t set up correctly or the plumbing is funky. They’re like, “Yeah, that’s weird. Why is it running through here instead of there?” Where they can have the contractor include that in the scope of work if something needs to be done. And conversely, the contractor can say, “This looks weird.” And he can maybe have the home inspector look into if the studs were placed in the right area or if it was wired incorrectly.
That was one of the tips that I learned when I was investing heavily in Jacksonville, Florida and buying a lot of houses at one time, is if I could get both of them at the same time to do their walkthrough, it was less coordinating for my agent to try to figure out how to get the sellers to agree to this and then they kind of played off each other and it just gave me more information to review through the due diligence period.

Ashley:
Yeah, that’s a great point because then you only have to get access to the property one time by having them come at once. And then if for some reason somebody can’t do that, you can send the inspection report to your contractor.

David:
Yes, that’s definitely… We would always do that too. We’d say, “Hey, look at this, tell me the things that you think you could do cheapest.” Because if they’re going to be like it’s $9,000 to fix a little problem, I’m probably not going to have them do it. But sometimes they’re opening up the wall or they’re moving stuff around anyways, they’re like, “Oh yeah, while we’re there, we’ll just fix that.” And you don’t even have to pay anything versus if you had to call a plumber out specifically for that problem, they might charge five grand because they got to cut into your sheet rock and move things. But if you’re demoing the bathroom anyways, you can fix the stuff that shows up in the report.

Ashley:
That’s great too if you are planning on asking the seller to reduce the price or to cover the cost of some of the things that come up in the inspection too. So with having your contractor right there, you’re able to get estimates pretty quickly to be able to renegotiate too with the seller.

David:
Much better than trying to get your contractor to go the same property three times to get an estimate for a new thing when you’re in the middle of negotiating, which is a great segue to the next part of the process with after you put something in contract, it’s negotiating. What is your advice for how you negotiate to get into contract and then what’s your advice for once you’re in contract, what you can do to save some money there too?

Ashley:
Yeah, the thing that I like best, so there’s really two different scenarios, you’re off market or you’re on market, I think it is so much easier to negotiate for an off market deal because you can be direct to the seller and there’s no middle person there. So in that scenario, I’m usually doing a letter of intent where I’m stating the basic terms of the contract, the purchase price, the property, the seller’s information, my information, and the terms of the agreement and any contingencies, I like to send it to them and meet them within 24 hours. So I set a meeting with them, I’ll send it the night before, and then I go and I sit down with them. And I have a copy for myself and I have a pen ready to scribble things out and to initial things to make changes. So I like to get face-to-face for the negotiation and just ask them, “What are the things that you’re hesitant about? What didn’t you like?” And you’ll find out so much information.
I’ve had a seller tell me that he didn’t want to do it and he was kind of like offstandish and he said, “You know, I just need $2,500 a month, that’s what I need.” So what did I do? I worked backwards. I did 25-year seller financing, amortization at 3.5%, and that hit his $2,500 that he needed. And that worked out great for me and it worked out for him, but I never would’ve known that without just having a conversation and listening. So I think there’s so many different reasons people are selling or things that are important to them. So if you can get face-to-face with them, I think it’s a lot easier to read them when you’re talking about something that’s in the letter of intent, what’s important to them and what isn’t important to them.
And then it also gives you kind of the option to put out… So I always do this during the showing. I always ask if they’re interested in doing seller financing. If the answer is dead flat no right away, then that’s when I go and say, “Oh, I didn’t know if you had told your accountant, your CPA you were selling and they had recommended the tax benefits of that. That right there just kind of perks them up a little bit. And then it’s like, you know, there’s always some kind of little thing.” Well, I don’t know, I guess I could talk to them and stuff.” And, “Oh yeah, you should.” It’s many tax benefits.

David:
Can you share that briefly? What are some of the benefits that people can tell a seller about with why they might want to use seller financing?

Ashley:
The first thing is that the taxable income is spread out over the life of the loan agreement that they’re paying. So they’re not going to get hit heavy on taxes of getting a lump sum of money upfront. That’s usually the biggest thing for people. But also if they’re older, their seniors is having that fixed steady income coming in too. I’ve seen a lot of older sellers like that instead of… Especially in campgrounds, I’ve been going after campgrounds and they’re so used to having this monthly income coming in and to them to get this lump sum and now they want to stay within that monthly income that they’re used to getting and that can be seen with long-term rentals. But the biggest tax advantage is that they’re not getting hit as hard with taxes in that first year and it’s spread out.

David:
Yeah, they’re not filling the gain all at one time.

Ashley:
Yeah, and I think a lot of sellers too that are trying to build generational wealth. They see the value too of when I die, these payments are just passed on to my kids, my grandkids, so on so forth.

David:
Very good point. All right. Now what if someone’s using a real estate agent to buy the house? What advice do you have for them with how they can negotiate through their agent?

Ashley:
I think it depends on how much you trust or value your agent’s opinion and how much your agent is going to be working for you. I’ve been in a situation where my own agent that I was using made me feel embarrassed about the things that I was asking for. So I think that it’s very easy for things to get muddled. They’re going from the buyer to their agent, to the seller’s agent to them. And then if you actually get it under contract, in New York state, we have to use attorneys, then you throw the attorneys in the middle of that too and then it’s almost like six people that it’s actually going through.
So I think it’s a lot more difficult to have that conversation and that’s why I always put everything on paper. I write it out how I want it to be. So if I am asking for seller financing in the offer, I am going to write out that amortization schedule. I am going to say, “This month, I want to purchase it for this much.” But over the course of five years, you’re going to be making X amount in interest. And I lay it out. I don’t rely on either agent to explain that as even a benefit of it and showing that they’re actually going to be making more money by accepting the seller financing.

David:
Yeah. You got me thinking about why it becomes so complicated when agents are involved because you’re exactly right. It’s a good point. And I realized there are certain things that become “industry standard” when you’re dealing with agents and some of those vary by region. For instance, in Northern California it’s common for the seller to pay the property transfer tax but the buyer to pay the title and escrow fees. But in some parts of Northern California, you split title and escrow fees evenly. It’s different when you’re in the Bay Area or the Central Valley or the South Bay. What happens is there is no right or wrong way to do it, but the listing agent who’s going to propose the information to their seller is going to color it like they’re asking for something that’s not normal, they’re being greedy. They want you to pay for this. Well customarily, they’re supposed to pay for that.
So now the seller who doesn’t know anything about real estate goes, “Oh, they’re ripping me off.” And now they put their foot down like, “No, we’re not going to do it.” The agent’s like, “Yeah, that’s right, I’m going to save you money.” And then they go to the buyer’s agent and they say they’re not going to do it. The buyer agent goes to you and you’re like, “Yeah, go negotiate it again. That’s ridiculous. They should make them change their mind. That’s your job, right?” Now, the buyer’s agent is like, “Ugh, if I push too hard, they’re going to back out. If I don’t push hard enough, my client’s going to be mad.” And then you, the buyer has no idea what conversations are being had between the listing agent and the seller. And then when you throw in the uncle that wants to help and the dad that wants to protect their kid and the lawyers that are involved and everyone has their own set of values that they think should be operated by, it becomes very hard to do any negotiating at all.
Then, when you’re going directly to the seller, there’s not all of this presupposed way of doing things that you’re trying to fight through. It’s, “Here’s what I’m offering you. Does that benefit you?” “Kind of, but this would benefit me more.” “Okay, let me see if I can structure that in a way that benefits me.” And it’s much cleaner. You don’t have all of the traditions that sort of get associated with how to offend someone.
I was thinking in certain Asian cultures, it’s very traditional to bring a small gift when you’re meeting a new person and I wouldn’t show up bringing a small gift. I’d never think about that. We don’t do that where I’m from. And so you could offend people very easily and that happens in real estate sales constantly. And then you throw in different brokers that have different ways of doing things and different MLSs have different things and different title and escrow companies set things up differently. There’s so many ways to upset people. And each side is only hearing how the other side didn’t agree, and then both sides get really angry. It’s like game of telephone where things can get messy. So is that one of the ways that you like going just directly to seller because you can avoid all that?

Ashley:
Yeah, but I do have to say there has been times when having an agent has definitely been an advantage because maybe they are friends with the other agent or they know them well. And even times as it may seem unethical, there are times where agents do drop a hint or give a fact about the sellers that maybe other people putting in offers don’t know or things like that. Or even if you’re both wanting different prices and whatever, the agents are representing the buyer or seller, the different representation, they both want to sell the property. They both have the end goal of closing on that property to get their commission. So sometimes it gets to a certain point where the agents are more working together just to get the deal done. And that can be a huge advantage because you have the buyer and the seller’s agent both doing whatever they can do to make this deal happen.
So I’ve seen that, especially if something like a negotiation has dragged on and on and on or things come up. I had a property that I had under contract and I was doing financing on it, I was getting an appraisal done. The appraiser would not come out to the property unless the driveway was plowed. Seller absolutely refused to plow the driveway. So the real estate agents offered to split the cost of having the snow plow driver come in because they both wanted to move the deal and get it done. The plow driver actually got stuck in the driveway. It was another $400 to get him towed out of the driveway and it turned into this big awful thing. But just like right there, if it was just me negotiating with the seller, I am so stubborn sometimes that I wouldn’t have forked over the money to pay the plow driver, eventually maybe, but I think that was like, that’s definitely an advantage of having agents is when they decide to actually work together for what’s best for the buyer and seller to get the deal done.

David:
I’ve seen things like that happen that make no objective sense. So let’s say the seller doesn’t want to pay 500 bucks to get the driveway plowed, but it took them 90 days to get in contract. They’re going to wait another 90 days to find another buyer. They’re going to spend $7,000 in mortgage payments or more to go that period of time rather than spend $500 to plow their own driveway so that an appraiser can come into the property. But they get in that just stubborn, I’m not budging, and the buyers can do it too. That’s exactly right. A lot of what you’re doing as an agent, as odd as this is to say, is you’re negotiating against the other side, but you’re often negotiating with your own client. You’re trying to get them to see the ridiculousness of their emotional decisions.
Like we were the seller, the buyer was willing to spend 1.2. That’s where I negotiated the price to. It appraised at a million, the buyer’s still going to buy it and the buyer just wants the seller to fix some wood rot, a $2,000 thing and they’re like, “I’m not giving them anything.” And you’re like, “You do realize they’re spending $200,000 more than it’s worth and there’s a very good chance the next appraiser doesn’t give you that. And you might win this battle and then sell your house for the million it appraised for. You want to risk 200,000 over two grand.” And they’re like, “Oh, okay. I didn’t think about it.” Because people don’t think about it. They’re very emotional and good agents absolutely can bring some light into the craziness.
I think someone who’s experienced buying real estate often becomes experienced with humans. People think learning real estate investing is getting the numbers down. Man, that’s like the basics. It’s like the super fundamentals. That’s just dribbling a basketball and shooting a bat. It doesn’t make you good at basketball. Human beings and psychology is where your money really gets made, especially when you’re dealing with people. What advice do you have for people that are trying to break into real estate investing and maybe they’re struggling with understanding how to communicate better or the right way to present information?

Ashley:
The first thing is to read the book, You’re Not Listening. I’ll have to have the producers put in the show notes because I don’t remember the author offhand, but that book right there I think is exactly what you just talked about, is to understanding how someone’s feeling, reading their emotion and actually listening to them and not just trying to be reactive by responding right away and trying to rationalize with them. A lot of times people just want to be understood, they just want to be heard. And if you’re actually listening, you can maybe see some underlying thing that will help you actually resolve and solve the issue instead of trying to rationalize with them or really see what’s going on.
The other book that I would recommend is Hug Your Haters by Jay Baer. It’s a customer service based book, but I think it is a great read for anyone. So whether someone is giving you constructive criticism or bad feedback or you’re dealing with a difficult seller or a difficult client, this just goes through the steps of how to handle that situation. It’s kind of an exaggeration of kill them with kindness. It just shows all these cases of when somebody is almost attacking you or arguing with you, especially when you’re in a negotiation as to how you can handle that situation to end up getting them to be thanking you.
Between those two books, I think those are really great reads, but communicating with people, that I have learned so much along the years. I have worked alongside this investor for almost eight years I think now, maybe even longer. We often laugh at how far I have come. I started out as a property manager and just dealing with tenants. I would just get so flustered, I would get overwhelmed. And now it’s just handling different situations, staying calm, cool, collected, actually really thinking about how to respond because you can learn how to read people and all those things, but you’re not going to be able to actually take notice of things if you’re not yourself listening to them and actually observing. And you have to be able to stop yourself from reacting right away and going back and defending yourself and getting defensive before you can actually see the big picture of what they’re trying to explain to you.

David:
That is a very good point. You want to understand where they’re coming from before you try to make them understand where you’re coming from and that takes some discipline. That’s not a natural response.

Ashley:
And you just said everything I said in one sentence. That could have been way shorter.

David:
Well, I had the benefit of thinking of my response as you were giving yours. Don’t be too hard on yourself there.

Ashley:
And that’s part of the book is don’t think of your response. It’s like most people don’t listen, they’re actually thinking of their response, which is so hard to do, so hard to do.

David:
Yeah. That’s like our baseline right off the market, right off the factory assembly line is to be defensive and to try to prove people that we’re right, which is so weird because it’s wildly arrogant to assume you’re right about everything all the time. We all know the value of learning, but for some reason when we’re in a conversation with somebody else, we don’t think about learning. We think about how we need to teach them. We need to get them to see things from our point of view. I always use the example of if you’re a boxer and you’re trying to knock out your opponent, it doesn’t work when their hands are up and they’re not tired, you’re just going to punch yourself out and get tired. What you want to do is let them punch themselves out. Don’t try to knock somebody out until they’re tired they don’t want to be fighting anymore, which you usually do by getting them to talk.
Once someone has said everything they need to say, they’ve got it all out of their chest and they told you how they feel, they are at their most vulnerable point as a human being ever, that’s when you want to deliver your information. That seed will hit the softest, most fertile soil versus when you’re trying to shove it in there before the person’s ready to hear it. It actually just saves you a lot of energy too. That’s a great point. Thank you for those two books. Now, moving on to insurance. What are some things that people should need to know when looking to buy their house about homeowner’s insurance?

Ashley:
The first thing is finding an agent that’s familiar with doing landlord policies or whatever your strategy is. If you’re flipping a house and it’s going to be vacant, your insurance policy is going to be very different from a property that actually has somebody living in it. If you have a long-term rental property, if you have a short-term rental property, your insurance is going to be different. The cost of a short-term rental is usually higher than say your primary residence, but the cost of a long-term rental can oftentimes be lower than your primary residence because you’re not covering any of the contents in the building. So aligning with an agent as to who has experience in these different realms or whatever your strategy is and having them actually sit down with you in going through the policy as to what’s covered, what’s not covered.
So like something that could not be covered on an insurance policy here in New York is in basements, there are sump pumps oftentimes, to pump out any water that comes into the basement of these old, old houses at these old foundations. That’s like an added coverage onto most policies and you have to ask to have that added so that if the sump pump doesn’t kick on or have a malfunction, your insurance policy will cover that. Also, you can get a discount for so many things. Like having a sump pump, you can get a discount for because it will pump out the water if there is flooding. So there’s different things and find out and ask what those discounts are because they can really add up.
The next thing is any specialty insurance that’s needed on the property. So Tony Robinson, my wonderful co-host, he bought a property in Louisiana and he had to get flood insurance on it and the flood insurance skyrocketed where the property became unaffordable to him. So that’s why it’s important to find out the information beforehand, and this was his first investment property and it’s been a learning experience for us and many listeners too to understand, but there is earthquake insurance. There’s all these different types of insurance policies that you can get and some of them are required, especially if you’re getting a mortgage on the property such as the flood insurance.

David:
Okay. Last question for you. Do you have a preference between paying a little bit more to have an insurance agent that you communicate with if there’s a claim or if there’s a question or do you recommend people go the cheapest route possible and find an online insurance agency where you have to deal through virtual assistance or AI?

Ashley:
I don’t know if there really is a cost difference because when you hire an agent, you’re going through… So actually first, I wouldn’t go with an agent. I would go with an insurance broker because they’re able to quote it out to multiple companies. So then you’re getting the quotes back and then you can go ahead and choose from there. That’s my biggest recommendation. As far as doing an online site, I don’t know this for sure, I’ve never used them before, they say that they’ll quote out your policies and give you the estimates back. As far as them offering it discounted, I don’t know because it’s actually the insurance company sending the offer and not the actual agency. I don’t know. That’s a good question.

David:
Yeah, the insurance company sending the offer will often make it cheaper if you do it through the online portal because they don’t have to pay a commission or a wage to the person who brought them the business.

Ashley:
Commission?

David:
Yes.

Ashley:
Interesting.

David:
The problem is when you make a claim through that, you get no help. You can’t email someone and say, “I have flooding, what do I do?” That’s what everybody wants. You’re forced to go through the phone tree and they’re like, “Well, the reason we gave you the discount is because we don’t pay anybody to service your claim.” And I’ve just seen people pull their hair out of their head going, getting bounced from person to person or dealing with bots or not getting a reply or talking to someone who doesn’t speak English that just gives them a case number and hangs up on them.
It’s very frustrating if you ever have to deal with the insurance company, and that’s why I bring this up because it often seems like an easy way for investors to save money, which is funny because your insurance is such a small piece of your whole real estate budget. It’s probably the worst way to try to make it more profitable is by saving $12 a month on your insurance program or something. But if you have an insurance broker, like you said, you have a human being that you can go to and say, “A tree fell on my roof, what do I do?” And they say, “We’ll take care of it, we got you.”

Ashley:
And not even that part of it too. I find the biggest reason I need to talk to my agent or broker is because I need a copy of my policy binder showing that if I’m getting a new mortgage on the property or some kind of new financing that the lender is actually added on as a loss payee and just having that done quickly or just being able to put insurance policy on a property. And this is why I went through and made this acquisition checklist, it was because several years ago my agent called me the day before closing, my real estate agent, “Okay, are you all set to close? You got the utilities switched in your name, you got your insurance.” And I panicked. It just slipped my mind. There was just so many things going on and I just forgot this one basic necessity. And having an agent where I could just call right away and send them the information and say, “I need insurance asap. I’m closing tomorrow.” And having that relationship where they will drop everything and take care of that for you.

David:
All right. Last question of our show. What can someone expect on closing day if they make it that far?

Ashley:
That varies by how you actually close on the property. So there are several different ways. In New York state, you have an attorney. You could either go to the county clerk’s office and sit at a closing table, and that’s quite common if you are using to purchase it with a mortgage where you’re going to meet the attorney for the bank, you’re going to sit down in actual closing table and then your attorney is going to take the documents and file them with the county clerk.
If you’re in a state that you don’t have to use attorneys and you can just go through title, you may have to go to the title office and sit there and sign the documents, or you can have a notary and you can go to your attorney’s office ahead of time, sign, they’ll notarize them, or the title company can send a notary to you. You see a lot of investors on Instagram posting how they’re signing closing documents from the beach or a restaurant on vacation. And so I think closing has started to change. Like my attorney’s office, pre COVID, I always had to physically go into the office the day of the closing, then the papers would be rushed to the other attorney’s office that same day, then it would go and actually be filed that same day and I would bring the check and the check would be brought along.
Now, I just went and signed yesterday for a property that’s closing. It’s not going to close until next week. The funds are being held in escrow until closing, and then they will be released when it’s actually filed with the clerk’s office. So the paperwork between the next five days, the paperwork went from me to the buyer and then it will go to the clerk’s office all within that timeframe. So there are so many different ways. The most exciting I think is when you’re actually sitting at a closing table, you get handed the keys after you sign and you give your check, but I really have not seen that happen. Oftentimes, I don’t even get keys to a property anymore it seems like.

David:
Yeah, that’s true. You rarely ever get handed keys. Like your agent figures out some way to coordinate those. That’s a good point. What are some things you recommend that on closing day, when people go sit down, assuming that they’ve gone through an escrow company and a real estate agent, they’re not working directly with seller, that they should be looking at in their closing paperwork to make sure that it’s accurate?

Ashley:
So even like the day before closing or maybe the morning of closing, you should be going to the property and doing a final inspection, a final walkthrough. Even if you’re buying a property that’s been vacant the whole time you’ve had it under contract, you want to go in there and make sure the pipes didn’t freeze and water burst all over, different things like that. You still want to go and make sure the property is in the same condition as when you put it under contract. So that’s the first thing you should do. Then on the actual closing days, looking at the closing statement. And if you are working with a great title company or attorney, they should send this to you ahead of time to actually review.
So if you’re purchasing a property that has tenants in place, you want to make sure that you’re being prorated for the actual rental income. So maybe the tenants pay on the first, but you’re closing on the 15th so that it’s prorated for the 15 days that you’re going to be taking over the property and they’re keeping the first 15 days that they own the property. Also, if there’s a security deposit, that you are getting the security deposit. So that’s usually seen as a credit on the statement. So it’s not like you’re actually getting a check for $600, they’re just taking $600 off of the total purchase price.
Then you want to make sure the property taxes are prorated, which will be figured out for you. The seller had paid any that still cover part of the tax year. And those are kind of the big things. And then also just be aware as to what kind of fees you are paying, filing fees, title fees, survey fees, if any, things like that. And just get familiar with what a closing statement looks like. You can Google one and just look at, get familiar as to different charges that are on them. And if you’re closing with a mortgage too, it’ll definitely be way more in depth than if you just have your attorney put it together for a cash deal.

David:
Those are great, great points. Another one I’ll add, this is something that’s in my checklist that I have my assistants whenever I’m closing a property that they do, because it happens so frequently, is the closing costs that we’re negotiated are often not included in the paperwork. And I always would just get so angry like someone’s screwing me over until I realize how it works is the agents fill out the addendum, they work it out. Sometimes there’s two or three of them going back and forth before you finally agree, or more, on what it’s going to be. Those are forwarded to the title company. If they’re not forwarded to the title company, the title company has no way of knowing, or I should say the escrow company, has no way of knowing if those should be included. Even if they are, often the closing statement was filled out before the negotiations were done.
So some employee at that place gets the email that says, “Here’s addendums.” And they don’t read all of them, or they don’t look at them closely and they just don’t see, oh, $7,500 credit is supposed to go to the buyer because when they were originally negotiating, that wasn’t in there. So you should know going in what your credits that you’re supposed to be getting and whether they’re lender credits, they’re credits from the seller, or if it’s the other way around, if something was adjusted, if the appraise price came in lower and you adjusted the purchase price down. Don’t assume that the closing paperwork is going to reflect that. As the buyer, you have to go in knowing. And it’s okay to delay closing if you say, “Hey, this needs to be fixed.”
So that’s one of the reasons that we always try to schedule these last like when you go to sign your paperwork early in the morning. Because if you do it at four o’clock in the afternoon because that’s when it’s convenient for you or whatever, you try to figure it out at your lunch break at 2:30, it’s too late in the day to get the new documents drawn up and get all the approvals and now the closing is delayed by a day and that can screw things up. So there are still human beings that are involved in putting this stuff together and human beings make mistakes.
All right, Ashley. Well, this has been fantastic. Thank you so much for sharing so much of your knowledge, wisdom, and time with us on specifically how to get a property for someone who hasn’t got one or hasn’t got many. Before we let you get out of here, where can people find this book?

Ashley:
You can go to the BiggerPockets bookstore. And if you order before January 10th, which is when it officially releases, you get some of the pre-order bonuses, a bunch of worksheets and just tons of forms and documents I’ve put together over the years. But also you could win a chance to actually be mentored by Tony and I, and it’ll actually be recorded and played live on the Real Estate Rookie Podcast. So you’ll get some help from us and you’ll actually get to be a guest on the podcast too.

David:
Awesome. So go check that out. Unless you’ve got a million properties, go get Ashley’s book and learn how you can get more. And if you already do have a couple properties, learn how you can do it better, right? There’s lots of ways, like we talked about on the show, where you can make pretty big mistakes. So if you heard anything on today’s episode and thought, “Ooh, I’m not doing that.” Go get the book and see what else you might not be doing.
Thank you very much for your time, Ashley. I know you’re a busy woman, so I’m going to let you get out of here. Guys, if you liked Ashley’s show, go check her out on the Real Estate Rookie Podcast. Ashley, where else can people find out more about you?

Ashley:
You can reach out to me on biggerpockets.com, my profile there, or on Instagram, @wealthfromrentals.

David:
And you can find me on Instagram or YouTube or anywhere else, @davidgreene24. All right, thanks Ashley. Good luck with your book sales and we’ll see you soon.