September 2023

Ashley:
This is Real Estate Rookie episode 318.
We all love seller financing, makes things way easier most of the time than going to a bank and doing conventional financing.

Tony:
Say, the house is worth $300,000. Say I agree to buy her property and it’s a $2,000 a month payment. Now, she’s only paying taxes on $24,000 a year versus the $300,000 per year, that she get if she sold the property.

Ashley:
My name is Ashley Kehr and I’m here with my co-host, Tony J. Robinson,

Tony:
And 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.
And today we are back with another Rookie Reply, as always, we’re happy to answer questions from the rookie audience. And if you want to get your question featured on the show, head over to biggerpockets.com/reply and we just might choose your question for an episode.
So Ash, I guess really quick, give me an update. What’s going on in Ashley Kehr’s world today?

Ashley:
Well, for the first time ever, one of my real estate friends that I have met across the country, I’ve met a lot of real estate people. Someone is coming to visit me in Buffalo, New York.

Tony:
Going all the way to Canada to come hang out with Ashley for a couple of days, had to get his passport.

Ashley:
Yeah. Literally only for two days, but I’ll take it. So yeah, I’m super excited about that. He’s coming in this week and I’m going to show him some of my properties and hopefully do some fun stuff. And you just had your baby shower?

Tony:
We did. We had the baby shower. So Sarah’s due here just in a few short weeks now. I think we’re about seven weeks away, so time is ticking. So we had a house full of gifts the day after the baby shower, so we’re starting to build stuff and we got to get the nursery repainted, so-

Ashley:
You got to build an addition on just to fit all your stuff.

Tony:
Yeah. Just to fit all the stuff. And then my son actually started his sophomore year of high school today also, so just lots of stuff going on in the Robinson household this week when it comes to the kiddos, but exciting times. We’re happy for it.

Ashley:
Yeah. Awesome.
Well, on this week’s Rookie Reply, we have five great questions. We’re going to go through, a couple of them even pertain to partnerships. So if you guys haven’t already check out our new book Real Estate Partnerships, you can go to biggerpockets.com/partnerships and you guys can even get a discount if you use the code, Tony or Ashley.
Okay. So one of the questions that we talk about is seller financing. So if you’ve been wondering how to structure seller financing, what are some of the pros and cons, and what you should do as far as approaching a seller about seller financing? We kind of do a little mini breakdown of the tax advantages for a seller and also how to present the seller financing to the seller too.

Tony:
Yeah. We also talk a little bit about closing costs. What are typical closing costs in a real estate transaction? Who pays for what between the buyer and the seller? And we also talk about like, “Hey, just if I want to invest in real estate, what is kind of my roadmap of steps? What should I do first? What should I do second?” And we break that down. So overall, lots of good questions. Excited to get into those.
Before we jump over to the questions though, I would love to get a shout-out to someone that’d love to say 5-star review on Apple podcast. This person goes by the name of ScottyDude2314. But Scotty says, “Every time I run into a situation, I come back here, look for the episode that relates to that situation listed, take notes and execute. Thanks so much for y’all’s help. Closing on my first 12 plex this month.” And he says, “Constantly coming back for more knowledge.”
So ScottyDude appreciates you and kudos to you on getting that first 12-unit under contract. And just last piece, so Scotty makes an incredibly important point. We have hundreds of episodes of the Rookie podcast and I can almost guarantee that most situations you might find yourself in, has probably been solved and thoroughly discussed on some episode of the Rookie podcast.
So if you ever find yourself stuck, you’ve obviously got the BiggerPockets forms, the Facebook groups, but don’t sleep on the 317 episodes that came before this one, that have tons of information about your real estate journey. So be sure to check them out, use them as a resource and share it with someone that might benefit from it as well.

Ashley:
Okay. So today we have an Instagram shout-out to Artina Marie. So Artina, A-R-T-I-N-A, Marie, M-A-R-I-E. You can follow her on Instagram at her name, and she is a serial entrepreneur obsessed with passive income and sharing her real estate journey. So go and give her a follow and check out her Instagram and follow along her journey.
Okay, today’s question is asked by Nicole Marie. Remember, if you would like to submit a Rookie Reply question, you can go to biggerpockets.com/reply.
So Nicole’s question is, “What is the first step? My credit score is good. I have about $40,000 to put down. I want to BRRRR a rental property, but I’m stuck trying to figure out if I look for properties, meet with the real estate agent or get financing first. But then it’s like how do you get financing without a property to give them numbers for? I also can’t HELOC, do a home equity line of credit or live in it for FHA. So that limits me to conventional or some type of financing that allows the rehab budget in the loan. I’ve been reading a lot and I’m just confused how you start and take the first step.”
Okay, so the first thing, awesome, you have a great credit score and that you have some cash $40,000 to put down. That definitely opens up the doors for you to have available. And then you want to do BRRRR, a rental property. So remember BRRRR is buy, rehab, rent, refinance it, and repeat.
So the question is, “Do I start looking for properties, meet with a real estate agent or get the financing lined up first?” These are actually two things you can do simultaneously. If you do have your financing and your funding lined up, when you find a property and you’re ready to make an offer, it definitely makes it a lot smoother, easier process because especially if you’re in a hot market and you put in an offer, you’re going to have to put in your proof of funds or your proof of financing. How you are going to fund the purchase of this property, and sometimes those offers have to go in quick and being able to go through the pre-approval process may not be quick enough to actually get that for your offer letter.
So Tony, let’s kind of break down as far as her options for doing a loan. So she can’t live in it and get FHA, or she had mentioned a home equity line of credit, but you have to actually already own the property and to be able to get the line of credit on the property, you can’t get a line of credit to use it to purchase, unless that line of credit is on another property.
So in her current primary residence, if she was able to go and get a HELOC, she could take that money to go and purchase the property. But she’s going to say she can’t do that and she can’t get an FHA loan, so conventional or some other type of financing, but she wants to do the rehab budget in the loan.

Tony:
Yeah. I mean there’s tons of options out there. I mean, we’ve used a lot of private money to fund our rehabs. Ash, I know you’ve used similar and hard money, so those are always good options, Nicole as well in terms of how to make that piece work.
But Ash you mind if I just want to even take it one step back a little bit and just kind of give for all of our Rookies the framework of just in general, what are those sequence of steps look like? Because obviously we give a lot of content on the podcast and there’s tons of information on YouTube and social, but sometimes it’s hard to sequence those different pieces of content correctly. So you know what to do first and what to do next.
So when I think about a brand new investor, someone that hasn’t done anything yet, but they’re in that kind of early education phase. I think the first thing that you need to do is identify your investing strategy. Now Nicole, you’ve already seems like decided on that, that you want to borrow properties, that’s a good first step. But for everyone that’s listening, the first step is, “Do I want to do long-term buy and hold? Do I want to do short-term rentals? Do I want to flip? Do I want to wholesale? Do I want to do large syndications? Do I want to do self-storage?” Decide on your type of investing in your asset class first.
Once you’ve got that piece nailed down, the second step in my mind is to identify what your purchasing power is. So again, Nicole, you’ve kind of alluded to this a little bit already, but generally speaking, your purchasing power is made up of two things.
It’s the capital that you have available or at least access to invest, and then it’s what kind of loan product can you get approved for. So when you combine how much capital you have to put into an investment with the amount of debt you can get, that lets you know what type of property you can afford buying.
I think a mistake Ash, I see a lot of new investors make is they get all enamored with this certain type of investing strategy with a certain market. Then comes to find out they can only afford a fraction of what it costs to invest with that strategy in that market.
So I think identifying what your purchasing power is first before you do anything, can save you some wasted time because then, say that you look at your purchasing power and you’ve got half a million dollars in the bank and you’ve got the ability to get approved for a $5 million loan, that gives you a lot of options. On the flip side, if you’ve got $40,000 to invest and you can get approved for a $250,000 loan, okay, that’s going to dictate what kind of markets you can look at while you’re looking to invest.
So Nicole, you’ve already kind of taken that first step of identifying the 40K, but yes, I would 100% say understand the financing piece, so you don’t waste your time looking at properties as you can’t necessarily get approved for.
Once you’ve gotten your purchasing power, the third step is market selection. And I don’t think that Nicole in this post here, in this question, specifically talked about which market she’s looking to invest into, but I think that’s an incredibly important piece is the market selection to really be able to get good at finding deals in that specific market.
Because another mistake that we see a lot of investors make, Ash, is that when they first get started, they kind of have the shotgun approach where they’re just looking any and everywhere for properties. When ideally you want to be able to narrow it down to a small of, I guess a radius as you can. So your market selection, and then you can go into the deal flow and the due diligence piece.
But I just wanted to give that overview. I mean Ash, I don’t know, is that in line with kind of what you typically feel makes sense for Rookies also?

Ashley:
Yeah, definitely. I think we can kind of go into as to how she’s going to fund the rehab now. That was the next part of the question and looking for different ways and going through a bank to actually fund the rehab. So Tony, you did do this correct on one of your Louisiana houses?

Tony:
Yeah. So my first two or three long-term rentals out in Louisiana, we had a bank, it was a local credit union that funded both the purchase and the rehab of those properties. Now, there were stipulations or I guess boxes we had to check to be able to get approved for that kind of mortgage. Specifically the purchase price in the rehab had to be no more than like 72% of the after repair value, but I was able to get funding for both the purchase and the rehab.
So Nicole, there are banks out there that will give you that type of loan product. I think it’s just a matter of picking up the phone and calling as many small and local banks and credit unions in your chosen market to see which ones have an option that might be able to work for you.

Ashley:
So one thing that I was thinking of when I saw that there was $40,000 to put available in this, would obviously depend on the market that you’re into as far as how much would $40,000 get you, but you could use some of that money for the down payment. So that means you are going to be able to afford less property since you now have a smaller down payment and then use maybe the other half or a portion of that 40,000 to fund the rehab.
With the rehab, you can also structure it with your contractors or if you’re doing the work yourself, that you will cover materials yourself that you will purchase them, instead of having the contractor go and purchase and then bill you for the materials. And one of the advantages of doing that, is that you’re able to get 0% interest rate credit card.
So this is usually over a period of time, you have to be super diligent about credit card usage and maybe not have a history of collecting debt on your credit cards, but in this scenario you want to be able to go and get a credit card. We did this recently for a property and we did a credit card that was 12 months 0% interest. Over those 12 months, if you made the minimum payment on time for the 12 months, they actually extended it to a 0% for 18 months. We didn’t end up needing the 18 months anyways because the project had completed, we paid it off.
But having a long time just in case something does go wrong with your project, you’re not racking up this debt of material costs and then all of a sudden you have a 22% interest rate, that you’re paying on the credit cards. But going through and putting those on and then you would go and refinance the property and then pay off the credit cards would be that last step to get rid of it.
But it can be a huge advantage that you are getting your materials paid for at 0% and not borrowing any money from anyone. And that can be a huge chunk of your actual construction costs, your rehab costs, and then you would just have to come up with the cash to pay your contractors unless some of them do take credit card.
We do work with some vendors, like plumbing companies and stuff that they do actually. They’ll send an invoice to email, which is through QuickBooks and they actually have an option to pay by credit card too if we wanted to. So it really depends on the contractor and vendors you’re using, but that is definitely a tool you can use, is the 0% credit cards to cover a portion of that rehab cost too.

Tony:
Yeah. I think the other option is to, if you did want to bring someone else into the fold, like Nicole, let’s say that you have someone in your life that maybe has whatever, say your rehab budget is 50,000 bucks. Someone in your life that has $50,000 that’s just sitting in the bank account earning whatever single digit percentage, and you say that to this person, “Hey John Doe, I’m going to give you 12% annualized returns if you let me use this money.” Then you go out, you fund your rehab with that person’s capital and then at the end of the deal you refinance and you pay that person off.
So similar to the credit cards, but the benefit I think of the private money is that it is a little bit easier to use in all situations. So like most vendors, if you’ve got cash from your private money lender, then you’re going to be able to pay that person.
So again, we’ve used private money pretty extensively, actually exclusively for all of our rehab projects and it’s worked out I think well for both parties.

Ashley:
Okay. So our next question is from Rob Malloy. Okay, so Rob’s question is “I just read Ashley Kehr’s article on finding a partner and I had a couple questions about method number one. Ashley got a partner to purchase the duplex in cash. They split the cashflow 50/50 and she pays them five and a half percent interest over 15 year for the purchase price without bio option at any time. Why go this way? Is this more beneficial than financing through a bank to begin with? Reason I ask is that I’m looking at a duplex, both sides already rented and the numbers seem to work if I go with 15% down and I just manage the property myself, what would you do? Does partner make sense? Thanks for taking the time.”
Okay, so this scenario that Rob is talking about, is my first ever partnership with Evan and I had the limited belief at this point in time that you could not go to a bank to purchase an investment property. I just thought that you could only pay cash because the investor that I worked for, that’s what he did. So I didn’t even know there was an option to go to the bank. I would not do this scenario again.
Now, Tony and I have been talking about this a lot lately as to the value of having experience and knowledge and other types of sweat equity, that brings so much value to the table rather than just the money. And I didn’t value myself enough at this point where I gave 50/50 partnership. So they got 50% of the cashflow, we eventually sold the property so they got 50% of the profit of that property and then they got five and a half percent interest plus all their money back that they had invested into the purchase price. So sweet deal for my partner on that. The thing with this is that it got me started.
So this is an option for you and this is maybe your only option, then yes, if that gets you into a deal because me making that 50% of the cashflow was better than me making no money off of this property at all.
So in Rob’s situation, he’s saying he’s able to put 15% down and manage the property himself. So he must have found a bank that would allow him to do 15% down. As far as managing the property yourself, if you’re going to do that, make sure when you run the numbers, you’re still adding in for a property management company.
So research your areas, find out how much it would cost for a property manager in your area so that later on if you do decide you have the option to be able to go and hire a property management company and it’s not going to kill your cashflow.

Tony:
I think the only thing I’d add there, Ash, is that for Rob and for everyone that’s listening. Anytime you enter into a partnership, there should be a reason why. Ash and I talk about in the partnership book about your missing puzzle piece, so ideally you should be entering into a partnership because you’re partnering with someone that has a complimentary skillset ability resource to yourself. But if you have everything you need to do this first deal, then maybe it doesn’t make sense for you to partner.
So Rob, if you are in a position where you’ve already got the financing lined up, you’ve got the capital available, then maybe giving up 50% of your deal doesn’t make sense. So I think every person should be assessing their own unique kind of personal situation, trying to understand where you feel that you have maybe a shortcoming or where you’re lacking or whether it’s experience, money, time, whatever it is, and that’s when you want to partner. But if you can check all those boxes for a deal, then it might make sense to move forward by yourself.

Ashley:
Next question is from Brett Miller, “How common is it as a buyer purchasing a cash only property is expected to pay closing cost? Isn’t the seller supposed to pay closing or is that traditional financing typically?”
So this is a great question, because it really can go either way. Before we even talk about that, let’s break down what some of the closing costs even are when doing a property.

Tony:
Yeah, you read my mind. I was actually about to pull up my last closing disclosure here to look through what those closing costs were. So there typically are just like as an aside, there typically are more closing costs when you have financing, because lenders are going to require more paperwork and there’s more things that they need and they got to get paid.
So a lot of times there is more, but I’m just going to read through here and see what some of my closing costs were on this last flip that we recently sold. So I had taxes. So there are taxes that were due that I had to pay. Me as a seller, I had to pay those. There was my payoff to my private money lenders. I had mortgage security documents recorded with the county. So before I could get paid, I had to make sure that my private money lenders were paid back, their principal plus their interest.
I had my real estate commissions. Typically, a seller will cover the commissions for both the seller’s agent, so for their own agent and for the buyer’s agent. So for this flip that I sold, that’s what it was. Mine was a total of 5% in commission. So two and a half percent went to my agent. The other two and a half percent went to the buyer’s agent.
There’s a bunch of title cost. I probably spent, I don’t know, somewhere around 3000 bucks, maybe a little bit more on everything related to title and escrow. There’s some county taxes just for paperwork and things like that. Some additional kind of inspections for septic and natural hazard disclosures and things like that. That was actually everything that was on this closing disclosure.
So some of those things are going to be present no matter if you’re going with financing or if you’re going with cash. But we actually also gave the buyer a small credit because they had things on their end like an appraisal they still have to pay for. There are points they might have to pay to their lender to close this deal.
So sometimes as a seller you might also give credits to the buyer, which is what we did in this situation as well. But I feel like that’s a decent idea of what you could expect to see for closing costs on a property transaction like that.

Ashley:
Yeah, one thing too, depending on what state you’re in, you may have to pay attorney fees too at closing. So New York State, you have to use an attorney to close on a property and usually it’s the seller’s paying their own attorney and the buyer is paying their own attorney too. And sometimes that would just be added into the closing cost or your attorney can actually bill you separately, but that’s still going to cost you and that’s still money you need to have to come up with the closing costs too.

Tony:
So I guess to answer the question in a nutshell for Rhett, because again, he’s saying, “How common is it as a buyer to place some closing costs?” So the answer is yes. There’s still probably some closing costs you’ll incur. Definitely not as many as if you have a mortgage or a lender that’s kind of facilitating that transaction.
But you can also negotiate with the seller to say, “Hey, Mr. and Mrs. seller, I’m super interested in your property, but my one condition is that you cover all of my closing costs.” And depending on where we’re at in the market cycle, they might say yes. And like I said, the last flip that we sold, we covered all of that buyer’s closing costs because it still makes sense for us to sell the property that way. So don’t be afraid to ask Brett, I think to have those costs covered. And the worst I can say is no.

Ashley:
Okay, we have a seller finance question next, and this is by Bill Rogers. “So once you have a house under contract, how long until you are able to refinance? I know you don’t want to do it right away, especially with these rates, but isn’t that one of the ways you actually get sellers to do seller financing is for tax mitigation reasons? Is this something that would have to be written in the terms of the contract?”
Hey, so seller financing, we all love seller financing, makes things way easier most of the time than going to a bank and doing conventional financing. But the first question here is, how long until you are able to refinance? So in Bill’s situation, we’re going to assume he’s going and doing seller financing and then going to refinance out of the seller financing.
So you can set it up however you and the seller agree, but you want to make sure that you have enough time that it’s not too short of a time. So some banks require a seasoning purchase from when you purchase the property a seasoning period. So it can be six to 12 months from the date of purchase. So you don’t want to make your seller financing due, you are only doing it over the course of three or four months.
You want to make sure that you have enough time to go and do the refinance on the property, but really you could set it up for… Pace Morby, we’ve had him on the show, he talks a lot about seller financing and he’s done 40-year terms where he doesn’t, he’s paying the person for the next 40 years on the property and there is no rhyme or reason for him to go and refinance. It’s really all about how you set it up.
Maybe if you do get a great great interest rate with them or you have great terms where your payment is low enough that it works for the property. When you structure the seller finance deal, you want to create an amortization schedule. So the amortization schedule is going to show you the full amount you’re borrowing, the monthly payments, how much of that monthly payment is principal, how much of that monthly payment is interest, and then what the balance would be due if you were to pay it off.
So this is one way you can kind of negotiate with the seller too is like, “Hey, look, over the course of one year, I’m going to be paying you an extra $10,000 in interest that you wouldn’t get if I went to a bank.” So Bill had mentioned the tax mitigation reason, the tax advantage of doing seller financing for a seller, but there’s also ways that the seller actually makes more money because they can make the interest off of you too.
So he said something in here about how he doesn’t know if he would go right away, especially with these rates. So if you can get a great rate and great terms from the seller, there is no reason to go and refinance, but you want to make sure in your contract that you have that.
So what I do in several of the times that I have done seller financing is I will do instead of a balloon payment. So a balloon payment is saying that you’re going to do seller financing for 12 months and then the balance that is locked after you’ve made payments for 12 months is due in a balloon payment, paying that whole chunk. So that’s where you typically go and refinance with the bank.
What I have done is I try to push it out as long as possible, but I will do a loan callable date. So this would be in three years, the seller has the option to call the loan instead of a mandatory balloon payment. This is where the seller can say, “You know what? No, keep making payments. I’m not going to call the loan.” But anytime after that year three, they can call it, but they have to give me eight months written notice to be able to call the loan. And then I would have eight months to be, “Okay, I need to figure out how I’m going to go and refinance this and pay this off.” But eight months will give me plenty of time to do that.
So when you are writing up your contract with the seller, make sure you are putting in these kind of different exit strategies or things that work for you and the seller. And that’s where I really like to get face-to-face for seller financing, sit down and go through everything.
I will send a seller the contract and the amortization schedule. And as much information as I can, the night before I’m meeting with them to give them some time to review it, and then I will sit down with them the next day and walk through the whole thing, so that way I can pick their brain as much as possible as to, “Okay, you don’t agree to this, let’s figure out what we can change, what we can do.” And I try to get down to figure out what’s their real motivation, what do they really want, and then just try to negotiate and adjust the contract right then and there to make it work. So that’s the amazing thing with seller financing is you can set it up so many different ways.
One thing I would really try to avoid is prepayment penalties. And a lot of commercial lenders will do this for banks where they’ll say, “Okay, we’re doing this loan, but if you pay this loan off within the next five years, you’re going to owe us 2% of whatever the balance is as a fee for paying this loan off early, because we’re banking on making this money off the interest.
So if you can avoid that with sellers, then you can go and refinance at any time. And that keeps your options open, especially if you decide you want to go refinance because you want to tap into more equity to pull that out of the property. Or maybe rates do go a lot lower than what you’re paying in seller refinancing, so you can go ahead and refinance to the better rate too.

Tony:
Yeah. What a world-class breakdown Ash, on seller financing. I think the only part of the question that’s probably still lingering there, and I just want to clarify a little bit, is the tax mitigation piece.
So to explain what Bill’s talking about here. Again, he says, “Isn’t that one of the ways you actually get sellers to do seller financing as for tax mitigation reasons?” What he’s referring to here is that when, say that I’ll use Ashley myself as an example.
Say that Ashley owns a property and whatever, say she owns it free and clear and say, the house is worth $300,000. If Ashley goes out and sells that property, she’ll have a taxable event on the net proceeds of that sale, right? So again, say, whatever, say she makes $300,000 if she were to sell that property in full.
What some folks, now obviously there are some ways to get around that you could do like a 1031 exchange or something to that effect. But say she wanted to avoid that big taxable event for selling that property, yet she still wanted to tap into that equity. The reason that seller financing becomes attractive to folks in Ashley’s situation is because say I come to her and say, “Ashley, look, if you sell this property to John Doe, you’re going to have $300,000 taxable event that you have to worry about. If you sell or finance it to me, the only money that’ll be taxable is the payments that I’m making to you on a monthly basis.”
So instead of say, I agree to buy her property and it’s a $2,000 a month payment. Now she’s only paying taxes on $24,000 a year versus the $300,000 per year that she get if she sold the property. So for some people there is a tax incentive to not cash out on day one and instead take those payments over time. Now, I’m not a CPA, forgive me if I explain some of that incorrectly, but at least it gives you an idea. There’s a tax benefit to deferring that big lump sum payment and instead taking it in small chunks.

Ashley:
Yeah. And there’s also some great books on tax strategies for specifically real estate investors. If you go to the BiggerPockets bookstore, Amanda Hahn has written two really great books for BiggerPockets about tax strategies.
One’s just very basic knowledge we recommend for the rookie investors. And then there’s also an advanced tax strategies book. I think it’s Tax Strategies for the Savvy Real Estate Investor is what it’s called. But if you go to the BiggerPockets bookstore, you can find it on there.
Okay. And our last question today is from Denise Biddinger. This question is, “What’s the best way to structure a first time partnership?” And Tony, I know you have our book there if you want to hold it up.

Tony:
I do. So for those of you that don’t know, hopefully you know by now, but Ashley and I have co-authored a book published by BiggerPockets called Real Estate Partnerships: How to Access More Cash, Acquire Bigger Deals Than Achieve Higher Profits. And the book is available for you to purchase. So head over to biggerpockets.com/partnerships and you guys can get all the nitty-gritty about how Ash and I structure our partnerships and use partnerships and avoid partnership pitfalls, but there’s a lot about partnerships structures.
So I guess the first thing that I’ll say is that there is no right or wrong way to structure a partnership. At the end of the day, as long as you’re not breaking any laws, you and your partner can agree to whatever terms both or at least make the both of you happy. Now, there are some things I think to consider when you’re putting a partnership together and I’ll call out some of those.
I think the first thing I’ll say though, is that there’s also two types of partnerships and people kind of, I think usually just think of one, but you have debt partnerships and you have equity partnerships. In a debt partnership, there’s the money person and there’s the sweat equity person. So one person’s just going to loan the money, the other person’s going to do all the work, and the person who’s doing all the work, we’ll pay some kind of fixed return back to the person that’s lending the money.
I’d say the majority of partnerships that we see in it that a lot of the rookie investors do are actual equity partnerships. And within an equity partnership, there’s several ways to structure, I guess at least several levers you can kind of look at.
So the first thing you wanted to think about is the distribution of labor. Every project that you think about should have some sort of distribution of labor. It could be that one person’s going to do all the work. It could be that you guys are going to split it down the middle. It could be that one person’s going to do 75%, the other person’s going to do 25%. But you want to do your best to think about, how are we distributing labor between the both of us? And the reason this is important is because if one person is doing more work in that partnership, then ideally they should be compensated more for that.
If you guys are split everything down in the middle and the time commitment on the labor side is equal, then it makes sense to have your equity and profit distributions match that. But I think the first thing to consider is, “Hey, how are we divvying up the labor?” The second thing to consider is the actual capital. Are you both bringing capital? Is one person bringing the capital? Is it split down the middle? Was one person bringing 80%, the other person’s bringing 20%? How are you divvying up the capital that you needs to purchase this deal?
The second piece of the capital is the mortgage itself. If you’re going out and getting debt, are both of you going to carry the mortgage? Is one person going to carry the mortgage? How will the actual debt be structured? So you want to start thinking about all the different roles that each person will play inside of that partnership, and then try and assign a value to each one of those roles that each person is playing. And ideally, you want to get to some kind of structure that accurately represents the amount of effort and value that each person is putting towards the partnership.
Now, I’ll say a lot of my deals are just straight 50/50, right? We have partners that bring the capital, they carry the mortgage, we do everything else, and we split it down the middle. And it’s been a mutually beneficial arrangement for both of us. We have some deals where we brought a little bit of the capital and we charge a property management fee as opposed to taking a bigger equity stake.
So there’s a bunch of different levers you can pull, but I think the most important thing is identifying who’s doing what and trying to assign values. What are your thoughts on that Ash?

Ashley:
Yeah, and I think that’s actually the hardest thing, especially for rookie investors or even going into a different strategy where maybe it’s your first time doing the strategy and you don’t know exactly what effort or time it’s going to take for the roles that you are going to be performing for the property.
So one thing I would suggest is that when you are doing the operating agreement, maybe you could put in there some kind of clause where after one year it becomes, you have that discussion as to, “Okay, do we need to actually change things as to, now you’re going to be paid a hundred dollars per month for bookkeeping.” Or something like that.
I think leave your options open, so that in your partnership agreement there is room for change, especially if you’re going to be doing a buy and hold property where maybe you’re both doing a lot of the rules and responsibilities is to look at it every year and be like, “Okay, this is something I don’t want to do anymore. What can we do? What can we change for this?” But definitely sitting down and figuring out what your partner, what is fair, because there is no, as long as it’s legal, there is no wrong way to structure your partnership.
As we just went over, it was the second question that we went over today for Rookie Reply. My first partnership, and that was awful for me. I did all the work and I got the least amount of benefit from it, but it got me started, it got me in that deal. And honestly, that property wasn’t a ton of cashflow.
I mean, we ended up having, I had no money into the deal and I was making a hundred bucks a month or whatever. So it’s like, “Okay, if I got a little bit more equity, it’d be 20 more dollars a month.” But to have that opportunity to get into that first deal, that was what was important to me at the time, and I really wanted to prove myself and show my partner that I knew what I was doing. And the way for me to do that is to really put up more safeguards for him to get his money back, and the property and to have it be an advantage for him and the opportunity for him.
So I think just really look and understand what’s important to you, what do you really want out of this deal and the partnership that you’re going to do. And then go and talk to your partner and see what’s really important to them, and from there, you can structure it. There’s just so many different options you have. And if this is your first time partnering with this person, make sure that you’re setting it up, that you’re dating them.
Maybe you’re just doing a joint venture agreement and you’re not committing to an LLC where you’re going to buy 10 properties over the next year. You’re going to do one property and see how it goes, and then maybe you can branch off and add on from there, depending how that is.
But in the book, we do go over some case studies, and Tony has talked about before how he actually walked away from a flip he was doing with a partner, or it was a BRRRR, right? To be a short-term rental, not a flip. So he walked away from that long-term commitment with that partner just because it didn’t feel right. And having those kind of exit strategies in place I think are almost more important than the actual structure and the benefits of it.

Tony:
Yeah. Super important point, Ashley, and I’m glad you finished with that. I think the only other thing I’d add is, and you talk about this a lot as well, but it’s as you kind of think through what every person’s going to be doing, you have some options on how you compensate.
So for example, in one of our partnerships, we took a reduced equity stake of only 25%, but we also charged a property management fee of 15% of gross revenues. So we are compensating ourselves for the work that we’re doing in the property with that 15% management fee, which is a slight discount from what you see in that market. Most Airbnb, short-term rental hosts charging 20 to 25% at least. So we gave a slight discount to the property, but then we also retained 25% equity because we put up 25% of the capital.
So just think through like, “Hey, who’s going to be doing property management?” If there’s rehab, we should be managing that bookkeeping and accounting, finding the actual deals, analyzing those deals, managing the tenants, the guests or whoever. There’s a lot of different roles to go into that. And you can either say, “Hey, I’m going to compensate myself for doing this work by charging a property management fee.” Or, “I’m going to pay myself an hourly fee.” Or maybe it’s a fixed flat amount per month for doing the bookkeeping. But just try and think through what those look like and try and work that into your partnership.
I think the last thing I’ll add is when it comes to the capital side, two important things that you want to discuss, and this is me assuming I think in this question, she said, Denise said, “Hopefully finding a partner.” Because they don’t have the capital. So it sounds like you want someone to bring all the capital.
The other questions you’ll want to ask yourself, Denise, are what is your method for paying that person back if there is one? So we have some partnerships where there is no payback, right? It’s like, “Hey, you’re putting in your $50,000 and that’s your contribution to the partnership because I’m doing everything else.” We have one partnership where there is a mechanism for that partner to get paid back. And Ashley’s example of her first partnership, that partner essentially had a loan against their partnerships. So they got back a fixed amount every single month before any profits were distributed. So you could do it that way if you wanted to.
In our partnership, the capital recapture is what it’s called, only kicks in if we refinance or sell the property. So just think about like, “Hey, are we going to want to pay this person back the 50K?” You don’t have to, but it is something that’s kind of important to think through. And the last piece on the capital side is how would you handle potential shortfalls in revenue?
So one of our Louisiana properties, we had a massive shortfall because we had this crazy, you guys probably know the Shreveport story, but we had this crazy increase in our homeowner’s insurance, and then we tried to sell the house and we ended up finding foundation issues. So when things like that happen, is it the partner who contributed to the capital that’s going to be covering 100% of that cost? Will you split that 50/50? Will you split it 75/25? So just think about those little details as well to really hopefully avoid some of those more difficult conversations before they happen.

Ashley:
Well, thank you guys so much for joining us on this week’s Rookie Reply. Don’t forget to check out Tony and I’s new book at the BiggerPockets bookstore, that’s biggerpockets.com/partnerships.
Okay. I’m Ashley, @wealthfromrentals, and he’s Tony J. Robinson, @tonyjrobinson on Instagram, and we will be back on Wednesday with a guest.

Andy Walden, vice president of enterprise research at Black Knight, and CNBC’s Diana Olick join ‘The Exchange’ to discuss why home prices may be on the verge of cooling off, the state of the housing market, and more.

By Solomon Thimothy, who is on a mission to help as many entrepreneurs as possible start and scale their businesses. | President of OneIMS.

In my experience, building a high-performing sales team is not that difficult, but too many leaders are making the same mistakes and skipping the foundational principles. Here are three steps that can help you increase the efficiency of your sales department and generate higher results in the long run.

1. Empower Your Team

If you put pressure on the sales department to produce results but don’t empower them, they’ll end up using “snake oil” tactics to push for the sale and never get to building trust and rapport with customers. Do this for long enough and people will not want to deal with your company anymore.

Instead, take the other route. Think about sales as the heart of any organization. What can you do to support the heart? You can eat healthy, do aerobics every day, quit smoking and manage stress better. And what would that mean for a business? Doing lead generation, running ads to give our salespeople more leads than they possibly need and setting up automation to make their life more efficient. You can also add on an operations team to qualify the leads, score them and prioritize them.

Also, remember that salespeople come in different forms. Some are super technical but not so good at closing, while others are not technical but amazing on the phone. As a leader, you have to help them overcome these barriers and close gaps. Those who are highly technical may need to be taught how to ask better questions, while those who are less tech-savvy need to learn automation.

2. Assess Their Skills

Different people have different skills and sales is definitely a skill. However, not everybody is cut out for it. Your job as a leader is to match the skills to the job.

Some people just don’t have what it takes, and there’s a way to figure it out by putting them through a personality test. First, conduct the DiSC assessment. Once you have the results, you’ll be able to more clearly see which members of your team are suitable for sales and which ones would be more effective in other roles, such as customer service. If they are great at hosting a demo but afraid to ask for a sale, they shouldn’t be in sales. Your ideal salespeople need to be confident in your solution and assertive enough to lead a conversation.

Good salespeople also should not be prospecting. If you have a top-level salesperson on your team, hire a prospector to support them. I’d personally just have them do calls. They’re going to make way more money by making five calls a day than spending five hours trying to get one meeting (and running it, too). I recommend finding two appointment setters to feed their calendar. You’ll still make more money after paying the two appointment setters than you would otherwise if you had one person do it on their own. And your star salesperson is less likely to burn out because appointment setting can be exhausting—especially if you don’t enjoy it.

3. Train Your Team

The best way to turn a good sales team into a great one is by training them. Over the years, I’ve spent a lot of time and energy not only learning about sales but also training our people. And I really want to emphasize that sales is a skill. Your B players can definitely become A+ players if you help them fill the gaps that they have right now. But you also need to be serious about it if you want to see the results. You can’t recommend a book or send them to a one-time conference and then expect that they will become significantly better at their job. The only way to do it is through constant training. I recommend finding a professional sales trainer and putting your team on an ongoing, well-structured weekly program with role-playing exercises that give participants a chance to practice overcoming objections.

Implement these three tips to start seeing your team grow in their knowledge and skills. I think you’ll find your team will become more efficient and you’ll be more likely to meet your revenue targets.

Dave:
Welcome to On the Market. I’m your host, Dave Meyer, joined by the birthday boy, James Dainard, turning 40 years old today, in podcasting anyway. Thank you for joining us on your birthday.

James:
You know what? I wouldn’t rather be anywhere else.

Dave:
I think you’re lying, but I appreciate you saying that anyway. But how are you feeling? How does it feel to be 40?

James:
You know what? I’m actually feeling pretty sore, and I don’t think it’s the 40, it’s just because I had a little, I need to workout and just get after it this week. And I’ve definitely overdone it.

Dave:
I mean, you have more energy than most people I’ve ever met, so I don’t think 40 is slowing you down at all.

James:
No, not going to let it do a thing. Just keep growing.

Dave:
Well, James, we have an awesome show today. We brought in a couple of realtors. We have Ryan Blackstone from Northwest Arkansas, friend and partner of Henry’s, and Anson Young, one of the original BiggerPockets authors, and someone I’ve known for a long time, coming to talk about what they’re learning being an agent in two pretty different markets. As an agent yourself, what did you learn from this conversation or what do you think listeners should be on the lookout for?

James:
I think the biggest thing is to not just look at each market as one, but really just look at what is working in each market. Look at price points. The rates have spooked people, they’re kind of locking up and they think they need to look elsewhere. But the common message was, no, just break it down by price points and see where the opportunities are. And transactions can keep going on in any type of market.

Dave:
Awesome. Great. Couldn’t agree more. So we’re going to take a quick break of course, but then we’ll be back with Anson, Ryan and, of course, myself and James. Today for our realtor panel, we are of course joined by James Dainard, our resident realtor on the show. James, what’s going on, man?

James:
Oh, just enjoying the big day, number 4-0.

Dave:
Yeah, happy birthday. I was thinking about making these other guys sing to you, but I think that would be too embarrassing. But we’ll just tell you happy birthday.

James:
Only if it’s the Red Robin version, that’s the only one I want.

Dave:
I don’t know the Red Robin version.

James:
You don’t know the Red Robin birthday song?

Dave:
No. I know you were a Red Robin employee of the year. Can you sing it?

James:
Why don’t we save that for BP Con?

Dave:
All right, afterwards. Well, we also have other great real estate agents with us. BiggerPockets OG, Anson Young. Anson, what’s up, man?

Anson:
Hey, Dave. How’s it going, man?

Dave:
Good. Good to have you on the show. So Anson, for those people who don’t know you, can you just tell us a little bit about yourself?

Anson:
Of course. I’ve been investing and had my license since 2006-ish. And I mainly do residential single family real estate here in Denver, Colorado. I was briefly licensed in Arizona when we were doing some REO, so I have experience on the agent side with REO, short sales, just regular retail real estate. And then also do a lot of house hackers lately, seems to be a big market segment. But I’m also a BiggerPockets author, a book called Finding and Funding Great Deals. And yeah, enjoying life out here in Denver.

Dave:
And we also have Ryan Blackstone. Ryan, is this your second time on the show, third time?

Ryan:
Second time, yeah.

Dave:
All right. Well, welcome back. For those who didn’t listen to your first episode, can you just introduce yourself please?

Ryan:
Yeah, thanks for having me on. Ryan Blackstone, we’re in Northwest Arkansas. And we do residential, small multi, storage units and large multifamily. So, have fun on that.

Dave:
Nice, that’s great. Anson, let’s start with you, curious just a little bit about the Denver market. This is selfish because I still own property there. What’s happening in Denver?

Anson:
Yeah, man. Denver is nice because it acts like the coasts. And so when trouble comes around, we typically can weather the storm a lot better than the Sun Belt and the Southeast and areas like that, Rust Belt for sure. So yeah, looking at all the stats and everything, it’s still a seller’s market. It’s not strong, strong, but it’s still sellers market. Prices are still up year over year from this time last year. We only have six weeks of inventory, and inventory basically cures all problems, it feels like. As long as you have low inventory, it feels like things chug along no matter what. And yeah, we had a little bit of a dip in the beginning of the year, probably due to interest rates and other things. But yeah, this summer has been chugging along. And our days on market’s lower, and our prices are up even though we still have some price reductions and stuff. But overall, it still feels pretty normal and pretty the same stuff we’ve seen for the last three years. Inventory’s low, things are still selling and yeah, overall good.

James:
Anson, Denver’s market, I think it is funny, I’ve been tracking the market because it’s very similar to Seattle’s. We’ve been seeing the same kind of trend where it kind of came down, it bounced back up. Are you seeing the seesaw market, though, that we’re seeing, like every two weeks it goes up and then it comes back down? It’s like this constant up and down. And not big swings, but more just transactions wise. Are you seeing that in your guys’ local market right now?

Anson:
I don’t know about every two weeks. I think that’d be kind of hard to track. But I think it definitely does this weird thing. Obviously we’re seasonal, I’m sure Seattle is seasonal as well. Winter time’s a little slower than summer and all that. I think overall it’s been pretty strong. But there are fluctuations for sure where it feels like there’s less listings in the last couple of weeks, and then it’ll pop and then it’ll go back down. So yeah, for sure.

Dave:
What about you, Ryan? And just so everyone knows, Ryan and Henry Washington, who you all know, work together. But from what we hear from Henry, everything’s always perfect in Northwest Arkansas, and it’s just a magical place where real estate works all the time. Is that what you see as well?

Ryan:
Yeah, I think it’s the same thing that Henry’s been saying. So you guys need to invest here. But for real, I think for us it’s the same as what Anson was saying. It feels like we were climbing this mountain. And then when we got to the peak, which was like third quarter, fourth quarter, we kind of just have been on this plateau. It’s not going up. I mean, it’s going up slightly, it’s not going down. We’re just plateaued in some regard. The big change from 2022 to 2023 is seasonality came back. So typically, Q4, Q1 operates 20% less than Q2 and Q3. And so we have seen that, but that’s just signs of a normal, healthy market.

Dave:
And are all asset classes, all price ranges following the same pattern?

Ryan:
That’s a good question. No, that is not true. Small multifamily is just going nuts. I would say small multifamily is way harder than just normal single family residential. And that’s partly because, with the higher interest rates, a bigger buyer pool now is people who are wanting to house hack, where they buy a duplex, live in one side and rent out the other side. So now, small multifamily just runs and operates on retail market prices instead of any kind of cashflow price, from what we are seeing.
The other interesting thing for us is our rent rates are still double digits, like 18% increase in rents. And what I’ve heard or learned is we are so deregulated on our rent rates that, honestly, we don’t increase our rents because we don’t have to. If I needed to, to sell a property, I can double my rent rate and there’s no problem. Whereas, I heard in other big metropolitan areas where it’s highly regulated, you kind of have to keep rent increases, otherwise you miss out. And then office space I would say may be struggling, we’re not really filling that. But warehouse space, storage space is skyrocketing still. So that’s what we’re feeling.

James:
So Henry’s not painting a picture, Dave. It really is just a magical real estate bubble. Ryan, on these small multi-families, that actually kind of caught me a little bit by surprise, because I know the multifamily market has slowed down because our investor rates are terrible, it’s hard to cashflow deals. And you mentioned that now, and those investors were acquiring all these properties for two, three years, you couldn’t really get them as a house hack, owner occupied. And I know Anson also mentioned the same thing with the house hacking. Are you guys seeing that more in your local market where the affordability as people are just going to a new strategy to buy, they’re essentially paying for the rate increase and, by renting out, subsidizing their mortgage and then going towards the multifamily. Is that majority of the transactions going on, and where people are really focused on to get their monthly cost down?

Ryan:
What I’m seeing as far as buyers in the market, period, is you need to either have cash or cash equivalent. And if you’re needing to be in specific locations, you are looking to house hack and you’re totally cool with that, right? Or it’s like, how can I live in this or sustain in this property for the next five or 10 years? They don’t think they’re going to rotate out in a quick timeframe. And so the way to get your payments down, because the interest rates are high, is to offset with rentals.
Now, like Anson was saying, the biggest problem is still supply. We have 10 to 12 new households move in to Northwest Arkansas each day, and we aren’t even coming close to building that much. And in fact, builder permits have dropped even more. So again, yes, it’s harder for buyers and maybe the amount of buyer pool has dropped, but so has the seller pool and listings and new builds. And with multifamily, there’s not much multifamily being built. So I’m not seeing a ton of multifamily transactions. I’d probably see more if there was more supply. There’s just not enough supply out there. And the only big multifamily that is being built is a hundred plus apartment complexes.

Dave:
So Anson, everything’s perfect in Denver too, right?

Anson:
Oh yeah, for sure.

Dave:
Everything cash flows. You just throw a dart at a dartboard?

Anson:
That’s how I invest. I need that astrologer’s phone number. No. So kind of like Ryan was saying, I would say the majority of our transactions are just basic mom and pop, need to move before school starts, just pretty typical transactions. The house hacking pool are people who either want to get into investing but they want to stay local. So this is kind of the only way that they can do it in Denver. They’re not going to buy a duplex over in Edgewater or something and then spend $600,000 to do that and not really cashflow. They’re looking at that value play of house hacking their own property.
So yeah, I would say the majority of our transactions are pretty normal, conventional loans, all of that. And so there’s different market segments doing different things. But when your median house prices are like $600,000 or $700,000 and that’s kind of just your average price these days, people still need to move. Kind of like Ryan said, we have a lot of influx of new people, something like 50,000 a year coming to Denver, and we don’t have anywhere near that many units being built or inventory. I think we have like 5,000 that get listed every month and then 4,997 of them sell. So it’s like, we’re super low inventory and it causes a bunch of crunches in a bunch of different areas.

Dave:
Are you seeing any sort of, Anson, concessions anymore? I feel like last year we were seeing a lot of concessions. Is that still happening?

Anson:
It is a little bit. We’re not in that seller holds all the cards. They hold most of the cards, but not all of them. So they know that they have to budge a little bit here and there. There are, I think, your kind of below median house price homes in a good school district, the seller holds all the cards. It is going to list, it’s going to be gone in four days, there’s going to be multiple offers. There’s no reason to give any concessions.
In the condo market, and then also in that normal median house price, for some reason, is the one that’s a little bit slower right now. In those two markets, there’s going to be a little bit more concessions given than just that all day long below median house price houses that just fly off the shelf. So not a ton, and definitely not as many as the winter time, but they’re still definitely happening. I just had a listing where we had to give up 5,000 on concessions on a condo, but that’s pretty normal because condos aren’t selling nearly as quick, and way less showings and all of that. So just depends.

Ryan:
Yeah. What we see in our market for concessions is it is coming back. But what’s very interesting to me is right now if you took the city and you made it a bull’s eye, there was a lot of new build new construction on the ancillary markets, the outside rim. And the new builders are offering 10% in concessions. So they’re trying to pay closing costs, pay down points, offer upgrades because what happened is when everyone could work remote, they’re like, okay, it doesn’t matter where I live, I’ll go more outside of town. I love the country, heehaw. And then what happened was those prices went up, but now it’s unaffordable because now, you need to come back into work. So the amount you have to pay for gas and living far away has changed. Now, new build in the city is still going crazy and there’s no concessions there.

James:
You guys made a couple really good points. And as investors, we’re always tracking markets and cities and going, “This market’s doing really well.” But as you’re investing in today’s market with that high cost of capital, with a little bit riskier market that’s going on right now, you have to micro cut them down. And that’s what we’re having to do in Seattle too, is the upper echelon, the luxury pricing has compressed about 10%, and they’re still having to offer concessions because it is just expensive, and the amount of people that can afford those higher end markets. I know, Anson, we have very similar median home pricing. The luxury new constructions are like 3 million to 5 million in our market, that’s not trading at all.
But then your core, right around median home price homes, if they’re in a nice neighborhood, that are cleaned up nice, people are buying those and they’re selling for over list. The two asset classes that we’re seeing the most amount of deflation in, and concessions, are either the super high-end luxury or the massive fixers. Those are getting discounted dramatically too. But the rest of the market’s kind of just chugging along. People are going, Hey, we need the housing. They don’t have a choice at this point. They need the home. They want to get into a property. They have to make it pencil.
And I know in our local market, builders are the ones offering the concessions, not the flippers. The flippers are still moving their deals. The new construction guys are still getting lined up with buying their rates down, they’re getting preferred lenders and that’s helping move product. But that’s where we’re seeing this jolt back and forth on the uber expensive. The inventory’s above, if you’re double the median home price, it is sitting big time. But otherwise everything else is kind of moving forward.

Ryan:
Yeah, I would agree with that wholeheartedly. Flippers, they’re not giving concessions. And I think the big thing is, what everyone’s saying is, if it’s fresh and clean and doesn’t need repairs, the buyer’s taking it. The thing that makes it hard for that buyer is like, oh crap, it’s expensive and I have to worry about these things breaking or these things fixing as soon as I get in.
And honestly, the number one buyers that we’re really seeing is either cash or cash equivalent buyers, meaning that they already bought that first time home and then they’re upgrading up. So our average sell price is like 425 right now. If you’re at 425 or just a little bit higher, that buyer has a little bit more discretionary income so they can make it happen. But then we’re also seeing cash coming in from family members like grandparents to help the person buy the first home, or their 401K, they’re cashing out the 401K to then buy a house as well. So it’s keeping the prices up. I don’t really see that they’re putting like 25%, 35% down, but more getting to that 20%, let’s get rid of PMI, let’s get rid of FHA, VA loans and do conventional still.

Dave:
So this great is conversation about the market in general. I want to switch gears a little bit about what investors should do in your relative types of markets. So Anson, if I were a new investor moving to Denver, what would you recommend as a strategy?

Anson:
Yeah, in these high cost of living markets, you have somewhat limited options. You can’t do the crazy cashflow plays in the Midwest or anything like that. The things that I’m seeing and the things that I would do, house hack if you can. I think it’s still a great strategy here. There’s still a lot of upside and a lot of opportunities there, whether it’s like an up, down house where the basement’s split off or you split it off yourself, side-by-side duplex, there’s room by room. ADUs, we’ve opened up a lot of ADU zoning here in Denver. So accessory dwelling unit, you could build a carriage house or a garage with a two bedroom apartment over it. Those are all value add plays that make sense.
And if you’re not into house hacking and sharing your space, there are ways to maximize your cashflow here, which midterm rentals, short-term rentals and room by room rentals always underwrite your deal with long-term cashflow as your last resort. But we do have a lot of opportunities in certain areas for short-term. There’s restrictions of course in Denver, Aurora, Boulder, kind of the big areas. But there are little pockets where you can still buy for short-term rentals, and there’s no regulations. So I would keep an eye out for that.
Midterm. We have a lot of hospital complexes, really strong healthcare center for job centers here. That’s a great way to maximize your cashflow. And since it is not very affordable to live here, a lot of young professionals are opting for a room by room type arrangement where they can be in a five bedroom house, rent one of the bedrooms, and the common areas are furnished and they are saving half as much on their rent. You can go get a one bedroom for 2,000 a month, or you can rent a room in a nice house for 1,200 a month. Most of those young professionals would take that other option. And so those rentals are doing really well.
There’s even management companies that are springing up around just room by room management companies. And so there’s ways to do that that I think make a lot of sense when you can maximize your cash flow, because you can’t change your interest rate. And if you’re good at finding deals, you can do that. But if you’re just kind of a normal investor and you take what you can get from wholesale market or on the market, then working on maximizing your cashflow would be the way to go. So that’s what I would do.

Dave:
Yeah. Those are great ideas. Rent with the room, I’m always curious about this. Do you have any concept of how much more cashflow it could generate?

Anson:
So on a five bedroom, six bedroom house just north of Denver, in kind of like Westminster area, there’s some really good areas there where this makes sense. It’s close to Boulder, close to Denver, just down the road from the airport on the highway. So an area like that, a five bedroom single family, if you just rent it long-term, probably rents for 3,000, 3,200, somewhere around there. That’s probably the max that you’re going to get. Whereas room by room, obviously if it’s decent, the common areas are nice, it’s been upgraded somehow in some way, you can easily get 1,200 per bedroom. And so you’re talking 1,200 times five versus the 3,200 a month. So there’s almost, it’s not quite 2X, but there’s a significant boost in that income that makes it worthwhile for sure.

Dave:
Wow. That is very significant.

James:
I have found the same, that renting by the room will get you a lot more money for your property, but it also brings you a lot more problems, at least I’ve dealt with. I remember last year I got a call. I had brought a property up for rent for 3,500 bucks. And this group of five approached me and said, “Hey, we’ll pay you by the room. Can we do this?” And I was like, “As long as it’s on one master lease, I’m not doing individual leases.” And I was a little worried about it, but the cashflow was so much better. And then sure enough, 90 days later I get messages from all these tenants, like, “The fifth tenant is walking around naked all the time.” And I’m like, “This is not my problem. You guys redid one master lease. If you want to remove them, that’s fine.” But it is a great way to get into the market. And it comes down to, as an investor, sometimes you’ve got to deal with some grief to get into the game.

Dave:
Oh, totally. Yeah.

James:
When we were flipping in 2008, it wasn’t easy to get in, but we had to do what we had to do. And so it comes with the problems, but sometimes it comes with what the scenario is.

Ryan:
So is the suggestion to buy in Denver, house hack it and be okay with that naked man for a year and then we’ll be golden? That’s awesome.

James:
Yes, yes. That’s the strategy.

Dave:
No, but I agree with that general sentiment, James, it is so true that it’s not 2010. You can’t just buy anything and make it easy. That doesn’t mean there’s no options, but you’re going to have to do a little bit of work, whether it’s doing a reno, a value add, that’s work, in the same way that’s additional headache, in the same way that rent by the room is an additional headache. But we talk about this all the time, real estate is not really a passive business except in some extreme circumstances like syndications. But really, it’s just entrepreneurship, and you just got to pick the business that you want to run. And this is an option to build a higher cash flowing business, but it is more operationally complex.

James:
And treat it as a bridge. When you’re looking at a property, if you have to rent it by the room, that’s going to give you high income or cash flow it, but then see how long you’re going to have to do that. If you do think rates are going to fall over the next 12 to 24 months, you can plug that new rate in. That’s what we’ve been doing, is plugging the 6% rate in two years. And then we’re going, okay, cashflow is good here. So it’s almost just bridging you through. And the good thing is right now you can get some good discounts on property where you can get the equity, you can get the cashflow to cover, and then once rates fall, you can go back to a traditional rental and get rid of the headache. And so don’t always worry about the now. It’s that short-term pain, long-term gain. You just kind of got to grind it through at this point.

Dave:
All right. Ryan, what about you in Northwest Arkansas? What would you recommend for investors if they were new to the area and they wanted to get into the market? Best possible options for them?

Ryan:
So I always say the number one winner is always, if you’re going to be proactive in finding your own off-market deals, that’s surefire number one. House hacking is great as well. And I would just make a preface, I have a good buddy, Conrad Eberhard, shout out to him, he’s a lender. He was just telling me that buyers, there’s so much fear in the market right now, and so that’s reflecting in the interest rate. And then if interest rates go down to 5.5%, it’s like a trigger rate. And so what will end up happening is everything will go gangbusters again and prices will start soaring. And so if that is happening, then anything buying right now is still good, even though it’s hard. I would still say it’s good to buy.
My big thing is, as long as you can make the payments and then you don’t have to sell, then you’re never losing in real estate. So yeah, I would say off market. I would say house hacking. And then midterm is great. We still have not much regulation on any short-term rentals. And then flipping or building still is great. But when you’re not whole-tailing, you’re flipping it. You’re making it amazing.

Dave:
Nice. Have margins changed at all over the last couple of years?

Ryan:
Yeah. I mean, Henry has to do work to make 75,000 now per flip.

Dave:
Poor guy.

Ryan:
I know. I can’t just list it and be like, “Hey, that critter comes with the house. They got a lease on it.”

Dave:
That’s why we’re giving him the day off. He’s at the spa just relaxing.

James:
But that’s a good point. If you want to put in the work, the margins are there. It’s like, go after the ones that you have to put in work, and the margins have doubled, at least what we’ve seen across the West Coast. But Ryan said, you got to put in the work. This is a full on business, you’re not going to get lucky with the rates anymore.

Ryan:
It’s interesting. Typically, I would say our smaller market, which I still think we’re a big market, but whatever. You guys are like a crystal ball, which is great for me. So whenever I see the bigger markets take a dip or go up or whatever, I’m like, okay, that’s what I get to look forward to in six months. Yay. But it’s weird. It’s kind of still the same, right? That’s what I’m hearing, right?

James:
Yeah. I think so. At least that’s what we’re seeing on a national level in most of these big markets.

Dave:
So Ryan, I don’t know, are you an investor yourself as well?

Ryan:
Yes.

Dave:
Do you have any recent deals you can tell us about?

Ryan:
I’m honestly putting too much money into our office renovation, and that’s still going and struggle busting. But we just bought some storage unit facilities down in the capital of Arkansas, Little Rock. So that’s been good. And then flipping a deal here or there. So my main focus has been growing my team on the sales side of things and taking care of that office.

Dave:
Yeah. How long have you been doing the office, just out of curiosity?

Ryan:
Oh my goodness.

Dave:
You don’t want to say?

Ryan:
April of last year, I think I bought it, and just keep dumping money into it. So we did sell two storage unit facilities in Kansas City and got some money there to put into the office.

Dave:
Nice. Well, when James and I move to Northwest Arkansas, we’ll lease some space from you.

Ryan:
There you go. Yeah, it’s a coworking space. Henry’s there, I’m there, other investors.

Dave:
Well, the whole On the Market team, it’ll be great.

James:
Henry always puts a bow on that market. I’m really interested in going to visit it.

Dave:
Yeah, it’d be fun.

Ryan:
I’ll take you around. The only thing, James, is you have to fly to your boat. Sorry, man.

Dave:
What about you, Anson? What deals are you up to these days?

Anson:
Yeah, so for the past year and a half, two years, I’ve been focused mainly out of state. The grass is somewhat greener in some respects. I think competition really kind of drove me a little bit outside of Denver to go into the Midwest. And so our deals, what they look like now is BRRRR deals in Ohio and Nebraska. And then also we’ll wholesale or we’ll flip deals that just don’t meet our criteria, mainly wholesale them just to recoup some marketing money and go back at it. But that’s been my main focus, is cashflow. And so, finally getting on the smart bus and going that route.

Dave:
Well, yeah. Is it just a balance? Do you still own properties in Denver?

Anson:
I haven’t been much of a buy and hold investor here. I’ve been mainly just wholesaling and flipping in Denver my whole career.

Dave:
Okay. Yeah.

Anson:
So I don’t really have much here. Everything is out of state these days.

Dave:
But yeah, I guess you’re still kind of achieving that balance. You get your hits of income in Denver from flipping or wholesaling with your agent business?

Anson:
Agent stuff. Yep, exactly.

Dave:
And then getting the passive stuff externally. Yeah, makes sense.

Anson:
Exactly. Yeah.

James:
Yeah. Anson, have you switched the markets in the Midwest? So as you’re starting buying in other markets or you keep your rentals, with the rates changing, have you switched all that up and forecast in? Buying rentals in different states, I’m more of a backyard investor, but it’s always been interesting, but it’s hard, right? You got to renovate them, you got to target the right market. Are you buying in different markets now than you were 18 months ago because of just rates and the cashflow positions?

Anson:
No. Because once you’ve kind of built up teams and marketing and everything else and kind of pushed that snowball downhill, there would have to be something more catastrophic than just a couple of points in a rate increase to have to shift that hard, to take a huge right turn into a different market. So we’re still in the same exact markets that we were, we’re investing in the people on the ground and the market itself and still making it work through trying to buy as low as possible, trying to maximize the cashflow on the other end. And like you said, James, if the interest rate comes down to six in two years, then we’re golden for that. And in the meantime, we can still pencil deals now. And so we’re just focused on that. And so we haven’t had to shift too hard. We’ve probably pulled back in expanding into a couple of markets. But in hindsight, we probably should have just gone full bore into one or two other markets as well.

James:
Arkansas.

Dave:
Arkansas.

Anson:
I don’t know. Between James and Dave, it’s too much competition there.

James:
Nah.

Dave:
No. We’re going to all do it together.

James:
Yeah, and I love that because what Anson just said is he built good systems over the last three to five years in different markets. And no matter what’s going on, you’re still buying the same type of deal flow. You’re just kind of adjusting your mindset behind that. I know in Seattle we’ve had to do the same thing. It’s like, we don’t really care what’s going on, we’re just buying. We’re going to be always be buying. And you just have to tweak your systems. And if you have that set up correctly, you just have to more tweak it rather than rebuild. And for us, we’ve been buying a lot of value add and getting a lot bigger deals done because that’s just what’s available right now. And as long as you have those good systems, you can make your pivots. And every market still has an opportunity. It doesn’t need to be an affordable market. It can be an expensive market, they all have opportunities. You just got to switch on how you’re looking at them right now.

Dave:
That’s a good way to wrap it up, James. I think you just put a bow on this entire episode. So let’s get out of here. Anson, for people who want to learn more about you, obviously they have your book. You can find it in the BiggerPockets bookstore, which is biggerpockets.com/store. Where else can people interact with you, get to know more about you?

Anson:
If you want to connect with me on BiggerPockets, just search my name there, I’ll pop up. On Instagram, @younganson. And that’s me.

Dave:
All right. And Ryan, what about you?

Ryan:
Yeah, same. BiggerPockets, you can find me there, just type in my name. Or YouTube, we got a channel called Blackstone and Co. We’re starting to throw stuff on there. And then Instagram, I’m not on as much, but @ryan.blackstone12.

Dave:
All right, great. James, what about you?

James:
Probably the easiest place is Instagram @jdainflips or check me out on Jamesdainard.com.

Dave:
All right. And I am always on BiggerPockets, or you can find me on Instagram where I’m @thedatadeli. Anson and Ryan, thank you both so much for being here. Really appreciate it. Hopefully we will have you back on sometime. Tell us how your markets are shifting in a couple of months from now.

Ryan:
Sounds perfect.

Anson:
Love it. Thank you.

Dave:
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 Puja Gendal, copywriting by Nate Weintraub. And a very special 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.