Richard

David:
This is the BiggerPockets Podcast show 843. What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate podcast here today with a Seeing Greene episode. In these episodes, we take real estate investing from my perspective as I answer questions from you, our audience, about where you’re stuck, what opportunities you have, and the best way to play the chess pieces that are sitting on your board. And we have got a great episode for everyone today, including a coaching call that we are going to start off with and then some other questions from all of you about ways that you’re looking to scale your portfolio. But it looks like you took a couple steps in the wrong direction and how to get you put on the right path. Many of you who are listening to this now are going to relate to the questions that our guests ask and you are going to benefit from them as well.
So thank you for being here with me. Get ready for a great show. If you’d like to be featured on Seeing Greene yourself, remember just head over to biggerpockets.com/david where you can submit your question, either video or written, and I will hopefully answer it on a future show. Before we get to our first question, today’s quick tip is going to be simple. I am here at one of my cabins right now in the Smoky Mountains. I have 12 of them out here, and I’m on a bit of a tour and I’m going to check out every single cabin I have. I’m going to stay in many of them and I’m going to get a feel for what it would be like to be the guest here as well as come up with ways to improve the experience for the guests. This is very important because if you are a short-term rental investor, you may have already seen that the competition is getting fierce.
And if you want to stay near the top, you need to learn to look at your home from the perspective of the person staying in it, not the perspective of you that’s looking to get as much money as you possibly can. So consider staying in one of your own short-term rentals as well as your competition and see how each one of them makes you feel and what improvements can be done to give a better experience to the guest that you are competing for. All right, let’s get to our live guest now. Welcome to the show, Shelly. What’s on your mind?

Shelly:
Hi, thanks for having me. I’m a little bit all over the place, but my name is Shelly. I live in Philly with my partner and my 5 year old. What I do for a living is run a bicycle shop. I opened up the bike shop 13 years ago. At some point my landlord wanted to sell the building. He said, I want to sell it to you. He told me the price he wanted. I couldn’t swing that, but I asked my dad if he wanted to invest and he said, ye. My dad bought this building.
We’re in a good neighborhood, but the building needed a ton of work. Within the first couple years of ownership, the entire front facade needed to be replaced, and now we are in the process of learning that they did it wrong and we have to do it again. So it’s this major headache of a problem. However, somewhere along this same timeline, my partner and I bought a house together. We wanted to move. We decided it made more sense to hang onto the property, rent it out. We bought our next place, wanted to move, rented it out and moved. So we did this, what you guys call house hacking type thing, but we were just doing it because that was our life. And now we’ve seen the benefits of doing that and I’ve been interested in real estate for a long time.
I want to keep doing this. I also feel like the property that my dad owns, I do the property managing. I have enough bits and pieces of this world that I know I like it and I know I’m pretty good at it. And we took out a home equity line of credit on our one property, which you guys were talking about, fixed versus variable. It’s a 3.99 fix for one year, and then it turns variable. So that seems like not bad right now.
So I’m at this point where A, my dad wants out of this very… The property is about a million dollars, not counting some money that he’s dumped into it to fix it up. But that being said, he was able to pay it off. So we had this amazing asset in a good neighborhood that I think is worth investing in. And also we’d be able to pull money out of that to continue to invest in real estate. But he’s not on board. He’s more like, I make way more than this for way less stress in the stock market. Why are we doing this?

David:
And this is the one with the facade, right?

Shelly:
Yeah.

David:
So your question is when do you call it quits on a property? Should you buy out your partner, or how should you exit this property? Right?

Shelly:
Yeah.

David:
So what I like from what you said is that you like this, you’re in on it, you like the area, you’d like to keep going. Even though this property has been super stressful, you see the upside on it. Had you said, yeah, this property is a bear. It’s not really that great of a neighborhood. I don’t really see why I’m doing this, then the obvious answer is I try to get out of it. Considering that’s not your mindset on this, I would really stress maybe trying to figure out how you can keep it. And you have a partner on it that just so happens to be a family member. So you may be able to arrive to some agreement on how you could pay him out. So are you a 50/50 owner of that property?

Shelly:
I don’t have any ownership.

David:
You don’t have any ownership? Okay. You were saying you were property managing for him, right?

Shelly:
Yeah.

David:
So on that note, is your dad, I know he can make more on the stock market, but is he like, hey, I need this million dollars today. Is there any opportunity to sell or finance it from him, I guess is what I’m getting at?

Shelly:
Yes. But then I think comes the other aspect, which is that, if I were to do that, I don’t think it would cash flow. I think he’s onto something that it’s not a great investment, so that’s stressful. It feels more like the appreciation game.

David:
Okay. Well that changes things a little bit. Where’s all the money going? It feels like $7,300 a month is not that far off from the 975 if it’s got no debt on it. Where’s all the money going?

Shelly:
It’s not that it’s not going anywhere, it’s that he’s looking at his cash on cash return and is like, it’s just not a lot of dollars.

David:
So here’s what’s odd. If you put a loan on it, if he did a cash-out refinance, his cash on cash return will skyrocket.

Rob:
Because he gets all that back in his pocket.

David:
And I’m not saying this to tell you that’s what you should do. I’m saying in his brain how he’s looking at this, if he’s only looking at a cash on cash return. There’s two levers that affect… And when I started seeing this real estate made a lot more sense. There’s in the formula of a cash on cash return, there’s two inputs. There’s how much profit you make and there’s how much money you put into the deal. If you pull on the profit lever, you can increase the cash on cash return, but it’s like a tiny short little lever. It’s very hard to pull. If you pull on how much capital is invested in it, your basis and you reduce that, your cash on cash return skyrocket. That’s the really tall big lever with all the leverage.
So if he did cash out refi, even with rates higher, the cash flow would go down, his cash on cash return would go up. He would have theoretically whatever money he pulled out of this thing to now go put in the stock market at his higher returns. And he would have effectively owned real estate and stocks using leverage from real estate to buy stocks instead of real estate or stocks. Not telling you that this is my solution right now, but do you think if he understood it from that perspective, it might change how he’s looking at this?

Shelly:
Perhaps. I mean, I think the whole thing is just beyond stressful for him. So that’s where I struggle. Because I’m like how can I angle this to me be like, no, it’s fun when it’s not my money.

David:
Why is it stressful for him? Because he’s just looking at that 6% and he’s like, I could do so much better?

Shelly:
No. Not just the dollars. I mean the actual act of we had to get all of our tenants into Airbnbs when this construction was happening. The bike shop had to close. All these things that dealing with the ins and outs of other people I think, maybe just don’t like that stuff.

David:
Well, that’s true. Real estate can suck when that is the case. There’s no way around it. This is definitely not passive income, and that’s one of the reasons that we talk about that is when you buy stocks, it’s relatively or completely passive income. You push a button, what return you get, but you just have less control over it. The stock market can collapse and there’s not as much you can do versus with real estate, if it starts to go bad, you can jump in there with some elbow grease and some creativity. You can salvage it. It sounds like he doesn’t like having to deal with the tenant issues and the building issues, and then he’s saying for the return, I’m getting the juice is not worth the squeeze, right?

Shelly:
Yeah.

David:
But are you doing some of that property management work? Why is so much of it coming down on him?

Shelly:
It’s not. I mean, I keep him in the loop. He wants to be in the loop. So I can’t just go writing 20,000, 30,000, $40,000 checks without checking in. And I think, yeah, every time something comes up, it is a little bit like, yeah, here we go again.

David:
He’s not used to that. That’s all that it is. He’s not listening to podcasts like this listening to all of the tenant problems that we talk about. He’s used to buying a stock in something and just looking at the number. And in his mind he has a baseline set of that’s how investing works. Is you don’t make decisions, you don’t feel any stress. Money just comes to you. So I don’t know that, Shelly, you’ve done anything wrong here. I think his expectations just weren’t at the same place that yours were. So maybe let yourself off the hook a little bit as you feel like you let your dad down or did you do something wrong? This is how normal real estate investing works.
Now I’ll add this. When Rob and I encounter the same stress he’s having, even though we’re like, our cash on cash return sucks, all these things went wrong. I’m really stressed out. What we are thinking of is, well, I’m still paying off the mortgage. Well, the values are still going up over time. Well, the rents are going to be higher in five years than they are right now.

Rob:
We’ve still got the tax benefits.

David:
Yes. There’s a big tax benefit. We didn’t get into that yet. So even when the one metric like cash flow isn’t working that we wanted, there’s a pot of gold at the end of the rainbow that stops us from getting discouraged that he doesn’t have. He’s not seeing that. He’s probably not getting tax benefits of cost segregation studies on a million dollar asset that could save him. If you added that into this, if he was a real estate professional, oh my gosh. And it sheltered all the other money that he’s making from his other investments, he’s like that 6% return goes to 28% or something like that. It would change everything. Right?

Rob:
Yeah. But he’s probably not a real estate professional is my guess.

Shelly:
Yeah. I was going to ask that because I just listened to that class episode and he did just retire from his day job. So could he be, if this is the only thing he’s doing?

David:
Yeah. That’s what I was getting at is he may not be right now. The question would be, well, dad, if you became a real estate professional… And the other thing, Shelly, is this only works if he’s making income. Does he have income coming in from other places that he’s being taxed on?

Shelly:
I mean, he just retired, so not really.

David:
What about other investments?

Shelly:
Stock market, does that count?

David:
What about the taxes that he would pay on the 6% return? If that was money he made in stocks, he’d pay capital gains taxes on it. But what if the depreciation from the real estate completely sheltered it? That 6% could start to become looking a lot better. And if you also have rent bumps worked into the thing, the tenants… Can you paint a picture for him that in five years that that 6% is actually going to be up here?

Shelly:
Yeah, perhaps.

Rob:
Well, I think the other thing to keep in mind is he’s zeroing in on cash on cash return. But the actual metric is really the ROI. And the ROI tends to be pretty significantly higher than that cash on cash because of the things that David talked about, which is debt pay down, appreciation, tax deductions and cash on cash return. When you factor all those in, it actually ends up being a pretty-

David:
Equity growth.

Rob:
Yeah. Equity growth ends up being a pretty juicy number I think.

Shelly:
And basically if you’re partnered with somebody who’s not stoked on the property, your options are either to convince them that it’s a good idea or try and buy them out. And that’s it.

David:
Yeah. Because this is more of a relationship question than just a real estate question. Because you’re like, okay, I like it, dad doesn’t like it, what do I do? Right?

Shelly:
Yeah.

David:
And from that perspective, you’re probably not going to get that horse to drink even though you’ve led him to water. If he’s stuck in his ways, if you’ve explained to him that this is different than stocks and here’s all the other benefits you’re getting and he can’t get out of that binocular of cash on cash return, you could say, all right dad, you could sell it. By the way, is there rent bumps worked into leases that you have with the tenants to where it’s going to be making more money later?

Shelly:
I mean, no. Historically, people haven’t stayed. There’s one apartment where someone’s been there a long time. But every time somebody moves out, we fix up up and charge more.

David:
Yeah. Is that because the area that it’s in is bad?

Shelly:
No. It’s a great neighborhood.

David:
Why are you getting so much turnover?

Shelly:
I mean, when I say not stay long, I mean two to three years. I think people use it as a, I’ll stay in this apartment until I buy a house or until somebody just graduated grad school, they moved to a new city.

Rob:
Well, I guess my other question to you, Shelly, is why are you so invested in the deal if you’re not an owner of the deal? Because you’re property managing it, so I imagine you make money from that. Are you just really wanting to keep that property management fee? Because it feels like you could just go property manage for other people now that you have experience.

Shelly:
Totally. No. I own and operate the bike shop. It’s on the first floor. I guess I get a little bit, and when this would happen when the landlord wanted to sell initially that I was like, oh gosh, who’s going to buy this and are we going to get pushed out?

Rob:
That’s interesting. So I mean, I feel like if you sold it, you probably could negotiate. Most of the time people don’t want to inherit tenants, but that’s usually like long-term rentals. I feel like commercial tenants may not be the same stigma, so I feel like if you were selling it, you’re inheriting a long-term lease, as long as you have good payment history and you met the owner. I think you can negotiate not getting pushed out. Looking at the actual, you mentioned that if you sell or finance it, you don’t think it would cash flow. If it’s a million dollar building and you said the rents are $7,300 bucks total?

Shelly:
Yeah. I mean that’s including bike shop rent, yeah.

Rob:
I see. Okay. Yeah, so it does feel like if you were to sell or finance, you’re going to be pretty close to a break even depending on the interest rate your dad gives you.

David:
Yeah, and I don’t think dad’s going to be stoked about seller finance because if he’s trying to get higher than a 6% return, he’s going to want higher than a 6% rate in his mind. And that doesn’t make sense for Shelly to do it.

Rob:
Well, yeah, but then there’s also the case that he’s going to have to pay capital gains on the million bucks so he won’t have to pay capital gains.

David:
But they bought it for 975. What would you sell it for Shelly?

Shelly:
Yeah. I mean I feel like to break even at this point, considering we’re going to have to do the facade again, it’d probably have to be like 1.2, maybe one one.

David:
Would it be worth that though?

Shelly:
Yeah. It is a good question. And I don’t know. The neighborhood’s gone up in value, but, yeah.

David:
So he may not want to sell it, because he’s going to say, I’m going to lose money if I sell it. Why is the brick facade needing to be continually replaced? What’s going on with that?

Shelly:
There’s a wooden beam that has warped and the entire… You’ve seen when brick buildings have a belly and sometimes you can reinforce it with star bolts. So this wooden beam is what’s holding all the bricks up and that’s twisting. And the first guys took all the bricks down, put all the bricks up without replacing that wooden beam.

David:
Okay. Yeah. Because it does feel like… Do you have any that you can put into this or no if you were to buy it from your dad?

Shelly:
Yeah. I mean not anywhere near those kinds of dollars. I mean…

David:
Well, no, because you bought it for 975, but what’s on the actual debt?

Shelly:
Well, there’s none. Yeah. I mean, there’s none.

David:
Okay. Yeah, it is all paid off. Okay. Cool. Yeah. All right. I think the problem… That investment, if I owned it, I would not be super mad about a 6% cash on cash return if it’s paid off free and clear. When you pay a property off, you’re making a conservative bet and you’re really betting on appreciation. It sounds like it’s just the paper cuts of little things going wrong that’s causing your dad to be frustrated because he’s not used to being a real estate investor. And when you first get in, this happens to everybody. You just don’t know about things like what you described about the structure of why the brick facade didn’t work, and it’s an expensive mistake that you make when you’re learning which is why I always tell people, don’t jump into something huge on your first one. Just all this stuff is going to go wrong. Learn with training wheels. So it’s a small fall to the ground. You don’t want to learn how to ride a bike on a motorcycle type of a thing.
Your dad probably, he might just say, yeah, sell it. I don’t want to deal with it. But is someone going to pay 975 when it’s a commercial property. And commercial paper it’s a little tricky getting a lot right now. What are you laughing at, Rob?

Rob:
You keep saying facade. It’s facade.

David:
I’m sorry. You’re right. Do you ever do the thing where you read a word and then you say it like your head sees it instead of when it’s said out loud. I’m going to be getting roasted in the comments of this [inaudible 00:16:58].

Rob:
Well, yeah. My wife used to say she had never read Helvetica before. So one time she’s like, “Why don’t you do a helveteta font?” And I was like, “Helveteca. What is that?” Helveteca. And man, she’s like, “Oo one’s ever said it out loud. How am I supposed to know?”

David:
I don’t know if that’s why that’s so funny to me but it always is. Thank you Shelly. You got me roasted here by the BP production staff and Rob. Usually Rob is the roastee… I’ve become the marshmallow and he’s become the stick for the first time.

Shelly:
I love to see it.

David:
It’s an interesting visual. Okay. All right, Shelly. I don’t know that there’s any easy answers out, but I don’t think it’s a terrible deal. It’s just a mediocre deal. And I really think moving forward in the real estate space, this will be the norm. Mediocrity is the new success in a sense. Because rates keep going up and everything is going against real estate ownership and the economy is really starting to stall. I don’t know that your dad’s going to be getting a 6% cash on cash return in the stock market forever. Definitely not with the potential upside of real estate.
So I think first off, you can’t keep bearing his upsetness with the whole thing. I would turn it back on your dad and be like, “Okay, dad, you know I love you. I want you to feel better. What do you want to do?” Because he probably just grumbles to you as the property manager every time something goes wrong because he wants you to fix it. And you can’t. You’re not the one that can go in there and fix the mistakes that were made. So I just turn it right back around. Say, “Okay, what do you want to do?” “Well, I don’t want to deal with this anymore.” “How do you want to not deal with it?” “Well, I just want to get rid of it.” “Okay. Do you want me to find a broker to sell it for you? Totally understand.” “Well, do you think it’s worth more?” “I don’t know. It might be worth less”. “Well, I don’t want to sell it at a loss.” “Okay, what do you want to do?”
You’re going to have to keep playing that game to get him to take ownership of this problem. And what you will find is that emotionally, all of a sudden this burden lifts off of you is you’re not having a deal with somebody else’s issue because you jumped into this trying to help them and they ended up hurting you. There’s a story in the Richest Man in Babylon. It’s a really good story and it talks about how there was an ox that was complaining all the time that the owner would wake him up in the morning and hook up the thing to his shoulders and he’d have to drag… What’s the thing that the ox drags the till? Whatever. The plow. Thank you for nobody remembering that. Thank you, David, for remembering that. The ox would have to drag the plow across the dirt.
So the donkey was like, “Look, here’s the deal. Tomorrow when he comes wake you up, just bellow really loud as if you’re sick and he’ll feel bad for you and he won’t make you work.” So when the owner comes to hook the plow up to the ox, the ox bellows really loud like he’s sick and it’s not going well. The owner tries three or four times and it doesn’t work, and he gives up and instead he gets the donkey and he hooks the plow up to the donkey and he makes the donkey do it. And the moral of the story was, which I thought was brilliant, never try to help somebody by taking on their problem.
You love your dad. You’re trying to fix this for him. You’ve jumped into the fray to help lighten his load when you have no equity in the deal, and you’re dealing with all of the burden and he’s not having to carry his own plow right now. Your dad needs to take on his damn own plow. And then you as the property manager should just be acting like the property manager saying to the owner, how do you want to fix it? And I think you’ll feel a lot better.

Shelly:
Cool. Solid.

David:
And if you want to know more about The Richest Man in Babylon, check out Pillars of Wealth: How to Make, Save, and Invest Your Money to Achieve Financial Freedom as I borrow heavily from the principles of that book in my own. Available at biggerpockets.com/pillars.

Rob:
Yeah, I was actually just thinking the sequel to your bird book could be bird den.

David:
Oh, that’s good. That’s very good. Look at this marketing master right here. The bird den. Removing the bird. The only way I could think of Shelly buying it, which she would either have to get a loan to buy it, she’d probably pay less than 975 with where rates are, or she’d have to do seller financing, in which case dad would say, “Well, I don’t want to do seller financing because I could get a better return to the stock market.” I’d like to see Shelly just push everything right back to him. Be like, “Okay, dad, you sit underneath all this stress and you figure out how you want to get rid of it.”

Rob:
Yeah. Ultimately, I’d say the real big reason you’re invested is because of the bike shop, I don’t know if I’d spend a ton really trying to solve this. I think if there’s an opportunity for you to really own this or buy this or negotiate this with your dad, then I’m like, yeah, great, push on that. But if it’s not, then yeah, I think try to move on, to push that back to your dad, like David said.

Shelly:
Yeah. That makes sense.

David:
The C S smile on that face next time we talk to you, Shelly. You got to get this burden off your shoulders. That’s the ox’s job. Be the donkey.

Shelly:
This is a BiggerPockets therapy session?

David:
Yes. First time that I’ve ever called somebody a donkey in a positive light.

Rob:
In a positive way. That’s right. Because you usually call… Yeah. When you say it to me, it’s usually other things.

David:
All right. Thanks Shelly. Let us know how that goes.

Shelly:
Thanks.

David:
Shelly. For those who may have ideas that we didn’t think of, because they’re always screaming at the radio like, “What do you mean? Why are you not telling her this?” I feel like there might be somebody out there who’s thinking that. How can they get ahold of you to share their advice?

Shelly:
Well, I did start an Instagram account for real estate stuff that has a silly name. It is called the Mousing Hackett. Like the housing market, but Mousing. So it’s got a picture of a mouse on a house. I don’t know. That exists. You could also find me at Fairmount Bikes that is spelled like it sounds, F-A-I-R-M-O-U-N-T-B-I-K-E-S bikes.

David:
The Mousing market or?

Shelly:
Really easy to say the Mousing Hackett.

Rob:
I see, okay. Is that what it is? Is it the Mousing Hackett? What? Everyone’s got hard Instagram handles today.

Shelly:
We’re going to have 250,000 BiggerPockets listeners trying to help you and they can’t find your Instagram account.

Rob:
Was it the Mousing Hackett, the nousing narket. I like it now. Now I get it.

Shelly:
When you see the mouse in the house, it’ll make sense.

David:
It’ll make more sense. That’s right. And that rhymes. You could have just called it that.

Shelly:
It’s true.

David:
All right. Thank you, Shelly.

Shelly:
Thanks guys.

David:
And thank you Shelly for bringing such a nuanced and complicated but very beneficial lesson for us all to learn from there. Best of luck with your data and let us know how that goes. I hope that everyone is getting a lot out of these conversations so far, and thank you for spending your time with us. All BS aside, I know there are so many places that you could be getting your real estate education from and they’re all competing for your attention, so I sincerely appreciate that you’re spending it here with me on Seeing Greene.
As always, please make sure to light comment and subscribe to the channel as well as share it with someone who you think would benefit from the message. We’ve got a few comments from other folks who did just that in previous episodes and we are going to read them in this segment of the show.
Our first comment comes via Apple Podcasts and it’s titled too good to be free. Boat Guy 545 says excellent source of real estate knowledge with a five star review. So thank you for that Boat Guy. Appreciate it. From episode 828, we have some YouTube comments. The first one says, love this episode, your podcast give me motivation when I start to lose steam, so thank you. Thank you for that. That is exactly what I want to do because it is a tough market. It is a tough economy and it could be a tough world to live in. So if we could give you some motivation, that feels great.
The next comment says, I’m not sure you can exchange a 1031 house for a multifamily. Are you sure he can do that? I know with the 1031 it has to be a similar investment. This is from JDP 0539 in YouTube and I will break this down for you. So it is called a 1031 like kind exchange, meaning that the trade in order to defer capital gains needs to be for a type of property that is like in nature and kind to the property that you sold. Now, it is something that you can trade a house for an apartment or a house for a multifamily, as long as they were both investment properties. My understanding of the law as it’s written right now is that is fine. What you can’t do is 1031 exchange a primary residence into an investment property, but you can change one type of investment property into another and that is pretty common. So thank you for pointing that out because we don’t want people to get into trouble, but you also gave me an opportunity to highlight what a 1031 like kind exchange is, so thanks for that.
Our next comment from Bridge Burner 4824 says, more Rob, always. The people have spoken and they want more Rob Abasolo on Seeing Greene. Let me know in today’s show if you want to see more Rob Abasolo on the Seeing Greene episodes. All right. Our next comment comes from Ramonda Laving House 3796. Thanks. I started listening to your blog recently and thanks, I have a question. How do you fire your property manager? Well, okay, that’s a good question. The first way is you have to tell them that you’re not happy with the service and you want a new property manager and they may come to you and say, “Well, you have a contract with us, you need to write it out.” I would just say, “What do you need from me in order to break the contract? I’m not happy here and I’d rather end our relationship amicably than have to go leave negative reviews about your company for other investors to see.”
Now, they may have spent some money advertising your property or preparing it. You don’t know what investment they made, so I’d ask about that and then I would explain that you want out of it and ask if it’s a financial thing or other methods that would make them be willing to break the contract, assuming you have one. From Andy’s Auto. I must say I’m 32 years old and have lived in Missouri my whole life, and there are many people here including myself that also use the word hella. Well this is news to me. How did this happen? I am from Northern California where apparently this word originated. I grew up my whole life in that area and didn’t know other people didn’t say hella.
So we must have had some a transplant that moved from California to Missouri and brought this non-indigenous word into the region where it then took off in this isolated Petri dish of Missouri where it went unchecked. And now much like when you have a non-native species that gets into an ecosystem with no predators, all the Missourians started saying hella all the time. I know UFC fighter Michael Chandler is a fan of the podcast and he is from Missouri. I have to ask him if he is ever said hella and how he feels about it. There’s also a very good chance that the cartoon South Park has had some influence in this. If anybody has a theory on how hella has made its way into Missouri, let me know in the comments. I would like to know how this could have happened.
All right. We hella love and we so appreciate the engagement on this show. So please remember to comment about what you would like to see on Seeing Greene, what you’d like to change and how you feel about the show in today’s YouTube comment section, and also take some time to give us an honest rating and review wherever you listen to your podcast. That will help us a ton. Let’s get back to taking more questions. Our first video comes from, Bryton Daniel in Texas.

Bryton:
Hi David. This is Bryton Daniel from Houston, Texas and I’m in a bit of a pickle. I’ve been following and listening to BiggerPockets for a few years now, and I’m ready to start my first house hack. I went and got an FHA loan and was approved for less than 100,000, which is challenging in any market. My question is, how can I best use this loan and amount to set myself up for success moving forward? I’ve considered getting a second lien with owner financing or possibly a 203K product. Would you suggest any of these ideas or is there a perspective I’m missing? Look forward to your thoughts. Thank you and the BiggerPockets community for everything.

David:
All right, Bryton, great question there and I do have a perspective that you’re probably missing. First off, I’m going to tell you to go to biggerpockets.com/pillars and buy my new book, Pillars of Wealth: How to Make, Save, and Invest Your Money to Achieve Financial Freedom. Now, here’s the reason that I’m telling you to get that book. It is the only book I know of that I’ve ever seen because I wrote it, that explains not only how to invest in real estate with strategies for how to do it, especially getting started, but also how to budget your money better and how to actually make more money.
So if you took me out of this position on the podcast, I lost everything and I was dropped off in the middle of Chicago with nothing, I would go get a job at a convenience store. I might work for free for a couple days to show how hard of a worker I am. I would work my way up to the top and I would slowly go get a better job that paid more money to do the same thing over and over. There is actually a blueprint to getting ahead in business. Now, many people are listening to podcasts like this if we’re being frank because they don’t want to do that. And I just take a different approach. I say, yeah, invest your money in real estate, learn how to do it, but also work really hard and improve your skills so that you can increase your earning potential because that makes investing a whole lot easier.
So here’s my advice to you, my friend. Pick up that book and practice the principles in it, particularly the first two pillars, defense, which is having a budget and saving money as well as paying down debt, and offense, which is making more money. Now, doing that is going to improve what we call your debt to income ratio or DTI. This is a ratio of how much money you make versus how much money you are spending, and the more favorable you can get that, the higher the pre-approval amount for the real estate that you can buy. That’s what’s going to make this journey a lot easier for you, sure. You can go use the gimmick strategies of trying to find someone else to partner with you or trying to find some way of creative financing. I’m not against it. If that’s going to work for you and you can do it, go do it. But it’s not practical.
For the vast majority of people listening, the best thing that you could do if you want to buy real estate is to change your life to fit the mold of a real estate investors. And a successful real estate investor saves their money. You need to pay down your debt, you need to put more money in the bank and increase how much you can put on a down payment. This is going to be very helpful for you as well as very financially healthy. At the same time, you need to ask yourself what you could do to make more money at your job or what job you could get that’s going to pay better. Now that’s going to push you, it’s going to test you. You’re going to feel some pressure, but if you handle it the right way, that’s going to be overall net benefit in your life. Let real estate investing the third pillar, be the carrot that causes you to improve your performance in the first two and have a well-balanced approach to investing in real estate.
All right. Our next question comes from Kate in Cape Cod. Kate says, hi David. I have a property that is in a living trust. My mom happily lives there now and I hope she does for as long as she’d like. But after she passes, I’m interested in possibly renting out the property and taking out some equity loan to buy another investment property. Does this even sound like a viable plan? I’m currently broke. How do I even start in the meantime? All right Kate, so here’s the good news. You’ve got a property that has some equity and you’re not in any a rush, which is also good because your mom lives there.
Here’s the bad news. Getting a loan to get equity out of that property, whether it’s a cashout refinance or a HELOC, is going to require you just like Bryton to have a debt to income ratio that will support that loan. Part of getting a loan is having the equity to pull out of it, but the other part is having the means to pay that loan back. Loans are not free money. Loans are being given money in exchange for a promise to pay that money back with interest, and if you can’t pay the money back because you’re broke, that’s where we need to start. Much like Bryton, you need to check out biggerpockets.com/pillars and get the book and start working now on what you can do to start making money so that you are no longer broke and saving that money so that you’ve got a down payment on the next property you want to buy.
This is exactly why I wrote this book and it just so happens to be hitting at a time in the economy when it’s very important to read. These are principles, these are fundamentals that people need to get back to. For the last 10 years, we’ve printed a ton of money. The value of real estate has gone up. NFTs have gone up. Crypto’s gone up. There’s been a whole lot of strategies that you could create wealth easily, and then when you head into a bad economy, all that stuff goes away. Now’s the time to get out of being broke, to develop some good healthy financial fundamentals and strategies and habits so that you can get that loan when your mom passes and you’re able to be a real estate investor. Let me know in the comments what you think as well as what you think when you read the book.
And if you’d like to learn how to be better, be sure to listen to BiggerPockets podcast 844 with Rob and I where we interview Jib Quick and he explains exactly how to do the stuff I’m saying at a higher level. It will be the episode that comes out right after this one. And from, Mike Rendon in Georgia.

Mike:
Hello David and the BiggerPockets team. First of all, thank you for all the content you guys put out. Love the podcast. Rob was a great addition to the team, been following him for a little over a year, so thank you for all you guys do. As for my question, I wanted to see if you guys have any strategies or ideas how I could get a mortgage for a home to live in. The reason that it’s difficult right now is because I put 20% down on a short-term rental about a year and a half ago approximately, and that place is cash flowing. It’s doing great. It’s got about 19 months of rental history. I also have another short-term rental that I purchased 13 months ago. I’ve been living in the home. It’s in Blue Ridge, Georgia, so I actually moved my family from where we are used to in Florida and we moved to the mountains middle of nowhere to be able to only put 5% down in this cabin and fix it up, which we’ve now completed and it’s been cash flowing for one month.
So we’re having a difficult time now finding a way to get a mortgage on a third home, ideally back in Florida so we can get back home. We now have these two great cash flowing properties, but one only has one month of history, one has 19 months of history, so it’s making it difficult to get another mortgage because my DTI is maxed out. So just looking at referring ideas, thoughts. One issue that is getting in the way just to throw this out there is I’ve got a 3.75% rate on both these mortgages, so if I refinance any of them, it pushes my DTI high. It’s already about 55% now. So yeah, just looking for any ideas that you guys might have. Thanks.

David:
All right. Thank you, Mike. This is incredible that we’ve had three questions in a row with very similar issues. Apparently many of you out there are in the same boat. Now, let me just take a stab at why I think that this may have happened. You’ve been listening to real estate podcasts, maybe even this one, maybe other BiggerPockets podcasts, maybe stuff you hear on YouTube that have been telling you how to scale, buy, pull equity out of something, buy the next one. Now, that has been a good strategy when the value of real estate and the rents were going up. The problem is many of you were doing this because you wanted to quit that J-O-B, and as you’ve had success and you’ve been able to scale just like Mike here has, you realize I need that J-O-B because I can’t get approved for financing of additional homes, which is something for years I’ve been saying.
There is a contingency of people that can quit their job and be full-time investors, but it’s not the majority of us. The majority of people should continue working. Now, the obvious answer is because you need a debt to income ratio that will allow you to get future loans. You have to be able to show the lender that you can pay it back and having a job helps. But it’s not just that. Having a job is also very useful when things break in a property that you didn’t know would. Being able to save money and put it away is something that you need when you’re real estate investing and many of the gurus out there won’t tell you that part. They’ll just tell you that if you give them your money or your attention, you can get a portfolio that allows you to quit the job.
Now, you’re stuck between a rock and a hard place here, Mike, because like you said, you have some cash flowing properties that have really good interest rates. So you don’t want to sell them, but you’re not going to be able to buy another house if you want to move back home because your debt to income ratio is maxed. So a couple options for you here. One, consider taking the knowledge that you have and applying it to something that will earn you money. If you’re self-managing these properties, consider managing properties for other people. Consider getting a job for a property management company to earn some extra money. That will make a huge positive dent on your debt to income ratio.
Now, mortgage companies like mine can actually give loans to people when they don’t have W-2 jobs. We can qualify people based off of the money that they have made in their contract or 1099 type positions, but you got to have a minimum of a year making that money for it to be eligible. So that’s where I think you should go is you don’t have to go to a job you hate, but go to a job within real estate, which you presumably love if you’re doing this. Another option is that you could house hack in Jacksonville, but reverse where you rent a room or a space from someone else. Rather than own the house and rent out parts of it. Can you keep your mortgage low by renting out from somebody else that’s house hacking. Support a fellow real estate investor, saving up your money and improving your debt to income ratio so that you can buy your own house later.
Guys, I don’t have a crystal ball. I’ve said this many times. I do my best to try to paint a picture of what I think is going to happen in the economy because those type of factors do affect investment decisions. And I feel like for the first time since I’ve been in a position of influence in the real estate investing space we are going to head into a pretty rough economy. Again, I hope I’m wrong. In the past we’ve seen bad signs, but the government came out and said, we’re going to print a bunch of money. We’re going to have quantitative easing, and I told everybody else, I don’t think the sky is falling. I think you need to go buy real estate. And I was right. The people that listened did really well.
Well, now’s a time where I’m saying, I don’t think you should sell your real estate because I don’t see any signs that the values of it are going to plummet, but I do think your ability to buy more of it is going to get significantly harder. I think that real estate overall is going to make less money and perform not as good as it did in the past, but it’s still going to vastly outperform all the other investment options, and as the entire economy slips into a recession, which who knows how long it’ll be and who knows how bad it will get. Having financial security is going to look like a positive thing, not the negative thing that it’s been painted as for so long now, where if you had a job, you were called a joke, or you were shamed by the people that quit their job to ride off into the sunset and drink those Mai Tai’s on the beach. I think you may see a lot of people going back trying to get jobs and realizing that there’s not as many jobs to be had.
Again, I hope I’m wrong, but I’d rather prepare you for the worst so that you’re in a better financial position than if you assume the best and you end up sorely mistaken. So Mike, you seem like a guy who’s smart. You seem like you got a good work ethic. You’ve already done well getting these properties. If you want to get more properties, you’re going to have to improve your debt to income ratio. My advice is you do that within the world of real estate investing, and I have a chapter specifically on that topic in Pillars of Wealth where you can go check that out and get some ideas of how you can make money in the world of real estate, but not as an investor, as somebody who’s working in the space often as a 1099 type employee.
I’d love to see the entire army or ocean of BiggerPockets listeners jump into the space and take over as the best real estate agents, the best loan officers, the best property managers, the best contractors. Wouldn’t you love it if the handyman that you hired listens to BiggerPockets. If the contractor that you hired listens to BiggerPockets. If your accountant and your CPA were all BP fans that understood the same things that you do and had the same goals as you, and we could all create a community of people that had each other’s back. That’s the vision that I’d like to see. Let me know in the comments if you agree with this and if you have considered getting out of a job that you don’t like or maybe you’ve been laid off and getting into a job and into the realm of real estate as a whole.
All right. That was our last question for today. Thank you all for being here. This is fantastic. I hope you enjoyed today’s show and we’ve had a great response from all of you. So please remember, if you’re listening to this on YouTube, to leave us a comment about what you thought of today’s show that we can hopefully read on a future episode. And if you’re listening to this on a podcast app, please go leave us a five star review and let the world know why you love BiggerPockets. Those help a ton as we’re trying to stay at the top of the podcast space in the business segments of Apple Podcasts.
All right. In today’s show, we covered what is in The Richest Man in Babylon. Remember, BiggerPockets sells that book. It’s a very short book, but a very powerful book. So go pick up on the biggerpockets.com/store, The Richest Man in Babylon and get some advice that Shelly received when it comes to taking on other people’s problems that are not yours and how you can avoid it as well as only investing in things you understand and great timeless financial wisdom. We talked about what options you have when house hack financing doesn’t come in where you would need it. We talked about when to keep your job, when to get a new job, how to improve your debt to income ratio, and why DTI is so dang important.
Don’t buy the hype. This stuff matters. And the people that build great big portfolios that retire better are people that continually worked at a job that was sustainable for them, that they enjoyed, that they did not hate, and built a portfolio up over time. As well as inheriting a property and what to do to prepare yourself in the meantime. Hope you guys enjoyed this episode. Let me know in the comments what you thought. You could find more about me at davidgreene24.com or on Instagram or other social media @davidgreene24. I will see you guys on the next Seeing Greene.

Andy Florance, CoStar Group founder and CEO, and billionaire investor Ron Baron join ‘Squawk Box’ from the Baron Investment Conference to discuss why Baron’s been bullish on the company since his first investment in 2001, the state of the real estate market, commercial real state trends, impact of the $1.8 billion broker fees ruling verdict, and more.

Ashley:
This is Real Estate Rookie episode 338. 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 bring you the inspiration, motivation and stories you need to hear to kickstart your investing journey and if you’re watching this on YouTube I might look a little bit different today. I’m pulling a bit of a, Clark Kent, I brought out my glasses. Ashley, didn’t even recognize me today. She hopped on and she was like, “Well, who is this person and where is my co-host?”

Ashley:
I mean, you’re saying, Clark Kent. But I’m pretty sure I said nerdy or dorky, but okay.

Tony:
They’re one and the same. One and the same. But no, all jokes aside guys. We got a good episode today where we’re hitting you guys with another Rookie Reply and we’ve got four questions that we’re going to cover today. We talk a little bit about if you’re in that stage of choosing your market, what are those data points that you should be looking at to know if a market is a good market or not? Which is an important thing to consider today especially in 2023 if you’re thinking about investing. We talk a little bit about paying contractors. What’s the right way to do that without getting maybe scammed by a contractor and how do you make it easy on yourself as well?

Ashley:
Yeah. And we talk a little bit about credit card hacking and how you can incorporate that into your contractors paying for materials for your rehabs and your projects. Then we talk about liens on properties, foreclosure, pre-foreclosure and we give a couple examples of properties that I’ve purchased that are in foreclosure or were foreclosed on and what it was like dealing with the bank. So if these are things you are interested in this is the episode for you and as always, no matter what your strategy, what your experience, we always try to educate you and leave you little pieces of nuggets that maybe there’s one aha moment per an episode that we help you have. So if you have any of those aha moments, we would love for you to please leave us a rating and review on your favorite podcast platform or on YouTube and let us know what you have learned from the rookie podcast and maybe someone will read it and be inspired to take action on their real estate journey.
Before we bring on your Rookie Reply questions, this could be the last episode that, Tony, and I record together before baby comes. So even though when this actually airs, baby will be here.

Tony:
Baby will be here for sure.

Ashley:
But we are counting down the days before, Tony, is on his paternity leave and we’ll have separation anxiety from not seeing each other every single week on Zoom, sometimes twice a week. So there’ll be lots of FaceTiming with the baby, I’m sure.

Tony:
A baby girl.

Ashley:
Yeah. So if you haven’t already make sure you congratulate, Tony, because by the time the airs he’ll have a little newborn baby girl.

Tony:
Exciting times, guys. Well with that, let’s get into today’s questions.

Ashley:
Okay, today’s first question is from, Blake Kretsinger. I did not say that wrong. Kretsinger. Kretsinger, maybe one of those are correct. Okay. Blake’s question is, “What are some metrics you use when identifying potential markets to invest in? I’ve determined that long distance investing is my best bet as my home market, the DFW is a pricey one. I’m looking to utilize the BRRRR strategy and I’m looking to identify several markets with a lower cost of entry. The main factors I’m assessing as of now are population growth, medium home price growth, crime levels, average household income growth and job growth. What would you add, take out of my analysis?” Tony, I see you vigorously writing down notes. What do you got?

Tony:
So I think there’s a few pieces to this, right? So Blake, first it’s a fantastic question and one that I think a lot of rookies are thinking about. So I’m glad we get to discuss this but before we even get into hey, what are the data points I should be assessing when I’m looking at a market? I think the first question you have to ask yourself is, what is my motivation as a real estate investor? What is the actual purpose that I have for investing in real estate? And typically, there’s three big buckets that you kind of fall into. There’s cashflow, there’s appreciation and there’s tax benefits. Right? Cashflow, appreciation, tax benefits, and usually you’re trying to balance those three and if you’re investing in short-term rentals there’s a fourth one which is vacation. So maybe you just want to subsidize the cost of you owning a vacation home somewhere, but cashflow, appreciation, and tax benefits. So between those three I’d say gauge which one is most important, second important, third important.
So kind of prioritize those into a list and then that’s going to help you determine what are the underlying metrics that are more important to you. Because you have population growth, median home growth, crime levels, household income, job growth, etc. But what if your goal is really just cashflow right now today? Then maybe you’re not as concerned about average median home price growth, right? Because that’s not as important to you. What you’re really focused on is how do I maximize my cashflow? And if that’s your ultimate, ultimate goal, then maybe you’re not even as concerned about crime levels. Because you’re like I’m fine going into a war zone if I can get a 40% cash on cash return on a traditional long-term rental. So I think the first piece is understanding which of those three is most second and third most important. What are your thoughts, Ash?

Ashley:
So a while ago, Steve Rosenberg, another investor and he does a lot of business coaching and consulting and we sat down and we actually made a market analysis worksheet as to like here are the things that you should be looking at when analyzing a market. So I’m just going to read them off real quick, and it was really interesting to see our different perspectives as to what was more important to each of us and then we kind of combined them. So look at three different job industries, you want to make sure that there’s not just one industry that supports the towns. Because if that facility closes, then majority of people are out of work and they’re relocating. So you want to look at the three major job industries that are there, population growth, average home value, average rent, the price to rent ratio. So how much are you purchasing these properties for and what would be the rent that you’d get out of it? The tax assessment percentage, so how much are you paying in property taxes? What’s the percentage based on the home’s appraised value? The utilities, if there’s anything unique.
So around here, a lot of homes are heated with natural fuel. So we have lines that are run from the road just like you’d get your electric or whatever and then the gas heats your house, the natural gas. And sometimes there is not that available and you actually have to get propane tanks and hook them to the house and then you have to have a propane truck come and fill the propane tank. So looking at different things like that as to are there unique things that may determine the home’s value? It definitely is a lot more convenient to have natural gas supplied to your house than actually having to come and get your propane tank refilled. So different things like that. Then seasonal maintenance, are you going to have to worry about snowplowing? Are you going to have to worry about the snow load on the roof? Specialty insurance, are you in a flood zone? Are there hurricanes? Are there kind of natural disasters that happen? You have to have specialty insurance, earthquake insurance. The average age of renters, average income of renters.
You want to make sure that the average people in that market can actually afford what you would want to list your unit for rent. Average education level, percentage of homeowners verses percentage of renters. The crime statistics and the school district rating, the average age of property. So if you don’t want to get into renovating a 1900s home, don’t buy in an area where the majority of them where I live are from the 1900s. The average vacancy rate in the area for other landlords and then are there multiple exit strategies? So if you were buying this as a short-term rental, would it also work as a long-term rental or vice versa? So those are the things that we had on our list and I’m going to give you two resources to find a majority of this data without having to go and search for it. The first one is brightinvestor.com, where you can put in the zip code, the neighborhood that you’re looking in and it’ll give you a lot of this market research and then the other one is neighborhoodscout.com where it’ll give you a wealth of information too.
There are some free capabilities that you can… Some information you can pull from these or you have to pay. So I think NeighborhoodScout, you can pay per zip code or something and I think it’s like 20 bucks and you can get the full report. So those are my two recommendations as to someplace to get you started so you’re not having to find and Google and search every single little piece of information.

Tony:
That was a great breakdown, Ashley, of all of the different data points to look at and the insurance one really hit home with me. So for those of you that have been listening to the podcast for a while you know that part of the reason that my Shreveport house, that deal kind of fell apart was because the flood insurance premium quadrupled from one year to the next and almost immediately made that house unprofitable. So understanding those nuances I think are pretty important. But everything that, Ashley, just went over… I guess let me take a step back. There are two types of data that you want to consider when you’re considering a market to invest into. You have your quantitative data and then you have your qualitative data. So quantitative is everything that, Ash, just talked through. Right? Like vacancy, job growth, flood insurance premiums, things like that. Right? Your qualitative information, your qualitative data, that comes from conversations. So that’s you talking to local property managers in that market and getting a sense of hey, where do you feel this market is moving?
What are the pockets that work well? What are the pockets that don’t work well? Where should I avoid? Where should I focus on? Talking to local real estate agents in that market, right? A good agent should know their markets like the back of their hand. I love my agent in Joshua Tree because this guy is just an encyclopedia of everything happening in and around that city. He knows what laws are getting passed, he knows what the city council’s talking about, he’s just tapped into everything. So a good agent can also give you a lot of that qualitative information and then the third place to look for that is other real estate investors in that market. So go to your local meetups, right? Get active in Facebook groups that are local to your city and try and have conversations with folks to understand what has their journey been like? Because the data’s going to point to one thing, right? The data’s going to paint one type of story. But you can really get that full picture by talking to someone and really understanding their unique experiences because there’s always fuzziness in data.
You can never be 100% certain just by looking at numbers, but you can build that confidence in your decision by talking to someone that’s investing in that market. So if I wanted to invest near Buffalo, New York. I’m not just going to look at the data, I’m going to go to, Ashley. I’m going to say, “Ashley, give me the playbook. What should I be focusing on? What pitfall should I avoid?” And, Ashley, could probably rattle those off the back of her hand because she’s done it so many times. So you want to look for the quantitative and the qualitative data.

Ashley:
And I think some of the… When you’re deciding what markets to actually analyze start where you have those kind of opportunities. Whether maybe it’s your hometown, so you know some of the streets, you know the areas, you know what’s good and bad or you have a boots on the ground, you know somebody that you can ask those questions too. Just an idea, it may not work out to be the market that works for you but that’s a great place to start is where you have those advantages.

Tony:
Just one caveat that we should add to that too is that it’s good to have both. I see some mistakes that some people make is that they only rely on the qualitative data and that they don’t focus enough on the quantitative. So just because someone says Orlando Florida is a great place to buy a short-term rental or St. Louis, Missouri is a great place to flip a home. Just because you see that on TikTok or Instagram or YouTube or wherever, don’t let that be the only data point that you use to then go out and invest all your money into that market. So the qualitative is a good balance, but you want to make sure that you’re still getting both of those.

Ashley:
And verify data.

Tony:
And verify.

Ashley:
Yeah.

Tony:
Yeah.

Ashley:
Okay, so the next one is from, Inca Comstock, and this question is going to sound dumb but hey, no dumb questions here. “If a contractor lets you buy materials with your personal credit card, how do you do this? And you’re out of state. Do you just have to go with him and purchase materials with them? What options are out there?” So this is where, how much do you trust your contractor where you actually make them an authorized user and they get their own credit card to use and you know what transactions are coming from them. Because it’s a credit card that has their name on it and to add someone as an authorized user you don’t typically need their social security number or anything like that. You just need their name and address to have them added on, if they don’t want it to impact their credit.
You can do that, but another option is to actually buy the materials online with your credit card and have it ready to be picked up at the store and they will go in and be able to pick up the order and you would just add them as the person that’s picking up the order. That I think is one of the best ways to do it out of state, you don’t want to actually give them your credit card to do it that way.

Tony:
We’ve done both of those. Our guy, Nacho, who’s done all of our flips, he’s an authorized user of one of our credit cards. But same, usually like Home Depot you can have your credit card on file if you’ve got the… What is it? Like the pro account or whatever it is. Your contractor can just walk in and say, “Hey, I’m here for this job.”

Ashley:
And charge it.

Tony:
And yeah, they can charge it. And that’s a big reason why we’re kind of selective on which vendors we buy from. Sometimes our designer who we work with, she creates amazing designs but sometimes she picks these somewhat obscure places to get the selections from and we like places that we can always order online, that ship fast. So ideally we can even save our contractor the trip of going to the store to pick that stuff up, we try and buy everything online and just ship it directly to the property to save a lot of that headache. I guess one other option you could do, say that maybe the store you’re buying from is a local shop that doesn’t process orders online. If you’ve got maybe a more tech-savvy contractor that you’re working with, they could just invoice you say they’re using QuickBooks or something. They could invoice you, you could use their credit card to pay their invoice and now they’ve got the cash from that invoice payment to go out and pick up the materials. So another option in case you want to go that way.

Ashley:
The only thing with doing it that way then is that the contractor is paying the credit card fees.

Tony:
Or they’re just marking you up.

Ashley:
Yeah.

Tony:
Yeah, so whatever those fees are maybe tap on an extra 100 bucks or something like that. Well one thing that you said, Ash, that kind of brings up another question is you said if you add your contractor it doesn’t impact their personal credit. Do you always set it up as a business credit card or do you sometimes use personal credit cards? What’s your mix for funding the rehabs?

Ashley:
I definitely do business credit cards, because those sign up bonus points are amazing and so yeah, I always do a business credit card and, Daryl, does a lot. He handles pretty much all the project management for materials and things like that. But there was a couple, so he will usually order it online, have it ready for pickup. Or he’ll go and do the order and just go shopping or whatever and bring it to the property if it’s a department turnover or whatever for the contractor. But last year, over the winter there was two contractors I each gave a credit card to and all I had was keep the receipts in an envelope for me and then at the end of the project they had a budget and their budget was based on their labor and their materials. So I think they went over maybe $63 or whatever, but he paid that out of pocket that that was over the budget whatever.
And so I just had them save every receipt and then also anything that they needed to return to make sure it got returned and give me the receipt for the return and then I just would scan them all into QuickBooks. And now, Daryl, does all of that too where every receipt goes into QuickBooks with the ScanSnap and then it’s just assigned to whatever property it was for. But we just gave our short-term rental manager a credit card so she can go on Amazon and in our Amazon account and order stuff and it gets sent right to the cleaner’s house and then the cleaner will be the one that takes it to the property for us and so we actually added her as an authorized user on our credit card. So it’s me, it’s Daryl, and then it’s her for this one LLC and I like the fact that when the statements come I can have that kind of glance over as to how much each person is charging instead of just giving somebody my credit card or whatever.
Making them the actual authorized user. Because it’s not like anybody checks at a store that it’s actually you using a credit card. So technically you could just give them any credit card, especially if it is an LLC. No one’s looking at the actual name on the credit card, but I think it gives them a more sense of accountability is like this card has your name on it and it was used to purchase this.

Tony:
Yeah, there’s some increased accountability there for sure. One thing you mentioned though was the Amazon piece, and I just want to share this with people because it’s been really helpful for us from a bookkeeping perspective. But we have Amazon Prime, but there’s Amazon Business Prime and the way that we set it up is that you can have different groups. So each one of our business entities is set up as a different group inside of Amazon business and then you can assign your different team members, users, vendors, whoever to specific groups. And then whenever they go to make a purchase on Amazon you can set it up so that before they can complete that purchase they have to include the information you need for bookkeeping. So for us, they always have to tag what property that purchase is for and then they have to tag the account number inside of QuickBooks. So like is this consumable supplies? Is this whatever, repairs and maintenances? What is it? So that way our bookkeeper at the end of each month, instead of having to chase down receipts and do all this stuff she also has access to Amazon.
She can see all the receipts there, she can pull a report at the end of the month that’s itemized by expense that shows what property was it for and then what was the associated account number. That little hack alone sounds super simple but it saved us a ton of administrative time of managing receipts for Amazon specifically. So now Amazon’s got us, all of our consumable supplies we pretty much only buy it through Amazon because it’s really streamlined the process of the bookkeeping and accounting for us.

Ashley:
Yeah. That’s what we did too for the short-term rentals is we added a completely separate group and it’s definitely made it a lot easier. But did you know that with Amazon Prime Business, they don’t include Prime Video anymore? You got to pay extra for that now? It used to be included.

Tony:
I did not know that.

Ashley:
And I don’t have a personal Prime account, so I had to shell out the 11.99 for Prime Video.

Tony:
Ashley, you don’t have a personal Prime account? Or you just order it all through the business?

Ashley:
Yeah. I have one of the groups is me personally along with my four siblings, that’s my contribution to my family. My brother has the Netflix, I contribute Amazon Prime and yeah.

Tony:
Yeah, I got to set it up that way. Because we have Apple TV+, we have Prime or we have Amazon Prime, we’ve got Disney+, ESPN, Hulu, that whole bundle. It’s ridiculous now, we’re spending almost as much on these streaming services as we were on traditional cable and we still have cable which makes no sense.

Ashley:
Yeah.

Tony:
Yeah.

Ashley:
We just had to buy YouTube TV because that was the only way we could watch football games is that. Because last year we were streaming after we have to download this to watch the game and then we’d forget to cancel it and then we’d have to pay for it, but yeah.

Tony:
That’s how they get you.

Ashley:
Yeah. But one thing with the credit cards too, which we’ve actually talked about quite frequently is using the reward points on them too. So you had mentioned at Lowe’s you can do the Lowe’s business pro account or whatever and sometimes with some of their programs they have many different ones. The same with Home Depot is you use their credit card that they offer, like the Lowe’s credit card and you get 5% back or whatever it may be. But you want to weigh out what’s more important to you. So I don’t use the Lowe’s credit card anymore, we use usually it’s the Chase Business Preferred card or whatever where the signup bonus is 100,000 if you spend $5,000 within the first three months, something like that and that’s about 1,000 in travel right there. So that’s something to be cautious of too, is take advantage of those points that the credit card offers.

Tony:
I got to share a story because I was so frustrated when I did this. But we signed up for, I think it was an American Express card for one of our LLCs and got the card and we have a little booklet at home with all of our credit cards inside of it. I put it inside of that booklet and I just forgot about it, didn’t even remember that we had it and I missed the window to spend the $5,000 to get those bonus points. So it’s like I applied for this card and didn’t even get to use it and then I finally went to go use it for something and it got declined. I was like, “What the heck is going on?” It was a relatively small purchase amount and they’re like, “Oh, if you don’t use the card we actually reduce your spending limit down to something like…” It was like $500 if you didn’t use it fast enough. So I was like, “What the heck am I going to do with this card now? $500?” So anyway.

Ashley:
You’d go out to dinner.

Tony:
Yeah, right.

Ashley:
Then pay it off immediately before you use it again.

Tony:
Yeah.

Ashley:
Yeah, I just did one and actually I am always afraid of that of missing… So I always have to go through and look like when did I sign up for this, whatever. So I just opened one a couple of weeks ago and I put a calendar invite as to like here’s the last 30 days to hit that spend. So a reminder to myself to go in, see how much I’ve spent so far and I have 30 days before the statement ends or whatever to make sure that I reach that.

Tony:
That’s a really good idea.

Ashley:
Yeah.

Tony:
I feel like I need a Monday board that has all my credit cards inside of it because we have so many different entities that we’re spinning off right now. I feel like I need someplace to keep it in line.

Ashley:
Let’s see. Our next question is from, Charles Simon McAnte, “First time buying a property and placing it for rent right away instead of living there in the beginning, then turning it into a rental. So I have two questions. Do you have to wait until closing date to place it on the market for rent? It’s currently vacant. Second question, after closing do you turn on all utilities for a few days under your name then switch it to the tenant or do you just wait to have a tenant?” So the first question, which is a really good question is typically yes you do have to wait. There could be the circumstance where you put that into your contract with the seller but what happens if you don’t end up closing on the property? So first of all, make sure you have permission from the actual owner to list that unit for rent if you do decide to do that. Because you could get into a lot of trouble listing a unit for rent that you don’t even own yet, they call those people scammers.
So I would get permission from the seller to do that and get something in writing saying that it is okay and make it very clear that the house is not available for showings or whatever until a specific date in the listing. And I would not accept any kind of application or deposit or anything until you actually own the house.

Tony:
Ash, what do you think about using the coming soon feature that you see on some listing platforms? So maybe, Charles, could list the property but not like you said really allow anyone to do anything. But they can see the photos, they can submit their interest but not necessarily apply. What are your thoughts on that?

Ashley:
Yeah. So in AppFolio, they have what’s called Guest Cards. So it’s like the first step of somebody being interested where they fill out a little bit of information about themselves and that could be a great first step. Is you’re just collecting your list so that when you do close you can contact these people and say I’m doing showing this day or start to say that it’s now available. But yeah, I think that’s a great idea to do the coming soon for sure. I didn’t even think of that. Okay, for the second part. “After closing, do you turn on all utilities for a few days under your name then switch it to the tenant or do you just have to wait for a tenant?” Utilities and insurance When acquiring a property, you guys would be so proud of me. I closed on a property on Friday and everything was done at least four days in advance. Usually it’s the day before. But for this, so think about it especially since it’s vacant and you’re going to want to show the unit and you most likely won’t have a tenant lined up.
Because you’re not showing it before you own it, is you want to have the lights on, you want to have the gas on. Here’s what has happened to me a couple of times when I forgot to switch the utilities is that I then own the property. Well, the person that sold me the property they call and say, “I no longer own this property.” If nobody else has called to switch it into their name, the utilities get shut off. So when the utilities are shut off especially for gas, when they come and turn them on they give you a timeframe from 8:00 AM to 5:00 PM that they will be there and someone has to be there to let them in. There also has to be some kind of appliance in there like a stove where they can turn it on to make sure it lights the gas, everything is good and they also check all the pipes for gas leaks. So if you have a little tiny gas leak, a little pinhole, they’ll not turn your gas on.
It is way better to have a plumber come in and assess the pipes while the gas is on so that you don’t have to go through the whole thing and they will actually red tag your property and you have to wait until you can get a plumber to fix it and then you have to pass a whole inspection to get your gas actually turned back on. So having utilities stay on is worth you putting it, making that phone call and sometimes you can do it just online too you don’t even need to call anymore. Put it into your name those couple of days and some utility companies even have a landlord program. So every time somebody moves out of your property, they will automatically resort it back to your name and then you don’t even have to call anymore when somebody moves out to switch it back into your name. They’ll just switch it back until the new tenant calls to put it into their name too and it also keeps you listed as the owner of the property if there’s any problems or things like that.
So I recommend doing that in advance once you know the closing date. So if you know you’re closing on the 15th, call. Even if it’s two weeks before call and say it’s 15th, you can always change it or worst case scenario, you’re paying the electric for an extra day or something like that.

Tony:
Or what can happen is, which is what happened to me. I think I shared this story, but I had a property that was selling and for the buyer’s inspections I had to turn some of the utilities back on and one of those utilities was… I think it was the gas company and I turned it back on, forgot to call to turn it back off and I think eventually they ended up shutting it down. But they sent the final bill to the property instead of to me and I ended up going to collections for a $200 gas bill, because I never got notification that it was still running. So I actually just got that removed from my credit report after fighting with them for a year. So if you are going to do it just make sure that you’re like, Ashley. That you’re planning it out correctly and that you’re not like me and forgetting that you have these utilities turned on at certain properties.

Ashley:
Yeah, and I didn’t get anything sent to… Actually, I think I did get one thing sent to collection. When I left my property management company I found out there was a lot of bills that weren’t being paid, things like that and a couple of them were utility bills. Where tenants had moved out and they put it into my name and the billing address was the property management company. They got the bills, they had to get the notices, things like that.

Tony:
Didn’t send them to you.

Ashley:
Yeah, and this was even when they were managing it. It wasn’t like they were done yet, this bill was from January and they managed until May. So that I remember, and I remember getting the letter that it… I think it was going into collections or something and I’m like calling. I’m like, “What is this even for? I don’t even know.” And yeah, so nerve wracking.

Tony:
That’s the worst feeling to be surprised that you’re going into collections. I was literally applying for a refinance and my lender calls me he’s like, “Hey, Tony, we’re still going to be able to close. But your interest rate isn’t going to be what I told you because you’ve got this collection account.” I’m like, “Collections? I’ve never missed a bill in my life like what are you talking about?” And yeah, anyway. Learn from my mistakes, just be on top of that because it can hurt you in the long run if you’re not.

Ashley:
Yeah. My one business partner, he was going to buy a new business with his dad and he had to be approved. It was like a franchise thing and he had to be approved by the franchise and he was denied and it was because he had a Spectrum cable bill that was unpaid from when he lived in one of his dad’s apartment complexes and stuff and it was just like this whole thing and he paid immediately. But he was so embarrassed because it went to this franchise group he’s trying to start this business with and everything, it was mortifying.

Tony:
You can’t even pay an internet bill and you want to buy a franchise. But just, if you do find yourself in that situation you can get it removed from your credit report. You have to ask for what’s called a deletion letter. So basically I called these people I said, “Hey, look. I’m happy to pay you your money, I just need a deletion letter.” And part of the beef was that I wanted the deletion letter before I actually paid it, that way I could make sure that I actually got it. But they were just paying hardball, so eventually I just paid them the money upfront and they sent the deletion letter afterwards and you submit that deletion letter. They’ll do it as well, but then you could submit it yourself to the credit bureaus to actually show that it’s paid in full and it comes off of your credit report.

Ashley:
Oh, yeah.

Tony:
So yeah, I learned a lot about removing things from your credit report.

Ashley:
You know what? I’m glad you went through that experience so that if that does happen to me I know what to do now.

Tony:
You don’t have to freak out about it now.

Ashley:
Yeah, okay. Let’s go on to our next question here. This one is from, Kristen Marks. “Good morning everyone, thanks for adding me.” So this must be a question from our Real Estate Rookie Facebook group. You want to leave a question? You can definitely leave it into the group or you can go to biggerpockets.com/reply. Kristen, says, “I’m new to real estate investing and have a question. If I am looking at a pre foreclosure and there are liens against the property, can I still buy the property from the buyer or do I have to go through any lawyer or get it okayed from the bank? Thanks in advance, I’m excited to be starting this journey.” Tony, have you ever bought anything in a foreclosure or pre-foreclosure?

Tony:
I have not. But I think it might be even good, Ash, to define a few of these terms. Right? So what is foreclosure? What’s a lien and kind of what does that process look like? So foreclosure is when a person who owns a home or someone who is paying a mortgage. Right? They have debt, they have a mortgage against their property and if they stop paying that mortgage payment the bank then comes in and repossess the property. So they take ownership back and they foreclose on the person that owns the property, right? So it’s for failure of payment on your mortgage and then the bank now owns that property and then they want to get it sold as fast as they possibly can. Pre-foreclosure is like the step right before the bank takes it back because banks they don’t want to be in the business of owning real estate. Right? They’re in the business of lending money and making money on the money that they lend.
So if they can find a way to short sell that property if it’s necessary or whatever they can do to get out of it before they actually have to foreclose and take full ownership, they’ll do that. So that’s that pre-foreclosure process and then a lien itself is basically… I guess, how would you describe a lien? It’s like someone has a claim against a property.

Ashley:
Money is owed to that person and when the property sells they are entitled to payment from the sale of that property.

Tony:
Great definition.

Ashley:
So one common one is you have a line of credit, so you have your mortgage and then you go and get a line of credit for $10,000. So if your house sells, you have to pay back that $10,000 or whatever the balance is due on your line of credit. Or there’s also, what is it called? A contractor’s lien or is it-

Tony:
A mechanics lien.

Ashley:
Mechanics lien. I was like I know it’s not contractor, what is it? So if you have somebody that comes and does work on your house and you don’t pay them for that, they can go ahead and put a mechanic’s lien on your property too.

Tony:
So anyone that has a mortgage right now, whether you realize it or not you have a lien against your property. Right? So before you go off say you sell your property and maybe you bought it for $200,000 you’re selling it for a million bucks. If you still have a mortgage in that property, you don’t get that full million you’ve got to go back and pay off your original lender first so that’s a lien.

Ashley:
And that’s what when you are going and getting title work done you’re paying for that when you close on a property, this is what they’re doing is looking for liens on the property. Another type of lien too is a judgment lien, so this doesn’t even have to do with anything with the property. So I had a tenant that trashed a unit, they moved out, they used a lot of back rent, we evicted them. But I also went to small claims court and did a judgment against them and they now have… So it’s valid for 10 years. If they sell a property, a vehicle, anything that’s in their name, those funds from that have to go and pay my judgment and it’ll last for 10 years. We might be on year 10 right now, I don’t know. But close to and I think it’s maybe year eight, then I don’t see myself getting anything from it.

Tony:
Let’s just cross your fingers, Ash, they win the lotto or something and they come into this big chunk of money and then you get paid out.

Ashley:
I did see them at Verizon shortly after that all happened and they’re in their buying a brand new iPhone or whatever and I remember them like waving at me saying, “Hi.” And I was fuming. I was like, “How can you even look me in the face right now?” And I didn’t wave back. I literally think that I shook my head at them with disgust.

Tony:
Man, that’s another reason why I like long distance real estate investing because if I ever do have to evict someone I don’t have to worry about bumping into them at Target.

Ashley:
Ever see them? Yeah, true. Okay, so there’s all these different types of liens. There’s consensual liens, purchase money security liens, statutory liens, non purchase money security liens. All these different liens that can be on the property and that’s where you want to have your title work done and sort of seeing what these liens are that come up. You can do a little research yourself if you’re just scoping out a property and don’t want to pay to have all this title work done because you’re not under contract or anything. If you go to PropStream will usually tell you if there’s some kind of bank lien on it by big financing on it. If there’s a first lien for the mortgage, if they have a home equity loan or a line of credit that’s on there too. Or sometimes even if there’s a private money that financed the purchase of the house, something like that. Then you can also go to the county clerk records and you’re able to pull up documents from that. So you would actually type in the seller’s name and it would give you some documents that would show…
Sometimes it will come up and show different liens that have been filed against that person in that county. So I would start with the county the property is in and look for anything that comes up with their name too, you can get quite a bit of information from the public record of county clerks.

Tony:
So have you ever purchased, Ashley, a property that has a lien against it?

Ashley:
Well, all the time because there’s mortgages.

Tony:
Yeah, I guess beyond the traditional lien. But say something that’s got a judgment lien or maybe a mechanic’s lien or you can have a lien for unpaid property taxes. Just like have you purchased any property with a different type of lien?

Ashley:
Yeah. So I am sure there’s probably some that I don’t even know about, because it was just I’m paying for the property and then the attorneys have the money in escrow and they’re like okay… When I get my closing statement it would say, okay. The property I just closed on it was like we need five different cashier’s checks, we couldn’t wire the money. They wanted the cashier’s checks and I had to get five different cashier’s checks and one was going to the seller’s attorney, one was going to my attorney, one was going to the title company, one was going to the clerk’s office and one was going to the seller’s estate. But it could be one is going to KeyBank, one is going to the private moneylender. I’m sure that’s probably happened where there’s been different liens on the property of what’s being paid off and I’m just oblivious to it. Because it’s just something that’s handled through the attorneys and it’s on the seller’s end and the purchase price covers it and it’s not me accumulating those liens during the purchase, they’re being paid off.
The one property that we purchased subject to, it was a farm and we took over the payments for the mortgage from the seller. That’s what subject too is when you take over the existing mortgage and it stays in the seller’s name, but there was back taxes on it and there was a mechanics lien on the property. The mechanics lien wasn’t a lot but the back taxes I think were like $20,000. Paying off the back taxes, the mechanics lien and then also catching the person up on their mortgage payments that were past due. That was less money than if we would’ve went to a bank and put a down payment on an investment property. So that deal ended up working out great for us and that was part of the leverage. If that person would’ve went and sold that property on the open market they would’ve been underwater. They wouldn’t have had enough equity to actually pay those back taxes and they were in pre-foreclosure.
We initially approached the bank about doing a short sale, and that was our first idea and then I learned about subject to. We had a guest on the podcast who had done it and this was even before I had heard of, Pace Morby. We had someone on that talked about it and I was like, “Please send your documents, I’m going this to my attorney to see if we can do this.”

Tony:
This is, Kevin Christensen, right?

Ashley:
Yes, that’s who it was. Yeah.

Tony:
Yeah.

Ashley:
And so we paid off the mechanic’s lien and we paid off the back taxes and then paid to catch up the mortgage so that it was no longer in default and then we were able to deed the property into our name. So that was a property that was in pre-foreclosure but then we did a property… I actually bought a property that was in foreclosure, the bank actually listed it on the MLS. That was a slow grueling process working with the bank to try to close on this property, it was very slow moving. It’s just somebody at the bank that’s working on it, it’s not a motivated seller trying to get this deal closed. The bank owned it and I don’t even know what was owed on the property when they took possession of it, it sat for a couple of years vacant before we had even purchased it.

Tony:
I was trying to see if I could find our episode with, Kevin Christensen. It was early in the archive, so maybe our producers can help us out here. But he’s also exceptionally super active in the Real Estate Rookie Facebook group. So if you just search, Kevin Christensen, in the Real Estate Rookie Facebook group you’ll see some good stuff and I’m sure he’s probably even posted his episode inside of there as well. But yeah, really just heart of gold that guy and big on just giving back to people.

Ashley:
Yeah, it was show number 51.

Tony:
51, wow. Man, that was early, early on.

Ashley:
Yeah. February 10th, 2021.

Tony:
Yeah. Because I think my first episode was 39 or something like that.

Ashley:
Oh, yeah.

Tony:
Yeah. We barely even knew each other at that point, Ashley.

Ashley:
That was probably right around when we met in person, right?

Tony:
Probably.

Ashley:
It was in the winter the first time we met in person, going to BiggerPockets.

Tony:
Going to BP. Yeah, going to the headquarters. How so much has changed, right?

Ashley:
Now, you’re having a baby.

Tony:
Now we’re having a baby, now you’re sleeping in my son’s bedroom when you don’t have anywhere to crash. Yeah.

Ashley:
Okay. Well, thank you guys so much for joining us for this week’s Rookie Reply. I’m, Ashley, at Wealth From Rentals and he’s, Tony, at Tony J. Robinson, and we will be back on Wednesday with another guest.

Maddy Rotman and Taylor Lanzet are college friends turned co-founders of a regenerative organic alcohol brand, sourcing their ingredients from ROC-certified farms here in the US.

“We met on Maddy’s first day of college in an environmental class,” says Lanzet. “We bonded over our love for cooking, agriculture, and dive bars.”

They went on to be roommates in New York while working at brands such as Imperfect Foods, Daily Harvest, Chipotle, and Everytable.

It was during this time that they turned their kitchen into a makeshift distillery, in an attempt to make Campari. It didn’t work. So they pivoted: putting herbs and botanicals into fruit juices. That led them to ask the question: how can farmers be more connected to the cocktail business?

Last year, they debuted Anytime Spritz, a canned spritz company. But there was one difference from the rest of the brands on the market: they had sourced their ingredients from organic farms in the Hudson Valley, and disclosed the ingredients on their cans (something the alcohol rarely does, Rotman says).

Now, they’re debuting a ROC certified gin and vodka, the first of its kind, she adds, made with ROC wheat. One of their key suppliers has been Breathe Deep Farm in New York, which wanted to build a “regenerative grain corridor.” Since 2018, Chris Cashen, an organic vegetable farmer, has been spearheading this effort: working with their neighbors, over 735 acres are being farmed regeneratively now.

In 2019, they started the transition, he says. “Because of our participation in ROC, we’ve had an incentive to double down our cover cropping and make sure the soil is covered throughout the year on nearly 100% of our acreage.”

This is believed to improve soil health. “Since becoming ROC, we’ve also increased our annual planting of small grains by more than 2x, adding crucial diversity to our farm landscape and extending our crop rotation.”

While data on soil health is not publicly available just yet, he notes that the farm has been collecting soil samples and tracking its changes. This year, Breathe Deep plans to be a part of a long-term study on carbon flows in the Hudson Valley. All this data will hopefully produce a clearer picture in coming years of how regenerative farming impacts the local ecology.

For Rotman and Lanzet, this is a core part of the work they’re doing with Anytime Spritz. “To date, still, only 1% of US farmland is certified organic. We know that there’s a demand for organic products, and only 1% of alcohol is certified organic. And so we’re like, if organic is growing year over year, let’s sort of bank on that last part of the value chain that people really want to get behind, which is regenerative,” says Rotman.

“You know, we talked with some folks at larger beverage conglomerates, and they have a hard time filling the demand for their organic beers. They can’t find enough supply for their demand of organic beer. So there is demand in that space. And I think there just really hasn’t been a brand that has sort of resonated with what the customer wants, which is an authentic, values-driven brand and nailed the taste and flavor.”

Their products are available in New York and California currently, with the aim to expand that core base of retailers across the US. But the world of alcohol distribution is more “complicated,” they note. It’s not quite as simple as selling other food products. For one, they are required to sell through a distributor and that will vary from region to region. However, they’re hoping that their experience working for fast-growing food companies will help them scale up Anytime Spritz and carry them through the challenges.

Yet, are customers seeking out an organic spirit and would they be willing to pay more for it? That’s the question that’s framed their company, Lanzet says.

“Well when you look at alcohol, there are so few options that tell you what’s in it and use organic or regenerative organic ingredients. The closest option is something with maybe great millennial branding, or supporting a women-run distillery. But there’s very few values-led options in this category. And so for us, our experience has been building these connectors, building this messy middle between what consumers want, and what farmers are innovating, and connecting the two.”

So could this be a new trend that pushes their competitors to also think about transparency and a farm-to-bottle (or can) approach that’s existed in wine but not as deeply in spirits? They certainly hope it does inspire others to follow suit.

“We’re not just waking up cocktails; we’re waking up an entire industry,” says Rotman.

Tracking your net worth as a real estate investor can help you make informed financial decisions. It will help you clearly understand your current financial position to see if you are reaching your goals. It can also help you stay motivated as you track your progress in building your real estate portfolio.

A popular net worth tracker that many investors have relied upon is Mint. Unfortunately, Mint is going away. It will soon become part of Intuit Credit Karma.

However, the end of Mint doesn’t mean you no longer have a handy tool you can use for budgeting and other financial tasks. You can use several great alternatives to track your net worth in 2024.

What Is a Net Worth Tracker?

A net worth tracker is a web-based or mobile application that tracks your assets and liabilities. It’s a valuable tool to help you know if you are building wealth and progressing toward your financial goals. Net worth trackers are valuable tools that real estate investors can use to evaluate their financial positions.

Your net worth is a value, or dollar amount, that includes all of your assets and liabilities. Someone might say, for example, that “she has a net worth of $3 million.” It’s also possible to have a negative net worth, which means your liabilities are greater than your assets.

Examples of assets that may be included in your net worth include:

• Business interests 
• Cash and savings 
• Investments 
• Personal property
• Real estate
• Retirement savings
• Vehicles 

Examples of liabilities that may be included in your net worth include:

• Credit card debt
• Medical bills
• Mortgages
• Personal loans 
• Student loan debt
• Vehicle payments

Net worth is very easy to calculate: You add up all your assets and subtract your liabilities.

The net worth formula is:

Net worth = Total assets – total liabilities

How to Select a Net Worth Tracker

You can choose from several net worth trackers to help you monitor your financial position. Before you select one, however, it’s important to assess the features and cost to make sure you choose the best one for your needs.

Here are several things to consider when evaluating net worth trackers:

• Features and functionality: Some apps are very basic, while others offer more functionality. Apps that do more aren’t necessarily better, however. An app may offer more features than you need, which could overwhelm you and be frustrating to use. An app with more features may also cost more.
• Ease of use: Some net worth trackers may be easier to use than others. Some apps connect with your financial accounts and automatically calculate your net worth. Others require a more hands-on approach. They may require you to manually enter your financial data and calculate your net worth.
• Customization: If your finances are complex, you may need an app that allows you to customize your asset and liability categories and other information to help you keep up with everything.
• Security: The net worth tracker you select must ensure your financial data is secure. If you connect your bank and other financial accounts, the connection should be encrypted. Two-factor authentication may also help to prevent unauthorized access to your information.
• Accessibility: Do you prefer to access your account with a web browser, or do you mostly use a mobile device? Some net worth trackers offer only one option, so ensure you can access your account with your preferred device.
• Cost: Some net worth trackers are free, while others charge a monthly or annual fee. The free apps usually provide less functionality than the paid ones.
• Reviews: Be sure to read online reviews before making a decision. An online review may reveal information you hadn’t considered about a tracker or couldn’t find anywhere else.

Best Tools to Track Net Worth

Tracking your net worth doesn’t have to be complicated. You don’t have to keep a detailed spreadsheet or a notebook that you must constantly update. You can use one of several budgeting apps to simplify the process and give you current information.

Here are 10 of the best apps you can use to track your net worth in 2024. Some have built-in net worth trackers, while others can be used to track your financial information to make it easy to quickly calculate your net worth.

1. Empower

What makes it unique: Empower is a budgeting app with a built-in net worth tracker. You can link your bank and other financial accounts to get your current net worth.

The Empower app is also a useful budgeting tool. You can use it to create a budget, set goals, track your spending, and monitor your progress toward achieving your goals.

Why investors should use it: Empower can be used by real estate investors to track rental incomes. It can also be used to track and pay mortgages, taxes, insurance, and other expenses.

How to get it: The Empower app is available from the App Store for iOS devices or Google Play for Android devices.

Cost: Free

2. Goodbudget

What makes it unique: The Goodbudget app uses the popular envelope budgeting system, which allocates portions of your monthly income to virtual envelopes, or expense categories, like groceries, gas, debt payoff, etc. It’s a handy way to track your expenses, which is helpful in determining your net worth.

The app also has a feature that allows you to sync your data with others in your household so they can help you stay motivated in achieving your goals. Goodbudget does not connect with your financial accounts, so you must enter your financial information manually.

Why investors should use it: Goodbudget can be used to track property-related expenses. It can also be used to track various sources of rental income to help you manage your cash flow.

How to get it: Goodbudget is available from the App Store for iOS devices and Google Play for Android devices.

Cost: Goodbudget offers a free plan with 10 regular envelopes, 10 “more” envelopes, one year of history, and debt tracking. You get one account with the free plan that can be used with two devices.

The Plus plan is $8 per month or $70 annually. It gives you unlimited regular envelopes and unlimited “more” envelopes. It also includes debt tracking and seven years of history. You get unlimited accounts with the Plus plan that can be used with five devices.

3. PocketSmith

What makes it unique: PocketSmith is a feature-rich financial platform that lets you create budgets, monitor your spending, and schedule bill payments. It can also help you forecast your cash flow. The PocketSmith dashboard displays your current net worth.

With the premium version, PocketSmith can connect with over 12,000 financial institutions worldwide to automatically import your financial information. You can also track your assets and liabilities in different currencies.

Why investors should use it: With PocketSmith, you can track multiple income streams, which makes it ideal for real estate investors. It also has a built-in feature to track Airbnb income and expenses.

How to get it: You can access PocketSmith from any web browser or the PocketSmith app, which is available in the App Store for iOS devices or Google Play for Android devices.

Cost: PocketSmith offers four plans, depending on the features you need. There is a free plan with limited features; the most expensive plan is $319.92 annually or $39.95 monthly.

4. Kubera

What makes it unique: Kubera is a simple-to-use platform specifically tracking your net worth. It can also be used to make net worth comparisons at various points and to project your future net worth.

Why investors should use it: Because Kubera allows you to track all of your assets—including real estate, stocks, precious metals, and other investments—it gives you a complete picture of your current net worth. When you connect your bank, brokerage, and other investment accounts, information is updated automatically. Over 20,000 financial institutions are supported.

How to get it: Kubera can be accessed with any web browser or the Kubera app, which is available for iOS and Android devices.

Cost: Kubera is $150 per year for individuals and $225 per year for families. A 14-day trial is available for $1.

5. Tiller

What makes it unique: Tiller is a budgeting platform that allows you to automatically track all your finances in one place, create a budget, and plan for the future. Totals for your current assets, liabilities, and net worth are displayed on the dashboard. You can also connect your bank accounts to import your financial information.

Tiller uses spreadsheets to track your finances, although you don’t need to be a spreadsheet expert to use it. Premade spreadsheet templates are available to simplify things.

Why investors should use it: Tiller can be used to track investment income and expenses. It can also be used to track goals. Because the app is highly customizable, spreadsheets can be tailored to your specific needs.

How to get it: Tiller can be accessed with any web browser.

Cost: A free 30-day trial is offered. After that, it’s $79 per year.

6. Betterment

What makes it unique: Betterment is an investing platform that provides automated recommendations based on your information. It’s also a great way to keep up with your net worth, which is displayed on the app’s dashboard. Betterment connects with your bank accounts to display current financial information.

Why investors should use it: Betterment’s primary focus is investing for retirement, saving for the future, and investing in stocks, bonds, and crypto.

How to get it: Betterment can be accessed with any web browser or by using the Betterment app, which is available for both iOS and Android devices.

Cost: Betterment offers free checking and high-yield cash accounts for your savings. If you are using the platform to trade crypto, a fee of 1% is charged per transaction. If you use it for stock and bond investing, there is either a $4-per-month fee or a 0.25% annual fee.

7. PocketGuard

What makes it unique: PocketGuard is a comprehensive finance app that allows you to monitor your net worth, watch your cash flow, and track all of your recurring expenses. You can also use it to create a budget and track your progress as you reach milestones.

PocketGuard connects with your bank and other financial accounts for real-time data. A fraud detection feature also alerts your bank when it detects suspicious activity.

Why investors should use it: PocketGuard can be used by investors to categorize and track expenses. It also provides insights into your cash flow to help you make sure you have sufficient funds to cover your expenses.

How to get it: The PocketGuard app is available for both iOS devices in the App Store and Android devices in Google Play.

Cost: A free plan is offered with basic budgeting features. A premium plan is also available with advanced features for $7.99 per month or $34.99 per year. A lifetime plan is also available for a one-time payment of $79.99.

8. Monarch Money

What makes it unique: Keeping up with your net worth with Monarch Money is very easy, since you can view the information right on the dashboard. You can connect your bank and other financial accounts for real-time data to help you manage your money. You can also set financial goals and track your progress.

Why investors should use it: Monarch Money lets you view all your investments in one place and track their performance over time.

How to get it: Monarch Money can be accessed with any web browser or the Monarch Money app, which is available for iOS and Android devices.

Cost: A free seven-day trial is offered. After that, you can choose from either monthly or annual billing. The service is $14.99 per month or $99.99 annually.

9. YNAB

What makes it unique: The You Need a Budget (YNAB) app uses a zero-based budgeting system, where you allocate your money to different categories. The idea is to ensure every dollar you earn has a job to help you stay within your budget.

YNAB can connect to your bank and other financial accounts, and your information is automatically imported, which helps you determine your net worth. YNAB also offers a variety of educational resources like online workshops, videos, articles, and a forum to increase your financial knowledge.

Why investors should use it: YNAB can be used by real estate investors to track their expenses—such as mortgage payments, maintenance costs, insurance, property taxes, and other things—to keep a close watch on their cash flow. Investment goals can also be tracked.

How to get it: YNAB is available from either the App Store for iOS devices or Google Play for Android devices.

Cost: YNAB offers a free 34-day trial. After that, you can choose a $99 annual or $14.99 monthly plan.

10. EveryDollar

What makes it unique: EveryDollar is a simple app that allows you to create a budget and set goals. You can connect your bank account to monitor your expenses and check your balances. Although the app does not track your net worth, you can use it to organize your financial information to help you quickly determine your net worth.

Why investors should use it: EveryDollar can be used to categorize and track your expenses. It can also be used to monitor your cash flow and to establish and track investment goals.

How to get it: EveryDollar can be accessed with any web browser. A mobile app is also available for iOS devices in the App Store and Android devices in Google Play.

Cost: A free version is available that offers basic budgeting tools. The free version doesn’t connect with your bank accounts. A premium version offers more features for $17.99 per month or $79.99 per year. There is a 14-day free trial for the premium version.

Ways to Increase Your Net Worth

With careful planning, you can increase your net worth over time. A higher net worth may make obtaining new mortgages easier to help you grow your investing portfolio. 

Here are some strategies you can use:

• Pay down debt: The less debt you have, the higher your net worth will be. Consider using the snowball method to help you eliminate debt. With this strategy, you start with your smallest amount of debt and then move to your next smallest amount of debt. You continue the process until all of your debts are paid off.
• Diversify investments: Spreading your risk by investing in different property types may protect you if something happens. Instead of only buying single-family homes, for example, you could invest in multifamily homes, self-storage facilities, and mobile homes. You could also diversify your properties with a mix of long- and short-term rentals.
• Increase your income: The more you earn, the easier it will be to increase your net worth. Look for opportunities to increase your income, like a higher-paying job, a side hustle, a new business venture, a new real estate investment, or something else.
• Avoid lifestyle inflation: As your income increases, you may be tempted to upgrade your lifestyle, but not everything you buy will increase your net worth. You can increase your net worth by investing in assets that appreciate instead of spending your money on vacations, expensive vehicles, designer clothes, and other luxuries.
• Cut unnecessary expenses: Many people spend more than they realize on daily expenses like eating out, buying coffee and snacks, unused subscriptions, and other things. A simple way to identify unnecessary expenses is to track your spending for a month. Write down every purchase you make. At the end of the month, look for things you can either cut back on or eliminate.
• Take advantage of tax deductions: The less you pay on taxes, the more you will have to invest in new properties. Be sure to use a CPA each year to prepare your taxes for you. A good CPA will identify legal deductions you can take to minimize your tax obligation.
• Contribute to retirement accounts: Regularly contributing to your retirement account will steadily increase your net worth. Be sure to max out your contributions if you work for a company that offers 401(k) matching. It’s essentially free money that you can use to help you grow your net worth and prepare for the future.
• Buy assets that appreciate: Not all assets increase in value over time. Some assets, like vehicles, usually go down in value. Investing your money in assets that increase in value, like real estate, will help you grow your net worth on autopilot.

Tracking Net Worth as an Investor

As a real estate investor, it’s important to track your net worth to help you make informed decisions and evaluate the appreciation of your properties. It will also help you know if you are progressing toward your investing goals.

By using a web or mobile application to track your net worth, you can automate the calculation to get current net worth information. Instead of tracking your assets and liabilities on a spreadsheet or paper, an app can also help you stay organized. It will save you a lot of valuable time so you can concentrate on growing your investment portfolio instead of crunching numbers.

The Money Podcast

Kickstart your personal finance journey with Scott and Mindy as they break down the good, bad, and ugly of people’s personal money stories. From interviews with entrepreneurs and business owners to breakdowns of listener finances, you’ll get actionable advice on how to get out of debt and grow your money.

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

By Nellie Akalp

A holding company is a legal business entity (usually a limited liability company or C Corporation) that owns or has a controlling interest in one or more companies (called “subsidiaries”). Other terms for a holding company include “parent company” and “umbrella company.” Regardless of the wording, a holding company helps to protect its individual subsidiaries’ assets and limit liability risks across all of its subsidiaries.

Besides owning other business entities, a holding company may also own other assets, such as:

• Stock and securities
• Patents
• Trademarks
• Copyrights
• Real estate

Why form a holding company, what’s the connection between a holding company and its subsidiaries, and what entity type is best for a holding company? We’ll discuss those considerations in this article. I also encourage business owners to seek legal and tax guidance from an attorney and accounting professional to help them make informed decisions about structuring multiple businesses.

Relationship between a holding company and its subsidiaries

Each subsidiary under a holding company is set up as its own separate company. So, if subsidiaries are formed as corporations or limited liability companies (LLCs), each one must file articles of incorporation or articles of organization with the state, have its own set of bylaws or LLC operating agreement, have its own bank accounts, run its own payroll, and maintain its own financial records.

Typically, a holding company serves as the owner and administrator of its subsidiary entities but has no direct operations tied to them. Subsidiaries each have their own management for running the day-to-day business, while the holding company’s management owns its assets and oversees the subsidiaries’ bigger-picture policies and decisions. Generally, one subsidiary’s activities do not affect a holding company’s other subsidiaries’ activities.

Advantages of a holding company

Lessen liability

Entrepreneurs typically form a holding company to limit liability risks when owning multiple businesses. Each subsidiary is protected from the legal claims against and debts of the other subsidiaries.

Likewise, a holding company cannot be held liable for its subsidiaries’ legal or financial problems, provided it has not actively participated in the operations of those subsidiaries or guaranteed debts of the subsidiary. However, if the holding company or its subsidiaries pierce the corporate veil—e.g., committed fraud, were negligent in some way, or didn’t follow through on their entity compliance requirements with the state—the holding company, and possibly the holding company’s owners, might be at risk legally or financially.

Attract investors

There could be funding and growth advantages, too. Because the subsidiaries under a holding company are their own legal entities and protected from the liability of the other subsidiaries, it may be easier to attract investors or partners for those individual businesses than if all were set up as a single entity with many divisions.

And, if the holding company seeks financing, it may be able to obtain a loan with a lower interest rate than its individual operating companies because of its robust financial position.

Optimize tax efficiency

In general, C Corporation subsidiaries file their own tax returns and pay dividends to their holding company without creating a tax liability for the parent company as it would if those dividends were paid to individuals. The holding company can then disburse those profits to its shareholders or reinvest them in its other subsidiaries—choosing what’s optimal for their tax and growth goals.

Alternatively, the profits, losses, and tax liabilities of subsidiaries regarded as disregarded entities (e.g., LLCs, partnerships) for tax purposes get reported via a consolidated federal tax return filed by the holding company.

C Corporation subsidiaries can also be reported on a consolidated return if they submit IRS Form 1122 (Authorization and Consent of Subsidiary Corporation To Be Included in a Consolidated Income Tax Return).

If a holding company files a consolidated tax return, the profits of one or more subsidiaries can be offset by the losses of others. That can help lower the tax burden collectively for the companies under the parent company.

Keep in mind that while subsidiaries don’t have to file their own federal tax returns when they’re part of the holding company’s consolidated return, they may have to file their own returns at the state level. States’ tax laws vary, so it’s critical to research the rules that apply to your situation. For example, an LLC holding company (not taxed as an S-Corp) in California would still be required to file a separate Form 568 (Limited Liability Company Return of Income) for each subsidiary LLC.

More articles from AllBusiness.com:

C Corporation or LLC as a holding company?

There’s much to consider when structuring multiple businesses under a holding company. First and foremost is what entity type to choose for the parent company.

C Corporation

A C Corporation is a separate legal and tax-paying entity from its owners (shareholders). Therefore, it offers the advantage of personal liability protection as all actions of the corporation are tied to the corporation, not its owners. For entrepreneurs who envision growing the business, the C Corp structure allows for raising capital by issuing or selling stock. Also, a C Corp has perpetual existence under state law, so an incorporated parent company can survive indefinitely (until it’s formally dissolved).

Basic steps for forming and maintaining a C Corporation

• Designate a registered agent
• File articles of incorporation
• Obtain an EIN
• Appoint a board of directors
• Adopt bylaws
• Apply for business licenses and permits
• Open a business bank account
• Hold board of directors’ meetings
• Hold shareholder meetings
• File an annual report

Some potential downsides of forming a C Corporation as a holding company are more paperwork involved to register the entity and more extensive compliance formalities—e.g., adopting bylaws, holding board of directors’ meetings, holding shareholder meetings, filing annual reports, etc. The specific requirements for registering and maintaining a C Corporation vary by state.

And then there’s the double taxation—income is taxed at the corporate level when it’s earned by the corporation and then again at the individual level when distributions are paid to shareholders.

Limited liability company

A limited liability company protects its owners (known as “members”) from personal liability, too. Moreover, it doesn’t have as extensive compliance requirements as a C Corporation.

Basic steps for forming and maintaining an LLC

• Designate a registered agent
• File articles of organization
• Obtain an EIN
• Create an LLC operating agreement
• Apply for business licenses and permits
• Open a business bank account
• Hold member meetings (if required by the LLC operating agreement)

By default, an LLC is taxed as a disregarded entity, and all profits and losses flow through to the business owners. However, if it meets the IRS’s eligibility requirements, it may elect S Corporation or C Corporation tax treatment. Compliance requirements vary by state, but typically an LLC does not need to have an annual meeting or a board of directors unless its operating agreement states otherwise.

Some potential drawbacks to operating as an LLC are that it cannot issue stock to raise capital, and it may not have as many tax deductions as a C Corporation. Also, unless the LLC’s operating agreement has provisions for perpetual existence, state law may require an LLC to be dissolved if one or more of its members dies or leaves the company.

Moving existing LLCs or corporations under a holding company

If changing ownership of a C Corporation from individuals to a holding company, the procedures described in that corporation’s bylaws should be followed. If the holding company is a corporation, that might involve a share-for-share exchange whereby the shareholders swap their shares in the operating company for shares in the holding company (presuming the shareholders are the same in the operating corporation and the holding corporation).

If changing ownership of an LLC from individuals to a holding company, the procedures described in the LLC’s operating agreement should be followed to make that change. Usually, that entails creating a buyout or liquidation of the operating LLC to change ownership from the individual(s) to the holding company.

Things get more complicated with an operating LLC taxed as an S Corporation The shareholders of an S Corporation may only be individuals, a qualified single-member LLC, certain trusts, estates, and certain exempt organizations. In other words, the shareholders of an S Corporation cannot be a partnership or a corporation unless the operating S Corporations qualify for QSub (qualified subchapter S subsidiary) election. QSub election basically allows QSubs to be treated as disregarded entities for federal income tax purposes and be collapsed into a holding company that’s a partnership or a corporation.

Choosing the right business structure

Structuring multiple businesses can be complex from a tax and legal standpoint. It’s essential to get guidance from professionals who can help you understand your options and how they will impact you and your companies.

About the Author

Nellie Akalp is a passionate entrepreneur, business expert, professional speaker, author, and mother of four. She is the founder and CEO of CorpNet.com, a trusted resource and service provider for business incorporation, LLC filings, and corporate compliance services in all 50 states.

David:
This is the BiggerPockets Podcast, show 842. What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, here today with my co-host, Rob Abasolo, and some special guests.
Today, Rob and I are going to be interviewing Barbara Corcoran and Tom Higgins. And we are going to be getting into if real estate investing is art, science, a little bit of both, how to know which of them you should be focusing on, and the best way to move forward in today’s uncertain market. But before we bring in Barbara and Tom, today’s quick tip is going to be brought to you by Rob Abasolo.

Rob:
Go walk a neighborhood at night. If you are thinking about investing somewhere, don’t just look at the Google Drive photos or what’s posted online. Go drive there yourself after the sun sets and see what the vibe of the neighborhood is.

David:
And you’re going to hear Barbara talk about how she does it. She brings a bodyguard with her. So don’t do your walk Abasolo, do it Aba with a partner. Barbara, Tom, how are you two doing today?

Barbara:
Very well. Thank you very much for having us.

Tom:
Thank you for having us. Very excited to be here.

Rob:
I want to say that, Barbara, this is a little bit of redemption for me because the last episode that we did a few months ago, I remember getting off that interview and thinking, “Wow, that was amazing. I think I did really well. That interview was so great.” And then it got posted to YouTube, and I went to the comment section and everyone was like, “Rob, make your bed.”
And I realized that I was in a hotel and I hadn’t made my bed and it was just, the covers were in a ball, and I was mortified. And so I just want you to know I’ve dusted, I’ve meticulously crafted the chaos you see behind me. So this is my redemption.

Tom:
Well, Rob, I think David might have you beat because he racked the pool balls on the pool table.

Rob:
He did, and in the correct order. I see that eight-ball on the right spot. So we know he comes prepared.

David:
The level of detail about irrelevant things to real estate investing, Rob, with you is off the charts. You are like the Jedi of noticing things that will not make anybody money.
For anyone that didn’t catch our last show with Barbara, I highly recommend show number 763, where Barbara brought so much value that people like me didn’t even notice that Rob’s bed wasn’t made. If you didn’t catch that episode or you are unfamiliar with today’s guest, Barbara Corcoran is put simply the queen of New York real estate. She’s a host on Shark Tank, has been investing for decades, is also a mom of two kids, including our other guest on today’s show, Tom Higgins.
Tom started in real estate right out of college. He now works in real estate development and has followed in his mom’s footsteps, but tends to look at deals differently than Barbara does. Tom’s a little more head, Barbara’s a little more heart, and we are going to get into both of them today.
So I am excited for today’s show, especially in today’s market where no one really knows what to do because it is the craziest market that I have seen in my short lifetime. So today we’re going to be trying to answer the age-old question, should you trust your head or go with your gut? Is real estate investing art or science? We’re going to break down some deals each of you have done to see how these two different approaches work in practical terms.
Quick story now, before we get into the deals, Barbara, was there a moment from Tom’s childhood when you knew that he would grow up to have this fact-driven, analytical mind that would be so different than your approach?

Barbara:
No, it was a total surprise. His father and myself, we each owned brokerage firms in different states. We talked real estate at the table all the time. Tom never asked us a question, would wander off, he had no interest. However, he liked to play Monopoly and by the time he was 11 playing against adults, we all refused to play with him because he always won.
He always got Boardwalk and Park Place. He always didn’t pay rent when he landed on our property because he had coerced us into buying a utility and getting a free pass. I mean, he had more angles working, so we finally gave up, “We’re not playing with you anymore, Tom. Not playing with you ever again.”

David:
Sometimes it’s not what you know, it’s who you know, and when your parents are the ones playing the game, the shameless tugging of heartstrings can get you to the top, Tom. So way to work with what you had. Looks like that that strategy didn’t last forever, though. Do you remember a time in your life where you made a transition out of emotional manipulation and into actually knowing how the numbers work out a deal?

Tom:
No. I can’t say that I have, no. First, I definitely use what I had and advantages I had when I was playing Monopoly with my parents. But I don’t think I take the same approach in real estate investing today where you just mortgage all your properties and use all your cash to buy the most expensive one.
But I got my start in real estate when I was in college, like you said earlier, in brokerage. I wanted to use the Higgins last name, fly under the radar, and see if I liked the industry. And I was able to get my salesperson’s license, start renting apartments when I was attending Columbia.
At night, I was taking real estate finance classes. I really wanted to know that, is it in my DNA, and is this something that I want to do? And I didn’t want to get a misconception based off of who my parents were and get a different feel for the industry.
So I was able to get very direct experience and fly under the radar, which was very valuable to me. I leveraged that experience to get a job out of college, working for a large real estate developer in New York City, was able to get an internship and I held onto that and turned that into a full-time position.
And now I’ve worked for eight years in institutional multifamily development. And before starting my own company 18 months ago, I renovated or developed over 2,000 multifamily units in the US.

David:
All right, well that gives us a pretty good idea of where you’re coming from. Before we get into the deal that each of you brought, let’s take a quick break to hear from today’s sponsor.
All right, we are now going to hear from both Barbara and Tom about a deal that they’ve bought and then we’re going to discuss if the head or the heart is the right way to move forward.
All right, Barbara, I want to hear from you first as the queen. Frankly, if you didn’t go first, you’d have the ability to chop off my head and I like it where it is. I trust that you’ve got a good one here for us today. So tell us about a deal that you have in mind that exemplifies the gut/heart strategy.

Barbara:
I chose my second deal I ever made because it was indicative of so many deals I made after that point. I was wanting to find an office in Fort Greene, Brooklyn because I knew, as a real estate agent, nobody was in there. My competitors were asleep at the wheel and I wanted to go in there and blow them away, honestly. It was just my competitive spirit.
So I was looking for the right location in Fort Greene. I knew nothing about it, and so I went hunting for people. I started talking to people and I found a lovely school teacher who knew that block, every block inside and out, and knew Fort Greene. She was born and raised there, and I made her my 10% partner.
She was thrilled. And what her job was, find me the best building. I could have relied on brokers, nobody really saturated that market, but I knew if I had someone who was born and bred in that area, she knew the good blocks and the bad blocks. And she brought me to what was, I think one of the best blocks in Brooklyn on Lafayette Street.
It was up and coming. It was a four-story townhouse with six apartments and a commercial space on the ground floor. So I threw in an office, opened an office, hoping to God I’d make money on that office. But I knew one thing for sure, the tenants above paid the mortgage.
And that has always been my golden rule, if you could buy a property with 20% down, which has always been my formula because I used to do it with 10%, but it’s not possible anymore. 20% down, you break even, you get the tenants to pay your mortgage, you always make money. And if you could saddle it onto the back of an up and coming area, you make a lot of money.
So I paid $1 million and put $200,000 into that and 20 years later I sold it for 3.2, which I think is 10 times the return in equity. I’m not sure if that’s the lingo. But I repeated that formula again and again and again, always with a 10% partner, always finding the best spot, trusting the partner, and then making sure the tenants paid my mortgage. And it’s pretty easy that way. I mean, I was conservative, I had my formula, liked apartments, so it just felt natural to me. And I’ve repeated that scenario again and again and again.

David:
So you started with $200,000 down. Was it 10 years later you sold it at a $2.2 million profit?

Barbara:
No, I wish it was 10 years later. It was 20 years later.

David:
20 years later. Okay. So you more than 10 X’d your money over those 20 years. And you said that it was the mortgage was covering the asset at the time you had it. Was it actually cash-flowing at all or was it pretty much breaking even?

Barbara:
Just exactly breakeven. And in fact, I have to tell you, I don’t look to make any money in any building I buy. I figure the first year or two if I break even, I’m smiling all the way to the bank. And then by the second year, third year, New York is a magical place, the value always goes up, and then I start getting a lot of cash in. Then I refinance and pull a lot of cash out, refinance, pull more cash out. Come on, real estate is magical. If done right, it’s magical, and it’s such a pleasure to deal with real estate.

Rob:
Yeah. Well, I think we can all agree there. I’ve got a follow-up question on that because you said that you go into these properties and you don’t necessarily mind breaking even because that’s part of the real estate game. But for someone starting out, what is your suggestion on making money? Should someone have a 9:00 to 5:00 or should someone have another form of making money and try as long as possible to never really pay themselves from real estate?

Barbara:
Definitely. You cripple your business if you start taking money out. You want to see how long you could go without touching a dime, and that’s what I did every time. My day job was running a brokerage firm and building it. I made good money from that. But my buildings, I never looked to it for money until they matured a little bit and then I started getting a lot of cash out.
If you are new to the business, you have an advantage that old people don’t have. People have done it a hundred times before, you don’t have a memory of what it’s sold for last year. You’re new to the market, you can judge it on its face value because your memory is not your deficit. With somebody like me, I remember what I could have bought it for last year, the year before. It makes me pay less. But as a newcomer, you usually pay the top price and that’s usually the right thing to do as long as it’ll break even.

David:
Well, you ended up with a slightly higher, if my math in my head is correct, a little more than a 50% return if you look at the equity-

Barbara:
I know. That’s a little different.

David:
… year over year. Right?

Barbara:
I should have had Tom figure that out.

David:
Yeah, funny. Well, most people analyze a property and look at its cash on cash return and that’s how they make their decision. Is it 8%, is it 10%, is it 12%? You didn’t look at any of that, but you followed the principles of successful investing and it worked out to more than a 50% ROI year over year, which nobody can find in today’s market. So does that have something to do with why you look at these fundamentals and rely with your gut rather than letting the spreadsheet make the decision for you?

Barbara:
Yes. A, I don’t really understand the numbers as you’re citing them. I don’t know what they’re called. I can do only simple math. It’s not my forte. So I can do the math. Will it cover the overhead? Okay, I’ll buy it. Can I come up with the 20%? Okay, I’ll buy it. Will I pay more than the next guy?
I very often overbid another buyer. I don’t care as long as it’s breakeven. I pay 10% more, usually it’s breakeven anyway, or just about breakeven. So I don’t hesitate at all. And I don’t have any sophisticated rules in my head. I’m just no good at it. So I use what I’ve got.

David:
Tom, was there anything you wanted to add about your mom’s deal?

Tom:
No, no. I just was reminiscing on when I first started doing deals, why I had a W-2 job using the 1% rule, when I was listening to BiggerPockets and Brandon Turner in college. So it was just fond memories of building enough doors and building enough revenue to be able to eventually go out full-time into real estate investing.

Rob:
And is your philosophy similar in that when you’re getting into real estate and you’re real estate investing, buying a property, not paying yourself from real estate, making money in other ways or where do you align on that, Thomas?

Tom:
I think it’s case by case. I think if you’re truly taking an investor-first approach, definitely having the W-2 income is near essential, especially if you’re starting in true sub-institutional value add multifamily. Collecting those first 10, 20, 30 doors before you can go out full time and have the management revenue or whatever other fee revenue support you, it’s essential.
If you’re a broker and you’re doing transactions and maybe picking up a few units along the way, it’s maybe a little bit different of an approach. But having that other income, especially in an environment like this, is essential in my opinion.

Rob:
That makes sense. And you were pretty similar there too, right, David? I mean, I think you were working as a waiter and just stacking all your chips as much as possible and never really paying yourself from your real estate for many, many years if I remember correctly.

David:
Yeah, same philosophy when I was a waiter, then when I was a police officer, and even when I was a real estate agent, I wasn’t living off any of the money that the properties made. It was really delayed gratification, which is the same thing Barbara spoke about.
I love it because of the simplicity. You make sure that it pays for itself so you don’t have to worry about losing money if it’s at least breaking even. You don’t think about it, so you’re not tempted to pull out the equity and put it into something else or get too fancy with it.
You put your brain power towards making money in different areas, which is a much better return than fanatically, maniacally looking at your investment every single day and worrying about what Zillow says or something else says. And then you go back and that $20 that you left in your coat jacket is now like $2,000 because it’s been growing the whole time. And you say, “What’s the best use of it here?”
Now, Tom, I’m going to shift over to you. Rob and I are going to run down a list of questions to learn about your deal and then we’re going to hear a little bit about it. So the first question is, what type of property is it that you have to discuss today?

Tom:
I’ll use a nice combination of heart and mind for the deal that I prepared. I think it’s one that checks the boxes of a lot of the items that my mother instilled to me at a young age, but also relied heavily on the more traditional real estate finance training.
So it’s North Side Castle is the deal. It’s in Pittsburgh, Pennsylvania in the North Side. It is an eight-unit value add multifamily deal that was bought on market. We initially offered on it in 2019. Early 2019, we hung around the hoop for 12 months. It was bought from a mom and pop that did not have enough money set aside to renovate it.
And we underwrote that actually pretty much identically to the 1% rule. We don’t use that term anymore. We view everything on a unlevered, untrended stabilized yield on cost. But in preparation for this, I did a little bit of a cross-reference. Assuming a 30% expense ratio, your 1% rule equals an 8.4% yield on cost. So it was 8.2. We underwrote it too when we bought it.

David:
Can you define the term yield on cost?

Tom:
Yeah, net operating income divided by your total cost basis, not contemplating debt. So revenue minus expenses divided by total cost.

David:
So that’s very similar to when we talk about a cash on cash return with residential real estate. You’re taking how much the property made and dividing it by how much you put into it. That’s what cost basis would stand for.
And I can see, Tom, you do have a background in real estate finance because you use all this fancy terminology. I’m curious if you’ve ever been tempted to call it finance instead of finance, because that does sound fancier. It’s a bit of the pinky raise when drinking the glass.

Tom:
It’s funny, within my limited experience in the real estate finance world, even using unlevered yield on cost is like a no-no. It’s like that’s the simplest metric you can possibly use. People are typically referring to IRR, net multiples, MOIC. It can get really, really crazy. But we try to focus on what is very similar to cash on cash or the 1% rule is your unlevered yield on cost.

David:
There’s a principle in life that, in my opinion, when someone takes a simple concept and tries to complicate it, they usually want to look smart and it’s about their ego. When someone takes a complicated concept and simplifies it, they’re usually all about trying to empower other people.
So that’s just one of the metrics when I’m getting to know people that helps me decide if I like them or not is do they use fancy acronyms and industry-specific vernacular so that they can sound like they’re smart, that makes everyone go, “Man, this is way too much for me. I couldn’t get involved.”
But really, the metrics and the fundamentals of real estate are the same whether they’re in commercial, whether they’re in residential. You’re always trying to buy in the best location. You’re always trying to add value.

Rob:
David, I concur with everything you just said.

David:
I see what you did there, Rob.

Rob:
Great pontification there. Superb.

David:
He does this to me all the time. And then Rob wears shirts with buttons and collars and stuff now because he definitely looks fancier when we do these shows. He does his hair in this coif style. Really, we used to have the same exact hair until he added that little coif toupee.

Rob:
A toupee as we call it.

David:
So I’m curious, Barbara, as someone who has a ton of success both in real estate and in business, which I personally believe is the better route, I wrote about that in Pillars of Wealth, that too many people focus on one pillar. They’re all in on investing or they’re all in on business, but you really want to be blending, playing good defense with your money, making money as well as investing it.
Do you ever consult with Tom and bring him in on some of the deals you’re looking at to see if your gut instinct actually makes sense from a logistical standpoint, mental standpoint?

Barbara:
More recently I have. You have to appreciate everything you guys were just talking about, those terms, I have no idea what they are. So very often when Tommy explains something to me, I don’t know what he’s talking about. But I know he knows what he’s talking about, so I’ve learned to trust that.
What happened recently, I was renovating a duplex down on West 11th Street or 12th Street in the Village and it had a commercial space on the ground floor. I had clearly decided I’m turning that commercial duplex space into four units. I love units. The tenants always pay the rent, the rent’s always going up. It’s a cash cow that building. I’m getting rid of this commercial space, it’s hard to rent, and I’m making units.
And we got the approvals all set to bash in the walls and Tom calls and says, “I got an out of the box offer from a guy who’s willing to grossly overpay, sign a long-term lease, do all the work. You should contemplate doing this deal.” And my immediate response is, “No, I’m already committed to residential. I really want to go there. That’s really what I want.”
Until he shared his numbers with me in a way that I could understand and it was like, “No problem. Let’s let them have the lease, no cash upfront.” What were all the benefits of that, Tom? You were very persuasive to me and you convinced me to go with the other deal within about 30 seconds.

Tom:
I mean, $5,000 more a month and one third the dollar spent out your pocket. So like David said, it gets simple quickly when the deal is good enough.

David:
So was this person, was it a triple net lease and you didn’t have to spend as much money to renovate it because he wanted it-

Tom:
Yeah.

David:
… closer to the condition it was already in?

Rob:
Now look who’s using fancy words, Mr. Triple Net Lease.

Tom:
Double net lease. No, I’m kidding. So it was a commercial duplex in a great neighborhood downtown and as of right it could be converted to residential. So it was grandfathered in non-conforming use. But we got an unsolicited offer from a furniture company that wanted to use it as a showroom. And instead of saying, “No, we’re going multifamily,” we dug in and we diligenced the high credit tenant with multiple other locations nationally and we decided to go forward with them. And so far, so good.

David:
And what I like about that is if it doesn’t work out, Barbara’s original plan is still right there. You’re really not losing anything by taking this chance, because as you said that, I thought about, I think I’ve seen more going out of business from furniture stores than any other company. They’re always going out of business, but shoot, if you’re making all this money while they’re there, and then worse case scenario happens, they do go out of business, you just go turn it into four residential units and you’re even better off.

Barbara:
I’ve always been more comfortable with residential space.

David:
Yeah, me too.

Barbara:
I like nothing better than a fat tenant on my third floor paying me a lot of rent and I raise it up, raise it up with the lease renewals. I don’t really like 10-year leases on a commercial space where it’s predetermined. For me, it’s not as exciting, but the numbers were so convincing I had to listen to Tom and go the other way.

David:
Well, Barbara, do you also think your business experience plays into this, because you’ve seen how easily businesses can go out of business versus a residential tenant is less likely to just stop paying their rent?

Barbara:
A residential tenant moves out, you evict them if they don’t pay their rent, anything goes wrong, you replace them with another tenant who will pay you more. That’s generally the case in New York City. But a commercial tenant, no matter how good their credit is, no matter how successful they are, it’s not a personal investment for them and they will be quick to fold and go out of town. So I don’t really trust anybody in the commercial space. I have a hard time trusting and that is my business experience. I don’t even trust myself on commercial stuff nevermind the next guy.

David:
And another thing there is when you have a turn on a residential unit, which is the phrase we use for when the tenant leaves and a new one comes in, paint, maybe some flooring, a couple repairs, it’s good to go. These commercial properties, you may have your next tenant want $150,000 in tenant improvements to make it suitable for them. And sometimes you’ve got to wait eight years before you break even on that thing.
Tom, I see that you’re just ready to jump in. Educate us on the difference here between when you have a residential tenant leave and a commercial tenant leave.

Tom:
No, no, I was just agreeing with you. The TIs that people require in New York City now are insane.

Rob:
And sorry, sorry, Tom. What is a TI?

Tom:
Tenant improvements.

Rob:
Okay.

Tom:
So the amount of money that the tenant makes you put into the space, it makes an apartment turn look very, very attractive.

David:
Imagine if you had a residential tenant and they said, “Hey, before I move in I’m going to need Viking appliances and I don’t like the floor. Move these walls around. I want vaulted ceilings. I’m going to need a hot tub in my bedroom and it’s going to be $100,000 for me to agree to move in.” That’s how the commercial space can work. And no one tells you that when they’re talking about these great triple net passive income properties.

Tom:
And then four months free, two months security deposit. No, but as a whole portfolio, we only have three properties with retail and they’re only on the bottom floor. So it’s all mixed use.

David:
And Barbara, you made a really good point too, that just before we move on to Tom’s deal I wanted to mention. The rent increases in residential historically are like Godzilla compared to what they are in commercial where it’s like the GEICO lizard. And it’s one of those things where Barbara’s gut, you recognize that’s the case.
You don’t always work it into a spreadsheet to be able to articulate it like that, but your brain sees it, it puts it in the background of the algorithm that you use to make decisions, and it’s a wise way of looking at it. But sometimes when we talk about the heart or the gut, we assume that it’s just pure emotion and there’s no logic or factual data to back it up.

Barbara:
If you think about what your gut is, it’s the culmination of everything you’ve learned to date and that’s why I trust my gut. You must have had a lot of different experience in different areas, but in the end, when you just get a gut feeling that this is a winner, this is a phenomenon, and you trust that gut without second guessing yourself, it’s usually based on a lot of fact and experience you’ve had. You might not articulate it, but it’s not just whimsical like, “Whoa, I love this street.” Not that kind of thing at all.

David:
I love that. Barbara Corcoran dropping bars on the BiggerPockets Podcast.

Rob:
So Tom, I’ve got a question for you. I know we talked about you consulting Barbara on this deal and the numbers trumped the vision or the heart on this. Are there times where that’s flipped, where you’re in on the numbers and Barbara comes in and says, “Hey, I’ve got a much bigger vision for this,” and deters from your plan? How often are y’all consulting each other?

Tom:
I would say that it’s more general guidelines that she gives me. I was trying to think about some really concrete examples of times that I’ve leaned on my mother’s advice in investing. And I think the North Side Castle example is great.
So we offer what we believe is the right price. It’s at the 1% rule or 8.4% yield on cost, so it checks our box. Debt at the time was at 3 and change. You have amazing spread, at a low LTV, it’s going to cashflow extraordinarily well. How we found that property and how we turned down the property nearby were both examples of the guidance, the softer skills.
So when I first started getting into the Pittsburgh market, the way we got turned onto the North Side is I went out to all the local bars and I asked the people living there, where would you want to live when you graduate college or where are you looking to stay? And that was how we got turned on to the North Side and how we found the path of progress within that city.
Even if you looked at the supply metrics and the job growth in the individual area, you need to interact with the humans and just hear where cool people are wanting to live to really sense the path of progress.
The other side and the softer skill side is a property right down the road … We absolutely love the deal that we did in the North Side here. It’s doing phenomenally well, has great views, high ceilings, existing building built in 1920s. Very similar property down the road exists and we were pretty much fully capitalized, ready to do the deal.
But one of my mother’s early tips that she gave me is, you always have to see a property at night. It may look great on Google Maps, you may drive it, you may walk it all during the daytime, but you don’t know a property until you see it at nighttime. And we were ready to close, ready to buy it, and I just had a feeling and followed her advice and saw it at night.
And it happened that there was people selling drugs in the next door spot and people all standing outside, something that you would’ve never known but it would’ve made leasing that property up, your vacancy would’ve been extraordinarily high, and it would’ve resulted in a very bad outcome.

David:
Well, speaking of things that happen in the night, I just found out today that one of my cabins in the Smokies had a bear rip apart the spa cover in the middle of the night. I got a picture of the spa cover that was ripped to shreds by some bear. I don’t know what they were trying to do getting in the spa, but I do think that that’s a very good point, that the way that things look under a certain light is not necessarily how they look under others.
And while that’s an obvious example of night and day and under light, sometimes the numbers won’t reveal the true nature of the property. You can make a proforma look a certain way, you can manipulate the numbers to be the way that you want them to be and that isn’t the way that it works out in execution.
And Tom, I think that you’re doing a good service to everyone mentioning the fact that if you rely heavily on what you see on a spreadsheet and you assume numbers are safe and everything else is just like Barbara said, whimsical, you can make a really big mistake because numbers can be manipulated just like everything else. Do either of you have an example of a time that you’ve seen a deal in your own life or maybe in someone else’s?

Barbara:
I’ve got a great example of the first deal I made. I bought a 20 unit motel. I may have mentioned this in the last podcast, forgive me if I have. But I bought a 20 unit motel in Dutchess County because it was a fat and juicy rent roll. I thought, “Ooh, I can afford the down payment.” I was about 30 years old, I’m getting excited about making my first deal. I checked all the leases and the rent roll was phenomenal, but when I closed on it, I found out that no one in the complex had paid any rent for over two years. No one was employed. It was like a boarding house.
And so what really happened with that building in the end, I lost all my money. I buried the building with a local guy who came with a tractor trailer and dug a hole and shoved it down the hole and I got out of it. Well, let me tell you-

Rob:
Wait, really?

Barbara:
Definitely. And I would never, ever buy anything without checking the rent receipts. You learn that lesson.

David:
I’ve never heard of a person burying a building before this, Barbara. You’re the first.

Rob:
Yeah, I thought you were going to say figuratively like, “Yeah, figuratively, we buried it.” Literally you hired someone and then they came and then they pushed it into a hole.

Barbara:
Old Charlie did it, yeah. And you know what the feedback I got? Not what happened in the building or with the motel, but people were mourning the loss because all the young women in the neighborhood who were about 30 years old said, “That was a hotbed hotel. We met our boyfriend there.” Everybody mourned the loss of the romance of the whole thing. Not me, I was happy to get rid of it.

David:
Well, nobody was having to pay for anything, of course. They lost their free ticket there. Tom, have you heard the story of the Atari game E.T. Where they had to make a whole bunch of copies before Christmas, but they rushed the production of the video game and it ended up being the worst video game that had ever been made and no one bought it?
So they had hundreds of thousands of copies of this horrible video game and they ended up just burying them in a huge hole in the middle of the desert in complete shame. That reminds me of what Barbara did at this hotel and then did you build something in its place or did you sell the land to a developer?

Barbara:
Vacant land and I handed the deed back to the original owner, an elderly man. He didn’t even want it back. It was just gone. Gone, adios.

David:
Yeah, but it’s a great point. On a spreadsheet it looked solid, right? If other people would’ve been investing in that deal based off what they saw on a spreadsheet, which is another thing that comes up a lot, when you put your money in with a syndicator and you ask for, “Well, show me the numbers.” How do you know what you’re looking at is actually real? No one asks that question.
They can make the numbers look like whatever they want. You make your decision based off of numbers that are not tied to or connected to reality, it can go pretty bad. So we’ve seen how trusting just pure information can be misleading. So Barbara, what does make you feel comfortable when you’re going after a deal?

Barbara:
Trusting the individual, and that is a gut feel, if you want to call it that. But I don’t look at the object. Even on Shark Tank today, I don’t look at the businesses very deep. I look at the entrepreneur and examine them. Is this somebody I really trust? When I’m buying a piece of property and someone’s representing numbers, I check out as best I can, but there’s so much finagling that can go on. I ask myself, “Do I trust this guy?”
We’re all dealing on trust. Well, we are in real estate. You want to build a big business, got to get people to trust you. You want people to trust you, you’ve got to be trustworthy. So I think trust is a major card in all sales and all investment. You have to trust whoever’s dealing it out.

Tom:
I couldn’t agree more, and I think it’s like all the way up and down the real estate game.

Barbara:
Yes, it is.

Tom:
The brokers, the lenders, the inspectors, your contractors probably most importantly. I probably spend 90% of my time on the contractor piece of the equation and building trust, and building them up and firing them and building them up and firing them and finding people that you can really rely on.

Rob:
Is that your main thing that you’re looking for? Is that what makes you comfortable is you’re going into a deal where there’s already a good contracting labor force there? Are you looking for value add specifically? Are you looking to get into a stabilized property? What’s a prime opportunity for you in 2023?

Tom:
We do 95% of our deals, heavy value add. My background’s in construction management, ground-up development. I feel very comfortable in that space. I grew up reading Fine Homebuilding Magazine and listening to BiggerPockets and did some really rough deals in the beginning and cut my teeth doing flips. And now we do everything BRRR, sub-institutional, heavy value add, and we rely on our local contractors to do that work.
I think if you can get in at a great basis with very reasonable leverage and you have a good team to bring properties in the path of progress to top of market value, it’s a really great way to build your portfolio in my experience. But it takes a lot of work.

Barbara:
I learned something from Tom’s uncle, my brother who was a roofer his whole life, a small roofer with three guys working for him. I asked him one day, I was trying to decide on contractors, I was asking him to come and interview these contractors to renovate, for my record, a big job. It had like eight units. I was a little nervous. It’s bigger than I was used to.
And he said, “You don’t need me. Just look at the guy’s truck. If it’s neat, he runs a good job. If it’s a mess, he’s not going to come through.” I use that over and over again, “Come on now, let’s talk about your truck.” You have a look at the truck, it tells you what kind of contractor you have there.

Tom:
Yeah, we’ve had to build our construction companies in each of our markets pretty much from the ground up where we take a guy with one or two people that are working with him and give him more business, build out his team, provide him prop tech, provide him consistent workflow, put, what, guardrails on the process.
And that’s the only way we’ve been successful. When we’re just out there shopping big contractors and bidding jobs, bidding jobs, it’s just maybe one project goes well and by your third it’s a problem. So we feel like you really need to build it from the ground up.

David:
Have you considered starting a construction company arm?

Tom:
Heavily. We do a lot of construction management today, both for our in-house projects and third party, but it’s something five-year plan, would love to do it.

David:
So Barbara, Tom mentioned the path to progress and looking to buy where things are going and I know that’s something that I think you’re one of the experts on. You’ve given some very powerful but simple advice. Just for people that haven’t heard your take on how to know where to go buy, can you share some of the simple things that you look for that have led to you having so much success in the past?

Barbara:
Truly some of them are similar to Tom. I didn’t know he went to bars and listened to people where they want to live. Really smart. I wish I had thought of that myself and had done that. But where I found my up and coming neighborhoods is always at restaurants, usually nice restaurants where there was a creative community there, kids that are hustling, are really dancers, are really artists, but they’re breaking into New York. They’re very young in their early 20s.
I always chat them up much like Tom talks to the bartender, I guess, “Hey, where do you live? Where are you going? Where should you live? Do you have roommates?” I’m friendly to them. And then they say, “I’m in Bed-Stuyvesant, Brooklyn.” Where is that? I don’t let two days pass by where I don’t take a car out there with a big driver, so I’m not afraid at night, and coast the streets at night just to see what’s really going on there.
And why at night that I like it? Because all the bad stuff, as Tom related earlier, shows up at night, but also the street light, the activity, the little tiny restaurants. They all happen at night first because the rents are cheap, and little dive bars and stuff like that. I see the activity. If the gay community’s moving in there, it’s a sure shot. I bring my money right in there.
I’m always looking too for the right side of the street. I stand during the daytime and do a body count of how many … I think that’s done with, I guess, all kinds of people renting commercial space, but I do it for residential space. See what side of the street people like to walk on. That gives me more tenants. I buy in the right block, the right building. I look at the nightlife.
Another thing I use is old ladies during the day. When I go back during the day, I’m always looking for old ladies in New York City. Old ladies sit on benches when they’re not afraid. You go into a neighborhood and you see empty benches, it’s not a good sign. I see the old ladies sitting there feeding the pigeons, it makes me smile. I look at the geranium boxes in the windows. People steal geraniums, they pull out the geraniums, they rip off the boxes, but I see the geranium boxes there the whole week. I’m like, “They’re leaving the boxes alone.”
And then the very last thing I’m hoping for, I’m saying, “Come on, bring it in for me, bring it in,” is I’m hoping to spot little baby strollers here and there in vestibules. Look in the vestibule, the baby strollers are there, I’m thinking “Aha, the yuppies are moving in. They’re just beginning, they’re following the creative community. This is a hot area.”
So that’s the basic call for me, the hot area. You can almost pick the wrong building and do well because a lot of errors get erased if you bought in the right area. But I like to build the right area, the right block, the right building, and of course always with the right partner, my 10% partner that’s not a broker who’s going to give me honest to good guidance as to what the right blocks are and why I should be there, if I shouldn’t be there.

Rob:
We had a guy on the podcast one time who had what was called the Chick-fil-A rule, and he said if there’s a Chick-fil-A in the area, that’s where he would invest because they’ve already done all the market research and spent six figures on all the studies to find out that it is a good up and coming area. Likewise, I’ve also heard that with Whole Foods. If there’s a Whole Foods there, it’s too late, you can’t afford it anymore.

Barbara:
Whole Food, it’s too too late. I’m not even sure Chick-fil-A is early enough, honestly.

David:
Tom, what about you? Do you have anything to say on this topic?

Tom:
Yeah, I just wanted to add one of the rules that I think my mother instilled into me that makes her version of real estate investing much safer and more successful, and how I started out in the industry and how I say to every single person I ever speak to, whether it’s via BiggerPockets or just friends of mine, start either with all cash or very low leverage.
I think time solves a lot of problems in real estate, if you don’t have a bridge loan. When you have a bridge loan and a gun to your head, it makes it really, really, really difficult. And then we got to be laser focused on every other income line item, every repayment penalty, every little detail. The moment you start getting into bridge financing, construction loans, floating loans, makes the game like you’re working with dynamite. So that’s something that was instilled to me at a young age is buy all cash, re-fi out.

David:
So a bridge loan in this context would be referring to financing that’s for a short period of time. Maybe in the residential space, you could consider a hard money loan on a flip where you have a very small margin of error because it’s expensive money that you’re borrowing. And like you’re mentioning, Tom, there’s a lot of details when it comes to hitting everything right.
What I hear you saying here is that the more details that you add, the more complicated it becomes, the more ways there are to make a mistake. You’re juggling 20 eggs instead of 2 or 3, and if an egg breaks, you’re going to lose a lot of money. Is that what you’re getting at when you’re saying buy cash and renovate out is you just simplify it?

Tom:
Simplify it, do it for a decade. You still love it, you want to add propane to the fire? Start using bridge financing.

David:
That’s really good.

Tom:
That’s an extreme. That’s an extreme obviously, maybe 3, 4, 5, 6 years, but definitely not out the gate.

David:
No, I would throw that in. In my experience, that’s very sound advice both with real estate investing and with business. The more moving pieces you add to any endeavor, we were just talking about that this morning. I have a picture in my mind, once you start to grow, that when it’s just you and one person, or just you, it’s like this business is this self-contained system and all the energy stays inside of it.
And as you start hiring other people and leveraging out, every person that you bring in becomes a layer of complication and a place for energy to bleed. And it’s hard to keep your eye on all of that stuff, or even if you somehow do it, it becomes not fun. And now you subconsciously just don’t want to invest in real estate because all you’re seeing is the work.

Barbara:
I picture too many people like having a lot of screws that are loose that I can’t tighten. I don’t know which ones are going to fall out, which ones are strong. You got to spend all that time evaluating that. I love it. It’s a tight ship.

Tom:
I should caveat this, though. At no point am I trying to fearmonger. I think that with an excellent team that has proven itself in a very tight ship, there is always a place for leverage in real estate.

Rob:
That is something I wanted to ask because I mean, as much as I love the advice of, “Hey, buy in all cash and then renovate and re-fi out,” that’s not the most relatable thing for a lot of investors that are looking to get in the game, especially in 2023. So do you have any advice for someone that really is starting from scratch? And what is a very reasonable way forward for someone that wants to get into the game now?

Tom:
I have my opinion on that. I think that partners, partners, partners, partners, network, network, add value, add value, add value, add value, add value and even, try to avoid pulling the lever of private bridge loans. I think it’s so tempting, if you can qualify for one. It’s so tempting and it can work in a dropping interest rate environment.
In this market today, it’s your first deal, your second deal, your third deal, your fifth deal, partner. People want good deals today. People want to put their cash out. People want to partner with people. At least that’s been my experience. BiggerPockets alone is a phenomenal community to provide those opportunities.
And try to be as conservative as humanly possible with your leverage, because if rates go up another 100 basis points and you’re at a 65 LTC and you’re trying to re-fi at a 50% LTV and your appraiser is getting beat up every day and your appraisal comes in $100,000 lower than you were expecting, it’s a problem. And that’s your third deal and you don’t have a large portfolio to rely on, you might not make it through the cycle.

Barbara:
I think my rule is keep it simple and I think for everyone, your first deal is your hardest. Your first deal is your hardest because you’re still struggling to trust yourself and you’re thinking the whole time you might be wrong. In fact, you go further, you think I’m probably wrong. So finding someone to be able to give you the cash is very difficult.
So I believe, again, getting a simple deal where you could put 20% down and the mortgage and expenses are paid by your tenants and you make no money, it keeps it nice and simple, and then you could build your confidence on that. I really haven’t gone beyond that in confidence honestly. I just do the same old thing over and over and over again and I’ve become very rich.
You know what I realized the other day? Someone mentioned to me, my accountant, and I hope I believe him, he said, “You worked your whole life. You sold your business for 66 million in cash and I’m happy for it, but I’ve made so much more money than 66 million investing in property and sitting there and letting them mature.” I mean, I work so less on the properties than I did in my brokerage business. Again, I say real estate, I just love it.

Rob:
I think what I like about what you just said is that you hear a lot of people talk about real estate in a get rich quick scheme kind of capacity. And what you just said is buy a property and make no money on it, break even, and it will appreciate. And it kind of instills this notion of real estate isn’t a get rich quick scheme, it’s a build wealth slow game. And I really think that’s the message that people need to take away from today’s episode.
So with that said, I do want to say, I said last episode I was coming to make an offer on your penthouse in New York. I have to be honest, I’m not quite ready for that one yet, but maybe on the next episode of BiggerPockets, I’ll be there.

Barbara:
Yeah, but I’m ready to sell. If I could double my money, you’re more than welcome in my home.

Rob:
I might need a little more time.

David:
Thomas, I know you’ve been using BiggerPockets for a while now. What is some advice you can share for people listening to this episode who hear what you’re doing, hear what Barbara’s done, say, “Hey, I’d love to end up in that position in the future”? With the community that BiggerPockets has behind it, how did you use it and what advice do you have for other people to speed up their learning curve and get started?

Tom:
You guys know this, I think it’s just extraordinarily valuable, I highly recommend, and if anyone reaches out, I’m more than happy to provide the script that I use, but I’ve had over 100 calls with people from the BiggerPockets community as Tom Higgins.

Rob:
Wow.

Tom:
The interaction on the forums and speaking with individuals in your general sphere, it doesn’t need to be exactly in your market but somewhere close to your market, creates a snowball effect. You can find partners. We’ve done deals with people from BiggerPockets. They’ve invested with us. You can find contractors. We always start there. Cleaning companies, inspectors, tax advisors, tax certioraris.
Whenever we’re looking for, especially when we first started out, when we were looking for a new resource to build our business and we were at a place where we had a team in a team meeting, I always said, “Have you checked BiggerPockets?” And the answer is often no, and within a week or two of them engaging with the community …
I’m not saying go just search in the forum search bar and say all your answers are going to be there. It’s like DM the person. Follow up with the person if they don’t respond. Schedule a phone call. Do a 15 minute Q and A. See how you can add value to them. Maybe create a newsletter where you put all the information that you’ve learned in the last month via talking with people on BiggerPockets while you’re working your W-2 job, while you’re looking to do that all cash or low LTV first deal.
I think engaging and providing value and being transparent and honest creates a snowball effect and we’ve benefited from that through the BiggerPockets community, through our own people that I used to work with. Just staying in touch with them every three months, staying in the loop, engaging with people on Twitter, it’s been extraordinarily valuable.

David:
This is the monopoly strategy showing itself up.

Barbara:
Yes, it is.

David:
Isn’t it?

Barbara:
Yes.

David:
Build these relationships so that they feel guilty not helping you when you land on their property.

Barbara:
I’m so annoyed that you always wound up with Boardwalk and Park Place. I really am. You never gave anybody a chance. It’s not right.

David:
Well, apparently he inherited your taste, if he’s going after Boardwalk and Park Place.

Rob:
I’ve always been a Baltic Avenue kind of guy.

Tom:
Yeah, me too.

Rob:
The purple at the beginning.

Tom:
What were the orange ones? The orange ones were the best because they had the highest-

Rob:
Pennsylvania Avenue.

Tom:
Tennessee Avenue had the highest percent chance of being landed on out of jail.

Barbara:
Let me tell you, not if you were playing with Tom, because he would’ve bought a free pass or two or three of landing on your property. So just when your teeth are coming out, he lands on you, you can’t collect rent from him. Don’t play with him.

David:
That’s awesome. Right, last question for each of you. Thomas, what advice do you have for people when it comes to understanding the fundamentals of real estate and using their head? What are the most important things that they should focus on?

Tom:
That’s a great question. I had a boss when I was working at the Lennar Corporation, largest home builder in the United States. I was doing ground-up development for them, and he always told me, you can miss on your rents, but you can never miss on your operating expenses and your hard costs.
So for me, in my career, always have been excruciatingly detailed on hard costs and have gotten better deal after deal. We’ve done 54 deals now, deal after deal, getting better at OpEx. Rents are hard, you need to feel the market, you need to run the comps, you need to dig in, but you can miss. No one gets fired if you miss on rents. You miss on hard costs, people get fired. So that was the advice I was given.

David:
Awesome. Barbara, same question to you. When it comes to trusting the heart, following the gut, what do people need to get right?

Barbara:
I believe you have to believe in the whole package, the whole package being real estate, that values go up over the long term. And I’m just a believer in keeping the faith. When things go bad, I never get shaken. I think, “Wait a bit, just wait a bit.” And sure enough, things turn around. I think it’s a long game and you just have to have faith in the longevity of the game and where it’s going to land you.
About my penthouse that you’ll be buying this year, I want to tell you something, I would’ve never had that penthouse if I didn’t buy my first studio. I rolled that into a one bedroom. I took out the financing out of a Village building, I bought a three bedroom. I took out the refinancing of another building, I bought a penthouse.
Let me tell you, it was all tax-free. All the cash came out because I’d been owning these buildings 18, 20 years, they’re my cash cows, juicy and fat that I could grab that money. But you’ve got to believe that long-term, it’s going to be there. If you stay with it, stick with your knitting and don’t strangle the buildings by taking money out too much. I wait till it’s really fat and juicy and then I grab a lot of millions out of them.

Rob:
Okay, that’s good advice. Maybe I’ll set my goals to be a little more realistic, I’ll start with the studio in New York City and trade up, the paperclip method, until I get to the penthouse.

Barbara:
It’s reached almost a million dollars for a studio in New York City, and the rent now on a studio in New York City is $6,000 a month. Crazy. Good for the owner, good for the landlord.

Rob:
I was going to say, it’s $6,000, I mean, on $1 million mortgage at 8%, that’s going to be like $7,000, right? Would you be losing money on a studio at the moment?

Barbara:
No, you’re not. You might be losing it short term, but the minute interest rates come down, this market’s going to go bonkers. The minute it’s around 5%, 5.5%, everybody’s going to charge the market and all the rents are going to go up. People are going to get greedy. You’ll never get your hands on a piece of real estate. Now is the time to buy, I like to say, but I really believe now is the time to buy.

Rob:
Love it.

David:
Well, thanks you two. This has been a incredibly fascinating conversation and I was not expecting to get the monopoly background here. Tom, you’ve come a long way and you were trained by a real shark, so it’s great getting to see the dynamic that you two have and the sound advice you’ve shared. So thanks very much. And for people that want to know more about you, Tom, where can they find you?

Tom:
Yeah, on BiggerPockets, very, very active, Tom Higgins, also on Twitter, tomchiggins. This was the first time that I’ve ever done something with my mother, but I couldn’t turn down going on BiggerPockets. I’m a big fan.

Barbara:
It was only because you love BiggerPockets. You said, “I’m not going on anything with you, mom. I do my own thing,” until I said, “How about BiggerPockets?”

David:
Well, what did it feel like seeing your mom on here before you made it? Was there a little bit of jealousy there?

Tom:
We have a great relationship. My mother’s always extraordinarily supportive, so we get competitive maybe around who’s right on a deal, but people doing well and providing value, I’m always really supportive and happy for her.

Barbara:
Well, I want you to know I don’t really like you, Thomas Higgins, because you’re doing better than me. You’re getting better returns. I’m a little bit annoyed about it.

Tom:
Yeah. Well, I work-

Barbara:
Cut it out.

Tom:
… pretty dang … You’re busy all day on TV. I’m just grinding this.

Rob:
Well, we did say before we went live that if you’re ever referred to as Thomas, you’re in trouble. So I know Barbara meant it.

Tom:
Exactly.

Barbara:
I never wanted him to do better than me, believe me, neither did his father. I’m telling you that.

David:
Barbara, for people that want to find out more about you, where do you recommend they go?

Barbara:
Social media platforms, Barbara Corcoran, any of them.

David:
C-O-R-C-O-R-A-N.

Rob:
Go follow Barbara. You really do have amazing TikTok and Instagram Reels. Big fan of all the content that you’re posting.

Barbara:
Thank you. We work hard at it. I love doing it though. A lot of fun.

David:
Well, thanks you two. It was great having you on. Great interview. We hope to have you back again, and I hope you both have a great day.
And that was our show with Barbara Corcoran and Tom Higgins. Wow. This is a BiggerPockets exclusive, the first time that this mother and son duo has ever done a podcast together, and you and I were a part of it. How are you feeling, Rob?

Rob:
Honestly, honored, flattered. It was really great. They had an amazing dynamic considering they don’t do this together ever. One of the things I thought was really cute was that when Barbara was on the show a while ago, she talked about how she went to different neighborhoods and talked to the creatives of that neighborhood.
And then Tom gave the advice earlier that he goes to bars and talks to bartenders, and then Barbara was like, “Oh, that’s genius. I never even thought to do that,” as if they’ve never communicated the strategy. So I think it’s one of those funny things that Tom, the apple didn’t fall far from the tree and he’s following a lot of strategies that I guess it’s just in their genes, like the prudent investing.

David:
I could see so much of Tom’s framework was based in the stuff that Barbara talked about to us on previous shows. The whole time it was popping out, like pattern recognition of, “Oh, I know he got that from his mom. He probably heard her talk about this all the time.” I actually was thinking what a great job she did raising Tom, because that guy’s a stud. Tom, if you’re listening to this, very impressed.

Rob:
Yeah, smart.

David:
You clearly know your stuff.

Rob:
He reminds me of a young me, honestly. That’s what I was thinking the whole time. I was like, “You’re like a young me, man. Good for you.”

David:
So Tom, I think you’re great. Rob thinks that you remind him of a young him and his own greatness. Either way, though, very impressed, glad that you came on the show. Tom’s a big fan on BiggerPockets, so you guys can go message him on there and tell him what you thought of the show.

Rob:
And we’re big fans now, too. One other thing I was going to say as well is that Tom was coming at this from an analytical standpoint, and then Barbara was talking about coming at it with the head and the vision, and a lot of the things that she was saying like, “Hey, which side of the street are more people walking on?”
And it’s kind of funny how it is the head and it is the more feeling approach. But I feel like a lot of the things that she was talking about, in a weird way could be quantifiable and there are numbers behind some of her stances, which I just think it’s kind of funny that in her mind she’s like, “Oh, I’m not good at numbers,” but she just looks at the whole investment at a very different way, but the numbers are there.

David:
Well, she gave one of the best lines ever when she said, “Your gut is an accumulation of all the experiences that you’ve ever had in your life.” That’s a very different take than someone says, “I’m just going to shoot from the hip,” or, “I’m just going to go with my gut. I don’t want to put the time in.”
Barbara’s been around real estate for a very long time, around very smart people for a very long time. She’s absorbed some of the most high level knowledge that’s out there, and that has created what she calls her gut.
Well, that was a whole lot of fun, Rob. I’m glad you were able to be here with me. I didn’t let you talk too much on today’s show, and I apologize for that. So if there’s anything that people want to ask you, where can they go to find out more about you?

Rob:
Go to Robuilt on YouTube and on Instagram, R-O-B-U-I-L-T, and like, subscribe, leave a comment, learn something, learn something for free. How about you?

David:
There you go. You can find me at davidgreene24.com, or davidgreene24 on social media. Reach out, let me know what you thought of today’s show. And you can find us both on the BiggerPockets website. Thanks a lot, everybody for joining us. We are going to get out of here. If you’ve got a minute, check out another BiggerPockets video, and if not, we will see you next week.