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.

Established by Barclays Bank and now receiving government funding to support the U.K. startup community, Eagle Labs has launched an online directory platform aimed at connecting founders with investors. Given that fundraising can be difficult and time-consuming at the best of times, anything that makes the process easier should probably be welcomed. But investment – as we’re constantly told – is a people business. So what role can an online matchmaking service really play?

Even when you know what to do, raising capital is no easy undertaking, especially if it’s a first foray into the world of VCs and angels. Attracting the attention of investors usually involves researching the market, building a profile at startup fairs, making countless phone calls to arrange meetings, and participating in pitching events. For others, however, fundraising is quite simply a mystery. How do you do it? Who do you contact? Frankly, who knows? Without the necessary market knowledge, it’s very easy to conclude that securing investment is something that other people do.

In announcing the launch of its “Demo Directory” Barclays Eagle Labs is potentially helping both of those groups by providing an easier and more efficient way to take the first tentative steps towards attracting investors.

But how will it work in practice? I spoke to Benjamin Storey, Head of Demo Directory at Barclays, to find out.

A Problem For Both Sides

As Storey sees it, the new platform is helping both startups and investors. From a founder’s perspective, too much time has to be devoted to finding investors. Meanwhile, angels and funds face problems of their own. “Investors spend time sifting through businesses that aren’t relevant,” he says. And at the same time, VCs and angels are missing opportunities because they aren’t aware of some of the businesses that would be appealing to them.

That much is well known. But can the Barclays Demo Directory provide a solution that works for both sides?

The concept is simple and familiar. To sign up for the platform, founders must answer a series of questions. “They tell us about their businesses, their teams and the technologies they use,” says Storey. “All the questions we ask have been defined by investors.”

That last point is important. To operate successfully a platform of this kind requires investor buy-in. Or to put it another way, unless it’s providing some sort of value to the VC and angel communities, they may feel that sifting through hundreds of hopeful pitches is a further drain on their already limited time.

Storey says Barclays has worked closely with investors to ensure that the questions asked of businesses provide necessary and useful information on the startups hoping to catch their eyes. To avoide overload, there is a barrier to entry. Companies hoping to list on the directory must provide evidence that they are viable and investment-ready. Storey says helping companies to become investible is one of the functions of Eagle Labs.

An Early Stage Focus

The focus is on early-stage companies. Drawing data from the pilot and the first few weeks of operation,” Storey says 65 percent of participating startups are seeking to raise between £250,000 and £2.4 million. “The most popular range is between “£250,000 and £500,000,” he adds.

So what happens when a company joins the directory? “The power is then very much in the investors’ hands,” says Storey. If members of the VC and angel community like what they see, they can get in touch directly. At that point, the process of engagement begins in earnest.

A Better Chance?

That question is, does the platform actually improve a startup’s chance of securing investment? Storey thinks it does. “Data from the pilot shows that 49.3 percent of companies raised capital within six months of joining the platform. That wasn’t just about us but we helped to get them in front of the right investors,” he says.

Equally important, Storey points to the ability of the platform to connect investors to founders who are not located in one of the major innovation economy hubs. “It’s very important to give people an equal opportunity to raise capital,” he says.

And there’s a geographical bias. Storey cites the angel community. “Seventy-five percent of angels invest in their own region. Sixty-five percent of them live in London and the South East of England. Thus, the tendency of companies in the most prosperous region of England to suck up the lion’s share of investment becomes self-perpetuating. The good news, Storey says, is that angels are keen to invest outside their regions should they be able to identify opportunities.

Seeding Diversity

In that respect, the platform provides an opportunity to spread investment more widely, not only in terms of geography but also across gender, socio-economic and ethnic lines. To date, 54 percent of applicants identify as being from an ethnic minority background, 39 per are female and 48 percent are from outside the London, Oxford, Cambridge triangle.

Of course, the concept of this kind of platform isn’t new and success or failure depends – as previously mentioned – on investor buy-in and the quality of the startups. Around 350 investors were involved in the pilot, suggesting a good degree of engagement. Meanwhile, Barclays is engaging with thousands of startups through its Eagle Labs program, which operates physical hubs across the United Kingdom. Barclays also says that this the first initiative of its kind operated by a major UK bank, so there are opportunities to promote the scheme to business customers.

Another useful tool for U.K. startups.

Ashley:
This is Real Estate Rookie, Episode 337. My name is Ashley Kehr, and I am 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 kick start your investing journey. Today, we’ve got an amazing episode. I feel like this episode could have gone on for hours. We’ve got Zoey on the podcast with us today. She’s going to be talking about glamping, about yurts, about unique stays, about land hacking, and all these different strategies that you might not know about but that are great ways to break into the world of real estate investing and really position yourself as a solid Airbnb host.

Ashley:
She ended up living part time in something which was not technically a house. When she no longer needed to live there anymore, she decided, “Let’s turn this into a short-term rental.” It ended up being more successful than she could have imagined happen to her. Then we’re going to go on and talk about her focus on unique experiences. Towards the end of the episode, she’ll give us a list of the top… I think there’s maybe five things that you need to put into your properties to consider them unique. When she says these things, they’re almost like light bulb things. It’s not like, oh, you need to have this crazy wild thing, like a tiger in a cage that’s on the property. It’s like things that you-

Tony:
Although that would help.

Ashley:
Yeah, that would. It’s these things that you’re like, “Yes, it’s actually not that difficult of a thing to do, and that little amenity really does help create that unique experience. Then one of my other favorite things, and then we’ll jump into the episode, is how she actually takes her money and, instead of buying another property, what she did with it to get an even greater cash-on-cash return.

Tony:
Last thing I’ll say, Ash, before we kick it over to her, we also talked a little bit about analyzing some of these unique stays. Yeah, she’s got her approach, but I’ve got a totally free Airbnb download. It’s a calculator I think I’ve shared on the show before, but if you guys just DM me the word calculator on Instagram, you guys will get it sent to you for free. It’s a good tool to make sure that you’re crunching those numbers before you dive off deep end here.

Ashley:
When I do short-term rentals, I use Tony’s calculator, too. It is super great. Zoey, welcome to the Real Estate Rookie podcast. Thank you so much for coming on with us today. Let’s start off with hearing a little bit about you and how you got started in real estate.

Zoey:
Thank you guys for having me. I’m so excited to be here. We actually got started, I like to say, a little bit by accident. We started off in the glamping realm, which is not the most common way to start, and we went right into short-term rentals. We had a yurt that we were kind of living in part-time and we weren’t in it all the time. So I told my husband, “We should rent this out.” He was like, “There’s absolutely no way. No way someone’s going to rent a tent. They’re not going to pay for this.” He’s like, “It’s not ready.” I’m taking iPhone photos as he’s telling me, like, “There’s no way.” I’m like, “I think it’s going to work.”
So we ended up putting it on Airbnb. It was our first go around. I didn’t know anyone that was doing short-term rentals. I didn’t have the podcast that everyone has today, the resources. We literally in a way made ourselves homeless that summer. We were living basically in a rooftop tent and letting people rent out the yurt that we were staying in. So that was our first intro to short-term rentals. After that first summer, I was like, “We are onto something. There is something here.”

Tony:
Zoey, you threw out a few phrases that hopefully you can educate our rookie audience. You talked about glamping. You talked about a yurt. What are these things? Break it down for the rookies.

Zoey:
Glamping is, in a sense, luxurious camping, I like to say. A yurt is a… We have a 28-foot dome, you could say, so it has that lattice. It’s a canvas tent. It is more durable than a tent you would take camping, and it does have some of those creature comforts. So there is shelter, there’s a roof, but you are not in a single-family home where those walls are standing, the drywall’s there. So it’s those that are looking to be out in nature, engulfed in that experience. That’s who our clientele is and was from the beginning, honestly.

Tony:
Let me ask a couple of follow-up questions here, if that’s okay. First, what location are you in? What city was this yurt in?

Zoey:
We are in Colorado. We’re about three hours from Denver, so we’re not in that metropolitan, but there are yurts there. We’re more so… It’s called the Western Slope, 45 minutes from Aspen, an hour from Vail, kind of centered in the middle of the ski resorts. So the Rocky Mountains have their own challenges as well to be hosting in. But Colorado, you get those nature-inspired folks as your guests already.

Tony:
I want to dig in just a bit, if that’s okay, on the yurt specifically because I do think it’s a creative way to get started. I guess, first, what was the total investment for the yurt itself?

Zoey:
We do kind of pride ourselves on land hacking as a term that you guys have used with Kai, and that’s a good way to put it. It’s multiple sources of income on one property. That’s what we really try to look for. With our yurt, it is on a property that has also other structures, so that gets factored in. But the yurt itself was about $40,000, let’s say $20,000 for the 28-foot dome. It comes in a box, and in 72 hours, that yurt was set up with three guys and then about a month to two months of build-out to make some walls, paint a little bit and make it a little nicer. Within the first six months of renting, we made $30,000.

Tony:
Wow.

Zoey:
So just taking the cost of the yurt and what the yurt brought in, it was definitely a profitable endeavor after year one.

Tony:
Zoey, that is phenomenal numbers. To spend 40K, get back $30,000 in revenue, that’s a really good return on your investment there. One question that I have, and this is me never having stepped foot in a yurt before, but is there plumbing?

Zoey:
That’s where, as the owner, you get to decide what is the experience you’re going to give your guests. Are you going to have those creature comforts, or are you going to be more of that off-grid setup? What’s cool today is, with glamping, there are so many options. There’s the composting toilet. There’s vault tanks that you can set up a septic miniature in your yurt setup. Ours, because it was that land hacking, we were able to pull off utilities that the single-family home does have. So I do think that factors in our nightly rate, being able to offer water and a kitchen and a stove. We’re on propane, we have a little miniature septic set up, and then we pulled power from the main home, so we do have those creature comforts. But not to say you couldn’t do solar composting toilet and bring in those similar amenities.

Ashley:
Zoey, I want to know, what were you doing that you ended up living in the yurt? How did you get to here?

Zoey:
Yes, I ask myself the same thing sometimes. I like to say, my husband, he’s definitely the visionnaire of the two of us, and I kind of put things into action and the detail that he doesn’t want to do. So he had a unique vision to own a yurt before he even thought of a short-term rental. Sometimes, things, they fall into place and it makes sense. So when he purchased this land, the yurt was the first thing to go up to kind of be a home base while the build was happening. That happens with a lot of us that do… We only do ground-up builds, renovations. We don’t do anything, as of now, that has been a turnkey purchase. Sometimes I wish we did. That is something… People live in campers while they’re building. They live in yurts. They live in tiny homes. That’s pretty common, especially up here in the mountains. Almost every single neighbor we have has lived in a camper or a tiny home. It sounds crazy, but it kind of fell into where we were.
We were, like I said, going back and forth, and I just saw a huge potential that, when we weren’t in it, why couldn’t we try to make money? We were in it already. Because it’s on a land hacking situation, the utilities are very minimal for the yurt. I let the house pull the main expenses because that holds the mortgage, that holds the value, so really 100 bucks maybe every month and a half in propane and some cleaning supplies is about all we’ve got in terms of expenses. So you can deem glamping, sometimes it’s considered pure profit or however you want to look at it.

Ashley:
Zoey, you had mentioned that you do land hacking, like Kai Andrews who was on Episode 107. Can you define that for us?

Zoey:
Land hacking, I like to say there’s a wide variety of options with land hacking. You don’t have to do one way or the other to fall into that. But I like to think of it as, if you can generate multiple sources of income on one property, you’re in a way land hacking. Land specifically, that could pull into Christmas tree farms, lavender farms, apple orchards, putting a house on it. But I also like to give people the opportunity to think about maybe you have an ADU and a single-family home, that’s two sources of income on one property, or a single-family home and glamping. Or you could even think of it’s almost like a land hacking/house hacking duo where you could have an ADU downstairs and you could have a short-term rental up top, and that’s still two sources of income, whether you choose to short-term both of them or long-term/mid-term one and short-term the other. So we always try with every deal to get our best bang for our buck and get multiple sources on that investment. It’s nice, like plan A, B, C you can have with that property.

Ashley:
Before we go any further, what does your portfolio look like today?

Zoey:
We have four short-term rentals, all in the unique stay approach. We’ve kind of dabbled with a build ground-up single-family home. We have the glamping aspect. We’re doing a 1940s historic cabin that came down from Aspen, which is in pure shambles right now, but it’s going to be for a short-term rental for us, which will have two units in itself. So we have really kept into the mountains as our market. I think next market, we’ll try to offset our peak and low seasons with a different market so we can capture year-round consistence with our properties.

Ashley:
I definitely want to get into more of these different properties and their uniqueness. But when you first decided to rent out that first yurt, what did you have to do? What kind of steps did you have to take to get it rent ready? Was there anything you had to do different to the property compared to living there to have a tenant there? Also, did you just put it on Airbnb, throw it up, and you’re done? Talk us through that first initial process of “I’m going to rent it.”

Zoey:
I think there’s what we did do and now years later what I would suggest you do is looking a little different. When we first started, and this is such a blessing now that I look back on it, we literally just started, I didn’t have the what ifs or the fear, “What if someone steals this?” none of that crossed my mind. Maybe it should have at the time now looking back. I literally just took iPhone photos, made an Airbnb listing, made sure with insurance that we were good, no one could get hurt, we were protected there, and just let it go up and see what came. Now in today’s market, you might want to have those professional photos, make sure that decor looks on par. But it is to say that it worked.
I think a lot of us, when we get started, we think it has to be picture perfect. That keeps a lot of us from starting because it can cost a lot to have something professionally designed or everything picture perfect. That’s something we also like to do is we kind of consider properties in phases because that makes it a lot more realistic to start earning that revenue and understand that in a year you might do another round of improvements to the property. You don’t have to have every single dollar mapped out in the very beginning because that’s going to keep you maybe years from starting.

Tony:
Zoey, one of the things you mentioned was that you haven’t purchased anything that was turnkey, and instead, you focus more so on these projects and the, quote/unquote, unique stays. So first, I guess, define what a unique stay is, and why have you focused on that niche specifically?

Zoey:
So unique stay, I think everyone has a little bit of a different definition. Once upon a time, I think we might’ve only considered a glamping or a really unique structure as a unique stay. But I actually want to broaden people’s horizon, that I think a lot of things can fall into unique stay if you do it right and you market it correctly. It’s not everyone’s goal to own a yurt or a tiny home, but that doesn’t mean you couldn’t buy a single-family home that does fall into a unique category. So I want to expand people’s vision about what unique can be for them because I don’t think you have to be a builder or a contractor to really fall into that.
For us, it has looked like, location has been a big aspect. We’re big on the views or what the home is encompassing in terms of the environment. So Joshua Tree, people go to Joshua Tree to feel like they’re in that setting. They want to stay in a house that they feel like they’re in the national park in some degree. So we’ve really factored in that, and that has looked like for us a single-family home ground-up build, which is more of a modern… It’s a newer build, so it’s not super old or anything. It’s not some crazy shape. Then we’ve also done glamping. Then we’re doing a huge renovation to a historic cabin. It is a historic home in Colorado, so that brings in a unique touch in itself. So don’t think that you’re limited that if you don’t want to build something from the ground up that you can’t fall into that unique aspect.

Tony:
Airbnb, I think it was last summer, they did their 2022 summer release where the app really started to highlight a lot of the unique stays that are found within the app. This is me theorizing, I guess, because obviously I don’t know the CEO of Airbnb, but my thought is that Airbnb, as they continue to gain market share from traditional hotel stays, I think they’ve realized that the unique experience is something that they have an advantage over when it comes to Hilton, Marriott, all these other traditional places. Because I can’t go to Hilton and book a yurt, or I can’t go to Hilton and book a tree house, or I can’t go to Marriott and book a submarine, all these crazy things that I’ve seen on Airbnb. So as a platform, I think they’re really trying to incentivize and encourage people to build more of these unique experiences because it draws more people onto the platform. So the fact, Zoey, that you guys are, I think, leaning into that before most people have caught on, I think it’s really going to do you guys well.

Zoey:
Yeah. That’s a big part of why we’ve stayed in the unique space. It has its pros and cons. It, I will say, brings its profit. When you’re in the renovation phase and you feel like there’s no end in sight, the profit will come in the unique space. Something we’ve been… We started in the pandemic. People like to tell me, “Oh, it’s not going to last during a pandemic or a recession.” That was when we started, and we still are doing it to this day. So I don’t think that’s a big excuse that I can listen to many times. But it is growing in the Airbnb space, and I do think it brings a level of protection for your short-term rental business knowing that you have that different approach. That’s why we’ve continued to go in that direction, and, like I said, it has looked like a different angle for every property we have.
But I personally believe the unique category is what’s growing. It’s keeping us apart from the rest. It’s not as easy as maybe it was a few years ago to just go buy that neighborhood home, furnish it, make it look cute, and call it a day. We’re seeing competition increase, and people are getting better at short-term rentals. They’re just getting better as hosts, better as investors. So that’s where we also have to level up our investing game as well.

Tony:
Zoey, you just said something I got to comment on because you said, “You can’t just go buy that regular single-family home, throw it up on Airbnb, and expect to still do well.” I think when you hear of the Airbnb bust, a lot of those hosts that are being significantly impacted are the ones that did exactly what you just said, where they’re just focused on, “Hey, let me buy a traditional single-family home. I’ll put a bunch of IKEA furniture in there and cross my fingers it all goes well.” Whereas now, in 2023, in order to be a good host, you really do have to focus on providing your guests with an experience, providing your guests with exceptional customer service, and reinvesting into your properties from before. Maybe they were just these big cash cows where you didn’t have to worry about trying to make them better for the next guest.
This last year has really been a year of retooling for us, where a lot of our properties, we’re going back and investing additional capital into them so we can make sure that, in 2024 and 2025, we can continue to be competitive in those markets. Because you have two options as an Airbnb host. You can either try and compete on pricing, where all you’re doing is pulling down your prices to try and be the lowest-priced option in your market, or you can compete on experience. Airbnb guests have shown time and time again that they’re willing to pay a premium if they can get the right experience. So you have to choose which host you want to be.

Zoey:
I love that you said that. Because reinvesting back into a property, I think some people might feel like, “Well, with that profit, I could go get another property.” But having two subpar short-term rentals or one great one can look a lot different in your portfolio and in your workload as an owner and if you’re self-managing. So we actually, about a year ago, chose to reinvest about $35,000 back into our property, which was all profit and that could have put us in another deal. But by doing that, we invested in professional design, professional photos for both of our peak seasons and a hot tub. When we did that, it took our revenue from about $4,000 to $5,000 a month to a consistent $10,000 to $12,000 a month. The house didn’t move. The location didn’t change. I’m not going to say there was much that could have factored in that difference besides the reinvestment we did, and that is proof that it really does pay off to reinvest.
I knew, just seeing what the market was coming into, investors were coming in with big dollars, that if we wanted to stay in the top 5%, we had to make that reinvestment. We couldn’t keep operating at a level where we just wanted to take that profit and go elsewhere. So I think it’s super important that people understand that it may slow your portfolio growth for a year or six months, but that property now generated double every month in revenue, like consistently. I have now year by year to compare. That’s definitely worth the reinvestment, I would say.

Ashley:
Yeah. People get so caught up on the unit count-

Zoey:
Mm-hmm.

Ashley:
…but if you would’ve went and invested that into another unit, that would’ve been another listing to manage, another rehab to manage, just more overhead. The fact that you went and you reinvested it into this property might’ve even had a better cash-on-cash return then taking it and putting it into another property even. I don’t think that we’ve actually had a guest that has come on here and talked about how they actively chose to upgrade and put a large chunk of money into one of their current short-term rentals instead of going and investing and buying, buying, buying, buying more.
We had Chad Carson on recently who wrote the book, Small and Mighty Real Estate Investor, where he talks about, “I don’t want a ton of units. I like my small portfolio. But I optimize my properties. I stabilize my properties.” And I think that’s great that you brought that up. For somebody who wants to get into land hacking, what is the first step they need to take? Is it doing market research? Is it determining their strategy? Walk us through that path they should take.

Zoey:
There’s a few ways I like to approach it. One, you do need to determine, what is your strategy? Are you a short term? Are you trying to go long term, midterm? That’s going to help you really decide your location and your market, which is kind of the next step of, “Okay, what’s realistic for me to purchase in? Do I want to own a property in California for a lifestyle and profit play, or do I want to invest in my backyard?” That’s really important to decide. When you decide if you’re going to do short term or long term, that’s going to look different in terms of markets.
But my biggest thing I tell people and the biggest misconception is land is created equal, which is not the case. You really need to understand when you go into these deals, whether you’re wanting to build or purchase a property that already has a structure and bring glamping to it or another structure, like in ADU, or you want to do a glamp site, you really need to understand when you look at land, what are you looking at in terms of the value it has? That can consist of understanding, is it raw land or is it developed land? Are the utilities already pulled to it? If not, what does that look like? Pulling utilities can be one of the most expensive parts of developing land if you don’t factor in that land location accordingly.
So I really like to encourage people, if you can look at a raw piece of land and feel confident at what that land can bring to you or what it’s capable of having built on it, that’s going to really be a great fundamental for you to get started in actually building or developing or putting glamp sites on it. That’s not to say you have to build. You can land hack with the current structure already on it and maybe put an ADU in it or bring glamping to it. But you have to know if that land is suited to support multiple structures with the county.

Ashley:
What’s the first step to figure that out? Who should you be talking to? What do you need to research? What do you need to learn?

Zoey:
I always like to understand, when you’re looking at land, are you looking at raw, which means completely undeveloped, so that is just dirt on the ground? That’s what we all probably think of when we think of land. Or are you looking at somewhat developed land? Meaning, there’s utilities. Maybe there’s power nearby. Maybe there’s been power pulled. Is there a well already drilled? Is it city water, and are you working with city sewer or septic? So when you look at a price tag on land, I want people to understand why it’s priced that way. When you see something that’s $5,000 or $150,000, it could look a lot different in terms of if there’s utilities pulled on the one that’s more expensive, and that could save you a lot in the long run. So I always like to encourage people, start framing the way you look at parcels and listings a little bit different in terms of what are they capable of. Then also, your county is going to be a super helpful resource in terms of what’s legal to actually do.
I had someone who asked me about this land parcel. It was in a floodplain, and it was completely not buildable. But to them, it looked like a great deal because it was a great location. It was right near where they wanted to be. I was like, “But if we checked with the county, we would understand that this can never be built on. So this investment is not going to support the vision you have for the property.”
Your county’s a great resource. It’s always good to go online, check with what the county’s stating about that property or where it may be. Does it fall within city limits? Unincorporated? What is available to be built on the structure? You can always call them. Your county’s not scary to deal with or your potential county before you invest. We always call, if we can, we’ll go in person, because those are the people you’re going to be working with before that property is actually live in the short-term rental phase.

Ashley:
The property I’m actually sitting in right now, when we purchased it, there was a lot of site work that we had to do. Site work can get very, very expensive, very fast. Just to put in a driveway… because it was literally just grass. There’d been a driveway at some point in time, but the grass was growing. There was no gravel brought up anymore. It was $27,000 for the new driveway, for a gravel driveway, not even blacktop. It is a long driveway. But then also the well was dry, so we had to dig a new well, and that was another $7,000. These things can all add up.
Because you can look at the actual property, you’d be like, “Okay, I need a roof. I need siding.” But you got to think about everything that’s around it, too. We also had flooding. There was a pond here, and the pond actually flooded into one of the cabins, so now we got to put drainage tile in. Even the animals, we’ve had to have trappers come for beavers and stuff that were damming up the ponds and creating more overflow. All these things that, when you are dealing with land, especially acreage, there’s maintaining… There’s a dead tree, dead tree. You got to take those down or else they’re going to fall on the house. All these different things that come into play and they can be very expensive if you are not considering them into your budget and you’re just looking at the building as whole. Now that we kind of talked about where you can find out about the utilities, things like that, what’s kind the next step in your development phase, after you’ve done your research, you found out your information?

Zoey:
That’s where, what is the vision or what is your strategy that you have in mind? The property you’re looking at, is there already a structure on it? Would you have to put budget into that property to then also do the second structure you want to do? Or are you doing complete ground-up builds? I honestly will say I do think, in the next five to 10 years, we’re going to see more builds for short-term rentals. I think it’s just a reality that, as the unique space grows, these homes that are oddly shaped in triangles and whatnot, no one has built 30-year homes to live in for their own primary residence to look like that. But now there’s a market that you can actually make income off those.
Builds, even though they have their pros and cons, I do think it’s a huge tool in your toolbox to be able to take that on because we’re going to see more of them. So if you are looking to build, that’s where you’re really going to work hand in hand with your county in terms of, what does that permitting look like? What do you need to get that build into the county to get approved? Every state, every county is going to be completely different.
This also can fall into a renovation as well. So we’re on a recent renovation with the same county we also built in, and we almost had to go through the same process of getting an architect, a structural engineer in there. We had to get the entire… To me, it’s a renovation, how complicated can it really be? But we had to do almost the same steps we had to do for a ground-up build in terms of having the engineering and the architecture done, the building plans submitted. The county had to approve those for a 25-day window. Then once those come back redlined and approved, you have the go ahead to just go. But there’s also counties in Montana that they don’t have building code, so you are literally able to put whatever you want up there. That’s why I tell people, if you’re going to invest in those counties, you might be better off building than buying because you’re kind of buying someone’s word of mouth.

Ashley:
Yeah, that’s true, no permits. This is how it’s going to be done.

Zoey:
Right. It was not built to code. There was no permitting. It’s like, who knows if that thing’s going to stand. So counties, they’re going to be your best friend, sometimes your enemy at times, but you have to know they’re in it to ensure that their structures are safe, they’re sound, nothing’s going to collapse. It’s your benefit to build to code.

Tony:
Zoey, let me ask one question. In terms of playing nicely with the county or expediting that process of getting your plans approved, have you found anything that, okay, if you do this on your first submission, the chances of you getting revisions back is decreased?

Zoey:
There’s a few tips we’ve learned. One, if you can try to work with an engineer or architect that is more local in that county and has worked in that county before, that’s going to help you a ton. If you go to our county, they work with the same 10 builders. They could list off their main builders in the area that are building houses. Those are people that are in your benefit to try to get in your team because they know what the county’s stickler’s on, what they’re probably going to come back with. They can try to keep those redlines from happening.
So when we went to find an engineer, we wanted to find one more local that has worked in this county. We also, with an architect, made sure they had experience in the Rocky Mountains, so like snow load, wind load. We can’t even buy the same windows that other states can. We had a glass slider on order and it’s not legal to have in the state of Colorado. These are things that you want your team to know of. Because we’re dealing with elevations, we had a fireplace that we were about to order, and the head of the Building Department called us and he said, “That fireplace is not legal at our elevation because it will not act right. It’s not going to operate the same way a fireplace in zero elevation is going to act.”

Ashley:
Oh, that’s interesting. I never knew that was even a thing.

Zoey:
When he said that, it made sense because we’ve had guests tell us that our oven will sometimes act up. At 9,000 feet, we’ve literally come to the conclusion that it’s not the oven, it’s the elevation. It’s just a matter of temperature outside and what they’re working with.

Ashley:
Oh.

Zoey:
So these are things that, especially if you’re doing this from afar and you’re not engulfed in that county or in that area all the time, you really want to have people on your team to know these things. We also try, every time we talk with the county, we obviously call them, but if we can and if it’s possible for you, go into the county and actually shake their hand, get their names. Our head… Building Department, he calls my husband by first name. He leaves him voicemails. They’re like buddies. It sounds silly, but that’s the guy to know, and we didn’t have one round of revisions on our renovation. Given it was a 1940s cabin, we were ready for them. My husband’s convinced that, because of his relationship with the Building Department, they let it go.
We called them. We explained our situation being so old and historic, and they really said, “We want to work with you and keep the history. We appreciate you’re not just tearing it down, so we’re not going to hold you to the code of a brand new build in 2023, but we need to increase the R-value. We need to increase the insulation.” But they still worked with us, so I’ll take it.

Ashley:
Yeah, definitely.

Tony:
You mentioned a few times, Zoey, about if you’re doing this remotely or even if you’re somewhat local about having the right team. So who exactly is that team that you need to build out, and what is your recommendation for finding those people?

Zoey:
Great question. So depending the strategy and vision you have, I’m going to say most of these people are going to be pretty common to meet on your team give or take, so don’t take my word for it exactly, depending on what your situation is. An architect is definitely someone to have in your back pocket, especially if you’re doing a build or an extensive renovation that you’re taking structural walls.
This was a learning curve for me was at one point I was so confused what the engineer and the architect is doing and what’s different and why I’m paying for both of them that I literally was like, “Can you explain to me what you do and what he does and why you’re not the same because I don’t get it at all?” So don’t think that you have to be a master at this. They’re professionals in this field. So an architect is great to have in your back pocket. They do a lot of the work in terms of the build or the renovation, getting something together. The engineer, surprisingly to me, was way cheaper, and he was way quicker. He was like a four-day… He just makes sure the thing’s going to stand. It’s not going to fall down. It can support the load of snow, wind, whatever you may have.
Then you’re going to want to have that contractor, unless you’re the GC, but most aren’t, especially if you’re doing this from afar, is that contractor’s going to be your right-hand man. He knows how to read plans. He knows how to read those redlines. He is really going to be the central part of that build or that renovation or that glamp site. You’re going to bring in plumbers and electricians. They’re going to come in, do their job. They really have their moment for a two, three-day window, and then they’re out of there
The biggest thing I once heard actually at a conference, Robuilt, was the best way to find a contractor is going to Home Depot at three or four in the morning and seeing who’s in that parking lot. That’s who you work with, and that’s who you go up to because those are the guys working. Finding the contractors or the drywall installation guys or whatever it may be on Google, you’re finding the people that are smart enough to market their business, but they’re not in it every single day working as hard as the guys that are at Home Depot at six in the morning. It was kind of a funny way to hear it, but he was like, “I’m not kidding. I’ve done tens of builds and renovations, and that’s how I find my guys.”
It’s very word of mouth. We found our contractor because we had to do log exterior work on this cabin. The log guy said, “Hey, you should talk to this guy. He’s a really good contractor for log homes.” We called him. He’s the one we’re now using. So you really do have to pick up the phone and get those chain of commands going to find the right guy. It doesn’t mean you have to do it, but that’s been the way that we found everyone.

Tony:
I love the idea of putting yourself out there. I’ve never done the 6:00 a.m. Home Depot thing to find potential contractors. But what I love doing is when I see other active job sites, no matter where I’m at, I always try and stop and get that person’s phone number. Sarah and I, we’ll do walks to the local Starbucks, it’s across the street from our house, and there was construction going on in the unit space next door to Starbucks. So us being real estate investors, what we do? We walk over there, and there’s two guys who were drilling out the concrete to put the plumbing in, and we reached out to them. We said, “Hey, we’re real estate investors. Do you guys do residential stuff too?” They were like, “Yeah, we do residentials.” “Do you guys do just plumbing?” “No, we do plumbing, we do electrical, we do drywall, whatever you guys need.” So now we’ve got a contact that fast from just sparking up a conversation.
So if you’re a rookie and you’re struggling on, “Where can I find these people?” Home Depot is good, but just pay attention as you’re driving around your neighborhood to see where those jobs are being done and just hop out of the car and introduce yourself because most people aren’t going to turn down an opportunity to get a new client. What about the architect and the engineer, Zoey? Just really quickly, what’s a good way to source those people?

Zoey:
There’s a few different ways you can find them. We honestly started kind of similar to that. We knew of someone who was building, so we called him. We walked by and said, “Who’s your engineer on this project?” We had two different quotes from two different engineers. I always try to encourage people, if you can, if you have the resources in your area, to get two to three quotes for any job if you can, because you are going to get a wide variation of the workload, the timeline, everything that’s going to consist in that bid. So we found our engineer, I literally think, through just word of mouth. We picked up one phone call. They said, “Hey, you should call this guy.” We called that guy. He said, “I’m completely booked out, but this person might be able to.”
The engineers in the area know the other engineers. There’s only so many that really are working in that area. With an architect, we actually called… We knew we wanted to go towards a metropolitan city because there’s going to be a lot more availability. We had an architect that was local come out, and we had an architect that was about a two and a half hour radius. He came out. We got bids from both of them, and it was astronomically different the responses we got. Same with engineers. We had engineers come in that were like, “You’re going to have to put beams in this thing, steel beams. You might even just want to tear it down.” Then we had an architect come in, an engineer that was like, “This thing has been standing for 80 years. It’s probably not going to fall down. Let’s just support it a little bit more and call it a day.” I could not believe the difference of the two. That’s an example of always get two to three if you can, because obviously you can probably assume who we worked with.
But even with another big job we had, we were quoted $25,000 to $45,000, and we didn’t pick the cheapest. We picked the one in the middle, but it was a good gauge on the scope of work. Was the first bid a fair bid knowing that that second one came in? So if you can get a few different bids for a lot of different jobs, that’s going to be in your best interest. Even with contractors, they’re going to quote you a lot different. Always ask for their past work. Please look at what they’ve done. Don’t take their word for it. If you know someone that they’ve worked with or they have a client that they’re like, “Oh, I just finished a job. Call that person,” ask them how the experience was working with them because that can really make or break… Someone’s word is great, but knowing how their actions were in that job is way more important.

Tony:
I guess as you’re doing the analysis phase of these unique stays, I found that to be a challenge at times. Because it’s like if you’re building something that’s really unique for that area, how do you accurately comp out or project the revenue for that property if you’re the only 1920 log cabin in that area, if you’re the only yurt that has the creature comforts in that area? So what are your steps for projecting the income on some of these unique stays?

Zoey:
That’s a great question. I think we’re going to see the analyzing of unique stays get better, so that should give everyone some hope, if you’re diving into the unique stay space. AirDNA just did a huge update, and there’s actually a way to filter by unique homes in searching on AirDNA and what they’re bringing in. So we’re just starting to see more come to the table. But what I always like to do is take into account, let’s say, if you’re running a yurt, you’re probably going to be a one-bed/one-bath, maybe if you have that bathroom, spot. So start there. In that market, start looking at what is your competition of one-bed/one-bath. You do need to take into account that you are bringing the unique aspects, so you can consider that more in your nightly revenue. Maybe you look at locations. There’s no unique stay around you, but there’s a few houses in that area or region that you would be hosting. You kind of have to take the pieces you can get and really piece it together.
Then I also like to look at… There’s no dome within 75 miles of us, so obviously I don’t have a direct market to compare to. But what I will do is I will go into the state of Colorado on Airbnb and look at the domes that I do have insight on and start really analyzing those listings. Even though they’re not in your specific market, if you’re confident that your clientele in that state or market is going to want that type of experience, you can take that as market research.
That’s why I also encourage people, please think of your climate and your temperature and your environment. Before you are sold on a dome or a bubble, let’s make sure that your region or market is going to support that. Even for us for the yurt, it can be all year round, and I 100% will not host all year round in a yurt. It’s my host boundary that I know it’s going to sound good, it’s going to look good on paper, it’s going to sound good in photos, and it is going to be treacherous of an experience to be in 30 degrees in a yurt in the Rocky Mountains. It is not ideal. So maybe an A-frame would’ve been a better build for a short-term rental because it could have been all year and still withhold the snow load and everything.
So please think of, one, your logistics you have with your market and location, but also, what does your clientele want? I have seen in different markets, some people really attract domes and some really attract storage container homes and some love A-frames. So that’s where you need to know who is your demographic and what are they willing to pay for and what do they want, because they all fall into unique stays. But which one is going to do the best for you?

Ashley:
I have this vision of staying in some kind of dome where it’s snowing out and just pretending that I’m living in a snow globe. So if anyone has that kind of short-term rental, let me know, because I’d love to stay there where it’s just the clear dome and it’s just the snow falling. You’re in the middle of nowhere. I would probably go and try and stay at one and it wouldn’t end up snowing the whole time I was there anyways.
Zoey, what are some of the unique things that you have done to your properties that make you stand out? You had mentioned earlier in the episode hot tub. I was actually at Tony and Sarah’s conference, and Sarah got everybody to chant, “Say yes to the hot tub! Do the hot tub.” So that is one amenity, but what are some of the unique things that you are doing?

Zoey:
So hot tub, I’m on Sarah’s wavelength with that. Do the hot tub. I have never seen it hurt someone, and it always increased the revenue. I will say something I learned as a host was, please, if you can, professionally maintain the hot tub. Because I got it and I was like, “Oh, we’re good. We can train our cleaners on this and whatnot.” I got burned one time, and it was the one time I needed to be burned, and I won’t do it again. The hot tub was down. We couldn’t get the chemicals to just balance out. So I was like, “We’re draining it. I’m not risking that.” That was a $500 refund that I was just like, because I wasn’t willing to professionally maintain it for $50 a week, I had a $500 refund that I went through. The guest didn’t request that, but it was a big reservation that I was like, that was a huge bonus for her to have that. She even said she wanted the hot tub. So please, if you can, professionally maintain it or have someone who is trained to do hot tubs so you don’t backfire. Because having that thing down could really hurt you in reviews and just future stays.
But also something we are doing… For example, our cabin is on a 40-mile infamous bike trail, so we are doing e-bikes that will be with the stay. So if you stay with us for seven days, you’ll get those e-bikes for free. If you’re less than seven days, you can pay, I haven’t mapped out the number yet, but let’s say 100 bucks for your stay or something.
Also, we are doing a sauna, which I do think saunas are going to see a big growth, similar to hot tubs just because hot tubs are becoming so mainstream that you can go to Costco and buy one for $4,000 or $5,000 and put it at your property. I think the barrel saunas are going to be really cool. Cold plunges, that’s something we’ve talked about at the yurt is doing a cold plunge tank.
These are things that you, as a consumer and as an owner and investor, you are also consuming and choosing where you want to stay and what you like. So please, it’s not as complicated as we might think it is. Yes, look at what your competitors are offering. That’s a big thing too. But there can be amenities that you would also enjoy, and there’s no reason why someone else probably wouldn’t enjoy it as well. So that’s a big thing that I like to factor in.
Also, when you’re doing a unique stay, there’s things you’re going to learn as a host that you have to treat differently than a traditional stay in your listing before your guest books with you, which we can touch on that if need be. You don’t just treat every guest… It’s not as turnkey as you might think when it’s unique. You’ve got to do your due diligence to make everyone’s experience a lot better.

Ashley:
Let’s touch on those little things real quick. We have a little time left. What are some of those things that you were talking about that you put into your listing?

Zoey:
The first year, which… Obviously, we have winter seasonality, and what I like to tell hosts is what’s obvious to you is not obvious to someone else who’s traveling there. You might have been traveling to Joshua Tree for the last 10 years. You’ve been there yourself. You’ve actually stepped foot in Joshua Tree. That does not mean your guest has. So something that you may think is obvious to you is not to them. For example, in our listing, which I was fearful in the beginning of doing this, which is why it didn’t because I thought it was obvious, but in the long run it paid off, to in our listing say, “A 4×4 is required in the winter seasons from November to March. If you don’t have a high-clearance vehicle, we’re not the property for you.”
To me, in the beginning this felt like turning guests down and bookings down, which why would we want to do that? But after the first season, I actually learned that by giving that education and giving that disclosure in the beginning actually made for a way better hosting experience that season and for the guest. I know Robuilt, he touches on that too. He’s like, in your glamping units saying, “Please read the entire description before booking because WiFi could get spotty or there’s solar, so it’s not always going to charge every device you have.” When your guest knows those things before booking, it leads for a way better experience for them. They know what they could be getting into. As a host, you’re not getting burned with those reviews and those mentions and those problems, your job gets a lot easier.
So we disclose a lot of that. We’ve kind of learned our pain points that directions are… Our house doesn’t even come up on Google Maps, so I had to find a way to direct people to a house that doesn’t have an address. We don’t even have a mailing address to ship things to. So there’s just little things like that that you might not think of going into the unique space that a normal home does have those creature comforts. So disclose that to your guest.
Also, anytime a guest has an issue or something keeps coming up, I always take note, is this an issue that more guests and future guests are going to have, or was this a one-off? Like, was this just the person I’m working with who’s just not getting it? Once you get something a few times, that’s your sign as a host that you could be doing a better job to educate them before those questions come up. So when people leave feedback and questions, take those into consideration to improve the experience for everyone and improve your business.
Yeah, there’s just little things that… We’ve even had to put a red solar light at the end of the driveway because people come up so much at dark that now I say turn right at the red light because I’ve literally got so sick of answering phone calls about, “Where is it? I can’t get there.” I tell people, “Arrive during the daylight. The mountains get really dark. There’s no light. That’s the point of the mountains.” So those things seem obvious to us or someone who’s living there or hosted there, but it’s not to a guest that’s coming from across the country.

Ashley:
I recently had an experience, it was actually this past weekend, where a guest checked out early because they heard a critter or a mouse or something in the cabin, and then they found mouse droppings. They sent pictures and everything, and they said, “We understand this is a cabin, but we’re going to leave. Would you mind refunding us for the two more nights they were going to stay?” I refunded them for the whole trip. I felt so awful, so bad about it. So my manager and I, we went into our listing, and we just put a full disclaimer in there: “This is a cabin in the woods. There are…” We didn’t use the word mouse. We said, “There are critters and bugs that may be around.”
It ended up working out kind of nice. Once they left, the cleaner was able to come right in. Then me and my kids went and stayed there for the weekend. It was our first time staying in our fully furnished A-frame. But I had somebody come in and seal everything in spray foam, and we set traps in areas where people and pets can’t get into that are locked, like some of the closets and things like that. But it was just terrifying to me, like, “Oh my God, what are we going to do?” So I posted a Reel about it, and there was a lot of other investors that gave really good advice. One of those was to just put that full disclosure, like, “This is an old, old cabin. Yes, it’s been renovated to the tee, but there still may be that little tiny crack or something that a mouse is coming in at.”

Tony:
It’s a really good point, Ash. I think what a lot of people forget, that your listing, your digital guidebook, your automated messaging sequences, those are living, breathing documents that should be updated based on the feedback that you’re getting from guests through messages, through your reviews. I have a meeting with my team every Tuesday, and we review our reviews for our properties on that Tuesday meeting. It’s very common for me to say, “Hey, we need to update the listing so people understand this,” or, “Hey, we need to update the digital guidebook so people see this before they get there,” or “Hey, we need to update the…” whatever it is.
You’re always trying to make sure that you’re setting clear expectations for your guest. Because it’s not always the lack of an amenity or the lack of something at your property that gets you to have a bad review. It’s the failed expectations that lead to bad reviews. So as long as you’re setting really clear expectations upfront of, “Hey, the WiFi’s spotty. Don’t come here if you’re trying to stream whatever, Fortnite, and watch your favorite UFC fight. Don’t come here if you’re afraid…”

Ashley:
You’re being interviewed on this podcast.

Tony:
Yeah, “If you’re being interviewed on a podcast.” So it’s setting those expectations up front. Man, Zoey, what an amazing conversation so far. I feel like we could keep going for hours here. But I want to take us to our next segment, which is the Rookie Request line. For all of our rookies that are listening, if you want to potentially have your question featured on the show, head over to biggerpockets.com/reply, and we just might use your question for the show.
Today’s question comes from Miranda Weber. Miranda says, “We are planning on getting a cash-out home equity loan on our paid-off home for about $240,000 to use as down payments across three to four rental properties. Our goal is purchase those rental properties this year. We have excellent credit. But my question is, what does this do to my credit each time we take out a loan for the investment? I know it will lower, but will it affect our interest rates as we take out more loans?” Zoey, I’m not sure what your experience is here with the home equity line of credit, but what would your advice be to Miranda in this situation?

Zoey:
It’s a great question and definitely a dynamic question. There’s multiple different situations that are going to answer that, I would say. But I will give an example with the HELOC. This might just challenge what they’re thinking of doing with it. I think in real estate it’s always good to hear what everyone’s doing and then decide what’s best for your strategy. We actually chose to take out a HELOC. We put it into a property that we knew the main goal of that property was the equity and appreciation we were going to get with that property, because we wanted that property to then appraise for a lot more than we purchased it for so then we could take out money from that property to do a next property.
Something that’s interesting is you guys want to do maybe three or four properties, but this is where kind of what Ashley was mentioning earlier is, as an owner and self-managing, that’s three to four listings, properties, units that you’re now going to have to worry about. Where, if those are just, let’s say, three subpar units that are bringing in $8,000 total, $2000, $3000 each maybe, maybe it could be a better investment to take that whole HELOC and put it into one property that could be a stellar property for you guys. This is just where you guys get to decide what’s best for you.
We took, let’s say, a $350,000 HELOC and put it into a property that was $395,000. We actually had the appraiser, this just happened, it happened yesterday, the appraiser walked down the street. I don’t know how many times that happens in life. But he walked down, and he actually said, “Oh, is this your guys’s spot?” He knows everything. “Oh, you bought it for $395,000. I can see when you bought it.” He said, “I just appraised a cabin down the street for $760,000, and they don’t have one renovation that’s been done. It’s full 1920s still. If you guys call me when this is done, this should be appraised well over $800,000 to a million dollars.

Tony:
Wow.

Zoey:
That was why we bought it. We knew our short rental’s going to do great, it’ll look good, it’ll be a cool property, but we’re in this for appreciation and equity because we want to then take that property to leverage the next property. So it’s a great plan, and I think you guys have the great credit you mentioned. But something to think about is, as an owner, what are you taking on logistically and what can you? Can you take on three properties in the next six months physically? It’s not for the faint, by any means.

Tony:
Let’s go to our next segment here, which is the Rookie Exam. Zoey, these are the same questions we ask every single guest that comes onto the Rookie Show. Question number one, what is one actionable thing rookies should do after listening to your episode?

Zoey:
I would encourage any rookie that is in the short-term goals of unique stays is go out there and actually explore and research what your ideal, unique short-term could look like, so kind of build a vision for yourself. A lot of people, they’ll ask me, “What do I do?” I tell them, “Go on Airbnb, the platform you’ll eventually host on, and search those categories that Airbnb is pushing. Where can you actually fall into those? What is your ideal vision?” Like you said, Ashley, you guys have an A-frame. That didn’t just pop up out of nowhere. You had a vision that you wanted that to be an A-frame.
If you really feel this unique space, you’re aligning with it, it’s growing, I can confirm, the category is just going to keep getting better and better, you need to understand where is your place in that because I believe there’s a place for everyone. If you’re not that builder or you don’t have a desire to bring something to life, then maybe you’re the rehabber of a property or you’re really focusing on a certain location or something. So really do your research, spend time on it because it can be a lot of fun. Some of my favorite time passing things to do is go on Airbnb and find those unique stays. I always like to encourage people, create a wish list so you have those on your Airbnb account, and just start favoriting properties you really like. Whether they’re doing a great job with photos or their listing description or their actual stay is phenomenal, go and actually start favoriting those so you can build your dream portfolio that you want to go off of.

Ashley:
Zoey, what is one tool software app that you are using in your business right now?

Zoey:
I would say the biggest thing for short-term rentals is a property management tool, a PMS system, that’s really going to help dial in your business. I talked to some people who say, “I’m so burnt out after the summer season. What do you do to recoup a little bit?” My response honestly is, “You shouldn’t be that burnt out.” If you have the processes in place for your businesses, I’m sorry you feel burnt out, but you shouldn’t because they really take a lot of the heavy lifting off of us as hosts. There are so many different ones out there that you can use, but really making sure you have one that integrates with your business well is going to take a lot of that weight off of you so your time is better spent working on the business, not in the business. I use Guesty For Hosts right now. I’ve seen a few more pop up in the industry. Some are integrating with AI, which I think we’re going to see AI really play into the short-term rental space in managing your businesses. But I’ve heard great things from quite a few of them.

Ashley:
Yeah, I use Hostfully, and Tony, Hospitable?

Tony:
Mm-hmm, yeah. Zoey, are you using any virtual assistants in your business?

Zoey:
At the moment, we do not. I’m on the verge of… Winter is our toughest season, so I’m like, “Okay, is it time to bring someone in as we approach winter?” But with our software and processes, we’ve been able to really keep those expectations to what the guest is expecting, and we really don’t have a lot of those one-off nuances. Because we’re in a unique area, remote locations and stuff, we really rely on our boots-on-the-ground team more than our virtual team per se, because we own two plow trucks, a skid-steer, snowblowers. There’s a lot in the back end of the business to keep something like this open all year round.

Tony:
All right, final question for you, Zoey. Where do you plan on being five years from now?

Zoey:
Five years from now, we would like to continue to grow our unique stay portfolio. We’re young, we have the energy, we have the desire to keep going. We’ve been lucky and very fortunate that our business allows us to travel basically full time and do this when we want. Short-term rentals are very ebbs and flows. You work really hard for a few months, and then you get those months back in your pocket and you get to do what you want. So we really do enjoy, even when the days are hard, being in it and building something and seeing it come to life. There’s really nothing that humbles you more than looking at a half-built house and you’re like, “It looks so good. This is so good.” To most people, this looks like a tear down. So we want to keep scaling that portfolio.
I heard a funny thing, Kristie Wolfe, she’s huge in the OMG category space, and she literally said, “I build stays that I think are cool, and people come to them.” She is probably not like the most of us. She says, “I don’t run numbers. I don’t look at markets. I find things that are cool, and I would want to stay at and that’s how I build my portfolio.” I’m not encouraging that. Run your numbers. But I just thought it was such a great way to… It’s not that complicated. We’re all consumers out there. I thought it was so funny. She’s one of the biggest ones in the space of Airbnb for OMG stays, and that was her response on how she finds properties to do.

Tony:
She’s braver than I am because I got to run some numbers before I do anything. I don’t know if I have the courage just to let my heart sing in that way.

Zoey:
Yeah.

Ashley:
Well, Zoey, thank you so much for coming on and taking the time to share your knowledge and your experience with us. Can you let everyone know where they can reach out to you and find out some more information about you?

Zoey:
You guys can find me on all social channels, Zoey Berghoff. Feel free to shoot me a DM if you have questions, if you’re developing. I’m right there with you in the thick of it, so I would love to touch base with any of you guys. I do have some free resources if you’re interested. Just DM me BiggerPockets, and I’ll send them your way. Those are just the kind of things that have started in my business.

Ashley:
Cool. Thank you so much. I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson on Instagram. We will be back on Saturday with a Rookie Reply. (singing)