There are plenty of platforms that short-term rental real estate investors can use to market their space, but two of them make up the lion’s share of the industry: Airbnb and VRBO (Vacation Rentals By Owner). While their primary functions are similar, Airbnb and VRBO have many key differences in the types of properties available, target audiences, fees and commissions, and much more. 

Let’s match Airbnb vs. VRBO to determine which platform best suits your investment strategy.

What is Airbnb?

Airbnb’s mission is “to lock the power of sharing space, resources, and support in times of need.” The platform started in 2007 when two hosts welcomed three guests to stay in their San Francisco home. Sixteen years later, the platform has grown to more than 4 million hosts and over 220 countries and regions across the globe.

As of December 31, 2022:

• Over 100,000 cities and towns have active Airbnb listings
• There are 6.6 million active listings worldwide
• Hosts have accommodated more than 1.4 billion guest arrivals

What is VRBO?

VRBO’s mission is to “find every family the space they need to relax, reconnect, and enjoy precious time away together.” They have been pairing homeowners and families seeking places to stay since 1995 and have grown into a global vacation brand with more than 2 million whole homes actively available on their platform. VRBOs are currently available in nearly 200 countries.

Airbnb vs. VRBO: Property Types

The most distinct difference between Airbnb and VRBO is the types of homes available on each platform. 

Airbnb offers nearly every space imaginable. You can stay in mansions, treehouses, houseboats, tiny homes, private islands, caves, containers, windmills, and everything in between. 

These spaces are broken up into four distinct categories:

• Entire space: Guests have the whole place to themselves, which typically includes a bedroom, bathroom, kitchen, and a dedicated, separate entrance.
• Traditional hospitality spaces: These rooms indicate that the host provides the same customer service and hospitality that guests would experience at a hotel. Hostels, bed and breakfasts, and comparable properties are also included in this category. Hotel rooms typically have a common area for guests to interact with one another.
• Private rooms: Instead of getting an entire space to yourself, you’re renting a room in a property others may occupy. They’re great for guests who want a little privacy but don’t mind sharing common areas. 
• Shared rooms: Shared rooms are great for travelers who want to socialize with others and don’t mind a lack of privacy. You’ll sleep in shared spaces when booking a shared room. 

VRBO only offers entire spaces, such as condos and vacation homes. This is one of the reasons why VRBO has around 2 million listings, while Airbnb offers more than three times that amount.

Related: Ultimate Guide to Top-Notch Airbnb and VRBO Listings

Target Audiences

Airbnb markets to a wide range of people looking for an alternative to hotels. VRBO’s target market is more specific. It markets to families who are vacationing together and want to spend more quality time with one another.

Here’s a breakdown of who stays at each:

Fees and Commissions

Airbnb and VRBO let you set up and list your property for free and offer liability coverage at no extra cost. Both platforms require you to pay host service fees when monetizing your property but offer different options for you to consider. 

Airbnb host fees

Airbnb offers two fee structures: a split fee and a host-only fee. 

Split fees let you split the costs between the host and the guest, with the guest paying the lion’s share of them. Here, the host pays a 3% fee (or more if you have “super strict” cancellation policies or are listing in Italy) that’s determined by the booking subtotal and gets automatically deducted from your payout. The subtotal calculates:

• Nightly rate
• Cleaning fee
• Additional guest fee (if applicable)

The guest service fees usually come to less than 14.2% of the booking subtotal, including the abovementioned fees.

Here’s what this looks like if a guest books your Airbnb for four nights at $200 per night:

• $200 x 4 = $800 + $100 cleaning fee = $900 subtotal
• $900 x 3% = $27 host service fee
• $900 – $27 = $873 total profit for the host
• $900 x 14% = $126 guest service fee (including taxes and occupancy)
• $900 + $126 = $1,026 total cost for guest

Host-only fees mean that you, as the host, cover all of the added costs, usually between 14-16% of the booking subtotal. This fee structure is mandatory if you offer a traditional hospitality space (i.e., hotel rooms, hostels, bed and breakfasts, etc.). 

Here’s what this looks like if a guest books your Airbnb for four nights at $200 per night:

• $200 x 4 = $800 + $100 cleaning fee = $900 subtotal
• $900 x 15% = $135 host service fee (including taxes and occupancy fees)
• $900 – $135 = $765 total profit for the host
• $900 = total cost for guest

VRBO host fees

VRBO also offers two fee structures: subscription and pay-per-booking methods.

The subscription model covers unlimited bookings for an entire year for $499, paid a year in advance. This plan is the way to go if you make more than $6,250 in bookings annually. 

The pay-per-booking model charges you 5% of the booking subtotal and an additional 3% payment processing fee for the total amount. Like Airbnb, the subtotal includes: 

• Nightly rate
• Cleaning fee
• Additional guest fee (if applicable)

Here’s what this looks like if a guest books your VRBO for four nights at $200 per night:

• $200 x 4 = $800 + $100 cleaning fee = $900 subtotal
• $900 x 5% = $45 host service fee

Let’s assume the taxes and extra fees come to $150:

• $900 + $150 = $1,050 total payment amount
• $1,050 x 3% = $31.50 payment processing fee
• $45 + $31.50 = $76.50 total host fees
• $900 – $76.50 = $823.50 total profit for the host

Airbnb vs. VRBO: Property Damage Protection

Compared to other rentals, vacation homes are more likely to incur property damage because more people use them. Understanding this risk, Airbnb’s Aircover for Hosts and VRBO Host Insurance offer host damage protection.

Aircover for Hosts provides “top-to-bottom protection for hosts,” including: 

• Reservation screening
• Guest ID verification
• $3 million for host damage protection
• $1 million for host liability insurance
• $1 million for experiences liability insurance
• 24-hour safety line

Aircover for Hosts protects your property while you’re hosting guests. However, you’ll still need personal insurance if something happens to your property when you don’t have guests. 

VRBO Host Insurance offers $1 million in primary liability coverage at no additional cost, which protects you against any property damage or travel injury claims made against you. If you file a claim, it’s recommended that you do so as quickly as possible. VRBO’s insurance services are available 24/7. 

Airbnb vs. VRBO: Cancellation Policies

Airbnb and VRBO each have several cancellation policies. Here are your options for each:

Airbnb cancellation policies

• Flexible: Guests are fully refunded until 24 hours before check-in. If they cancel within that window, you’ll be compensated for each night they stay + one additional night.
• Moderate: Guests are fully refunded until five days before check-in. If they cancel within that window, you’ll be compensated for each night they stay + one additional night + 50% for all unspent nights.
• Firm: Guests are fully refunded until 30 days before check-in. If guests cancel between seven and 30 days before check-in, you’ll be compensated 50% for all nights booked. You’ll be fully compensated if they cancel within seven days of check-in. Also, if a guest cancels within 48 hours of booking, they can receive a full refund if they cancel at least 14 days before check-in. 
• Strict: If guests cancel within 48 hours of booking, they can receive a full refund if they cancel at least 14 days before check-in. If a guest cancels between seven and 14 days before check-in, you’ll be compensated 50% for all nights booked. You’ll be fully compensated if they cancel within seven days of check-in. 

Airbnb hosts can also set long-term “firm” and “strict” policies, “super strict” policies, and a non-refundable option. 

VRBO cancellation policies

• No refund: All bookings are non-refundable.
• 60-day policy: Guests are fully refunded until 60 days before check-in. Bookings are non-refundable within 60 days of check-in time.
• 60/30-day policy: Guests are fully refunded until 60 days before check-in and receive a 50% refund (minus service fees) if they cancel between 30 and 60 days of check-in time. Bookings are non-refundable within 30 days of check-in time.
• 30/14-day policy: Guests are fully refunded until 30 days before check-in and receive a 50% refund (minus service fees) if they cancel between 14 and 30 days of check-in time. Bookings are non-refundable within 14 days of check-in time.
• 14/7-day policy: Guests are fully refunded until 14 days before check-in and receive a 50% refund (minus service fees) if they cancel between seven and 14 days of check-in time. Bookings are non-refundable within seven days of check-in time.
• Custom policy: Hosts can set their cancellation policy terms.

Which Platform is Best for Me?

Airbnb is more flexible simply because you can offer all kinds of spaces, while VRBO requires renting out an entire space. However, Airbnb and VRBO are great platforms for beginning investors and homeowners interested in entering the short-term rental space. 

Many real estate investors have turned hosting into full-time jobs by operating multiple vacation rentals all at once, and with enough experience and know-how, you can too! 

Build long-term wealth with short-term rentals

Vacation rentals can be an extremely lucrative way to boost your monthly income—but only if you acquire and manage your properties correctly. This ultimate guide to analyzing, buying, and managing vacation rental properties will set you up for immediate success and long-term wealth.

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

When we think of startup culture, we often associate it with innovation, risk-taking, and a fast-paced environment. This doesn’t necessarily mean that you cannot benefit from traditional values and practices.

It might sound counterintuitive, but even as a startup founder you need to control (and even reduce) the ways in which you are innovative. The reason is that innovation is very costly because it is highly risky. The more layers of innovation (i.a. unproven ideas and practices) you employ, the more you increase your risk of failure.

Consequently, conservative values can significantly benefit founders. This realization is why we’ve focused on applying ancient wisdom to startups in our latest articles.

So, in this article, we’ll lay down some fundamental conservative business values that require no disruption. Hopefully, this will show you how not to reinvent the wheel.

1. Prudence And Risk Mitigation

Prudent and cautious decision-making principles can get you a long way, especially when it comes to financial decision-making. Startups often face resource constraints, and prudent founders make careful financial allocations to ensure optimal utilization of available funds.

This may involve negotiating cost-effective contracts, avoiding unnecessary expenses, and maintaining a buffer for unforeseen circumstances. By practicing prudence, founders can better manage risks, make informed choices, and increase the chances of long-term success.

It’s important to note that prudence should not be mistaken for excessive caution or an aversion to taking risks altogether. Startups inherently involve risks, and prudent founders understand the need to take calculated risks that have the potential for significant rewards. It’s about finding the right balance between risk-taking and risk mitigation, ensuring that decisions are grounded in careful analysis and consideration.

2. Ethical Business Practices:

Conservative values emphasize honesty, integrity, and ethical conduct. Startup founders who adhere to these principles establish a reputation for trustworthiness, which is essential for building strong relationships with customers, investors, and stakeholders.

It’s important to realize that as a startup founder, you are playing a long-term game. Your current project will likely have an outcome very different from the vision you are painting to your partners. This means that your reputation of competence and integrity is more valuable than the actual outcome of your current project because if you foster healthy relationships and a healthy reputation people will be happy to work with you in the future. And with more experience and a stronger professional network, your future success will be much more likely.

It’s important to note that ethical business practices are not limited to compliance with laws and regulations. They go beyond the minimum requirements and reflect a commitment to doing what is morally right. Startup founders who prioritize ethics as a core value instill a culture of integrity within their organization, attracting like-minded stakeholders who share their values.

3. Respect For Tradition And Experience:

Acknowledging the wisdom gained from established businesses and experienced entrepreneurs allows founders to leverage existing knowledge and avoid common pitfalls.

For example, engaging with mentors who have successfully navigated similar challenges can provide invaluable guidance, advice, and perspective. These mentors can share their experiences, offer practical insights, and help founders avoid costly mistakes. By tapping into the wisdom of those who have come before them, startup founders can accelerate their learning curve and make more informed decisions.

4. Work Ethic

Startup founders with a strong work ethic understand that success is not achieved overnight. They are willing to invest their time and energy into the development and growth of their business. They prioritize tasks, set clear goals, and exhibit discipline in their work habits. This value inspires them to work long hours, overcome obstacles, and persevere through challenges.

Moreover, a strong work ethic extends beyond individual effort. It also encompasses fostering a culture of hard work within the startup. Founders who prioritize a strong work ethic instill values such as discipline, accountability, and determination in their team. This creates a positive and productive work environment where everyone is driven to give their best and contribute to the startup’s success.

It’s difficult to predict what will happen in the housing market, even during normal times. Given that the economy is anything but normal right now, predicting what will happen in the housing market over the coming months is pretty much a fool’s errand. But it’s important to have an investing thesis, and it’s also fun, so I will try anyway.

Below I will share my five predictions for the housing market in the summer of 2023 and three important indicators to watch that could change my predictions completely. 

1. Mortgage Rates Will Fluctuate, But Will Remain Between 6.25% and 6.75% 

As of this writing (mid-May), the Federal Reserve raised the Federal Funds Rate 25 basis points at their last meeting but indicated that they are considering a pause going forward. I think the assumption the Fed is done tightening is overconfident, as core inflation remains high and the labor market is exceptionally tight. 

Regardless of what the Fed does, I think mortgage rates will stay relatively similar to where they’ve sat for the last few months. Since peaking (so far) in November, mortgage rates have stayed in the mid-6s, despite the Fed raising the FFR several hundred basis points during that time. Bond yields have stayed steady, which means mortgage rates are steady. 

2. Home Prices Will Rise From Winter Lows, But Will Remain Down on a Year-Over-Year Basis

When we look at home prices, we need to look at month-over-month and year-over-year data. Monthly data shows the most recent information but neglects long-term trends. Yearly data does the opposite. 

When I look at sales price data, I see two things. First, seasonal patterns are holding. Prices have risen over the last couple of months after bottoming out in February. This is what typically happens. Secondly, although prices are rising, they are sitting below last year’s prices and are down year-over-year. 

I believe this is likely to continue. In my view, the market will follow seasonal patterns but will remain under last year’s prices at least through August. Although I don’t think it’s the most likely scenario, I think there’s a decent shot the national market actually shows positive price growth sometime after the summer. 

If you’re wondering about my track record with predictions, the last time I made a price prediction was back in the fall of October 2022, and I said I believed the national housing market would be down somewhere between 3-8% by the end of 2023. Right now, the national median sales price is down 2-3%, depending on who you ask, so I’m in range and still see this as the most likely scenario—but a lot can happen before the end of the year! 

3. Home Sales Will Not Recover

Seasonally-adjusted home sales volume is the lowest in about a decade. This tends to put downward pressure on housing prices but also has broad indications for the entire housing industry. Low sales volume hurts agents, loan officers, and other professionals serving the housing industry. 

That said, I don’t believe that volume will recover anytime soon because there just aren’t enough properties on the market, even if demand recovers. Which brings me to my next prediction: 

4. July and August Will See the Lowest New Listings On Record

New listings measure how many properties are put up for sale in a given period and are in the gutter right now. Nationally, they are down about 22% year-over-year; in some markets, they’re down more than 60%. There is not much on the market, and I don’t see any signs of that changing in the coming three months. 

As such, I see this July and August being the lowest totals for those months as far back as I have data. In other words, this July will have the fewest new listings of any July in the last 20 years. Expect the same thing for August. People just don’t want to sell right now. 

5. Regional Differences Will Reign

So far, my first four predictions have all been about the national housing market, but we all know real estate is local. Here are my regional predictions: 

• The Northeast will see the most price growth over the summer, followed by the Midwest.
• The South will be a mixed bag. Some markets (like Miami, Florida) will continue to grow, while others (like Austin, Texas) will struggle. 
• The West will see some markets rebound. It’s been well documented that the West has seen the biggest price corrections to date, but I think that might end in certain markets. Some cities like Salt Lake City, Utah; Los Angeles, California; and Denver, Colorado, have already shown signs of bottoming out, while markets like Boise, Idaho; and Las Vegas, Nevada, still show weakness. 

Things To Watch

The predictions above represent what analysts call a “base case.” This is what I believe to be the most likely scenario. But obviously, I don’t know what will actually happen, and there are reasonable probabilities that the market will outperform my predictions or underperform them. To me, the most likely thing that could shift the market away from my base case are: 

1. A U.S. debt default: As of this writing, the government is in a stalemate trying to negotiate an agreement on raising the debt ceiling. If that doesn’t happen and the U.S. defaults on its debt for the first time in history, it will almost certainly send mortgage rates up. Zillow recently predicted they would go up above 8%—and when they come back down would be anyone’s guess. If this happens, I think the downside case becomes more likely. 
2. The labor market: The labor market has been shockingly resilient in the face of rising interest rates, with almost every measurement of unemployment historically low. 

The labor market is strong even when you account for part-time jobs and people leaving the workforce. If the labor market “breaks” and unemployment shoots up, it will likely cause a recession, possibly bringing down mortgage rates and helping the housing market. That is, of course, unless the unemployment situation gets really bad (over 6-7%), and then it might negatively impact the market. 

3. Geopolitical turmoil: We all know there is a lot of tension with Russia, China, and generally in the world right now. International conflicts can really impact the economy, but there’s no way to know how without knowing the nature of the conflict. I just want to say that if there is some big international issue, it could throw off my predictions. 

Conclusion

This represents my current thinking about the housing market and where it will go over the summer of 2023. But all of this is far from certain. We’ll have to check back in the fall and see how I did with these predictions. 

In the meantime, I’d love to hear your predictions for the 2023 summer housing market in the comments below. 

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

You have a million tech tools at your fingertips, but they all seem to be veering off in different directions. You know you could be taking more advantage of AI and automation to speed up your research, analysis, workflows and content creation. But without a refined content strategy, you’re afraid you’ll just end up doing all the wrong things a lot faster.

Technology can be a great way to get your message out, but it requires human content experts to provide the focus. Here are three ways to speed up your content production while staying efficient and on message.

1. Hire or Partner With Top Content Talent

Any solid content strategy starts with engaging top talent. You need writers who understand your brand and can develop the right plan of attack. If you have the budget, hiring an in-house content team has its advantages. You have more oversight and can work directly with your team to turn deliverables around faster. Content creators can meet with departments like marketing and design to develop unified concepts or bounce around ideas.

Hiring contract workers can be more cost-effective, especially if your content needs are relatively limited. But working directly with freelancers brings on additional workload your team might not be equipped to deal with. Someone will have to source and vet talent, provide guidance and, of course, deal with invoices. For each freelancer you take on, you’re adding additional relationship management tasks. You’re also giving them access to the company’s secret sauce—sharing data, files and messaging that would otherwise stay internal.

Many companies find a happy medium by working with specialized content agencies that can screen and hire talent to create content on your behalf. They’ll also work with your team to develop a bespoke content strategy that meets your organizational goals. It’s less hands-on than having your own content team, but you still get plenty of opportunities to offer feedback and request changes.

2. Audit and Optimize Your Content

Once you’ve decided how your content team should operate, it’s time for a content audit. The team can evaluate all your existing content—webpages, blog posts, social media, case studies, videos—and flag anything that needs a refresh. Once they determine what areas are lacking, they’ll be able to define focus areas for generating new content. Using tools like Ahrefs or BuzzSumo, the team can assess keyword usage and other metrics that may affect your search traffic.

After the audit, a good content team will develop a strategy that works best for your brand and budget. Before jumping in to fill in any gaps, they’ll determine which changes will produce the most ROI. For example, maybe your website is already packed with great content, but your audit data shows no one is reading it. Instead of investing in freelance talent to generate more posts, you could focus on tweaking your internal linking practices. Then, once you’ve driven your web traffic up, you can budget for new pieces.

Effective content auditing and strategy enable your team to prioritize updates and additions in order of urgency and effectiveness. They can decide which pieces need a light edit and link update, which need to be rewritten and which should be retired. Since they’ll work on the most crucial projects first, you should start to see results right away.

3. Craft and Refine Your Style Guide

Whatever form your content team takes, you need an up-to-date company style guide that documents your company’s standards for writing and formatting documents. These standards keep your tone and style consistent, lending credibility to your brand. Readers can trust that they’re getting expert advice from a uniform, authoritative voice.

First of all, a good style guide should define which of the major style manuals writers should rely on for general reference. Then it should list any major deviations in spelling, grammar or style rules that the company uses. Next, it should list any commonly used words or phrases that might be written in multiple ways. For example, the guide should let content teams know whether to write “Covid-19,” “COVID-19,” or “the coronavirus.” Finally, it should include instructions on tone, such as the degree of formality or whether or not to use first-person statements.

A style guide isn’t just a stodgy grammarian’s tool. It’s a way to give your company a cohesive brand identity, regardless of who’s writing your content. A style guide saves time by giving content creators a document to turn to with questions, thereby avoiding unnecessary feedback loops. Whether the bulk of your content is written by freelancers or an internal team, a style guide can resolve discrepancies and help them use a unified voice.

Voice, Vision and Values

So many strategies and tools exist to help your brand establish and transmit its voice. But at the end of the day, great content must align with your company’s vision and values. Keep your messaging consistent with the promise your brand has always offered to prospects and customers. Remind your reader why they keep coming back to your brand and connect with its mission. Tech tools can make processes faster, but only human authenticity and engagement will elicit true brand loyalty.

David:
This is the BiggerPockets Podcast show 768.
It is easy to complain about your job, easy to complain about your boss, easy to complain about the lack of opportunity, easy to complain about the ceiling that you have that stops you from doing something, easy to complain about the commute, all the things we don’t like. Rather than complain, first off, can you look at all the benefits? “Yeah, I have a ceiling, but I also have a floor. That paycheck seems to come in every single two weeks, even if I don’t show up and do a great job.” Can you also look at the fact that the boss may be taking all the risk and you’re not taking any of it? And then lastly, can we look at earning our way into having more influence, more opportunity. Doing well with what we have now, before we ask for more?
What’s going on, everyone? It’s David Greene. And if you’re watching on YouTube, you see the green light behind me and you know what that means. We’ve got sales at Kmarts. Just kidding. This is not a blue light special. This is a green light special and I don’t know if we still have Kmart anymore. I haven’t seen one in a long time and I remember hearing talk about them going under. Has Kmart gone under? Do you still have one in your location? Let me know in the YouTube comments here.
In today’s show, we take questions directly from you, our audience, with the real life struggles, the nitty-gritty real talk about the challenges that we are having in the real estate space, and specifically people who want to get a job in the real estate world because they want to be involved in real estate but they don’t have enough passive income to go full time. This is an awesome show. I really enjoyed this and I got some real honest and authentic questions from all of your audience. You guys were great.
We get into three practical things that you can track in your business to make sure you’re successful. We talked about what to expect when going full 1099. You’re going to go full send. What are you getting into and how do you prepare for that? And how to know when you are the problem in business? We’ve all heard of the book He’s Just Not That Into You. What if you’re the reason that he’s not that into you? What if you are actually empowered and can do something about that so that he would be into you? And by he, I mean money coming to you. All that and more in today’s show.
But before we get to that, today’s quick tip is stop buying the hype that this is supposed to be easy. You are being flooded if you live on earth with social media posts from influencers that are telling you how easy they’re doing it, how their method works better than everybody else’s method, and what they’re doing is sending this subliminal subconscious message you’re the problem and you’re not enough. That builds up this shame that stops you from being emotionally engaged and your emotions are going to be your biggest weapon in the journey to keep you from quitting. So don’t do that. It’s not you. It is a tough market. That means you have to have a tougher approach. Stop buying the hype this is supposed to be easy. All right, let’s get to our first question of today’s awesome show.

Nigel:
Hi, how you doing? My name is Nigel Daniels. I’m a prospective real estate investor, but I’m a teacher right now and I just don’t know how to build up the capital to get started. So I would like to ideally work in real estate while I’m teaching to supplement my income and eventually become a serious real estate investor. Do you guys have any tips for me? Thank you.

David:
All right, Nigel, this is a very good question and I’m going to shoot straight with you because not many people will. It is very difficult to become a real estate investor. It is even more difficult to do it when you don’t have capital. And as a teacher, you are not going to be making a ton of capital.
Now, I live in California where I think wages are probably higher than maybe anywhere in the country, especially Bay Area, California is probably the highest area in California. Maybe a couple areas in New York might pay like we do, but I really don’t think so. If you look at teachers, public safety, police, firefighter, paramedics, hospital workers, nurses, doctors, staffing, the wages are really high compared to most people in the country. You’re out there in Virginia, I can’t imagine the wages are very high. You’re probably not going to get enough capital saved that you can invest into real estate. You’re probably making enough to pay your bills, to have a reasonable life. You might be able to own a property. But the progress is going to be very slow. And if what you’re saying is you want to accelerate your progress, you’re going to have to do something different.
I like that you already understand that because you’re mentioning maybe become a real estate agent. You’re thinking correctly. “There is not a way to do this as a teacher. I need to do something more.” Now that might be starting a wholesaling business and finding off market deals or making a lot of phone calls, making a lot of contacts and buying off market properties subject to creative financing. There’s ways to do it. But I want to be honest with you all that are listening to this, they are not passive income. The stories you’ve heard of people that built a real estate portfolio and then retired and lived off the rent, that can happen. It is way harder to happen now than when we first started talking about it. And the reason is competition. There are more people who want the same dream that you want, who want the same life that you want, who have understood that the rat race, the W2 world is very difficult to get out of and real estate ownership is the best method to do it. That’s the good news.
Bad news is everyone else is competing with you over those assets, okay? So part of the answer for getting out of a bad situation is admitting you have a problem in the first place. That’s step one. Nigel, you’re there. You recognize, “What I’m doing is not going to get it done. I need to do something more.” You’ve now taken the next step of said, “What about being a real estate agent? Now that’s a way I could earn more money.” And I agree. That is something in the world of real estate that is not just owning real estate that will function as a midpoint. You can make money doing real estate stuff, but you’re still working, still active income. Then you can take that money, put it into real estate, which should eventually produce the passive income you’re looking for. It’s just not going to be easy.
Now, here’s where the advice gets tough. As you enter into the world of being a real estate, you’re not escaping competition. You’re entering into a world with even more competition than where you are now. If you’re a teacher, I’m operating under the assumption that it works the same way it does out here, which is you get a level of tenure, you get pay bumps every single year. You don’t lose your job unless you do something dumb. You’re not necessarily going to get paid more for being a better teacher. You may be a good person that wants to be a better teacher, but you’re not being driven by capitalistic energies in that sense.It’s going to be very different for you as you enter into a competitive field like being a real estate agent.
Showing up, having a good heart, wanting to do the right thing is probably enough of the job you’re at right now. It will not be enough in that world. It’s going to be cutthroat. You’re going to be fighting for clients with other agents. You’re going to be fighting to get deals closed from clients that are afraid of moving forward. You’re going to have people that will be taking advantage of you. They’re going to want to talk to you on the phone for long periods of time and get all the information they can about your market, your expertise, deals you may have that someone else doesn’t have. The world of real estate investing is not an easy game. We tell people you got to find your agent who knows the market. They’re going to be calling to see if you’re that person and at the same time they want want to get in your car and have you drive them around and look at houses and have no intention of closing.
I want you to understand that though the journey that you are talking about is absolutely worthwhile in taking, it is not easy. This is more of a hero’s journey than a casual stroll. You’re going to face bad guys. You’re going to fight dragons. You’re going to have to dig deep and find things. In yourself, they’re going to have to change. Now, this is why I love it. This is why I’m up here preaching the gospel of real estate to everybody because it forces you to change things about yourself for self-improvement. It forces growth. You cannot succeed in this world if you’re not becoming a better version of you, strengthening your weaknesses and amplifying your strengths. But too many people get sold on a journey and told, “All you’re going to do is buy a couple duplexes, then you’re going to buy some fourplexes. Five years later you’re going to retire, you’re going to have a bunch of money and you’re going to get interviewed on a podcast with a big smiling picture of you and you’re going to tell everyone how you did it.” It’s not that easy.
It used to be much easier. If I could get you to not spend all your money on cars and not take as many vacations, save a little more, put your money into real estate, it would appreciate so fast you could then take equity out of that, buy more real estate, that would appreciate fast. Rents were skyrocketing. This was something that could happen much easier. Now, as a teacher, I think you need to accept if you don’t do anything, you’re almost being forced into poverty.
And here’s what I mean by that. As a teacher, you have pay bumps that are negotiated through your union maybe 2, 3, 4, 5% a year. Inflation is much higher than that. Now, I know the CPI might be lower than that, but overall inflation, the stuff that’s not including CPI, I’m talking about housing prices, car prices, food prices, energy prices, they’re increasing much more than the 3% pay bumps you’re getting. You’re actually, in a sense, taking pay cuts every single year from a practical perspective. This isn’t something that you’re doing extra. This is something you have to do if you want to maintain the same standard of living that you’re in. You have to get involved in this competition.
All right. Now that all the hard stuff is out of the way, that the news that’s difficult to swallow that I think everybody listening needs to take a good long hard look in the mirror and ask themselves if the goal of working for three years and never having to work again and living a luxurious lifestyle is realistic or was even healthy to want in the first place, they hate hard work. If you didn’t want to work hard, I don’t think real estate’s a great thing to get into. Now we’ve gotten past all that. Let’s talk about some practical steps of what you can do to prepare for success.
As a real estate agent, the first thing you need to understand is you’re not owed anything and no one’s going to bring you your food, okay? As a W2 worker, we get soft and spoiled like a house cat. Somebody brings us our tuna. Our owner loves us, they hear us meowing and they’re like, “Oh, I feel bad for you. Let me bring you a paycheck. Let me open the can. Let me give you the check.” All you got to do is take it to the bank and hand it to them and they will give you money. You showed up every day. We will make sure that you get paid. When you get into the 1099 world, the competitive world, the capitalistic environment, there is nobody feeding you tuna. Every real estate agent, loan officer, wholesaler, house flipper, contractor, anyone that has their own business that services those of us that are trying to make money in real estate is nodding their head and saying Amen, because they know what I’m talking about.
It is a mindset shift that can be very difficult to understand, okay? Sometimes there’s people that grow up in privileged situations where they never have to be around a rough neighborhood where bad things happen, okay? I remember this happened to me. I grew up at a school where everyone’s pretty nice to each other. I was really popular. I’d gone there since kindergarten, so I knew all the other kids. I never had fear of going to school ever.
And then my family moved going into junior high into a different area that was full of a different demographic, and I realized I was incredibly shy and introvert and I didn’t know that because I had known these kids my whole life, so there was no reason to be shy. Well, I got thrown into this new environment and it was very rough. This was the first time where people saw weakness, they would exploit it, where people were not going to be nice, where you could get picked on or you could get hurt physically if you couldn’t stand up for yourself. It was a shock as I just realized the world’s not what I thought the world was.
There is a similar thing that happens when people leave the W two world and they step into the 1099 world. So whatever route you’re going to take, you got to get out of the Mr. Roger’s perspective that it’s going to be like school where you show up and you pour into these kids and you hope the best for them and you try to make their day. You can do all of that and people will still chew you up and spit you out. You got to grow a knowledge. You have to have value that the client sees as worth committing to you for. You have to do such a good job, not just to close the deal and get paid, but such a good job that that client will refer their other people that they know to you.
And here’s the way that I tell agents that they have to look at this, or really any salesperson. If you go eat at a taqueria and you enjoy it, you may go back. If it’s not great, you’re probably going to find another one. It’s just like that with your business. If you close the deal but you didn’t blow the people away, they’re going to find another agent next time. If it was pretty good, you did a really good job, they’ll come back to you in seven years when they’re going to do another deal, okay? But what you need is people that will go tell all their friends, “That is the best taqueria I have ever been to. You have to go try it. Don’t even consider going anywhere else until you’ve gone there first.” That’s the level of service you have to give clients if you want repeat referral business.
Too many realtors don’t understand that. They think that people are just going to keep coming back and eating their food, that their job was to make the burrito and hand it to the person, not to make the best burrito they could possibly make, not to give the best service they could possibly make, not to go over and above to bring them salsas or upsell them on… Or [inaudible 00:12:51] that they have that might taste really good. If you have that casual attitude that works in the W2 world, you get chewed up and spit out in the 1099 world, okay? So I want you to do it. If it’s on your heart that you want to be a real estate agent to make more money to go and buy more real estate, amen. Let’s get after it, man. But I need you to be aware it is a difficult journey that you are attempting to go on. And the journey you’ve been on pales in comparison to how hard that’s going to be.
So don’t go into that like a house cat expecting tuna. You need to go into it like a feral cat that has to hunt for everything it’s going to eat. You’re going to have to build your hunting skills. You’re going to have to defend yourself. You’re going to have to go over and above to make these clients really, really happy and you’re going to do this for years and years and years to build up enough goodwill and referrals that you can make the money that you want to invest into real estate. I don’t want this to bum you out.
I know some people may be listening to this and thinking, “Oh, that’s not the dream I got sold.” That’s the problem. You got sold on a dream. You got sold on a guru making a clever marketing video to get you to give your money to them so they could teach you the secret to making money in real estate that’s easy and it does not exist, just like there is no fitness secret that is easy, that works, just like there’s no relationship trick, they can just make it so relationships are easy. They’re never easy. It’s always going to be work. It’s just the key is finding work you enjoy doing. The key is being in a relationship with a person that you enjoy serving. The key is finding a level of fitness and diet that you enjoy doing and you can stick with. And the same with real estate. The key is finding a way to make money that you enjoy doing so you can beat your competition.
Thanks, Nigel for this video. I hope this advice helped. Make sure you stay in touch and let us know what you’re thinking. And if you’re serious about becoming an agent, check out my book that I wrote, my series, the top producer agent series that I wrote with BiggerPockets that starts with Sold, moves on to Skill, and then Scale.
All right, our next question comes from Brian Moss in Greenville, South Carolina. Brian owns three rentals, two short-term rentals, and a primary house that’s being built currently. “Stuck on a job/business balance question with the best next steps. What happens when side hustles become your whole hustle? I’ve worked with the builder for eight years and just took on another client last year. I am making 120,000 plus $52,000 per year. I just lost the 120,000 because he got mad about another client. I’ve helped build over 500 units in the last four years. I do all the upfront stuff, permitting, HOA surveys, splits, et cetera for both. I’m in the middle of a build for my own house and ready to take on all the builders in this area. With these skills and this network, what would you do to start fresh or recontract with the original company?”
All right, Brian, it sounds like if I’m understanding your question here right, this isn’t about side hustle becoming whole hustle. This is about you having a valuable skillset, being able to help builders build homes and losing your job over a misunderstanding or miscommunication or some missed expectation maybe I should say with the owner of that company. Now you’re in the position where you’re trying to figure out should you do something different, should you start your own company, should you recontract with the original company.
First question I would ask is, are there other companies out there that need your skills and where are they? How would you find those people? Networking is not just about, “How do I find the agent that has all the deals or how do I find the loan officer that has the best loan product?” It’s about, “How do I find the people that are doing the same stuff I’m doing, so I may be able to serve them someday?” Are there other builders that you can go get to know that may not be happy with the person who’s holding the position that you used to hold at the old job? Are there builders that want to scale and grow more but they can’t because they’re lacking good people? That’s a big problem I have.
I’m always wanting to grow and do more, but I can only extend as far as the people that I have that I can leave in charge. And if I leave someone in charge of something and it falls apart because it’s not me that’s running it, then I lose money, I lose market share and the ground that I took when I expanded has to shrink back as it comes closer to me. So if you do have as good of a skillset as you’re saying, there will be opportunity for you in the market. Can you find another person out there who’s looking for another you?
Another thing that I would say is have you taken extreme ownership over your role in the disagreement that you had with your boss? I didn’t get any details in there and I’m not trying to call you out and say it’s all your fault because I don’t know any of the details. I don’t know whose fault it is. But I know it very rarely is ever all one person’s fault, okay? Have you ever noticed this? You have that friend that is always dating new people and you ask her like, “Hey, how’s your love life going?”
“Oh my gosh, all men are jerks. This last guy cheated on me,” or “He’s abusive” or “He took advantage of me” or “|He was toxic” that type of thing, okay? And you’re like, “How does it you find every single toxic person in the entire world and it’s like…” Coincidentally, that just always happens, right? We all know that person either has a tendency to bring out the worst in other people or is drawn to the worst people. Maybe it’s a self-esteem issue, a confidence issue. But it doesn’t get better until they take some ownership over the fact that they keep dating people that it keeps going bad, that they’re the common denominator, okay? Same goes with people that are constantly getting a new job and you ask like, “Well, where are you at with work?”
“I have another new job. My last boss was a jerk.” And you say, “Why?” And they describe things that any boss would expect. “Wouldn’t give me the day off when I wanted. Promoted somebody else instead of me. Nothing I ever do is good enough and they’re always unhappy.’ Well, the employees who are doing well over there, they don’t feel that boss is a jerk at all. It’s that person.
So that may be an extreme example, but is there something that you could see where maybe you got a little complacent, maybe you got a little cocky? Maybe you were thinking, “Hey, this person really needs me. I do everything around here,” and you found out quickly that isn’t the case. Maybe some areas for personal growth with you losing that position that would really benefit you to look deep into and just lay it down, say, “Hey, this is some areas of my personality where my ego got the best of me, where my defensiveness got the best of me led to me losing this opportunity and more pain in my life.” Sometimes we don’t grow until this kind of stuff happens. So that’s another thing that I would ask you to look into.
And then when I look deeper into your question here, I think what you’re saying is that you were making 120 grand a year for someone. Then you took on a side hustle that paid you 52 grand a year, but you lost your main job of 120 because they were mad that you were contracting with someone else. Now I can understand that, right? I have business partners that are primarily in business with me because of the opportunity that comes from working with David Greene. So I have a platform. People see who I am. They trust me, they trust my knowledge. They come to me for help. That business partner benefits from all those leads that come this way, from the credibility that comes this way.
Well, imagine if they wanted all that benefit, but then they said, “You know what? I’m going to go start my own thing that David has nothing to do with because I get 100% of the income, but I’m going to keep the credibility that I got from being his partner. I’m going to keep the database of people that came to me because they know about David. I’m going to keep all the perks that come from David, but I want to be in an open relationship so I can also go make money on the side that he has nothing to do with.”
Understandably, you could see that would break down the trust of my relationship with that person. It would probably cause me to say, “Look, if you’re going to be doing stuff behind my back and cutting me out of it, I’m just going to cut you out of the opportunity that you have being my partner right now if I can’t trust you.” That’s exactly what I would do. I think that’s what anyone healthy would do. If your partner was cheating on you in a relationship, you probably wouldn’t stay there and let that keep happening and say, “Yeah, yeah, you can go have fun on the side, but what we have isn’t affected by that.” That’s not really true.
That may be how your boss looked at it. Maybe you could have gone to him first and said, “I have an opportunity to make some money. How would you feel about it?” And they said, “Absolutely not.” You could tried to figure out, “Well, then I need a raise. I need to be able to make more money or I need to do something else.” That’s another perspective.
Now, here’s the last perspective I’m going to give you. This could be an opportunity for you to start your own business, my man. This might be a chance for you to become the builder. So you’ve worked for another builder. You got good at it, you worked for a second builder. What if you just become the builder? Maybe you do spec homes. Maybe you find a person who gives you more responsibility. Maybe you find a startup or you find a couple pieces that you’re missing and start your own business while still making the $52,000 a year on the side that you have from the other company. Without any more detail, that’s probably the only options that I can give you, but I think that there’s a lot there that we can all learn from and I appreciate you sharing this.
Robert Greene has 48 Laws of Power, the first thing he says in that book is never outshine your master. Sometimes we come in and we want everyone to see how great we are. We become a threat to people. Was that an element that happened? Sometimes we need to take extreme ownership, but we need to ask ourselves, “What did I contribute to this problem in this relationship and how can I change?” Sometimes we have to understand that when we’re working in someone else’s company, there’s a level of trust that we can violate if we take all the benefits that come from that person and try to eliminate them from an opportunity where we get to keep 100% of the benefits.
But we still want the opportunity that comes from being in the relationship with that person. That’s something I really think you and a lot of people should think about. “Have we become too greedy and have we broken trust?” And then is this a sign that you could go and start your own business and see if you were meant to be a entrepreneur as opposed to the entrepreneur that you’ve been working for someone else. So thank you very much for submitting this. I love questions like this, guys. If you have something similar and you want some advice, bring it to us. Biggerpockets.com/david. Send me your question there. I’d love to take more of these because this is real life, right? It’s not always about, “What do I do when I have mold in a house?” This is the real life stuff that a lot of us are struggling with that that can help a lot of people. So thank you for that, Brian.
And our next question comes from John Heinzerling from Chicago, Illinois. “I recently listened to your show, episode 741. The job portion spoke to me. I currently work for a large real estate company as a corporate finance analyst. My main frustration with my role has been that I have been learning the systems and workings of my company when I would prefer to be learning about the nuts and bolts of real estate investing. My question is, what role should I be looking at to provide me applicable experience for when I do start my investing journey? Any help would be appreciated.”
All right. John, again, I’m going to take a path most people are not going to take with this. I know some of you might not like it. Just bear with me, okay? Because no kid likes eating broccoli or green beans, but every parent that loves them, they make sure that they eat that broccoli and green beans. Now, they might add some macaroni and cheese in there to incentivize them. They’re not just shoving broccoli on a kid’s throat. Parents know that doesn’t work, right? And sometimes you got to make that broccoli come in on the airplane and it need somewhere to land. You got to do something fun. But guys, this is what we need.
There is the quick answer I could give you. The shallow answer would be to go work for a real estate investor, okay? Go work for an investor who is buying properties that is going to have you do what they do. Now, I’ve had many people come to me with the same desire. I’ve hired many of them. “David, I want to learn how to invest,” and they had some level of skill and I’m like, “All right, I want to help this person.” I hire them to manage my portfolio to help me with acquisitions, and they lay an egg. They screw it badly, man.
It hurt me. It’s cost me hundreds of thousands of dollars trying to help the people that came to me and said exactly what you’re saying, “I want to learn how to be a real estate investor.” What they thought was they were going to learn how to comp properties, how to analyze deals, and how to negotiate credibly, okay? It’s like the person who says, “I want to go to martial arts class” because they think they’re going to learn how to do jump kicks and knocking people out with one punch. All this cool stuff that they want to, “I want to beat somebody up.” And then they get to class and they don’t learn any of that. They end up getting put on the floor and they say, “Okay, you’re going to practice squirming around and learning these fundamentals.” Or Mr. Miyagi was like, “Okay, you’re going to practice pinning a fence and waxing cars. That’s what you’re going to do.”
That’s really the best way to learn, is you have to start off not with the cool stuff. The cool stuff’s the macaroni and cheese that you get to if you eat your broccoli and your green beans first. So it’s caused them damage and me damage, quite frankly, trying to skip people ahead to the part where they learn the parts that they really like. They want the financial freedom. They want to learn how to own real estate, and they want somebody else to teach them.
I had a good heart. I still have a good heart, but I don’t do that anymore. It’s not wise to bring these people in this position and give them that much access and knowledge and power and then watch them just burn me. “This is too hard. I’m not going to do it.” They didn’t want to learn the operations. They didn’t want to learn the management. They didn’t want to solve problems. They didn’t want to get on the phone with the city permitting department or planning department and not take no for an answer. They just wanted to come and say, “Oh, there’s a problem. David, what can you do to fix it?” And they just wanted to watch me fix the problem rather than go in there and fix it. It did not work out well for the person that you’re looking to teach you. This is the first part. I’m just being completely honest about here, okay?
The next part is that the best relationships are two-way relationships. Does anybody want to be in a romantic relationship with a person that you give everything and they take everything? I don’t think so. Does anybody want to have a friendship that you’re always listening to them complaining about their life, giving them money when they need it, being there for them, supporting them, but when you need something, it’s crickets? None of us like that. We actually call those toxic. We all want to be in a give-give relationship, a win-win. “I give to you, you give to me. We both provide value to each other.” Those are healthy relationships.
Now, here’s where it gets tough. When we want to learn about real estate investing, what we end up looking for is a one-way relationship where we are the toxic person. We want to receive the information. We want to receive the experience. We want to receive the insight, the perspectives, the skills. But what do we have to give? “I’ll give you my time,” but your time doesn’t help, okay? This is not meant to discourage you. This is meant to open your eyes to the things that are getting in your way for being more successful. We know what we all want from others is win-win, but then we end up seeking win-lose, thinking that if we’re in the winning position, somehow it’s going to be worth it. It’s not. It will not work out for you if you’re not also bringing value to your employer.
So you’ve been hired as a corporate finance analyst. What that means is that company believes your analyzing skills will benefit the bottom line of that company. And as such, they’re willing to pay you money to provide them. That’s a win-win. You win by getting paid. They win by getting analysis done on their properties, okay? Rather than saying, “How do I get out of this role and just find one where I get to learn the stuff that I really want to do?”, why don’t you just ask a better question? “How do I do so good at analyzing properties that my supervisor says, ‘What more can I give this person. Because they’ve crushed it with the little I gave them, I want to give them more and see if they can crush it with that’.” And work your way into acquisitions for the company, analysis of things you care about more, the “so good they can ignore you” approach from the book that Cal Newport wrote, okay?
What I hear you saying is like, “Man, this relationship’s really tough. How do I leave it and find a person that’s going to be easy?” And you’re probably not going to. You’re just going to get in another tough relationship. So specific roles that you should be looking at to provide you with applicable experience for starting your investing journey, I don’t know that you’re going to find that and also have a paycheck, right? Typically, if you’re going to learn those things, you’re not going to be getting paid from someone to learn. Or you have to do it on your own, which is why most of us start small and snowball. You make your money, you take that money and save it, you invest it into your own property. You start with house hacking. You move up into multi-family. You move up into larger multi-family. You start at a level that you can handle learning this stuff yourself. And once you’ve got a good skill set down, you’re now in a position that you can have a win-win relationship with someone doing it at a bigger level, all right?
This is a overall principle that I think everyone would benefit from. It is easy to complain about your job, easy to complain about your boss, easy to complain about the lack of opportunity, easy to complain about the ceiling that you have that stops you from doing something, easy to complain about the commute, all the things we don’t like. Rather than complain, first off, can you look at all the benefits? “Yeah, I have a ceiling, but I also have a floor. That paycheck seems to come in every single two weeks even if I don’t show up and do a great job.” Can you also look at the fact that the boss may be taking all the risk and you’re not taking any of it? And then lastly, can we look at earning our way into having more influence, more opportunity, doing well with what we have now before we ask for more?
Because you’re listening to this podcast because there is not a college degree that will teach you this stuff. There is not a corporate ladder that you can climb that will teach you how to have financial freedom. Every corporate ladder you climb does not give you freedom. It actually sucks you deeper into that business. You become a more valuable part of someone else’s business who’s been paying you and pouring into you the whole time. If that’s not what you want, you’re not going to find the information at another job. You have to do it yourself. You have to develop the entrepreneurial attitude, the 1099 mindset. The feral cat is going to go find his own food okay? So rather than saying, “How do I quit this job and find a job that’s going to teach me what I really want?” There probably isn’t a job that’s going to teach you that because it’s not a win-win. They’re not getting anything.
Ask yourself, “How do I crush it at this job? How do I save as much money as possible? And where do I start doing this for myself, learning it at a level where if I make mistakes, it doesn’t kill me?” Right? As a white belt in jujitsu, I don’t go climbing the ring with professional MMA fighters. I’m going to learn by going up against the best in the world. That’s ridiculous. I just wouldn’t survive it. Enough shots to the head, I’d be done. I wouldn’t be able to trade at all. I go learn against other white belts in an environment with an instructor who doesn’t let it get out of hand. One guy that I’m training with goes a little bit too crazy. He steps in, he is like, “Hey, guys, we’re not here to kill each other. We’re trying to practice our techniques, okay?” There’s a lot of fail safes in there so that I can develop without getting killed.
Finances work the same way. You don’t have to jump into a position or buying a 400 unit apartment complex, raising money from other people on your first deal. There is a path to get you there. BiggerPockets has provided it. We’ve got tons of information out there for where to start and how to grow. Start your own journey and fund it with the money that you make from someone else’s company.
All right. At this segment of the show, we like to get into comments that I’ve received from all of you in the YouTube video. So these comments come from episode 753. Now, as you’re watching today’s episode, I’d like to get comments from all of you on what you think. I realize this is a little different episode. So we’re taking questions specifically about people who want to know, “How do I make money in the world of real estate? Not just how do I get my next property. How do I invest in real estate? What do you do when a property that you have has this problem?” Those are the typical questions we take. Today shows a little bit different. What do you think about this? Do you like hearing about people that are trying to make money through real estate in unconventional methods or through starting a business? Or is this not really your cup of tea? Let us know when the comments.
So this episode is all about making money in real estate, not just by owning it. And episode 753 was a tax episode, that was all about tax questions on real estate. So these comments come from that episode. And I want to encourage all of you to leave comments on this episode in a similar fashion. Hopefully we get to share them on a future Seeing Greene.
All right. Our first comment comes from Cere or Cere. “Love this advice. I don’t know how you find the energy to do all that you do, but thanks regardless.” Ah, thank you for that, Cere. If I’m saying your name wrong, I apologize, C-E-R-E.
From Trucking Landlord, “Strategic Real Estate Loss. I need to know more.” Oh, this is really funny here. So we could talk more about that, but I believe the strategic real estate loss is taking loss on paper that doesn’t actually cost you money. So when you factor in depreciation, I have this philosophy on real estate that you can make money in 10 ways or that you do make money in 10 ways. We typically only look at one way, which is what I call natural cash flow. That’s the only way that most of us analyze real estate, but it makes you money in 10 ways.
So there’s nine different ways. Depreciation is one of those ways and tax savings. So depending on how your taxes are set up and if bonus appreciation is available, you can buy a property that could save you 50,000, 80,000, $100,000 depending on your income in money that you would’ve paid in taxes. Let’s say that a property breaks even, or god, what if it negatively cash flows $500 a month, right? So you buy it. That means you lose 6 grand a year, but you saved $80,000 that you would’ve paid in taxes. Is that a dumb purchase? Is that a bad buy if you are going to lose six grand a year to save 80,000? And then maybe the next year you lose 4 grand and then the next year you lose 2 grand and then you break even? So it ends up being what is that? Like $12,000 loss in natural cash flow, but a $80,000 gain that you didn’t have to pay in taxes. So that’s a $68,000 net gain to you.
Hard to argue that that would be a bad buy. Sometimes with real estate, you don’t lose money every month. Maybe you only make a hundred dollars a month, so your ROI sucks. It’s like 2%. But you save $60,000 in taxes. Now, it doesn’t look bad anymore. So understanding how depreciation can help you shelter income that you make in real estate and in other areas can lead to the strategic real estate loss, which is actually a win. Thank you for that Trucking Landlord.
Rack Pull Above The Knees. “BiggerPockets needs to get all these scammers out of their comments.” Amen. I can’t stand scammers, man. It’s like there’s this fake WhatsApp account that repeatedly shows up in the YouTube comments. Please don’t fall for any of that if you’re listening to it. And it’s the same crypto spammy comments that you see on Instagram, right? “I never realized how good life could be until I followed Mr…” And then they tag the person’s name. My Instagram is full of those. BiggerPockets has the same problem. We do our best to clean this up, but if anyone has any advice for how to help, please leave that in the comments as well, because I agree with you, Rack Pull Above the Knees, not my favorite thing.
Andy’s Otto said, “David got the blue check. Let’s go.” Yes, I finally did. Thank you for that. I had to wait until Meta made you pay for it. So I’m not paying to have that blue check. But hey, if it stops people from getting scammed out of their money by someone that makes a fake account, I am happy to do it because we at BiggerPockets are here to help you guys make money, save money, and invest money.
All right, that is all I have for our section of YouTube in the comment section. Let us know in this episode what you like, what questions that you wish would’ve asked, or what you think I should have gone deeper in, and maybe we will pull up one of your comments in a future Seeing Greene episode. All right, we have time for one more question and it comes from someone who has had success with real estate by following the BiggerPockets’ formulas and methods, which is awesome. So let’s hear from Jon Schumm.

Jon:
David, it’s Jon Schumm, Nashville’s Fit Realtor. Thanks for taking my question. Longtime listener, first time caller. So my family, my wife and I, we now own three house hacks, all thanks to BiggerPockets. That got me out of the rat race, or at least out of my fitness job. I’m now in real estate sales as an agent, and my question is, what are one to three ways a good agent can level up the biggest return on investment or maybe the lowest hanging fruit that you see in the industry? Or maybe the one to three ways to measure my productivity? How do I make sure that I’m measuring my output by the right metrics? Appreciate everything you do. And as always, you’re a man, Batman.

David:
Now, let’s say that you’re listening to me talk to Jon here and you’re thinking, ‘Hey, David, sounds like you’re pretty smart there. I like your advice, but I’m not an agent. Does this mean I need to become an agent to do what you’re saying?” No, my friend, as an investor, you can do the same thing.
Here’s the three things that I think investors should be focused on. One, how many pieces of content and knowledge did you put in your noggin today? How many podcasts did you listen to? How many YouTubes did you listen to? What is your social media showing you? Is it showing you information that’s actually going to help you achieve your goal? Or is it showing you cute kittens and people in bathing suits? Change your life so that your social media is feeding you… The algorithm of life is feeding you what you want.
Now, that doesn’t mean go follow every investor because a lot of them are full of crap too. There’s a lot of influencers out there that post stupid things that don’t even need to be said, and you think, “Oh, I’m just following them.” No, they’re not all the same, okay? It’s actually knowledge you’re trying to gain. So I made it a rule when I first became an agent that I had to listen to three podcasts a day made for real estate agents. This was agents being interviewed that described how they built their business, what they did to do it. I had to listen to three every single day. So I would get out of bed. I would immediately start it. I would listen to it as I was showering, as I was brushing my teeth. If I went for a run, I would listen to it.
Then I would go to work, and I usually would… I’d take a break at some point in the middle of the day just to go work out or do something to rest my brain a little bit. I’d listen to another podcast during that time. Then I would have to listen to a third one after work. But this was what I did. I filled my brain with what I wanted. So as an investor, be doing the same thing. There’s plenty of content out there. You need to be listening to how other people think and letting your brain be rewired.
The second thing is how many deals are you analyzing? Are you analyzing enough deals that you can tell why it didn’t work? Not just did it work or did it not work, okay? So you got to put the information in the calculator. We want you doing that. Biggerpockets.com/calc, you get access to these calculators. We’re going to see if it has an ROI or not. But if you do this enough, you should be able to tell why it didn’t work out. There were not enough units. The rent is not high enough for where the price is. “This type of property has too much CapEx.” There has to be a reason why it’s not working out. So analyzing deals is the second thing. Do that until you understand why it does or doesn’t work.
The third thing that I want you to be doing is writing offers. Writing offers at prices that work, not prices that don’t work. Too many people look at a house on Zillow and they go, “Oh, they want $700,000 for that thing. I just can’t pay that. It’s not worth that.” Who cares? It doesn’t matter. Did you go to a car dealership and give them the price that they put on the sticker of the car? No. If there’s a bunch of people that want that car, you’re going to have to pay more than the others. If nobody wants that car, you’re probably going to pay less. Real estate works the same way. So write offers that work for you and target houses that less people are likely to want. Poor listing photos, mismarketed, has more square footage than what the property actually has. Look for areas where that property was not done right by the listing agent, all right? So to sum that up for investors, measure how much you’re listening to, how much you’re analyzing, and how many offers are being written.
All right, and that was our show for today. Little different. Little different. You guys are seeing green from a different set of binoculars than you normally see. This was night vision. It was a little darker, but it’s real because the world’s becoming darker and it’s becoming harder and harder and harder to achieve what we want, which is why we have to be more committed than ever. It does no good to sit around sucking out thumb and complaining that this is a tough market. It does no good for me to sit here and tell you guys, “You can do it. It’s not that tough. It’s just the problem is you.” No, it’s not the problem is you. This is an incredibly difficult market because of competition. Rates are up, inventory is down. More and more people want financial freedom than ever. They’re realizing that they can get it through real estate investing just like you. We’re going to have to work a little bit harder to get there, but that’s okay because much of your competition won’t.
Again, if you guys like this episode, if you like straight-shooting real talk, let me know when the comments on YouTube that you appreciate this. If you don’t, if you’re discouraged, I want to know that too, because there may be a way that we can lift up your spirits, but I’m never going to be able to do that if I don’t know how you’re feeling. So leave me an honest assessment of today’s show on YouTube. And then please go leave us a five star review on Apple Podcasts or Spotify, Stitcher, wherever you listen to your shows. This is David Greene. You can follow me online @davidgreene24. You can follow me on YouTube at the same place or check out davidgreene24.com to see what else I have going on. Appreciate you, guys. We’re all in this fight together. Don’t give up. Keep consuming this content and stay optimistic. I’ll see you on the next show.

Does the insurance industry offer opportunities for “purpose-driven” entrepreneurs to drive social change. Sam white, CEO of Stella Insurance thinks so. She is seeking to build a brand that directly addresses the concerns of women across issues ranging from inappropriate levels of cover through industry practices that ignore the dangers of domestic abuse.

On the face of it, at least, motor insurance is a pretty-much gender neutral product. Yes, women tend to drive more safely than men so, in theory at least, they should pay less for their car insurance. But sadly, here in the UK and across the European Union, equality laws currently prevent insurers from pricing policies on the basis of gender alone. Despite a lower accident rate, women do not enjoy a discount on policies.

That fact has posed an interesting challenge for Sam White. Based in the U.K., is the founder and current chair of insurance company, Freedom Services but when she decided to launch a brand that would be avowedly female-centric in its approach, she initially chose Australia – a country where policies could be priced according to gender – as the launchpad. At the end of last year, she brought the Stella Insurance brand to the UK. When I spoke to her last week, I was keen to find out how she intends to build a business that speaks specifically to women when arguably the biggest potential selling point – reduced cost – is not something that can be brought into play.

Born in Cheadle in the North of England, White started her entrepreneurial career with a claims management business launched from her sister’s conservatory. Sticking with insurance, she went on to found the Freedom Services Group, which in 2020 launched Stella Insurance in Australia in partnership with Bauer Media Group, Viper Capital and VC, Envest.

As she explains, Stella is positioned not only as female-centric but also a business with a social mission. “Purpose-driven businesses have the power to change the world,” she says.

But what does that actually mean in the context of the insurance industry? Let’s face it, very few of us think of buying car insurance as anything than an uninspiring essential. We buy policies to protect ourselves, protect others and stay in compliance with the law and most us probably use comparison engines and try to pay as little as possible. So, where does purpose fit into that picture?

A Female Lens

White’s approach is to look at the market through a female lens. As she sees it, the needs of women haven’t been particularly well catered for. She cites car contents cover as an example.

“Traditionally, the cover for contents carried within cars hasn’t been high enough,” she says. “It doesn’t reflect the value of goods that women carry.”

Then there is the question of the kind of interactions that women like – or more to the point – don’t like. “Women don’t like being asked all sorts of questions that aren’t necessary to price the cover but are being asked because the information can be used in the future,” she says.

Loyalty penalties – the practice of charging long-standing policyholders more on renewal than those who sign up for the first time – are also disliked by women, although White concedes this is something that has already been addressed by the industry.

So there is scope to do more to align the offer with the expectations of women, even with price taken out of the equation. You could argue, of course, that this is simply good marketing – or to put it another way, tailoring a product to address the preferences of a target consumer. That probably falls well short of a “purpose definition.”

Deeper Problems

But White points to more fundamental issues with car insurance as it is sold to women. She points to policies that repudiate claims if the damage done to a vehicle is done by someone who is known to the claimant. On the face of it, this sounds like a fairly standard industry opt out. But what if the claimant is a woman suffering from domestic abuse? Then its a problem.

This is something that White has set out to address. At the same time, the company has developed a product – which can be embedded in car insurance – that will payout in the event of a domestic abuse situation. “If you are a victim, you can get funds,” she says. It’s a fixed sum of between £2,500 and £5,000, with the trigger being a domestic abuse order.

In addition, Stella in Australia has donated $5 (Australian) to the Women and Girls Emergency Centre. Here in the UK, the company has partnered with Flyaway Foundation to help women break the cycle of abuse. White sees this as an important part of the ethos of the company, even if it means slightly lower profit margins.

Raising Capital

So how does all this sound to financial backers? Until the launch of Stella in Australia, White has grown her business organically rather than seeking VC finance. Even so, she’s seen at first-hand the problems women have when they seek to raise capital. Back in the days of her first business, her father had to pose as a director in order to help her secure a loan.

But doesn’t positioning as a “purpose” business make things harder, if only because it confuses investors or lenders? White says a commitment to purpose needn’t be a deterrent. “A company without a purpose element might have an EBITDA of £130 million. An equivalent purpose-driven company might report £100 million. But that’s still £100 million.” In other words, you can embed purpose and still deliver good numbers. “I believe in Stella and my numbers are good,” adds White.

So can the “purpose-driven” concept find a foothold in the insurance industry? Well, as the industry itself evolves – embracing big data and AI to price policies and assess claims – at the very least there are opportunities to think creatively and take a customer-first approach. Big insurers may be set in their ways, but there is scope for entrepreneurs to find ways to better serve their target markets.

Ashley Kehr:
This is Real Estate Rookie, episode 288.

Tony Robinson:
Ash, outside of credit score, what other factors do you typically look at when screening for long-term tenants?

Ashley Kehr:
Yeah. Let me give this disclaimer first is that make sure you know what you can and cannot screen for with your state laws. I mean, every state has different rules on this as to what you can screen for. So screening also cost money, so you have to pay if you’re doing a background check to make sure no violent crimes have been committed. If you have a multi-family unit, your tenants are not going to be wanting to live next to someone who is convicted of murder and just out of jail. My name is Ashley Kehr, and I am here with my co-host, Tony Robinson.

Tony Robinson:
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. We’re back with another Rookie Reply episode. We’ve got some great questions today. We’re going to talk about why Ashley’s first eviction had her in tears and what you can learn from that process to make sure you don’t end up the same way. We’re going to answer the questions, “Do evictions and bad credit scores always lead to bad tenants, or is there a silver lining in there somewhere?” Last, we’re going to talk about what a DSCR loan product is and how you can use to fuel your funding for your real estate business.

Ashley Kehr:
You forgot to add in the part where a tenant leaves a note as to why she’s leaving the unit that also leaves you in tears.

Tony Robinson:
Yeah, but those are good tears. Those are good tears.

Ashley Kehr:
I know, I know.

Tony Robinson:
Yeah.

Ashley Kehr:
Yeah. So, today’s episode, we go through these questions. As always, Rookie Reply is your chance as our listener to send in your questions for us to answer. You can send your questions to the Real Estate Rookie Facebook group. You can send a DM to Tony or I, or you can leave some questions onto our YouTube videos. Just search “Real Estate Rookie” and make sure you are subscribed. Okay. So our first question today is from Dan Rodriguez. I took a look at this question, and I said, “Oh, great. Another opportunity for me to talk about how I cried on the podcast.” So today’s question is, “For those of you that have gone through the eviction process, did you go to loan in small claims court, or did you hire a lawyer? Local court has advised me of the steps needed. I’m just wondering if I should spend the extra money despite already being at a loss with a problem tenant. The guy already has a bench warrant for repeated failure to show for driving with suspended license, so I’m pretty sure judgment is paper value, and I’ll never recover nothing from it.”

Tony Robinson:
I just want to ask before you answer that, Ashley, because I wonder if Dan’s question… It seems like he’s just more so worried about trying to recover maybe lost rental revenue and not necessarily evicting him because… I mean, he said, “Wondering if I should spend the extra money despite already being at a loss with a problem tenant.” But if that tenant is still in the house, then you should definitely spend the money. I don’t know. How are you reading that question?

Ashley Kehr:
So you could go… and this probably varies from state. So I’ve done New York evictions, so I’ll speak on terms of that, but it has been a while since I’ve actually done one myself. So I think right here are two different questions that he’s asking or two different scenarios. So the first one is the eviction process, and then the second one is filing a judgment against someone. So these can be done simultaneously, or they can be done separately. So let’s take the scenario that the person is still living in the house, and they want to do the eviction plus file a judgment against the person, or you could just file the eviction and not even go with the judgment. But with the eviction process, you can do it yourself, but you just have to be so diligent.
I did two evictions. My first ever that I did, the investor I was working for said, “We don’t need to hire an attorney. You learn everything. You can learn how to do this process.” So, at court, judge made me cry because I didn’t file at the timeline, said I messed up the… or like when you serve the person, it has to be a third-party. You have to have them sign an affidavit. Then, you have this much time before you can file the next one, but the next thing to them has to be filed within three days or whatever. It’s a very time-stricken process, and if you don’t know what those time periods are that you need to hit, the judge can throw the case out of court.
Luckily, it was in a very small town. There was nobody else in the courtroom, except for me and the tenant. For the next case, she excused the first tenant and was like, “Please go ahead and go. She’ll have redo the eviction or whatever.” So she tells the bailiff or whoever is the only other person in the room is like, “Don’t bring the next person in yet,” and she says to me, “I’m just going to dismiss this for you. I’m not going to say the reasons why so you don’t have to go through the embarrassment a second time.” Something along those lines. I don’t remember the exact words. Basically, that, but… Yeah. So, I was like, “Please let me hire an attorney to the investor.” So, since then, I haven’t done any evictions myself, and always hire an attorney to do it because they know the process, and they can do it so much faster than you can.
There’s also certain language that has to be appropriate in the documents that are filed. So, for example, in New York, you have to give a 10-day notice for them to pay rent or to vacate the premise that they do not do either of those. Then, that’s when you can file the petition for eviction. You send it to the court, they give you a court date, and then you have to serve it to the tenant by a third-party, get the affidavit of service, all these things. Then, once you actually go to court, it can vary vastly as to how your court experience is. So I’ve gone with my attorney to different evictions, and sometimes I just sit there. I don’t have to say anything. Other times, the judge wants to ask me a million questions. Sometimes the tenant doesn’t even show up, and they make you wait 45 minutes to see if they are going to show up. So I think having an attorney is definitely a huge advantage. Plus, they can file the judgment for you.
The judgment is a lot easier to take care of than it is the eviction. You can go to small claims court. Well, you go to the court clerk, go to their office, and you will ask for the small claims form. You can fill out the form right there, and then they’ll give you a court date, and then they’ll have the marshal serve the person, and then you have your court date to do the judgment against the person. I’ve only done one judgment myself personally against someone because in the same scenario, it’s not going to really recoup anything, but one of the first tenets of my own that I had to evict, I did a judgment. It’s probably been seven years now, and I think it was a 10-year judgment. So, in 10 years, that judgment will expire. I’ve never seen a penny from it, and maybe someday I’ll get a check in the mail. Yay. But until then, it’s just a waiting game.
I think if you’re going to do the judgment, it’s fairly easy process, at least in New York, to do the that through small claims court. But as far as the eviction process, if you don’t know what that process is, then I would definitely hire an attorney, and for an eviction that goes smoothly, I would say on average, I’ve paid $1,000 to have that eviction done. But if that means that tenant is out quicker and I’m not losing two more months of rent because I messed up or I did something wrong, that is $1,000 well spent. Then, another option is you can do cash for keys. Offer the tenant like, “Hey, I’m going to give you $400 if you’re out by next Friday. I will come here, you have everything out, I’ll give you $400. That’s enough to help you towards a new security deposit,” or whatever that amount may be that would be cheaper than going another month or two waiting for the eviction to process, hiring an attorney, things like that.

Tony Robinson:
Yeah. One of the benefits, obviously, of investing in a short-term rentals is that you don’t have to worry about evictions. I can’t speak to all states, and this is not legal advice. So if this information is incorrect, please don’t come back, and try, and hold me liable, but I’ve been told that in California, as long as the stay is less than seven days, they never obtain tenant rights. The majority of our properties in California, they turn about every two days or so, so we never have to really worry about someone potentially needing to be evicted.
Honestly, we had one situation where we had to call the local sheriffs, and they were more than happy to show up at the property to help escort that guest off of the property. So it’s super easy with the short-term rental to get a tenant out if you need to, but obviously, every state is going to vary, and make sure you understand the laws in your local state as well. I actually looked it up, and it says that not only is it seven nights, but if a guest stays 14 days within a six-month period, then they also get tenant rights. So if someone booked two or three six-day stays, or something, whatever, whatever the math adds up to in a six-month period, then they get tenant rights, and I actually didn’t know that, so that’s good to know as well. If we see the same name popping up, that could be a cause for concern as well.

Ashley Kehr:
Okay. Let’s move on to our next question. This is from Tam Vo. “When tenant screening, I know credit score isn’t the only thing that matters and pulling credit helps to see their payment history. What credit score range would you accept for B neighborhood, C neighborhood? What else do you look for?” So I think a big consideration on this, and I think you’re definitely on the right track, Tam, is knowing what kind of class neighborhood you are in. If you are renting an apartment in a C neighborhood and you’re requiring a 700 credit score, you’re most likely not going to get that.
Where if you’re doing high-end luxury units, you’re more able to get the tenant that has that high credit score that is choosing to rent instead of purchasing a property because a majority, and not all renters, of course, are renting because they can’t afford or don’t have the credit to actually purchase a property. So that is a part of your tenant pool that you don’t want to, I guess or say, leave out because you’re setting your standard so high as for the tenant that you’re going to let occupy the property. So as far as the range to accept for a B and C neighborhood, I really don’t have a good answer. I will say that a lot of the units I have are in B neighborhoods, and we accept a 600 or above credit score for those areas.

Tony Robinson:
Yeah. Ash, outside of credit score, what other factors do you typically look at when screening for long-term tenants?

Ashley Kehr:
Yeah. Let me give this disclaimer first is that make sure you know what you can and cannot screen for with your state laws. So, in New York state, I think it was June 2019, they passed a law that you cannot deny someone because of their eviction history. So you can find out if they were evicted, but you cannot deny them for that reason.

Tony Robinson:
I did not know that.

Ashley Kehr:
Ridiculous. Yeah. I mean, every state has different rules on this as to what you can screen for. So screening also cost money, so you have to pay if you’re doing a background check to make sure no violent crimes have been committed. If you have a multi-family unit, your tenants are not going to be wanting to live next to someone who is convicted of murder and just out of jail. So there are things that you can screen for. The biggest thing is make sure you are consistent with your screening. Build out what your criteria is. What do you require of every single tenant so you don’t get yourself in trouble with fair housing laws?
Another thing. So doing the credit check, the background check, that is a big thing. Some states, doing the eviction check. Having references. So with references, it’s very easy for somebody to put their friend on the application and say, “Yes, they were my previous landlord.” So that’s where, as real estate investors, it can come in handy that we have access to finding who owns certain properties. So if you really want to go the extra mile and screening your tenant, wherever they put their previous address, go on PropStream, the GIS mapping, and see who actually owns that property that they’re saying was their landlord, or if they have a… Ask for the property management company that managed it and get that number directly, or you can Google it to verify that is the number if they give you a property management company.

Tony Robinson:
I guess, Ashley, have you ever had an experience where on paper, a tenant was probably someone that you shouldn’t have rented to, but maybe they had… Not a sob story, but they had a story for you as to why they were deserving and how their past isn’t indicative of their future, and you end up renting to that person, and it ends up being a nightmare. Has that happened to you before?

Ashley Kehr:
I’ve actually had it go both ways. So I had one tenant. It was the first property I ever bought on my own without a partner, and this was the first… I had just closed on it. It was rent-ready, ready to go, and I didn’t have a ton of people that came to showings. Instead of waiting to find the right tenant, I became desperate, and I rented to a young girl and her boyfriend, and her boyfriend didn’t pass the screening requirements, so she had somebody else co-sign for her. It went great until COVID hit, and so since March 2020 until they were just evicted, October of 2022, they did not pay rent at all. They would get… It’s called ERAP. It’s a government assistance program that started during COVID where you could apply for rent payments.
Well, this would only… You would apply for it, but then it would take up to four months for it to get approved. So then, they would be behind again another four months. When they were finally evicted, the place was trashed. It looked like… They had had a child since they had first moved in. Definitely looked like signs of domestic dispute like whole punches in doors like somebody had went in and locked the door, and somebody punching trying to get through, and just trashed the place. I had to spend $10 grand to remodel it after they moved out. So that right there was… I still think back to showing them that unit even though that was in 2017. So they paid from 2017 to 2020, and then after that, it just went downhill.
I had another scenario where it was a mom, and then her two teenage kids, and she really didn’t have… She met the credit requirements, her income was just barely at the level, but she asked for her kids’ income to be included saying they would be pitching into rent. So that was how we got around approving her was that she was including her teenage kids who had jobs, that they would be pitching in for rent. So we did that, and she had told me that she was leaving her boyfriend that was not nice to her and things like that, and she really gave me a sob story.
That time, I learned that’s sometimes a red flag is when they immediately are telling you, “Here’s why I am moving in and reasons I might not pay rent because I’m starting all over. Blah, blah, blah.” She paid late a couple times. She lived there two years, and then she put in her notice. It was the nicest notice, “I’m leaving your apartment,” I’ve ever received. Just the biggest thank you for giving them a chance. She had saved enough money. She had started this first-time home buyer program, and she actually had put a down payment on her first house that she was going to own on her own. That right there was like… That was a success story. That was one time where giving someone a chance really did work out, and I’ll never forget that tenant because of that thank-you note that she wrote me when she was moving out.

Tony Robinson:
As real estate investors, we get so much heat on social for destroying communities and just being awful, terrible people, but we need to share more stories like that where you gave someone a second chance, and they were able to use that to pretty much restart their life. We do some good as real estate investors as well, so kudos to you, Ash, for that one. Cool. So, before we jump off of this question, I just want to read another review that came in. This is a five-star review on Apple Podcasts by someone by the username of McNeil2712, and McNeil says, “My brother and I have talked about getting into real estate for years. After struggling financially for years, I recently paid off all of my debt, credit cards, loans, everything, except my car loan. So now that I see that it’s soon possible to take this seriously and my brother told me about BiggerPockets last week, I’ve listened to two episodes a day every single day. You guys are awesome.” McNeil, we appreciate that. For all of our rookies that are listening, if you haven’t yet left us a five-star review or an honest review whatever platform it is you’re listening to, please do. The more reviews we get, the more folks we can reach. The more folks who can reach, the more folks we can help.

Ashley Kehr:
Okay. So let’s go on to our next question from Zane Clark. “Hello. Has anyone structured a deal with seller financing in which you take over the mortgage for the seller? How does the seller benefit or recoup any of the equity they’ve already put into the house? Thank you for your time.” Are they asking about seller financing or subject to?

Tony Robinson:
Yeah. I mean, he said seller finance, but maybe just trade financing in general is what Zane is referring to.

Ashley Kehr:
Okay. Yeah, because he says, “Take over the mortgage for the seller.” So, in the sense that you’re taking over the mortgage for the seller, it’s not really considered seller financing. Seller financing is when you are actually paying your monthly mortgage payment or however you’re paying to the seller. They’re actually holding the mortgage on it instead of the bank. But in this case, if you’re taking over the seller’s mortgage, then you are still paying a bank a mortgage, and it’s not technically seller financing. So, in this scenario, the second part of the question was, “How does the seller benefit or recoup any of the equity?” Tony, have you ever done a subject to deal before?

Tony Robinson:
I have not. We’ve had a couple under contract, but they didn’t quite work out. But if you are doing a seller finance deal or maybe more so a subject to, you can still have the… between you and the seller, negotiate a down payment. So if the seller says, “Hey, I want 20% down,” then that’s them tapping into some of that equity that they have. So, yeah. There are ways to structure it, but if you guys want a full breakdown, I actually still have the book right here, Wealth Without Cash, one of the newer BiggerPockets books by our buddy Pace Morby. He was on episode 280 recently of the Real Estate Rookie Show and talked about all things subject to and seller finance, and really just gave a world-class breakdown of what that looks like. Then, if you guys go to biggerpockets.com/bookstore, you can pick up a copy of Pace’s book, Wealth Without Cash, as well.

Ashley Kehr:
Yeah, and I guess to give a quick answer to Zane’s question is how do they… the equity, maybe they don’t have any equity, and that is also part of the advantage to them is the reason they can’t sell it is because nobody is willing to pay that price for it, that market price, or they just don’t think that it would sell for that or they… For whatever reason, they don’t have any equity in the property, and maybe they listed it with a real estate agent. Pace talks about how he really goes after expired listings. So people tried to sell it, it didn’t sell, and now you are the one coming in and solving their problem by retaking over their mortgage, you’re purchasing the property from them, they can get out of the house, and they can move on and do their next thing. So that’s the benefit is that maybe they got a new job somewhere else, and they have to move, so it’s better than them having to pay money to pay their mortgage off.
So if you went, and say, their property for easy math is… They have a mortgage for $100,000. They try to sell it on MLS for $120,000. They get offers at $80,000. So that would mean they would have to come up with $20,000 to pay their mortgage, and then the proceeds from the sale, the $80,000 would go to pay off the other $80,000. But what you can do with subject to is you can go and offer to pay that $100,000. You may be thinking, “But wait, why would I pay $20,000 more than someone else is paying?” Because right now, interest rates have increased. So somebody else who’s buying that same property, their mortgage might be 6%. But if that person bought the property, say, in 2020, 2021, and their interest rate is only 3.5%, your payment is going to be a lot lower and more affordable than that person who can pay the $80,000. So that’s one huge advantage that Pace talks about too in his episode. So that’s just a couple of the reasons why someone might sell it, why you might be able to purchase the property at that purchase price of what their mortgage is.

Tony Robinson:
Yeah. The levers you can pull are your down payment, right? A lot of people can get into subject to or create a finance with zero money out of pocket. It’s the term of the deal. Maybe it’s a shorter note where it’s like five years. Maybe it’s long-term debt where it’s 30 years. Right? It all depends on what that person wants. Interest rate, like Ashley talked about, is another lever you can pull. Then, the overall purchase price. For a lot of sellers, they’re going to have different motivations or not motivations per se, but each one of those is going to be important or more important to one person than the other. So it’s up to you to figure out what’s really driving that person, and then leveraging that to create the best deal. I mean, yeah, we know people that are crushing it with creative finance and subject to, so it’s about understanding that seller’s problems, and then presenting some solutions that make it a win-win for everybody.

Ashley Kehr:
Yeah. Another example I give is I’ve done one subject to deal, and it was to purchase a farm. They had back taxes that they couldn’t afford to pay, and they were also starting to fall behind on their mortgage payment. So the property was going to be foreclosed on if they didn’t come up with the cash to pay off the back taxes. So what we did was we worked out an arrangement with them where we took over their mortgage payments, we caught their mortgage payments up, so they were no longer in risk of foreclosure, but now they still had the back taxes where they’re at risk of the county coming in and taking the property. We paid off the back taxes. Paying off the back taxes, catching them up on their mortgage, that was less money than we would’ve needed as a down payment. Plus, this was this person’s primary residence. So their mortgage terms were a lot better. The payment was a lot lower than what we would’ve had to pay if we went and got our own financing.
The benefit to the seller was they weren’t going to lose the property to a foreclosure where that would be on their record. Also, we let them front the house. So they live in the house and pay rent to us, so we didn’t have to go find a tenant. They live there. They pay rent. So they got to stay in their house even, and we just use the farmland, and then there’s two other rental properties on there too that are rented out. So there’s always different ways that you can make it a win-win scenario for each buyer and seller. Okay. Next up, we have a question from Jared Sutherland. “What are the advantages/disadvantages of getting a buy-and-hold in a historic district? Thanks.”

Tony Robinson:
Have you ever bought in historic districts?

Ashley Kehr:
No, I haven’t. There is this church that bought the movie theater in a small town near me, and they bought two buildings adjacent to it. They were going to tear the one building down to make a larger parking lot for the movie… Actually, a parking lot. There is only street parking from the movie theater now, and they got stopped by the historic district and said, “No, you can’t tear this building down.” I had toured that building probably five years ago when it was first up for sale. There was a three-unit. In one of the units there, it was a two-bedroom unit, and there was eight people living in it. Mattresses on the floor in the living room. The other two units were vacant. One just needed a lot of repairs. The other unit had… In the bathroom above the bathtub were pieces of plywood with chains and hooks so that you could fold the plywood down like bunk beds. This was all through the house, graffiti, needles, and had been a drug house basically where people would go in, and do drugs, and stay over on one of the plywood bunk beds.
Yeah. So it was definitely in need of a ton of repair and just like… The building just sits there now. It hasn’t been demolished. It hasn’t been fixed up or anything. To me, it’s very controversial as to how do they decide what’s historic, how do they decide… So I honestly don’t know a lot about purchasing in a historic district or the board members, so my advice would be to look at if there are any tax advantages, if there are any grants or funds that the historic board will help you get because there are tons of funding out there and grants that you can get for all types of things, but you have to, most likely, to be really successful at getting them, and hire a grant writer, which can cost a lot of money. I used to be on the board for a Boys and Girls Club for about 10 years, and we would always go do these grants. Finally, we just got a grant writer to join our board because we weren’t having any luck. But once we had a grant writer, and we’re investing in that to come and make it, we are getting a lot more grants coming in. So that, I could see, is one advantage of doing up iron hold in a historic district.

Tony Robinson:
Yeah. It’s a great call-out, and I haven’t purchased anything in a historic district either, but a friend of mine, her name is Katie Neason, K-A-T-I-E Neason. You guys should follow her on Instagram. She’s @KatieDevelops. She lives in Bryan, Texas, and she’s basically on this mission to restore downtown Bryan, Texas. She’s buying old beat-up buildings and repurposing them into mixed-use commercial facilities, and she’s doing a really great job. So I know she knows a lot about buying in historic districts and what the benefits are. But like you said, Ashley, when I was investing in Shreveport, their local government was also encouraging people to buy homes in downtown and renovate them as well. Like you said, they were giving tax incentives to people who were buying and renovating properties in that downtown area, assuming that you were using it for whatever purposes that they had approved it for. So there’s a lot of potential benefits of doing that, and it’s cool.
I think my short-term rental hat, putting that on, if you’re able to buy whatever, like a historic bed and breakfast, or like you said, Ash, like an old movie theater, who would’ve thought that you could buy a movie theater? But being able to buy some of these properties in these historic parts of town, there’s a marketability to that. So if you bought that old thing and turned it into this really cool Airbnb, now you’ve got someone that’s going to stand out in that neighborhood. So I’ve talked about Katie Neason. If you guys want to hear more from Katie, she was on episode 538 of the BiggerPockets Real Estate Podcast. Like I said, she’s a really amazing person, funny as heck, and she does redevelopment in Bryan, Texas, all in the downtown historic area. So episode 538 if you want to hear more from Katie.

Ashley Kehr:
Okay, and our last question today is from Brandy Joe Krum, a BRRRR refinance question, “Have you recently refinanced based on the asset itself and the rental income, and what kind of rates and discount points are you paying? Is this a portfolio loan, or are you refinancing where they take into account all your personal income and debt, and qualify based on that?” So, Tony, I don’t know if we talked about this in this episode or the last episode, but you haven’t done any refinances lately. When was the last time that you did one?

Tony Robinson:
Yeah. It was a while ago, but I’m actually working on one right now. I think it plays in perfectly to this question because I’m working with two lenders, and one is called an investor loan. Even though it’s called an investor loan, it’s still in my personal name, and they are looking at DTI, and my tax returns and all these other stuff to make sure that I can qualify. Then, I’m working with a second lender that’s using a DSCR product. So it’s called the debt Service Coverage Ratio product. Obviously, I told both lenders that I’m working with both of them. Then, I’m just going to go with whoever gives me the best deal here, but you can go either route branding, which is the beauty of investing in real estate.
So your first question is, “Can you do it based on the asset itself and the rental income?” So, yes, you can totally do that. That’s what the DSCR loan product is, and a lot of lenders will underwrite that property and say, “How much rental income do we think this property will generate, and does the rental income meet or exceed the debt obligations or the mortgage payment of that property?” If it does, then the chances of you getting approved for that DSCR product, it’s better. Right? You have a better chance of getting approved.
Now, typically, their interest rates are higher. So on the DSCR product, right now, I’m getting quoted like a nine. On the investor product, I’m getting quoted like a seven. So you are going to pay more for the product. But again, if your ability to get approved for a traditional loan, just looking at your DTI, your income and all that stuff is limited, then going the DSCR route tends to be a little bit better. I’d say that the LCVs are about the same. I think both of them are around 75%, I want to say. So that doesn’t change too much, but you are paying more upfront with the DSCR products than you are with the traditional investor loans.

Ashley Kehr:
So I’m doing two refinances right now, or I just finished the one, and that was a short-term rental. We did that on the commercial side, but they did not take into account what our short-term rental income would be because we hadn’t had it active. At the time that we started the refinance, we were still finishing up the rehab. So, Tony, in your experience for doing them for short-term rentals, are you going to specific lenders that understand short-term rental income, or what should I do differently going forward? Because when they sent the appraiser out, the appraiser was just there to appraise the property and not do any kind of income approach.

Tony Robinson:
So there’s two options. So your first option is to hold onto the property for at least about six months and show that you have short-term rental income on that property. Most lenders I’ve talked to said that if they can see at least six months of documented income, then they can use that to project out what that property would do on a year. If you had it for a year and it shows up on your tax return, then that’s the easiest way because then they can just look at that tax return and say, “How much money did this property generate?” So even if the lender doesn’t really understand short-term rentals, if you have a long enough paper trail to show how that property is actually performing, lenders that I’ve talken to or spoken with have said that that’s a decent route to go down. The other option is to work with a lender that actually understands and offers DSCR products specific to the short-term rental industry and who have the ability to underwrite the property not just as a long-term rental, but as a short-term rental as well. That’s the kind of lender that I’m working with right now is someone who specializes in the short-term rental space for DSCR products.

Ashley Kehr:
Okay. Awesome. That’s why I love that we get to be co-hosts of the show because I always get to pick your brain on everything short-term rentals that I don’t know.

Tony Robinson:
So you got options out there.

Ashley Kehr:
Yeah. I’ll have another one that I’ll be doing this fall. So, yeah, I’ll have to consider which would be the best.

Tony Robinson:
Look at you turn into a little short-term Airbnb queen over here, huh?

Ashley Kehr:
You would be so proud of me. I just hired an operations manager, someone to handle the day-to-day.

Tony Robinson:
There you go. I love that.

Ashley Kehr:
Yeah. Her third day, I have the septic pumped at one of the properties, and it was so relaxing for me. I had to do nothing.

Tony Robinson:
Yeah. Yeah, and that’s so funny because we’re actually on the inverse where our operations manager, actually, her last day was last Friday, so she moved on to another role somewhere else. So, now, me and Sarah having to step back into the operations at least in the short-term while we try and source someone else, so it’s like… I actually have my ops calls right after this with our VAs to try and keep everything moving. So I’m glad you’re enjoying that process, and hopefully, I can get back there soon enough.

Ashley Kehr:
What a great way for you to come back to vacation, having to work more.

Tony Robinson:
Totally. Yeah, having more work to do. Yeah.

Ashley Kehr:
Okay. Well, thank you guys so much for joining us for this week’s Rookie Reply. I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson on Instagram. Don’t forget to check out the Real Estate Rookie YouTube, and we will see you guys on Wednesday where we will have a guest.