Why should the $150 billion global management consulting industry be dominated by firms and analysts based in developed markets? Cloud-based start-up Intellia thinks there is an alternative: it offers access to a vetted group of analysts and consultants based in emerging markets all around the world.

“I was constantly amazed by the incredible raw talent in emerging markets – but also depressed by the limited opportunities,” says Saad Raja, the founder of Intellia, who previously spent more than a decade in consultancy roles in a number of different developing economies. “Then the pandemic hit and the penny dropped for many companies around the world that digital technologies mean they don’t necessarily have to hire a consultancy firm that is local to them.”

Intellia aims to build on these foundations. Raja believes that many companies will jump at the chance to secure high-quality consulting services from analysts based in different markets – not least because such services will often be more affordable. But if they are to explore that opportunity, they need a third party that offers a trusted source of high-quality candidates.

That’s where Intellia comes in. It uses a range of innovative technologies and processes to vet consultants – Raja says the firm only hires the top 1% of analysts in any given market. These analysts are employed directly by Intellia – earning a base salary from the firm – and can then be hired out for specific assignments. “We also have an in-house learning management system so that we can train consultants on what clients want,” Raja adds.

So far, Intellia has hired more than 150 analysts, many of whom are already working on consulting assignments clients. The firm’s customer base includes a number of multinational companies, but also sovereign wealth funds, private equity firms, public sector organisations and even a Michelin-starred restaurant chain.

Services include value creation plans and portfolio monitoring; investment due diligence and memorandums; economic development policies; pricing strategies; trade, economic policies and strategies; merger and acquisition screening; deal pipeline development; financial modelling; and valuation and analysis.

“Our mission is ensure emerging markets can play their part in the knowledge economy,” says Raja. “They can do so much more than simply providing commoditised outsourcing services.” He is so convinced that his consultants will deliver what clients are looking for that Intellia promises to waive its fees if they’re not happy with the work provided. It is a stark contrast to the approach of established management consultancy services, many of which have a reputation for extremely high costs, Raja argues.

So far, Intellia has sourced its analysts mostly from Pakistan, Colombia and the United Arab Emirates, but the company has plans to expand its reach, with launches planned in Saudi Arabia and Lagos in the coming months.

By increasing the number of consultants at its disposal, Intellia will be able to bid for more projects – Raja sees the business taking on both traditional consulting firms and the growing number of freelancer marketplaces. “Currently, consulting firms take weeks to negotiate exorbitantly high fixed project fees with limited flexibility for businesses,” he argues. “On the other hand, freelancer portals provide relatively low quality, unsupervised services not fit for corporates and the public sector.”

The firm’s fund raising will help in this regard – Intellia has raised around $1.5 million of pre-seed funding over the past 12 months. The money has come from venture capital firm Fatima Gobi Ventures, plus a number of angel investors, many of whom have a background in the consulting market.

The financing is underpinning the company’s scale-up plans, Raja explains. Intellia hopes to have 1,000 active analysts on its books by next year. That will include a high proportion of women, he adds, in line with the company’s ambitions to encourage increased inclusivity. Around half of the existing workforce is female.

”We want to be the first call for senior management across the private and public sector leaders when it comes to strategy, finance, investment and public policy,” Raja concludes. By harnessing talent from a much wider pool than the traditional consulting firms, he thinks Intellia will be able to do exactly that.

A common question on the BiggerPockets forums goes something like this, “I have $50,000 and looking to invest in real estate. How should I start?”

In normal times, my advice would nine times out of 10 be house hacking for a first-time investor, especially given the markedly better rates and terms homeowners can get as compared to investors. However, in the past year, that delta in loan terms has compressed substantially, and so while house hacking is still an option, it’s not head and shoulders above everything else as it once was. Although, house hacking has certainly held up better than many other strategies. 

Indeed, if there ever was a challenging real estate market—particularly for new investors or those with $50,000 or so burning a hole in their pocket—this would be the one. This 2022 meme succinctly explains that challenge as much as any essay could (updated for 2023 audiences):

But sitting on the sidelines has its costs too. Suzanne Woolley at Bloomberg sums up the dilemma facing investors of all stripes, but most notably real estate investors in this current market,

“In the short term, it may make more sense to focus on preserving capital than finding growth. But in the long run, inflation eats away at cash and leaves savers with less purchasing power.”

So, given this predicament, what are the best options to pursue? 

The BRRRR Strategy: Mostly No

Don’t get me wrong, if you find a great deal that you can buy for 75% of its market value and it cash flows with current rates, then go for it. Unfortunately, for the most part, the BRRRR strategy is dead (or hibernating, to be precise). This is tough for me to say as the BRRRR strategy—specifically, in our case, buying with a private loan, rehabbing, renting, and then refinancing with a bank—was our absolute favorite strategy.

The main problem is that virtually every lender is going to expect a property to have a 1.2 debt service coverage ratio (DSCR) or better. Namely, your net operating income (gross income minus expenses) will need to be 1.2 times the mortgage payments. Even in high cash flow markets, it’s very hard to get even a 75% loan with interest rates in the 6s and 7s and prices where they’re at.

Furthermore, real estate prices have started to fall. Sure, they haven’t fallen much (see meme above), but after skyrocketing, they are beginning to cool off. A crash is very unlikely, but so is substantial appreciation in the near future. As Bill McBride has shown, the time between one peak for CPI-adjusted real estate prices to again equal that same price after a decline has been between 6.5 and 15 years for the last three cycles.

McBride predicts that, in total, prices will fall 10% nominally and 25% in real terms (adjusted for inflation) from their mid-2022 peak. Opinions on this, of course, vary widely. But the general consensus is that real estate prices will likely fall, are very unlikely to go up more than a marginal amount, and even if they do go up, they will almost certainly trail inflation. 

McBride, for his part, believes real estate prices will be “in purgatory” for seven years. I tend to agree. 

Therefore, you will probably need to leave a lot of money in a property and are unlikely to see a lot of appreciation in the next few years. If you have a good amount of capital or partners with cash willing to go in with you, that’s one thing. And yes, if you find a great deal, pull the trigger. 

But for the most part, the BRRRR strategy is not ideal in the current market.

House Hacking: Maybe

I bought my personal residence in mid-2021 and got a 3% mortgage fixed for 30 years. I’ve heard of many people getting mortgages in the 2s. (I think Mark Zuckerberg set the record in this regard with a 1.05% mortgage). Unfortunately, such rates are a thing of the past. 

Today, mortgage rates are in the mid-6s. Although that’s better than the low 7s they were at during the beginning of the year. At least we can all be thankful for small mercies.

While rates are higher than normal, it’s still a good thing to get your foot in the real estate investing door. And with FHA loans, you can do so with only 3.5% down, which $50,000 will cover in almost any market. Furthermore, you can buy up to a fourplex with an FHA loan, live in one unit and rent out the other three, getting a place to live and becoming an investor at the same time. 

Even many banks will offer traditional financing up to 95% of the purchase price for homeowners.

However, for the first time in my investing career, I can’t unequivocally endorse house hacking for new investors or those looking to place $50,000 or so. But it’s still definitely an option to consider.

Before moving on, I should note that inflation has been cooling, so there is reason to believe that interest rates will come down later this year or early next. So, while I’m normally a big fan of fixed-rate mortgages, this would be a time to think about adjustable-rate mortgages. (Although you should stress test your financial capacity in case rates do go up, you can just never know with such things.)

Creative Financing: Yes

In this regard, I am mostly talking about subject-to deals. With such deals, the property is bought “subject-to” the existing mortgage. So, the deed is transferred to you, but the seller stays on the mortgage.

There is a big opportunity here in this market as most homeowners have great loans, and yet the market has slowed, so it’s harder and can take longer to sell (although prices have only dropped a bit because very few people are motivated to sell). And as I put in a previous article, “The advantages to the buyer, in this case, are obvious. If you can ‘assume’ a loan at 2.85% on a property, how much does the purchase price even matter?”

There are some disadvantages to subject-to. For example, the bank has the right to call the loan due, although they rarely do such a thing. Another is that the buyer cannot borrow any of the money for rehab. And if there is a big discrepancy between the sales prices and the loan, there’s no way to bridge that gap without getting a second mortgage.

But for an investor with about $50,000 to spend, that will very often do the trick and fill that gap. 

It should also be pointed out that seller financing is another option that buyers should consider in this market. It presents similar challenges and similar opportunities, except for the obvious fact that virtually no homeowner is going to lend to you at 3% interest to buy their house from them.

Syndications: Mostly No

Real estate syndications are usually done on larger deals where a principal party finds, negotiates, and arranges a deal and brings in investors to cover the down payment and repairs. Usually, the principal will keep about 15-35% of the equity, and the passive investors get the rest.

During the past few years, investors in syndications have made a killing as real estate prices have skyrocketed. But now, returns are lower because interest rates are higher, and (at least as of now) prices have not come down much to soothe that reduced cash flow. And as noted above, there is no reason to think real estate prices will go up much, if at all, in the near future. And they will almost certainly not keep pace with inflation. So, most of the advantages that real estate syndications offer are no longer there, particularly for passive investors.

Of course, as with BRRRR, there are still good deals around. And if the market does get messier, there may be more motivated sellers and, thereby, more opportunities for really good deals, which will be worth it regardless of interest rate or potential appreciation. But that has not yet come to pass.

Private Lending: Maybe

Private lenders often lend at 8-12% interest. Hard money lenders (typically businesses set up to lend private money to flippers) usually lend at 12-15% with three to five points.

$50,000 is generally not enough to lend to someone buying a house to flip or hold, but if you have closer to $100,000 or more, there should be opportunities out there.

And indeed, with interest rates in the mid-6s, a 10% private loan doesn’t sound nearly as bad to an investor as it did a year ago. If that kind of return meets your goals, private lending is something to consider.

The Sidelines: Maybe

Another first for me is even considering the possibility of recommending those with $50,000 who want to start in real estate to instead sit on the sidelines for the time being. Time in the market beats timing the market—or at least it usually does.

This market is one of the few times I would say that it isn’t that bad of a thing to sit on the sidelines for a while. For our part, we are focused on finishing our rehabs, increasing our occupancy, and optimizing our systems. We’re not looking to purchase much this year. Although, that is in part because we had a big year in 2022 and are playing a bit of catch-up.

As of this writing, the one-month U.S. treasury bond has a 4% yield, and the six-month provides a 5% return. These were in the ones last year. So, sitting on the sideline isn’t the de facto equivalent of stuffing money under your mattress as it was not long ago.

While those returns are still below inflation and rather paltry compared to what real estate investors tend to aim for, they are much better than buying a mediocre deal with a high interest rate loan in a volatile and likely declining market. 

Ultimately, my recommendation would not be to sit on the sidelines. But I would be much more comfortable holding on for a really good deal and waiting a lot longer than I would have been last year and more so still than, say, five years ago. 

In this economy, in particular, you do not want to force anything.  

Conclusion

This is the most confusing and challenging real estate market I have seen in my lifetime. I certainly don’t envy someone looking to start now. It’s important to approach the market cautiously and not try to force a deal to happen. There will be time for that, and the economy will, sooner or later, become more advantageous for real estate investors.

Even still, there are opportunities in real estate out there for someone with $50,000 or so, even in this market. You just need to be a bit more careful and a lot more patient. 

Creative financing techniques to do more deals, more often

Is your lack of cash holding you back from your real estate dreams? No matter how much money you have in your checking account, there is always real estate you can’t afford. Don’t let the contents of your wallet define your future! This book provides numerous strategies for leveraging other people’s money for amazing returns on your initial investment.

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

Equal employment and affirmative action laws enacted during the tumultuous 1960s are the roots of today’s diversity, equity and inclusion initiatives. Six decades and a global pandemic later, companies have come a long way from initial attempts to diversify their workforce. What began as simply “diversity” has become significantly more complex.

The pandemic changed the values of workers and the workplace itself forever. Employees are attracted to companies whose DEI efforts are more than skin deep. Social unrest surrounding racial injustice, civil liberties and the increasing perils of climate change have left workers asking their employers to make commitments to these types of issues as well.

It can sound like a lot of internal and external distractions corporate leaders would rather avoid than deal with. Many would prefer to concentrate only on producing a great product or service, gobbling up market share and enjoying increasing profits.

Although DEI is changing, it isn’t going away. Leaders need to focus on their DEI strategies now more than ever. Here are a few reasons why.

Kindness Counts

Corporate America is full of brands that embrace kindness. Think Bombas, TOMS Shoes and, well, KIND. The practice of companies donating a product to those in need for every one sold is a notable kindness to the broader world. But charity, as they say, begins at home. What are companies doing to cultivate kindness among their own?

Some brands are evolving beyond simply trying to educate their employees about the value of understanding, appreciating and welcoming diversity. They are also incorporating kindness into their respective DEI strategies. Taking the time to truly see and hear individuals who are different from you not only helps everyone flourish, it also develops leadership capability, creates a growth mindset and drives performance.

This is Marissa Andrada’s philosophy. As Chipotle’s former Chief Diversity, Inclusion & People Officer, her mission was to co-create with leaders and team members an environment where each employee, at every level of the organization, can thrive and do their best work. This inclusive, equitable culture affected the business transformation and profitable growth for the company. As a DEI thought leader and in-demand speaker, Andrada refers to herself as a “Culture Master & Kindness Catalyst”. As such, she is passionate about helping companies create purpose-driven, high-performance cultures that are exponentially more meaningful than mere purveyors of products and services and successful at achieving business results.

The idea that the whole is greater than the sum of its parts is an ancient one. To be whole, though, every part—that is, every person—needs support and the opportunity to excel. Wholeness means no one does things at the expense of someone else, but for the greater good.

DEI Has Become Too Big to Fail

Large banks aren’t the only institutions deemed to be “too big to fail.” Company DEI policies also demand a bailout when they falter. The DEI concept has become too important to employees to risk failure.

The growth of DEI efforts has given rise to industry practitioners. But this development hasn’t yet resulted in any standardization of practices, measurements and analytics. Instead, every organization is finding its own way through something launched with the best of intentions but often at risk of collapsing under its own weight.

Most companies set diversity goals because they are easily measurable. But diversity goals alone do not make a DEI program. Determining what’s causing disparities and establishing targets for addressing the causes is more important.

Effective DEI programs must reflect a cultural shift, not merely a change in the number of underrepresented employees hired. Sound, thoughtful efforts don’t alienate anyone. Instead, they work toward drawing everyone together as DEI grows organically and takes on a larger-than-life role of its own.

The Generational Shift Is Here

The shift in the generations constituting the workforce has arrived. Millennials have essentially become the full moon, with Generation Z rising rapidly. The generational shift is calling for changes in everything from technology to benefits to a company’s environmental, social, and governmental (ESG) policies.

This shift also demands real change in DEI efforts, driven by Gen Z’s inherent racial and ethnic diversity. Some 80% of Gen Z place a priority on DEI, and more than half of them want to see more diversity in leadership. At issue here is the fact that those approving DEI policies are much older and much less diverse than the predominant sectors of the workforce.

Company leadership would be wise to get out of the way of emerging generations who not only value diversity, but represent it. By letting them take the lead in developing DEI efforts, you’re both creating culture-altering results and growing your future leaders.

Boomers and Gen Xers in corporate leadership are sometimes flummoxed by diversity issues such as gender identity and by a workplace culture altered by shifting values and technology. Yet to the younger generations, particularly Gen Z, it’s life as they have always known it. Companies are going to have to catch up with them or lose them forever.

Non-Believers Need Not Apply

Companies that aren’t truly invested in making their workplace one where diversity, acceptance, respect and value apply to every employee will fail at DEI. At this point in the growth of the DEI industry, there are opportunities to find out why programs fail and what elements make them successful.

If you aren’t an ardent believer in DEI’s contribution to your company’s success, you’re well behind the curve. DEI policies that are little more than lip service may be good enough for older workers, but not for the emerging workforce. In a world where the ability to pivot has become the key to success, not making this one is no longer an option.

David:
This is the BiggerPockets Podcast show 753. Starting a company is a great way to go from a full W-2 worker with no flexibility into the passive income ideal of owning real estate and living off of their rents. Very few people can make the jump from one all the way over to the other. So instead, what I recommend is that they make a little pit stop in between called owning a business. This is becoming a 1099 employee, an entrepreneur, and you get a lot of write-offs when you get into that world.
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with a Seeing Greene episode. This is your first time joining us today, you’re in for a treat. On these shows we take questions directly from our audience. Yes, that means you, and we answer them on the show. And in today’s show, I brought help from three friends. This is a tax-oriented show where we are going to share tax strategies, share specific stories regarding taxes that different BiggerPockets members encountered, and we’re going to have tax experts give them advice of what they could do to save that money.
Today’s show, we get into a lot of topics, but some of the ones that stood out the most were when a partnership makes sense and when it doesn’t make sense and what to do when you run out of money to invest, when you don’t need to do a 1031 to shelter gains, and what specific questions you should ask your CPA to find out if they are the real deal or a pretender when it comes to real estate investing. This is all really good stuff that’s going to save everybody a lot of money, so thank you for being here. I think you’re going to love it.
Before we get to our first question, today’s quick dip is when you save in taxes, it’s like getting a race. Today’s guest CPAs have all been on the show, some of them a number of times, and I encourage you to look in the show notes for another tax episode featuring one of these three fine folks and really see if there is a way you could implement this information into your investing this year. Remember the old phrase, “A penny saved is a penny earned.” It’s actually better than a penny earned because you’re taxed on money that you make. You’re not taxed on money that you save. And if you end up loving this show and you want to submit your question to have me answer it, simply go to biggerpockets.com/david where you can submit a video or a written question that we just may feature on this show. All right, let’s get to the first question.

Matt:
Today’s question comes from Cody in Arizona. A quick recap of the question. “I recently purchased my first investment property and it is out of state near family. My brother is a realtor and my dad is going to be my handyman/management guy.” Perfect setup. So question one, “Since I am looking to purchase more properties eventually, is creating an LLC now a smart idea?” And if I create the LLC, should it be located in the state where I live or where the investment property is located?”
First I got to tell you that I would confirm this with an attorney just to make sure that all of your facts and circumstances are considered here. Now, from my experience, it’s going to be best to set up the LLC where the rental property is. That is what’s going to give you the most protection.
Next would be just to remember that setting up an LLC is not for the tax benefits. You’re not going to get any other tax benefit for having an LLC or the rental property in the LLC. What you are going to get is an additional expense for the cost of setting up that LLC. So just remember that when setting these up.
Number two is, “How can I find real estate investment friendly CPAs that are willing to work with me now and that also understand my future goals? As I stated, my husband and I are employed full-time and are only experienced in W-2 income prior to this rental property.”
First I would say look to the BP community for CPAs and accountants. There’s a ton in here that I see answering questions that are awesome that I’ve seen on podcasts and things like that. Next would honestly be Googling them and just finding one that is obviously versed in the business of real estate and that when you talk with them and interview them, give them a snippet of your scenario and ask them if they have clients that are in your similar situation. That is what I recommend. That’s what we do with new potential clients that we talk to. We make sure that we can help them in what they need. You don’t want a CPA or an accountant that’s just going to say yes to you, but that they have no experience and they’re really going to use you as the guinea pig to learn on. So definitely be transparent when you’re interviewing them and asking them questions if they can help you. So that would be my best advice there. I’ll pass it back to David.

David:
All right, Matt, thank you for that advice and I thought that was fantastic. Remember everybody, not every CPA is the same. Not every realtor is the same. Not every contractor is the same. Just because they say they do that does not mean the job is done. You really want to dig in deep and see how much experience they have with the type of work that you want. One of the most common questions I get is, “How do I find a CPA that understands tax strategy?” It amazes me how so few CPAs do understand tax strategy, but that’s just the thing. Just like so few realtors understand how to run numbers on an investment property or what that even means. So ask those questions when you’re talking to somebody, “What type of tax strategies would you recommend?” And if they don’t have anything to say, that’s not the one for you. All right, our next video clip comes from Sean in Cleveland.

Amanda:
All right, this question comes from Sean Unn from Cleveland, Ohio. Sean’s question is, “I’m looking for CPA who I can bounce ideas off of and can offer me suggestions, especially since I have properties located in different states. How should I approach finding the right one and what are the key questions to ask them in an introductory call?”
That is such a great question, Sean. I love it and you’re exactly right. When you’re looking for CPA to work with, you’re not just looking for someone to file your tax returns, but you’re really looking for someone who can help you plan proactively and like you said, give you ideas, suggestions, and best practices both within tax and just financially as an investor. So don’t ask generic questions like, “Do you work with real estate investors?” Because nine times out of 10 they’re going to say yes. So what you want to do instead is to ask more powerful questions. Common examples might be, “What are your successful clients in real estate doing to save on taxes?” So this way you get them to showcase what types of strategies they’re working with and also who they feel are strategic or are some of the bigger investor clients that they work with.
Also, you can ask them more pointed questions like, “What are your thoughts about 1031 exchange or what do you think about cost segregation study?” I think asking more open-ended questions like that will really allow them to go as in-depth as they can and really be able to demonstrate how well-versed they are in real estate. Especially since you have real estate in a lot of different states, one important question you want to ask is to see whether they’re comfortable or have experience in working with multi-state tax filing and/or tax planning. All right, back over to you, David.

David:
All right, Amanda. Well, you just made me look smart because on our last question I told people very similar advice to what you just gave, not knowing that your advice would be this on this question. A hundred percent, don’t give generic questions like, “What do you think about real estate?” That lets people have an open out. You really want to nail them down. If you say, “Tell me what you understand about cost segregation.” Or, “What service do you use to run your cost segregation studies? If you get a dot, dot, dot or a, um, or some fancy way of dancing around it, that means they don’t understand cost segregation, and so that’s not a person that you as a real estate investor would want to be using.
You might say, “What do you think about the bonus appreciation step down over the next five years? What strategies have you come up with to make up for that?” If they don’t have an answer or they haven’t been thinking about it, not the person for you. I think this is fantastic advice for a lot of things; for contractors, for real estate agents, even for mortgage brokers. Ask your mortgage broker, “What loans do you have that are exclusive to investors or what would you recommend I do to get loans once I get 10 properties?” If they don’t have an answer, then they’re probably just running a cookie-cutter operations. They know how to do the very simple thing that’s right in front of them, but they don’t think outside the box, which means they’re not a good fit for you. Great contribution, Amanda, thank you very much for your time.

Tom:
So this question comes from Jim in Norfolk, Virginia, and Jim asks, “If I get a private lender to lend me money for investing in rental real estate, how does the IRS see that? I’ve got investors, they want to invest with me, they want the tax benefits, but they don’t want to do anything.”
So you really have two choices. One, they can be a straight lender. In that case, they just report interest income, so they’re not going to get any of the tax benefits. You are going to get all of the tax benefits and you’re just going to send them a 1099 showing interest income. Now, if you want them to have interest income… I mean, if you want them to actually get tax benefits, excuse me, then what you want to do is you want to form a limited liability company or a limited partnership, and the title of the property will be in that limited partnership, with limited liability company, and you’ll share the profits basically with these investors and they will get their share of the tax losses from depreciation or any other tax benefits. So back to you, David.

David:
All right there, Tommy. Thank you for that and again, very good advice. Now, this is powerful because knowing this can change the way that you market yourself to raising money. If you’re telling people, hey, lend me money in real estate because you’re going to get tax advantages, you do have to structure a certain way. There needs to be shared ownership of some type. Whether that’s a share of the LLC, a share of the property itself, they can get a piece of whatever the depreciation will be. But if you’re like me and you typically only borrow money as debt and you don’t do equity, well, your investors aren’t going to get any of that depreciation because I’m going to be taking it all. Now, this is very powerful for you as the investor to keep in mind. If you make a big income and part of the reason that you’re investing in real estate is for the tax benefits, you’re not going to want to tell people about the tax benefits of real estate because they would go buy their own instead of letting you borrow the money.
If you don’t have big income and you don’t need to shelter any income, well then hey, talk about the tax benefits of investing with real estate and structure your loans in a way that that person can get a piece of them also. I thought this was really good, and it also highlights the fact that there’s more than one way we make money in real estate. Cashflow is one of the ways we make money in real estate, but there’s many ways and tax savings is a big one. Thanks for that, Tom.

Amanda:
Okay, today’s question comes from Shree from San Jose. Shree’s question is, “I have a handful of rentals across several states currently held in my family trust. What do you suggest for asset protection? I have over a million dollars in umbrella insurers, different CPA suggest different things. I’m want to keep things simple for tax return. And also separately, my wife is a real estate agent. What kind of entity should she use if she may have losses in the first few years?”
Okay, so two completely different questions. Let’s tackle the first one first. Disclaimer, I am not an attorney, so I’m only able to answer this question from the tax perspective. All right. My limited understanding in terms of liability protection is that trust, if you’re talking about a revocable living trust, that really doesn’t provide any asset protection. Now, from a tax perspective, revocable living trusts do not file separate tax returns, which means that the rentals are reported directly on your personal returns. So that will kind of help you achieve that simplicity goal that you’re looking for, but again, my understanding is the living trust don’t give you any asset protection. So if you’re looking for asset protection, you’re looking at a true legal entity, whether it’s an LLC, a partnership or maybe some kind of a Delaware statutory trust that does provide asset protection.
Now, which one of those will be best for you and your scenario? That’s a good question for your attorney to work with you on. Now, this is going to be a joint effort with you, your attorney, and your CPA. The reason being your CPA is going to be able to help you do a cost benefit analysis, meaning what is going to cost for you to have these different entities, whether it’s holding company, series LLC, or a DST. Right? What’s it going to cost for you to have those, to form it, to maintain it every year, and what is going to be the added liability protection for you? And then really weighing it out to see if it makes sense. I know you’re in California. California has very, very high LLC fees. So if you have seven rentals, you likely don’t want them in seven different LLCs because that could get really costly real quick, but working concurrently with your tax and your legal team could really help you find that optimal point where you’re getting the protection but also at a cost that makes sense for you. All right, back over to you, David.

David:
All right, and the second part of Shree’s question comes to me. “My portfolio is limited so that I cannot obtain conventional loans anymore. I also have limited down payments now, but I hate partnerships. What do you suggest to overcome the mindset and do partnerships to buy more properties either to buy and hold or fix and flip?”
All right, I’m going to give you some advice that’s different than most people in this space, so just take it with a grain of salt because not everybody would agree with me. I feel it’s conventional wisdom that when you run out of money or you can’t get loans, the answer is to go find a partner. And then you don’t need to have money and you don’t need to have loans because the partner’s going to provide it and this information gets given as if it’s all just that simple like, “Oh, just go find a partner.” It’s kind of like if someone says, “Hey, I don’t have any other tax strategies to save money and I have a lot of taxes.” And someone says, “Oh, just go get married. When you get married, you get a lot of tax write-offs.” That’s a terrible reason to get married. And if you marry the wrong person, the pain of a bad marriage will far outweigh whatever tax savings that you might have got. Is it true? Yes, you do get savings through getting married in taxes. But is it practical? Is it wise? No.
Oftentimes the practical application of advice that you are given is much different than the hypothetical way that it’s explained. This is one of those situations. I don’t think you should go get a partner just because you’re out of money. Now, if you are going to do it, I would say to do it with fix and flips. And the reason is that I like to see partnerships not be for the long term, as short of a period as possible, especially when you’re first starting to partner with someone you don’t know them. In the same way that I would never tell someone to go marry somebody after the first date, I wouldn’t want to be a partner on a long-term project with someone that I don’t know super well just because I was told to partner. Now, if we go on a couple dates, we do a couple fix and flips, we start to get to know each other, we start to like how we work together, yes, a long-term partnership can start to make sense, but you got to give yourself time and repetition before you get to that point.
My advice is different. When you run out of money, the goal needs to be to make more money. It’s often easy to just say, “Oh, I need help with something. I’ll go find someone else that can provide it for me.” And if you have the right people, that does work. But sometimes that can be the carrot that incentivizes you to save more of your money, to live beneath your lifestyle, to go take more challenges in life so that you can make more money, to ask for that raise at work, to start a business to earn more money. Real estate is a wonderful way to build wealth, but it is not the only way to build wealth. In fact, my personal opinion is that real estate works best when it is a piece and a bigger puzzle of which entrepreneurship is also present. Real estate works great as a tax savings, but you have to be making money in order to have something to shelter your income, especially if you’re doing it in a 1099 endeavor like entrepreneurship.
So Shree, can you start a business? Can you work more hours? Can you find a way to be more efficient with the hours you’re working so you can make more money? Do you have equity in some of your previous deals that you could pull out to reinvest? How can you move forward without relying on a partner that you don’t know? I don’t know that your mindset is wrong that you hate partnerships. You might have really good reason to not like them, so I’m not going to tell you to get over that mindset. I would need to know more about why you have it. I am going to say if you’re going to partner, do it on short-term deals like flips, and if you don’t want to partner, then let’s ask different questions. How can I make more money? How can I save more money? How can I get more capital to invest so I don’t have to have a partnership? Submit us another question with some ideas you have. I’d love to help you out with that.
Also, Shree, I see that you are in San Jose, California, just a hop skip and a jump from me. I’m recording this over in Brentwood, so hopefully we run into each other soon. Would love to meet you.

Tom:
This next question is from Dale Vance Jr. in Los Angeles, California, and he says, “If I 1031 a property to buy a condo where I’m going to live, how long do I have to keep it a rental before I can make it a personal residence? Will there be tax consequences, say after two years? Thank you.”
Dale, I actually think two years is a really good timeframe to be renting it. You do need to show that your intent of buying the new property was to rent it. You can’t pre-establish…. Don’t write a two-year lease. I’d write a regular one-year lease. You can renew it. You want to make sure you at least straddle two tax years, but two full years is probably a good rule of thumb. I think that’s a really good idea. And then remember, after that, as long as you actually live in it for two out of five years, then anything other than the depreciation you’ve taken should be tax-free up to that 250,000, 500,000 exclusion for single versus married individuals. So you actually can have your cake and eat it too. Thanks Dale. Back to you, David.

David:
Thank you, Tom. That was a great answer to a tough question. Oftentimes, we as human beings want to turn subjective matters into objective ones because our brain finds comfort in knowing exact answers, and this was a question just like that. How long do I have to wait before I can take a business property that I bought through at 1031, or an investment property I should say, and turn it into a primary residence? And there is not an objective answer to that. I don’t believe the tax code specifies a period of time you have to wait. It would come down to a judge’s subjective interpretation of what your intent was, and Tom, I thought you gave a great answer that two years would be a healthy period of time.
Just remember everybody, sometimes there’s not an answer like that. Similar to when you’re buying a house as a primary residence and then you decide that you want to rent it out. There’s not a period of time that you have to live in it before you do that. It’s often said you have to live in it for a year. That’s because when you buy the property, you’re intending to occupy it as a primary residence and you’re not allowed to buy another primary residence until you wait a year getting a conventional loan, of course. That’s where the year thing comes from. It doesn’t come from the tax code saying that you have to live in it for a year. Many people have bought a primary residence and had a life change, a sick parent, they got a new job and they had to relocate. Some other life event happened and they couldn’t live in that house. Well, they can’t force you to live there and say you’re not allowed to rent it out. What you get in trouble is if the bank can prove during a foreclosure that you intended to rent it out and you never intended to live there.
So thank you Tom for that advice and making us all a little bit smarter.
All right, I hope you’re enjoying the advice for my colleagues here. We’ve blazed through five already and we have more to come. I just want to remind you to like, comment and subscribe to our YouTube channel here. Specifically comment, I want to know what you think about these shows. Now, I always like to get feedback about the length of the show, the topics, my light color, and guess what? You all responded, which is awesome. These comments come from episode 741 from Mountain Surf. “I love how you admit this is a difficult market. I turn off 80 to 90% of YouTubers because they’re trying to put an optimistic bullish spin on this market.” Oh, bullish like positive, not like bullish like a substitute for a bad word. That’s funny. I read that differently.
“To me, it means they are not adapting to the situation because they are not fully acknowledging it. We don’t know when or if the fed is going to pivot. Your concepts are also not basic. It’s so relieving not to listen to the same stuff other people say. At the end of every YouTube I watch, I asked myself, ‘What do I know that I didn’t know before?’ I’m finding more and more of YouTubes end up being nothing burgers. Yours are thankfully advanced enough that I gain insight. Don’t simplify, stay advanced.”
Wow, Mountain Surf, that might be my favorite comment that I’ve read for somebody. You put a lot of effort into, well, not only complimenting me, but saying why you like the show, and that’s a very valuable thing you can give other people. It’s one thing to say I’m a big fan or I love what you do. It’s another to tell somebody why you like it. That gives someone like me a direction to know how to make the shows better, what’s working, what people are enjoying and why they’re liking it. I really appreciate that comment. This is awesome. And it is something that I put a lot of effort into trying to do. I could come in here and tell you guys that everything is easy. That wouldn’t make any sense. I could also come out here and say, “It’s hard, so nobody should invest in real estate. Go buy a bunch of NFTs.” That wouldn’t be honest either. This is the most challenging market that I’ve ever seen in my real estate investing career.
Now, I’m not Sam Zell. I haven’t been doing this for that long, but I’ve been doing it for a minute and this is incredibly challenging and the reason is that there is significant inflation, especially related to assets, which is the best safe place to put money to protect it from inflation at the same time that they keep raising rates, which is lowering affordability. So it’s not affordable to buy a house which eliminates cash flow for investors a lot of the time, but you still got to put your money somewhere because it’s losing value. It’s like there’s no safe place to run and there’s nowhere to hide, and that’s what makes this so hard, which is why we’re making more of an effort to produce more shows and share more information.
I also appreciate you saying that you liked it. I’m not giving you basic information here. I try really hard to avoid just giving something basic, and I always give my explanation for where my advice came from so that if you don’t agree with it or you don’t want to follow it, at least you understood the perspective I was coming from so you can decide if it’s right for you or not.
Here’s the last thing I’m going to say. If you’re getting your information from YouTubers, TikTokers, people that are telling you how great real estate is and they’re selling you on a dream, not on reality, it’s usually because they want your money. Podcasts like this are free for you, so you don’t have to worry about me telling you something just because I want your money. Now, I do sell houses and I do have a mortgage company, which I use when I’m buying my own property. So I do provide services to people, but I’m not sitting here telling you guys that you need to all go buy houses so that I can sell it to you. In fact, very few of you have actually bought a house with me. I’m telling you the truth and it’s free and you can trust it.
All that I would ask in return is that you would go and give us a five-star review wherever you listen to your podcast, whether that’s Apple Podcast, Spotify, Stitcher. It helps so much for us to get reviews. I would really appreciate if you guys would do that. We want to stay the top real estate investing podcast in the world so we can continue to bring you these shows for free.
All right, our next comment comes from Army Faser. “I love the show and don’t give a darn about the background color. This is because I always forget to change the light. Thanks for the reminder about focusing on the long term. My insurance costs are steadily rising in south Louisiana, but we are still above water. At the moment, it does have me wondering if I should sell and buy outside of Hurricane Alley. PS. Don’t worry about the length of the show. If it’s good info, it is worth the time.”
Well, thank you for that Army Faser. I appreciate that you’re liking the show and you’re not worried about the time. So we will continue to make them and if you do decide to invest outside of Hurricane Valley, check out biggerpockets.com/longdistancebook to learn how to put systems together to buy real estate in other places.
And our last comment comes from Aberet Art. “I might be wrong, but it feels like it’s too late to get started at this point and only the people who got going in the golden age have the advantage over everyone else.”
Whoo, that’s a deep one man, and I see where you’re coming from. I’m not going to sit here and tell you that that’s not the case. Now, I will say that it is more difficult to do this than before, but it’s not too late. Adversity is the fuel of greatness. I will also tell you that the people that bought five years ago, 10 years ago, 15 years ago, 20 years ago, here’s the truth, they all thought it was too late also. They all thought prices had already come up too high, it was too expensive, they were waiting for a market where houses less. Anyone who’s honest will tell you the same thing.
I’ve yet to meet a person who bought a house and said, “Man, that was a great deal.” They always thought they bought high. And at the times when we were buying low, we didn’t know it was the bottom. We thought it was going to crash more. There’s no person at the time they’re buying that knows if it’s at the right time or not. But every person when they look back says, “I’m really glad I bought real estate. I wish I had bought more real estate.” And I had to tell myself this all the time because I struggle with the exact same feelings as you. It’s especially hard when you go buy a bunch of real estate and the market dips a little bit like it has, and it went from I bought it, to it went up, and then it came down a little bit. I forget that it went up before it came down. I only think about the fact that it came down and I feel really bad in a lot of ways. So keep in mind that you’re not the only person feeling that. Everybody feels it. When you’re buying for the long term, those worries go away.
Now on episode seven 741’s YouTube page, there are a ton of great comments, specifically two really good threads where people made comments and it started a conversation going back and forth. Piece of advice number one, beware at BiggerPockets we get spam and there’s a WhatsApp account that will frequently pretend to be BiggerPockets. That’s not them, so don’t message them, but there are a lot of people who are making real comments. So if you want to avoid the spam and you want to make sure that your comments get acknowledged, because sometimes people stop paying attention to YouTube comments. After you leave the comments, just head over to the BiggerPockets forum and start the conversation over there where you can be free of spam as they’re moderated. And you don’t have to worry about asking something that nobody sees because the BiggerPockets forums are monitored more than the YouTube comments. But keep leaving them comments, folks. I love it. All right, let’s take another video question.

Amanda:
All right, this question comes from Mary Hopkins from Florida, and the question is, “I have a friend who’ll be selling two of her farms and have a significant amount of tax. We were discussing the 1031 exchange issue, but I was not sure the options within it. Can she invest in the REIT or syndication and still receive the tax benefits?”
All right, so great question Mark. When you sell farmland, you can actually do a 1031 exchange directly. So if your friend is interested in buying more real estate after she sells a farmland, then I think that would be the most straightforward way to save on taxes. So again, sell the farmland 1031 exchange the proceeds or the sales price into other types of real estate. Now, if she wanted to do a 1031 exchange, unfortunately REITs are not eligible as replacement properties. They’re typically set up as corporations, and so when you 1031 exchange, it has to be the asset itself and not a corporation that owns a piece of property.
Now, with respect to syndication types of real estate, it may be possible what she’ll want to do is to contact the various syndication investments that she’s interested in and ask them if they are set up to take 1031 exchange money. Some of them are set up that way, many of them are not. So she’ll just want to find that out from the company that she’s interested in investing with.
Now, last but not least, even if she was not able to do a 1031 exchange or the syndication that she wants to invest in is not accepting 1031 exchange, she can always use what we call a lazy 1031 exchange. And that simply means buying other real estate, whether it’s directly on real estate or real estate in a syndication. To the extent that those real estate can strategically create tax losses, those losses should be able to offset the taxes on the sale of her farmland. So a lot of different options there. Now, back over to you, David.

David:
Amanda, that was a great answer. In fact, you’re bringing up something that I just realized was a bit of a secret in our industry that you mentioned that never gets talked about, but I remember having a conversation with a CPA that brought it up and my mind kind of like… It took me a couple times to wrap my head around what they were saying.
The 1031 is the way that you shelter the gains from something that you sold. But what you described is, I think you called it the lazy 1031 or the sneaky, something along that lines. It’s buying enough real estate that the bonus appreciation would show losses that would also shelter the gain that you made. So you don’t always have to do the exchange and play that game with those rules. So it is very conceivable if you have enough depreciation because you bought enough real estate that instead of doing a 1031, you just sell the property, buy new ones, take your capital gains, and then have those offset by the depreciation that you took on the new real estate and you don’t need to do a 1031. Great advice. It doesn’t get talked about very often, and it will save a lot of people headaches if they get into it. Brought to you by us at BiggerPockets all for free. All right, let’s get to our next question.

Matt:
Today’s question comes from JD in Sacramento. A quick recap of the question, “How is it that there are so many tax benefits for real estate but they don’t count if you have a W-2 job, and why does no one ever talk about that?”
The first reason is because rental real estate is considered passive by the IRS versus money that you earn as a W-2 employee or a business owner is considered non-passive. And we have to look at those two things as buckets of income. Now, it’s very difficult without jumping through all of these hoops to offset those against each other. So meaning if you make 100,000 at your W-2 and you lose 50,000 with your real estate, you ideally would want to net those to where you only pay tax on 50. But again, you can’t if you’re simply a W-2 job, not in the nature of real estate and you don’t pass those rules. Rules being a real estate professional and materially participating in your rental properties.
Now, I do want to mention that you can be a W-2 employee and still utilize these loopholes and tax tricks, but you will need to own at least 5% of that business for it to count towards being a real estate professional.
And the last thing is you can be a W-2 employee within let’s say your own S corporation, so you’re basically self-employed, but again, that business would just have to be in the nature of real estate. So let’s say that you’re a realtor and you operate as an S corporation, you likely or should be getting a W-2 from that position that you play within your own company. And again, since you would qualify as a real estate professional, and let’s say that you do materially participate in your properties, that very well could give you tax savings right there. But really just remember that there’s two buckets. There’s passive and non-passive and rental real estate is technically considered passive, and money that you earn at a W-2 role is considered non-passive. So at the end of the day, you’re going to need to pass these tests in order to net those against each other and really maximize your tax situation. Now, I’ll pass it back to David.

David:
Thank you, Matt. Great job answering a tough question. This is misleading because when you hear certain phrases like depreciation, that sounds like the value of an asset going down, it’d be the opposite of appreciation, but that’s not what it means. It means the asset deteriorating over time. When you hear phrases like passive income, that is misleading. You think, “Oh, I just buy something and it gives me money like a stock.” Real estate is considered passive income in the tax code, but in practical application, it’s rarely ever that passive.
Many of the tax benefits that come in the tax code come from non W-2 work, and there’s many reasons why, but here’s the way that I like to think about it. When you have a W-2 job like most of us do, you’re taking a lot of the risk out of the way you’re earning money, your employer is taking the risk. So if one of my businesses loses money, I don’t pass that loss off to the employees. They just didn’t make money or maybe they made less money than they used to, but they don’t lose money. Employees don’t take risk. They have a floor, a sturdy foundation that they stand on where they get a check regardless of how good the business does until the business runs out of money and they lose their job. But that floor comes with a price and that’s a ceiling. It is much harder to get higher to make more, to do better for yourself when you’re standing on that floor. And this is where a lot of people get upset, is they only look at the fact that they have a ceiling on themselves and they don’t recognize the fact they also get a floor. When you take a step out of that cage, which sometimes feels like a nice safe floor, keeping you safe, and you get into the entrepreneurial world, you get a lot of tax benefits, but you also take on a lot of risk.
Starting a company is a great way to go from a full W-2 worker with no flexibility into the passive income ideal of owning real estate and living off of their rents. Very few people can make the jump from one all the way over to the other. So instead, what I recommend is that they make a little pit stop in between called owning a business. This is becoming a 1099 employee, an entrepreneur, and you get a lot of write-offs when you get into that world. Now, I’m not a CPA, that’s why we brought a bunch of them onto the show, but you can often write off dinners that you would already be having if you have them for a business purpose. You can write off vehicles that you would need to be driving anyways if you’re using them for your business.
Think about me as a realtor. I’m driving all over the place When I was showing houses or going to listing appointments, I had to have a car, I had to have an iPad in order to give my presentations. Now, the IRS doesn’t say, you’re not allowed to use that iPad unless you’re giving a presentation. I could also use it for other things. A lot of people take advantage of write-offs when they run a business that they can’t when they’re a W-2 worker because they use it for the business, and that’s something that you could just think about. If you’re having a hard time finding tax write-offs, starting a business and owning real estate are the two best ways to do it, and if you combine them together, you get even more.

Tom:
So our next question comes from Sonya in Massachusetts and Sonya asks, “My husband and I recently got divorced and we own a duplex. I would like to reinvest my share the proceeds, but I still have to give him half of the proceeds which is about $100,000. How do I do this tax effectively?”
The very first thing I would tell you, Sonya, is you need to make sure that he’s going to recognize your ex-husband half of the gain. So when you sell the property, make sure that he’s actually on the sale, which I presume he would, and you need to make sure he picks up half of the gain. So you would actually file a partnership return and give him a K-1 showing half the gain unless your divorce decree says otherwise. Then you can take your money and you can reinvest it. You could do a 1031 exchange if you really wanted to, but I think you’re probably better off just taking bonus depreciation. Just make sure that you buy your new property and place it in service, meaning it’s ready to be rented by the end of December. And then you get 80% bonus depreciation on the land improvements and the contents of the building, like the carpeting and the ceiling fans, the window coverings, et cetera. Typically, that’s about 20 to 22% of the cost of the property as long as you get a good cost segregation done.
So that would be my recommendation. I would probably not mess around with a 1031 exchange. I would rather probably see you do the bonus depreciation, but be sure to sit down with your CPA, your tax advisor, make sure your tax advisor understands what they’re doing and that they can run the numbers for you. David, it’s all yours.

David:
All right, thank you for that, Tom. Again, we see that a 1031 exchange is not always necessary if you have enough depreciation available to you. Now, here’s something else to think about. As much as we complain about how tough the market is and how it’s too hard, which frankly… Side note, I think that comes from being oversold on the fact real estate’s supposed to be easy and the market has been easier than normal for the last eight years due to really low rates and rampant inflation. Even though we complain about it, there are still some massive benefits to owning real estate and depreciation is one of them.
When you combine cost segregation studies with bonus depreciation, people have been able to buy large amounts of real estate and shelter all of their income. I’m talking a hundred percent of their income for several years in a row because of benefits given to us in the tax code that incentivize real estate ownership. That is not normal. That is not something that everybody gets. It’s not something that other countries allow, and as Tom just mentioned, it’s going to start stepping down and this year it’ll be 80%, then 60%, then 40% and so on. This is a big perk that we’ve had for a long time and for people that didn’t jump in and take advantage of it because they were waiting for a crash, I feel bad sometimes. This is a great point that you’re making there, Tom, about ways people can save money and make money in real estate that are not purely cash flow. And I’m just giving everyone a heads-up. It’s not going to be around forever. Unless Congress approves this to be extended or gives us another run of it, it could go away and you won’t hear us talking about depreciation in the same way when it comes to sheltering your business income or your active income like we have been able to in the past.
And the second part to Sonya’s question reads, “Massachusetts multi-home prices are so high with the high rates I’m not expecting to be able to afford much. I have a few questions. Can I buy a home without putting down 20%? And how do I find investment properties, single or multifamily in other states that I can afford and run while living in Massachusetts? Actually, I’m not opposed to moving and renting out my single-family home, but if I understand the capital gains laws, I have to buy an investment property with the money from the sale of a duplex. I hope this question gives enough details. I’m at a loss and a bit overwhelmed by my situation.”
All right, thank you, Sonya. I could tell from the way that this was written that you are feeling overwhelmed and there’s a million things going through your head. So the first thing that I would recommend is that you step up your education when it comes to real estate investing. Get in the BiggerPockets forums, follow me @DavidGreene24, follow other BiggerPockets authors. Especially people that have written books for BiggerPockets usually have a higher knowledge base than just the casual member. I need you to get in the world a little bit deeper and sort out the chaos that’s jumbled in your mind that I can tell is coming out here. I definitely sense that you’re overwhelmed.
You brought up a couple different things like you’re not opposed to moving and renting out a single-family home, but then you switch to there’s going to be capital gains if you sell a duplex. The first part of your question here talks about how you can get around putting down 20% on an investment property in another state that you can afford and run while living in Massachusetts. Well, there’s not a lot of options when it comes to that. One would be buying from a seller directly and taking over their note and negotiating directly with that person what the down payment’s going to be. Sometimes you could get no down payment. We have to call that creative financing. The problem with that is if you’re stuck right now, you probably don’t have a ton of people lining up to talk with you about selling their property directly to you not on market. Those always sound easier to do than what they are when you go try to apply it.
So if you have an opportunity like that for creative financing, that’s one way to get around it. Another would be the NACA program. You can Google that, N-A-C-A, and visit their website and see what options that they have available for low-income people. On episode 590, we actually interviewed somebody who got into how he has used this to scale his portfolio at a specific area. I’m not an expert in that. I don’t do a ton of it, so I can’t tell you on this show, but that is a place that I would point you towards.
And then the other option could be finding a partner, if you find another person that can lend the money to go in on the deal. But again, I’m going to give you similar advice to what I told somebody else. If you’re having a hard time finding the 20% to put down, either house hack, which no one likes to do because it’s uncomfortable, but that’s why I recommend doing it because you’re showing that you value your future over your present comfort because you can house-hunt for three and a half percent down or 5% down and then move out of that property in a year and buy another one, and now you got to a rental property. Or figure out a way to make more money, which will force us to improve in other parts of our life. I’m writing a book right now for BiggerPockets called Pillars of Wealth that talks about how real estate investing is a third of the way you build wealth, but the other two thirds are offense and defense, making money and saving money, and those are just as important.
Thank you very much for your question. And by the way, episode 590 was with Andre Haynes about the NACA program.
All right, we have time for one more question. This one comes from Ola in Atlanta.

Matt:
“At what point would you pull out equity of a free and clear property, especially in this market and where we are headed?”
My personal opinion is I’m a fan of honestly never selling. So in this case, even if you want to refi and take cash out, I would look into getting a home equity line of credit or a HELOC, as they call it, because then the cash is accessible to you and not yet accruing interest. Versus if you do a refinance right, you’re now walked into an additional… Or not additional, but a new 15-year or 30-year note, and you obviously will have a monthly payment obligation there. So I’m a fan of if you need quick access to cash, consider that HELOC for that just because again, you don’t really accrue anything until you use it.
The next question is, is there a rule of thumb on how long to hold cash flowing assets? I’d say this is all personal preference here. You obviously want to run the numbers and see do you have a better potential opportunity for this equity, let’s say, that you have in these properties? And if not, maybe leave them there.
And then the last question here was looking to refinance some, but then are just considering an overall sale, but then thinking about the tax implications, what are the thoughts here? So overall, again, I’m a fan of never selling, and if you do need to sell, I would look at a 1031 exchange. I can see here that the concern is if you sell it, yes, you will come into let’s say a windfall of cash, but now you’re looking at a tax liability potentially. If you tax plan, there may be some tax advantages here that if you have passive losses built up, you may not have to pay as much tax as you think you would here, but overall, if you will be stuck with a tax bill, I would consider a 1031 exchange overselling here. So those are my thoughts there, and I’ll pass it back to David.

David:
I love it, Matt. The idea of never selling. This is something that bears repeating because I forget people aren’t aware of it, but when you refinance a property, you do not pay taxes on the refinance. Now you gain a bunch of money, but you’re also taking on a lot of debt. It is not a capital event. You’re not actually making money. You’re just exchanging money in the bank for a note that you have to repay with interest. So of course, you’re not going to be taxed on that, but people don’t realize it. You can buy a house, put it on a 15-year note, pay it off, refinance it, all that money comes tax-free to you, and then use the money from your tenants and the increased rents to pay off the new note. Again, this is why I love real estate because it’s something I buy with the majority of somebody else’s money, and then I get a third person, the tenant to give me the money that I borrowed to buy the property and very little of it is my money. It’s just the time that I have to spend operating it. Then you get all the other benefits of real estate and it is awesome.
So thank you for that advice and everybody please remember that you don’t have to sell property in order to get money out of it. You can put an equity amount of credit, you can cash out refinance.
Regarding the question of how long as a rule of thumb to hold cash flowing assets for, the way that I look at that problem is I ask myself when the property stops running efficiently. So I don’t sell properties very often. I’ve sold a handful over my entire career, and it’s usually when that property’s either in a location that I don’t like, some life event that was unexpected occurred and I had to sell it, or more commonly, the rents have not kept up with the growth of the assets in that area. So I talk about that in the BRRRR book, this example of how I sold one property and turned it into 10 using the BRRRR method, but the reason I chose to sell that property was that the value of it had gone up, but the rents had not kept pace at that point. The cash flow didn’t justify holding it, so that’s the one that I sold. If a property keeps cash flowing, there’s no reason to sell it unless you have another opportunity. You’re better off to refinance it and keep the property and buy more with the money from the refi.
Tom, where can people find out more about you?

Tom:
You can find more about myself and WealthAbility at wealthability.com, and you can also find me on social media.

David:
And Amanda, where can people find out more about you?

Amanda:
Hi, I am Amanda Hahn, CPA, a tax strategist and real estate investor, and you can follow me on Instagram, Amanda Hahn CPA, for daily tax and financial tips.

David:
Matt, where can people find out more about you?

Matt:
Hey, thanks, David. You can find me on Instagram with the handle @mattbontrager, or at our website, truebookscpa.com.

David:
All right, thank you all for your contributions to Seeing Greene today. I appreciate you guys taking the burden off my shoulders to talk about taxes because I’m not a CPA, and frankly, it’s not my favorite thing to talk about. It’s kind of like vegetables. You have to eat it, but you don’t have to like it.
All right, everybody. That is our show for today. Thank you for all of your contributions. Thank you for listening to us. If you want to follow me specifically, you could do so at davidgreene24.com, or you could follow me on all the social medias @DavidGreene24. And guess what? I finally got Meta to give me that blue check, so now you don’t have to worry about being taken advantage of by fraudulent David Greenes. Send me a DM and let me know what you thought of the show and go to my website, check out what I got going on.
Also, if you didn’t know, BiggerPockets has an entire website with more resources than I can tell you right now, we are more than just a podcast or a YouTube channel. There’s tons of stuff. So head over to biggerpockets.com next time you’re bored and look at all of the free resources that we have for you there.
Lastly, if you have time, watch another video, and if you don’t, make sure you tune in a couple days for the next episode that we are going to be releasing. We also have tons of other content on YouTube that you could check out in the meantime. Love you guys. Appreciate that you spent some time with me. I will see you on the next one.

The global market for “superfoods” is worth around $162 billion and is set to grow by an average of 5.5 per cent between now and 2028, according to figures published by IMARC.

But if superfoods are helping us to take care of our minds, bodies and tastebuds, should we also be asking whether their production is having a positive impact on the environment, particularly if the products in question are being grown and harvested in parts of the world considered important in terms of bio-diversity.

That was a question I was keen to explore with Albana Rama, founder and CEO of The Rainforest Company. Her venture – which is shipping Acai berry puree packs to stores in Europe – has just raised €36 million in VC finance. As Rabana sees it, a commitment to protecting the Rainforest environment is key to the company’s mission. So how does that work in practice?

A New Contender

Sometimes it seems that every day brings a new supefood. The Acai berry is one of the latest contenders. Harvested from a palm of the same name in Central and South America, it is apparently jam-packed with antioxidants. According to its proponents it can have a beneficial effect on heart health and the immune system. Over the course of the last few years, these berries have probably made it to a health store or supermarket near you. There are a number of suppliers in the marketplace.

And if the activity of VCs is anything to go by, it’s market with potential. In the context of food startups, the €36 million raised by The Rainforest Company last December represented a signficant sum. Not only was it one of the largest funding rounds in the European foodtech sector it was also the biggest raise by a female founder. The fundraising round – led by family office Kaltroco – also came at a time when investment in foodtech as a whole had slipped from $54 billion in 2021 to $28 billion in 2022, according to Forward Fooding.

So what was the attraction?

An ESG Agenda

Well, revenues clearly played a big part. Since launching in 2016, The Rainforest Company has increased sales rapidly. Its puree packs are currently sold through 12,000 points of sale across Europe and following a move into the U.K. market, there is potential for further growth. The company has generated revenues of 38.5 million Swiss francs since 2018. Between 2021 and 2022, they grew by 200 per cent. Rama says earnings of 80 million Swiss francs in 2033 are expected this year.

But underlying that is an ambition to have a positive impact. The Rainforest Company’s avowed aim is to pursue an ESG policy that outstrips anyone else in the market. So why is going the extra environmental mile so important?

Inspired By The Forest

Rama was born in Kosovo but moved to Switzerland with her parents. Her early working life was in the finance industry where she had roles with GE Capital and Ekman AG. “I had a great career in finance but I began to get disillusioned. It didn’t give me the fulfillment I thought it would,” she says.

The turning point came when she visited the South American Rainforest. “I went on a three-week survival course to get out of my comfort zone.”

Despite the beauty of the Rainforest, it was almost impossible not to be aware of the problems it faced in the form of deforestation to make way for the cattle and Palm Oil industries.

So, in setting up The Rainforest Company, Rama set out to provide a means for local people to make a living that didn’t involve the degradation of the environment.

“I saw that we could make profit from plants that were growing wild in the Forest,” she says. “And by offering a decent price, we could incentivise farmers to work for us.”

Scaling The Supply Chain

So how do you build a genuinely sustainable business while avoiding accusations of greenwash? Rame says the supply chain was key.

“Setting it up was the longest part of the process,” she says. “We had to talk directly to the farmers. We see them as partners and we aim to include the whole community,” she says. There are currently around 200,000 growers.

But it wasn’t simply a question of finding people to cultivate and harvest the berries. A processing facility was also required, along with a port close enough to the Rainforest.

The second challenge was to actually find a market for a product which had not gained the traction it enjoys today.

The company held a launch event at a vegan restaurant and invited journalists while also enlisting the help of influencers. Retailers were also invited. The company began to get its products into stores in Switzerland. Today, the U.K. market is a priority, with its products available through supermarket group, Waitrose, delivery service Ocado and the Whole Foods chain.

Business Impact

But is the business really helping the Rainforest in any measurable way? Rama points to a policy of fair pricing to ensure that farmers are not (and do not feel) exploited. And in terms of the farmers themselves and the local partners providing logistics and processing, the company carries out due diligence to ensure its own ESG policies are adhered to. There is a particular focus on biodiversity and climate.

Locking In Carbon

The company’s impact report claims to have stored 6.3 million metric tons of CO2 through preserving the Rainforest. Moving forward the goal is to remove 13.7 million metric tons of the gas by 2024.

But does this policy make a difference to customers? Rama says the company is targeting a mass audience across generations. Within that mix, some consumers will doubtless be influenced by the ethical stance of the company but others will be much more focused on the taste and reputed health benefits of the berry. But proveable positive impact is part of the mix. Customers, Rama says, are interested not only in health and the taste of the berry but also sustainability.

And that’s part of a bigger picture. If VCs were attracted by rapid sales growth and – as investor Futury put it – “internationalization and product expansion” – Rama aims to show the commercial goals can sit alongside forest preservation.

Ashley:
This is Real Estate Rookie episode 278.

Tony:
You should also look at the numbers and use that to help you kind of make a determination because, say that we look over the next year, over the next 12 months, and say that you’re trying to get 1,000 bucks for your place right now, but because you tried to get a $1,000, your place sits vacant for the next two months. Right? Over the course of that year, you have two months that are empty, so you’re going to make $1,000 over 10 months, which is $10,000. Say that you dropped the price from 1,000 to 950, and you rent it out this month, now you have a full 12 months. You’re actually going to make more. You’ll make $11,400 at 950 if it’s rinsed out for the entire year.

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

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey.
And I want to start today’s episode by shouting out someone by the username of RSGreen2. They left us a five-star review on Apple Podcast that says, “I tell everyone and anyone I can to listen to this podcast, especially when people ask me about where they can start. Tony and Ashley have great energy, and they keep things very tangible for listeners. Keep up the great work, Ashley, and keep laughing. Don’t let anyone tell you different. Life is too short.”
And, so, RSGreen, we appreciate you. And Ash, I got to say, I love your laugh as well. Don’t listen to the haters. Keep doing your thing. Keep living your life.

Ashley:
Well, thank you so much because it is physically impossible to stop laughing, so, here to stay. So, Tony, what’s new with you?

Tony:
We got this campground that we’re working on in West Virginia, so I’m super excited about that. And, honestly, by the time this episodes airs, I think we should hopefully have closed on it by now. But it was a deal that came to me actually on Instagram. One of my Instagram followers reached out to me. And most deals that get sent to me on Instagram are not all that good, but this one actually ended up checking out, so we’re super excited for it.
Right now, it’s got a single-family house plus a little … There’s a church on the grounds, and there’s a few RV pads, but we’re going to build out some really cool dome campsites there. So, we’re excited. It’ll be our first true commercial project and hopefully the first of many. So, just trying to do our due diligence right now and get the money lined up and take this thing down.
So, we had a failed attempt last year at our first commercial deal, so I’m hoping this one … hoping we actually make this one happen.

Ashley:
Yeah, I’m so excited for you. I got your newsletter that talked about the property the other day, and Daryl and I were reading through it. It looks so exciting and such a great opportunity.

Tony:
Yeah.

Ashley:
Okay, well, this week, we have, I think, five questions we actually go through today, five or six. And we talk about financing, getting bank financing, the differences between doing an adjustable-rate mortgage, a conventional mortgage, a second-home mortgage, lots of different things we talk about, and what are the pros and cons and what may be the best route for you, depending on your situation.
And then we go into estimating a rehab and some of the ways you can do that as a rookie investor.

Tony:
Yeah, we also talk about analyzing deals, and we talk about FSBOs and how to kind of negotiate with sellers, without your agent being present. And we also talk about renting your property out and how to not get screwed when you’re searching for tenants and make sure you’re getting the place filled. So, lots of good conversation for today.

Ashley:
We will also tell you what a FSBO is, for those of you that don’t know. So, listen for that, the [inaudible 00:03:33]-

Tony:
That don’t know.

Ashley:
Okay, so our first question today is from Ernesto, and this is in the Real Estate Rookie Facebook group. Guys, don’t forget, if you want to ask questions that we may answer on the show, you can go ahead and join the Real Estate Rookie Facebook group. Ask a question in there. Most likely, you are going to get a whole bunch of people, rookie investors and experienced investors, to answer your question before we get to it.
But to Ernesto’s question today is, “Is it possible to get a new mortgage in an LLC with 20 to 25% down? Also, what are the documents and requirements needed?”
And the answer to that is, yes, you can. That is actually typically what a commercial lender is looking for, is that 20 to 25% down. Sometimes, they may require 30% down or more. So, since this is going to be in an LLC, you are going to have to go to the commercial side of lending.
I have found one small, local bank that did allow you to get a loan on the residential side in an LLC but, most of the time, you’re going to have to go to a commercial lender, and you can do the 20 to 25% down. There are lots of different options for the commercial lending. For example, how long you’re going to amortize the loan. That will also affect your interest rate. If you’re going to do an ARM, an adjustable-rate mortgage, lots of different options on the commercial lending side.
I have not seen, on the commercial lending side, where they will let you put less than 20% down. I have seen on the residential side, where a small bank that’s going to hold the loan in-house will allow that, just because you’re buying below market value. But banks are really flexible, especially the small, local banks, where maybe that does happen where you can put less than 20% down.
Tony, have you ever seen that, where a commercial lender will put less than 20% down?

Tony:
No. Yeah, most of our debt, honestly, isn’t carried by our LLC. And the debt we do have in our LLC is from private money lenders. We’re usually going 0% down on those ones.
But I think my question to Ernesto would be, “What is your motivation, Ernesto, for getting the LLC and going after commercial debt?”
I think there’s a common misconception that you need an LLC to buy investment property or to get all the tax benefits to come along with being a real estate investor. And that’s not true. You can still claim all the deductions, even if the property’s in your personal name and even if the debt is in your personal name.
The LLC really comes if you’re worried about liability, right? Asset protection. And even still, there are ways to protect yourself from a liability perspective, without even creating the LLC.
So, I think that would be my first question, Ernesto. Because, a lot of times, you can get better debt if you’re able to get that debt in your own name.
Now, obviously, if you do go that route, a lot of times, banks are going to want to make sure you have the DTI to cover that. So, maybe if you’re going after commercial property, where they’re kind of looking at your … Gosh, why can’t I think of the name of the statement? Your personal financial statement, and they’re looking at the NOI of the property, that could be one reason.
But Ernesto, if you have the debt-to-income ratio, you have the credit scores to go out and get that debt by yourself, I might even say, it might be more beneficial to get something in your personal name.

Ashley:
And then, the second part of that question, was the documents required, and Tony touched on one of them, providing your personal financial statement, which lists your assets minus your liabilities.
So, if you own a primary residence, that would be your asset. If you have cash savings, that’d be an asset. Your liabilities would be the mortgage that’s on your primary residence, or if you have a car loan, things like that.
The next thing that you may need to supply, and these are especially if you’re going to be a personal guarantor on the loan. So, even though your LLC is getting the loan, the bank may require you, or ask of you, to be a personal guarantor, where you are signing, saying that if the LLC defaults on the loan, you are now personally liable to pay that loan. You do get a better interest rate if you do sign for that, and you may get better terms if you are a personal guarantor.
So, they may want two years of your personal tax return, if applicable, two years of your LLC tax return if it’s been open for two years, a profit and loss of the property you’re purchasing, also the rent roll of the property that you are purchasing. And then, they’ll probably run your credit too, as a personal guarantor.
They also will most likely require any partner that has more than … or has 20% or more ownership in the property too, to supply all of these things as well, such as their tax return, and to also be a personal guarantor.
I’ve never seen it, where, if somebody owns less than 20%, they require them to sign on the loan or to provide their information, but that could also possibly happen.
Okay, so let’s move on to our next question. This question is from Denise Biddinger, and this is also from the Real Estate Rookie Facebook group. “What’s the best way to structure a first-time partnership? Should we look for someone to split the cost of a mortgage, and each get a loan for the applicable half? Is that even an option? So, here’s some background on it. It’s a buy-and-hold. The property is listed at 265,000, the down payment only 20%, which is around 50,000, which, hopefully, would be funded by a partner. What other factors should I be considering? Thank you.”
So, this is something Tony and I talk about a lot. There is no right way to structure your first partnership. That is completely negotiable. You just want to make sure that it’s legal and that it’s all in writing.
So, I think Tony will be able to talk to this better on this one because, Tony, you do partner with people who bring the capital to deals and how you do your joint venture agreements.
For myself, personally, my first partnership, we did a 50-50 ownership. My partner brought the capital, but he also was the lien holder on the property. He held the mortgage, so the money we used to purchase the property, we were paying him back that money over a 15-year amortization, at 5.5% interest.
So, he was getting a monthly payment every month of principle and interest. He was also 50% owner of the property, so any equity by mortgage paid on, he was getting that advantage. He was also any appreciation into the property that was building equity. So, when we eventually sold, he got 50% of the profit. He also was getting 50% of the cash flow through the lifetime of that property that we had it.
So, Tony, do you want to go ahead and touch on the joint venture side of doing a partnership for your first deal?

Tony:
Yeah, so there’s a couple things you should look at, Denise. So, the first thing you said is, “Should we look for someone to split the cost of a mortgage, and then each get a loan for the applicable half?”
I’ve actually never seen that happen before, where you have two different partners, and each of them gets their own mortgage for their part of the property. Usually, if you’re going to do it that route, both of you would just be applying for the same mortgage.
But here’s the thing. I think, if you’re in a partnership, typically, you want the smallest amount of people on the mortgage as possible, because if one person can qualify for that loan by themselves, then it allows the next person in that partnership to get the subsequent loan. But if both of you are in that loan, now both of your DTIs are impacted. So, usually, you want the smallest number of people possible on the mortgages as you can.
But anyway, to kind of answer your question about how to structure it, there’s a few things to look at, Denise. You can look at mortgage. So, who’s going to carry the mortgage? The down payments of the capital, who’s going to bring that capital? And then, on the actual ownership of the property, you look at equity. How are we going to split ownership of this property? And then you look at profits. How will we split the actual profits of this property?
And you can tie in other things like, “Hey, is someone going to get a management fee for doing the day-to-day management of the property?” Or if someone does maintenance on the property, do you get an hourly fee for the maintenance piece? But I think those are the different levers you want to look at.
And it sounds like Denise, you’re looking for someone to bring the down payment, but it also seems like, if I’m reading this the right way, that you feel you have the ability to get approved for the loan. So, one easy way to do it would be to say, “Okay, look. I’m going to carry the mortgage. You’re going to bring the down payment capital.”
And you have to make sure that that money gets seasoned or that your lender’s okay with that person gifting that money to you. But say, you carry the mortgage. That person brings the down payment. And then you guys can say, “Hey, we’re going to split the profits down the middle 50/50. We’re going to split equity down the middle of 50/50.”
Or your partner could say, “Hey, since I brought the 50K, I want to make sure that whenever we sell the property, I get my 50K back first, and then we split whatever’s left over.”
So, there are a million different ways to kind of skin the cat here, Denise, but I think those are the things you want to look at, is your mortgage, your down payment, your equity, and your profits.

Ashley:
Okay, our next question is from Trevor Manning. He says, “Hi, Rookies. I’m going to start analyzing deals. I was wondering if there is a rough rule of thumb for estimating rehab costs, like an estimate per square foot, moderate, heavy rehab. It doesn’t have to be super accurate. I just want to get my hands dirty with practicing my analyzing. Have a great weekend.”
Okay, so this is such a hard thing, as a rookie starting out, is estimating the rehab. And even still, I struggle with it, as to there’s so many variables that come into play to get the perfect budget, the perfect estimate.
When I first started out doing full, heavy rehabs, I took on a partner who knew how to do construction, and that’s how I learned to do my estimates.
The first thing I would do is to look into the book Estimating Rehab Costs by J. Scott. It’s available on the BiggerPockets bookstore. And it’s not going to be able to tell you, “Okay, in your market, in your area, a painter is going to charge you $2.50 per square foot,” but it’s going to lay out everything. You should be getting quotes for, everything you should be estimating that you might be missing.
Another way to kind of look at it is, and this is very time-consuming, but once you do it one time, you can constantly reuse it for other properties, is build out your own kind of template, so you can at least get a very good idea of what the material cost will be.
So, you’re looking at a property. You’re looking at the listing online, or maybe you go to do an actual showing. Take tons of photos and videos of the property. Then, sit down and go, room by room.
Okay, so I always use the bathroom as an example. You’re looking at the bathroom. You want to rip the bathroom out and redo it. Okay. For the shower, maybe you know want to put in tile. You want to tile the whole shower. Okay, will they make a Schluter tile system. Okay? You can go and look at the price at Lowe’s, Home Depot, or whatever hardware store you use. Pull up the cost of that. You are going to link that to your spreadsheet.
Then, you are going to find a YouTube video that talks about what it takes to build out a tile shower. And you are going to say, “Okay, I need the grout. I need the tile. I need the thinset. I’ll need these other things. I’ll need the faucet. I’ll need the handle. I’ll need whatever else is in that video.” Make a list and build out that kind of worksheet, that template, and then go online to the hardware store and pull those things.
Okay, so a toilet, you’re going to need a wax seal to go with the toilet. You can google all this on YouTube. Put those things in there. Even if you don’t use that exact same toilet that you linked, it’s still going to give you a pretty good estimate of what your budget is going to need to be.
If you don’t know what toilet to pick, go ahead and pick one on the higher end, and if you end up getting one that’s cheaper, and it’s going to work just as well, then great. You just saved yourself 25, $30 right there. So, always overestimate. Go for the higher-priced item. You don’t want to blow your budget way out of the water by picking $10 per-square-foot tile if you’re just doing a rental property, where you could get away with $2 or $3 per-square-foot tile. It’s time-consuming, but I think that is a great way to kind of get an understanding of what materials cost.
And then, for as far as labor, call around and ask contractors, “What do you charge to install a toilet?” Ask other investors. James Dainard, we had him on. I’m sure Tony already has his episode numbers teed up, as to what episode that was. But he did this heavy, deep dive. And he has a template, where he knows that his painter charges X amount per square foot. So, when he’s estimating a rehab, he already knows, “Okay, this is a 2100 square-foot property. I’m going to times that by the $2.50 cents my painter, and that’s how much I should be charged for … That’s my estimate for the painting on the property.”
And the same for installing tile and all these different things, or even drywall. So, calling and kind of getting an idea. Of course, no contractor’s going to be able to tell you over the phone, “This is how much it would cost just for this,” but just an idea or a range can really help you kind of figure out.
And then, for kitchens too, call kitchen cabinet places that do the design and ask if they can give you a low-end model or low-end cabinetry, what the price point runs on that. If it’s 500 square-foot kitchen, things like that.
This is going to be time-consuming, but going around and visiting those different places, making the phone calls, looking things up online, it’s going to be worth it, if you really do want to have a more accurate estimate. And if that’s the one thing that’s holding you back from getting started, then it’s definitely worth the time doing this kind of research.

Tony:
Yeah, it’s a great breakdown, Ash. And, of course, I’ve got James’s episode teed up, so that was Episode 165 for Part One, and I think Part Two is 167, if I’m not mistaken, or 166, one of those ones.
So, Trevor, in addition to everything that Ashley said, I’ll just kind of share what my journey was when I was first starting out and what I did to try and estimate my rehab costs. And once I found my subject property, a property that I was looking at purchasing, I looked for other comps in that area that had recently sold, and I identified the comps that I liked, the ones that I was trying to emulate.
And I did two things, really. First, I went out, and I found another contractor and said, “Hey, here’s what I’m looking to turn this house into. Here’s what I’m looking to transform it into. Can you give me an example of projects you’ve recently done that looked like this?”
And this contractor said, “Yeah, here’s one or two properties that I did, that are similar to what you’re trying to do.”
And I said, “Okay, what was the cost for that property?”
And he told me, “Hey, it was, whatever, $70,000 to do that rehab.”
And then, that kind of gave me a ballpark, if I want to do a level of rehab, it’s going to cost me around 60 to $70,000 to do that.
And the other thing I did was I gave him photos of what the property looks like today, the current state of that property, and I showed him those comps that I was looking at, and said, “Hey, to get a property like this, to look like this, what do you think it would cost me?”
And he said, “Okay, it’s going to cost you around this much.”
So, now, I’ve got these concrete numbers of what he charged his previous clients to do these rehabs, and I’ve now got this ballpark of what he’s going to charge me to take this property that I’m looking at and turn it into something new. And with those, it gave me a pretty decent ballpark on what I would be spending to kind of get the level of rehab that I was looking for.
So, I think, Trevor, talking to other investors in your market and asking them what they’re spending on a price per-square-foot is super important. And then, also, just going to the folks that are going to be doing the work and getting their opinion.
It is incredibly difficult, Trevor, for me or Ashley to say, “Hey, use this price per-square-foot in your market,” because it’s what Ashley spends in Buffalo is going to be very different than what I spend in Southern California, and it’s going to be very different than what you spend in whatever city or state you’re in. So, you do have to kind of get localized information to make your best guess.

Ashley:
Yeah, the last thing I would add on to that too is, even when you’re just in Lowe’s, if you keep an eye out, they usually have signs saying like, “We will install your flooring. We’ll install your bathtub.” Find out what their pricing is on that. And a lot of times, they actually do provide free quotes too, where they will send someone out. But sometimes, they will say, “We have a special going on. Our rate is usually $5 per square foot to install flooring, the luxury vinyl plank, but for this week only, we’re doing it for X amount.”
But you can at least see how their pricing kind of varies, and you can use that, too as kind of a starting point as to what the prices are.

Tony:
Ash, I’m just curious, have you ever not used LVP in your properties? Have you ever done, I don’t know, tile, actual tile, in your properties or, I don’t know, what’s the old linoleum type, or do you always go LVP?

Ashley:
Recently, always LVP. I’ve done tile showers and tile in bathrooms. I don’t think ever tile in a kitchen before for a rental property, but I’ve definitely done the tile shower, the tile in the bathroom floor, and then luxury vinyl plank throughout. I, actually, in one unit right now, that I just did a big turnover, and when we ripped up the carpets from when I bought it, we were going to put the LVP down, but it actually had hardwood floors. And it was cheaper to refinish the hardwoods, than it was to rip the carpet out or to put LVP into that unit.
And then, the A-Frame, the short-term rental, we did do tile in that bathroom and the shower too, but that was the rest was all LVP in there. Yeah.
And then, in the apartment complexes that I asset-manage for, we do linoleum in the kitchen, in the bathroom, but we’re slowly changing that into LVP, as people move out and just keeping it consistent the whole way through.

Tony:
Yeah, same for us. We tile all of our bathrooms, the bathroom floors, the shower floor, the shower walls, we always tile those. We have patios in most of our backyards. We will tile the outside with some nice tile as well. And then, everything else is a really nice LVP also. I’m just curious because one of my friends, this is in primary residence, and instead of doing LVP, he just tiled the entire inside of his house. And it almost looked like LVP, but it was tile. And he told me that they were thinking about doing LVP, but it ended up being cheaper to do that tile. So, I was just curious if you ever tried anything like that before.

Ashley:
Yeah, actually, in this property that I’m in right now, I wish … There’s the whole stacking. You can kind of see it, the whole pallet of flooring right there, and it’s LVP, but I wish that I would’ve done tile in this one throughout.
My aunt and uncle did that. They actually ripped up all of their hardwoods in their house and put tile that looks like wood on it, just because of the durability. Their dogs were scratching up the hardwoods.
My house that I built, we did tile in the kitchen and the bathrooms and the laundry room, but the rest … in the mudroom, but then the rest is all the hardwoods. I hate it so much. The first couple years living in that house, I would cringe every time a toy dropped onto the floor or whatever. Now, there’s dings and scratches and everything throughout it, but it’s also LVP, I think, is a lot easier to keep clean too, but also a lot more durable than the hardwoods too. So, I just don’t care for hardwoods anymore.

Tony:
Yeah.

Ashley:
Okay. So, our next question is from Jordan Alexander, and it is, “Would you go with a conventional second home mortgage at 10% down, with long-term fixed, or start an in-house portfolio relationship with a lender at 15% down, 5% interest, and a 20-year amortization?”
Okay, so, my opinion on that is, what is your why, first of all? Are you going for cash flow? Are you going for appreciation? Are you going to build this huge portfolio, where you think that doing this one loan differently with the lender is going to give you years of great business with them?
I think run the numbers and what’s going to give you the better cash flow. If you can get both of those, look at five years down the road, where you’re getting the better return on those things.
Doing the in-house portfolio loan, if you work with that lender to do the portfolio loan, or you work with them to do the second home mortgage, you’re still going to be establishing a relationship by working with that loan officer, no matter what type of loan product you are doing.
So, in my opinion, I would recommend doing the 10% down and getting that 30-year fixed mortgage on that, with a lower interest rate. The 5% interest for the second one that you mentioned with the 20-year amortization and putting a little bit more down, maybe that is a lower interest rate right now. I’m not sure when this post was done or what it would be for the second home mortgage, but 5% interest doesn’t sound that bad for me now.
I’m doing … helping my business partner. He’s doing a loan right now on a primary residence. And when I was filling out some of his paperwork, it was 5.125% that he was getting, but it’s a 7/1 ARM, so it’s only fixed for seven years, and then he’ll go and refinance it, depending when … what rates are, or probably just pay it off.
But Tony, what do you think about that? And also, Tony, I have another question for you too, are you … And I heard this. This was a rumor that was swirling around, and I keep forgetting to ask you if it’s true, are banks getting more strict on lending the second home mortgage, that the 10% down is going away?

Tony:
Yeah, it’s a great call-out, Ash. What I was going to mention is, as I talked about Jordan’s question here, is that banks aren’t necessarily getting away from the second home mortgage, but they are becoming more expensive. So, they’re still 10% down, but a lot of banks are now adding additional points, on top of the 10% down payment, that almost makes it less desirable for people.
So, we haven’t closed on a 10% down second home loan in a while, and we’ve been going with 15% down investor loans because, when we add up the total cost of the debt, it’s actually been cheaper to go with a 15% down loan with no points, versus a 10% down with all the added points and fees.
So, I think I would answer Jordan’s question in a very similar way, Ashley, where it’s like, “Jordan, you got to look at the total cost of the debt and understand, between the second home mortgage and that portfolio loan, which one’s going to allow you to achieve better returns and better cash flow long-term?”
Like Ash said, I mean, 5%, if that’s today’s rates, that’s pretty good. So, I might be interested in doing that. You didn’t mention what the term was for that, so I don’t know if that’s a three-year term, a five-year term, but 5% does seem pretty solid. But yeah, I would definitely just run the numbers and try and figure out which one makes the most sense.
So, just before we close this one out, I just want to talk about what points are and how it adds to your closing costs. So, one point is essentially 1% of your mortgage amount. So, if I had $100 of mortgage, one point would be 1%, which is $1.
So, as you add these additional points, it really can start to add up, especially if you’re buying a house for 300,000, 400,000, 500,000, $800,000, one point can make a pretty big difference in what your down payment cost is.
So, you want to make sure that you understand, not just the down payment percentage, but also the additional points and fees that are being added onto that, because when you close on that property, it’s the down payment, plus all the closing costs, which includes those fees and points.

Ashley:
I’ve seen banks doing a lot of options for people, is that they’ll offer, if you pay points, you get an interest rate buydown. So, say, for example, your interest rate is 6%, if you pay one point, they’ll knock it down to 5.8% or something like that.
So, what you have to do in those scenarios, is you have to look at, “Okay, how much more money am I going to have to put down?” So, one point, say it’s a $300,000 property, that’s $3,000 added to your closing cost, but let’s look at over how much interest are you saving by having that interest rate knocked down a little bit and is it worth it?
Also, look at your monthly payment too. How much extra cash flow will you actually have and how long until you can get that $3,000 back, that you put up, up front? Or is it worth it taking higher interest rate and not having to put more money into the deal upfront too?
So, just a couple things to think about, as lenders are trying to get creative to attract people when those interest rates are higher by offering those point paydowns. So, just make sure you’re understanding if it really is a better option for you or not. And I’ve seen it up to three points, where you can pay 3%, to get your interest rate knocked down a little bit.

Tony:
Yeah, just really quick, Ash, before we go to the next one. I know we’ve talked about NACA before. And I recently had a guest on that used NACA as well. And NACA’s like a loan program, that helps people buy properties. And they’re really good at allowing you to buy down your interest rate as well. And when interest rates were super low, I know some people that were getting NACA loans below 1%, which is crazy to think about. That’s literally almost free money.
So, yeah, if you are able to buydown your rates, it can be beneficial in the right environment.

Ashley:
Okay, our next question is from Preston Wallace. “Listed my first rental about two weeks ago. I have had a few people reach out about applying, but never complete the process. I am using a property manager, as I have moved a little over an hour away. At what point do you all consider reducing the ask on the monthly rent? I did a fair amount of research in the area and even priced rent about $50 lower than a few comparables in the neighborhood that rents it out in January. I can afford to pay the mortgage without the rent, but at the same time, I don’t want to have it vacant for much longer.”
So, the first thing I would look at is to the property management company or your property manager. What are the things that they are doing to market your property? If you search your property, or you search, say, the properties in Buffalo. Apartments for rent, Buffalo, New York. Two-bedroom apartment in Buffalo, New York, or whatever the city is that your property is in.
Where do you see the listing? Is it in multiple places? Is it being blasted out to 10 different places? Is there a sign in the front of the yard? So, that’s the first piece I would look at, is the actual marketing of the unit.
And then, I would take your property manager’s advice. They’re the expert, supposed to be the expert, in that market, and get their opinion as to, “Okay, this is listed, what I thought was below $50 before comparables in the area. In your experience, what do you think is the difference between my unit and these other units?” So, maybe these other units have a washer and dryer, and yours doesn’t. And that’s actually becoming more of a big deal than it isn’t. And then, see if there’s an opportunity, for whatever you are missing, to add that into it.
So, maybe these other properties allow pets, and you don’t allow pets. Okay, maybe do reconsider and allow a pet and charge a pet fee upon move-in? Things like that.
So, that’s what I would kind of do some research, before you actually go in and decrease the rent any further than what you have.

Tony:
Yeah, I think the only other thing I’d ask that, Preston, is that you should also look at the numbers and use that to help you kind of make a determination because, say that we look over the next year, over the next 12 months, and say that you’re trying to get a 1,000 bucks for your place right now, but because you tried to get $1,000, your place sits vacant for the next two months. Right? Over the course of that year, you have two months that are empty. So, you’re going to make $1,000 over 10 months, which is $10,000. Say that you dropped the price from 1,000 to 950, and you rent it out this month, now you have a full 12 months, you’re actually going to make more. You’ll make $11,400 at 950 if it’s rented out for the entire year.
And, so, I didn’t even include the fact that you have to pay the mortgage yourself for those two months of the property sitting vacant. So, sometimes, you can make more money by reducing your rent. So, I think just take that into consideration as well, where sometimes real estate investors get so fixated on the monthly amount, they don’t realize the impact that it’s having on vacancy, which is the biggest expense for us, as real estate investors.

Ashley:
And the last thing to add onto that, that’s great advice, Tony, the one thing to be careful with that is don’t … You want to fill that unit. Don’t just take on the first person that applies for your unit and risk getting a bad tenant in. The one time it is good to wait and have that little bit longer vacancy is waiting for a good tenant, and not just settling because you want to get it rented super quick. And then, the people end up trashing the house, and you saw all the red flags, but you just wanted to get it rented. So, that would be my one cautionary tale.
Okay, our last question today on Rookie Reply is from Samuel Hall. “A FSBO, which is For Sale By Owner, has agreed to move forward with my offer. However, they want me to provide comps, comparables, to them. How would you handle this?”
Well, I think this is a great situation for you to control, Samuel. They want you to provide the comps, instead of them going out and finding their own comps. So, I think you can definitely use this to your advantage. So, go onto the MLS, Zillow, realtor.com or whatever, and I would look at comparable properties that have sold in that area, not what things are listed at, because just because they’re listed at something, does not mean they’re actually going to sell for that.
I would also go to propstream.com. They have a free seven-day trial, so just use it for the seven days, and you can cancel it or you can keep it if you love it. But you’ll also be able to pull comparables from there too, by putting in the address, and there’s a little button you push to look at comps in the area.
So, you’re going to compare bedroom count, bathroom count, but also square footage, and then finishes of the property. If you find a property that’s $400,000, but it fits every check box, but it has all these high-end finishes, where yours is still designed in the ’60s, that’s not going to be a good comparable, or you’re going to have to adjust your comparable by showing this house has an extra $100,000 of upgrades in it that this person’s house doesn’t have.
The place that I would be cautious about that is this person probably has this sentimental value to their property, so try not to bash their property by saying, “Oh, these comparables are way better than yours. That’s why I am looking at something different.”
So, even look at, see if you can find a property that is worse than theirs, or level as there’s, and it sold for actually what you are going to pay for it. But I think you do have an advantage by picking and choosing what comps you use, to make your offer look more favorable.

Tony:
Yeah, I think the only thing I’d add to that is, also include, Samuel, and I’m making an assumption here that there’s some work to be done, but I would also include what you predict your rehab budget to be. So, you can go to the seller and say, “Look, I’m buying this property from you for X, but I also need to invest another 10, 20, 50, $100,000 to make this property even livable for the next person. So, I’m taking on all of the work that you don’t want to do.”
And the last thing you can tell the seller is like, “Look, Mr. And Mrs. Seller, I’m going to buy the property completely as is. You literally don’t have to lift a finger. If you want to just leave all the trash here, leave the trash air. If you want to do … Don’t touch anything, I’ll take care of everything. But just know I also have to put a little bit of work into it myself.”
We’ve used that tactic a couple times with some off-market deals we’ve purchased, and it’s been helpful to say, “Look, we get that you have the sentimental value, but for us, it also is a business for us as well, and here’s what we’re going to have to spend to make this worthwhile.”
So, I found that to be helpful when you’re negotiating with folks also.

Ashley:
Yeah, that’s really good advice. So, the more information you can provide as to … that’s going to be to your benefit, the better.
Well, thank you, guys, so much for joining us for this week’s Rookie Reply. If you guys are watching this on YouTube, make sure you are subscribed to the channel, and you like this video for us, and leave a comment below, as to what question and answer you found the most valuable this week. And don’t forget to leave us a review if you are listening on your favorite podcast platform.
Thank you, guys so much. I’m Ashley @wealthfromrentals, and he is Tony @tonyjrobinson, and we’ll be back on Wednesday with a guest.
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