\n<\/p>\n
Have <\/strong>home equity<\/strong><\/a>?<\/strong> Well, you could <\/strong>retire early<\/strong><\/a>, thanks to it. If you bought a house from 2009 up until 2021, there\u2019s a good chance you could be sitting on tens of thousands, hundreds of thousands, or millions of dollars in equity. But equity just sitting in a property isn\u2019t doing much for you<\/strong> unless you can use it to retire early! Want to know how? Stick around; we\u2019ll show you!<\/p>\n We\u2019re back on another Seeing Greene <\/strong>where average investor Rob Abasolo<\/strong> joins buff, strong, beautiful, and bald David Greene<\/strong> to answer your real estate investing questions. In today\u2019s show, we talk to Anthony<\/strong>, a slow-and-steady investor who\u2019s built up an impressive amount of equity<\/strong> over the past decade. He wants to retire early and use his equity to increase monthly cash flow<\/strong>. But what\u2019s the best way to do it?<\/p>\n Next, we share some public loathing of HOAs (homeowners associations)<\/strong><\/a> and how they can be the bane of your investing existence<\/strong>, plus when it\u2019s time to sell a property in an HOA. Finally, an investor who is STRUGGLING to pay off her <\/strong>HELOC<\/strong><\/a> asks what the next best move to make is: work hard to pay it off the old-fashioned way or leverage ANOTHER investment to become debt-free<\/strong><\/a> faster.<\/p>\n David: Rob: David: Rob: David: Anthony: Rob: Anthony: Rob: Anthony: Rob: Anthony: Rob: Anthony: Rob: Anthony: Rob: Anthony: Rob: Anthony: David: Anthony: Rob: Anthony: Rob: Anthony: Rob: Anthony: Rob: Anthony: Rob: David: Rob: Anthony: Rob: Anthony: Rob: Anthony: David: Rob: Anthony: David: Anthony: David: Rob: David: Rob: Anthony: David: Anthony: David: Anthony: David: Anthony: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Francesco: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: \u00a0<\/p>\n \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the BiggerPockets Podcast, show 849. What\u2019s going on everyone? It\u2019s David Greene, your host of the BiggerPockets Real Estate Podcast, the number one real estate podcast in the world every week, bringing you up-to-date information, how-tos and stories of successful investors that include how they did it and how you can to. Today\u2019s episode is a Seeing Greene show and I brought in some support. Rob Abasolo joins me today as we answer your questions, our loyal listener base and we walk through what to do in different real estate conundrums. Today\u2019s show we are going to cover a flip gone wrong with HELOC interest eating at a bank account, what happens when HELOCs turn against you, why we would sell a particular deal that\u2019s doing well because it\u2019s in an HOA.
And we also had one listener submit a question that was so good, we were incredibly intrigued that we had to bring them in to talk to them personally to get more information and give as solid of real estate investing and financial advice as we possibly could. You\u2019re going to love today\u2019s show. The topics are relevant for everybody that\u2019s trying to invest and make it work in today\u2019s market, which is the trickiest market that I\u2019ve ever seen. Rob, what were some things that you think people need to keep an eye out for in today\u2019s show?<\/p>\n
This is a good one, man. This keeps us on our toes. As investors I feel like we always understand the core concepts and fundamentals of investing, so it is always nice to answer some of these questions that are hyper-specific and hyper nuanced, because it forces us to think outside of the boilerplate investing advice sometimes and a little bit more like, okay, if we were going to apply this stuff, here\u2019s what exactly what we do from a tactical standpoint day by day in our operations.<\/p>\n
In the real estate education space, which is where we are, it\u2019s been ridiculously easy to give advice in the last decade. It was like, here\u2019s how you calculate a property. It\u2019s like, here\u2019s how you analyze a property to calculate cash to cash return. Now go buy it. The market is becoming so challenging that you\u2019re starting to separate the men from the boys, the women from the girls. It\u2019s getting trickier. And so in today\u2019s show we\u2019re actually going to break down some of the nuances that people need to be looking at when they\u2019re investing to make sure that they don\u2019t lose money. Now, if you would like to be featured on a Seeing Greene episode, we would love to have you. Head over to biggerpockets.com\/david. The link is in the description, so pause this, send me your question and jump back in to listen to today\u2019s amazing show.
Before we get into our first question, I\u2019ve got a quick tip for all of you. Learn and take action. If you like what I talk about or what Rob says and you want to explore new real estate topics, head over to the biggerpockets.com\/store website and get up to 60% off for cyber money on so many great books and use the code, books 849, for an additional 10% off. So today\u2019s episode is 849. If you use the code books 849, you can get 10% off of the already discounted books in the store. I\u2019ve got several of them and which to pick up. Pillars just made the Wall Street Journal bestseller list.<\/p>\n
Nice. Congrats.<\/p>\n
Thank you. So if you don\u2019t want to miss out, join the movement. That is the three pillared approach to building wealth. Pick that one up as well as some other BiggerPockets incredible additions. All right, Anthony is a longtime investor in California and Hawaii, much like me, and he joins us in the recording studio to talk about what to do once you\u2019ve built up some equity. Anthony, it\u2019s great to have you.<\/p>\n
So let me give you just a brief, I guess, I hope it\u2019s brief background. I started real estate investing in 2009\/10. I\u2019ve done hard money loans, did the fix up rehab, cashed out a lot, not a lot, not a bunch, but put a little cap money in my pocket, which was able to get me to the next property and the next property. I\u2019ve done that a few times to be quite honest in crappy markets. But it\u2019s gotten me to the point today where I\u2019ve done that, traded up through 1031 tax exchange and was able to get into better properties. Here in Hawaii now I\u2019m sitting on some nice real estate. One property is worth quite a bit. It\u2019s hard to put a number on it, but if you look at comps just on whatever, Zillow or whatnot, I\u2019m putting one property at somewhere around two million, owe 290,000 on it, tons of equity.
I have another piece of property in a small community in Southern California, I bought for 48K, worth about 250 now. I own those by myself. My wife and I own our primary residence, which we purchased for 595, probably worth about 1.4 to 1.5 now. And we purchased a vacant lot attached to our primary home for 195, probably worth 875 now. I\u2019m sitting on a ton of equity. Yay. Yeah, and hey and look, and I\u2019m making good cashflow on my rental. It\u2019s grossing about 10,820 a month once you break it all down, I\u2019m roughly cash flowing 6K a month-ish. But I\u2019m using that cashflow to support our life here because it\u2019s a single income household. I\u2019m only making about 82K a year with my job. That\u2019s not a lot in Hawaii. I\u2019m going down a limb here, but I\u2019m going to say that\u2019s not much over poverty line here in Hawaii, because everything costs double. A two by four here costs $6.25. I don\u2019t know what it costs on the mainland, but I feel everything-<\/p>\n
$2.25. $3.<\/p>\n
Yeah, right. Everything I do out here costs me double. I do all my own rehabs as I mentioned earlier, tradesmen. I do all my work while having a full-time job. So when I was rehabbing that one property, man, I was working around the clock, literally just the only time I\u2019d see my lady was I\u2019d be in the shower and she\u2019d serve me lunch while I was showering, getting ready to go to work. And I did that for two years. But look at where I am. So I\u2019m super happy. I got a lot of equity, feeling great about that, but I\u2019m equity debt up to here and don\u2019t care. I\u2019m trying to get HELOC, man, just throwing up bricks, man. I\u2019m not getting any traction there. I just went with a lender just recently last week, matter of fact yesterday called him back, finally got him on the phone after three calls.
They\u2019re like, we\u2019re not going to do the HELOC in second position on a rental property, but we got a HE loan. I\u2019m like, that\u2019s great. It does me no good. I need the credit card effect. I don\u2019t have any deals. I\u2019m not going to take a loan and just start paying for it monthly with nothing in the pipeline. So really where I\u2019m stuck is tons of equity. I\u2019m 53. I\u2019m pretty bused up. I\u2019ve been doing a lot of work for a long time and my body hurts and I want to try to find a different path to continue investing in real estate and I really need to go after more cashflow. I want to retire, but I want to retire to make a W2 an option, but I want to focus more on real estate. If I just buy one house a year, fix it up, add to the portfolio, add more cashflow, I\u2019m super happy about that.
One additive piece of information, we are in the process of changing the lot lines between the upper lot and the lower lot and then we\u2019re going to sell that 1031 into a community in California where we should be hitting about 2000 to 2,400 bucks a month cashflow based on my calculations so far. So that\u2019s going to be a great boost, but I\u2019m just trying to find the path forward and I\u2019m having a hard time as I\u2019ve analyzed probably 30 or 40 deals in the last month and I keep coming up with donuts.<\/p>\n
Okay. So the main crux of it is you\u2019ve got a lot of equity and you can\u2019t really use it. Right? That\u2019s the main problem. And if you could tap into that equity, you would use the equity?<\/p>\n
100%. I\u2019d basically be my own hard moneylender or private moneylender, however, whatever you want to use. I\u2019d go and buy it, fix it up, refi out, take the money back out, do it over again.<\/p>\n
Okay. And then do you have any capital to put towards anything?<\/p>\n
Liquid not a bunch. I just built a bunch of retaining walls. I just spent a lot of cash over the last year, maybe 150K fixing up the properties and so I\u2019m probably sitting on about 90 ish K.<\/p>\n
And then the only way you can really get cash is by the lot line adjustment where you\u2019re going to sell a lot off and then that will be your watt of cash that you\u2019re then going to go and invest in a southern California community?<\/p>\n
That\u2019s correct.<\/p>\n
Okay. Is there any opportunity, just out of curiosity, to go with a new construction lender that can use your land as equity towards the down payment basically, or use the equity in your land towards the down payment and then build on that piece of land?<\/p>\n
That is an option, but we\u2019ve been here in Hawaii 11 years and my wife has not really had a job because of what she does. She\u2019s a doctor of traditional Chinese and medicine acupuncturist and they don\u2019t recognize her license here, so its been single income, so I\u2019ve been floating the bill for her and her mom. So at one point we were Airbnbing and crushing it from 2016 to right up into the pandemic, but Hawaii abolished that. They\u2019re super not into it. Get it, understand. So that was good. That was awesome. And I want to get back to the mainland and do that. She was amazing. She was a super host, she was fantastic at it. Between the two of us, we really crushed in that. I can\u2019t wait to get back into that, because it\u2019s cool meeting new people from everywhere and it\u2019s a business and it\u2019s a lot of work, but I\u2019m a donkey and an ox, so it\u2019s all good.<\/p>\n
Great, great. Okay. But what\u2019s the reason for not maybe turning over the stone on building a new construction on that lot? Is it because you can\u2019t STR it?<\/p>\n
No, she wants off the island. She wants to go back to where she can have dignity of income, she can have her own life. Here it\u2019s kind of one-sided, I\u2019m working around the clock and she\u2019s not. It\u2019s super imbalanced. And to be fair to her, she\u2019s spent 11 years of her life here with me supporting me and building this small empire we have, but I\u2019ve got to give her, I got to be fair.<\/p>\n
Got it, got it. Okay, so you want off the island and that\u2019s why you\u2019re okay with selling that one lot.<\/p>\n
We are open to selling the house, but I\u2019m like we\u2019re going to have good cashflow. Let\u2019s not do that. Because once we move out, I did a light numbers, once we move out and rent this out because basically it\u2019s a duplex upstairs, downstairs, we should be looking at roughly a cashflow of 2100 bucks a month. So between the property, potentially we\u2019ll 1031 and two on the mainland, we\u2019re looking at 5K a month in cashflow. That\u2019s gross cashflow. That\u2019s not accounting for some of the fix up and this and that, but still 5K a month, for most people that\u2019s a monthly income from a W2.<\/p>\n
And that\u2019s in addition to the 6K that you\u2019re getting currently?<\/p>\n
Correct.<\/p>\n
Does that put you at 11?<\/p>\n
Yeah. I\u2019m trying to get to 15, trying to 15 or 18. If I broke down all my numbers, basic household expenses, travel expenses and reinvestment expenses, if I hit 15 to 16K a month, I can basically retire and write my own story.<\/p>\n
So we are going to have some cash and we\u2019re trying to make four to $5,000 extra thousand dollars a month?<\/p>\n
Correct.<\/p>\n
And then how much cash will we have to do that outside? Is it the 90 or is it the 90 plus the lot sale money?<\/p>\n
With the lot money, I would like to, that\u2019s 1031 and with my cash on hand, I would like to get into a new acquisition if possible.<\/p>\n
So how much will that be total?<\/p>\n
Well, let\u2019s say we can get 875 for the lot after fees and expenses, whatever we got 825, 800,000 leftover, so we\u2019re close to 890, let\u2019s call it 890. Simple math.<\/p>\n
It\u2019s a good problem to have. You\u2019re like, I\u2019m trying to make $4,000, but I only have $900,000. It\u2019s like, okay, well at least you don\u2019t have 5,000, you have 900,000. If you could just even squeak out, what? A 10% return, you\u2019re looking at, what is that? Nine grand a month? Am I mouthing that out correctly?<\/p>\n
No, that\u2019ll be a little bit, that\u2019d be a 12% return.<\/p>\n
But 80, 8500 or something like that, right?<\/p>\n
Yeah.<\/p>\n
So it almost feels like you could just, how close are you all to retirement? How many years away?<\/p>\n
As stated I\u2019m 53 and I\u2019m pretty beat up, so I\u2019m ready right now. But like I said, retirement would continue with real estate.<\/p>\n
Well, because it feels like typically I\u2019d say if you were on the front end of the journey, it\u2019s like aggressive, aggressive, short-term rentals as you transition to the second half of the journey. That\u2019s where I feel like going more the long-term route\u2019s not a bad call. It just takes a lot of acquisitions to do that. However you have the capital to do something like that. I might consider moving into some kind of, I know you like short-term rentals, so maybe you could consider a small multifamily that brings everything together. I\u2019m a big fan of this model. I\u2019m trying to crack this right now with a couple of deals that I\u2019m working through, but small multifamilies that basically let me short-term rent a couple, medium term rent a couple, long-term rent a couple.
That way I\u2019m not taking on the complete risk of turning it all into a short-term rental and I\u2019m not sacrificing a ton of cashflow by making it all a long-term rental and I\u2019m getting a diversified set of income from that. So is that something that would be interesting to you is maybe getting into the multifamily space on a small level?<\/p>\n
I forgot to mention, so I\u2019ve probably, like I said, I ran about 30 or 40 single family analysis. I\u2019ve also probably done about 10 multifamily. I\u2019m looking for anything from four units to 60 units, whatever. I\u2019ve been looking at everything because I have-<\/p>\n
That\u2019s where my mind went. I think you need to get out into a better asset class. I think you need to get into the multifamily space especially because I think you\u2019re going to be seeing some opportunity there in the next couple of years. We\u2019re already starting to see opportunity there. Rates are really high and you\u2019ve got cash, so these high rates aren\u2019t going to hurt you as much as your competition. Everyone else competing with these assets, they\u2019re trying to go and put 20% down. They\u2019re trying to stretch that 20% as far as they possibly can, and it has to cashflow and it has to get a high cash on cash return and it has to be in an area that isn\u2019t going to cause them a headache. All these requirements to what you\u2019re trying to find in an asset, it\u2019s really hard to find, everyone complains, real estate sucks.
Well, you\u2019re going to be going in there $900,000. If let\u2019s say you buy a $1.5 million asset, you got to borrow 600 grand. Yeah, those high rates suck, but they suck a lot less for you at 600 grand than somebody else would if they had to borrow 1.3 or 1.2, something like that to buy the same asset. Or even you buy something cash. You could go in there and buy something for $900,000 that nobody else, and maybe it\u2019s worth a little bit more than that, but they can\u2019t find a buyer, because where rates are, it doesn\u2019t work for another competitor, right? I\u2019d love to see you sell something out there that\u2019s got a lot of equity and no cashflow and exchange it for something that\u2019s meant to cashflow like commercial property.<\/p>\n
I don\u2019t even know if you\u2019d need to go multifamily with that strategy. Whatever you want, but I think yeah, if you were open to that idea of just 1030, look, most real estate investors would be very angry at this advice, but if you did pay cash for a $900,000 property, you could totally make $5,000 a month on a short-term rental. If you just went and bought a cabin in the Smoky Mountains, a lot of cabins out there will gross 80 to $120,000 if it\u2019s like a four or five bedroom. And I think you could probably lock one down if it was an all cash offer. Granted you\u2019re going to work for it. You still have to run the business and everything like that. That would be one option. The other thing I was going to say is you said you\u2019re tired, right?
If you just invested in some fund or syndication that oftentimes a lot of these right now are offering an 8% pref on the money that you\u2019re investing, 8% on 895 is like $71,000, which is about 5,900 bucks a month. That would also get you to that and it would be 100% passive. Obviously you\u2019d have to do your due diligence and you probably don\u2019t want to put it all into one fund, put it into different to diversify, but that would be a way to just completely be passive and not even have to worry about working for it. So it just depends on do you want it to be completely passive or do you want to work for it and make a little bit more money?<\/p>\n
One thing I should have added, so I apologize, but I\u2019m 100% on board with the multifamily, because my wife and I own that lower lot together. She really has her heart set on eventually getting to this community we would buy in. So that money\u2019s earmarked for a very specific location, so we\u2019re going to use that money for her wishes, to where we\u2019re going to eventually end up. And as far as the syndication thing is, I\u2019ve looked into it a little bit, and with real estate, with the hard asset, the property itself, I can analyze it, I can figure it out, and I know I\u2019m the captain of the boat and I\u2019m not going to let myself down. I feel with the syndication I have to vet the property and the people.
I was listening to the BP, BiggerPockets podcast, no, maybe it was On the Market maybe and there was that syndication lost like 3,200 units and I\u2019m like, yeah, that would really suck. So who wants to be part of that? I\u2019m a little too conservative maybe. Right now I\u2019m sitting around waiting to do something. I\u2019m buying T-bills for like 5.5%, right? I\u2019m like, oh, that\u2019s cool. I\u2019m into that. No toilets, no roofs, and the variable, that latent threat of someone messing me up. I think I\u2019d rather just me staying charge. I know I\u2019m not going to screw myself.<\/p>\n
That\u2019s what I like about multifamily. You buy a 25 unit complex somewhere if you have to finance, you just don\u2019t finance as much of it. You definitely don\u2019t finance 80%, you do much less. You have enough revenue coming off that you can put a management system in place where somebody else is the frontline that absorbs all the garbage and then you just tell them how you want them to handle the problems and then they go execute it. Similar to a short-term rental, you could do something similar to that. It\u2019s the asset you put your money in, Anthony, that\u2019s going to make the difference in the quality of life, not the ROI. Don\u2019t go chasing after the most growth you can get. That worked great to get you to this point. You\u2019re actually the poster child of what I tell everyone they should be doing, is stop focusing on cashflow when you\u2019re a young able-bodied person that can work.
Focus on equity growth when that\u2019s the case. And then when you get to the point of life where you\u2019re like, I don\u2019t want to work as much like what you\u2019re saying, take all that equity, convert it into cashflow, and now you\u2019ve got the perfect transition here. So even though you may feel frustrated you\u2019ve got all this equity in Hawaii and you can\u2019t cashflow with it, you are actually the person that did everything right. You\u2019re sitting on an incredible gold mine of several million dollars of equity and you don\u2019t need to live in your primary residence. You\u2019re thinking about leaving Hawaii. My brother, just like don\u2019t put all three million into one deal and make mistakes and learn the hard way. Okay? Gently go out there and tip your toe into the water and see what it\u2019s like before you put all of the money in there, but put this into assets that are meant to cashflow.
Single family homes, though they do cashflow and they can cashflow, were never meant to cashflow. We have to find the perfect scenario in order to get that to happen, which was pretty easy the last 10 years, getting a lot harder right now. We\u2019re also probably heading into some economic recession where I don\u2019t think residential values are going to plummet, but I do think that it\u2019s going to be harder to find tenants. It\u2019s going to be harder to get people to pay their rents. It\u2019s going to be harder to find opportunities. I think the world, at least in our country, is about to hit a crunch. We\u2019re going to feel it like we haven\u2019t had to feel it before.
So think about the location. You want to be buying somewhere where there\u2019s going to be steady jobs, where they\u2019re not as likely to get laid off and if you don\u2019t have any leverage, you\u2019ll survive the storm that other people don\u2019t. And if you keep some of that powder dry, you\u2019ll just start seeing more and more deals are going to start popping up. People running into financial problem, people can\u2019t make their debt service payments. People that have too much vacancy and they can\u2019t float it. And I think that you\u2019ll be able to start gobbling some of these things up. We don\u2019t talk about it, but when rates are high, having a whole lot of cash is a really good thing.<\/p>\n
Yes sir. I appreciate that poster child thing, man, because half the time I feel like a boob. I\u2019m like, man, I\u2019ve been doing this 14 years and I still feel like an idiot.<\/p>\n
Brother, there\u2019s someone that could be making 20 grand a month in cashflow and that comes out to a little bit less than a quarter million dollars in a year, right? It would take that same person like 13, 14 years to get to where you are right now, and that\u2019s assuming that your equity never grows. And that\u2019s a 20 grand a month of cashflow that most people would give their right arm to be able to be in that position. You did it the way that you\u2019re supposed to. You delayed gratification. You bought in the right location, you forsaked the immediate gratification of cashflow that everybody wants. You didn\u2019t quit your job, you kept working, you grinded. Now you\u2019ve got this big, big reward that you just have to make sure that you space it out in the right way, that you put it in the right places. Don\u2019t just get like, ah, I got to do something and get nervous and run out there and buy something that you don\u2019t understand anything about.
I like Rob\u2019s advice. Buy a cabin in the Smoky Mountains. Your cash on cash return could be low, but so is your risk. And if it\u2019s paid for in cash, the cash flow will give you the life that you want, and that\u2019s what this is about. It\u2019s about building a life you want, not having your ego get pumped up because you get to tell someone you have a 40% cash on cash return, even if that turns out to be like $800 a month. It doesn\u2019t really do much to change your life. I\u2019m stoked to hear this story.<\/p>\n
You\u2019re a millionaire and you\u2019re going to sell your property and have-<\/p>\n
Multimillionaire.<\/p>\n
\u2026 multimillionaire. You\u2019re going to have 900K to make a lot of decisions that will make you even more money. So you\u2019re good. You just need to sit with it a bit, talk it out with your partner and I think you\u2019re going to be just fine.<\/p>\n
Man, thanks you guys.<\/p>\n
I would tell people to follow the Anthony method, that\u2019s how much I like what you did. Because everybody else is doing the opposite of you, man. They\u2019re like, I don\u2019t want to work. Work\u2019s hard. I just want cashflow so I don\u2019t have to work anymore. So they go buy this $40,000 duplex in a terrible area thinking that if they just buy five of them, they can quit at 26 and never have to work, and they just get themselves into a hole that\u2019s horrible. It makes their life, it\u2019s like running with weights, as they try to get out of it. And you said, no, I\u2019m okay with work, I\u2019m going to put my money where it\u2019s going to grow the most, which was in an area with constricted supply, scarce resources, and growing demand, Hawaii.
Now it did exactly what it\u2019s supposed to do. It grew exponential rates. You grew the equity that you had more control over. Now go transition that into cashflow. That\u2019s a better method in general for growing wealth than the crypto method, which is like, no, just buy a bunch of crypto, hit a pump, cash out, and then never work again for the rest of your life. It usually doesn\u2019t work out when people take that approach.<\/p>\n
I must\u2019ve been dropped on my head because a lot of times I wake up looking for more work. I don\u2019t know what it is. My boy\u2019s going to come over today and we\u2019re going to do some work on the house. I\u2019m like, hey man, let\u2019s do some more stuff.<\/p>\n
I love it, man. If you could bottle that up and you could put it in an energy drink and sell it, I would invest in that product, right? We definitely don\u2019t need less people that want to work hard. The more someone can love work the better position they\u2019re going to be. And that doesn\u2019t mean be a slave to your job, of course, right? You\u2019re doing work that you feel good about that makes you feel better about yourself, that you enjoy and that adds value to the world as well as to your own portfolio. So Anthony, for people that want to reach out, maybe they\u2019ve got some ideas that we didn\u2019t cover. Where can they find you?<\/p>\n
Really just BiggerPockets. Anthony Isgro, my last name, I-S-G-R-O. I just got on Instagram, but I don\u2019t have a picture. I\u2019m not doing anything. I barely got on Facebook. I\u2019m a hermit a little bit too, so BiggerPockets.<\/p>\n
All right, find Anthony Isgro, his profile on biggerpockets.com. All right, thanks a lot, Anthony. Appreciate you, man.<\/p>\n
Blessings. Thanks you guys.<\/p>\n
All right. And thank you to Anthony for that killer question about how to solve the problem of deploying the equity that he\u2019s built up over time. I love that type of stuff. That\u2019s where we get to really dig into the meat of what real estate investors should be thinking about at a high level. So Anthony, congratulations on your problem in air quotes and thank you for submitting your question. And I want you to submit your questions as well, everyone biggerpockets.com\/david, and you can be featured on the Seeing Greene episode. Now, Anthony\u2019s situation was so inspiring that I actually asked Rob to wait for a second, jumped on a plane, headed to Hawaii myself, and I am now coming to you all live from Maui, because I had to see for myself what\u2019s going on. So Rob, I apologize.<\/p>\n
Yeah, it\u2019s been a little frustrating. I\u2019ve been waiting here in this spot for 12 hours. You said don\u2019t move, don\u2019t go eat, don\u2019t go use the restroom. I\u2019ll be right back. And as a true, loyal friend, I\u2019ve been here, man, my back hurts. I thought it would be a little faster.<\/p>\n
Well, that\u2019s the level of dedication that it takes to be a BiggerPockets podcast co-host. So it\u2019s not meant for everyone, Rob. You are one of the elite of the elite. Go ahead and stretch out your back as I transition us into the next part of the show. At this stage, we like to read the comments that y\u2019all have left in the YouTube section for the show. So if you\u2019re listening to this now and you\u2019d like to be featured on Seeing Greene, just head over to YouTube and leave us a comment. We\u2019re going to read them. Our first comment comes from Florian Uyu, who says a cashflow conundrum debate with examples would be very helpful. Thank you for letting us learn from your analytical thinking process, complete with four different emojis. This was a very well-thought-out answer, which is probably why we are reading it. So thank you.
We are considering Rob and I having a debate either with each other or maybe on the same side against somebody else about how important cashflow really is when you\u2019re trying to build wealth through real estate investing, who it\u2019s important for, who maybe doesn\u2019t need to worry about it as much and what role it should play.<\/p>\n
I think we have a question coming up on this very same thing, so stay tuned after the comments and we\u2019ll get into this, a little bit more than the cashflow conundrum.<\/p>\n
That is going to be the name. I\u2019m debating over cashflow chaos, cashflow critic, cashflow conundrum. There\u2019s a lot of alliteration here, but the idea would be a book that explains all the ways you make money in real estate of which natural cashflow is only one. So thank you for the shout out there.<\/p>\n
Cashflow critic is pretty good actually. I like that. That\u2019d be a good podcast name, the cashflow critic.<\/p>\n
Here\u2019s the problem though, is the minute that people hear that, they never read the article, they just see the headline, right? So now I become known as the guy who says, I hate cashflow, but I don\u2019t. I like cashflow just as much as everybody else. I just think that there\u2019s more to life than just it. Much like Moana who wanted to get off of the island and see what else the world had to offer. It\u2019s not that she hated Maui, she just wanted to see what else was out there.<\/p>\n
Have you really seen Moana, by the way?<\/p>\n
No, I haven\u2019t, but I\u2019ve heard the song.<\/p>\n
I\u2019ve seen it 1,000 times without watching it. My daughter has watched it so many times and it\u2019s white noise for me, but I like the songs. I\u2019ve never seen it in its entirety, so maybe you and I can watch it sometime together, after Interstellar.<\/p>\n
If you hang out with Brandon Turner enough, you absorb every single Disney movie that there is in the world. He just sings, as a grown man he sings those songs in front of other people with no shame. Really embarrasses me all the time, but that\u2019s mostly how I\u2019ve heard it. All right, our next comment here. Hi David and Rob, I\u2019ve been watching BP for over a year, but David, it was your challenge to get into real estate in 2023 that lit a fire within me. I signed up for BP Pro and I ran analysis of a little over 100 properties in three to days. Finally found two properties that not only has a small cash on cash return of 5%, but is expected to increase in value near a new medical center being built that\u2019s walking distance away. I\u2019m focused on taxes, depreciation, et cetera, more than just cash on cash.
Thank you for this great and fun discussion and all you guys do. Every time I hear both you and Rob, I become less fearful and I feel more empowered. It\u2019s like you guys are virtual coaches. By the way, David, Rob may be funny, but you have bigger guns, man.<\/p>\n
Okay. I read this comment, I was like, oh, that\u2019s so nice. And then they said, but David, you have big guns. And I\u2019m like, did you write this? Did you write this David?<\/p>\n
Yeah, that would\u2019ve been nice, but we both know I can\u2019t. I\u2019m not this articulate. What I do love is that he said that you may be funny, but he didn\u2019t say you are funnier, right? So not only did he say that I have bigger guns, he didn\u2019t even say that you were funnier than me. So who is this here?<\/p>\n
Well, and just to bring it back a little bit, they said, I may be funny, Rob may be funny, the jury is still out.<\/p>\n
This person knew how to get included on Seeing Greene. This is from myndfulness, spelled with a Y, not an I. Myndfulness, you have an open invitation to comment as often as you possibly can and we will prioritize your comments. Thank you for recognizing who the alpha of the show is here.<\/p>\n
Wait, wait, I have a follow-up, I can\u2019t believe I\u2019m just remembering this now, do you remember on the last Seeing Greene, someone was like, thank you so much BiggerPockets for all the things you do, and David, you\u2019re just such a good-looking guy, I can\u2019t believe you\u2019re single, or something like that. And then I was like, is this real? There\u2019s no way that this is real. Cassandra, who are you? That episode came out and she sent me a message on DM. She DMed me and she\u2019s like, I don\u2019t don\u2019t know if remember her name was Cassandra, but she was like, hey, this is Cassandra from that Seeing Greene episode that left the nice comment about David, yes, I am real, LOL. And I was like.<\/p>\n
Wow. Props to Cassandra for actually existing first off. We didn\u2019t think that was real, not that there\u2019s anything wrong with it, but my audience base tends to be basically 100% men. I\u2019ve never gotten a compliment from a female in all of my years on the BiggerPockets podcast. I am on a roll right now. What can I say? I got a good fortune cookie. Somebody blessed me. I don\u2019t know what it was, but thank you all for Seeing Greene and Rob, for you being here to witness it.<\/p>\n
Hey, congratulations my friend.<\/p>\n
And if your name wasn\u2019t Cassandra, we apologize. Alexandra. There we go. Look at our production staff. Isn\u2019t it nice to have the privilege of producers that just pop in here with, it\u2019s like Jamie on the Joe Rogan podcast right there with whatever we need. All right, our next comment comes from Nori Carolyn who says you\u2019ve got a gift for making engaging content. Well, wow, the compliments keep flowing. I appreciate that, Nori. I agree that I do have a gift and I like to open it and give it to myself sometimes. Rob, you\u2019ve got a gift for making engaging content as well, which is why you\u2019re here on the show. She might\u2019ve actually been talking to you for all we know, right? I\u2019m assuming that that compliment was meant towards me.<\/p>\n
That\u2019s right. Hey, there\u2019s two of us now. Thank you very much Nori.<\/p>\n
And from King Louis I, thank you for this. Was wondering how the HELOC approach would work at this moment in time. I really appreciate this conversation. Now I love that comment too. I believe he\u2019s referring to when we were discussing uses of a HELOC and it\u2019s typically described as the only use is that you use it for the down payment on your next property. And that\u2019s because over the years we\u2019ve given that as a hypothetical example of when you buy a property that you create equity, the equity can be taken out to buy the next property. We call it the snowball method or we\u2019ve often said if you get one good deal, it will buy your future deals. One of the ways we\u2019ve described that was using a HELOC to buy your next property, but in today\u2019s market that may not always work because cashflow can be so hard to find.
The debt to income ratios are very tight. We described using a HELOC to improve a property, which Rob is something that you\u2019ve been doing quite a bit of in your own portfolio as well as our property. I think this is something that people should take note of. Don\u2019t just ask how to get the next property, but if it\u2019s a short-term rental, maybe ask how to improve what you\u2019ve already got.<\/p>\n
Right. Right. And just for everyone at home that doesn\u2019t know, a HELOC is a home equity line of credit. So it\u2019s like a line of credit against the equity that you\u2019ve built in your house.<\/p>\n
That is right, and we will be discussing more uses for a HELOC shortly. All right, one more review and then we\u2019re going to jump back into your questions. This one comes from AS McNerney. They say, great content. Signed up for BiggerPockets in 2014, searching for another income stream. Never got active in the forums but have always enjoyed reading and looking at real estate. I ended up working my down payment generator and getting my finances in order. Found the podcast about a year ago and it helped me towards a path I always wanted to get into but never took action. I bought my first rental in January. Consuming content every day from the podcast is incredibly inspiring and highly educational. Keep it up. Thank you very much for that Apple review. We love your YouTube comments, but we also love the reviews that you leave us wherever you listen to your podcast.
So if you wouldn\u2019t mind going to Apple Podcasts or Spotify or wherever you listen to your podcast and leaving us a review, we will love you forever. And Rob personally promised me that he would start working out his biceps if we got more reviews. So if you\u2019d like to see that, which I think that I definitely would and many of you other people would probably agree, go leave us a review. All right, we love and appreciate your engagement. Please continue to like, comment, subscribe on YouTube as well and submit your questions at biggerpockets.com\/david, to be featured on the show. Speaking of those questions, our next one comes from Francesco Ponticelli.<\/p>\n
Hi David. My name is Francesco from Miami, Florida. Quick question for you. I have five properties here in Miami area, two of which are condos in the prime area, that is the Bricker, the marathon of Miami. One property I bought 340,000 in 2019. I put 50K on it and now it\u2019s worth 650. I have a very low interest rate on that property. Insurance is skyrocketing, that is inflating the HOA. They doubled in the last four years and they are going to increase 30% more next year. Rent are flat, so I\u2019m near the breakeven points. What do you suggest to do? One, keep the property hoping on the equity even if there is a risk of a negative cash flow, sell it and look for other alternative investment that is not a condo in Florida or wait and keep the money and look for investment out of state? Because in Florida it\u2019s hot. Waiting for your comment. Thank you.<\/p>\n
All right, thank you Francesco. Very nice video. And you\u2019re actually in a good situation. You have good or better options here, not just good or bad. Francesco also left us a little bit of a written supplement here. So what he says in his writings is that given the current market, I\u2019m torn, number one, do I keep the property and bank on equity in the longterm but risk possible negative cashflow? Because as he said, the HOAs are adjusting and they\u2019re becoming more expensive. Number two, sell it, then wait for a local gem to invest in. In the last two years I haven\u2019t been able to buy anything in the Miami area priced below 500,000 with a positive ROI. Or number three sell and venture out of state where you still have positive return on income, cashflow and equity growth. Maybe if I go further north. All right Rob, I\u2019m going to turn this over to you in a second, but I find it very funny that we often assume every market is better than our own.
When I was in LA meeting with Meet Kevin, ironically, he was investing in a city called Oakley that is like six minutes away from where I record the podcast. I\u2019ve never even considered buying there. I\u2019m going to other areas. He did a bunch of research and ended up on this city that\u2019s right in my neighborhood that I didn\u2019t think anyone had even heard of. And I just thought it was funny that I\u2019m driving six hours south to find a person who\u2019s actually investing in my own backyard. And I think Francesco might be in a similar situation here. He\u2019s thinking my own market doesn\u2019t cashflow, should I go somewhere else, when so much of the world is investing in his market, which ironically is what\u2019s creating the difficulty in finding the cashflow. So I\u2019ll weigh in here with my two cents, but before I do, what are your thoughts?<\/p>\n
Okay, so let me get some clarity here, because I thought he was thinking about, maybe I misheard this question. We can edit this out if it\u2019s not. But I thought he was thinking about doing a refi and pulling equity out, but since he\u2019d have a higher interest rate, his mortgage would go up. Was that not correct?<\/p>\n
He said that in the video. It wasn\u2019t included in these three questions here. So you can weigh that in on an option.<\/p>\n
Okay. So I\u2019m pretty much always going to be against negative cashflow. I don\u2019t think you should ever refi into something that gives you negative cashflow. So he\u2019s wondering should he bank on the equity in the longterm but risk negative cash flow. So we think that his HOA fees are going to go up. I don\u2019t like it. I don\u2019t really ever like to tell someone to sell a property either, but I really don\u2019t want someone losing money every single month. I don\u2019t know why I\u2019m like that, but I feel like it should at least break even. Breaking even to me is like a win and losing money is not.<\/p>\n
Well I think he said he\u2019s nearing the breakeven point, but he\u2019s concerned if the HOAs keep going up he could actually go the other way.<\/p>\n
I would probably just keep it until the HOA fees went up and then once they went up I\u2019d probably sell it. I don\u2019t think I would ever really want to keep something that\u2019s losing money every month. Unless he can really absorb it. But I don\u2019t know, not for me. What do you think?<\/p>\n
This question really highlights that real estate investing is moving from a checkers era into a chess era. It was very simple. Save money, buy property, run it through a calculator to find the highest ROI you can, buy in the best area you can and wait, that\u2019s what I\u2019m using as a checkers example. Now you\u2019ve got all these variables, it\u2019s much more like chess. You\u2019re like, well my rate is low so if I sell and buy somewhere else I\u2019m going to get a higher rate which will hurt cashflow, but if I keep it, the HOA can keep going up. So that could hurt me. Would that hurt me more than the rate increase if I buy somewhere else? And oh by the way, I\u2019m in an area that\u2019s still appreciating a lot, so if I sell to get more cashflow, I could miss out on the appreciation.
But is there a market where it\u2019s getting appreciation and cashflow and your mind just spins through all of these options and it becomes really confident.<\/p>\n
And they\u2019re all hard.<\/p>\n
Yes, none of them are an obvious answer. Which is, you mentioned the book that I\u2019m working on right now. That\u2019s why I\u2019m writing it. Because we need a framework to look at questions like this from. It becomes confusing when you\u2019re thinking my job is to get as much cashflow as I can. Well that\u2019s very simple. Find the market with the highest cash on cash return and buy there. But as you start to weigh in all these other factors like future appreciation, future rent increases, HOA increases if you buy into the wrong market, the cash benefits of buying real estate if you work in certain ways. Now it just becomes less simple. So here\u2019s some of the first thoughts that I was having. I will always prioritize the location or the area over the other intangibles in a deal.
So I really like South Florida. I really like Miami. When Francesco is saying I can\u2019t find anything that cashflow is under 500,000. There is a reason for that. The reason is there\u2019s so much demand to get in on that market that they\u2019re bidding the prices out of the range where cashflow can work. But the reason that they\u2019re doing that is so many people are recognizing you\u2019re going to get a lot of appreciation. So if you look at a scale with cashflow on one side and appreciation on the other side, the appreciation in South Florida is so heavy that it\u2019s outweighing the need for cashflow. So investors are buying there, which means that you can just keep going up in price range until your competition thins and you will hit a point where you can find properties that other people are not necessarily fighting to get.
You just have to be a little bit more nuanced when you get there because you have to be creative at finding a way to make it cashflow. It\u2019s not going to cashflow on its own. It\u2019s something you\u2019re going to have to do to it to get it to cashflow. So that\u2019s one option. Overall I don\u2019t like that he bought into an area with an HOA. For investors, it\u2019s not terrible, but here\u2019s the problem. When you run the numbers, you can just include the HOA as an expense, which is how people have been told to do this for a long time. But people aren\u2019t explained you lose control when you buy into an area with an HOA. You can\u2019t stop them from raising that expense. You can\u2019t stop them from hitting you with a special assessment.
So if you\u2019re not aware, when you buy into an area that has shared common areas or shared parts of the building and there\u2019s an HOA in place, if there\u2019s a flood, if there\u2019s a storm, if there\u2019s a tree that falls on the building, if the pool leaks and they have to replace it, they can come to everyone in the complex and say, you all got to kick in $6,000 so that we can take an accumulation of 700 grand and fix this problem that we have with our plumbing or our electrical or our roof or whatever the problem may be, and you have to pay it. That can destroy cashflow and you can\u2019t account for that in your underwriting. You don\u2019t know what\u2019s going to happen. Now, what you should do when buying an HOA is make sure that the HOA itself is properly funded, that they\u2019re not low on cash, but that can even be tricky. Real estate agents themselves don\u2019t always know how to figure that out.
So long story short, try to avoid buying in an HOA if you can. It\u2019s tempting because the prices are usually lower and it\u2019s easier to get in there. The problem is it\u2019s easier to get in, but it\u2019s harder to get out. It\u2019s harder to make cashflow.<\/p>\n
Okay, so here\u2019s my thought. I guess I would probably wait it out until the HOA fees go up, don\u2019t sell if you don\u2019t have to. And I\u2019m not even sure selling right now would even be all that easy, but I would say probably keep it until you\u2019re in the negative cashflow. His other option he gave us was sell it then wait for a local gem to invest in. And then he said in the last two years I haven\u2019t been able to buy anything in Miami in the three to $500,000 range with a positive ROI. I really don\u2019t really like this, I don\u2019t like this idea of sell it and then wait for a gem to pop up. That\u2019s way too lackadaisical. It\u2019s not going to. I can tell you right now, you have to make the good deal. You and Brandon, you always say. I would say, and also from a capital gain standpoint, he\u2019s going to make 300K on this property, so he\u2019s going to pay capital gains on it. So he can\u2019t wait.
He\u2019s forced to 1031 into a property unless he wants to pay a pretty decent tax bill on that. What about this? We haven\u2019t talked about this. I know this is going to make a lot of people at home very mad, but he says that he can\u2019t find anything in the three to $500,000 range with a positive ROI, but he is going to make $300,000 on this sale. So what if he just put a larger down payment on a three to $500,000 property to get his payment down so that he could actually cashflow every month? In my mind it\u2019s the same thing because he\u2019s currently breakeven right now, but if he could go find something else and just put a really large down payment on and make more money with it, then I would feel like that\u2019s ultimately he\u2019s going to make more money that way. Does that make sense?<\/p>\n
He\u2019s going to make more money in the cashflow arena.<\/p>\n
Cashflow. Right.<\/p>\n
But he could lose money in equity growth because South Florida just we don\u2019t know what\u2019s going to happen, but all the metrics are leaning towards that being an area of incredible growth in the future, because they\u2019re so business friendly and the climate\u2019s great and it\u2019s like the trending place to be. I was just out there a couple of weeks ago recording a podcast to promote pillars and I was amazed at how much growth had been there just in the year before. It looked like San Francesco in San Francesco\u2019s prime, which is the opposite, right? People have left San Francesco and now they\u2019re moving out that way. The reason I\u2019m going to, in this case like you Rob, I\u2019m going to advise I do think he should sell, is that there is no way of controlling what the HOA is going to do in the future.
And HOAs are not always corrupt, but they are notorious for having management that is not the most scrupulous people. They can mismanage funds, they can take salaries for themselves. People that are listening to this that have had the experience probably know what I\u2019m talking about. I don\u2019t like putting so many eggs in a basket that I don\u2019t control. I\u2019d much rather see him have a single family home. If he could sell it and buy something else in South Florida that could function as a short-term rental and it\u2019s just a single family home without HOAs that he has more control over, I\u2019d love it. If he has to sell and move that money into a different area, I would prefer that and missing out on potential equity growth to at least have the safety that you\u2019re not going to have your HOAs double over and over and over.
Because if you think about how most people raise prices, it happens with inflation. So the cost of the materials, the cost of the things that the HOA needs to run go up, they\u2019re just going to pass that expense off to the people who live there and they\u2019re under no pressure to keep expenses low. There\u2019s no competition within HOAs. It\u2019s not like, well, if we get too expensive, they\u2019re going to kick us out and start another one. It\u2019s incredibly difficult to do that.<\/p>\n
Yeah, I agree. The HOA board, it\u2019s not like they\u2019re qualified, they\u2019re not necessarily qualified people, isn\u2019t it just like the people of the complex all come together and nominate people and stuff? It\u2019s not like you\u2019re like a certified HOA person.<\/p>\n
You contract with the company to run and do the duties of an HOA, but the people in the complex can vote on them. It\u2019s just no one\u2019s going to put a ton of time into studying. Well, who are the people that we want to bring in? And once they get brought in, they just go make themselves comfortable. This is what you have to pay us and this is what we\u2019re going to get. It\u2019s not a capitalistic environment. I\u2019ve often said when I retire from real estate sales, I\u2019m just going to start an HOA, because it\u2019s like the easiest thing ever.<\/p>\n
My wife\u2019s complex back in the day, I think the president of the HOA was one of the owners of the houses.<\/p>\n
It\u2019s small enough. Yes.<\/p>\n
Yeah, it was. It was a small enough complex. So when it\u2019s small enough, it\u2019s just ran by a lot of the residents who appoint the people. And it\u2019s like, who\u2019s really, I don\u2019t know, I could see how unqualified people run it.<\/p>\n
Who\u2019s going to be the president of the Boy Scouts? Well, let\u2019s look at all the kids that are in the Boy Scouts and pick the parent who ties the best knot. But once it gets to a bigger size or it\u2019s in an expensive area like Miami, they then contract with a company that provides HOA services.<\/p>\n
That makes sense.<\/p>\n
Tough spot to be in here, Francesco. Good news is you\u2019ve done well already. You\u2019ve had quite a bit of growth in the property that you bought, which has given you equity. And as I always say, equity gives you options. I think Rob and I are both on the side of, you should sell this thing while the market is up and put your money into somewhere that you have more control. Rob, any markets that you like that he should look into?<\/p>\n
If he\u2019s in Florida, I was going to say he should stay in Florida, but I think with all the insurance stuff going out there, I would probably say not Florida. I\u2019m hearing a lot of people rag on the Florida insurance situation, so right around that area, oh gosh, I don\u2019t even want to say it, but Shenandoah, this is something that me and Avery Carl keep joking about because she keeps talking about Shenandoah. I\u2019m like, don\u2019t ruin this market for all of us. I think that\u2019s a pretty good market to invest in. But that would be really more on the short-term side. On the long-term side, I can\u2019t really speak to the East coast per se.<\/p>\n
I don\u2019t think anyone knows where you can buy long-term rentals right now and just know you\u2019re going to get cashflow. It used to be like, hey, this is the new place. Well I don\u2019t want to go there. Okay, well don\u2019t get cashflow. All right, fine. I\u2019ll go there. Now it\u2019s like all the investors have flooded the market and there\u2019s so much demand for cashflow that I don\u2019t know anywhere that traditional rentals are cash flowing, which is why so many people have moved into short term or medium term or creative ideas here. All right, Francesco, thank you very much for your question and giving Rob and I the opportunity to explain how HOAs work as well as the checkers\/chess situation with real estate investing.
Our next question comes from Meredith in Austin. Meredith says that I did a successful first flip in Austin in 2017, and then I flipped another house in Austin this past summer using a HELOC and a hard money loan. On the second flip in this miserable downmarket, it took forever to sell and I ended up losing over 60K. Wow, glad that she\u2019s sharing. That sucks, but there\u2019s not a whole lot of people that are admitting when they lose money. So props to you, Meredith. I paid back my hard money loan at closing and only about half of my HELOC, so she took out a HELOC for part of the money and she was only able to pay half of it back because she didn\u2019t have enough money, which left her with a balance. So my HELOC is hemorrhaging interest every month and I have this massive loss I can use against future capital gains and I\u2019m trying to figure out what to do.
I\u2019ve already decided to try a cheaper and less volatile market. I\u2019m reading your Long-Distance investing book, David, but I wonder whether you would advise that I try another flip or two despite my huge failure in this one or try a BRRRR instead and cash out to pay back my HELOC. Is that even possible? My remaining HELOC balance is around 60K and that\u2019s all the liquidity I have available for the next deal. Rob, what say you?<\/p>\n
All right, let me read this last part. I\u2019ve already decided to try cheaper, less volatile market, but I wonder whether you would advise that I try another flip or two or try to BRRRR instead and cash out to pay back my HELOC. All right. This is a hard one. Well, first and foremost, Meredith, I feel you. I\u2019ve got two flips in Austin that turned out to be total dogs. One of them is actually fine because I ended up turning it into what\u2019s going to be a super crazy Airbnb. It\u2019s going to be like a bachelorette themed Airbnb. So David, I want you to go and stay there and give me your thoughts. But the other one was a flip that we bought in Austin that was a screaming good deal when we got. It was like 400K and we were going to make like $100,000 profit on this and we\u2019re like, heck yeah, we did it.
And then quickly after running through the bid and all the changes that happened in Austin, literally within two or three months we went from making $100,000 profit to breaking even or losing 10 or 20,000 bucks. And so that\u2019s where we\u2019re at right now. And we had already started the renovation, gutted everything, and so we were trying to think what\u2019s the highest and best use for this property? And we were like, well, maybe we can demo it, build a duplex. And dude, we went back and forth on this for the last two months and then finally I had the bright idea. I was like, well, you know what? It\u2019s already gutted. What if we just sold it for all the money that we\u2019re into it? And so we bought it for 400K, we put about $7,000 into it, paid about another five or 6,000 in holding costs.
We\u2019re all in like 415. Listed it for 450, got a full price offer. Someone\u2019s going to buy our gutted house. And it\u2019s like, oh my goodness, I can\u2019t believe I pulled this off. But I\u2019m going to say this, we were going to have to invest 100K to flip this house to break even. And I was like, holy crap, I don\u2019t want to spend $100,000 only to maybe break even. So I was like, I\u2019d rather just spend no money and lose $10,000 now. So I say all this Meredith, to just let you understand that even someone like myself, I haven\u2019t done a ton of flips, this isn\u2019t really what I do, but it was a really good deal at the time and the Austin market did turn very quickly for a lot of people out there. I think a lot of people in Austin are hurting.
So definitely would advise you to break out of Austin, which sounds like you\u2019re willing to do. Should you try to BRRRR and build up so much equity that you cash out and pay back your HELOC? Is that even possible? Man, I don\u2019t know dude, that\u2019s a hard one. It\u2019s like she didn\u2019t succeed on her first one, but she could definitely use her mistakes on that to have a successful second or third flip or BRRRR. I just don\u2019t really like getting into more debt to pay back the debt that you currently have.<\/p>\n
It feels like when you lose money gambling and you\u2019re like, well, I need to go make more to pay back my losses.<\/p>\n
I need to double up real fast. Exactly. But that\u2019s real estate and people lose money on flips all the time and people oftentimes have to flip another property to offset that loss. I interviewed James Dainard about it, just for some of my Insta Reels, and he was telling me about a deal that he lost money on, and I was like, what\u2019d you do? And he is like, I flipped another house to pay for it. So I do think it\u2019s relatively common. With that said, I don\u2019t know if I want to advise it.<\/p>\n
Here\u2019s why I think you\u2019re hesitant. I\u2019ve been thinking through it as you\u2019re talking. James Dainard is a professional house flipper.<\/p>\n
Exactly.<\/p>\n
He\u2019s dialed in. That guy is good. He can sit there and he can talk about construction. He knows the cost of capital. He does this. How many houses do you think James has flipped? Well over 100.<\/p>\n
Hundreds. Hundreds.<\/p>\n
Okay. And he\u2019s immersed in real estate every day. He\u2019s got a brokerage. That guy just never stops. I like James business ethic quite a bit. Meredith here is learning how to be a real estate investor. Now what\u2019s confusing I think is oftentimes real estate influencers describe flipping as a strategy that makes it sound like it\u2019s just like every other strategy. You could flip a house, you could buy and hold, just pick one and go for it. But the reality is flipping requires a very specific set of skills, much like Liam Neeson in Taken. And if you don\u2019t have those skills, you can lose a lot of money as Meredith saw. Now, in the last eight years or so, very few people lost money flipping because the market itself was so favorable. You could do so many things wrong, but you just happened to gain $50,000 of equity while you made all those mistakes.
And so you sold the house and you still made a little bit of money and the mistakes you made were less expensive. They were less dangerous. It is the opposite now. As you saw Rob as an experienced investor, you bought a property. A few mistakes were made I\u2019m sure, the market turned on you. The next thing you know what looked like $100,000 of profit evaporated like that, and you were lucky to get out from underneath it. I don\u2019t want to tell more people to rush into that mess and say, yeah, just try to do it again. In general, what I\u2019m saying here is that if you\u2019re going to flip houses in today\u2019s market, you should be more of a professional flipper. You know construction really well, maybe you own a construction company or the deal is so fat and juicy, you walked into a good one.
I had one time a friend who fell behind on her mortgage and she was a couple of weeks away from literal foreclosure, and she came to me and she\u2019s like, David, I don\u2019t want this to hammer my credit. Can you buy this house? And so I basically gave her what she, I paid off the loan and I gave her 20 grand to get out from underneath it. That deal was super, super juicy. So if you mess up on it, you\u2019ve got a lot of wiggle room there. That\u2019s not the same as going on the MLS competing with other buyers trying to get the house and trying to squeeze it out to make it work. I don\u2019t think, Meredith, from what you\u2019ve told us, that I would recommend you try to flip another house. Unless it\u2019s too good of a deal to pass up. I\u2019d much rather see you focus on something that\u2019s a little more safe and wait out this market till we get some stability here and we don\u2019t wonder if the market\u2019s going to tank or if people aren\u2019t going to buy homes.
One metric that I think everyone should be looking at right now is the days on market. It\u2019s easy when you look at a flip to say, here\u2019s a comp, it\u2019s sold for X, I\u2019m going to pay Y, and the construction and holding costs are Z. Let me just do the math with those numbers. But if you\u2019ve got 15 houses available for sale and one or two pending, no one\u2019s going to pay that price that you saw in the comp. It\u2019s very misleading. You need to be looking at what is the supply in your market, how much demand is there for that and how long are houses sitting on the market before they sell? And don\u2019t try to flip in a market where there\u2019s already a lot of existing supply and not a ton of demand. Is that something that you\u2019ve been noticing as well, Rob?<\/p>\n
Yeah. Yeah. Okay. I\u2019ve thought about this while you were saying that. I think we had to really talk this one out to give some advice. James doesn\u2019t really miss, and I guess that\u2019s the difference. You\u2019re saying he\u2019s an experienced flipper, and if he does miss, like he talked about on that one deal, he\u2019s got eight other deals that are going to make up for it because he is good at this. I don\u2019t think Meredith can afford to miss again. And that\u2019s why I don\u2019t want you to go out and try to do it again until we clean up your HELOC and you may just have to pay that down the old-fashioned way. You might have to get, not to be too Dave Ramsey here, but a side hustle, another job. Figure that out.
I certainly don\u2019t want to discourage anyone from continuing the real estate train because I think it is something that anybody can do, but if she\u2019s feeling the pain from one that\u2019s already hurting, I just would hate for this to happen again. So I don\u2019t know. I would feel like waiting it out and nicking down her HELOC as much as possible. And then when rates allow for it refi out of the HELOC in a couple years, I think that\u2019s my apprehensive answer to that. We don\u2019t always have good ones, but that\u2019s mine. I don\u2019t know. How do you feel about that?<\/p>\n
I think it would be irresponsible to tell people, yeah, just rush in there and figure it out. If you\u2019re sitting on $3 million of money to play with, you got a big fat stack of poker chips, you can learn how to play poker with live money. But in this case, I don\u2019t think that that\u2019s great advice. If Meredith was saying she has some kind of an advantage, my dad owns a construction company or I have an in where I\u2019m getting deals at better rates than other people, that would be a different scenario. But I\u2019m not getting that vibe from the question here. So based on that, I think Meredith, you should be a little bit more hesitant. Don\u2019t stop investing in real estate. Don\u2019t stop looking at deals, but don\u2019t be thinking, I have to make that 60 grand back. Where\u2019s my opportunity to make it back? Because now you\u2019re assuming that the deal\u2019s going to work out. You could have end up in $120,000 of debt just the same as $60,000.
There\u2019s a line from the movie Rounders with Matt Damon and Edward Norton, really good poker movie, where they say, you can only lose what you put in the pot, right? You can\u2019t lose money if you don\u2019t actually put it into the market. Now, is it true you can\u2019t gain money? Yes, that that is true. But once you\u2019re already in debt, you need to be extra careful with what you do with the chips that you have remaining. And real estate is not a magic pill that\u2019s going to save you from things. So Rob, I think you gave great financial advice there. You can only lose the money that you put into the pot. So be very careful in today\u2019s market. If you\u2019ve got a great hand, play it, but don\u2019t feel pressured to play a hand that\u2019s not great. Eventually the market will turn around and you\u2019ll have plenty of opportunities.
Rob, thank you for joining me today. I thought solid advice here and it was a lot of fun as well as supporting me with your Disney knowledge.<\/p>\n
That\u2019s true. Well, these are fun because they are so specific, niche and situational that there isn\u2019t always a clear cut answer. There\u2019s just like you can hear a couple of pros bat around things that they would do or how they would consider it, and you just use that to inform your strategy, right? There\u2019s no right or wrong. There\u2019s just what\u2019s right for you. So don\u2019t take anything we say too hard or too personally. Everything that we say pretty much comes from a place of like, all right, we want to try to be as helpful as possible, but recognize that sometimes there isn\u2019t a beautiful resolution that\u2019s super obvious at the beginning. You have to work through it a little bit first.<\/p>\n
That\u2019s right. I really hope that we were able to help some of you brave souls who took action to ask questions. And I look forward to answering more of your questions in future episodes. Today\u2019s show, we covered quite a few topics, including what to do when you\u2019re strapped on cash, but have a lot of equity. If you should buy in an HOA or if you shouldn\u2019t, as well as how HOAs work. When flips go wrong and HELOCs don\u2019t work out the way you thought and had to pivot in a hard situation to make sure you don\u2019t lose more money. Don\u2019t forget to check the show notes for how to get connected with Rob and I on social media and let us know what you thought of today\u2019s show.
Now, get out there, look at some more deals, find the very best ones, and take action when you find them. This is David Greene for Rob. No one knows how far he\u2019ll go. Abasolo signing off.<\/p>\n