\n<\/p>\n
Getting a home equity line of credit (<\/strong>HELOC<\/strong><\/a>)<\/strong> is one of the easiest ways to leverage your home equity<\/strong> and buy your first rental property<\/strong><\/a>. But what is the best way to use one? Are there any drawbacks? After today\u2019s deep dive into HELOCs, you\u2019ll have all the answers!<\/p>\n Welcome back to another Rookie Reply<\/strong>! In this episode, we\u2019re not only looking at HELOCs but also comparing them to \u201cevergreen loans\u201d<\/strong> so that you can choose the right financing tool<\/strong> for you. Is bad credit<\/strong> preventing you from investing in real estate<\/strong>? You might have to get creative! Ashley and Tony offer several ways to invest while you\u2019re fixing that <\/strong>credit score<\/strong><\/a>. Stick around until the end for the best value-adding home renovation projects<\/strong><\/a> that will help you raise rents<\/strong><\/a>!<\/p>\n Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: \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 Real Estate Rookie, episode 362. Today we are doing a Rookie Reply to answer your questions. We have questions about getting an evergreen loan and learning what that actually is. We are going to talk about making the best use of your rental property with exterior backyard upgrades, and how to determine that those will be the best upgrades for your property in your market. We\u2019re also going to touch on a HELOC, and also what to do if your credit is not that great, and how to start investing before fixing your credit. I\u2019m your host, Ashley Kehr, and I\u2019m here with your other host, Tony J Robinson.<\/p>\n
Welcome to the Real Estate Rookie Podcast where every week, twice a week we\u2019re bringing you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And like Ashley said, today we\u2019ve got a slate of amazing questions lined up for you.<\/p>\n
We\u2019re going to talk about a HELOC, a home equity line of credit. We have great questions coming in today. And the HELOC, we\u2019re going to describe exactly what that is and what questions to ask a lender when you\u2019re considering getting a HELOC. The next thing we\u2019re going to touch on is an evergreen loan. Have you ever heard of this type of loan? We\u2019re also going to talk about what the difference is between an evergreen loan and what a HELOC is, and there\u2019s also some similarities.
Then we\u2019re going to go into improvements that can pay off big by increasing your rent on your property or your daily rate on a short-term rental property. But at first we\u2019re going to talk about the bad credit, but you may have a sizable down payment. So with this question, we\u2019re going to navigate how to go through this tricky scenario and help you decide where to start in your investing journey if you have this issue.
Okay, our first question today is from Ivy C. \u201cI\u2019m new to the real estate game and looking to invest. I have 15,000 in cash, but bad credit. Is there an avenue that I should look into while my credit is being fixed?\u201d What a great question as to, you have part of the puzzle piece, but you\u2019re missing another piece to actually go to a bank and to get a loan.
When I first started real estate investing, I had this limited mindset that I could only purchase properties in cash. I didn\u2019t even know that you could go to a bank and to finance a property. Fortunately, there are multiple different ways to actually purchase a property, so if there is something you are missing, like good credit or cash, or experience, or whatever it may be, there are multiple options to actually get you into a deal. So Tony, what would be your first recommendation to do with that 15,000?<\/p>\n
Yeah, I think one of the first things we should touch on, Ashley, is just how does bad credit impact rookies as they\u2019re looking to buy that first investment property? I wouldn\u2019t say, depending on how bad, bad is, bad is somewhat subjective, but depending on where your score is at, a lower score doesn\u2019t necessarily stop you, but it will make it more expensive, right? The higher your credit score, typically you\u2019re going to get a better interest rate, potentially you\u2019re going to qualify for a lower down payment, so just the cost of the debt is going to be cheaper if you\u2019ve got good credit.
The lower your credit score gets, typically the higher your interest rate is going to be. They might tack on additional closing costs, fees, things like that. Your down payment might not be able to get as low as someone with a stronger credit score, depending on what kind of credit score you have. And then there are some banks that might just not want to work with you at all. You might just be unbankable depending on how low that credit score gets. I think the first thing is just trying to make sure that folks understand why a good credit score is important as a rookie.
Now, I guess the second piece, and tying into your question here, Ash, before we even answer this question, I think we should ask Ivy, did you fix what led to the bad credit? Because if that issue is still lingering, whether it was poor habits or maybe, I don\u2019t know, there was some big financial issue and you haven\u2019t solved that yet, maybe you lost your job, whatever it may be, did you fix that issue first? Because if you didn\u2019t, I would be nervous to step into buying that rental property that\u2019s maybe several hundred thousand dollars, and not having any type of financial security in case things go wrong. I don\u2019t know, what are your thoughts on that first step, Ash?<\/p>\n
Yeah, definitely. I think looking at what happened with your credit. So if you are behind on payments, obviously use that 15,000 to help you get caught up. If you have overused your credit card\u2026 Credit card utilization is a big thing that actually impacts your credit. So if you have completely maxed out your credit cards, maybe using some of that money to buy that down, having a strong personal financial foundation will help you be a better investor. Because you are going to buy your property and you\u2019re going to have to manage the finances on that property. If you can\u2019t even manage your own, this is a great stepping stone to make sure you have your own finances in order before you go ahead.
With me personally, I had student loan debt, I had farm equipment debt, and I started investing. Even though I had that. I had great credit, I was paying those, but I actually used my cashflow to pay those loans off. So I don\u2019t want us to sound like Dave Ramsey where, \u201cOh, you have to fix your credit, you have to pay off all your debt, then you can invest because.\u201d Because no, you can help pay down your debt or different things to help you, do simultaneously while you\u2019re investing, but credit should be something that you should be working on as you\u2019re investing. But there is that issue for the reason that your credit was impacted, see if that 15,000 would be more valuable to correcting that issue and making sure, going forward, it\u2019s not going to be an issue again, that you\u2019ll be able to stabilize it.
What do you think? What would be the first thing that comes to mind if you have 15,000, you don\u2019t really have the option to go to the bank and get conventional lending because you\u2019re not approved, or in some circumstances they could offer you something different that just are not great terms, not a great interest rate, not a great repayment plan. So what\u2019s the first thing that comes to mind, Tony?<\/p>\n
I think the first thing I\u2019d want to know from Ivy is what exactly is the goal for investing? Are you looking for consistent monthly cashflow, Ivy? Are you looking for just a big chunk of cash? Do you want long-term appreciation? Are you looking for certain tax benefits? What is the goal that you have behind investing in real estate? I think that would dictate, in a major way, what steps, I guess make the most sense for you.
Let me give an example. Say Ivy, that your goal was maybe long-term appreciation, and let\u2019s say you live in a market maybe like California, right? Maybe you\u2019re not in Los Angeles, but you\u2019re in the suburbs where I am. For you, if the goal is appreciation, then maybe you want to go out and buy a single family home that you\u2019re going to live in, knowing that okay, 15 years or 10 years down the road, I\u2019m going to sell this or refinance this, or do something else. I\u2019m going to move out of this house so it becomes an investment vehicle.
Now you\u2019ve got 10 years. Worth of equity built up into that home and now you can go in with maybe some kind of FHA or first time home buyer, some kind of low down payment loan product to get into that property, knowing that you don\u2019t really need anything from it for the next 10 years. On the flip side, let\u2019s say that your goal is cashflow, like, \u201cHey, I want a cashflow today, I want the additional income.\u201d Then maybe you\u2019re going out and you\u2019re looking for a small multifamily, where you\u2019re going to be able to take that 15,000, put it towards some of your down payment. Maybe some repairs in the other unit or two units, and now you\u2019re using that to kickstart your investing journey. I think a lot of it comes down to what is the goal that you\u2019ve got, Ivy? And then trying to identify the best strategy based on that goal.<\/p>\n
I think one thing too, with that 15,000, there\u2019s an opportunity to partner with someone, maybe somebody who does have good credit or maybe has some cash, but not enough, but together you do have enough cash to purchase a property. Maybe you\u2019re paying for the rehab and they\u2019re paying for the property. So an opportunity for a partnership could definitely be a stepping stone, is finding that right person where all of what you guys can bring to the table fits together to make that deal happen.
Also, you could be a private money lender with that 15,000, obviously depending on the market, things like that. But for me, 15,000 could cover a simple rehab on a property where you could be the private money lender for the rehab portion of the property, at least too. That could be a way to get your money working for you while you fix your credit to go and buy your own property if you don\u2019t want to partner with somebody.<\/p>\n
Yeah, I think the last piece too, is think about what types of real estate investing don\u2019t necessarily look at your credit score? We had Nate Robbins on episode 326 and he gave a phenomenal breakdown for rookies to listen to you when it comes to finding and sourcing off market deals. And you could do that for way less than $15,000. Like Nate, I\u2019m pretty sure did it for free, right? He drove around, drove for dollars, found a list of properties, called those owners, and used that list to start generating revenue by wholesaling those to other investors. So if the credit is a big obstacle, start looking at types of real estate activities, investing, that don\u2019t require credit scores to get started.<\/p>\n
Okay. Well that wraps it up there for that question. We\u2019re going to take a short break and we are going to be back and we are going to be talking about getting a HELOC on your primary residence. HELOC is a home equity line of credit. So if you\u2019ve been wondering if this is something you should do, sit tight, we\u2019ll be right back after a word from our sponsor.
Okay, we just finished wrapping up a question about investing while you have bad credit, and we are going to move on to our next question from Diane E. So Diane\u2019s question is, \u201cI\u2019ve decided to get a HELOC on my primary home to fund my first property. What are some questions to ask when calling banks? Anything specific I need to know about the process? Do I call every bank possible?\u201d
Okay, I think first let\u2019s break that down there as to this is on her primary home, so this is where Diane is living now, this isn\u2019t an investment property. You can definitely get a line of credit on investment property, but they are two totally different loan products and there\u2019s different information, different questions. So for this one, we\u2019re going to focus on the HELOC, the home equity line of credit for your primary residence.
Looks like Diane is looking to get this HELOC, to use those funds to invest into a rental property or into real estate somehow. She\u2019s wondering what questions to call when asking banks and how to find the best HELOC product that there is. Okay. I actually did type out a couple of questions here, Tony, that came top of mind to me. The first thing though that I wanted to respond to, is do I call every bank possible? I think we should address that before we even get into the questions because first of all, we love small, local banks.
So any bank you already have a relationship with, and by relationship is you have a checking account with them, you have a credit card with them, whatever that may be. Maybe you have a job where you do loans for someone or you have some kind of interaction at a bank, you\u2019re making bank deposits there for your job, or whatever it may be. Definitely add those to the list and then look in your area for other small, local banks that you can contact.
But my recommendation instead of calling them would actually be to email them. You can go on the websites, you can look at the loan officer of the closest bank branch to you. This way you can write out your questions. You can write out what you\u2019re trying to do, which would be to pull money out of your property without actually refinancing, because maybe they actually have a different option for you than doing a home equity line of credit. So leave it open-ended where you\u2019re not telling them exactly what you want. Then this way you can write it out and you can just copy and paste it and send it out to all of them.
Then you also have their responses in writing, so you can go ahead and it\u2019s much easier to compare than keeping track of phone calls. You got your three kids running around, you got dinner on the stove and you\u2019re trying to fold laundry, and you get the loan officer calling you and saying, \u201cHey, I\u2019m responding,\u201d and blah, blah, blah. And then you\u2019re like, I don\u2019t even know what bank they were calling from at the end of the phone call. So I like to have it all in writing.
And then also you can keep track of who\u2019s returning your call in a timely manner. You want a loan officer who\u2019s going to be responsive because then your loan is just going to move faster. That\u2019s why I prefer the email process, and it\u2019s so much easier than taking the time to call everyone and waiting for those return calls to come in if you don\u2019t get them on the first try. Tony, anything to add to that before we go through the list of questions?<\/p>\n
No, I totally love that approach, Ash, of sending out the emails. I feel like you definitely leverage your time the best way. But I would say also if you\u2019re close enough, Diane, I do like to go inside to the branches as well because I don\u2019t know, sometimes I just feel like if you\u2019re close enough, you can have that conversation face-to-face. People are just a little bit more\u2026 I don\u2019t know, it becomes a little bit more conversational. Maybe things come up that wouldn\u2019t have come up during that email thread. But Ashley, I think before we dive into your questions, maybe let\u2019s just define exactly what a HELOC is for those rookies that maybe aren\u2019t super familiar with that phrase.
So HELOC, it\u2019s H-E-L-O-C, all capital letters, and it stands for home equity line of credit. So when you\u2019re trying to tap into the equity of your home, you\u2019ve pretty much got three different options. You can sell your property, right? And that\u2019s going to unlock all of the equity that you have minus closing costs. You can refinance your property where you\u2019re replacing your original mortgage with a new mortgage, and then you get to keep the difference between those two mortgage amounts. Or you can get a home equity line of credit where you\u2019re keeping your original mortgage in place, but you\u2019re basically getting a second mortgage that\u2019s really focused just on that equity piece. For a lot of people who have, especially if you bought in 2020, in that timeframe, you got a below 3% interest rate, maybe you don\u2019t want to refinance, HELOCs are a good way to still tap into that equity.
Now one thing I want to say, Ash, before we jump into your questions here is that you hear people like Grant Cardone say that your primary home isn\u2019t an investment, but I know countless people who have used HELOCs just like Diane is talking about, to go out and fund their first real estate investment. Or I met a couple where they had one primary home, they had fixed it up themselves, pull out a bunch of equity with a HELOC, and they just bird a bunch of homes in the Midwest. Over and over and over again, all without one chunk of cash from that HELOC. And they built up a double digit portfolio in the Midwest only with the money from their HELOC.
So if you use it the right way, it definitely is a smart option. I didn\u2019t mean to go off the rails here, I just wanted to define that phrase for folks who maybe aren\u2019t familiar with it.<\/p>\n
No, I think that was great. Definitely a great little breakdown there, what a HELOC is and how powerful of a tool it is. Because even if some people do say your home, your primary residence is not an investment, it is still an asset than a liability. So some of the questions I had written out is, first of all, how long is the line of credit good for? So is it good for five years, 10 years? How long until the bank says, \u201cWe\u2019re closing down your line of credit and if you want to reopen it, we have to go through the same steps, run your credit again, we have to do a new appraisal,\u201d things like that? So is there an expiration date on the line of credit?
The next thing is do they charge for an appraisal? Usually with the conventional mortgages or all mortgages, you are on the hook for that closing cost, for paying the appraisal, but oftentimes for a line of credit, the bank will actually cover that cost for you, and there are little to none closing costs to actually get a line of credit. That\u2019s one question to ask, is do they cover the appraisal costs? And also what are your closing costs that you will be responsible for during the process?
Then does another appraisal need to be done at a certain point in time? So is your line of credit good for however long? And then do you have to have a second appraisal at a certain point, to make sure that your property has maintained the value that they\u2019re lending? Also, how do you withdraw the funds? Will you be getting a checkbook where you can just write a check whenever? For a couple of my line of credits, it\u2019s actually inconvenient. One of them I have to fill out a form and then I have to email it to the loan officer and then they\u2019ll deposit it into my account. That can take 24 to 48 hours before that actually happens. Then for another one, I just email the loan officer and he deposits it into the account. I don\u2019t have to fill out a certain form or anything, but still it\u2019s not as convenient as actually writing a check and having it on demand.
The next thing would be, is the line of credit callable? That goes with is there an expiration date, or at a certain time period, do the loan actually go into an amortization period? So say you\u2019ve had the line of credit for two years, you withdrew a hundred thousand dollars and you\u2019ve just been paying the interest. After a certain amount of time, does the bank actually step in and say, \u201cWe\u2019re going to amortize the 100,000 you owe over 15 years, and now you\u2019re paying principal and the interest too?\u201d So finding out when that is or does it just go into perpetuity that you don\u2019t have to pay, and it\u2019s going to be interest only forever until you die and then your kids actually owe the whole balance.<\/p>\n
Those are all really, really good questions, Ash. I\u2019ve never done a HELOC on my primary residence before, so I haven\u2019t personally gone through that process. But if I were, and I\u2019m curious what your thoughts are here, if I were to use a HELOC, I feel like my preference would be to use it for a short-term investment versus a long-term investment. Because when you have a HELOC, you have the option, you could use it for a down payment on a property. That investment property you\u2019re going to have for 30 years, whatever it may be, and you could just use that HELOC for that down payment.
Now you have to factor in not only paying your mortgage on that investment property, but now also repaying the HELOC on a monthly basis, which could eat into the margins that you have on that deal. The other option is you can do with my couple friend that I talked about, that re-leveraged their HELOC over and over again, where you use it on a short-term basis. Where you\u2019re going out and you\u2019re basically burying properties, right?
You\u2019re buying them, either with a combination of hard money or maybe your HELOC covers the entire purchase plus the rehab. You rehab the property, you refinance, and then when you refinance, you just pay back your HELOC so the balance is back down to zero. Then you find the next property, you start that whole process all over again. But now you\u2019re only leveraging the HELOC for maybe three to six months as opposed to locking it into a property that you\u2019re going to have for 30 years. What\u2019s your take on that, Ash? I mean, do you like it for long-term use or do you prefer to use it for the short-term stuff as well?<\/p>\n
I 100% like it for the short-term use, and that\u2019s what I do. It\u2019s usually to purchase the property in cash because it\u2019s so much easier than having to get money from somewhere else. Because it\u2019s literally me just saying, \u201cYes, here\u2019s the money. I\u2019m buying this property.\u201d And then also for the rehab, we usually never, ever get private money for rehab. We usually use that from the line of credits, and then we don\u2019t have to do draws from hard money or anything like that, and it\u2019s just so much more convenient to use our own money for that. So in the short term, and then when we go refinance, we\u2019re paying that back, paying off the line of credit, and then it sits and it waits for us to purchase the next property.
One thing I have seen people do with this is they will use the line of credit for their down payment. So if they\u2019re going and they\u2019re purchasing a property using bank financing and they have to put a down payment on, and they\u2019re doing a 30 year fixed rate, it\u2019s not like they\u2019re planning on refinancing. They do have a plan in place to rapidly pay off that down payment. So where they\u2019re going, they\u2019re not looking for any cashflow upfront, like they\u2019re expecting that over this next six months, the next year. They know from their W2 job and from the little cashflow from this investment property, they\u2019re going to be able to pay off that line of credit for their down payment in six months, in a year, and then they will have cashflow on the property and that line of credit will be paid off.
That is something I\u2019ve seen people do because it expedites them investing. Instead of them waiting six months or waiting a year to actually save for the full down payment, they\u2019re accessing the line of credit, knowing that they\u2019re going to be making those big lump chunk payments to their line of credit over that time period. But the important part is to know, to make sure that you can afford to pay back your line of credit because the line of credit payments are interest only, usually. So those are very low, and that\u2019s not your payment. You need to pay that principal back.
And just letting that principal sit there, even though you can pay the interest only for three, four years, or however long your line of credit is for, you want to make sure that you start paying down that principal and you have a plan in place if you are going to use the funds for a down payment.
What we just talked about is actually going to relate a little bit into our next question about evergreen loans. So if you haven\u2019t heard of this or you want to know more information, stick around because when we come back after this short break, we\u2019re going to talk about evergreen loans, and also how to add value add to the backyard of your rental property.
We are back from our short break and we have a question from Charlotte L. Charlotte\u2019s question is, \u201cThe banker suggested an evergreen loan to assist with purchasing additional properties. Never heard of that type of loan until then. I searched online to learn more, but would like to know the pros and cons some of you may have experienced with this type of a loan.\u201d This is why I love having open-ended conversations with loan officers. Instead of saying, \u201cThis is exactly what I want,\u201d is giving them the opportunity to present to you these things you didn\u2019t even know existed, and learning about them.
When we touch on an evergreen loan, some of the similarities you will notice will just be like a line of credit, as we just went over in our last question, the home equity line of credit. The difference with an evergreen loan is that it operates similar to a line of credit, but it is forever revolving and it has no expiration date on it until you, the borrower, or the lender decides to close down the loan. Think of a credit card as an example. You open your credit card and that balance is just on there, revolving. Or if you pay it off every month your\u2026 What\u2019s the word I\u2019m looking for? How much your\u2026<\/p>\n
Your spending limit?<\/p>\n
Your spending limit. Spending limit, there we go.<\/p>\n
Everyone knows this is the universal sign for a spending limit if you\u2019re watching on YouTube.<\/p>\n
So with your spending limit, it\u2019s continuously revolving. If you spend $300 in one month and your spending limit is 10 grand, you know that you pay that off that month and next month you still have that 10 grand and it\u2019s forever revolving. That\u2019s an example of how it works. So an evergreen loan is something you could get from the bank to purchase a property where they\u2019re giving you the line of credit where you can make interest only payments on it, you can pay off some of the principal, you can pay a little of the principal as time goes on. And then it\u2019s up to you to actually close the loan if you\u2019re not going to be using it anymore.
Where a line of credit, as we touched on, can have an expiration date where it can say, \u201cOkay, in two years you have to reapply for your line of credit. Or if you haven\u2019t paid the balance off at year three, we\u2019re going to actually turn it into an amortization schedule where you\u2019re going to have to pay the loan back over 15 years,\u201d of whatever the balance is on the line of credit at that time.<\/p>\n
All great points, Ashley. I think the only thing that I would add too for the evergreen loan is that\u2026 And I\u2019m sure it might vary from lender to lender, but it sounds like majority of the time this isn\u2019t going to be necessarily tied to the equity of your primary residence. So as with the last question with Diane, she was putting up the equity in her primary home to get this debt. With the evergreen loan, again it might vary, but it\u2019s looking at you and your bankability, your credit worthiness, and it\u2019s using that to, I guess to secure the loan, and not necessarily your home.
The other thing too, just maybe to consider Charlotte, is since it\u2019s not secured by a hard asset like real estate, typically those types of debts, those types of loans are a little bit more expensive so you might want to shop to understand what the rates are, what kind of interest are you paying? Is it single digits or is it twenties? So just making sure you understand what the cost of the debt is, given that it\u2019s not backed by real estate.<\/p>\n
Okay, our next question is from Luke P, \u201cWhat are the best value adds, if any, to a backyard for a buy and hold duplex? Have you found it worthwhile, with a return through increased rent or appreciation, to add a deck or a patio? TIA.\u201d Thanks in advance. Okay, so Tony, let\u2019s start with short-term rentals. What are you doing to add value? Because I have been to one of your summits and Sarah got the whole room chanting over this one value ad that you guys do, so I know you definitely have backyard ideas.<\/p>\n
Yeah. But before I even jump into that, I think Luke, one of the biggest things I can share with you is to use data to help make this decision. Look at comps in your area, like you said, both for homes that have recently sold and for properties that are currently for rent. And just start comparing what are the things that those listings have that mine don\u2019t, that I should probably consider adding to my property? When you make that comparison, it starts to become super clear when you look at 10, 20, 30 different properties like okay, in the backyard, the majority of these homes for rent have, I don\u2019t know, a swing set for the kids. Or the majority of these properties have a shed for tool storage, whatever it may be. But you\u2019ll start to see trends as you look at comparable properties in your market, and that\u2019s a really strong indicator of what people want and what they\u2019re willing to pay for.
Now, in terms of what we do for our properties, short-term rentals, I think are a slightly different beast than traditional long-term rentals because a lot of the revenue potential for short-term rental is tied to the experience of the guest. So there are big things we\u2019ve done, there are little things we\u2019ve done. And I\u2019m going to share some things both backyard and non-backyard, but I think what you really want to look for, Luke, is what are those things that have high impact, but hopefully low cost?
We rehabbed a home last summer, and when we bought the home, it was a one bedroom, one bath property, but it was a massive one bedroom. This lady had knocked down the walls between two of the bedrooms to make just one massive master suite. And then she knocked down the walls for what was the third bedroom, to make it like a loft office type area. So on paper with a county, it was still a three bedroom, but physically it was a one bed with an office.
So when we came back in, obviously from an appraisal standpoint, a one bed with an office is going to appraise for significantly less than a three bedroom. So we went in, we re-stood up all three bedrooms again, and then we added a second bathroom. So we took what was, when you walked in, what was essentially a one, one, we turned it into a three, two. That allowed us to really increase the value of that home, both from the appraisal standpoint and from the actual rental revenue, because now we\u2019ve got three bedrooms and two baths as opposed to one and one.
What we\u2019re doing in the backyard for that property is a good example as well. We noticed that for a lot of properties in Joshua Tree, pools are a desired amenity, but they\u2019re not all that common because they\u2019re expensive to install, they take a lot of time, and there\u2019s a higher barrier of entry for installing an in-ground pool than there is for doing a hot tub or doing an above ground pool. So when we bought this property, we said, \u201cOkay, what can we do to really make ourselves stand out?\u201d And we landed on the pool. Because we looked at all the other top performing three bedrooms in that market, and the vast majority had in-ground pools.
That was our cue to say, \u201cOkay, we need to do the same thing.\u201d So we started construction on that maybe two months ago, and hopefully we\u2019re going to be done by the end of this month, but we\u2019re hoping that\u2019ll really help take this listing to the next level. So that\u2019s I don\u2019t know, long-winded, Luke, but that\u2019s approach. Use your comps, look for those high impact, low cost ideas as well.<\/p>\n
As far as long-term rentals, the couple of things that come to mind, well, the first thing is a shed. So having a place that residents can store their outside things like kids\u2019 toys, tires, tools, shelves, whatever things that they don\u2019t want in their house that they have from maybe the last property, maybe they owned a house and have some belongings they want to bring with them, or lawn furniture, whatever. Having a shed is a huge value add, and what you can do is you can actually increase the rent. Like say, \u201cIf you would like to use the shed, it\u2019s $25 a month.\u201d Paying $25 a month for a shed is way cheaper than them having to drive to a storage facility, put their stuff in there, they\u2019re going to pay way more and it\u2019s not going to be convenient. And having items that are convenient for your residents will definitely increase the value. And storage, storage, storage is always great.
So putting a shed on and make sure you check with your town and make sure if you have to get a permit for a shed. But you can buy really cheap sheds, just like plastic ones at Home Depot, Lowe\u2019s. Or you can actually go, like around here we get a lot of Amish-built sheds that are also really affordable, but they\u2019re made out of wood and sturdier, and you can put those on the property too.
Then building a garage, this is obviously way more of an expense than putting a shed on, but having a garage, you can charge extra for the garage, they can park their car in there and they can also store items in there. So right now two of the apartment complexes that I manage, they each have garages that come with them, and there is a huge waiting list for garages. And you have to pay extra for the garage, but that is one item that residents really want.
Because especially if you\u2019re living in\u2026 It\u2019s not a single family home, it\u2019s two to four units or a larger, you have common areas with other residents. Where if you\u2019re in a single family house, okay if you store stuff on this side of the house or you store stuff in the entryway or the back of the house or on the porch, you\u2019re the only person living there. But when it\u2019s a shared property with other residents, you can\u2019t just throw your stuff in the common area. So there\u2019s more of a need, especially in Luke\u2019s example of having a duplex, for those separate storage places.
Then the other thing I put down was he had asked specifically about having a deck or a patio on the back, and I definitely think this is a value add. But I would go with a patio because a patio is less maintenance, where a deck, wear and tear over the time, you have to stain it or maintain the wood somehow. And a deck, you have to have it built out structurally, you have to get a permit. Where with a patio, oftentimes you don\u2019t even need a permit, you could put down pavers, you can have a small concrete pad filled. So I would definitely go with a patio over a deck because it gives the same value where they can put a table outside on it, a grill, things like that.
You really can\u2019t charge extra for those amenities. There probably is somebody that does, like, \u201cHey, you can\u2019t use your back deck unless you pay extra,\u201d so that\u2019s why I like the shed better. But definitely do, I would like the patio over the deck just because I\u2019ve seen the maintenance that a deck can have over a patio. And the patio, you\u2019ll just have to seal it every couple of years or so.<\/p>\n
Ash, have you found like, okay, we need to have this amenity or this value add at every single property? Like now it\u2019s just a staple? We\u2019ve had some of those for our short-term rentals. What is that for you? Is it the shed that you\u2019re like, \u201cOkay, every single listing needs that?\u201d Or yeah, have you identified anything like that?<\/p>\n
It\u2019s off street parking. It is so hard to rent out a property that doesn\u2019t have off street parking, in the areas that I\u2019m investing at least. Street parking is just not desirable to anyone, and I can\u2019t blame them. But also, it can be difficult to have a property with a shared driveway where there\u2019s room for three to four cars, but you\u2019re parked tail end to tail end.
We had this issue before at one property where the downstairs person and upstairs person worked opposite shifts, and they\u2019d be banging on the door for the guy to move his car and things like that. So as a landlord, you don\u2019t want to have those issues. You want to prevent as many tenant disputes as you possibly can. But that could actually be another value add if you do have a large backyard, is adding another parking space.<\/p>\n
That\u2019s true.<\/p>\n
Because parking is always a huge value add, and most families nowadays have more than one car or two cars, sometimes three cars. So yeah, parking is definitely a huge value add that I see, that with every property is definitely a benefit to have.<\/p>\n
Yeah, I never would\u2019ve thought of parking, but when I lived in apartments for a little while after college, some units didn\u2019t have garages, so even just the paid parking stalls. So say that you, in that scenario, maybe you only had two stalls for a four unit. It\u2019s the person who wants to pay more that gets those parking spots as well, right. So yeah, I guess lots of different ways to add some value. Luke, we just gave you a lot of ideas, man, so you got a lot to go play with now.<\/p>\n
Okay, well thank you guys so much for joining us for this week\u2019s Rookie Reply. I\u2019m Ashley, and he\u2019s Tony. If you have a question that you would like to submit, please go to biggerpockets.com\/reply and we\u2019ll catch you guys on our next episode.<\/p>\n