\n<\/p>\n
What if you could take the rental property you already own and make 2-3 times more<\/strong>? Whether you\u2019re in the red, barely breaking even, or wanting more from your rentals, we\u2019re showing you multiple ways to boost your <\/strong>cash flow<\/strong><\/a>!<\/p>\n Welcome back to another Rookie Reply<\/strong>! Today, we\u2019re answering three questions from the BiggerPockets Forums<\/strong><\/a> that cover some of the most searched and most overlooked strategies<\/strong> in real estate investing<\/strong><\/a> right now. Is <\/strong>co-living<\/strong><\/a> actually realistic<\/strong>, and how do you pivot to the model without losing your mind? Don\u2019t think you have enough for a <\/strong>down payment<\/strong><\/a>? The good news is that there are several loans and strategies that require much less than you think. Stick around until the end because we\u2019ve got a couple of strategies most rookies never consider <\/strong>that could make you $10,000 from just one<\/em> house!<\/p>\n Whether you\u2019re trying to squeeze more cash flow from a property you already own, get into your<\/strong> first deal with limited savings<\/strong>, or find an <\/strong>investing strategy<\/strong><\/a> that most beginners overlook, this episode has something for every stage of the journey!<\/p>\n 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
What if you could take the exact same property you are already looking at and rent it out for two to three times more than a standard single family rental without buying anything bigger or more expensive?<\/p>\n
And what if not having money for a down payment is not actually the thing that\u2019s stopping you? I mean, there are creative ways to get into your first deal right now that most rookies might never even.<\/p>\n
This is The Real Estate Rookie Podcast. I\u2019m Ashley Kehr.<\/p>\n
And I\u2019m Tony J. Robinson. And rookies, today we are answering three questions coming straight from the BiggerPockets community and they line up with topics that we\u2019ve been getting the most questions about lately, co-living, getting into your first deal with limited capital and a strategy that is genuinely one of the most overlooked cashflow plays in all of residential real estate. So let\u2019s get into it. Our first question today comes from the BiggerPockets Forums and it says, \u201cI keep seeing people talking about co-living and renting by the room as a way to dramatically increase cashflow. I own a three bedroom, single family home that I currently rent to one family for $1,600 per month. Someone told me I could potentially rent the same house, buy the room for six to $700 per room and make close to double. Is that actually realistic? What does it look like to transition from a single tenant model to a buy the room model?
And what are the biggest things I need to think through before I make that change? This is great. I think we\u2019ve heard a lot about co-living over the last couple of years and BiggerPockets actually has a guide that was authored by Miller McSwain, who we\u2019ve had on the podcast a few times. So if you want to learn more about co-living, you can check out the BiggerPockets of Bookstore and find that guide by Miller McSwain. But let\u2019s talk about what co-living is first and how it\u2019s different from traditional long-term rentals. Co-living is a strategy where instead of renting your entire three bedroom property to one tenant, to one family, you individually rent out every single room. So you rent out bedroom one, bedroom two, bedroom three. There are some folks who kind of take this to an extreme, like we\u2019ve interviewed the Nawsums and their strategy in the Pacific Northwest is they\u2019ll buy a four bedroom and convert it to an eight bedroom.
And they\u2019re converting the formal dining area into sleeping spaces, maybe the garage into a converted bedroom as well. So they\u2019re taking four bedrooms and making it eight, but then effectively renting out every single space that\u2019s there. And the benefit to the point that was made in this question is that when you rent by the room in a lot of scenarios, you can actually make more money than renting out the entire space. So that is the idea behind co-living and why it\u2019s important. Now the demand for co-living I think is also growing because people want more affordable places to live. And if you can get them into a nice neighborhood, into a nice home, for a fraction of what it would cost them to maybe rent an apartment by themselves, that is something that a lot of folks are looking for. And maybe it could be folks who are young professionals just getting started in their career.
It could be people who are maybe living there temporarily for work. They\u2019re only going to be there for six months to a year and then they don\u2019t want a big place of their own. It could be people who are in transitional housing. Maybe they\u2019re just recently divorced, maybe whatever it may be. They\u2019re in some sort of life moment where they just need something for the short term. But there\u2019s a lot of demand and I don\u2019t think we\u2019ll ever lose demand for affordable housing. So there\u2019s a lot of upside both to you as a landlord and to the tenant when you can do co-living strategies correctly.<\/p>\n
I think the piece that I think about most with co-living is the operational difference from renting to a single tenant to doing room by the room model. So you\u2019re collecting rent from multiple people instead of just one tenant that\u2019s in that one unit. But also you\u2019re now having to manage these people, manage the common areas. They don\u2019t get along what happens. So I think there\u2019s maybe more management at first, or at least putting in the operational pieces as to who buys the toilet paper for the one shared bathroom, who\u2019s cleaning the bathroom. And we\u2019ve had so many guests on that share the different rules, the different operational models that they have for some of these things. Some landlords will supply all of the paper products for the house. They supply the toilet paper, the towels. Then they also have, we\u2019ve had guests on that they split it.
So they are in charge of splitting it and supplying it. And then we\u2019ve had tenants that just are guests on that are just bringing it for themselves. They have their own toilet paper. I don\u2019t know if they take it into the bathroom with them and then take it out with them, but there\u2019s so many different ways to actually set up the co-living model that I think that is probably the biggest difference from just renting to one person or one family that\u2019s going to be living in the unit is really setting up how that operational piece will work.<\/p>\n
Yeah. Now there is a part of the question that talks about the transition. And honestly, I think it\u2019s a prety straightforward transition. It\u2019s, hey, whenever your current lease expires or if they\u2019re already on a month to month, you give them their notice and then you start to market the place for co-living. We\u2019ve seen it done in different ways, but oftentimes you\u2019ll want to furnish some of the main living spaces. I know some folks do co-living where they\u2019ll also furnish the room. Others say, \u201cHey, you got to bring your own stuff.\u201d But oftentimes the communal spaces are furnished. So maybe it\u2019s just a matter of getting the furnisher kind of set up in those core places. And then you\u2019re basically just starting the screening process in the same way that you would if it was a traditional long-term tenant. So I don\u2019t think there\u2019s a huge massive jump you need to make.
Now you do want to do the math. I know you said someone told you that you could get six to $700 per month, but I try and validate that. Are there other rooms for rent in the area? And if so, what are they renting for? If you compare that to maybe a studio apartment or maybe a one bedroom apartment, are one bedrooms going for 400 bucks per month in your market? Well, then it\u2019s probably going to be a little hard to get a six or 700 bucks on a room rental. But if one bedroom apartments are going for 1,200, well then yeah, 700 for a room seems pretty reasonable at that rate. So I think just doing a little bit of research as well on the actual revenue potential will be important before you jump into actually converting this property into a co-living strategy.<\/p>\n
And there will also be more work upfront. So yes, you are going to hopefully potentially make more money, but you are going to have to go out and find these tenants. So instead of just one tenant for the unit, you\u2019re going to have to go out and find one for each bedroom, which will take a significant amount of work instead of just having to place one tenant. You can outsource this to a leasing agent. I actually have never heard how they would charge on that. Typically, a leasing agent charges one month\u2019s rent to rent out a unit and probably would be similar to renting out by the room, whatever that person is. So you\u2019re paying them one month\u2019s rent per each room that they rent out. But one other thing that I want to add on to the operational piece to actually think about too is the utilities.
Are you going to cover all of the utilities? Will they split the utilities, things like that. So easily transition, I would say into it as far as the property. I don\u2019t see like you don\u2019t have to really do a rehab or anything like that, but it\u2019s more just getting these operational pieces in order. And some of them you might have to add in and figure out as you go, but there\u2019s so many people that are doing it that if you go to the bigger pockets forums and you just ask in there, if someone could give you what their guidelines are, what their rules are or a copy of their lease agreement and how they handle co-living situations, you\u2019ll get so many people that will actually send you a list of like, \u201cHere\u2019s what I provide, here\u2019s what they provide, here\u2019s what I\u2019m responsible for, here\u2019s what they\u2019re responsible for.
\u201d It can be really beneficial.<\/p>\n
There\u2019s also a PadSplit, which is an option for investors as well to kind of help source and list your co-living opportunities. And I\u2019ve heard a lot of investors having some success with PadSplit as well. We\u2019re going to take a quick break, but when we come back, we\u2019re answering the question that is probably the most search thing on our entire YouTube channel right now. It\u2019s how do you actually buy your first rental property when you don\u2019t have a lot of money? We\u2019ll be right back after this.<\/p>\n
Okay. Welcome back. Our second question is from the beggar pockets forums. I am 27 years old and I desperately want to buy my first rental property. The problem is I only have about $8,000 saved. Every time I look at a deal, the down payment alone is 20,000 to 40,000 and I feel like I am years away from being able to actually do this. My income is solid. I make $65,000 a year, but I cannot seem to save fast enough. Is there a way to actually get into real estate investing right now with only $8,000 or do I just need to keep saving and wait? I\u2019m starting to feel like I\u2019m going to miss the window. First of all, no window to be missed. You don\u2019t want to just jump into real estate for fear of missing out on the window and think that you need to buy something now.
But on the flip side, the sooner you start, the more appreciation, the more equity that will build up over time in your properties. So there definitely is an advantage to starting now compared to later, but don\u2019t rush into it because you think you\u2019re going to miss out on perfect timing of purchasing a deal. So the first recommendation I\u2019m going to give is doing a house hack. It\u2019s a powerful way to own an investment property. Have some of your living expenses covered if not all of them and you can buy a two to four unit property, live in one unit.
I don\u2019t think in this question we know where the person is living as far as how much they\u2019d actually need for a down payment, what their purchasing power is in their area. But with an FHA loan, if you\u2019re going to live in it in your primary and rent out the other units, that\u2019s three and a half percent down. Or we just talked about co-living, buying a property and maybe you live in one unit, your one bedroom and then rent out the other bedrooms. So house hacking is such a powerful way to actually get started. And then after a year, once you\u2019ve satisfied the loan requirement of living in the property for a year, you can move out and rent out that area and now you have a full investment property.<\/p>\n
I think one of my favorite loan products, and we\u2019ve talked about this before, but it\u2019s the NACA loan and we\u2019ve interviewed folks who have used it before. Nancy Rodriguez, I know she used it. There\u2019s some other folks we brought in as well, but NACA is a nonprofit that\u2019s partnered with, I believe it\u2019s Bank of America to offer what I think is potentially the best house hacking loan product that I\u2019ve seen, but it\u2019s essentially 0% down with zero closing costs. I think the only thing you might have to pay for, I think is either your inspection or your appraisal or there\u2019s one minor thing you have to pay for and the interest rate is typically about a point lower than whatever the prevailing interest rates are today. I\u2019m going to pull up the NACA website because you can go onto their website at any point in time and pull up the mortgage rates that they\u2019re offering.
And if I look today, I\u2019m just going to type in today\u2019s mortgage rates and it looks like coining at least to\u2026 All right, as of today, at least as of this recording, the 30 year fixed is about 6.73%. On NACA\u2019s website, they\u2019re offering a 30-year fixed at 5.6%. So they\u2019re an entire point lower right now than where prevailing interest rates are. And that\u2019s just how they operate. That\u2019s not like a promo. There\u2019s nothing special you need to do to get that. That is just simply the loan product that they offer and you can use a NACA loan product up to four units. So you can buy small multifamily, live in one unit, rent out the others. There are definitely some restrictions that come along with that loan in terms of purchase price in terms of your ability to move out. I want to say it\u2019s longer than a year.
I want to say it\u2019s maybe two years, might even be three years, you have to live with the property before you can move out of it. And you can only have one NACA loan open at a time. So if you ever decide to try and use the NACA loan again, you\u2019d have to sell that existing property. So there are some restrictions there. But if you want to talk about getting started and potentially the most cost-effective way possible, I think that the NACA loan product is one of the best that I\u2019ve seen.<\/p>\n
Next we have creative financing. So there\u2019s multiple different ways to get creative with your financing and one of them is seller financing, finding a property where the seller is willing to hold the mortgage on the property. So you\u2019re negotiating the terms of your financing with them and you\u2019re making payments directly to them. So you negotiate what your down payment is, you negotiate with your interest rate is and you\u2019re actually just paying them and they\u2019re holding the mortgage on the property instead of having to go through a bank and need a large down payment amount. The next thing is if you decide that you don\u2019t want to live in the property, you don\u2019t want to house hack, the NACA loan won\u2019t work for you. The creative financing options, you can\u2019t find a seller who will do seller financing. Then there\u2019s also the save faster method, I guess per se, is increasing your income.
How can you increase your income to aggressively save more money each month? I\u2019m not a budgeter. I can\u2019t stand budgeting. I did the Dave Ramsey way of paying off a debt and I love a lot of things about Dave Ramsey, but I prefer to increase my income. And yes, if there are some expenses you know you could easily cut, go ahead, but I\u2019m not saying live frugal on race and beans like Dave Ramsey, see if there is any side hustles. With AI today, there are so many different ways to make money doing side hustles, social media even, that is there a way that you could increase your income consulting or doing jobs on Upwork, things like that and use that to aggressively save for the next year to increase the amount that you actually have for a down payment. Okay. We have one more break and then we\u2019re going to get into the question that honestly blew my mind when I first learned about it and it involves the same three bedroom house everyone is already buying just used in a completely different way.
We will be right back.<\/p>\n
All right guys, welcome back. Our last question today is covering one of my favorite topics that we\u2019ve covered recently and it\u2019s a strategy that\u2019s genuinely hard to believe until you understand how it actually works. So we\u2019ll get into our final question, but this one comes from the forms. It says, \u201cI\u2019ve been hearing a lot about assisted living as a real estate strategy where you can make eight to $12,000 per month on a standard single family home. I own a three bedroom, two bath home that I currently rent for $1,800 per month. Is it actually realistic to turn a home like this into a assisted living facility? What does it take to get started, licensing, renovations, staffing? And is this something regular real estate investors can do or do you need a healthcare background? What are the biggest risks?\u201d Man, we recently interviewed Hans Stone. So if you want to go back and listen to Hans\u2019s episode, it\u2019s Hans Stone, but he\u2019s based in Southern California just outside of Los Angeles.
So very high cost of living market and he\u2019s been able to cash flow incredibly well with, I think he has two or three residential assisted living facilities and that episode is honestly a really well laid out kind of mini masterclass on how to get started in the residential assisted living facility space. But for folks that aren\u2019t aware, assisted living facilities are homes for typically elderly individuals who are unable or maybe no longer desire to live on their own and they\u2019re looking for basically twenty four seven support and care to help them continue to live with some level of independence. So these are homes where typically all of your meals are included. There\u2019s activities they\u2019re doing for the residents that are there. Obviously your room, utilities, furnishings, all those things are included as well. So it\u2019s truly a place where the elderly can get the care that they need without having to go into a traditional, call like an old folks home, a senior kind of place like that.
Now, Hans\u2019s numbers were incredible. I don\u2019t recall off the top of my head, but they were pretty close to like 12 to 14 grand per month, which is phenomenal cashflow, especially if you\u2019re doing this in a high cost of living market. But there are also some very important things to call it as well. There is a licensing process you have to go through in order to set up one of these residential assisted living facilities. There\u2019s a renovation process typically where you have to have certain elements in the home that abide by the rules of your specific state or county or whoever is a licensing body for where you live. So his strong recommendation was like, you need at least about 12 months of just like holding costs set aside when you close this deal in addition to your renovation budget to make this type of asset work.
So even if you already have the property itself, you\u2019d still want to make sure that you set aside the funds to renovate it, to meet whatever requirements your state or city or county needs, but then also have enough funds for the 12 months it\u2019ll take to convert it into an assisted living facility and to get it fully leased up. So it\u2019s not like an immediate spigot where you get a rental today and you can maybe have someone sign on a lease tomorrow. The runway\u2019s a little bit longer with assisted living than it is with traditional rentals.<\/p>\n
One thing that I actually didn\u2019t realize was when you do assisted living, you don\u2019t actually need a healthcare background and in some cases, neither do your employees. I think it was even Hans that we had on that I was also on a panel recently where someone else was doing this too, and they didn\u2019t have a healthcare background that you are hiring people to work and they\u2019re not necessarily nurses or doctors. You can have some kind of relationship with nurses and doctors that come into the facility, but you are acting as assisted living, which you are not acting as a healthcare facility. So you don\u2019t need to have people in the property that are actually licensed. So there\u2019s restrictions on what you can do and can\u2019t do obviously if you don\u2019t have healthcare workers, but that\u2019s why you\u2019re offering your assisted living where they need assistance with maybe bathing with maybe having somebody cook their meals for them, maybe getting dressed or things like that where it\u2019s definitely not like you\u2019re thinking a nursing home where there is nurses on staff at all times too.
So that was a big myth buster for me was I didn\u2019t realize you didn\u2019t need to have a background in healthcare at all to have one of these facilities.<\/p>\n
But to the point of the original question, the income potential here is pretty big. I want to say Hans was charging, I think it was like 7,500 for someone who was sharing a room, I think it was like 10 grand a month or something. It was a pretty big number for someone who had their own room. Now again, this is Southern California outside of Los Angeles. So that number\u2019s not going to translate everywhere, but that\u2019s what allowed him to cash flow 10 or 15 grand per month was that he had three bedroom houses, four to five residents per house, each paying somewhere between 7,500 to 10 grand per month. Now there are obviously expenses as well. You got to pay staff to be there. You\u2019ve got to buy all the groceries and do all those things and the activities, the insurance to kind of hold as well.
That was one of the biggest risks that Hans talked about was you\u2019re caring for elderly people, you got to make sure that your I\u2019s are dotted, T\u2019s are crossed, but the profitability margins are definitely there.<\/p>\n
Yeah. And I don\u2019t remember what his insurance was, but I do remember it not being as expensive. My insurance on a five unit I have was way more expensive than what he was even paying in for insurance. And one last thing I think about this strategy too that we learned from him was it was definitely, it\u2019s an operational business. It\u2019s a hospitality business. It isn\u2019t just like, oh, let\u2019s fill these rooms, we\u2019re getting these people and they\u2019re paying, that\u2019s great. It\u2019s hands off. It\u2019s definitely an operational business, that hospitality piece, just like short-term rentals. So many people got into short-term rentals not realizing how much they have to do with \u2013 The work. Yeah, really the work that they have to do to provide that customer service that experienced things like that. And that\u2019s the same with assisted living. He said they have a waiting list for the properties because of the care and the activities and different things that they do in their property.
And I guess one more thing is too is he mentioned that he doesn\u2019t take insurance and he said that\u2019s just like less hoops they have to jump through. So if somebody gets to that point where they financially cannot afford to pay there, he has different programs, different people that they can talk to to help get that person into some kind of assisted living where insurance does cover it on their behalf, but he said most of the time, I think there was maybe one person that he had a problem with in his whole time doing this that didn\u2019t pay and he ended up helping them getting to somewhere where they could pay.<\/p>\n
It is really one of those asset classes and strategies that truly is a win-win. It reminds me of, we interviewed Devonna, and this was a while ago, but she did sober living homes and it\u2019s one of those asset classes where it truly is a win-win.You\u2019re providing meaningful housing to a population that\u2019s in need. The elderly, folks recovering from addiction who are searching for sobriety in the right environment to turn their lives around. So you\u2019re truly giving them an incredible opportunity, but yet you\u2019re also making a really great investment into your own financial future and ability to provide for your family. So I do like these\u2026 Again, they\u2019re businesses that are just kind of disguised as real estate investing, but I do like these strategies because it makes it better for everyone involved.<\/p>\n
Well, thank you guys so much for joining us today on this episode of Real Estate Rookie. I\u2019m Ashley. He\u2019s Tony, and we\u2019ll see you guys on the next episode.<\/p>\n