\n<\/p>\n
Rental properties<\/strong> come in all shapes and sizes. You may be investing in short-term rentals<\/strong><\/a>, long-term rentals<\/strong>, glamping sites<\/strong>, or, maybe you\u2019re trying to help someone else buy a rental property. Regardless of where you choose to hang your hat on the real estate investing spectrum, David Greene probably has a golden nugget of advice for your next purchase, sale, or client.<\/p>\n In this week\u2019s episode of Seeing Greene<\/strong>, David takes questions from investors, agents, wholesalers, and more to help answer some of the most common real estate inquiries<\/strong>. You\u2019ll hear topics such as: whether or not a special use permit will increase property value<\/strong>, when to sell and when to refi a rental<\/strong> property<\/a>, whether or not each separate short-term rental needs its own LLC<\/strong>, and why David stopped looking for under-market properties<\/strong> and started looking at something else entirely.<\/p>\n Want to ask David a question? If so, <\/strong>submit your question here<\/strong><\/a> so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums <\/strong>and ask other investors their take, or follow David on Instagram<\/strong><\/a> to see when he\u2019s going live so you can hop on a live Q&A and get your question answered on the spot!<\/p>\n David: Chris: David: Siri: David: Oladimeji: David: Ryan: David: \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
This is the BiggerPockets Podcast Show 615. If you\u2019ve got two different duplexes that are sitting on their own lot, you\u2019ve added value to the property, you\u2019ve actually literally created equity out of nothing, and value out of nothing. You can now refinance them, you can now sell one of them if you want. You won\u2019t increase your cashflow, so to speak, but you will increase the value of the property, and that gives you options. Like I said, you could sell one of them and reinvest into something else, you could refinance one of them to get the money and put into something else. I would be a bigger proponent of this.
What\u2019s going on, my people? This is David Greene, your host of the BiggerPockets Real Estate Podcast, coming to you live. Well, it\u2019s actually recorded but it\u2019s live when I\u2019m saying this. With another Seeing Greene episode of the BiggerPockets Real Estate Podcast. In these Seeing Greene episodes we take your questions directly from the BiggerPockets community, submit them here for everybody to hear and then I do my best job of answering them. The goal of this podcast is to help you see what goes on behind the scenes and get a deeper dive into different questions that people have so that you can learn from the experiences of myself, as well as others, and those that are asking the questions.
In today\u2019s show we get into some really good stuff. We talk about how a Special Use Permit can affect property value, particularly if you want to sell it. We talk about how an agent can get started in a new market and crush it if they don\u2019t know anybody, and we talk about when to subdivide a lot, when to leave it alone and how to approach it if you\u2019re going to subdivide it. We get Into a lot more stuff regarding different markets you can invest in, as well as different strategies, so please listen all the way to the end.
Also, if you\u2019ve been wondering why the Quick Tip sounds different, if you make it to the comment section you will see, in this episode, me addressing that very question. And I want to know, do you guys like the deeper Batman-style Quick Tip voice or do like Brandon man voice, which is a little bit higher pitched.
Moving on to today\u2019s Quick Tip. If you like something you heard me say, if it triggered more questions after you\u2019ve heard me give an answer and you want to dive deeper into it, or if I totally botched an answer and you didn\u2019t get your question answered, consider going to the BiggerPockets website and checking out the forum. At the BiggerPockets Forums there\u2019s tons of questions being asked all day, every single day, and a lot of answers being given. You can search the entire website for different questions on different topics. And if you like something that came up here and you want more, go get it there.
Also, check out our new podcast page. If you go to iggerpockets.com\/podcast, you can see a whole library of different podcast that we are offering you at BiggerPockets, and find more stuff to listen to when you\u2019re waiting the next show of Seeing Greene, or the Real Estate Podcast to come out. So, getting more involved in the community, go check out th website, get everything that BiggerPockets has to offer and keep listening to these shows here. All right, let\u2019s get into our first question.<\/p>\n
Hey, David. My name is Chris Jube, my wife and I run a glamping operation down here in Monument, Colorado. In fact, and one of Rob Abasolo\u2019s students in his glamp camp. So, Rob, if you\u2019re watching this, how you doing, brother? It\u2019s good to see you. We\u2019re doing a great job here in Monument and we\u2019re entering into our fourth year, and getting ready for it. My question has to do with financing, because this year we\u2019re applying for a Special Use Permit, chances are very good that it\u2019s going to go through and it\u2019s going to help legitimize our business and make it even better. But I\u2019m anticipating justifying financing to duplicate this, so either later this summer, this fall or maybe next year, to keep running glamping opperations.
How would a Special Use Permit change the valuation of my property? Because it\u2019s kind of like a little commercial property now< when you think about it, even though it\u2019s a single family residential property and it\u2019s not a large piece of acreage. Now I have a Special Use to put this business on it and the Special Use goes with the and not the person, so I could actually sell it or approach a bank. See where I\u2019m going here? Approach a bank to justify financing for another property and another operation, maybe two or three, or four, something like that. So, that\u2019s my question, how does a Special Use change the value of a property and how would a bank value that? So, your answer much coveted. Thank you for all you do, David, you\u2019re crushing it with BiggerPockets. And same with you, Rob, it\u2019s need to see\u2026 Actually, Rob turned me onto BiggerPockets, so thank you for everything you do, and I look forward o your answer.<\/p>\n
Hi, Chris. Well, first off, congratulations on your whole enterprise over there as well as your Special Use Permit, and any friend of Rob\u2019s is a friend of mine. All right, let\u2019s talk about will this Special Use Permit increase the value of your enterprise. First thing to consider is you\u2019ve got properties that are improvement, then you\u2019ve got land, then you\u2019ve got a business that uses those land and those properties to generate money, and all of those are going to be evaluated differently. So, if you were to sell the land with that Special Use Permit, theoretically that would make it worth more. If you\u2019re going to sell the properties on that land individually, somehow, with that Special Use Permit. Yes, theoretically that could make them worth more, but that\u2019s mostly because the properties you have, these glamping, I don\u2019t know if they\u2019re tents or if they\u2019re actual structures. If they\u2019re not structures, if it\u2019s just a tent then I wouldn\u2019t actually call that a property and I would take that back. But if it was it wouldn\u2019t be valued based on comparable sales because you\u2019re not selling a typical property that has comparable sales.
Then you\u2019ve got the business that you\u2019re going to be running, and this permit would help that too. Here\u2019s the best advice I can give you for how to look at this. The permit allows you to get an income stream that more legitimized, makes it harder for someone to shut you down, it\u2019s making what you\u2019re doing safer. So, when you go sell this to someone else, the value f that permit is they\u2019re getting safety and a protection of the income stream. The permit itself does not necessarily make everything else worth more, because if you\u2019re going to a bank and you\u2019re saying, \u201cHey, my property\u2019s worth this much.\u201d All they\u2019re going to look at is how much income is it generating. The bank is concerned with the income that it\u2019s generating because they want to know that you can cover the debt service on any loan that they would give you. So, I hope you see what I\u2019m getting at here.
Having the permit does not automatically make your business worth more money necessarily, but it does give you the ability to increase your revenue and the increased revenue will make your business worth more, both to a bank or to a business, if you\u2019re going to go sell it. So, this is a step in the direction you\u2019re trying to go, but until you get all the way there, which is actually creating more revenue, you\u2019re probably not going to see an actual increase in the valuation of your business, but that doesn\u2019t mean that this isn\u2019t important. There\u2019s many steps along the journey, this is a big one for you, keep going. And when they\u2019re all in place you should have a business that generates more revenue and, therefore, is worth more money.
All right, our next question comes from Peter in Sacramento, my hood. \u201cI\u2019m single, in my 30s and was fortunate enough to have bought a home before the pandemic at three-and-a-half percent down. After only a few months it was obvious the house was more of a fixer upper than I expected, and even without those costs I was house poor with just the mortgage and utility so moved out and turned it into a rental. As of today I have $120,000 in equity. I would like to buy a duplex or a quadplex in the next two to three years. The current property is in a great up and coming neighborhood that would make a nice retirement home for me in 30 years\u2019 time. At the same time, if I were to sell it I could buy a duplex as 100% rental and move in on one ide. Do I hold onto the house ad take the money out of it that way, or do I sell it for the cash and walk away?\u201d
All right, so this is a question of do I keep and refinance or do I sell, or do I do nothing and just save up money and buy more homes? Well, here\u2019s the first thing, Peter, I don\u2019t think looking at this and saying, \u201cHey, this house is in a great up and coming neighborhood so should I hold it and move into it in 30 years?\u201d There is no way you can know in 30 years if this is the house you\u2019re going to want to live in. There\u2019s a bit of a scarcity mentality gong on there, there\u2019s a lot of houses, you have 30 years to make money, save money, buy real estate moving around, and who knows if you\u2019re even going to want to be in California in 30 years. So, let\u2019s just throw that out completely, it does not matter if this house is where you\u2019re going to live in 30 years.
What matters is, will you have enough money to buy the house you want in 30 years and how can this house help you get to that point? So, that\u2019s where I\u2019m going to give you advice. It\u2019s in an up and coming neighborhood so the question I\u2019d be asking is, \u201cIs it going to continue to grow in value faster than something else that I buy?\u201d If you sell a house in an up and coming neighborhood to buy a home in an established neighborhood that\u2019s not growing in value, you\u2019re losing out on future equity over the years. However, you\u2019re probably going to gain in cashflow if you get a quadplex or a duplex, so you have to weigh out, \u201cAm I going to get more in equity or am I going to get more in cashflow over the long-term?\u201d
If you have $120,000 in equity, here\u2019s what I\u2019d like to see you do. Sell that home, buy another home with another three-and-a-half percent down payment to replace that home that you\u2019re going to house hack. Use the rest of the money that wasn\u2019t in the three-and-a-half percent down payment and buy an investment property. Now what you\u2019ve done is trade in this one house that was a fixer upper for two homes, one an investment property, one a house hack. Keep your own living expenses low by hacking out the house hack and get some cashflow from the investment property. Let those home appreciate, once they\u2019ve gone up in value evaluate if you should do the dame thing or if you should hold on to them.
Focus on growing your equity and growing the amount of money you have n the bank, to on buying a house right now that you might want to live in in 30 years. Having money gives you flexability and then you can make choices in life that make you happier. But hands-off to you for doing a great job on your first property, let me know if there\u2019s anything I can do to help with this.
Peter also says, \u201cIn response to a comment you made on the April 10th YouTube clip, I appreciate your direct style so please don\u2019t stop. For those learning about something as expensive and complex as real estate, the truth needs to be told. Thank you.\u201d Well, thank you for that, Peter.<\/p>\n
Hi, David. My name is Siri, I\u2019m from San Diego. And my question pertains to how to hold ownership of property, short-term rental properties is what I\u2019m into. My business partner and I have just purchased our first one, we\u2019re in the middle of rehabbing it and our intention is, once it\u2019s done and renting we\u2019re going to BRRRR it and buy more. We\u2019ve heard several things, we currently own ours as an LLC and we\u2019ve heard that you should own each property separately in a separate LLC, for liability reasons. So, I was wondering if you know if that\u2019s correct. And also we\u2019ve heard that if each property is owned in a separate corporate structure, or not corporate if it\u2019s an LLC but that you can sell the business to just sell the property when you sell it. True, not true?
Once you get many, many properties, because we have a 10 year plan that has some pretty expansive growth, what is the best structure for holding a short-term rental piece of property, or multiple properties? We were thinking maybe [inaudible 00:11:13] would save us money in bookkeeping if we\u2019re not having every single one in a separate entity, but just wondering because I haven\u2019t been able to find what best practices are in the industry and I though, probably, you would know. So, thanks for your help.<\/p>\n
All right, thank you for that, Siri. My question to you, I\u2019ve got to know. You\u2019re surrounded by people that have to be saying, \u201cHey, Siri,\u201d to have get your attention. How often are iPhones just pinging all over the place everywhere you go that you just hear Siri\u2019s voice responding to everybody saying, \u201cHey, Siri.\u201d I think that would be hilarious that everywhere you go phones are just going off, you\u2019re the first Siri that I\u2019ve ever met in real life.
Now, as far as your question to me, it\u2019s a good one. So, here\u2019s what I think I hear you saying, \u201cI\u2019m going to be buying a lot of properties, do I need to have an individual legal entity,\u201d think that\u2019s what you meant when you said corporation, I understand, \u201c\u2026 for each property or can I put them all into the same one?\u201d Then you also asked if you have a business can you sell the business but keep the property. Let me answer that one first because I think I can do it quickly.
From what I\u2019m understanding of your question, you own a business that would be a legal entity, which is incredibly easy to do. So, first off, everybody out there, when you hear someone say, \u201cI\u2019m a business owner.\u201d That could mean nothing. It\u2019s kind of like saying, \u201cI have a podcast.\u201d It\u2019s pretty easy to make a podcast, you can have three followers and say you have a podcast these days, same as self-authoring a book. Being a business owner doesn\u2019t mean anything, a business entity is just a way that you take title to a business and you run your cashflows through. Well, if you have no cashflow you have no business.
If you\u2019re buying a business and putting a property inside of it, if that property is the only thing generating cashflows you would have to sell the property with the business or else nobody would be buying it. Let\u2019s say that you owned a assisted living facility and you had a property that you ran this through, in that case you could technically keep title to the property but sell the actually labor of the business, sell the business and the income streams that people pay to rent out your place, and you could run your opperations in the house and have whoever bought the business pay rent to your house.
So, there\u2019s some situations like that where the real estate is independent of the business and that might be what you\u2019re thinking about when it comes to this Airbnb situation. So, I guess, technically you could sell the business which would be the right to list the house on Airbnb and manage it, and have someone buy it with an arbitrage model where they just pay you rent to use the house, but I wouldn\u2019t think that would happen very often because most people are going to want to use the 30 year fixed rate loan to buy the house and inherit the business with it. So< I don\u2019t know, for your situation I don\u2019t think it\u2019s good to think about business and how separately they\u2019re going to be too tied together.
As far as how you should keep title to these properties, the reason you would do this is if you had one accident happen in one of your properties and you\u2019re sued. The person suing you would theoretically only be able to get access to the equity of whatever is in that LLC. So, if you have one property in that LLC they\u2019d only get access to the equity that is in that LLC, if they were to win a judgment. The problem is, if you put a new LLC together, or a new legal entity together, every single time you buy a new property you end up with a lot of them and it\u2019s very difficult to manage. So, most people try to find some happy medium. They keep several properties in one LLC.
Now, I want to highlight, my understanding of this from the people that we\u2019ve interviewed on the podcast that do legal protection, is it doesn\u2019t matter how many properties you have there it matters how many equity you have there because that\u2019s what someone is going after. So, having one million dollar property completely paid off has $1 Million of equity, whereas having five million dollar properties that have a loan of 900,000 on them, there\u2019s only $500,000 of equity. So, even though there\u2019s five properties there\u2019s less for somebody to get after.
That\u2019s what I\u2019d be looking at. There\u2019s no problem to keep all your properties in the same legal structure, and then as the equity grows consider moving an individual property into its own legal structure at that time and leaving the other ones in there. Just remember, it\u2019s not how many properties are there it\u2019s how much equity is inside of that individual entity. Thank you very much for asking this question, and please go on YouTube and let me know how often you hear, \u201cHey, Siri,\u201d and hear phones going off.
All right, thank you everyone for submitting the questions that we have so far. If you would like to submit a question, please go to biggerpockets.com\/David, where you can submit your video or your written question there and hopefully we get to answer it on the show. In this segment of the show we go over the comments that other people left on YouTube after watching these videos. Please consider going to YouTube and leaving me a comment yourself, I\u2019d like to know what you think about the show, what you\u2019d like to see different and what you don\u2019t like a all.
All right, our first comment from Rena [inaudible 00:16:02], \u201cDavid, you and your analogy is like a man in the Biblical times speaking in pericles, lol.\u201d That\u2019s not me saying lol, she said lol. \u201cOne of my predictions has been that people are going to start saying lol in real life because we do it in text so often. I love it, I love the content and all BP continue to share.\u201d Well, thank you Rena, that\u2019s very sweet of you to say. I appreciate that.
From Kevin Katao, \u201cSeeing Greene is the best BP show right now. Thank you David.\u201d Well, that\u2019s pretty cool, thank you for that. Next show question, \u201cMany in this community believe that landlords provide an important service by providing housing to others. How do you refute someone who is anti-landlord that states landlords are taking away homes that owner occupants could buy, particularly in single family residents? If landlords buys homes they aren\u2019t taking away opportunity and raising market prices for non-investors looking to live in the dream of home ownership.\u201d
Yeah, there is a pretty big debate going on in that space, so here\u2019s basically how I see it playing out. When home prices go up people say, \u201cWhy are so many people buying homes?\u201d And often will all these greedy investors get brought up. And the idea is, because investors pay more than somebody would for a normal home, they\u2019re driving the price high and making homes unaffordable for someone that wants to just live in it. So, the argument would be, if landlords were not allowed to rent out homes, they would not buy them, then there would be less competition and home prices would be lower, and somebody could buy a house to live in themselves.
And to be fair, that\u2019s probably true. If you took investors out of the housing market then it would make homes more affordable in most cases, and easier for someone to buy. But here\u2019s the thing, not everybody actually buys homes. In fact, a lot of the time the reason that landlords are renting them out is they\u2019re renting to people that don\u2019t want to buy or can\u2019t buy. So, I don\u2019t know that there\u2019s as many home owners out there that are really trying to buy and they just can\u2019t, as what people think.
And here\u2019s the flip side, if we did that you have all these tenants that now can\u2019t live in a home, where are they going to go? Well, they\u2019re going to have to go into an apartment, which means we\u2019re going to build more apartments, which means we\u2019re probably going to have more public housing to support all these people that need a place to live. Public housing is usually not the best housing, think about your experience with anything public like the DMV. It\u2019s usually not great.
So, if we did what these people are saying we would just have a different problem. We\u2019d have a bunch of people that are living in apartments that are complaining that it\u2019s not fair to them, because don\u2019t they deserve to have a yard, don\u2019t they deserve to be able to rent a house in an area where they want to put their kids to school, why are they being discriminated against just because they don\u2019t want to own real estate or they don\u2019t want to buy a house. Maybe they have bad credit and so they\u2019re going to claim that it\u2019s not fair that they\u2019re unable to buy a house, and they\u2019re regulated into cheap public housing or project housing that the government has made to house these people.
Even if they go in the private sector they\u2019re still stuck in a small apartment complex, they don\u2019t get a bigger home, it\u2019s harder to have pets, it\u2019s harder to get outside, you don\u2019t have a yard, you can\u2019t have a garden. There\u2019s a lot of things that would suck, then we would just have people complaining about that. So, when it comes to refuting someone like that, the best advice I can give is if you\u2019re going to engage with them, paint a picture for what it would look like if they got their way.
It\u2019s very easy to complain about something and only look at the first step, but if you allow wisdom to run its course and actually think about how things would look if that person won, the end result is often worse than what we have right now. Hope that that helps.
All right, these next couple of comments come from my changing up of the BiggerPockets Quick Tip because I don\u2019t love the super high pitched Brandon Turner Quick Tip that he made me do for years. Coming from Primetime21, \u201cI love the analogies, David, and the Batman Quick Tip.\u201d So, that\u2019s something that I brought to the podcast so I was a little different than Brandon. I use analogies and I like to say, \u201cQuick Tip.\u201d Jimmy, \u201cFr the Quick Tip new sound, put in a clip of Brandon\u2019s voice. We all love Brandon and it keeps it OG.\u201d Not a bad idea, so there could be times where I\u2019m saying, \u201cHere\u2019s today\u2019s Quick Tip,\u201d or we could have Brandon singing his very high pitched melodic, angelic version of the Quick Tip.
Hammer Radiology, that\u2019s kind of a cool name, says, \u201cDefinitely the high pitched Quick Tip, it makes me chuckle too,\u201d which is I think why Brandon did it because he likes to make people laugh. Batman vs Brandon, I\u2019m glad we\u2019re getting into this debate. Do you guys want Batman or do you want Brandon man? Your call.
All right, are these questions and comments resonating with you? Do you enjoy hearing what other people on BiggerPockets are saying? Look, you are a part of a community if you\u2019re listening to this podcast, get more involved in that community. Get in the YouTube and leave comments, say something funny, say something positive, say what you\u2019d like to see more on the show. Ask the question that\u2019s never getting asked on the show, that you wish was, so that we could get into it. As long as you\u2019re keeping it classy, we want to hear more from you.
So, please, if you\u2019re listening to this on iTunes, on Stitcher, on Spotify, on SoundCloud, wherever you listen to the podcast, just check us out on YouTube and go there, leave a comment and let us know what you think of the show.<\/p>\n
Hello, my name is [inaudible 00:21:11]. I am from Brooklyn, New York, and my question is about ethical wholesaling. Now, in your BRRRR book, David, you seem to place an emphasis on the buy and you tell us that the way to build equity is in the buy itself. Now, correct me if I\u2019m wrong, that kind of comes across as you telling us that we should figure out how to pay less than market value for a property. So that way once the purchase is completed, we have equity built in that property already, before even doing a rehab, et cetera.
Now, in your Ethical Wholesaling episode with Jamil you seemed to place more of an emphasis on paying market value for a property and figuring out how to add value to that property, as opposed to focusing on how to pay less than market value for the property. Hope this isn\u2019t confusing, but those two messages seem to be at odds to me, they seem like they\u2019re conflicting. Please clarify, my apologies for the long-winded voice note. If I haven\u2019t mentioned this already, I am [inaudible 00:22:16] from Brooklyn and looking forward to hearing from you. Thank you.<\/p>\n
Hey, Oladimeji, my man, thank you very much for asking this question. It doesn\u2019t bother me at all. I actually appreciate that you\u2019re asking this because it means it\u2019s on the minds of other BiggerPockets community members, and gives me a chance to address it, and there is a really good answer. So, when I wrote the BRRRR book we were in a different market than were in today. At the time I wrote it I was just ripping through BRRRRs because nobody wanted fixer upper homes. Real estate investing was not as hot as it is right now, and so when someone looked at a fixer upper home what they saw was a problem they didn\u2019t want to deal with. And the way that I was solving the problem that no one wanted to deal with was through a rehab.
So, I would give the advice on how I was finding deals, at the time I was looking for properties that had been sitting on the market for a long time, stuff that some other flipper had started to undergo and then ran our of money and couldn\u2019t finish. I was looking for things that wouldn\u2019t qualify for conventional financing because they were in such bad shape, so I could go in there and buy it cash at the discounted rate that I described to you, put money into fixing it up and then when the house was in better shape and would qualify for financing, I would go refinance it.
The strategy was working and I was buying two to three houses a month, at a certain point. It was amazing. Well, I wrote that book and then I also wrote Long Distance Investing, and then BiggerPockets published them, and then everybody in the world was able to see what I and other investors were doing. And what do you think happened? Everybody rushed in and did the same thing. At the same time that was happening the Fed was putting ridiculous amounts of money that was just inflating the economy by a lot, and they were holding interest rates super low so that people that didn\u2019t want to invest in real estate were forced to because they couldn\u2019t keep their money in the bank, and the values of real estate was going up ridiculously fast because interest rates were low. It was a perfect storm that caused everyone to flood into the market.
Well, what happened is those fixer upper properties were now problems other people were also looking to solve, it wasn\u2019t just me and investors like me. And that\u2019s why my advice changed, because the market evolves and so does my advice within it. This is not uncommon for anything else in life. You look at how people played football in the 1930s, it\u2019s a lot different than how they play it right now. The advice that somebody would be giving to somebody in the NBA in the Bob Cousy days is a whole lot different than what they would be giving to someone in the Shaquille O\u2019Neal days, and now in the Steph Curry days.
We have to evolve our strategy, now I totally understand why this would be confusing for you because you\u2019re getting into this space and you\u2019re seeing all of this information that\u2019s being presented at one time. Your not understanding the timeline of how it was evolved. So, I believe when you were referring to the latest advice I gave I was saying, \u201cIt\u2019s okay to buy a property at market value if the area is continuing to go up in value.\u201d I\u2019m giving that advice because if it\u2019s market value r nothing, market value is better. Previously, in a different market, if it was market value or less, less was better.
Now, I\u2019m not turning down opportunities to buy deals below market value, I find them occasionally. I just got one in Moraga, California that I got way below market value. Before that I got one in Pleasant Hill, California where it was the same thing. But then there\u2019s other properties that I bought, like with Rob, were only slightly below market value, and other properties that I buy at market value. You don\u2019t always know how it\u2019s going to come in, but what I\u2019m doing, and I can only share how I\u2019m investing, is I switch from saying, \u201cHere\u2019s market value, I want to buy a house below it, to the area being below market value.\u201d I\u2019m looking for undervalued locations. Okay, so where I used to say, \u201cAll right, Jacksonville, Florida, the property is worth 150, I\u2019m trying to buy it at 120.\u201d
I\u2019m now saying, \u201cAll right, I can\u2019t put a number to it but where are people moving to? Which areas are appreciating in both rents and values and demand, faster than others?\u201d And I want to go buy in the area that I think is undervalued, meaning the properties in that area are likely to have rents that go up faster than properties that are around those. Now, this is a harder way to do business, I totally recognize it because you can\u2019t put this information into an Excel Spreadsheet and let the numbers do the work for you. But that\u2019s where the advice that I\u2019m giving comes from.
If you\u2019re able to buy a property that cashflows 2% in Miami, Florida, it\u2019s probably going to crush it five years later because Miami is going to appreciate a whole lot more that Gary, Indiana. It\u2019s just a different way of approaching it and, to be honest, I don\u2019t love it, I don\u2019t like that this is the way that I have to play the game right now. I wish that I could go back to just fining properties that were under market value and only buying those. Here\u2019s the problem, if I only buy the very best deals in my situation I\u2019m going to lose a lot of money from buying solid deals, just getting base hits and getting on base, and letting the market carry it.
Now, not everybody is in that situation, if you don\u2019t have a lot of reserves, if you don\u2019t have a ton of money, if you got to get it right, you\u2019re going to have to work harder to get that deal under market value like what you\u2019re saying. But if you\u2019ve done well, if you\u2019re in a strong financial position, if you\u2019ve saved money, if things are going well for you, don\u2019t hit home runs every time. You can\u2019t always get a home run, sometimes you just got to get on base and then let somebody else bring you in. For me, that\u2019s the market, I get on base and I\u2019m letting the market bring me in. Thank you very much for asking that question, I appreciate you giving me the opportunity to clarify it. I\u2019m really hoping that put off a lot of light bulbs over the heads in the BiggerPockets community members, as a whole.
Let me know in the comments below, what are market that you guys like, what are your concerns with trying to buy in a market versus buying a property, and are there strategies that you\u2019re seeing that are working that I\u2019m missing on the show, that you\u2019d like to share?
All right next question comes from Britt in Placerville, California, which is also not too far away from me in Northern California. \u201cHi, David. I have two duplexes on a large lot that can be split into two lots, both units are lined up along the street.\u201d That is helpful information, by the way, because if they\u2019re both lined up on the street horizontally, you can have two addresses. If they\u2019re lined up vertically you\u2019d have a house behind the house on the street, very difficult to build it out. \u201cI believe there\u2019s a lot of potential benefit to splitting up the lot and eventually selling them down the road, if I choose. But is there any benefits of splitting it up a lot sooner rather than later, if so are there any downsides to insurance or taxes?\u201d
Okay, Britt, this is a great question and you\u2019re in my hood. So, side note, anybody who\u2019s in California, please reach out to me, DM me, message me on BiggerPockets, let me know. I want to get you in my database because I do run meetups out here I\u2019d love to invite you to. I\u2019ve got a real estate team in Southern California as well as a team in Northern California, so we are pretty well situated.
Now, your question about splitting up your lot, the first thing is you\u2019re going to have to ask the city if they\u2019re even going to allow you to do this, they may say no. If they say no you\u2019re going to keep checking back every six to 12 months to see if they\u2019ve changed their mind and they\u2019re going to let you do it. As far as having higher insurance and taxes, yes that is true, If you do this you may end up having slightly higher taxes and insurance because you\u2019ve now take two duplexes on lot and turned it into one duplex on two lots, and you just have two of them. So, that\u2019s okay, but my guess would be the overall value is going to be much better than the increase expenses, and here\u2019s why. If you\u2019ve got two different duplexes that are sitting on their own lot, you\u2019ve added value to the property, you\u2019ve actually literally created equity out of nothing and value out of nothing.
You can now refinance them, you can now sell one of them if you want. You won\u2019t increase your cashflow, so to speak, but you will increase the value of the property, and that gives you options. Like I said, you could sell one of them and reinvest into something else. You could refinance one of them to get the money and put it into something else, I would be a bigger proponent of this. Now on the downside, let\u2019s say you don\u2019t do it and say, \u201cHey, I\u2019m just going to do it later.\u201d You don\u2019t know what changes are going to happen in zoning, you don\u2019t know who\u2019s going to get onto the city council that doesn\u2019t like landlords. If you\u2019re in a favorable position now it could get worse if you wait. So, I don\u2019t think that the increased expenses are going to be worse than the increased value, I think you\u2019re better off to do this sooner rather than later. And if they tell you o, I would keep checking until it\u2019s a yes.
All right, now let\u2019s consider a hypothetical situation here where you have a property on a big lot, and that lot could be divided into two pieces. So, if that was the case you\u2019d have one lot that has the property on it and another lot that you\u2019ve now created that is unimproved or doesn\u2019t have a property on it. I\u2019m going to answer that same question as if someone asked it in that format.
As far as the downsides to insurance or taxes, I don\u2019t believe you\u2019re going to have any insurance on a lot without an improvement, you typically only get insurance if you have an improvement on a lot. I\u2019ve never owned vacant land so, please, if this is wrong don\u2019t everybody jump down my throat, I\u2019m just sharing my understanding of it. There\u2019s no fire insurance if you have a building that can catch on fire.
Taxes could go up, so what you need to ask the city is if you split it into two lots, how are they each going to be valued because you\u2019re probably going to end up paying property taxes that are a little bit higher if you do it earlier, because you may have a lot that\u2019s valued at 300,000 and once you split them into two they\u2019re each valued at $200,000 which is an extra 100,000 you could be taxed on. However, land is typically not valued nearly as much when nothing\u2019s built on it so the taxes are a lot lower than most people would actually realize. I would be looking at doing it sooner rather than later.
You never know when opportunity\u2019s going to come around, this is something I\u2019ve learned a ton. A lot of times we wait until an opportunity comes and we scramble to try to get ready and it passes us up. If you\u2019re ready before opportunity comes, if somebody wants to buy that lot or you meet a builder and you want to build on it, whatever it is that happens you\u2019re ready to go and you don\u2019t miss the opportunity. So, if it was me I would jump on it sooner rather than later.<\/p>\n
Hey, David. Ryan here from Pittsburgh, Pennsylvania. I am a real estate agent and investor, I started buying properties last year and I have eight doors in Cleveland, and then I also have a short-term rental in the Smokey Mountains. My question to you, though, is more geared towards the real estate agent side of things. I got my license back in 2019 but I was only part time for the past three years, I went full time this past March because help from the rentals, and everything, I was able to get out of my nine to five.
My question to you as far as the real estate side of things of being an agent is, if you had to move into a new market, for whatever reason, a market where you didn\u2019t know anybody or you didn\u2019t know very many people, what would you focus on to generate leads and basically dominate that market? I just started doing videos because heard obviously that that\u2019s a big part of it, but I wanted to get your insight on it and I have your first book, I have the second one pre-ordered and everything so I\u2019m waiting for that to come out. But just would like to get a gauge from you, and answer from you on what you would do in a new market like that, if you were presented one, and how you would go about it to generate leads and everything, and get noticed in that market.
So, that\u2019s it, that\u2019s my question, and appreciate everything you guys are doing at BiggerPockets. You truly are changing lives, and you\u2019ve changed my family\u2019s trajectory for sure in the past year just alone, with eight doors and the rentals that we\u2019ve gotten. So, I appreciate it and looking forward to hearing your answer. Thank you.<\/p>\n
All right, thank you for that, Ryan. And thank you for mentioning the books that I wrote, they\u2019re not as well known in the agent series. So, everyone knows I wrote the BRRR book, people know that I wrote Long Distance Real Estate Investing, but not everybody knows that I wrote books for agents. Sold is the first one and the second one, Skill, is coming out in a couple of weeks, if you go to biggerpockets.com\/skill you could pre-order that book.
Personally I think Skill is twice as good as Sold and Sold is doing really well. The premise of Skill is, this is how you become a top producing agent, this is how you be someone who does a lot of business and makes a lot of money that different than just a person who can have a career where they make some money in real estate, which is where people start off and that\u2019s what Sold was written for.
All right, here\u2019s what every realtor needs to know if they really want to do well. Instead of starting where you are and saying, \u201cWhat\u2019s my first step? All right, I should make videos, I\u2019m told that. What\u2019s my next step, I should cold call. Okay I\u2019m going to do that. What\u2019s my next step, I should go knock on doors. Okay, I\u2019m going to do that.\u201d What happens is you end up taking all of these steps and then seven of them don\u2019t work, you finally get the eighth one that does and then you start over and you take another eight steps and only one of those is going to work. It\u2019s very time intensive and it\u2019s not very conducive to being successful.
What you want to do is go actually to the end and say, \u201cHow do I want to look when I\u2019ve done a good job? So, people come to me to have me sell their house or help them buy a house because they trust me that I know a lot about real estate. If you\u2019re listening to this and you have a house to sell, I want you to come out to me and let me know because I\u2019m into real estate, that\u2019s what I\u2019m doing.\u201d And that\u2019s really what we\u2019re all looking for, you guys are listening to BiggerPockets because you trust that the people that are giving you advice are good at what they do. We all want to work with someone that we believe already knows how to do the thing better than us, I hired a mechanic for my car because I believe they know way more about cars than I do and they\u2019ve done it a lot.
When I\u2019m looking for an agent I\u2019m looking for someone that owns the type of real estate that I want to buy. Their advice is much more valuable to me. I\u2019m not looking for someone that answers their phone every single time I call, I\u2019m not looking for someone that is super friendly and makes me feel happy, I\u2019m looking for someone with experience. And if they\u2019re quirky, they\u2019re a little bit weird, I have to work around their schedule, that\u2019s okay because I value experience that much more.
You\u2019ve mentioned something that gives you a huge advantage, you have eight rental properties. You\u2019ve done this, you understand what it\u2019s like to own real estate not just to be a sales person. I always give this example of someone who goes into a car lot. I don\u2019t want a salesman who\u2019s really nice being the person to sell me a car, I want to talk to a mechanic who understands that car or a person that owns that car themselves, who can tell me what it\u2019s like to drive a Ferrari versus a Lamborghini. And I use those luxury car example because to most people buying a home, the purchase is so big and scary it\u2019s the same as I would feel if I had to go buy a Ferrari or a Lamborghini.
I don\u2019t understand, I don\u2019t know what all my expenses are going to be, what if I choose the wrong one, which one\u2019s going to go up in value more, which one\u2019s going to lose value? I have all these questions, it\u2019s a scary thing. That\u2019s what owning a home is like for people that haven\u2019t bought it, and you\u2019re somebody who owns eight exotic cars. You can tell them which cars they should buy, what cars work best for which purpose, and what to expect when they buy that car. This is a huge advantage.
So, if you were to go into a new market where you don\u2019t know anybody, the first thing you should do is set up educational meetings. You should be doing meetups, you should be making videos that specifically talk about home ownership and what people should expect. You should drop what I call hooks, and in my book series I talk about these hooks, they\u2019re little lines that you can mention at a open house or in a meeting, that tells people something they would not have know if you didn\u2019t say it and makes them wonder what else do you know.
So, for instance, many people don\u2019t know that property taxes are different in different parts of the city. There are special assessments that are put in place, there\u2019s things that are called [inaudible 00:37:34] in certain areas, which are extra taxes to pay for schools or fire departments, or land improvements, or whatever it is the city\u2019s doing and they\u2019re making the people who buy a house in that area subsidize those decisions. If you can tell clients that certain areas have cheaper property taxes than others it makes them wonder, \u201cWell, what else do you know? I want that to be my agent.\u201d
And that\u2019s what you should be doing, you should be talking about real estate, the benefits of home ownership, the risk that you can help them navigate and you should be doing this to as many people as you possibly can, and then just work backwards from there until you get to where you are right now. Thank you very much for asking this question, Ryan, and remember you have a huge advantage over other agents, you need to take advantage of that.
\u201cHello, all, I have a question about NOI. I have seen it the way you get net operating income is your gross income minus expenses. It is taught on BiggerPockets to put away for vacancy, CapX, et cetera. Would all those fall as an expense reducing my NOI when it came to looking at my cap rate to round out the value of a property?\u201d Okay, I see your question here, Daniel, and I think I can also see why you\u2019re confused. This is also coming from Daniel in Northern Arizona.
NOI is a metric that we use most often with multi-family properties, okay. When we talk about BiggerPockets, when I say we I\u2019m referring to our calculators and how we\u2019re telling people to analyze a property, we\u2019re letting them know you\u2019re going to have expenses like vacancy, capital expenditures, maintenance, stuff like that. You\u2019re kind of conflating those two worlds, so different people are going to come up with their income minus their expenses differently. NOI as a bank is going to use it, it\u2019s going to be different than how we\u2019re telling the individual investor who\u2019s buying a house, \u201cThis is what you should look for.\u201d So, don\u2019t make the mistake of mixing up multi-family with residential property.
Now, it wasn\u2019t in the notes I read but my understanding is you\u2019re looking to buy a six unit property which is technically a multi-family property, and it\u2019s going to be evaluated like that. Here\u2019s the best way to move forward, talk to the lender who\u2019s going to be funding the deal and ask them the question you\u2019re asking right here, \u201cHey, when we\u2019re coming up with the NOI that we\u2019re going to use to determine the value of the property, are you going to look at these things and if not what things are going to be included?\u201d
There you have it, another episode of Seeing Greene BiggerPockets. Appreciate you guys hanging out with me, and I really appreciate those who submitted questions, we can\u2019t have the show without questions. So, if you like these shows please go to biggerpockets.com\/David and ask your question. It doesn\u2019t matter what it is, it could be about getting a deal, it could be about how to better manage a deal you already have, it could be a philosophical question about real estate or it could be a tactical question about real estate. I want to know all of them because what\u2019s important is that you all figure out a way to buy the right kinds of properties to give you the life that you really want. If you got some time please consider checking out another one of our videos and make sure you follow me on social media, I am DaviGreene24.<\/p>\n