\n<\/p>\n
Is the 1% rule<\/strong><\/a> in real estate still relevant? Who shouldn\u2019t be buying turnkey rentals<\/strong>? And why is an escrow account<\/strong> favorable for scaling real estate<\/strong> investors? All these questions and more are coming up in this Rookie Reply<\/strong>.<\/p>\n We\u2019re back at BPCon 2022, and joining us is fellow investor and turnkey operator, Zach Lemaster<\/strong>. You may have heard Zach\u2019s episode on the BiggerPockets Real Estate Podcast<\/em><\/a> or maybe you\u2019ve used his turnkey company, Rent to Retirement<\/strong>, before!<\/p>\n Zach helps us answer an array of questions, some from semi-passive turnkey investors and some from active investors. We touch on investor lines of credit<\/strong> and how to secure them, the 1% rule\u2019s relevance in 2022<\/strong>, whether or not to get preapproved before finding a deal<\/strong>, buying off-market<\/strong>, and much more! Zach also poses three questions every investor should ask BEFORE investing in turnkey rentals<\/strong>.<\/p>\n If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group<\/a>! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).<\/p>\n Ashley: Zach: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Zach: Tony: Zach: Tony: Zach: Ashley: Zach: Ashley: Zach: Ashley: Zach: Ashley: Tony: Zach: Ashley: Zach: Ashley: Tony: Zach: Tony: Zach: Tony: Zach: Tony: Zach: Tony: Zach: Tony: Zach: Ashley: Zach: Ashley: Tony: Ashley: Zach: Ashley: Zach: Ashley: Zach: Ashley: Zach: Ashley: Zach: Ashley: Zach: Tony: Ashley: Zach: Tony: Zach: Tony: Ashley: Zach: Tony: Zach: Tony: Ashley: Zach: Ashley: Zach: Tony: Zach: Tony: Zach: Tony: Zach: Ashley: Zach: Ashley: Zach: Ashley: Zach: Ashley: \u00a0<\/p>\n<\/div>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/i>sponsor page<\/a><\/i>!<\/i><\/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 230.<\/p>\n
I think when a lot of people start shopping for investment properties, especially the rookie investor that\u2019s just building out their criteria. It\u2019s okay not to have all of your criteria in the very beginning because I think that\u2019s a dynamic process. But often they\u2019re looking at proformas and looking at properties and trying to mash that to make sense for them instead of coming up with their criteria first and I think you build that over time. But it\u2019s all about taking action at the end of the day and critiquing your investing goals.<\/p>\n
My name is Ashley Kehr and I\u2019m here with my co-host Tony Robinson.<\/p>\n
And welcome to the Real Estate Rookie Podcast where every week, twice a week we bring you the inspiration, information and stories you need to hear to kickstart your investing journey. We always like to start these episodes by shouting out some folks from the Rookie audience and this week we want to give a shout on someone who left a five star review on Apple Podcast. This is Big Brand Investor. So this person said, \u201cI\u2019m a motivated rookie and I just wanted to say this is by far the greatest platform I utilize on a daily basis. The information you guys provide for a rookie investor is so invaluable, I look forward to getting my first property. Thank you.\u201d With three praise hand emojis. So Big Brand Investor, we appreciates you and if you haven\u2019t yet, please do leave us an honest rating review on whatever podcast platform that you listen to. So Ashley Kehr what\u2019s up? How are you?<\/p>\n
If you leave us a five star review, Tony will read it.<\/p>\n
I will read it. If you leave a one star review, I will delete it.<\/p>\n
I wish you could actually do that but instead I would just be crying. So we are at the BiggerPockets Conference live in San Diego.<\/p>\n
Beautiful, sunny San Diego. This is the dopest backdrop for a podcast I think I\u2019ve ever seen. So moving forward, we\u2019ve already told the BiggerPockets crew that we are only recording podcasts in this room moving forward. So we need you guys to leave a bunch of five star reviews for this episode specifically and talk about how much you love the backdrop that way we can keep this going.<\/p>\n
And we\u2019re trying to figure out how to fit this in the back of Tony\u2019s car. Did you bring your truck?<\/p>\n
I did bring the truck.<\/p>\n
Okay, perfect.<\/p>\n
I did bring the truck.<\/p>\n
We\u2019re loading this thing into the back and taking it home.<\/p>\n
But we\u2019re excited, it\u2019s cool to be here at BPCON, there\u2019s so much energy. I walked into their morning session this morning and it was like a sea of people. It was so crazy to have so many investors kind of all in the same space here to learn, here to network, it\u2019s been fantastic.<\/p>\n
So last night it officially started with a kickoff party and event and then today is all day sessions, tomorrow sessions and another ending party. But I feel like I\u2019ve already met so many people, learned a ton of things just from walking around the hotel, going on yacht parties, from coming in just a day early even. So I think if you are going to some kind of conference, an event either maybe come in a day early or stay a day late to do even more networking out of the conference setting because that\u2019s so overwhelming. Getting into the conference setting, meeting people, you\u2019re trying to get to your breakout session, things like that but\u2026<\/p>\n
When you can come early and share a drink with someone and just get to know them in a more relaxed setting, it makes the rest of the conference so much more enjoyable because now you\u2019ve got that buddy you\u2019re going to be hanging out with. And I remember one of the first big conferences I went to, I bumped into a friend that I had met at a meetup a few months before and I hadn\u2019t seen him since a meetup. We met at that conference just by chance, we both ended up going there. We spent that whole weekend together and then he was actually the person that introduced me into short term rentals. So it\u2019s like you never know where these networking opportunities are going to take you or the impact they\u2019ll have on you.<\/p>\n
I agree. So our first guess that we\u2019re having on today is going to help us with the Rookie replies.<\/p>\n
Yes.<\/p>\n
So we are excited to have Zach on today. He is from Rent to Retirement and he is going to help us answer the Rookie reply questions.<\/p>\n
Yeah. Zach, he\u2019s got a really crazy backstory. He was interviewed on the OG Podcast. We\u2019ll link his episode in the OG Podcast in the show notes. But he\u2019s built Rent to Retirement to be this really big company but even before that, he had a pretty wild ride as an investor himself. So anyway, we brought him on to kind of talk turnkey properties and just some other issues that rookies might be dealing with that his expertise could lend itself to.<\/p>\n
We know that on Saturday you guys get sick of Tony\u2019s dry monotone voice and my laugh. So we thought it would be great to have somebody else come in and answer some questions to really break it up. So let\u2019s bring Zach onto the show.<\/p>\n
So, Zach. Welcome to the podcast, excited to have you brother.<\/p>\n
So excited to be here, man. This is BPCON, it\u2019s awesome, pleasure is all mine tony.<\/p>\n
Yeah, awesome. So we\u2019re going to jump into some questions we have from the Rookie audience. The first one comes from Heidi G [inaudible 00:04:40] and Heidi\u2019s question is, can someone explain a non-key log line of credit? We\u2019ve been told to check into a commercial line of credit to have cash for off market purchases. We\u2019re looking at four to five doors, we have about $600,000 in equity across our rentals with no mortgages on them. But I don\u2019t have a firm grasp of requirements and a process for commercial lines credit. So what is your insights or your thoughts on there?<\/p>\n
That\u2019s a loaded question. Historically in our experience with commercial lines of credit or business lines of credit, which is not what you get in the mail saying you qualify by for $75,000 credit that\u2019s usually just the advanced credit card. Generally we have the most success working with a local bank that you\u2019re building a business relationship with and you\u2019re building up your line of credit if it\u2019s non-secured over time. And typically, they want you to have the same amount of liquid cash available that you\u2019re taking out, you build it up over time. But based on that question, Tony I think it would make, at least in my opinion, a lot more sense to maybe just take out a mortgage on those properties or even a [inaudible 00:05:43] that they have significant equity on. I think that\u2019s going to be a lot more accessible and allow them to expand the portfolio.<\/p>\n
That\u2019s a really good point. I mean, think about if they have no mortgages that might be the easiest path. Just go get a mortgage and you don\u2019t even have to worry about the line of credit. But you mentioned that the smaller mobile banks, what does that process look like? So if someone walks through a bank, what am I asking for? What documents do they need? Just kind of break it down for us.<\/p>\n
I think it\u2019s all relationship based, when you\u2019re talking about local credit unions, local banks this is really where it gets relationship based banking where you need to have experience with them. They need to see significant deposits coming in. Usually you\u2019re building rapport with them all the time. I think it\u2019s very unlikely for someone to normally just get a business or commercial line of credit that\u2019s not secured, just walking in the first time in a bank without building that report and that relationship over time. So it really is relationship based banking and I think having a business with them, developing that over time.<\/p>\n
Think about a retail store or something, if they\u2019re going to get a commercial business line of credit they\u2019re probably putting up their inventory or something like that as collateral. Is that correct?<\/p>\n
Oh, A 100% yeah. If you half collateral a true commercial line credit or business line credit, that\u2019s not secure. That\u2019s what we kind of talked about when we think of a line of credit. But if they\u2019re actually securing it against a business or an asset, something like that, it\u2019ll be much easier to collateralize that. But in my opinion, again, I think they just collateralize the properties they own free and clear.<\/p>\n
I think so too. I think that\u2019s the best option. And the only loan that I would say that they would be better off is if they actually have a brokerage account where they\u2019ve invested a bunch of money into the stock market and then do a line of credit against that. Because you\u2019re going to get the best rates because it\u2019s so liquid. But other than that, yeah, definitely going that route with putting the dot on the properties because you\u2019re probably going to have to show them a lot less if you\u2019re trying just to get it an unsecured loan.<\/p>\n
They\u2019re in a good position [inaudible 00:07:46]<\/p>\n
Congratulations, you have lots of options. Okay, we\u2019re going to go on to question number two. Help me out here, I found an off market deal two weeks ago and agreed in a price with seller. He said he was ready to move out and wanted this done quick. Let me note that I have not been pre-qualified, so I started my search for a lender and today I spoke with a local one. I stopped by the seller\u2019s home today and told him that wheels were rolling and I\u2019ll have an answer for him upon a pre-approval of the loan. He raised the price by pay because he installed a new AC unit, he paid 4k. I brought him down to 93.5 and he said, okay, just three minutes later, sorry, I\u2019d rather not sell because a new home will be more expensive. So now in order to avoid this from happening again, I realize I need to get them in contract as soon as possible. My dilemma is this one, do I submit my application with the lender, find out if I\u2019m pre-approved even though I don\u2019t have a home to buy or just wait until a good deal is on the table again? Only reason I\u2019m a little unsure about qualifying is due to my DTI, but at the same time, I don\u2019t want to hurry to pay the credit cards if not necessary.<\/p>\n
Good question.<\/p>\n
Yeah.<\/p>\n
Sounds like a lot of sellers we\u2019ve been dealing with for recently change their mind.<\/p>\n
I believe the question we\u2019re hearing is you get qualified with the lender first and then find the dealer for vice versa, is that the base question?<\/p>\n
Yeah.<\/p>\n
I think you know what your financing options are because otherwise, you don\u2019t want to be putting things under contract if you can\u2019t actually qualify for financing, and you need to know what those terms look like. We work with a lot of newer investors looking to build their portfolio and often the concern is, well I don\u2019t want to run my credit, they don\u2019t want my credit to be. But people really don\u2019t understand. I think fundamentally where your credit needs to be to qualify for loans and how minimal of an impact a credit search or a credit report can actually have. We run our credit like multiple times a month all year round. We\u2019re still able to stay above at 740, which is kind of the highest threshold, at least from a conventional standpoint. What do you guys think?<\/p>\n
Well the first thing is if you have credit card debt, I recommend you paying that off because that is probably the worst debt that you can have. And I wouldn\u2019t wait until you decide to get a home or not. I would pay that off just because the interest rates on that are astronomical. So I would take care of that first definitely.<\/p>\n
Yeah, I agree with you Zach. I think understanding what your financing option should be set, number one. It\u2019s easy to go out into your properties under contract, but like you said, if you get a property in your contract with half a million, which only prequalified for 250, now you\u2019re in a really sticky situation. So you\u2019ve put down EMD or you\u2019ve got some other contractual things you\u2019re obligated to now you can\u2019t close. I think understand that [inaudible 00:10:33] is important. Now if you are in that situation where you do have a good property, gets a great deal under contract and something Ashley and I talk about a lot is if you can\u2019t get qualified for that loan, you don\u2019t have the capital available, can you find a part of it does or can you get a hard money loan? So it\u2019s kind of bridge that gap. So best route is getting the financing first, but if you get a good deal under contract and you can\u2019t get the financing, I would say find a partner, then you kind hard [inaudible 00:10:56] to help you out.<\/p>\n
A 100% partnership is huge.<\/p>\n
Yeah. All right. So let\u2019s look at the next question here. So this one comes from Derek Moore. Derek says, I have a duplex that I\u2019m looking into that is off market. The numbers are good and the house appears to be in decent condition, though I haven\u2019t yet had a GC or inspector walk through it yet. The duplex comes from active tenants that are current on the rents, allegedly. The place doesn\u2019t need much repairs mostly [inaudible 00:11:20]. Here are my questions. One, should I pay to get the house appraised before I do any repairs? Two, when asking for the rent roll, is it normal to ask for base bank statements shown that the rent was actually paid? And three, is it a good idea to keep the tenants in the home if they are occurrence on rent have lived you home for two more than three year? So question number one, let me just repeat it for you because I know it was lot. So question number one is, should I get the house a free before I make any repairs?<\/p>\n
Well, I think it really depends on your buying situation, but generally the bank is going to require an appraisal and you want the appraisal to be at the highest value. So I would say you wait until the home is repaired and then you have the appraisal.<\/p>\n
Maybe I\u2019m reading into it, but he said it\u2019s an off market deal. Maybe he\u2019s going with some kind of hard money or something to that extent. So say that he\u2019s going hard money or he\u2019s got the cash, but do you still get an appraisal in that situation?<\/p>\n
We buy a lot without having state for appraisal, but we also know what the value is. We run our own DPOs or we run comps to know. I think appraisals are good to have, but they\u2019re also very subjective in some cases. And if a bank requires an appraisal, then you\u2019re going to have that. But I think the more important thing is know your numbers, know your ARB, the repairs that are going into it because the appraisal really does matter in that case.<\/p>\n
So if you\u2019re buying off market and then say for Derek\u2019s situation, say he is buying off market, it\u2019s a cash transaction or hard number transaction, would you still recommend you get an inspection done on that properly or what\u2019s kind of your process?<\/p>\n
I got an inspection down and appraisal is an inspection to some degree on its own. But yeah, I think inspections are something we always recommend to everyone no matter how experienced or new you are. And it gives you better negotiation standpoint as well.<\/p>\n
One of the things that we love to do is we\u2019ll do an inspection room property and we\u2019ll send our handyman to meet the inspector on the same day and they are hanging on, just walk behind the inspector, take it down of everything they\u2019re calling out. And then as soon as the inspection\u2019s done, we have a scope of work and a bid on what it would take to repair that inspection report. So I agree, I think it\u2019s a great negotiating tactic once you\u2019ve got a property in your contract to allow this, that would be a little bit more reasonable, which was probably more difficult than last year because everything is going crazy. But I think is we get into the back half of this year and early next year, those will give you a little bit more witness.<\/p>\n
You\u2019re so dialed in on your systems, you\u2019re going to bid and the inspection [inaudible 00:13:50].<\/p>\n
Yeah love it. Okay, so question number two, when asking for the rent roll is as normal to ask for the bank statements showing [inaudible 00:13:56].<\/p>\n
With our experience with sellers, you get rent rolls in all shapes and forms. I don\u2019t know if it\u2019s inappropriate, I\u2019m curious to hear what your guys\u2019 opinion is on this, but I think kind of most of mom and pop owners maybe don\u2019t have their finances prepared well enough to really give you a clean accounting, at least historically when we\u2019re buying rentals that are already rentals, usually there\u2019s an issue there. They\u2019re not monitoring the income on it but don\u2019t know.<\/p>\n
Yeah, what we usually do is we send out an estoppel agreement to the tenants. So we have them fill out the name, the contact information we have them state basically the things that are in the lease. So what\u2019s the rent you pay, when\u2019s the last time you paid rent, what repairs and maintenance need to be done in the property, Things like that. So we kind of match what they say with what the landlord said and kind of see how that correlates.<\/p>\n
And for anyone that doesn\u2019t know for estoppels, because I think this is more common in the commercial space and maybe not so much in the residential, but basically the tenants verifying that the lease is correct and they\u2019ve been adhering to the leases. Did I say that correctly?<\/p>\n
Yes.<\/p>\n
What happens if there\u2019s a discrepancy between what the tenant says is happening and what the landlord says is that happened?<\/p>\n
Yeah, so then that\u2019s where you go back to the landlord and say, this is what your tenant stated and signed and then ask for the follow up proof. So that\u2019s when it would probably be appropriate to ask for the bank statements or if they\u2019re using some kind of property management software where they can show that the ACH went through for print off that report for you or copies of the canceled checks to show that the tenant did pay and what the amount was that they actually paid.<\/p>\n
So actually, are you asking every seller to allow for a tenant to estoppels every property-<\/p>\n
There is a tenant in place, yes.<\/p>\n
I love that. That\u2019s great due diligence. Leave the tenant place.<\/p>\n
Yeah. Is it a good idea to keep the tenants in the home if they are current on run and have lived in the home for two or three years?<\/p>\n
I think you have to adhere to that lease, you can\u2019t evict them if there\u2019s no grounds to do that. But if they\u2019ve been a good tenant, why would you change that? I mean if they were vetted appropriately, a lot of times would be inherit tenant they don\u2019t have a history of being a great tenant, at least with properties that are underperforming. But if you have get a good tenant, those are hard to come by, so keep them.<\/p>\n
Them. Yeah, I think in Derek\u2019s situation, he mentioned that he wanted to do repairs in the beginning. So I think it really depends on what kind of repairs you\u2019re doing. So if you need the tenants out to do a major remodel so that you can get the appraisal, refinance, pull your money back out, then yes you probably want to ask the tenants to leave. But it really depends on the lease. If they are in a two or three year lease, you can\u2019t just ask them to leave. You can ask, but they don\u2019t have to leave. But if they have been paying, they keep the property in good shape, you can do the repairs around them, you might as well hold on to a good tenant.<\/p>\n
We\u2019ve had a lot of tenants that have been extremely happy that we\u2019re coming in and repairing and improving their living situation as well. That also opens the door to if there\u2019s been poor communication with the previous landlord, you can repair those relationships, improve the house and actually rekindle that relationship with a tenant as well.<\/p>\n
Yeah, one thing we\u2019ve done too is getting the option to the tenant say, we\u2019re going to do these repairs, your rent is going to increase to this amount on this date or you may vacate at the end of your lease. So I think getting the option too is a good-<\/p>\n
I love that idea. You find that most tenants end up staying?<\/p>\n
Yeah. And another thing that we\u2019ve done too with coming into a property where there\u2019s tenants in place, if they\u2019re paying way below market rent already and there\u2019s not maybe a couple things that need to be fixed, we do a slow rental increase too, which we\u2019ve found people love that. We show them comps like, okay, if you\u2019re going to move into a similar property that\u2019s the same amount of bedrooms, bathrooms, same kind of upgrades that we\u2019re still going to be a little bit below market rent or at market rent. So if you move, you\u2019re going to end up paying more or the same amount, plus you\u2019re moving expenses. So then we slowly do a rental increase, maybe $25 a month till they get to that point, or $25 for two months in the next two months, it\u2019s $50 increase. So we\u2019ve learned that that has really helped a lot too, doing it that way to keep these tenants of paying. We had one tenant that lived there for 30 years and she was about $200 below market rent when it was, and that\u2019s what we did that gradually increased with her and-<\/p>\n
I think just took the goal for longest occupancy.<\/p>\n
30 years?<\/p>\n
And that was also bought it five years ago. So 35 years now.<\/p>\n
That is golden bucks, I love that.<\/p>\n
All right, so next question for you Zach. This one comes from Nodi [inaudible 00:18:44], I hope I got your name right. So Nodi says rookie question here, I\u2019ve been looking at different deals out there in order to learn how to run the numbers and I\u2019m especially interested in rental properties that are turnkey. I used the BP rental calculator on this deal and I recently saw a house that was on sale for $149,000 with a monthly rent up 1150. Clearly this doesn\u2019t meet the 1% rule. I run the numbers myself on BP calculator and had a positive cash flow $200 per month. My question is, what am I missing here? I thought that if the problem doesn\u2019t meet the 1% rule, it would have a negative cash flow. Is this common to find with turnkey properties?<\/p>\n
We have these conversations all the time because people want to invest based on rules of thumb. But I encourage them to invest based on their criteria and their goals. The 1% rule really doesn\u2019t exist in today\u2019s market, and if it does, maybe it\u2019s a property that\u2019s at a low price point that may not be in a good area. I can tell you with it\u2019s the main turnkey properties that we offer, there really isn\u2019t any 1%. We can go into a C or D plus area to try to on paper show a 1% rule. But remember when you\u2019re evaluating based on those numbers and proformas just an anticipated performance, you could have a tenant that moves out in the house of vacant for six months out of the year and then it really doesn\u2019t matter at that point. So I guess the way that I would encourage people to approach their investing is to have a baseline criteria, know what numbers do work for them based on their financing and investing needs, and then try to obtain those and also be conscious of the locations that they\u2019re investing in. I think the 1% rule really doesn\u2019t exist to be quite honest anymore. And I think if you are looking at 1% rule type properties, be cautious about the neighborhoods that they\u2019re in.<\/p>\n
I think so many rookie investors, they come to us and they want to know what market should I invest in? What city should I invest in? What\u2019s a big deal? Should I buy this or not? And a lot of times it\u2019s almost impossible for us to get those answers because like you said, everyone has their own criteria, their own level of return they\u2019re looking for. So people ask me that question, I always say, depends, what\u2019s more important to you? Is appreciation more important to you? Is cash flow more important to you? Is the return on your investment.More important to you? There\u2019s so many different things you can look at when you\u2019re evaluating a yield and there are ways that the 1% rule, 2% rule, all these other rules can be beneficial, but at the end of the day they\u2019re just rules of thumb, they\u2019re not laws of real estate investing. So it\u2019s answer no, just question I think [inaudible 00:21:20] said, it\u2019s like what is your goal? If $200 in cash flow is good for me, you getting a decent cash from cash return and it\u2019s invited to you, doesn\u2019t matter if, is that on [inaudible 00:21:28], right?<\/p>\n
And kind of touched on your point that you know are hitting the 1% role in today\u2019s market or in the last two years that it\u2019s probably low income area, more affordable house and going to be a headache property. And I can completely attest to that where I buy $20,000 duplexes that were way of more than hitting the 1% rule, but they were cutting properties and also I was not hitting 50% rule. So per deal, you\u2019re supposed to have your expenses 50% of what the monthly rental income is, and since the property taxes were so high in this market that you weren\u2019t hitting that rule. So that should show that you can\u2019t just rely on one rule of thumb or even one ratio or one statistic. It\u2019s all about what your criteria is, what your goal is, and then building out all of the ratios, the rules, and then pulling from that as to building the big picture instead of just one thing.<\/p>\n
I think when a lot of people start shopping for investment properties, especially the rookie investor, that\u2019s just building out their criteria. It\u2019s okay, not to have all of your criteria in the very beginning because I think that\u2019s a dynamic process. But often they\u2019re looking at proformas and looking at properties and trying to match that to make sense for them instead of coming up with their criteria first. And I think you build that over time. But it\u2019s all about taking action at the end of the day and critiquing your investing goals.<\/p>\n
All right. So I\u2019m going to jump into the next question. This one comes from Christina [inaudible 00:23:02] and I hope I got your last right. So Christina says that she\u2019s about to close in her first property. It\u2019s a turnkey condo with tenants and proper manager already in place. The original plan was to self manage but keeping the PM was part of the propriety of the deal and the numbers works every area. Do I actually get the keys to the condo or does the PM and the tenant keep them? Am I required a 90 day notice to terminate with the PM? I\u2019m sorry. She says I am required a 90 day notice to determining with PM but am required to keep them through the end of the lease. Tenant is required a 60 day notice. Should I provide contact info to the tenant and build a relationship if I\u2019m thinking of self-managing opportunity? I\u2019m not required to ask for insurance as a better pay out of pocket annually versus escort with what else should I need to know?So I\u2019m going to try and rephrase that so I get the big questions here. Okay, so the first question is, does she actually get the keys to the condo once she closes it or does a PM intend to keep them? And then should she start building a relationship with that tenant now knowing that once that contract is able terminated, she plan self-manage, and then is there anything else she should know and the insurance, she should ask her that.<\/p>\n
Yeah, 10 more questions, we\u2019re trying to get through them. I think this is very applicable to your last point about it just depends, you what I mean? First of all, consult with your local attorney. State laws vary depending on how you interact with the tenant. Personally we do not self-manage any of our properties at this point because our time is better spent for building our business. And so we want to have management but have right management in place. Typically the keys go right to the management. I never see those keys when I\u2019m moved by our property, nor do I want them, I don\u2019t want to have them. We don\u2019t engage with our tenants. I personally like the anonymity of not having tenants to know who we are. They should be engaging with the management and that\u2019s why you have a professional property management in place.
As far as escrowing, this is one thing for tax and insurance, we actually paid it on our own. You don\u2019t escrow with mortgages, whether it is a conventional loan or commercial property that we buy. We always pay our own tax and insurance because I just don\u2019t like, even though it\u2019s more convenient, I don\u2019t like having to the bank, they prepay it basically they collect it up front so you\u2019re paying it in advance and that can be a lot of money when you have a lot of property. But you also need to remember to do that if your taxes are due twice a year\u2026 Don\u2019t let that lapse. You don\u2019t ever want that lapse. So it depends.<\/p>\n
I\u2019m the other way, I\u2019d like to have my insurance and taxes compounded with my mortgage monthly payment because I like the convenience of it and I\u2019m the king for getting [inaudible 00:25:45]. So I know that I\u2019ll be the first guy who doesn\u2019t have insurance on any of his rental properties business for getting to make that payment. So I like that convenience. But your point too about the manager has the keys, it\u2019s like yes, the owner, obviously you own the property so if you want get the keys, you can get the keys. But the whole reason you\u2019re paying this property manager is so that they can hold the keys if [inaudible 00:26:04] we\u2019re supposed to do. We\u2019ve sold off all of our long term results for what we did have ours, I didn\u2019t know what any of my tenants looked like. They were in multiple states away. So if I bump into them on the street, we wouldn\u2019t know each other from some other random person. I love that.<\/p>\n
I\u2019m a little bit different. I like to maintain control. So at close I like to get a study keys, I like to have the tenants contacts information and I like to have a copy of the lease all upfront instead of it just going directly to the property manager. I like to have those things with me too so that I always have some kind of control over my property. Especially as you\u2019re starting out, I think your first property even, I mean I understand as you get to build and grow and scale, it\u2019s just not feasible to have this rack in your basement of all the keys for all your units. But yeah, I think it\u2019s perfectly acceptable to ask for keys at closing for the property that you are purchasing. But when the tenant moves out or anything like that, you\u2019re going to be probably putting in a new lock, getting new keys on too for the property.
As far as the property taxes and insurance goes with escrow, right before BPCON started on Saturday, we released an episode about my property tax bill that wasn\u2019t paid. And I\u2019ve actually had a couple people come up and talk to me about it already. Great timing for me to vent on a podcast and it\u2019s a release for BEPCON but it was where a property tax bill wasn\u2019t paid and Tony and I talked about and he\u2019s like, Well you should just put them all into escrow. So that\u2019s something I have to talk to my commercial lender about. On the residential side it\u2019s very easy to have that happen, but on the commercial side it wasn\u2019t. And I think one reason that I was always kind of against it was that you\u2019re paying the money up front where instead it\u2019s just one bill, you pay it in here. So if you\u2019re purchasing the property and then your insurance is due every\u2026 You\u2019re usually you pay it up front, you pay a years of property taxes up front, years of insurance up front. Well then if you\u2019re escrowed you start paying and adding to the following years where instead I could use that money for something else and then the end of the year pay it. So that\u2019s kind of my reason to be against it. But after having a hard back, I\u2019ll probably be more expert to escrow.<\/p>\n
So is that how you get tenants to stay for 35 years person? But that\u2019s a good clarification point, Ashley. I think generally conventional loans, single family, small multi, it\u2019s expected for the lender to escrow though.<\/p>\n
Usually almost always required, don\u2019t have an option.<\/p>\n
Every see kind of on the commercial side and grow your portfolio. Sometimes they will refuse or escrow, they won\u2019t even escrow into it. Like our property management for some of the retail centers we buy, they actually pay the tax and insurance but it\u2019s not technically escrow into the loan. But yeah, I\u2019m right there but we need something to make it or we\u2019re paying it.<\/p>\n
So I just want to touch on that last piece, so is there anything else maybe a new [inaudible 00:29:10] we should know about buying turnkey properties?<\/p>\n
Turnkey is a great way for people to get started to diversify, especially if their local market is too expensive to get started or to scale beyond what they\u2019re doing on their own. Even if they\u2019re an active investor, turnkey is a great way for them to just add doors to their portfolio strategically, which in my opinion is kind of the name of the game here. I think what we\u2019re all trying to achieve.
But do you know who you\u2019re working with? You obviously want to invest in the right locations with the right people. Just because you\u2019re buying turnkey does not mean that you are safeguarded from any normal risk that real estate would you still have tenant issues potentially. So just know that going into it, I think that\u2019s the biggest disconnect when we work with investors that are wanting to buy turnkey is just thinking that this is going to be completely passive and it still is active to some degree even if you have a great tenant property management set up. But it can be a great way for people to get started, avoid some pitfalls to diversify and scale over time.<\/p>\n
So let me ask this question Zach. So we reinvest in fair Airbnbs vacation rentals and it\u2019s very kind of sexy asset class right now. A lot of people looking get into it, but also caution and lot people know that it\u2019s not for everyone. Not everyone should be buying vacation rentals and managing themselves because there\u2019s definitely more work to do is that asset class versus others. So who would you say maybe is turnkey not for? What kind of investor does it maybe not work for?<\/p>\n
Oh that\u2019s a great question because I want to conform it to everybody come by house with us now. I think the person that can do better on their own, being an active investor that understands the risks of being an active investor that really enjoys that. And two, short term rentals, they\u2019re full on management. Even if you have management, that\u2019s why you pay them 20, 30% possibly more. But the people that are really excited and passionate about doing their own thing with real estate, they don\u2019t want to be a passive investor yet. You probably can obtain better returns actively investing, but there is more work and potential risk with that course.<\/p>\n
And the thing I always say is to be good anything and investing be time, desire, and ability. And if you\u2019re missing any one of those key ingredients, you\u2019re going to struggle. And if you can I guess fill that gap with a terms company or whatever it is, you\u2019ll probably find more success. Because if you don\u2019t have the time, it\u2019s going to be very difficult to find an undervalued asset to rehab it, to get it stabilized, to manage those in its long term. If you don\u2019t have the desire, even if you have the time and the ability, you\u2019re going to hate doing it. So you need the [inaudible 00:31:55] of all those things.<\/p>\n
And it\u2019s just important to be honest with yourself. I think. That\u2019s excellent points to be honest with what your goals, what your time, experience level is and then take action accordingly.<\/p>\n
And it\u2019s such a great way for new investors to get started to learn from what other people are doing. You get a whole team, you get everything there so that you can say, okay, this is how this operates, this is how this operates. And then if you want to go on to start borrowing yourself or something, you have already kind of watched firsthand, those resources, the team you need kind of go into play. So I think for rookies turnkey is a great option just to get started. Especially, if you\u2019ve been in analysis paralysis, you\u2019ve been delaying taking action cause you don\u2019t have time. And it\u2019s been years that you\u2019ve been wanting to do this, like that I think is a perfect candidate for getting into turnkey.<\/p>\n
The mindset aspect of it, actually I\u2019m so happy that you said that because so many people and especially in the VV community, they get stuck, they\u2019re excited about real estate, they get stuck in the analysis paralysis. That first property in my opinion is not important financially. It\u2019s important to mentally, emotionally. And if turnkey\u2019s an access way to get you started, then do that. We have so many investors that come back years later and they haven\u2019t bought from us for five or six years, but they\u2019ve gone out and built this insanely large portfolio and been extremely successful and they\u2019re like, hey, those first couple properties gave me the confidence to go out and do that. And I love hearing those stories, so thanks for mentioning that point.<\/p>\n
Yeah, that\u2019s really awesome. Just one last question about turnkey is what are maybe three questions that someone should be asking a turnkey provider when vetting them?<\/p>\n
I definitely would say track record is the most importance. Let\u2019s talk about the markets and make sure that their model and their business, it meets real criteria, because not all turnkey is created equal. People work in different markets that you have different niches in business. Some people do short term, long term, multi-family, new construction and development. So just make sure one, that business I think matches your goals and criteria at least fundamentally make sure that they have a quality and track record and you want to check references and due diligence just like with anyone that you jump into business with. And the third question is to do these properties makes sense for my criteria. And if they do, then I think you take that.<\/p>\n
Well, that was great and thank you so much for joining us here live at BPCON. Can you tell everyone where they can find out some more information about you and possibly reach out you?<\/p>\n
Absolutely. You can visit renttoretirement.com. That\u2019s rent T-O retirement.com. We have all links to social media. We\u2019d be happy to talk about anything you\u2019re doing investing, We do short-term rentals, we do multi-family new construction. We have our hands in a lot of stuff. And we\u2019re here to add value. Please reach out. And you guys, thank you so much for having me. This has been a lot of fun, BPCON2022.<\/p>\n
I\u2019m Ashley at WealthfromRentals and he\u2019s Tony at Tony J. Robinson on Instagram. Thank you guys so much for listening and we will be back on Wednesday with a guest. (singing)<\/p>\n