\n
Ashley:
This is Real Estate Rookie, Episode 251.<\/p>\n
Tony:
Every recession going back to the \u201960s, most of them lasted, on average, just under 12 months. So it\u2019s like, can you buy this property? Even if it maybe isn\u2019t a home run over those first 12 months while there\u2019s all this economic uncertainty, what happens in year two and in year five and in year 10 as you own the short-term rental? If you kind of check those boxes that we talked about where you\u2019re hitting the location, you\u2019re hitting the value, you\u2019re hitting the amenities, more likely than not that listing is going to continue to do well. There will probably be some uncertainty in the short term, but I think as real estate investors, we have to roll with those punches and remember that we\u2019re really investing for that long-term appreciation and cash flow as well.<\/p>\n
Ashley:
My name is Ashley Kehr, and I\u2019m here with my co-host, Tony Robinson.<\/p>\n
Tony:
Welcome to the Real Estate Rookie Podcast, where every week, twice a week we bring you the inspiration, motivation, and stories you need to hear to kick start your investing journey. I want to start today\u2019s episode by shouting out someone by the username of Eshazamm. Shazamm [inaudible 00:01:05] to say five-star review on Apple Podcast. It says, \u201cAll these real life stories are so inspiring. I love knowing all these people jumped in without being experts, they are learning along the way, and they exemplify that there are many ways to approach real estate investing. The guests aren\u2019t necessarily practiced interviewees. But Ashley and Tony, you do an amazing job keeping the podcast flowing and interesting. And you guys are just adorable personalities, too.\u201d Shazamm, I appreciate that. I think that might be the first time as an adult I\u2019ve been called adorable, but I am here for it. I\u2019m all about it.<\/p>\n
Ashley:
Tony, every time I meet somebody, that\u2019s usually the number one thing they say about you.<\/p>\n
Tony:
\u201cOh, he\u2019s just so adorable.\u201d<\/p>\n
Ashley:
\u201cWhat\u2019s his skincare routine? He\u2019s so adorable.\u201d<\/p>\n
Tony:
Skincare, I get all the time, but the adorable is a new one, but I\u2019m okay with that. I\u2019m okay.<\/p>\n
Ashley:
Yeah, I\u2019ll take that any day.<\/p>\n
Tony:
I\u2019ve been called worse.<\/p>\n
Ashley:
Tony, I\u2019m super excited because today we are starting a new series in the Real Estate Rookie Podcast episodes. We are doing a 90-day mentee group. We have three people we have chosen where we are going to stick with them for 90 days and help them in any way that we can to reach their real estate investing goals.<\/p>\n
Tony:
It\u2019s super exciting. We\u2019ve got such an engaged and amazing rookie audience. Us, along with the production team, we thought, how can we provide more value to folks in our audience? We thought, man, what cooler way than bringing some folks who are rookies onto the podcast, following along with them for 90 days, Ash and I giving as much value to them as we can. Then the rest of our rookie audience getting to listen along and hopefully pick up some cool things along the way. So you guys are going to meet three amazing people on the podcast.
First up, you\u2019re going to meet Brandon DiOrio. He is from Minnesota. Then we\u2019re going to bring on Lawrence Briggs from Texas. We\u2019re going to finish off with Melanie Wilmesher from Colorado. Each one of them is in a slightly different position, slightly different starting points, slightly different goals. Ash and I are going to do our best to break down what they\u2019re working on and give them some insights and advice on how to keep moving towards those goals.<\/p>\n
Ashley:
I already know that we\u2019re going to learn a ton from them, too, which I\u2019m super excited about. That\u2019s one of the best things about being the host is we get to learn from everybody else firsthand, too. Today, we\u2019re just going to talk about goal setting. We\u2019re going to assign some homework and give everyone their MINS, the most important next step, and plan out what we\u2019re going to be doing with them over the next 90 days. So today\u2019s just the starting point, and then we\u2019re going to be doing follow-up episodes to see what the journey is like and helping them get those deals.<\/p>\n
Tony:
Really, what we want you guys to do as you\u2019re listening is to challenge yourself to follow along. If your goals are similar to what Lawrence and Brandon and Melanie are all working towards, see if you can challenge yourselves to do the same things we\u2019re talking about in these episodes. Then maybe by the 90 days or so, you have your own goal achieved just by listening to what we have here. So that\u2019s our challenge to you guys, is to follow along and do it at home as well.
Brandon, welcome to the Real Estate Rookie Podcast. You\u2019re the first mentee up. As a quick intro for our rookie audience, I just want to share a quick few things about you so folks can get to know you a little bit better. Number one is that you\u2019re an HVAC contractor, looking to get that first deal done. Number two, your family\u2019s in commercial real estate, but you are actually interested in residential. Number three, you enjoy paint-balling, man. Anything else outside of those three points you want to share with the rookie listeners?<\/p>\n
Brandon:
No, that sums me up pretty good. Work quite a bit when it\u2019s hot and cold now like it is. I\u2019m actually in my truck in between calls. Pushed my lunch to 2:00 p.m.<\/p>\n
Tony:
Dude, if that isn\u2019t the sign of a rookie investor, I don\u2019t know what is, man. You\u2019re out there working on your lunch break, hopping on this podcast episode. Before we started recording, you told me how cold it was where you were. Just give us a sense of how frigid it is out there. You said it was in the single digits?<\/p>\n
Brandon:
Yeah, single digits overnight. Right now the sun\u2019s still pretty strong. It\u2019s 22 degrees, so I don\u2019t have my truck running. It\u2019s not too bad. But overnights are pretty bad, walking my dog who woke me up at 3:00 last night to go out.<\/p>\n
Ashley:
Brandon, I have to ask, what is your strategy for when you have to break that bad news to someone that they need that new HVAC system put in?<\/p>\n
Brandon:
I don\u2019t really have a strategy that much. Because with how expensive furnaces have gotten, it\u2019s hard unless it\u2019s truly unsafe. That\u2019s about the only time I really try to emphasize getting a new one. But you get to 20-year-old furnaces that need $1,400, $1,500 worth of work, then you try to educate them that\u2019s just not worth it, like an old car with bad tires, brakes, and a weird engine tick.<\/p>\n
Ashley:
So you don\u2019t get a lot of customers that would cry like me because they have to spend a lot of money and have to console them.<\/p>\n
Brandon:
It\u2019s never usually like the total amount, but it\u2019s red tag when furnaces are just putting off too much carbon monoxide and you have to shut off their gas. That\u2019s the one that gets to people.<\/p>\n
Ashley:
We are super excited to have you on over the next 90 days with us. Can you maybe tell everyone a little bit about what you have going on in real estate investing now?<\/p>\n
Brandon:
So nothing active right now. I\u2019m trying to track down a few deals. Just actually missed out on one today because it was a pre-foreclosure. It was the last day of the rescission period, I believe it was. We just couldn\u2019t come up with the money fast enough. It was only about a two-week heads up from walking through it to when that was running up. Just trying to identify a house for either long-term or a house hack for myself.<\/p>\n
Ashley:
In what market are you currently looking in?<\/p>\n
Brandon:
About 40 to 50 minutes west of Minneapolis where I\u2019m currently living, so just wanting to stay somewhat close.<\/p>\n
Ashley:
When did you start looking for deals? When you decided, \u201cI\u2019m taking action, I want to start putting offers in, I want to start looking, I want to do this,\u201d how long have you been in this period of time?<\/p>\n
Brandon:
About a year ago I spent two months pretty heavily trying to buy something but was never even close with how the market was. Basically foolhardily gave up offering and looking and stuff like that and just focused more on reading the books and learning what I could. Now that stuff\u2019s finally slowed down, trying to finally make it happen.<\/p>\n
Ashley:
Now that the market has changed, what do you think is your biggest obstacle, your biggest hurdle, the thing that you need help with right now?<\/p>\n
Brandon:
I guess the biggest thing I need help with is just knowing that I\u2019m looking at numbers right, just using the different programs for estimating rents, managing rehab costs, and stuff like that.<\/p>\n
Tony:
When we think about your goals, I just want to recap for our listeners here. You\u2019ve been thinking about doing this for about a year or so, maybe dabbling a little bit. But the goal for you, Brandon, is that over the next 90 days to get your first property under contract somewhere in and around that region that you\u2019re at in Minnesota.<\/p>\n
Brandon:
Yeah.<\/p>\n
Tony:
Awesome. Now one quick thing, because I mentioned this when we first started, you said your family\u2019s in commercial real estate, but you\u2019re choosing to go the residential route. Give us some insight into why you\u2019re leaning that way versus the commercial.<\/p>\n
Brandon:
Right now, I\u2019m leaning residential mostly just for the startup costs. Down payment money with commercial is just much, much more, a little bit harder to get into. My family, they did a lot of development, but they\u2019ve kind of moved into residential now more that I\u2019ve been talking about it and a few opportunities have come that they were able to tackle that I wasn\u2019t able to. So they\u2019re kind of split with a few properties in both now.<\/p>\n
Tony:
When we think about this goal you have of getting that first residential property under contract in the next 90 days, what are some challenges that you\u2019re anticipating, maybe with your market or any other things, rent control? I know every market\u2019s a little bit different. What are some challenges you feel like you might be facing?<\/p>\n
Brandon:
Challenges right now are just making the numbers work. Now with higher interest rates, just trying to find a property that cash flows a little bit just so I can be safe about it or just something that makes sense for moving into for myself and renting out the rooms.<\/p>\n
Ashley:
Brendan, can we dive into your finances a little bit? As of right now, what is your plan to purchase a property? Have you been pre-approved for a loan? Do you have a down payment saved? Do you have a private money lender? What does your purchasing power look like right now so we can get an idea?<\/p>\n
Brandon:
I actually did just get re-pre-approved because the other one was a year old today. I do have a down payment saved up, so I could put 20% down of upwards of 440 kind of. I think that math works out there. So I do have that set aside waiting to make something happen. Ideally, it would be two cheaper properties with the money I have set aside for a down payment.<\/p>\n
Tony:
It seems like you\u2019re in a pretty good spot, Brandon. You have some capital set aside. You have the ability to get approved for a loan. When you think about the challenges, you said it\u2019s really just making the numbers work. I just want to ask you a question. In the last month, how many deals would you say you\u2019ve analyzed?<\/p>\n
Brandon:
Last month, last 30 days [inaudible 00:10:14], do you mean?<\/p>\n
Tony:
Yeah, yeah.<\/p>\n
Brandon:
I\u2019d say only probably about five looked heavily into and kind of a hundred-foot view on closer to 20.<\/p>\n
Ashley:
Brandon, do you have a buying criteria like a buy box as to when you\u2019re looking at the property, it\u2019s like, \u201cOkay, checklist, it matches this, this, oh, not that. Okay, I\u2019m moving on to the next one\u201d? How are you doing that overview of the properties and then deciding which one you\u2019re actually doing that deep analysis on?<\/p>\n
Brandon:
That could be kind of where I hang myself off is I don\u2019t have a 100% buy box or anything narrowed down. The biggest thing, surfer house hack, ideally, I would like something with a master bedroom, which, in the price point that I\u2019m looking, there just hasn\u2019t been too many because it\u2019s older houses that just never had those. For more long-term stuff, I guess my buy box for interest has been, if it looks rough, that\u2019s kind of sparked my interest. Scrolling through pictures, I like seeing older furnaces, older ACs, water heaters, stuff that I can very easily take care of and also use as a negotiation for saying that those have to get swapped out and then being able to do them both in a day. Other than that, I haven\u2019t really narrowed down too much. More of it\u2019s an area thing for me at this point.<\/p>\n
Ashley:
Are you saying that when you see a property, it\u2019s just in your head as you\u2019re looking through it?<\/p>\n
Brandon:
Yeah.<\/p>\n
Ashley:
This makes it easy for us. This is your first homework assignment. What I want you to do is actually take the time to write down some of those things you listed off to me and then add more things on, like what is your budget for a property, all these different things that you want in a property, and just start making a list of that. Then as you\u2019re going through and looking at these properties, maybe you\u2019ll think of more things like, \u201cOh you know what? This property had this. I think that would be a huge value add. I\u2019m going to add it onto my criteria, my buy box.\u201d So every time that you\u2019re looking at a property, you\u2019re going through this same checklist. That will get rid of the fluff, and you won\u2019t be wasting time analyzing deals that don\u2019t meet what you actually want anyway. That way you\u2019re getting it right off the bat as to looking for those things that are on your list so you don\u2019t spend more time on it. Then Tony, what would be the second part to that, doing deal analysis, you think?<\/p>\n
Tony:
Yeah. I think we got to ramp up the volume of deals that you\u2019re analyzing. You said you did about five deals in the last month. I want to five, six X that. So if we can get you to a point, Brandon, where you\u2019re analyzing at least one deal per day, you get off of work, you\u2019re eating dinner, whatever it is, just spend like that 30, 45 minutes analyzing a new deal.
What\u2019s going to happen is two things. First, the buy box piece that Ashley talked about, that buy box is going to become clearer for you. Because as you analyze more deals, you\u2019re going to start recognizing trends in certain areas or bedroom sizes or square footages around, \u201cOkay, these properties tend to do better than these properties, so I\u2019m going to narrow my buy box down to now just these things.\u201d So that\u2019s the first thing is your buy box gets tighter just by analyzing more deals. Second, there\u2019s a good chance that if you analyze 30 deals this month instead of five compared to last month, one of those 30 might be worth actually submitting an offer on. I think that\u2019s the first hurdle that we have to get you towards is submitting those offers. Because once that starts to happen, now we\u2019re getting closer to you actually closing on that first deal.<\/p>\n
Ashley:
Brandon, as you\u2019re doing\u2026 It\u2019s so easy for us to say that, but you\u2019re going to have to make the time and be intentional about doing that deal analysis and creating that buy box. So when we\u2019re done on this call or sometime even tonight is time block, \u201cOkay, this time period, every single day I\u2019m going to be doing this.\u201d Or you know what? Maybe you\u2019re just going to batch do it. On Sunday evenings, you\u2019re going to do seven different deal analysis. Even if there\u2019s not seven deals that meet your buy box, just grab anything just to practice running the numbers on it, too. Just remember, too, that even though that\u2019s what the asking price is, that doesn\u2019t mean what you have to pay for a property, so just decrease the asking price, decrease your offer to make the deal work, and see what that number actually comes to.
I want you to do those things and work on it. If you need that accountability, feel free to post into our Slack channel that we have your deal analysis. So if you\u2019re using the BiggerPockets\u2019 deal analysis, post those reports. I might actually harp on you and nag on you if I don\u2019t see any activity in there, just to help hold you accountable and just submit them in there. Then too, maybe we can provide more value to you as to look at this thing and maybe you could change that and just help you fine tune that deal analysis, too.<\/p>\n
Tony:
Last question from you, Brandon, just so I better understand your situation. Are you currently working with a realtor? Are you sourcing these deals yourself? What\u2019s your deal flow look like?<\/p>\n
Brandon:
Currently, my dad\u2019s the realtor that I\u2019ve been working with. I have my license as well, but it\u2019s frozen right now. I\u2019ve been using his insights on a lot of stuff, which might have been what\u2019s been slowing me down as well is I underwrite with an extra percent or two, and then he looks at it and adds the percent or two over what I have, so then stuff just has never worked out. So definitely need to kind of narrow it in there.<\/p>\n
Tony:
I feel like we\u2019ve got a decent game plan for you. Ashley mentioned the idea of time blocking. It is difficult to make the time to do these things when you have a full-time job, especially one that\u2019s demanding from a time perspective, from a physicality perspective. So what I really want you to focus on, Brandon, is why you\u2019re starting on this journey. So if you can, share with us why is it so important for you to reach this goal, and what does your life look like if you\u2019re not able to make this happen in the next 90 days?<\/p>\n
Brandon:
I guess the biggest thing is to have the flexibility if I want that as I grow up, start a family. I don\u2019t want to get to the point of wanting a family and wishing I had more time for that. I love what I do, but physically I don\u2019t want to be struggling to get up out of bed in 20 years because my knees are gone or something like that. I want to do what I am doing as long as I can because I do enjoy it, but I do want the freedom when I might need it if something unforeseen happens or wanting to focus on family stuff.<\/p>\n
Ashley:
Brandon, that\u2019s definitely a great why. We\u2019re super excited and happy to help you. Just make sure you go through that homework until the next time we touch base. It\u2019s so easy. Some people may be thinking, \u201cOh, that\u2019s so obvious of a thing to do,\u201d but how many people actually sit down and do it? That\u2019s the hard part is sitting down and actually doing it. It\u2019s so easy to tell somebody or to know that you have to do something, it\u2019s taking the action and actually doing it. Brandon, if there\u2019s maybe somebody who\u2019s in the same situation as you and maybe wants to reach out to you and have some accountability, where would be some place that they could reach out to you or find out some more information about you?<\/p>\n
Brandon:
Instagram would be best. It\u2019s brandon.diorio, so my full name, so B-R-A-N-D-O-N dot D-I-O-R-I-O.<\/p>\n
Ashley:
Well, Brandon, thank you so much for taking the time from your lunch break, and hopefully you\u2019ll have a couple minutes to eat. Usually, Tony shoves his face before any recording, so feel free next time to bring your lunch [inaudible 00:17:59].<\/p>\n
Tony:
You can eat while you\u2019re doing it. It\u2019s totally fine.<\/p>\n
Ashley:
Okay, Brandon, we\u2019ll see you next time. Thank you so much.<\/p>\n
Brandon:
Thank you guys.<\/p>\n
Ashley:
Next up we have Lawrence Briggs from Texas. I feel like Tony and I already known Lawrence just from Instagram. We see him all over the place. Lawrence has professional property management experience and has been investing in single families near large military bases. Lawrence currently owns two long-term rental properties, but he\u2019s looking to take his business to the next level and secure creative financing. Lawrence, welcome so much to be our mentee for this Quarter 1.<\/p>\n
Lawrence:
Thank you. Thank you all so much for having me. This is like an epic opportunity.<\/p>\n
Ashley:
Well, we\u2019re very excited to learn about where we can help you with. So why don\u2019t you start off with maybe telling us a little bit about your current investments that you have.<\/p>\n
Lawrence:
Of course. I have two long-term rentals. I actually purchased two rental properties within six months of each other this year in 2022. I did both of the properties off market, so I was able to source the deal, put the deal together, and now lease them and self-manage. Right now leading up into 2023, my Q1 goal can go either way. I\u2019m very close to becoming 100% consumer debt free. However, if I can land another property by Q1 of 2023, I\u2019d rather purchase another property and let the cash flow pay down that little bit of consumer debt that I have.
Right now, I\u2019m a W2 employee like most people, so I have a extremely low DTI, but I\u2019ve been looking at possible properties that are a little bit above what I would normally get approved for, especially if I want to get into maybe a duplex. So my goal is to be able to learn how to strategize and use creative financing to my advantage because I\u2019m not afraid to go out there and find a deal and put it together. I just need to make sure I\u2019m putting together the right deal that\u2019s going to become beneficial for me and the seller, so possibly either a DSC loan type thing or a seller finance for the next deal.<\/p>\n
Tony:
Lawrence, first, congratulations on knocking out those first two deals and doing them in such a short period of time. I think so many of our listeners are looking to be in that same situation, so you\u2019ve already set a foundation there.<\/p>\n
Lawrence:
Thank you.<\/p>\n
Tony:
When you talk about your goals, it really is adding to that portfolio, but really focusing on, like you said, either some kind of DSCR-based loan, or maybe some subject 2 or seller finance type deal. What type of property are you looking for? Are you looking for a single family residence, large multi-family, small multifamily? What does that property type look like?<\/p>\n
Lawrence:
Of course. My ultimate buy box are single family homes just because I am close to a military base, and so it\u2019s very advantageous for single family homes to be available in this area. Then my secondary buy box would be either a duplex or a fourplex. Again, that would be contingent on if I can put together a stellar win-win seller finance deal or a DSCR-type deal.<\/p>\n
Tony:
Lawrence, when you think about the steps you need to take to get from where you are today, to getting that first creatively finance deal in place, what does that roadmap look like to you?<\/p>\n
Lawrence:
Definitely, I need to learn how to be able to analyze those properties to make them work for seller finance. So that\u2019s kind of my biggest hurdle that I would definitely be very appreciative for you all to help me in that area to be able to look at deals and say, \u201cOkay, would this work for DSCR and\/or seller financing or possibly subject 2?\u201d So that\u2019s my ultimate goal of learning how to analyze those properties. Because we all know as of 2022 going into 2023, there are some road blocks when it comes to interest rates with traditional financing.<\/p>\n
Ashley:
I think one way we\u2019ll be able to help you, Lawrence, is to submit multiple offers. So looking at a deal and saying, what number or price point would this work at with seller financing? What would this look like with doing a bank loan? What would this look like if we can do subject 2 on it? Lawrence, do you want to just explain to everyone what subject 2 is? Because we don\u2019t hear that a ton, but we did recently do an interview with Pace Morby as a Rookie Reply, so if you guys want to go back and listen to that more. Lawrence, do you want to just describe it real quick what it is?<\/p>\n
Lawrence:
I\u2019ve never did a subject 2 loan. Most people, what they\u2019re going to do is they\u2019re going to take over pretty much an existing loan. That can be advantageous in this area because it\u2019s a military town. What happens is that we have our soldier members buy properties with VA loans, and then they\u2019ll get to deploy or leave the area. So now they\u2019re stuck with these properties, and they don\u2019t have a background in real estate investing. So it can be very advantageous to be able to come in and do a possible subject 2 where you pretty much take over that loan.<\/p>\n
Ashley:
That episode, too, with Pace Morby, for anyone that wants to learn more about subject 2, is Episode 236.<\/p>\n
Tony:
Lawrence, you said one of your challenges was analyzing these deals using creative financing, but you analyzed those first two deals that you purchased on your own?<\/p>\n
Lawrence:
Yes, yes. I\u2019m a huge nerd when it comes to Excel, so I have my Excel sheet and I run the numbers of what I would ask for, what I would be approved for, and then I run about five different scenarios of different interest rates and down payments. If it gives me that sweet spot, then I will just go ahead on and do the deal.
I don\u2019t like to \u00e0 la carte deals. I like to holistically look at a deal. Some people are like, \u201cOh, I have to have a 15% cash-on-cash return. If not, I\u2019m going to leave it.\u201d I\u2019m like, \u201cNo, I\u2019m not going to \u00e0 la carte a real estate deal. I\u2019m going to look at it overall.\u201d Because for me, I\u2019m single with no kids, so I\u2019m in the long haul. I\u2019m investing for generational wealth to change the trajectory of my family. I may fall short of that cash-on-cash return, but guess what? I may be able to get that appreciation. My primary residence that I purchased four years ago pretty much doubled in value when people were saying not to buy in 2018. So I don\u2019t like to just say it has to hit this particular item or I\u2019m done with it.<\/p>\n
Tony:
I want to dig into that idea of building generational wealth, something we talk about often, but it sounds like it\u2019s a strong why for you. But before I do, I just want to point out something. You talked about how you analyzed those first year properties that you purchased. You talked about the different Excel models, analyzing them using different interest rates and down payments, that process can be applied to the creative financing route as well.
Just because the type of debt that you\u2019re using is the seller instead of the bank, it doesn\u2019t mean that your analysis of that deal changes. Because even when you go seller financed, there\u2019s still going to be maybe some percent of money that you\u2019re putting down. There\u2019s still going to be an interest rate. There\u2019s still going to be an amortization period. There\u2019s still going to be a term for that debt. So even though those numbers may vary from seller finance to a bank loan, the analysis steps are still pretty much the same. Based on what you just described, it sounds like you\u2019re pretty good at analyzing deals already. So I don\u2019t know if the analysis piece is really as big of a challenge for you as you originally thought it would be.<\/p>\n
Lawrence:
Yeah, it\u2019s definitely\u2026 That\u2019s why it\u2019s good to have mentors because if you\u2019re just talking to yourself, you don\u2019t realize that you\u2019re already doing something. I just want to make sure that it\u2019s win-win. Whenever I did put together my previous deals, it was a win-win for me and the seller. But just kind of learning as though how would it work, because some deals, they may want a balloon payment, or how would it look if I would need to refinance it, being able to put that extra layer on what I\u2019m already good at with analyzing.<\/p>\n
Ashley:
Lawrence, the deals that you\u2019re getting, that you\u2019re analyzing, how are you sourcing them?<\/p>\n
Lawrence:
Oh, network. I\u2019m a huge networker. I carry around business cards. People recognize me from my bow tie around town. I just tell people, \u201cHey, I\u2019m a real estate investor. I\u2019m looking for properties. Reach out to me.\u201d I\u2019m active on social media, as you all are aware. The two ways that I found those properties, one was through doing food delivery. So I stopped and I thought the contractor was the owner, and I\u2019m like, \u201cHey, is this your home?\u201d He\u2019s like, \u201cNo, but I\u2019ll give you the owner\u2019s contact information.\u201d I\u2019m like, \u201cOh, great.\u201d And I purchased that property. Then the second property was through a Facebook group. A guy posted and was like, \u201cHey, I\u2019m trying to sell a property.\u201d I\u2019m like, \u201cOkay, let me run the numbers.\u201d So I definitely feel as though, people like to say clich\u00e9, your network is your network, but that\u2019s really true. It\u2019s not what you know but who you know.<\/p>\n
Ashley:
Real quick, what are some ways that you\u2019re like, besides\u2026 So you\u2019re looking through Facebook groups, you\u2019re stopping places. What are some other ways that you\u2019re sourcing deals besides just telling anyone and everyone what you\u2019re doing with real estate? Are you doing any kind of mail campaign? I guess you\u2019re kind of doing door knocking, stopping contractors.<\/p>\n
Lawrence:
I did one mail campaign, and I did it myself. I handed all of the letters. I think I did maybe 50 because I was like, \u201cI really want them handwritten and stuff.\u201d I think probably after the 10th letter I was like, \u201cI\u2019m over it.\u201d But I gave myself a goal, and I sent out about 50 letters. I didn\u2019t get any deals from it, but I end up connecting with a realtor who said, \u201cHey, did you ever send a letter to one of my clients? Because I think he received a letter. He definitely doesn\u2019t want to sell, but he had never received a actual handwritten letter.\u201d She\u2019s like, \u201cWe\u2019ll keep you in mind if he decides to ever sell something from his portfolio.\u201d<\/p>\n
Ashley:
Lawrence, what is your why for all of this? Why are you grinding and hustling to become a real estate investor? What\u2019s the purpose behind it?<\/p>\n
Lawrence:
My why is to break generational poverty in my family. I was born in the housing projects of New Orleans, the Calliope Projects. It\u2019s probably one of the worst housing projects probably in America. I was raised by a single mother who was not lazy. She worked about three jobs, but just with a barely high school education, maybe up to ninth grade. She had to become a janitor in hospitals. So what she did, as a single mother, she tried to help me and my sisters. I\u2019m one of seven. I have six sisters. She didn\u2019t have a financial literacy background. My work ethic comes from her, but she didn\u2019t know you can\u2019t just get wealthy from working.
My why is to break that curse because I\u2019m the only one that\u2019s mainly in my family who understands financial literacy and practice it. So it would be a full circle moment to be able to leave a legacy that\u2019s beyond me, so my future nieces and nephews and great nieces and nephews and possible children wouldn\u2019t have to be born into poverty. So that\u2019s my why.<\/p>\n
Ashley:
Lawrence, I\u2019m so proud of you. Just stating that you\u2019ve taken the initiative to educate yourself, that\u2019s very hard to change how you\u2019ve known everything for your whole life to change and to want to take action onto something else. I think that is a great why-<\/p>\n
Lawrence:
Thank you.<\/p>\n
Ashley:
\u2026 and it seems like it\u2019s definitely motivation enough for you to keep going and to really create that generational wealth.<\/p>\n
Tony:
Lawrence, I love hearing the story, and I think it\u2019s proof that where you start obviously has a big impact on how far you can go, but it definitely doesn\u2019t cap what you\u2019re capable of. I think my follow-up question is, what do you think it was that sparked that idea in you? Because so many people who grew up in certain environments, it\u2019s all that they know, it\u2019s all that they\u2019re exposed to, they can\u2019t even fathom anything beyond what they see around them. So what was it in your upbringing that allowed you to see beyond that?<\/p>\n
Lawrence:
Of course. Like I said, my mother worked about two or three jobs. What she did was she wanted to expose our mind, and so she sent me to private schools. So I was one of the few kids from the projects going to a private school with children whose parents were doctors and lawyers and stuff. When I would leave this poverty area, I would go into these neighborhoods or suburbs. I started to fall in love with these single family homes, and my little brain kind of associated that with a better life. We know that there\u2019s crime and criminal activity that happens anywhere. But I was like, I need to get my family there, and I never want any one of my family members to not live in a, quote\/unquote, safe environment. So being able to go into those neighborhoods when I was going to private school, I associated those houses as a better life because that environment was completely different than the criminal gunshots and activity that I witnessed as a child.<\/p>\n
Tony:
Well, kudos to your mom for having that insight to help you expand what you were seeing because all you have to do is see it and then immediately now it becomes something that that\u2019s attainable. So a couple things. First, I love that you\u2019re focused on creative finance. Ash and I, that\u2019s not our super specialty. I think both of us have kind of dabbled in the seller finance space. There are a couple of episodes on some other BiggerPockets shows I want you to go listen to. This will be part of your homework. On the Market, Episode 29, Pace Morby\u2019s on that episode, and then BiggerPockets Episode 527.
Then for those of you that are BiggerPockets pro members, Lawrence, I know you are, but this is more so for our rookies that are listening. If you guys are pro members, you actually get access to as a pro member to Invelo, which is the software that helps you find off-market deals. You can send mailers, you can do [inaudible 00:33:13], all kinds of great things to help you find off-market deals. Lawrence, you already got access to that, but for our rookies, it might be a good thing for you guys to check out as well.<\/p>\n
Ashley:
Well, Lawrence, thank you so much for sharing the start of your journey with us. Tony went over your homework a little bit, to listen to those Pace Morby episodes. Then I\u2019d also challenge you to put together a sample offer. Even if it\u2019s just a property you see on the MLS, go ahead and actually write up what you would offer for seller financing. How much would you put down on the property? What would be the interest rate you would do? How many years would you have it amortized over? Would there be a balloon payment? Would it be callable? So put together a sample offer. Then I want you to bring it with you next time we\u2019re on a call, and we\u2019re going to go over it and look at it. We\u2019ll look at the numbers on the deal, and we\u2019ll look at how you set up the seller financing on it and what number actually makes sense to purchase the property at.<\/p>\n
Lawrence:
Awesome. That sounds great. I\u2019m ready to get to work.<\/p>\n
Ashley:
Lawrence, what is your Instagram if anybody wants to connect with you?<\/p>\n
Lawrence:
My Instagram is Lawrence, common spelling, L-A-W-R-E-N-C-E, underscore Briggs, B-R-I-G-G-S. You can\u2019t miss me. I have a big smile and a bow tie.<\/p>\n
Ashley:
Lawrence, thank you so much, and we cannot wait to spend the next 90 days with you and provide as much value as we can to help you continue your investing journey.<\/p>\n
Lawrence:
Me too. Whoo!<\/p>\n
Tony:
Melanie, welcome to the Real Estate Rookie Podcast. You\u2019re our third and final mentee for this episode. We are super excited to share your story with our audience here and get into what\u2019s going on over the next 90 days. Quick background on you, Melanie, you\u2019ve already got two properties in Colorado, which is amazing. You spent the last month in Florida looking at some short-term rentals out there, so excited to dive into that. You already have your real estate license, which is great. The long-term goals for you is stepping away from that W2 and spending part of the year in somewhere that\u2019s a little bit warmer than Colorado. So excited to have you on the podcast, Melanie. Welcome to the mentee group.<\/p>\n
Melanie:
Thank you so much. I\u2019m so excited to be here. I couldn\u2019t have introed myself any better, and really, really excited to be part of this cohort. Lawrence and Brandon are wonderful. We\u2019ve been chatting offline. Just very grateful for the opportunity.<\/p>\n
Tony:
Exciting. I know you\u2019re looking at short-term rentals. How has that journey been for you so far? Because you already have the two long-terms in Colorado, and this will be your first short term?<\/p>\n
Melanie:
One\u2019s actually a midterm, part of our primary residence. We kind of stumbled into it. It was meant to be long term, but yes, this would be the short-term venture.<\/p>\n
Tony:
What are some of those challenges you feel like you\u2019re running up against as you step into this world of short-term rentals?<\/p>\n
Melanie:
I guess to give you some background, I went to BPCon and sat in on Amanda Han\u2019s session about tax strategies and basically learned about cost segregation studies and specifically the benefits of being a W2 employee and having an STR. So I left BPCon and just said, \u201cOkay, I\u2019ve got to buy an STR before the year is over.\u201d I\u2019m a native in Colorado, but I couldn\u2019t hate being cold anymore than I possibly do.\u201d So I thought Florida\u2019s probably the place. We have family there. I am just going to be committed to that process.
I found an agent off the BP forums, and he\u2019s been phenomenal. We\u2019ve been talking a lot about what I was interested in and my budget. Pretty quickly off the bat, I realized I was feeling a little in over my head. My W2\u2019s in the tech industry. When I started the process and thinking about it, I felt like I just had more risk tolerance in general, and I\u2019m starting to feel like I have just a little bit less. So thinking about buying a $400,000, $500,000 property with a pool that would do really well on Airbnb just became a little more nerve-racking. So that was kind of the start of that.
We shifted a little bit. I changed my price range a little bit. We started looking at some other properties. But my current challenge there is I\u2019ve been looking at a number of them, I saw a few in person, the average daily rate is, in some of my analyses, just not panning out to really show any profit, and, in many cases, it\u2019s quite negative. I think that makes sense for my price point and just looking at some of the properties a little further off the coast.
What I would say my biggest challenge is, do I really need to reconsider this move for the current time that we\u2019re in? I\u2019m looking at occupancy on Airbnb properties all over Florida and just seeing much lower occupancy than I would expect and what I\u2019ve heard to be peak seasons. So thinking about viability considering the state of the economy, economic headwinds and everything, I just want to be smart about this goal because ultimately the idea is to have a cash-flowing property. I can wait to escape winter for a few more years before I will just jump into a forced deal.<\/p>\n
Tony:
Well, I appreciate all that background, Melanie. A few follow-up questions from you here. What would you say is more important to you? Is it getting a property in Florida, or is it getting the right property anywhere?<\/p>\n
Melanie:
Great question. It is getting a cash-flowing property. The broader goal is becoming financially independent and finding cash-flowing properties. So I would easily sacrifice finding a property in any specific area if I could locate one that would add to a portfolio, my portfolio, and start to help generate real profit.<\/p>\n
Tony:
One additional question, have you looked at any other markets outside of Florida?<\/p>\n
Melanie:
Yeah, I follow The Short-Term Shop. I really love Avery\u2019s podcast. I know some of the areas that they\u2019re active in. I haven\u2019t done any analysis there, but I looked at, besides the area I was in Tampa, some of the other Florida markets that they were looking in. I know they\u2019re in the Blue Ridge Mountains, some areas in Georgia, Mississippi as well. I\u2019m open to those. I think one thing I wanted to run by you all is it\u2019s an investment. I want to make sure that I\u2019m not getting spooked too early and I\u2019m not giving up too early. Of course, the goal is find a property in the next 90 days. But the short answer is I\u2019m open to considering other markets if it comes to the point where I just need to reconsider my previous decision.<\/p>\n
Ashley:
Obviously, Tony is going to be way more value at understanding the short-term rental industry than I am. One common occurrence I\u2019ve seen from guests that we\u2019ve had recently is that you want to look at where there\u2019s big attractions where people are always going to be visiting. We just had somebody on that talked about national parks, how they don\u2019t ever see people stop visiting national parks. Tony, I\u2019m interested to hear also what you think of that as to sticking in markets where there is that large attraction where people are always going to consistently visit. Then, Melanie, if you could follow up as to the markets in Florida that you\u2019re looking at, do they have some big draw that\u2019s maybe just more than warm weather and the beach?<\/p>\n
Tony:
Obviously, both markets we\u2019re super active in right now are centered around national parks. We\u2019re in Tennessee near the Smokey Mountains. We\u2019re in Joshua Tree near the Joshua National Park. So I do have a big love for the national park scene as well. Well, here\u2019s my advice, Melanie, and I\u2019ll let you answer Ashley\u2019s question as well.
I do think that a lot of the more mature vacation rental markets, we\u2019ve seen massive price increases over the last two years, but the average daily rates in those markets have not kept pace with those price increases. So a cabin in Tennessee might be worth 75% more in 2022 than it was in 2019, but the ADRs haven\u2019t increased by 75% to offset that difference. So you are seeing profits in some of these bigger, more mature markets getting squeezed a little bit, which is why I asked the question around market selection. I think for newer investors going into some of these more secondary and tertiary markets where there is demand, something like a national park or some other kind of driver, but they\u2019re not as popular as the Smoky Mountains where there\u2019s 10,000 listings in that general region. I\u2019ll let you answer Ashley\u2019s question about what the other draws are to Florida.<\/p>\n
Melanie:
To be honest with you, Ashley, what I did instead of\u2026 No, I wasn\u2019t looking for other hotspots. I know that that is really vital advice that I\u2019ve heard on a lot of podcasts, making sure you\u2019re by hospitals or other tourist locations. My biggest consideration was just the ocean and personal preference at first. So I definitely have room to dig into that further. I was kind of picking areas based on, also\u2026 My second factor, as I was taking a step back, was to look at some analysis platforms. So STR Insights was one I was looking at quite a bit. Basically long story short, I was just thinking the prices are much lower in this particular area. Perhaps there\u2019s going to be a higher margin here because you\u2019re putting down less. But then I did a little more digging on the BiggerPockets forum. A lot of the feedback I got was that there aren\u2019t draws to this area, and just these analyses, basically looking at data from specific locations isn\u2019t enough. So it\u2019s a factor I really need to take into consideration now if I continue with finding a short-term rental for sure.<\/p>\n
Ashley:
My short-term rentals are all in very rural areas where the attraction is a very small hospital, or people just come and stay because there\u2019s only one hotel in the town, so there\u2019s literally nothing else. But also I\u2019m doing Airbnb arbitrage where there\u2019s very little risk. I\u2019m not dumping $400,000 into a property. The ones that I do own are $50,000 to $100,000 properties, so they\u2019re not these huge investments that, if for some reason people aren\u2019t coming there anymore, it\u2019s not that big of a deal that I can cover the cost of it for a while. But you had said that you\u2019re getting the negative cash flow when you\u2019re doing the deal analysis. How many offers have you submitted?<\/p>\n
Melanie:
I have not submitted any offers.<\/p>\n
Ashley:
Here\u2019s what I want to challenge you for your homework is to put in some low-ball offers. So at the purchase price, you\u2019re getting negative cash flow. So what would the purchase price need to be and what would the terms of the loan need to be to make it cash flow? Then just start throwing out an offer. Even if you just do one offer between now and the time we talk, just throwing it out at that low price.
Another thing you can do, too, is if it\u2019s already an existing short-term rental is asking for 2019 data. We analyze campgrounds, me and my partner, and that\u2019s one thing that every campground operator we\u2019ve talked to has said is don\u2019t use data just from 2020 and 2021 and now 2022. Go back to 2019 and pull data from there, too, before traveling exploded for those couple of years and see what it was like then. So see if you can get any of that data. Then even going back to\u2026 Tony on AirDNA, can you go back and look at data for markets to see what the daily rate was in 2019? Obviously, it\u2019s not going to be the same, but you could look at what the occupancy is.<\/p>\n
Tony:
Usually, the data I look at it only goes back, I think, 18 months, so I don\u2019t know if that software goes back to 2019 or not.<\/p>\n
Ashley:
Well, Melanie, we would love for you to submit an offer, even more than one, better, but just make it at the price point your offer and don\u2019t be afraid to insult someone or to put in that low offer. Plus, it\u2019s super exciting and so worth it if it gets accepted. Or even if they counter at you, you can see maybe there is another way to make this work, and we can talk about that, if that does happen. I think it\u2019s time you\u2019re ready to put in an offer at whatever that price point is that makes sense.<\/p>\n
Melanie:
Thanks Ashley. I love that recommendation.<\/p>\n
Tony:
My second piece of advice for you, I guess the homework here would be to choose at least two other markets. Florida is a very big, popular market with lots of competition. Regardless of where we\u2019re at in the cycle, people are always going to Florida and just a very popular travel destination. So I want you to try and find at least two other markets that are maybe mid-size markets, somewhere where there\u2019s 100 to 500 listings in those markets, so there\u2019s still a decent draw there, but the competition is definitely softer in terms of how many people were submitting offers, and the price points will probably be a little bit smaller as well.
When you look into these markets, there are really three things you want to be looking for. This applies not just to you, Melanie, but to all of our listeners as well. First, you want to look at the policies. You want to understand what the short-term rental permits are for that city, for that county. Typically the county website or calling up there, you can get that information pretty quickly. The second is popularity. You don\u2019t want to go too small. If there\u2019s anything less than 100 listings, I probably wouldn\u2019t touch that market. I want to see at least some active short-term rentals already just for proof of concept. I don\u2019t know if I\u2019d want to be the 10th listing in any given city because it might mean that who knows if the people are going to show up or not. The third thing is just the profitability. You want to make sure that after you check those first two boxes that you\u2019re still able to find deals that meet your return.
When you\u2019re actually looking at the properties themselves, you want to look at location. Every city has a hotspot where listings tend to do a little bit better, and through your analysis, you\u2019ll starting to see where those better performing properties are. You want to look at amenities. What are the top amenities in that market? Does this property have those amenities, or do I have the ability to add those amenities? Then third is the value, the same as profitability. Are you going to get the return you want after factoring all those things? I know that\u2019s a mouthful. Go back, re-listen to what I just said right now. But I think if you tackle those few things, you\u2019ll be in a much better position when we talk next time.<\/p>\n
Melanie:
Thanks for that. I have one follow-up question if that\u2019s okay.<\/p>\n
Tony:
Yeah.<\/p>\n
Melanie:
I\u2019m wondering, thinking about the year ahead, in calculations or just as you advise people, are you considering lower occupancy? Are you trying to factor that in just knowing that things are shifting in general?<\/p>\n
Tony:
I definitely think you probably want to add a little bit of buffer to any ADR or occupancy calculations that you\u2019re doing. How much is really hard to say because no one really has that crystal ball. But I think adding maybe a negative 10% on your ADRs or 15%, if you want to be super conservative, is realistic. Just know every dollar change in an ADR has a pretty big impact on your revenue at the end of the year. So somewhere around 10% might be pretty good.
Just know, every recession going back to the \u201960s, most of them lasted, on average, just under 12 months. So it\u2019s like, can you buy this property? Even if it maybe isn\u2019t a home run over those first 12 months while there\u2019s all this economic uncertainty, what happens in year two and in year five and in year 10 as you own the short-term rental? If you kind of check those boxes that we talked about where you\u2019re hitting the location, you\u2019re hitting the value, you\u2019re hitting the amenities, more likely than not that listing is going to continue to do well. There will probably be some uncertainty in the short term, but I think as real estate investors, we have to roll with those punches and remember that we\u2019re really investing for that long-term appreciation and cash flow as well.<\/p>\n
Melanie:
Yeah, absolutely. That\u2019s a great reminder.<\/p>\n
Ashley:
Melanie, before we end today\u2019s call, what is your why for real estate investing?<\/p>\n
Melanie:
I really love my W2. I\u2019m fortunate to have a wonderful team and be able to do what I do. At the same time, I just don\u2019t want to sit behind my computer for the rest of my life. I really want to be able to build some of that freedom into my life, so financial independence is the ultimate why. It helps that real estate is so fun and challenging and exciting and interesting. So I\u2019m just very motivated to continue learning and growing. I also have pursued getting my license on the side just because I really do evaluate or do enjoy evaluating deals. So I hope that that continues to be part of my career, but a little bit more flexible as time progresses.<\/p>\n
Ashley:
Well, Melanie, thank you so much for joining us for the next 90 days. We\u2019re super excited. Where can someone reach out to you if they want to connect with you?<\/p>\n
Melanie:
I hate to sound just so dry, but I would encourage you to go to LinkedIn. I\u2019m not very active on Instagram. I feel like I\u2019m always on LinkedIn. So just my name, Melanie Wilmesher, and super responsive there. That\u2019s probably got to be the saddest place for people to reach out to that you\u2019ve ever heard.<\/p>\n
Ashley:
One of my best friends, Lika, she is a LinkedIn queen. She nags on me all the time because I am not at LinkedIn. She has scored so many deals from there, private money lenders from there, and investors to work with. She has had huge success with it.<\/p>\n
Melanie:
Okay, I\u2019ll take it.<\/p>\n
Ashley:
Thank you so much for joining us Melanie. Tony, we have just met our three mentees and went over their goals and gave them their first homework assignment. What are your thoughts?<\/p>\n
Tony:
I think some of the things I\u2019m seeing across all three of them is that the challenges that they thought were challenges weren\u2019t as big as what they really were. When you take some time to unravel those, you understand the steps you need to take are a little bit more clear than what they initially anticipated. Honestly, I think that\u2019s a big thing that a lot of new investors run into. There\u2019s this emotional aspect that makes things a little bit scarier than they really are, but when you take stock of all of the things you already know and things you understand, it is a little bit easier to move forward than you give yourself credit for.<\/p>\n
Ashley:
I think this can relate to me and you, too, Tony, is sometimes we know what we need to do. It just takes somebody else to tell us to do that.<\/p>\n
Tony:
That\u2019s why I love having a trainer in the gym because it\u2019s like, \u201cYeah, I know I should be doing this,\u201d but when they\u2019re in your face saying, \u201cDo it one more time,\u201d then it keeps you motivated. Hopefully, we can have that same impact on our mentees here as well.<\/p>\n
Ashley:
For all the rookies at home, we would love for you guys to set your own 90-day goals. If you don\u2019t know what your why is yet, really try to define that and give you something that\u2019s going to give you the motivation and really energize you every single day to keep pushing forward to actually reach that goal. I\u2019m Ashley @wealthfromrentals, and he\u2019s Tony @tonyjrobinson on Instagram. We will be back with another episode. See you guys next time. (singing)<\/p>\n
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