\n
Ashley:
This is Real Estate Rookie Episode 257.<\/p>\n
Tony :
Something else to think about, Lawrence, as you\u2019re submitting some of these offers is to give the sellers different options. For example, we\u2019re trying to buy a hotel over the summer and we gave them different options on the seller finance deal that we were putting together. One had a higher price point with slightly higher interest, but a lower down payment. Another option had a higher down payment, but then the other terms were a little bit more favorable for us. I think if you want to get to where you\u2019re putting down no more than you said 15% or 7% based on what Pace said, offer that as another option. And maybe even if it\u2019s a slightly higher purchase price, it still works out better for you because the down payment\u2019s going to be smaller.<\/p>\n
Ashley:
My name is Ashley Kehr and I\u2019m here with my co-host, Tony Robinson.<\/p>\n
Tony :
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we\u2019re bringing you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today I want to shout out a very special person from the Rookie audience. This person goes by the username, The Handyman 317, and Handyman left us a five-star review on Apple Podcasts that says, \u201cThank you!\u201d With the big exclamation mark. \u201cDefinitely one of my favorite weekly podcasts. I\u2019m a contractor and I set a goal to start investing in 2023 for myself after listening to your podcast. Well, listening to your podcast weekly, I gained my confidence and already finished a flip and bought a duplex to hold on all in 2022. I appreciate the service you guys provide, and thank you so much for helping me reach my goals. So much free knowledge on this show.\u201d
Handyman 317, kudos to you for listening and taking advice and taking action, man. That\u2019s the biggest piece. So, if you guys haven\u2019t yet left us an honest rating or review, please do. The more views we get, the more people we can help. The more people we can help, the more stories we get like Handyman 317. Ashley Kehr, what\u2019s up? How are you?<\/p>\n
Ashley:
Good. I got two closings today that I\u2019m excited about. I\u2019m selling a property.<\/p>\n
Tony :
Busy day.<\/p>\n
Ashley:
And then I\u2019m actually using the proceeds to pay off another property.<\/p>\n
Tony :
Isn\u2019t that how it goes?<\/p>\n
Ashley:
Yeah, I like to keep a couple free and clear, so just transferring some money over. And then I\u2019m actually closing on a refinance for the A-frame property I remodeled.<\/p>\n
Tony :
Let\u2019s talk about that just really quickly. You got the refi, right? Refis have dried up tremendously, almost no one\u2019s doing a refi right now. Can you share what\u2019s the reason behind this refinance and why you have to do it right now?<\/p>\n
Ashley:
Yeah, and actually the process has been so fast, I can\u2019t believe it compared to trying to refinance the last two years-<\/p>\n
Tony :
Last year, yeah.<\/p>\n
Ashley:
\u2026 when lenders had to bend over lots of people wanting to refinance. But yeah, so I had purchased the property with hard money and my hard money isn\u2019t due for, I think two more months, maybe. I rehabbed it, I used cash to actually rehab the property and now I want to pull my cash back out and we\u2019re going to pay off the hard money lender today. We\u2019re going to refinance with a small local bank. Then we\u2019re just going to have our fixed trade. It\u2019s going to be over 20 years amortized and fixed rate for five years.<\/p>\n
Tony :
Yeah, that\u2019s awesome.<\/p>\n
Ashley:
And it\u2019s at a 7.4% interest rate.<\/p>\n
Tony :
That was my next question, which isn\u2019t terrible, right?<\/p>\n
Ashley:
No, no.<\/p>\n
Tony :
I\u2019ve seen definitely worse than that. Cool. I\u2019m excited. A-frame\u2019s almost done. That\u2019s like the last step for everything, right?<\/p>\n
Ashley:
It\u2019s done. It\u2019s done. Yeah.<\/p>\n
Tony :
Yeah, that\u2019s everything.<\/p>\n
Ashley:
Yeah, it\u2019s done. Yeah.<\/p>\n
Tony :
Cool. Well, there you go. Well, we got a good show for you today. We got our mentees coming back on, so you guys get to hear a quick update from Brandon, Lawrence and Melanie and each one of them is kind of in a different phase and we dig into what each person is struggling with. Brandon, I think, and we talk about this a little bit, the biggest thing holding him back is just fear. And he kind of led into that by just saying he\u2019s fearful of what could happen if he does keep moving forward with this. You get to hear us break that piece down. Lawrence was a man on a mission the last couple of weeks. He did a whole bunch of stuff, so we get to hear what Lawrence was up to you. But Lawrence was a little stuck on how to structure some of these offers that he\u2019s putting out to folks, so we kind of walked through that. And then Melanie, she had a bit of a panic attack with her investing situation, so we break through-<\/p>\n
Ashley:
She\u2019s very relatable to me.<\/p>\n
Tony :
Yeah, totally, right? And she talks through how she had a freakout moment and how she walked herself off the ledge and how she\u2019s now moving forward with some confidence, and Ash and I give some advice on what we feel she should be doing as well. Each person kind of in a different situation, but hopefully each one of these stories helps our Rookie listeners know that there are other people going through the same things that they\u2019re going through as well.<\/p>\n
Ashley:
And if you guys haven\u2019t already, please hype up our mentees in the Real Estate Rookie Facebook group because they\u2019re out here sharing it all with you guys. And sometimes that\u2019s hard to do, especially as a new investor, very unsure is admitting what you don\u2019t know and how you\u2019re feeling about investing. Make sure you guys are hying them up and give them tons of encouragement as we go along for the next 90 days. Brandon, welcome back to the Real Estate Rookie Podcast. How have you been?<\/p>\n
Brandon:
Good. Good to be back while braving the cold up here.<\/p>\n
Ashley:
Why don\u2019t you tell us a little bit about what you\u2019ve been up to since you were last on.<\/p>\n
Brandon:
Since last time, I\u2019ve definitely gotten more narrowed down on the buy box and analyzing properties. Went and walked through a lot more houses, just adding more consistency and just seeing what\u2019s out there for the price points I\u2019ve been looking and just getting more of a feel for what\u2019s been out there, looking at everything that\u2019s new to market.<\/p>\n
Ashley:
Did you put together an offer on any of those properties you analyzed or looked at?<\/p>\n
Brandon:
No written offers yet. Been working on one that I walked through and just wasn\u2019t really interested at the price point and condition of the property. But they\u2019ve actually been emailing back just wanting us to offer anything or whatever we\u2019re thinking, because it sounds like it\u2019s sitting still and put feedback\u2019s been about the same as mine was.<\/p>\n
Tony :
One call out Brandon. You said that not interested at the price point and the condition, but what that lets us understand is that there probably is a price point at that condition where that property makes sense for you. And I think that the challenge from Ashley and I is figure out what that price point is and regardless of what they\u2019re asking, just submit the offer at that price point.
There was a property that I actually just got under contract less than 24 hours ago. I had initially submitted my offer and it was significantly below asking, and the buyers didn\u2019t even counter, they just flat out said no. Then they came back to me last week and said, \u201cHey, Tony, will you meet us in the middle?\u201d And I said, \u201cNo.\u201d Then they came back to me less than 24 hours ago and said, \u201cOkay, fine, we\u2019ll accept your offer.\u201d
So that\u2019s kind of where we\u2019re at in the cycle right now is that as the buyer, even if you\u2019re asking prices significantly lower than what they\u2019re asking for, and obviously this is going to vary by the market, but a lot of times if there\u2019s not enough interest, especially if the condition of the property is not super turnkey, it gives you more leverage as the buyer. So I would say submit that offer, whatever price makes sense for you. Even if they say no today, there\u2019s a chance that that property\u2019s still on the market 14, 30, 45 days from now, now they\u2019re going to come back to you and say, \u201cHey, Brandon, your offer looks a whole lot better now.\u201d<\/p>\n
Brandon:
Nailed it.<\/p>\n
Ashley:
What are some other things that you think are holding you back from getting the next deal?<\/p>\n
Brandon:
I guess biggest thing is just I haven\u2019t been writing offers on stuff. I need to sit down and work backwards from what it needs and find that purchase price to offer on, even if it\u2019s well off what they\u2019re asking and not be worried about just ticking them off, I guess.<\/p>\n
Tony :
Ashley, let me ask you a question, Ash. Have you ever submitted an offer that was so low that the seller said, \u201cI don\u2019t care what your next offer is, I don\u2019t ever want to hear from you again?\u201d<\/p>\n
Ashley:
No, I\u2019ve never had that bad. It was more of just no response, that you didn\u2019t say, \u201cMy seller isn\u2019t going to even acknowledge that offer.\u201d<\/p>\n
Tony :
But had you come back with a different offer, they probably would\u2019ve acknowledged it, right?<\/p>\n
Ashley:
Yeah. Oh yeah.<\/p>\n
Tony :
Yeah. Maybe it\u2019s happened somewhere, but I\u2019ve never personally met an investor who said, \u201cYou know what, Tony, my first offer was so low and I offended the seller so much, they refused to listen to any other offer that I had after that first one.\u201d I think a lot of new investors have this fear around pissing off the seller and them being offended and all these other things, but at the end of the day, if you give them a number that makes sense, they\u2019re going to look at it. Don\u2019t try and make that decision for the seller. I think the bigger thing for you, Brandon, is to do the numbers, figure out what works for you, and then put the onus on the seller to decide if they should be offended or not from there.<\/p>\n
Ashley:
There\u2019s so many times people make those lowball offers where they work, the seller accepts it and it\u2019s like, oh my gosh, I didn\u2019t expect that, but yay, they accepted my offer. You never know the reason for somebody selling and money may not be a reason at all, or maybe they don\u2019t understand what the value of their house is or it\u2019s just convenience to sell it to the first person that puts an offer in. Keep putting together offers and submitting them. And then if you\u2019re putting in an inspection period, it\u2019s giving you that second chance to go through the property and make sure your number\u2019s correct too.<\/p>\n
Tony :
Yeah, I think one last piece of advice, and this is, again, something that\u2019s happened with me on a deal that we\u2019re working on right now. We\u2019re trying to buy some land to build our primary residence. We want land. Land is super limited where I live in California, super, super rare. And I\u2019ve been talking with the agent who listed the land and same as you, he was like, \u201cOh, the seller doesn\u2019t want to entertain that offer.\u201d But I kind of got the feeling that the agent wasn\u2019t even presenting my offer to the actual owner.
So what I did is I looked up the land, I traced owner\u2019s contact information. I called them myself last week and said, \u201cHey, my name\u2019s Tony. I\u2019ve submitted a couple offers. Has your agent even shared my name with you?\u201d The seller was like, \u201cI don\u2019t know. It doesn\u2019t sound super familiar.\u201d So what I\u2019m gathering is that my offer was so low it didn\u2019t quite fit with the agent\u2019s needs, but I talked to the actual owner of the property and now he and I have a very open dialogue and he\u2019s actually open to the offer that I presented. So, if you do feel that you\u2019re getting a little bit of that, sometimes you might have to circumvent the agent to talk right to the owner.<\/p>\n
Ashley:
And then, Brandon, when you\u2019re looking at a property too, think about other ways that that property could generate income where maybe you can increase your offer a little bit. If it has a garage unit, can you charge an additional amount of rent for the garage? Maybe if there\u2019s a huge parking lot, can you charge somebody to park their RV or their boat there over the winter? Things like that. Try and find different ways to increase the income or maybe if you\u2019re looking at a property that\u2019s going to have multiple residents in it is having a coin-operated washer and dryer in the basement or somewhere on the property, too, and make some income off of that too. Try and think of different ways to generate income off the property.<\/p>\n
Brandon:
Okay.<\/p>\n
Tony :
Brandon, one last question for you, man. When you think about submitting those offers, is it more so fear around what the seller\u2019s response might be like? Is it that you\u2019re analyzing a bunch of deals, but you\u2019re just afraid to submit the offers because you don\u2019t want to upset the seller? Or is it that you feel like you\u2019re not analyzing enough deals to begin with? Which one of those issues do you think is a big one for you right now?<\/p>\n
Brandon:
I do think it is out of fear of rejection, like you had said, or it getting accepted and then wondering what it didn\u2019t account for type of thing. Or even having multiple offers that aren\u2019t high probabilities and having both of those accepted.<\/p>\n
Tony :
All right. Let\u2019s break down both of those. Let\u2019s break down both of those. Your first one was, what happens if they accept my offer, but there are things that it didn\u2019t account for? Just walk through, what do you think you would actually do in that situation? Say that someone accepts one of your offers and now you\u2019re in escrow, you\u2019re during your due diligence period. What steps can you take to make sure that those unknowns get accounted for somehow?<\/p>\n
Brandon:
I guess biggest things would be roofing inspectors and contractors to look over things and make sure the numbers I was estimating or planning for are at least close.<\/p>\n
Ashley:
One thing you can do is put in a longer due diligence period, so a longer inspection period and ask for multiple times to have access to the property. Instead of having one inspector come in, if you want actual contractors to come in and bid it out, if you don\u2019t think you\u2019re going to be able to get them all right there at the property, same day, same time, then extend out in your contract, in your initial offer, put in a longer period of time and ask to have access as needed to the property, maybe with 24 hours notice if there\u2019s tenants in place, or even the homeowner living there.
That way you can schedule out, okay, over the next two weeks, have the roofing guy coming this way to give me an estimate. I have these other contractors coming in to give me estimates on Thursday and go through a process like that. Then you\u2019re going to get those hardball estimates. And just before you bring the contractors in, when you\u2019re scheduling them, ask them, too, what their turnaround time is on an estimate to make sure that they\u2019re going to get you the information back, too, before that due diligence period is up too. And you probably have a lot of contacts from your business too, from your work.<\/p>\n
Brandon:
Yeah, like-<\/p>\n
Ashley:
You probably run into a lot of other vendors.<\/p>\n
Brandon:
Yeah, that\u2019s numbers that I\u2019m 100% sure, because I did them.<\/p>\n
Ashley:
But even, too, do you run into other contractors on jobs or things like that or even your employer, he probably knows other people in different specialty skills, too, that he could connect you with.<\/p>\n
Brandon:
Yeah, I\u2019ve made decent friends in basically all the big trades.<\/p>\n
Ashley:
That\u2019s a huge advantage.<\/p>\n
Brandon:
But not so much cabinets or a contractor overall.<\/p>\n
Tony :
Yeah. And then, Brandon, the second thing you mentioned was what happens if you get two properties, two offers accepted? And it\u2019s a reasonable concern to have because I think when you haven\u2019t done your first deal, the idea of getting two at one time is like, oh my god, what am I going to do with that? But just say you were in that situation, what options do you think you\u2019d have?<\/p>\n
Brandon:
Trying to come up with the money a different way, see if seller financing is an option for them at all. Because the summer when I did a couple offers, but I would always wait to hear and then with how last summer was the other properties I was interested in were already gone before I heard back on the first one.<\/p>\n
Tony :
So if you\u2019re ever in a situation where you have two properties under contract or two offers accepted, first thing is that I would try and do whatever I can to close on both of those deals. I would try and look for a partner. Your idea of the creative finance is another great solution. But say for whatever reason you realize you can\u2019t take both deals down, all you have to do is look at which one of those two deals you like more and then walk away from the other one. If you have a property that\u2019s under contract or that you submitted an offer on a property and it comes back, as long as you\u2019re not submitting your EMD and kind of kicking off the escrow and title process, you can still walk away from that deal. So, don\u2019t feel like you\u2019re automatically obligated to closing that deal. Most sellers, I think would understand like, \u201cHey, sorry, I had another offer that came in that was accepted.\u201d And I think they would understand that is a legitimate reason to not move forward with that purchase. Don\u2019t be too concerned about that piece.<\/p>\n
Brandon:
Okay.<\/p>\n
Ashley:
Tony, what do you think that Brandon\u2019s next step should be? Do you think we should have him write some more offers, kind of get over that hurdle?<\/p>\n
Tony :
Yeah, I want to see one lowball offer submitted by Brandon between today and the next time we speak.<\/p>\n
Ashley:
Okay. And work in that inspection period, if that\u2019s going to make you feel more comfortable. But I think that there\u2019s some kind of fear holding you back and I mean, it\u2019s completely legitimate like, what if I don\u2019t run the numbers correctly or what if I don\u2019t account for something? But that\u2019s why you\u2019re going to have your due diligence period to really break down everything and make sure that that\u2019s the right number for you. And, of course, you can\u2019t protect against everything, so make sure that you have whatever you\u2019re offering on, it\u2019s still going to leave you some reserves even after going in and doing some rehab if necessary too.<\/p>\n
Brandon:
Okay.<\/p>\n
Ashley:
Think you can handle that, Brandon?<\/p>\n
Brandon:
Absolutely.<\/p>\n
Ashley:
Okay. Well, thanks so much and we\u2019ll see you in a couple weeks.<\/p>\n
Brandon:
Yeah, appreciate it again.<\/p>\n
Ashley:
Lawrence, welcome back to the show. Can you tell us what you\u2019ve been up to the last couple weeks?<\/p>\n
Lawrence:
Yeah, of course. I was able to do my homework, which consisted of watching those two amazing episodes with Pace Morby. I was able to get a good introduction to creative financing with subject two in seller financing. I\u2019m more of leaning towards seller financing, because right now sellers still have a good amount of equity in their properties, especially in this area. Pace associated seller financing with gain, what does the seller want to gain since he or she may already have the equity in the property?
My biggest hurdle is not falling into analysis paralysis just because I do like to research different concepts. I have started to go onto the MLS listings for rentals and what I\u2019ve started to do is that any rental that has been listed for over 30 days, I am trying to find the owners of those properties. I feel as though two things are happening in that situation. It\u2019s either a landlord who is tired of being a landlord or they are not local to the area and they\u2019ve handed over their property to a property management company that\u2019s either not doing what they\u2019re supposed to be doing or they may be overpricing a property.
I was playing Inspector Gadget and I was able to find one seller because there are a few right now that\u2019s on market. It\u2019s not a ton of aging rental properties on the market and I had to dig, because it was listed with a realty company and so I had to go to the county\u2019s website and find the seller. Anyway, I got the seller\u2019s phone number and email. I reached out to him and he said that he\u2019s on vacation, so to try to get back to him in the middle of January. So I\u2019m like, okay, well, at least I was able to contact him, and then he also lets me know that he\u2019s on vacation and he has a property that\u2019s listed for over 30 days. He may be inclined to selling the property because he\u2019s not worrying about it cash flowing right then and there.
Another thing that I did was I reached out to a previous owner of a property that\u2019s down the street from one of my rentals. He is about to rehab a property and he usually will either turn that rehab into a rental or he will sell it to a retail buyer. I reached out to him and say, \u201cHey, I\u2019m interested in getting another property with doing seller financing. Would it be something you\u2019re interested in doing?\u201d He said that he would give back to me. So I\u2019m like, okay, I\u2019m tired of the, \u201cI\u2019ll get back to you right now,\u201d that\u2019s promising. I went back to the MLS.
I did find a new listing that hit the market that\u2019s listed for seller financing. I contacted the realtor. However, I\u2019m not too keen about the terms. Right now that particular property, they want 10% interest, 20% down payment, a minimum hold of three years, and a payment penalty that has not been decided. Because I normally buy single family homes, not owner occupied, I usually put down about 15% and then when you add in the closing cost, it kind of goes up to 20%. So I am going to revisit to see if I can maybe do an alternative offer. I\u2019d rather not put 20% down on that particular property. If it still cash flows with the 10% interest, I don\u2019t mind, and I don\u2019t mind the three-year hold because I am into the long term.
But from my homework with Pace, he prefers not to put down more than 7% on properties that are seller finance. And one of his biggest things that he\u2019s keen on would be to always cash flow. That has been what I\u2019ve been up to. Again, I\u2019m doing my research, but I want to continue to take action. My biggest next step, my biggest means would be to have a living document, a Google Document where I have a sheet for aging rentals that are over 30 days. There, I listed a sheet for properties that are on the MLS listed for sale for over 30 days. And I am just going to have to put the work in to contact those sellers and see what I can make happen.<\/p>\n
Ashley:
Lawrence, you\u2019ve been busy. This is great. The first thing I want to say is those terms on the seller financing, I mean, a bank\u2019s terms right now are going to be better than that. You\u2019ll give less than 10%.<\/p>\n
Lawrence:
Exactly. And it just hit the market. And I mean, it is turnkey ready. What I understand from their property is that it was a flip that won\u2019t sell right now. Because the very first thing that the realtor said was, \u201cHey, we have different terms for a retail buyer and an investor.\u201d And so I was like, \u201cOkay, well, what\u2019s the terms for the investor?\u201d And those were the terms, and I just was like, mhm.<\/p>\n
Ashley:
I think maybe what they\u2019re going after is probably somebody who has bad credit potentially and can\u2019t go to get the bank financing. Because that\u2019s actually my one business partner. When he bought his first house probably eight years ago, maybe 10 years ago, I don\u2019t even know, he bought it from an investor who basically bought houses and seller financed them to people who had bad credit and would charge them\u2026 He paid a 10% interest rate and then when he built his credit back up, he went and refinanced out of that loan.<\/p>\n
Lawrence:
Exactly. Now that\u2019s why I probably will have another conversation. Right now I\u2019ve worked hard where I\u2019m not in that situation, I\u2019m not going to mention my lender\u2019s information because this is not sponsored, but I can easily be underwritten by almost any lender. All of my properties cash flow, I have a low debt to income ratio, I have great credit, so I want something that\u2019s going to beat bank terms. I\u2019m not going to put down more than 15% if I can go to a lender and do that with about a 8% loan. I definitely would have to get something very competitive if it\u2019s going to be sellar financing.<\/p>\n
Ashley:
Yeah, I think you even said it yourself is to go back and put in an offer with different terms. It\u2019s not going to hurt anything, especially if they tried to sell it already, it hasn\u2019t sold. I would put in lower than what the bank would be able to offer you. Even go with Pace\u2019s advice and just do 7% down. I mean, they\u2019re going to hold onto your offer. So if they don\u2019t get anybody else, I mean, you may be their only option.<\/p>\n
Tony :
But I think one of the reassuring things, Lawrence, is that you\u2019ve already found a seller who is at least open to that idea. So there\u2019s some proof of concept there that this path you\u2019re going down could end up working for you. It\u2019s just, okay, now how do we get the right terms? You said you\u2019ve been looking at the rentals that have been aging. Have you looked at all at properties that were listed for sell, but that didn\u2019t sell? So like on PropStream there\u2019s like a failed listing filter that you can look at. Have you explored those at all?<\/p>\n
Lawrence:
That\u2019s my next list that I\u2019m building, per se, that I\u2019m going to be looking at. I started with the rentals first, but yes. So like I said, I\u2019m going to have that living Google Drive Document or something of that nature where I have one sheet that lists all of the aging rentals and then another sheet that will list all of the aging properties for sale. And I do have another realtor that I\u2019ve reached out to, and I\u2019ve pretty much told that realtor if she\u2019s able to bring me a seller finance deal that I would pay her commission on it.<\/p>\n
Tony :
Because I think that bucket of owners, they might be even more open to the idea of seller financing because they just tried to sell the property and they potentially did it unsuccessfully, so they might have a little bit more motivation to go out and do that. Second question for you, Lawrence, are you looking just in the same market that you\u2019ve been investing in or are you open to maybe more remote markets as well?<\/p>\n
Lawrence:
Right now, I would say that my risk tolerance is more of where I\u2019m local to, especially because I am a self-managing landlord, so my properties right now are within a mile of each other. That definitely cuts down on maintenance where I can have one local roofer and one local plumber to be able to get there and then me towards prospects and lease them out. As of right now, I want to do at least probably five to seven deals where it\u2019s really local. This would be my fourth deal, hopefully, by the end of this mentorship program. Right now I\u2019m wanting to stay local to my area, kind of dominate and monopolize this area.<\/p>\n
Tony :
I love that approach. Yeah. I think maybe just looking at some of those fail listings through PropStream or you can go on Zillow or wherever and manually pull that, but that would probably open you up to a few more owners that might be open to seller financing.<\/p>\n
Ashley:
There\u2019s also the website landwatch.com. Have you heard of that, Lawrence? Pace uses it a lot too, and there is over 12,000 listings right now that already say that they\u2019ll do seller financing on LandWatch.<\/p>\n
Lawrence:
Wow. Awesome.<\/p>\n
Ashley:
So, that\u2019s a great resource starting point too.<\/p>\n
Lawrence:
Great, thank you.<\/p>\n
Ashley:
Okay, so what do you think is the next step for you?<\/p>\n
Lawrence:
The next step would be, like I said, I will reach out to that realtor to see if they would be inclined to a different offer. And if I have to do a mailing campaign-<\/p>\n
Ashley:
I think don\u2019t even ask. I think just put it together.<\/p>\n
Lawrence:
Just put it together.<\/p>\n
Ashley:
Just put it together.<\/p>\n
Lawrence:
Okay.<\/p>\n
Ashley:
Because the agent can say, \u201cOh, no, I don\u2019t think they\u2019ll go for that.\u201d But once you\u2019re given the offer, the agent is ethically responsible to, even though Tony had told us a little situation where he didn\u2019t think his offer is getting to the seller, but most agents have a moral responsibility to submit your offer to the seller. So, I think if you ask beforehand if they\u2019re open for an offer, you\u2019re asking the agent what they think and they\u2019re giving the response, not all the time, but this way your offer is getting right in front of the sellers and they\u2019re making the decision.<\/p>\n
Lawrence:
Great. So I will submit an offer to them and then I build my list and, like I said, if have to do a\u2026 I like to try to find their phone number or email and call them, but if I have to do a mailer campaign, I will. And I will also follow up with those two other landlords who said that they possibly may be interested in selling one of their properties.<\/p>\n
Ashley:
One thing just to remember, too, is that even if they say no or you get no response now, months down the road, they could come back to you. I sent mailers out a year ago and I just got a call in\u2026 So it was December, I think everybody got them December 23rd of 2021. And this past October, I got a phone call again from somebody who said he got the mailer in December, he was ready to sell now. It just goes to show that people will hold onto your mailers too.<\/p>\n
Lawrence:
I definitely like that concept because I\u2019m a huge advocate of networking. Just because it\u2019s a, \u201cnot right now,\u201d it doesn\u2019t mean it\u2019s going to be a never end because this area has been monopolized by just a handful of landlords. I\u2019ve started to build a really good name where I\u2019ve worked with two different sellers where I\u2019ve put together off-market deals myself. And so now these local title companies and inspection people are like, \u201cLawrence, that kid knows what he\u2019s doing. If he says he going to do it, it\u2019s not a matter of if, but when.\u201d<\/p>\n
Tony :
I love that. And just something else to think about, Lawrence, as you\u2019re submitting some of these offers, and this is something Ashley talks about a lot as well, is to give the sellers different options. For example, we\u2019re trying to buy a hotel over the summer and we gave them different options on the seller finance deal that we were putting together. One had a higher price point with slightly higher interest, but a lower down payment. Another option had a higher down payment, but then the other terms were a little bit more favorable for us. I think if you want to get to where you\u2019re putting down no more than you said 15% or 7% based on what Pace said, offer that as another option. And maybe even if it\u2019s a slightly higher purchase price, it still works out better for you because the down payment\u2019s going to be smaller. So just play around with different options. Don\u2019t feel like you only have to give them one when you do submit those offers.<\/p>\n
Lawrence:
Awesome. I greatly appreciate the feedback.<\/p>\n
Ashley:
Well, Lawrence, thanks so much for coming back on with us. We always love having you on and just your energy and it motivates us to keep going and keeps us excited. So, we appreciate that.<\/p>\n
Lawrence:
Thank you. I can\u2019t stop. Won\u2019t stop.<\/p>\n
Tony :
There you go.<\/p>\n
Ashley:
Yeah, awesome. We love to hear that. We\u2019ll check back in with you in a couple weeks.<\/p>\n
Lawrence:
Awesome.<\/p>\n
Ashley:
Melanie, welcome back to the show. Thank you for coming on again. Can you let everybody know what you\u2019ve been up to the last couple weeks?<\/p>\n
Melanie:
Sure. Yeah, thanks so much for having me back. Good to see you guys. It\u2019s definitely been an eventful couple of weeks I would say since we last chatted. I was really looking a lot at Florida and deep diving into just a very specific area and really had my heart set on that. But following our discussion, my homework was to look at some other areas, do some exploration of other locations, and then also to submit some offers. I would say that I jumped into looking at other locations pretty immediately. I thought just like, okay, what else am I somewhat familiar with? What do I know about, to Tony\u2019s earlier recommendation, some of the tourism draws or some of the reasons people would come to an area?
And so I started looking in St. Louis and Kansas City because I felt like those might be areas that might be not the first location you would think of, but also had some potential. Pretty much right off the bat I could see that there were places in my price range, but I was getting a little bit more freaked out about occupancy, just seeing that almost 90% of the Airbnbs I was looking at had zero bookings for anywhere from two to three upwards of six months out. And so I was just kind of doing a little questioning of, okay, is this the market? Is this the particular area? Is it that the draw to these areas is just slower right now?
So I started to get a little bit of cold feet and I started to think, okay, I\u2019m exploring a couple areas, I can definitely look into a few more, but am I really going the right route here right now with an STR? And randomly I had this opportunity pop up in Denver and it was like a multi-family that just had all of these shiny things about it that I was so excited about. I kind of went down that rabbit hole a little bit and I won\u2019t get too sidetracked, but ultimately I wanted to refocus and recenter myself. And so I went back to looking at some other locations and on the forums actually I found a realtor that was talking about some unincorporated areas in Savannah and it just looked really appealing to me.
And so I started poking around a lot and found some things about Savannah I really liked and some beautiful properties and a really great price point. I\u2019ve chased that a little bit more. I\u2019m working with an agent, he\u2019s sending me some listings. I got pre-approved for hopefully a 10% down, but 10, 15 or 20% down payment. Basically I feel really excited about Savannah. I feel like there\u2019s a lot of opportunity. I started making a spreadsheet just with all of these locations and really starting to run analyses on all of these different properties that were popping up. I feel like there have been some viable options in Savannah and now my challenge is to make that offer, make that first offer, which was your recommendation, Ashley. My only hesitancy has been making sure I\u2019m prude, making sure I have a lender, and just getting a little more comfortable with that analysis.
But in general, I had this full panic of, okay, I\u2019m going in the wrong direction, and I kind of just slowed down and reevaluated a little bit and I feel like I\u2019m back on track and have a good feeling about this particular area.<\/p>\n
Ashley:
Melanie, that\u2019s great. I\u2019m glad that you have refocused yourself and you\u2019ve even narrowed down a market now that you really want to focus on. I actually have two questions for Tony that were kind of brought up with what you were talking about. And I\u2019m curious as to, Tony, what have you seen for lead times as far as bookings on properties? Because I know I\u2019ve seen on Instagram people post that they\u2019re still getting bookings, but they\u2019re not booking three months out. They\u2019re maybe booking three weeks out or things like that. So, Tony, I\u2019m interested to hear that. Then also, Tony, what\u2019s your take on the Savannah market? Do you know anything about it as a short-term rental?<\/p>\n
Tony :
Yeah, two really good questions, Ash. Yes, booking lead times for us across the portfolio have been significantly lower than they were in 2021. This time last year in 2021, we got Christmas booked out by the end of September. This time, Christmas was booking out a few weeks ago. I think the habits of travelers have shifted between last year and this year. Across the board you are seeing more last-minute bookings. I don\u2019t think I would be super concerned if I\u2019m looking at a calendar for a market and I see that 30, 60 days out, there\u2019s still a bunch of gaps in the calendar.
What I would look for is data to show, okay, how are those listings pacing over the last 365 days? What does their pricing look like over the next 365 days? And use that data to help me determine whether or not it\u2019s a viable option. What does their occupancy look like over the last 30 days? Because looking back 30 days might give you a better understanding than if you look forward 30 days. Things to consider.
To answer your second question, Ashley, about Savannah, I actually don\u2019t know anything about Savannah. The only market I\u2019ve really looked at in Georgia was Blue Ridge, and we did that not even as a super deep dive. But, Melanie, it sounds like you found some things there that you feel will draw folks in and that the price points make sense for you. Is that what I\u2019m hearing?<\/p>\n
Melanie:
Yeah, that was a major factor, for sure.<\/p>\n
Ashley:
Let\u2019s go through some of those items. What are the things that you looked at in the market that you think are big draws that will bring people in?<\/p>\n
Melanie:
I mean, obviously it\u2019s by the coast. There\u2019s a lot of people that are drawn to those islands like Tybee Island and a few others. There\u2019s also an Air Force base. There\u2019s a small college that\u2019s, I guess small, it\u2019s got 13,000 students, but well known in the area. I believe it\u2019s a school of art and technology. I want to say the initials are S-C-A-D or something. SCAD or SCAT. And then also the historic district is a huge draw.
I will say that in looking at some of that data, there are properties that are still like 50% or 39% occupancy. I don\u2019t think it\u2019s necessarily 84 or 90% occupancy, which, of course, the higher the occupancy, the better. But they were still, at least the data I was looking at with Rabbu, they were still generating, for example, $3,300 in revenue on a $1,900 month mortgage or something. And I\u2019m trying to be exceptionally conservative with my numbers and factor in property management because I will be out of state and that lower occupancy. I hope that answered your question.<\/p>\n
Tony :
Yeah, it does. And I think that\u2019s all good data to look at. I would also use a website like either PriceLabs or AirDNA. I think they give you a little bit more granular data than a Rabbu does. I haven\u2019t spent much time on Rabbu, but I know AirDNA and PriceLabs are super catered towards the short-term rental industry and you get a ton of data when you look at those things. It sounds like you\u2019re happy with that market. Have you looked into the policies of Savannah? Is it easy to get a short-term rental permit? Do you even have to get a permit? What does that whole process look like?<\/p>\n
Melanie:
Yeah, so in Savannah proper, there\u2019s a lot more restrictions, but in the unincorporated Chatham County, which is kind of just on the perimeter, it\u2019s much easier. And a lot of the property management companies help you go through that process. They are tightening some restrictions, but there\u2019s still a lot of opportunity. There\u2019s still permits available.<\/p>\n
Tony :
And I ask that question because the fact that there are tight restrictions, isn\u2019t necessarily a bad thing. If anything, it almost protects the people that are willing to jump through those hoops and get those permits because not everyone\u2019s going to be willing to do that. So if you are one of those hosts who have one of those harder to get permits, it almost helps because it keeps in, not a hard cap, but almost like a soft cap or an artificial cap on the supply of short-term rentals, which again, if you\u2019re one of those that are operating it, it actually helps you. Have you submitted any offers yet in Savannah?<\/p>\n
Melanie:
I haven\u2019t, no. I\u2019ve just been trying to analyze four to five properties over the last couple of days. I did explore some opportunities to do seller financing. It was kind of similar to Lawrence\u2019s terms that he mentioned where the seller was offering a 7% interest rate and 20% down. I was kind of thinking I\u2019d rather just get a loan from a bank. So, no, that\u2019s definitely my next action item is to submit a couple of offers and I\u2019m willing and ready to submit those lowball offers. I think I just wanted to make sure the analysis fit. I sent over a couple examples of my analysis to my agent who\u2019s closed about 30 STRs this year, just to see like, these are my numbers. Do these look like your numbers? Should I be more conservative? Do you have any recommendations? I feel like I\u2019m at that point where I\u2019m ready to start making a couple of offers.<\/p>\n
Ashley:
Melanie, you had put a question for us, too, in our group Slack channel about seller financing. Did you want to talk a little bit about that?<\/p>\n
Melanie:
Yeah, thanks for mentioning that.<\/p>\n
Ashley:
Yeah. One was about how the payments work. Okay, you got the deal under contract, it closed on it. Your attorney has put together an agreement and to kind of start from there is that your attorney will do your closing documents that you would usually have, but will also do a promissory note that goes along with the contract. And that\u2019s where it\u2019ll state that you owe the seller of the property X amount of dollars, and then the terms of the agreement, like what\u2019s the interest rate, what\u2019s the amortization schedule, what\u2019s your monthly payment, things like that and how the repayment period works. What were some of the questions you had about that?<\/p>\n
Melanie:
Yeah. I\u2019ve never had a promissory note, and so I think I just was wondering what that actually looks like in practice. Do you have buyers who slowly stop paying? How is that managed and monitored? It seems so unofficial in some ways. And I just wondered\u2026 For my long-term rental, they just send me a check once a month. And so I assume it\u2019s as simple as that. But I feel like without that formal entity of a bank or a lender, it just seems a little less easy to monitor. So kind of curious in your experiences, what that actually did look like month over month and if there were ever any issues with it.<\/p>\n
Ashley:
I\u2019ve done it both ways. I\u2019ve done it where I was doing the seller financing and somebody was paying me, and then I\u2019ve also paid somebody for seller financing. In both times it was a check sent out. I had it set up as autopay, so my check would go out on the first of the month to them. And then the same with the person that was paying me, they had it on autopay where it was just set up to go. Just like you would pay a mortgage payment, you\u2019re just sending them a check, you\u2019re maybe doing an ACH directly into their bank account. And that\u2019s when I do seller financing offers. I do add that piece in there that\u2019ll be direct deposited into their bank account on this date every single month. It\u2019s just kind of hopefully something a little extra that they\u2019ll appreciate to accept my offer.
But then say they don\u2019t pay, and then that\u2019s where it\u2019s your responsibility to contact your attorney, most likely the one that drew up the promissory note. And that\u2019s where you would go through the foreclosure process just as a bank would. The bank would use their attorney to go through that same formal process. The actual process of that depends on each state. Like New York State, you could pretty much pay for two years before they actually kick you out of your house for a foreclosure. Texas, I think it\u2019s a way shorter time period where it\u2019s so much easier to get people out. And that\u2019s why a lot of investors do offer seller financing or do land leases and things like that because it\u2019s so much easier to get people out, take the house back, and then go ahead and do seller financing again.<\/p>\n
Melanie:
And have you ever had to go through that foreclosure process yourself?<\/p>\n
Ashley:
No, I haven\u2019t. I haven\u2019t had to, which is a good thing.<\/p>\n
Tony :
Yeah. Fingers crossed it stays that way.<\/p>\n
Ashley:
Yeah. Any other questions about that, Melanie?<\/p>\n
Melanie:
Actually, I guess, yes, one other thing. In a lot of seller financing deals, I feel like the biggest appeal is probably a lower down payment. And so when you see still a 20% down payment, if the interest rate is dramatically lower than what banks are lending at currently, then it\u2019s green lights all the way. But I think I\u2019m curious if there\u2019s other things about a seller finance deal that I\u2019m not considering that may get more appealing and more interesting.<\/p>\n
Ashley:
One thing that I think of offhand is convenience. Just like having to go through a bank, it may be more of a, it\u2019s a longer process. You have to put more paperwork in, you have to fill out more forms, all these things. So there\u2019s the convenience method of it that doing seller financing, you really don\u2019t have to do any of that. The formal application, things like that, doing seller financing. Another thing, too, is like you said, the down payment, but also the interest rate. If the person\u2019s just going to have that money sitting in their bank account, well, instead of having the money from the sale sit in their bank account and make 1% interest off of it, instead they\u2019re going to charge you 4% interest, which is still way better than the 7% interest you could get at the bank today is paying that 4% interest, but you\u2019re both making out. In that example, you\u2019re both making more than what you would if you went to the bank and they just put that money into their bank account. So, that\u2019s another thing to consider too.
Then a big advantage for the seller is the tax advantages. The fact that instead of them taking a lump sum when they sell the property, now they\u2019re taxable income is being spread out over the course of the loan. Instead of getting\u2026 Say, they sell property for $100,000, well, their tax bracket just increased because now they\u2019re have a higher income based off of selling that investment property. Where they do seller financing, they\u2019ve only made so much off of you in year one out of 20 years, the loan is amortized. It keeps them into that lower tax bracket and they\u2019ll owe less taxes. So that\u2019s a big advantage as to why a lot of people do the seller financing. One thing I always do is hint to ask sellers that they\u2019re willing to do seller financing. They say no right away, I just say, \u201cOh, okay. I just didn\u2019t know if your EPA had mentioned the tax benefits of it.\u201d Then that kind of puts a little buzz in their ear.<\/p>\n
Tony :
Yeah, and I think the other big thing, too, is that you can really create an offer that speaks to what\u2019s important to that seller. For example, maybe the seller is just most concerned with getting the absolute highest purchase price, but maybe the property won\u2019t appraise for the price that they\u2019re looking for. But if you\u2019re doing a seller financing position, they\u2019re the ones that are on the hook for the property. So if they want to sell it for more than what it\u2019s worth, that\u2019s only working out in their favor. Whereas if you\u2019re going with a traditional bank, if the seller wanted half a million bucks, but the property\u2019s only worth 300,000, it\u2019s not going to fly that way. So I think there\u2019s more flexibility to listen to what is important to that seller and then give them an offer that really speaks to what\u2019s motivating them.<\/p>\n
Melanie:
Okay. The last thing I was going to say was it seems like if cash is the thing that the seller wants more than anything, that becomes like a seller financing deal killer because they want to cash out and walk away. And ultimately you\u2019re only going to pay your down payment and then a payment over time with interest. That was kind of a learning with the multi-family I looked at this last couple weeks. But thank you so much for talking a little bit about that. That\u2019s really helpful for me.<\/p>\n
Ashley:
Yeah. And thank you so much for coming on again with us this week, and we look forward to talking to you again in a couple weeks.<\/p>\n
Melanie:
Thank you.
(singing)<\/p>\n<\/div>\n