\n
Ashley:
This is Real Estate Rookie episode 258. So one of the first ways that you can look at a property for free and get some information on it is going to your county\u2019s GIS mapping system. So if you know what county this property is that you just drove by, you\u2019re going to Google Erie County GIS mapping system. It\u2019ll take you to the county website where there\u2019s a link to their mapping system where you can put in the address of the property. You can kind of zoom in on a map on the property and it\u2019s going to give you some generic details about the property. 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 bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today I want to shout out Chad and Emily who left us a five-star review on Apple Podcast. They say, \u201cLongtime VP listener, but I love the way the host keep it simple and actionable. If you\u2019re just beginning and don\u2019t need deeper understanding of the nuances in real estate, this is where to start. Using this podcast and other VP content, we have purchased an investment tri-plus last year, even during these hots market conditions and now have the lot next door in our contract with seller financing. This show really works.\u201d
Chad and Emily, congrats to you guys on all that success, and thank you for that five-star review. And if you\u2019re listening and haven\u2019t yet love to say five-star review, please take just a few minutes out of your day, do that small favorite for us. The more reviews we get, the more folks we can reach, more folks we can reach, more folks we can help. Ashley Kehr, how you doing?<\/p>\n
Ashley:
So once again, we are live in Phoenix. This is what, probably the-<\/p>\n
Tony:
Episode 333 that we\u2019ve done here.<\/p>\n
Ashley:
But they\u2019re all in different orders that we did, but for a while we\u2019re going to be doing some live recordings. So let us know how you guys ended up liking these episodes in person. I feel like it\u2019s a lot more fun to get to talk-<\/p>\n
Tony:
Actually sitting here with me.<\/p>\n
Ashley:
And actually for this episode, this is the last one we\u2019re recording before we head to the airport. My actually flight just got delayed, so we\u2019ll see if I actually make it home.<\/p>\n
Tony:
I don\u2019t know if you guys know this about Ashley, but she probably has the worst travel luck out of anyone I\u2019ve ever, literally ever met. She went to Florida and it hurricaned in Florida when she was there last time. It\u2019s like everywhere you go.<\/p>\n
Ashley:
Yeah. And then I went back to New York, so Florida was a state of emergency. I went to New York, they had a big snowstorm state of emergency.<\/p>\n
Tony:
And right now she gets a flight saying blizzard warning for her layover in Denver.<\/p>\n
Ashley:
And that\u2019s not even the flight that\u2019s delayed. I\u2019m delayed to Denver, so I\u2019m sure if I do make it to Denver then [inaudible 00:02:35]-<\/p>\n
Tony:
It\u2019ll be even longer. So anyway, the lesson to take away from this is if you find yourself on a flight with Ashley, get off.<\/p>\n
Ashley:
So we decided for our last episode here together for this one, we are actually going to have a drink. I think that probably during the episode we were talking so much we each only took one sip maybe, or two.<\/p>\n
Tony:
[inaudible 00:02:59].<\/p>\n
Ashley:
So if you\u2019re listening to the show, feel free to have a drink with us.<\/p>\n
Tony:
Well, you know it\u2019s bad luck to cheers and not drink.<\/p>\n
Ashley:
I\u2019m focused on the cheers.<\/p>\n
Tony:
[inaudible 00:03:08].<\/p>\n
Ashley:
So Tony, what was your favorite part about being in Phoenix and the meetup?<\/p>\n
Tony:
First, if you guys came out to the meet up, we appreciate you guys. If you missed it, please do go to the Real Estate Rookie Facebook group, we\u2019re the BiggerPockets forums. Let us know where you guys want to see us next. We really do want to take the show on the road and meet more people from the rookie audience.
I think my favorite part of being here was hearing the stories. I met so many amazing people. I met a kid who was 19 years old already thinking about investing in real estate. Met another guy that was 20 years old already door knocking, trying to find deals. I met someone who flew all the way from Ohio. I met people who, just so many different stories and so many different achievements and so many different successes. And that\u2019s what makes this role that we have as podcast hosts so incredibly \u2026<\/p>\n
Ashley:
Yeah. I mean, I\u2019m on East coast time right now, so I was up pretty early, but I have to see the energy in that room yesterday motivated me to get to work right away this morning.<\/p>\n
Tony:
People always tell us, they come up to us and say, \u201cTony, Ashley, thank you guys so much for everything you do on the podcast.\u201d And I heard a little bit of that last night as well. And what always tell people is that, really, all we do is we answer the \u2026<\/p>\n
Ashley:
We facilitate it.<\/p>\n
Tony:
Right, we facilitate the conversation, but the people that really bring the value are the guests for sharing their stories. And then really, it\u2019s all the listeners who take those stories and turn them into action. Because we could put out this podcast, people could listen and do nothing with it and no one would really care. But it\u2019s the fact that people are hearing these stories and doing something with it that makes all the difference. So kudos to you guys for taking action.<\/p>\n
Ashley:
So if you guys want to find out more about meetups and events that BiggerPockets is doing, you can go to biggerpockets.com\/events.<\/p>\n
Tony:
All right, so we\u2019ll get into the first question. Today\u2019s question number one comes from Sam Ecmillian, and Sam, I hope I got your last name right there. But Sam\u2019s question is, what is the best way to find the name and the number of a property owner? On the way home, I see this one home that\u2019s been what appears to be abandoned for over a year, and I would like to get in touch with the owners to buy it. Any help is greatly appreciated. So Ashley, as you\u2019re driving through Western New York and you see those houses that you want to buy, what steps are you taking to find those property owners?<\/p>\n
Ashley:
This is why I don\u2019t like to drive so that I can take action right away and actually look up the property.<\/p>\n
Tony:
You have other people drive you.<\/p>\n
Ashley:
Yeah, so-<\/p>\n
Tony:
Wait, let me ask a question. Can that be a business write-off then? Say that you hire someone to drive you around-<\/p>\n
Ashley:
Oh, definitely.<\/p>\n
Tony:
\u2026 just so that you can look at deals.<\/p>\n
Ashley:
Or even just so that I can do work-<\/p>\n
Tony:
Work.<\/p>\n
Ashley:
\u2026 in the backseat.<\/p>\n
Tony:
Man.<\/p>\n
Ashley:
Actually, we were talking today about how I put in a reservation for the Ford Lightning, the electric Ford. And part of the features of it was it actually had a desk tabletop that would flip out from the [inaudible 00:05:52] console. That was one of the selling points, like I can actually use it.<\/p>\n
Tony:
So a new tax strategies unlocked here on the Rookie podcast.<\/p>\n
Ashley:
So one of the first ways that you can look at a property for free and get some information on it is going to your county\u2019s GIS mapping system. So if you know what county this property is that you just drove by, we\u2019re going to Google Erie County GIS mapping system and it\u2019ll take you to the county website where there\u2019s a link to their mapping system where you can put in the address of the property. You can kind of zoom in on a map on the property and it\u2019s going to give you some generic details about the property.
So you\u2019ll have the address, you\u2019ll have the current owner, sometimes it will include the sales history of the property, what the county property taxes are, and then also a mailing address for the owner. So that\u2019s the address that is actually on the tax record where the property taxes are mailed.
So you can get an idea of, if the mailing address shows out-of-state, it\u2019s probably an out-of-state owner. If the property taxes aren\u2019t mailed to that property and appears to be vacant, well then that\u2019s kind of a dead end because if you mail the property, mail to that property, you\u2019re not really going to get anyone if you do know that it\u2019s vacant or maybe it\u2019s just really distressed and it\u2019s really not vacant. So that would be the starting point is going on there.
You could also go to the town website and pull up the property taxes. Almost all municipalities have the property taxes online that you can go and you just put in the address and it\u2019ll pull up the property tax record showing the mailing address and the current property owner. And then there\u2019s paid services like PropStream where you can pay $99 per month to get access to information like that. And then also Invelo is a new partner with BiggerPockets where you can pull information like that too. So if you\u2019re a pro member that is free.<\/p>\n
Tony:
Yeah, I\u2019ve used the paid software a lot to source all of our off-market deals and it\u2019s super cool. 30 seconds or less, you find the property, plug the address in, skip trace the owner and you got some contact information.<\/p>\n
Ashley:
Do you want to talk more about skip tracing because I touched on the mailing address if you\u2019re mailing them letters.<\/p>\n
Tony:
Yeah, so it\u2019s a lot of times, these property softwares, they will give you as part of your initial subscription, the property owner\u2019s name and address. But if you want a phone number, typically you have to skip trace. And skip trace comes from, I don\u2019t know where it comes from, but anyway, the process of skip tracing is, I don\u2019t know what it does in the backend, but it takes this person\u2019s information, their name, their addresses, and it looks for some kind of records online that have phone numbers associated with that person\u2019s information. And then it spits out a phone number for that person.
Typically, you\u2019re going to get several phone numbers and you don\u2019t know which one is the right one. You could get up to 10 phone numbers back for one person and you got to work through each one of those 10 to find the right phone number. And sometimes you\u2019ll call, say you\u2019re calling for Ashley and maybe you find Ashley\u2019s brother and, \u201cThis is not Ashley Kehr, this is \u2026\u201d Ashley, what\u2019s your brother\u2019s name?<\/p>\n
Ashley:
Chad.<\/p>\n
Tony:
\u201cThis is Chad Kehr. What are you calling for?\u201d<\/p>\n
Ashley:
Malloy.<\/p>\n
Tony:
Oh yeah, Malloy. But anyway, sometimes you have to work through some of those dead leads. Some of the other issues that I run into sometimes with some of these paid software is that when you look up the owner, sometimes it\u2019s an LLC, and with an LLC it doesn\u2019t really show what an owner\u2019s name is. Sometimes it\u2019s a PO Box, so it\u2019s hard to figure out where to mail that stuff.
So what I typically do when it\u2019s an LLC or some kind of entity is I look that up on the state, the Secretary of State website. So every state has an SOS website, Secretary of State, and if you plug in that entity\u2019s name, so 123 Main Street LLC, and then it shows who the registered agent is, sometimes a mailing address. And then there\u2019s one step further you can take to try and find that person\u2019s contact information.<\/p>\n
Ashley:
And if you remember when you were a toddler and you went to somebody\u2019s house and they didn\u2019t have a booster seat, they give you that big old phone book to sit on as a booster seat. So you can go online these days and go to the whitepages.com and you can even search the person\u2019s name on there too by state. So if you do get their mailing address, you might even be able to get a phone number off of the white pages too.<\/p>\n
Tony:
Have you used that with success before, the Whitepages?<\/p>\n
Ashley:
Yeah.<\/p>\n
Tony:
I know that it\u2019s around, but I\u2019ve never actually used it, but that you\u2019ve actually had success with it.<\/p>\n
Ashley:
Yeah. And also another way too is if you have the person\u2019s name, so if it\u2019s a personal name and maybe you have their mailing address so you know that they\u2019re from the Buffalo, New York and you go on to Facebook and search their name on Facebook too and see if anybody comes up, that it shows that Tony Robinson from Buffalo, New York, he has it in his profile, comes up, you can take that risk and message the person, \u201cHey, are you the owner of this property?\u201d<\/p>\n
Tony:
That\u2019s like some next level type sleuthing there. Have you seen You on Netflix?<\/p>\n
Ashley:
Yeah.<\/p>\n
Tony:
That\u2019s like some Joe type activity. So for all my You fans out there, you know what I\u2019m talking about. Cool. All right, let\u2019s jump into the next question here. So question number two today comes from Will Harrington and Will says, \u201cFor those of you who do direct mail, do you list your offer price and terms in the letter or is the goal to get them on the phone first?\u201d
That\u2019s a great question, Will, and I\u2019ll kind of share what steps I take in this. So when you send direct mail, think about it almost like dating. And you like the dating analogy with partnerships, but it works well for this as well. When you date someone, when you first meet them, you don\u2019t say, \u201cI love you and I want to marry you.\u201d You say, \u201cHi, my name is Tony, what\u2019s your name?\u201d
And when you\u2019re going off market, it\u2019s very much the same process. Two reasons that I would recommend you don\u2019t give the offer up front. First, it could turn that person off if the offer is way too low, they might not even take the time to respond to you and maybe they would\u2019ve taken that offer had you really built some rapport with them first and communicated the value you can provide to them and all those other things. But they just see the number first. If it\u2019s lower than what they want, they may not even take the time to communicate with you.
And on the flip side, if your number\u2019s super high and they respond right away and say, \u201cYes, take my home,\u201d it\u2019s probably a sign that you could have gotten it for a lower price. So I think the purpose of that direct mail is just to express your interest in purchasing that property and then it\u2019s the phone to phone or the face-to-face or on the phone conversations where you build that relationship and provide the value to get it at the right price.<\/p>\n
Ashley:
The person that I want to refer you guys to is Nate Robbins. So on Instagram he\u2019s N8, the number eight, Robins, and I have him onto every bootcamp session I do to talk about direct mail and cold calling.
So what he does is I agree, not putting the terms because you haven\u2019t even seen the inside of the property yet most likely. So you don\u2019t actually know what you can really offer the person, but when he actually sends out the letter and then maybe they call him or he\u2019s just doing a cold call or door knocking, he likes to let the person know. And within the first 30 seconds, the reason for the call is, because there\u2019s that kind of you\u2019re getting a call from somebody unknown or you\u2019re calling someone and letting them know, \u201cI\u2019m interested in purchasing your property.\u201d And then that\u2019s where you kind of lead into, \u201cLet\u2019s discuss more about it.\u201d
And he tries to get as much information as he can and if they ask for an offer, \u201cWell, what do you want me to sell it for? What are you going to pay for it? What\u2019s your purchase price, what\u2019s your offer?\u201d And he goes on to say, \u201cTo give you a fair, reasonable price, I would really need to come and see the property. I don\u2019t want to waste your time by giving you some number that I\u2019m throwing out without actually seeing the property itself. I\u2019m available to tomorrow, I can come out to the property, I can take a look at it and I can give you an exact number instead of a ballpark number as to what I would offer for.\u201d
And really explains that it\u2019s to the seller\u2019s benefit that they\u2019re going to take him through the property and show him instead of him just throwing out some random number because he is letting them know it wouldn\u2019t be a number he could commit to without seeing the property anyways. So what would be the point?<\/p>\n
Tony:
Yeah, that\u2019s a great point. And there really is a framework you can apply to direct to seller conversations. And Nate Robbins is a great resource. Brit Daniels, he\u2019s got a bunch of free stuff on YouTube where he breaks down his scripts with folks. Another guy by the name of Max Maxwell who\u2019s also been on, I think on one of the BP podcasts before. He\u2019s got a great kind of framework around how he speaks to people. So do a little YouTube university, you guys can find some great resources on how to communicate with those people when you got them on the phone.<\/p>\n
Ashley:
Our next question is from Iva Forton. \u201cNewbie here, what are the reasons a house wouldn\u2019t qualify for a mortgage?\u201d<\/p>\n
Tony:
That\u2019s a great question. Have you ever applied for a loan and it not gotten approved because of the condition of the home?<\/p>\n
Ashley:
No.<\/p>\n
Tony:
I haven\u2019t either. But I think it\u2019s because I have purchased homes that I think have been in pretty terrible shape.<\/p>\n
Ashley:
You didn\u2019t try to get the loan.<\/p>\n
Tony:
I didn\u2019t try to get a traditional loan. We went with private money are hard money. So I don\u2019t know. What would your advice be to Iva?<\/p>\n
Ashley:
So part of the reasons is that it\u2019s inhabitable. So especially if you\u2019re going for an FHA loan or maybe even a BA loan where it\u2019s meant to be your primary residence and they want you living in the property pretty quickly after closing. So they will actually go through and FHA does their own inspection. This is separate than you hiring an inspector, they\u2019re mostly going through to making sure that the property is habitable, all the mechanics are functioning, that it\u2019s also up to code.
So I remember when my cousin bought a house with an FHA loan, they had to have handrails installed on the stairway because it wasn\u2019t up to code without those handrails, and they couldn\u2019t close on their FHA loan until that was done on the property. So there\u2019s things like that.
But then if you\u2019re going the conventional route where there is no FHA inspection, it\u2019s more flexible, but also the bank may not go onto the property if it doesn\u2019t have running water, things like that. Bank sometimes will require that you have a well and a septic inspection. So if those are not operating, that needs to be corrected. But that can get pretty expensive too to do.<\/p>\n
Tony:
Yeah, and what we talked about so far is the physical nature of the home, but it\u2019s also the nature of the contract you have. So another reason that a home wouldn\u2019t qualify for a mortgage is if the amount that you have it under contract for is higher than what the property\u2019s actually appraised for.
So say you\u2019re trying to buy a house for half a million bucks, but the bank only thinks it\u2019s worth 400,000, they\u2019re not going to give you a loan for that $500,000. They\u2019re going to give you a loan for the $400,000 and now you as a borrower are responsible for that $100,000 difference. So that\u2019s the only other scenario I can really think of outside of the condition.<\/p>\n
Ashley:
Actually, that made me think of one more, and it would be if you cannot get title insurance on the property. So a bank will not give you a loan on a property if they can\u2019t get title insurance. And that\u2019s basically saying when the title company went and did the title work to show that yes, the person\u2019s selling it is the owner and you are now the buyer going on title and there\u2019s no liens, there\u2019s no judgments, nobody else owns it, you\u2019re getting title insurance in case they made a mistake so that you\u2019re able to, the insurance will pay out, you can pay off your loan and pay damages from having this corrected or you lose the house to the person was actually the owner, but the bank will not lend on it if you can\u2019t get that title insurance. So I\u2019ve come up with this in two circumstances.
One was a campground where it was actually sold at the county auction for back taxes. The bank actually that had the mortgage on it is the one who bought it from the county at the sales auction. During that time period, there was no title insurance put on the property to show those two transactions. So it going from the owner that defaulted to the county and then the sale from the county to the bank.
So a title insurance would not put title insurance onto that property for so many years, like a time period had to pass. And if nobody claimed ownership or called out an issue in the title, then they would go ahead and reinstate that. But that means that there was no bank that was going to lend on it, and that\u2019s coming up with cash to hold that property in cash until it was bank financing.
The second time I ran into it as a lake property where they had a separate parcel that was included into the sale, but the separate parcel was actually where the driveway was, so it needed to be included with that house. The Lake Association had actually sold that piece of property to the current owners.
Well, it had actually been an abandoned piece of property and we couldn\u2019t get title insurance on it because there was no record of any previous owner. And later on we actually did some digging and the sellers actually found a letter of abandonment. So with that letter then we were able to get title insurance, but if there wasn\u2019t that letter then we wouldn\u2019t be able to get title insurance and the bank wasn\u2019t going to finance at that point.<\/p>\n
Tony:
We should probably bring a title insurance expert onto the show.<\/p>\n
Ashley:
Yeah, that\u2019d be really cool.<\/p>\n
Tony:
Just to talk about the purpose of title insurance, different claims that people have filed because title insurance for a lot of us is just something, like a box we check when we\u2019re closing that your lenders typically make you get, but it\u2019s not something that I think a lot of people understand in detail around what is it actually for? When can I use it? And what are the risks of not having title insurance?<\/p>\n
Ashley:
Yeah, I actually did, last spring it was, I did a hard money loan and the closing was actually at the attorney\u2019s office of the hard money lender and there was some issues with the title work there and they actually had a title attorney at the closing who was trying to figure out the situation. But it was a three-hour-long closing and we ended up not even figuring it out.
It was a Friday and we ended up having to wait until Monday to close. But we sat there and we literally just picked this title attorney\u2019s brain going after all these scenarios and things and it was really interesting. I did ask him if he would like to come on the podcast and stuff. He\u2019s like, \u201cI do so many speaking events and things like that.\u201d Here I am thinking here\u2019s an opportunity, come, get some more clients, come to the podcast. He\u2019s like, \u201cOh, I do so many speaking engagements, I\u2019m really kind of burnt out.\u201d I\u2019m like, \u201cOh, okay.\u201d<\/p>\n
Tony:
You win some, you lose some. All right, so our next question here comes from Nathaniel Munier and Nathaniel\u2019s question is, I have the opportunity to purchase four single family rentals from my wife\u2019s relatives. They\u2019re very upfront and honest about the houses. Would you do a title search on each of these properties or save the $1,000? This will save me some out-of-pocket costs, but it would be the property I\u2019ve purchased without a title search. We kind of just touched on this, right?<\/p>\n
Ashley:
Yeah, I would say no because they could not even know of the issue.<\/p>\n
Tony:
Just because they think it\u2019s clean doesn\u2019t mean there wasn\u2019t something happened before they owned. So I don\u2019t think we need to spend too much time on this one because \u2026<\/p>\n
Ashley:
And usually it\u2019s typically the seller that is paying for the title work because usually they should have the title search already or the abstract of title and give it to the title company and then it gets sent to your attorney and then you\u2019re updating it from there.<\/p>\n
Tony:
I think we pay for our title work.<\/p>\n
Ashley:
Well, I think it\u2019s split because it goes on both sides of it, but you can usually have the seller cover all of it, but there\u2019s work that needs to be done on both ends. So there was actually a property I was selling that somehow we misplaced the title of abstract, the title search, so we had to pay for a new title search. So I\u2019m thinking at the cost of that, that they probably don\u2019t have the title search anymore, that being that it would cost $1,000 because usually it\u2019s not that much to just update a title.<\/p>\n
Tony:
And I was going to say, I\u2019m not even sure what we pay for our title reports because it\u2019s just something that\u2019s rolled into our closing costs. So if you ask me what we pay, I can\u2019t even tell you.<\/p>\n
Ashley:
Yeah, my attorney, we usually pay around $1,200 per closing and she fronts the closing costs of doing the title work. So I know that she\u2019s not making only $200 on it. So another thing that goes along with the title insurance is a survey. Sometimes a seller will ask you to accept the survey that they have.
So I actually just closed on a property last year where I accepted a survey from 1986. It was my attorney talked to the surveyors who had done it. The property was still went and staked out where the survey lines were and we accepted it as is. But that is something to also be cautious of if lot lines have changed and the survey has been different.
So there\u2019s also been properties where we went to \u2026 the seller went to go have it surveyed and issues came up from the last time they had it surveyed until now, and they had to resolve those issues with the neighboring property owner before we could actually close onto the property. So that\u2019s another thing to not skimp on if you\u2019re not sure of the whole picture of the parcel.<\/p>\n
Tony:
Yeah, I mean, I think for me, just the spirit of the question I think is what are some ways I can save money, but I think if you are making this several hundred thousand dollars investment into a property, spending that extra $1,000 to protect yourself is so worth that small investment because imagine if there was an issue with the title or the survey or whatever it was, that\u2019s going to come back and potentially cost you way more headache, more cost and more time than the [inaudible 00:23:48] cost a thousand bucks or so.<\/p>\n
Ashley:
And do people actually go and not do the title search? They must be just doing a quick claim deed and then updating the title, not actually going back and doing the title search.<\/p>\n
Tony:
I\u2019ve never not had a title report run, so I\u2019m not even sure what the process is if you don\u2019t. I literally couldn\u2019t even tell you.<\/p>\n
Ashley:
Yeah, because you\u2019ll still have to pay a fee to have the title updated to show that you are now the deed, hold the deed on the property. Another thing to add on to that too is so within the last couple years, the market\u2019s really hot. People are waiving inspections, everything like that, and you couldn\u2019t have any kind of contingency on a property. But now that is kind of changing and also with this example where it\u2019s your family, so I doubt that you\u2019re competing against a ton of other buyers too.
So I think it would be perfectly acceptable to ask for these things. And even for anyone listening, if you\u2019re putting in offers, now is not the time to skip an inspection. You\u2019re at an advantage now that you can put an inspection into your property and it\u2019s not going to be completely out of the bidding process, I guess.<\/p>\n
Tony:
Yeah, I think in the last few years to be competitive, a lot of people were doing that, but for our rookies, I think it is a slippery slope because if you get into a property, there are some things this family, they might not even know that something\u2019s wrong with the property. When\u2019s the last time they scoped the sewer line or they check the HVAC or if there\u2019s a septic tank, did they have the septic tank inspected? There\u2019s so many things that are kind of behind closed doors that you can\u2019t see unless you open up and do an inspection.<\/p>\n
Ashley:
Or one thing may be okay to you or be okay to your father-in-law but not be okay to you like, \u201cOh yeah, every year I got to go in there and jiggle this thing.\u201d<\/p>\n
Tony:
It\u2019s fine. It\u2019s no big deal.<\/p>\n
Ashley:
Yeah, no worries. The hot water tank, it maybe starts making noise, just give it a couple kicks.<\/p>\n
Tony:
Everything\u2019s good.<\/p>\n
Ashley:
Because I think it\u2019s way better to just go ahead with the inspection now and just be honest with them too and say, \u201cYou know what? I completely understand your honesty, but I would still like to do an inspection on all these things in case there\u2019s things you guys don\u2019t know about the property.\u201d So if they\u2019re rental properties and maybe it\u2019s a septic or a sewer and you want to do a sewer scope is to, one of the tenants could\u2019ve shoved something down there and it\u2019s about to crack the pipe or something like that.<\/p>\n
Tony:
Or even sometimes little things change in the code and what\u2019s safe 30 years ago might not be safe today. We have a property where it was something about the wall in between the garage, the wall in between your home and the garage, there wasn\u2019t enough fire protection in that wall. So it\u2019s like there\u2019s certain little things that pop up that you never know unless you actually do that inspection.
All right, so our next question comes from Emily P and Emily\u2019s question is, does anyone know that if the housing market crashes, if you can buy a house for investment purposes if your primary residence is underwater? If I\u2019m still making payments, but suddenly it\u2019s value dropped by $200,000 and I owe more than it\u2019s worth. So this is a great question, Emily, and just to paint a picture for the rookies in case that wasn\u2019t clear.
What Emily\u2019s question is, is say you have a primary residence that you bought for $500,000, that\u2019s the amount of the mortgage that you have on that property. Your loan balance is $500,000, because the market shifts, say your appraised value to what your property would sell for today goes from 500,000 down to 200,000. Some big difference. So now you\u2019re underwater on that property.
Emily\u2019s question is, does the fact that I have negative equity, the loan balance on my house is higher than what the appraised value is, will that stop me from buying an investment property? The short answer is no, it shouldn\u2019t. Typically when you\u2019re going to apply for a new loan, what they are looking at to approve you for that mortgage is your debt to income ratio and your credit score. They want to know what is your profile as a borrower. As long as you are current on your mortgage, and as long as your credit score is still strong, you have the ability to get approved for that new mortgage with your debt to income ratio, typically they\u2019re going to approve you for that loan.
What they won\u2019t look at, and I don\u2019t think you\u2019ve ever had this happen before either, when you apply for a home, typically they are not going to go back and appraise all of the other properties that you own to make sure that they\u2019re underwater or not underwater.<\/p>\n
Ashley:
Yeah. The only reason they would do an appraisal on your primary residence is if you\u2019re going to use that house as collateral for the loan. So if you\u2019re getting a line of credit or refinancing your mortgage, or maybe you\u2019re doing a portfolio loan where you\u2019re including a rental property in your primary residence, but if you are not using that property as collateral, they\u2019ll never go and ask.
And if they do ask what the value of that house is, you can tell them, I purchased the property for $500,000 in 2021 or whatever it is, and give them the purchase price of that property. Plus maybe if you did any improvements on it to show the value of the property.<\/p>\n
Tony:
Yeah, I\u2019m trying to think if there\u2019s any risks associated with that happening where your primary residence goes underwater and as long as you\u2019re like on long-term fixed debt and you have the ability to keep making those payments, I mean, hopefully eventually your house value\u2019s going to rebound. Maybe the only time you get in trouble is if you\u2019re on some kind of like adjustable rate mortgage or some kind of short term debt where the payment is one number today, but a year from now it\u2019s going to adjust up to some higher number. Now you\u2019ve got a mortgage that was 2,000, now it\u2019s 5,000 or some other crazy high number, and now you don\u2019t have the ability to carry both of those mortgages.<\/p>\n
Ashley:
And that could happen even if your property has appreciated value, where that happens, where your payment changes, if you are on a variable, you switch to a variable interest rate. But the problem here is if you are underwater and you can\u2019t afford what that new mortgage payment is, you can\u2019t go and sell that property very easily without probably putting some money into the deal to pay it off or taking a big loss on it too.
Thank you guys so much for listening. I\u2019m Ashley, @wealthfromrentals. And he\u2019s Tony, @TonyJRobinson, and we will see you guys for the next episode.<\/p>\n
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