\n<\/p>\n
Real estate investing<\/strong><\/a> was never meant to be easy, but there are a few ways you can get started without putting a ton of your money or time at risk<\/strong>. Most real estate investors go gung-ho from the start, buying as many cheap rental properties as possible, only later to realize their mistake. But here\u2019s the thing; you don\u2019t need to invest in sketchy markets<\/strong> or buy dirt-cheap rentals to make money<\/strong>, you just need a bit of creativity if you want to get ahead.<\/p>\n On this episode of Seeing Greene<\/strong>, we\u2019re taking you through a plethora of investing strategies. We talk about how to invest in real estate when at the tail end of your career<\/strong>, whether to convert your garage into a rental or buy an out-of-state investment<\/strong>, the true cost of holding onto a risky rental property<\/strong>, and why your \u201c<\/strong>cash flow<\/strong><\/a>\u201d numbers<\/strong> probably aren\u2019t what they seem<\/strong>. And, if you\u2019re a young investor thinking of skipping college to dive head-first into real estate, you may want to hear David\u2019s advice before you make that move.<\/p>\n Want to ask David a question? If so, <\/strong>submit your question here<\/strong><\/a> so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums<\/strong><\/a> and ask other investors their take, or follow David on Instagram<\/strong><\/a> to see when he\u2019s going live so you can hop on a live Q&A and get your question answered on the spot!<\/p>\n David: David: David: Sinh: David: David: David: David: David: David: David: David: David: David: Luke: David: David: David: David: David: David: David: David: David: David: David: David: David: David: Justin: Justin: David: David: David: David: David: Scott: Scott: David: David: David: David: David: David: Jessie: Jessie: David: David: David: David: David: Jason: David: David: David: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the BiggerPockets podcast show 765. We\u2019re going to do this as low risk as possible. I want you to look for a short-term rental where people want to visit. I want you to rent the thing out as a short-term rental when you\u2019re not using it and then when you are using it, like when you travel out there to stay at that property, which means you\u2019re going to cash flow, you\u2019ll probably end up with two cash flowing properties that will make more money than they both cost to own and you\u2019ll be able to bounce back and forth between these two markets not only not having a housing expense, but actually making money from what you rent your houses out when you\u2019re not using them. What\u2019s going on, everyone? It\u2019s the BiggerPockets podcast. I\u2019m David Greene and we have a Seeing Greene episode for you. These are awesome. In today\u2019s show, I\u2019m going to be taking questions directly from you, our listenership, our audience, the people, and you\u2019ll be connecting with me as I give my best efforts at answering your questions, teaching you more about real estate and helping you all to build wealth.<\/p>\n
Today\u2019s show was a blast. Not only was it hilarious, but we also give a lot of good information. We talk about what age you should say yes to everything at and when you should start saying no, how to choose a career path, if you should continue to pour money into a home or when you should call it quits, how do you know when enough is enough, and how to short-term rental house hack and grow your portfolio. Yes, that\u2019s right, how to short-term rental house hack. Haven\u2019t come up with a catchy name for that, but it\u2019s a really cool strategy and we talk about it today. All that and more in today\u2019s Seeing Greene episode. But before we get to our first question, that\u2019s right, you know what it is, the quick dip. Remember, if you\u2019re having a hard time finding deals in your area, if nothing seems like they work out, it\u2019s probably because they\u2019re not going to work out the way you\u2019re looking at it. There are strategies available to you that you can make real estate work and you also should remember that real estate is local.<\/p>\n
Your market may suck. Other markets may be strong or vice versa. Get in the BiggerPockets forums. Check out long distance real estate investing, which you can get at biggerpockets.com\/store and ask other people questions about what markets they\u2019re in and how those markets are working out. Don\u2019t get discouraged because your market is tough. Look for a market where you can find what you need. All right, let\u2019s get to our first question of the day.<\/p>\n
Hi, David. My name is Sinh. I\u2019m in California and I\u2019m a first time investor\/homebuyer and I\u2019m stuck between the crossroads. My first option is to purchase a condo at 3% down in Covina, California and house hack a three-bedroom, four-bath condo. It\u2019s in a desirable location and it\u2019s very walkable and I believe it will appreciate just as well as the rest of California. My second option is to go for cash flow by going to an out-of-state market with 20% down. Why I\u2019m stuck on this is because Covina is a great location and I love it and I love the condo, however, the 3% will still be a larger chunk of my savings and the mortgage payment will be a larger chunk, obviously, of my income than going out of state. So to me it seems riskier, especially if I can\u2019t find anyone to house hack with. I would love your thoughts as to what you would do and any advice for choosing appreciation versus cash flow. Thanks, David.<\/p>\n
Well, thank you . All right, first off, a three-bedroom, four-bathroom condo, this might be the first time I\u2019ve heard of one of those, so this would have to be a good location because it sounds like this property has a bathroom for every bedroom. They get their own private bathroom and a guest bathroom. That\u2019s pretty ideal for house hacking, so I\u2019m already liking that. That\u2019s not like most condos that I\u2019ve heard of and Covina is a great area. We sell houses in that location and I\u2019m aware of it. I don\u2019t know if you\u2019re working with one of our agents, so I\u2019ll have to look and see into that, but that sounds pretty good. Now, one of the struggles you were having, as you said, it\u2019s more money to put 3% down in Covina than it would be to buy a property out of state for cash flow. I\u2019m trying to wrap my head around how this could work. If this was a million dollar condo, 3% would be $30,000, but if you buy a $200,000 house somewhere, 20% of that is still going to be $40,000.<\/p>\n
$150,000 house out of state would still be 30 grand. You\u2019re comparing a million dollar property to $150,000 out-of-state property for the same money down. I don\u2019t see how buying out of state is going to keep more of your money for yourself. That\u2019s just something I want you to think about. Maybe the purchase price of that condo has you thinking that you\u2019re putting more money down than you are. If you\u2019re only putting 3% down, that\u2019s very, very low and I doubt it\u2019s a million dollar condo. So right off the bat, you\u2019re not saving money by buying out of state and a lot of people need to be aware of that.<\/p>\n
They see that the price of the property is cheaper out of state, and so they think, oh, that\u2019s going to save me capital, but it doesn\u2019t because you put 20%, 25% down versus 3% to 5% down on a house hack. You keep more capital yourself. The other one was appreciation versus cash flow. I don\u2019t know that that\u2019s actually the struggle you\u2019re going to be having. I don\u2019t think that it\u2019s going to cash flow out of state as well as you think because if you\u2019re buying $150,000 property or $200,000 property, you\u2019re going to end up in a rough location. You\u2019re going to end up with lots of tenant issues. You\u2019re going to have vacancies. You\u2019re going to have people that have to be evicted. You\u2019re going to have constant repainting and re-carpeting of your units or cleaning the floors when they leave. There\u2019s a lot of expenses associated with buying in these less desirable neighborhoods that no one calculates on their spreadsheet that don\u2019t happen as often when you go into a nicer area.<\/p>\n
So if you\u2019re renting out a room in an area like you\u2019re saying here, you\u2019re more likely to get a better tenant and it\u2019s easier to get them out. It\u2019s not like you\u2019ve lost control of the entire property. They\u2019re just renting the room from you. They\u2019re not renting the entire home. If they try to trash the house, you\u2019re there to see it. It doesn\u2019t get out of hand to where you go in and you have one of those, oh, my goodness moments that I\u2019ve had many times where you see what the tenant actually did to your property. So everything I\u2019m hearing right now is leaning towards Covina, but not because of appreciation versus cash flow, because of cash flow versus cash flow. I think you\u2019re going to cash flow much better with this Covina property.<\/p>\n
The last piece I want to bring in is don\u2019t be lured and fooled by the year one cash flow illusion. It\u2019s not true. It may look like something out of state will cash flow more, but an area like Covina is going to see rent increases that are significant. I remember maybe seven years ago, eight years ago, you could rent a room in some of the places in the Bay Area for $500, $600 a room that are now going for $1,100, $1,200, $1,300 a room. Over just a seven or eight-year period, they have doubled to tripled. That didn\u2019t happen in these out-of-state Midwest areas. The rents back then were 900 and now they\u2019re 950 or 975. It\u2019s not the same. So you get much more cash flow when you buy in the right area because cash flow also appreciates, not just values. So based on what I\u2019m hearing right now, I do think that the condo is better.<\/p>\n
Here\u2019s a few things that I would look out for though. Does that condo have enough parking for the people you\u2019re going to rent a room to? That\u2019s one thing. They\u2019re all going to get their own bathroom, so you could probably be a lot pickier about who you let in there and you can get more per unit because they\u2019re not sharing a bathroom. That\u2019s really, really big and helpful there. But make sure you have enough parking. I don\u2019t think it\u2019ll be hard to find tenants at all, especially for an area like that. That\u2019s a really good opportunity. You might even be able to rent out a couch or a futon in the front room and get even more money. I\u2019ve seen with high desirable areas where rent\u2019s really high, people will be willing to do things you would be surprised to save on their rent, especially if they\u2019re a hard worker and they\u2019re not home a lot.<\/p>\n
Then make sure that the HOA allows for what you\u2019re going to be doing. If it doesn\u2019t, just look for the same opportunity not in a condo. Just look for a home in a great location and see if you can get approved for that. But , you\u2019re in a great position. This sounds like a really good situation to be in. Based on what you\u2019ve told me, I\u2019m feeling pretty bullish about this condo house hack opportunity, so good luck with that. Let us know how it goes. All right, our next question comes from Vu Tran in Los Angeles, another Californian. Hey, David. I have a three bedroom, two bathroom house that my family and I are living in. We are in the process of getting our permit to convert the garage into a 400-square foot studio to rent out. Recently we visited Dallas and we think there\u2019s a lot of opportunities for us there and we may be moving.<\/p>\n
My question is, should we rent out the main house, use the money we have for the garage as a down payment for Dallas and then take out a HELOC to convert the garage after we get the permit or should we stay in Los Angeles, wait until the garage conversion is done, then we rent both the main house and the garage out separately and use a HELOC to put a down payment for the house in Dallas? All right, Vu, good question here. The information I didn\u2019t get that I would need is how much money is this garage conversion going to cost? Because if this is a $30,000 project, maybe $40,000, definitely move forward with getting that conversion done. You\u2019re going to get a very good return on that money even if it\u2019s more. If this is going to be $100,000, $120,000 conversion, the return might not be as good as if you put that money on a property in Dallas. So that\u2019s something that I would need to give you some better advice here.<\/p>\n
I\u2019m assuming that the garage conversion is going to be done at a good price, which means you\u2019re probably going to get a better bang for your buck. Here\u2019s how I would look at it. Let\u2019s say that you pay 50 grand to convert the garage, but you can rent out the studio for $1,500 a month. That\u2019s a 3% rule deal on that money that you\u2019re putting into it. You\u2019re putting in 50 grand. That\u2019s $1,500 a month. Because there won\u2019t be any additional mortgage on that, let\u2019s run some quick numbers here. So $1,500 a month times 12 is $18,000 a year. You\u2019re not taking on any additional property taxes or insurance it sounds like. So if you take just the 50 grand that you\u2019d be putting into it and divide the 18,000 a year by that, that\u2019s a 36% return on your money. You\u2019ve also made the property worth more because you added 400 square feet. I\u2019m seeing a lot of wins in that category. I don\u2019t see you getting a 36% return investing 50 grand into something in Dallas. So I\u2019m leaning towards you should do the conversion, get the permits.<\/p>\n
When you\u2019re done, you should get the HELOC on the property. That should be worth more because it\u2019s bigger, so you\u2019re going to get a new appraisal and you\u2019ll have that money to go towards buying something in the new market that you\u2019re at. If I missed anything there, let me know and if I\u2019m off on the numbers, because they definitely change if that conversion is costing $100,000, $120,000, $150,000 instead of the 50 that I budgeted for. Our next video comes from Luke O\u2019Kane in Illinois.<\/p>\n
Hey there, David. First off, I want to give a big thanks to you for instilling this passion I now have for real estate. My name is Luke and I\u2019m a 17-year old in Schaumburg, Illinois and I\u2019m sort of at a crossroads in my life right now as I will be graduating high school in a little over a year and I\u2019m unsure of my future. Had thoughts of going to college to pursue something in the field of engineering. Also had thoughts of just becoming an agent out of school to learn real estate as I start investing. Do you think a guaranteed decent salary of engineering, but I have college debt and less experience or the totally eat what you kill agent path with experience would help me scale quickest? Also, if I take the agent path, is it worth it to go to college in hopes I land at a more established brokerage? Lastly, I\u2019ve had thoughts of becoming an acquisitions analyst, so between an agent and analyst, what would give me better experience for my future in hopes of owning larger multifamily? Thank you so much.<\/p>\n
Thank you, thank you, Luke. This is a good question. Because I am a real estate agent, a really real estate broker that runs a team, I can give you some insight here. First thing, I want you to start thinking like a millionaire. I\u2019ve said this before, millionaires don\u2019t ask, should I do A or B? Millionaires ask, how can I do A and B? So if you\u2019re interested in engineering, I would say you should go forward with getting an engineering degree because you can make good money and that can also help you with real estate. There are literally engineers, I\u2019m having to hire one right now in Florida, to come up with a plan to submit to the city so that I can finally get my project approved. There\u2019s nothing that stops you if you\u2019re doing that from also getting your real estate license and selling houses. All right, so first piece, I want to say. Second piece, the advice that I would give you on if you should become an agent is different than what I would give to someone else.<\/p>\n
So if you told me, \u201cHey, David, I\u2019m a 32-year-old family man heavily involved in my church. I play basketball in a lot of different leagues. I hunt, I fish, I have tons of friends. Everybody likes me and respects me,\u201d I would tell you, you need to go get your real estate license because you have a solid database of people that are going to bring you deals and you can be an entrepreneur. As a 17-year-old who doesn\u2019t have any of those connections, I\u2019m sure you are a hard worker, you are going to be fag an uphill climb getting the 32 to 35-year-olds that are going to be buying houses to trust you even when you\u2019re 18 to represent them. Your friends are not ready to buy houses. Your peers are not ready to buy houses. I see you\u2019ve got an Everlast punching bag in the background there. The other 18-year-olds that are going to be working out with you in the boxing gym are not ready to buy houses.<\/p>\n
It\u2019s going to be years before you build up an actual database of people that are gainfully employed that you can represent as an agent, and then the hard work starts. It is incredibly difficult to make money as an agent. This is one of those things that everyone who\u2019s not an agent looks at it and says, \u201cI really want to do it,\u201d and everyone that\u2019s doing it says, \u201cIt\u2019s freaking hard.\u201d It\u2019s not bad. It\u2019s better than a job that you hate, especially if you like people. It\u2019s a great career. It is nothing at all that could be considered easy. So if you want to do it, I would be like, hey, you\u2019re 17. Do both. Go to school. Get your degree. Get your real estate license. Sell houses in between your classes. If you say, \u201cI can\u2019t do both,\u201d well then you better have a family or a health condition or something that stops a young able-bodied guy like yourself from getting out there and working extra hard.<\/p>\n
When I was your age, I had several jobs at a time. I was working at restaurants every single day that I could. I was also going to school full-time, taking a lot of units. I ended up getting a degree and minoring in criminal justice while I majored in psychology, and I was still working out, going to church, doing all the things that I did. I didn\u2019t have a family, so I could do all that stuff. This is the time in your life to take advantage of that. You\u2019re not going to want to do it when you\u2019re 40 years old, you have a lot of responsibilities, you have kids that are looking up to you, you have a spouse that\u2019s going to be looking up to you, you have health that you\u2019re going to have to be taken advantage of. It gets a lot harder, so take it all on right now.<\/p>\n
Now regarding your question about being an acquisitions analyst, if you said, \u201cDavid, I\u2019ve got an opportunity that someone\u2019s going to hire me right now, teach me how to do this and pay me,\u201d I\u2019d say jump on it. That\u2019s probably not how this is going to work. You are going to get good if you take some classes on the process of analyzing a property and your mind may even be wired to do that well, but having the opportunity to go do it, it\u2019s going to be hard. You have to find a real estate developer or somebody big who has other people that have been doing this for a very long time that are already ahead of you. It\u2019s not a thing you just learn and then you say, \u201cHey, I\u2019m just going to go do it.\u201d So if you\u2019re interested in it, it\u2019s no difference in being interested in jujitsu or fishing or painting or learning another language. Go learn it if you like it, absolutely, but you don\u2019t, at the age of 17, have to know this is the path I\u2019m going to take.<\/p>\n
In fact, I will tell you what people told me when I was 17 and I still didn\u2019t want to hear it. Whatever you think you\u2019re going to go do is not what you\u2019re actually going to go do. You are going to try many different jobs, not like them and bounce into the new one. I love that you love real estate, so you\u2019re probably going to bounce around within the world of real estate before you find your way. There\u2019s nothing wrong with that, especially when you\u2019re young. Brandon Turner and I both have the same philosophy. We believe when you are young, you should say yes to everything. You should do it all. Then as you learn what you\u2019re good at, what you like and what your purpose is, you should start saying no to more and more things. Then as you become older, you should be saying no to almost everything and putting all your attention and energy towards the right things.<\/p>\n
So right now, say yes to everything, Luke. Get after it. See what you like. See what gives you energy. See what drains you of energy, and don\u2019t think that the path you start on is the one you\u2019re going to stay on. As long as you\u2019re always moving upwards and forwards, it doesn\u2019t matter if you\u2019re on the same path the entire time. Love that you\u2019re into real estate. Love that you\u2019re listening to the podcast. Keep doing that and let me know how things go. All right, thank you everybody for submitting your video questions and your written questions. If you yourself would like to be featured on Seeing Greene, I\u2019d love to have you. Head over to biggerpockets.com\/david and submit your question there. Also, make sure that you like, comment, and subscribe on our YouTube channel so we have a lot of engagement that goes on to every single episode on YouTube in the comment section.<\/p>\n
So at this stage in the show, I\u2019d like to read you guys what some of our previous comments were, question statements, things that people said. It could be funny, it could be insightful, something they like about the show or something that they don\u2019t. I want to encourage you to go leave a comment and maybe I\u2019ll feature you on a future episode of Seeing Greene. These comments all come from episode 747, so if you want to go back and listen to that one on YouTube, you\u2019ll see what I\u2019m talking about. Baron Artis says, \u201cWhat books do you recommend to get started in multifamily investing?\u201d I would check out The Multifamily Millionaire by Brandon Turner and Brian Murray, as well as Ken McElroy\u2019s ABCs of Real Estate Investing. Paul Bloomfield says, \u201cDavid, I love the macroeconomic stuff. Also, I love the way you explain and simplify real estate and break it down for us newbies. Thank you. We definitely appreciate it.\u201d That\u2019s a great example of you guys telling me what you like in the shows. Paul\u2019s saying, \u201cI like the macroeconomics.\u201d<\/p>\n
Now, if you don\u2019t know what macroeconomics means, it\u2019s not a form of macaroni. It\u2019s actually referring to the big picture of economic news, so how much money we\u2019re printing, what laws are being put into place. All of that has a lot to do with how real estate investing works. There\u2019s the art of running a sailboat, which is the art of investing, but then there\u2019s art of catching the wind that will make your sailboat go faster. On the show, we talk about the details of real estate. We also talk about the big picture so you can put your money in the right place to help keep it the safest and keep it growing the fastest. From Mylan23, she says, \u201cMacro resources, Barry Habib, Lyn Alden, Jim Richards, and Blockworks Macro.\u201d Those are all places that Mylan likes to go to get her information. I\u2019m also a fan of Barry Habib. If anybody knows him, I\u2019d love to be put in touch with him because I like how he thinks and we agree on almost everything. So he is a good follow. I will second that.<\/p>\n
I also listen to Valuetainment to get a lot of the news that I\u2019m getting and they get really good guests talking about things. If you guys were looking for an interesting listen, I would check out Michael Saylor on Valuetainment as well as Richard Werner talking about he\u2019s really the father of quantitative easing, talking about how that affects inflation and what to expect in the future as well as inflation\u2019s relationship with interest rates. Melissa Blair says, \u201cAnd please don\u2019t stop the swivel.\u201d Here\u2019s what\u2019s funny. As I\u2019m reading these, I\u2019m actually swiveling the chair and I\u2019m bobbing my head as I do this at the same time, having a little bit of a moment here. So as I was reading these, I was doing it and she says, \u201cDon\u2019t stop the swivel.\u201d It\u2019s like you\u2019re watching me, Melissa. But that\u2019s okay. I like the attention. Appreciate it. Tom Stout says, \u201cOne week he talks smack about wholesaling, but next week he suggests risking your main home\u2019s equity.\u201d<\/p>\n
Then Sig Fig Newton, that\u2019s funny, replied with actual investment advice is to stay out of leverage in uncertain markets. Then Sig Fig Newton said, \u201cDoes he know that rents are dropping?\u201d This is good. This is what I asked for. You guys are giving me the information. I don\u2019t know where I\u2019ve ever talked smack about wholesaling. That don\u2019t make any sense to me at all. I\u2019ve talked about the risks of wholesaling. I\u2019ve talked about the fact that when someone buys from a wholesaler, they\u2019re not getting the protection that they would. I\u2019ve talked about how wholesaling is incredibly difficult. People tend to look at wholesaling like this is, oh, I don\u2019t have any money. I\u2019ll just go wholesale. It\u2019s the hardest part of any of this. It\u2019s the toughest way to make money of any of the real estate strategies that I\u2019m aware of. I also don\u2019t know where I said that you should risk your main home\u2019s equity. I\u2019ve given several people advice that this is a very rough environment to take out equity lines of credit to invest in, but for some people, that doesn\u2019t make a lot of sense.<\/p>\n
If you have a great opportunity, it makes more sense to take equity out of your house to take advantage of it than to pay a higher rate to somebody else to go do it. I also don\u2019t know if I see a huge difference between risking equity and your main home and risking equity and investment property. It\u2019s all equity and it\u2019s all risk. If you lose your main home and you have rental properties, you move into one of them or you move in with a family member. I don\u2019t see a huge difference between saying, take a HELOC on investment property, but don\u2019t take a HELOC on your primary residence. You shouldn\u2019t be doing things if you can\u2019t afford to make the payments in the first place. If you\u2019re taking a HELOC and you lose something because of it, you made some really bad decisions that I think you would\u2019ve made the same as if you didn\u2019t take out the HELOC. You just borrowed the money from someone else and ended up in the same position there.<\/p>\n
Does he know rents are dropping? That\u2019s market by market, Mr. Sig Fig Newton. They\u2019re not dropping everywhere. In many places, they\u2019re going up. I think this is an area where it would benefit you to take your eyes off of zooming in on your local market and look at the market as a whole. As you\u2019re listening to this advice, you may hear me say something and say, \u201cWell, that doesn\u2019t sound anything like what I\u2019m seeing.\u201d It\u2019s probably because you\u2019re in a different location than me or you\u2019re in a different location than the person that\u2019s asking the question. We have someone that says, \u201cHey, I\u2019m in Dallas, Texas and I want to go to LA\u201d or vice versa, or \u201cI\u2019m thinking about moving from New York to Miami.\u201d Those are very different markets with very different fundamentals that I\u2019m making my comments on. If you\u2019re living in Chicago, Illinois or Dayton, Ohio, you could be seeing a very different dynamic than what those people are. Doesn\u2019t mean the information is wrong, it means you\u2019re a little ignorant of what\u2019s happening outside of your own market.<\/p>\n
All right, we love and we appreciate the engagement you\u2019re giving us here. Please continue to do that. I want to hear from you what do you think about the show so far and what do you think about what I\u2019ve said in the YouTube comments, because as you see, we do read them. We do comment on them. Mr. Tom Stout and Sig Fig Newton have now both been featured in a Seeing Greene episode, so congratulations you two. Please take a moment to give us an honest review wherever you listen to your podcast. If that\u2019s Apple Podcast, if that\u2019s Spotify, if that\u2019s Stitcher, we would love it. Also, keep an out for polls in Spotify where they will ask you what you like about the content that we\u2019ve made. All right, let\u2019s get back and take another video question. This comes from Justin Schollard in Los Angeles.<\/p>\n
Hey, what\u2019s going on, David? Justin here from Los Angeles, California. I have a question for you on how many accounts we should have for our rental properties. Historically, I\u2019ve been told that you need to have a checking account for every property and that made sense when you have a couple of properties, but as my portfolio grows and I currently have 12 doors, it\u2019s getting a little complicated to have a separate account for every single property. So I open up my Wells Fargo account and I have to keep scrolling to get all the way down to the bottom of my accounts. When does it get to the point to where you just roll all of your rentals into one income account, maybe one expense account or whatever. Do you continue to have a single checking account of your property, and if so, doesn\u2019t it feel scalable if you have 200 rental properties, you have 200 checking accounts?<\/p>\n
Now with that being said, a few of my rental properties are more long-term and then a few of them are more short-term Airbnb. Is there some distinguishing factor with that as well? Anyways, any advice on this would be really helpful. Super confusing to try to figure it out my own and Google is not helping, so I\u2019d love to know what you do. Thank you. Bye.<\/p>\n
Justin, this is such a great question and this is exactly what Seeing Greene is here for because no one\u2019s talking about this. There\u2019s plenty of places where someone will teach you how to analyze a property or teach you how to find a property or give you a form to say to a seller, but what happens when you\u2019re having a modicum of success like you are and you have this practical problem of, am I going to have 200 checking accounts for 200 properties? This is a struggle that I have as well. I\u2019ve just recently hired a new CPA and a new bookkeeper and they are constantly trying to get me to do things that are cleaner for them, which is a pain in my butt. It is not fun having to do this.<\/p>\n
You can have a different account for every property and this is what I\u2019d rather see, and I know every bookkeeper out there\u2019s going to start screaming at me if I say this the wrong way, my understanding is that you\u2019re better off to take a bunch of those properties, put them in one entity like an LLC, and then have a banking account associated with that LLC. That\u2019s my understanding of your best bookkeeping principles because if you\u2019re audited by the IRS and they say, \u201cOkay, Justin Schollard, LLC owns these 10 properties and they\u2019re all coming out. They have their income going in the same account and their expense is going out of the same account,\u201d they can associate easily that all of that money is associated with the same business. It doesn\u2019t need to be associated with the property. It needs to be associated with the ownership of the actual asset and you probably don\u2019t want to have 200 properties that are all owned individually in your name. I don\u2019t even know if you could be able to do. That\u2019d be very difficult to do.<\/p>\n
As you move them into different entities, you\u2019ll have a bank account for every entity. That\u2019s probably the easiest way to do it and there might be an argument that could be made where several of those entities are owned by one bigger entity and that one entity has its own bank account. I think the reason that my bookkeepers and CPAs are trying to protect me here is if I was sued by someone that went after one of my LLCs, they could say, \u201cWell, that LLC uses the same bank account as the one we\u2019re suing. Therefore, they\u2019re really the same thing, therefore, we\u2019re owed to the equity in both of them in case there was a lawsuit.\u201d That\u2019s I think the protection that you\u2019re going after, but here\u2019s a very real and valid risk that sounds stupid, but it\u2019s legit. When you move properties out of one checking account and into another, you can tell the bank, \u201cI\u2019m shutting down this account. I\u2019m opening this one,\u201d but the banks will often screw up that auto transfer. This has happened to me many times.<\/p>\n
It\u2019s happened to me where a property that I own when I had a lot of them, the note was sold to another lender who then had their own servig system, sent me letters saying, \u201cWe bought your note and I just never saw them.\u201d So the note wasn\u2019t paid for three or four months and I had so many properties. I wouldn\u2019t have known that one individual payment of $550 a month wasn\u2019t coming out of my account. And they started the process of foreclosure on me and I\u2019d done nothing wrong. I had the auto-pay set up. This has also happened where I\u2019ve done exactly what you\u2019re doing. I tried to transfer something out of one checking account and set it up to come out of a different one that was set up, and then the payment doesn\u2019t get made because the auto transfer gets screwed up between the two institutions. And guess what? It goes on my credit as a mispayment and my credit gets trashed. This can happen so easily.<\/p>\n
So be very careful when you do this and keep that in mind that before you switch it over, this is a real problem that can happen. But what a great question, man. Thank you so much for asking this and letting everybody hear about some of the silly problems that real estate investors can face. All right, our next question comes from Scott Phillips, also in California.<\/p>\n
Hey, what\u2019s up David and BP community? Well, it\u2019s almost March Madness, so I\u2019m repping my UCLA Bruins. My question is basically getting started in real estate investing. Little background, I\u2019m in twilight of my W2 career making good money, so not interested in necessarily changing out the career necessarily right now, but basically supplementing income. I\u2019ve looked at HELOCs and different things like that, partnerships. I\u2019d like to do it myself, but I don\u2019t want to clear out savings. We have lots of equity in the house, very good credit, relatively low debt and living here in Orange County, California. It\u2019s a little difficult to make anything cash flow here. I\u2019m looking also at South Carolina, Charleston area that\u2019s maybe live by coastal eventually.<\/p>\n
My question is what would your recommendations be for someone like me? I\u2019m sure there\u2019s lots like me right now to get into this game without having to empty out savings and basically, it\u2019d be a good strategy for riding this thing out for the next five or so years and then be able to start cash flowing. Appreciate your time. Appreciate all that you offer to the community and look forward to your wisdom and insight. Thanks.<\/p>\n
Thank you, Scott. Very cool. All right, so it sounds like redug and keeping risk low is your number one priority over just making more equity. You\u2019re in a sound financial position, so you\u2019ve got a lot of equity. You\u2019ve got a strong savings account. You might have mentioned a retirement account, but I could tell you\u2019re doing well financially, so we don\u2019t need to shake things up. We don\u2019t have to go out there and buy huge purchases, put you in a position of risk for what you\u2019ve worked so hard. You also mentioned that you\u2019re interested at possibly living in South Carolina, Charleston, which is a great market. Here\u2019s what I\u2019d like for you to do. This is the strategy I think will work for you. We\u2019re going to do this as low risk as possible. I want you to look for a short-term rental in a area of Charleston where people want to visit.<\/p>\n
Doesn\u2019t have to be the best deal ever, but it does need to be in an area with a lot of demand. I want you to build relationships with property managers out there and find one that you like. I just want you to get a property, maybe using a second home loan. You can put 10% down on that so that you keep more of that savings as a side that you mentioned, and I want you to rent the thing out as a short-term rental when you\u2019re not using it. Then when you are using it, when you travel out there to stay at that property, consider renting out your Orange County home as a short-term rental when you\u2019re gone. Now, I\u2019m guessing your mortgage is very low on that Orange County home if you\u2019ve lived there for a while. You said you have a lot of equity, so you probably haven\u2019t done a cash-out refinance, which is really good.<\/p>\n
I\u2019m guessing you also probably have a pretty good rate, which means you\u2019re going to cash flow when you leave it, and Orange County\u2019s a very desirable area. You see where I\u2019m going here? You\u2019ll probably end up with two cash flowing properties that will make more money than they both cost to own and you\u2019ll be able to bounce back and forth between these two markets not only not having a housing expense, but actually making money from what you rent your houses out when you\u2019re not using them. Now, you are going to have to accept the fact that means strangers are going to be living in your house, but that\u2019s the price that you\u2019re going to pay to reduce your risk. This is probably the least risky thing that I could think of. Now, once this stabilizes and you get this going down pretty well, you can then make the decision, do I want to buy another property in South Carolina and maybe that\u2019s the one you live in, and then you make a full-time short-term rental of the first one that you bought.<\/p>\n
You\u2019re just going very slow and letting one thing stabilize before you do the next one. Maybe the second one you buy has an ADU that you rent out and you stay in the main house and so you get some additional income going that way. Maybe you decide that when you visit Orange County, you don\u2019t need the big house that you\u2019re living in right now and you can actually live in something smaller. So you go find another property in Southern California, we can help you do that, that has a smaller unit attached to it where you and your wife can stay when you\u2019re in town and you can rent out the main house as an Airbnb. What you\u2019re basically doing is slowly house hacking short-term rentals in very, very solid, consistent market so that you can bounce around from place to place living where you want and still collect income from these properties when you\u2019re not using them.<\/p>\n
This is not a strategy that we\u2019ve ever had available to us before the short term rental explosion. It used to be if you wanted to rent something out, you could never use it. And if you wanted to use it, you could never rent it out. But now between house hacking, short-term rentals, and acquiring multiple properties with new finang options, we can do something very cool like this where you bounce around to the best parts of the country and rent your units out when you\u2019re not using them. It\u2019s very similar to the strategy I\u2019m setting myself up for. I want to have properties in Texas, in South Florida, in Tennessee, in the mountains, at the beach, in Denver, Colorado, in California, all the places that I think are cool and I\u2019ll just bounce around from place to place depending on wherever the wind blows and when I\u2019m not using it, I\u2019ll rent them out as a short-term rental.<\/p>\n
So I\u2019m setting myself up for a life like that. I think you might be able to join me on that pass, Scott. Let me know what you think about this plan. And we have a question from Jessie Prescott in Augusta, Georgia.<\/p>\n
Hi, David. My name is Jessie Prescott, currently living in Augusta, Georgia. My question is, when do you know when to throw in the towel on a property you\u2019ve spent a lot of money on? I have a four-unit property in Pittsfield, Mass. When I first bought it, it needed a lot of work, so I had to have the whole house rewired. I gutted three of the four units. I got through it and got to a point where it\u2019s actually pretty nice now and can actually start cash flowing because I added a lot of value. My current mortgage versus the rents I\u2019m getting actually looks pretty good. But now the porch is falling apart. I need to have an architect out and need to completely redo the porch. At what point do you say, \u201cEnough is enough. Let\u2019s just get rid of it and move on\u201d versus, \u201cWell, at this point, I might as well just keep it now that I\u2019m cash flowing, now that I spent so much money on it. I might as well just stick with it\u201d?<\/p>\n
Or is it going to be a thing where it\u2019s just like it\u2019s going to be constant. It\u2019s going to be one thing after the next and this going to be just a money sink? Thanks.<\/p>\n
Well, Jessie, we don\u2019t know if it\u2019s going to be one thing after the next, if it\u2019s going to be a money sink. You have to get a home inspection to figure out what could be the case. What you\u2019re talking about is a death spiral that people can get into with real estate that\u2019s not talked about very often, so I hope you\u2019re not beating yourself up because this happens to a lot of investors. I do retreats where I give personal consultations to the people that attend there where we go over their portfolio and we look at what we have. I answer questions like this on Seeing Greene. I meet with investors that come into my office that I\u2019m going to help them buy or sell their homes in California. I\u2019m constantly talking to people who own real estate and a trend that I see very frequently is buying in the Midwest or lower price properties can lead to this.<\/p>\n
There\u2019s a couple of principles for why that happens. One, the electrical, the roof are being replaced, all the issues that you had to do are more or less the same, whether it\u2019s a million dollar property that\u2019s appreciating or it\u2019s a $50,000 property that\u2019s not. So your biggest expenses, the labor, the materials, the rehab work, they\u2019re fixed. When you put all that money into a house that\u2019s not worth very much, it\u2019s incredibly difficult to get money out of it, especially if you\u2019re only relying on cash flow. Now, if you had bought a property in a nicer location that had gone up in value and you made it worth more by fixing it up, say you did the same thing in Dallas, Texas, you bought a junk property and you put all this money into it and it\u2019s worth a lot more, but it\u2019s not cash flowing, you have the exit strategy of getting out of it and starting over and getting something with more cash flow.<\/p>\n
When you buy into these cheaper markets, you lose that exit strategy. You get stuck where you can\u2019t get out of it. You dumped a bunch of money into it and it\u2019s going to be 75 years before a cash flow is enough to get the cash out of it that you put into it. This is one of the reasons that I tell people, don\u2019t look only at cash flow. You have to look at creating equity, creating value when you\u2019re buying real estate or buying in areas where the market itself will add value, not just cash flow. Now, as far as what do you do when you\u2019re in this situation, if it\u2019s not a good area and that\u2019s why you\u2019re having these problems, sell and don\u2019t necessarily worry about if it\u2019s a loss as much as can you put the money into something better that\u2019s going to make you more than the money that you\u2019re losing.<\/p>\n
If it\u2019s going to cash flow, that\u2019s fine, but that only works if you have other equity set aside you can keep investing with or other money. If this is all your capital and it\u2019s stuck in one deal, I\u2019d be inclined to say, take the loss, sell it, get out of that bad market and get into a better one. If it\u2019s you\u2019ve dumped money into that deal, but you still have money that you can invest, you still have capital available to you, you can hold onto it and wait and see if it becomes more of a money pit or if it becomes profitable and you can use the other additional capital you have to keep investing and making money somewhere else. So it\u2019s not just the individual property, it\u2019s the architecture of your whole portfolio. Do you have a lot of cash set aside that you can use to continue investing or is all of your cash wrapped up in this one deal? How that is set up would make a difference whether you cut your losses or you can write it out.<\/p>\n
If I didn\u2019t give you enough detail there, let me know. Go to YouTube and leave a comment when you hear this or submit another question and let me know if I missed something there and tell me what you\u2019re thinking after hearing this. We have a question from Jason Weaver in Kansas.<\/p>\n
Hey, David. My name is Jason Weber from Topeka, Kansas. My question was in regards to 1031 exchanges. I haven\u2019t done one yet. I have a duplex in Lawrence, Kansas that I\u2019m looking to possibly 1031 exchange into a new construction. I know there\u2019s some time limits with 1031 exchanges. Is that even an option to 1031 exchange into a new construction build? If you have some advice on the rules and regulations, ins and outs, any pitfalls or things to look out for while trying to accomplish this, I\u2019d much appreciate getting some expert knowledge from you. Appreciate all you do for the BiggerPockets community. Thank you.<\/p>\n
All right, Jason, this is a good question. As you can clearly see if you\u2019re watching on YouTube, you and I have a lot in common. You\u2019re pulling me right back into one of those situations where I have to talk about 1031 exchanges even though I\u2019m not the expert on it, but I\u2019m going to do my best. So here\u2019s a couple of things that I do know about 1031s that I think could help you. You got 45 days to identify the property, which is already identified if it\u2019s a new construction home. Then you got 180 days from the point of closing on what you have to close on it. So if they can build that thing in less than the 180 days and you can close, I think you\u2019re going to be okay. Let\u2019s say they can\u2019t. Well, you also have the reverse 1031 option where you put the new construction under contract and you close it in with another company\u2019s help.<\/p>\n
I couldn\u2019t explain exactly how it works, but it basically involves another company creating some form of a trust. They close on the property for you so you don\u2019t own it yet. Then when you close on your 1031, the funds go into the trust and it gets transferred into your name. It\u2019s something kind of a form of hot potato that could help you. So you could do a reverse 1031. The other thing would be to wait until the new home, like you put a deposit down on it. You wait till it\u2019s close to being built, then you sell the property that you have right now and close on it or you take an offer from a buyer contingent on you finding a replacement property and you just give yourself the right to extend the escrow for as long as it takes.<\/p>\n
Now, buyers aren\u2019t going to love that because their rates could be changing and they\u2019re going to want some kind of stability, but if you find the right buyer for your home, you could just delay your closing until the construction is done. Thank you for your question. Appreciate it. I\u2019ll see you in the gym. All right, everybody, that was our Seeing Greene for today. Thank you guys for being here with us. I hope you laughed. I hope you cried. I hope you learned. When I say cried, of course, I mean tears of joy. Love doing these shows. If you\u2019d like to be featured on one, just head over to biggerpockets.com\/david and submit your question there. Remember to like, comment, or subscribe to this video, and if you have a second, watch another BiggerPockets video. If not, I will see you next episode. You could find me online @davidgreene24, all the social media, or davidgreene24.com. Check out the website and tell me what you think.<\/p>\n