\n<\/p>\n
Have a rental property?<\/strong> What if you could use it to buy even more rentals<\/strong>, build your real estate portfolio, and have a steady stream of <\/strong>passive income<\/strong><\/a> flowing into your bank account? On today\u2019s Seeing Greene<\/strong>, one viewer is asking exactly how to do that, and while his strategy could work, it may not be the best move with mortgage rates<\/strong> so high and deal flow so low. So, what would David do instead?<\/p>\n It\u2019s Sunday, so we\u2019re taking listener questions directly from rookies, veteran investors, and those wanting to retire early<\/strong>. In this episode, David pokes holes in the \u201ccash-out refinance to buy a new property<\/strong>\u201d strategy. We also hear from two late starters<\/strong> who want to get a jump on their retirement, a burnt-out property manager looking for the best way to scale<\/strong>, an equity-heavy investor who\u2019s debating buying a rental or lending out his money<\/strong>, and a reviewer who was scammed by the <\/strong>real estate \u201cgurus.\u201d<\/strong><\/a><\/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: David: David: David: David: David: David: David: David: Chris: Chris: Chris: David: David: David: David: David: David: David: David: David: David: David: David: David: David: Greg: Greg: Greg: Greg: David: David: David: David: David: David: David: David: David: David: David: David: Maxx: Maxx: Maxx: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: Rob: Rob: Rob: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: David: \u00a0<\/p>\n \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 825.<\/p>\n
I think we all need to get rid of this virus that\u2019s gotten into our minds that money should be passive, that we should just exist and we did hard work in the past and now money just flows to us and it just comes. That is not how it works. You don\u2019t get really fit and then never work out again and just stay fit forever. You\u2019re always working out. However, the work it took to get in shape is much harder than the work it takes to stay in shape. And business is the same way. You\u2019ll work very hard to get in good business shape and then it\u2019s just about maintaining it and it\u2019s not that difficult.<\/p>\n
What\u2019s going on everyone? It\u2019s David Greene. Your host of the BiggerPockets Real Estate Podcast. The biggest, the best, and the baddest real estate podcast in the world. Every week, bringing you up-to-date content stories from other investors or episodes like today, which if you can tell because you\u2019re watching on YouTube from the green light behind me is a Seeing Greene. Or if you just read the title to today\u2019s show, congratulations for being smart.<\/p>\n
In these episodes, if you\u2019ve never heard one, we take questions directly from you, our listeners, and I answer them, giving you the Greene perspective on what I think people should do, what should be considered, or what options they may have. My sincere hope is that my nearly 15 years of experience investing in real estate could benefit you, following behind me on the same journey.<\/p>\n
Today\u2019s episode is awesome, high energy and a lot of fun. We get into, if someone can use a down payment that came from another property and if that\u2019s a smart idea. Advice for a late starter and someone looking to diversify their W-2 who has an illness. When it makes sense to scale a property management company? Who that is good for and what should be expected and if to invest in RE or lend privately?<\/p>\n
All that and more on today\u2019s show. And remember, if you want a chance to ask a question on Seeing Greene, I\u2019d sure love to see it. Head over to biggerpockets.com\/david and you can submit your question there and hopefully have it answered on one of these shows. And lastly, please take a minute to like, share and subscribe to this channel, if you found value in today\u2019s show, if it was entertained, if I made you smile, just send this to someone else that you love, because I want to make them smile too.<\/p>\n
And one of our questions today made reference to my Batman voice. Awesome. Glad to hear that there\u2019s still people out there that love it, which brings us to today\u2019s quick tip. Batman here says, \u201cGo order David\u2019s new book, Pillars of Wealth: How to Make, Save and Invest Your Money to Achieve Financial Freedom.\u201d It\u2019s available at biggerpockets.com\/pillars.<\/p>\n
And most importantly, this book is a no-nonsense straight shooting blueprint to becoming a millionaire that anyone, and yes, I mean anyone can follow. It\u2019s the secret sauce that most people don\u2019t get told. That includes a three pillar approach to building wealth, being good at saving money, and yes, that is a skill. Being good at making money, that\u2019s an even better skill and then investing the difference. If you\u2019re somebody who is tired of failing and wants financial freedom, I highly suggest that you join the movement that so many other people already have. Go to biggerpockets.com\/pillars and pre-order the book.<\/p>\n
And I almost forgot to mention, there are some pre-order bonuses you can get if you go buy this now. That\u2019s right. If you get the book now, you\u2019re going to get my Wealth Building Cake Recipe, a workbook to get yourself started and in the right direction, access to a coaching call, and one of you lucky pre-order specialists will get a private call with me, which will give me the ability to look into your personal financial situation and give you custom-built advice for where I think you should start, where your skills are and what path you should be following.<\/p>\n
I love helping other people succeed in life, and because money is such an important part of life, it\u2019s one of the big things we have to talk about. In today\u2019s show, I get to share some of that insight, but if you want my advice put directly towards you, go pre-order Pillars and get your chance for a private coaching call with yours truly.<\/p>\n
All right, let\u2019s get to today\u2019s show. Our first question comes from Chris Connell.<\/p>\n
Hey David. My name is Chris Connell. I\u2019ve been investing in Winston-Salem, North Carolina for the last three years. Thank you, and Rob and the rest of your squad. You guys have done such incredible job.<\/p>\n
All right, here\u2019s my current situation. I own three MTRs, one is paid off, two cash flow at about 1300 a month with mortgages, and my wife and I would like to add to the collection. So I might add, I\u2019m an actor and cash flow ebbs and flows. I\u2019d rather not put 20% down on a conventional loan, so we have the idea, maybe she could bring 50% of the cash from an account she has and I could put 50% from a cash-out refi on that paid off property, we\u2019d buy our next property in cash.<\/p>\n
Is this a good idea? Does it make sense? Is it absolutely insane? I\u2019m sure you have some great thoughts about it. I love your input and direction. Thank you guys so much.<\/p>\n
Thank you Chris for the question. All right, so here\u2019s something that you got me thinking about when you said it. You were considering doing a cash-out refinance on a paid off property to buy your next property with half of the money from your cash-out refinance and half of it coming from your wife. I believe you were saying, if I got this right.<\/p>\n
It sounds like what you\u2019re thinking is if you pay cash for the new property, you won\u2019t have a loan and you\u2019ll have more cash flow. The problem is you still got a loan, you just got a loan on a property you already had, not the new one. It might be tricking your mind into thinking that you\u2019re getting cash flow, you\u2019re really not getting, because even though the new property will cash flow more without a note, the previous one will cash flow less, right?<\/p>\n
So are you robbing Peter to pay Paul here and not considering that? Because you\u2019re going to be losing cash flow on a property you already have. Another thing is that a cash-out refinance will usually have a higher interest rate than a rate and term refinance, and I\u2019m wondering if you might get a better rate on a new purchase than you would on a cash-out refinance.<\/p>\n
We\u2019d be happy to look into that for you. If you want to send me a DM, I\u2019ll connect you, but whoever you\u2019re using that is a thing you should think about is, \u201cAm I going to get a better rate on a cash-out refi or on a purchase?\u201d Because if you get a better rate on a purchase, I don\u2019t think you should do a cash-out refinance. You should go buy the next property getting a loan on it.<\/p>\n
Now that does sort of beg the question of, \u201cWell, how do you come up with the money for it?\u201d Which might be why you\u2019re thinking that you\u2019re going to do the cash-out refinance in the first place. I\u2019m just\u2026 In today\u2019s market, okay, this isn\u2019t a hard-and-fast rule. Generally speaking, I\u2019m not a huge fan of putting debt on existing properties to buy new properties. I\u2019m not against it. It could work, especially if you\u2019re in the medium-term rental game, short-term rental game where you typically can get more revenue, sometimes you can make those work.<\/p>\n
What I don\u2019t like about it, is it\u2019s hard enough to find cash flow in properties as is, now you\u2019re taking on extra debt and trying to find a cash flow in property has cash flow even more. It becomes harder and harder to do. The strategy that I\u2019m seeing this working in today\u2019s market is taking a delayed gratification approach.<\/p>\n
You\u2019re buying real estate in good locations, expecting it to make money later. But you\u2019re looking to make money right now. You\u2019re looking to sort of offset the income that comes from acting. I just want to make sure you\u2019re making smart decisions buying real estate, and you\u2019re not buying stuff that\u2019s not intelligent because you feel like you need cash flow. I\u2019ve said it before, I\u2019ll say it again, real estate\u2019s really not a great way to generate extra income. It does that. It can work for that. It\u2019s not what it\u2019s intended to do.<\/p>\n
A Lamborghini can tow a boat if you set it upright. It can do it, but it\u2019s not intended to do that, and there will be a negative impact on the performance of that vehicle if you do it for too long. Cash flow is intended to come from commercial real estate, which is very risky right now, because we don\u2019t know where rates are going. And from work, from starting a business, from having a job. My philosophy, what I\u2019m telling people is if you need cash flow, you need to start a business or you need to take another job or you need to learn a skill in addition to your acting.<\/p>\n
And if you want to build long-term wealth, you need to buy real estate. I think things work better that way. I think real estate inherently has an architecture that benefits long-term ownership. The principal portion of your payments goes up with every payment over time, making long-term ownership beneficial. Inflation makes dollars worth less, which makes values go up, making long-term ownership beneficial.<\/p>\n
Rents tend to go up while your mortgage expenses will stay roughly the same, which makes long-term ownership beneficial. It\u2019s a great retirement plan. It\u2019s not a great right now, plan. And that\u2019s why I\u2019m usually telling people the opposite of all the other influencers that say, \u201cTake my course, quit your job and live off the cash flow.\u201d I don\u2019t see anyone making it happen and I see a lot of heartache coming from the people that tried to force that.<\/p>\n
So I\u2019ll sum this up by saying I like what you\u2019re thinking. If you want to buy more real estate for future gains, for your future retirement, for delayed gratification, go through with what you\u2019re doing. If you\u2019re looking to just offset the ups and downs of the acting business, this would be a poor strategy to use. I don\u2019t think that buying real estate for the cash flow it generates in year one is a super simple bet. Right now, you\u2019re also exposing yourself to risk, just in the same way that it makes income, real estate can lose income.<\/p>\n
The traveling professionals may stop going, your market could get saturated, there could be a lot of other people that do the same thing, and now you\u2019re losing money every month, which makes your problem of inconsistent income amplified. That\u2019s even worse. So I\u2019d rather see that you took a different approach of making money within real estate.<\/p>\n
If you love it, getting a job within the real estate industry or some other type of business opportunity to supplement your acting other than real estate, but keep buying the real estate, just don\u2019t buy it because you need to supplement your income today. Also, killer hair, bro.<\/p>\n
All right, let\u2019s check out a clip from Greg Miller in Rochester, New York.<\/p>\n
I\u2019ve been an avid listener since way back in the Josh and Brandon days, but I have a bit of a unique situation. I have a W-2 job and I own three homes. I live in one of those homes. I rent out the other two as short-term rentals.<\/p>\n
One of those two is a duplex, so that\u2019s a total of three short-term rentals and last year I grossed about $150,000. I\u2019m 53 years old, but a few years ago I was diagnosed with multiple sclerosis and then last year they tell me I had a stroke.<\/p>\n
Even though I like my W-2 job, I\u2019m in a situation where I want to leave it behind so I have time to enjoy my life. Because of my health conditions, I obviously want to do that sooner rather than later. And earlier this year, I inherited close to $900,000.<\/p>\n
I would like your advice on how I can use those funds in today\u2019s market to generate immediate cash flow and also to provide an nest egg for my family. Thank you so much and keep up on the Batman voice.<\/p>\n
Gregory Miller, thank you for your question and congratulations on being featured on the BiggerPockets Podcast, episode 825. Glad to see a longtime listener finally getting to make their way into the show. I got a good question here.<\/p>\n
There\u2019s an advantage that you have to getting a late start if you\u2019ve got capital saved up, right? Everyone\u2019s jealous of the 22-year-old that figures out about real estate investing gets an early start. Yeah, it\u2019s great for them. However, they usually have no money.<\/p>\n
When you\u2019re 53 getting started, you\u2019ve got almost a million dollars to put into play. You got some pretty cool options that I\u2019d like to get into as far as building up that nest egg that you\u2019re talking about, and thank you for indulging the glory of the Batman. Many people don\u2019t know that Wayne Enterprise has actually had significant real estate holdings and that\u2019s how I got to where I am today.<\/p>\n
So let\u2019s talk about what you could do here, my man. First off, we want to see that $900,000 grow. We don\u2019t want you to just take it and plant it somewhere and only think about the cash flow. I\u2019d like for you to take that $900,000 and look at some BRRRR opportunities. What I\u2019d like to see you do is to target properties with a lot of square footage that are not priced very high. Okay?<\/p>\n
If you could find a 22, 24, 2600 square foot home next to a lot of 1200 or 1300 square foot homes, you have a lot more room to work with. You could create different units in the same house. You could make that house worth more by fixing it up. You have different ways to what I call forced equity, which is just really value add opportunity, and the reason I like that is because you\u2019re going to put some of that $900,000 into this deal, maybe paying cash for it, fronting the rehab costs on your own, and then you\u2019re going to get a lot of it back out.<\/p>\n
So it\u2019s not all going to stay in the property. You\u2019re going to be able to get it out and put it into new properties because even though $900,000 is a lot of money, it goes faster than you think when you\u2019re buying $500,000 homes. That\u2019s one thing that I\u2019d like for you to look into is value add on every single deal you get. I also don\u2019t want you to turn away from flip opportunities.<\/p>\n
There\u2019s ways that you can maybe buy a place for 300,000 that needs a ton of work, put a hundred thousand dollars into it, so you\u2019re all in for 400, sell it for 500, sell it for 475. There\u2019s going to be some pretty good opportunities if you\u2019re in the right area to grow that 900,000 at the same time that you\u2019re buying properties with it. Don\u2019t just get a one track mind and say, \u201cI\u2019m going to buy a whole bunch of duplexes.\u201d Make sure you\u2019re looking at all the options that you have to use that to create some money.<\/p>\n
Lastly, if you really want to build generational wealth, I need you to be thinking about location. Avoid the risk to say, \u201cWell, I can get 30 houses if I buy $30,000 houses.\u201d No, no, no, no, no. You want to be buying in the better areas and you have the luxury of being able to put more money down if they don\u2019t cash flow.<\/p>\n
So oftentimes when we say a property doesn\u2019t cash flow, what we really mean is it doesn\u2019t cash flow with 20% down, but if you put 40% down, 45% down, 50% down, a lot of them will cash flow pretty good. You\u2019re going to get a smaller ROI on the cash flow. That\u2019s true because you\u2019ve got a higher down payment put in there, but you are going to get more money over the long-term in the appreciation and the rising rents.<\/p>\n
So though 53 may seem like a late start, it\u2019s really not. Hopefully you\u2019ve got a lot of years under your belt and you want to make wise decisions so that when your family does inherit this real estate, someday they\u2019re inheriting real estate that they want, not real estate that they were forced to take over. You\u2019ll also find that your headache factor goes way down when you\u2019re buying in better areas because you have more selection of tenants to choose from and you have a higher quality of tenant that wants to live in your property.<\/p>\n
I hope that makes sense for you. I would recommend checking out my book Pillars of Wealth: How to Make, Save and Invest Your Money to Achieve Financial Freedom because it\u2019s going to have some ideas in there for you to make that $900,000 stretch out.<\/p>\n
Let me know what you think after this video. Please submit another question at biggerpockets.com\/david and let me know what you\u2019re doing and what your plans are and feel free to reach out to me directly on whatever social media platform that you use if you want some more advice. But thanks man.<\/p>\n
Hey David. My name is Maxx Jackson from Wilmington, North Carolina, and I must ask you a question about property management. I currently manage three short-term rentals while owning only one. I\u2019m a realtor, so I do get leads from it, but it also is pretty time-consuming.<\/p>\n
My question to you is what in your eyes is the best end goal for property management? Should I continue taking on properties that people want me to manage primarily because I\u2019m a Superhost on Airbnb, until I can\u2019t do it anymore? Do people ever scale their property management business and then sell them entirely, or should I just keep leveraging out as much as I can and grow as much as I can, until I do not have any more time? I have some of my own ideas, but I thought it wouldn\u2019t hurt to ask the expert.<\/p>\n
Keep up the good work. I listen every week. I appreciate you and next time you\u2019re in Wilmington, North Carolina, stop by and we can play some pickleball at my newest property. Thanks, David.<\/p>\n
Maxx Jackson. Maxx Jackson. First of all, what a cool name. I\u2019m not surprised to hear you\u2019re successful with the Maxx Jackson and I did notice the, I mustache you a question. If you guys are not listening to this on YouTube, Maxx has a pretty prominent mustache, looks kind of like one of the bottom of a push broom that you might see at a warehouse. Definitely makes a statement with that. So go check us out on YouTube if you want to see Maxx\u2019s good-looking face.<\/p>\n
All right, Maxx, what I love about this question is that it\u2019s not purely real estate. This is a business question and real estate is a form of business and you\u2019re thinking the right way. Let\u2019s break down the reality of how business and real estate works that most people that don\u2019t actually invest in it, at a significant level won\u2019t tell you.<\/p>\n
Scaling is often explained as a concept, not as a practice. Scaling is hard. In fact, in my own personal life, I am going to be firing several property managers and hiring an in-house property manager that\u2019s going to manage my whole portfolio for me because of scaling issues. I hire the company and I love the owner. Then the owner leverages out the work to one of their employees and now I\u2019m getting a low talent, low level motivated employee that\u2019s not doing a good job with my short-term rentals. And after months of having them do this, you finally start to see a pattern in the numbers and you realize the problem. \u201cI\u2019m not getting to work with the talent, I\u2019m working with an employee who doesn\u2019t have the right mindset.\u201d<\/p>\n
Now, Maxx, you\u2019re doing well managing other people\u2019s short-term rentals because your talent, you also realize you can\u2019t scale because it\u2019s hard, but the fact it\u2019s hard is why they hired you. If it was easy, they wouldn\u2019t give you the job. So lesson one, to learn from this, quit looking for easy everybody. If things were easy, it wouldn\u2019t be given to you. They would be doing it themselves. We literally make money doing work in real estate because we\u2019re doing something that\u2019s hard. So you got to embrace the hard.<\/p>\n
Now, Maxx, I don\u2019t think you have a problem with the hard. What you\u2019re asking is because it\u2019s hard, how am I going to scale this thing? And that\u2019s where the challenge comes in.<\/p>\n
If you want to get good at scaling, the key is you have to build skills that are different than what got you good at where you are now. So I call this the three dimensions of leadership. The first dimension is learn. You\u2019re doing that. You\u2019re learning how to be a good short-term rental host and people like it so they\u2019re hiring you and like you said, there\u2019s some synergistic benefits, you\u2019re getting leads, that\u2019s good. But if you want to scale, the second dimension is leverage.<\/p>\n
By the way, this comes out of my book Scale, which you can find at biggerpockets.com\/scale if you want to check that out.<\/p>\n
Leverage is building the skill of hiring other people to do the work. You have to hold people accountable. You have to be a good manager, you have to check in on what they\u2019re doing. You have to have difficult conversations. Everything that you acquired in learning the skill yourself is largely useless to you when you\u2019re trying to be good at leverage.<\/p>\n
It\u2019s very different, and that\u2019s why most people never grow a business because they get good at doing something and they don\u2019t want to start over at zero and have to acquire the leverage skills. And it\u2019s only after you\u2019ve done both of those, you\u2019ve learned and you\u2019ve leveraged. Now you have to lead, which is starting over at zero all over again, developing a completely different skillset.<\/p>\n
Most people are just not willing to pay the price to scale. But Maxx, I\u2019d like to see you do it. So here is what I want to warn you about. As you try to scale, you will have new challenges that will cause you to pull that mustache right off your face. It\u2019ll drive you nuts. It\u2019s okay, it gets better. You acquire the skills of leveraging other people and eventually leading them with time. But no, it\u2019s not like, \u201cHey, if I could do it with two, I could do it with 20, I could do it with 200.\u201d That\u2019s not the case at all.<\/p>\n
Every time you stake the next step-up in business, you have new challenges that you have to take on. It\u2019s constant personal growth all the time. I\u2019d like to see you do it. You just need to understand that you\u2019re going to be very busy, you\u2019re going to be stressed and that\u2019s the price that people pay to be wealthy.<\/p>\n
If you look at the top loan officer in the one brokerage, the last couple months, he\u2019s literally made more money than the company has because he doesn\u2019t have any overhead. The company has a ton of it, but he\u2019s working 12-hour a day. We just interviewed him on Mortgage Mondays on YouTube if you guys want to go check that out.<\/p>\n
He gets up at six, he\u2019s in the office by nine, after his workout and he works until nine o\u2019clock at night or later. That\u2019s what it takes to be a top producer. Now he\u2019s crushing it, right? He\u2019s going to have a six figure month here pretty soon, but he\u2019s earning it. Just like you have to put in a lot of work to have a good body, you have to be very disciplined with your diet to have a good body. Wealth works the same way.<\/p>\n
Now, over time you will get better at it Maxx and it will not seem as hard in year 10 as it did in year one. But the point is it\u2019s still going to be hard and that\u2019s okay. We don\u2019t have to run away from hard. We should actually run towards hard because that\u2019s where the opportunity is.<\/p>\n
So to sum this up, yes, I do think that you should take on more short-term rentals. I think there is a really big opportunity in that space. If someone is good at being a host to make money in what I believe is going to be an economic recession, I think people should look forward to it. I think we all need to get rid of this virus that\u2019s gotten into our minds that money should be passive, that we should just exist and we did hard work in the past and now money just flows to us and it just comes. That is not how it works.<\/p>\n
You don\u2019t get really fit and then never work out again and just stay fit forever. You\u2019re always working out. However, the work it took to get in shape is much harder than the work it takes to stay in shape. And business is the same way. You\u2019ll work very hard to get in good business shape and then it\u2019s just about maintaining it and it\u2019s not that difficult. So as long as you\u2019re ready for that journey Maxx and your mustache is locked in and ready to accompany you, I want to see you keep it going.<\/p>\n
All right, hope you guys have been enjoying the show so far. I love this stuff and you can expect to hear more about business in the future, because as real estate investing is getting tougher and tougher to do, because there\u2019s more and more competition for these assets and cash flow is getting harder and harder to find. We can either sit around and cry about it and go watch Dancing with the Stars and numb ourselves with our pain and look for sympathy from everyone and just wallow in self-pity.<\/p>\n
Or we can pivot, we can look for different ways to make money. We can gain business practices and principles and experience and get out there and change careers and get into a job in the industry we love, which if you\u2019re listening to this, it\u2019s probably real estate.<\/p>\n
At this segment of the show, I like to get in comments left to previous shows on YouTube. I read you guys the comments that people have left. And remember, if you want to have your comment read on the show, I\u2019d sure love to read it. Just head over to BiggerPockets YouTube, follow us over there and leave your comment.<\/p>\n
From episode 816, from yourpersonalagent7243. \u201cHey David, wondering when your house hack at 3.5% FHA, do you have to refi out of that to qualify for another FHA after a year?\u201d Not a comment but a question, yet still a good question and the answer is yes, you do. You typically only get one FHA loan at a time. So you could either sell the house, pay off the loan and use an FHA loan to get your next one, or you can refinance and keep the house refinance into a conventional loan and then you have another FHA loan that you can use by your house.<\/p>\n
A common misconception is that FHA loans are for first time home buyers. This entire concept of first time home buyer was really born out of the crash. The 2010 no one was buying real estate thing. It became a marketing concept for lenders to draw someone in who hadn\u2019t been scarred and didn\u2019t have PTSD from the crash.<\/p>\n
So they\u2019re like, \u201cOkay, we don\u2019t want to get someone to come buy a house that already bought one because they\u2019re scared. Let\u2019s get a first time home buyer to come buy a house because they\u2019re not going to have the same trauma and fear about doing it. Well, what incentives can we come up with for first time home buyers?\u201d And then they took stuff they were already offering and sort of said, \u201cHey, this is a perk for a first time home buyer.\u201d Maybe they had some new stuff, but in general it wasn\u2019t all that great.<\/p>\n
People get that confused with primary residence, you can get a 5% down conventional loan on a primary residence. You can get an FHA loan on a primary residence, you can get a VA loan on a primary residence. It just means a house you live in. And you might have nine houses on one another primary residence, you might have 15 houses on one another primary residence. You can use these low down payment loans for those, but you can only have one FHA loan at a time.<\/p>\n
Now, the good news is yourpersonalagent7243, that if you don\u2019t want to get rid of your low interest rate on your FHA loan, you can get a conventional loan at 5% down, which is only a little bit more than three and a half percent down. So reach out to us and I will put you in touch with my crew or find a loan officer using the BiggerPockets lender finder tool and they should be able to answer these questions and if they can\u2019t, they\u2019re not good. Run away.<\/p>\n
All right, from episode 816, we\u2019ve sparked a chain of comments from everyone. So thank you for helping this person get the info that they need. From 50calpulse76. \u201cOn a house hack meaning buying is a primary home. Is there a timeframe that you have to live in it before you rent it out or can you buy a home with the intent there and then immediately change your mind and not live in it?\u201d<\/p>\n
The first comment came from Richie1317 that said, \u201cDude, that\u2019s fraud and no, you can\u2019t just change your mind. The regs require you to live there for at least a year before you can get your next loan.\u201d Then Rullau said, \u201cNo one ever cares or checks who lives there unless the payment is not coming.\u201d Thrivinglife said, \u201cAt least two years. Then you can move out.\u201d<\/p>\n
Lots of different feedback here. I will do what I can to try to set the record straight. Remember how I just said that there\u2019s a misconception with first time home buyer with primary residents? They\u2019re not the same thing. The same exists when it comes to when you can get a primary home loan after you\u2019ve already got one.<\/p>\n
What we tell people is buy a house, live in it for a year, then buy a new one and rent out the first one. That doesn\u2019t mean that\u2019s the only way to do it. The reason that we give that advice is that you typically can\u2019t get a primary residence loan until after a year from the last one you got. So if you buy a house as a primary residence, most lenders in most cases will not let you get another primary residence loan until you\u2019ve waited 12 months. We get exceptions at the one brokerage all the time. There is ways around it, but it\u2019s very difficult. Okay?<\/p>\n
Now, people confuse that with, you have to live in the home for a year. There aren\u2019t regulations from lenders that say, if you buy a primary residence you have to live in it because they legally can\u2019t do that. If you buy a house to live in and then you lose your job and you can\u2019t make the payments, they couldn\u2019t stop you from renting it out to somebody else as you move back in with mom because you can\u2019t make the payments.<\/p>\n
If you buy a house and take a job and then get fired and you have to move back to take a job somewhere else, they can\u2019t force you to live in a house and commute by plane to the new place. So there isn\u2019t a rule that says at least in almost all the loans I see, conventional ones definitely, that says, \u201cYou can\u2019t rent it out.\u201d<\/p>\n
What they\u2019re looking to avoid is you buying a house with a primary residence loan that you never intended to live in at all. Okay? It was clearly meant to be an investment property. You lied and said it was a primary residence. That would be considered fraud. If you move into it and then something happens that you don\u2019t like. Okay? I\u2019m not giving you guys specifics on case law because I haven\u2019t seen this myself, but I\u2019m explaining my understanding as it\u2019s been told to me.<\/p>\n
Let\u2019s say, you move into a property and the dog of the neighbor is barking nonstop and you can\u2019t sleep at night and you talk to the neighbor about it and they\u2019re like, \u201cYeah, go kick rocks. That\u2019s my dog. He barks, not my problem. I don\u2019t care. I can sleep through it.\u201d You\u2019re not getting any sleep at night. There\u2019s nothing that I\u2019m aware of that a lender could compel you to stay living in that house.<\/p>\n
Lots of things like this happened. You can\u2019t anticipate all the problems that could come up. What would be mortgage fraud is if they could show you never intended to live in there at all. You didn\u2019t make any effort, you didn\u2019t move into the house. \u201cYou were defrauding us from the very beginning.\u201d That is fraud. That should be avoided. Do not do that.<\/p>\n
But when it comes to, \u201cHow long do I have to live in the house before I move out?\u201d There actually isn\u2019t a law that I\u2019m aware of and I don\u2019t know of any case law where a judge has looked at this and said, \u201cSix months, three months.\u201d They don\u2019t look at it from this hard-and-fast rule like our brains look at it from, they look at intent.<\/p>\n
So if your intention was to live in the house and something changed in your life, circumstances changed. There was something wrong with the property, you didn\u2019t like it. You are allowed to move out of it and go live somewhere else. But no, you probably won\u2019t get another loan to buy another primary residence until 12 months had passed since you bought the first one. That could be tricky. But really good conversation we had there. I\u2019m glad I got to weigh in on that.<\/p>\n
Guys, we appreciate the feedback and mostly we appreciate the work that you\u2019re all putting in to pursue your goals and your financial freedom.<\/p>\n
I wanted to reveal a recent review that came in on the Apple Podcast app. \u201cI love listening to the show, but, I regularly listen to your show. But my biggest problem is that there are so many real estate investment gurus that I don\u2019t know who\u2019s real and who\u2019s fake. And I suffer from buyer\u2019s remorse after spending $10,000 plus on, quote, unquote, \u201ctraining.\u201d Everyone agrees that we should start with training, but no one breaks down what is actually real training and not just flashy noise, bragging and motivational stuff.\u201d This comes from Deborah via the Apple Podcast reviews.<\/p>\n
This is an amazing review, but you gave us 3-stars. I\u2019m not the one that took your $10,000. Why are you punishing me with a 3-star review, Deborah? I think you\u2019re mad at the industry. You\u2019re not mad at BiggerPockets. You got to fix this. You didn\u2019t say why I only got 3-stars. I\u2019m pouring out my blood, sweat and tears for you Deborah, and it\u2019s free. If anything, we should be getting six stars out of five because we\u2019re giving you free content, not taking your $10,000. Oh, this is so sad. Hurt people, hurt people, right? That\u2019s exactly what just happened to me.<\/p>\n
All right, on this topic of the $10,000 scam, first off, no one talks about it. I call it course shame. When someone spends a bunch of money and gets ripped off, they don\u2019t want to go tell everybody that they know that they got ripped off, so they just silently suffer. They keep it inside. The glassy look in their eye and their lack of eye contact is they stare at their shoes at a real estate meetup, awkwardly swirling their watered down drink is how you know that someone is taken advantage of by a course, but if you don\u2019t look for the subtleties, you will miss it.<\/p>\n
Here\u2019s my 2 cents on the whole thing. Whenever somebody sells me on an idea and the way they\u2019re selling it doesn\u2019t line up with other things I\u2019ve seen in life, I know I\u2019m being deceived. When I\u2019m watching a commercial for a truck and I\u2019m seeing the thing bouncing all over these rocks and I\u2019m seeing a really hot girl in the passenger seat staring at the guy driving at it lovingly with desire in her eyes, because he\u2019s so cool that he has this truck and I hear this music playing and I see this dream being painted. I ask myself, \u201cHave I ever seen this in real life? Have I ever seen a woman that fell in love with an average looking dude because he had a cool truck?\u201d No I haven\u2019t. I\u2019m being sold a bill of goods.<\/p>\n
Look at influencers that are doing the same thing. Are they saying, \u201cI will teach you how to make,\u201d Insert ridiculous sum of money here, \u201cfor only\u201d Slightly smaller sum of money to take their course, \u201cand it will be easy and you can do it and you\u2019ll make 10 extra money back.\u201d Do you see that happen at other times in life? Have you ever signed up for a gym and said, \u201cI want to get in really good shape.\u201d And they said, \u201cOh, this is the gym to go to when you walk in the doors, it\u2019s like magic. A six-pack just happens to come and you don\u2019t have to do anything.\u201d It\u2019s not how it works.<\/p>\n
Have you ever had a situation where you paid a bunch of money to have someone fall in love with you and they just stayed in love with you forever? Nope, probably not. That\u2019s something to look out for with these courses. There\u2019s always going to be people that are going to be telling you they can help you and selling you and why you should go with them. They\u2019re rarely ever going to be honest with you.<\/p>\n
This podcast is for people that want the honest truth, that want it straight from the horse\u2019s mouth, that want someone to tell them what they need to hear, not what they want to hear. And the majority of you guys love that. So Deborah, I\u2019m so sorry that happened, but don\u2019t blame us. Don\u2019t punish BiggerPockets. We are here for you for free and everybody else that\u2019s listening, please continue to listen to our podcast.<\/p>\n
Spend 15, 20 bucks on a book. Don\u2019t go spend $10,000 on a course unless you have a preexisting relationship with the person that\u2019s teaching it. You know them and you trust their word and their integrity. I\u2019ll give one last piece of advice to Deborah and everyone listening here.<\/p>\n
I have the one brokerage, we do financing for real estate all across the country. When people say, \u201cWhy should I do the one brokerage?\u201d My answer is usually, \u201cWhy don\u2019t you talk to one of our other clients and find out what loan officer they had and ask what their experience is like?\u201d Because of course if you ask me, I\u2019m going to say, \u201cYou should use us.\u201d Every influencer out there is going to say, \u201cYes, you should take my course.\u201d<\/p>\n
So ask the people that have taken the course. Go to someone that has used the service and say, \u201cWhat did you get? What did you not get? Would you do it again?\u201d I think that\u2019s smart. So before anybody signs up for a course that costs money, it would be wise to ask other members of the group, \u201cWhat is your experience and what can I expect?\u201d And all of us in the real estate investing community can kind of look out for each other and help steer us towards the right people and away from the wrong people.<\/p>\n
David, my name\u2019s Rob Browning. I\u2019m from Escondido, California and my question today is, when is a good time for somebody entering in their later stages of their career to get into the real estate market, based off of current conditions in the marketplace? And I can tell you a little bit about what I\u2019m looking for that might be helpful.<\/p>\n
I\u2019m looking to build cash flow up over the next five or 10 to 15 years and I\u2019m looking to become a full-time investor in real estate in the next three to five years, which would allow me to leave my current position.<\/p>\n
I do have money right now to invest. I\u2019m okay withholding that and waiting for a better opportunity while I build up more cash. But again, I would like to get going as well. So that\u2019s my question and look forward to your answer. Thanks, bye.<\/p>\n
Thanks Rob. The good news is I love your question. The bad news is these are hard to answer. I feel like I\u2019m always the bearer of bad news in the real estate world, but it doesn\u2019t have to be that way. Here\u2019s what I mean. This phrase full-time real estate investor became popularized over the last 10 years, okay? So think about 2010 to right around 2020, 2021. There were deals to be had definitely at the latter end of that they were tougher, but like 2010 to 2015, there were deals everywhere, and by deals I mean cash flowing real estate.<\/p>\n
It was like a person who wanted to catch fish and there were so much fish, you just threw your lure in the water enough times, you were going to get a fish on the line. You\u2019re going to reel it in. The people\u2019s ability to be successful catching these fish and landing these deals was inhibited by the time that they spent at their job and you could literally make more money, as in acquire more wealth. I look at money like energy, right? So if you look at the energy that you could make at your W-2 job versus the energy that you could make accumulating real estate at good prices at cash flow, that was going to grow in value, it was clearly a better move to be a full-time investor.<\/p>\n
If you had the skill to catch the fish, if you had a lapse funnel, leads, analyze, pursue success. If you knew how to purchase these properties, if you had the financing to do it. If all those things were in place, you had the lure, you had the fishing pole, you had the skill as an angler, being a full-time investor made a lot of sense for a lot of people.<\/p>\n
Here\u2019s the challenge. We don\u2019t have a lot of fish to catch like we did. That doesn\u2019t mean that there\u2019s no fish to catch. That doesn\u2019t mean that fishing doesn\u2019t matter. Please don\u2019t assume the extremes of the argument I\u2019m making. I\u2019m not saying there\u2019s tons of fish or there\u2019s zero fish. There\u2019s just less, which makes it harder to make sense to be a full-time investor. If what you mean is a full-time acquisition specialist, there are some people that do it, but typically they are a part of a big enterprise and they focus full-time on acquisition, while somebody else focuses full-time on management, while someone else focuses full-time on capital raising these syndications.<\/p>\n
Yes, they do full-time real estate investing, but they\u2019re doing a piece of a puzzle which sort of puts you back into the employee category. You see where I\u2019m going with this? Becoming a full-time investor is not leaving a job, it\u2019s getting a new job and there are less deals to go after now than when we first started to use that phrase.<\/p>\n
So the question Rob that I think you need to ask yourself is, \u201cWill I build more energy at the job I have now or will I acquire more energy if I go to become a full-time acquisition specialist with real estate?\u201d And maybe you make less energy doing real estate full-time but you enjoy it more. That\u2019s something to factor into the equation as well.<\/p>\n
If we\u2019re speaking practically, what I see people making work right now, is becoming a full-time short-term rental manager, okay? If that\u2019s what you mean by full-time real estate or full-time investor, I don\u2019t think it\u2019s fair to say a full-time investor because even though you do own the property, you\u2019re functioning in the role a property manager and you are absolutely trading one job for another one.<\/p>\n
I\u2019d rather have you look at, \u201cOkay, I could pay someone X amount of money to manage the properties and I could do this much acquisitions with my free time. Am I making more money and having a better life keeping the job or am I willing to make less money but I get to work with in real estate that I love?\u201d And get very specific on what it means. Not trying to discourage you.<\/p>\n
You might live in a part of the country or in an area where there\u2019s deals everywhere and you can still make it work. I don\u2019t know the names of those places right now, but I\u2019m sure there\u2019s areas in the south and the Midwest where other investors just haven\u2019t found yet. And there\u2019s people out there that are crushing it and there\u2019s tons of fish to catch and they are full-time investors. They\u2019re probably not talking about it because they don\u2019t want the competition from all of us that are like, \u201cWhere\u2019s the deal? Where\u2019s the cash flow?\u201d I just want to make sure I clarify for everyone that\u2019s heard this phrase full-time real estate investor, that they understand what that means.<\/p>\n
That really meant full-time acquisition specialists, and if there\u2019s not a lot of deals to acquisition, it doesn\u2019t make logical sense for you to quit your job to jump into that. So Rob, let me know how it goes. Let me know what questions you have after hearing this. Don\u2019t get discouraged. Just ask yourself the question, \u201cWhat role do I want to play in real estate and would I rather trade my full-time job for that?\u201d<\/p>\n
And our last question comes from Chris Feno who says, \u201cI have around 600,000 in equity. What\u2019s more effective in the long run? To buy investment properties using a HELOC or use that HELOC to fund local investors projects for returns over and over?\u201d All right, Chris, it looks like what you\u2019re asking here is, \u201cShould I take out my equity and use it to own real estate or should I fund other investors flips so to speak, or maybe they\u2019re BRRRRs and earn a return on my capital?\u201d So let\u2019s kind of look at your two different options.<\/p>\n
If you go the route of being a hard moneylender or a private moneylender, that\u2019s what it sounds like you\u2019re asking here. First off, you\u2019re going to be taxed on those gains and it\u2019s going to be most likely short-terms capital gain taxes. I\u2019m not a CPA, I don\u2019t know for sure. That\u2019s what my gut would be telling me.<\/p>\n
If there\u2019s a way that you get away from the capital gains, you\u2019d still be taxed at a income level and the more money you make, the higher taxes are. When you earn equity in real estate, it\u2019s not taxed until it is sold. So even when you pull it out on a cash-out refinance, that energy still isn\u2019t taxed. It\u2019s a more tax efficient way of building wealth, not the case when you\u2019re going to be making money by lending it to other people.<\/p>\n
Number two, there is risk associated in lending that money. We just never hear about it because one, no one wants to share their losses, and two, we\u2019ve had one of the best markets for real estate investing in the history of the world in the last 10 years. So not many people were losing money because it was tough. The person that borrows your money to flip a house could do everything wrong, and the market was so strong that it would overcome. They would sell the property, even if they sell at a break even or a small loss, they still had plenty of money to pay you back. But what happens when the losses get to be big? It becomes harder and harder and harder to make the flip work, so that you could get your cash back and a lot of that equity is going to start to go down.<\/p>\n
Number three, if you take the equity out of the houses and you use it to give to the people that are going to be flipping or BRRRR-ing you\u2019re also paying interest on that. Okay? So if you\u2019re lending it to them at 15% or 12%, but you\u2019re paying eight or 9% on the HELOC, it starts to look like a much less desirable proposal for you.<\/p>\n
So most hard moneylenders, at least the good ones, really anyone that\u2019s in the lending business focuses on yield spread and margin. What they say is, \u201cAll right, X amount of these deals are going to go bad, X amount are going to go good in order to make enough money to cover my losses, I have to charge 15%, 12%, two points.\u201d Whatever, and out of that profit, they\u2019re going to have to pay for the losses. So if you\u2019re paying your hard money 15%, that doesn\u2019t mean they\u2019re earning 15%. After all the people that don\u2019t pay them back or the money they lose, maybe they\u2019re earning 8% or 9%. I don\u2019t know the exact numbers, but I hope you get the point.<\/p>\n
If you\u2019re already paying 8% on the HELOC and your true spread, it ends up being 10%, if you\u2019re able to get 50% on your loan, you\u2019re taking all this risk for a potential 2% spread. That doesn\u2019t sound as good as what you\u2019re probably thinking in your mind when you\u2019re thinking about what I call the gross.<\/p>\n
In my book Pillars of Wealth, I talk about spending from gross. It\u2019s this mindset virus that we acquire, when we say, \u201cHey, I make $90,000 a year. I can afford a thousand dollars a year car payment.\u201d \u201cHey, I make 90 grand a year. I can afford that $3,500 vacation.\u201d When you\u2019re trying to make a decision on spending and you\u2019re thinking about the gross money you earn, the amount you\u2019re spending seems like a very insignificant portion.<\/p>\n
But if out of that 90,000 you get taxed 25,000, so you\u2019re only keeping, I believe that\u2019d be 65,000, and out of that 65, you\u2019re only saving $15,000 a year. That thousand dollars car payment is $1,000 a month out of $15,000 a year, that\u2019s 12 grand. That\u2019s almost the whole thing. All of a sudden, that looks like a really foolish decision to make. It depends on if you\u2019re looking at the net or the gross. I think when it comes to this opportunity to do private money lending, you\u2019re looking at the gross, not the net. I don\u2019t think the net will be as attractive as you\u2019re thinking. And lastly, there\u2019s some extra risk here.<\/p>\n
If you lose your money that you pulled out of the properties to flippers, because the market goes against you or you make bad choices or you make some beginner mistakes that everyone makes, but that ended up being all your capital, you\u2019re putting the properties themselves that you put leverage on at risk. What happens if they need some repairs? What happens if the tenant stops paying the rent? You might end up losing the properties and the money that you pulled out of them going into a new business that you\u2019re not familiar with.<\/p>\n
So those are the risks and the upside doesn\u2019t seem as big. When you look at pulling out the money that you have in the properties to buy new real estate, the risks are going to be if the new real estate you buy doesn\u2019t cash flow. If you end up losing money on those new properties, that\u2019s not good, but that\u2019s about the only risk I can see. The upside would be a lot of inflation and a lot of gaining equity through rising home values. The rents, if you buy in a good area, should be going up every year, which means eventually every year that you keep the property, it gets sweeter and sweeter and sweeter.<\/p>\n
You can also take the equity out of the property, say $600,000 and add leverage by borrowing money from the bank. So the $600,000 of your down payment would be the equivalent of buying $3 million worth of real estate. So if you\u2019re doing good at investing and you\u2019re buying in the right areas and the properties are supporting their debt service, you could take 600,000 and turn it into $3 million of real estate, which after 30 years has been paid down and now you have $3 million of real estate plus whatever it\u2019s appreciated by. It\u2019s tough for me to see you hitting those same returns, becoming a private moneylender.<\/p>\n
The last thing that I\u2019ll put in here is that private money lending sounds simple and it can be simple, but that doesn\u2019t mean it\u2019s easy. There is a skill to analyzing who you should lend your money to and at what rates, and then take it over the projects that they screw up. And it\u2019s not a skill that you probably have right now. You have to build it, and if you\u2019re going to lose money in building the skill, it might not be worth doing.<\/p>\n
So those are the ways that I would analyze your two decisions there. I know that there is no easy options anymore because the market\u2019s so tough. There used to just be like, no-brainer. \u201cGo do this.\u201d That\u2019s not the market we\u2019re in anymore. We had it good for a long time. Hopefully all of you listeners took action at the time just like Chris did. That\u2019s why he\u2019s in the position where he has $600,000 of equity, and if you didn\u2019t take action during that time, that\u2019s okay. Don\u2019t sit around and cry about it. You can still take action today. It\u2019s just tougher than it was before, but it might be even tougher than this in the future, we may look back at these times and say, \u201cHey, there was a lot of opportunities. We should have taken advantage of it.\u201d<\/p>\n
All right, that was our show for today. Just to recap what we went over, we talked about a lot of things including how another property should be bought when you don\u2019t have the 20% saved up, is it makes sense to take from one property and use the equity to buy another? What to do when getting a late start in real estate? What strategies to use to really grow that nest egg to hand it off to the next generation? If we should scale a property management business or not, because frankly, it\u2019s a lot of work and to own RE or two lend privately. That was our last question there, and we got to look at the two different options.<\/p>\n
I hope that our advice today gave you a clear picture of what the next best step for you is, and even more importantly, help build your confidence when it comes to moving forward in your own real estate business and portfolio.<\/p>\n
Thanks everybody for checking out another Seeing Greene episode. Love having you here and love doing these. Remember, if you would like to be featured on the show or you\u2019d just like to support us, head over to biggerpockets.com\/david and submit your question there so that I can answer it.<\/p>\n
I\u2019m David Greene. You can find me @davidgreene24 on social media. So please go follow me on Instagram, friend me on Facebook, follow me on Twitter, and check out my website, davidgreene24.com. If you\u2019ve got a second, check out another BiggerPockets video and if you don\u2019t, we\u2019ll see you next week. Thanks everybody.<\/p>\n