\n<\/p>\n
About to take out a HELOC to buy an investment property<\/strong>? This could be a move you regret for years, ESPECIALLY if you\u2019re doing this in 2023. As home prices have risen and real estate investors search for more money to invest, the HELOC (home equity line of credit)<\/strong><\/a> has become an obvious choice for many. But drawing from these lines of credit could come with a lot more risk<\/strong> than you might think and may tank your <\/strong>cash flow<\/strong><\/a>.<\/p>\n David Greene <\/strong>is back on another Seeing Greene<\/strong>, live from Florida! But that\u2019s not all; Rob (Robuilt) Abasolo<\/strong> is coming on to tag-team your real estate investing questions. They\u2019ll first talk to Tim, who wants to invest in real estate<\/strong><\/a> in high-priced Southern California<\/strong>. He has a townhome with some sizable equity but doesn\u2019t know how to fund his first investment <\/strong>or make the most cash flow. David and Rob also hit on what to do with inherited <\/strong>or paid-off properties <\/strong>and how to scale when you lack the capital<\/strong>. Plus, we read a two-star review and combat it with a YouTube comment compliment from David\u2019s secret admirer<\/strong>.<\/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 jump on a live Q&A and get your question answered on the spot!<\/p>\n David Greene: Rob Abasolo: David Greene: Rob Abasolo: Tim Alhanati: David Greene: Tim Alhanati: David Greene: Tim Alhanati: David Greene: Tim Alhanati: David Greene: Tim Alhanati: David Greene: Rob Abasolo: Tim Alhanati: Rob Abasolo: David Greene: Tim Alhanati: David Greene: Tim Alhanati: David Greene: Tim Alhanati: David Greene: Tim Alhanati: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: Tim Alhanati: Rob Abasolo: Tim Alhanati: Rob Abasolo: David Greene: Tim Alhanati: David Greene: Tim Alhanati: David Greene: Rob Abasolo: David Greene: Tim Alhanati: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: JR Matthews: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: Rob Abasolo: David Greene: \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 834. Using a HELOC right now is not a bad idea if you could pay it back off. Flipping a house, making a loan, doing a BRRRR, that kind of stuff makes sense. But if you\u2019re doing this for the down payment of a house and you\u2019re locked in and it goes the wrong way, the economy getting worse, tenants having a hard time paying their rent, now you\u2019re getting double squeeze and it could go pretty bad pretty quickly, even when you did nothing wrong, just the market turning against you.
What\u2019s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, the baddest real estate podcast in the world every week, bringing you the how-tos, answers, secrets, and strategies that you need to be successful in today\u2019s ever-changing market. Today, we have a Seeing Greene episode. I know that the consistent green light that is usually behind me is not here. That\u2019s because I\u2019m traveling.
I actually came out to Florida a little bit earlier to promote the book Pillars of Wealth on the Valuetainment Podcast, as well as be ready for BPCON, which is right around the corner in Orlando. I\u2019ll be driving there from my rental in Fort Lauderdale where I am now, and I brought some backup. Rob is joining me, looking handsome as ever, to take your questions about real estate and give our perspective, the Greene perspective, on how they can be solved, and today\u2019s episode is awesome.
Before we get to it, we have a quick tip. My quick tip is take care of your short-term rentals when you\u2019re staying in them. I walked into my rental to record the podcast today before the cleaners came, and I\u2019ve noticed that there are fake eyelashes all over the place. They actually look ironically like caterpillars. And in Florida, there are caterpillars everywhere.
And one of them was moving and I thought it was one of the fake eyelashes moving and jumped out of my shoes as I thought that an eyelash had been possessed by a demonic entity, only to find out that it just looked a lot like a caterpillar. Rob, do you have any crazy Airbnb stories that you can share for today\u2019s quick tip of things you\u2019ve seen in these properties?<\/p>\n
Yeah, I think just go stay at your property and bring a screwdriver and tighten furniture. Every time I go stay at a property, I\u2019m like, dang, this chair was about to fall apart. One more person sitting on this and I\u2019d have a lawsuit on my hand. So I would say empower your cleaners with a screwdriver at the very least and encourage them to tighten things up, because things get a little loose there whenever guests are just jumping around everywhere, not taking care of your stuff as they would take care of their own.<\/p>\n
Ah yes, I refer to this as Ikea roulette. All right, in today\u2019s show, you are going to love it. We get into what to do when you\u2019re new and have a growing family and your property may make sense as a rental. A few scenarios with paid off properties, how to leverage them, if we should take debt out, how to get them performing optimally, scaling issues, is the market one where you should be scaling aggressively or is a more measured approach, more popular, as well as a two star review that you\u2019re not going to want to miss. All that and more in today\u2019s Seeing Greene. All right, let\u2019s get to our first question.<\/p>\n
Welcome, Tim. So what\u2019s on your mind?<\/p>\n
Hey, guys. Yeah, thanks for having me on. So I live in Orange County, California and I\u2019ve been starting to listen to the podcast a little bit recently. I\u2019m really new into the real estate investing world. My wife and I own our house, probably about 300K in equity, and we\u2019ll eventually want to move out. We\u2019re expecting our first child.
And once the second one comes, we\u2019re going to be a little bit crammed and definitely want to get into the investing world, whether it\u2019s in the SoCal area or starting into long distance investing, whether it\u2019s better to get into the long-term rental space or short-term. A few different questions that I\u2019m pondering based on being early into it.<\/p>\n
Okay. Tim, are you an analytical man?<\/p>\n
Yes, I\u2019m a numbers guy, absolutely.<\/p>\n
Not a surprise. I could tell from what you\u2019re talking about. Okay, so you\u2019ve got a little bit of equity in your primary home and you\u2019re considering tapping into that with a HELOC, right?<\/p>\n
Yes, I\u2019ve looked into it. Yep.<\/p>\n
And your comfort level is probably much more geared closer to long-term investing. Short-term is something that probably scares you a little bit, but you hear people talk about it, so you\u2019re willing to give it a chance?<\/p>\n
Nail on my head. Absolutely.<\/p>\n
Okay, and then have you considered just renting out the town home and buying something with the low down payment as a house hack when the baby comes, or do the HOAs of the town home make it not cash flow?<\/p>\n
No, it would cash flow a little bit. I\u2019ve run the numbers a little bit. It would cash flow. I mean, luckily we bought it four years ago. The mortgage was pretty low. We got a low rate, and I think the market rent would be pretty good. So I think it\u2019d probably be about 3,300 or so. I think we pay about 2,100 including the PMI and escrow and all that. So I mean, we have a little bit of capital right now to help out with a new house down payment, but obviously living in Southern California, it\u2019s a little tough.<\/p>\n
All right, Rob, I\u2019m going to let you start. What do you think?<\/p>\n
Yeah, so my question first and foremost is, are you doing this right now in this point in your life because you need money, or are you doing this right now because you just want to get into real estate?<\/p>\n
Good question. Not really in need of money as far as any sort of money crunch, but definitely wanting to get into it as soon as possible just to always thinking 10 years from now, I\u2019m glad I got into the real estate market, just more of a wealth building.<\/p>\n
Great. Okay, so if that\u2019s the case, just based on the fact knowing a little bit about you, knowing how much money\u2026 You said you have a little bit of capital. You want to get into it. I might actually push you a little bit more towards the long-term rental side for a couple of reasons. You said you\u2019re analytical. I think it\u2019s pretty easy to comp out what you\u2019re going to make on a long-term rental. I think it\u2019s a relatively standard process for doing that. I think you can be pretty calculated with that.
Not that you can\u2019t with short-term rentals, you totally can. Short-term rentals are just more volatile, and you\u2019re going to have some high seasons. You\u2019re going to have some low seasons. It\u2019s not going to be consistent. And so if you\u2019re just looking for something where, \u201cHey, I want to get in, I\u2019m cool to play the long game,\u201d long-term rentals are definitely going to be that. They\u2019re not going to be super high cash flow most of the time. There\u2019s exceptions to that rule. You\u2019ll make a little bit of money every single month.
And in 10 years, I think that\u2019s definitely something where you\u2019re going to say, \u201cWell, hey, I\u2019m glad I did that 10 years ago. I didn\u2019t make a ton of cashflow, but 10 years later my appreciation is super, super high.\u201d So I think I might push you a little bit towards there, especially considering that you\u2019re in Southern California. And I think if you\u2019re going to go the long distance route and if you\u2019re open to that, you might just have a little bit more stabilization on the long-term side of things.
I don\u2019t think you\u2019re going to be able to get a cash flowing long-term rental in SoCal. Maybe a short-term, but that will require more money, I think. What about you, Dave? What do you think?<\/p>\n
I\u2019m thinking more about Tim\u2019s personality than the actual market right now, and I don\u2019t think we talk about this enough within real estate investing, right? We tend to speak about it as if it\u2019s stock trading. So with stocks it\u2019s like, well, what\u2019s the best company? What\u2019s the best strategy? Because who David is as a person doesn\u2019t matter. I\u2019m just pushing a button on my computer, on my phone. But real estate investing is more hands-on. There\u2019s more creativity. There\u2019s more problem solving. There\u2019s more organizational skills.
It\u2019s more like piloting an aircraft, like a fighter jet, than it is to just putting something on autopilot and letting it go. The skills of the pilot matter, as well as the type of the plane they\u2019re flying. They sort of create this hybrid of success, and so your skills as a fighter pilot are going to play into this. If you\u2019re more analytical, if you\u2019re a little more risk averse, you want something that\u2019s a little more predictable, I think you do well as a short-term rental investor actually, because the smarter that you are, the more creative that you are, the better your work ethic, the more likely you are to succeed.
I\u2019ve been going through a really rough patch for about a year and a half right now with all of business and all of my rentals and all the people I have working with me, trying to move these pieces around to get everything to fit. What I found is that a lot of the problems with business and real estate come from the belief it should be passive. And frankly, that\u2019s the way that real estate investing has been marketed for a long time. So the more passive that you want something to be, the more headaches you\u2019re going to get from it.
It\u2019s always, I delegated it. I have my org chart. Someone is supposed to be in charge of this. What do you know? That person doesn\u2019t do a good job. The whole thing falls apart, and Rob\u2019s on the phone while we\u2019re in the middle of recording a show trying to get a hot tub delivered on one of his decks. And I\u2019m making fun of him because I say someone should be doing it, but Rob has figured out that it needs to get done right and I\u2019m the only one that I trust to do it. So Tim, I\u2019m going to come back to you. First off, are you okay accepting real estate is not going to be as passive as maybe you\u2019ve been told?<\/p>\n
Yeah, yeah. I think honestly, even with my current job, I mean, I stick to the hours and I\u2019m lucky that I don\u2019t have to work longer hours than I would. Normal 40 hour a week. I\u2019m willing to take the time outside of that and spend time doing it.<\/p>\n
So if you\u2019re willing to put the time and you have the skillset, which it sounds like you do, you will get a better return on your time in the short-term rental space. Because as a traditional rental, like all those ones I have, my skills as an investor, once you buy the property, there\u2019s not a whole lot you do. You got what you got, right? Your ability to look at that property and try to manage it will really only help you when you\u2019re trying to save money on repairs. That\u2019s about the only time.
You don\u2019t do anything to increase your revenue. You can\u2019t make the property taxes go down. With the short-term rental, you have a lot more control over the expenses and the income, which results in a better NOI, which gives you better profit margin, which opens up doors to hire more people. So I would like to see you get in that space. Now, I don\u2019t know if I would like to see you go there right away. All right? If you moved out and you house hacked, which I think you\u2019d be more comfortable doing, could you do a short-term rental on that town home or are those prohibited?<\/p>\n
No, I don\u2019t think so. I haven\u2019t looked into it. I\u2019ve actually also thought of doing a midterm even for that one.<\/p>\n
That you can do.<\/p>\n
Yeah.<\/p>\n
Yeah, that\u2019s what I do in California. They\u2019re 30-day rentals. Not everywhere\u2019s the same, but most of the municipalities in California will not let you do an Airbnb unless it\u2019s your primary.<\/p>\n
I think the one I have right now is a little versatile. I think I could honestly go either way with it.<\/p>\n
That\u2019d be great. I would like to see you house hack. Put 5% down on something else. Get as big of a house as cheap as you can, as ugly as you can, so you can add as much equity, as many bedrooms, as many units, whatever you can do to make that thing a good rental property later. And then just take your time. No pressure. Do you like a live and flip type of a situation? When you\u2019re ready, live in part of it with your growing family, rent out another part of it to somebody else. Turn that town home into a short-term rental or a medium-term rental.
And if it goes bad, your fallback plan is to make it into a traditional rental, which you already know will cash flow. I like this plan because it lets you screw everything up and then figure out what went wrong and fix it without a catastrophe. You\u2019re not putting 25% down and a hundred grand on a rehab and just closing your eyes and hoping for the best with this deal. You\u2019re getting exposed to what is going to go into real estate investing without making it a huge capital risk. Rob, you see me hosing that?<\/p>\n
No, I like it. Look at us switching sides over here for once.<\/p>\n
I saw the look on Rob\u2019s face when I said short-term rental. He\u2019s like, what?<\/p>\n
I was like. And also one thing I wanted to touch on, David, he mentioned using his HELOC as maybe part of the down payment or towards the down payment. What do you think about that?<\/p>\n
I\u2019m not against it in all cases. I\u2019m more against it now than I was a year ago. HELOCs are adjustable-rate mortgages, which means we tend to analyze properties based on what they are right now. I need to come up with a name for this, like right now itis or something. People always analyze a property with what\u2019s the rent right now? What does Rentometer say? What is the mortgage right now? Well, rents change where your expenses usually don\u2019t, okay? But with an adjustable-rate mortgage, your expense changes too.
The model of looking at it on a spreadsheet only tells you the minute that you close on the deal, what you can expect to get is likely rates are going to keep climbing. I just did a video about this on my YouTube yesterday that we don\u2019t know, but the mortgage-backed security market is getting a little bit fickle. They\u2019re like, I don\u2019t know if we want to keep buying all these mortgage notes right now because they think we could be heading into a recession. So they have to raise the mortgage interest rate to get people to buy them.
And if that continues, it\u2019s going to create pressure that rates are going to keep going up. That\u2019s not really tied to the Fed rate like people think. It\u2019s tied to the demand in the market. So using a HELOC right now is not a bad idea if you could pay it back off. Flipping a house, making a loan, doing a BRRRR, that kind of stuff makes sense.<\/p>\n
Somewhere you can get out of it pretty quickly, right?<\/p>\n
Yeah. But if you\u2019re doing this for the down payment of a house and you\u2019re locked in and it goes the wrong way and you start to hit trouble with the economy getting worse, tenants having a hard time paying their rent, now you\u2019re getting double squeeze and it could go pretty bad pretty quickly, even when you did nothing wrong, just the market turning against you.
That\u2019s one of the reasons I didn\u2019t say out loud, but I was thinking I\u2019d like to see you get into a house hack because you can put less money down. You don\u2019t have to tie into that HELOC. You can keep that powder dry.<\/p>\n
I agree with all of that. I just want to clarify though, HELOC being a home equity line of credit, so you\u2019re basically using that equity in your house to fund the next one. Is it an adjustable-rate HELOC? Because some are fixed. I have a fixed one from a few years ago, and I think that makes a pretty big difference. Tim, is it fixed or is it adjustable?<\/p>\n
I haven\u2019t done anything with it specifically. I was just curious. Most likely variable.<\/p>\n
Okay. Yeah, if it\u2019s variable, I think David\u2019s spot on. If it\u2019s fixed, I mean, you can calculate it, right? Even if it\u2019s a high interest. If that delta between using that to cancel out your PMI is worth it, then obviously data would say to do that. Just keep in mind that when you use your home equity line of credit, that will count towards your debt to income ratio, so that may lower your purchasing power on whatever property you buy.<\/p>\n
Yeah, that\u2019s new information I found out recently.<\/p>\n
Yeah, yeah.<\/p>\n
Very good point there, Rob. And I love that you brought that up because for everybody listening, if you\u2019re going to get a HELOC, now you know to ask the question, do you have a fixed rate HELOC option? All right, Tim, we\u2019re going to be getting to our next question. But before we do, where can our audience find you?<\/p>\n
I\u2019m on Instagram. I\u2019m @TimAlhanati. Pretty easy.<\/p>\n
@T-I-M-A-L-H-A-N-A-T-I. It wasn\u2019t as easy as you made it sound.<\/p>\n
It\u2019s a tough one. It\u2019s a tough one.<\/p>\n
I\u2019m @timvanderschlakenhadsenfuchi. Very easy.<\/p>\n
Wow, what a riff. I love it.<\/p>\n
All right, thanks, Tim. Let us know how it goes and reach out to me if I can help you in any way. Okay?<\/p>\n
Sounds good. Bye.<\/p>\n
And thank you, Tim, for joining us today. Remember, everyone get your questions in at biggerpockets.com\/david to be featured on the show. We hope that you are enjoying the shared conversation so far. Rob and I certainly have, and thank you for spending your time with us. Please make sure to like, comment, and subscribe on YouTube, as well as leave us a review wherever you listen to your podcast. We actually wanted to read one of the reviews that someone left us for all of you to hear with a specific way that you can help us out after hearing this.
So this was a two-star review that came in from GJOVI33 who said, \u201cWe will tell you all the best secrets,\u201d with an exclamation point, and then in \u201cbehind our paywall. Buy our masterclass to learn more.\u201d I can understand the frustration with that. I don\u2019t see how it has anything to do with BiggerPockets.<\/p>\n
Right, right.<\/p>\n
BiggerPockets doesn\u2019t really offer paid courses. Bootcamps is the only thing I think, and they\u2019re pretty dang cheap.<\/p>\n
Right. They\u2019re super cheap, and then we have BP Pro, which again is mega cheap and optional. And you get, honestly, I think most of the content on the website for free. So the podcast is free. I think what happened was his username is GJOVI33. He must be Bon\u2019s brother, and I think he\u2019s just got a chip on his shoulder that he never\u2026<\/p>\n
Because he was never the Bon Jovi that made it?<\/p>\n
He was never the Bon Jovi. He was the G Jovi in his family, and I think he was just\u2026 Yeah, he\u2019s just out to get it. He\u2019s out to let us have it kind of thing, you know.<\/p>\n
Well, Rob and I believe in turning lemons into lemonade, and here\u2019s how you can help us with our lemonade stand. If we get more of you to leave a five star review to overwhelm this two star review, this can actually be a net positive. So please head over, leave us a good review, an accurate and thorough review. This doesn\u2019t make any sense that this person\u2019s upset that you have to buy a masterclass. Definitely not a BiggerPockets thing. But enough of that, moving into the YouTube comments that y\u2019all have left on previous Seeing Greene episodes from FlorianWu7256.
\u201cIt was actually super interesting to watch both of Rob and David\u2019s different perspectives and conclusions. Our individual opinions are influenced by our own life goals and life experiences made me even more open-minded. Thank you.\u201d And from Riz Keysetya, \u201cGreat episode, David. I have question. I bought multifamily investment properties using a DSCR loan. My question is, can I move into the property since this property is an investment property? Please advise. Thank you.\u201d
Okay, in most DSCR loans, I don\u2019t know about your specific loan, your loan documents would say so, but in the vast majority of them, all the ones I\u2019ve seen, you cannot move into the property if it is an investment property. Now, what I can\u2019t say for sure is if you are prohibited from moving in it or if you are stating when you bought it that you are not going to move in it and it was not purchased with the intention of moving into it. So you would need to check with a loan officer that originated that loan, if that was us at the One Brokerage.
Send an email to your loan officer to ask this question. We\u2019ll get you an answer. But if you got it from someone else, you\u2019re going to need to go ask them. Most DSCR loans, they make you say that this is not something that you\u2019re buying to live in because they\u2019re using the income from the property to approve you for the mortgage and you\u2019re not going to be able to generate income if you\u2019re living in the unit. Does that make sense, Rob?<\/p>\n
Yeah, it does. It does. I would bet more than likely that you cannot live in there.<\/p>\n
The only question is I don\u2019t know if there\u2019s a law that says you\u2019re not allowed to do it, or if you just said, \u201cI am not intending on living in it when you bought it,\u201d and you swore that you weren\u2019t at the time.<\/p>\n
Right. Well, that\u2019s very true. For sure there\u2019s usually documentation that you sign that\u2019s basically like a, \u201cHey, I promise I will not live in this investment property.\u201d Just read your loan docs when you sign them. I know, crazy concept. But nowadays, I probably spend a little more time at the closing table than I used to a few years ago.<\/p>\n
All right, our next comment comes from episode 825. LOL. I love the three star from Debbie Part. It made me laugh. This is where Rob and I, or this is where we read a three star review from somebody else that wasn\u2019t super thrilled with the podcast. Hey, we bring you the good, the bad, and the ugly. Which of those three would you qualify for, Rob?<\/p>\n
I\u2019m good with just being the middle there. I think I\u2019m going to go the good. Oh, shoot. Sorry, I don\u2019t know why I was thinking good, better, best. Maybe I\u2019m just always optimistic.<\/p>\n
Yes, you are. I think that\u2019s what we learned about you.<\/p>\n
I think I\u2019m going to go good then. I\u2019m going to be arrogant on this one. I\u2019m going to say good.<\/p>\n
All right, Rob, put on your earmuffs before I read this one. Our next quote comes from Alexandra Padilla. \u201cLoved having you both on a Seeing Greene episode. I say you keep it going. Rob was my original catalyst into short-term glamping rentals, and you, David, have been my catalyst to become a full-time real estate professional. Having you both together is a big bonus. I vote to continue to bring Rob on. Thank you both for all the knowledge and real encouragement just to do something to keep moving forward. You guys rock. By the way, I love bald men. So sexy.\u201d
Folks, this is a groundbreaking moment in the world of BiggerPockets. This might be my first compliment from a female in YouTube comment history ever. It is a running joke that I will frequently get comments from somebody, like if I\u2019ve been working out and my arms look bigger, or the lighting was really good, always from dudes. I have a huge dude fan base. Never once has a woman said something. Let\u2019s hope that Alexandra Padilla is a real profile and not something that a dude made.
Rob, I\u2019m happy to have you here with me for this. How do you feel seeing my first ever compliment from a possible female fan calling me\u2026 Well, maybe she\u2019s not even saying I\u2019m sexy. She\u2019s just saying bald men are sexy. But indirectly, I\u2019m still going to take it.<\/p>\n
Can I take off my ear muffs? I haven\u2019t been listening.<\/p>\n
Good point.<\/p>\n
Okay, yes. I\u2019m just reading up on this, catching up. Look, man, I\u2019m really happy for you. I\u2019m really proud of you. I think this is a big moment for you. I think there\u2019s a moment where things change for people, and this is your moment, man. I think, Alexandra, if you\u2019re here, if you\u2019re listening to this, reach out. Reach out to David on Instagram or reach out to me. I\u2019m happy to make the connection and good day to you.<\/p>\n
And if you are someone who\u2019s been listening to this podcast, chasing your dreams, trying to hit financial freedom, let this be a moment of encouragement for you. I\u2019m going to share this victory with all of you. Because if I can get a compliment from a female on my physical appearance on this podcast, anyone can do anything. All right, and our last comment here comes again from Apple Podcast. This one from Justice Short, who gave us a five star review, labeled grateful.<\/p>\n
Just as short as who?<\/p>\n
What\u2019s that?<\/p>\n
Just as short as who?<\/p>\n
Oh, that\u2019s funny.<\/p>\n
Do you think that\u2019s what they\u2019re going for?<\/p>\n
Rob, Justice.<\/p>\n
Justice Short.<\/p>\n
Yeah, not just as.<\/p>\n
I used to know a guy named Justin Time. No, no. Justin Case. Real guy.<\/p>\n
Yeah, that\u2019s a funny name.<\/p>\n
Yeah, sorry. Carry on.<\/p>\n
Extremely grateful for this podcast. I loved it when Brandon was the host, but honestly, love it even more with David as the host and Rob as the co-host. This podcast offers everything any real estate investor could look for, from mindset to economics and practical advice to grow your portfolio. Appreciate you for all that you do and continuing to make me laugh with you all along the way. Now, that is a pretty nice review. How does that make you feel, Rob?<\/p>\n
That is heartwarming. Yeah, I\u2019m just like, who makes her laugh more, me or you? Both. Is it the dynamic?<\/p>\n
See what happens? One compliment and all of a sudden it\u2019s a competition with you now. I called you handsome Rob the whole time, and one person calls me sexy and you\u2019re like, \u201cWait a minute, what about me?\u201d<\/p>\n
Yeah, exactly. I got to get fed some of the compliments too. Justice Short, let us know. Let us know in excruciating detail which jokes have made you laugh.<\/p>\n
Excruciating detail. That is funny. All right, and just to keep it real, it is very difficult to make a podcast that focuses on practical advice, overall principles and philosophy, keeping it entertaining, keeping it moving quickly, and try to make people laugh. So thank you candidly, Justice Short, for the observation you left and the review. And again, if you like this, please go leave us a review wherever you listen to your podcast. They help us a ton.<\/p>\n
They really do.<\/p>\n
All right, our next question comes from JR Matthews in Boston, Massachusetts.<\/p>\n
Hi, David. My name is JR Matthews. I live in Boston, Massachusetts. I\u2019m standing on the deck of a waterfront two family that I\u2019m house hacking with my beautiful wife, Crystal. I was able to get this house as a result of following the systems I\u2019ve learned from your podcast and books. I have five small multifamily homes and I want to scale. I\u2019m running into trouble getting a HELOC due to DTI. I don\u2019t want to cash-out refi and lose my rates below 4%, and I\u2019m not crazy about selling any of the properties.
Should I keep hunting for a HELOC, sell the properties and 1031 into something better, or find a deal that\u2019s good enough to make a cash-out refi worth losing the low rates? If I live to the average age for men in the US, I have 12,775 days left to make an incredible life, so I\u2019m itching to make some moves here. Would love any advice you have to offer. Thank you guys so much for what you do.<\/p>\n
All right, Rob, this is an interesting dilemma and one I hear on Seeing Greene often. I know you\u2019re not always with me on these shows, but welcome to the club. Here\u2019s what\u2019s basically going down. I have something good going for me and I don\u2019t want to mess it up, but I also want to scale. It looks like this is a capital problem.
Now, most of the time we take equity, we turn it into capital. We reinvest it. We do that through a HELOC, a cash-out refinance, or selling the property. JR here says, \u201cI don\u2019t really want to do any of those three things. I feel stuck. What should I do?\u201d What do you have for him?<\/p>\n
Well, he\u2019s got something that a lot of people don\u2019t have, and that is multifamily experience. So I would say a lot of people would look at his portfolio and say, \u201cHey, he\u2019s got my dream life. He\u2019s got my dream portfolio. I would do anything to work with this person.\u201d I might consider opening up the conversation of just finding a partner, finding a partner that wants to learn what he\u2019s doing and maybe he can guide that partner in the purchase, maybe put a little bit of capital in the game so he\u2019s got some skin in the game.
But maybe work out a sweat equity versus capital type of thing and work with a partner\/investor, because it sounds like he doesn\u2019t want to do the other three things. Ultimately, I would say the three things he doesn\u2019t want to do are all things that are necessary to continue to scale. So he either has to make a compromise on that side or be willing to split equity with somebody else and move into the partnership investor type of scenario. What do you think?<\/p>\n
I love that you gave the practical approach because I really wanted to give the philosophical\/mindset approach and now I get to. This is really one of the huge motivations for why I wrote the new book Pillars of Wealth because this problem is a frequent one that we get in real estate investing. For the last 10 years, largely it\u2019s been the hottest market that real estate has ever had. And so the strategies that we would recommend were just scale, scale, scale. Pull equity out of stuff you did before.
Reinvest it into new stuff. Of course, you could have lost, but the odds of losing were so much smaller because the value of property was going up. The rents every year were going up. Rates were only going down. I mean, you had every single tailwind that you could possibly get, making it so that being aggressive was in your favor. It\u2019s not a market where being aggressive is in your favor as much. That does not mean, should I buy real estate or should I not buy real estate? It\u2019s not a polarizing thing.
It\u2019s a spectrum. It\u2019s just harder to buy real estate. So you should buy, but just be more careful. And what I don\u2019t like about this is he\u2019s giving up a sure thing for something that\u2019s much less likely to be a sure thing. In Pillars I talk about you need a three pillared approach to building wealth. One of those pillars is investing, of which we talk about real estate investing. So I don\u2019t really need to bring that up because everybody listening to this already gets it.
There\u2019s other people in the financial independence, retire early space or maybe the business space, the people that are listening to Alex Hormozi, they want to make a ton of money, they need to hear about real estate investing. They don\u2019t realize it\u2019s a pillar. Our audience knows. Our audience needs to hear about the other two pillars, the art and skill of saving money and the art and skill of making money. And what I really like to see from JR here is to let the frustration that it\u2019s hard to buy more real estate become the fuel or the carrot that causes him to make some different life changes.
Can JR make some cuts in his own budget? Can he budget money a little bit better and save more? Can JR maybe pivot a little bit here? Your favorite word there.<\/p>\n
Pivot.<\/p>\n
Pivot. Start a business, work some more overtime, get a raise, get a second job. Just take some risks in his financial life where he gets out of the W-2 cage and gets into the 1099 free-range, right? That is something I\u2019d like to see a lot more people do Instagram they want to improve their financial position. I want them to keep investing in real estate. I want you to get away from only investing in real estate.
The healthiest investors I know make money, save money, and invest the difference. And this question seems to be geared around, how do I scale without saving more money or making more money, and that\u2019s what makes me nervous. What do you think about that, Rob?<\/p>\n
No, totally right. One of the pieces of context here that we know on our end is he said that all properties are cash flowing around one to $3,000 a month. So let\u2019s take the average of that being $2,000, he\u2019s got five properties, so he\u2019s making about $10,000 of cashflow. I mean, that\u2019s not nothing, right? If he had came to me and said, \u201cOh, I have no money at all,\u201d that\u2019s like a whole nother conversation. But I think if he\u2019s very diligent in saving $10,000 a month, a year from now he\u2019s got 120K that he could theoretically roll into the next purchase.<\/p>\n
That\u2019s a great point. That would be focusing on the defense side. From the offensive side about making more money, that could happen within the investing pillar. So maybe these are traditional rentals that are all cash flowing like that. But if he moved them to midterm rentals or even short-term rentals, what if he could double the revenue that he\u2019s making at half the time it would take to save up the down payment for the next multifamily property?
He doesn\u2019t have to go learn a whole new asset class, lose his interest rates, try to 1031 into something that\u2019s risky. Just take the offensive pillars and apply them to the investing that he\u2019s already doing.<\/p>\n
Yeah, I think we get into this conversation of how can you make more money with your current portfolio? And that\u2019s a really good question. It\u2019s like, can he convert anything to mid and short-term rentals and maybe just amp up that one to $3,000 of cashflow per property to maybe two to $4,000. Even doing that would be pretty significant.<\/p>\n
Yeah, and it\u2019s better to make more money within your investment portfolio than it is to make it outside of it, because the money that you make within your investment portfolio is sheltered by the depreciation of the portfolio. So the taxes you pay on that money is significantly less when it\u2019s sheltered by depreciation versus if you just go get another W-2 job. Your income goes up, so does your tax rate. All right, moving on to the next question here.
It\u2019s from Gary Schwimmer in California. I had to hear any of the senior condo from my parents in Deerfield Beach, Florida. I own the condo outright and only pay the HOA fees and property saxes. I have left it empty for several years basically due to not knowing how to be a landlord. I\u2019m especially skeptical since this would be long distance. At a loss at what to do with this property. Do you have any suggestions?<\/p>\n
Easy. I love this one. He\u2019s got a good problem. Most people are like, \u201cI don\u2019t have money, or I don\u2019t have a property.\u201d He\u2019s like, \u201cI\u2019ve got a property. It\u2019s empty. What do I do?\u201d<\/p>\n
I mean, anything he does is better than what he\u2019s doing. That\u2019s another thing. You can\u2019t mess this up.<\/p>\n
So there\u2019s this concept that I call reverse arbitrage. And for those of you that don\u2019t know, rental arbitrage is the idea where you go and you rent a property from a landlord. You\u2019ve got to pitch to them on it. You got to get their consent. You rent that property and then re-list it on Airbnb. You can make decent money doing that. But reverse arbitrage is when you\u2019re the landlord who is open to leasing your property to an Airbnb host, and that\u2019s exactly what he could do. He could say, \u201cAll right, listen, I don\u2019t want to be a landlord,\u201d so he could just rent it to someone that want\u2026
Airbnb can be a little tough for people that don\u2019t have a ton of money to get into, but arbitrage allows you to get in for like eight to $12,000. So there\u2019s a whole pool of people that would beg him like, \u201cOh my gosh, please, can I rent your place? Can I list it on Airbnb?\u201d And as long as he was okay with that concept, which I don\u2019t see why he wouldn\u2019t be, then he could actually make really good money on that property without really having to do anything. He wouldn\u2019t need a property manager.
The co-host or the arbitrage person is basically going to manage the property for him and is going to pay him a little bit more than market rate. So that\u2019s my suggestion.<\/p>\n
I love it. And if you\u2019re going to take that route, a little bit of advice for you, my man, Gary, the person that you let rent this out as an Airbnb is going to be taking a risk. They are going to be looking for people to use that property and making the same or more than the rent that they\u2019re paying you. If they fail at their job, there\u2019s a very real possibility that they will not pay you the rent that you\u2019re owed. If you\u2019re going to take that route, choose someone that has something to lose. You don\u2019t want to do this for a person that has bad credit and no money.
Because if they fail at renting it out on Airbnb, they\u2019re going to have no problem just not paying you. You want to find a person that has something to lose, who doesn\u2019t want you to sue them, who doesn\u2019t want to be held accountable and responsible for the least that they agreed to pay you the money. The more they have to lose, the less likely they are to skip on your payment. So don\u2019t assume that all people you could do this with are the same.<\/p>\n
True. One positive thing is he\u2019s not used to making money already. So if the person doesn\u2019t pay him, nothing really changed.<\/p>\n
It\u2019s a beautiful thing of being at rock bottom. You can\u2019t get any worse. This is the most excited I\u2019ve been for a Seeing Greene question the entire time when I\u2019ve done it.<\/p>\n
I know. It\u2019s like a true softball for us. All right, one final thing. I can already feel the comments like, \u201cOh, Rob, arbitrage sucks.\u201d Listen, it\u2019s a good entry point for people that need to get in. But another entry point is you can actually get a little bit of that upside too, Gary, and you can actually instead of offering it up as a reverse arbitrage situation, you can find a co-host, find someone who is willing to co-host for you. You will have to pay for the furniture. You\u2019ll have to pay for the setup, which can cost you anywhere from 10 to 20 grand, depending on your space.
Have someone else manage it for you. They\u2019ll charge a 20% fee or a 15 to 25% fee to do so. And in that case, you get both the stable income every month and the upside, if they really, really come in and crush it, which in Deerfield Beach, I mean, I\u2019m sure you would probably do okay out there during the summer season.<\/p>\n
Yeah, and funny story, I\u2019m actually in Fort Lauderdale right now recording at my Airbnb that has not been cleaned yet from the guests that were here before. Try my hardest not to touch anything, and it\u2019s like less than eight miles away from Deerfield Beach, where Gary\u2019s condo is located. So let\u2019s see if I get in touch with Gary before I leave here and go check the place out for him.<\/p>\n
So you can rent it out.<\/p>\n
That\u2019s exactly right. I need a place to stay while my place is being cleaned.<\/p>\n
I do want to say that all the advice we just gave is contingent that the HOA allows it, because he says he does pay HOA fees. Normally HOA scare me, but considering he\u2019s in a beach town, typically a lot of condos in the Florida area, they do allow the short-term rental stuff. So it may not be an issue, but definitely read your bylaws on that one.<\/p>\n
Moving on, our last question comes from Rayna in Georgia. Rayna says, \u201cHey, David, I just bought my childhood home and it is paid in full, but it needs repairs. How can I leverage this home given the condition and no mortgage?\u201d Rob, what say you?<\/p>\n
Hmm. Well, I think first and foremost, she needs to get it rental ready no matter what. I think the paid in full thing, we\u2019ve had a couple people on Seeing Greene lately that have this. That\u2019s a gift. All right? A lot of investors would go out there and be like, \u201cLeverage. Leverage. Take out a cash-out refi. Go reinvest it.\u201d I actually think once you reach that point where something is paid off, it is a gift. It is a cash flow gift. So I would say try to be very scrappy with getting it rental ready and just put it up on the market and rent it and cash flow every single month.
There are different levels of rentals you can do from pad split to long-term rentals, to medium-term rentals, to short-term rentals. You can do pretty much anything you want, and the best part is that there\u2019s very little risk considering that you own it outright. And it\u2019s not like you\u2019re going to be missing the mortgage payments. You will still have to pay taxes and utilities and everything like that. But you are, in my opinion, in the least riskiest version of real estate as it stands. What do you think?<\/p>\n
Well, I think that they\u2019re asking, how do I get money out of the property to make these repairs? Is that the way you understood the question? How can I leverage this home given the condition and no mortgage? Or you think they mean, how can I use this home given the condition and no mortgage by leverage?<\/p>\n
Well, yeah, I think she\u2019s saying, \u201cI\u2019ve got this asset. How can I leverage it in my benefit?\u201d<\/p>\n
Well, it depends how bad the repairs are. If they\u2019re just basic repairs that need to be done and you can still generate some kind of rental income from it, you can rent it out to somebody in whatever way you do, traditional, midterm, short-term, whatever it is, and then use the money that comes in that you\u2019ve generated to pay for the repairs so that the property pays for them themselves.
The tricky thing would be if it\u2019s in such disrepair that you can\u2019t collect any rental income from a tenant, where the only tenant you can find to live in it isn\u2019t going to pay the rent. So what do you think from that perspective, Rob, if it\u2019s in such bad shape that it\u2019s not something that could generate revenue?<\/p>\n
I mean, I would say she could possibly consider a HELOC, and I just don\u2019t want her to go into a full on six-figure renovation, but she could consider a small HELOC that she uses to renovate it and get it rental ready and then rent it, and then just make the delta between her HELOC payment, her home equity line of credit payment, and the rental rate that she gets.<\/p>\n
Yeah, that\u2019s a great point. I think you could pay HELOC on the property for a small amount to make the repairs and then pay off the HELOC with the money that came in from it. But I would say, Rayna, don\u2019t do anything big. If you\u2019re new to real estate investing, you haven\u2019t done a ton, it says here in my notes you have one duplex in Florida and a single family in Birmingham, so maybe you have some experience, but don\u2019t go crazy in a market like this and dump a ton of money into that house when we don\u2019t know what\u2019s going to happen to the value of real estate or the ability to be able to rent it out.
There\u2019s a story going around in the news right now of somebody that has a house in Brentwood, California in Southern California with a tenant that\u2019s been in it for over a year that is refusing to leave unless they get $100,000. So we\u2019re starting to, unfortunately, see more and more of these tenants holding landlords hostage based on technicalities in the law.
So if you\u2019re not super experienced with real estate, I\u2019d hate to see somebody get into a situation like that. But like you said, Rob, this is a gift. It\u2019s a great situation to be in because the risk of making mistakes is so low when there\u2019s no mortgage.<\/p>\n
Yeah.<\/p>\n
All right, that\u2019s all we have for today. Thank you so much everybody for joining Rob and I on Seeing Greene. I hope that you see things from my perspective a little bit better, and that Rob\u2019s perspective added a little bit of color to green. I feel like it was a little bit more forest green that just David Greene today with you here.<\/p>\n
That\u2019s right. That\u2019s my favorite color, forest green. Any ornamentation I can add to the Greene factors honestly makes me a happy man.<\/p>\n
Thank you, man. What\u2019s your favorite color, by the way?<\/p>\n
It is green.<\/p>\n
It is green.<\/p>\n
I don\u2019t tell you that because I don\u2019t think you need to know that information, but it is green.<\/p>\n
I bet you say that to all the people when you\u2019re co-hosting the podcast with them. I hope that\u2019s the same thing that you tell Pace.<\/p>\n
When Brandon told me that, I told him my favorite color was Turner.<\/p>\n
That\u2019s funny.<\/p>\n
And he was like, \u201cWhat?\u201d And I was like, huh?<\/p>\n
My favorite color is you. This is David Greene for Rob \u201cThe Shameless Gadfly\u201d Abasolo signing off.<\/p>\n