\n<\/p>\n
Finding an investment property<\/strong> in preforeclosure<\/strong> can feel like uncovering a diamond in the rough, as the seller may be more motivated to get a deal done faster and for less. However, there\u2019s one crucial thing you should be aware of BEFORE you take action on your end. Hint: you could pay a few extra costs to score a RARE deal<\/strong>!<\/p>\n Welcome back to another Rookie Reply<\/strong>! In this episode, Ashley and Tony talk about buying properties in preforeclosure<\/strong>\u2014including when it makes sense to buy a property <\/strong>\u201csubject to<\/strong><\/a>.\u201d They also go over the most important <\/strong>data points to analyze<\/strong><\/a> when choosing your market<\/strong>, as well as how to avoid jumping the gun when listing a new property for rent<\/strong>. Finally, home renovation projects<\/strong><\/a> can be tricky when you\u2019re an out-of-state investor<\/strong><\/a>. Our hosts share how they purchase materials, as well as their go-to investing hack <\/strong>that will save you a fortune<\/strong>!<\/p>\n Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: Tony: Ashley: \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 Real Estate Rookie episode 338. My name is, Ashley Kehr, and I\u2019m here with my co-host, Tony J. Robinson.<\/p>\n
And welcome to the Real Estate Rookie Podcast where every week, twice a week we bring you the inspiration, motivation and stories you need to hear to kickstart your investing journey and if you\u2019re watching this on YouTube I might look a little bit different today. I\u2019m pulling a bit of a, Clark Kent, I brought out my glasses. Ashley, didn\u2019t even recognize me today. She hopped on and she was like, \u201cWell, who is this person and where is my co-host?\u201d<\/p>\n
I mean, you\u2019re saying, Clark Kent. But I\u2019m pretty sure I said nerdy or dorky, but okay.<\/p>\n
They\u2019re one and the same. One and the same. But no, all jokes aside guys. We got a good episode today where we\u2019re hitting you guys with another Rookie Reply and we\u2019ve got four questions that we\u2019re going to cover today. We talk a little bit about if you\u2019re in that stage of choosing your market, what are those data points that you should be looking at to know if a market is a good market or not? Which is an important thing to consider today especially in 2023 if you\u2019re thinking about investing. We talk a little bit about paying contractors. What\u2019s the right way to do that without getting maybe scammed by a contractor and how do you make it easy on yourself as well?<\/p>\n
Yeah. And we talk a little bit about credit card hacking and how you can incorporate that into your contractors paying for materials for your rehabs and your projects. Then we talk about liens on properties, foreclosure, pre-foreclosure and we give a couple examples of properties that I\u2019ve purchased that are in foreclosure or were foreclosed on and what it was like dealing with the bank. So if these are things you are interested in this is the episode for you and as always, no matter what your strategy, what your experience, we always try to educate you and leave you little pieces of nuggets that maybe there\u2019s one aha moment per an episode that we help you have. So if you have any of those aha moments, we would love for you to please leave us a rating and review on your favorite podcast platform or on YouTube and let us know what you have learned from the rookie podcast and maybe someone will read it and be inspired to take action on their real estate journey.
Before we bring on your Rookie Reply questions, this could be the last episode that, Tony, and I record together before baby comes. So even though when this actually airs, baby will be here.<\/p>\n
Baby will be here for sure.<\/p>\n
But we are counting down the days before, Tony, is on his paternity leave and we\u2019ll have separation anxiety from not seeing each other every single week on Zoom, sometimes twice a week. So there\u2019ll be lots of FaceTiming with the baby, I\u2019m sure.<\/p>\n
A baby girl.<\/p>\n
Yeah. So if you haven\u2019t already make sure you congratulate, Tony, because by the time the airs he\u2019ll have a little newborn baby girl.<\/p>\n
Exciting times, guys. Well with that, let\u2019s get into today\u2019s questions.<\/p>\n
Okay, today\u2019s first question is from, Blake Kretsinger. I did not say that wrong. Kretsinger. Kretsinger, maybe one of those are correct. Okay. Blake\u2019s question is, \u201cWhat are some metrics you use when identifying potential markets to invest in? I\u2019ve determined that long distance investing is my best bet as my home market, the DFW is a pricey one. I\u2019m looking to utilize the BRRRR strategy and I\u2019m looking to identify several markets with a lower cost of entry. The main factors I\u2019m assessing as of now are population growth, medium home price growth, crime levels, average household income growth and job growth. What would you add, take out of my analysis?\u201d Tony, I see you vigorously writing down notes. What do you got?<\/p>\n
So I think there\u2019s a few pieces to this, right? So Blake, first it\u2019s a fantastic question and one that I think a lot of rookies are thinking about. So I\u2019m glad we get to discuss this but before we even get into hey, what are the data points I should be assessing when I\u2019m looking at a market? I think the first question you have to ask yourself is, what is my motivation as a real estate investor? What is the actual purpose that I have for investing in real estate? And typically, there\u2019s three big buckets that you kind of fall into. There\u2019s cashflow, there\u2019s appreciation and there\u2019s tax benefits. Right? Cashflow, appreciation, tax benefits, and usually you\u2019re trying to balance those three and if you\u2019re investing in short-term rentals there\u2019s a fourth one which is vacation. So maybe you just want to subsidize the cost of you owning a vacation home somewhere, but cashflow, appreciation, and tax benefits. So between those three I\u2019d say gauge which one is most important, second important, third important.
So kind of prioritize those into a list and then that\u2019s going to help you determine what are the underlying metrics that are more important to you. Because you have population growth, median home growth, crime levels, household income, job growth, etc. But what if your goal is really just cashflow right now today? Then maybe you\u2019re not as concerned about average median home price growth, right? Because that\u2019s not as important to you. What you\u2019re really focused on is how do I maximize my cashflow? And if that\u2019s your ultimate, ultimate goal, then maybe you\u2019re not even as concerned about crime levels. Because you\u2019re like I\u2019m fine going into a war zone if I can get a 40% cash on cash return on a traditional long-term rental. So I think the first piece is understanding which of those three is most second and third most important. What are your thoughts, Ash?<\/p>\n
So a while ago, Steve Rosenberg, another investor and he does a lot of business coaching and consulting and we sat down and we actually made a market analysis worksheet as to like here are the things that you should be looking at when analyzing a market. So I\u2019m just going to read them off real quick, and it was really interesting to see our different perspectives as to what was more important to each of us and then we kind of combined them. So look at three different job industries, you want to make sure that there\u2019s not just one industry that supports the towns. Because if that facility closes, then majority of people are out of work and they\u2019re relocating. So you want to look at the three major job industries that are there, population growth, average home value, average rent, the price to rent ratio. So how much are you purchasing these properties for and what would be the rent that you\u2019d get out of it? The tax assessment percentage, so how much are you paying in property taxes? What\u2019s the percentage based on the home\u2019s appraised value? The utilities, if there\u2019s anything unique.
So around here, a lot of homes are heated with natural fuel. So we have lines that are run from the road just like you\u2019d get your electric or whatever and then the gas heats your house, the natural gas. And sometimes there is not that available and you actually have to get propane tanks and hook them to the house and then you have to have a propane truck come and fill the propane tank. So looking at different things like that as to are there unique things that may determine the home\u2019s value? It definitely is a lot more convenient to have natural gas supplied to your house than actually having to come and get your propane tank refilled. So different things like that. Then seasonal maintenance, are you going to have to worry about snowplowing? Are you going to have to worry about the snow load on the roof? Specialty insurance, are you in a flood zone? Are there hurricanes? Are there kind of natural disasters that happen? You have to have specialty insurance, earthquake insurance. The average age of renters, average income of renters.
You want to make sure that the average people in that market can actually afford what you would want to list your unit for rent. Average education level, percentage of homeowners verses percentage of renters. The crime statistics and the school district rating, the average age of property. So if you don\u2019t want to get into renovating a 1900s home, don\u2019t buy in an area where the majority of them where I live are from the 1900s. The average vacancy rate in the area for other landlords and then are there multiple exit strategies? So if you were buying this as a short-term rental, would it also work as a long-term rental or vice versa? So those are the things that we had on our list and I\u2019m going to give you two resources to find a majority of this data without having to go and search for it. The first one is brightinvestor.com, where you can put in the zip code, the neighborhood that you\u2019re looking in and it\u2019ll give you a lot of this market research and then the other one is neighborhoodscout.com where it\u2019ll give you a wealth of information too.
There are some free capabilities that you can\u2026 Some information you can pull from these or you have to pay. So I think NeighborhoodScout, you can pay per zip code or something and I think it\u2019s like 20 bucks and you can get the full report. So those are my two recommendations as to someplace to get you started so you\u2019re not having to find and Google and search every single little piece of information.<\/p>\n
That was a great breakdown, Ashley, of all of the different data points to look at and the insurance one really hit home with me. So for those of you that have been listening to the podcast for a while you know that part of the reason that my Shreveport house, that deal kind of fell apart was because the flood insurance premium quadrupled from one year to the next and almost immediately made that house unprofitable. So understanding those nuances I think are pretty important. But everything that, Ashley, just went over\u2026 I guess let me take a step back. There are two types of data that you want to consider when you\u2019re considering a market to invest into. You have your quantitative data and then you have your qualitative data. So quantitative is everything that, Ash, just talked through. Right? Like vacancy, job growth, flood insurance premiums, things like that. Right? Your qualitative information, your qualitative data, that comes from conversations. So that\u2019s you talking to local property managers in that market and getting a sense of hey, where do you feel this market is moving?
What are the pockets that work well? What are the pockets that don\u2019t work well? Where should I avoid? Where should I focus on? Talking to local real estate agents in that market, right? A good agent should know their markets like the back of their hand. I love my agent in Joshua Tree because this guy is just an encyclopedia of everything happening in and around that city. He knows what laws are getting passed, he knows what the city council\u2019s talking about, he\u2019s just tapped into everything. So a good agent can also give you a lot of that qualitative information and then the third place to look for that is other real estate investors in that market. So go to your local meetups, right? Get active in Facebook groups that are local to your city and try and have conversations with folks to understand what has their journey been like? Because the data\u2019s going to point to one thing, right? The data\u2019s going to paint one type of story. But you can really get that full picture by talking to someone and really understanding their unique experiences because there\u2019s always fuzziness in data.
You can never be 100% certain just by looking at numbers, but you can build that confidence in your decision by talking to someone that\u2019s investing in that market. So if I wanted to invest near Buffalo, New York. I\u2019m not just going to look at the data, I\u2019m going to go to, Ashley. I\u2019m going to say, \u201cAshley, give me the playbook. What should I be focusing on? What pitfall should I avoid?\u201d And, Ashley, could probably rattle those off the back of her hand because she\u2019s done it so many times. So you want to look for the quantitative and the qualitative data.<\/p>\n
And I think some of the\u2026 When you\u2019re deciding what markets to actually analyze start where you have those kind of opportunities. Whether maybe it\u2019s your hometown, so you know some of the streets, you know the areas, you know what\u2019s good and bad or you have a boots on the ground, you know somebody that you can ask those questions too. Just an idea, it may not work out to be the market that works for you but that\u2019s a great place to start is where you have those advantages.<\/p>\n
Just one caveat that we should add to that too is that it\u2019s good to have both. I see some mistakes that some people make is that they only rely on the qualitative data and that they don\u2019t focus enough on the quantitative. So just because someone says Orlando Florida is a great place to buy a short-term rental or St. Louis, Missouri is a great place to flip a home. Just because you see that on TikTok or Instagram or YouTube or wherever, don\u2019t let that be the only data point that you use to then go out and invest all your money into that market. So the qualitative is a good balance, but you want to make sure that you\u2019re still getting both of those.<\/p>\n
And verify data.<\/p>\n
And verify.<\/p>\n
Yeah.<\/p>\n
Yeah.<\/p>\n
Okay, so the next one is from, Inca Comstock, and this question is going to sound dumb but hey, no dumb questions here. \u201cIf a contractor lets you buy materials with your personal credit card, how do you do this? And you\u2019re out of state. Do you just have to go with him and purchase materials with them? What options are out there?\u201d So this is where, how much do you trust your contractor where you actually make them an authorized user and they get their own credit card to use and you know what transactions are coming from them. Because it\u2019s a credit card that has their name on it and to add someone as an authorized user you don\u2019t typically need their social security number or anything like that. You just need their name and address to have them added on, if they don\u2019t want it to impact their credit.
You can do that, but another option is to actually buy the materials online with your credit card and have it ready to be picked up at the store and they will go in and be able to pick up the order and you would just add them as the person that\u2019s picking up the order. That I think is one of the best ways to do it out of state, you don\u2019t want to actually give them your credit card to do it that way.<\/p>\n
We\u2019ve done both of those. Our guy, Nacho, who\u2019s done all of our flips, he\u2019s an authorized user of one of our credit cards. But same, usually like Home Depot you can have your credit card on file if you\u2019ve got the\u2026 What is it? Like the pro account or whatever it is. Your contractor can just walk in and say, \u201cHey, I\u2019m here for this job.\u201d<\/p>\n
And charge it.<\/p>\n
And yeah, they can charge it. And that\u2019s a big reason why we\u2019re kind of selective on which vendors we buy from. Sometimes our designer who we work with, she creates amazing designs but sometimes she picks these somewhat obscure places to get the selections from and we like places that we can always order online, that ship fast. So ideally we can even save our contractor the trip of going to the store to pick that stuff up, we try and buy everything online and just ship it directly to the property to save a lot of that headache. I guess one other option you could do, say that maybe the store you\u2019re buying from is a local shop that doesn\u2019t process orders online. If you\u2019ve got maybe a more tech-savvy contractor that you\u2019re working with, they could just invoice you say they\u2019re using QuickBooks or something. They could invoice you, you could use their credit card to pay their invoice and now they\u2019ve got the cash from that invoice payment to go out and pick up the materials. So another option in case you want to go that way.<\/p>\n
The only thing with doing it that way then is that the contractor is paying the credit card fees.<\/p>\n
Or they\u2019re just marking you up.<\/p>\n
Yeah.<\/p>\n
Yeah, so whatever those fees are maybe tap on an extra 100 bucks or something like that. Well one thing that you said, Ash, that kind of brings up another question is you said if you add your contractor it doesn\u2019t impact their personal credit. Do you always set it up as a business credit card or do you sometimes use personal credit cards? What\u2019s your mix for funding the rehabs?<\/p>\n
I definitely do business credit cards, because those sign up bonus points are amazing and so yeah, I always do a business credit card and, Daryl, does a lot. He handles pretty much all the project management for materials and things like that. But there was a couple, so he will usually order it online, have it ready for pickup. Or he\u2019ll go and do the order and just go shopping or whatever and bring it to the property if it\u2019s a department turnover or whatever for the contractor. But last year, over the winter there was two contractors I each gave a credit card to and all I had was keep the receipts in an envelope for me and then at the end of the project they had a budget and their budget was based on their labor and their materials. So I think they went over maybe $63 or whatever, but he paid that out of pocket that that was over the budget whatever.
And so I just had them save every receipt and then also anything that they needed to return to make sure it got returned and give me the receipt for the return and then I just would scan them all into QuickBooks. And now, Daryl, does all of that too where every receipt goes into QuickBooks with the ScanSnap and then it\u2019s just assigned to whatever property it was for. But we just gave our short-term rental manager a credit card so she can go on Amazon and in our Amazon account and order stuff and it gets sent right to the cleaner\u2019s house and then the cleaner will be the one that takes it to the property for us and so we actually added her as an authorized user on our credit card. So it\u2019s me, it\u2019s Daryl, and then it\u2019s her for this one LLC and I like the fact that when the statements come I can have that kind of glance over as to how much each person is charging instead of just giving somebody my credit card or whatever.
Making them the actual authorized user. Because it\u2019s not like anybody checks at a store that it\u2019s actually you using a credit card. So technically you could just give them any credit card, especially if it is an LLC. No one\u2019s looking at the actual name on the credit card, but I think it gives them a more sense of accountability is like this card has your name on it and it was used to purchase this.<\/p>\n
Yeah, there\u2019s some increased accountability there for sure. One thing you mentioned though was the Amazon piece, and I just want to share this with people because it\u2019s been really helpful for us from a bookkeeping perspective. But we have Amazon Prime, but there\u2019s Amazon Business Prime and the way that we set it up is that you can have different groups. So each one of our business entities is set up as a different group inside of Amazon business and then you can assign your different team members, users, vendors, whoever to specific groups. And then whenever they go to make a purchase on Amazon you can set it up so that before they can complete that purchase they have to include the information you need for bookkeeping. So for us, they always have to tag what property that purchase is for and then they have to tag the account number inside of QuickBooks. So like is this consumable supplies? Is this whatever, repairs and maintenances? What is it? So that way our bookkeeper at the end of each month, instead of having to chase down receipts and do all this stuff she also has access to Amazon.
She can see all the receipts there, she can pull a report at the end of the month that\u2019s itemized by expense that shows what property was it for and then what was the associated account number. That little hack alone sounds super simple but it saved us a ton of administrative time of managing receipts for Amazon specifically. So now Amazon\u2019s got us, all of our consumable supplies we pretty much only buy it through Amazon because it\u2019s really streamlined the process of the bookkeeping and accounting for us.<\/p>\n
Yeah. That\u2019s what we did too for the short-term rentals is we added a completely separate group and it\u2019s definitely made it a lot easier. But did you know that with Amazon Prime Business, they don\u2019t include Prime Video anymore? You got to pay extra for that now? It used to be included.<\/p>\n
I did not know that.<\/p>\n
And I don\u2019t have a personal Prime account, so I had to shell out the 11.99 for Prime Video.<\/p>\n
Ashley, you don\u2019t have a personal Prime account? Or you just order it all through the business?<\/p>\n
Yeah. I have one of the groups is me personally along with my four siblings, that\u2019s my contribution to my family. My brother has the Netflix, I contribute Amazon Prime and yeah.<\/p>\n
Yeah, I got to set it up that way. Because we have Apple TV+, we have Prime or we have Amazon Prime, we\u2019ve got Disney+, ESPN, Hulu, that whole bundle. It\u2019s ridiculous now, we\u2019re spending almost as much on these streaming services as we were on traditional cable and we still have cable which makes no sense.<\/p>\n
Yeah.<\/p>\n
Yeah.<\/p>\n
We just had to buy YouTube TV because that was the only way we could watch football games is that. Because last year we were streaming after we have to download this to watch the game and then we\u2019d forget to cancel it and then we\u2019d have to pay for it, but yeah.<\/p>\n
That\u2019s how they get you.<\/p>\n
Yeah. But one thing with the credit cards too, which we\u2019ve actually talked about quite frequently is using the reward points on them too. So you had mentioned at Lowe\u2019s you can do the Lowe\u2019s business pro account or whatever and sometimes with some of their programs they have many different ones. The same with Home Depot is you use their credit card that they offer, like the Lowe\u2019s credit card and you get 5% back or whatever it may be. But you want to weigh out what\u2019s more important to you. So I don\u2019t use the Lowe\u2019s credit card anymore, we use usually it\u2019s the Chase Business Preferred card or whatever where the signup bonus is 100,000 if you spend $5,000 within the first three months, something like that and that\u2019s about 1,000 in travel right there. So that\u2019s something to be cautious of too, is take advantage of those points that the credit card offers.<\/p>\n
I got to share a story because I was so frustrated when I did this. But we signed up for, I think it was an American Express card for one of our LLCs and got the card and we have a little booklet at home with all of our credit cards inside of it. I put it inside of that booklet and I just forgot about it, didn\u2019t even remember that we had it and I missed the window to spend the $5,000 to get those bonus points. So it\u2019s like I applied for this card and didn\u2019t even get to use it and then I finally went to go use it for something and it got declined. I was like, \u201cWhat the heck is going on?\u201d It was a relatively small purchase amount and they\u2019re like, \u201cOh, if you don\u2019t use the card we actually reduce your spending limit down to something like\u2026\u201d It was like $500 if you didn\u2019t use it fast enough. So I was like, \u201cWhat the heck am I going to do with this card now? $500?\u201d So anyway.<\/p>\n
You\u2019d go out to dinner.<\/p>\n
Yeah, right.<\/p>\n
Then pay it off immediately before you use it again.<\/p>\n
Yeah.<\/p>\n
Yeah, I just did one and actually I am always afraid of that of missing\u2026 So I always have to go through and look like when did I sign up for this, whatever. So I just opened one a couple of weeks ago and I put a calendar invite as to like here\u2019s the last 30 days to hit that spend. So a reminder to myself to go in, see how much I\u2019ve spent so far and I have 30 days before the statement ends or whatever to make sure that I reach that.<\/p>\n
That\u2019s a really good idea.<\/p>\n
Yeah.<\/p>\n
I feel like I need a Monday board that has all my credit cards inside of it because we have so many different entities that we\u2019re spinning off right now. I feel like I need someplace to keep it in line.<\/p>\n
Let\u2019s see. Our next question is from, Charles Simon McAnte, \u201cFirst time buying a property and placing it for rent right away instead of living there in the beginning, then turning it into a rental. So I have two questions. Do you have to wait until closing date to place it on the market for rent? It\u2019s currently vacant. Second question, after closing do you turn on all utilities for a few days under your name then switch it to the tenant or do you just wait to have a tenant?\u201d So the first question, which is a really good question is typically yes you do have to wait. There could be the circumstance where you put that into your contract with the seller but what happens if you don\u2019t end up closing on the property? So first of all, make sure you have permission from the actual owner to list that unit for rent if you do decide to do that. Because you could get into a lot of trouble listing a unit for rent that you don\u2019t even own yet, they call those people scammers.
So I would get permission from the seller to do that and get something in writing saying that it is okay and make it very clear that the house is not available for showings or whatever until a specific date in the listing. And I would not accept any kind of application or deposit or anything until you actually own the house.<\/p>\n
Ash, what do you think about using the coming soon feature that you see on some listing platforms? So maybe, Charles, could list the property but not like you said really allow anyone to do anything. But they can see the photos, they can submit their interest but not necessarily apply. What are your thoughts on that?<\/p>\n
Yeah. So in AppFolio, they have what\u2019s called Guest Cards. So it\u2019s like the first step of somebody being interested where they fill out a little bit of information about themselves and that could be a great first step. Is you\u2019re just collecting your list so that when you do close you can contact these people and say I\u2019m doing showing this day or start to say that it\u2019s now available. But yeah, I think that\u2019s a great idea to do the coming soon for sure. I didn\u2019t even think of that. Okay, for the second part. \u201cAfter closing, do you turn on all utilities for a few days under your name then switch it to the tenant or do you just have to wait for a tenant?\u201d Utilities and insurance When acquiring a property, you guys would be so proud of me. I closed on a property on Friday and everything was done at least four days in advance. Usually it\u2019s the day before. But for this, so think about it especially since it\u2019s vacant and you\u2019re going to want to show the unit and you most likely won\u2019t have a tenant lined up.
Because you\u2019re not showing it before you own it, is you want to have the lights on, you want to have the gas on. Here\u2019s what has happened to me a couple of times when I forgot to switch the utilities is that I then own the property. Well, the person that sold me the property they call and say, \u201cI no longer own this property.\u201d If nobody else has called to switch it into their name, the utilities get shut off. So when the utilities are shut off especially for gas, when they come and turn them on they give you a timeframe from 8:00 AM to 5:00 PM that they will be there and someone has to be there to let them in. There also has to be some kind of appliance in there like a stove where they can turn it on to make sure it lights the gas, everything is good and they also check all the pipes for gas leaks. So if you have a little tiny gas leak, a little pinhole, they\u2019ll not turn your gas on.
It is way better to have a plumber come in and assess the pipes while the gas is on so that you don\u2019t have to go through the whole thing and they will actually red tag your property and you have to wait until you can get a plumber to fix it and then you have to pass a whole inspection to get your gas actually turned back on. So having utilities stay on is worth you putting it, making that phone call and sometimes you can do it just online too you don\u2019t even need to call anymore. Put it into your name those couple of days and some utility companies even have a landlord program. So every time somebody moves out of your property, they will automatically resort it back to your name and then you don\u2019t even have to call anymore when somebody moves out to switch it back into your name. They\u2019ll just switch it back until the new tenant calls to put it into their name too and it also keeps you listed as the owner of the property if there\u2019s any problems or things like that.
So I recommend doing that in advance once you know the closing date. So if you know you\u2019re closing on the 15th, call. Even if it\u2019s two weeks before call and say it\u2019s 15th, you can always change it or worst case scenario, you\u2019re paying the electric for an extra day or something like that.<\/p>\n
Or what can happen is, which is what happened to me. I think I shared this story, but I had a property that was selling and for the buyer\u2019s inspections I had to turn some of the utilities back on and one of those utilities was\u2026 I think it was the gas company and I turned it back on, forgot to call to turn it back off and I think eventually they ended up shutting it down. But they sent the final bill to the property instead of to me and I ended up going to collections for a $200 gas bill, because I never got notification that it was still running. So I actually just got that removed from my credit report after fighting with them for a year. So if you are going to do it just make sure that you\u2019re like, Ashley. That you\u2019re planning it out correctly and that you\u2019re not like me and forgetting that you have these utilities turned on at certain properties.<\/p>\n
Yeah, and I didn\u2019t get anything sent to\u2026 Actually, I think I did get one thing sent to collection. When I left my property management company I found out there was a lot of bills that weren\u2019t being paid, things like that and a couple of them were utility bills. Where tenants had moved out and they put it into my name and the billing address was the property management company. They got the bills, they had to get the notices, things like that.<\/p>\n
Didn\u2019t send them to you.<\/p>\n
Yeah, and this was even when they were managing it. It wasn\u2019t like they were done yet, this bill was from January and they managed until May. So that I remember, and I remember getting the letter that it\u2026 I think it was going into collections or something and I\u2019m like calling. I\u2019m like, \u201cWhat is this even for? I don\u2019t even know.\u201d And yeah, so nerve wracking.<\/p>\n
That\u2019s the worst feeling to be surprised that you\u2019re going into collections. I was literally applying for a refinance and my lender calls me he\u2019s like, \u201cHey, Tony, we\u2019re still going to be able to close. But your interest rate isn\u2019t going to be what I told you because you\u2019ve got this collection account.\u201d I\u2019m like, \u201cCollections? I\u2019ve never missed a bill in my life like what are you talking about?\u201d And yeah, anyway. Learn from my mistakes, just be on top of that because it can hurt you in the long run if you\u2019re not.<\/p>\n
Yeah. My one business partner, he was going to buy a new business with his dad and he had to be approved. It was like a franchise thing and he had to be approved by the franchise and he was denied and it was because he had a Spectrum cable bill that was unpaid from when he lived in one of his dad\u2019s apartment complexes and stuff and it was just like this whole thing and he paid immediately. But he was so embarrassed because it went to this franchise group he\u2019s trying to start this business with and everything, it was mortifying.<\/p>\n
You can\u2019t even pay an internet bill and you want to buy a franchise. But just, if you do find yourself in that situation you can get it removed from your credit report. You have to ask for what\u2019s called a deletion letter. So basically I called these people I said, \u201cHey, look. I\u2019m happy to pay you your money, I just need a deletion letter.\u201d And part of the beef was that I wanted the deletion letter before I actually paid it, that way I could make sure that I actually got it. But they were just paying hardball, so eventually I just paid them the money upfront and they sent the deletion letter afterwards and you submit that deletion letter. They\u2019ll do it as well, but then you could submit it yourself to the credit bureaus to actually show that it\u2019s paid in full and it comes off of your credit report.<\/p>\n
Oh, yeah.<\/p>\n
So yeah, I learned a lot about removing things from your credit report.<\/p>\n
You know what? I\u2019m glad you went through that experience so that if that does happen to me I know what to do now.<\/p>\n
You don\u2019t have to freak out about it now.<\/p>\n
Yeah, okay. Let\u2019s go on to our next question here. This one is from, Kristen Marks. \u201cGood morning everyone, thanks for adding me.\u201d So this must be a question from our Real Estate Rookie Facebook group. You want to leave a question? You can definitely leave it into the group or you can go to biggerpockets.com\/reply. Kristen, says, \u201cI\u2019m new to real estate investing and have a question. If I am looking at a pre foreclosure and there are liens against the property, can I still buy the property from the buyer or do I have to go through any lawyer or get it okayed from the bank? Thanks in advance, I\u2019m excited to be starting this journey.\u201d Tony, have you ever bought anything in a foreclosure or pre-foreclosure?<\/p>\n
I have not. But I think it might be even good, Ash, to define a few of these terms. Right? So what is foreclosure? What\u2019s a lien and kind of what does that process look like? So foreclosure is when a person who owns a home or someone who is paying a mortgage. Right? They have debt, they have a mortgage against their property and if they stop paying that mortgage payment the bank then comes in and repossess the property. So they take ownership back and they foreclose on the person that owns the property, right? So it\u2019s for failure of payment on your mortgage and then the bank now owns that property and then they want to get it sold as fast as they possibly can. Pre-foreclosure is like the step right before the bank takes it back because banks they don\u2019t want to be in the business of owning real estate. Right? They\u2019re in the business of lending money and making money on the money that they lend.
So if they can find a way to short sell that property if it\u2019s necessary or whatever they can do to get out of it before they actually have to foreclose and take full ownership, they\u2019ll do that. So that\u2019s that pre-foreclosure process and then a lien itself is basically\u2026 I guess, how would you describe a lien? It\u2019s like someone has a claim against a property.<\/p>\n
Money is owed to that person and when the property sells they are entitled to payment from the sale of that property.<\/p>\n
Great definition.<\/p>\n
So one common one is you have a line of credit, so you have your mortgage and then you go and get a line of credit for $10,000. So if your house sells, you have to pay back that $10,000 or whatever the balance is due on your line of credit. Or there\u2019s also, what is it called? A contractor\u2019s lien or is it-<\/p>\n
A mechanics lien.<\/p>\n
Mechanics lien. I was like I know it\u2019s not contractor, what is it? So if you have somebody that comes and does work on your house and you don\u2019t pay them for that, they can go ahead and put a mechanic\u2019s lien on your property too.<\/p>\n
So anyone that has a mortgage right now, whether you realize it or not you have a lien against your property. Right? So before you go off say you sell your property and maybe you bought it for $200,000 you\u2019re selling it for a million bucks. If you still have a mortgage in that property, you don\u2019t get that full million you\u2019ve got to go back and pay off your original lender first so that\u2019s a lien.<\/p>\n
And that\u2019s what when you are going and getting title work done you\u2019re paying for that when you close on a property, this is what they\u2019re doing is looking for liens on the property. Another type of lien too is a judgment lien, so this doesn\u2019t even have to do with anything with the property. So I had a tenant that trashed a unit, they moved out, they used a lot of back rent, we evicted them. But I also went to small claims court and did a judgment against them and they now have\u2026 So it\u2019s valid for 10 years. If they sell a property, a vehicle, anything that\u2019s in their name, those funds from that have to go and pay my judgment and it\u2019ll last for 10 years. We might be on year 10 right now, I don\u2019t know. But close to and I think it\u2019s maybe year eight, then I don\u2019t see myself getting anything from it.<\/p>\n
Let\u2019s just cross your fingers, Ash, they win the lotto or something and they come into this big chunk of money and then you get paid out.<\/p>\n
I did see them at Verizon shortly after that all happened and they\u2019re in their buying a brand new iPhone or whatever and I remember them like waving at me saying, \u201cHi.\u201d And I was fuming. I was like, \u201cHow can you even look me in the face right now?\u201d And I didn\u2019t wave back. I literally think that I shook my head at them with disgust.<\/p>\n
Man, that\u2019s another reason why I like long distance real estate investing because if I ever do have to evict someone I don\u2019t have to worry about bumping into them at Target.<\/p>\n
Ever see them? Yeah, true. Okay, so there\u2019s all these different types of liens. There\u2019s consensual liens, purchase money security liens, statutory liens, non purchase money security liens. All these different liens that can be on the property and that\u2019s where you want to have your title work done and sort of seeing what these liens are that come up. You can do a little research yourself if you\u2019re just scoping out a property and don\u2019t want to pay to have all this title work done because you\u2019re not under contract or anything. If you go to PropStream will usually tell you if there\u2019s some kind of bank lien on it by big financing on it. If there\u2019s a first lien for the mortgage, if they have a home equity loan or a line of credit that\u2019s on there too. Or sometimes even if there\u2019s a private money that financed the purchase of the house, something like that. Then you can also go to the county clerk records and you\u2019re able to pull up documents from that. So you would actually type in the seller\u2019s name and it would give you some documents that would show\u2026
Sometimes it will come up and show different liens that have been filed against that person in that county. So I would start with the county the property is in and look for anything that comes up with their name too, you can get quite a bit of information from the public record of county clerks.<\/p>\n
So have you ever purchased, Ashley, a property that has a lien against it?<\/p>\n
Well, all the time because there\u2019s mortgages.<\/p>\n
Yeah, I guess beyond the traditional lien. But say something that\u2019s got a judgment lien or maybe a mechanic\u2019s lien or you can have a lien for unpaid property taxes. Just like have you purchased any property with a different type of lien?<\/p>\n
Yeah. So I am sure there\u2019s probably some that I don\u2019t even know about, because it was just I\u2019m paying for the property and then the attorneys have the money in escrow and they\u2019re like okay\u2026 When I get my closing statement it would say, okay. The property I just closed on it was like we need five different cashier\u2019s checks, we couldn\u2019t wire the money. They wanted the cashier\u2019s checks and I had to get five different cashier\u2019s checks and one was going to the seller\u2019s attorney, one was going to my attorney, one was going to the title company, one was going to the clerk\u2019s office and one was going to the seller\u2019s estate. But it could be one is going to KeyBank, one is going to the private moneylender. I\u2019m sure that\u2019s probably happened where there\u2019s been different liens on the property of what\u2019s being paid off and I\u2019m just oblivious to it. Because it\u2019s just something that\u2019s handled through the attorneys and it\u2019s on the seller\u2019s end and the purchase price covers it and it\u2019s not me accumulating those liens during the purchase, they\u2019re being paid off.
The one property that we purchased subject to, it was a farm and we took over the payments for the mortgage from the seller. That\u2019s what subject too is when you take over the existing mortgage and it stays in the seller\u2019s name, but there was back taxes on it and there was a mechanics lien on the property. The mechanics lien wasn\u2019t a lot but the back taxes I think were like $20,000. Paying off the back taxes, the mechanics lien and then also catching the person up on their mortgage payments that were past due. That was less money than if we would\u2019ve went to a bank and put a down payment on an investment property. So that deal ended up working out great for us and that was part of the leverage. If that person would\u2019ve went and sold that property on the open market they would\u2019ve been underwater. They wouldn\u2019t have had enough equity to actually pay those back taxes and they were in pre-foreclosure.
We initially approached the bank about doing a short sale, and that was our first idea and then I learned about subject to. We had a guest on the podcast who had done it and this was even before I had heard of, Pace Morby. We had someone on that talked about it and I was like, \u201cPlease send your documents, I\u2019m going this to my attorney to see if we can do this.\u201d<\/p>\n
This is, Kevin Christensen, right?<\/p>\n
Yes, that\u2019s who it was. Yeah.<\/p>\n
Yeah.<\/p>\n
And so we paid off the mechanic\u2019s lien and we paid off the back taxes and then paid to catch up the mortgage so that it was no longer in default and then we were able to deed the property into our name. So that was a property that was in pre-foreclosure but then we did a property\u2026 I actually bought a property that was in foreclosure, the bank actually listed it on the MLS. That was a slow grueling process working with the bank to try to close on this property, it was very slow moving. It\u2019s just somebody at the bank that\u2019s working on it, it\u2019s not a motivated seller trying to get this deal closed. The bank owned it and I don\u2019t even know what was owed on the property when they took possession of it, it sat for a couple of years vacant before we had even purchased it.<\/p>\n
I was trying to see if I could find our episode with, Kevin Christensen. It was early in the archive, so maybe our producers can help us out here. But he\u2019s also exceptionally super active in the Real Estate Rookie Facebook group. So if you just search, Kevin Christensen, in the Real Estate Rookie Facebook group you\u2019ll see some good stuff and I\u2019m sure he\u2019s probably even posted his episode inside of there as well. But yeah, really just heart of gold that guy and big on just giving back to people.<\/p>\n
Yeah, it was show number 51.<\/p>\n
51, wow. Man, that was early, early on.<\/p>\n
Yeah. February 10th, 2021.<\/p>\n
Yeah. Because I think my first episode was 39 or something like that.<\/p>\n
Oh, yeah.<\/p>\n
Yeah. We barely even knew each other at that point, Ashley.<\/p>\n
That was probably right around when we met in person, right?<\/p>\n
Probably.<\/p>\n
It was in the winter the first time we met in person, going to BiggerPockets.<\/p>\n
Going to BP. Yeah, going to the headquarters. How so much has changed, right?<\/p>\n
Now, you\u2019re having a baby.<\/p>\n
Now we\u2019re having a baby, now you\u2019re sleeping in my son\u2019s bedroom when you don\u2019t have anywhere to crash. Yeah.<\/p>\n
Okay. Well, thank you guys so much for joining us for this week\u2019s Rookie Reply. I\u2019m, Ashley, at Wealth From Rentals and he\u2019s, Tony, at Tony J. Robinson, and we will be back on Wednesday with another guest.<\/p>\n