\n<\/p>\n
You want to <\/strong>invest in real estate<\/strong><\/a>, but you lack the cash or the income.<\/strong> With home prices and mortgage rates so high, even a decent-paying job won\u2019t land you a rental property<\/strong> or even a primary residence. So, what do you do? Should you call it quits and let others build wealth while you struggle to make ends meet? Not quite. There\u2019s one thing you should start doing today that\u2019ll make <\/strong>your real estate investing much easier<\/strong>.<\/p>\n Welcome one and all to another Seeing Greene<\/strong>, where David answers your investing questions in today\u2019s tough housing market. First, Rob joins us to advise an investor struggling to buy her business\u2019s building <\/strong>from her father. He wants to sell after having a rough time with this commercial property, but Shelly, our investor, wants to convince him to keep the building OR give her a chance of ownership. What should she do?\u00a0<\/strong><\/p>\n Next, David answers the trifecta of 2023 investing questions: what should you do when your pre-approval is too low<\/strong>? How do you pull out home equity when you\u2019re broke<\/strong>? And what to do when you don\u2019t have enough income to qualify <\/strong>for a mortgage? A straightforward solution solves ALL THREE of these investors\u2019 questions, and it\u2019ll help you, too, if you\u2019re struggling in this market!<\/p>\n David: Shelly: David: Shelly: David: Shelly: David: Shelly: David: Shelly: David: Shelly: David: Shelly: David: Rob: David: Shelly: David: Shelly: David: Shelly: David: Shelly: David: Rob: David: Rob: Shelly: David: Shelly: David: Shelly: David: Shelly: Rob: David: Rob: Shelly: David: Shelly: David: Shelly: David: Shelly: David: Shelly: Rob: Shelly: Rob: Shelly: Rob: David: Rob: David: Shelly: David: Shelly: David: Shelly: David: Shelly: David: Shelly: David: Rob: David: Rob: David: Shelly: David: Shelly: David: Rob: David: Rob: Shelly: David: Shelly: David: Rob: David: Shelly: David: Shelly: David: Shelly: Rob: Shelly: Rob: Shelly: David: Shelly: David: Shelly: David: Bryton: David: Mike: David: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the BiggerPockets Podcast show 843. What\u2019s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate podcast here today with a Seeing Greene episode. In these episodes, we take real estate investing from my perspective as I answer questions from you, our audience, about where you\u2019re stuck, what opportunities you have, and the best way to play the chess pieces that are sitting on your board. And we have got a great episode for everyone today, including a coaching call that we are going to start off with and then some other questions from all of you about ways that you\u2019re looking to scale your portfolio. But it looks like you took a couple steps in the wrong direction and how to get you put on the right path. Many of you who are listening to this now are going to relate to the questions that our guests ask and you are going to benefit from them as well.
So thank you for being here with me. Get ready for a great show. If you\u2019d like to be featured on Seeing Greene yourself, remember just head over to biggerpockets.com\/david where you can submit your question, either video or written, and I will hopefully answer it on a future show. Before we get to our first question, today\u2019s quick tip is going to be simple. I am here at one of my cabins right now in the Smoky Mountains. I have 12 of them out here, and I\u2019m on a bit of a tour and I\u2019m going to check out every single cabin I have. I\u2019m going to stay in many of them and I\u2019m going to get a feel for what it would be like to be the guest here as well as come up with ways to improve the experience for the guests. This is very important because if you are a short-term rental investor, you may have already seen that the competition is getting fierce.
And if you want to stay near the top, you need to learn to look at your home from the perspective of the person staying in it, not the perspective of you that\u2019s looking to get as much money as you possibly can. So consider staying in one of your own short-term rentals as well as your competition and see how each one of them makes you feel and what improvements can be done to give a better experience to the guest that you are competing for. All right, let\u2019s get to our live guest now. Welcome to the show, Shelly. What\u2019s on your mind?<\/p>\n
Hi, thanks for having me. I\u2019m a little bit all over the place, but my name is Shelly. I live in Philly with my partner and my 5 year old. What I do for a living is run a bicycle shop. I opened up the bike shop 13 years ago. At some point my landlord wanted to sell the building. He said, I want to sell it to you. He told me the price he wanted. I couldn\u2019t swing that, but I asked my dad if he wanted to invest and he said, ye. My dad bought this building.
We\u2019re in a good neighborhood, but the building needed a ton of work. Within the first couple years of ownership, the entire front facade needed to be replaced, and now we are in the process of learning that they did it wrong and we have to do it again. So it\u2019s this major headache of a problem. However, somewhere along this same timeline, my partner and I bought a house together. We wanted to move. We decided it made more sense to hang onto the property, rent it out. We bought our next place, wanted to move, rented it out and moved. So we did this, what you guys call house hacking type thing, but we were just doing it because that was our life. And now we\u2019ve seen the benefits of doing that and I\u2019ve been interested in real estate for a long time.
I want to keep doing this. I also feel like the property that my dad owns, I do the property managing. I have enough bits and pieces of this world that I know I like it and I know I\u2019m pretty good at it. And we took out a home equity line of credit on our one property, which you guys were talking about, fixed versus variable. It\u2019s a 3.99 fix for one year, and then it turns variable. So that seems like not bad right now.
So I\u2019m at this point where A, my dad wants out of this very\u2026 The property is about a million dollars, not counting some money that he\u2019s dumped into it to fix it up. But that being said, he was able to pay it off. So we had this amazing asset in a good neighborhood that I think is worth investing in. And also we\u2019d be able to pull money out of that to continue to invest in real estate. But he\u2019s not on board. He\u2019s more like, I make way more than this for way less stress in the stock market. Why are we doing this?<\/p>\n
And this is the one with the facade, right?<\/p>\n
Yeah.<\/p>\n
So your question is when do you call it quits on a property? Should you buy out your partner, or how should you exit this property? Right?<\/p>\n
Yeah.<\/p>\n
So what I like from what you said is that you like this, you\u2019re in on it, you like the area, you\u2019d like to keep going. Even though this property has been super stressful, you see the upside on it. Had you said, yeah, this property is a bear. It\u2019s not really that great of a neighborhood. I don\u2019t really see why I\u2019m doing this, then the obvious answer is I try to get out of it. Considering that\u2019s not your mindset on this, I would really stress maybe trying to figure out how you can keep it. And you have a partner on it that just so happens to be a family member. So you may be able to arrive to some agreement on how you could pay him out. So are you a 50\/50 owner of that property?<\/p>\n
I don\u2019t have any ownership.<\/p>\n
You don\u2019t have any ownership? Okay. You were saying you were property managing for him, right?<\/p>\n
Yeah.<\/p>\n
So on that note, is your dad, I know he can make more on the stock market, but is he like, hey, I need this million dollars today. Is there any opportunity to sell or finance it from him, I guess is what I\u2019m getting at?<\/p>\n
Yes. But then I think comes the other aspect, which is that, if I were to do that, I don\u2019t think it would cash flow. I think he\u2019s onto something that it\u2019s not a great investment, so that\u2019s stressful. It feels more like the appreciation game.<\/p>\n
Okay. Well that changes things a little bit. Where\u2019s all the money going? It feels like $7,300 a month is not that far off from the 975 if it\u2019s got no debt on it. Where\u2019s all the money going?<\/p>\n
It\u2019s not that it\u2019s not going anywhere, it\u2019s that he\u2019s looking at his cash on cash return and is like, it\u2019s just not a lot of dollars.<\/p>\n
So here\u2019s what\u2019s odd. If you put a loan on it, if he did a cash-out refinance, his cash on cash return will skyrocket.<\/p>\n
Because he gets all that back in his pocket.<\/p>\n
And I\u2019m not saying this to tell you that\u2019s what you should do. I\u2019m saying in his brain how he\u2019s looking at this, if he\u2019s only looking at a cash on cash return. There\u2019s two levers that affect\u2026 And when I started seeing this real estate made a lot more sense. There\u2019s in the formula of a cash on cash return, there\u2019s two inputs. There\u2019s how much profit you make and there\u2019s how much money you put into the deal. If you pull on the profit lever, you can increase the cash on cash return, but it\u2019s like a tiny short little lever. It\u2019s very hard to pull. If you pull on how much capital is invested in it, your basis and you reduce that, your cash on cash return skyrocket. That\u2019s the really tall big lever with all the leverage.
So if he did cash out refi, even with rates higher, the cash flow would go down, his cash on cash return would go up. He would have theoretically whatever money he pulled out of this thing to now go put in the stock market at his higher returns. And he would have effectively owned real estate and stocks using leverage from real estate to buy stocks instead of real estate or stocks. Not telling you that this is my solution right now, but do you think if he understood it from that perspective, it might change how he\u2019s looking at this?<\/p>\n
Perhaps. I mean, I think the whole thing is just beyond stressful for him. So that\u2019s where I struggle. Because I\u2019m like how can I angle this to me be like, no, it\u2019s fun when it\u2019s not my money.<\/p>\n
Why is it stressful for him? Because he\u2019s just looking at that 6% and he\u2019s like, I could do so much better?<\/p>\n
No. Not just the dollars. I mean the actual act of we had to get all of our tenants into Airbnbs when this construction was happening. The bike shop had to close. All these things that dealing with the ins and outs of other people I think, maybe just don\u2019t like that stuff.<\/p>\n
Well, that\u2019s true. Real estate can suck when that is the case. There\u2019s no way around it. This is definitely not passive income, and that\u2019s one of the reasons that we talk about that is when you buy stocks, it\u2019s relatively or completely passive income. You push a button, what return you get, but you just have less control over it. The stock market can collapse and there\u2019s not as much you can do versus with real estate, if it starts to go bad, you can jump in there with some elbow grease and some creativity. You can salvage it. It sounds like he doesn\u2019t like having to deal with the tenant issues and the building issues, and then he\u2019s saying for the return, I\u2019m getting the juice is not worth the squeeze, right?<\/p>\n
Yeah.<\/p>\n
But are you doing some of that property management work? Why is so much of it coming down on him?<\/p>\n
It\u2019s not. I mean, I keep him in the loop. He wants to be in the loop. So I can\u2019t just go writing 20,000, 30,000, $40,000 checks without checking in. And I think, yeah, every time something comes up, it is a little bit like, yeah, here we go again.<\/p>\n
He\u2019s not used to that. That\u2019s all that it is. He\u2019s not listening to podcasts like this listening to all of the tenant problems that we talk about. He\u2019s used to buying a stock in something and just looking at the number. And in his mind he has a baseline set of that\u2019s how investing works. Is you don\u2019t make decisions, you don\u2019t feel any stress. Money just comes to you. So I don\u2019t know that, Shelly, you\u2019ve done anything wrong here. I think his expectations just weren\u2019t at the same place that yours were. So maybe let yourself off the hook a little bit as you feel like you let your dad down or did you do something wrong? This is how normal real estate investing works.
Now I\u2019ll add this. When Rob and I encounter the same stress he\u2019s having, even though we\u2019re like, our cash on cash return sucks, all these things went wrong. I\u2019m really stressed out. What we are thinking of is, well, I\u2019m still paying off the mortgage. Well, the values are still going up over time. Well, the rents are going to be higher in five years than they are right now.<\/p>\n
We\u2019ve still got the tax benefits.<\/p>\n
Yes. There\u2019s a big tax benefit. We didn\u2019t get into that yet. So even when the one metric like cash flow isn\u2019t working that we wanted, there\u2019s a pot of gold at the end of the rainbow that stops us from getting discouraged that he doesn\u2019t have. He\u2019s not seeing that. He\u2019s probably not getting tax benefits of cost segregation studies on a million dollar asset that could save him. If you added that into this, if he was a real estate professional, oh my gosh. And it sheltered all the other money that he\u2019s making from his other investments, he\u2019s like that 6% return goes to 28% or something like that. It would change everything. Right?<\/p>\n
Yeah. But he\u2019s probably not a real estate professional is my guess.<\/p>\n
Yeah. I was going to ask that because I just listened to that class episode and he did just retire from his day job. So could he be, if this is the only thing he\u2019s doing?<\/p>\n
Yeah. That\u2019s what I was getting at is he may not be right now. The question would be, well, dad, if you became a real estate professional\u2026 And the other thing, Shelly, is this only works if he\u2019s making income. Does he have income coming in from other places that he\u2019s being taxed on?<\/p>\n
I mean, he just retired, so not really.<\/p>\n
What about other investments?<\/p>\n
Stock market, does that count?<\/p>\n
What about the taxes that he would pay on the 6% return? If that was money he made in stocks, he\u2019d pay capital gains taxes on it. But what if the depreciation from the real estate completely sheltered it? That 6% could start to become looking a lot better. And if you also have rent bumps worked into the thing, the tenants\u2026 Can you paint a picture for him that in five years that that 6% is actually going to be up here?<\/p>\n
Yeah, perhaps.<\/p>\n
Well, I think the other thing to keep in mind is he\u2019s zeroing in on cash on cash return. But the actual metric is really the ROI. And the ROI tends to be pretty significantly higher than that cash on cash because of the things that David talked about, which is debt pay down, appreciation, tax deductions and cash on cash return. When you factor all those in, it actually ends up being a pretty-<\/p>\n
Equity growth.<\/p>\n
Yeah. Equity growth ends up being a pretty juicy number I think.<\/p>\n
And basically if you\u2019re partnered with somebody who\u2019s not stoked on the property, your options are either to convince them that it\u2019s a good idea or try and buy them out. And that\u2019s it.<\/p>\n
Yeah. Because this is more of a relationship question than just a real estate question. Because you\u2019re like, okay, I like it, dad doesn\u2019t like it, what do I do? Right?<\/p>\n
Yeah.<\/p>\n
And from that perspective, you\u2019re probably not going to get that horse to drink even though you\u2019ve led him to water. If he\u2019s stuck in his ways, if you\u2019ve explained to him that this is different than stocks and here\u2019s all the other benefits you\u2019re getting and he can\u2019t get out of that binocular of cash on cash return, you could say, all right dad, you could sell it. By the way, is there rent bumps worked into leases that you have with the tenants to where it\u2019s going to be making more money later?<\/p>\n
I mean, no. Historically, people haven\u2019t stayed. There\u2019s one apartment where someone\u2019s been there a long time. But every time somebody moves out, we fix up up and charge more.<\/p>\n
Yeah. Is that because the area that it\u2019s in is bad?<\/p>\n
No. It\u2019s a great neighborhood.<\/p>\n
Why are you getting so much turnover?<\/p>\n
I mean, when I say not stay long, I mean two to three years. I think people use it as a, I\u2019ll stay in this apartment until I buy a house or until somebody just graduated grad school, they moved to a new city.<\/p>\n
Well, I guess my other question to you, Shelly, is why are you so invested in the deal if you\u2019re not an owner of the deal? Because you\u2019re property managing it, so I imagine you make money from that. Are you just really wanting to keep that property management fee? Because it feels like you could just go property manage for other people now that you have experience.<\/p>\n
Totally. No. I own and operate the bike shop. It\u2019s on the first floor. I guess I get a little bit, and when this would happen when the landlord wanted to sell initially that I was like, oh gosh, who\u2019s going to buy this and are we going to get pushed out?<\/p>\n
That\u2019s interesting. So I mean, I feel like if you sold it, you probably could negotiate. Most of the time people don\u2019t want to inherit tenants, but that\u2019s usually like long-term rentals. I feel like commercial tenants may not be the same stigma, so I feel like if you were selling it, you\u2019re inheriting a long-term lease, as long as you have good payment history and you met the owner. I think you can negotiate not getting pushed out. Looking at the actual, you mentioned that if you sell or finance it, you don\u2019t think it would cash flow. If it\u2019s a million dollar building and you said the rents are $7,300 bucks total?<\/p>\n
Yeah. I mean that\u2019s including bike shop rent, yeah.<\/p>\n
I see. Okay. Yeah, so it does feel like if you were to sell or finance, you\u2019re going to be pretty close to a break even depending on the interest rate your dad gives you.<\/p>\n
Yeah, and I don\u2019t think dad\u2019s going to be stoked about seller finance because if he\u2019s trying to get higher than a 6% return, he\u2019s going to want higher than a 6% rate in his mind. And that doesn\u2019t make sense for Shelly to do it.<\/p>\n
Well, yeah, but then there\u2019s also the case that he\u2019s going to have to pay capital gains on the million bucks so he won\u2019t have to pay capital gains.<\/p>\n
But they bought it for 975. What would you sell it for Shelly?<\/p>\n
Yeah. I mean I feel like to break even at this point, considering we\u2019re going to have to do the facade again, it\u2019d probably have to be like 1.2, maybe one one.<\/p>\n
Would it be worth that though?<\/p>\n
Yeah. It is a good question. And I don\u2019t know. The neighborhood\u2019s gone up in value, but, yeah.<\/p>\n
So he may not want to sell it, because he\u2019s going to say, I\u2019m going to lose money if I sell it. Why is the brick facade needing to be continually replaced? What\u2019s going on with that?<\/p>\n
There\u2019s a wooden beam that has warped and the entire\u2026 You\u2019ve seen when brick buildings have a belly and sometimes you can reinforce it with star bolts. So this wooden beam is what\u2019s holding all the bricks up and that\u2019s twisting. And the first guys took all the bricks down, put all the bricks up without replacing that wooden beam.<\/p>\n
Okay. Yeah. Because it does feel like\u2026 Do you have any that you can put into this or no if you were to buy it from your dad?<\/p>\n
Yeah. I mean not anywhere near those kinds of dollars. I mean\u2026<\/p>\n
Well, no, because you bought it for 975, but what\u2019s on the actual debt?<\/p>\n
Well, there\u2019s none. Yeah. I mean, there\u2019s none.<\/p>\n
Okay. Yeah, it is all paid off. Okay. Cool. Yeah. All right. I think the problem\u2026 That investment, if I owned it, I would not be super mad about a 6% cash on cash return if it\u2019s paid off free and clear. When you pay a property off, you\u2019re making a conservative bet and you\u2019re really betting on appreciation. It sounds like it\u2019s just the paper cuts of little things going wrong that\u2019s causing your dad to be frustrated because he\u2019s not used to being a real estate investor. And when you first get in, this happens to everybody. You just don\u2019t know about things like what you described about the structure of why the brick facade didn\u2019t work, and it\u2019s an expensive mistake that you make when you\u2019re learning which is why I always tell people, don\u2019t jump into something huge on your first one. Just all this stuff is going to go wrong. Learn with training wheels. So it\u2019s a small fall to the ground. You don\u2019t want to learn how to ride a bike on a motorcycle type of a thing.
Your dad probably, he might just say, yeah, sell it. I don\u2019t want to deal with it. But is someone going to pay 975 when it\u2019s a commercial property. And commercial paper it\u2019s a little tricky getting a lot right now. What are you laughing at, Rob?<\/p>\n
You keep saying facade. It\u2019s facade.<\/p>\n
I\u2019m sorry. You\u2019re right. Do you ever do the thing where you read a word and then you say it like your head sees it instead of when it\u2019s said out loud. I\u2019m going to be getting roasted in the comments of this [inaudible 00:16:58].<\/p>\n
Well, yeah. My wife used to say she had never read Helvetica before. So one time she\u2019s like, \u201cWhy don\u2019t you do a helveteta font?\u201d And I was like, \u201cHelveteca. What is that?\u201d Helveteca. And man, she\u2019s like, \u201cOo one\u2019s ever said it out loud. How am I supposed to know?\u201d<\/p>\n
I don\u2019t know if that\u2019s why that\u2019s so funny to me but it always is. Thank you Shelly. You got me roasted here by the BP production staff and Rob. Usually Rob is the roastee\u2026 I\u2019ve become the marshmallow and he\u2019s become the stick for the first time.<\/p>\n
I love to see it.<\/p>\n
It\u2019s an interesting visual. Okay. All right, Shelly. I don\u2019t know that there\u2019s any easy answers out, but I don\u2019t think it\u2019s a terrible deal. It\u2019s just a mediocre deal. And I really think moving forward in the real estate space, this will be the norm. Mediocrity is the new success in a sense. Because rates keep going up and everything is going against real estate ownership and the economy is really starting to stall. I don\u2019t know that your dad\u2019s going to be getting a 6% cash on cash return in the stock market forever. Definitely not with the potential upside of real estate.
So I think first off, you can\u2019t keep bearing his upsetness with the whole thing. I would turn it back on your dad and be like, \u201cOkay, dad, you know I love you. I want you to feel better. What do you want to do?\u201d Because he probably just grumbles to you as the property manager every time something goes wrong because he wants you to fix it. And you can\u2019t. You\u2019re not the one that can go in there and fix the mistakes that were made. So I just turn it right back around. Say, \u201cOkay, what do you want to do?\u201d \u201cWell, I don\u2019t want to deal with this anymore.\u201d \u201cHow do you want to not deal with it?\u201d \u201cWell, I just want to get rid of it.\u201d \u201cOkay. Do you want me to find a broker to sell it for you? Totally understand.\u201d \u201cWell, do you think it\u2019s worth more?\u201d \u201cI don\u2019t know. It might be worth less\u201d. \u201cWell, I don\u2019t want to sell it at a loss.\u201d \u201cOkay, what do you want to do?\u201d
You\u2019re going to have to keep playing that game to get him to take ownership of this problem. And what you will find is that emotionally, all of a sudden this burden lifts off of you is you\u2019re not having a deal with somebody else\u2019s issue because you jumped into this trying to help them and they ended up hurting you. There\u2019s a story in the Richest Man in Babylon. It\u2019s a really good story and it talks about how there was an ox that was complaining all the time that the owner would wake him up in the morning and hook up the thing to his shoulders and he\u2019d have to drag\u2026 What\u2019s the thing that the ox drags the till? Whatever. The plow. Thank you for nobody remembering that. Thank you, David, for remembering that. The ox would have to drag the plow across the dirt.
So the donkey was like, \u201cLook, here\u2019s the deal. Tomorrow when he comes wake you up, just bellow really loud as if you\u2019re sick and he\u2019ll feel bad for you and he won\u2019t make you work.\u201d So when the owner comes to hook the plow up to the ox, the ox bellows really loud like he\u2019s sick and it\u2019s not going well. The owner tries three or four times and it doesn\u2019t work, and he gives up and instead he gets the donkey and he hooks the plow up to the donkey and he makes the donkey do it. And the moral of the story was, which I thought was brilliant, never try to help somebody by taking on their problem.
You love your dad. You\u2019re trying to fix this for him. You\u2019ve jumped into the fray to help lighten his load when you have no equity in the deal, and you\u2019re dealing with all of the burden and he\u2019s not having to carry his own plow right now. Your dad needs to take on his damn own plow. And then you as the property manager should just be acting like the property manager saying to the owner, how do you want to fix it? And I think you\u2019ll feel a lot better.<\/p>\n
Cool. Solid.<\/p>\n
And if you want to know more about The Richest Man in Babylon, check out Pillars of Wealth: How to Make, Save, and Invest Your Money to Achieve Financial Freedom as I borrow heavily from the principles of that book in my own. Available at biggerpockets.com\/pillars.<\/p>\n
Yeah, I was actually just thinking the sequel to your bird book could be bird den.<\/p>\n
Oh, that\u2019s good. That\u2019s very good. Look at this marketing master right here. The bird den. Removing the bird. The only way I could think of Shelly buying it, which she would either have to get a loan to buy it, she\u2019d probably pay less than 975 with where rates are, or she\u2019d have to do seller financing, in which case dad would say, \u201cWell, I don\u2019t want to do seller financing because I could get a better return to the stock market.\u201d I\u2019d like to see Shelly just push everything right back to him. Be like, \u201cOkay, dad, you sit underneath all this stress and you figure out how you want to get rid of it.\u201d<\/p>\n
Yeah. Ultimately, I\u2019d say the real big reason you\u2019re invested is because of the bike shop, I don\u2019t know if I\u2019d spend a ton really trying to solve this. I think if there\u2019s an opportunity for you to really own this or buy this or negotiate this with your dad, then I\u2019m like, yeah, great, push on that. But if it\u2019s not, then yeah, I think try to move on, to push that back to your dad, like David said.<\/p>\n
Yeah. That makes sense.<\/p>\n
The C S smile on that face next time we talk to you, Shelly. You got to get this burden off your shoulders. That\u2019s the ox\u2019s job. Be the donkey.<\/p>\n
This is a BiggerPockets therapy session?<\/p>\n
Yes. First time that I\u2019ve ever called somebody a donkey in a positive light.<\/p>\n
In a positive way. That\u2019s right. Because you usually call\u2026 Yeah. When you say it to me, it\u2019s usually other things.<\/p>\n
All right. Thanks Shelly. Let us know how that goes.<\/p>\n
Thanks.<\/p>\n
Shelly. For those who may have ideas that we didn\u2019t think of, because they\u2019re always screaming at the radio like, \u201cWhat do you mean? Why are you not telling her this?\u201d I feel like there might be somebody out there who\u2019s thinking that. How can they get ahold of you to share their advice?<\/p>\n
Well, I did start an Instagram account for real estate stuff that has a silly name. It is called the Mousing Hackett. Like the housing market, but Mousing. So it\u2019s got a picture of a mouse on a house. I don\u2019t know. That exists. You could also find me at Fairmount Bikes that is spelled like it sounds, F-A-I-R-M-O-U-N-T-B-I-K-E-S bikes.<\/p>\n
The Mousing market or?<\/p>\n
Really easy to say the Mousing Hackett.<\/p>\n
I see, okay. Is that what it is? Is it the Mousing Hackett? What? Everyone\u2019s got hard Instagram handles today.<\/p>\n
We\u2019re going to have 250,000 BiggerPockets listeners trying to help you and they can\u2019t find your Instagram account.<\/p>\n
Was it the Mousing Hackett, the nousing narket. I like it now. Now I get it.<\/p>\n
When you see the mouse in the house, it\u2019ll make sense.<\/p>\n
It\u2019ll make more sense. That\u2019s right. And that rhymes. You could have just called it that.<\/p>\n
It\u2019s true.<\/p>\n
All right. Thank you, Shelly.<\/p>\n
Thanks guys.<\/p>\n
And thank you Shelly for bringing such a nuanced and complicated but very beneficial lesson for us all to learn from there. Best of luck with your data and let us know how that goes. I hope that everyone is getting a lot out of these conversations so far, and thank you for spending your time with us. All BS aside, I know there are so many places that you could be getting your real estate education from and they\u2019re all competing for your attention, so I sincerely appreciate that you\u2019re spending it here with me on Seeing Greene.
As always, please make sure to light comment and subscribe to the channel as well as share it with someone who you think would benefit from the message. We\u2019ve got a few comments from other folks who did just that in previous episodes and we are going to read them in this segment of the show.
Our first comment comes via Apple Podcasts and it\u2019s titled too good to be free. Boat Guy 545 says excellent source of real estate knowledge with a five star review. So thank you for that Boat Guy. Appreciate it. From episode 828, we have some YouTube comments. The first one says, love this episode, your podcast give me motivation when I start to lose steam, so thank you. Thank you for that. That is exactly what I want to do because it is a tough market. It is a tough economy and it could be a tough world to live in. So if we could give you some motivation, that feels great.
The next comment says, I\u2019m not sure you can exchange a 1031 house for a multifamily. Are you sure he can do that? I know with the 1031 it has to be a similar investment. This is from JDP 0539 in YouTube and I will break this down for you. So it is called a 1031 like kind exchange, meaning that the trade in order to defer capital gains needs to be for a type of property that is like in nature and kind to the property that you sold. Now, it is something that you can trade a house for an apartment or a house for a multifamily, as long as they were both investment properties. My understanding of the law as it\u2019s written right now is that is fine. What you can\u2019t do is 1031 exchange a primary residence into an investment property, but you can change one type of investment property into another and that is pretty common. So thank you for pointing that out because we don\u2019t want people to get into trouble, but you also gave me an opportunity to highlight what a 1031 like kind exchange is, so thanks for that.
Our next comment from Bridge Burner 4824 says, more Rob, always. The people have spoken and they want more Rob Abasolo on Seeing Greene. Let me know in today\u2019s show if you want to see more Rob Abasolo on the Seeing Greene episodes. All right. Our next comment comes from Ramonda Laving House 3796. Thanks. I started listening to your blog recently and thanks, I have a question. How do you fire your property manager? Well, okay, that\u2019s a good question. The first way is you have to tell them that you\u2019re not happy with the service and you want a new property manager and they may come to you and say, \u201cWell, you have a contract with us, you need to write it out.\u201d I would just say, \u201cWhat do you need from me in order to break the contract? I\u2019m not happy here and I\u2019d rather end our relationship amicably than have to go leave negative reviews about your company for other investors to see.\u201d
Now, they may have spent some money advertising your property or preparing it. You don\u2019t know what investment they made, so I\u2019d ask about that and then I would explain that you want out of it and ask if it\u2019s a financial thing or other methods that would make them be willing to break the contract, assuming you have one. From Andy\u2019s Auto. I must say I\u2019m 32 years old and have lived in Missouri my whole life, and there are many people here including myself that also use the word hella. Well this is news to me. How did this happen? I am from Northern California where apparently this word originated. I grew up my whole life in that area and didn\u2019t know other people didn\u2019t say hella.
So we must have had some a transplant that moved from California to Missouri and brought this non-indigenous word into the region where it then took off in this isolated Petri dish of Missouri where it went unchecked. And now much like when you have a non-native species that gets into an ecosystem with no predators, all the Missourians started saying hella all the time. I know UFC fighter Michael Chandler is a fan of the podcast and he is from Missouri. I have to ask him if he is ever said hella and how he feels about it. There\u2019s also a very good chance that the cartoon South Park has had some influence in this. If anybody has a theory on how hella has made its way into Missouri, let me know in the comments. I would like to know how this could have happened.
All right. We hella love and we so appreciate the engagement on this show. So please remember to comment about what you would like to see on Seeing Greene, what you\u2019d like to change and how you feel about the show in today\u2019s YouTube comment section, and also take some time to give us an honest rating and review wherever you listen to your podcast. That will help us a ton. Let\u2019s get back to taking more questions. Our first video comes from, Bryton Daniel in Texas.<\/p>\n
Hi David. This is Bryton Daniel from Houston, Texas and I\u2019m in a bit of a pickle. I\u2019ve been following and listening to BiggerPockets for a few years now, and I\u2019m ready to start my first house hack. I went and got an FHA loan and was approved for less than 100,000, which is challenging in any market. My question is, how can I best use this loan and amount to set myself up for success moving forward? I\u2019ve considered getting a second lien with owner financing or possibly a 203K product. Would you suggest any of these ideas or is there a perspective I\u2019m missing? Look forward to your thoughts. Thank you and the BiggerPockets community for everything.<\/p>\n
All right, Bryton, great question there and I do have a perspective that you\u2019re probably missing. First off, I\u2019m going to tell you to go to biggerpockets.com\/pillars and buy my new book, Pillars of Wealth: How to Make, Save, and Invest Your Money to Achieve Financial Freedom. Now, here\u2019s the reason that I\u2019m telling you to get that book. It is the only book I know of that I\u2019ve ever seen because I wrote it, that explains not only how to invest in real estate with strategies for how to do it, especially getting started, but also how to budget your money better and how to actually make more money.
So if you took me out of this position on the podcast, I lost everything and I was dropped off in the middle of Chicago with nothing, I would go get a job at a convenience store. I might work for free for a couple days to show how hard of a worker I am. I would work my way up to the top and I would slowly go get a better job that paid more money to do the same thing over and over. There is actually a blueprint to getting ahead in business. Now, many people are listening to podcasts like this if we\u2019re being frank because they don\u2019t want to do that. And I just take a different approach. I say, yeah, invest your money in real estate, learn how to do it, but also work really hard and improve your skills so that you can increase your earning potential because that makes investing a whole lot easier.
So here\u2019s my advice to you, my friend. Pick up that book and practice the principles in it, particularly the first two pillars, defense, which is having a budget and saving money as well as paying down debt, and offense, which is making more money. Now, doing that is going to improve what we call your debt to income ratio or DTI. This is a ratio of how much money you make versus how much money you are spending, and the more favorable you can get that, the higher the pre-approval amount for the real estate that you can buy. That\u2019s what\u2019s going to make this journey a lot easier for you, sure. You can go use the gimmick strategies of trying to find someone else to partner with you or trying to find some way of creative financing. I\u2019m not against it. If that\u2019s going to work for you and you can do it, go do it. But it\u2019s not practical.
For the vast majority of people listening, the best thing that you could do if you want to buy real estate is to change your life to fit the mold of a real estate investors. And a successful real estate investor saves their money. You need to pay down your debt, you need to put more money in the bank and increase how much you can put on a down payment. This is going to be very helpful for you as well as very financially healthy. At the same time, you need to ask yourself what you could do to make more money at your job or what job you could get that\u2019s going to pay better. Now that\u2019s going to push you, it\u2019s going to test you. You\u2019re going to feel some pressure, but if you handle it the right way, that\u2019s going to be overall net benefit in your life. Let real estate investing the third pillar, be the carrot that causes you to improve your performance in the first two and have a well-balanced approach to investing in real estate.
All right. Our next question comes from Kate in Cape Cod. Kate says, hi David. I have a property that is in a living trust. My mom happily lives there now and I hope she does for as long as she\u2019d like. But after she passes, I\u2019m interested in possibly renting out the property and taking out some equity loan to buy another investment property. Does this even sound like a viable plan? I\u2019m currently broke. How do I even start in the meantime? All right Kate, so here\u2019s the good news. You\u2019ve got a property that has some equity and you\u2019re not in any a rush, which is also good because your mom lives there.
Here\u2019s the bad news. Getting a loan to get equity out of that property, whether it\u2019s a cashout refinance or a HELOC, is going to require you just like Bryton to have a debt to income ratio that will support that loan. Part of getting a loan is having the equity to pull out of it, but the other part is having the means to pay that loan back. Loans are not free money. Loans are being given money in exchange for a promise to pay that money back with interest, and if you can\u2019t pay the money back because you\u2019re broke, that\u2019s where we need to start. Much like Bryton, you need to check out biggerpockets.com\/pillars and get the book and start working now on what you can do to start making money so that you are no longer broke and saving that money so that you\u2019ve got a down payment on the next property you want to buy.
This is exactly why I wrote this book and it just so happens to be hitting at a time in the economy when it\u2019s very important to read. These are principles, these are fundamentals that people need to get back to. For the last 10 years, we\u2019ve printed a ton of money. The value of real estate has gone up. NFTs have gone up. Crypto\u2019s gone up. There\u2019s been a whole lot of strategies that you could create wealth easily, and then when you head into a bad economy, all that stuff goes away. Now\u2019s the time to get out of being broke, to develop some good healthy financial fundamentals and strategies and habits so that you can get that loan when your mom passes and you\u2019re able to be a real estate investor. Let me know in the comments what you think as well as what you think when you read the book.
And if you\u2019d like to learn how to be better, be sure to listen to BiggerPockets podcast 844 with Rob and I where we interview Jib Quick and he explains exactly how to do the stuff I\u2019m saying at a higher level. It will be the episode that comes out right after this one. And from, Mike Rendon in Georgia.<\/p>\n
Hello David and the BiggerPockets team. First of all, thank you for all the content you guys put out. Love the podcast. Rob was a great addition to the team, been following him for a little over a year, so thank you for all you guys do. As for my question, I wanted to see if you guys have any strategies or ideas how I could get a mortgage for a home to live in. The reason that it\u2019s difficult right now is because I put 20% down on a short-term rental about a year and a half ago approximately, and that place is cash flowing. It\u2019s doing great. It\u2019s got about 19 months of rental history. I also have another short-term rental that I purchased 13 months ago. I\u2019ve been living in the home. It\u2019s in Blue Ridge, Georgia, so I actually moved my family from where we are used to in Florida and we moved to the mountains middle of nowhere to be able to only put 5% down in this cabin and fix it up, which we\u2019ve now completed and it\u2019s been cash flowing for one month.
So we\u2019re having a difficult time now finding a way to get a mortgage on a third home, ideally back in Florida so we can get back home. We now have these two great cash flowing properties, but one only has one month of history, one has 19 months of history, so it\u2019s making it difficult to get another mortgage because my DTI is maxed out. So just looking at referring ideas, thoughts. One issue that is getting in the way just to throw this out there is I\u2019ve got a 3.75% rate on both these mortgages, so if I refinance any of them, it pushes my DTI high. It\u2019s already about 55% now. So yeah, just looking for any ideas that you guys might have. Thanks.<\/p>\n
All right. Thank you, Mike. This is incredible that we\u2019ve had three questions in a row with very similar issues. Apparently many of you out there are in the same boat. Now, let me just take a stab at why I think that this may have happened. You\u2019ve been listening to real estate podcasts, maybe even this one, maybe other BiggerPockets podcasts, maybe stuff you hear on YouTube that have been telling you how to scale, buy, pull equity out of something, buy the next one. Now, that has been a good strategy when the value of real estate and the rents were going up. The problem is many of you were doing this because you wanted to quit that J-O-B, and as you\u2019ve had success and you\u2019ve been able to scale just like Mike here has, you realize I need that J-O-B because I can\u2019t get approved for financing of additional homes, which is something for years I\u2019ve been saying.
There is a contingency of people that can quit their job and be full-time investors, but it\u2019s not the majority of us. The majority of people should continue working. Now, the obvious answer is because you need a debt to income ratio that will allow you to get future loans. You have to be able to show the lender that you can pay it back and having a job helps. But it\u2019s not just that. Having a job is also very useful when things break in a property that you didn\u2019t know would. Being able to save money and put it away is something that you need when you\u2019re real estate investing and many of the gurus out there won\u2019t tell you that part. They\u2019ll just tell you that if you give them your money or your attention, you can get a portfolio that allows you to quit the job.
Now, you\u2019re stuck between a rock and a hard place here, Mike, because like you said, you have some cash flowing properties that have really good interest rates. So you don\u2019t want to sell them, but you\u2019re not going to be able to buy another house if you want to move back home because your debt to income ratio is maxed. So a couple options for you here. One, consider taking the knowledge that you have and applying it to something that will earn you money. If you\u2019re self-managing these properties, consider managing properties for other people. Consider getting a job for a property management company to earn some extra money. That will make a huge positive dent on your debt to income ratio.
Now, mortgage companies like mine can actually give loans to people when they don\u2019t have W-2 jobs. We can qualify people based off of the money that they have made in their contract or 1099 type positions, but you got to have a minimum of a year making that money for it to be eligible. So that\u2019s where I think you should go is you don\u2019t have to go to a job you hate, but go to a job within real estate, which you presumably love if you\u2019re doing this. Another option is that you could house hack in Jacksonville, but reverse where you rent a room or a space from someone else. Rather than own the house and rent out parts of it. Can you keep your mortgage low by renting out from somebody else that\u2019s house hacking. Support a fellow real estate investor, saving up your money and improving your debt to income ratio so that you can buy your own house later.
Guys, I don\u2019t have a crystal ball. I\u2019ve said this many times. I do my best to try to paint a picture of what I think is going to happen in the economy because those type of factors do affect investment decisions. And I feel like for the first time since I\u2019ve been in a position of influence in the real estate investing space we are going to head into a pretty rough economy. Again, I hope I\u2019m wrong. In the past we\u2019ve seen bad signs, but the government came out and said, we\u2019re going to print a bunch of money. We\u2019re going to have quantitative easing, and I told everybody else, I don\u2019t think the sky is falling. I think you need to go buy real estate. And I was right. The people that listened did really well.
Well, now\u2019s a time where I\u2019m saying, I don\u2019t think you should sell your real estate because I don\u2019t see any signs that the values of it are going to plummet, but I do think your ability to buy more of it is going to get significantly harder. I think that real estate overall is going to make less money and perform not as good as it did in the past, but it\u2019s still going to vastly outperform all the other investment options, and as the entire economy slips into a recession, which who knows how long it\u2019ll be and who knows how bad it will get. Having financial security is going to look like a positive thing, not the negative thing that it\u2019s been painted as for so long now, where if you had a job, you were called a joke, or you were shamed by the people that quit their job to ride off into the sunset and drink those Mai Tai\u2019s on the beach. I think you may see a lot of people going back trying to get jobs and realizing that there\u2019s not as many jobs to be had.
Again, I hope I\u2019m wrong, but I\u2019d rather prepare you for the worst so that you\u2019re in a better financial position than if you assume the best and you end up sorely mistaken. So Mike, you seem like a guy who\u2019s smart. You seem like you got a good work ethic. You\u2019ve already done well getting these properties. If you want to get more properties, you\u2019re going to have to improve your debt to income ratio. My advice is you do that within the world of real estate investing, and I have a chapter specifically on that topic in Pillars of Wealth where you can go check that out and get some ideas of how you can make money in the world of real estate, but not as an investor, as somebody who\u2019s working in the space often as a 1099 type employee.
I\u2019d love to see the entire army or ocean of BiggerPockets listeners jump into the space and take over as the best real estate agents, the best loan officers, the best property managers, the best contractors. Wouldn\u2019t you love it if the handyman that you hired listens to BiggerPockets. If the contractor that you hired listens to BiggerPockets. If your accountant and your CPA were all BP fans that understood the same things that you do and had the same goals as you, and we could all create a community of people that had each other\u2019s back. That\u2019s the vision that I\u2019d like to see. Let me know in the comments if you agree with this and if you have considered getting out of a job that you don\u2019t like or maybe you\u2019ve been laid off and getting into a job and into the realm of real estate as a whole.
All right. That was our last question for today. Thank you all for being here. This is fantastic. I hope you enjoyed today\u2019s show and we\u2019ve had a great response from all of you. So please remember, if you\u2019re listening to this on YouTube, to leave us a comment about what you thought of today\u2019s show that we can hopefully read on a future episode. And if you\u2019re listening to this on a podcast app, please go leave us a five star review and let the world know why you love BiggerPockets. Those help a ton as we\u2019re trying to stay at the top of the podcast space in the business segments of Apple Podcasts.
All right. In today\u2019s show, we covered what is in The Richest Man in Babylon. Remember, BiggerPockets sells that book. It\u2019s a very short book, but a very powerful book. So go pick up on the biggerpockets.com\/store, The Richest Man in Babylon and get some advice that Shelly received when it comes to taking on other people\u2019s problems that are not yours and how you can avoid it as well as only investing in things you understand and great timeless financial wisdom. We talked about what options you have when house hack financing doesn\u2019t come in where you would need it. We talked about when to keep your job, when to get a new job, how to improve your debt to income ratio, and why DTI is so dang important.
Don\u2019t buy the hype. This stuff matters. And the people that build great big portfolios that retire better are people that continually worked at a job that was sustainable for them, that they enjoyed, that they did not hate, and built a portfolio up over time. As well as inheriting a property and what to do to prepare yourself in the meantime. Hope you guys enjoyed this episode. Let me know in the comments what you thought. You could find more about me at davidgreene24.com or on Instagram or other social media @davidgreene24. I will see you guys on the next Seeing Greene.<\/p>\n