Month: March 2022

Believe it or not, it’s common to run into issues that can make insurance coverage a potentially destructive force in your portfolio. That’s because, what many fail to understand, is that while their insurance typically covers the costs when they suffer a personal or business loss, it often comes at a high cost.

The purpose of taking out an insurance policy is to help you reduce financial uncertainty and make accidental losses more manageable. To obtain this type of coverage, you pay a premium to transfer risk to a professional insurer for the assumption of the risk of a significant loss as well as a promise to pay in the event of the loss.

But if you aren’t careful, you can end up overpaying on your premiums—or even end up paying for policies that you don’t need pay for. It happens to a lot of people. Maybe their friend is an insurance agent and they want to give them their business—or maybe they want to secure a policy for an obscure risk that statistically may never happen for them. Whatever the driving force, it’s not uncommon to end up paying for expensive premiums or coverage you likely don’t need.

That’s precisely what happened to me. When I was working with a financial coach a few years back, we strategically dug into my insurance coverages and found the opportunity for over $1,497 in annual savings. If I were to set aside those savings annually and compound the returns over 30 years, I would have $47,005. In other words, by simply taking a deep dive into my insurance coverage, I was suddenly much closer to financial independence—and I could meet that goal without sacrificing my lifestyle. 

Six ways to outsource your liability

The trick to dealing with this “horseman” in your portfolio is to reduce your costs, but not necessarily your coverage, in order to optimize your cash flow and savings. 

The first step would be to sit down with a qualified agent or broker to help you optimize your coverage.  During this process, you’ll work to identify policies that are not needed and then fill in gaps with your policies where your policy may fall short.

To get you started, here are a few tips that I received:

1. Health insurance 

• Consider high deductible insurance or self-insure instead: It may be smart to get a high deductible plan and self-insure for the more minor expenses if you are relatively healthy.
• Put away money in an HSA: Self-insuring or using a high deductible plan will also open up the opportunity for you to set aside funds into a health savings account. Once your account balance reaches a certain level, you can even invest it. Health savings accounts can also be self-directed. 
• Use your employer coverage: The most cost-effective way to secure comprehensive health insurance is generally through a group policy with an employer since the employer will most likely split the costs with you. 

2. Disability insurance

• Know the coverage terms of your disability insurance: Disability insurance is essentially where you are insuring your ability to earn an income. Be aware as there are differences in the type of policies. Some policies cover if you can’t work your own occupation anymore. Other policies cover if you can’t work any occupation. Be sure to talk to a specialist about this.

3. Auto

• Consider a high deductible or the option to self-insure: Auto insurance is another area where you can secure a higher deductible and self-insure for the more minor expenses unless there is an extenuating need.
• Be careful not to under-insure: Since auto insurance is the most likely used of all policies, the key to auto insurance is not to be under-insured on liability, uninsured/under-insured motorist, or medical. 
• Know your umbrella policy coverage: If you choose to get a personal umbrella policy, be sure to understand what type of coverage your umbrella policy will require.

4. Homeowner’s insurance

• A high deductible or self-insuring could work here, too: To optimize cash flow, consider getting a high deductible and self-insure for the more minor expenses. 
• Check for adequate coverage: As the cost of materials and labor rises, be sure to check in periodically to make sure your policy coverage is still adequate should you sustain a catastrophic loss. 
• Make sure your home office is covered: If you have a home office, make sure you are covered for loss of production should you sustain a loss. 

5. Umbrella insurance

• This coverage could be worth the investment: Umbrella policies are relatively inexpensive and worth the investment if you have significant assets or are looking to protect from costly liability claims, especially if your assets exceed your auto or home liability insurance limits. 
• Use it to fill in coverage gaps: This is a great way to coordinate other insurances together to fill in gaps in liability on home and auto. Be sure the underlying liability policy meets the terms of the umbrella policy. 

6. Life insurance

• Choose at least some type of coverage: I firmly believe that everyone should have some life insurance, as it helps you insure for your life value, even if you are a homemaker. This policy can also help smooth the financial transition for your loved ones in the event of your untimely death. There are a couple of different types of life insurance: 
  • Term insurance is generally inexpensive when you are young and provides a death benefit only. 
  • Permanent insurance, if designed right, can help you build up cash value within the policy in a short few years. The cash value can be used for an emergency fund, your own personal bank, or generating an arbitrage return when investing. 

Final thoughts

Even though we’ve focused solely on insurances, I’d be culpa if I didn’t mention another way you might be overpaying on a type of “insurance” … warranties (i.e., cell phone, computer, car, appliance warranties, etc.). As discussed with the other insurances above, save up quickly in your emergency fund so you can self-insure should the item get damaged and need replacing. I set aside my health, auto, and home insurance deductibles in my emergency account. Ideally, these are funds I may never touch, and it allows me to give this pot of money a double duty to cover any “warranty” needs I might have. 

Proper insurance coverage is a must-have to outsource liability and protect your wealth in case of a loss. Take care to optimize costs and coverages so that you can increase your cash flow today!

David:
This is the BiggerPockets Podcast Show 581.

Derek:
You can sit there with the bat on your shoulder and watch all these houses come down the pipe. And when you see one that has ADU potential after you’ve done this a few times, it’s so obvious. It looks like a beach ball coming down, belt high, fast balling. That’s the best way I can describe it. Is you have this really easy criteria, and then you just sit there and wait for one to come along.

David:
What’s going on everyone, is David Green, your host of the BiggerPockets Podcast. The show where we teach you how to find financial freedom through real estate. We do that by bringing on different guests, as well as sharing information ourselves to sort of highlight for you what it looks like to find that financial freedom that you seek.

David:
Today’s guest is a specialist in accessory, dwelling units, or ADUs. If you’ve ever wondered, what is an ADU, why do people talk about them? Why are there so many acronyms in real estate that I don’t understand? Well you’re going to learn a lot about that today. This is a very, very, very relevant and important sort of like a hot topic that’s going around in the world of real estate. And we brought in an expert from Oregon who knows construction, who also knows ADUs, who does it himself, and then helps other people do it to share a lot of information with you. Henry, what were some of your favorite parts of the show we just did with Derek.

Henry:
Man, this is arguably one of my favorite episodes so far of the BP Podcast. And not just because I got to be here and co-host it, but the information that was provided was phenomenal. Because you’re right, it’s a topic a lot of people want to know about that not a lot of people are talking about. Some of the favorite parts of the show for me were him giving great tips and ideas of how to look at properties that you probably see every day.

Henry:
You may have walked five properties last week with your real estate agent. And maybe one of those would’ve been an excellent candidate for an ADU and you didn’t know that. He’s going to start to reveal to you what you should be looking for and I promise you, you’re going to have some aha moments about, oh, you know what, that house is a great one for this. Because I had two of those aha moments myself, just thinking through my market as he was talking.

David:
That’s how you know, it’s a great show, right? As you’re listening, when you’re like, ooh, ooh, I could go do this thing. That’s exactly what we’re looking for.

Henry:
Yeah. Just what I needed, another strategy to go look at for real estate. But yeah man, it’s phenomenal. He also gives a great, great tip for how to speak to people, especially when you’re going to do these ADUs, you have to talk to the city, city council members, planning commissions, right? He gives a great tip on how to approach them to not only get their expertise on your plans, but to essentially help them green light what you’re trying to do.

David:
Yeah. We cover that in the fire round. So make sure you listen all the way to the end where we get into the fire round, where Derek gives some really practical advice that’s sort of unheard of. We don’t hear many people that are actually helping you walk through the permitting process with the city.

David:
And then he gives a really good point about how, if you go the traditional method, you might have a 20 page report of code that you have to abide by. But if you go the ADU way, it might be actually 20% of that much, much smaller. So the ADUs provide a workaround for a lot of the common problems that investors face. So if you’re somebody who has often wanted to invest in a market that you feel is too expensive or wouldn’t cash flow, or you just don’t want to pay the mortgage to buy a house there, this is an episode for you.

David:
If you’re a creative person who says, “Hey, no, I’m willing to do some work to make this deal work. I want to make real estate work.” This is a deal for you. And if you’re somebody who’s just curious, like why does everyone talk about ADUs and what does that even mean? And you don’t want to feel like you’re left out of the next meetup or the next party you’re at, this is an episode for you.

David:
Today’s quick tip is brought to you by me, David Green. In today’s market, we mentioned in the show, you don’t find a great deal. You could find a great deal, but it’s probably going to be a great deal that just finds you. If you go looking for it, it’s very difficult to find, but you can make a great deal. So I want to highly encourage you to look at property from a creative perspective and ask yourself, how could I make this work?

David:
And if you do that for long enough, you’ll start to find patterns in properties and floor plans that you will recognize when you see them. Once that happens, you’re going to need a person who’s going to help you with writing an offer, doing some research. Don’t try to do it all yourself. BiggerPockets has an agent finder system that will connect you with a real estate agent that you can reach out to when you have questions, just like from today’s show.

David:
What I love about it is that your agent is probably listening to the same podcast that you are right now and they’re learning all the same things as you. So I like to try to keep it within the BiggerPockets community whenever I can. Henry, anything you want to say before we bring in Derek?

Henry:
Yeah, man. I just want to encourage people to listen with an open mind. I know for me, I’ve thought about ADUs, but the second you start digging through city codes and ordinances and having to call the city, it kind of gets overwhelming, especially if you’re a new investor, I’m a seasoned investor. But what our guest Derek kind of points out is that this is a whole lot easier than people think on the front side.

Henry:
And so listen with an open mind about this ADU strategy and it’s a pretty flexible strategy. You can have them attached, you can have them detached, some are cheaper to build, some of them more expensive to build. And it’s just, you can take something existing and convert it as it sits.

Henry:
There’s a ton of ways to take this ADU strategy and make it profitable. And I think you just have to have an open mind, take some notes and our guest is just, he’s just so kind and thoughtful and ready to help. So this episode comes with a teammate for you to reach out to and get help. I love of this episode.

David:
Great point my man. Appreciate you pointing that out. All right. Let’s bring in Derek. Derek Sherell, welcome to the BiggerPockets Podcast.

Derek:
Thank you David. Glad to be here. Thank you.

David:
How are you today?

Derek:
Better than I deserve.

David:
That’s a Dave Ramsey line, isn’t it?

Derek:
Hey thanks, you get bonus points for calling that out. Honestly, if I was any more excited to be on BiggerPockets today, sharing this ADU strategy with all the listeners, I’d probably fall out of my chair, and I’m not kidding.

David:
I’m really glad to hear that. I hope you don’t, but I understand. I believe you’re a firefighter, right?

Derek:
Yeah. I put my seatbelt on.

David:
Okay. So if you fall out of your chair, you’re the best person qualified to sort of get yourself back out of it. Again, we don’t have to worry about you being stuck-

Derek:
Copy that.

David:
… and not able to get up. So tell us, what does your business look like? What’s your portfolio look like and a little bit about yourself.

Derek:
Yeah, thanks. So my portfolio consists of six primary houses, 14 units total. And what I do is I’m a buy and hold, build and hold investor. And I’m looking for a property that I can either convert, attach, or build a detached accessory dwelling unit, turning a single family property into a small multifamily. And my goal is to create the best product on the market, a product that’s really high demand, low supply, and get the best tenant and place them in there and then teach the tenant how to do this process. And I also like to teach first time home buyers how to use this strategy to break the barrier of home ownership.

David:
So how did you first come across this idea of incorporating ABUs into existing properties?

Derek:
By complete chance, David. I started an apprenticeship in high school. So I got into this construction technology class when I was 16, and Oregon was on the cutting edge of accessory dwelling units in the country. And we had a two term class where we were building a guest house for one of our teachers. That’s where I saw the process. I later became a carpenter. I was a licensed finished carpenter for years and I was building accessory dwellings and guest houses in Southern Oregon, Ashland, Oregon. And this was a product that was right before my very eyes the whole time. It wasn’t until years later that I realized it was actually an investment vehicle that I could attain myself.

David:
Now you have a construction background, is that right?

Derek:
Yeah. I was a builder and like I said, I started apprenticeship in high school and right after high school, I got my contractor’s license and this is back in the run up of the great recession. So everybody was a builder. Everybody had a truck and a lumber rack. We were all making really good money, so we thought at the time. Everybody was buying boats and little did we know there was this huge crash that was coming a few years later. So that was kind of, I got started in the height and I got out as everything was falling, the whole Cardhouse just started collapsing.

David:
So it sounds like you sort of built your skillset when it was really popular to be in construction. It fell apart, you got in something more stable. So now you’re working as a firefighter, but you still have those skills. And now you’re seeing, “Hey, there’s a lot of demand for this stuff. People are looking to fix their houses up again, right?”

Derek:
Yeah, exactly. So as we know in healthy economic cycles, we have this kind of ebb and flow and this up and down. And where the idea really came to fruition for me was when I was looking to buy my second house. I bought a home and I got into real estate on accident. I bought a house in 2004 and I was that guy. I was the subprime poster boy.

Derek:
So I went in to get this loan. They said, “How much do you make?” And I said, well, I don’t really know. And they told me, this is what you’re making, we’re doing a stated income. And they said, these are your assets. I didn’t have those assets. And I was able to get this subprime mortgage on this house.

Derek:
So a long story short, when I moved into town to pursue a career in the fire service, I needed to find something a little bit closer to the municipality. And the only way I was going to be able to buy a house, we’re a high market. Our average value in our two towns, average sales price is from 400,000 to 700,000 in the two towns. So it’s a high barrier of entry. And the only way that was going to be achievable for an average guy like me, was to have income property attached to a single family residence that I could buy for 5%.

David:
So you sort of had to house [inaudible 00:09:56] in order to make it work with the job you wanted to have?

Derek:
Absolutely had to. And this was before house hack or it was curl locked or before bur this was just common sense. It was like, how do I do the math? So I can have a home. I grew up in apartments and my path to real estate was how do I have a roommate at my first place? And then the second place, how do I build an accessory dwelling unit? So I can start to be an adult and not have a roommate, but still have income coming in from that primary property.

David:
Well, they say necessity is the mother of invention. And I think in this case that worked out. Now, this first ADU, did you build it from the ground up? Did you buy something? Already had one? How’d you make that work?

Derek:
Yeah. Great question, David. And this is what I teach people for free. This is what I’m so enthusiastic about for first time buyers is, you have to look for a house that has potential to do a conversion. Some people call it carve out. So this first house, it had an attached space that at one point was a music studio. So it was completely finished, it had a bathroom in it, it was basically Turnkey ADU.

Derek:
And so the thing that I try to tell people is, go with what you have. If your price point is only going to allow you to do a conversion ADU, because that may cost 20, you want to stand alone, may cost 120, set your goals and go from there. But that project was an attached ADU that was already 90% done David.

Henry:
That’s super cool, man. This is an interesting strategy. It’s one that I’ve thought about several times. And it’s one that I think a lot of people, especially people in higher price markets such as yourself are looking into. So it’s great to talk to somebody who’s putting it into actual practice. So talk about kind of in a little more detail on your first deal. So did you go looking specifically for property that was set up for an ADU and how did you go about deciding what kind of an ADU and kind of what that process looked like on your first deal?

Derek:
Yeah. Wonderful Henry, thanks. This is not just my first deal. For our audience, these few criteria, this is for your next deal or your first deal, for what that’s worth. I look for the zoning code. So in order to deploy this strategy, you have to become an expert in ADU zoning. And it sounds really extravagant but it’s not. Most accessory dwelling unit codes are like five pages or less. So when I say you need to be an expert in ADU code, you need to spend about an hour reading something and digesting maybe a couple phone calls to ask some questions.

Derek:
But to circle back to the question, I had a crystal clear criteria, even before I knew what a crystal clear criteria was. I knew this is a town, an accessory dwelling unit attached interior or detached is an allowable use in that zone and I could meet the standards. So after that it was like, is this a place that I could live forever with my family? That’s kind of my meter. How’s the crime, how’s the transit, how’s the jobs, could I live here forever? And then can I fund it and make it work? So it’s that simple. Is it an allowable use? Would you want to live there forever? And can you pull it off? Does it make sense financially?

Henry:
So when you say, would you want to live there forever? Are you using that as just a criteria? As that’s just something Derek wants to own or is that a criteria because some of these uses require you to live there?

Derek:
Yes and yes. So my thought is I’m going to live there for the first year before I go do it again. And my second thought is my criteria, my needle and my stomach, could I live here forever if I have to? If there’s a downturn like there was an ’07 and all my friends lost their boats and their houses, would I feel comfortable moving up here into this place? Could I live here with my family?

Derek:
So that’s kind of my gauge of my criteria. And then the second piece of that is a great question. I’m glad you brought it up because part of becoming an expert in your ADU zoning is some areas do require a residency requirement in the primary or the accessory. So in other words, I was doing a little research recently in Arkansas, and there’s a small town where you can have two ADUs, one attached, one detached, there’s no limitations, there’s no residency requirement.

Derek:
And then there’s a town, just a couple, one county over and they allow one accessory dwelling unit and you cannot rent it unless it’s your primary residents. So if you’re an investor and you’re going to stack all these up, you may not be able to deploy this strategy. But what’s so powerful and what we know and what I know from almost 600 episodes is that it’s not the first deal that we go big on. It’s not the first deal that builds wealth. It’s the first deal that lights the fire in our belly and says, “I’m a normal a guy or girl, and I can do this.”

Derek:
So that’s really what I kind of coach people into the code and say, “Hey, if this is an area you’ve identified, can you build an ADU? Do you have to live in it if you do?” So that’s kind of a long winded answer Henry, but there’s just so much information. It’s hard to kind of keep those short and brief.

David:
So this next section, Derek, we’re going to sort of get into what challenges you faced, how you overcame those and like what you learned through the process of having to overcome some hurdles.

Derek:
One thing I’m really proud of and I don’t know it’s worth even mentioning, but the coaching I’m doing right now for all these homeowners, it’s not freely like getting no down payment, it’s free like I’m giving my time. BiggerPockets has given me the tools to go become wealthy and on a scale that I consider, and now I have the time to go give this away. So that kind of is the intro into the fire stuff, and my town did burn down. Can be hard to talk about at times, but that’s kind of the back wrap.

David:
Well, I think the ADU strategy is super popular right now, mostly because there’s a shortage in housing, people need places to live. Housing is expensive, so people are willing to get a smaller property to have less of a payment. And then if you’re the investor who wants to own the asset, you’re trying to figure out how do I make an expensive of asset cash flow? I need another unit that I can rent out, another source of revenue. So ADU is kind of work for almost every single perspective here in how to make real estate work when it’s hot.

David:
Now, I’m sure that could be a problem if there’s not a lot of people that need to rent in an area, if the population is shrinking, but right now that’s not our issue. So as you sort of said, hey, this is my niche, I’m going to continue to replicate it and keep moving. What are some of the challenges that you faced in doing something that not a lot of other people are doing?

Derek:
There’s a lot of challenges that come with kind of being first to market. Not that I’m the first person to build ADUs because I’m not. But a lot of people in the town that you’re in may not know that it’s an allowable use because single family zoning for years and years and years has kind of been the gold standard for planning in this country. And as we get more open to infill, especially in these appreciating markets where there’s a higher demand for housing than there is available units, some of the challenges are just literally educating the cities at times of their own code because city planners have so many things on their mind.

Derek:
They’re looking at flood Plains, long term master plans, housing needs analysis. They can’t dive in as detailed as we can. So one of the challenges is just kind of educating people that is allowable use, the neighbors.

Derek:
So if you’re doing infill build, a lot of people, they really value their privacy. And there’s an area in your backyard that they’ve looked over for years that they actually kind of feel like is their backyard because of their view. And all of a sudden you go out there with an excavator and you’re digging a 20 by 40 pad in the ground. People can kind of get their hackles up rightfully so.

Derek:
Another challenge that I’ve seen come up is costing. So people think because it’s small, it’s going to be really affordable. And it’s quite the opposite of that. When we’re building, we don’t really have an economy of scale on a small unit because we have all the infrastructure, all the system development fees, all the appliances, all the amenities of a large custom house, but we don’t have any volume to kind of cost average that in.

Derek:
So those are just a few of the challenges. Maybe one more I would add, and this one could be debated in its own show, but would be, what is the best way to finance them or why are they so hard to finance? And the reason for kind of all four of these challenges is just because they’re new. As a planning community, as a building community, as people in general, we’re really just slow to change, we’re archaic, we don’t like to move this big ship and do something new. There’s probably 100 benefits, but those are four challenges that I’ve brought up against doing exclusively accessory dwelling unit as a strategy.

David:
Yeah, that’s the same thing that I’ve found with our clients that want to do it. Here’s a common question that I’ll get. Hey, David, I want to buy this property or maybe they already own a property. They say, I want to build an ADU. And it’s going to cost $125,000 to build it, but it will then create this much cash flow. And so it’ll bump my ROI up to this point on my current house, or at least my cashflow.

David:
And I’ll look at that and I’ll say, “Well, here’s the issue, that isn’t going to add $125,000 of value to your home, guaranteed.” It might be more, it will likely be less because at this stage, their new appraisers are not at those in every circumstance like they’re as valuable as I think the market is saying that they are.

David:
So it’s going to be tough to get your money back if you do that. And because you can’t finance it, it’s the equivalent of $125,000 down payment that you could make on a complete different property. And then you’re getting to buy, a $500,000 house with this $125,000 down, instead of just adding $125,000 ADU to your property. What is your answer to the people who find themselves in that situation?

Derek:
The answer is kind of multifaceted, but I would… First I would say, it really depends on your goals, because if your goals are to scale, it’s not to put that 125 down, it’s to go by two properties with 25% down potentially. But I would say if you’re thinking of building an accessory dwelling unit and you own a home and you’re talking to David, you’re in an appreciation market and there’s a high likelihood that you have good equity in the house that you’re already using and maybe not all of it, maybe you don’t get the whole build cost.

Derek:
But what we’ll do is we’ll set up a financial stack where we’ll, we’re going to take funds from wherever we can, home equity being a good one. There’s another great product for somebody in this scenario for that question, David, that has a house.

Derek:
Maybe they refied, they were smart, they refied last year and they’re under 3%. So they don’t want to do a cash out refied because they don’t want to set that back up at 4% today. But maybe they’ll look at a second loan or maybe they’ll look at a potentially a custom construction loan or there’s a product called a HomeStyle Renovation loan, that’s a Fannie Mae product where you can get a loan depending on your loan ability, 75% to 95% of finished value.

Derek:
So in that case, your client comes to you and says, “David, I own this house in XYZ, California. And I want $125,000 ADU, but I don’t have any equity, but I am lendable, I have good credit.” I would say those are three really good options to look at. But it all depends on your goals.

David:
Yeah. That’s a great point. If your goal is build as big of a portfolio as you possibly can, as fast as you can, it might make more sense to take that same equity and use it to buy more property. Assuming you can. Some markets are so hot that you just can’t get a house at all.

Derek:
Totally. And the last thing I would add, and it’s very important and I don’t mean to interrupt, but it is kind of an issue, like how do I fund this? And what I do is it’s a mindset, do I think about it is this is going to be hard to fund or do I think about it as, oh my goodness, I live in one of the most highly appreciating areas in the country and I have a free lot, how do I build a small house on my free lot?

Derek:
And if we change our mindset and we look at it that way, it’s not a problem, it’s a solution. So again, it’s just about goals. So it’s not the greatest and best use in all areas. And some of these neighborhood protectors, which is the new term for NIMBY, because NIMBY is not really appropriate, but neighborhood protectors, they have good points and some of them, they don’t think it’s the greatest and best use in their neighborhood, and some of them are right. So that’s worth noting too. David, thanks.

David:
Well, one of the areas that I’ve found that does make it a no brainer, because I’m in this situation all the time where clients come to me and they say, “David, what do I do with my money? How do I get it the biggest point?” So I have to work through the same things that you are. If it’s building it from the ground up, it usually makes sense, if you love the house, you’re going to live in it. You want to place that you can include in that area and adding square footage to your property is going to make the value go up.

David:
So like in the bay area where I am, this makes a lot of sense. In many cases, this can make sense. It wouldn’t make sense in the example that we said where you’re just trying to get the most value that you possibly can out of the money.

David:
Another scenario where it is a no brainer is when there is an existing structure on the property that could be converted into an ADU without having to build it from the ground up. So do you mind sharing Derek a little bit about when you do that, what to look for? What are the things that you want to see in a structure that will reduce costs? Sometimes I’ll see a shed and my client will say, “Hey, can we convert that into an ADU?” You might as well, that’s going to be more expense because you have to get rid of the shed. So what are the things that they want to be looking for in the structure?

Derek:
Yeah. David, just so you know that’s all solid gold, that’s solid gold, that’s awesome. So what I tell people to look for in a structure is what’s easy? You’ve been talking for years, David, about house hacking and if you see something on the MLS, that’s a three, two and has 1800 square feet or 2100 square feet, you always know you’re getting another bedroom.

Derek:
It’s the same exact lens, you just shift it a little bit. And it’s like, “Okay, we have this big Gotti formal dining room and there’s already a bathroom over here. We have 400 square feet. It’s vaulted.” I mean, I’m talking about pulling the permits, paying system development fees and spending $500 to put up a firewall, two layers of 5/8 Type X to get life safety protection, carbon monoxide detector, and a smoke detector, and a kitchen.

Derek:
So there’s opportunities that are very, very easy and very, very affordable, like you said, an absolute, no brainer to convert them. And I’ll share a quick story with you. I get calls all day long about ADUs and I did a walkthrough with a lady in Ashland, Oregon yesterday, who’s a first time buyer.

Derek:
So I said, “Hey, I’ll come give you my two hour free consultation.” And this property she’s under contract with it, $565,000, it has an 11, which is a really weird number, an 11 by 26 detached permitted legal shop. So it has 100 amps of power, it’s finished, it’s got drywall it’s roof. I mean, it really just needs a bathroom and plumbing and she can turn this thing into an accessory dwelling unit. And I get it there and we do the figures and then we’re looking at SDCs, and we’re looking at kitchen, and we’re looking at a sewer tap.

Derek:
And I said… We were an hour into this, and I said, “Well, what are your goals?” And she said, “Well, I was just, I kind of wanted to just get a roommate, I’m only one person.” This is a house that’s almost 1900 square feet, it’s a huge cabin style, two, two. And I said, “Let’s go in the house.” And we walked in the mud room, which is now after I left is the kitchen.

Derek:
So we walked into the mud room and there’s this big dice area, there’s a big, beautiful bathroom and a huge bedroom, and there’s 136 inch transit walkthrough into the kitchen in the main house, in the other living quarters. And it was just like, bam, right there. I mean, we were looking at spending $50,000 for her to potentially convert this little tiny narrow structure that would not have really efficiently fit a bed and a bathroom.

Derek:
And we go inside and there’s another opportunity, that’s a couple $1000 that accomplishes the same thing because she wants to live alone, she was already going to have a roommate. And so it’s really about going into a property with the lens of how do I meet my goals?

Henry:
And that’s awesome. So what I hear you saying is really, as you’re looking at these properties, if you’re somebody that’s thinking about doing an ADU, it doesn’t always have to be an external ADU, and you can look at a property and what David preaches and kind of what you said is exactly right. If you look for these houses that are three twos with over 2000 square feet or two, twos with, 1500, 2000 square feet, there’s obviously extra space in that house.

Henry:
And so if I’m hearing you correctly, you just have to be kind of mind present or thoughtful of that space and try to envision, Hey, is there a bathroom close by this additional space? And is there a way we could put a wall up at a kitchen and then maybe some way for them to access that space? And then now you’ve taken something that was already under roof and made it to unit. Is that what I’m hearing?

Derek:
Oh, that’s right on the money Henry, all day long home run right there. And the thing about that too, is we have to plug this is you’re buying this single family turn duplex potentially for 5% down while you live in it for a year and then you go do it again. Unlike a lender, that’s going to say, Hey, if this is an investment loan, you have nine, maybe 10 before you get out of nonconforming loans. Owner occupied loans, you could do this 100 times, not that you would want to.

Derek:
But more to your point Henry, Warren Buffet talks about this book that Ted Williams wrote, The Science of Hitting. And Ted Williams took the strike zone and he cut it into 77 different cells, each the size of a baseball, and he realized what he would bat if a pitch was in his strike zone or out of his sweet spot.

Derek:
And this is the same thing with ADUs and MLS or off market single families that have ADU potential. I just, you can sit there with the bat on your shoulder and watch all these houses camo down the pipe, and when you see one that has ADU potential after you’ve done this a few times, it’s so obvious. It looks like a beach ball coming down, right belt high fastball.

Derek:
And sorry, I don’t have a better ju-jitsu analogy for David, but that’s the best way I can describe it. Because you have this really easy criteria and then you just sit there and wait for one to come along.

David:
Well, the reason I suck at ju-jitsu is I don’t have that perspective. I don’t know what I’m looking at when this person’s coming at me. It’s, I’m the newbie in this world and I’m like, “What do I do when this happens?” And you watch the people that are good and they don’t even think they’re just like, “Why would you leave your hand down right there?” They’ve jumped right through. So it is encouraging when you’re saying “Henry, did you have something you wanted to add?”

Henry:
Yeah, no, I was just going to say it’s like the red truck theory, right? Like once you know what you’re looking for, once you’ve seen it a couple of times now, everywhere you go, you can spot it pretty quickly.

Derek:
Definitely. Yeah. That’s awesome.

David:
The last thing I want to run by you, Derek is the expert here is one of the areas that we found a lot of success for our clients, because basically we’re like scavenger hunter in probably the hottest market in the country, the Bay Area right now, we have to try to find a way to get a person in there with outbreak in the bank.

David:
And so I’ve become incredibly creative at finding floor plans and opportunities like what you’re saying. Garage conversions have been really, really big. Can you share any insight that you have as to what to look for and how to execute a garage conversion?

Derek:
The number one thing and we’re not thinking about it, probably not even on our radar, is that, can we meet the parking standard in the outline zone if we turn our garage, our parking spaces that we use to meet the standard into living space? So that’s where it goes back to my step one of my crystal clear criteria, you have to become an ADU zoning expert.

Derek:
So the garage conversion is the most attainable, it’s the most affordable, but it’s also really hard if you have a parking standard. I can’t speak intelligently for California, but I know in Oregon, January 1st, 2018, we passed a house bill that required that all cities and municipalities in our state remove a parking requirement for the first accessory dwelling unit. But to further dig into your question is that the ADU conversion into a garage is amazing.

Derek:
And if you have clients in a really, really high price market, I’m sure you know this strategy, David you’re super sharp, you’re a lender. You have all the angles. But one to think about if you haven’t is, if you can bring a design to the closing table and you can bring a license contractor that meets the needs of the lender, you can bring that custom construction loan to the table with the primary loan and you wrap it all into one deal for 3% for a first time buyer.

Derek:
So if you have a property in your market, that’s a million dollars and they want to convert the garage for 100,000 and it will meet the siding and design standards in their zone because you’re now an ADU expert or you called me and I told you, and you can meet the parking, you can show up to the closing table with the finished value of that accessory dwelling unit built in to the price and finance 1.1 at 3%, that would be a strategy I would say to look into.

Derek:
I mean, we know that lenders are not created equal, you might have three people tell you no before one person tells you yes, but I can tell you this, accessory dwelling units, they’re not just a new fad, they’re here to stay, they’re sweeping across the country. And whoever comes up with a really, really good product to lend on these and to lend high loan to value on these, is going to be really rich. They’re not going to be working after they figure it out.

David:
Okay. Now Derek, let’s say I’m a home buyer, I’m an investor, I’m out with my agent, we’re walking a property. I love the location, I love the house, I want to buy it. It just feels like it’s going to be a little too high of a mortgage or it’s not going to cash flow. But I got a little capital that I can use to do a garage conversion.

David:
Tell me as I’m walking into that garage, what should I be looking for? Should it be attached to the home? Should it be detached plumbing, electrical? What are the things that I can see that lets me know, ooh, that’s the red truck that I’ve been looking for?

Derek:
Yeah, David. So the cheaper option is a lot of times the better option. So if it’s attached, it’s going to be more affordable, so we’ll start with an attached unit. If it’s attached, we’re looking for first and foremost, I’m looking for sewer.

Derek:
So we’ve been using gravity for a long time, thousands of years because it works. And if we have a property grade and the sewer line is on the other side of the house, it may be a tough lift. We can pump, we can pump sewer, but I’m looking for sewer first, the next thing that I’m looking for is if I-

David:
Well, hang on one second there, you’re looking for the sewer line to be on the same side of the house that the garage is on, that’s what you’re saying?

Derek:
Yeah, or a spot that I know it will fall to. And it’s really easy, you can pop your head in the crawl space and you can see the main and you can usually see which corner of the house it goes out. So that’s a quick way to identify that without an inspection or a scope.

Derek:
The next thing I’m looking for is the attached garage. Is it big enough to be a unit? Does it have seven foot ceilings or nine foot ceilings? What’s the shared wall? Is the shared wall that would be the bedroom of the ADU? Is that the master? Because we can soundproof that, and we can vibration proof that, but that’s not ideal. We’d rather have that be a kitchen wall.

Derek:
Couple other things is what is the natural light. If I’m going to do a conversion in your market, in a garage, it’s still going to cost me 50 grand and I want it to be marketable, again, if you go back to my criteria, it would be the same that you would want for your client. Is it the best ADU in your neighborhood?

Derek:
So those are a few things. Detached is way better. Ideally, you want a detached unit because A, the house has privacy, and B the tenant has privacy, and people will pay a premium for detached. So if you’re walking through a property with your client and has a detached garage or shop that’s, I usually say 400 square feets about the minimum, and there’s already water, sewer power out to it, that’s a no Rainer. That’s that beach ball coming right down the belt, high, fast ball.

Derek:
But I’m just looking for mostly where’s the sewer, and if I was a tenant and I was going to live in here, how does it feel? Is it a dark little, 300 square foot garage with seven foot ceilings that are trusses? Because if it is, I’m going to have to take the roof off. I’m going to have to go up. If the sewer lines on the other side of the property, it might not be worth the effort, I might be better off starting new.

Derek:
But to tie that all in together for the garage is will it work? When you walk in there you know, you don’t need to do very many of these and you walk in and you say, “Gosh, this just feels great.” One thing that I do always add on the garage conversion is when they do garage for uncondition space, they don’t put a vapor barrier under the slab on grade. And what you get is you get this effervescence and you get this moisture similar to a basement where they didn’t properly do a moisture barrier.

Derek:
So if I’m starting with a place that feels kind of dang, that’s just kind of a red flag. So it’s really like, how does it feel when you walk in? Can you get sewer fall and how much privacy is your tenant going to have? And are you going to be able to get? As Joe Asamoah calls it the creme de creme, like how do you get the best tenant? It’s by having the best product and giving the best customer service.

David:
Awesome. Henry, anything you want to add on that?

Henry:
So also what tends to be in place in some of these garages in my market specifically is the electrical panel for the entire house is a lot of the times found in the garage. And so when you see that, is that a big red flag? Or are you moving those with ease? Or how does that work?

Derek:
Yeah, what you do is you just flip them over. So they’re already on an exterior wall and all you have to do is pull the meter and you flip them over. So that’s not a major concern at all, that’s like something easy, if there’s everything else and there’s electrical panel in there, that’s butter. If you see a gas meter, that’s a lot different, those should be exterior.

Derek:
But a lot of times people build garages where their carport was, where their gas meter used to be, and those diaphragms off gas. So that’s a whole different thing. But David, just to jump back to your question, walking through with first time buyers, I would ask you to maybe at least give them the option of looking at a master conversion, because the garage is so much harder, if we’re looking at like, how do we get into our first house? And you’ve got clients that are right on the edge of getting qualified, the master is so much easier to convert, especially if it already has an exterior door.

Derek:
And everybody, they want their kitchen and they want their bedroom, those might be their goal. So it might be a hard sale to your clients, David, but just consider master bedrooms are always the easiest. Everybody thinks it’s the garage, it’s not the garage, especially if you can’t meet the parking standard.

David:
So if you see a master bedroom, that’s big, has its own bathroom, has its own entrance, you’re saying that can easily be converted into a studio, just throw a kitchenette in there in your…

Derek:
All day long for so, I mean, your ROI is so much better, and then a year later, you go by the one you want that has the master. And a lot of times, if it’s a three, two, there’s a Jack and Jill, or there’s a close bathroom, or if there’s not a close bathroom, there’s plumbing on the wall of one of the other bedrooms, and you can add one little bathroom in your master and turn your master into an apartment for pennies on the dollar compared to a standalone build.

Henry:
That’s a phenomenal piece of advice, because most floor plans now new floor plans are split floor plans. And so you’ve got your master on one side of the house, anyway, that’s a phenomenal piece of advice for people looking to do conversions.

David:
And this what we mean when we say in this market, you don’t really find great deals, you make great deals, because you’re turning that into something great. If when I go look at homes, I’d say 90% of what I’m doing is walk in this house and my mind is trying to figure out, could I do exactly what Derek’s describing? What areas would become their own units? Where is the plumbing running? Is there a bathroom right on the other side of this wall, that I could just take all the plumbing and push it over here? How would we run the electrical for the kitchen that has to go in there?

David:
I love what you’re saying, Derek and I think that it’s never been more necessary than now in a market that’s hot. The last piece that I’ll add, that I don’t know if we covered it in depth before we move on, is that in California and in many other markets that we actually passed legislation in California, that made it illegal for a city or municipality to say, “You cannot have an ADU.” I believe it was SB 9, do you see something similar happening in Oregon?

Derek:
Yeah. House built 2021 in Oregon, SB 9, SB 10 in California. It’s going to change the way housing is built and accepted. Very similar to when we had urban sprawl 50 years ago, and the first multifamily structures started being built in primarily single family zones. It’s the same wave, if we go back and we look at the history, if you’re not on board with an ADU strategy right now, you’re going to get left behind.

Derek:
And not only because you brought up California legislation, not only did the cities say, “Hey, all you planners at the state…” Told all these city planners, you’re not doing it right. All of our long term planning sucks. We have a housing crisis, we’re going to tie your hands and we’re going to set the rules.

Derek:
They also said, “You can split these off and sell them as fee simple loans.” So which is going to completely change the dynamic in California. You have what? The fifth largest market in the world, setting this new housing standard, it’s just going to sweep across the country. I mean, Florida’s already doing it, there’s stuff in Texas, Connecticut, New York.

Derek:
I put some stuff in the show notes where there’s AARP is setting a model code that a lot of cities and states are adopting. So if you’re looking at an area and you think ADUs are coming, I would read AARP’s model code, and that’s probably pretty close to what’s going to stick.

David:
Well, I’m glad we have you on. I imagine I’m not clairvoyant, but I would imagine your inbox is going to get pretty full after the episodes. [crosstalk 00:39:34]

Derek:
I don’t know. I just tell you what, all I want to do is help people and I want to make the promise that if you reach out to me, it may take me a year, if I get 1000 emails at an hour each, but I will get back to you. I want to help you create housing, I want to help you get off the hamster wheel enough.

David:
All right. Well, we can’t keep you all day, so we are going to move on to the next segment of our show, it’s The Deal Deep Dive. All right. On this segment of the show, we are going to dive deep into one specific deal that you’ve done, do you have one in mind? And are you ready to go?

Derek:
Sure. Shoot.

David:
Okay. We will alternate our questions and I will go first. Question one, what kind of property is it?

Derek:
Single family, turned multi-family with the ADU strategy.

Henry:
Awesome. How did you find that deal?

Derek:
MLS. I never get a good deal, I always pay market because I make the deal.

David:
Awesome. How much was this deal?

Derek:
316,000.

Henry:
And how did you negotiate it? If you did?

Derek:
That’s great one, it was on an online auction and I was bidding against a machine and I made a decision to spend 316, the deal closed, I got a call saying, “You didn’t get top bid, you can add five grand if you want. And I said, “No,” I stuck to my guns, which was stupid, I would’ve added another 100 grand if I know what I know now. And they called me back and said, “Actually, you got the deal.” So I was betting against the machine and just got lucky.

David:
That’s awesome. I love that you admit that. I’ve been there many times, I’ll give you a… This is not my deal, deep, dive, but I’ll just say, last summer I was looking in 2021 for a property for myself. This is the deal that got away. It’s like that one girlfriend you’re like, “What was I thinking?”

Derek:
Oh yeah.

David:
Except for me- [crosstalk 00:41:21]

Derek:
Heartbreaker.

David:
Yeah, they wanted 1.8, I offered 1.85, it sold for two million, I didn’t want to go that high. And now that property is probably like, it’s the best you could find in the 2.5 range over just like a seventh month period. I’m like, “Why didn’t I?” Yeah. So I feel you Derek. All right. I’m glad it worked out for you though because we have a deal deep dive to get into. Next question, how did you fund this deal?

Derek:
With owner finance? So 5% down, primary mortgage, secret weapon.

Henry:
That’s amazing. So what did you do with it?

Derek:
So this house is the textbook. It had a big, huge Gotti formal dining room with a kind of like second living room, and there was one wall, it was a shared wall with the kitchen and a shared wall with the staircase, and an entrance on each side, I literally pulled the permits, paid the SDCs, covered the two walls, soundproofed the entire shared wall, and punched a door out to a cute little patio, and I’ve got the happiest tenant you’ve ever seen in Oregon.

David:
Well, you sort of also described the outcome there. So we’ll skip to the last question. What lessons did you learn from the deal?

Derek:
I learned the lesson that this process is really simple, anybody could do it, and the deep dive here, David and I won’t take up too much of your time, but it was on a big enough lot that I was able to split the lot and do the exact same process behind it. Like when I thought it couldn’t get any better, it got better.

David:
Well, there you go, folks, that is exactly what it can look like when you use this same strategy. Simple doesn’t have to be the deal of the century, but it ends up looking like the deal of the century after you make it into that. So thank you Derek for sharing that, that’s a great example. We’re going to head over to the next segment of our show, which is The World Famous…

Automated:
It’s time for the fire round.

David:
We are going to ask you questions that come directly out of The BiggerPockets Forum, and fire them at you, and we will see what you can do with them. So if you’re listening to this and you like what you’re hearing, go check out The BiggerPockets Forum and see what else might be in there. Question number one, what are the pieces that I should be looking for in my city’s code for ADUs?

Derek:
You are looking specific for the ADU ordinance. Like I said, it’s usually five pages or less. Most cities use the same code management software and there’s an hour, there’s a search bar and you simply go up into the search bar, and type ADU and it’ll bring up every code, it’ll usually bring up the definition and then the specific piece of municipal code, read it.

Henry:
Awesome. Question number two, how much return will I see on an ADU? What are the risks to consider?

Derek:
So like anything, there’s risks in all investments. The return that I tell people to shoot for is 25% cash on cash return, unless you can use a little bit of leverage and then the return is infinite. But for the example that David used, I’ll just pull that one up.

Derek:
Somebody owns a property in Dubai, they have a $120,000 standalone bill and say they can rent that for 2,400 a month, they have a 20% cash on cash return right there. If they don’t bur out of it, if they don’t refi out of it, that’s kind of where I tell people. But if you buy a house with a really easy master conversion, it just goes up from there.

David:
Okay. Next question. Little different, but I’m curious if there is an answer to this. Are there any workarounds I can use that make ADU comply if they aren’t legal in my city?

Derek:
Great question. Yes. And that’s where you go back and you become code expert, and outside of municipalities, counties aren’t as friendly to accessory dwellings or there’s small towns that don’t want to compete with the city. And what we have is a piece of code called the detached living space.

Derek:
And the living space is kind of defined by the national standard of planning as not a dwelling because it doesn’t have more than three of the five dwelling statistics, which is eating, sleeping, living, cooking, and sanitation. So you build a detached living space at your municipalities max, a lot of them are 400, 600 or 800 square feet and you put in a bedroom and you put in a wet bar and you can’t have a stove.

Derek:
So what you do is you use legally, you get it permitted as a legal user in your zone. And then after the inspection’s done, people just use a plugin hot top appliance. And those are kind of called legacy accessory dwelling units, but that’s the legal workaround. So you meet the standard with the city and then you want to make sure you ensure it properly if it’s a living space. So those are the things that I would say are workarounds per se.

Henry:
Great. Question number five, who are the people I need to seek out to start an ADU build out? Just the GC, is there other people?

Derek:
I would start with doing the research yourself, in today’s climate, you can get a general contractor, but you’re going to probably end up managing the general contractor. So I tell people there’s two ways to build an ADU. There’s the easy way where you pay for everything, and then there’s the hard way where you kind of self-manage.

Derek:
So depending on your time, and your goals, and your skillset, I usually recommend people at least try to general the project. So you follow a couple steps, you have somebody like me help you and you are a construction manager. So that would be kind of the steps to go about building an accessory dwelling. The more formal way would be to get a set of plans, and then you shop the plans around, and you have a general contractor provide that product for you at said price.

Henry:
Awesome. So I’m going to sneak an extra question in here. So you talked a lot about speaking with city planners and people of that nature to do your research, but there’s oftentimes in art form when it comes to speaking to these planners and getting them to understand why you’re asking questions, what you’re trying to do, because they’re trying to protect their communities. So what tips can you give people when reaching out to the cities to talk about potentially adding ADUs or how to get that going?

Derek:
I usually just start by telling them exactly what I’m looking at and what I want to do. So there’s, you’re very direct. And I lead with, I have a little bit of planning knowledge, and I’m really good at research, but I’m just, I know just enough to be dangerous, could you tell me based on your professional opinion, what you would do with this property, if it was yours to get the greatest and best use?

Derek:
And what I’ve learned is that you, it’s not a manipulation tactic, you just, you empower them because they are the smartest person in the room. You empower them to tell you what you should do. And that’s been the best strategy that I’ve found is just treating people right, being direct and asking them what they would do. And what I found is most of the time people come in and they tell them what they’re going to do.

Derek:
But if you ask them what you can do and what they would do, you see this shift and they’re like, “Oh wow.” This person cares about my education, and my knowledge, and my experience.” And I kind of take that approach mixed with my imagination and my experience, and we can usually come up with a really good plan. So that was a great question, I’m so glad you added that Henry. I mean, that’s probably the relationships, and the talking, and the communication is probably the most important piece of this puzzle.

Henry:
That was a phenomenal answer. I hope you guys wrote that down. You’re right. It’s not a manipulation tactic, it’s just treating people right. But it feels like a Jedi mind trick at times, right? Because you’re getting people to talk, well, people love talking about themselves, and people want to feel like they’re respected and that their opinion is valued. And that really opens them up to being more helpful to you. I love that tip, great.

David:
And I will second what Henry just said there, as far as your answer, Derek. I still, at this stage of my career, asked that to every single person. I was just this weekend, looking at a house for myself in the East Bay Area, beautiful house, $2.5 million place, we’re going over, what we would do to do exactly what you’re saying with it.

David:
And I would say, “Hey, here’s what I’m thinking. What do you think about that? What would you do differently?” And oftentimes what you’ll see is hesitation in your contractor’s face as they’re listening to you, because they don’t want to say that’s dumb or it won’t work, or maybe they’re thinking through when I’m like, “Hey, here’s my idea.” And there’s like 19 steps they got to figure out.

David:
Which I found is very different than me, they’re like where would the air return come from? And where’s our drain going to be? And you realize, oh how would you do it? They say, “You could just put it over there,” and I’m like, “Yeah, but that doesn’t make sense,” why? Because you don’t have to do this, and this, and this, and, “Oh, all right.” So, and there is not a point your career, I think we should ever get to where not asking those questions, I really liked that you brought that up.

Derek:
Cool. Thanks David.

David:
Yeah, absolutely. Thank you for that great answer. Next segment of our show is going to be…

Speaker 8:
Famous for.

David:
This segment of the show we ask every guest on every episode, the same four questions. And we are going to ask you yourself at this time. Question number one, what is your favorite real estate book?

Derek:
My favorite real estate book, if you’re not already tracking, I’m obsessed with accessory dwelling units and this is the best piece of literature, this is the ADU Bible. My buddy Cole Peterson at a Portland, Oregon wrote that it’s Backdoor Revolution. If you are wanting to build an ADU yourself, if you’re a professional practitioner, or if you are a policymaker, you got to have the book.

Henry:
Awesome. What is your favorite business book?

Derek:
Business book? I thought long and hard about this one. I wanted so bad to say Set for Life by Scott Trench. I mean Scott and Mindy, if they ever listen to this, they’ve helped me tremendously. And I love Scott’s approach that’s simple, it’s based on a solid financial foundation, but it was slightly beat out by Jim Collins, The Simple Path to Wealth.

Derek:
And although it’s more of an investing book, it’s the same key principles. It’s all about simplicity, a simple average plan repeated over time and you have extraordinary results. And if that’s an index fund, so be it. If that’s an accessory dwelling unit or if it’s a self storage unit, the same rules apply.

Henry:
Fantastic. So what are your hobbies?

Derek:
My hobbies, right now are taking phone calls all day long for first time, home buyers for free and going and looking at almost every house that’s for sale in the neighboring markets to try to help people say, this is where you can do an attached or detached ADU. Is starting to bog me down, that’s the only reason I started this business is so I could like track the calls, and so I could kind of organize the workflow.

Derek:
But outside of that, I’ve got an amazing girlfriend, Bryce and my family we like to run around in the sun. I’m an avid trail runner, so I’m training for 100 miler this year. I run a 50 miler every year, trying to run about 60 miles a week. And if the snow’s good, you’ll find me probably calling in sick at work and skiing powder on Mount Ashland.

Derek:
So running, skiing, ADUs are incorporated into everything I do. You know, if I’m on a trail run, on the PCT I have the three spots I know I can stop and get cell phone reception to look at something real estate. And if you don’t believe me, both of you are welcome to call me and I’ll answer my phone and I’ll probably be on a chairlift or something. So try me.

David:
All right, next question. In your opinion, what sets apart successful investors from those who give up fail or never get started?

Derek:
Relationships all day long and not just this awesome relationship with my lender or the relationship with the subcontractors, but the relationship that I have with myself, believing in myself when it’s really, really hard or the relationship I have with my girlfriend when she basically props up the whole day, so I can work 16 hours and literally fall asleep on the hardwood floor in front of the wood stove at night.

Derek:
The relationships I have in my life are the only reason I’ve found a tiny bit of freedom, it’s no work of my own, it’s all the people around me. I didn’t even choose to surround myself with, they kind of found me. And to end with, anybody can have those relationships, I’m just an average person like you can do this.

Henry:
I love that, man. It kind of rings true to one of the things that I always say as people say, they’re these self-made millionaires and that’s normally not the case, man it’s, you’re a team made millionaire typically.

Derek:
Every time, every time. Oh, that’s beautiful.

David:
All right. Well, Derek, this has been an amazing interview on a topic that doesn’t get talked about enough, so I really appreciate that you did this. I think one thing that stood out to me was I’m most of the, and this includes me. Most people assume an ADU always means a standalone dwelling unit that is not attached to the home, but you gave a lot of examples of ways you can take square footage you already have, that doesn’t require a really big rehab budget or the $150,000 that I mentioned putting it down, and you can just take the property as it’s built. Any last words that you want to add on that subject?

Derek:
Yeah, just directly to that subject. I know that there’s a lot of places in the country that build with basements and we didn’t even get to talk about basement or attic conversions, but everybody’s looking for a garage conversion. I mean, is it built on a house? Do you have a daylight basement? Can you put an egress window in for a few $1000? And bam. The other cool thing about a basement conversion is all these municipalities have a high end cap on square footage, unless it’s a conversion of a part of the existing home.

Derek:
So if you have an 800 square foot ADU max in your area, but you have a 3000 square foot, two story house, you can convert not even the basement, the lower or upper floor. So I’m always thinking, shared wall duplex, over under duplex, cottage style duplex, but they’re all within the ADU strategy. And the most powerful piece of the ADU strategy is you’re getting multifamily results without the 200 page code that wants carbon gutters, street trees, fire sprinklers, all this list of bureaucratic processes that you can kind of go around with accessory dwellings. So I’m glad you brought that up, David, I wish I would’ve been able to share more about basement conversions.

Henry:
Awesome. So tell everybody where they can find out more about you.

Derek:
Yeah. Check out my website, at thataduguy.com, and then I also put a bunch of other competitor websites in the show notes. So there’s a bunch of other people that kind of do similar things in different regions, and it’s all about sharing, this is collaboration, not competition.

Derek:
So everything that I know ADU that I send people to, I put in the show notes, but thataduguy.com, send me an email, my phone number is on there. If you call it, I probably will answer. I just ask that if you call me, be ready to take actionable steps to change your life.

David:
Awesome. Well, thank you very much. I appreciate that. Everybody reach out to Derek. He wants to help and you probably need that help if you’re trying to do what he’s doing, which we do all the time, where I live. Henry, also great job today as always, really appreciate your support in this. I’m going to let you guys get out of here. This is David Green. For Henry, find that red truck Washington. Signing off.

 

Saving a down payment for a house can be a daunting task. In this day and age, it can take years to save up enough money to afford a home, depending on various personal and economic factors. However, the Canadian government has created a Home Buyers’ Plan program, which allows first-time homebuyers to withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP) to increase their down payment. If you’re buying with someone who also qualifies for the program, that gives you up to $70,000 to put toward your home purchase.

Essentially, by using your RRSP, you are borrowing funds from yourself to purchase your home. Below, we will explain both how much of a down payment you require and how you can leverage your RRSP to help pay for it.

How Large of a Down Payment Do You Require?

When purchasing a home and applying for a mortgage, you must have a down payment. A down payment is a lump sum of money the borrower (in this case, the homebuyer) gives the lender up front in cash to secure the mortgage loan for the property.

Many factors determine how much money you must put down when buying a home. For example, if you’re self-employed or have a poor credit history, the lender could ask for a larger down payment because you are viewed as a riskier borrower.

Typically, a down payment will come from the homebuyer’s savings, as it is better to use your equity for the down payment rather than taking on more debt (which may carry a high interest rate) to cover the down payment – which would be taking on debt to pay for more debt.

The money you put down on your home will be dedicated to the home’s purchase price, and the mortgage will cover the rest of the cost, which you will pay back over a specified period, at a specified interest rate.

The minimum down payment required is dependent on the price of the home you are buying. However, it is usually ideal to put down at least 20 per cent of the purchase price. Should you contribute less than 20 per cent of the home’s price, you will be required to purchase mortgage loan insurance, which protects the lender if you default on your mortgage.

With down payments being percentage-based, the higher the home price, the more money you will be required to put down. Therefore, as the real estate market continues to simmer and prices rise, buyers will be required to put down a more money. This is where the Home Buyers’ Plan can help first-time buyers.

What is the Home Buyers’ Plan?

The Home Buyers’ Plan (HPB) is a federal government program that gives first-time homebuyers an opportunity to withdraw funds from their RRSP, under the agreement that they will pay back the funds over a period of 15 years.

The HBP allows first-time homebuyers to withdraw funds from multiple RRSPs as long as your name is listed as the owner on the account. To qualify for the HPB, you must meet specific criteria:

• Be a first-time homebuyer
• Have a written agreement to purchase or build a qualifying home
• Be a resident of Canada when your RRSP funds are withdrawn and until the house has been purchased or constructed
• Must intend to live in the home as a principal residence within one year of the purchase or building completion

Upon withdrawing the funds from your RRSP, you will need to repay them eventually. The repayment period begins in the second year after the withdrawal of the funds, and you have up to 15 years to pay back the original amount. Each year, you will need to repay a specified minimum amount during that period. You can also choose to repay a higher amount, if you want to.

Before you withdraw the funds from your RRSP, make sure you budget to pay the funds back. If you do not put the funds back directly into your RRSP, your taxable income for that year will be increased by a corresponding amount.

Remember to consult with a trusted financial expert before making any decisions regarding funding your down payment, to ensure you make the decision that best suits your financial situation.

Sources:

Ashley:
This is Real Estate Rookie episode 163.

Andrew:
If you just made a little bit of progress every single day, you will get to your dreams. When there’s two years, five years, 10 years, it will be much quicker than you think. It’s a snowball, but if you don’t start it now, you’ll wake up at 50 building somebody else’s dream.

Ashley:
My name is Ashley Kehr, and I am here with my co-host Tony Robinson.

Tony:
And welcome to the Real Estate Rookie where every week, twice a week, we give you the inspiration, information, motivation that you need to get started as a real estate investor, or keep going if you are already started. So Ashley, what’s going on?

Ashley:
So as you can see, I am not in the closet, Tony’s not in his office and we have someone sitting in between us. So we are actually in Tennessee right now in one of Tony’s short term rentals. So Tony, do you want to just give like a little brief overview real quick of your cabin?

Tony:
Yeah, yeah, so we bought this cabin a couple months ago. But as part of the purchase of this contract or the purchase of this property, we had to honor a property management contract from the previous owner. So they had it under contract at the end of the year. So we took over control officially this week. So we figured let’s come out, let’s see what it’s like and decided to invite Ashley along and our awesome guest. So we’re all kind of here breaking in the cabin for the first time.

Ashley:
Yeah, so today we’re just going to meet doing a live podcast. We also have a meet up tonight that we’re doing. So hopefully if you guys listening in Tennessee, we actually met each other a couple months ago when this is recorded.

Tony:
So Ashley and I want to start doing this a little bit more often. We got our Rookie road trip. We’re just going to kind of pop around in different markets that we like, markets we’re investing in and set up shop, interview a guest on spot on location, and then hopefully have a meet up and meet some cool people.

Ashley:
Yeah. So we actually put out an Instagram post that we wanted to interview somebody in person. And the first person that reached out to us was Andrew.

Tony:
Sorry, not the first person, the best person that reached out to us was…

Andrew:
Thank you. Flattery will you everywhere with me so go ahead.

Ashley:
So Andrew, why don’t you go ahead and tell everyone a little bit about yourself?

Andrew:
So my name is Andrew, Andrew [inaudible 00:02:11]. That’s what my mother named me. Most people call me Breezy, but you guys can call me whichever you prefer. So I grew up in Chattanooga, Tennessee, about two and a half hours from here. And I’m really, really excited to get on here and tell my story. When I was a little kid, I think like most people I had dreams of what I was going to be, but I figured it out a little earlier than most. I’m sure you guys have never heard this story of a 15 year old reading, Rich Dad, Poor Dad, never been heard on this podcast before. But I read that and I got so obsessed with real estate, with financial freedom and I never thought about money in a traditional way. Again, I didn’t want to work for somebody else.

Tony:
You were poisoned from an early age.

Ashley:
How old are you now?

Andrew:
I’m 33.

Ashley:
Okay.

Andrew:
So I was 15 or 16, I don’t remember the exact time, but all the Ritalin in the world couldn’t get me to focus at school. And then I told my dad and I just wouldn’t stop talking about Rich Dad, Poor Dad and how excited I was. And so we went to Florida on vacation and he said, “I will buy you whatever book you want, however many books you want to read, just let me know what you want.” So I left the condo twice that entire week, I read like 2000 pages as a 16 year old. And I was hooked from then on. And I didn’t get started as a 16 year old, unfortunately, but I knew from then on, I wanted to be a real estate investor and I didn’t want to work for somebody else for the rest of my life.

Tony:
Just out of my own curiosity, what introduced you to the book? Did you just stumble upon it?

Andrew:
Somebody gave it to my dad, told him my dad was a pastor and my mom was a nurse growing up, and someone at church said, “Hey, you should read this book and you should give it to your kids.” And my dad respected that person enough to follow that, read it and then give it to me. And I don’t actually don’t know who that was, but it was pretty fortuitous for me.

Ashley:
Yeah, that’s awesome. So after that, you’ve read that information, then what happens when you graduate school? You go to college or you pick up a nine to five job that you didn’t want or what happens there?

Andrew:
So I went to a small private school that had really good study abroad options. So I went to Italy to study abroad, same tuition, all the classes transferred, great. I meet the girl of my dreams, my now wife, and I don’t come home for two years because I couldn’t leave. And what I learned during that experience, why I think that’s relevant to our conversation today is I learned that not taking no for an answer and being like, “How can I do this?” Because I went to the office of the school and I said, “I want to stay here and I want to work for you guys. I’ll clean dishes, I’ll clean floors, whatever it is,” and they laughed me out of the office.

Tony:
You stayed at the university?

Andrew:
I stayed at the school.

Tony:
I thought you were stuck in Italy. I thought that’s…

Andrew:
No, I voluntarily stayed at the school because I didn’t want to come home. I met the girl of my dreams and I was like, “I’ve messed up. I can’t go home now.” And so I got laughed out of that office. The school director said, “Hey, every year, you’re a nice kid, but every year kids want to stay. This is paradise for you. You’re here in downtown for Lawrence, Italy. You’re living the dream. This is not a place for you to stay.” And I said, “Okay.” And I knew how they worked, they worked on guys had to get their visas or girls had to get their visas coming in to work at that school. And I was told by several employees that oftentimes visas get denied and they have to pull kids out of the community to work there. And so the second I found out that visas had been denied, I was back in that office.
Still told me no. But a few weeks later, I just kept persistently going in there and telling, “Hey, I’m still available. I still want to stay. I only have a one way ticket. I’m not planning on going home.” They relented, they paid me [inaudible 00:05:13] a month. They gave me room and board. So I had cafeteria and I literally scrubbed floors and cut vegetables and did whatever was needed. I made beds, anything that was needed at the school for a whole nother 14 months before I went home. And then my wife and I got married and then I did not get a nine to five at first. I tried to figure out what I was doing in my life, dropped out of school, didn’t need a liberal arts degree to be a real estate investor, didn’t want a bunch of student debt. That led to me working some seasonal jobs, getting my CDL, getting a job, driving a truck, and doing what would kind of be a house hack at my parents’ house.
My parents were super generous with us, let us move into the basement, and we took six years off and on building a full apartment in the basement. So we put in every Sunday for eight hours and then whenever we could during the week we built a full bathroom, a full kitchen, put in a laundry room, put a bedroom, we put a window below grade. And we did everything. It flooded at one point because the water main broke and we repaired all of that. I put in a sub-panel. If the county’s listening, this was all permitted and good, but what I did learn is that I could do a lot of this with hustle and with work. And so when we did save up, when my wife got out of nursing school and I had progressed in my job into sales after driving a truck at the beer distributor, I was able to then buy a house hack and move out into my own with some skills and not just YouTube for the first time. I’d already done that for a little a while.

Tony:
I love stories of perseverance and just like rolling with the punches that life gives you and like you said, not taking no for an answer. There are a lot of skills that people, technical skills that I think people need to develop to become a good real estate investor. We talk about those a lot on the show, but there are also a lot of soft skills that people need to develop to be good real estate investors. And a big one is having the, I don’t know, the grit to be able to roll with the things that life throws at you, man. So I love the fact that you shared that story because I think it exemplifies that really well.

Andrew:
Yeah, the sticktoitiveness, I was not taking no for an answer.

Ashley:
Yeah. Well, while all this was happening, real estate was still at the back of your mind. And then when did it become time to actually take action on it?

Andrew:
So I started thinking about it a little bit and I found the perfect fourplex that will forever haunt me. We didn’t get it, spoiler alert, because at that time it was about $425,000. My wife had just started working or was just about to start working. I had maybe been working for few years making 40,000 or $38,000 a year. And we did not have our financial house in order. We weren’t bad, but we didn’t have a ton of credit. We weren’t ready. And so it comes on the market. I’m just starting to look around. I see it.
It is walking distance from all of my favorite bars, all of my favorite restaurants. It is right off the main drag. It sold for like $750,000 last year, just a few years later. So it would’ve been amazing, but I couldn’t afford it. But what that did is plant the seed that, okay, it’s time. We’re not that far away. So at that point we were DINKs, dual income, no kids. We saved about $40,000 over a couple years. And then in 2017, we started looking in earnest for a house to buy. We wanted the house hack and we were looking for duplexes specifically.

Ashley:
I think Tony wants you to go over the word DINKs again.

Tony:
I’ve never heard that phrase before. Dual income, no kids.
But it reminds me-

Ashley:
It’s like part of-

Tony:
Doug Funnie, right? Is that where it’s from? I don’t know.

Ashley:
It’s from like the personal finance community.

Tony:
Oh really?

Ashley:
Yeah.

Tony:
Boy, if you guys know Doug Funnie from the 90s Nickelodeon TV show, his neighbors, they were the DINKs.

Ashley:
Oh really?

Tony:
They were dual income, they had no kids.

Andrew:
No, I saw it on the internet one day. And then I was at a bar at some point and someone was like, “Oh yeah, we’re all DINKs.” And I’m like, “What?” And then once that got in my brain though, that became the greatest way to describe those of us who were in a different path. We were in our mid twenties, no kids, and dual income. So we’re able to save a significant amount of money compared to the average person. Kids were expensive and living at home with my parents just paying 350 or $400 a month of utilities, that’s all they let us pay, allowed us to really set a nice footing and I’ll be forever grateful for that.

Tony:
Yeah. Can we talk a little bit more about the work you were doing in the basement? Was there an agreement between you and your parents to say, “Hey, we’re going to do all this work and then we’re going to rent it out.” Or are you just doing the work so you had a nice place to live? What was the thought process behind that?

Andrew:
It was a little bit of both. I did tell my parents as a selling point, and I’m really lucky that my parents have trusted my judgment. My dad and I are kind of the same person so that’s helpful. We definitely think things alike in a lot of ways. So that’s helpful. But I told them initially, “Hey, we don’t know where we want to go. I don’t want to get a mortgage or rent because then I will be stuck in a job. I want to do real estate or me go back to school or something. But this is a bad decision, me just going out and getting job flipping burgers or whatever I can to just pay rent.” So they were like, “Cool. Move into the basement.” Well, my wife didn’t love that idea. But she trusted me as well. And once we moved in, my dad helped me put a wall in.
And then he was basically like, “Whatever you want to do down here, we’ll cover the money and the materials and whatever else. We don’t have the money to pay for somebody to come do the work, but we’ll put this on all credit cards, Lowe’s credit cards, you can just buy the materials and you can do the work, whatever you think we want to do once you move out, we’ll rent it.” And I was like, “Cool. That is exactly how I hoped this would work.” And that was how it worked. And now we’re actually in a partnership on something differently later on that we’ve can talk about that this laid the groundwork for and we were much more explicit about. But luckily alls well that ends well. Working with family can be very, very tough, but my parents are really nice and we got along and so it worked out.

Ashley:
With your family in that apartment in the basement. So they do have it rented out now?

Andrew:
Yes. So it became an immediately a rental as soon as we moved out. They had to learn how to be landlords. That was a little tough for them. And then they’ve actually moved out to take care of my grandparents now. And I manage both the upstairs and the downstairs of that property now..

Ashley:
Okay. So then let’s go back to you. So your first property then let’s go through that.

Andrew:
Sure. So we actually got a duplex off market and the way that happened was, this is my belief on her motivation, we ended up with a real estate agent, didn’t know what I didn’t know, so I went to a guy that was a mortgage broker and I was like, “Hey man, I know you, I trust you. I know you won’t screw me over on purpose. So let’s do a loan together. And I don’t have a real estate agent.” And if I had known about BiggerPockets at the time, really followed what was, I kind of knew it was there, but I wasn’t paying close enough attention. And so he gave me a real estate agent, I think brand new. But what she did have was like the ability, I guess, to follow what we wanted. So we had very clear what we wanted. We wanted at least two bedrooms on each side.
We wanted side by side, not up and down. And we wanted at least one and a half bathrooms. We had been in a one bed, one bath for six years. My wife had lived through a construction zone. So we wanted something that was at least almost livable, that didn’t really happen, but it was close, but really wanted two bathrooms. And so that was what we decided on. And we probably toured six or seven properties. There wasn’t a lot available. And then none of those made any sense. We wanted to be in what’s called Red Bank, which is a particularly hot part of the market now, was unbelievably hot at the time. And so after six or seven properties and we were very specific in what we wanted, our real estate agent said, “Hey, would you be interested in looking at two duplexes on the same lot that my sister owns in Brainard?” And both my wife and I were not really interested in being in Brainard, but there’s no reason not to look.
No reason not to check it out. So we go there, we tour them both. They’re on one lot, technically subdivided because they’re deep lots, but they’re right together. You would not want to own one and not the other. They share a driveway, they share a parking, they share mailboxes, they share steps up. I mean, it’s all together. And so eventually we decide, okay, this is actually a really good opportunity. One of these duplexes with two units is two beds, one half baths each, side by side, exactly what we wanted, just old and beat up, needed love. And the other set are one bedroom, one bath loft apartment. So it’s got an open loft, similar to what this has here with the [inaudible 00:13:17] room. And so we were like, “I don’t know about these one bedrooms, but two duplexes for the same price that we were looking at ballpark for these other duplexes in the areas we liked, okay, let’s take a shot.”
So we settle on $250,000 that overall purchase price report.

Tony:
So for all four units.

Andrew:
All four units. So that would be 130 and 120, I think that’s the breakdown, but it was definitely 250 total. I have a piece of advice [inaudible 00:13:43] how I do things after that. But we go through the first to buy one at a time, didn’t have any paperwork on the second ones. They could have sold the second one out right from under us, they didn’t, then listed on the MLS and she represented both sides of the transaction. So Cody got totally screwed because it’s her sister she was representing, but she was great. Everything went well up until it appraised. And the smaller duplex was supposed to be 120,000. It appraised for 98,000. The duplex is supposed to be 130, appraised for 118.
And I know now what happened. It said these duplexes sit on a ridge that divides downtown from the suburbs more or less. It’s a dividing line geographically. There’s not a lot of duplexes in that area. The comp stakeholder were from a roughly from just over the ridge that has [inaudible 00:14:30] flies a couple hundred yards, but isn’t wildly, you have to go several miles to get there. That would be like comparing the [inaudible 00:14:36] that sit right above us, which is a million dollar house, but it’s up the ridge at the very top overlooking the city, whereas we’re down towards the bottom of the ridge. So they got a really bad appraisal, but their calculus was, at least to my understanding, we paid cash for these. We put a little bit of work. We cash a lot a ton of money out of them and we subdivided them so we’re making our money back. They wanted to go for Christmas to Bali, which I think they did once like a month, which is good for them. And so they said, “Let’s just close at the lower price.” But the thing was-

Ashley:
So they took the appraisal price? Wow.

Tony:
Let’s pause on that for a second. Because I think that’s a really big, I don’t know, like lesson, clue, something for Rookie investors to understand is that every seller is motivated by something, but it’s not always money. It’s not always getting the biggest return that they can possibly get. Your sellers wanted to go to Bali.

Andrew:
If they put it on the market, it would’ve been sold in February or March maybe or something.

Tony:
They wanted to go to Bali for Christmas which was a very specific timeframe that they had to operate within. And as the buyer, your job to get the best deal possible is to solve the seller’s biggest problem.

Andrew:
Yes. And my wife and I only had about $40,000. And so they were actually already taking, we talked about the loans we use, whatever else, but they were already taking some of the closing costs. So we renegotiated a little bit, but we had no extra money or we do the deal so that we are roughly $40,000 out of pocket or we can’t do it. And so we are putting 3.5% down with an FHA loan on the owner occupied more expensive one. And then we put down 25% conventional on the second one.

Ashley:
And were these both through like a local bank?

Andrew:
No, these were through a mortgage broker who, great guy, but didn’t do a ton I don’t think of investment stuff. So not the guy who’s now, no ill will, but I think that the transaction was a little bit more difficult that way. But the good part was he was previously in-house loan guy at Keller Williams. So he knew, he’s the one who recommended her because he called them and said, “Hey, can I get a real estate agent for these guys?” So he has some good relationships there so he worked really seamlessly with us and her and really we worked it around. So we worked the closing costs out so we took slightly less of discount. After the whole transaction ended, we had about $2,000 in the bank and that’s as low as we could go. And then we went from no mortgage payments to two mortgage payments and we did not buy those simultaneously. We bought one month in October I think and the second we closed [inaudible 00:17:07]. So just back to back, we started the process literally the day it closed.

Ashley:
Were they rented out already in what was becoming a landlord like for the first time, especially going from zero to three units that you’re managing and a living in one of those units too along with your tenants?

Andrew:
It was fun. It was really fun. I was super, super excited. It was the winter time so my work was a little bit slower. And first thing we did was say, “Okay, which of these four units is in best shape that we can get on the market?” They were previously all four short term rentals. This was Airbnb at the beginning in Chattanooga. They didn’t do any sort of tax collection. There was no city ordinance. Now there are permits required. There are city ordinances. There’s a whole zone. That road, in fact, our side of the road is in the overlay that allows short term rentals. The other side of the road, 35 feet from the front door, is not. So that was pure luck. That happened later.

Tony:
Let me comment on that really quickly, because that’s something that I talk about a lot to. When we talk about choosing a market for short term rentals is that I’ve personally shied away from markets that haven’t established ordinances yet. Because like you said, you got lucky that you were 35 feet the right way. But had you gone 35 feet the other way, now you’re caught holding the bag for something that maybe doesn’t work as well. So just for the listeners, I think it’s important to kind of do that research. That’s the very first thing I do before I go into a market is understand what the policies are.

Andrew:
And we did not buy these to be short term rentals. I’ll explain the breakdown of the four units and what we did with each one. But we bought them as cash flowing rentals. We believed they would cash flow, but they were all short term rentals so we kind of saw how that was and thought, “Well, this would be interesting.” And then the two, one bedroom units, there’s three parking spaces between the two of them. Really though, there’s only one parking space each because the hill that the two, one bedrooms sit on, the shared driveway, can only fit four cars total and it’s a nightmare if you’ve got four cars parked there. So we let the tenants park two cars for the unit that’s next to us. I park one car on the hill so everyone can get in and out easier. And then my wife parks down below in one of the three parking spaces.
So that makes two parking spaces, even if there were three, it’s not as big a deal. But what matters is, if you were to rent that property out yearly, who’s going to stay in a rental, one bedroom, one bath, a nice affordable housing potentially, but who’s going to stay there when you literally cannot park more than one car, where there’s no street parking, it’s a busy road? You would stay there one year at the most and you’d be out of it. And so it wouldn’t be a good investment for us. So we believed, “Hey, let’s try this furnished rental thing.” So of the four units, the two outside units of each building, so the outside one bedroom unit was in pretty good shape. We furnished that in about a month. Got it on Airbnb. Maybe it was yeah, right about a month. Started our adventure there, blind leading the blind, didn’t know anybody who did anything, didn’t have any friends that were doing it, so definitely Googled.
But like right now there are tons of stuff all over YouTube you can watch. I watched one Tony of these videos where it would make me want to buy a [inaudible 00:20:08]. [crosstalk 00:20:08] all the way up here going “No Andrew, stick to what you’re supposed to do, no shiny object syndrome.” But we got that one up. We kind of figured out our way through that. We actually moved into the other one bedroom unit next to it because it was in decent shape but it needed a little bit of work. We got the first two bedroom unit as quickly as we could, we did a basic rehab, we painted the countertops. We put in a few new fixtures. Just the bare minimum. It needed love. The only thing we did was hire somebody to come in and remove the laundry room, which was just laundry hookups in the kitchen.
There’s a patio and there’s a room off each patio, it’s a storage room. We had them re-dry wall, and since the patio room and the kitchen line up together, they could pull plumbing and pull power easily through a wall and put a laundry room in there. So that’s the only money we paid someone else to do. And then we fixed that up, got that on the regular market, got that as a regular long term rental and then completely gutted the unit we were going to move into, which was the roughest unit of the four. Eventually moved into that one, then we redid the one bedroom unit we’ve been living in, got all four stabilized. That probably took six months or so.

Tony:
So over the course of six months, you and your wife were just kind of moving from unit to unit, shuffling the rehabs around, get through them all then and knock them out and getting them ready.

Andrew:
Yes. Nights, weekends, took every Saturday completely off. But other than that, it was just all hands on deck every moment we could possibly put in before work, after work, whatever we could do.

Tony:
So, sorry, just to clarify. So what was the final decision on which one were long term and which one were short term?

Andrew:
Okay. So then as we were figuring out what to do, we had the one bedroom that was already short term, and then we had the two bedroom, one and a half bath that was long term. We left that one as long term because we didn’t want to mess with the parking situation and it was next door to us so we wanted to live next door to either people we liked, which we ended renting to a lot of friends, which I think is something that’s fun to talk about. And we wanted to live next door to the same people and not have new people coming in. If somebody throws a party door to you, it’s kind of annoying. So didn’t want to have that. The other unit, and this is what has actually really changed our investing, the other one bedroom unit needed more work. And in order to qualify for permits, at first, it was a monetary decision, but monetary in the sense that needed more work.
So I didn’t want to put as much work into it. And I wanted some stability, so we’re like, “Oh, let’s try it furnished and see what we can do.” And then we couldn’t permit it. So I didn’t want to risk getting in trouble. And so we put it for monthly furnished rentals and we had thought and we had been told by actually our real estate agent that she was like, “Hey, if this was me, by the way, I would do these all like month long. This nightly rental is really hard.” That didn’t really set in for a few months because it was six months later or so that we actually got that one done and on the market, but we started that one, we got our first booking, I think three months. And that three months turning into six months.

Ashley:
Can you just explain what is a monthly booking and what are the type of people that come? Is it people that are working virtually and just want a [inaudible 00:23:07], but who is the person that books for a month?

Andrew:
Absolutely. So that’s actually changed a lot over the past couple years for us and our business. But at the beginning, exclusively traveling nurses and people on internship. And I learned a lot about how to market to those folks. But at the beginning we got a bunch of requests, I think because it was a one bedroom, one bath on the other side, it was pretty cheap. We didn’t have a lot of reviews. So we used a lower price, try to get good reviews, take care of people, et cetera, et cetera. We got a lot of messages saying, “Hey, would you be willing to rent this out for a longer period?” And so we would actually “This one no, but we have one next door that’s exactly the same layout, here’s the literally the booking link, check it out and see what you think.” So we started that one at a thousand dollars a month, actually $33 a day, or maybe the first month was $30 a day.
I don’t remember. But at 31 days, you have a drop off in Chattanooga taxes and fees, so it becomes more affordable to rent. So that’s the first thing. The other thing is, I don’t know if this is everywhere, but in Chattanooga, the ability to rent out a one bedroom, one bath with kitchen and laundry and the things you would want to live in, it’s hard. There’s very few of them. So we kept getting these inquiries.
“Can we rent out your place?” And again, it was almost always professional folks, either traveling nurses or people doing medical internships because the university’s just over the way. That has changed. And we have had now had some folks building a home that wanted to build a home is they need a place to work from home from. We’ve had several people rent it out for six or eight weeks at a time instead of two, three or four months. And they’re just traveling digital nomads. So I’ve got a little mix the two now, but it started out as just folks who needed usually almost exactly three months because a lot of those internships were summer internships for three months, or traveling nurses who had either a six week contract or a 12 week contract.

Ashley:
How are you finding them? Is that they’re coming to you from Airbnb or I’ve heard of the traveling nurses websites. Are there different places you’re looking for these people?

Andrew:
We have not had great luck with Furnished Finder, although I have a different listing on that, it has been almost exclusively in Airbnb. And actually in 2021, we really, really changed our amount of money we were getting for these units because, watched a bunch of YouTube videos, I had the time and I really sat down and tried to get a better pricing structure and realized I was underpriced. And this is the first half cool tip, if you want to rent for three months at a time, this is not my idea, I learned this from YouTube, put little dash or something on the end and put ideal for long stays or perfect for long stays. There’s a character limit there so you got to get creative, but make it clear in your booking that you are looking for long stays. I only accept 31 plus days. I’ll do 33 days if you want, but you got to have 31 at the beginning.
And I leave that in the first part of this. So when you’re looking at your Airbnb listing and someone’s pulling it up, the very first part of the description, right below it, I make sure before you got to click to more, I make sure there’s, we are only looking for bookings of at least 31 days at this time. But in the title it says ideal for long stays. And that has increased both of our listing views in the analytics on Airbnb and our bookings exponentially. And I think that is because we were initially getting these views from folks looking for a one bedroom that they could hit up to be like, “Hey, is there any chance you’d rent this out?” I don’t have Instant Book on, which is one of the things that gets you high in the SEO on this particular unit because it’s monthly so I want to be sure I know who I’m talking to and whatever else.
So getting that, putting ideal for long term stays made a lot more people click on it that were looking for that exact same thing. And from there, it’s a little bit of a negotiation. And what I like about those tenants is if you have the money to spend 1,200 plus fees, so 1,600, $1,700 a month, which what they’re paying now, probably got a pretty good financial backing. So there’s less chance of you not paying. Then additionally, you’re probably taking it more seriously than somebody looking to party for a weekend and booking your place.
So one of the downsides of short term rentals can be that someone could trash your place, they throw a big party. And if you’re booking the place for three months, and I tell you I live next door and there’s only one parking space and we loved it, but I tell you, I love the neighborhood, my wife and I love the neighbor. We live next door. We’ve never had any problems. I’m not telling you you’re not welcome there. I’m letting you know that if you party next door to your landlord, that’s not going to be fun. So they really, for my quality of life, I turn over the unit every two, three or four months and I still get almost as much as I would get as a short term rental.

Tony:
One question is out of curiosity because I know we have times where we have guests who check in and they just kind of drive us crazy with the amount of questions that they ask and information that we’ve already given them but they’re saying that they don’t have. When you’re are walking distance from your guests, when they can just kind of walk over and knock on the door, do you see that happening a lot? Or are they pretty chill for the most part? Just what’s your experience.

Ashley:
Are they not peeking in the window?

Andrew:
So these units sit so close together. My unit and this unit are the two inside units. There are not windows on my side of the house, but if there were, we could see into each other’s units, I have the fence that runs across and touches both houses. I took the whole yard from that house so my dogs have somewhere to go. So they have a patio. They have no side yard. So they’re very close. I also keep a bunch of tools, don’t come around me, and it’s like vacuum cleaners and random stuff in the back patio closet. I make all of that abundantly clear from the beginning. “Hey, you might see me coming to get the weed eater to weed eat the inside of my fence.” That’s the first thing. The second thing, and I don’t know how this is with you, but there’s a certain Spidey sense you get when somebody reaches out to you and how they communicate and how they talk to you about whether they’re going to be trouble.
I’ve had one tough tenant and he paid through the whole pandemic. And so even though I had about a $1,500 rehab after he left, because he smoked in the unit even though he said he didn’t and a few other things, that’s the worst experience I had. I’m picky. I’m not trying to be. I just try to lay everything out before. And if I’m really clear with folks, we live next door, it’s one parking space. And I tell people being honest about the good and the bad of the unit and that if you’re polite and communicating in a way that is normal, we’re good. If you’re like, if it’s one or two words like “How much?” Well the listing price is right there. Like, “Can I have pets?”

Ashley:
It just sounds like when you list the property on the Facebook marketplace,[inaudible 00:29:19]-

Tony:
What’s the price?

Andrew:
Same type of thing. So I’ve definitely shied away from some of those folks a little bit. But we been really lucky. And even in our short term, the one next door we’ve had in since 2017, late 2017, maybe four tough experiences. And even those were not that bad. And I think a lot of that is preparation. Some of that is luck. And some of that is a one bedroom apartment, doesn’t get a ton of party.

Tony:
So give us the timeframe Breezy, how long ago did you purchase that duplex and what’s kind of transpired since then?

Andrew:
So we purchased both of those in 2017, October, November, and the first year, I think when I did my math, I think we cleared about $750 total for the property on top of all expenses, not including setting aside anything for [inaudible 00:30:01], but including repairs that we spent. Last year, we were about $600 that went in 2019, we were about $600 a month. Similar for 2020. 2020 was tough because one of the units went empty for a whole month. And then we transitioned to how can we get somebody in this one bedroom, one bath that’s normally nightly for three months? So again, that was about 600 bucks a month total. So you’re thinking $300 a door. It’s not terrible. And it’s providing my internet since they were on one lot. My lawn mowing is all billed to that. My every expense that I can put, my pest control, everything’s billed to that address.
And they happen to serve my duplex next door too. So I’m getting some benefits there, but it was not as good as 2021. So I don’t have final 2021 numbers. I haven’t sat down and crunched November and December. But we’re on pace to make about $1,200 a month.

Tony:
That’s awesome.

Andrew:
So we’ve doubled our profit and we did an extensive rehab on the units. We put in all new siding, about $6,000 worth of siding repair, as well as several other couple thousand dollars here, a couple thousand dollars there. So I think close to 10,000 in repairs and we still cleared about $1,200 a month total between the two of them. And that’s after they paid for all of my personal internet because I share the internet. All of my personal lawn mowing, I share the lawn mowing. I paid for all of that, pest control. So it was a real home run in 2021. And a lot of that came from doing my homework and trying to make sure I ran a better business and changing my pricing too all by watching YouTube and trying to make sure I was doing a better job.

Tony:
It’s a really good house hack effectively. I love the idea of combining the short term stay with the medium stay with the long term stay. I don’t think I’ve met anyone that’s kind of played with all of those on one parcel before, but it seems to be working out really well for you.

Andrew:
So when the pandemic hit, the nightly one went completely empty. Everything canceled out and we were just done. And so it was a month of being like, “Well, what do we do?” And I’ve always bought this from the very beginning that if something terrible ever happens, it’s okay that I haven’t spent the money and fixed this other one up and gone nightly because at least that thousand dollars a month will cover the mortgage and most of the utilities. And that’s exactly what it did. Even though it was rough, at least like mentally, and we didn’t have the money coming in, we were maybe $500 in the hole with all those extra expenses, that including lawn mowing and the other things, instead of being, if both of them had gone into we’d have been $1,800 in the hole or whatever.

Ashley:
Andrew, before we move on to our segments, I just want to ask you for our mindset segment is if you could do anything different or just looking back, is there something that you thought about real estate that you realized wasn’t exactly true now?

Andrew:
I don’t know if mindset wise. I thought I could do more or better than others. So we bought another duplex and I ended up when I quit my job rehabbing that for an entire year. That was… Real estate’s really forgiving, especially in this market so it all worked out, but I wasted half of that year at least, and a ton of money and I’ve missed out on all sorts of opportunities because I was stuck in this like I need to protect my cash because it’s a pandemic and what happens if they go empty and what happens? And so I should have farmed things out sooner. I should have realized several months in instead of a year in that I need to pay others to do it. And yet from now on, I have put my tools literally in storage, I can get to them if I want to do a project at my own house. But I’ve put my tools in storage so it’s hard for me to get to them so that I have to call somebody.

Tony:
Can we talk about that just really quickly because I think that’s something that a lot of new investors, it’s kind of a trap that they get caught in where they think that they’re saving money by self-performing a lot of the work, but in the long run, it’s actually costing the money. Let’s give like a real life example or not a real life example, let’s give an example, I guess, is the word I’m looking for.
But as an example, let’s say that, I don’t know, hiring a general contractor, like a handyman to do the work would cost you $10,000, but they’d be done in two months or you could self-perform the work and it’ll cost you $3,000, but it’s going to take you eight months. And say that you could rent that property out once it’s done for $1,500 a month. If you do all that math, even though there’s a cash outlay out front, the time that you’re losing by not renting that property out is going to surpass the amount of money that you saved or that you think you saved by not hiring that general contractor.

Andrew:
I feel that in my soul.

Tony:
I don’t know if those numbers actually add up because I made that up as I was talking, but you guys get the gist of what I’m talking about.

Ashley:
And just physical labor on your body too.

Tony:
Yeah.

Andrew:
And I do think there’s something to hustling at the beginning. If you don’t have a good W2, if you don’t have a ton of extra money. We put in $40,000 into those four units together and six months and we worked our tails off, that was a good use of my time at the time because my ability to get another deal was contingent on me getting those units up and going, spending the least amount of money possible because I didn’t have any money left. But later on, it was the exact opposite. I was still in the frame of mind that I was going to do what I did before and I was not treating it like a business when it should have been.

Tony:
I’m so glad you said that because I think that’s a really important distinction to make, is that do what you’re able to do financially. I remember when I first started, when I first got interested in real estate, I was a broke college kid and I hear these big real estate investors talking about how they outsource this and I don’t do any task that’s under a thousand dollars an hour. And I’m trying to think like, “Okay, yeah, I should start outsourcing these things.” But I’m like “With what money? Who’s going to pay these people to do these things that I’m supposed to be doing?”

Andrew:
A lot of contractors, especially if they’re not big outfits don’t take credit cards. That’s been my experience at least. So now I do have some relationship with folks that could take credit cards so I could do some riskier things. I did a ton of that on two more rehabs, but I didn’t know at the time how to do that. So yeah, I was just pinching every penny. I could put the materials on a card, but the labor was all me.

Tony:
Right, right.

Ashley:
Yeah, what Andrew’s talking about right there’s actually a really great rehab tool is to buy the materials with a 0% interest credit card. That’s 0% for 12 months or 18 months. And then once you flip the property or refinance it, you go ahead and pay that credit card off before you actually pay interest on it. But yeah, if you can get a contractor, then you can cover all of your rehab costs.

Andrew:
And look, it’s a little risky. But if you’ve done a couple, if you know how to do it, it’s okay. And if you get a Lowe’s credit card, for example, Lowe’s has 5% off so you can get savings or six months or 12 months, depending on the purchase. So you can really play the game and finance your stuff on a credit card, like you’re saying, and just buy materials and pick your battles on how you want to take things. And then all you need is the cash to pay your contractor. Or if your contractor is willing, they’ll take a credit card and maybe charge you 3% or whatever else. And you can even do that with a 0% interest. You just got to be careful because you don’t want to overextend and then-

Ashley:
Right, you don’t want to over-leverage yourself. You don’t want to be stuck in credit card debt because once that 12 months in, the interest rate goes to what, 25, 30%.

Andrew:
And you pay all the accrued interest from all that.

Ashley:
Yeah.

Andrew:
But you can do it and it’s all about being creative and figuring out don’t bite off more than you can chew, but also don’t be stuck like I was in a mindset that held me back.

Ashley:
Let’s go on to our Rookie request line. So this is where you guys can call in at 1-888-5-Rookie and leave a voicemail with your question and we may play it on the show for our guest to answer. So today’s question…

Michael Perrera:
Hello, this is Michael Perrera from Clovis, California. My question was around, do you use an LLC or C Corp and S Corp when you’re starting a partnership with somebody? I heard you talk a lot about partnerships, but not necessarily how to legally frame them. Also, just for the shout outs of the Teslas, I bought a Tesla and I rent it out on Turo on every weekend and it pays for the bill for the Tesla. And it’s been two and a half years and I haven’t made a payment yet. So that’s for your partner that’s always saying they want a Tesla. So just a little tip there.

Andrew:
So in a partnership, I use an LLC. I’m not a tax attorney. Consult your lawyers. I don’t play one on a podcast. However, what I was told by my tax attorney was that if you have a multi-member LLC, different families, different people, it is good to have an LLC. It is important for asset protection and it is better for everybody. I do most of my business in a sole proprietorship because what I was told is it’s very easy to pierce that veil of a single member LLC. And then if it’s my wife and I in LLC, that a judge is going to look at that and say, “That’s yours. This is not a real business unless you follow everything to the T.” So that’s the advice that I took. I think you could do it either way, but I would recommend hitting up, and then the way I found a lawyer and I think this is a good way to do it, I got this from BiggerPockets, write a post for your Facebook, ask for recommendations for a lawyer that you’re looking for.
If you have a real estate group you’re a member of like the Rookie Real Estate group, post, see if anybody in your area has recommendations, make that same post on BiggerPockets. Come back the next day or two days later, put all those responses together, see if there’s multiple people and then interview three. You got to interview three. And the reason is not because the third one’s going to for sure be better than the first one. You will not know the questions you need to ask the first one until you’ve interviewed the first one and taken that 10 minutes. What should I do? How should I do it? Why should I hire you? And the second one, you’ll ask better questions. By the third one, you will know if the first one, second one, or third one is a better fit for you and you will know what you’re asking about and you can make an informed decision. Every time I have done that, I have had a better outcome than just randomly picking somebody.

Ashley:
That’s such great advice. And the point that you make about that when you ask the first one, you’re not going to know all the questions till you talk to all three, that’s really good advice.

Andrew:
I’m the kind of person that that feels really daunting. And so if you just sit down and make that list and call those three people, all right in a row if you can do it, it will pay off in the end. It will save you potentially thousands of dollars on contractor bids, you’re doing contractor bids, anything you’re doing. If you just bite the bullet and get three or five or however many you’re willing to get, you will save money and you will learn about that process so that you make an educated decision, not just get the easy one.

Ashley:
And a lot of attorneys do the free initial call too. That doesn’t even cost anything to initially talk with them.

Tony:
Yeah, just one last comment on that. I think a lot of new people have this misconception that you need to have an LLC to do a partnership, but that’s not really the case. Like you said, an LLC is more so for asset protection for liability purposes. If you just want to partner with someone, as long as you guys have the details of your partnership of your agreement outlined between each other, that’s all you really need. We have joint venture agreements that we use for all of our partnerships and we don’t necessarily create a new LLC every time that we create a new partnership with someone.

Ashley:
Yeah, see with me, I haven’t done, well, I’m doing my first joint venture now, but previously I’ve only done an LLC and I do an LLC with each partner. So the properties that I buy with partner A, they all go into that LLC. Partner B, our properties together all go into that other LLC.

Tony:
And I think that works because you guys are buying multiple properties together, but for us, we haves nine properties that we have partners with. So to have nine separate LLCs, that didn’t quite make a ton of sense for us.

Andrew:
And is that operating agreement, in my opinion, that’s the important part. Make sure you have all that stuff laid out. If expectations are off, partnerships are really tough. If expectations are clear, partnerships are not that hard, kind of awesome in my experience. But you got to have it all clear and you have to be willing to talk about things.

Tony:
Love that last point about being able to talk about things. Because even if you guys go on some partnership retreat where you spend an entire weekend trying to map out all the details of the partnership, things are going happen is you’re actually working together, you’re like, “Oh shoot, we didn’t think about that.” Or, “Oh shoot, we didn’t think about this.” And you have to be able to go back, have those difficult conversations to go back and update the agreements, the partnership documents, whatever it is to reflect whatever decisions you’ve made. So it should be this kind of evolving document as your partnership continues to mature.

Andrew:
And I have questions for you guys. Do you guys put out clauses in your joint venture agreements or your operating agreements?

Ashley:
So I do a buy sell agreement stating as to what’s going to happen as our different exit strategies. If someone wants out, what am I going to buy it for? And my attorney puts together an equation like this is how we will determine the value of your LLC and this is what you would pay at this point in time.

Tony:
I got to check my LLC operating agreement because I don’t think I have that in there. But what we’ve done on our joint venture agreements with our partners is, and this is a recent change that it auto the time duration is set to five years. So if after five years, the default, if nothing else happens, the default action is that we sell the property. The only way that we retain the properties if both parties agree to renew that partnership again for another 12 month period or whatever it is.

Ashley:
Could you buy the property though, like buy out the other owners? Like that would be a sale. So you could still be the buyer of the sale, yeah. Okay, cool. Tony, do you want to take us to the Rookie Review?

Tony:
Yes, let’s do that. To the Rookie Exam.

Ashley:
Oh, exam.

Tony:
To the Rookie Exam.

Andrew:
Should I be nervous?

Tony:
Yeah. So this is our newest segment of the show. We’re asking the same three questions to every Rookie that comes onto the podcast and the hope is that our listeners get good value from this, but are you ready for the exam, Breezy?

Andrew:
I’m ready. Let’s do it.

Tony:
This has a pass rate of zero. So everyone that’s taking this exam has failed. So I have very low hopes… No, I’m kidding.

Andrew:
Is it two correct to pass? Is it one correct? How many do I have to get?

Tony:
No, there’s no right or wrong answers to the Rookie Exam. We just want to get into the psyche here. So question number one, what is one actionable thing Rookies should do after listening to this episode?

Andrew:
Okay. So analysis paralysis paralyzes everyone, myself included. I would think you guys agree that there’s times you get into into it and you don’t figure it out. So this is my cure for that. Get up 30 minutes earlier than you would normally get up. The way I do it is I get up, go downstairs, drink glass of water, put the coffee on, shower, straight down get the coffee. My cell phone is still plugged in. I don’t get on my cell phone-

Ashley:
Not even looking at it yet.

Andrew:
Not even looking at it. I used to do it an hour early, 45 or an hour, but 30 minutes is the minimum in my opinion. Go to whatever task, whatever single five minute, 10 minute task towards your goals. I need to figure out who I’m going to call in that LLC question. Then you make that Facebook post. Do that, make that post, and then decide if you have a little time left, what am I going to do tomorrow? And if every day you just got up 30 minutes earlier and instead of giving your time to a boss, giving your time to something else and giving the best moments and brain power of your day, which mean you’re fresh. And when you get home, at least for me, I am zapped. And maybe I’ve had a bad day, maybe I’m whatever and I just want to sit down on the couch and veg out and watch Netflix.
Well, I can’t do that, or I’m going to ruin a certain goal of mine. But if I’m in the morning, if I’ve accomplished one thing, even just one little thing forward, it doesn’t matter what it is. Even if it was listening to this podcast and taking notes on something that you wanted to learn. Spend that time productively, read something, do something, do a task. And if you do that 3, 4, 5, 5, 6, 7 days a week, I got financial freedom in two and a half years and that was basically my whole entire eight hours on Sunday and an hour every morning that I could spare it. And I got financial freedom long before I thought I would. And I believe it’s that consistent daily action. 30 minutes is plenty to make tons of progress.

Ashley:
You know what? Congratulations on that.

Tony:
Took the words out of my mouth.

Ashley:
That’s really awesome. And you were willing to make that sacrifice. There’s so many people that will not give up those eight hours on a Sunday or that hour during the week. And what you said about getting up and doing that one thing every morning towards your goal, that reminded me of the book, Eat That Frog, where you’re getting rid of the hardest thing you have to do, or the thing you’re procrastinating or putting off, you just get that done first and get it out of the way and then you go on to the rest of your day.

Andrew:
If you’re scared or that task is too big, break it down smaller. What’s the [inaudible 00:46:01] the most important next step in the journal, like whatever it is, you can do a smaller task or a small, if it’s collecting phone numbers for who you’re going to call, then do that. Then schedule it for your lunchtime, you’re going to call, whatever it is. But if you just make action every day, even if you don’t spend your Sundays doing it. I know people have kids. They have much why’s than I do, I don’t have kids yet, but even if you can’t give up those extra hours, if you just made a little bit of progress every single day, you will get to your dreams. Whether it’s two years, five years, 10 years, it will be much quicker than you think. It’s a snowball, but if you don’t start it now, you’ll wake up at 50 building somebody else’s dream. You will have been paid to build someone else’s dream instead of building your own. That’s my why. I don’t want to build somebody else’s dream. I want to build mine.

Tony:
It reminds me of this meme, you guys may have seen it floating around the internet, but it’s like this employee walks up to his boss and his boss just bought like a new Ferrari or something. And the employee’s like, “Man, that’s a really nice car.” And the boss responds and says, “Well, you know what? If you work hard, you put in a lot of hours, you stay dedicated, you stay motivated, maybe I’ll be able to buy another one.”

Andrew:
Painful.

Tony:
Right? But so true. But so true. But so true.

Ashley:
Okay. So onto the next question. What is one tool, software, app, or system you use in your business today?

Andrew:
I try to keep everything on my phone that I possibly can. I picked up eight rental units in the last year to manage for other people. One of the things that keeps me from having to get W2 is having some more income and my grandparents were getting older, I took over theirs. So the first thing I did was, and actually got this from your podcast, I picked up a Google phone, a number that I never really used before. So I made an email address. If you don’t have an email address, a business email address, that’s the first thing you can do. You don’t need a complicated name. I could have done my initial AB Properties at gmail.com. It doesn’t matter what-

Ashley:
Yeah. And you don’t even have to buy a domain. You can just use a Gmail, a Yahoo.

Andrew:
And then you have a business account, it doesn’t matter, you can always whatever you want to do, but then create a Google voice and give that number out to tenants. And here’s why I’ve done that. Number one, I went to Brazil for two weeks in December. I went to Jamaica and New York for a week and a half in November. And I went on a 10 year wedding anniversary in October for 10 days to Mexico. That was all amazing and I was able to manage my properties from my phone because I didn’t have internet. I did have internet access, I did not have a cell phone reception. But all of that is WiFi based. Additionally, had I not wanted to manage my properties, I could have just forwarded that number to somebody else’s number or given another property manager or a friend in real estate that log in and they could have managed my properties from their couch.
And that would’ve all been done, and my tenants would’ve never known the difference. And there was never a risk that their call would go unanswered because they called my cell phone. Also, little tidbit. If you want to be a little bit more professional and you have a number that’s a Google voice number, you can put do not disturb hours. You can choose when your calls go to straight to voicemail, and you can put a business voicemail. So your tenants or your business associates are not getting, “Hey, this is Andrew. Leave a message.” They can get, “Hey, this is Andrew with X, Y, Z Properties.”

Ashley:
And you can link it to multiple phones. So my business partner and I, we use it when we send out mailers and it’s linked to both of our phones. So we’ll both get to tag both of our phones will ring, we’ll both get the voicemail too.

Andrew:
There’s many other things I use, but I think that’s the simplest. Anyone can integrate that and you can get on your desktop too. So say you want to make a call from your desktop, you want to type text from a desktop. You want to log in, whatever, all you need is WiFi, desktop, phone, whatever and you’re good to go. And that’s helped me manage and scale and also not pull my hair out.

Ashley:
My business partner too whenever he meets a girl, he gives out the Google voice number. So I get to see all the texts from the girls coming in. I’m just kidding, he’s standing right over there.

Andrew:
If you get a wedding crasher stage five cleaner, I mean, you got to protect yourself.

Tony:
I didn’t know about the do not disturb hours for Google voice. We use that for all of our short term rentals. So we’re on the west coast. We have a lot of east coast folks. So sometimes they’ll call us at like five o’clock in the morning. So it’s good to know the do not disturb.

Andrew:
So initially I had set that up and I had a beer sales rep. I didn’t want to give out my real number because I was worried an angry customer might call me on Saturday morning when the beer distributors closed. Well, I found out, and I assume this is still the case, you could put in all of your do not share hours. So that’s what I did initially. And then like when I set up my real estate number a few years go, that’s what I set up, my business hours, and you still see the notification on your phone.

Tony:
So it’s not too bad for them either. So last question, Breezy, and this is the most important, but where do you see yourself in five years?

Andrew:
That is something I have been struggling with a lot. I want to keep this as a lifestyle business. I was burned out to the max and I didn’t know it when I quit my job. I had a soul crushing job for seven years that got worse and worse and worse towards the end. It wasn’t so bad at the beginning. But real estate was kind of forced me to retire and I was happy that I retired. I’m self-employed, but I call it retired. It feels better that way. And so now I want to continue building it. I may transition out of some of my short term. We have two more properties that are medium term now. So we have four units total that are medium term. It’s still a lot of work. So I would like to transition into more regular rentals. I’d like to buy four properties this year, eight properties next year.
And then after that, I’ll have to reassess and I’d to buy some larger multi-families. I don’t know what that market’s going to look like. I don’t know if that will still be profitable. I don’t really know. But I would like to continue working 20 to 30 hours a week at the most on a regular basis, not including the big weeks and whatever else. And I’d also like to still spend my time doing what I love, because for seven years I didn’t get to travel and visit my in-laws in Italy. I still haven’t been back because of the pandemic.
I didn’t get to spend my weekends doing the things I liked to do depending on what it was. If it fell on a Monday and a holiday, we work all holidays, whatever, whatever. So I want to spend time doing what I want to do and I want my work now to revolve around my schedule rather than my life revolving around my work schedule. So my hope is in five years, I’ve continued to keep that balance and I continue to be able to do what I love, volunteer in charities, do all the things that make me happy and give me fulfillment because real estate’s great and I like it, but I don’t believe it will bring me lastly fulfillment on its own. So all the other things that I get to do because of real estate that bring me that lasting fulfillment.

Ashley:
Well, that’s awesome. And thank you for sharing that with us and I definitely think you’re going to get there. You reach financial freedom in two and a half years and you definitely have the drive, the vision and the work ethic. So, yeah.

Andrew:
Thank you.

Tony:
Awesome. Well, let’s take it to our Rookie rockstar. If you guys want to get featured on the Real Estate Rookie podcast, get active in the BiggerPockets forums, get active on the BiggerPockets Real Estate Rookie Facebook group, get active in Ashley’s DMs, all those are very acceptable places to get featured as a Rookie rock star. So today’s Rookie rockstar is Mattie B. And Mattie said, had my very first binder conversation with two inherited tenants. It worked flawlessly. So if you’re not familiar with the binder conversation, it came from episode 448 with Dion Mcneeley, the real estate show, but Matt says, or Mattie says that both tenants went up to $1,200 per month, one from $900 and the other from $850. And that added $650 per month in cash. So he said, give it a shot, cost me 70 bucks at Staples to make the binders and I practiced my pitch before I went over there. So Mattie, congratulations.

Ashley:
Yeah. That’s awesome.

Tony:
An extra $650 per month.

Ashley:
I love the binders, yeah.

Andrew:
That’s awesome.

Ashley:
Okay. Well Andrew, thank you so much for joining us. Can you tell everyone where they can find out some more information about you, where they can reach you and also about your podcast?

Andrew:
Oh sure. So I host a podcast, a soccer podcast. If you’re a big soccer fan and you love Chattanooga Football Club, that’s a very particular niche, you can check us out at The Section 109 podcast. And if you like listening to people talk way too much about that, that’s where you can find that. You can find me on Instagram. I consume more than I put out, but there’s stuff on there.
You can connect with me on the BiggerPockets forums, I’m pro member. I love BiggerPockets. Again, there I consume more than I put out. It’s an unbelievable resource. If you have a question, it’s been answered. And if you don’t have a pro membership, BiggerPockets is not paying me for this, but the calculators are worth 10 years of pro membership just for one year. The ability to have infinite use of those calculators is so… Plus, there’s landlord docs and all the other things. So get at me on the forums. You can hit me up on Instagram and yeah, if you want more tips, more actionable things, I would love to share what I know. So maybe I’ll write a blog post and put it in my bio on Instagram with just the small things that I think you can do, the granular stuff to not make some of the mistakes I did.

Ashley:
And anyone can apply to write blog posts too for BiggerPockets. So you should submit it through there. Yeah.

Andrew:
Okay. Maybe I’ll do one of those New Year’s lists where they have all the like hacks for a better life. Maybe I’ll do that. We’ll see.

Ashley:
Yeah, that’d be awesome.

Andrew:
You’ll know by the time this is released if I follow through.

Ashley:
Hold him all accountable. So everybody reach out to him on BiggerPockets and Instagram and make sure that he does have that blog post written. Well, thank you guys so much for joining us. I’m Ashley at Wealth From Rentals and he’s Tony at Tony J Robinson. And we will be back on Saturday with a Rookie reply.

 

David:
This is the BiggerPockets podcast show, 579.

Rob: Most of the properties that I’ve purchased have been sub $500,000. But now as my time has grown more rare, I suppose, I’m really not looking to acquire real estate that’s less than a million dollars in the short-term rental game. And then we start looking at the deal that you and me are looking at. That’s a $3.4 million luxury home.

What’s going on, everyone? It is David Greene, your host of the BiggerPockets Real Estate Podcast, the podcast where we teach you how to find financial freedom through real estate. So if you’re looking to have a better life, to have more freedom, to have more control, to build your own destiny instead of someone else’s, you my friend have found the right place to be.

David:
If you don’t know who we are, BiggerPockets is a company with over 2 million members whose sole purpose is to help you find financial freedom through real estate. We do that by bringing on experts, guests, people who have done this before to share what they did right, what they did wrong and how you can do it too, giving away the knowledge that used to cost a lot of money to get access to, and you can now get for free.

David:
In today’s episode, it is a Seeing Greene show, as you can see, there’s a green light behind me. This is where I will be going and taking all of your questions and answering them myself.

Rob:
We now interrupt this episode of Seeing Greene to show you how to make more green in the FTR industry. Hey, what’s up man? I’ve got some questions.

David:
Rob, I am such a narcissist. I totally didn’t even realize you were here.

Rob:
I was sitting here the whole time. That’s okay. Man, I have a question. I have a question for you. Can we continue the conversation on short-term rentals that we started on Thursday?

David:
I think it would only be right. We did promise everybody that we were going to continue that conversation and share the rest of the information today. I’m glad that you’ve been sitting here for three days straight, waiting for me to log back in and do this. What a trooper.

Rob:
I haven’t even used the restroom, man. Come on.

David:
Well, why don’t we take a quick break to let you use the restroom and we will be right back?

Rob:
This episode is brought to you by Nutri-Grain bars, the official bar of the BiggerPockets podcast.

David:
All right, on today’s show, Rob and I are going to finish up part two of what we started on the last episode. We are going to be talking about how to choose your property type if you want to buy a short-term rental. How to figure out the timeline that you want to achieve success by. Is this a long-term investment? Is it something more short term? How quickly do you need cashflow versus how much can you delay gratification to make more money later? And then what work is going to be involved in the beginning? And if you’re going to partner, how to divvy up that work.

David:
Now, Rob and I are actually doing this ourselves. We are buying properties together. This information that we’re giving you comes right out of the systems that we have created for how we stay on track ourselves. After this show, I want you to keep an eye out for a future show where we will talk about how to analyze and underwrite properties right up to the point where you’re going to make an offer. And then after that, we’re going to do a show where we explain how we manage these properties. This is a short-term rental masterclass, and you are being taught by a master classman with my co-host, Mr. Abasolo.

Rob:
Hi. Hi. Hi. Fellow master classman here. Man, I’m excited to dive into this. I think everyone knows I get all giddy whenever we start talking about Airbnbs and short-term rentals and for good reason. I think it’s a really great place for a lot of new investors to start. And today we’re going to be covering a lot of things.

Rob:
We’re going to be covering property types. Are we doing standard single families, multi-family, modified single family, luxury? The timelines associated with it. How do you want to divvy up work? Who are you going to empower? Are you working with a partner? Should you do some of the work? Should you make all your partner do the work? How do we avoid resentment in partnerships? So pretty stacked itinerary I’d say.

David:
Very nice. I imagine that you also might be a little extra giddy, because you went to the bathroom for the first time in three or four days now. So, well done.

Rob:
Well, yes, that’s… I thought we were going to edit this out, but yes, I did use the restroom and I’m back. I’m back, baby. I lost myself there for [crosstalk 00:03:38].

David:
Jedi-like bladder control, incredibly impressive. And that is how I know that I picked the right partner.

David:
Before we get into today’s show, let’s hear a quick word from today’s show sponsors. All right. Thanks to our show sponsors as always. Rob, anything you want to say before we get into it?

Rob:
There is nothing that I’d like to say other than I appreciate you, man. I don’t know if anyone tells you that enough, but today I’m letting know, my friend, I appreciate you.

David:
Thank you, Rob, that warmed my heart.

Rob:
You appreciate me?

David:
Not that I’m going to admit on a podcast for everybody to hear, but you could be worse.

Rob:
We’ll fix that in post.

David:
You’re really-

Rob:
I could be worse. I’ll take it.

David:
You’re very okay. I’ll give you that.

Rob:
Hey, that’s no way to speak to your future social media manager.

David:
That’s a very good point. Rob has done a lot to help me as far as with the camera quality and with social media in general. So if you’re following me on social media, it will look better soon. Thank you for your patience. It’s been under construction for five years, and we’re finally getting around to actually finishing the rehab on my Instagram. Very good point there. Thanks for pointing that out.

David:
Today’s quick tip, if you’re interested in what we’re talking about, if you want to dive even deeper into a specific asset class, BiggerPockets has resources for you. Check out biggerpockets.com/events, where you can find a host of different boot camps, one of which is hosted by Tony Robinson on this specific topic, short-term rentals. So if this has tickled your fancy, if it’s caught your interest, if you have itching ears, go to biggerpockets.com/events and sign up for the short-term rental bootcamp or a different bootcamp that might suit your needs.

Rob:
I’d like to add a bonus quick tip here. If you’re looking to get in shape, just follow Tony Robinson’s workout routine. He’s jacked.

David:
All right. Without any further ado, let’s get into today’s show. All right. Number four. The fourth step we talk about is the property type. You’ve got a couple different options. Why don’t you run through those?

Rob:
Option one here is going to be your standard single family residence. This is most of my bread and butter here. This is a house, basically, just a house that you can go out and buy on Redfin. This to me is perhaps my favorite to go into because you can buy a house, and I don’t typically buy a single family residence within a neighborhood where I have close neighbors. I’m not against it. I own probably one or two that are like that.

Rob:
But I’m usually trying to find something that’s on half an acre or on an acre, something that’s a little bit more secluded. You have that luxury a little bit more in those national park type of areas, because usually houses aren’t stacked next to each other, like in the Smoky Mountains, dor example.

Rob:
This to me is probably one of the less risky ones specifically because you don’t have neighbors that can call the cops on you or get mad at you. You don’t have really too many people that you can make angry. You don’t have next door neighbors in a condo, for example, that they can be loud.

David:
That’s just a huge, huge point. If you’re going to do a short-term rental and the neighbors are super close, you are asking for problems.

Rob:
Happy neighbors, happy life.

David:
Yes. When you and I are looking at properties one of the first things we’re looking at is how close are all the other houses to it? This one’s on five acres and there’s 10 acres on each side of it. There’s nobody else around, that becomes much more desirable than if it’s a track house and they’re all right next to each other.

Rob:
And so then we get into things like multi-families, which is a duplex. I’m okay with that. I actually love the duplex strategy quite a bit. I was buying a house in Destin that wasn’t technically a duplex, but it was a main single family residence home. Then there was a pool, and then there was a carriage house in the backyard.

Rob:
And it wasn’t that I wanted to rent it out to two separate parties. I actually wanted to rent it out to just one really big group of people, like two families, that will pay me a premium to have their own set of bathrooms, their own kitchens, their own spaces. Because if you’re traveling with other people’s kids, if your kids are like my kids, they’re probably ultra wild. I don’t want my kids to be in the same house as other kids at night, when everyone’s trying to go to sleep and we’re trying to cook for each other and it’s like a whole thing.

Rob:
I love the idea of a multi-family where are two separate kitchens and you can rent it out to two families at a much higher premium than if you were renting out two houses separately.

David:
And then next up is we have the modified single family. This is one of my favorite asset classes. What’s your thoughts on that?

Rob:
So this would be if you’re converting a space into any kind of bonus space or anything like that, right?

David:
Yes. Taking a house and basically modifying it by either adding an ADU, converting a garage, splitting it into two different components. It functions as a duplex or a triplex, even though it’s just one property.

Rob:
Oh yeah, man, this is what gave me my jumpstart. I really attribute the wealth that I have today and everything that I’ve been able to build up to my house hack. Like I said, I had this in Los Angeles, it had a 279 square foot studio under it. I rented that on Airbnb. That was making $2,000 to $3,000 a month. And then I built a tiny house in my backyard. I was also Airbnbing that too.

Rob:
And now I don’t live at that house anymore. So now I rent to three different tenants. I rent to the people in the studio. I rent my tiny house on Airbnb and now I rent my main house on Airbnb. And it’s all three different types of stays. It’s long-term stays, short-term stays and mid-term stays. And so I’ll have basically a triplex.

Rob:
And on that property, it’s a $4,000 mortgage. Total, I think it brings it anywhere from eight, on a high month, $9,000. The cashflow is quite a bit for me. And it’s because I’ve modified a lot about that property and converted it to the ultimate house hack/triplex-esque type of place.

David:
And that is what you got to do in today’s market. If you want to be in the best areas with the best properties, you can’t just take it right out of the box. I think that’s where a lot of the listeners that are frustrating saying, “I can’t find good deals.” They’re looking for something that’s already there. In their mind, analyzing it in the calculator, looking at the cash on cash return to writing an offer is the job of an investor. And when that doesn’t work, they say, “Well, real estate as it work.”

David:
But you and I are putting a much, much more creative and detailed look into every single property. We’re sitting here and we’re saying, “This is what it would look as is, this is what it could be.” We’re seeing the vision like a coach that’s drafting raw talent. What can we turn this property into? And then we’re saying, if it was there, how would it be performing? What could we expect out of this player if we got them at their maximum ability?

David:
And then the question is, well, is that worth the time and effort it would take to get it there? Or could we find something else for less time, less effort that would perform at the same point? Just like Brandon and I used to say, you don’t find deals right now. You make deals and you have to embrace that that is what we’re doing.

David:
Not only are we looking to make a deal, but we’re understanding we are competing against all the other people that are trying to do the same thing. It’s not set it and forget it real estate when you get into the short-term game, it’s high risk and high reward. So your unit, your property has to be better than the other options and that’s how you mitigate risks.

David:
So that’s part of why we want to do this show is I’m trying to get people to understand the level of detail that you and I put into what we’re looking to do. And it’s not just run it on a calculator and then move on.

Rob:
And getting into the risky stuff, like luxury, that’s where you and me are starting to transition to. And all previous to now, most of the properties that I’ve purchased have been sub $500,000. But now as my time has grown more rare, I suppose, I’m really not looking to acquire real estate that’s less than a million dollars in the short-term rental game. And then we start looking at the deal that you and me are looking at. That’s a $3.4 million luxury home.

David:
So that’s a great point, that brings us into the last asset class, at least how I see it, luxury real estate. So let’s define what that even means. Because it could mean different things to different people.

David:
In my mind, the way I look at real estate and as I’ve described it in the Sold series I’m writing for BiggerPockets, you’ve got three tiers. You’ve got starter homes, which is where a first-time home buyer, what they’re trying to get into. You’ve got step up homes, which are typically, I got a starter home, I sold it and I used the equity to buy this step up home. These are going to be your B, A class neighborhoods, better schools, bigger house, amenities like pools, a little bit bigger lot, better location.

David:
And then you’ve got luxury homes, and this is going to be, this is more than anyone needs in a house. This is what you do when you have enough money that you don’t have to worry about money basically.

Rob:
It’s a little extra.

David:
A lot extra. A little, that’s exactly right. Now, luxury is not dependent on price point. Because if you call it a million dollar listing, in where I live in the Bay Area, that is not that impressive. It is actually incredibly unimpressive in a lot of different areas.

David:
But if you do the same thing in Kansas, you might have a mansion. So you can’t define luxury by price. You define luxury by its price in comparison to the other homes in the market. I look at luxury like its own asset class, because the people who are going to be renting that property from us are not the same people that are just a traveling nurse who needs a place to lay their head.

David:
This is someone who wants an extravagant experience, who’s going to maybe have a lot of people go with them and they want to have an amazing memory that they’re going to be… It’s not practical is basically what we’re getting at here. That’s what luxury is.

David:
Now some people own luxury properties to live in, so they can have a non-practical experience themselves. Other people like us buy luxury properties to rent it out to luxury people who want to have a non-practical experience, but our purposes are so practical. We’re trying to make money with this thing.

David:
So as you’re looking at different property types, if you’re going to get into the luxury market, you have to understand what you’re looking for and the quality of service you have to provide. Frankly, you can’t run out of batteries in a luxury house. You have to have a property manager on standby that if something goes wrong, the heater in the pool is not working, a bug gets into the house, yes, that does happen. They will call if a big bug ends up in a property. There is someone that, boom, lickety-split is on that and they are taking care of it and that person knows that their experience will be good.

David:
You’re probably going to have to stock the fridge with Cokes and other things that people are going to want. Maybe have a chef go by and cook for those people. It’s a higher detailed experience, but that’s why you’re going to make more money.

David:
So when you’re trying to choose your property type, we have the standard single family. That’s probably the least amount of work. You’ve got the multifamily. That’s going to be a little bit more work, but probably a little bit more profit. Because like you said, Rob, you have extra income streams.

David:
You’ve got the modified single family, which is the way you combine steps one and two into a property that hopefully gets you the best of both worlds, but it will be the most work. Then you’ve got luxury, which is a completely different animal, high risk, high reward, high attention. Anything you want to add on those?

Rob:
No, just a little. I said no, but a little bit. On the luxury side of things, what I’m really excited about, and this has been something that we’ve talked about a lot, because in some senses, we are moving a little bit away from the cashflow side of things. Because one thing that we’re uncovering here is, the more you invest, funny enough in this market, the return is actually going down just a little bit more. But we’re okay with that because if we’re buying the $3.4 million house, while we’re not necessarily cashflowing as much as we want, over 30 years, when someone pays for this house, it’s going to be worth double, maybe triple.

David:
That’s a great point. Now let’s say real estate continues to climb like it’s been climbing. This is something else you and I talk about, we should share. 10% per year is a pretty big number. I wouldn’t assume it’s always going to be that case, but in most of the markets we’re looking in, that’s what we’ve been seeing, sometimes even more. I’m just going to use 10%, because it’s around number. I don’t have to get my calculator out to do the math of 7.2% of whatever it might actually be.

David:
Let’s say that you buy a house for $300,000 and it appreciates by 10%. You’re going to make $30,000, which is nothing to turn your nose at. But this 3.4 million house that goes up by $340,000, the work is going to be roughly the same. The investment on our half will be bigger, but proportionally it’s going to be the same.

David:
Even if the ROI is slightly smaller than that 300,000, so let’s say we can get a 14% return, that other one could get a 20% return. It’s dwarfed in comparison to the increase of 10%. And the increase of the 3.4 property is probably going to be higher than the $300,000 one, because there are less of the $3.4 million properties. There aren’t as many of them to compete with. Builders are not going to be building houses like that. They’re going to make more of the $300,000 home.

David:
And then you throw in how much of the principal is being paid down with every single payment. You look at the whole picture, that starts to be a much more clearly advantageous financial decision, versus the $300,000 one, which it’s still a good deal. I’m not saying people shouldn’t get into it, but that tends to be, the value of that is that you’re going to learn the fundamentals of real estate at a lower risk for yourself. It’s like learning to swim in the shallow end of the pool.

Rob:
And even just going back to what we talked about earlier, let’s just say worse comes to worse, we buy a $3.4 million house, and then we just break even for two years, but it went up $600,000. Well, let’s sell it and make half a million bucks after all of our fees are paid off. It’s not really that sad. It’s not that sad of a scenario to break even right there.

David:
That’s right. And then another thing we’ve talked about just as far as mitigating risk, because I know if I heard you say that my first thought would be, well, you’re assuming it’s going to go up. When they go down by 10%, you’re going to take an even bigger hit. When they go down by whatever, you don’t know you’re going to be able to sell. And that’s absolutely right.

David:
But here’s another reason that Rob and I are looking in the luxury market for ourselves. If we’re getting $2,000 a night for this thing and the market becomes less demanding and we can’t get $2,000, if we drop our price to $1,000 a month, we are a much better option than the other options people were looking at for 800 to $1,000.

David:
So if we’re talking about a 6,000 square foot amazing estate that has its own basketball court, its own pool, its own movie room, its own game room, it’s got a place you can ride dirt bikes, it’s incredible. And you could go pay $1,000 a month to just rent a nice big house that has nothing, you might say, you know what, for maybe 1,100, instead of 1,000, we get that. Let’s just get one extra person in our group and let’s go do it.

David:
So in a sense, our risk is actually less, because we can drop our price more, still hit our nut and be a better option than our competition that can’t do the same thing. So we have thought about both ends of this. The upside is higher and the downside is also better in this situation.

Rob:
There are a lot of reasons to do this and I would ultimately shy away from this for a new investor. I’ve been doing this four or five years. David’s got a lot of experience in real estate too. And it’s like we could do this. We’re built for this. We got the experience.

Rob:
If you’re starting out, I’m probably not going to recommend anyone buy a $3.4 million house starting out.

David:
Great point.

Rob:
But work your way up to it. Scale accordingly. The reason I’ve always hit home runs on all of my portfolio is because I just was really strategic and tactical. And so I really took it day by day and I didn’t scale up too quickly. And because of that, I now have all the reserves and the cash that I need to get into an investment like this and survive if there is a dip.

David:
And have a partner that can benefit you there too. So this is what I want to wrap this one up with, all the fears that someone has as they listen to this, the what ifs, but what if this, but what if that, those are all very good. Instead of letting those stop you from moving forward, get them out of your head and write them down on paper or on a Google document, put them down somewhere.

David:
Then with your partner or yourself or however you’re going to do it, systematically work through every single what if and say what the plan is, if that happens. So if somebody was to get on here and challenge Rob and I, and say, what are you going to do if this happens or what are you going to do if that happens, there is a contingency for every single one of those that we feel confident that we can handle.

David:
Now, even if we don’t make money, we’re not going to lose the property. We’re not going to go bankrupt. That’s what we’re getting at here. It’s okay every once in a while to take an L. You’re going to have that happen in real estate, even buying the $300,000 properties, you can take Ls.

David:
The important thing is that it doesn’t take you out of the game, just like a poker player. You can lose hands. You don’t want to lose your entire pot that you’ve got on your side.

Rob:
You don’t want to re-buy in.

David:
That’s exactly right. And that’s the problem is when people start playing reckless, like I’m going to go big on my first deal. If you don’t know how to ride that bike, you should not be taking off the training wheels. You definitely shouldn’t be getting on a motorcycle that’s 2000 CCs. That’s what we’re talking about here.

David:
But if you’ve been riding them for five years and you feel very comfortable and you know how to handle it, it’s not the same risk as someone who’s new. So thank you for pointing that out. That’s very responsible of you, Robert.

Rob:
Hey, that’s Rob to you, pal.

David:
You got it. Number five. Our fifth step is the timeline. So this is also important. Before you invest in short-term rentals, you need to be thinking about what is your specific timeline for the property, the partnership, everything else? Why don’t you start with what you think we went into, Rob, when we were deciding on our partnership?

Rob:
I think we wanted to start with just one and get it right. And it would be very easy for you and I to be like let’s go buy 15 of these things, because we can. But we’re really focused on setting and solidifying a strategy. We said, okay, let’s start with one. Let’s start with a $3.4 million property. We’re starting here in the big leagues obviously, but let’s start with one and let’s perfect the systems needed to run a luxury property that’s on five acres.

Rob:
Who do we have to hire? Do we have to hire several landscapers because it’s five acres? Do we have to hire a team of cleaners? I think that for us has been the really nice thing is that we’ve been taking it slow. I think once we perfect that one, then we can really assess how quickly we want to scale up.

Rob:
I don’t know. I would imagine my goal, I don’t know about yours, you can tell everyone here for the world to see, but I would like to be acquiring a luxury property every two months.

David:
I believe that that goal came from our conversation. So I subconsciously planted that into your mind. But, yes-

Rob:
You Inceptioned me. I hate when you do that.

David:
That’s exactly right. That’s a great movie. If anyone has not seen Inception, it’s the like Matrix, but less confusing. So I would highly recommend people check that out. So yes, that’s exactly right.

David:
Now, when it comes to our goals for the properties, one of the things that we talked about as far as our timeline was long-term wealth. You and I looked and said, all right, we could either get a whole bunch of cashflowing, high ROI properties like those cabins that we mentioned, that would become our full-time job if we scale this thing up. Or we could be a little bit more careful about what we buy, a little more focused to play the long-term game. They’re going to cashflow most likely a little bit less. We’re going to have to keep more in reserves, but over a significant period of time, they’re going to perform way better.

David:
So you and I chose a path that I would describe as long-term wealth. Other people who might not be in our position, they might not have the resources we do, the experience we do. They might still be working jobs, and not even have the time we do. They might need to go for short-term cashflow.

David:
So that’s an important thing that you’re deciding either with your partner or with yourself, which of these properties are you going to be pursuing? Because if you’re trying to get maximum cashflow and maximum long-term wealth out of one property, it’s probably not going to work.

Rob:
It doesn’t happen from one property. It happens from a very strategic journey over years. You build many, many properties. Ultimately, to me, I’m working towards having a solid portfolio. I have 14 now. I would to actually take on less, but take on more strategic. And in the next year, I’d like to be at 20. When I was on the BiggerPockets podcast six months ago, I wanted 40, but no, I’m trying to really diversify correctly.

Rob:
And the way I’m doing that is now I’m moving into luxury real estate. I just want to have a really well balanced portfolio to just cover me. I think diversification, for me, I finally have figured out. It’s not necessarily about chasing cash. It is sometimes about chasing stability and that’s me. I’m an adult now. I’ve figured it out. Thank you, David.

David:
I’m an adult now. That’s funny. I need a little stability in my life. I got rid of the pocket protector and the 401(k) and I need to replace it somehow. You made a really good point I want to highlight, that had to do with, you’re not going to find it all in one property. That’s exactly right.

David:
So the emotions that somebody has as they’re trying to figure out real estate investing, typically is I want appreciation and I want cashflow, I want freedom. I want my time back. I love real estate. They have all of these feelings that they are then trying to figure out, how do I express them? And the mistake comes when they try to express it through the same house.

David:
I don’t look at a house and say, “I need this to provide it for me.” Just like one relationship can’t provide everything you need in your life. You need a life full of different relationships that meet different needs.

David:
Your portfolio should be that way. Your portfolio should provide cashflow, not a house. Your portfolio should provide appreciate, not a house. And you take a lot of risk off of yourself when you understand, all right, I’ve built up to 10 to 15 of these type of properties that I use the BRRRR method to get, now cashflow. I have most of my capital back. With that, I’m going to buy five properties in markets that I think are going to appreciate very solidly with the capital that I pulled out of these deals.

David:
Once I’ve got those two things working really well, solid cashflow, and I’ve got quite a bit of equity, now I can buy one or two of these maybe luxury short-term rentals like David and Rob are talking about. And if they don’t go well, that’s okay, because the rest of my portfolio can support it. This is in that same video I talked about on YouTube. I call it pyramid theory.

David:
And so that will take a lot of pressure off of you. If you say, you know what, I really just need a buddy in my life. Well, that might not be your spouse’s job to be your buddy for everything. You need to go make some friends. And then if you got some friends and you’re like, man, I’m just feeling romantic right now. That’s probably not your friend’s job to meet that need either. Maybe you’re going to need a spouse in your life.

David:
And then you have different people that you work out with, people that I do jujitsu with, people that I talk business with, people that I talk spiritual things with. When you have a more balanced life, you don’t put pressure on any one thing.

David:
And for so many people listening, I really feel like what is holding them back from taking or making progress in real estate is they’re trying to find it all in one deal. And you and I after doing this for a couple years have realized it’s not healthy. It doesn’t work that way, but you can get it all out of one portfolio of deals.

Rob:
Everyone’s chasing the home run that they forget about the singles or the doubles. Get the bases loaded, then go for the home run, because then it’s a grand slam.

David:
And you know the other thing I learned, because I used to play baseball and I was not nearly as good as basketball, but in baseball, if I tried to hit the home run, I rarely ever did. Home runs came when the pitcher made a mistake. They just left the ball out there that they shouldn’t have. Basketball would be the same thing. If I tried to get a steal and I reached, I would either foul them or I’d be off balance and they’d go past me.

David:
If I waited for them to make a mistake with the ball, the steal would come to me. It was just like this thing I learned, steals happen for you. You don’t really make them very often. You can create pressure that’s more likely to have them make a mistake, but still it’s a mistake that allowed the steal.

David:
Good deals come like that. You create pressure by putting yourself in the right environment. You make the right relationships. You have the conversations. You can’t make that seller that’s not motivated, be motivated. You’ll just foul them and you’ll ruin the whole thing.

David:
But being in that position, you will come across the person who’s like, they made a mistake in life. They’re financially strapped. They don’t want the property. They didn’t take care of it. They need to get rid of it, and boom, that’s your home run or that’s your steal. That’s your win.

David:
And so just adjust your mindset when it comes to that. Home runs happen. You can’t really make a home run happen. You can’t make a pitcher throw a bad pitch. You just take advantage of it when it comes your way. But you should focus, like you said, Rob, on these singles, on these doubles, because if you hit a home run with no one on base, it’s still only worth one run. If you’ve got three people on base when that home run comes, because you have a portfolio of other properties, and then rates drop and you can refinance four properties and get better rates or pull your money out, that functions as a home run if that makes sense. Do you have anything you want to add on that?

Rob:
I think it’s a consistency game, man. That’s the greatest home run, that’s the only way that you can control home runs is just being consistent. I get a lot of people that are like, “Man, how do I go viral?” And I’m like, listen, I’m pretty good at YouTube. But the only way that I ever go viral is I post a video every single week. I’m on my game every single week. And that’s the only way that you can control anything is with consistency, I think.

David:
I love that. Now we’ve got a sixth step, a bonus step that we did not tell you about, but we love you.

Rob:
Bonus. Let’s do it.

David:
At BiggerPockets, we just want to overflow you with value and do everything we can to help you make some money. So here is the bonus step. In stage one of choosing your location, your market and your strategy, which we’ve actually taken that and split this up into two podcasts. So you’ll hear us talk about stage one as these three things, but it’s being split over two different shows.

David:
The other thing that we recommend you do is you decide how you will divvy up the work. That’s something that either you and your partner need to decide on, or you yourself need to decide, how are you going to handle these components? Rob, if you want, we could just alternate back and forth between the steps that we’ve come up with that needs to be divvied up when someone’s going to buy a short-term rental.

Rob:
Definitely. So if you’re going into a partnership here, this is really important, because property management is going to be something that’s going to come up. Someone needs to manage the property. Obviously, you can go-

David:
Can you give us some examples of what that means in practical terms?

Rob:
So if you’re managing an Airbnb, that would consist of things like messaging guests back and forth, scheduling any maintenance. If something is broken, you need to get it replaced. You need to communicate and schedule all of your cleanings. You need to make sure that your cleaners are communicating with you, that things are broken. And then they need to communicate with the maintenance person, contractors that need to come in and fix any big repairs.

Rob:
I had a roof leak one time. Maintenance person, finding them, I’m sorry, not maintenance, lawn maintenance, finding them, finding someone reliable that will come every single week. Last one, pool service, if you want that. Oh, pest control. So these are all moving parts that you have to figure that out. You have to coordinate with it.

Rob:
My pest control person still contacts me every two weeks. She calls me, “Hey, I’m going to come by on Monday. Is that okay?” And then I have to look at my schedule and say, “I’m booked that day. Come the next day.” So, that’s a lot of work and it’s also a little bit of work, once you actually get your systems down, your automation, but still, you still have to do it. Someone still has to figure out how to automate all of that. Someone has to do it.

Rob:
Now. I’m a big fan myself personally of self-managing. I teach people how to self-manage. That’s my jam. I prefer to self-manage, because I don’t think in the Airbnb space, it is… Again, this will get into time and value of time, but I don’t think it’s worth it to hire a property manager necessarily, because property managers in the short-term rental game can charge between 15% and 30% of your gross revenue. That’s a lot.

Rob:
What’s standard for long-term rentals, is it eight to 15?

David:
6% to 10%. So if it’s a higher, what I pay in California, because the rents are higher, I pay 6%. When I get in some of the cheaper markets, it’s more in the 8% to 10%.

Rob:
10 is what I’ve heard back and forth. So it could be up to three times more than a long-term rental property management company.

David:
Or five times more if you look at 6% to the 30%.

Rob:
That’s exactly right. So that’s a really big difference. I think especially if you’re entering a partnership, if there’s someone that’s willing to put in the work and do a little bit of the sweat equity side of things, that is going to make everybody a lot more money.

Rob:
Because I’ve gone into partnerships where, when I work with investors, for example, we will charge them anywhere from 7% to 10% to manage the property. That’s a really good deal because we’re like, “Hey, we’re still going to charge a little bit, because our time goes into this, but we’re saving you…”

David:
But it’s a third of what they would pay from someone else.

Rob:
That’s exactly right. So that’s the benefits of it.

David:
I would also add, in addition to it being cheaper, if you manage it yourself and if you do a good job, it’s also better. So the problem isn’t that proper managers want money, it’s that they might not be good at what they do because they don’t care. A lot of property managers are trying to do the minimum they can, especially if you negotiate a better rate for yourself. You’re just disincentivizing them to care.

David:
And with short-term rentals, the quality of management is exponentially more important than it is in a long-term rental. Your long-term tenant says, “Hey, the toilet handle is jingling. Can you get someone to fix it?” If it takes a couple weeks to get someone out, they’ll deal with it. That’s their house. That’s where they live.

David:
Your short-term rental, if they don’t have enough sheets in the house or if they smell because the cleaner didn’t do their job right or something, that’s a bad review on Airbnb that decreases future bookings for a very long period of time. It’s a huge, huge, huge deal. The quality of work for short-term rentals has to be significantly better than with long-term rentals. And if you’re doing it yourself, you have more control over how things go down.

David:
Now, Rob and I agreed that we would take a chunk of the revenue and pay it to him and his team, since they will be handling the management of the property. But even if you’re not doing a partner, you need to decide, am I doing this myself or am I going to hire somebody to do it?

Rob:
And again, there are pros to hiring someone to do it. I understand that. And as I grow and develop and all that kind of stuff, develop my philosophies, I think my brain is done developing now. But my philosophies, then I would say, I’m starting to now come around to the idea of it.

Rob:
But what I’ve done is, I have an assist that helps me across all of my businesses and property management is just one way that she helps me. I could still be involved with it, because I don’t ever want to feel like I’ve grown too big to just send a guest a message. I’m not in the weeds of my business, but I’m in there. I’m bird’s eye viewing it. I step in when I’m needed.

David:
Well, I’ll give everybody a little behind the scenes look. I’m actually looking at making a property management company that will manage short-term rentals. It won’t be full service, so it’ll be cheaper, but it’s a company that’s going to handle the bookings, the revenue, getting you going. And so they’ll be responsible for making sure that there’s people staying there. And then the person who owns it can be responsible for making sure that everything gets done.

David:
I see that there’s a really big need here. Rob doesn’t have time to manage them all. He’s incredible at the stuff he does, but for a lot of you listening, send me a message and I’ll get you connected if that’s something that you think you might want some help with.

David:
The next thing we have here is bookkeeping. So bookkeeping also becomes a little bit more detailed when it comes to a short-term rental because there’s just more income and expenses that are coming out. With my long-term rentals, I get a rent check every month. Sometimes it’s two, because they don’t pay the full amount right away. And then every once in a while, there might be an expense on there that’s not much. I get a statement from a property manager. My bookkeeper takes it, puts it into my information for taxes and that’s all there is to it.

David:
But with a short-term rental, I’ve got several different sources of income at different nightly rates for different periods of time. I’ve got several different types of income. I’ve got cleaning expenses. I’ve got registration expenses. I’ve got the actual booking of it.

David:
I’m sure Rob could probably come up with some more, and then sorry, that was [crosstalk 00:34:36].

Rob:
Batteries. Lots of batteries.

David:
That’s in the expenses side. And then on the expenses, I said expenses, I meant income. You’ve got all the materials that you’re getting, all of the products that you’re buying, all of the different people, the handymen, the cleaners, the things the cleaners had to buy, the things the guests needed that we had to go drop off last minute, the property management themselves. There’s a lot more expenses associated. So bookkeeping becomes a much bigger issue and you’re going to have to decide how that’s going to be addressed.

David:
Rob, what’s your preferred way of tackling that in your properties?

Rob:
I have a bookkeeper, and my bookkeeper basically creates a profile for every single one of my properties. I thought about doing it myself, but then it was one of those things that I had to really be honest with myself and say, am I going to be punctual about this? And the answer was no. So I hired a bookkeeper. They can be affordable. They can be expensive. It’s up to you.

Rob:
But for me, because of how fast my portfolio grew, I started getting very serious about tracking and everything like that. I sync up all my different bank accounts and all of my different credit card accounts and everything like that. Now I’m starting to have to really get into the nitty-gritty of getting a separate credit card for every single property, so that we can match it up to the different profiles.

Rob:
But luckily my bookkeeper is much smarter than me at the mathematical stuff. So far, it’s been the best decision I’ve ever made.

David:
I think you saying mathematical might have been the most funny part of this entire show.

Rob:
Mathematical.

David:
I haven’t heard that since third grade. Good job. All right. Why don’t you move us on to the third segment in the bonus step?

Rob:
This next one’s going to be setting up the furnishings, the decor, any kind of rehab work. If you’re going to partner up with somebody in this world, then you should really lay out responsibilities here, because a lot of people really underestimate the furnishing part of it. We’ll get into this in another episode. We got a whole episode where we’re going to actually dive deep into the nuts and bolts of analyzing and furnishing and everything like that.

Rob:
But what I do want to say about this is, a lot of people, they underestimate furnishing. They’re like, “Oh yeah, whatever, you’re going to move a couch? Well, how hard can that be?” And then you get there and you’re like, all right, we have three days. And then you’re late to the airport because someone was cutting up a box and you couldn’t find a place to dispose it. And oh man, I’m getting all the flashbacks and everything like that. I’ve had some crazy times.

Rob:
But most of my Airbnbs, I’ve actually set up with my partners. I think there’s a little bit of comradery there. So I would recommend that if you have a partner in the deal, even if one is like, “No, you can do it,” if y’all agree on that, I would definitely recommend just everybody. It’s a full effort. It’s not a one person job. Setting up an Airbnb can be a two, three, four, five person job.

Rob:
There are some diminishing returns there for sure. I’ve had eight people in my Airbnb before where it’s like, what are we doing? Everyone’s doing a little bit, but not a lot. And it ends up being worse than if there were just three people there.

Rob:
But same thing with rehabs. Some partners are very handy and they want to hop in there and they’ll say, “I’ll just paint the wall. It’s so much better than hiring a handyman for $1,000,” or whatever. So regardless of what that is, just make sure that there’s some level of compensation or some level of agreement for how everybody’s going to maintain the status quo.

Rob:
My partner just went out and completely set up a new unit for us in West Virginia. He was happy to do it. He has to do it out of the two of us, because of my schedule for this month. And I was like, “Well, let’s just pay you, man.” And we’re going to pay him $2,000, $3,000 to go and do that for a week. And he was like, “Dude, that’s awesome. Thank you.” And I was like, you deserve it, because without you, I couldn’t do this.

Rob:
I think throwing a bone to your partner in this category specifically will go a long way, because resentment can start as early as furnishing in Airbnb.

David:
I said on Facebook a while ago, I think I said bitterness, but it’s very similar to resentment is the lactic acid of relationships. When you’re working out, lactic acid builds and at the point it gets to be too much, at least this is my understanding. I know there’s fitness people that are about to DM me and say, “That was totally only 99% true. You missed this part.”

Rob:
The YouTube comments are going insane.

David:
Yes. There you go. The basic understanding is that lactic acid builds and then the muscle can’t perform. And then it has to be flushed out before it can perform again. And during that period of time, it regrows. But if you let bitterness and resentment leak into your relationships, the relationship stops performing. And here’s the thing is lactic acid doesn’t really do anything to actually help you perform better. It just slows you down. So resentment doesn’t have any positive impact on a relationship. It doesn’t protect you from anything. It’s totally bad. So you’re very wise to mention, you don’t want that to build.

David:
The part I want to highlight here is that this is not passive income. Short-term rentals are not passive income. They are high income. They are real estate investing, but real estate investing and passive income are not synonymous. There are ways of doing it that are passive. There are ways of doing it that are not passive and there’s a whole lot in between.

David:
So this setup portion is, what I tell people is imagine you just bought a business. You bought a Taco Bell or a 7-Eleven or some franchise. You have looked at it from the outside, but you don’t really know much about what you got. You’re going to have to show up and look at all your employees, who’s got a good attitude, who’s got a bad attitude, who needs to be fired, who needs to be promoted? What’s your inventory look like, how the book’s been kept. It’s a lot of work when you first buy it to try to get it running the way you want.

David:
That’s what you’re doing on these short-term rentals is you’re showing up and you’re trying to get the business set up the way you want it to be, the furniture, the decor, everything you want that’s different than what the previous owners had, and that’s work. So be prepared. That’s why we’re going over this in the bonus step. If you’re going to be doing that work, be prepared knowing you’re going to go into it and what is going to be done. And in a future episode, we’re going to dive deeper into all of the steps that are involved.

David:
All right. And that brings us to our last point, are you going to work with investors? Now, Rob and I are bringing this up because we are raising money to help buy these properties. Like you said, we’re going to buy one together, maybe a couple together. Then we’re going to start raising money from other people, so people can invest with us in these properties. They’ll be paid out, just like if it was money in the bank.

David:
Now, some people are going to just use their own capital and you can get that from refinancing houses, from putting HELOCs on existing properties. Typically, if you’re going to try an expensive Airbnb, you probably already have quite a bit of capital saved up. So odds are, you’ve done a little bit of real estate investing yourself if you’re jumping into that.

David:
But if you’re not and you’re looking to raise money, it’s very important that you understand that cashflow will cover the debt service of both the loan that you’re taking out and the investors that you’re going to be paying out. That’s one of the reasons that bookkeeping and analysis is very important, because you’re not just investing your own money. You actually have to take care of someone else’s money, even more importantly than if you did it yourself.

David:
So if you want to invest with Rob or I, please reach out to us. You can go to investwithdavidgreene.com and you can learn a little bit more about it. But if you’re also looking to do this yourself and you want to invest with other people, that’s one more reason why you better have a lot of money in reserves. I personally don’t like the model that says, “Hey, invest in real estate, you get some of the equity, but if it doesn’t work out, you invest it at your own risk.”

David:
Some people do that. In fact, a lot of people do that. The majority of people I think do it. I just don’t like it. I don’t like it because I can’t sleep at night. I don’t like it because so many people trust, “Hey, if I’m saying you should do this,” that that’s why they’re investing in the deal with me, and they’re not doing it because they’re looking at the deal. They’re doing it because they’re looking at David.

David:
When we first talked about this, Rob, I’m curious, did you have concerns, fears, were you excited? I don’t think we ever talked about what emotions you went through when we talked about doing this with investors.

Rob:
Wow, man, we’re going to air it for everyone to see here. No, no. I’m excited, man. I’ve worked with investors quite a bit. I work one-on-one with investors and I think what investors really appreciate when they work with me is that they see the pain. They see the future pain. They see, I really take an investor’s dollar very seriously. I always say in my mind, an investor’s dollar is worth four of my own. And so if I lose an investor’s dollar, which has never happened, but if I do, it hurts me like I lost four of my own. That’s how I really need to approach it.

Rob:
Because I always make it very clear how serious I am with all of my analysis. I shoot down stuff. I’ll have investors that pitch ideas to me that are just not good or they’re okay, and I’m like, “Listen, I understand why you think that, but let me be real with you.” I try to just be very real with investors of what has worked for me, what doesn’t. If there’s something that I haven’t really tried before and they’re pitching that to me, I’m like, “No, I’m sorry. It probably will work, but I’ve never done it.”

Rob:
I think a little bit of honesty with your investors and your commitment to making sure that their dollar goes a long way is super important. I think I’ve had a couple investors that have been not annoyed, but a little like, “Hey, I thought you were going to move faster on this.” And it’s like because I haven’t found you the deal yet, man. I found a bunch of deals that comped out here, but for it to be Rob stamped or whatever, it’s got to be here.

Rob:
It’s like a fault and a good thing that it’s like I’m over critical of every deal that I go into, something that you and me talk about quite a bit. And it’s like I’m happy… I used to be a lot more of a risky person. And now when other people’s money is on the line, I’ve actually become really conservative with how I approach deals.

David:
It’s the way you drive when you’re in the car yourself versus when your kids are in the back seat.

Rob:
Exactly. That’s so perfect. Yep.

David:
So one of the ways that we are structured, and I am saying this because I highly recommend anyone else who’s looking to raise investor money, please consider what I’m about to say. I am keeping enough money in reserves that even if some horrible thing happened, a tornado ripped the house off the ground, aliens abducted it, and they just sucked our property off of the Earth.

Rob:
Hate when that happens.

David:
Just in case, we have enough money set aside that investors will still be paid on the investment that they made. I just wouldn’t be able to move forward if that wasn’t the case. This is not one of those, “Hey, it’s on you if it works out or if it’s not.” And so if you’re investing with someone who’s never done it before, or they don’t have any money themselves, I would just be way more cautious. If they haven’t learned how to manage their own finances, I wouldn’t trust them with managing your finances, even if they’re very charismatic or hardworking or you’re impressed by their knowledge base. There’s a little more that goes into, there’s some discipline that goes to managing money, in addition to just the skill or the knowledge of investing in real estate.

Rob:
I think there’s always a little bit of due diligence that’s needed. I think it’s important to reveal that due diligence, so that they’re like, “Oh, okay, they’re pretty serious with my dollar.” I try to make that as clear as possible, as soon as possible.

David:
All right. Well, I hope you have all enjoyed the first and second part of our series for choosing your location, market and strategy when it comes to short-term rentals. Now there will be future episodes in this series that we will be diving into, so keep an eye out for those.

David:
Please leave some comments below and let us know both on the YouTube page and on biggerpodcasts.com/podcast what you think. Did you like the deep dive into a specific strategy? Would you like it if we would actually maybe analyze a deal live on the podcast for you to see how Rob and I break down both the pros and the cons of a property and weigh out if this would work?

David:
We actually have a matrix that we use that incorporates five different elements that we think are important in real estate investing. And when we’re looking at a deal, we evaluate it through that matrix. So we’ll go and say, “Well, how does it affect this one? How is it affected by this one? How does it weigh out?”

David:
I just want to know, what would you guys like to see more of and what did you like about this show? So please leave it in the comments. If these are popular, if you like having us go deep on one specific strategy like this, tell us. We will do everything that we can to do more. Anything you want to add, Rob?

Rob:
If anyone wants to hear it from you directly, if they want to just find you online for those short-term rental knowledge bombs, my friend, where can they find you?

David:
They can find me on all social media @DavidGreene24. And then I have a YouTube channel as well. But what I basically do is when we’re doing in the podcast, I’ll take a concept that I was like, that was really, really good, and I’ll dive deeper into a video on that. I was describing how you diversify risk in a portfolio. I’m going to make a video on that, cashflow versus appreciation, I’m going to make a video on that. So oftentimes what I hear people say is, “This was a great point. Can you talk about it more?” Well, I get buried in DMs. I can’t answer every single person individually. I try to make a video there.

David:
And I know you’re no slouch on YouTube yourself. Rob is a bit of my… I’m the Padawan learner and he’s the experienced Jedi when it comes to YouTube. He does a lot.

Rob:
We got to do a collab, man.

David:
Yes. that’s a good point. If you notice my camera, it looks like this because your camera looked… I’m not as handsome as you, I’m still working on that.

Rob:
I disagree.

David:
You’ve done a lot to help me in that area. So where can people find you if they want to learn more about what’s going on in the brilliant Jedi mind?

Rob:
Well, as always, you can find me on YouTube at Robuilt. A lot of people say Robuilt, that’s fine if you want to. But Robuilt, like Rob built it. R-O-B-U-I-L-T. You find me on the Gram as the young kids call it, @Robuilt as well. TikTok at Robuilto, because someone snagged that Robuilt from me.

David:
I love that you say that every time. I still think Robuilto is hilarious.

Rob:
It’s important because I think this is a sign that’s like, oh, okay, I’ve made it because I’ve got a lot of scammers that will make fake accounts of me. By the way, just anyone watching this right now, I will never ask you for crypto or Forex or any of that other stuff. I will never ask you to DM me on WhatsApp either. But I always have to clarify because there are a lot of Robuilts.

David:
That goes for both of us. I have a scammer, I get them all the time. It’s usually some derivative of DavidGreene24. So the current one is-

Rob:
It’s DavidGreene25.

David:
Yes. DavidGreene024, DavidGreene_24, David Green with no E at the end, 24.

Rob:
Or David dah, dah, dah, Greene 24.

David:
It’s always like that. So look very closely at the screen name. Scott Trench ha the same thing going on. There’s a Scott with three Ts. And so what happens is people will make these fake profiles. They’ll message you, because you trust us, then they will ask you for money or they’ll ask you to buy crypto with them, or invest in some course they have. They’re ripping you off. So there’s nothing we can really do about it. I would love it if I could get that check mark from Instagram finally, so you would know if it was me or if it was Rob, but that’s very difficult. Instagram is-

Rob:
2022, man, we’re going to get those blue check marks.

David:
It would save a lot of people money. But in the meantime, please pay attention to that. We don’t want you to get ripped off and then follow Robuilto. [foreign language 00:49:00].

Rob:
[foreign language 00:49:02].

David:
[foreign language 00:49:10]. I don’t know how to say I would appreciate it, but I would like that. [foreign language 00:49:24].

Rob:
[foreign language 00:49:24].

David:
[foreign language 00:49:24].

Rob:
Robuilto.

David:
Robuilto. On YouTube. All right. Enough of these shenanigans. Thank you everybody for your time. We really appreciate you listening. Let us know in the comments what you think, reach out to each of us and tell us what you would like more of. We will let you get out of here, but keep an eye out for future shows in this series of how to get your first short-term rental with Robert mathematic Abasolo. No. With Robert mathematical Abasolo. This is David Greene for BiggerPockets, signing off.

 

As we all walk this path of real estate investing and financial freedom aspirations, we learn, grow, and achieve. As we start to find success, we almost always have a moment when we say to ourselves, “What if I would have known all this when I was younger?”

So, what if you are all-in on early FI and real estate investing, and you want to help your kids succeed in these same capacities? What can our teenagers do now to acquire the necessary skills and knowledge? The answer is: plenty!

Related: What Is the FIRE Movement?

How can high school students set themselves up for a bright financial future?

Let’s look at five classes students should take in high school to set themselves up for early financial independence.

1. Personal finance

Yes, this may be kind of obvious, but the vast majority of students graduate high school without having taken any courses that teach them how to manage their own money. Only a few states require students to take a personal finance class to graduate—one of the most unsettling disservices of our public education system.

Some school districts and even individual schools are concerned enough to take the initiative to require this class for their students when not mandated by their state. Kudos to them! But unfortunately, the vast majority of students still do not learn these vital skills and essential knowledge in school.

The good news is that many schools offer a class that teaches personal finance strategies as an elective. This is the case at my school. As an elective, kids can opt to take the class even though it’s not a requirement. Regrettably, at my school, as with many others, only about 20 percent of our graduates take the course—but at least it’s available.

If your child’s high school has this class, get them in it! Ideally, they would take the course as a junior or senior because as they get closer to entering the real world, they tend to accept this information more wholeheartedly.

In my book, First to a Million, I dive deep into many other personal finance strategies a young person can employ to reach early financial freedom. If you have a teenager, check out the book for critical concepts, techniques, and tactics your child can use to reach early financial freedom.

2. Accounting

In addition to learning essential personal finance skills, students would be well served to learn how to keep accurate financial records. Not every school offers an accounting class, but if your child’s school does, it’s another class that will help them in their future.

I took accounting in high school. This was in the early ‘90s at a tiny school. I still use those accounting skills today when I balance my account ledgers (now online and with Excel) or analyze a potential rental property with projected revenue and expenses.

An accounting class will also teach your teen about the concept that money coming in needs to exceed money going out. This is a valuable lesson to learn while one is young and before credit cards, car loans, and overdrawn accounts become a reality.

3. Computer applications

I’m pretty sure every entrepreneur, business employee, real estate investor, or FIRE enthusiast has at some point us

I’m pretty sure every entrepreneur, business employee, real estate investor, or FIRE enthusiast has at some point used (or even developed) a spreadsheet to help them accurately analyze an opportunity, property, or other business situation. I would guess that most wished they knew more about how the spreadsheet worked and how to take full advantage of its features, if only to help them save time.

Not too many high school students are lining up to spend time crunching numbers on a spreadsheet. Thankfully, the spreadsheet curriculum (usually Excel) is typically embedded in a computer applications course of some kind. At my school, the course title is “Computer Applications.” The benefit is that a title like this draws in more students than a class called “Spreadsheet Analysis.” I’m pretty sure the teacher for that course would starve!

In addition, the course likely teaches students how to properly use Word, PowerPoint, and the Google suite, as well as relevant skills like writing a professional email. These are all skills our students need to know no matter what career path they plan to pursue.

4. Clubs or classes that teach public speaking

As a high school student, the mere suggestion of getting in front of people to give a presentation or report petrified me. Clammy hands, dry mouth, sweaty armpits, and shaking fingers come to mind.

Today, I am in front of an audience every day in my classroom—not to mention the dozens and dozens of times I’ve talked in front of large groups of parents and community members throughout my career. I don’t think twice about it. How did that change? Practice.

Like practically everything else in life, practice will improve your teenager’s ability to present in front of a group. The earlier they get started in defeating their fear of presenting or public speaking, the earlier they can attain the confidence needed to succeed in future endeavors. Some classes provide the opportunity to do just that, and some even do so in hypothetical business situations.

At my school, the best way to improve in these areas is by competing in the DECA or FBLA club. These business clubs offer students the opportunity to role-play business situations with an adult judge in a competition format. In addition, they practice these skills in class to prepare for the conferences where they compete.

If your child’s school doesn’t have DECA or FBLA, then a speech and debate class can be just as beneficial (but without the business twist to it).

Related: How to Teach Your Kids to Be Self-Made Millionaires

5. Classes that offer college credit

These days, many high schools offer a variety of classes in which students can concurrently earn college credit. If you are familiar with the AP class structure, this is not what I am referring to. Although AP classes (or similar IB classes in other high schools) can help a student gain college credit, concurrent enrollment courses are different in these ways:

Concurrent enrollment classes lead directly to college credit, usually at a local community college. AP classes may or may not translate into college credits at the university the student chooses.

Concurrent enrollment courses generally do not have a curriculum-based test at the conclusion of the class outside of the regular class setting. AP classes conclude with students taking the relevant AP test at a time and location outside of the regular school day to receive a score of 1 to 5. The score on this test matters as to whether the student will receive college credit.

Concurrent enrollment classes generally have no costs. Students simply take the college-level course at their high school. There is a fee associated with the AP tests, which are required for college credit.

Now, AP classes do have immense value for students since they can also lead to college credit. However, concurrent enrollment classes have more advantages. Talk to your student’s counseling office to see what offerings have dual enrollment or concurrent enrollment status.

By taking advantage of both AP and concurrent enrollment classes, your child could start college as a second-semester freshman or even as a sophomore. I probably don’t have to tell you that this can also save a boatload in tuition costs.

Final thoughts on setting your high schooler up for financial success

Every high school is different and will have its own class choices, but it will serve your child well if you do a little investigating to see if their school offers any of the above classes. And if so, talk to your child’s counselor to make sure they are taking full advantage of these opportunities.

If you have aspirations of your child following your footsteps into a FIRE or REI world (and I assume you are partaking in those strategies if you find yourself reading the BiggerPockets Blog), these classes will set them up for their best life.

What were the high school classes most helpful to you in your FIRE or REI aspirations? Do you concur that the classes mentioned in this article will set up your high schooler for success?

Comment below to let me know, and thanks for reading.