Month: March 2022

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.

 

Is the Sault Ste. Marie housing market one of the hottest in the broader Ontario real estate sector?

While sales activity has simmered down to kick off 2022, prices have skyrocketed to an all-time high. It makes sense, considering that, according to a recent study by U-Haul in January, Sault Ste. Marie is one of the most popular cities in both the province and in the rest of the country.

The reason? Cheaper housing, the report noted.

“People were in search of cheaper housing as they worked from home. As time has passed and things are shifting closer to normal, we are starting to see that trend reverse. Ontario is still the economic centre of Canada and offers a high quality of living, thousands of job opportunities and attractive salaries.”

(And in case you’re wondering what the most popular city to move to was over the last year, it’s another northern Ontario hot-spot: North Bay, Ontario.)

Will Sault Ste. Marie maintain this growth in the coming months? It’s hard to predict, but the local real estate market had a decent start to the new year. Let’s take a look at some recent data.

A Look at the Sault Ste. Marie Housing Market

According to the Sault Ste. Marie Real Estate Board, residential property sales tumbled 2.4 per cent year-over-year in January, totalling 123 transactions.

Despite the slight drop to start 2022, home sales remained more than 20 per cent above the five-year average and 49.1 per cent above the decade-long average for the month of January.

Meanwhile, the average price in the Sault Ste. Marie Housing Market soared at an annualized rate of 33.3 per cent, to a record high $296,281 in January.

This increase could be related to the housing supply shortage in the region, in the face of high demand.

The number of new listings rose 5.4 per cent year-over-year to 136 units. However, by the end of the month, active residential listings had plunged 31.3 per cent to just 90 units. This is the lowest number of active listings in January we’ve seen in more than 30 years.

New listings sat 6.1 per cent below the five-year average, while active listings were 72 per cent below the five-year average.

Months of inventory, which represents the number of months it would take to exhaust current inventory at the present rate of sales activity, measured in at 0.7 by the end of March. This is down from one month at the same time a year ago. To put these numbers into context, the long-run average for the month of January is seven months.

The good news is that these tight housing market conditions could improve in the coming year. According to Canada Mortgage and Housing Corporation (CMHC), housing starts more than doubled in December from the previous year, with 13 unit starts. Throughout 2021, housing starts totalled 110, up from 71 in the previous year.

So, can the Sault Ste. Marie housing market sustain this momentum?

Speaking in an interview with The Sault Star, Tracey Rutkauskas, president of the Sault Ste. Marie Real Estate Board said it can be challenging to predict where prices will be in the coming months or years.

“This is a very volatile market, and it relies on so many other factors and market conditions that it is very hard to predict the future,” she told the newspaper.

At the same time, according to the 2022 Canadian Housing Market Outlook Report, markets like Sault Ste. Marie would benefit from this seller’s market.

“Less-dense cities and neighbourhoods offer buyers the prospect of greater affordability, along with liveability factors such as more space. In order for these regions to retain these appealing qualities and their relative market balance, housing supply needs to be added. Without more homes and in the face of rising demand, there’s potential for conditions in these regions to shift further,” stated Christopher Alexander, president of RE/MAX Canada, in the report.

Small Town Ontario Shines Bright

As noted by the U-Haul study, small towns, suburbs, and rural communities continue to shine bright in the country’s most populous province. The Ontario real estate market has plenty of places suitable for your needs. Whether you desire the sounds of nature or the hustle and bustle of the big city, a professional real estate agent can help guide you through the transaction.

Sources

Ashley Kehr:
This is Real Estate Rookie episode 162.
My name is Ashley Kehr, and I am here with my co-host Tony Robinson.

Tony Robinson:
And welcome to The Real Estate Rookie podcast, where every week, twice a week, me and my wonderful co-host Ashley Kehr, talk all things real estate. But with the focus on the guys and girls at the beginning of their investing journey. We want to bring you the inspiration, the information that you need to get started as a real estate investor. So Ashley Kehr, before we get started, let’s just say that this has been like one of the most technically difficult podcasts to record. Ashley and I have tried recording this like five times, but our system keeps crashing. So we’re hoping that we can get through in one piece.

Ashley Kehr:
Yeah. And we really haven’t even gotten past … this is the farthest we’ve made it, so far right here into the podcast.

Tony Robinson:
Oh, yeah. We’ve said this intro five times.

Ashley Kehr:
Yeah.

Tony Robinson:
So hopefully it sounds super polished by now. But Ash, what’s new with you? Give me like the quick rundown before the system explodes on us.

Ashley Kehr:
Yeah. Well, Tony, first of all, I got to say happy belated birthday. Tell everyone-

Tony Robinson:
Oh, thank you, Ash.

Ashley Kehr:
About your birthday in case they’re not following you on Instagram and gets to see all the wonderful things Sarah does for you.

Tony Robinson:
Yeah. So I’m training for a fitness competition, which is about five weeks away. And this last weekend was my birthday, but it was also my last cheat meal weekend. Instead of having the usual birthday thing where people bring gifts, I just had like a big cheat meal party. And I asked all my friends and family to bring me all my favorite junk food. So I had like one of the most epic cheat meals ever with every possible dessert and junk food you could think of. And then my wife being the amazing person she is, she did some really cool things for me. But she ended up renting like a slingshot, those little like three wheeled motorcycle go-kart things. And we got drive that around for the weekend, too. So, it was all around, just like one of the best birthdays, for sure.

Ashley Kehr:
Yeah. Just the way she decorated your kitchen with a picture of your face and pizza. But I have to tell you, so my business partner, Daryl that you’ve met, he did not think that you would cheat. He thought that you would not have any of that food. So, what were some of the things you ate?

Tony Robinson:
Yeah, I mean, I got so much stuff. But Ashley and Daryl sent me some Flemings, which is like a really nice steakhouse here in SoCal, so I got some of that delivered. I mean, I had shrimp scampi, I had fried shrimp, I had fried chicken, I had banana pudding, I had a bunch of Oreos, I had Reese’s Puffs, I had pizza from Domino’s, pizza from Pizza Hut, pizza from my father-in-law’s restaurant. The list just goes on and on and on, everything I could ever want, it was probably there.

Ashley Kehr:
Well, that’s awesome. That’s good to hear that you enjoyed yourself and then you got right back into the gym and right back into your routine the next day.

Tony Robinson:
Right back into … yeah.

Ashley Kehr:
One thing that we did want to send you was a catfish from when we into Paula Dean’s in Tennessee. The catfish that you love there.

Tony Robinson:
I love a good catfish. So if you ever want to surprise me with catfish, just know that you’re more than welcome to.

Ashley Kehr:
So today I went and looked at a property. It’s one that I’ve looked at several times and I’m just trying to figure out what to do with it and what the purpose would be. But I’m having trouble with the campground that I have under contract now. I talked to the county today and the RV sites that are there were never actually approved or permitted by the county, which obviously is a huge red flag.
So really what it was is the infrastructure there. So the owner added on 50 new pads to the RV park and he never got them approved from the county. And he never handed in his engineering plans to the county or the DEC, the Department of Environmental Conservation. So those are not approved at all. And if there are issues that we would have to dig up off of this, because there’s no plans for them, there’s nothing since this property is a foreclosure and we’re buying it directly from the bank. So after we’re done with this, my next call will probably be the DEC and see what’s going on on their side of things. Always exciting and eventful.

Tony Robinson:
Always something going on, but I want to dig into that a little bit, Ashley. So a couple questions. First is, how did you identify that those pads, those RV spots weren’t permitted? Was that something that they came up on your inspection report? When you went to go file paperwork to open title, did they say, “Hey, these plans don’t match the plans that are on record.” Like, how do you identify that something’s not permitted?

Ashley Kehr:
So you can talk to the county. This actually was the county, the code enforcement officer for like that town, that village. And he had called my attorney, actually. He received the application for … there’s a sewage treatment facility on the property and then there’s also nine wells. And he received the paperwork to transfer ownership into my company’s name. And before he accepted their application, he called my attorney and said, “I would really like to talk to the new buyer first.” And this was part of our due diligence to reach out to the county and just see what was going on, but he actually beat us to it. So, that kind of worked out great.
And so I did my phone call with him today, and he went over all of the issues that are on the county side with this property and would need to be remediated. And there’s a ton of revenue streams on this property and each of the different operations … so there’s a banquet facility, would need a permit. There is a restaurant, it would need a permit. The cabins would need a permit. The RV parks would need a permit. And he went over with me, what already had permits in place, what was missing and what would be my intended use with the property. So he just kept going on and on, it was so great. And I was very appreciative that he would just give this information to me.
And one thing he told me to do is to go to the county website and under departments go to the clerk’s office. And I would be able to submit a FOIL request where I would be able to come in and look at all of his documentation and reports, anything he had on that property. This is my first time ever doing due diligence on a huge commercial property like this. So it’s always great when you have people that are going to help you and kind of guide you too, in this learning process. So that’ll be another step that I do is, and then meet with him and go over all the documentation in his office, too.

Tony Robinson:
So can you close on this property without remedying the issues that the county has identified? Or is this a complete block for you to being able to close?

Ashley Kehr:
I can still close. The question is now, if we just can’t get permits, if we’re going to have to dig up the infrastructure, if we’re going to have to have new engineering plans drawn, what are the cost of that? And is it still worth purchasing the property? So it’s just going to be reworking the numbers, figuring that out. So we will see what happens. And there’s a couple other things, too, that are kind of holding it up as to if we go forward or not with the property.
But I have to say, I’ve spent some money on this. I’ve hired somebody to do like a pitch deck for me and really help me fine tune the numbers on this and do a deal analysis. I’ve put money into having the maintenance guy taking around and I’m paying attorneys fees. But I am learning so much just through this due diligence period, even just with the syndication process. I’m looking at it as all that money is an opportunity cost that I’m learning. And if it is a bad deal, it’s a bad deal. And I probably will save hundreds of thousands of dollars if I end up not going through with it. Or maybe it is a good deal and I will go through with it. So we’ll see.

Tony Robinson:
I love all the learning that you’re going through because we’re both, in different ways, kind of trying to branch out into more commercial real estate. But I love that you’re kind of going first because you’re letting me know what questions I need to ask. So I’m selfishly asking some of these questions for myself. I’m sure the listeners are getting some value from it, too.

Ashley Kehr:
I hope so. Yeah. And I was thinking of putting together like some kind of document where make like really fine tuning my list of things for due diligence, for a commercial property too, especially a campground.

Tony Robinson:
Yeah. When you’re done with that, just shoot it my way, too.

Ashley Kehr:
Yeah, I will. I’ll share with everyone, of course. If anyone is looking into learning about due diligence for RV parks, so there’s actually the ARVC, American RV and Camp Count … I don’t know what his stands for. But I think it’s arvc.org maybe, or.com. They actually have a due diligence checklist. You pay, I think maybe a hundred bucks and you can become a member and they have a due diligence checklist. And they’re along with a ton of other documents too.

Tony Robinson:
Yeah. That’s a really good piece of advice. And I just Googled, like, is there some kind of motel owners association that I can maybe find some information onto? So there you go, Ash, you just drop in knowledge all the way through this conversation. I appreciate it.

Ashley Kehr:
Yeah.

Tony Robinson:
Well, we gave a lot of good info, but we also actually have a question to answer today, Ashley, right?

Ashley Kehr:
Yeah.

Tony Robinson:
So someone slid in your DMS, so what question do we got teed up for today?

Ashley Kehr:
Actually, this question today is one of my Boot Campers from the Rookie Bootcamp. And this is Carlos. So his question is, “Hi, Ashley, hope all is well. Quick question, do you recommend or is it even possible to use hard money from a different state? Thanks in advance.” So the short answer to this is yes. You can use hard money from different states if the hard money lender can lend in your state.
So a lot of hard money lenders are nationwide, some are only state specific. The hard money lender I’m working with right now, they’re from Florida, I believe, I think it is. But they can lend in New York. I have friends that do hard money lending in Washington. Some can lend across the country, others cannot. One big distinction that I’ve become to learn is I live in a very rural area and I invest in rural areas. A lot of hard money lenders won’t touch rural areas. So that’s where I kind of ran into trouble is that they wanted to see that population and would only invest in markets that were cities. So that’s something else to watch out for. But yes, you can get a hard money lender from a different state to lend to you on a property.

Tony Robinson:
I don’t think I have much to add to that, Ashley, you kind of hit all the pieces. I guess, my only advice to Carlos would be to shop around. Talk to at least a small handful of different lenders. And if this is your first time using hard money … and honestly, you can use this approach for your first time doing anything, really. But if this is your first time using hard money, the first time you talk to that first hard money lender, just let them know like, “Hey, this is my first time using hard money. What do I need to know about the process? What questions should I be asking you?” And just kind of take note of those things that hard money lender talks about.
And then when you go to have that second conversation, you’ll have a better basis of what you should be looking for and what you can compare and kind of contrast. And with each progressive conversation, by the time you talk to five, you’re going to be a pro in like the different hard money lender options that are there because you talk to so many different people about it. So that would be my only additional advice, Carlos, is that as you’re looking for folks, whether or not they lend locally or nationwide. Just try and get a good pool of people that you can kind of choose from, so you can become better educated in what that process looks like.

Ashley Kehr:
And if one says, no, they can’t do that. Doesn’t mean that another one can’t do it either, too. So if you get one no, don’t take that for an answer and keep looking around.

Tony Robinson:
I know this question gets presented to me a lot. It’s just like, “Hey Tony, how do you find a lender?” Even like regular finance, “And how do you find a good bank or this, that, and the other.” And you can go after referrals. So like if you know other investors that are using hard money, ask them what company they’re going with and a lot of times they can point in the right direction. Go on the Bigger Pockets forums, the Bigger Pockets website, in general. There’s a wealth of knowledge and referrals and resources on that website. The Real Estate Rookie Facebook group to start networking with other people and places where other investors are congregating.
And if that doesn’t work, I mean just Google, hard money lender, X, Y, Z, state, and see what pops up there. And again, just make sure you do your due diligence by asking a lot of good questions. But there is not a shortage of potential money out there to fund your next deal. You just got to kind of put in the work to make it happen.

Ashley Kehr:
Well, Tony, I think we answered that question for this week. And if you guys want to be a part of our bootcamps, I have a Rookie Bootcamp that focuses on the acquisition of your first investment property. And Tony has one that is focused on the acquisition of your first short term rental property. So you guys can check those out at biggerpockets.com/rookiewaitlist to be on the wait list for the next release of the boot camps.
Thank you guys so much for joining us today. I’m Ashley at Wealth from Rentals and he’s Tony at Tony J Robinson. You can find us on Instagram. Thank you, and we’ll see you next week.

 

 

Spring is right around the corner, and you may be thinking about making some home improvements. You love your home, but perhaps you want something a little bigger, or a little nicer. A renovation can get you there. At the same time, remodelling certain areas of your current home may lead to a higher value when you’re ready to sell.

While certain renovations can add to the value of your home, this is not always the case. That’s why it is essential to consider how much time and money the remodel will cost, and if the return on investment (ROI) will be worthwhile.

How much can a renovation add to home value? That depends on a number of factors, but here are a few of the best home renovations to consider.

Interior Remodels

When looking to remodel a particular area of your home, the most common spaces to add value are the bathroom and the kitchen. Typically, when completing a kitchen or bathroom remodel, you can anticipate recovering most, if not all, of your investment.

Kitchen remodels can be costly. However, replacing small things such as sinks and countertops won’t break the bank and usually carry 75 to 100 per cent ROI, according to Riverstone Kitchens. When replacing a kitchen countertop, you can expect to spend in the ballpark of $3,000 to $10,000. The new countertop will modernize the room, and you can typically expect your home’s value to increase by a similar amount as you invested.

When looking at the kitchen, the average complete kitchen remodel can costs between $20,000 and $50,000. If you also upgrade your major kitchen appliances, which can cost anywhere from $6,000 to $12,000, you can expect to recover 80 per cent of your investment when you sell. If you aren’t looking to sell right away, a kitchen remodel is an excellent investment that you will enjoy for as long as you remain in this home and then reap the financial rewards in the future.

When it comes to bathrooms, an entire remodel isn’t always feasible, especially if there is only one in the home. However, this is where smaller projects such as replacing light fixtures, countertops or flooring can pay off. Minor upgrades help give the area a clean, modern look while also increasing the value of your home without great expense or inconvenience.

When replacing fixtures such as sinks, showers or tubs, it can be worth your while (and money) to choose energy-efficient options, which can make your home more desirable (and valuable) to certain buyers.

Exterior Additions

On the outside of your home, there are many different areas of improvement where value can be added when you sell. For example, replacing the siding on your home can be a game-changer. By updating the siding of the house with either fibre cement or vinyl siding, not only will you make your home more energy-efficient, but it also reduces home maintenance – this improvement can offer an ROI of approximately 75 per cent (source).

You can add additional value to your home by replacing your windows, according to Mike Holmes’ Make It Right. While you continue to live there, you’ll enjoy savings on your utility bills while also seeing an increase in your home’s value when it comes time to sell. While new windows can be a hefty investment, this is one renovation that is can pay off later, as it is one of the renovations that buyers want in a home. Often homeowners will recoup 100 per cent of the cost of new windows in the home’s selling price.

Finally, one other key feature that many prospective buyers consider when choosing a home is its roof, primarily its age and condition. While a roof replacement can costs anywhere from $4,500 to $25,000, it can be worth the investment. Like other improvements, you can enjoy a new roof while you live in the home and potentially benefit further once you sell your home. You can reasonably expect to recoup about 68 per cent of the total cost when replacing your roof.

Other Factors to Consider Before Renovating

Something to consider before undertaking an extensive renovation project is its purpose. Are you simply looking to spruce up your home, are you looking to flip a house and sell immediately, or is your home already on the market?

Once you are clear on the reason for your renovations, you can act (and invest) accordingly. While extensive renovations tend to be expensive, they can also yield a high ROI, which may benefit those looking to flip their home. Those who have their home on the market may discover that more minor upgrades like new light fixtures and countertops are the right solution.

Regardless of your path, a remodel can increase your home’s market value. Talk to a trusted real estate agent for more advice on buying and selling a home under current market conditions.

 

Sources

Mindy:
Welcome to the Bigger Pockets Money podcast, show number 280, finance Friday edition, where we interview Jeff and talk about real estate investing.

Jeff:
A few years ago, I stumbled upon… I don’t know where on the internet, but FIRE. So I would like to eventually retire early. And I know, before that, you need to get financially independent first. So right now, the first steps, I guess we’re looking towards doing, are becoming financially independent. But not sure exactly if we should do it through stocks necessarily. I mean, we’ve been dabbling in this house hacking, in terms of trying to see what it’s like to be a landlord. And so far, it’s been pretty good. I mean, we think we’ve just been blessed with a really great tenant.

Mindy:
Hello, hello, hello. My name is Mindy Jensen. And with me as always, is my more fun than bubble wrap co-host, Scott Trench.

Scott:
What a popping off introduction, Mindy. Thank you so much.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, going to make big time investments in assets like real estate, or start your own business, we’ll help you reach your financial goals and get money out of the way, so you can launch yourself towards those dreams.

Mindy:
Scott, I’m super excited to talk to Jeff today. He is unsure about his investment strategy, but what we discover, is that he’s actually doing pretty good. He is being conscious of his spending. He is not just spending whatever he wants. I think they track their spending, and they’re doing continuous contributions to their 401ks and being very cognizant about their money, which honestly, is going to be one of the best things you could do, is just be money conscious.

Scott:
Yeah. And the fundamentals are all set up. He’s got no debt. They’re accumulating a healthy amount of cash each year, and it’s, where do I deploy it? Real estate? Stocks? Something else? And I think there’s a lean towards real estate. And the implications of that are, I think really fun to discuss. And I think we had a great discussion and hopefully gave him some things to noodle on today.

Mindy:
He’s got several research opportunities, and lucky for him, he’s got a lot of investment opportunities available to him, again, because he has crushed his fundamentals. He’s really doing a great job. Before we bring in Jeff, my attorney is going to make me tell you that the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott, nor I, nor Bigger Pockets are in the provision of legal tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants, regarding the legal tax and financial implications of any financial decision you contemplate. Jeff is a new dad making great money, and he has his expenses nailed down. He and his wife tested out house hacking, but they aren’t sure if they want to continue now that they’ve got a baby. He’s looking for some general advice about his investment plan. Jeff, welcome to the Bigger Pockets money podcast. I’m so excited to jump into your numbers today.

Jeff:
Thanks for having me. Appreciate it.

Mindy:
So let’s get right to it. What are you making and where does it go?

Jeff:
Well, me and my wife combined, we gross about 176. And I think around net, after taxes and HSA contributions, 401k, I think we are down to about 109.

Scott:
Awesome. So we’re looking at 9000 a month, is that right?

Jeff:
Yep.

Scott:
After tax.

Jeff:
Yep. That’s correct.

Scott:
Great. And any bonuses or other sources of income there?

Jeff:
I don’t necessarily count on it, because I’m still sort of new in my company. Only been here about, going on two years here now. But they do provide us with stocks every once in a while, and we also do get a bonus at the beginning of the year as well.

Scott:
Awesome. And what do you think those would amount to, in an average year?

Jeff:
The bonus, I’d say maybe around 4000 to 5000, somewhere between that. And these stocks, it does seem as though it’s pretty random whenever they gift us those, dependent upon how the company is performing.

Scott:
Great. And then any other income besides the bonus and the base salary?

Jeff:
No. Other than what Mindy mentioned, we do house hack as well. That also, I believe, accounts for around 1350 per month.

Scott:
All right. So we’ve got 9000 a month plus 1350 a month, plus another 10, 15 grand a year, I’ll call it maybe, from the bonus and stocks. Where does all that money go?

Jeff:
Our home, I believe we have a little bit of a high interest rate on our home, but our mortgage is about 2000 a month. Cell phones are about 170. We’re supporting some other family members on a family plan there. Car insurance is about 250. Car gas, we spend a little less than 150 a month. And on food, we spend about a little bit over 500 a month on food. [inaudible 00:05:36] pretty heavily, about 10% of our salary, so that’s about 900 a month. And we also give ourselves a little bit of leeway in the month, for just miscellaneous shopping, for about $200 there. And we just have some subscriptions as well, that I’d say total up to about, a little high there, but around $300 a month in subscriptions altogether. That includes cable, internet, Netflix, Spotify.

Scott:
So there’s a little room there, but it’s a pretty tight budget that you’ve got, you run with all this, from what I’m picking up. And that’s about $5000 in total monthly spending. Is that right?

Jeff:
Give or take. Some months we might be a little bit more heavy, might go up to about 6000. But on average, I’d say it is about 5000, I guess.

Scott:
Okay. So not even factoring in the house hack income or bonuses or whatever, you’re accumulating about three to $4000 per month. Does that sound about right?

Jeff:
Yep.

Scott:
All right. Great. And what do you do with that?

Jeff:
So right now, we’ve just been sort of trying to throw some of it into a high interest savings account, as we’re trying to save for another rental property. Or our first rental property, true rental property. So we save about half of that. And then the rest, we just put into various sinking funds. We have [inaudible 00:07:09] We have a new baby, so we stash money away for him. And miscellaneous car expenses as well, we try to save about four. And also, vacation budget as well. And just the house as well, needs updates every once in a while, so we try to save for that.

Scott:
Across all of those sinking funds, excluding, let’s call it… Well, across all of them, how much cash do you have?

Jeff:
You mean currently, just all saved up right now?

Scott:
Yep.

Jeff:
I believe liquid, we are about around 102,000.

Scott:
Wow.

Mindy:
You have $102,000 in cash?

Jeff:
Yes.

Scott:
Awesome.

Mindy:
Okay.

Jeff:
A good amount of that is for our emergency fund. We have about six months saved up there for emergency fund, and the rest of that is what we’ve been trying to save up for the purchase of a rental property.

Scott:
What other assets do you have, besides that cash?

Jeff:
So we do have, me and my wife, we do invest in our 401ks. Combined, we’re at about 73,000 there. I have an HSA that I’ve been… I just recently started maxing that out last year. I was also contributing to that previously, but that’s at just under 9000. And as I mentioned, my company gives me some stocks in the company, that’s at about 80,000 right now. And I have a small afters tax brokerage, which is about 5000. And I guess it doesn’t really count for me, but I opened up an investment account for my son as well. That’s at about 500 right now.

Scott:
Awesome. And then you have a house. Do you have any other assets besides that?

Jeff:
No. I mean my car, but it’s pretty old. That’s not really worth too much, I guess.

Scott:
What’s the value of your house and the mortgage on it?

Jeff:
So we purchased the house in 2020, for around 330. Right now, we’re at around, I think 311 on what we owe. And if I had to guess on how much is worth, I mean, looking at Redford and Zillow, probably around, a little less than 400,000.

Scott:
Awesome, so I’ll call it 375. So you have 60000 in home equity there. So wait, wait, wait. I guess we covered all the assets there. What are your debts? And let’s start with that mortgage. What’s the mortgage payment, and what’s that comprised of?

Jeff:
The mortgage payment per month is, I think just a little bit over 2000, like $2020. And I mean, in total, as I mentioned, right now it’s at 300,000. I’m sorry, what was the… Can you repeat that?

Scott:
Well, just do you have PMI? Sorry, I’m stealing Mindy’s question that she’s writing in her notes here. But do you have PMI on that, because you put down a very small down payment?

Jeff:
We do. At this point, I really don’t know how much PMI is on it. I’d say it’s about maybe 150, but I haven’t really looked at that in a while.

Scott:
Okay.

Mindy:
Okay. I have a research opportunity, and this is something for you to weigh your pros and cons. Because you have the large cash account, and you mentioned emergency fund of six months. Is that included in that 102,000 in cash? Or is that separate?

Jeff:
That’s included in that.

Mindy:
Okay, okay. What is your PMI? How much longer do you have to go until you pay it off? And you mentioned, you think you have a high interest rate. Do you know what your interest rate is, off the top of your head? Okay. Depending on when you got the mortgage, it could have been during a blip where it was a little high. I’m not sure that you can really refi out of that, where it would make sense. I think you’re going to be right around there right now, but it never hurts to talk to a mortgage broker and just ask them, “Hey, what is the rate right now?” Maybe you could refi out of the PMI. But if you have just a short amount of time before you pay off your PMI, maybe it makes more sense just to pay that down, so you can get rid of that payment. So this is a math opportunity, go in there and run some numbers, and see what it makes… Does it make sense to throw that money at your mortgage, or does it make sense to continue the $150 a month in your PMI?

Jeff:
So I did just log into my mortgage online here, and I do see that my mortgage is about… My PMI on my mortgage is about 150 a month.

Mindy:
Okay. So I would invite you to run some numbers, and see when does that make sense to pay down? Because I believe it… Oh, this is a conventional mortgage, not an FHA mortgage, correct? I should ask that.

Jeff:
That is correct.

Mindy:
Okay, good.

Jeff:
Yes, it is conventional.

Mindy:
With a conventional mortgage, once you have paid down the equivalent of 20% of the purchase price, then you can request that they remove the PMI. And with an FHA mortgage, it never goes away ever, so that is something that I forgot to ask you ahead of time. So I would run the numbers and see when you can pay that down. You could also reach out to them and ask them to reevaluate the value of the home, and sometimes you can get PMI removed that way. There’s a lot of different options available to you. But I mean, why pay 150 bucks if you don’t have to? On the other hand, if you’re going to take that cash, that 102, and buy another property with it, maybe it makes sense to continue paying this 150 on the PMI, because you have another opportunity. Some really amazing property comes up, and you have the opportunity to jump on it. Maybe the 150 PMI is worth continuing paying.

Mindy:
So that’s just a research opportunity for you. In the beginning of the show, when we were talking about what kind of income you have, you casually mentioned that every once in a while, your company gives you company stock. And then you said you have $80,000 in your company stock, which is a little bit more than just a casual mention. I just thought you worked for some random company that’s like, “Here’s one share of stock. Here’s $5.” So, that sounds like a significant gift that they give you. Are you paying taxes on that, or do they just give it to you and you don’t have to pay? I don’t know. Bigger Pocket should start selling stock and then give me some, Scott, so I can figure out… It’s a research opportunity for me.

Jeff:
It would be nice if Scott did that.

Mindy:
Thank you. That’s two, Scott. 66% of the people on this episode-

Scott:
I like that idea.

Mindy:
Agree with me, that we should sell stock and give some to me.

Jeff:
So when they gift us the stocks, they do take out a portion of it. Similar to if it’s a regular paycheck. So when they give it to you, they take out the stock… The taxes for you.

Mindy:
Okay. So what happens if you sell that stock? Are you able to sell that stock? Is it publicly traded?

Jeff:
Yeah, we are publicly traded. There are blackout days where we’re not allowed to trade, but when it’s open season, I guess we’re able to. I’ve yet to dabble in that, just because I thought that… We are a pretty good company, and I do believe in the company, somewhat. Still working here. And I do think that they will continue to grow and become more profitable in the future.

Mindy:
Okay. So I have a couple of friends. One works at a company that gives him stock, and he sells it instantly. And one works at a company that gives him stock, and he holds onto it forever. And I want to have them come on and explain their different opportunities.

Scott:
Well, let me go back a second here and say, so we’ve covered all your assets. We covered your house and your mortgage payment. Do you have any other debts? Is there anything else we need to know, to understand your net worth?

Jeff:
No, there’s no other debts there. I mean, every month, me and my wife, we do use credit cards, but we try to pay those down every month as well.

Scott:
Okay. So you have a small credit card balance that is paid off month to month, which is, in my opinion, not debt. I do the same thing. Okay. So I’ve got a net worth here, somewhere between 300 and $500,000 based on this. Is that about right?

Jeff:
Yeah. I mean, we track our expenses on Mint, and it says we’re at around 370.

Scott:
Perfect. Okay. And so if we break that down into a pie chart, the biggest slice of the pie is cash, right? That’s where you’ve got $102,000 in cash. The second biggest slice of the pie is company stock, to Mindy’s point, it’s $80,000. The third biggest is going to be your retirement accounts, between your 401k and HSA. And then the last will be your house and some small other accounts.

Jeff:
That’s correct.

Scott:
All right. What are your goals? What are you trying to get to?

Jeff:
I mean, a few years ago, I stumbled upon… I don’t know where on the internet, but FIRE. So I would like to eventually retire early. And I know, before that, you need to get financially independent first. So right now, the first steps, I guess we’re looking towards doing, are becoming financially independent. But not sure exactly if we should do it through stocks necessarily. I mean, we’ve been dabbling in this house hacking, in terms of trying to see what it’s like to be a landlord.

Jeff:
And so far, it’s been pretty good. I mean, we think we’ve just been blessed with a really great tenant. But we also did our due diligence, in terms of picking out that great tenant. So we are thinking that we can go ahead and expand to a traditional rental property. But there’s been some hiccups, I guess, in terms of just offers not being accepted. And it’s just been tough out there, trying to find a property. So we’re just, I guess, getting a little defeated, we feel like, in our spirits. And thinking that we should just lean on stocks instead, sometimes. But we do have, in the back of our mind, we do still want to go after real estate. But I guess I’d say the goal is to hopefully retire in about 10 to 15 years, ultimately.

Scott:
How long has the current situation, more or less, been going? You’re saving three to $4000 a month, after tax, maxing out your 401k, all that kind of stuff. How long have you been in this position, where you’ve been accumulating wealth like this?

Jeff:
Well, we’re maxing our HSA. 401k, we’re just contributing, just to get the match from our companies. But we’ve been doing this for about, a little over a year. A little over a year, today.

Scott:
Great. And how old are you?

Jeff:
I just turned 30, a couple months ago.

Scott:
Okay. So you’ve got a very strong position, relative to the amount of time that you’ve been putting into moving towards FIRE with this. You’ve got a great foundation, and if you just sit on what you’re currently doing, you’re going to accumulate 40, $50,000 a year. Three to $4000 per month from your job, plus 1300 a month from the house hack, plus the stock options or the stock grants and the bonuses, right? That’s going to be about, somewhere between 30 and $60,000 per year, I would imagine with that.

Scott:
And that’s going to make a… And then that all gets invested in compounds. So the question here is, you want to retire in 10 to 15 years, you’re going to sustain that, hopefully grow it over the next five, 10 years as your careers both continue to accelerate. And where do I apply the rest of the cash from there? And it comes back to the options of stock versus real estate. And you’re saying that the next move, in the short run, you think is a rental property, but you’re getting hung up on the purchase details. Is that the right framing of the overall situation?

Jeff:
I think so. Yeah. I think that explained it pretty great there.

Scott:
Awesome. Any interest in entrepreneurship or anything like that? Are you pretty happy with the jobs, at this point?

Jeff:
I’m pretty happy with my nine to five right now. The only entrepreneurship I guess I’d really be looking at, would be in real estate. But that’s about it really, I’d say. I guess I don’t have any other ideas really, for entrepreneurship at the moment.

Scott:
So what is your… Walk us through the approach you’ve had with real estate and what your challenge has been.

Jeff:
Well, as I mentioned, I’m in Southern Maryland here, so it’s not exactly as expensive as the DC market, but we do have a little bit of residual as people move outer, to the suburbs here. So it gets a little bit more expensive than the area I’m in, so I’ve been trying to start looking into other markets across the country. But I guess just not being on the ground there, it’s a little bit more difficult to pull the trigger, in terms of, do I want to actually put in an offer on a property there? So by the time, sometimes, we get around to putting in an offer or letting our agent know that we want to put an offer, it’s sometimes already under a contract already. Or we have been outbid, I guess a few times already as well, too.

Scott:
In terms of research, how much time have you put into learning about real estate, in your local market or these other ones?

Jeff:
Well, just in general, I’ve been on Bigger Pocket since about 2017, I’d say. So while I was paying down my debts, my student loan and my car debts, I was just listening to the OG podcast and the rookie podcast, and recently came across you all’s podcast here as well, too. So I’ve been listening and running numbers in my market here, since about 2017. But these other markets, and the one I’m specifically looking at now, I’ve been running numbers there for, I’d say about maybe for four months or so now, at this point.

Scott:
Okay. So you feel like you’ve put in plenty of time and are very comfortable with the concepts of real estate investing, and you’re having trouble now, between these two markets. Walk us through your current market. What’s a good deal look like there.

Jeff:
Well, I guess in the current market, I mean, a three, two. Three bedroom, two bath, I’d say a good deal on that, would probably be… In the Southern Maryland area here, I’d say somewhere around 200,000 or so, that’d be a good deal on that. And if you’re able to fix it up, hopefully you’re able to sell that for probably about 350, closer to 400.

Scott:
And how much would it rent for? Is your goal to sell it or to rent it?

Jeff:
I’d love to hold onto these as rentals, but that would be the ARB on it, if I was trying to do a BRRRR deal there. The rent on that, I believe would be about 2500 a month, to 3000.

Scott:
I mean, sitting here from Denver, those sound like great numbers, right? And it’s funny, because Mindy and I, maybe a year ago, did some sort of meetup in the San Diego market. And a lot of people from San Francisco were attending the San Diego meetup, because San Francisco is way too expensive, and San Diego is much more affordable. And all the San Diego folks were talking about how Denver… San Diego’s way too expensive. And so Denver is way more affordable. And of course, all the Denver folks are saying, Denver is way too expensive, and I need to go to the Midwest or something, because that’s more affordable with all this. So there’s this giant chain reaction of people thinking in those markets. And I think that a lot of people listening, and from my seat, that sounds like a phenomenal potential market, if you believe that appreciation prospects are reasonable there. I mean, those numbers are something that a local investor might be able to work with all day, it seems like. Mindy, what are you thinking?

Mindy:
I’m thinking, when you are naming these numbers, I’m thinking to myself, can you actually find houses at the 200 mark? Because that would also be a really great deal here, but there’s no such thing as a $200,000 house in my market. So if you can find a house for 200,000, put some money… And what are you putting into it? If you find it for 200 and you’re putting 150 into it to get it up to 350, that’s not a good deal either, because that’s a lot of work. Every time you open up a wall, something else goes wrong. You find another thing that needs to be fixed that you didn’t realize needed to be fixed before. So if you’re buying at 200, putting in 50, and now it’s 350, that is a much better deal.

Mindy:
Also, who’s doing the work? That’s the biggest question that I have, because I don’t know about in Maryland, but in Colorado, there’s no contractors. We can’t find anybody. Everybody left during 2008, and they didn’t come back. And we just had a huge fire that burned down 1000 houses, about 20 miles South of me, on December 30th. So all of the rebuilding, is going to… All of the contractors are going to be focusing on that, and it’s going to be even harder to find a contractor. And of course, that’s my area, not your area. But everybody across the nation is saying, “I can’t find a contractor.” So unless you are really good at DIY, or maybe your dad’s a contractor and would love to work on this house for free.

Scott:
And that challenge does not get easier when you go out of state.

Mindy:
Yeah. That challenge doesn’t get easier any place. I mean, that’s one of the number one reasons why Carl and I do so much DIY, is because it is so much easier just to learn a brand new skill, than it is to find somebody to do that at a reasonable price. So on the other hand, if you could get that property at 350 and it’s renting out at 3000, maybe that is… I mean, that’s close to the 1% mark. If it’s already rehabbed, maybe it’s worth it to buy the already rehabbed property. You have a baby, you have a job, you have things taking up your time already. It’s a lot of work to do this DIY. I am very casual when I say, oh, we do these live-in flips, we do all the work ourselves. It’s also a lot of work. And Carl doesn’t have a job, that’s his full-time job, is to work on the house. So I keep forgetting that, because that’s just kind of how our lives have always been.

Scott:
I think that’s a great point. Jeff, what is a property look like in your market, that you don’t have to do a major rehab on? That would be rent ready, with just maybe less than $15,000 of work. Painting.

Jeff:
I think it would be going for around 350 in my market right now. But I guess that was the whole thing, is that after listening to some of these podcasts, I realized that one of the more ideal ways to go about real estate investing, is to find a property you can fix up a little bit, and then eventually be able to put in some sweat equity and take your money back out, so that you can go ahead and lather, rinse, repeat, pretty much. So that you can do it a little bit quicker, so I don’t have to save back up over that long period of time. That was my goal.

Mindy:
The BRRRR method is a really, really awesome method, but I think they don’t focus enough on the… I don’t know which R it is. The rehab part of it, where you are finding somebody to do the work for you. And I mean, do you have any contacts in the remodeling space?

Jeff:
I mean, I guess I do have a few people here. I had to have my… Where I’m renting out in my current home here, I had to fix up a little bit, to get it ready for that. So my local market, I do have a few contacts that have built up. But in this other market that I’m looking in currently, I don’t have anyone who I’ve actually worked with, as of yet now. No.

Mindy:
Okay.

Scott:
So what’s a successful BRRRR here? We still haven’t answered the question of, you buy it for 200K, how much are you going to need to put into a property like that to get the ARV of 350?

Jeff:
I mean, I believe around 50,000 should to be able to get it to that ARV of around 300, 350.

Scott:
Okay. So we have $102,000 in cash, we put down 25%, that’s 50 grand to buy the $200,000 property. We have another 50 grand for the rehab, and then it’s worth 350 at that point. Mortgage is 150 on that, and you can bump that up to probably 250 at that point, and pull it all out. That’s what we’re thinking.

Jeff:
Yeah. That’s right. And I mean, in a perfect world, that’d be great. But as Mindy was mentioning, it’s just so hard to find these properties for that amount. And then too, also to actually get the work done as well, and on time, because I understand timing is a huge factor of it too.

Scott:
Yeah. So your timeline is 10 to 15 years. And remember, you’ve only been sitting on your current cash flow situation for one year, right? And it’s only going to improve if you stay disciplined with the spending on that side of things. So that’s where, let’s zoom out and say, forget about the BRRRR, and you’re just buying the $350,000 property, renting it out for 2500 a month, right? And making a small cash flow there, right? Well, you buy one of those every two years, for the next 6, 7, 8 years. It’s 3, 4, 5 properties with that. You’re probably in a relatively strong position, 10, 15 years down the road, without having to do the rehab component of that.

Scott:
So, that’s what I’m trying to kind of put in there. You know you’re going to accumulate 30 to $60,000. Let’s call it 50, because more often than not, you’re going to get that stock grant or the bonus paid out in most years. So over a 10 year period, that’s $500,000 in cash that you’re going to accumulate. And that’s plenty to buy about $2 million worth of real estate with that, over a 10 year period, right? Even without any BRRRR, that real estate should, on average, appreciate a little bit. Let’s call it 3% per year. And you’re going to amortize a loan. Let’s call it one or 2% per year, for those properties. And then generate, incrementally, more cash flow each time, stacking up, right? So you’re actually going to accumulate more than $500,000 in cash to invest, because the cash flow from these next few properties, will move in there. And so you may find that is an acceptable amount to achieve your FIRE goal, without having to do these rehabs. Although, the BRRRR strategy will help you accelerate that and get the first few faster than what I just described there.

Mindy:
And then if you can keep your expenses low, $2500 per property, times five properties, just because we’re throwing out numbers there, is $12,500 per month in cash flow, when they’re paid off. Since you’re working, you don’t need to have them paid off, if they’re just covering their expenses and they’re appreciating, and you’re making a little bit to cover your CapEx and all of that. I’m not saying, go out and buy a property just because it’s there. Run your numbers and make sure it’s still a good deal, but that’s generating enough income to cover your expenses after you retire.

Mindy:
You listen to the OG podcast and they’re like, “I want to own 500 single family homes.” That sounds like a nightmare. You’d have to get somebody to help you run that, because that’s too much. But you can have just a few properties that generate a lot of income monthly that covers your expenses. And I mean, I’m glossing over taxes and rehab and things like that, but a few properties can generate real income that allows you to become financially independent. What is the definition of financial independence? When your investments cover your monthly expenses. I guess I should look that up.

Scott:
Yeah.

Jeff:
Well, I mean that is my goal right there though. I mean, just to have these investments just on autopilot, able to take care of and bring in enough money every month. Such that, I don’t have to worry about paying my bills, I guess, from my nine to five money.

Scott:
Well, let me ask you this, because you said you’re in 176000 cumulative, in the household income. Do you believe that the prospects at your job are pretty good, for you to substantially increase your salary over the next five to 10 years?

Jeff:
I mean, I think between both me and my wife, there is room for growth in our careers. It is a little difficult for us. I mean, especially now that we have our baby here, to put in the time in order to study, in order to get to raise that income. But we are both dedicated to trying to do that, at least.

Scott:
Well, I guess what I’m asking is, do you sense that your time, your extracurricular time is better spent advancing that career to the next phase? Or managing a BRRRR portfolio, and really getting active in your real estate business? That’s the trade off.

Mindy:
If we were in court, this would be called a leading question, because Scott really thinks that your prospects are better, managing your job than your BRRRR portfolio.

Scott:
I honestly don’t know.

Mindy:
I would agree with him.

Scott:
I honestly don’t know. Yeah, with that.

Jeff:
I’ve never thought about it. I mean, I guess for me personally, I make about 95 right now, per year. But I guess, if I were to go and just focus solely on my career, I think I’d probably be able to push my salary up to around 120 to 130. But at the same time, I mean…

Scott:
Within what time period?

Jeff:
Maybe in about two to three years, possibly.

Scott:
And then on the BRRRR front, you’d be adding, if you pulled off a $200,000 dollar purchase, put $50,000 into it and increase the value to 350, you’d be making $100,000, if you believe that back of the napkin math. And you may be able to have both, but that’s the choice, I think. Because it will consume a tremendous amount of your free time, especially the first few of those BRRRR, I imagine. So that’s going to be, I think the challenge for you, is do I want to do that? Or do I want to focus on the career and do something more passive with the real estate? Like buying the property that’s maybe not turnkey, but is pretty close and is only going to require a small rehab to get it rent and ready. Putting the blinds in, a paint job and carpet.

Jeff:
Yeah. I mean, now that I’m thinking about it, I mean, ideally I think doing both would be great. I mean, I know my wife, she definitely wants to do both. She has amazing ambitions ahead, and further her career. Me, on the other hand, I mean, I definitely want to be like Mindy’s husband, I guess, and just solely focus on the real estate.

Scott:
In Tesla.

Mindy:
[inaudible 00:34:33] So I am going to give you another research opportunity, and invite you to listen to both episode 97, with financial mechanic, and episode 110, with a purple life. Both of these women have, I don’t want to say job hopped, but essentially job hopped their way to a much higher salary. And you can go in and ask your boss for a raise, or you can change jobs, change companies, and get a big bump up. And they tell their story much better than I do. And it’s been a while since we talked to them. I can’t remember the exact specifics, but I know that they both moved across country, which may not be an option for you. But they moved jobs, for sure, to get a bigger increase. And I mean, in some cases, it was a 25% increase.

Mindy:
So I’m not sure what exact industry you and your wife are in, but there’s this great resignation going on, where everybody’s quitting and nobody can find anybody to hire. I would suggest looking into your options and seeing what’s available. You’re getting company stock, maybe the company stock combined with your salary is where you want to stay. But maybe she’s not getting company stock, and she wants to move to your company where she gets company stock, or another company that offers a lot more money. I mean, if the end goal is just to generate as much income as possible, that could be an opportunity to exponentially grow your income.

Jeff:
Yeah. I mean, that is a great option there. I mean, I know early in my career, I definitely changed jobs a little bit, but since having a baby, I thought I should probably try to stay a little bit more stable here.

Mindy:
I wouldn’t suggest both of you leave at the same time, but one of you could leave and go to another job, while the other one stays at their current job. And then once they get set in their job, then the other one leaves and goes to a new job and gets set. And you just kind of hip hop, frog hop each other. Leap frog. That’s the one I’m trying to look for.

Scott:
Yeah. I think you are in a position to do that and take some chances on there, if you think there’s opportunity there. You can live off of just your income, from what I gathered from this, or very close, with that. So that would be another option. For example, if your wife wanted to take some time and manage the BRRRR for example, or get involved in that business, that would be another option. If you thought, “Hey, I’ve got a reasonable shot at getting $100,000 profit on this deal.” That sounds like it’s more than your wife’s current income with that. So even if you just do one per year, that could be an interesting option as well.

Jeff:
Yeah. I mean, just to throw out here as well. I mean, something else we’ve been playing around with also… I mean, I know we throw out a lot of these things here, and we need to sort of stick to just one, but we’ve also considered… I mean, we’re not exactly set here, and loving our home, but we are considering moving to another home and possibly doing a live-in flip to also try to get another property that way as well. Just thinking that, that might be a better option for us possibly.

Mindy:
Wow.

Scott:
That would be a potentially fantastic option.

Mindy:
Let’s talk about that live and flip. Let’s go back to the BRRRR, the R of the BRRRR, the rehab part. Who’s going to be doing the work on the live-in flip?

Jeff:
Well, as I mentioned, I mean, we accumulated some contacts here in the area, as we got our current home up to standards for the renter. So we’re comfortable and confident that we have some competent workers who would be able to do that contracting work for us.

Mindy:
Okay. That is…

Scott:
That instantly becomes my favorite of the next steps for you, if that’s something you’re willing to do, because what would your house hack… Right now, you’re getting 1350 from the house hack?

Jeff:
Yes, that’s correct.

Scott:
What’s the rent when you move out from your section?

Jeff:
I guess it depends on if we were to rent out the entire home all as one, or split it up and just rent it out as an upstairs portion and a basement portion. But if we were to do it all in one, I believe we’d be getting maybe just shy of 3000. Around 29, 28 possibly. But if we were to split it up, we could get upwards of around 35, to possibly even a little bit more, 36,000.

Scott:
Either of those-

Jeff:
I’m sorry. 3600.

Scott:
So I love this potential option. Now let’s think about this, right? So you move out, you instantly have a rental property. That seems, to me, to be cash flow positive. If you believe in the appreciation prospects of your home, you’ve got a great option there. If you buy the next live-in flip, you can probably use another three or 5% down mortgage. And if you buy something in the two to 300,000 range, that’s going to be six to $9000 down payment, maybe six to $15,000 down payment. So you’re not even using most of your cash, you still have it all for the rehab on that property. You can get started right away on that rehab, and you’re going to accelerate your cash flow. Well, let me think about that. What would the mortgage be on your next… On a live-in flip there?

Jeff:
We haven’t gone that far, in terms of the idea of that yet. But I guess we would try to keep it somewhere manageable, around to where we’re at right now. No more than 2300 a month, is what we’d probably try to target.

Scott:
So you’d actually be saving a little less per month, in that case, because you’d assume another $2300 in mortgage, and you’d only increase your rent by maybe a little less than that. But it would still be… But now you have a shot to make several $100,000, tax free, if you’re able to pull off the live-in flip appropriately, and sell it after a two year stint in there. So I really like that potential. If you’re going to go all in, that’s a great approach. It will have lifestyle implications, but Mindy, I think is proof of the power of this particular strategy.

Mindy:
It will have lifestyle implications, but your live-in flip doesn’t have to be the same level of my live-in flip. I moved into an incredibly ugly house, and we’re going to touch every single wall. The main floor plan is the same, we haven’t moved… Well, we’ve adjusted walls, but we haven’t moved walls and done structural changes and things like that. I’ve done other houses where I pop the top. Don’t do that with a baby, that’s a disaster. I speak from experience there. You can do a kitchen from Ikea. I just did a kitchen from Ikea for the very first time. That’s a very inexpensive way to do it. They designed it, so that anybody can do the Ikea kitchen. You can check out my video on the real estate rookie channel, where I walk you through my kitchen. It’s actually really beautiful.

Mindy:
I’m never going to do an Ikea kitchen again, because it’s so time consuming to put all the cabinets together. But I mean, you’ve got two years to do the work. I wouldn’t tackle things like structural issues or mold or meth, for a first live-in flip. But I mean, an ugly house can just be painted and new flooring, and it’s way better. And a kitchen remodel is so much value. A bathroom remodel is so much value. I wouldn’t go around and rework all the walls in the house, but there’s varying levels of a remodel, and you can really make it beautiful for very little effort. And then you can learn new skills too, if you can’t find somebody to do the work for you. Come over to my house, we’re doing everything. I’ll teach you everything.

Scott:
Yeah. I mean, if you back into a picture from three to five years from now, right? If you do the live-in flip, that will probably consume a good chunk of your cash, but you’re well… You have plenty of cash to potentially take on a live-in flip, in my opinion, with this. You can put down a low down payment, again, to preserve that and save it all for the rehab with it. And once you finish that rehab, if you come in under budget, all the remaining cash can go towards the next rental property with it. You’ll be committed to that place for two years, but there’s no reason you couldn’t, if you do a live-in flip, rent out one of the sections of the house, if that house layout made sense for it. Kind of like what you’re currently doing.

Scott:
So you potentially have a lot of options with that strategy. Again, the tax advantages. And you’re able to use the best source of financing, which is your local one. And if you do a live-in flip, I think you’re going to get a lot of confidence for your BRRRR strategy as well, from the firsthand experience in rehabbing that. So I think there’s a lot to like about that, from a strategic choice. Obviously, a lot of people are not willing to do that with a new family, but if you are, I think you should. That would be the first place I’d look.

Mindy:
And talk to your wife and make sure she’s on board with it. You will be living in a construction zone, which is not the most fun. If she’s on board with it, I mean, you can make a lot of money. I’m proof of that. You can make a lot of money with a live-in flip, but it’s also… I mean, it can be a little bit draining. Keep a room that’s untouched, like your master bedroom. Don’t be working on that while you’re working on the other house too, so you have a place to go where you can just decompress and be away from the construction for a little bit.

Jeff:
Yeah. I mean, we’ve had the conversation with it a little bit, but it’s just been in passing and very infrequent. Definitely, we focus a little bit more on the stocks and the traditional rental properties. But I mean, after this conversation here, with you all, I think we’re going to go ahead and try to sit down and have a date about this, and I guess, consider a little bit more.

Scott:
Okay. What other things are you interested in hearing about today? Did we answer all your questions?

Jeff:
I think you all did. But I guess, in terms of, from what you all heard in terms of our goal, would it seem like we’re too liquid, I guess, in our cast that we have right now? We’ve had a conversation with the financial planner in the past, and they mentioned to us that we might be a little too liquid. But we were thinking that, I mean, given our goals of trying to put 25% down on a rental property and just making sure that we maintain our emergency fund, we thought we were pretty good there.

Scott:
I mean, you have to use it at some point. You can’t sit on this pile of cash for the next year and a half, otherwise you’re going to destroy purchasing power. But if you’re going to invest in real estate, I think you’ve got a very appropriate amount of cash, especially if it’s not going to be another house hack or whatever. You’re going to need, in your market, to put down $60,000. And so you’ve got a very… You got a perfect financial position, from a cash perspective, for that pursuit, right? You put down $60,000, you’re left with 40. That’s a comfortable amount of cash to make sure you have a strong emergency reserve, and still have some liquidity for both your personal life and your property. So I think it’s an appropriate amount of cash in your situation, but you need to use it for that purpose, at some point in the next couple of months here. Next six to 12 months.

Mindy:
Yeah, I would agree with Scott. I can see where the financial planners are coming from. “Wow, you have a lot of money in cash.” I mean, you heard me say, “You have $102,000 in cash?” But you have a reason to spend it. I would not be putting that in the stock market right now. Because the stock is so very volatile at this very moment, you could put in 102, and then when it’s time to make a purchase, now it’s 80. I think it’s a terrible idea to put it in the stock market. It’s a great idea to just keep it in, whatever your high yield savings account is, because you’re going to make a purchase. But if you don’t have a real estate agent that you’re working with right now, I would connect with one and have them send you listings, and start looking at these properties and make a solid plan to purchase either a live-in flip.

Mindy:
You’ve lived in your home now for more than a year, so you can move out and rent it out and not pay any cap, because you’ve satisfied the terms of your mortgage, which are usually, you must live in there for 12 months. So now you can move to another property, turn your old one into a rental. If you plan to sell your old one, I would hold onto it for two years so you don’t pay any capital gains taxes when you do sell. But also, be keeping an eye on the market. Maybe some smoking hot deal comes on the market. You’ve got the cash, you’re ready to jump on it as soon as you are ready to jump on it, as soon as you find it.

Scott:
I think all of that is right. One caveat on the stock thing is, it’s a great time to invest in the stock market, if your plan is to pile consistently, year after year, into a long term index fund, and build that as part of your wealth. And I am still investing in the stock market and putting money into the index funds. It is not a good idea to put your excess cash into the stock market, and then later, go to pull it out to invest in real estate, because of the volatility. So it’s fine to have it in cash until you buy the property, rather than sticking it in the stock market until you buy the property, because you don’t want to be subject to, oh, the stock market just dropped 30% and now I can’t buy that place anymore.

Mindy:
Yes. Thank you. The stock market is a great place to invest. It is not a good place to store your money for your down payment. So people are always asking, “Oh, it’s just sitting in this high yield savings account, and it’s only making 0.2%. And I see all this stock market going up.” Well, the stock market could just as easily go down. So yes. Thank you, Scott, for clarifying that. That’s what I meant.

Scott:
Great.

Jeff:
I mean, I’m glad you all brought up, I guess the stock market as well, because I guess that’s something else that we… Or I guess I was looking into, in terms of, as I mentioned earlier, I have hopped jobs a little bit in my past, and I’ve gathered a little bit of money in a few of my 401ks. I was wondering if I should go ahead… Is this a good time to, I guess combine all of those, and to make a Roth IRA, and start contributing to that as well?

Scott:
So do you have 401ks, or do you have… You’re talking about a rollover or a combination. You have several 401ks from old employers?

Jeff:
That’s correct. And I was considering rolling those over into a Roth IRA.

Mindy:
Are any of them Roth 401ks? Or are they pretax 401ks? Because you could roll over [crosstalk 00:49:14] from a 401k into a traditional IRA, and that is not a taxable event. Meaning, you’re just taking it out of this pre-tax account and putting it into this pre-tax account. If you take it from this pretax account and put it into a Roth account, that’s a taxable event, and all the money that you turn into the Roth, is taxed at your current tax rate. So it may be more financially advantageous for you to roll it over to a traditional IRA, or to keep it in the current account if it has really low fees.

Scott:
Yeah. In addition to Mindy’s great points there, if you have multiple 401k accounts and you just want to consolidate them to make life easier for you, that’ll take some paperwork and maybe a little bit of fees, but it may be worthwhile if you’re going to combine them into a 401k through Vanguard or something, and have low fees and be able to put it into an index fund and set it and forget it for a couple of years. I think rolling it over into a Roth IRA, is a tough sell for me right now, for you, because you guys earn a pretty high income already and that will be a taxable event to roll it over. Instead, what I think is… If you want to combine them into one 401k, that’s a good time to talk to a CPA or somebody else, to make sure that you dot all the Is and cross all the Ts on that particular point.

Scott:
But then sit on it, invest it in something you think will grow, and wait. And maybe in 10 or 15 years, when you FIRE and no longer have income, and you’re doing your flip or your BRRRR, you might have a giant loss as a real estate professional that year, and that would be a great time, when you have a taxable loss, to then roll over the $75,000 or whatever it grows to, into the Roth IRA, so you don’t have to pay tax on it. But right now, it’s just going to add more to your tax. I think it could be a very expensive year to do that. If you never think you’re going to have a year where you’re going to have a low income year, which will be unlikely for you as a real estate investor, if you go down that path, then you can do it at some point, and now might be fine. But my instinct would be to leave it untouched and let it grow tax deferred, and wait for an opportunity to come along in downstream years, to then roll it over to the Roth.

Jeff:
Yeah. I mean, there are several… They are just regular 401ks, and I don’t believe they have any high fees associated with them. So I was just considering, just to make life easier, in terms of tracking it on the month to month. Just having it all in one, instead of several smaller accounts.

Scott:
Honestly, I have a couple, and I just leave them. I haven’t bothered to do all that, because there’s just fees associated with it. So if you feel like you’ve got a good provider, you can just leave them and Mint will track them, you got to update the logins every once in a while, but there you go. But if you do want to, that would be fine, I think. I don’t think there would be a major cost, one way or the other, to consolidate them and roll them into just one central place.

Jeff:
Okay.

Scott:
But it definitely would be something to just spend a couple 100 bucks on the CPA or the CFP, to help you make sure you get that.

Mindy:
Yep. I agree with what Scott just said. I had an IRA that was super high fees, and by the time I finally got around to transferring it out, it had eaten up half of my balance in super high fees. And I mean, we’re talking from $1000 to $500. It wasn’t a ton, but it was still, 50% is 50%. And I would’ve preferred to have those $500 in my pocket, instead of somebody else’s. So yeah, if it’s not high fees, I mean… And another thing to look at, is what are your options within that portfolio? Sometimes the options are really terrible.

Jeff:
Yeah. I haven’t even really… Once I left those employers, I haven’t even turned back to really look at those, except for just to check the balance and that’s about it.

Scott:
Yeah. I’d take a look. I’d revisit what’s invested in there. And if you see something, like a one and a half percent fee plus a high fees for each of the funds, probably a good time to roll them over into a better plan. If you see really low fees, probably no need to bother. But that would be… Because you don’t know, my fear is that you’ve got high fee plans with that. That tends to be the case, but hopefully not.

Jeff:
I hope not, but I’ll definitely be doing that as a homework assignment here.

Scott:
Well, great. Keep going. Anything else that we can help you with?

Jeff:
I mean, no, I think that was the bulk of my questions there really. Just trying to, I guess, make sure that I was heading in… I had some good options, I guess, ahead of me, in terms of what we have planned out for FIRE. But I think that’s about it really. So I guess, me and my wife have some conversations to talk about here, in terms of which direction we want to go here from now.

Scott:
Yeah. Well, love it. And just to reiterate, I’m glad you told us, hey, you’ve… It sounds like you went through a period of paying off a lot of debt and getting a strong financial foundation built. And now you’re sitting in this really strong position where you’re accumulating all this cash each year, and you’re accumulating too much cash, you don’t exactly know what to do with it and what the best approach is. That’s a great problem. And if you keep that up for the next five, 10 years, you’re going to amass hundreds of thousands and millions of dollars of wealth with that, and it’s just about where you apply it.

Scott:
And I love how you’re asking that question next. So I think you’re in a really strong position and have a really good trajectory. And if you come back in three years and you just save at the current rate that you’re doing, and apply it to either stocks or boring old real estate, or the BRRRR, or the house, you’re going to be successful any which way. It’s just a matter of degree, which I think is the right question to be asking. So thank you for sharing all this, and for the great discussion today.

Jeff:
Well, I appreciate you all giving me your perspective and reassuring me here, and making sure I feel really good about our position here now.

Mindy:
You are doing fantastic, Jeff. And you will definitely hit your goal, unless some catastrophic thing happens, and then nobody else is going to hit their goal either. But you’re doing awesome. And the 50% savings rate, or almost 50% savings rate, is a huge help. That is something that I don’t think we celebrated enough. So hooray for you, you’re doing wonderful. This was awesome. Thanks, Jeff.

Jeff:
Thank you all.

Mindy:
Okay. Well, talk to you soon. All right. That was Jeff and his fantastic story. And I can see how it could be a little bit daunting to have to decide, which of these amazing options do I pursue? And I think that we had several things for him to consider, that maybe he hadn’t considered, Scott. So I believe that this was very helpful for Jeff. What did you think?

Scott:
Well, I hope it was helpful for Jeff. I learned a lot and enjoyed the discussion. And I think we just can’t stress enough, how the… I’m sure there’s so many people out there that are listening, that if you’ve been listening for a couple years maybe, you’ve gone through this slog, or have paid off the debt and you’re kind of in that position that’s like Jeff’s, where you’re just starting out being able to make these large investments each year. And you’re at the beginning of, what really is a grind for several years with it.

Scott:
And I can’t stress enough, how healthy of a position that is to be in, where all the right things are being done. Incomes strong, credits good, there’s no bad debt, there’s no debt at all, besides the mortgage and the monthly credit card balance. And it’s just a matter of continuing that for a period of time, not having the spending goalposts move, and stacking up those assets. And he can win in any of 10 different directions. The two that we discussed today, being real estate and stocks. But if he went down either of those paths, he’ll become wealthy over the next 10 years. And it’s just a matter of degree and how much, and how much cashflow, depending on how active you want to be in that investment portfolio.

Mindy:
Yeah. I like that he can win in any one of a number of opportunities that he chooses, and he doesn’t have to focus on just one. We talked about real estate, because I think that’s where he had the most questions. And we are Bigger Pockets, so why ask us about other things when you can ask us about real estate? He’s got some great options. And the contractor piece, I think people don’t really… You know what? I should talk to the real estate podcast, because I don’t think they focus enough on how difficult it can be to find a good, reliable contractor.

Mindy:
So they need to focus on that R, maybe do a whole episode on that R and finding contractors. You can find contractors, they are out there. And treating them well, paying them well, paying them quickly, is a great way to get them to come back to you over and over again. But finding them in the first place, can be kind of difficult. But yeah, he’s got a lot of options. I also love his timeline. “Oh, I’d like to be financially independent in 10 or 15 years.” Our history of 279 other episodes, shows that’s a very realistic goal.

Scott:
Absolutely. And I think that, again, if he can just apply the fundamentals, he’ll get there with any one of those strategies.

Mindy:
I agree. Okay. If you are listening to this show, that means that you really like this show. Have you heard your story, or would you like to share your story? Please apply at biggerpockets.com/review to be a guest on our finance Friday episode. We are always looking for more interesting stories to share with our listeners. Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 280 of the Bigger Pockets money podcast, he is Scott Trench, and I am Mindy Jensen, saying be sweet, parakeet. Because I forgot to look that up today. You could also send me suggestions, [email protected]

 

The Windsor housing market has been an impressive specimen to watch throughout the coronavirus pandemic.

For years, Windsor real estate had been in a rough patch, with a stagnating economy, high unemployment and many young people abandoning the border town for the glitz and glamour of Toronto.

However, since the early days of the COVID-19 public health crisis, when a substantial number of families and young professionals ditched life in major urban centres in favour of small towns and rural communities, the Windsor housing market has been booming without any signs of slowing down.

But with interest rates expected to rise over the next 12 months, and some market analysts warning about an abrupt end to the meteoric growth, could the Windsor housing market change its current trajectory?

Considering the hot start to 2022, conditions are still skewed in favour of sellers. In other words, Windsor is still a boomtown on the housing front.

Windsor Housing Market Continues to Soar in 2022

According to the Windsor-Essex County Association of REALTORS®, residential property sales advanced at an annualized rate of 7.1 per cent in January, totalling 466 units to kick off 2022. This represents a new sales record for the Windsor real estate market.

On a historical basis, home sales were 17 per cent above the five-year average and nearly 25 per cent above the decade-long average for the month of January.

Price growth has been quite impressive, too.

In January, the MLS® Home Price Index (HPI) composite benchmark price increased by 29.9 per cent year-over-year, to $517,100. When measuring average prices of homes sold in the Windsor housing market in January, they surged 25.2 per cent year-over-year to an all-time high of $614,482.

Here is the benchmark price for the three primary property types, and its growth compared to the same time a year ago:

• Single-Family: +31.4% to $547,700
• Townhome / Row: +35.4% to $417,300
• Apartment: +21.8% to $343,500

“Crossing over from 2021 to 2022 had no effect on the momentum of sales activity, which remained historically strong in January as sales reached the highest level on record for this month,” said Elica Berry, President of the Windsor-Essex County Association of REALTORS®, in a news release. “On the supply side, the story remains the same – new listings are barely holding at average levels, and overall inventories are down to their lowest point ever. With such tight market conditions, it’s no surprise that we’re seeing benchmark price gains of around 30 per cent year-over-year.”

Windsor has experienced a significantly tight conditions throughout the pandemic boom, which continued in January.

The number of new listings rose 14.3 per cent, with 591 units. Active residential listings plummeted 25.7 per cent, totalling 333 units.

Historically, new listings were 7.3 per cent above the five-year average, and active listings were more than 48 per cent below the five-year average.

Months of inventory, which measures the number of months it would take to exhaust present supply at the current rate of sales activity, was 0.7 at the end of January. This is well below the long-run average of 3.5 months for this time of year.

In the face of rising demand, new housing construction has not kept pace. According to Canada Mortgage and Housing Corporation (CMHC), December saw 104 housing starts in the region, down from 113 at the same time in the previous year.

Overall, in 2021, housing starts in the Windsor housing market reached 1,458, down from 1,555 units in 2020.

Are More People Being Priced Out?

First-time homebuyers and families have been increasingly finding themselves priced out of the broader Canadian real estate market. From coast to coast, rising prices are sidelining Canadians, who are unable to achieve the dream of home ownership.

Windsor is no different.

The Windsor economy is not indicative of current housing conditions. For example, the unemployment rate rose 1.2 per cent in January, to 8.2 per cent, which is slightly below the peak of 8.6 per cent reached in May. How are sky-high prices supported, given the high unemployment rate?

Like other places in the Canadian real estate market, Windsor prices were driven up by out-of-town homebuyers who, with their urban-earned equity, pushed up local housing prices. Historically low-interest rates also allowed many to enter the market close to the start of the meteoric ascent.

But local officials could begin to rein in this red-hot price growth.

In January, Windsor Mayor Drew Dilkens participated in the Ontario mayors summit and received $1.7 million from a $45 million provincial fund.

“It will allow us to undertake a Lean Six Sigma review to make sure that from a process and efficiency standpoint, we are doing everything we can to move development applications through the process as quickly as possible,” Dilkens revealed.

Whether this can limit the tremendous price gains or not remains to be seen. But it should be compelling to see if Windsor can sustain this sizzling start to 2022 throughout the rest of the year.

Sources:

Renovating your home is an enormous undertaking, no matter how lavish or understated your vision. It takes plenty of time and money to bring your dreams to life when it comes to home remodelling. To get the most out of your project, we’ve compiled a list of the key home renovation mistakes to avoid.

7 Home Renovation Mistakes to Avoid

1. Forgetting To Apply for a Building Permit

Before making any structural changes to your home, check with the city or town where you live to find out if your project requires any building permits. Skipping this step could cost you thousands of dollars down the line if you violate a by-law. In some cases, you might even be forced to tear down your work. To learn if building permits are necessary, call or visit your municipality office and ask what the requirements are to proceed with your project.

2. Choosing the Cheapest Contractor

When selecting a contractor for your home renovation, it is important to never go with the first contractor you meet, or the cheapest one. Do your research. Get at least three estimates from various reputable and licensed contractors.

Each estimate should include the project details, permit costs, insurance, general contractor fees, and it should also include a warranty on the work. If the estimate isn’t thorough, it could be that the contractor is merely guessing, or is not qualified to do the job.

As a homeowner, create a list of questions for each contractor you meet with. Think of it as an interview. Some important details to as about are if they are licensed, bonded and insured, what their experience is with similar projects to yours, and the number of years they have been in business. It’s also prudent to get references and call them to discuss their experience with the contractor and the result.

3. Setting an Unreasonable Budget

Home renovations can be costly – there is no skirting around that truth. Before starting any major home renovation, it is essential to budget appropriately and leave room for error. That way, when unexpected issues and expenses come up (and they inevitably will), you will have funds set aside to cover the costs.

Want to maximize the return on your renovation investment? Watch this video for some ideas:

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4. Not Measuring Twice

We’ve all heard  the adage,“measure twice, cut once.” This saying rings true when it comes to home renovations. Supplies, materials and trades are expensive, and the time it takes for delivery and installation can be considerable. Therefore, it is important to always double- and triple-check your work before doing anything permanent.

5. Buying Cheap Supplies

Sometimes people try to cut corners and skimp on some of the materials involved in a home remodel. While you may save money in the short term, the cheaper supplies will need to be replaced sooner and eventually, you’ll pay more in the long run. If you are over budget and need to save, it’s recommended that you don’t skimp on supplies or materials but instead cut out things that won’t greatly impact the overall design of the remodel. For example, money can be saved on cabinet hardware or the kitchen backsplash. These won’t impact the integrity of the remodel, but will help you stay within your budget.

6. Being Too Trendy

Trends are significant, but they are also fleeting. When planning a home renovation, steer clear of anything that is too trendy, especially in bathrooms and kitchens, which can be costly to update when the trends change!

While the trendy remodel may be of interest to you today, when you decide to sell your home in five or 10 years, the value could take a hit due to the room being outdated. You’ll achieve more lasting results by sticking with timeless choices instead of what’s “trending.”

7. Focussing Too Much on DIY

In recent years, the popularity of do-it-yourself home renovations have skyrocketed. There are shows, websites and Youtube channels dedicated to teaching you how to do just about any home renovation you could think of. However, it is important to remember that while the DIY route might be fine for small aesthetic projects, when it comes to the structural integrity of your home, hiring a qualified professional can save you plenty of headaches and money in the long run.

As you navigate the home renovation process, keep these seven tips in mind. By hiring a qualified professional, setting a realistic budget, and using quality supplies, your home remodel can pay dividends when it is time to sell.

Sources:

David Greene: This is the BiggerPockets Podcast show 578.

Rob Abasolo: When I built my tiny house, I was like, “Hey, if I can just build this cool tiny house and breakeven, hey, all good news over here, right?” But then it actually ended up being a cash cow and that was just a bonus for me. And I was like, “This is great. I get this house that I can enjoy, or theoretically, I can enjoy. And it pays for itself, and I make money on it.”

David Greene: What’s going on, everyone? This is David Greene, your host of the BiggerPockets Podcast, here with a very special episode for you today. But before we get into that, I want to let you know that if you are looking for a way to build financial freedom through real estate, if you want to have more control and autonomy over your life, if you value the time that has been given to you and you want to use it in ways that you feel are best for you and your family, this is the place to be. BiggerPockets is a community of over two million members on a journey exactly like the one that you are on, trying to accomplish the same things you are. And our goal here is to bring you as many resources, support, and assistance as we possibly can to help you meet that goal.
One way we do that is with this podcast, where we bring in different guests, where we bring in different speakers, where we bring in different experts to share with you what they did to accomplish exactly what you’re trying to do, the niche, the strategy, the style that they use to get where they’re going. We also have an amazing website with forums where you can ask questions that people will answer, with blog articles where you can read and gain other people’s wisdom and with a lot of support like real estate agents or different support pieces that will help you achieve your goal that you can find through the website. Now, on today’s podcast episode, I am here with my good friend and co-host, Rob Abasolo.

Rob Abasolo: Now, close.

David Greene: Rob Abasolo.

Rob Abasolo: There we go. There we go.

David Greene: That was the thing when Brandon did the show, he always messed up people’s last names and I think that curse has been given to me. I just messed that up.

Rob Abasolo: But hey, for you, I will go by Rob Olasolo. Don’t worry.

David Greene: That’s funny. I wonder Abasolo, why I couldn’t get it. Maybe it’s because the band Abba, it just feels wrong. So, today will be a solo show with Abasolo himself. We are going to be bringing you more episodes where we dive deep into a specific strategy, property niche, giving you more detailed and nuanced information so that you can follow in the footsteps.
And today, I’m being joined by Rob, because he and I are actually partnering on buying short term rentals. And we are going to break down, this can be the first of a three-part series, the process that we are using to put them under contract and manage them. So, today, we’re going to be focusing on choosing a location, a strategy, and a property type specifically for short term rentals. And I couldn’t think of a better person to join me than Rob. Rob, welcome to the show.

Rob Abasolo: Hello, hello, hello. Man, I am really excited to do this, because there’s so many questions and apprehensions I think about getting into short term rentals. It’s all the new rage for a lot of people right now. And this episode, we get into some pretty nitty gritty stuff. I mean, we really talk about the concepts that we abide by ourselves when choosing a market, proximity to locations, availability of vendors, boots on the ground, all that stuff. So, I think people are going to have a pretty good understanding of where to get started after listening to today’s episode.

David Greene: Yeah, and we can get into it right now. Basically, what we’re going to be sharing with everybody is how to choose a location, a strategy, and a property type. So, this is where it starts when you’re trying to say, “Hey, I want to get into short term rentals. What do I do?” This is what Rob and I believe is where you should start. We have a five-step system that we’re going to be sharing with you today. And step number one is going to be looking into the strengths of different markets. So, Rob, in your experience, what is the way that you categorize different markets?

Rob Abasolo: I’d love to tell you all about it, my friend.

David Greene: And now we will get into today’s show. Rob, as you were.

Rob Abasolo: Yeah. So, there are a lot of things for me that I really take into consideration when I’m starting to narrow down my markets. Obviously, there are certain markets that are very vacationer friendly, I suppose you could say. And this would be places like national parks where people are always visiting, a beach town, ski towns, all that stuff. But also, one of the things that I like to consider is not necessarily an up and coming market, but is it a market that is getting a lot of appreciation year over year?
And that’s one of the happy accidents of a lot of my portfolio over the last couple of years for me personally, is a lot of my portfolio has really grown pretty significantly, specifically in the last two years. Not really something that I had anticipated because I was really aiming for just having high cash flowing units, but that’s always like the upside of real estate, right? The appreciation, the compounding interest as you were in the real estate industry.

David Greene: Very nice. So, if I’m hearing you right, you’re looking at, “Why are people visiting the area? And is it likely to appreciate?” So, what are some of the factors that you feel lead to markets appreciating?

Rob Abasolo: Well, one of the things for me is like I think for the most part right now, we’re in a travel surge and so a lot of people are traveling like never before. If you look at a lot of the data, if you look at even Brian Chesky, the CEO of Airbnb, he said that this year alone, they were going to need millions of new hosts in this upcoming year, because they can’t keep up with demand. So, for me, I’m starting to look at very specifically, “Where are people starting to travel the most?” And honestly, it’s like a tried and true method for me, but I’m always looking at national parks, because a lot of people have really been sleeping on national park for a long time, I think.
And it wasn’t really up until the whole pandemic and everything where people stopped really traveling to some of the more known places like the Disney Worlds, right? And they started hopping in their car and driving to the Gatlinburg or the Arches or the Grand Canyon, Yosemite, Zion, Joshua Tree. All of those different places now are seeing such a surge in visitation right now. I think the Smoky Mountains specifically saw one to two million more visitors in the last year than ever before, which is huge.
So, just in general right there, now that the amount of traffic that’s going to those different places means that there’s way more demand and because there’s way more demand, well, now investors are starting to catch on and get into those markets. And that right there starts driving up prices quite a bit.

David Greene: That’s a really good point. So, we typically break it down into three types of places or three types of ways people will visit an area. The first is they get in a plane and fly there, that would probably be Disney World. You’re going to go to Disneyworld. You got to go to Orlando to get there. You’re going to fly there, you need a place to stay, you look for a short term rental. The next would be a place you would drive for a weekend vacation. These would be national parks a lot of the time, like what Rob was mentioning. If you live in Tennessee, you’re going to go to the Smoky Mountains. If you live in Southern California, you’re going to go to Joshua Tree. So, those are places where people also look to find a place to stay while they’re there.
The states might be a little bit shorter, but they’re typically frequented by people who live somewhat close to that, at least within driving proximity. And then the third would be career-related reasons or occupational-related reasons where you’re traveling for work. Maybe you’re a traveling nurse, or you’re going for a business meeting somewhere. You’re going to attend a conference and you have to stay somewhere and you don’t want to stay in a hotel. So, just understanding that from a high level. Which of these areas your tenants are going to be coming from will help?
We also look at, “Is this a market that is stronger at cash flowing right now, or is this a market that we think has future growth?” We think that there’s going to be equity that’s built in both the revenue that comes in in the future, as well as the value of the property itself that you’re going to be buying. So, Rob, what are some of the things you look for in both of those two different strategies to try to maximize your efficiency?

Rob Abasolo: Well, if I’m being honest, when I got started in short term rentals in general, my MO was cashflow. That’s really all I cared about, right? Because a lot of people getting started in short term rentals and just real estate in general, we all want to leave that W-2, so that we can focus on being a real estate investor. And so, for me, my whole strategy was buying a place at a very fair price, right? And then having a huge cash-on-cash return. That was always the gold standard, but really, it hasn’t been until recently, where once you settle that up and once you establish a pretty good lifestyle and you’ve got a good budget and you stick into it, then that’s when appreciation really starts being a lot more important.
So, I’ve really shifted my mentality a little bit. It’s not that I don’t like cash flow, obviously, like we all do. But now I’m really starting to target places that I think have a little bit more appreciation. And so, obviously, you want both. There’s like a balance, right? But for the most part, I’m trying to look at where people are going, right? So, if you keep up with a lot of the trends, obviously, one of the big one right now, a lot of people are leaving California, and they’re going to a bunch of different places. They’re going to Arizona, they’re going to Texas, they’re going to Florida, and so many other places.
So, for me, I started asking myself questions like, “Well, where are they going? And what are the different locations that I can really start to capitalize?” And one of those for me was Arizona. That’s where I started putting a lot of emphasis on it because it’s really close to California, right? That’s one of the logical steps, but obviously, Texas is a really big place too right now. So, for me, I’m looking at not just travel trends, but overall trends in where people are migrating to in and around the US.

David Greene: So, what type of investor should be looking for a more cashflow heavy opportunity, and what type of investor should be looking a little bit more for future growth and appreciation?

Rob Abasolo: The people that are starting out, they’re going to be a lot more focused, I think, on the cash flow side of things and I get it. I have a couple students who they’re so focused on the cash-on-cash metric. Though, obviously, that’s the metric right? But I’m like, “Guys, there’s a little bit more to real estate investing than your cash-on-cash return. There’s tax deductions, there’s appreciation, there’s pay down and all that stuff. So, again, as someone that was there and not too long ago, I understand that cash flow is really important.
So, I think it’s important when you’re first starting out, for a newbie investor to aim for that, because it helps you just build up your amount of cash that you can then put into the next investment. And obviously, there’s an argument for focusing on appreciation first, too. But for me, as someone that did that at the very beginning of their portfolio career, I think that newbie investors are a little bit more prone to take that cash flow side of things.

David Greene: Okay. And probably also, I would say, people that don’t have as much cash, right? Cash flow is more important when you don’t have a lot of cash flow in other parts of your life. But maybe if you’re a little more financially successful or comfortable, that isn’t as important to you. And that’s typically why the wealthier people tend to look at appreciation. I’ll leave a little cherry on top of the sundae of step number one, by saying that the thing that a lot of people don’t consider is the time they’re going to put into the property and the energy they’re going to put into the property. So, that’s another thing.
If you have 90 cash flowing properties, what you’ve done is created another job. You’d have to manage 90 properties. And if you’re not managing it, you’re managing the person who’s managing it. So, there is a point of diminishing returns, where if you just continue chasing after the same type of property, it starts to have a negative effect on your life, and you lose the freedom that you’re trying to gain in the first place by getting these deals. Anything you want to add on that?

Rob Abasolo: Yeah, so I want to turn it back over to you, because this is something you and I have talked about quite a bit in this first deal. And obviously, you’re a big fan of appreciation. So, I’m curious just hearing it from you. When do you think an investor or what kind of investor should really be focusing on appreciation versus cash flow?

David Greene: The first thing I want to address is the belief that appreciation is not guaranteed at speculative, but cash flow is guaranteed. If you’re looking at it from that prism, no matter what I say, you’re just going to throw it off to the side and say, “That’s heresy.” Cash flow is not guaranteed.
If you are an investor who owns a lot of properties and you try to live off the cash flow, you know how difficult it is how many things go wrong that make cash flow wildly inconsiderate or inconsistent, I should say. And then the other thing I’ve noticed is my best cash flowing properties got there through appreciation of the rent. What it was renting for when I bought it is not what it’s renting for now, and that’s why I’m getting a lot more cash flow. So, you have to break yourself out of the cycle of looking at an investment like it’s a one­-year decision. It’s not, it’s a many year decision. And so, if you look at a property and how it’s going to perform over a long period of time, properties that appreciate more are going to make you more money.
Now, it’s not the concept of appreciation that I’m saying that you chase. It’s the area or the asset type that is going to increase in demand. If more people want the type of asset that you own, it will naturally appreciate. And in that sense, it’s not speculative. Buying a very reliable thing that everyone’s going to want is not a speculative move that you’re just, “I hope it appreciates, because if it doesn’t, I’m going to lose it.” You make sure you can afford it. You make sure it cash flows enough so that it can support you, but you don’t get rich off of cash flow. Making 100 or 200 bucks a unit is not going to make anybody wealthy. It’s just a lot of work.
So, I started off chasing after properties only looking at ROI just like everyone else did, because I was in a job and I wanted to have enough cash flow coming in that I could leave the job. It wasn’t the cash flow to make me wealthy. It was the cash flow to support me breaking that connection between needing that job. And once I did and I became a real estate agent, I didn’t have a consistent income that I always knew would be the same. I started to shift a little bit more into our long term investments, delaying gratification.
And then as I became more successful as a real estate agent, I built a team and then I built a loan company and some of the other businesses I have. I shifted even more into delaying gratification. So, maybe a better way than saying appreciation, which has a stigma of speculation, is how long can you delay gratification. If you’re going to get cash flow right off the bat, it’s going to stay that way for the rest of time you own the property, you won’t do as well as if the property becomes a little more desirable every year than it was the year before.

Rob Abasolo: 100%, man. For me, really the big lightbulb moment here was one of my first two Airbnb’s and short term rentals was the house that I bought in LA. I moved to LA. I bought this house, it was really expensive. It was $624,000. And I really spread thin when I bought that I probably shouldn’t have, but I was taking a bit of a risk because I was like, “I think this is going to work out.” So, this house had a little 279 square foot studio apartment under it. And I was like, “If I put this on Airbnb, I think I can make $2,000 to $3,000 a month.” And so, it was like a house hack, if you will. And then I was renting a guest room to my best friend and I was making 800 bucks a month off of that. And then I built a tiny house in my backyard. Now, I make $2,000, $3,000 a month on Airbnb with that as well.
So, I’ve added all that up. Since I’ve owned that house in the past three, four years, the cashflow on it has been between $180,000 to $200,000, which is awesome. That’s nothing to complain about. But when it hit me, I was like “Whoa, that property has doubled in value. It is now worth between $1.25 and $1.3 million.” So just that appreciation right there is three times more than I’ve made in cash flow. And that’s when I was like, “Oh, David, you’re making a lot of sense now, man.”

David Greene: Yeah. And here’s the part that you start to see when you get deeper into investing. When you take that appreciation, that’s three times more than the cash flow and you reinvest it into a different cash flow and property, you increase your cash flow by three times. That is way, way faster than if you were just to save up money and keep buying cash flowing properties to try to build it up to where your cash will be three times as much. So, I don’t like people looking at it like cash flow or appreciation. They work together, right?

Rob Abasolo: Sure.

David Greene: As you get more appreciation, you exchange it for more cash flow. When your cash flow starts to get stagnant because it’s gone up too much, you can then sell it and you can upgrade. This is how real estate is designed. So, typically, when you start off, you’re asking yourself, “Am I going to buy a property that skews more towards cash flow or skew more towards appreciation?” But your portfolio shouldn’t be determined by only one thing. So, that being said, let’s move on to number two, which might be the most important part of our entire process. Step two is choosing your location, that location that’s right for you individually. We’ve got quite a few steps here. So, I’m going to let you run with that, Rob. And you can just tap me in for backup when you think you need it.

Rob Abasolo: When I need to breathe a little bit. Sure thing, man. Well, okay, so obviously, the world is your oyster when you want to get started in Airbnb. I’m genuinely a believer that pretty much any market, you’ll find success in the short term rental industry. But when you’re starting out, obviously, it’s a little bit more daunting to just throw a dart at the US map, right, and just pick something that’s long distance. So, for me, what I typically preach to a lot of people is I want to see people starting out if it’s possible in their backyard. Now, I don’t necessarily mean literally in your backyard, although I did actually literally start in my backyard.
But what I mean by this is I want people to be two to three hours away from the actual place that they’re investing. And there are a couple reasons for that. Two to three hours away, when you’re at home and you’re working a full time job, that’s still enough for you to get to that property if something happens. If there’s something major or catastrophic, if there’s a fire, if there’s a roof leak, or whatever there is, you can feasibly get there in a night. And then also, during the weekend, you could also just go and visit and you can go and spruce things up. You can go and replace furniture. You can go and do touch up cleanups, all that stuff, right? So, I think there’s a lot of benefits to starting in your backyard, because you’re in close proximity.
So, I think it makes you feel better. It feels a little less risky that you can actually go and get there. Whereas I still think it’s far enough to where you’re not going to be dependent on having to go there. And I’ll give you an example of what I mean by this. When I first started on Airbnb, I was doing what’s called rental arbitrage and I lived 10 minutes away from the apartment that I was subleasing on Airbnb. And every time something small happened, I would go. I felt obliged to go, I felt like I had to go and take care of it. If it was battery, by the way, it was always batteries. But if those batteries dying in the remote, I would go and replace it. If it was the thermostat wasn’t working, I would go and click it up or down for the guests or whatever it is.
Then you just feel this certain obligation to say like, “Well, it’s not worth me hiring someone for 20 bucks off a TaskRabbit to go and figure this out.” But obviously, that’s not going to be as feasible. My other property in Joshua Tree, two and a half hours away from LA. It’s not really feasible or realistic for me to go and do that. It forces me to take the crutch away and let my team step in.

David Greene: Jordan Peterson has a quote that at one point I thought was offensive. But then as I listened to it more, it made more sense. And as a parent, you might understand this. He said, “Never let your kids do something that will make you dislike them.” So, his argument was that when your children are acting in a certain way that just really, really bothers you and you start to despise them, what we think we’re doing is loving our kids by holding it inside. But what happens is that resentment leaks out, they sense it and then they’re damaged by the fact that mom or dad does not like me. There must be something wrong with me. It’s a much more big problem that if you step in and say, “Stop banging that pot, I’m taking it away from you,” right?
That little momentary stigma that the kid feels from getting admonished is better than the resentment that flows out of, “I just can’t stand you because you keep doing this thing.” And I feel like that translates pretty nice into real estate, because what I’ve learned is that if I do any of the job that I don’t like, I take it out passive aggressively on real estate. I have a relationship with real estate, okay? So, if I have to do too many of the things that cause David to be burned out and take away my energy, which for me would be driving to the house to change out the batteries or the thermostat or dealing with like minutiae is what I would call them, those are just challenging for me.
I will subconsciously stop putting my time into real estate. I will stop respecting it, I will stop cherishing it, I will not honor that relationship like I should. Whereas if I say, “This is really bugging me, I need to find someone else to do it,” my relationship gets better. I treat it better. I’m happier with real estate, and then I put more into it. So, I just want to encourage everybody, if you like doing those things, keep doing them.
Brandon and I have gone back and forth, and the ultimate conclusion I came to is there certain things he likes doing in his house, right? He likes fixing stuff. If it energizes you, do it, because you’re going to want to buy more real estate. But if you don’t like doing that stuff like me, hire the person on TaskRabbit and let them do it. Because that energizes me and then I will buy more real estate.

Rob Abasolo: Man, that’s so true. And also, let me just say, I didn’t even have to tap you in, man. That was very seamless. That was a good back and forth there, but it’s so true, man. That first apartment was really a life changing apartment for me. It really paved the way for financial freedom, but I’ve got PTSD. I got PTSD from going there and my guest saying the remote’s not working. And I’m like, “Are you sure?” And they were like, “Yes, I’m sure.” And then I went, I was like, “Well, it seems to be working.” And they said, “Oh, I was using the other remote.” And I was like, “Yeah.” So, there’s so many moments like that that happened. And it’s because I live so close to it that I just felt beholden to that apartment.
But the moment I started really assembling my team and my Airbnb Avengers, as we’ll call it, when we’ll get to that later, but the moment I started doing that and not being so in the weeds of my business, that was the moment that I was like, “Oh, okay, so it’s not a grind, actually. It’s actually really quite fun. It’s a puzzle that you have to figure out.” So, I think, for me, being two to three hours away is that distance where you’re like, “Okay, I’m not going to drive there after work. I’m not going to go and fix that. I’m going to just find someone that can help me with that.” So that’s why I really dive headfirst into if you can be close, that’s great. But obviously, there are going to be instances where investing long distance makes sense.

David Greene: What are some of those instances? Let’s move on to number two there. When would you see that as making sense?

Rob Abasolo: Yeah. So, this would be in an instance where, for example, there are a lot of turnkey markets out there. And what I mean by turnkey is you buy the property and it already comes fully furnished. So, a couple examples of this would be the Smoky Mountains, Blue Ridge, Destin, a lot of beach places that are like very popular STR locations. Typically, people are selling those Airbnb’s as a turnkey rental. And so, really, you do have to fly in to go and make sure that the place is actually what you bought, and the furniture is nice. And you’ll have to go and spruce the place up and replace furniture here and there, but it’s so much easier.
And I mean, so much easier than buying an empty house in the middle of wherever, Chattanooga, Tennessee, driving out there, going, finding all the furniture places, setting it up. I mean, that’s a real hustle. That’s a real grind to go out and furnish a long distance unit. Because A, if you’re like me, I buy in areas where there are national parks, there aren’t necessarily furniture stores or anything like that around. So, it’s like very tough to find furniture for different Airbnb. So, I think if you’re looking to start long distance and you don’t necessarily want to start close to you, I would try to identify some of those turnkey markets where short term rentals are encouraged, they’re welcome, they feed the economy.
Then, like I said, the Smoky Mountains is a really great one that would do that. Another instance in which I might consider investing in a long distance place, especially if I’m just starting out, is if we have what we call boots on the ground. And that just would mean that you have some connection or someone that you know in the city that can help you out if stuff happens, right?
And so, this would mean if you have an aunt or an uncle that lives in the same city or a best friend or an old college roommate that you keep up with, anything like that, where you can say, “Hey, I’m thinking about opening up this Airbnb in Akron, Ohio, for example. I’ll need someone to help me occasionally I’ll try not to call you, but would you be interested in helping me out anytime that someone burns down my house or something like that?” And usually, if I have some connection like that, that immediately mitigates a lot of risk for me, because I know that I can call on someone if anything ever happens. So, I think that’s when you should start maybe considering doing the long distance thing, although it’s not particularly necessary.

David Greene: That’s actually in long distance real estate investing, that concept. I call it a competitive advantage, or sometimes we call it an unfair advantage. But it’s when you have a person local that has a skill set or at least that you can trust that gives you an advantage over the other people that are trying to buy in that market. When I wrote that book, a lot of people’s questions were, “How do I find the market that has the highest ROI? I just want to know the best one and I’ll figure it out from there.”
What I learned at least from the way I did it was that if you’re trying to find the best market, you end up just following the crowd and you’re always in a super competitive area that everybody else is trying to get into. I could go back over the 10 years I’ve been investing and remember when Phoenix was the hot market and then it moved into Memphis was the hot market and then Atlanta became the hot market and then it moved into Tennessee and Nashville. Everyone just followed the same. Huntsville, Alabama had its moment. Madison, Wisconsin had its moment Austin, Texas had its moment.
Now, South Florida is having its moment. It’s super challenging when you just throw yourself in the mix of every other investor, that’s all converging on these market like locusts at one time. Instead, what I recommend people do is find the market that you could be the most successful in and make it work there, instead of following the crowd. So, that’s definitely something I’d encourage people to do. Now, we also have four categories that we consider when looking into short term rentals. You want to go over those? You mentioned them briefly, but let’s cover them again before we move on.

Rob Abasolo: Yeah, let’s officially state the POV here. So, four categories here. And again, there’s no right or wrong here, but this is just a very concise way of explaining where in the country I’m looking at. It helps me locate, it sets some beginning parameters, right? So, number one is going to be national parks. Number two is going to be state parks. Number three is going to be eclectic towns. And number four is going to be vacation destinations. So, what I mean by all of this here would be national parks, I think we know what that is. It would be like your Grand Canyon, Smoky Mountains, Zion, Yosemite, all that stuff. State parks would be smaller, but they still receive a decent amount of visitation from the actual state itself. And then we get into eclectic towns.
And so, what I mean by eclectic towns is small towns that have some draw or some reason that people go to. So, if you think of places like outside of San Diego, there’s an area called Julian. A lot of people love going there, apple picking. They’ve got good pies. There’s just a draw. People love it. It’s an adorable little town, right? Waco in between Austin and Dallas, that’s in between two very big cities. It has been popularized by-

David Greene: Chip and Joanna Gaines. Yeah.

Rob Abasolo: Yeah, exactly. So, it’s a pitstop in between those two cities. Eureka Springs is another one that’s like there’s cute shops and everywhere. One shop is vintage Italian sodas, and another one’s like vintage candy, that stuff.

David Greene: Yeah, we’ve got a couple out here in California. I think Copperopolis is one. They have this old Western fake city where you can go in through swinging doors. And I remember as a kid, we’d go there and they’d be rock candy, and they had these fake horses you could sit on. So, there are people that do like to visit those places. I think like a little bonus, quick tip we should throw in here is look for places that kids want to go. As I grow, if I ever move out of real estate, what I will get into is either selling something involved with nostalgia or selling something that kids want, because I believe those are the two things that drive people to make decisions more than anything else.
When the first Transformers movie was shown, you might have been too young to remember that, but I remember seeing that big Transformer leg come down and be like, “Oh, my God, they are doing Transformers.” And I knew at that point, I would pay anything to go see it because of the nostalgia factor. And then the other one is kids. Kids just beat down their parent’s will just asking for the same thing over and over and over. And when you finally let a kid have what they want, everybody feels so good. That finding properties in areas near where kids want to visit. That’s why Disney World’s so popular, Disneyland, some of these things. So, I definitely think those are things to consider. Moving on, the next thing you have is a place that you would want to visit occasionally. Tell me more about why you think that’s a good factor.

Rob Abasolo: So, it’s very important to have some draw or something that you like about a market, A, because you have to go there. You’re going to have to go there and actually visit it at least once or twice, every couple of years, right? And so, you want to have a reason to go there. But ideally, for me, if you follow a lot of the trends and a lot of the investors in this space, a lot of them aren’t necessarily full time investors, they are just people that want a short term rental. Maybe they can’t justify the expense of a second home, right? And then they’ll go through a second home or vacation home loan and put down 10% to get into a property. And they’ll be there for maybe one or two months a year, but they can’t justify paying for the other 10 months, right?
And so, these are the types of investors that are really getting into the game right now. And so, if you’re buying a second home, because you want to use it, ideally, aside from the actual investment part of it, it is nice if you could actually go visit, stay, and enjoy it as a guest. I don’t do this enough admittedly. When I built my tiny house in Joshua Tree, I was like, “I’ve built the ultimate tiny house. I’m going to go and stay there all the time.” And I really only stayed there once or twice. It’s fully booked. I love it. It’s really great. I have kids now so a tiny house makes it a little bit tougher. But if I could, I would.
I have probably 14 Airbnb’s or so. There might be 15 right now, but we have 14. I’ve visited seven of them. The other seven, I still actually haven’t visited. They are long distance. But I have aspirations too. I’ve picked out locations that I was like, “I would like to go here one day,” because I hear good things and I want the option to go and enjoy my own property.

David Greene: Here’s another reason that I like that. I feel like it mitigates risk. Now, hear me out. If you’re buying a property solely for cash flow, you’re only buying a business, you’re putting a lot of pressure on that property and yourself to perform having maximum vacancy, and then you’re going to spend a lot of time trying to find the perfect property. Then when you find the right one, you’re going to have to spend a lot of money to fix it up. It’s just making your job hard the higher your expectations are, what you expect of that. I’m going back to the real estate relationships thing. If you have very high expectations of what you need from a partner, it’s going to be very difficult to find someone that can meet those needs.
If you’re a relatively stable person that just want someone to share life with, it’s not that much pressure on your partner, and they’re going to perform better, right? I don’t like putting a lot of pressure on real estate to change our lives, to meet all of our needs. And that’s when people have the problem when they’re saying, “I want to property, the 40% cash-on-cash return, 70% of ARV in gray day schools,” and they go through this list that they’re never going to find. If you’re finding a property that you want to use and then the fact you can rent it out at the same time is like… I can’t think of the word I’m trying to look at here, but basically handle some of the responsibility for your mortgage. There’s a lot less pressure that’s on you, right?
You’re going to buy it because you want to use it and then you’re going to have the mortgage offset by other people. So, it’s like a super cheap vacation home or maybe it even pays for itself, even if it just broke even. Over 30 years of it going up in value and you paying off that mortgage, you’re going to make a buttload of money, even if it never cash flowed. And so, I like maybe having at least one property your first property, being that vacation home. You can get 10% down if it’s a vacation home. You’re going to use it, you can have family events there. And then when you’re not using it, you can rent it out.
That’s my ultimate goal for what I’m doing for myself is to have probably 10 to 15 short term rentals throughout the country in all the places that I want to live. And I will just bounce around from place to place wherever I want to go. When I’m not using it, I rent it out. I mean, that’s one of the most beautiful things about the short term model is you have that flexibility. It’s hard when you try to take that model and force it to only be a cash flowing cow. That also gives you passive income. Would you agree?

Rob Abasolo: Oh, yeah, 100%. When I built my tiny house, I was like, “Hey, if I can just build this cool, tiny house and breakeven, hey, all good news over here, right?” But then it actually ended up being a cash cow and that was just a bonus for me. And I was like, “This is great. I get this house that I can enjoy, or theoretically I can enjoy. And it pays for itself and I make money on it.” But I agree. I think that if you’re getting into it and you just want to step into it, you want to de-risk it a bit. Buying it as a second home, where it breaks even, it’s still a great investment over 30 years. There’s no question about it.

David Greene: And you will develop the skills to get cash cows like what Rob and I are looking at now, but you can’t do that in your very first try. It just doesn’t make sense. You have to lower your own barrier to entry. All right, next one, we have proximity to you. We’ve covered that. I like this next one, availability of vendors. Can you briefly cover why having available vendors close to a short term rental is so important?

Rob Abasolo: Yes. So, you’re not going to be the one that’s actually necessarily managing it. I mean, there’s a couple of schools of thoughts here. I’m big into self-managing. So, let me clarify what I mean. The person that’s actually going to be managing your property for the most part is going to be your cleaner. They’re going to be the ones that are reporting back to you. They’re going to say, “Hey, Rob, your toilet wax ring is not good. It’s leaking. Your sink is leaking, your light bulbs are out,” whatever, right? So, they are effectively like a pseudo property manager, but you still need to be in a market where there are cleaners available. You need to be in a market that’s relatively populated.
That’s something that I look at quite a bit is like, “Can I find a handyman? Can I find a contractor? Can I find a pool service, a lawn service, a cleaner?” To me, this is so important, because these are the people that are going to be managing your house, maintaining it, making sure that it’s up to par. And if you have a tough time finding a cleaner or that person, it’s a really tough for you to ever actually run a business, because what’s going to happen whenever something breaks? You can’t fly there, right?

David Greene: There’s two components that I see to a business. One is the customers, and they have to be the focus. And that would be that your tenants that are going to rent it from you in this case. The other would be your employees. And that would be your handyman, your cleaners, your boots on the ground, people that are needed. You got to have both components, would you agree, to make a business work?

Rob Abasolo: Oh, yeah, especially in the short term rental space.

David Greene: Okay, awesome. So, the next one we have is boots on the ground. We’ve covered a little bit earlier as to why that helps having a competitive advantage. So, we’ve got five steps to go. I’m trying to get through here. I like your statement here of how competitive is the market. Rob, you and I look at this very frequently. Hey, how competitive is this market? We want to try to go where other people aren’t. I think I probably covered that a little bit earlier as well. Talking about how you don’t want to follow the flock. The next one would be year-over-year projections of the market. Can you share what you’re looking for and why we are looking for those things?

Rob Abasolo: So, this goes back to the cash flow versus appreciation conversation that we had earlier. But theoretically, it’s similar to what you’re saying with like long term investing. You want your rents to theoretically follow appreciation or you want to raise rents slowly over 30 years. Same thing is really going to be true for short term rentals. And I just want to make sure that year over year that I’m making more money. Now right now in 2022, it’s going to be a little tough to follow up 2020 and 2021 because of the COVID spikes that we had and all the travel surging, but theoretically, that’s going to be the case for us for the next couple of years. People are going to just be traveling more and more and more, because we’ve just realized as a nation that, oh, we miss traveling.
Let’s get back to the ancient art of migrating across the country, if you will. So, I want to see a property that I buy is going to make more money from a gross revenue standpoint, and there are a couple tools that you can use for this. I use the AirDNA has a little chart in there that will show you year over year, I think, over the past two years, how much money a certain property has made and how much it’s growing every single month. And so, that’s been a really helpful way for me to analyze properties.

David Greene: Beautiful, and we do look at that. It actually is very helpful, especially when we’re trying to take away to take two properties and make them apples to apples. I find that in my investing career, much of what I’m doing is that as I’m saying, “All right, we have all these options. How do we find a way to reduce all the variables and try to draw them down to where they have all these things in common?” And from that point, see which one stands out as the best. And that’s where some of those tools help. The last one that we have here under choosing your location is going to be seasonality. Can you tell me what you mean by that?

Rob Abasolo: Certain markets have highs and lows. A really good example of this would be a lot of destination markets, right? When I say vacation destinations, I was talking about things like beach towns, lake towns, ski towns, mountain towns, everything in between those, right? And so, if you look at a beach town, for example, one of the markets I was recently looking at was Destin. Destin is on fire basically from March to August, but then it really slows down pretty significantly, especially November through March for the most part.
And so, if you’re a new investor, seasonality is something that I really want you to keep in mind, because it happens all the time, where I’ll have a student buys a really great Airbnb that comes out, but they close in January in the Smoky Mountains, for example. And then they’re like, “Rob, the bookings aren’t coming. Did I make a bad investment? What do I do? What do I do?” And I’m like, “No, no, it’s fine. You just bought a place in the Smoky Mountains in January when no one is traveling to the Smoky Mountains.”
And so, I really encourage people to look at what the seasonality is and really predict how much they’re going to make every single month and say, “Okay, if January and February are slow months, let’s take advantage of that. Let’s use that as an opportunity to renovate our cabin or whatever we have it.” We’re actually doing that right now in Gatlinburg.
We shut down our listing for January, February, and March. And we’re just going to do all of our renovations now. I mean, we could have made some money in March, but not as much. As I said, “Well, hey, since it’s going to be a dead zone anyways, why don’t we go ahead and get in there remodel the kitchen, change out floors, paint everything?” So, my partner’s like, “Okay, sounds good.” And then that way, once the hot season comes.

David Greene: It’s going to be even hotter.

Rob Abasolo: Yeah, exactly. We’re going to make more money. So, I think that’s an important thing to keep in mind that just so you’re not stressing out when you’re not booking.

David Greene: Yes, two things I’ll add on that. It’s very similar in other businesses to have similar patterns. So, in my real estate sales business, spring and summer is what I call the Hunger Games, especially in the Bay Area. It is brutal. People are sacrificing their grandmothers to get into a property. It’s so, so hard to build and buy. So, we are all hands on deck. Every person that we have, we’re trying to keep this thing going and go as far as we can. Then wintertime comes and it becomes a much slower, much more manageable, we spend more time regenerating. That’s always where I work on improving the business. That’s where we get better systems, better training, better curriculum. I get most of my book writing done at that time.
I pour into the employees at that time, so that they are ready when springtime comes and summertime comes to be better. So, that’s a great business tip that you just shared. The other is when you’re buying a property that will have fluctuations and seasonality, it’s only a problem if you’re pulling out cash flow. This is actually a cash flow problem. And when I say cash flow, I’m not meaning the ROI on your return. I mean, literally, like a business, how cash flows in and out. Construction companies have this problem where they have profitable businesses, but at any given time, they might have all their cash out on a project and then they can’t pay their guys. They can’t be payrolled. This happens all the time.
Learning to manage your cash flow, money coming in and out of your bank account is crucial if you’re going to be in the short term rental game, because you will have seasons that are very slow and seasons that are red hot. What I find humans tend to do is take a red hot time and say, “That’s normal. That’s what I expect all the time.” And then when they have a normal month, they say, “Well, this is terrible. And things aren’t going well.” Not so. This is why when we evaluate short term rentals, we always use the metric of yearly revenue, not monthly revenue like a long term rental where the lease specifies the same amount, is paid every single month. So, be aware of that, and then seasonality won’t be a problem.
Okay, moving on to step three here, location is probably the most important one to start with and that’s why we spent so much time covering that, but this next one is important too. And this is strategy, and they’ve chosen their location. Now they want to find a strategy within that location. What are some of the things they should be looking at?

Rob Abasolo: Well, when you’re starting out, you really aren’t necessarily going to be the best manager of your money. And so, I think this is where we need to really get into the nitty gritty of cash flow. How do we want to spend that cash? Do we want to take a paycheck from this? Do we want to let it stack up? Do we want to reinvest it in? For a lot of new investors, I really do encourage most Airbnb investors not to spend their money for the first year, because it’s a learning process. And it’s the ebbs and flows of seasonality and you’re still figuring out how much a property is going to make.
And so, if for example, seasonality, if you’re not really attuned to this thing and you’re like, “Oh, hey, man, I just made 15 grand last month in Destin,” and then you spend it all in the next month, you don’t make any money, then now you still have to pay all of your bills and everything like that. So, I think you need to really start diving into, “How do you want to actually allot your money? Do you want to keep it invested anywhere? Do you want to keep it in your bank account? Do you want to have reserves?” What about you, Dave? Are you usually putting any reserves on any of the types of properties that you require?

David Greene: I started that way, then I got so many properties. Literally, the bookkeeping of trying to keep up with that cost more money than it was worth to do. So, I moved from a specific strategy of X amount of money for every property into a general principle. So, now the way that I have things set up is that all the cash flow from every property is going to go into the same account. And out of that account is where I make repairs on specific properties. And then throughout the year, I track which properties are profitable and which ones are not through the accounting. And I trim off the ones that aren’t doing well. And I 1031 or I sell a move into bigger areas.
And the ones that are doing well, I ask myself, “How can I make it do better?” So, you and I have talked about this many, many times. Hey, this property here would do this much money at this time if we first buy it. Let’s look into pursuing this one, make it profitable, keep buying. And then when we had a slow season, this is that pattern where you’re talking about, fluctuations. Let’s say that there’s nothing to buy, because everyone knows that’s going on right now. It’s hard to get deals, right? That’s when we put our time towards, “Well, let’s take what we already have and make it work better.” Where could we invest into it, rehab it, do the backyard, do some landscaping, add some fun things to it?
We talked about ideas of adding a car that someone can rent on tour when they go there. That’s where the creative stuff comes out? How do we make what we already have better? That’s how I run my portfolio. When it’s green light time to buy, that’s the most important thing is you do everything you can to put stuff in contract and grow. And when you can’t do that, just like with my real estate team, that’s where I focus on improving the efficiency of my agents, I do the same thing with my properties.

Rob Abasolo: That makes sense, because all of that basically comes to time, right? It’s all time management to get into that, which I think is actually our next point here. And it’s like, how much time can you actually commit to your short term rental? And I think this is a question that you really have to decide pretty early on. Because if you’re working a really busy job and like in my past career, advertising, it’s very common to work 60-, 70-, 80-hour weeks. If you’re doing that, you probably don’t want to go buy a farm on 40 acres that has a couple campsites, right?
This is a deal that you and I talked about. There’s a house that had eight different cabins on it. It was pumping out a net of $200, $250K. You and I had to have the hard conversation of, “Can we actually give the time to this property? Even though it is a cash cow, can we actually manage eight units at once?” And I think we decided, let’s try to find an equally expensive property, maybe it’ll be a little bit less of a return, but we’ll spend less time in the weeds of that.

David Greene: That’s a really good example. I thought about that earlier, when you were talking on the same topic is if you’re only looking at ROI, how much money will it generate? What’s my return going to be? The decision becomes very easy. You buy that eight-cabin property that’s way off in the middle of nowhere and it’s very hard to find vendors. It’s very hard to get boots on the ground, the cleaners are going to be really difficult, getting someone to go out there and look at the septic tanks, all of that stuff. You don’t think about it. You’re just like, “Oh, that’s the highest cash-on-cash return. All systems go, let’s do it.”
And then you get married to that property and you’re unhappy with your relationship with real estate, because it’s not treating you very well. It’s demanding, it’s nagging, constantly fix me, fix me, fix me, pay attention to me, I need something. And you’re like, “Why did I ever do this? I hate it.” That’s not what you want, right? So, we just had the wisdom to look at that and weigh all the factors and recognize, “Hey, if we spent less time but get a smaller return somewhere else, we’ll use that time to make much more money than it would have been spent fixing all the issues that are going to come from that one property.”

Rob Abasolo: Yeah, man, I brought you that property. And basically, you shook me and you’re like, “Rob, your time is worth more, man.” And I was like, “You’re right.”

David Greene: We did have a moment, didn’t we? I have spoken to you like with Goodwill Hunting. Remember that? The Matt Damon and Robin Williams. It’s not your fault. It’s not your fault. I am worth more than that. That was a good talk. I appreciate you sharing that.

Rob Abasolo: And then we put it on YouTube and then recite it at lunch. We’ve rehearsed it, man. It’s great. Aside from that, I mean, that’s on the extreme side of it. But I do want people to really sit down and say, “All right, how much time am I willing to put into managing a property?” Because if you say, “I don’t have any time,” it’s really going to dictate your strategy, because that means that you then have to go and give it to a property manager. But if you have 5 to 10 hours a week, then it’s very feasible for you to get in and manage it yourself.

David Greene: And there was a time that people got used to, 2010 through 2016, 2017 or so, where you can just buy a property that was a long term rental. And one of the benefits of that was they take less time. Property manager runs it, you answer a couple emails. There’s not much to do once it’s fixed. And so, the returns were lower than what you could get, but there wasn’t much time. And now if you don’t have time, it’s harder to make money in real estate right now, because many of the asset classes that still work will take more of your time. Okay, next one up, how much risk are you comfortable with? Stuff like regulations and HOAs, what do you have to say about that?

Rob Abasolo: This is going to really depend person to person. I typically am a little bit more of a risky fella, if you will. But there are things to consider. HOAs, for me, aren’t necessarily deal breakers, but they can be. I mean, 90% of the time, they’re a deal breaker. If I go on to Redfin or Zillow and I see that, it’s got a $15 per month HOA, that’s not really going to scare me quite as much as an HOA that’s like $150 or $300 a month, because I know that probably if it’s 15 bucks a month, probably they’re maintaining-

David Greene: You don’t have as much control or power over the community if they’re only bringing in that.

Rob Abasolo: So that’s where I’m like placing my focus is like, “How active is this HOA? Are there actual bylaws?” For the most part, it does kill a deal for me, but I’ve made exceptions to this many times. And then obviously, regulatory risk is something that’s like, I think, the biggest risk in most short term rentals, is the city friendly? Is it receptive to short term rentals? Does it have outdated laws? Does it have laws that outlaw short term rentals that aren’t actually being enforced? That’s something that I’ll look at too and say, “Okay, well, they were written in the ’90s. They weren’t really thinking of Airbnb.”
And so, I might still make that decision. But for the most part, for people starting out, I have a very diversified portfolio. And so, that’s why when it comes to seasonality or regulation, I don’t really have too much risk, because I have such a well-balanced… I have a little bit of everything. Whereas if you’re first starting out, it’s your first deal. You don’t really want to get into anything risky, like an HOA or regulation or seasonality, because you don’t really have a portfolio to back you up whenever stuff starts to dip.

David Greene: Very good point. Okay, how about the next thing? How fast should someone scale? How does that factor into strategy?

Rob Abasolo: That will mostly depend on how fast they want to quit, which all of us obviously, always want to quit our 9:00 to 5:00, but I think it’s a marathon, not a sprint. It feels like a sprint for anyone getting into it. I mean, setting up your first Airbnb, it can be a lot of work, right? You got to go, you got to get it pre-approved. You got to get an offer in. You got to get accepted, inspections, furnished, automations, hire your team. So, it’s very common for a lot of people to do that. We get that adrenaline rush. And we’re like, “Yeah, let’s do it again and again and again. Hurt me.” But for the most part, I always tell people to slow down a little bit.

David Greene: That was me, man. I was just a bird phenom for a while there, right? Every day was cold, just bird constantly. And then one day, I woke up. And I was like, “I have adopted 55 problem cats from a shelter. And I’m trying to control them all.”

Rob Abasolo: I know, I see them in your background on there. I think you want to scale up according to how quickly you can save up any reserve.

David Greene: Very good point.

Rob Abasolo: I tell people, six months is a really nice padding that you can have for reserves. If you can do that and save up your down payment, it’s probably time to move on to the next one.

David Greene: I have a video on my YouTube where I talk about portfolio risk management that would be really good to check out here with what I do to scale fast but still be conservative. Okay, last one would be remodel pros and cons. What do you have for us there?

Rob Abasolo: Well, I pretty much go into any specific Airbnb purchase or short term rental purchase, hopefully not having to do too much remodeling. I’m very picky about this. And when I was first starting out, I was all about the value adds and I was all about like, “Yeah, let’s fix everything.” But now for the most part, unless it’s going to add significantly to the value like you and I have looked at a couple properties, that would be a burst or write a burn into an STR. And that to me would make sense if it’s going to add significant amount of money to the ADR, the average daily rate. But for the most part, when I’m looking at a property, there are only a few things that I’m actually willing to do.
And honestly, I probably don’t even I would rather just move on. But I’m willing to paint the interior of a house and the exterior of a house. Well, no, I’m willing to do that. I’m willing to change the floors in the house. And I’m willing to possibly paint the cabinets of a kitchen and put new hardware. But for the most part, that’s it and then maybe doorknobs. If I want to change doorknobs, I might do something like that. But that’s all I really want to do on a short term rental, because it’s already hard enough getting the short term rental setup and furnished and automated and all your teams hired out.
But to have to manage a remodel on top of that is not something that I want to do as much these days. Although I do have a team that does assist me with that stuff. So, if it’s something that’s like sub $5,000 to $10,000 as a remodel, I’m willing to do it.

David Greene: What’s your logic or rationale behind why you don’t want a big remodel?

Rob Abasolo: Just the time needed because I’d rather move on to a turnkey property that I can get functioning as quickly as possible.

David Greene: I’ll give you an example of how this works out in real life, because this is a good point. I bought a place I’ve talked about earlier, the East Bay, almost 1.9 million. And it’s a 5,000 square foot house that’s going to basically be broken into smaller units and rented out. During the remodel, it’s a little over $10,000 a month that I have to pay to carry that property. The permit process was not started when I was told that it was going to be started. So, we’re three months behind. So, take $30,000 plus, whatever, the four to five months of rehab is going to be, plus the actual cost of rehab itself. It will be years before the cash flow ever recovers, many years for that initial money that I spent up front.
Now, if this was a property bought as a short term rental to be a cash flowing cow, that would be stupid, but it already just doesn’t work. I made a mistake. In this case, I’m looking to refinance it after some of the work is done. And that’s how I get my cash back out. But if it’s not a burster, like what we talked about, this is why Rob is saying, “I don’t want to do a big rehab,” because the time it takes to do it as well as the money putting in is going to steal money from you that you would have been generating when you were renting it out to different people. So, very good point there.

Rob Abasolo: If you could add a treehouse or some feature like a hot tub or a treehouse or a crow’s nest around a tree.

David Greene: In my case, I’m converting a garage into 2,000 extra square feet of living space. That’s going to make the property worth quite a bit more, right?

Rob Abasolo: That would make a big difference on Airbnb, extra rooms. You can now hold… How many people can fit in that? … 10 people.

David Greene: It’ll be a ton, but what I was more saying is when I go to refinance it, that extra 2,000 square feet is going to up the value of the property. I will get that money back. Now I don’t have to wait however many years it takes to make back the 200,000, 250,000 I lost, I mean to get that back on the refinance. And now the time can start, the clock can start from that point versus if you’re not able to do that and you’re just making a house look prettier and it’s already at the top of its value. You’re starting from way behind if you try to do a big remodel on a short term rental, and that’s one of the reasons people can sell them for a premium if they’re already ready to go. And it still makes sense for the buyer to pay that much money.
All right, I hope you have enjoyed this show so far on how to buy your first short term rental property. Now, Rob and I got into so much detail that we actually ran out of time. And rather than trying to make you listen to a two-hour podcast, we are going to air part two a couple of days from now.
Now, what we went into today was some pretty important things that you want to start with if you’re looking at getting your property, the strengths of different markets, how to choose the location, which is really important, and then what strategy you’re going to tackle going forward. In the next show, we are going to talk about picking the property type, choosing the timeline that you want to operate on both if you’re going to be in a partnership or with the property itself, and then a bonus step that we didn’t know we were going to give you or you didn’t know we were going to give you I should say, how to divvy up the work involved and what work to expect.
Now that’s not going to be the end of this series. We’re actually going to have two more episodes at least where we dive even deeper into how to analyze these properties once you’ve got an individual property in mind and then how to manage the operations of a property once you got it. So, this is going to be pretty close to a short term rental workshop. You’re getting a lot of information that’s all free. So, I hope you’ve liked it. Please let me know in the comments what you think so far and keep an eye out for the next show to air in a couple days. Rob, anything you want to leave people with before we get out of here?

Rob Abasolo: Man, that was fun. That’s the river flow. I thought when you give me a mic and some topics on Airbnb, you know I’m going to talk a lot. So, hopefully, it wasn’t too rambley. But then if people want to hear from you, if they want to be enlightened on the social medias, when it comes to anything, Airbnb, how can people find you, my friend?

David Greene: They can find me @DavidGreen24. I’m actually in the process of hiring a social media manager, because everyone has told me how bad it is. So, keep an eye out for that. It’s going to be better pretty soon once we find the person we’re going to hire.

Rob Abasolo: I’ll take it.

David Greene: I should have just handed you the reins. That’s a great point. But yeah, that’s where they can find me and then keep an eye out because I’ve got some changes that are coming. If they want to know what I’m doing, I actually have a text letter that we’re going to be putting out every single week that tells people. So, if they go to DGTlive/textletter, they can sign up for that. Just like Brandon Turner has one and you can see what he’s up to, what’s going on in his world, they can follow me there. How about you? If people want to learn more about this amazing insight you shared, where can they find out?

Rob Abasolo: There’s always the YouTubes. I just actually released a video called, “This is exactly how much your short term rental is going to make,” which will give you a little bit of an insight of what we’re going to be talking about a couple episodes from now when we actually deep dive into the nuts and bolts of analyzing a short term rental. You can always find me on Instagram, @robuilt and Tik Tok, @robuilt.

David Greene: All right. Well, thank you very much for joining me. I could not do this without you. And let me just say, I don’t think I could have picked a better partner. I am very happy and proud that you and I are going to be looking at this together and that we get to share our experience with the masses so that they can learn from it too.

Rob Abasolo: I won’t let you down, cap.

David Greene: Appreciate that. This is David Greene for Rob won’t let me down Abasolo, signing out.

For about two years, the interest rates in Canada have been at all-time low levels as the Bank of Canada attempted to help the economy weather the effects of the COVID-19 pandemic. Though low rates were enjoyed by many, it has been widely understood that they would not be here to stay. Now, amid the highest inflation rates in three decades, the Bank of Canada has finally increased its key interest rate to 0.5% with more hikes expected to come this year.

Previously, the key rate had been held at just 0.25% since the pandemic first broke out in early 2020. This current hike now marks the first increase in interest rates since 2018. Forecasts have predicted that interest rates will continue to increase by a few percentage points through to the end of this year.

Much of the news around rate hikes is focused on the topic of slowing inflation. In the last month, the inflation rate rose to 5.1%, reaching heights not seen in Canada since 1991. As more Canadians see prices going up and their dollar not going as far as it used to, pressure has been on the Bank of Canada to help curb the issue. The bank has themselves acknowledged that inflation is increasing at a rate faster than they had anticipated.

Though the gradual increase in interest rates is hoped to help slow inflation, the results may take some time to see. Inflation will likely increase even further (in the near future) before things start to lower again.

Beyond inflation, interest rate increases can have a large effect on the housing market. The Bank of Canada interest rate is a major influence on how banks set their prime rates, which in turn, impact the cost of borrowing and will lead to a growth in variable mortgage interest rates.

Many have already chosen to lock in their variable-rate mortgages with hopes to avoid rising payments as rates go up.

There are also hopes that rising interest rates can help cool off the incredibly hot real estate markets seen across the country. With rates so low, many were able to afford to borrow much more which had some influence on the rising prices seen in the last two years. With increased interest rates, people will be able to borrow less and some will not be able to afford mortgages at all. The combined effect is fewer buyers in the market with less money to spend. 

However, if you are looking to buy this year, don’t get your hopes up for significantly decreased home prices. As mentioned before, the effects of gradual rate increases will take a while to be truly felt and there are many other factors driving the real estate market beyond just low-interest rates – particularly lack of available inventory.

The news of increased rates comes at a time of uncertainty in global markets. Many have begun to emerge from pandemic conditions and are looking toward future growth while war in Europe threatens to destabilize some markets even further. In the U.S. where inflation is similarly at troubling highs, the central bank is signalling a similar increase in interest rates for this month.

Sales in the Kitchener-Waterloo housing market experienced a 60% decline in real estate activity at the peak of the pandemic, but according to the RE/MAX Fall Market Outlook Report, average home prices managed to remain steady. With many sellers holding off on listing their homes during the spring, the current market is seeing an increased amount of activity due to pent-up demand, with multiple offers on homes, sometimes in the double digits, not uncommon.

Looking ahead, market optimism will be very closely tied with the number of available jobs in the region; should employers in Kitchener-Waterloo begin to relocate to the United States, depending on the strength of the Canadian dollar and the number of American companies currently operating in the region, average home prices could potentially fall. However, the Kitchener-Waterloo housing market is currently in strong seller’s territory across the board (residential, recreational and luxury property segments), with many buyers looking to purchase larger recreational properties with more space given the cancellation of travel plans and a growing desire to move away from densely populated areas.

Based on these factors, the Kitchener-Waterloo housing market is expected to see a 3% increase in average residential prices for the remainder of the year.

Ontario Real Estate Trends

What’s been happening across other Ontario real estate markets? With the province being one of the hardest-hit regions in Canada, markets such as Niagara, Mississauga and Kitchener-Waterloo experienced significant drops in activity. However, come June, they bounced back aggressively as economies began to reopen. With all of Ontario now in phase three of re-opening and consumers more comfortable engaging in the market, market activity in Ontario is expected to remain steady in the fall, with modest price increases of up to 6% in some regions.

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Canadian Housing Market Trends

Leading indicators from RE/MAX brokers and agents across Canada’s housing market point to a strong market for the remainder of 2020. According to the RE/MAX Fall Market Outlook Report, RE/MAX brokers suggest that the average residential sale price in Canada could increase by 4.6% during the remainder of the year. This is compared to the 3.7% increase that was predicted in late 2019.

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The pandemic has prompted many Canadians to reassess their living situations. According to a survey conducted by Leger on behalf of RE/MAX Canada, 32% of Canadians no longer want to live in large urban centres, and instead would opt for rural or suburban communities. This trend is stronger among Canadians under the age of 55 than those in the 55+ age group.

Not only are Canadians more motivated to leave cities, but changes in work and life dynamics have also shifted their needs and wants for their homes. According to the survey, 44% of Canadians would like a home with more space for personal amenities, such as a pool, balcony or a large yard.

Canadians equally split on their confidence in the housing market

Canadians are almost equally split in their confidence in Canada’s real estate market, with 39% as confident as they were prior to the pandemic, and 37% slightly less confident. When it comes to the prospect of a second wave of COVID-19, 56% of Canadians who are feeling confident in Canada’s real estate market are still likely to buy or sell.

“The classically hot spring market that was pushed to the summer months due to the COVID-19 pandemic created a surprisingly strong market across Canada and across all market segments,” says Christopher Alexander, Executive Vice President and Regional Director, RE/MAX of Ontario-Atlantic Canada. “Looking ahead, government financial aid programs may be coming to an end in September, which could potentially impact future activity; however, the pent-up demand and low inventory dynamic may keep prices steady and bolster activity for the remainder of 2020. Overall, we are very confident in the long-term durability of the market.” 

Additional highlights from the 2020 RE/MAX Fall Market Outlook Report Survey:

• 48% of Canadians would like to live closer to green spaces
• 48% of Canadians say it’s more important than ever to live in a community close to hospitals and clinics
• 33% of Canadians would like more square footage in their home and have realized they need more space
• 44% of Canadians want a home with more outdoor space and personal amenities (i.e. balcony, pool etc.)

About the 2020 RE/MAX Fall Market Outlook Report

The 2020 RE/MAX Fall Market Outlook Report includes data and insights supplied by RE/MAX brokerages. RE/MAX brokers and agents are surveyed on market activity and local developments.

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