Ashley:
This is Real Estate Rookie episode 136. Real estate can feel like you’re just jumping off a cliff and seeing what happens and seeing where you land. But this is the truth of really what it is. It’s a path. And it can be hilly, it can be up and down, it can be twist and turns, but you just have to stay on the path and you guys can do and you can get there. My name is Ashley Kehr, and I’m here with my co-host Tony Robinson.

Tony:
And welcome to the Real Estate Rookie, where we demystify real estate investing for new investors by breaking down the basis, getting into the nitty-gritty and giving you the inspiration and information you need to get started.

Ashley:
Today, we actually have a very different type of show for you guys. We are going to break down how to be a newbie investor and get your first deal in 90 days. So we have a special webinar recording that we are going to play for you guys. It is going to go through everything you need to know to acquire your first deal. So Tony, what are a couple things that are highlighted in this webinar?

Tony:
Yeah. Well, first, we got to say, Ashley, where is this webinar coming from? Don’t sell yourself short here.

Ashley:
So Tony, this is a webinar that I recorded previously, actually, when I was live in Denver. And we are going to play it for you guys. And we talk about basically how we to analyze a deal, how to source a deal. It’s really gives you a breakdown of the Real Estate Rookie Bootcamp too that is hosted. If you are interested in that and you want to get on the wait list, it is you can go to biggerpockets.com/bootcampwaitlist to join. But this will give you guys an idea of a condensed version of how to get your deal in 90 days. So hopefully you guys enjoy.

Tony:
Yeah. Ashley, you did a phenomenal job putting this together and I’m sure all of our rookie listeners are going to love getting into the nitty-gritty of how to get that first deal done because there’s so much content, I think, on the podcast, on the YouTube channel, on the BiggerPockets forums, but sometimes it can be difficult to piece that information together yourself. So I think this webinar is a great first step to give you that curated path as a listener. Then obviously the bootcamp is a very immersive experience for all of the listeners to go through this content with you together. So you guys can always find more webinar content at biggerpockets.com/webinars. And there’s like a bunch of information on there as well. And another good webinars to dig your teeth into.

Ashley:
And make sure you guys send Tony and I a message on Instagram. If you do end up getting your first deal very, very soon, we would love to hear about it and feature you as a Rookie Rockstar of the Week. You can find me @wealthfromrentals and Tony @tonyjrobinson. Enjoy the show.
Hi, everyone. Welcome to today’s webinar. So it’s seven o’clock my time. So I’m going to go ahead and get started. Thank you guys so much for joining me today and I’m super excited that you guys want to build wealth through real estate. So today’s topic is how a newbie can start building wealth through real estate. So my name is Ashley Kehr. I am the co-host of the Real Estate Rookie podcast. You can follow me on Instagram @wealthfromrentals. So welcome everyone. I’m so glad that you are here. And today we are going to go through what steps you can take as a new investor or rookie investor to get your first property and things that are really important to get you past that analysis paralysis or to even show you what the first steps are to getting that first property. So we have a free worksheet for you guys today. If you guys want to go ahead and download this worksheet, you can fill it out, follow along, and it’s just a guide for you guys as to what you need to get started into realestates.com/newbieworksheet.
Okay. So let’s just go over real quick what we’re going to be talking about today. So the first thing is intro and door prizes. So if you stay until the very end, we do have some door prizes for you guys. I’ll explain a little bit about BiggerPockets, about me and why you should listen to what I have to say today. So then we’re going to go into the six steps of getting started into real estate and then common newbie mistakes, what are some of the reasons people don’t actually take that step and get started and take that action. Then I’m going to show you guys some really awesome tools you guys can use to get started. And then at the end, we’ll do some Q&A with everybody.
Okay. So in this webinar, I’m going to show you the exact six step process you need to achieve financial freedom through real estate. I would love if you guys would put into the chat for me. I have it up on the side here. If you guys could put into the chat for me, why do you guys want to invest in real estate? Is it financial freedom? Is it for another reason? What is your why that is driving you guys? I would love to know if you guys can put it in the chat for me so I can read it. I see financial freedom. Retirement. Yeah. Build generational wealth. Awesome. Cash flow. Awesome. Love it. Love it guys. Be my own boss. Yeah, that’s definitely one I love too is I don’t want to be responsible to anybody.
Okay. So the door prizes at the end, you guys are going to get the slide back here. So you can go back through, review it, click on all the links, everything like that. So I’ll give you the link to that at the end. And then we also have 7 Years to 7 Figure Wealth. This book for you guys too, at the end if you till the end.
Okay. So you’re ready. The real reason how can real estate help you build wealth? So we’re going to go over that today as to why real estate, why you should pick real estate as your wealth builder to get that generational wealth, to build financial freedom for your family. Okay. So the first thing is the cashflow. You’re able to earn cash flow from rental properties, whether short term, long term. So your tenant is paying rent, you’re paying your expenses. And then there should be money left over that you get to keep single month. And hopefully eventually, that cashflow can replace your W-2 income or your current job right now and your current income.
Number two is appreciation. So over time, the value of property increases and you can also have loan pay down. Number four. So you’re building equity in the property. So property real estate is an appreciating asset. So if you think about a vehicle car, it usually depreciates after you buy it. It doesn’t appreciate like real estate. So that’s the value of it. If you hold onto a property for a long time, it can be worth a lot more than what you bought it from.
And then three, the tax benefits. The tax benefits are you have depreciation. So depreciation is when you purchase the property, it takes the purchase price of that property and breaks it down over many, many, many years. And it comes off of your taxes. So when you report that income, it’s taking the depreciation off, but that’s not actually money you’re spending out of your property, spending out of your company and your business. So that’s a huge tax benefit. You guys have heard of 1031 exchange at all. This is kind of like a tax loophole to benefit real estate investors, where if you go to sell a property, you can take the money that you have earned from property, the gain on the sale, and you can put it into another property and never pay taxes on it. It’s a little more complex than that, but that’s kind of the gist of it. So there’s many, many tax benefits that come with real estate investing too.
And then loan pay down. I touched on that with appreciation because as the longer you hold property, the more of the mortgage that is going to be paid down by the tenants when they pay their rent. And then the more the property is going to appreciate, the longer you hold it. And in today’s market, I’ve seen appreciation greatly increase just from properties I bought three years ago. So you never know where the market is going to go. But if you look at the last 30 years, you’re going to see that property values have greatly increased over that 30 years, even if there were ups and downs in the curve.
Okay. So freedom. We all want financial freedom. We want freedom from our bosses. We want freedom to do whatever we want. I like to say that I want the freedom to be spontaneous. I want to take my kids and say, “Hey, we’re going on a road trip this week.” Or I want to wake up and I want to decide exactly how my day is going to go. And a big factor for a lot of people is getting out of your W-2 job, getting out of that commute to work. So I’d love for you guys to put into the chat right now what you are doing right now for work. And if you want to keep doing that or you can’t wait to stop doing that. I’d love to see what some of you guys’ careers are. High school teacher, retired, program manager, military, army, social worker. Awesome. We got a nice mix of people in here. Cool. Very cool.
Okay. So also a big why and a big reason for people wanting to get into real estate and build this financial freedom and this generational wealth and this time is so that you can spend more time with your family. And that’s definitely possible with real estate. So I’m really excited that you guys are here because my life has completely changed since I started investing in real estate and the time I get to have with my kids and the adventures we get to go on.
And also travel. Who here wants to travel? Tell me that you want to travel and where you want to go once you’re able to quit your job and you’re living off your real estate income. All over the world. Yeah. That’s the best answer. Hawaii, Europe. Okay. So yeah. Travel is a big thing too, that you don’t have to show up to work on Monday, you get to travel. And especially with COVID, everything has become so virtual that it’s so much easier to work from anywhere now, even more, so many meetings or so many calls are virtual. And like even now, I’m hosting this webinar to you guys virtually from my house, actually I’m in a closet.
And I think that when you’re a real estate investor, if you are a landlord, there’s so many property management softwares out there that’s so easy for you to manage your rental properties from out of state or from anywhere. So that’s another great thing about real estate investing is if you put the systems in place, you can really do this from anywhere. And I see Jesse said that here outer space. Well, more and more people going to outer space. So that might be in the plan for you.
Okay. So what is the problem? Why is not everybody doing this? Why isn’t everybody a real estate investor? So most newbies never buy a single property. They don’t take action. A lot of people get stuck in analysis paralysis. They just do research or maybe they read, they fizzle out, they lose their motivation, their inspiration.
Okay. So let’s go into two of the biggest reasons. It’s foggy. It’s not clear a lot of times as to how do you actually start in real estate. And that was why Josh Dorkin, the founder of BiggerPockets started this whole website was to connect real estate investors and to share ideas and to show you how to do it. And then that it can be a maze. You hear all of these people talking about real estate. And with real estate investing, there’s so many different strategies, there’s so many different ways to do it, there’s so many different types of loans, there’s so many different types of property. There’s long term rentals, short term rentals, there’s wholesaling, there’s flipping, there’s all these things and it can be overwhelming. And that’s why I’m so glad you guys are here today because we’re going to try and break that down and make it way more clear for you guys.
Okay. So a little bit about me and to why you guys should even be listening to me. So I grew up in a rural town outside of Buffalo, New York, very small town. I’m the oldest of five siblings. Lived with my parents. We had a small farm where we had random animals throughout the years, horses, cows, lambs, a pig, different things like that. So I have three little boys now and I live on my dairy farm. I started out as an accountant and I worked probably six months. And I quit in the middle of tax season. I hated sitting at a desk so much. It just wasn’t for me.
I remember this conversation when, so I had worked as an intern at the accounting firm before I graduated college. And I could not wait till the day that I was going to go full time and they gave me my compensation package and I was like, “This is it. I’m finally going to be making the big money.” And I was so disappointed. It was barely more than I was making as an intern. It was just full time. And I was expected to work 50 to 60 hours a week during tax season. So I remember the partner that worked at my office said, “This is how it is. I’m not making the money that I want to be making either. That’s just how it is.” And that just got my mind thinking a little bit.
But then I finally couldn’t tolerate it anymore. And I said to my husband, I said, “I don’t want to work anymore. I want to quit my job.” He said, “Okay, you can be a stay-at-home mom.” So I got pregnant and I was going to be a stay-at-home mom. So I put my two weeks notice in. And when I put my two weeks notice in, the partner, she said again to me like, you’re crazy for doing this and just quitting. You went to school and blah, blah, blah. You should at least make some money. And you put in, went to school and I’m not even making as much money as you want to, or blah, blah, blah, all these things. And I was just like, “I don’t want to be you in 10 years. I’m sorry. I don’t want that.”
So put in my two weeks notice and found out I was pregnant and I was just going to be a stay-at-home mum. Then let’s see what happened next. So I was pregnant and I had probably not been working for a month maybe. And my friend growing up, I went on vacation with her family and her dad owned a bunch of auto dealerships and had some investment properties. And I’d known them since I was two. So I knew some of what they had financially and they were well off and he said, “I need help. I need someone to help me get organized. And I need someone to run a 40 unit apartment complex for me.” And the assumption was was that I had been an accountant. So I knew how to do that. Well, I could collect the rent, I could deposit the checks, I could do the bookkeeping. But as far as the leases and as far as the rules and regulations of managing an apartment complex, I had no idea.
So I started off working part-time. I helped him acquired new properties. He actually became a mentor to me just because every project he did, everything he started or he jumped into, he took me along with him and I was his right hand man for everything. And it was such a great learning experience. So you guys, as newbie, as beginners, if you get the chance to actually work for someone that is an investor and get paid to do that, that is such an opportunity for you.
Okay. But I didn’t even start investing until two or three years after I started working for this guy and just absorbing as much information as I could. I always thought worst case scenario, like, I’m going to buy a property. A tenant is going to sue me. The roof is going to fly off. I was super nervous about making mistakes. My husband and I didn’t have a ton of money then. And if I put money into a property, that was our life savings. And I didn’t want to lose my money or anybody else’s money. And I was just a newbie as an investor. I had done property management, but as far as being the owner and being the landlord, that would look a lot different.
So what I did is I found a partner. I actually approached the investor I was working for, approached his son, who I’d also known since I was two. And we made a partnership where he was the money and I was the experience. And I did a ton of research and I found us a duplex in a market that I knew. And from there, we got a couple rentals under our belt together, and we built very slowly, just one duplex after another. Well, in 2017, I randomly discovered BiggerPockets online. And that is when my life really changed. In a year and a half, I tripled my portfolio just from going in the forums every day and talking with other investors in the forums and seeing different ways to do creative financing and different ways to buy property and how to make my property management better. So it really transformed myself as an investor, networking and growing with other investors on BiggerPockets.
So over time, I discovered the real truth about real estate. And you can cut-short the learning and testing and failing time because you guys don’t have to recreate the wheel. All these investors are already doing it, take what they’re doing and just tailor it to your needs or how you want to build your life. So as far as today, I’ve purchased over 35 units. I have a mobile home park under contract, and I have a self storage facility under contract, and I have another farm under contract. So things have really changed for me from when I first bought that first duplex. I do mostly buy and hold. I did do one accidental flip this year. That should be closing very soon. And I like to rehab my properties. And I’m financially free from my nine to five. I no longer have to work a job anymore.
So let’s get this for you guys too, because it really is super awesome and such an experience to completely change your life and get out of the norm of going to work every day. So the first question everybody ask is, well, how do I get started? Okay. So here’s the six step plan. Commit. You have to be willing to keep going. You’re going to commit to analyzing deals. You’re going to commit to making offers. You’re going to commit to doing research. Okay. The biggest thing, though, is you’re going to need to commit your time. At first, it may take a bunch of your time to actually take that first step and take that action. If you don’t have time, then you can find a partner who has time or has the experience and has the knowledge already.
And then your skills. So what investing skills are you already bringing to the table? So I would love if you guys could put into the chat for me what is one reason that you think you would be great at real estate investing? Maybe you’re a realtor, you have some knowledge of the market. Maybe you have money, you have money to invest. So that’s a great start right there. You already have a leg above a lot of other people if you have the money to invest, or maybe you’re licensed insurance agent and you know what insurance agents look for on different properties and stuff like that. Maybe you work for a property management company. Maybe you lived in one house, moved out of that. And your first house is now a rental, and now you want to grow even more. So I’d love to see. Already a landlord, facilities manager experience. Yeah, that’s great. Yeah. If you have a construction experience and you’re going to do your own rehabs, a realtor, awesome.
And then you have to have the right mindset too. So we had shown in the picture how real estate can be like a maze and you have to stay focused and you have to pick what strategy you want to do and stick with that. So there’s this thing called shiny object syndrome, where you can just get distracted with all these different ways to invest in real estate. So I was on a call the other day where someone was talking about Airbnb being RVs and parking them in empty lots and renting them, I’m like, “Oh, that sounds enough for me to do.” But then it’s like, no, you have to focus on what you’re doing. So having the mindset and being confident in yourself and knowing that you can do it. Look around you, look at all the other people that are investing in real estate right now.
And then money. Are you committed to, if you are bringing money to the table, are you committed to investing that and risking that? And also, so when you’re investing in real estate, you want to make sure that you have cash reserves. So when you have those cash reserves, you have those savings, you have to be prepared to spend those if something does come up and not be super upset or distraught or it financially ruin you if you have to use those reserves to cover some expenses.
And then also if you’re taking on a partner or you’re using private money, you’re using somebody else’s money, I like to call that OPM, it’s called other people’s money to invest, like I started out with, make sure that you’re going to be using their money responsibly. Okay. So are you willing to do what it takes to find success? Because there are going to be times when you feel like you’re just getting pushed down a hill. And what you’re going to do at that time is you’re going to go in the BiggerPockets forums, or you’re going to go in the Real Estate Rookie Facebook group and you guys are going to say what your challenge is, and you are going to get people that are going to motivate you and encourage you and also give you ideas to bring you back up. Having a network around you can really, really help drive you to get to that success, because once you get that first property, it really starts to get addicting to get the next.
Okay. So number two of the steps is to learn and plan. Okay. So first, what strategy are you going to do? There’s flipping properties, there’s renting properties, BRRRR, house hack, et cetera. So do you guys know what strategy you’re already doing, what you’re going to be looking for? Are you going to rent the property? Are you going to Airbnb it? Are you going to do a house hack? I’d love to see. Okay. House hack, rent it, do BRRRR.
And for those of you that don’t know, so a BRRRR is up buy. You’re going to buy the proper. You’re going to rehab the property. You’re going to rent the property. You’re going to refinance the property. So you’re going to go to the bank and get a loan and pay yourself back for buying that property or pay back a hard money lender, pay back your line of credit. And then you’re going to repeat the process with that same initial cash that you had or the line of credit you had, whatever you used to buy that property. So it’s a very common way for people to get started. My favorite, though, for newbies is house hack. So house hacking where you are living in the property, and then you’re either renting out another unit or units or you’re renting out the bedrooms too in your room or in your house.
Okay. Now what market, what location are you guys going to invest in? Do you guys have that narrowed down? And if you know what market you’re going to be investing in, I would love to know if that’s out of state for you or if that’s where you live too. Seattle. I’m actually going to Seattle on Friday. Portland, SoCal, and Naples, Raleigh, Memphis, New York City. Awesome. That’s even just a great start that you guys know what location you want to invest in.
And then what kind of property are you going after? Are you going after single family, you want small multifamily, maybe 12 units or less? Or do you want large multifamily, like 40 unit apartment complexes? Is it going to be mobile home parks. Is it going to be self storage? Is it going to be camp grounds? There’s so many different ones, but I want you guys to pick one and stay focused on that. Okay. We got single family, small apartment complex. Great. Duplex. Awesome.
And then what condition are you going for? So are you going for a fixer upper, where you’re going to do the rehab? Are you going to hire somebody to do the rehab for you? Do you want a $10,000 house that needs to be completely gutted down to the studs and you’re rebuilding it? Do you want just cosmetic? So cosmetic would be maybe slap some new paint on, you’d put maybe some vinyl plank or carpet was put some new light fixtures in. Or is it going to be completely turnkey where somebody else went in and they did the rehab and they even rent it out to tenants and they already have the property management in place?
And then what is your price range? Before you can even begin shopping or looking for deals, you need to know what is in your price range. So how are you financing the deal now? And what is your budget? If you’re going to a bank, they can preapprove you for a certain amount. And then how much do you want a profit? What is going to be, if you’re doing a rental, what is going to be your monthly cash flow that you want on the property? So after the rent comes in and all your expenses are paid, including the mortgage is that going to be a $100? Is that going to be $200? Is that going to be $500? What is your criteria on that?
Okay. So you don’t need to learn everything. And this is also another great part of BiggerPockets is because they have so many like cheap tools, I guess, that you guys can use. And I’ll go over those later too. But you have to stay focused. And I talked about the shiny object syndrome. So you don’t want to be distracted of all these different things, especially when you’re a beginner. You’re going to be the most successful if you stay focused on what you targeted. So what we just talked about on the last slide. If you stick to that criteria that you built out and you do that, and maybe you do that a couple times, if you’re going for a single family, you buy a couple single family. And then when you get that down pat where you can buy single family properties and rent them out in your sleep, then you go off and you find maybe you want to move to large apartment complexes after that.
Okay. So shopping for a deal. How are you going to source deals? So MLS. This is free to use a realtor if you are the buyer. So I suggest everybody sign up with a real estate agent in your area because you’ll get automatic emails of new properties that hit the market. And even if you’re going to direct a seller where you don’t even want to buy one off the MLS, because they seem so expensive right now, still get those free emails because you can still at least see what comps are out there, what are the comparables? What are other properties being listed for in the area? So is anybody already signed up with a real estate agent to get these emails sent to them every day? Oh, good, good. Awesome that you guys are already doing that because it’s free. Why wouldn’t you?
And if you guys need help finding an agent, BiggerPockets has an agent marketplace where it actually connects you directly with an agent in your area too. So just go to BiggerPockets and click on the marketplace and find an agent, and you’ll be able to find one right in your area that is an investor-friendly agent.
Okay. And then number two, direct mail. So this is where you are pulling the addresses from the properties, maybe offline. And then you’re sending mailers out to them saying, hey, my name is Ashley. I’d love to buy your property. So then we have driving for dollars. So driving for dollars is so you’re just driving around and it could be on your way to work, or it could be for a Sunday drive wherever you’re going.
But when you’re driving, you’re looking or like me, you have your kids look for you in the backseat for properties that maybe show signs of vacancy or need to be rehabbed, or maybe there’s stickers all over the windows, like they’re a bank foreclosure. So then you take those addresses and you send letters in, or you look up their phone numbers and call and see who the owner is. But deal driving is a super cheap and affordable way to source the deals. You can also hire that out too for somebody to drive for you or tell your friends and family, hey, I’ll give you a 100 bucks if you send me a property that you see that looks like it’s vacant.
Okay. So number four is Craigslist, or really any of the marketplaces. So BiggerPockets has a marketplace, Craigslist, there’s houses that go for sale all the time on there. Also, Facebook Marketplace. I’m seeing more and more properties being listed on there for sale by owner. Okay. So let’s talk about analyzing a deal because once you find a property, how do you know if it’s going to be a good property, a good investment? So if you don’t have the right math going into a deal, you’ll never get the right profit coming out of it. So you might have heard before people say you make money on the purchase of the property and not on the sale. So what this is saying is that you need to purchase your property at the right price to make a real profit, because going in no matter what you purchase it for, your rehab is going to be the same and your sale price is going to be the same. So you need to get that purchase price right. And that’s what we’re going to do when we analyze a deal here.
Okay. So the number one most important skill an investor can have is knowing how to analyze a deal. So let’s have some fun and let’s analyze a deal. Okay. Let me get out of here. So this right here is an actual property that was listed on the MLS. It actually got taken down from the MLS and it never actually sold. They just took the listing down even before it expired. So I’m not sure what happened to it. But I want to use this property as an example.
So the first thing we’re going to do is we find this property on the MLS, find the zip code. So we’re going to go to the BiggerPockets rent estimator, and we can put the zip code in there. And this one, let’s say there was a two bedroom, one bath. And this property is a three unit. So let’s say one of the units has two beds and one bath. Then we’re going to search that zip code and we’re going to get what exactly the rent comps are in that area. So this makes it really easy to figure out what the rent is going to be so you know your income, you know what your income is going to be on this property and you don’t have to guess or try and figure it out. And you can even look and see on the side here, it shows you the exact addresses
of properties that were recently rented and what they went for. So you can even Google some of these addresses too, and you might even see some of the pictures from the listings listed up. And I think you might be able to actually click on it too. And it’ll take you. And you can look and say, okay, this one has granite. Mine doesn’t have granite. So maybe mine would be a little bit less than that. But this is a tool you guys can use on BiggerPockets.
Okay. So next we’re going to go to the purchase of the property. So let’s just say, we’re going to put in, let’s do 115,000. Okay. That’s what we’re going to purchase it for. I don’t remember. I think the asking price was 115, maybe. So let’s say we’re going to start off running our numbers at exactly what they’re asking. And then purchase closing costs around 6,000 for in New York State, you have to use an attorney. So an attorney fee and then your bank closing costs. Okay. And we’re not going to be rehabbing the property. We’re going to take it as is in turnkey.
Okay. So what we’re going to do is we’re just going to get a conventional loan on the property. I’ve saved up my 20% down payment. I’m going to get a mortgage of 92,000. And the interest rate is 4.25%. And I know this because I went to a bank and I qualified for the mortgage at 4.25%. I know that I can purchase up to say 130,000 of real estate. So when you go to a lender and you get prequalified, they can give you an estimate of what your interest rate would be, what the terms would be, how much money you’d have to put down. If I was living at the property, I could bring a down payment of 5% or sometimes even 3.5% if it’s an FHA loan. So using these properties as your primary residents, you’re definitely going to get better mortgage rates and you’ll come with less cash to the table. So that’s why house hacking is such a great opportunity for you guys starting out if it’s possible for you, because you get into the property with so little money.
Okay. So, and yeah, Justin put into the chat. Good point. FHA requires PMI, though. So yes, that is true. So if you are purchasing a property and you put a down payment of less than 20%, tacked onto your mortgage payment is going to be PMI, which is basically insurance that you are going to pay and you’re not going to default. So you’re paying that insurance full so that the insurance would pay out to the bank if you did not pay your mortgage. Then once you’ve got built up that 20% equity in your property, that PMI becomes removed. So when you run your numbers, you would want to put that PMI cost into the numbers when you run it, because that will be a monthly expense for you. Okay. So the long term we’re going to do the amortized over 30 years. So my payments will be broken out over 30 years.
Okay. So then income. So I went through the rental estimator and I saw that my place wasn’t as nice as some of the other ones listed. So I decreased some of the rents. So the first one, 800, a two bad, one bath, the other two, say they’re one beds, one bath. And then this place also has garages. So the garages are rented out at $60 each.
Okay. The next, property taxes. If you’re purchasing a property off the MLS or a seller is telling you what the property taxes are, make sure you verify them. So you can go to the county GIS mapping website for your county that the property is in and search them. You can just Google up Pioneer High School property taxes, or North Collins Village taxes. So you can just Google them and they will come up. Some really, really small rural towns, they don’t have them online, but most cities and suburbs have the taxes available online where you can pull them up and you can verify them online and look at the tax bills.
And then insurance. So if you don’t know what the insurance cost would be, call an insurance agent. They are also free to use. Like a realtor, they make money from the insurance company when you actually write the quote. And just call your insurance agent that you already have your primary residents with you, maybe have your auto with and just tell them what you’re trying to do and what property you’re looking at. And insurance agent can quote a property pretty quickly just to give you an estimate of it. And then of course, when you actually get the property under contract, then they’ll need more information on it to get a more exact quote, but reach out to an agent and just ask them. And they should be able to give you a good idea based off of the listing of the property.
Okay. So then we’re going to go into some of our variable expenses that you’re not going to be able to put a fixed number to because you don’t know when the faucet is going to leak or when the flooring is going to need to be replaced. So I like to use between eight to 10% on a property for repairs and maintenance. If it is a turnkey property and everything’s already been updated, then you could probably drop that down to five or 6%. The same with vacancy, look in the area and see, are there a ton of apartments available for rent? Then you might need to increase that vacancy percentage. If there is nothing available and there’s wait lists everywhere, then you could probably decrease that vacancy percentage.
And then capital expenditures. These are going to be if you have to replace the roof, you have to replace all the flooring, you have to replace some of the mechanics. So these are the big expenses that go into the property. And so you want to save for those because they will come up and just like, if it is a new build or complete remodeled property, maybe you don’t have to put 8% and you could put lower, but eventually some of those things are going to come up.
And then management fees. So is anybody going to be self-managing their property and not using a property management company? You guys want to put it in the chat. Okay. Yeah. And that’s what I did too. I started off self-managing and now I outsource it. But one very important thing to know is still put in that property management fee when you run your numbers, because you may decide down the road that you don’t want to self-manage anymore. And this way, you already have it counted. And you know that you’ll still cash flow. And in the meantime, while you are self-managing, take that management fee for yourself. That’s just part of your cash flow, but still run your numbers and just call property management companies in the area and see what their fees are.
And then the utilities on the property. So are they separately metered as each tenant? So in this house here, each tenant has their own electric meter. They also have their own gas meter. So they’re responsible for paying their own utilities. But water and sewer, there’s only one meter for that on the property. So there’s no way to know how much water each tenant uses so that I put into my number that I would be paying that.
And then if it’s a single family, you would probably most likely have them pay all the utilities because there’s nobody for them to share it with. And it’s them using all of it. But that is completely up to you guys what you do. There are some laws on as to if you can bill back tenants on certain things such as water and sewer. I know in some of the villages here, you have to keep the water in your name as the owner. You can’t put it into the tenants name. So if you get the bill sent to them, but it’s in your name and they don’t pay, it falls back on you and a lien gets put on your house and they don’t get reprimanded at all. So make sure you guys are looking at those kind of rules and guidelines too.
Then if there’s an HOA fee, you got to plug that in because that’s a monthly expense. For garbage, are you going to be paying for garbage? Will they be paying for it? Is it already included in the property taxes? Then this is really nice that you can add in custom expenses. So in Buffalo, there’s definitely snow. So snowplowing expense and landscaping expense. Well, obviously, I’m going to have landscaping one season, snowplowing another season, but I just break it, take what the total is for each season and then break it out over 12 months to add it to the calculator.
Okay. So now let’s see what this property will look like. Okay. So it’s saying monthly cash flow is $237 per month, which isn’t bad. But remember, we put that 20% down payment into the deal too. So right down here, it says our cash-on-cash return on investment is 9.83%, which isn’t awful, but I know that in this market, I can get a better deal than that. So I’m probably going to lower my purchase price to increase that cash-on-cash return on investment.
So let’s go to the rental income and expenses. So you can see here that you can play with it. So maybe I got on the phone with my partner and he said, “No, no, no. I know somebody with a house right there and you can actually get more in rent.” So I just slide this over, increase it a little. And then I go to save changes. And it just updates it for me. So now my cash-on-cash return is 15%. My monthly cash flow is $374.
Be very careful that you are not fudging the numbers based on that you just want them to work. You want the deal so bad that you’re like, oh, maybe I could push the rent up, or oh, you know what? Maybe I can get a discount because my cousin is a landscaper. So I’m going to cut down on the landscaping expense. Don’t fudge your numbers. If anything, you’re going to change. And it’s going to the purchase price is the best thing to play with unless you know for sure, like I knew for sure that I could get more in rent, but make sure that you guys verify your numbers and you’re not just guessing or trying to make it work so the deal will work.
And then you can see down here it does an expense breakdown as to what the fixed expenses are, what you’re definitely paying every month with the mortgages and then your variable expenses. So this $774, this could be what you’re saving and putting towards your reserves, or this could be the management fee that you’re going to end up paying to yourself because you are managing the property.
Okay. So let’s go back here. Okay. So now financing a deal. You know what deal you want and you know what strategy you want, but how are you going to pay for it? So in our example, we just use the conventional loan, where you’re going to buy investment property and you’re putting 20, sometimes 30% as your down payment, you are showing the bank that you have money, you have cash reserves, and that it’s going to be an investment property. And then you get your mortgage.
There’s house hacking. So like FHA loan is a great loan to use if you’re going to be house hacking and it’s going to be your primary residence. And then you’re also when you’re house hacking, the goal is to get that house to live there for free or very low cost. So my sister, when she graduated college, she bought a duplex and she pays $45 a month to live in a house that’s I think now it’s probably worth like 160,000 and she lives in the upstairs two bedroom apartment. And the people downstairs live in a two bedroom apartment and they pay, I think, 1,050 a month. And if she rented hers out, it would probably be probably 850 a month, her apartment, and she’s paying $45 a month to live there. And all of her expenses are taken care of.
And then partnerships. So that’s how I got started. I didn’t have any money. So what I did was I went and found a partner who did and brought him in on the deal. And it worked out. And then using the BRRRR strategy. So maybe you have someone you could borrow money from for a short time, or you have some cash you can use, or you have a line of credit you can use, but you have to pay it back.
So with the BRRRR strategy, you’re using that initial cash right there and you’re going to go and put it into a property to purchase it. You’re going to have money for the rehab, and then you’re going to get it rented out and you’re going to refinance. So go to a bank and say, “Hey, look, I have this beautiful property. It’s rented, it’s making income. I want to get a mortgage on it.” And then they look and they say, “Wow, the value of this property has increased so much. We can give you all of your money because there’s that 20% of equity still in the deal because you did the rehab and made the property appreciate.” And then you take that chunk of money and you do it again on another deal.
So if you guys want to know more about your biggest hurdle right now is maybe you don’t have any money. So this is a great book by Brandon Turner, Real Estate Investing in Low Money Down. Just know that this does not mean that you don’t have any money at all. You should still have cash reserves. But even if you have money, learn about the ways that you can purchase real estate with other people’s money and not even use any of your own funds.
Okay. So here’s cash conventional mortgage we like to use in our example, the FHA loan we went over. Then the 203(k) loan is when the bank actually pulls in the cost of the rehab too. So if you’re looking at a fixer upper property, this may be a good option for you to talk to a loan officer for. It can be difficult for them to approve a property for the 203(k) loan. And it’s a lot of work to get through that loan process. But if that’s how you’re getting started, it’s definitely worth it to put the work in. Partnerships, taking on a partner or using a home equity line of credit. So if maybe you have a lot of equity in your primary residence or another investment property, you can get a line of credit on that property and use that to purchase a property.
Seller financing. This is how I’ve done a lot of my deals. And two of the deals I have under contract right now are the seller financing where I’m not going out and I’m not giving the seller a lump sum of cash. I’m not getting a mortgage, then giving them the lump sum from the mortgage. They are actually at closing, I’m giving them a down payment. And then every month, I am making a mortgage payment to them like they are the bank, they are the lender. So that’s a great option if a seller agrees to do this. And definitely check out different ways that it’s an advantage to the seller and pitch that to them, because there can be a lot of tax benefits to them for doing seller financing.
Lease options on properties. Using the hard money, private money, doing the BRRRR strategy, like we talked about. There’s a lot of different ways to finance. So if you guys want, take a picture of this, or you can get the slides at the end of it and start looking into all these different ones and narrow them down what are options to you. And once you get them narrowed down, you can start making multiple offers on a single property. So if there’s a property you want to buy and say you know you’re approved for a conventional loan, you could do an offer with that conventional loan or and then send in another offer and say, “Hey, but I’d actually give you 10 grand more if you decided to do seller financing.” And give them multiple options when you’re making those offers.
Okay. So when you have a great deal, financing becomes much easier, especially if you’re looking for a partner or you’re even going to the bank, when you can show them, show them the numbers and print out those BiggerPockets calculator reports. I’ve taken those to lenders before and shown them like, this is the property I want to buy, this is how much it’s going to cash flow. These are the expenses. This is what I can rent it for. And you’re giving these people an opportunity. A bank wants to give out loans on secure properties. And for two people who are going to pay the mortgage, that’s what they’re in the business to do. And even a hard money lender or private lender, they want to lend money, they want to make money off of you.
Okay. So the sixth step, the last one is to buy the property, manage it and find freedom. So there’s five big mistakes that new investors commonly make. So the first one is a at purchasing, they buy the wrong deal and maybe the purchase price isn’t right, or something goes wrong with the location of the property. It’s not in such a great market or such a great area. They analyzed the deal wrong. So something was wrong with their numbers.
My very first property that I purchased, I forgot to add in snowplowing. It didn’t kill my numbers, but it still decreased my cash flow than what I expected it to be and what I had told my partner it was going to be. So you can make mistakes and it’s going to be okay, you’re going to survive. Or lack of money. I had a mindset where I had to purchase an investment property in cash. And that’s why I brought on a partner. I didn’t even know there was hard money lenders or people would give you private money for it, or that you could go to a bank, get it. I had this limited belief that you had to buy investment property with cash. So look at just all the different ways we went over today, that it is possible for you to get a property, even with a lack of money.
And then a big thing is people don’t do is because they listen to others negativity. I think it was episode, maybe like three or four on the BiggerPockets Real Estate Rookie podcast, we had a guest on who his dad had been a real estate investor, and he lost a ton of money. It really hurt their family during the crash of 2008. And he had such a bad experience. And what our guest did was he took what happened to his dad and took what his dad learned. And he took those mistakes and he learned how to not do the mistakes and to take value from it. And he has become a successful investor because he took what his dad was saying and learned not to do it that way. So if people are telling you not to get started or that you’re making a mistake, then please don’t listen to them, especially if they’ve never invested before.
Okay. So I don’t know why you came here today, but here are a couple reasons that maybe you did. So maybe you are tired of working your nine-to-five job, you are stuck in a rut, commuting, bosses, servitude. You just don’t want to do that. You don’t want to build someone else’s dream by working for them. Maybe you want to become a better spouse, parent, or friend, but you want more time to spend with them. You want to be more present in your own life and you might need more freedom to do that. Maybe you are looking to spend more times on the things you love, pick up a hobby. I remember when I was a first guest a couple years ago on the BiggerPockets Podcast, I was asked what my hobby was. And I was like, “I really don’t have one. It’s buying houses. It’s real estate.” And since then, I’ve bought a motorcycle, I go to soccer with my kids. I’ve changed and done a lot more and started to really love things again and enjoy life because I have the time and the freedom now.
Okay. So one thing that is true for all rookie investors is that it can be scary and that’s why I took on an investor to start with me a partner to invest with because I was scared and taking on a partner was, that’s how I overcame that obstacle, overcame that hurdle. So think about what is scaring you from getting started? How do you overcome that? What do you do to mitigate that risk that’s scaring you?
So real estate can feel like you’re just jumping off a cliff and seeing what happens and seeing where you land. But this is the truth of really what it is. It’s a path and it can be hilly, it can be up and down, it can have twists and turns, but you just have to stay on the path. And you guys can do and you can get there. And you need to take action. You can’t spend all your time researching and looking into analyzing deals constantly, but never making an offer on any. I’d love to know in the chat is anybody right now actively putting in offers on properties? Oh, good. We got a couple people. Yes, yes. Absolutely yes. Good, good.
Even if there’s a property that you see that you would like and it fits your criteria except it’s a super high price, put in low ball offers, practice making those offers, practice getting rejected. So are you committed to taking consistent action until you achieve your goals? So that is maybe building your team, finding a realtor to work with, finding a lender, practice analyzing deals and practice making offers.
Okay. So let’s talk about how BiggerPockets can help you guys, because it really can fast track you. Like I said, I tripled my portfolio in a year and a half just from finding BiggerPockets. You can get more deals. You can get them faster and you can get them with less risk. And all the tools and information is available to you. So is anybody here already a member of BiggerPockets Pro? Yes. Oh, cool. Awesome. So you guys know the tools and the resources of how much awesome stuff BiggerPockets has.
Okay. So the thing that I want to point out to you guys is the calculator reports that we just went through and we did for our sample. That was just the rental property calculator report. There’s a fix and flip one, a BRRRR one, a wholesaling one. So you guys, here’s the link right here because you actually get a free one even before you’re Pro member. So just go to biggerpockets.com/analysis, and you guys can practice using these calculators when you’re running numbers. And then if you do become a Pro member, you actually get to do unlimited. I can’t even tell you how many, I mean, over a 100 deals I have analyzed through these rental property calculators. And you can save them all right into your BiggerPockets profile.
Okay. And then just like this webinar, there’s a ton of other ones that have been done by Brandon and David and you get access to all of the replays. So you can go there and watch. And I’ll show you guys. So it’s like on demand, it’s like your own personal real estate Netflix. And you can go through all of these different workshops and classes and webinars and watch them at any time.
Okay. So then here’s just another slide that I pulled from there, the beginner webinars. Okay. So one thing with becoming a Pro member is you get like this pro badge on your profile. And this is something that we have figured out within BiggerPockets is that when you post a question in the forums, you are more likely to get a response or get someone to answer your question if you have that pro badge, because you are taken more seriously. And that’s what the forums are for. The forums are there to network and connect with people and you ask questions and get answers to those questions too. And there’s other cool stuff, like you get a forum signature, you get to upload a video profile. So you can have fun with it and also tell everybody about what you’re doing and who you are.
Okay. So you can use all the different data and statistics that BiggerPockets has pulled. So I showed you guys the rent estimator tool that showed us what exactly the rents would be in that area. I highly recommend trying this out and seeing if you guys like it, because data is pulled from all over the country to make this work.
And then this is I think one of the biggest but the calculator reports are my favorite, but this is probably the next favorite is if you’re going to be a landlord, reduce your risk with the state specific landlord form. So they actually give you every single thing you need to do a lease agreement and all the addendum forms that go with it too. So the lease, the pet lease, the lease extension, rental application, these forms were all created by attorneys in every single state. So you’re investing in North Dakota, they have the forms for your state. They’re all state specific.
Okay. So number six, because it works. So this is someone who had sent a message actually to Brandon after he did one of these webinars and they’d signed up to be a Pro members. I became a Pro member last year. And I went from one to four properties and seven doors. I never even dove too much into detail. There’s plenty of knowledge, but I didn’t have to dig deep because everything is so readily available and handed to you all the time. That made me gain basic knowledge quickly and allowed me to be confident enough to take appropriate action. So he said the rest to learn via experience partners and mentors.
And we have another one. The BP calculators are my go-to for analyzing potential properties. There’s no way I could analyze the volume of properties I do without of being a Pro member. This I 100% agree with. I locked up my first three unit almost a year ago that I’m now selling for almost a $70,000 profit that will go towards something larger. The BP calcs were a huge factor in making sure my numbers were right. Here’s one from Patrick. Back in June, I attended one of your webinars. Right afterwards, I signed up for Pro membership. In the next couple weeks, I analyzed a bunch of deals. Eventually I found a fourplex. I got it under contract three weeks after signing up for Pro. And a week later, closed on another property that was six units. Big thank you to you and the entire team. Final quick tip, sign up for Pro. I made my money back at the closing table.
Okay. So you guys are probably wondering, well, how much is it to be a Pro member? I’m sure you guys see online all the time be like, sign up for my course. I’m going to show you how to flip a house, come to my in-person event, my mastermind. So sometimes these are the prices that you actually see for even just a one day event. But BiggerPockets does not charge us because the Josh Dorkin, the founder of it did not believe in paying these guru prices. So the price for a Pro membership is $390 for the full year to get access to all of this extra information.
But I do have a little bonus for you guys. Did I skip it? Let’s see. Okay. How to Invest with No or Low Money Down workshop. So you guys are going to get access to this workshop if you guys want to sign up today if you’re not already Pro. So use the code Newbie. It’s right there at the bottom of the slide. And then also this is something new that’s coming up. It’s an LLC masterclass, and it’s going to be with a real estate CPA and a real estate attorney, and is going to show you exactly how you need to set up an LLC. And what’s the correct way to do it for your investment property. And then the third bonus you guys are going to get today is the 8 Steps to Rental Property Success. It’s a full day workshop that Brandon has put together. And you guys are going to get the recording for that.
And then bonus number four is with your free Pro annual subscription, you will get the Finding Great Deals Masterclass. So it’s interviews on the best way to find deals in today’s market. So, like I said before, you guys don’t recreate the wheel, don’t go out and analyze all of these markets trying to figure out which one to invest in, look where other successful investors are investing in those markets and then start from there, take those ones and then dive into them and see which one will fit you guys and which one will be the best and work for you guys.
Okay. So I mentioned it was Pro, but if you guys have already gone and punched in that that Newbie code, you can see that you guys can get a discount today, it’s $312 for the full year. So you’re saving 20% using that code Newbie. And you just go to biggerpockets.com/proupgrade. And then use code Newbie. So a lot of these things, our BiggerPockets has put a lot of time and resources and money and putting into these different bonuses that you’re getting. And if you went somewhere else, I’m sure they would be a lot more to purchase just one of these things. So you’re going to get 20% off. You’re going to get the Finding Great Deals Masterclass, all webinar replays, MP3, video interviews with creative investors, and then the Full Day Rental Property workshop. So they say that it’s valued at over $1,200 in bonuses that you guys are going to get for free today.
And then also BiggerPockets is awesome. So if you don’t like it, if you don’t think the money was worth it within 30 days, they will give you your money back, the full $312. And then there is the difference you can use the annual versus the monthly Pro membership. So the annual is you’re paying the $312 up front and the monthly is you’re paying it monthly, but you don’t get all the benefits if you don’t pay for the full annual upfront. So I highly recommend doing that because that’s where you’re going to get the bonuses. So if anybody has while I was giving my spiel, did anybody already upgrade to the Pro membership so they can analyze deals every day on the BiggerPockets calculators? Oh, good. Carlos said he did. Awesome. Okay. And then if you’re already Pro, you can go to biggerpockets.com/alreadypro and put the code Newbie in to get those free resources too.
And then here’s what you guys have been waiting for, your bonuses from watching from the beginning. So go to biggerpockets.com/newbieslides, put that in, and you guys can get the copy of the whole slide deck, and then also biggerpockets.com/7years, and you guys can get the 7 Years to 7 Figure Wealth. Okay. And then just a reminder again of the different things that you’ll get to be a Pro. So use the code Newbie at biggerpockets.com/proupgrade.
Okay. So let’s go to the fun part now and do some questions. Okay. So the last website, it was biggerpockets.com and it’s going to be /proupgrade. And then the code is Newbie. And then if you want the slides, that was biggerpockets.com/newbieslides, all one word. And then the 7 Years to 7 Figure Wealth, that was biggerpockets.com/7years.
Okay. Let’s see. Alan has a question. Would you recommend wholesaling to start? Yes, I would, because there are so many, many ways you can do it with very little money upfront. And so you can do driving for dollars, you can even look at expired listings on the MLS and start contacting realtors and say, “Hey, is this person still interested in selling?” And then you get these properties under contract and you find your buyer. And your buyer pays for it and gives you an assignment fee. So you may eventually have no money into the deal. A lot of wholesalers may pay for marketing, like sending out mailers or different things like that, but there’s definitely ways. And even those can be pretty cost effective compared to what you are going to make off the wholesale deal, especially if you connect with investors in the area and they tell you exactly what they are looking for, then you can go and you can find them that and bring it to them and then make some money off of it. I think that’s a great way to get started.
Okay. Let’s see. Do you have any advice on getting a HELOC when the property is in an LLC? So I just did this actually within the past year, I was able to find a small bank. It’s upstate bank. It’s based out of Rochester, New York, I think. And they would give me a HELOC on a property that was in an LLC. So it was on the commercial lending side. It wasn’t residential. So you have to talk to a commercial lender. And this is the only bank that I have found that would do this for me, do the HELOC on it. But I actually did it on two properties.
So all you have to do is call these banks, call and ask and ask. And even better, if you have a property that you want to put a HELOC on, what I would do is I would call banks and I would say what your situation is and what you’re trying to do. So say you want to pull that equity to buy another property, tell them that you own this property, you have this much equity in it, you have a mortgage on it and you want to go and buy a duplex or whatever. Ask them what options they have available that they can give to you and let them lay out different things, because there might be something out there that you don’t even know about as far as lending.
And then is private money lending only for rehabs? From Stephanie. No. I have private money lenders that hold the mortgage. So I’ve done private money from an investor where maybe I’ll borrow the money for one year and then I’ll rehab the property. And then I’ll go and put a bank financing on and I’ll pay him back. But I used his money for the purchase price, I used his money for the rehab. I also purchased a property that was turnkey, didn’t need any rehab. And I used private money to buy that. And I have a long term, I have a 30 year private money loan on that property. So no, it doesn’t. You can use the private money for whatever as long as that’s what you agree with the private lender.
Let’s see. How do you learn your market so you know if something is a good deal and if your math is correct? From Timothy. Okay. So one of the best ways to learn your market is to constantly look at comps in the area. So get those MLS listings sent to you. You can look up on realtor.com sold listings, and you can see what properties they’re selling for. Go onto the rent estimator on BiggerPockets and see what properties are renting for. You can contact property management companies and ask what the market rents are. You can just pretend that you are an interested renter and see what’s available in the market.
My girlfriend and I are interested in house hacking tips for finding good quality multiunit investment properties. Okay. So the first thing is is by good quality, I guess you mean you don’t want a fixer upper, you don’t want to do rehab. The best thing you can do is get an inspection on the property when you purchase it, have an inspector go through it, and they’ll be able to tell you all the things that need to be fixed or could potentially be fixed on the road. So what you can do is when you have that home inspector go through is you can ask them to make a list. Okay. What are the things that are immediate that need to be fixed right now? What are the things that I should fix or repair within the next year? And then what are the things that I can fix or need to fix or repair in the next five years? So maybe he’ll look at the roof and say, “You’re going to have to replace this roof in five years.” So that’s probably going to be a $10,000 expense or whatever. So you can plan and prepare.
Instead of using a home inspector, you could also find somebody that you know personally, a family member, a friend that has construction or rehab experience and have them go with you to look at properties, even if you have to pay them, give them 50 bucks for coming and looking at the property for half an hour with you to say, oh, I see this. I think this might be a problem. Things like that. So use people you know and don’t take advantage of them. You can pay them, you can give them a case of beer, take them off to dinner after things like that. But to know what’s going to be a good multifamily is look in the market too.
So are you going to be able to find a renter for the other unit because it’s in a good school district, there is a low crime rate? Are you going to be able to get the rent you want to cover your part of mortgage, use the rent estimator tool for that? How can a newbie get started in high price areas, AKA the Bay Area? From your Jane. The best thing I can say for that is house hacking. So having as your primary residence, doing a very low down payment 3.5% and then renting out the rooms to other people, or I don’t know about the Bay Area, I don’t think there’s basements in California. But around here, we have basements and people transform their basements. And I think Denver, they do this too, transform the basements into separate units too, so that you are house hacking your basement and paying out rent, or there’s ADUs that people are putting into their backyards as a separate little dwelling to rent out, or even the attic space above a garage too.
So one thing that you’re going to learn as you become an investor is there’s many different ways to make money off of real estate. So when you are looking at a property, don’t just look at, oh, it’s a single family home, I can rent it for this. And that’s it. Look at around it. Maybe it has a huge parking lot where you could park a couple motorhomes and charge people storage fees for their boats and motorhomes. Maybe it has a garage where you can charge rent for somebody to rent the garage. Maybe it has a third storey attic that actually can be turned into another unit. So try and look at properties and look at different ways that you can even make more income off of them.
So even if maybe you have, I have this little six unit apartments there, it’s actually three different duplexes all on one little lot. And they have like a little road that goes down and there’s a separate little grassy area. I haven’t done this yet, but I probably should do it soon as I wanted to put little sheds on there. And then I could rent the sheds either to my tenants or it’s in like a little village. So there’s other tenants there. And they could buy a 500 to a $1000 little shed and charge 50 bucks a month or a 100 bucks a month or something to rent these out because there’s just really wasted space there and I have to pay to have it mowed all the time too.
Let’s see. If I have 200,000, what’s a smarter move, house hacking or small multi-unit investment or trying to do both? So I would take both scenarios. So find a house hack, run the numbers on it. And what is your return going to be? What’s your cash-on-cash return on that property? What’s your cash flow going to be if any? Or is your living expense going to be zero? And then take a small multi-unit. What is your cash-on-cash return going to be for that? What is your cash flow going to be on that? Are you going to make more money on that small multi-unit? Then you’d be saving on paying your own mortgage house hacking.
So compare the two, run the numbers on both and see what they look like. And then you may be able to take that 200,000 and put it into both. So maybe instead of doing 20% down payment, you’re going to do FHA loan on the house hacking property and only put 3.5% down. And then maybe you’re going to use the rest of your money for a 20% down payment on the multi-unit. So you have to run the numbers because it’s hard to say exactly which one would be better, run the numbers on both scenarios and see, actually all three of those scenarios, and see what the outcome would be from that.
What’s your thoughts on rental forgiveness from COVID? Well, I actually just did the math yesterday and I have $18,000 that is owed to me as of currently for back rent. And 10,000 of it is just from one tenant that hasn’t paid within the past year. But I think that as a landlord and seeing other landlords struggle that I think that it’s not fair as to far as how long it has gone on that landlords haven’t been able to get any relief for themselves. So in Buffalo, they did some tenant relief where tenants were able to get money that would be sent directly to the landlord. But the landlord had to sign saying they would not evict the tenant for six months. And the one tenant that I’ve had a big problem with is, of course, they didn’t pay anymore. They got their one rent relief check.
And then I note that there’s forbearance on foreclosures for landlords. So if their tenant’s not playing, they can go to the bank and they can say, “Well, you can’t foreclose on me, but I can’t be making my payment right now.” And so the problem I have with that is I don’t want to ruin my relationship with the bank because just like the tenant is hurting me and I can’t pay my bills, if I’m not paying the bank, the bank’s not making money and they’re not paying their bills. I mean, really, I know it’s a lot different. But I want to be able to go to that bank, I want to have a great relationship with that bank. I want to show that I can pay my bills. I don’t want to be somebody that would stop paying my bills.
So if it got to the situation where my rental properties couldn’t cover my mortgage payments or something like that, I would dip into our farm income and I would use that to pay our mortgages instead. So I understand people need help, but I think that there should have been a different way to help people than the way it was handled with giving, not doing evictions for this long of time too.
I have friend with rentals who is 38,000 behind as of April, 2021. Wow. Yeah. It’s crazy. And then can you write that off? Yeah. You could write it off as bad debt expense. But you can go after them with a judgment things. I did have to do one eviction before where we went to court and we ended up doing a judgment against them where I think it was like $2,500, maybe. So saying that if they ever sold something, like they bought a house and sold it or bought a car and then sold it, that I would have a lien on that piece of property. And that when that sale went through, I would be paid for that. It’s been five years and I haven’t seen anything from it. And I don’t think that I ever will.
Let’s see. Stephanie said, this is why I want to landlord in landlord-friendly states. Yeah. Even just since I’ve been an investor in New York State, has it changed their laws in June of 2019? I think it was and made it even worse to be a landlord here. And that’s something we definitely go over in the market analysis too, is to what do the laws look like too? If you’re looking to buy a rental property, are they investor-friendly or are they tenant-friendly too? Because that can make a big difference. Probably sold car for cash. Yeah. And you know what’s funny about that eviction too is, I mean it wasn’t funny then, but like two days later after they moved out, I saw them at the Verizon store and the guy was buying his girlfriend a brand new iPhone. Yeah. I [inaudible 01:12:04] too, like, oh hi, how are you doing?
Okay. So back on track. Let’s see. What are the benefits of buying under an LLC rather than personally? So the benefits of that is really asset protection. So a lot of people buying their personally because you can get better financing terms, you can get financing on the residential side, 30 years, you can less money into the deal. So usually you can get better cash flow, getting the residential mortgages. Then you can usually can getting commercial mortgages and you get that locked in fixed rate for a long time. Where if you have an LLC, a lot of times you have to go to the commercial side of lending. And I have gotten one bank that did give me a residential loan on an LLC. So it definitely is possible. It’s just outrageous. Interest rate was like 7.35%. But it can be done. It was fixed for 20 years I think. But when you have the LLC, you have protection as long as you are following how to actually operate a business and LLC is running your income and expenses through the LLC.
And then so really it’s for asset protect so that if you were sued or something were to happen, that someone couldn’t come after you personally and come after your personal house. So that’s the biggest reason as to why people put the property in an LLC. If you do put your property in your personal name, you can go out and get umbrella insurance. So umbrella insurance is put onto your property over your landlord policy. So you have your basic homeowners insurance policy with the landlord policy wrapped into it.
And then you can go get umbrella insurance so that if you are sued, that umbrella insurance would cover you up to maybe $2 million or you pick what that limit is that they’ll cover you for that. So you can use as a kind of protection against yourself if you are sued as getting that umbrella policy, because when I started out, any property I bought by myself, I put into my personal name and then I got that umbrella policy over it. Any property I buy with partners, though, I put that into an LLC right away. I don’t hold any property in my personal name with any partners that’s oh, I always do that in an LLC just because I want to mitigate that risk of being responsible to my partner and me being vice versa back to them. I don’t recommend owning property in personal names with people unless of course it’s your spouse. But I think get that LLC to protect yourself.
Okay. So any tips on buying in areas that are being revitalized, but are still largely low income? One opportunity you can have here is that in those revitalized areas, they might be opportunity zones, but I don’t know a ton about this, but if anyone is going to the Bigger Pockets Conference, they usually have a talk on opportunity zones where you get tax benefits and different benefits from investing into that area and fixing up the house.
The next thing is that you could contact your local Section 8 housing authority and get people into your house there that have vouchers. So if you are having a hard time because it’s still low income area and it’s not fully revitalized yet, if you’re having a hard time finding tenants to live there that maybe aren’t coming back with the best screening, contact your local housing authority and figure out who gets out the Section 8 vouchers and list your apartment with them, because what Section 8 is for people don’t know it’s for people who are low income or they need help paying their rent. And so they apply for this state aid.
And what will happen is the agency, the representatives, they will say, okay, this, you qualify. This person qualifies. They will pay a large portion of their rent. So I’ve had tenants that pay $25 a month towards their $700 rent payment. And the Section 8 voucher is paying the rest. So I get that money direct deposited into my account every month. I see that as guaranteed rent. I have not heard of one investor who hasn’t been paid by Section 8 during this whole COVID thing too.
So there’s pros and cons to it. Some people say that you get bad tenants with Section 8. Some people say you get good tenants. But no matter what, no matter where you get your tenant pool from, that is going to happen, you’re going to get the good and the bad. But the nice thing is is that you get that guaranteed rent payment too. So if you are investing in an area where you’re having a hard time finding really qualified tenants as to great screening comes back, great, great credit, great income, then maybe look to Section 8 tenants for those properties. My email again is Ashley Kehr, A-S-H-L-E-Y [email protected]
Okay. I am starting with a partner and he has done a couple deals already. This is my first. I am investing only. He is investing and labor. Where can I find good resource to structure the percentage split? So this is actually a very common question as to how do you structure a partnership and what’s fair, what’s not fair. And really there’s no right or wrong answer. So what I would do. First of all, this is your first time investing together, I would date this partner and just focus on one deal first and not say, oh, okay. So every deal we buy in the next year, we’re going to do it together. Start with one deal and work up an operating agreement, a partnership agreement. And so if you’re both putting money in, you could divvy up the equity based on how much money is going into the deal. So say the property is a 100,000 and you’re both putting 50,000 into it. Now so you become 50/50 partners and he is doing the labor.
So one thing that you can do instead of giving him more equity is that you could say, okay, so you are going to be paid an outwardly rate based on the labor, or we know the rehab on this property is going to take this amount of time. So let’s put a value to it of $5,000. So after we refinance the property, you’ll be paid $5,000 or something like that.
I like the idea of thinking of the future when you’re putting together a partnership and not just the now. So in the future, he may not want to do the labor anymore and you might want to outsource it. Well, but he owns 70% and you only own 30, but he’s not doing the labor now. And you both put money in and now you’re both equal, but he’s still 70% owner. So if there are jobs or tasks that other people are doing, I like to put that into the operating agreement that, or you could even say that upon him stopping his duties, he no longer has 15% equity. And that becomes split between the two of you or something like that. So think about the future too, and not just the now when you’re building that entity structure.
Partnership operating agreement templates on Pro. No, there isn’t. But what you can do is reach out to a local attorney, if there’s a real estate attorney in your area, ask them for a template, not even for them to put the contract together. A lot of real estate attorneys just have these templates already put together, or you can pull one offline. In the Bigger Pockets Bootcamp class, I do provide one for everyone. It’s just like a template. And then you go in and fill it out. And then I just recommend that you take that and you have an attorney approve it for you too.
But if you go to an attorney, this is what my attorney did for me is she went and she gave me templates for everything, for lease agreements, for operating agreements, for the LOC documents, everything. And then I would just fill them out. And then I would say, “Hey, can you just look this over quickly?” It was a faster turnaround time because I knew all the information. I was just plugging it in. And I could do it whenever, instead of waiting for her to have time to fill it in. I wasn’t paying to have her fill it in. And I just, my fees to her were super low because that she just had to glance over it. And I did all of the work. So if you have an attorney you’re working with, ask them if they have any documents that they would give you as templates, and then you just hand it back to them for them to review. And will save you a ton and legal fees too.
So, okay. I’ll take one more question then I got to let my kids back in the house. Let’s see. Can you structure a partnership where you share cash flow, but in five years, you refinance and buy them out? For sure, you can definitely do that. A lot of people do that where it’s just that there is it’s called a buy-sell agreement. And you put it into the buy-sell agreement that in five years, you’re going to refinance the property and they’re cashed out and they’re no longer an equity partner, no longer an owner in the property.
So you would just state that, what that exit strategy is in there and have them, you both agreed to it, you both sign for it and they take their money and walk away. Make sure you do put some kind of value in there as to how are you going to cash them out? What are you going to base that number off of too? So that there’s no dispute where he’s saying, “Well, okay, the appraisal was this much.” And then you say, “Yeah, but it could only sell for this much, even though appraises for this much.” And blah, blah, blah, that stuff. Just put as much information as you can into the document before things come up, think about long term and exit strategies and putting in those details.
Okay. Well, thank you guys so much for joining me tonight. This was a lot of fun. I love the Q&A part the most. And I hope you guys took some value. If guys want, you can reach out to me on Instagram @wealthfromrentals. My email is [email protected] So thank you guys very much. And reach out to me and let me know if you guys signed up for Pro and became Pro members. I have a Bigger Pockets profile. You can message me on there. Okay. Thank you guys. Have a good night.