The SFR Show

Check out Tom, Michael and Emil's strategies for submitting winning offers.

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Transcript:

Tom:

Greetings and welcome to The Remote Real Estate Investor. In this episode, we're going to be talking about the offer all the way from we found a property. We like now it's time to make the offer to negotiations, to getting into contract. All right, let's do it. Alright guys. Welcome back. So before we jump into it, how are you guys doing?

Michael:

Yeah, I'm good, man. I'm good. Um, I got this six unit that I'm flipping under contract, which at a full price offer. And we got a backup offer a little bit higher than that, which is always nice. So hopefully that goes smooth. We're supposed to close here in like two and a half weeks. Very excited about that and wrapping up a couple of rehabs that I got going on, which is also very exciting. So all things good and the air finally cleared up. So it's not so smoky. So everything moving in the right direction.

Tom:

Nice. I'm going to tease into those, your offer, your back and forth when we get totally more into the episode, but a congratulations. Always fun to get a property in contract.

Michael:

Thanks. Yeah, I'm excited. I'll be a lot happier once it's signed the wet ink on the dotted line, but we'll, we'll stay tuned.

Tom:

Nice. How about yourself Emil?

Emil:

I'm good. I'm a, our listeners can't see me and they never can see us, but I had to go to my inlaws. Cause my internet connection at home has been funky all week. So how do you get good internet connection went to the in laws. So I got a new environment. Maybe that'll spark some new creativity for today's episode. We'll see.

Tom:

Nice at the start of the pandemic, I was always being like, didn't want to pay exfinity any more of my money. And then eventually my wife was giving me a hard time about how bad our internet was. And I like talk to a rep and he's like, you have the slowest possible program like possible. It was like bent for like, not really minimum amount of use. So I like texted and it's yeah. For those of you trying to be cheap on the internet, don't be give him your money. It makes life a lot easier.

Emil:

I'm sure internet companies have been doing awesome. Cause everyone's working from home now. So everyone's like cranking up their internet before you could get by. And now it's like, nah, I need, I need the top notch internet.

Michael:

And I wonder how much they're throttling people too. Right. But like, Oh you I'm sorry. Guy looks like you need to upgrade your package in order to get the best internet service.

Emil:

Oh yeah.

Tom:

I worked on me, man. It worked on me.

Michael:

You guys seen that South park episode. Oh yeah. We're the only internet provider in town. We'll be at your house between 10 and two. Uh, so sorry.

Emil:

That's true. Like I called them on Tuesday and they're not coming out til next Thursday. So like a week and a half, that is just not working. So that's fun.

Michael:

Nice.

Tom:

My other fun stuff is a, my baby is now walking around, which is fun. He does like an Elaine dance walk. So just like going through the halls or what's the other example? Like the inflatable balloon, man's like pretty entertaining.

Emil:

Hopefully people got the Seinfeld reference. I love that

Tom:

Um, awesome. All right guys, let's, let's jump into it. So we are in the offer episode and why don't we go ahead and start with the tip f the offer process and Michael, I'm gonna pick on you first. So you found a property. You like, you've done your diligence and it is go time. Where are you doing? What are you up to? How are you going about it? Walk us through it.

Michael:

So I've run the numbers. I know the area I have projections lined up. Right? I've already did all that.

Tom:

Correct.

Michael:

So now it's coming down to determining what the offer price wants to be. And I used to not be real scientific. I'm still not that scientific about it. Let's say I like to put speak in numbers. It makes conversation a little easier. So if I found a property it's listed at two 50 and the deal works at two 50, I'll offer, you know, two 30 just to see what's going to happen. And, and we'll probably meet somewhere in the middle, which if anybody has read the book, never split. The difference would say, that's dumb. You shouldn't do that. So I've also been known to make really specific offers like two thousand two hundred and thirty thousand seven hundred and sixty three, because that shows that I put a lot of thought into it. And so I like to be very specific at times too, but I always like to go lower than I think I'm wanting to or needing to go.

Now that's an example of the deal working at two 50. And so if they come back and say, no, forget about it, two 50 or bust, I'll pay two 50. If the deal is good enough, and I've done that in the past, if I need the numbers to be at two 30, well then I'm probably going to be offering around 200, one 90. Most people do want to split the difference. And so they're going to say, okay, whatever, we'll call it in the middle, but also use that tactic of writing very specific offers. Something else that I've done a lot of in the past is I'll actually write three different offers. One is going to be an all cash offer. One is a traditional financed offer. And then one is a seller financed offer and they'll have three very different prices. So like if it's an all cash offer, we'll take the two 50 example, I'll offer 160, all cash I'll offer, you know, maybe 200 traditional finance and I'll offer 230, 240 seller financed with really favorable terms for me. And so that way it's a choice for the seller. Pick one of the three, as opposed to a yes or no decision. So that was kind of long winded answer. I know

Michael:

Super interesting. The putting three offers together. I've never heard that before. Did you come up with that one on your own or did you like a mentor?

Michael:

I wish I had come up. I think I heard it on a bigger pockets episode actually from one of their guests. And I was like, that's genius. And as soon as I heard that I was actually about to offer on a property. And that was actually that mixed use building that I talk about a lot of other episodes. And so I did that on that property. I was able to get, I think, a really great deal on it, I think potentially because of it. And also when you look at numbers next to one, another things often seem better than they are naturally. Right? So if someone sees Oh one 60 that's wave low, well now they see an offer a 200. Wow. That might be a great offer when you compare it to two, one 60. So I think that there's definitely some psychology that goes into that as well.

Tom:

Tons of psychology and this, and we'll touch on that in a little bit. I'm curious when you do that, that triple threat offense, like when someone negotiates back, do they usually pick the same track? Are they usually picking all cash or the finance or the celebrant, or is it pretty, pretty split?

Michael:

It’s pretty split, I think, cause it just goes to speak volumes about the seller. Every seller is different and every seller's motivation is different. And so if you can look to understand why someone is selling, that really gives you a lot more ammunition to go in and tailor an offer to them. Because I think too many people, myself included are just like, Oh, this is a number that works for me. So take it or leave it on the offer side. But there's so much more to it than that. You know, if I know that the seller is an older couple looking to get out of the business, but like the income, well that screams seller financing, right? That might be a really great deal. And so helping them understand what that is, can be really beneficial. So I always ask the question, Hey, why are they selling? And try to get an idea of what's going on behind the scenes, because my offer is going to change as a result of that,

Tom:

On that psychology of fun Roofstock history. Uh, initially the website just had a bite. Now it wasn't, you know, there wasn't any wiggle rooms on offering. There's this huge psychology in real estate of people needing to feel like they're winning. I think both on the buyer and on the winner side. So, you know, with most deals, they, you know, there's a little bit of negotiation going on, but it's really interesting. The it's a game. People want to win the game and negotiate it. So open it up to you, Emil. So blank slate. You found a property, you've done your homework. How are you going about your offer process?

Emil:

Yeah, so it's probably changed over the years. It's funny, Michael, you mentioned Chris Voss's book, Never Split the Difference. I ended up doing that same tactic on my first property. It was like I offered 80, the seller came back at 85 and we ended up at like 83, nine 71, cause I just put a random number on it. So that worked. That was cool. Honestly, when I first started out, I was probably just looking for what property can I find that meets the 1% rule and how can I just get a little bit below that? Right? Like you mentioned, Tom, it was a game. Okay. Here's the list price, let me start out 10% underneath and underneath list price. And we'll take it from there. Barring that the list price wasn't like out of control, right? Like check, just make sure that it was in line with where it should be valued.

Now, now I've, I've started to like really hone in on a specific market in the beginning. I kind of just, where could I find a deal buy it? Right. So I've floated around from market to market. Now I'm really trying to hone in on one market and understand, okay, what does a single family home in this market sell for? What does a duplex, triplex, quad all these different types, right? What are they selling for and what is a good deal versus what's an average deal. And I think it really depends. Like if you're looking at a property that the prior owner has done a lot of the work coming in and expecting to get 75% of list price, you're probably just going to keep making offers and lose, right. Which is in a way demoralizing, especially on your first property, you keep doing that, keep doing that, wondering what's going on.

Now, if we have a property that has a little bit of hair on it and has a little there's things that need to be fixed, the roof needs to be fixed. Maybe mechanicals need to be changed. Like just certain things need to happen with the property. The rent is under market. Then that's where you have some leeway, right? To negotiate more. Again, this is all just best practice. You can go into a turnkey, try to offer 20% less than list. See what you get. But I guess to wrap it up my, uh, final thought here is it really just depends on the property type. Is it a good deal for that area in that market? So summary is if it's like, do I want something that's going to require a little bit more work? Okay. I'm going after a certain property type I'm going to offer way less because I know I'm going to have to come in and make repairs. So like you were kind of mentioning maybe going 20, 25% below list price. If it's, it also just depends on what it's listed at, right? Like some people could list it at the after repair value and it needs a lot of work, but you have to just kind of figure out how much do I have to put into this and with that and what I'm putting however much I'm paying. Is that a good deal? All those things together. I hope that makes sense.

Tom:

I dig it. I'm going to throw a couple of points on top of that. I think you need to be really specific on what your maximum bid is before you get into an offer and especially into a negotiation situation. So before getting into submitting an offer, having a very specific amount on what that max bid is really important and a way to get to that is looking at what kind of returns you're requiring. Um, Excel has this really cool feature called goal seek where you can back into that number based on variables, on what kind of cash on cash or IRR and all that kind of good stuff. So going in with a max bid is just so, so important, uh, going into an offer situation,

Michael:

Tom, before you move on, can you say more on that? Why is that so important? If I'm going to get into an offer and man, maybe I'll offer this and maybe this will be my max bid. I know they came back with this and maybe I'll move it here. Why is it so important to know ahead of time?

Tom:

Of you listening are similar to us gentlemen, as we can be kind of competitive and it's fun to win, right? And nothing gets my juices going, like getting into negotiations. It's just, it's fun. You know, you're playing a game and if you're playing this game, I say to the game, but you know, you're investing, right. If you don't have like a hard threshold, you can get in trouble by kind of continuing to go to back and go back and forth. And you know, with these properties, we spend time with them and you can let yourself fall into the fallacy that, Oh, there's never going to be another one like this. When you know, you got a good quote.

Michael:

Yeah. The deal of a lifetime only comes around once a week.

Tom:

Exactly. When you give yourself that hard number, it's just super black and white. As soon as that number is above. And you're not able to come to an agreement, one of the most important tools in your toolkit of negotiation is the ability to walk away. Now it doesn't work that's okay. So that's one piece is just making sure that you have that max offer in place. The other is knowing some context about the seller, which isn't always available, but here are some pieces of information that I think are really helpful. If a property is occupied and cash flowing, oftentimes a seller may be a little bit less loose to, you know, to a deal cause it's like cash flowing, it's making money. So sometimes on those types of properties, it could be a little bit tougher to get a huge discount. Once you it's still worth going through the exercise of submitting an offer.

But just generally speaking for a lot of sellers, if it's not occupied in cash flowing, they might be okay, like holding it out a little bit longer. The other metric that I like to take a look at is how long it's been on the market. That can be a scenario where you can get a little bit of a better deal if it's been sitting on the market for a long time. So that's something that I will think about on the offer amount, submitting an offer and having it taken seriously. I would not go beyond an 80%, but oftentimes if it's a new property and it's really competitive, the seller's just going to shake it off. So I wouldn't be too aggressive. When if you had know your max bid and there's a lot of wiggle room, perhaps your max bid is even over the listing price, knowing your max price and where it fits against your, um, the list price can inform where your offer price is going to be.

What can happen is let's say there's a new property. That's listed. You have a max price that is well above the list price. If you try and be cute and put an offer well under the list price, and this is a new hot property, you're not going to have an opportunity to buy it. Cause there's probably a lot of other people in there. So have it in your mind on what is the delta between your max price and what the list price is. So when you come in and submit your first offer, you're putting the offer in that gives you some wiggle room, right. To negotiate. And, but you also want to make sure that it's somewhat competitive. If it is a new property in a competitive market, otherwise you're just going to be the go through and going through the exercise of submitting your offer and just having it fall on deaf ears because those ears are getting clouded by a lot of other offers.

Michael:

Yeah. It's such a good point. I talked to people all the time in the Academy about when they asked the question, Hey, what should I offer on this? How do I think about this? I said, well, what is it worth to you? You know, a property is only worth what someone's willing to pay for it. And if you're going to offer three, five, 10 grand under list price and you lose that deal, is it worth it? Or is it worth it to come in at full list and just give the seller what they're asking for? Because the deal still makes sense. So I say, figure out what the numbers tell you offer there. But also you've got to give some weight too. If it's a hot deal, hot market, you might lose the deal over a thousand bucks. Is that worth it? Especially if you're financing it. So really that's 200, 250 bucks at the end of the day that it costs you.

Emil:

Do you ever just work backwards to say, okay, this is what I can offer to hit that cash on cash number.

Michael:

Goal seek goal seek baby. Yeah. That's exactly what the goal seek function does in Excel. And it's amazing. It'll calculate down to the dollar based on whatever variable you're trying to manipulate and whatever target you're trying to hit, it'll spit out, okay. Based on this, this is what your offer price needs to be. Or your max price needs to be in order to hit that goal.

Emil:

I said that as a like loaded question, obviously. I was rambling, but that's, that is how I make offers. It's looking at what is the cash on cash I want and working backwards from there, right? And again, there's all these factors where if it's been on market for a day and I'm coming and I need to come in like 30% under, maybe I'm not going to waste everyone's time. Right. I'll keep looking. So it kind of just work backwards from what is the cash on cash I'm looking for through the underwriting and go a little bit under there to start my offer process.

Michael:

I will say to that point, even if it's been on the market a very short time, I'll still come out, swinging for the fences if that's available, because you don't know, unless you ask the question. And so if you can offer a quick close or all cash or you know, are able to fill whatever void the seller is looking to fill by selling the property, you could have a chance you can. I mean, I've made some ridiculous offers and gotten them accepted and I'm like, wow,

Emil:

Right away.

Michael:

Yeah. Like on that sixth unit that we talk about a lot. So bought a six unit out in the Midwest for like 90 K a, which is 15,000 a door, which doesn't exist literally. And it doesn't exist. And I wouldn't have got it if I had an ass. And so my agent told like all his buddies about it and they're like, no way. That's like, Whoa, that's not possible. So sometimes. And of course that's the exception, not the rules, but sometimes the impossible can happen just by asking the question.

Tom:

A point I was making earlier. Like, you know, if you try to be too cute in a competitive market, you know, and you have a number that works for you, my advice would be like, you're looking to invest and it's early on the market. Don't be too cute and throw too low of a number if it's going to be seeing a lot of offers. Does that make sense?

Michael:

Yeah. Submit strong offers.

Tom:

Yeah. Submit strong offers as long as they yeah. As they make sense, but especially for properties that been sitting a lot longer, you know, then be a little more aggressive. So you had a fun thought exercise, but let's turn the tables. Okay. You're the seller, what's your strategy around negotiation on seeing offers, come in the mail. Do you want to lead us off with this first one?

Emil:

Yeah. I'll lead this off. Cause I sold the property earlier this year so I can, it's fresh on my mind. And then Michael is kind of going through the process now. So it's fresh for him as well. In the beginning, when I first listed my property, like anyone else I'm listing it at, what do I think the full, full value is? Right. Like not a deal because I know someone's going to come in and try negotiate anyway. So why would I willingly just list it at like a lower end? Right. Let's see what we can get for it. And then after getting tons and tons of low ball offers slowly move the price down. It wasn't a ton. I think it was a low price. Tom started at like 71, moved down to, I think ended up being like 65, right after just getting tons and tons of low balls and it was a couple months. Right. So no bites. And then finally got something close to that. 65 K all cash a little bit less than what I wanted. But at that point, you know, the buyer, the buyer made a good move. I had been a seller that had been on the market for a couple months. I was tired wanting to get rid of this property. And so they got a, you know, a little bit of equity built in. So I think it really just depends. Like, do you need the cash now? Or like how much time do you have, if you're willing to wait, your property is cash flowing. You may not like be willing to, to yield, like accept offers that come in and they're super low. So I think it really just depends on, do you need cash now and all that.

Tom:

I guess in this situation, really, the negotiation begins when you set the list price. So you'll set it a little bit higher and let the offers come in and, and manage the low balls. It will, you know, kick the low balls out of there, but slowly dripped down over time. Right?

Emil:

Yeah. And we just done a couple thousand dollars in work on the turn, like new vinyl plank flooring, repainted, everything, new tenant. So it was, it was a good turnkey property. So for me, I was like, okay, let's list it on the higher end of the range that I think this thing would go for and the market will speak and the market will tell you if it's legit or not. So just adapting to that.

Tom:

One of the tricky things with those listing of properties that are especially kind of the lower price ranges, valuing it off of the rent, you know, off of a cap rate, the value is probably gonna be very different than off of the sales comparable. So as a seller, you could be thinking of this evaluation off of like a cap rate buyers, especially if it's owner occupied, you know, they might be looking at it as sales comp. So that can cause a disconnect. And it just kind of an interesting, interesting point to bring up, go ahead, Michael dye.

Michael:

That can cause a huge disconnect, but I was just going to ask him, you know, when you got those low ball offers, did you just flat out reject them or did you counter?

Emil:

Depends. I think the first couple I countered and then they counter, it was like, I'm talking. I think I had to listen at 71. I mentioned, and I was getting offers for like 45. And so I'd counter with like 67 and they would counter with 46. So I'm like, all right, this person's obviously just thrown out lots of offers looking for a motivated seller. Right. So at that point I just declined. Yeah. So yeah, I would, I would play ball. I would see how, you know, are they just looking for a deal? Are they serious, you know, pebble back and forth and then call it from there.

Tom:

I think that's a psychology to making offers and listening to a meal as a seller. Like if you're making offers, you know, if your max bid really is 48, 47, great, keep going that line of thinking. And then the offer back and forth will end. But if your max bid is really up in the sixties or in the fifties, usually back and forth happen, I don't know. Would you guys say like maybe two or three times, at least in my experience. And usually it's, it's a pretty quick, so again, to my point of not being too cute on the deal, cause you just, you won't get deals, especially when you've done an initial kind of discovery of submitting that offer. And the seller is coming back to you at like 98%. Chances are the seller is not going to find a huge movement off of that, but at the deal still makes sense for you. Great. Come move up a little bit, get a little bit closer to him instead of just slowly creeping up to your max bed. All right, Michael, you're the seller,

Michael:

I'm the seller.

Tom:

What's your thought process in dealing with offers coming in?

Michael:

Yeah, so similar to Emil, I just got a bunch of low ball offers like real low, like real, real low. I countered a of them. I flat out rejected others because you can often tell in the language of an offer what kind of person they are, how motivated they are as a buyer, what, what it is they're looking for, or just how much of a pain in the butt they're going to be with to deal with as a buyer. And so I've told people know, even though they've had good offers because I just don't want to deal with them as a buyer, it's just a headache. Uh, so I had a seller financed offer that actually I accepted and the buyer, I don't think he really had any idea what they were doing when they made the offer. And so we countered and we got the terms, basically all the terms we asked for and I was like, great, this is awesome. This is going to be fantastic. And then it started coming down to asking for documents on the buyer because now I, as the seller needs to do due diligence on this person as a buyer and a borrower, because I'm essentially loaning them the purchase price.

And of course I can foreclose on them if they don't make good on their mortgage payments, but I'm not in the business of, for closing back on properties that I've sold to someone because I want to collect the money and I want to be done and I want to walk away. So they started getting really squirrely with it. And I'm not going to give you tax records. It's kind of thing. And I said, well, then I don't think this is going to work out. So we got a full price, offer all cash via 10 31 exchange and they can close quickly. And I said, great, let's do that. It's at the end of the day, less money than the seller financed offer, but it's less headache. It's seem it's seamless. And the buyer clearly knew what they were doing. And that was very apparent. And so that's worth dollars to me.

So I said, okay, let's, let's go that route. So as a seller, I mean, if just someone is reasonable and puts forth a reasonable offer, I'll entertain it, I'll look at it, but it all comes down to, again, what the seller's motivation is. And I try to never fire sale properties. I never want to be in a situation where I have to get rid of something where I would be the seller in that $90,000 deal for six units. These people just wanted the property gone, they didn't know what to do with it. They needed to sell it. I hope to never be in that situation. And so to be able to command top dollar for the properties, because either in good shape and B, because I don't need to sell them. And so if I get a good offer, great, if I, if I didn't get a good offer on this property, I was just going to keep it in cashflow the heck out of it. Cause it's, it's a monster, but I just didn't want to deal with it. I've got too much other stuff going on. That's it? Okay. Let's sell it, make a profit and, and walk away.

Tom:

That's awesome. That's great. Having a buyer who's in a 10 31, just that much more of a motivated. So he keeps within the rules and all of that. I'm in the seller seats to the last property I sold. I wasn't too aggressive on setting the list price. I was a 10 31 seller, so I had to fund some properties. Oh man, I wasn't as aggressive as Emil. That's funny. I said that like I was surprised, but I kind of was, cause I forgot that I was 10 31 into another property and I'd already identified the other service. There was uh, some moving pieces, but I was less aggressive on the price. The property was, it was the low 100 thousands. I like maybe if I had waited it out could have got 110, but I ended up selling for 104 was the number and listed it super quick, sell, selling it on Roofstock it probably valued more on the income approach, just being in that slightly lower price band, but listed it got a couple of offers.

I personally don't care too much about all cash versus the offers with lending. I know with owner occupied, you know, there's a lot of difference in that whole, at least the psychology of, of buying owner occupied, but in selling, I didn't really care too much of a difference between all cash versus lending offers. I know there's some risk about buyers who are coming in and using financing of it falling out, but I wanted to maximize that dollar amount and I was okay. The transaction being a little bit longer doing a finance approach. So, you know, I saw offers that were cash as well as finance and I was fine taking the higher offer that was financed and yeah, a quick, quick, smooth, close.

Emil:

Selling. All cash is nice. It's it's much smoother. I, that I sold my property, all cash. It was, it felt like a lot less paperwork and moving parts, which was nice

Michael:

Is because you don't have this, unless there's an appraisal contingency that the buyer puts in, you don't have the bank snooping around the house telling the buyer, Oh, you have to do this, that and the other thing. And then the buyer coming back to you and says, Oh, the bank's making me do this. Will you do it? Well, no, I don't want to do it as the seller, but you can't do it as a buyer because you don't own the property yet. So it's just, you can get into this real rigmarole pretty quickly. And so I think both on the buying and the selling side, there's a reason why all cash gets the reputation it does. And because it's just such a seamless transaction so often.

Emil:

Yeah. Having experienced it as the seller, I understand why it's so valuable to be in the seller's shoes, seeing a buyer who's like, I'll pay all cash close in two weeks. Like that's super nice. That's valuable.

Michael:

Yeah. And I think to, to, to that exact point in mail, if you're a seller you're kicking around two different offers, one is cash quick, close one is financed. Do the math, run the numbers and see what it's actually going to cost you to keep that property and sell it to the financed offer. Even if it is higher, because there are true hold costs to owning property. And if there's a financed offer, there's a financed offer that takes 60 days to close. What are your whole cost for those 60 days versus the all cash quick, close, and also make sure to factor in your commissions that you're paying out at the end of the day. It might not be such a big difference.

Tom:

I dig it. Any final thoughts guys that you guys want to add in related to submitting your offer and on negotiations?

Michael:

Yeah. I think ego plays such a big part of this and I'm totally guilty of it. No one could see me, but I just raise my own hand. I'm like mega guilty. We probably all are Tom. Like you were alluding to. I was a little competitive. And so, you know, I hate losing. It's a bummer, but I've learned to get out of my own way. But I found that in negotiation, giving folks a red herring, right. Give them something that doesn't really mean anything to you, but make them feel like they won. Right. And I want the seller to think, Oh yeah, I totally got him. You know, taking him for all he's worth kind of a thing. So putting stuff in your offer as a buyer that you don't care about or put it in as a seller that you don't care about and be happy to give it up, but make it as, as a bargaining chip. Well, okay, well, you know, I'll this for you, but you've got to do that for me. And so I think when you give someone a favor or do something for someone, they feel this need for reciprocity and they want to give you something back. And if it's something that you don't care about or is free for you, I'll give that stuff away all day just to make somebody feel like they won.

Emil:

So like to cover closing costs or

Michael:

Closing costs are a good one or to cover closing costs, which does have a monetary value. But what I'll often do is offer to put down a really big deposit as a buyer because sellers like to see that. But at the end of the day, if the deal is not going to happen, it's not going to happen. I just have to make sure that I'm willing to work within the timelines that are stipulated, or if a buyer wants, uh, extra time for due diligence, they have to either pay more for that. They can pay us a dollar amount set fee or they have to close faster. And so if a buyer wants an extra 20, you know, whatever, five days extra for due diligence, and then they're going to give themselves an extra 10 days for financing, I'll say you can have the five for the diligence, but you got to close at the end of that time period,

Tom:

Appliances could be something that you either care about or don't care about that you can use as a bargaining chip.

Michael:

Absolutely. Yeah. And something I've done too in the past is just give, you know, separate yourself as a buyer from all the other buyers. And so writing notes can be helpful, just, you know, humanizing yourself. I've offered to give, um, start college funds for sellers, for their kids. If I find out they have kids and so, you know, just do stuff to be different. Don't just be another offer, another name and another number

Emil:

Creative. I like it.

Tom:

I like it. Michael is creative. Three offers college funds. I love it. Michael, you bring it every time. All right. Emil, final thoughts.

Emil:

I think I was joking about this on Twitter once, but it's, it's funny how, as the seller, when someone makes a low ball, you feel offended, but as buyers, we go and do it all the time. So like Michael mentioned, pull your ego away on this stuff. Right? It's just numbers. And do what the numbers tell you.

Tom:

Be data-driven. That's awesome. Be the numbers, be the numbers. Uh, my just last little, little bit, it might be a little bit repetitive. Uh, as I was saying, follow the numbers, know what your max bid is going into it. How does that relate to the list price? What's the competitive scene. If you're looking to buy a property, you know, you gotta make competitive offers, just make sure that they're within your boundaries. The other is the process of buying owner occupied and buying rentals. I find to be so different, especially in Northern California, just because you can't buy, unless you throw your logic out a little bit. I have a friend who's on his 15th offer that he's and he's putting in good offers, but you know, he's, he's doing his homework. He's looking at the values, he's doing all this stuff and they just keep getting denied. So if you're buying owner occupied, you know, you've got to throw your logic a little bit out the window, if you ever want to close on stuff, but buying a rental man, just be data driven and know the numbers.

Michael:

Not even buying owner occupied, just even buying rentals in a owner occupant market, because you're competing with people that don't care about what kind of return they can get. They love the house. So they're willing pay for that property. So I think above and beyond, just if it's a property for you, if you're competing with owner occupants, that's something to be aware of.

Emil:

One last tip I just remembered. So a lot of times let's say multiple offers are submitted. The seller will ask for final and best from everybody. One caveat. You can't always know if they're be asking you and just calling for final and best, or if there's actually a bunch of other offers, but usually you can tell and going along the ego thing, like if you know, okay, this is the max dollar amount I can offer to still get my return. Oh, but I want this better deal. So I'm going to go lower than that. Like you got to weigh those things, right? Like I think Tom, you were alluding to like, what's your max offer. So consider that when you have like the final and best, rather than just letting your ego be like, I got to get the best deal possible.

Michael:

That's a great point.

Emil:

But I'm going to get the best deal possible. So don't worry about, it

Michael:

Sounds like a song I'm going to get the best deal possible. Do we have a fun question, Tom?

Tom:

Uh, yeah. Yes. I got a fun question. So my question is what are some pet peeves that you guys have that people wouldn't normally find is pet peeves? Non traditional pet peeves. And I can go first. I'll also, you guys have some time to marinate on this and this wasn't always a pet peeve for me. I had a manager, uh, excellent boss, Eric shout out out there. So he had a pet peeve of, we would go into the markets. He was actually a boss at Roofstock for a little bit. And we would have meetings with property managers.

Emil:

He was a boss.

Tom:

He was the boss. Yeah. I had to be two ninjas to get to him. So we would go to meetings and we'd be like 15 minutes early. And he's like, no, Tom, we've got to wait in the car. I hate it. When people come into my office early of like going to a business meeting a little bit too, or like early, he was so strict about like, you know, not he found cause he found it so annoying in that moment. I was annoyed by that, when that happened, uh, in future references. So it's one thing, you know, obviously you don't want to be late. Right. But respecting people's time before the meeting, I thought it was really interesting. I don't care that much about it as in like, don't feel bad if we jump on a meeting early, but I thought it was just like a peculiar pet peeve that I liked showing up to early

Michael:

Tom, that was the most passive aggressive thing I've ever heard you say to me at our meetings, if it's early.

Tom:

Um, but anyways, that's my peculiar pet peeve.

Michael:

This might be kind of traditionally you tell me if this doesn't count, but I can't stand talking to people that use like industry specific terminology without defining it. And I'll be talking to somebody and they're like, Oh yeah, I was totally doing this defibrillator K five 72. It was crazy. I was like, you know, I don't know what that means. And I think you know that you want me to ask just so you can hear yourself talk. So I think, you know, using acronyms or industry specific vernacular without defining it or explaining it, bring me into the conversation. I want to know I'm interested in what you have to say, but when you're talking so above me, it's not fun.

Tom:

That's a good one. Real estate is notorious for acronyms and jargon.

Michael:

Oh my gosh.

Tom:

Just use ACH to pay your EMD dispositions and all this stuff.

Michael:

Is it, is it a, is it an IO? And what's the AVM. Yeah, it's crazy.

Michael:

Alright. And Neil, what do you got?

Emil:

Oh, mine. I don't know if this one's weird, but like my biggest pet peeve,

Tom:

Peculiar pet peeve.

Emil:

Peculiar pet peeve. Is people singing like trying to sing well. It just after like 15, 20 seconds, I don't know what it is. It makes me uncomfortable. I have no clue what it is, but it makes me feel uncomfortable.

Michael:

So what you're saying is singing and the podcast would not be a fun for you.

Emil:

See you're, you're singing terribly. So it's all good. It's when people try to like actually sing. Even if they're good, I'm going to digest it after like 20 seconds. I don't know what it is. I have no clue if it's obviously, if I'm listening to someone seeing, cause it's a concert, not a big deal, but if it's just like, you know, doing everyday stuff and sing after 15, 20 seconds, something in my brain, just like, like starts rattling. So I don't know what it is. Very strange.

Tom:

So there's a bell curve of quality. And if it's really bad, no offense, Michael. That was, you know, that's really good. That's okay. But all, everything in the middle, but no, it's not all day medium to good. That bothers you.

Emil:

Yeah. Like trying to sing. I mean obviously if you're trying to sing and you suck, that's like I can handle two seconds of that. But even if good, I dunno,

Michael:

But excellent. Okay. Like if someone was an opera singer and you didn't know that and they were just like doing whatever in the house and started singing, but they're really good.

Emil:

That's okay. You know, you're just in awe. Right? If someone is just spectacular, like could be on whatever one of those singing shows, you're like, Oh man,

Michael:

I would love to get you out as a judge on one of those, you would be so uncomfortable.

Emi:

I'd be I'd last 10 minutes. And I'd be like, my, my brain is shaking. I'm outta here. I don't know. That's my very peculiar pet peeve.

Tom:

Hating, hating singing and joy, all right, Pierre, you're up next?

Emil:

Apparently there you go. I just hate joy and puppies and rainbows and all that stuff.

Michael:

Yeah. I'm curious to hear Pierre’s.

Pierre:

Well, I am going to roast my roommate's on this one, dude. Let me just preface it with, I love you guys. You guys are great. Except you guys trigger all my peculiar pet peeves. They might not be ultra peculiar, but one of them I can resonate with you deeply Emil. I live in a household full of musicians and they all sing.

Emil:

It gets annoying, right?

Pierre:

Oh God.

Emil:

Thank you. Thank you,

Pierre:

Lord. Especially. Yeah, especially when they're trying to..

Tom:

You gotta get those, you got to get those 10,000 hours in right? Isn't that the number of 10,000 hours?

Michael:

You have to do it on your own time.

Emil:

That's how Pierre lost all his roommates.

Pierre:

I'm going to lose all my roommates. I'm looking over my shoulder right now. One of my roommates practices by singing into a microphone and amplifying it. Dude, you have a mixer and you can channel that audio into your headphones and get the same effect of hearing yourself through the microphone. But no, he puts it on the PA system and blasts it out right when I'm about to get off of a long, stressful day of work. And I want just a little bit of quiet and okay. So, but that's so yeah, I'm just connecting with you on that. So for me, I don't know how peculiar it is, but I have a little list here. Crumbs on the counter, crumbs on the counter just make me depressed. I'm like, how am I still here in life where there are still crumbs on the table and crumbs on the counter.

Michael:

That's your yogurt topper.

Tom:

That's why you need a dog.

Pierre:

Yeah.

Tom:

Honestly, dog, solved. Right?

Pierre:

And then when people use scented laundry detergent,

Emi:

That's peculiar one.

Pierre:

Somebody used tide. And I was like, dude, who just bought the tide. I will pay you to not use that. Like, I'll buy you a new bucket of unscented, laundry detergent. So no one ever uses that laundry detergent in this house.

Michael:

Is it the aroma that bothers you or the fact that it is scent in general?

Pierre:

The aroma of any scented laundry detergent kind of makes my blood boil almost as much as crumbs on the counter.

Tom:

I dig it. I mean, I feel like a what's it, what's it called? When you think of fondly of the past. I think there's a word for that. Nostalgia. Yeah.

Pierre:

Scented laundry detergent gives me a nostalgia of times I don't want to be back in.

Emil:

We're getting a real deep.

Pierre:

Yeah. Sorry that I'll stop there.

Michael:

Everybody likes their own brand.

Emil:

I could not see that about you, Pierre.

Pierre:

What do you mean? Like every time you guys asked me a question, I'm like, I don't, I don't like pizza. I don't eat cereal.

Michael:

No salad bar.

Pierre:

But love you roommates.

Michael:

Yeah. All right. No laundry detergent. Add it to the list.

Emil:

Do you like puppies though?

Pierre

Tom:

Oh. But a puppy playing and fresh laundry.

Michael:

So cute. So cute.

Tom:

All right guys, that's a good spot to, uh, cut us off for today. Thank you everybody for listening. We hope you the episode. And if you did, we'd love it. If you would subscribe and give us a rating on your podcast app and always happy investing.

Michael:

Happy investing.

Emil:

Happy investing.

Check out Tom, Michael and Emil's strategies for submitting winning offers.

---

Transcript:

Tom:

Greetings and welcome to The Remote Real Estate Investor. In this episode, we're going to be talking about the offer all the way from we found a property. We like now it's time to make the offer to negotiations, to getting into contract. All right, let's do it. Alright guys. Welcome back. So before we jump into it, how are you guys doing?

Michael:

Yeah, I'm good, man. I'm good. Um, I got this six unit that I'm flipping under contract, which at a full price offer. And we got a backup offer a little bit higher than that, which is always nice. So hopefully that goes smooth. We're supposed to close here in like two and a half weeks. Very excited about that and wrapping up a couple of rehabs that I got going on, which is also very exciting. So all things good and the air finally cleared up. So it's not so smoky. So everything moving in the right direction.

Tom:

Nice. I'm going to tease into those, your offer, your back and forth when we get totally more into the episode, but a congratulations. Always fun to get a property in contract.

Michael:

Thanks. Yeah, I'm excited. I'll be a lot happier once it's signed the wet ink on the dotted line, but we'll, we'll stay tuned.

Tom:

Nice. How about yourself Emil?

Emil:

I'm good. I'm a, our listeners can't see me and they never can see us, but I had to go to my inlaws. Cause my internet connection at home has been funky all week. So how do you get good internet connection went to the in laws. So I got a new environment. Maybe that'll spark some new creativity for today's episode. We'll see.

Tom:

Nice at the start of the pandemic, I was always being like, didn't want to pay exfinity any more of my money. And then eventually my wife was giving me a hard time about how bad our internet was. And I like talk to a rep and he's like, you have the slowest possible program like possible. It was like bent for like, not really minimum amount of use. So I like texted and it's yeah. For those of you trying to be cheap on the internet, don't be give him your money. It makes life a lot easier.

Emil:

I'm sure internet companies have been doing awesome. Cause everyone's working from home now. So everyone's like cranking up their internet before you could get by. And now it's like, nah, I need, I need the top notch internet.

Michael:

And I wonder how much they're throttling people too. Right. But like, Oh you I'm sorry. Guy looks like you need to upgrade your package in order to get the best internet service.

Emil:

Oh yeah.

Tom:

I worked on me, man. It worked on me.

Michael:

You guys seen that South park episode. Oh yeah. We're the only internet provider in town. We'll be at your house between 10 and two. Uh, so sorry.

Emil:

That's true. Like I called them on Tuesday and they're not coming out til next Thursday. So like a week and a half, that is just not working. So that's fun.

Michael:

Nice.

Tom:

My other fun stuff is a, my baby is now walking around, which is fun. He does like an Elaine dance walk. So just like going through the halls or what's the other example? Like the inflatable balloon, man's like pretty entertaining.

Emil:

Hopefully people got the Seinfeld reference. I love that

Tom:

Um, awesome. All right guys, let's, let's jump into it. So we are in the offer episode and why don't we go ahead and start with the tip f the offer process and Michael, I'm gonna pick on you first. So you found a property. You like, you've done your diligence and it is go time. Where are you doing? What are you up to? How are you going about it? Walk us through it.

Michael:

So I've run the numbers. I know the area I have projections lined up. Right? I've already did all that.

Tom:

Correct.

Michael:

So now it's coming down to determining what the offer price wants to be. And I used to not be real scientific. I'm still not that scientific about it. Let's say I like to put speak in numbers. It makes conversation a little easier. So if I found a property it's listed at two 50 and the deal works at two 50, I'll offer, you know, two 30 just to see what's going to happen. And, and we'll probably meet somewhere in the middle, which if anybody has read the book, never split. The difference would say, that's dumb. You shouldn't do that. So I've also been known to make really specific offers like two thousand two hundred and thirty thousand seven hundred and sixty three, because that shows that I put a lot of thought into it. And so I like to be very specific at times too, but I always like to go lower than I think I'm wanting to or needing to go.

Now that's an example of the deal working at two 50. And so if they come back and say, no, forget about it, two 50 or bust, I'll pay two 50. If the deal is good enough, and I've done that in the past, if I need the numbers to be at two 30, well then I'm probably going to be offering around 200, one 90. Most people do want to split the difference. And so they're going to say, okay, whatever, we'll call it in the middle, but also use that tactic of writing very specific offers. Something else that I've done a lot of in the past is I'll actually write three different offers. One is going to be an all cash offer. One is a traditional financed offer. And then one is a seller financed offer and they'll have three very different prices. So like if it's an all cash offer, we'll take the two 50 example, I'll offer 160, all cash I'll offer, you know, maybe 200 traditional finance and I'll offer 230, 240 seller financed with really favorable terms for me. And so that way it's a choice for the seller. Pick one of the three, as opposed to a yes or no decision. So that was kind of long winded answer. I know

Michael:

Super interesting. The putting three offers together. I've never heard that before. Did you come up with that one on your own or did you like a mentor?

Michael:

I wish I had come up. I think I heard it on a bigger pockets episode actually from one of their guests. And I was like, that's genius. And as soon as I heard that I was actually about to offer on a property. And that was actually that mixed use building that I talk about a lot of other episodes. And so I did that on that property. I was able to get, I think, a really great deal on it, I think potentially because of it. And also when you look at numbers next to one, another things often seem better than they are naturally. Right? So if someone sees Oh one 60 that's wave low, well now they see an offer a 200. Wow. That might be a great offer when you compare it to two, one 60. So I think that there's definitely some psychology that goes into that as well.

Tom:

Tons of psychology and this, and we'll touch on that in a little bit. I'm curious when you do that, that triple threat offense, like when someone negotiates back, do they usually pick the same track? Are they usually picking all cash or the finance or the celebrant, or is it pretty, pretty split?

Michael:

It’s pretty split, I think, cause it just goes to speak volumes about the seller. Every seller is different and every seller's motivation is different. And so if you can look to understand why someone is selling, that really gives you a lot more ammunition to go in and tailor an offer to them. Because I think too many people, myself included are just like, Oh, this is a number that works for me. So take it or leave it on the offer side. But there's so much more to it than that. You know, if I know that the seller is an older couple looking to get out of the business, but like the income, well that screams seller financing, right? That might be a really great deal. And so helping them understand what that is, can be really beneficial. So I always ask the question, Hey, why are they selling? And try to get an idea of what's going on behind the scenes, because my offer is going to change as a result of that,

Tom:

On that psychology of fun Roofstock history. Uh, initially the website just had a bite. Now it wasn't, you know, there wasn't any wiggle rooms on offering. There's this huge psychology in real estate of people needing to feel like they're winning. I think both on the buyer and on the winner side. So, you know, with most deals, they, you know, there's a little bit of negotiation going on, but it's really interesting. The it's a game. People want to win the game and negotiate it. So open it up to you, Emil. So blank slate. You found a property, you've done your homework. How are you going about your offer process?

Emil:

Yeah, so it's probably changed over the years. It's funny, Michael, you mentioned Chris Voss's book, Never Split the Difference. I ended up doing that same tactic on my first property. It was like I offered 80, the seller came back at 85 and we ended up at like 83, nine 71, cause I just put a random number on it. So that worked. That was cool. Honestly, when I first started out, I was probably just looking for what property can I find that meets the 1% rule and how can I just get a little bit below that? Right? Like you mentioned, Tom, it was a game. Okay. Here's the list price, let me start out 10% underneath and underneath list price. And we'll take it from there. Barring that the list price wasn't like out of control, right? Like check, just make sure that it was in line with where it should be valued.

Now, now I've, I've started to like really hone in on a specific market in the beginning. I kind of just, where could I find a deal buy it? Right. So I've floated around from market to market. Now I'm really trying to hone in on one market and understand, okay, what does a single family home in this market sell for? What does a duplex, triplex, quad all these different types, right? What are they selling for and what is a good deal versus what's an average deal. And I think it really depends. Like if you're looking at a property that the prior owner has done a lot of the work coming in and expecting to get 75% of list price, you're probably just going to keep making offers and lose, right. Which is in a way demoralizing, especially on your first property, you keep doing that, keep doing that, wondering what's going on.

Now, if we have a property that has a little bit of hair on it and has a little there's things that need to be fixed, the roof needs to be fixed. Maybe mechanicals need to be changed. Like just certain things need to happen with the property. The rent is under market. Then that's where you have some leeway, right? To negotiate more. Again, this is all just best practice. You can go into a turnkey, try to offer 20% less than list. See what you get. But I guess to wrap it up my, uh, final thought here is it really just depends on the property type. Is it a good deal for that area in that market? So summary is if it's like, do I want something that's going to require a little bit more work? Okay. I'm going after a certain property type I'm going to offer way less because I know I'm going to have to come in and make repairs. So like you were kind of mentioning maybe going 20, 25% below list price. If it's, it also just depends on what it's listed at, right? Like some people could list it at the after repair value and it needs a lot of work, but you have to just kind of figure out how much do I have to put into this and with that and what I'm putting however much I'm paying. Is that a good deal? All those things together. I hope that makes sense.

Tom:

I dig it. I'm going to throw a couple of points on top of that. I think you need to be really specific on what your maximum bid is before you get into an offer and especially into a negotiation situation. So before getting into submitting an offer, having a very specific amount on what that max bid is really important and a way to get to that is looking at what kind of returns you're requiring. Um, Excel has this really cool feature called goal seek where you can back into that number based on variables, on what kind of cash on cash or IRR and all that kind of good stuff. So going in with a max bid is just so, so important, uh, going into an offer situation,

Michael:

Tom, before you move on, can you say more on that? Why is that so important? If I'm going to get into an offer and man, maybe I'll offer this and maybe this will be my max bid. I know they came back with this and maybe I'll move it here. Why is it so important to know ahead of time?

Tom:

Of you listening are similar to us gentlemen, as we can be kind of competitive and it's fun to win, right? And nothing gets my juices going, like getting into negotiations. It's just, it's fun. You know, you're playing a game and if you're playing this game, I say to the game, but you know, you're investing, right. If you don't have like a hard threshold, you can get in trouble by kind of continuing to go to back and go back and forth. And you know, with these properties, we spend time with them and you can let yourself fall into the fallacy that, Oh, there's never going to be another one like this. When you know, you got a good quote.

Michael:

Yeah. The deal of a lifetime only comes around once a week.

Tom:

Exactly. When you give yourself that hard number, it's just super black and white. As soon as that number is above. And you're not able to come to an agreement, one of the most important tools in your toolkit of negotiation is the ability to walk away. Now it doesn't work that's okay. So that's one piece is just making sure that you have that max offer in place. The other is knowing some context about the seller, which isn't always available, but here are some pieces of information that I think are really helpful. If a property is occupied and cash flowing, oftentimes a seller may be a little bit less loose to, you know, to a deal cause it's like cash flowing, it's making money. So sometimes on those types of properties, it could be a little bit tougher to get a huge discount. Once you it's still worth going through the exercise of submitting an offer.

But just generally speaking for a lot of sellers, if it's not occupied in cash flowing, they might be okay, like holding it out a little bit longer. The other metric that I like to take a look at is how long it's been on the market. That can be a scenario where you can get a little bit of a better deal if it's been sitting on the market for a long time. So that's something that I will think about on the offer amount, submitting an offer and having it taken seriously. I would not go beyond an 80%, but oftentimes if it's a new property and it's really competitive, the seller's just going to shake it off. So I wouldn't be too aggressive. When if you had know your max bid and there's a lot of wiggle room, perhaps your max bid is even over the listing price, knowing your max price and where it fits against your, um, the list price can inform where your offer price is going to be.

What can happen is let's say there's a new property. That's listed. You have a max price that is well above the list price. If you try and be cute and put an offer well under the list price, and this is a new hot property, you're not going to have an opportunity to buy it. Cause there's probably a lot of other people in there. So have it in your mind on what is the delta between your max price and what the list price is. So when you come in and submit your first offer, you're putting the offer in that gives you some wiggle room, right. To negotiate. And, but you also want to make sure that it's somewhat competitive. If it is a new property in a competitive market, otherwise you're just going to be the go through and going through the exercise of submitting your offer and just having it fall on deaf ears because those ears are getting clouded by a lot of other offers.

Michael:

Yeah. It's such a good point. I talked to people all the time in the Academy about when they asked the question, Hey, what should I offer on this? How do I think about this? I said, well, what is it worth to you? You know, a property is only worth what someone's willing to pay for it. And if you're going to offer three, five, 10 grand under list price and you lose that deal, is it worth it? Or is it worth it to come in at full list and just give the seller what they're asking for? Because the deal still makes sense. So I say, figure out what the numbers tell you offer there. But also you've got to give some weight too. If it's a hot deal, hot market, you might lose the deal over a thousand bucks. Is that worth it? Especially if you're financing it. So really that's 200, 250 bucks at the end of the day that it costs you.

Emil:

Do you ever just work backwards to say, okay, this is what I can offer to hit that cash on cash number.

Michael:

Goal seek goal seek baby. Yeah. That's exactly what the goal seek function does in Excel. And it's amazing. It'll calculate down to the dollar based on whatever variable you're trying to manipulate and whatever target you're trying to hit, it'll spit out, okay. Based on this, this is what your offer price needs to be. Or your max price needs to be in order to hit that goal.

Emil:

I said that as a like loaded question, obviously. I was rambling, but that's, that is how I make offers. It's looking at what is the cash on cash I want and working backwards from there, right? And again, there's all these factors where if it's been on market for a day and I'm coming and I need to come in like 30% under, maybe I'm not going to waste everyone's time. Right. I'll keep looking. So it kind of just work backwards from what is the cash on cash I'm looking for through the underwriting and go a little bit under there to start my offer process.

Michael:

I will say to that point, even if it's been on the market a very short time, I'll still come out, swinging for the fences if that's available, because you don't know, unless you ask the question. And so if you can offer a quick close or all cash or you know, are able to fill whatever void the seller is looking to fill by selling the property, you could have a chance you can. I mean, I've made some ridiculous offers and gotten them accepted and I'm like, wow,

Emil:

Right away.

Michael:

Yeah. Like on that sixth unit that we talk about a lot. So bought a six unit out in the Midwest for like 90 K a, which is 15,000 a door, which doesn't exist literally. And it doesn't exist. And I wouldn't have got it if I had an ass. And so my agent told like all his buddies about it and they're like, no way. That's like, Whoa, that's not possible. So sometimes. And of course that's the exception, not the rules, but sometimes the impossible can happen just by asking the question.

Tom:

A point I was making earlier. Like, you know, if you try to be too cute in a competitive market, you know, and you have a number that works for you, my advice would be like, you're looking to invest and it's early on the market. Don't be too cute and throw too low of a number if it's going to be seeing a lot of offers. Does that make sense?

Michael:

Yeah. Submit strong offers.

Tom:

Yeah. Submit strong offers as long as they yeah. As they make sense, but especially for properties that been sitting a lot longer, you know, then be a little more aggressive. So you had a fun thought exercise, but let's turn the tables. Okay. You're the seller, what's your strategy around negotiation on seeing offers, come in the mail. Do you want to lead us off with this first one?

Emil:

Yeah. I'll lead this off. Cause I sold the property earlier this year so I can, it's fresh on my mind. And then Michael is kind of going through the process now. So it's fresh for him as well. In the beginning, when I first listed my property, like anyone else I'm listing it at, what do I think the full, full value is? Right. Like not a deal because I know someone's going to come in and try negotiate anyway. So why would I willingly just list it at like a lower end? Right. Let's see what we can get for it. And then after getting tons and tons of low ball offers slowly move the price down. It wasn't a ton. I think it was a low price. Tom started at like 71, moved down to, I think ended up being like 65, right after just getting tons and tons of low balls and it was a couple months. Right. So no bites. And then finally got something close to that. 65 K all cash a little bit less than what I wanted. But at that point, you know, the buyer, the buyer made a good move. I had been a seller that had been on the market for a couple months. I was tired wanting to get rid of this property. And so they got a, you know, a little bit of equity built in. So I think it really just depends. Like, do you need the cash now? Or like how much time do you have, if you're willing to wait, your property is cash flowing. You may not like be willing to, to yield, like accept offers that come in and they're super low. So I think it really just depends on, do you need cash now and all that.

Tom:

I guess in this situation, really, the negotiation begins when you set the list price. So you'll set it a little bit higher and let the offers come in and, and manage the low balls. It will, you know, kick the low balls out of there, but slowly dripped down over time. Right?

Emil:

Yeah. And we just done a couple thousand dollars in work on the turn, like new vinyl plank flooring, repainted, everything, new tenant. So it was, it was a good turnkey property. So for me, I was like, okay, let's list it on the higher end of the range that I think this thing would go for and the market will speak and the market will tell you if it's legit or not. So just adapting to that.

Tom:

One of the tricky things with those listing of properties that are especially kind of the lower price ranges, valuing it off of the rent, you know, off of a cap rate, the value is probably gonna be very different than off of the sales comparable. So as a seller, you could be thinking of this evaluation off of like a cap rate buyers, especially if it's owner occupied, you know, they might be looking at it as sales comp. So that can cause a disconnect. And it just kind of an interesting, interesting point to bring up, go ahead, Michael dye.

Michael:

That can cause a huge disconnect, but I was just going to ask him, you know, when you got those low ball offers, did you just flat out reject them or did you counter?

Emil:

Depends. I think the first couple I countered and then they counter, it was like, I'm talking. I think I had to listen at 71. I mentioned, and I was getting offers for like 45. And so I'd counter with like 67 and they would counter with 46. So I'm like, all right, this person's obviously just thrown out lots of offers looking for a motivated seller. Right. So at that point I just declined. Yeah. So yeah, I would, I would play ball. I would see how, you know, are they just looking for a deal? Are they serious, you know, pebble back and forth and then call it from there.

Tom:

I think that's a psychology to making offers and listening to a meal as a seller. Like if you're making offers, you know, if your max bid really is 48, 47, great, keep going that line of thinking. And then the offer back and forth will end. But if your max bid is really up in the sixties or in the fifties, usually back and forth happen, I don't know. Would you guys say like maybe two or three times, at least in my experience. And usually it's, it's a pretty quick, so again, to my point of not being too cute on the deal, cause you just, you won't get deals, especially when you've done an initial kind of discovery of submitting that offer. And the seller is coming back to you at like 98%. Chances are the seller is not going to find a huge movement off of that, but at the deal still makes sense for you. Great. Come move up a little bit, get a little bit closer to him instead of just slowly creeping up to your max bed. All right, Michael, you're the seller,

Michael:

I'm the seller.

Tom:

What's your thought process in dealing with offers coming in?

Michael:

Yeah, so similar to Emil, I just got a bunch of low ball offers like real low, like real, real low. I countered a of them. I flat out rejected others because you can often tell in the language of an offer what kind of person they are, how motivated they are as a buyer, what, what it is they're looking for, or just how much of a pain in the butt they're going to be with to deal with as a buyer. And so I've told people know, even though they've had good offers because I just don't want to deal with them as a buyer, it's just a headache. Uh, so I had a seller financed offer that actually I accepted and the buyer, I don't think he really had any idea what they were doing when they made the offer. And so we countered and we got the terms, basically all the terms we asked for and I was like, great, this is awesome. This is going to be fantastic. And then it started coming down to asking for documents on the buyer because now I, as the seller needs to do due diligence on this person as a buyer and a borrower, because I'm essentially loaning them the purchase price.

And of course I can foreclose on them if they don't make good on their mortgage payments, but I'm not in the business of, for closing back on properties that I've sold to someone because I want to collect the money and I want to be done and I want to walk away. So they started getting really squirrely with it. And I'm not going to give you tax records. It's kind of thing. And I said, well, then I don't think this is going to work out. So we got a full price, offer all cash via 10 31 exchange and they can close quickly. And I said, great, let's do that. It's at the end of the day, less money than the seller financed offer, but it's less headache. It's seem it's seamless. And the buyer clearly knew what they were doing. And that was very apparent. And so that's worth dollars to me.

So I said, okay, let's, let's go that route. So as a seller, I mean, if just someone is reasonable and puts forth a reasonable offer, I'll entertain it, I'll look at it, but it all comes down to, again, what the seller's motivation is. And I try to never fire sale properties. I never want to be in a situation where I have to get rid of something where I would be the seller in that $90,000 deal for six units. These people just wanted the property gone, they didn't know what to do with it. They needed to sell it. I hope to never be in that situation. And so to be able to command top dollar for the properties, because either in good shape and B, because I don't need to sell them. And so if I get a good offer, great, if I, if I didn't get a good offer on this property, I was just going to keep it in cashflow the heck out of it. Cause it's, it's a monster, but I just didn't want to deal with it. I've got too much other stuff going on. That's it? Okay. Let's sell it, make a profit and, and walk away.

Tom:

That's awesome. That's great. Having a buyer who's in a 10 31, just that much more of a motivated. So he keeps within the rules and all of that. I'm in the seller seats to the last property I sold. I wasn't too aggressive on setting the list price. I was a 10 31 seller, so I had to fund some properties. Oh man, I wasn't as aggressive as Emil. That's funny. I said that like I was surprised, but I kind of was, cause I forgot that I was 10 31 into another property and I'd already identified the other service. There was uh, some moving pieces, but I was less aggressive on the price. The property was, it was the low 100 thousands. I like maybe if I had waited it out could have got 110, but I ended up selling for 104 was the number and listed it super quick, sell, selling it on Roofstock it probably valued more on the income approach, just being in that slightly lower price band, but listed it got a couple of offers.

I personally don't care too much about all cash versus the offers with lending. I know with owner occupied, you know, there's a lot of difference in that whole, at least the psychology of, of buying owner occupied, but in selling, I didn't really care too much of a difference between all cash versus lending offers. I know there's some risk about buyers who are coming in and using financing of it falling out, but I wanted to maximize that dollar amount and I was okay. The transaction being a little bit longer doing a finance approach. So, you know, I saw offers that were cash as well as finance and I was fine taking the higher offer that was financed and yeah, a quick, quick, smooth, close.

Emil:

Selling. All cash is nice. It's it's much smoother. I, that I sold my property, all cash. It was, it felt like a lot less paperwork and moving parts, which was nice

Michael:

Is because you don't have this, unless there's an appraisal contingency that the buyer puts in, you don't have the bank snooping around the house telling the buyer, Oh, you have to do this, that and the other thing. And then the buyer coming back to you and says, Oh, the bank's making me do this. Will you do it? Well, no, I don't want to do it as the seller, but you can't do it as a buyer because you don't own the property yet. So it's just, you can get into this real rigmarole pretty quickly. And so I think both on the buying and the selling side, there's a reason why all cash gets the reputation it does. And because it's just such a seamless transaction so often.

Emil:

Yeah. Having experienced it as the seller, I understand why it's so valuable to be in the seller's shoes, seeing a buyer who's like, I'll pay all cash close in two weeks. Like that's super nice. That's valuable.

Michael:

Yeah. And I think to, to, to that exact point in mail, if you're a seller you're kicking around two different offers, one is cash quick, close one is financed. Do the math, run the numbers and see what it's actually going to cost you to keep that property and sell it to the financed offer. Even if it is higher, because there are true hold costs to owning property. And if there's a financed offer, there's a financed offer that takes 60 days to close. What are your whole cost for those 60 days versus the all cash quick, close, and also make sure to factor in your commissions that you're paying out at the end of the day. It might not be such a big difference.

Tom:

I dig it. Any final thoughts guys that you guys want to add in related to submitting your offer and on negotiations?

Michael:

Yeah. I think ego plays such a big part of this and I'm totally guilty of it. No one could see me, but I just raise my own hand. I'm like mega guilty. We probably all are Tom. Like you were alluding to. I was a little competitive. And so, you know, I hate losing. It's a bummer, but I've learned to get out of my own way. But I found that in negotiation, giving folks a red herring, right. Give them something that doesn't really mean anything to you, but make them feel like they won. Right. And I want the seller to think, Oh yeah, I totally got him. You know, taking him for all he's worth kind of a thing. So putting stuff in your offer as a buyer that you don't care about or put it in as a seller that you don't care about and be happy to give it up, but make it as, as a bargaining chip. Well, okay, well, you know, I'll this for you, but you've got to do that for me. And so I think when you give someone a favor or do something for someone, they feel this need for reciprocity and they want to give you something back. And if it's something that you don't care about or is free for you, I'll give that stuff away all day just to make somebody feel like they won.

Emil:

So like to cover closing costs or

Michael:

Closing costs are a good one or to cover closing costs, which does have a monetary value. But what I'll often do is offer to put down a really big deposit as a buyer because sellers like to see that. But at the end of the day, if the deal is not going to happen, it's not going to happen. I just have to make sure that I'm willing to work within the timelines that are stipulated, or if a buyer wants, uh, extra time for due diligence, they have to either pay more for that. They can pay us a dollar amount set fee or they have to close faster. And so if a buyer wants an extra 20, you know, whatever, five days extra for due diligence, and then they're going to give themselves an extra 10 days for financing, I'll say you can have the five for the diligence, but you got to close at the end of that time period,

Tom:

Appliances could be something that you either care about or don't care about that you can use as a bargaining chip.

Michael:

Absolutely. Yeah. And something I've done too in the past is just give, you know, separate yourself as a buyer from all the other buyers. And so writing notes can be helpful, just, you know, humanizing yourself. I've offered to give, um, start college funds for sellers, for their kids. If I find out they have kids and so, you know, just do stuff to be different. Don't just be another offer, another name and another number

Emil:

Creative. I like it.

Tom:

I like it. Michael is creative. Three offers college funds. I love it. Michael, you bring it every time. All right. Emil, final thoughts.

Emil:

I think I was joking about this on Twitter once, but it's, it's funny how, as the seller, when someone makes a low ball, you feel offended, but as buyers, we go and do it all the time. So like Michael mentioned, pull your ego away on this stuff. Right? It's just numbers. And do what the numbers tell you.

Tom:

Be data-driven. That's awesome. Be the numbers, be the numbers. Uh, my just last little, little bit, it might be a little bit repetitive. Uh, as I was saying, follow the numbers, know what your max bid is going into it. How does that relate to the list price? What's the competitive scene. If you're looking to buy a property, you know, you gotta make competitive offers, just make sure that they're within your boundaries. The other is the process of buying owner occupied and buying rentals. I find to be so different, especially in Northern California, just because you can't buy, unless you throw your logic out a little bit. I have a friend who's on his 15th offer that he's and he's putting in good offers, but you know, he's, he's doing his homework. He's looking at the values, he's doing all this stuff and they just keep getting denied. So if you're buying owner occupied, you know, you've got to throw your logic a little bit out the window, if you ever want to close on stuff, but buying a rental man, just be data driven and know the numbers.

Michael:

Not even buying owner occupied, just even buying rentals in a owner occupant market, because you're competing with people that don't care about what kind of return they can get. They love the house. So they're willing pay for that property. So I think above and beyond, just if it's a property for you, if you're competing with owner occupants, that's something to be aware of.

Emil:

One last tip I just remembered. So a lot of times let's say multiple offers are submitted. The seller will ask for final and best from everybody. One caveat. You can't always know if they're be asking you and just calling for final and best, or if there's actually a bunch of other offers, but usually you can tell and going along the ego thing, like if you know, okay, this is the max dollar amount I can offer to still get my return. Oh, but I want this better deal. So I'm going to go lower than that. Like you got to weigh those things, right? Like I think Tom, you were alluding to like, what's your max offer. So consider that when you have like the final and best, rather than just letting your ego be like, I got to get the best deal possible.

Michael:

That's a great point.

Emil:

But I'm going to get the best deal possible. So don't worry about, it

Michael:

Sounds like a song I'm going to get the best deal possible. Do we have a fun question, Tom?

Tom:

Uh, yeah. Yes. I got a fun question. So my question is what are some pet peeves that you guys have that people wouldn't normally find is pet peeves? Non traditional pet peeves. And I can go first. I'll also, you guys have some time to marinate on this and this wasn't always a pet peeve for me. I had a manager, uh, excellent boss, Eric shout out out there. So he had a pet peeve of, we would go into the markets. He was actually a boss at Roofstock for a little bit. And we would have meetings with property managers.

Emil:

He was a boss.

Tom:

He was the boss. Yeah. I had to be two ninjas to get to him. So we would go to meetings and we'd be like 15 minutes early. And he's like, no, Tom, we've got to wait in the car. I hate it. When people come into my office early of like going to a business meeting a little bit too, or like early, he was so strict about like, you know, not he found cause he found it so annoying in that moment. I was annoyed by that, when that happened, uh, in future references. So it's one thing, you know, obviously you don't want to be late. Right. But respecting people's time before the meeting, I thought it was really interesting. I don't care that much about it as in like, don't feel bad if we jump on a meeting early, but I thought it was just like a peculiar pet peeve that I liked showing up to early

Michael:

Tom, that was the most passive aggressive thing I've ever heard you say to me at our meetings, if it's early.

Tom:

Um, but anyways, that's my peculiar pet peeve.

Michael:

This might be kind of traditionally you tell me if this doesn't count, but I can't stand talking to people that use like industry specific terminology without defining it. And I'll be talking to somebody and they're like, Oh yeah, I was totally doing this defibrillator K five 72. It was crazy. I was like, you know, I don't know what that means. And I think you know that you want me to ask just so you can hear yourself talk. So I think, you know, using acronyms or industry specific vernacular without defining it or explaining it, bring me into the conversation. I want to know I'm interested in what you have to say, but when you're talking so above me, it's not fun.

Tom:

That's a good one. Real estate is notorious for acronyms and jargon.

Michael:

Oh my gosh.

Tom:

Just use ACH to pay your EMD dispositions and all this stuff.

Michael:

Is it, is it a, is it an IO? And what's the AVM. Yeah, it's crazy.

Michael:

Alright. And Neil, what do you got?

Emil:

Oh, mine. I don't know if this one's weird, but like my biggest pet peeve,

Tom:

Peculiar pet peeve.

Emil:

Peculiar pet peeve. Is people singing like trying to sing well. It just after like 15, 20 seconds, I don't know what it is. It makes me uncomfortable. I have no clue what it is, but it makes me feel uncomfortable.

Michael:

So what you're saying is singing and the podcast would not be a fun for you.

Emil:

See you're, you're singing terribly. So it's all good. It's when people try to like actually sing. Even if they're good, I'm going to digest it after like 20 seconds. I don't know what it is. I have no clue if it's obviously, if I'm listening to someone seeing, cause it's a concert, not a big deal, but if it's just like, you know, doing everyday stuff and sing after 15, 20 seconds, something in my brain, just like, like starts rattling. So I don't know what it is. Very strange.

Tom:

So there's a bell curve of quality. And if it's really bad, no offense, Michael. That was, you know, that's really good. That's okay. But all, everything in the middle, but no, it's not all day medium to good. That bothers you.

Emil:

Yeah. Like trying to sing. I mean obviously if you're trying to sing and you suck, that's like I can handle two seconds of that. But even if good, I dunno,

Michael:

But excellent. Okay. Like if someone was an opera singer and you didn't know that and they were just like doing whatever in the house and started singing, but they're really good.

Emil:

That's okay. You know, you're just in awe. Right? If someone is just spectacular, like could be on whatever one of those singing shows, you're like, Oh man,

Michael:

I would love to get you out as a judge on one of those, you would be so uncomfortable.

Emi:

I'd be I'd last 10 minutes. And I'd be like, my, my brain is shaking. I'm outta here. I don't know. That's my very peculiar pet peeve.

Tom:

Hating, hating singing and joy, all right, Pierre, you're up next?

Emil:

Apparently there you go. I just hate joy and puppies and rainbows and all that stuff.

Michael:

Yeah. I'm curious to hear Pierre’s.

Pierre:

Well, I am going to roast my roommate's on this one, dude. Let me just preface it with, I love you guys. You guys are great. Except you guys trigger all my peculiar pet peeves. They might not be ultra peculiar, but one of them I can resonate with you deeply Emil. I live in a household full of musicians and they all sing.

Emil:

It gets annoying, right?

Pierre:

Oh God.

Emil:

Thank you. Thank you,

Pierre:

Lord. Especially. Yeah, especially when they're trying to..

Tom:

You gotta get those, you got to get those 10,000 hours in right? Isn't that the number of 10,000 hours?

Michael:

You have to do it on your own time.

Emil:

That's how Pierre lost all his roommates.

Pierre:

I'm going to lose all my roommates. I'm looking over my shoulder right now. One of my roommates practices by singing into a microphone and amplifying it. Dude, you have a mixer and you can channel that audio into your headphones and get the same effect of hearing yourself through the microphone. But no, he puts it on the PA system and blasts it out right when I'm about to get off of a long, stressful day of work. And I want just a little bit of quiet and okay. So, but that's so yeah, I'm just connecting with you on that. So for me, I don't know how peculiar it is, but I have a little list here. Crumbs on the counter, crumbs on the counter just make me depressed. I'm like, how am I still here in life where there are still crumbs on the table and crumbs on the counter.

Michael:

That's your yogurt topper.

Tom:

That's why you need a dog.

Pierre:

Yeah.

Tom:

Honestly, dog, solved. Right?

Pierre:

And then when people use scented laundry detergent,

Emi:

That's peculiar one.

Pierre:

Somebody used tide. And I was like, dude, who just bought the tide. I will pay you to not use that. Like, I'll buy you a new bucket of unscented, laundry detergent. So no one ever uses that laundry detergent in this house.

Michael:

Is it the aroma that bothers you or the fact that it is scent in general?

Pierre:

The aroma of any scented laundry detergent kind of makes my blood boil almost as much as crumbs on the counter.

Tom:

I dig it. I mean, I feel like a what's it, what's it called? When you think of fondly of the past. I think there's a word for that. Nostalgia. Yeah.

Pierre:

Scented laundry detergent gives me a nostalgia of times I don't want to be back in.

Emil:

We're getting a real deep.

Pierre:

Yeah. Sorry that I'll stop there.

Michael:

Everybody likes their own brand.

Emil:

I could not see that about you, Pierre.

Pierre:

What do you mean? Like every time you guys asked me a question, I'm like, I don't, I don't like pizza. I don't eat cereal.

Michael:

No salad bar.

Pierre:

But love you roommates.

Michael:

Yeah. All right. No laundry detergent. Add it to the list.

Emil:

Do you like puppies though?

Pierre

Tom:

Oh. But a puppy playing and fresh laundry.

Michael:

So cute. So cute.

Tom:

All right guys, that's a good spot to, uh, cut us off for today. Thank you everybody for listening. We hope you the episode. And if you did, we'd love it. If you would subscribe and give us a rating on your podcast app and always happy investing.

Michael:

Happy investing.

Emil:

Happy investing.

In this episode, Michael and Emil chat with Mark Ainley from GC Realty and Development about his experience with hundreds of BRRRRs. 

Mark Ainley with GC Realty - c. 630-781-6744 

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Transcript

Michael:

Hey, everybody. Welcome to another episode of The Remote Real Estate Investor. I'm Michael albaum. And today I'm joined as usual by,

Emil:

Emil Shour.

Michael:

and we have a special guest with Mark Ainley with GC Realty and Development. We did a deep dive on Chicago with Mark a while back. He's got a property management business, but today's going to be talking to us about the burst strategy. So let's get into it.

Michael:

Mark. Thank you so much for coming back on the podcast. We had so much fun with you doing the Chicago deep dive for anyone who didn't catch that episode. Go give it a listen. We've got Mark Ainley with GC Realty and Development. How are you, man?

Mark:

I'm good. I'm not as hot as you guys. You guys got a lot to fire in us out there.

Michael:

So yeah, big time fire. It seems like the market's hot. The state is hot. You know, everything seems to be on fire these days. Um, so today I wanted to chat with you. Not just I, but Emil as well. One is chat with you about BRRRR. Cause we were chatting with you before we recorded the last episode. And you were telling us how you had done like 480 some odd BRRRRs out in the Chicago area. Is that right?

Mark:

Yeah, no, we did between Oh eight and 18. We did a, just over 400, I think it's 482 to be exact units, which were all made up of like one to four unit buildings.

Michael:

Fantastic. So for those of our listeners who might not be familiar, can you just give us a quick and dirty definition? What is a bur and how does it work?

Mark:

Sure. Buy, renovate, rent, refinance and repeat the acronym goes. Now when I started doing it, I didn't know what it was. I just thought I was smart. I wish I would have pointed trademarked it or… I was thinking about that today when I was preparing for this call. I'm like, man, if I would've came up with that, that was so smart. So we started doing it and it was really a business model to us and how we were approaching it back then.

So for us, when we started in 2008, I got my into real estate in 2003. And you guys know out there in California, just as much as we do here in the Midwest, you couldn't do those types of things in the two thousands, just because pricing was so high, the opportunity wasn't there. So I really didn't have a, that access to those types of deals until the market crashed. And when the market crashed, the math just made sense to me on a couple of things I was looking at how to go at it.

Michael:

Right on. And so why do you think just at a high level, we're going to dig into some details of a couple of birds you've done, but at a high level, why is it such a powerful tool or vehicle, whatever you wanna call it.

Mark:

So it is powerful because the concept of it is you are not leaving any of your money into the deal at the end of the day, instead of a there's tons of these late night commercials are vest with other people's money or no money down, or do seller financing, all that type stuff. You can do these types of deals without having to do these by these crafty sales type pitches or get some guy to tie you to his second loan. I don't know. They got some crazy things they do out there to find ways to not have to put money into a deal. And this one's halfway legit. Now don't get me wrong. You have to find a way to have money on the front side of things. And we can talk about that. But, uh, um, at the end of the day, you can get out of a deal having little to maybe five, 6% in the deal. And sometimes even we were successful. We even were able to exceed what we had in there on a cash out, depending on the lender we're working with.

Michael:

That is so cool. So I know people talk about the rural all the time. People tell successful and unsuccessful burgers all the time, but you've got enough under your belt. It sounds like you've probably done some good, some bad and maybe I think in between, right?

Mark:

Yeah, no for sure. That's how the, the quick story of, uh, in our adventure for an 80 units, our first property, we bought that we're going to Burr and we did, it was a little, had a little more hair on it. We were combining a couple of deconverted condos and rolling into one, and we're going to cash out at the end of the day with a three flat versus a few individual units. And, uh, got stuck with stop work, order permits. We, we did, we made all the mistakes we could, you know, and then, uh, when we were getting inspected for the stop work order permits, we had someone else that didn't have a permit, horrible, horrible, but we did 131 other units in the time. It took us to do that first project. So, uh, that's kind of a horror story of, of, uh, bad planning or really being too optimistic. And then obviously making a whole bunch of mistakes of permits and, and who are really dealing with.

Emil:

Wow.

Michael:

So when you were first getting started in that first unit, you refer back to we a lot. Who is we and what kind of experience did they have doing this type of project?

Mark:

So I had a couple of partners when we started off in the four and 80, we're kind of broken up into two groups where I had one part in there. I was consistent on both a hundred for 480 units. The first group, I had a partner and he was doing rehabs all around the city. And again, the concept of just kind of buying it cash and then refinancing out w what we really started with. And then, uh, as we part ways with the first partner enrolled with our second partner, where we did the balance of the units, it really turned into, Hey, we have a bunch of, uh, uh, private money that we could use and, uh, move faster and be able to, uh, go that route. So I've always had partners, different skill sets. You know, my one partner at the time, you know, he had the money, the first partner had the money.

And then my other partner that was consistent the whole way through, he had the construction, no hallway at that point. So I've learned all that stuff since then. It was kind of the we.

Michael:

Right on

Emil:

When you guys are doing all these deals, and this is something I wonder for myself, do you need to buy everything, all cash when you're going out and buying these properties?

Mark:

Yes and no. A lot of the properties where you're really trying to find the add value ends up being in properties that might not be financeable, uh, where it might be missing a kitchen. It might be missing furnace. It might be just, my mind would be habitable where conventional loan won't be. They won't finance you. Or, you know, they have the two or three K loan, which is a lot of hoops to jump through or would even make sense to do something like that for that.

So you're buying a property that is really going to be bought by an investor only, and that's going to require cash. Now, whether that cash out of your pocket, or maybe you have a uncle or a private lender or a partner that that's where the cash ultimately is going to come from, and that's going to be. So if you think about it this way, when you're buying properties that can only be bought by investors that are have cash or are not financeable, now you can beat your in kind of the section of a properties out there that only a handful of people can actually buy. So if you have a hundred thousand dollar property, that's not, financeable, you know, out of a crowd of 10 people, you might only have a couple people that really have the means to pull together that a hundred grand to do it.

So now the supply and demand laws that property's going to go even for cheaper, which means there's more of an opportunity as far as the gap of what you can put into it, appraised for and cash out for on the backend.

Emil:

So what kind of properties would you guys target? I'm sure after doing this enough, you had like a, a model or a buy box. We were like, alright, this is the kind of property we really want to hone in on. I don't know if I'm asking for too much of the playbook, but..

Michael:

Give us the secret sauce.

Mark:

No, no. So when you, I guess when it comes to BRRRR, the name of the game is a for trying to do as many as you can. The name of the game comes down to speed. So we did hone in on that and we honed in on, on single family homes, two flats, whenever for a reason, even though it's only times two, it always took us so much longer to do it. Three flats, forget about it. It was, uh, we always, uh, screwed up the timeline and messed out up that side of things. So we started focusing on single family homes that were in that really eight to $1,200 range, um, two to three bedrooms, one maybe sometimes a two second bath in the bathroom. So we focus on that. We focus in a handful of neighborhoods and we focused on certain floor plans. So we even were able to focus on specific, floor plans where we knew it just based on that floor plan. And we did 12 other like that, that these were gonna be our costs going into it. And we knew that we were creating comps for ourselves along the way as well too.

So one of the important things about a BRRRR is your backend. If you gotta make sure it plays out now, we were working through probably what would be the hardest time when it came to appraising. Cause there were no comps and appraisers were ultimately scared to do anything that was kind of pushed the line. If you're the highest comp in the neighborhood. That was a red flag in that 2013, 14. So now there's comps out there and be able to control that backend to make sure that a you're compping out based on stuff you're doing is one of the bigger pitfalls that people run up against.

Michael

And for our non maybe Midwest listeners, two flats and three flats are duplexes and triplexes.

Mark:

Yes, yes, yes. Yeah. We call them flats.

Michael:

Good deal. And so the vast majority, it sounds like you bought in cash. Did you ever purchase anything financed on the front end

Mark:

In the coming out of the great recession? You know, we had a couple of banks give us some deals or get properties off their hands. And what we thought were, sweetheart deals never turned out to be sweetheart deals. So this, the best deals we ever did were the ones that we bought cash.

Michael:

Okay. It's interesting. I was chatting with a meal a few months back about a strategy that I've used in the past for buying rehab and burn type buildings and the multifamily space. And what I did is I'll buy them for cash turn around day one and get a commercial refinance out of 80% because they were financial and then use that cash to then fund the rehab. Once it's done refinance again, and depending on what your refinance costs looks like, that can start to add up pretty quick. So you might want it to go about a different way, but for whatever reason, they only charge me like a thousand bucks to refinance. So it was the cheapest money I ever got.

Mark:

When you're borrowing the money on the front side. Uh, you maybe like, people always refer to the uncle, that's got money or whatnot, or a partner, but you know, a lot of people are going through call hard money lenders, and that gets really expensive. And I always tell people, I really figure out what your numbers are. So we were paying 10% across the board, but we just rolled that money over. We never had any points. We never had to refinance it. Those guys, they just want to keep their money working. So we might even refinance a project and have sit on that money for a couple of weeks and pay that interest. And that's where the costs, we always had to be efficient about it, but we're able to, as long as they're getting their 10%, they trusted that they're in good hands with us. So making sure that you're measuring that money out of pocket, and then that comes into the timeframe of doing the deal or how long it takes you to get to the refinance point, which people have pitfalls on when it comes to that, or if they didn't plan.

Michael:

And Mark, I want to get really specific on how you structured some of those deals. So that 10% was that interest only. And was that paid monthly or was there an end payment date to talk to us a little bit about how that work and how you structured it?

Mark:

Yeah. So how we did it, we did it on a monthly basis, 10% interest only, and we tied them to mortgage it. We had a mortgage and a note for every property. So if we sold the property, we have them sign off on the payoff and then we would basically move it to another property to make sure that they were always protected on their side of things.

Michael:

Perfect. And so I just want to give folks an idea of what those numbers look like. So on a hundred grand at 10% interest, only on a monthly basis, that's $833 a month. And so you're making those payments every month while you're using that money until you can refinance pay off the a hundred thousand and then look to go do it again. Right?

Mark:

Correct. Correct.

Michael:

I love it. Can you walk us through what your best Burr was? Cause I think everybody remembers the high notes and then we're going to ask you in a minute, what your worst one was.

Mark:

The best deal, I actually had this, uh, I talked about this when Joel Fairless, I was on his podcast and uh, you know, we got this property and the cool thing was, you know, we buy on the auctions, auction.com and uh, the couple other, um, I can't think of top of my head, but a couple of our different auction sites and this particular property bounced around to a couple of different auctions and were able to finally bid it. And it was a sight unseen. You know, we had to do all our due diligence. We could from the outside and we got the property. It was actually a four flat, uh, so four units. And, uh, we were, I think we bought them for 20 or 25,000 each they're small units. And I think we only put about 50,000 into it altogether. You know, when you do it enough, you just get lucky sometimes.

And this is one of those ones where we had some luck on our side, defendants were happy with even the, not a hundred percent updated conditions. So a lot of that money, we did have to spend on what we thought we're going to spend. So, you know, we actually ended up putting it into a roof versus updating a couple of units. And then we ended up selling that building turnkey to an another buyer a few years later. But the real ultimate win was we ended up clearing probably about end be about $130,000 on that one, uh, when we sold it. So we got the cashflow for call that first year, and then we made 130. So that is probably the best deal. And I still think about that all the time. Cause like, man, you can only duplicate that.

Michael:

That's fantastic. So I just wanna make sure I understood you, right. So you bought it for 25, a unit and four units or 25 total?

Mark:

So I think we bought it for if we're going to be specifically, I think we bought it for 28, so we had 80 into it. We put 50 into it. And so we had about a 130, we were getting about 3,800 a month. So yeah, I see your mouth dropping. It was sick and that sense and refinance it out and we refinanced and went out to, because it appraised really good. So we actually got more. So we actually cashed out then I think it was about 160. It appraised out for like 200. So we got 160 out and then ultimately sell it for, I believe we sold it for right around. I think it was around two 50 to two 70. I don't remember the exact number, but it was a hundred K plus that we made on the gross let alone, we were able to cash out some and we cash flowed all the way. So that is the best deal that I hands down. I even thought about that today. Make sure there wasn't anything I was missing. And that was probably the best one we ever.

Emil:

Yeah. Those are, those are those all star BRRRRs that you read about and people, I mean, you not only make your money, you cash out more on top. So you got paid for doing the renovation and you're still cash flowing. So it's like, yeah, the best of everything.

Mark:

That was a win. And I got plenty of lackluster ones too that offset that. So yeah. I only stay high on a moment for a few seconds. So I started thinking about the other ones, but.

Emil:

We try to always bring people back down to earth, have the right expectations, not always have Rose colored glasses. So tell us about a time when it didn't go so hot.

Mark:

Will you start back to the first property that we bought? You know, we were trying to combine that with another two units and make it a legal basement. And then the city came in, we got stopped in violation. So by the time we were done, we had about $280,000 out of pocket that we're paying that heavy juice on, on a monthly basis for, I think it was about three years. Wow. That was a, a gone wrong. And that was a painful one to say the least the other thing we had go wrong is the we've had a couple, bad appraisals where all day long, like what are you talking about? Reproduction of the building or comparables, you know, they wouldn't accept the off market comps for us. We knew a bunch of deals that happened in the neighborhood. One was us. We sold, we don't sell everything on them a lot.

So a lot appraisers will not go deeper than MLS. So it's up to us and for anyone out there looking to do a burn, make sure you know what your comps are on your exit side. So even going into the deal. So you're planning a refinancing at eight weeks from now, 10 weeks from now, you better hope you have two of those three comps on file right now that you could bring to that appraiser. And if they're off market, you got to make sure that you're getting the information to the appraiser so he can account for it in his appraisal.

Emil:

So now having kind of looked at like your best scenario, your worst scenario, it's kind of saving this for the end, but I want to ask it to you now. You've probably learned, okay, these are the types of BRRRRs I want to take on. And these aren't. So like, do you have like, like your tips or takeaways from the BRRRRs that go well, versus the ones that end up being just running really long and expensive

Mark:

As far as, you know, you buy a property that might have city violations on it, or some sort of a, if you buy a property in the city, Chicago, and maybe it's been vacant for a couple of years, if your attorney didn't catch the injunction on it, or some issue that you have to clear up a court before you can put a renter in there, that's something I see people get hung up on all the time where, uh, they bought a property, they fix it up, but they cannot refinance until that rental injunction on the title. The city puts out on the title is lifted. So dealing with the city is a pain in the butt pre COVID, let alone having to deal with self post COVID. So just having a property that has violations that are almost beyond your control, you know, you could take any sort of problems that need to be fixed a rehab and kind of put a timeframe on it.

But when you start working with municipalities or cities or a big city like Chicago, and now they're controlling it and you have to wait a month for a court date and all that stuff, that's where I've seen a lot of people, including myself, kind of get tied up in these deals that they take forever to get your money out.

Emil:

Is that something you see during title? Like when you run title during due diligence, but you just kind of say, Oh, we'll get through it later. Or is this something you couldn't foresee until like you bought the property?

Mark:

I've seen it happen both ways. So for us, we, we took it on not understanding what it was and then we got bit by it. But we've also had scenarios where we bought a property and it was in the process of being put on the title where we got kind of dinged, just bad luck in that sense.

But I see the problem with a lot more people. They just try pushing through it, thinking we'll make it work. I like to be part of things or investments that I can control. Uh, almost everything go along and, and the BRRRR part, the one thing that I think you have the least amount of control of when it comes to that, is that appraisal on the backend. Um, as far as how much you're gonna get out. So you can pretty much control everything every other step up until that appraisal part. And even then you could have influenced not the right word. Cause it sounds like you're, you're paying somebody off, but you can have a, some inclusion on the data that's being included if you provide a valid comps. So

Michael:

What a, what an eloquent w to say that you can have inclusion the outcome. So speaking of timing, Mark, a question that I, and Emil probably get all the time is seasoning period. How soon will a lender re give me a refinance based on a new appraisal, as opposed to the sale price? What have you seen in your work?

Mark:

So funny, quick story. Um, I had a guy call me up last week, looking for a bank that will take a property. That's not six months seasoned. And I said, man, you didn't talk to the bank before you he's like I did. I didn't know what season meant. He's like, I heard him kind of ramble. So by being in season, I just didn't understand. I thought maybe he was talking about the time of year or maybe it's busier in the summer,

Michael:

Or maybe he was talking about a cast iron pan.

Mark:

Yeah, and he goes, I know Mark, just, just laughing, get out with it, please help me find somebody. I could take a, take the letter, tell him like, Oh my gosh, like it's horrible, like scenario to be in. And I could see. So the season part is something that post COVID I, you guys probably know this, uh, the banks have really cut back on a lot of the banks that were saying, Hey, listen, you get the job done, um, we'll, we'll give you the money, but now they're moving back to that season piece. So for us, we were able to work with a lot of local community banks. And you know, there's, you know, the community banks, you get that relationship. It's almost like a 60, 1960s feeling relationship with some of these local community banks where they might have the seasoning issue with anyone new, but because you've been banked with them and you might have x amount of dollars in their bank, they'll work with you. But when you come from out of state and you want to do it, then their risk levels go up and they usually don't work with it. So I found, I don't know, uh, it was down in San Diego, but a guy that was, he found a, uh, bank there that was giving a higher interest rate, but he was, they were doing non season properties.

I don't know if it was a credit union or whatnot, but finding that bank that will do it non seasoned and they're out there. It just ends up taking a, you just have to figure, use your resources to find that out there. But the bottle is tough to do altogether. If you want to continue to build on it, if you have to wait for that six months for it to be a season now for us, we never had to wait. Um, and that we wouldn't have done 482 units if we had to wait six months every property.

Emil:

When I was doing research on this, I found that anytime you wanted to get a mortgage back… So any Fannie Freddie loan, they required a six months seizing period. At least every bank I called like four or five different banks. And everyone kind of told me the same thing where you guys getting different loans or were you getting Fannie Freddie loans when you were reading?

Mark:

We were not getting any Fannie Freddie. So we were working with local community banks and we were able to whether they get a credit line, we're getting, they're holding our portfolio again. If someone looking to do it has to build that relationship. And, uh, you have a little money in a bank that people will be flexible, um, all around the country, as far as banks go and stuff like that.

Michael:

And so for all of our listeners who just might not be familiar with what a seasoning period is like Mark's friend that called and asked him, it's basically the amount of time that you need to own the property for, until they will give you a reappraisal or refinance. And so that's often six months for those Fannie Freddie products, or it can be more flexible with those community banks. But so definitely have that conversation on the front end prior to, I would say, even purchasing the property and know what your exit looks like, who's going to do the refinance will do that. Will they give you a new appraisal? Are they only going to give you your purchase price, plus your costs? You just want to have a very clear picture and understanding of what that looks like. So you don't get caught looking on the backend.

Mark:

The other thing, when it comes to that appraisal, if maybe it's not a Fannie pretty type a low and you might get into, but other banks, they might not do it against appraised value. They'll do it against what you have into it. So that's another way I see people get tripped up. So they might have a a hundred thousand dollar property and they put 50,000 into it. So they have 150 all in and it pays off for 200. And I know they could get a, um, all their money out, but the bank will say, well, show us how much you have into it. And we'll only loan to, uh, to that amount. Uh, that's where I see another way people get, uh, caught up with that.

Michael:

I was gonna say, so shifting gears here, Mark, the podcast, you know, it's called the remote real estate investor. And so the vast majority of our investors are doing this remote. What would you say to them? Cause I think a question I get in the Academy all the time is how do I get started doing a BRRRR? I don't know anybody half. The reason I use Roofstock is because I don't want to have to get to know anybody. You already have these relationships. So if somebody wants to do a remote BRRRR, where do they start?

Mark:

Um, it's a generic answer to start, but, uh, you know, having the right team and I tell people to find someone that's already doing it, and then they have the resources and they have the know about to do it. So example with just saying myself, you know, so for any property management company, they have the ability to do turnovers, right? And where we've worked best with out of state investors, kind of going after the birth strategy has been all right, you buy this property and we can do a, what we call it. We call it heavy turnover. So anything in that 10 to $20,000 range would be a heavy turnover and you take a 900 square foot ranch. You could do a lot for 20 grand in a sense of redoing the floors, redoing a bathroom, you can update the kitchen and that amount and possibly a replacing a mechanical or two. So you can get that and then get it to refinance out and get a majority of money out. So having, whether it be a property manager company that has a little more of an expensive maintenance apartment.

So for us, we have all in house maintenance. A lot of property managers will outsource that part, but any property manager that has in house maintenance has the capability to do those shops, any other sort of a developer that a local to whatever region. I mean, they can usually put you in touch with the right people to do it. So having just the right team that you can trust, I guess, and if you're able to find a proper manager that that's going to actually be responsible for the property all the way through, and then have to put the right tenant in there, find a tenant that's gonna fit, whatever rehab you just did. And then ultimately be responsible or be around six months from now, if something went wrong with the rehab or maybe the deck that was fixed broke or whatnot. So if you're able to keep one group, like some of our clients have done together, um, for the whole time, then that just lowers your risk as an out of state investor as well, too.

Michael:

Perfect. And so for anybody interested in investing in Chicago or doing firs in Chicago, that's something that GC Realty can do for them.

Mark:

What I ended up doing a lot is people call me up. They might be looking to buy a property. Maybe they were working with a realtor in our office. Maybe they're working with another local realtor, but I'll tell them either a it's something we could do based on the timing. Or I'll put you in contact with two or three guys that I know can get the place fixed up for you. At least I can help him with the scope and then they could do the actual work and then they'll come back to us to manage. So ultimately the end of the day, usually if we don't help directly, we help indirectly as far as set people out, as far as Chicago goes.

Emil:

Michael you've had the same experience, right? Like you've your property managers in some of the cities you own property in, they've helped you find a contractor and kind of help manage the process. It seems like if you're an out of state investor, relying on your property manager to help with that whole process, they're like the key to this whole thing.

Mark:

Yeah. And I, I put myself out, you know, in Chicago, I got a guy, right. That's what you need. And there's those people everywhere. I mean, there's just those, uh, networking people that are just machines when it comes to connecting people. And, uh, you know, there's a lot of people I talk to on a weekly basis. I might never talk to again, but they'll, or at anytime soon, but they pop up a few years later with six or seven properties that they want me to manage now or something like that. So just kind of drive the people to where they could succeed. And I think the number one thing is starting with the right person to direct you in any of these cities. And I'm sure you guys have property managers all around your network that can at least be the starting point for somebody you're a restock Academy. People to be able to go from there then.

Michael:

Yeah, totally. And Emil to answer your question. Yeah. I reached out to my property manager and ask if they could put me in touch with, but then I still did screening interviews to make sure that it was going to be a good fit for me because the property manager wasn't involved because of the scope of work was just a little bit too much for them to handle. So I sought to make sure that it was going to be a good working relationship.

Mark:

I'll get every so often, uh, a guy that will be like, he'll want to a GCA from California. He wants to just be part of all and that's fine. And what I'll do for him. It's like, alright for the foundation, call this guy for the roof, call this guy and I'll give him seven or eight people and like go for it and they'll knock it out and they'll bring back the property to rent. So that's another approach to it. You, you can literally, you know, nowadays, you know, I know a couple of investors from California that literally do a couple flips a month here, whether it be flips or rehabs, but they, they, they have their trusted guy on the ground here throw up those little cameras in the corners and they're practically on the job site every day, seeing what's going on. So with technology these days, and, uh, I can't think of the service, uh, that camera, the security service, but, uh, it can almost be there on the job. So as long as you have the people, then they can actually trust you. At least know if they're coming or going even.

Emil:

That's super smart. I never thought of that. Like just putting up a ring cam and that's like hooking it up to wifi or whatever. And then you can check your job site.

Mark:

That's all that too. And, uh, you know, so they actually have the locks as well to where you can, uh, change the code from, from your phone in California. And so when that, when that contract came back, cause he's saying, Hey, I can't get into the code's wrong. I see some guys do that too, because they don't want to pay someone like us, a few grand to oversee it. Your times was funny at that point, but, uh, that's fine. It is what it is

Michael:

Right on. Mark, I'm curious to know, is there anything that you could see on a project or potential deal? That's an immediate, no, go for you. Like it's got a foundation issue or it's got a roof, you know, is there such a thing or do you, until you put a price on it, are you not scared?

Mark:

So I've never been a fan of fire properties, um, properties that might had a fire, even if it's just like the second floor has got a partial fire, you just never know. I would never feel comfortable, um, going through without having to really take the part the whole place. So we've never really messed around with fire properties. As far as a foundation goes, we talked about last time, the housing stock and age here, you know, you deal with the foundation stuff all the time. It just ends up being what you do with that foundation. Now, if a house is leaning and it's a hundred years old, more like we're not gonna mess with it. There's a couple of cracks. There's plenty of guys around here that can seal that stuff and make sure that you don't get that moisture in that basement.

Michael:

So, so the, the fire,It was like a dagger in my heart. So I don't think I shared with you Mark, but a lot of our listeners know that I have a mixed use commercial building that I'm converting to residential. And I had two fires, not one but two fires in the same building a week apart. Oh, wow. One in a commercial space and one up on the roof during the reroof project. So dealing with the insurance company right now, getting that whole thing adjusted. But yeah, it's a total nightmare.

Mark:

I'll tell you a quick story. I I've been very lucky when it comes to fires. Um, and luckily I haven't been investigated probably cause the coincidence of them, but, uh, lucky in the sense of we had a, a, a, a property that, uh, we had a really bad foundation issue and, uh, and no one's ever been hurt. So I'll give the caveat that we've had fires and no one's ever been hurt. So we had that building that, uh, um, was almost leaning. It was like a hundred thousand foundation and December 9th, 2017, it burned down. I'm like, Oh my God, total loss. And then we had another one that just being done. We had a four unit and I converted it to a two larger unit and it just didn't make sense. And the building ran horrible and I had to do something. I maybe converted back to four solid, this kind of lose money and it burned down.

So I got lucky two different ones. I had another building, a vacant building, a burned. Now the one thing I went wrong with on there, because this story is, although I made money and I talk about profit-wise, I made a killing, but I was under insured for some of these properties. I could have almost walked away with another 40% of what I walked away with if had I insured it now, there's always the, what you pay monthly versus what you, you know, you're preparing for something that more likely is not going to happen, but, um, just always have that serious conversation with your, make sure you have a trusted insurance guy that you're talking to that can, uh, uh, put that all in perspective here, what that looks like.

Michael:

It's so funny. Cause I come from the insurance world. And so a lot, a lot of people might be like, why the hell is this guy Mark laughing and celebrating that he burned his properties to the ground. And what people don't realize is that if you're going to have a loss, you kind of want to have a total loss. I want it to burn to the ground because then you just get the insurance money and you can go do with it. What you want. The issue is when you have partial losses, when the fire department's really good, or when the building was built, well, you're like crap. Now I got to go repair this thing. And it's, it's a whole nightmare. And that's what I'm dealing with right now.

Mark:

We had the two total losses that they were so bad that the city even came in and tore them down, like within 24 hours. So the one property we even know about, we went there, it was gone. It was something we didn't get to yet. We had a kind of a backlog of properties and it was vacant, but yeah, gone.

Michael:

Cause that's expensive. Property, you know, debris, removal, cleanup, all that stuff's expensive may or may not be covered under your policy. So yeah.

Mark:

Yeah. We had to definitely pay them back for that. They liened it. So they actually got us two properties later. They liened, uh, the land actually for that one. So…

Michael:

Well, that's crazy. That's crazy. Emil, you ready to start wrapping stuff up here?

Mark:

I got a couple other things you want me to hit on real fast. Yeah. So just let me run through my notes here real fast. So I think for the people that come out of state, they don't realize how long that, that time to get from the day you close to the day, you could actually get it rented to either a, have the opportunity to get reappraised or start the seasoning process. So I think, uh, making sure that people are allowing enough time in there, whether it be their borrowed money or their hard money, or be realistic by the expectation. So just even doing a $20,000 rehab is still going to take probably about 60 days from the time you start, you're going out there verifying scope and all that stuff where people are like, Oh, I thought you'd be done in a couple of weeks.

It's like, Aw man. Like, no, we've got to get permits. We got to do these things. So making sure you understand how long you have to maybe have that hard money out there or when you're seasoning period actually real, really start is something that I see people go wrong on. The other thing that I see, and this is a big one and we are, we did this too. When we first started buying these properties, we did whatever it took to get it rented. Um, we only did let me reword that. We only did what it took to get it rented, where we left a lot of capital improvements like, Oh, that Ruffino made me, you know, you can see through the roof by your name. I got a couple of years out of it or that hot water heater. That's literally rusted in drip. It's like, Hey, as long as maybe we get another year and we did those things in a, you know, maybe the, the garage, we didn't, uh, do something with the garage where now we weren't, it wasn't part of the rent.

And, uh, so we, we, uh, we, we shot ourselves in the foot where we were able to see how bad our maintenance was, uh, from not really doing a full project and our average, uh, for our kind of our first 140 units versus the balance of, um, you know, I think we spent about another 12 or 13,000 hours, average per unit, just on making sure we did all those things. That way we're not nickel and dime on maintenance for the next two years.

Michael:

That's really smart spending the money on the front end to making it more maintenance, proof, more tenant proof. You go so far.

Mark:

Yes. You know, when you're getting the appraisal, another thing is, uh, you have the full scope out there. Hey, mr. Appraiser here is the laundry list of everything I did. We have about X amount of thousands of dollars into it. And just want to accompany this with a couple off market cops there. So you can put a nice little package together for the appraisal. You can't tell him he has to use something, but you can at least provide them with the data for him to decide if it's worth using or not. And here's the thing, when an appraiser, he walks in the house, he doesn't necessarily know what the house looked like before he was in there. So he doesn't realize or appreciate how much you actually did. So I know one guy he actually gives before pictures and after pictures to that appraiser, so he can justify the 40, 50 grand. He might've put into it. So that's, that's another, uh, kind of good one to make sure you can at least control as much as you can in that part of the process.

Emil:

What type of investor is this a good idea for? Like, I'm sure you've done this with plenty of out-of-state investors who are interested in investing in Chicago, would you say there's a certain type of investor who like, is a good idea versus I don't know, some characteristics of people where it's like, like one thing I can think of is you have a super busy job and like all these other things where you make good money, it's like, is it worth all your time and energy spent in a BRRRR versus buying something turnkey? I don't know. I'm just curious if you've had that experience.

Mark:

So in a BRRRR, you might just say you run through a whole Burr and you might have only, uh, you might only get 95% of it. Now you have typically 5% of the deal, but if you bought that right, there should still be some equity in the deal that maybe it didn't appraise for enough. So one of the tips I have, or one of the things I say is make sure that when these property or buying or the reward is worth the risk, because there's risk when you're doing this type of strategy, where even if you're not getting all your money out, you should still have a nice piece of equity. So that whole add value piece is why you do it. You know what I think a lot of a turnkey model type investors or investors that are buying, I don't know, you call it top of the market. Um, they might have something that they could get very hands off of, low touch, but they are buying at the top of the market.

You might not get all your money out, but you might still have another 10% equity in there even for a future opportunity to maybe borrow against and do something more to it, or at least have on against your, a personal financial statement as something that you have some equity. And so I think someone that's looking to add a little more value and kind of build that equity worth a faster, this is what it's for. This is like, if you don't have time to be a full time investor, but you don't want to do kind of the armchair type investment, uh, this is kind of the go-between.

Emil:

Yeah, that makes sense. And you know, I've, I've always thought like, even if you leave five to 10% in the deal, like you're still getting a much better deal than you would had you just gone and had to put 20% down 25% down, whatever it is.

Mark:

Oh yeah, for sure. For sure. And so you have that 5% in, and hopefully you have another 10% equity still because it didn't appraise out for the full max. So that's a way better spend than just putting 25% down that, you know, you're not gonna gain money on.

Michael:

One additional point to on, on how long it takes to just get this stuff done. And what really surprised me and kind of caught me looking was the whole time and you're holding costs. And so if you're, you know, you're paying utilities for this property, the whole time folks are working on it. And the utility bill is going to be a lot higher than if people are just living in it. Cause they're using power tools and bathroom and water and all that kind of stuff. So I had a month where I had like 800 to a thousand dollars, just utility bills for this multiunit building, because there are a bunch of people working in it and I'm like, Holy crap, that's insane. And something else to keep in mind is you got to talk to your insurance carrier provider agent and ask them what a vacant property or property rehabbing insurance policy looks like, because that might be very different than a tenant occupied policy. And they're often a lot more expensive. So just make sure you're very accurately putting together what your numbers look like for your… whatever your cost of your money has. And then your, your insurance utilities, your property taxes. You still gotta pay those even though there's no one living in it. So just make sure you're very, you get a very clear picture of what the actual numbers look like,

Mark:

Cutting the lawn, shoveling the snow and, uh, that, that builder's risk policy is yeah, it adds up.

Michael:

Yes, it sure does. It sure. Does Mark. Anything else that you wanted to share with us and Neil? Anything else you got?

Mark:

One other thing that you could do with the appraisal. If you are, maybe you get a bad appraisal, you can always contest that. And I'm not sure if everyone knows that. But if an appraisal comes back, you say, hey, listen, you know, they might've had low comps now. It's not smart to contest it unless, you know, uh, that there's actual facts out there that can help you get closer to your value. But, you know, even if that appraisal that comes back gets you another five or 10 grand on a hundred thousand dollar property, that's a, that's a big chunk. Contesting the appraisal. Now we ran into the issue all time of we're trying to turn money too fast. So to appraise, try to contest an appraisal for another four or five grand. We were, it was slowing us down. So that was one of the things that was tough when we were trying to compound, uh, these deals. But if you're doing, what are you doing to take the time to test that a appraisal and try to get that other five to 10% out of it.

Michael:

Really good advice.

Emil:

Does it cost money? Does it cost money to contest? Cause I remember I was doing a cash out Refi on a property earlier this year and it came in low and we just tried to contest it. It didn't move anywhere, but I dunno if maybe there was like a formal contesting process.

Mark:

You know what, I want to say there's like a a hundred dollar fee. Um, but I might be confusing that with, if the guy couldn't get access and he charged you for it, I'm not sure. But uh, so worst case now I think it might be a hundred bucks. Yeah. Yeah. So again, risk versus reward is not that much, even if it keeps the fader $10,000 or even $5,000 out of pocket for an extra hundred bucks in a couple of extra weeks that there's value there.

Michael:

Money well spent.

Emil:

Totally worth it.

Michael:

Once COVID ends, if you could go out on a plane and go anywhere, where are you headed?

Mark:

Ah, just somewhere at the beach. I have not been to a beach for a long time. Um, I will literally take anywhere with an ocean. I've actually looked at like day trips, like flying down to quick day trips to like, fly out the morning, go sit on the beach for the day and fly home to Chicago down in Florida somewhere. Uh, but yeah, I've been to Vegas a bunch of times, but you don't get that beach satisfaction there for sure.

Michael:

No, you gotta be careful what you wish for though. Cause my brother went to school in Canada and he told me he threw a snowball from the beach into the ocean once. So you don't want to go to over the cold beach. You got to go to a warm beach.

Mark:

Nope. Headed down to Florida somewhere. That's the quickest cheapest flights it looks like. So right on time, change screws you up. I've told me down with it, but for a quick trip, the time change screws up too much.

Emil:

Come hang in. LA man. If you're ever here

Mark:

Yup Yup.

Emil:

But a day trip is tough to California.

Michael:

Awesome. Well Mark, thank you so much for joining us for round two. This has been super insightful, super informative, and I am sure we'll have you back on again. Soon

Mark:

I look forward to it and anybody that, uh, like I, I try to point people in the right direction. So anyone ever interested in Chicago or anyone that is looking for the right context in Chicago, feel free to reach out

Michael:

Perfect. And what's the best way for folks to get in touch with you?

Mark:

We got, uh, we got our podcast Straight Up Chicago Investor Podcast now, which we started a Facebook group for. And then, you know what, I'll put my cell phone out there, uh, in the, in the show notes. So if you guys can help that

Michael:

Fantastic and your website as well?

Mark:

GCRealtyinc.com

Michael:

Fantastic. Well, thanks again, Mark. Really appreciate it. And we'll chat soon, man.

Emil:

Thank you Mark.

Michael:

Alrighty, everybody. That was our show. Hope you enjoyed it and took some actionable takeaways. If you enjoyed it, feel free to leave us a rating and review as well as subscribe, wherever it is, you'll send your podcasts. It really helps us out. If there's anything that you'd like to hear covered on an episode, feel free to leave that in a comment that would be look forward to seeing them the next one and a big shout out and thank you to Mark. That was really, really great stuff.

In this episode, Michael and Emil chat with Mark Ainley from GC Realty and Development about his experience with hundreds of BRRRRs. 

Mark Ainley with GC Realty - c. 630-781-6744 

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Transcript

Michael:

Hey, everybody. Welcome to another episode of The Remote Real Estate Investor. I'm Michael albaum. And today I'm joined as usual by,

Emil:

Emil Shour.

Michael:

and we have a special guest with Mark Ainley with GC Realty and Development. We did a deep dive on Chicago with Mark a while back. He's got a property management business, but today's going to be talking to us about the burst strategy. So let's get into it.

Michael:

Mark. Thank you so much for coming back on the podcast. We had so much fun with you doing the Chicago deep dive for anyone who didn't catch that episode. Go give it a listen. We've got Mark Ainley with GC Realty and Development. How are you, man?

Mark:

I'm good. I'm not as hot as you guys. You guys got a lot to fire in us out there.

Michael:

So yeah, big time fire. It seems like the market's hot. The state is hot. You know, everything seems to be on fire these days. Um, so today I wanted to chat with you. Not just I, but Emil as well. One is chat with you about BRRRR. Cause we were chatting with you before we recorded the last episode. And you were telling us how you had done like 480 some odd BRRRRs out in the Chicago area. Is that right?

Mark:

Yeah, no, we did between Oh eight and 18. We did a, just over 400, I think it's 482 to be exact units, which were all made up of like one to four unit buildings.

Michael:

Fantastic. So for those of our listeners who might not be familiar, can you just give us a quick and dirty definition? What is a bur and how does it work?

Mark:

Sure. Buy, renovate, rent, refinance and repeat the acronym goes. Now when I started doing it, I didn't know what it was. I just thought I was smart. I wish I would have pointed trademarked it or… I was thinking about that today when I was preparing for this call. I'm like, man, if I would've came up with that, that was so smart. So we started doing it and it was really a business model to us and how we were approaching it back then.

So for us, when we started in 2008, I got my into real estate in 2003. And you guys know out there in California, just as much as we do here in the Midwest, you couldn't do those types of things in the two thousands, just because pricing was so high, the opportunity wasn't there. So I really didn't have a, that access to those types of deals until the market crashed. And when the market crashed, the math just made sense to me on a couple of things I was looking at how to go at it.

Michael:

Right on. And so why do you think just at a high level, we're going to dig into some details of a couple of birds you've done, but at a high level, why is it such a powerful tool or vehicle, whatever you wanna call it.

Mark:

So it is powerful because the concept of it is you are not leaving any of your money into the deal at the end of the day, instead of a there's tons of these late night commercials are vest with other people's money or no money down, or do seller financing, all that type stuff. You can do these types of deals without having to do these by these crafty sales type pitches or get some guy to tie you to his second loan. I don't know. They got some crazy things they do out there to find ways to not have to put money into a deal. And this one's halfway legit. Now don't get me wrong. You have to find a way to have money on the front side of things. And we can talk about that. But, uh, um, at the end of the day, you can get out of a deal having little to maybe five, 6% in the deal. And sometimes even we were successful. We even were able to exceed what we had in there on a cash out, depending on the lender we're working with.

Michael:

That is so cool. So I know people talk about the rural all the time. People tell successful and unsuccessful burgers all the time, but you've got enough under your belt. It sounds like you've probably done some good, some bad and maybe I think in between, right?

Mark:

Yeah, no for sure. That's how the, the quick story of, uh, in our adventure for an 80 units, our first property, we bought that we're going to Burr and we did, it was a little, had a little more hair on it. We were combining a couple of deconverted condos and rolling into one, and we're going to cash out at the end of the day with a three flat versus a few individual units. And, uh, got stuck with stop work, order permits. We, we did, we made all the mistakes we could, you know, and then, uh, when we were getting inspected for the stop work order permits, we had someone else that didn't have a permit, horrible, horrible, but we did 131 other units in the time. It took us to do that first project. So, uh, that's kind of a horror story of, of, uh, bad planning or really being too optimistic. And then obviously making a whole bunch of mistakes of permits and, and who are really dealing with.

Emil:

Wow.

Michael:

So when you were first getting started in that first unit, you refer back to we a lot. Who is we and what kind of experience did they have doing this type of project?

Mark:

So I had a couple of partners when we started off in the four and 80, we're kind of broken up into two groups where I had one part in there. I was consistent on both a hundred for 480 units. The first group, I had a partner and he was doing rehabs all around the city. And again, the concept of just kind of buying it cash and then refinancing out w what we really started with. And then, uh, as we part ways with the first partner enrolled with our second partner, where we did the balance of the units, it really turned into, Hey, we have a bunch of, uh, uh, private money that we could use and, uh, move faster and be able to, uh, go that route. So I've always had partners, different skill sets. You know, my one partner at the time, you know, he had the money, the first partner had the money.

And then my other partner that was consistent the whole way through, he had the construction, no hallway at that point. So I've learned all that stuff since then. It was kind of the we.

Michael:

Right on

Emil:

When you guys are doing all these deals, and this is something I wonder for myself, do you need to buy everything, all cash when you're going out and buying these properties?

Mark:

Yes and no. A lot of the properties where you're really trying to find the add value ends up being in properties that might not be financeable, uh, where it might be missing a kitchen. It might be missing furnace. It might be just, my mind would be habitable where conventional loan won't be. They won't finance you. Or, you know, they have the two or three K loan, which is a lot of hoops to jump through or would even make sense to do something like that for that.

So you're buying a property that is really going to be bought by an investor only, and that's going to require cash. Now, whether that cash out of your pocket, or maybe you have a uncle or a private lender or a partner that that's where the cash ultimately is going to come from, and that's going to be. So if you think about it this way, when you're buying properties that can only be bought by investors that are have cash or are not financeable, now you can beat your in kind of the section of a properties out there that only a handful of people can actually buy. So if you have a hundred thousand dollar property, that's not, financeable, you know, out of a crowd of 10 people, you might only have a couple people that really have the means to pull together that a hundred grand to do it.

So now the supply and demand laws that property's going to go even for cheaper, which means there's more of an opportunity as far as the gap of what you can put into it, appraised for and cash out for on the backend.

Emil:

So what kind of properties would you guys target? I'm sure after doing this enough, you had like a, a model or a buy box. We were like, alright, this is the kind of property we really want to hone in on. I don't know if I'm asking for too much of the playbook, but..

Michael:

Give us the secret sauce.

Mark:

No, no. So when you, I guess when it comes to BRRRR, the name of the game is a for trying to do as many as you can. The name of the game comes down to speed. So we did hone in on that and we honed in on, on single family homes, two flats, whenever for a reason, even though it's only times two, it always took us so much longer to do it. Three flats, forget about it. It was, uh, we always, uh, screwed up the timeline and messed out up that side of things. So we started focusing on single family homes that were in that really eight to $1,200 range, um, two to three bedrooms, one maybe sometimes a two second bath in the bathroom. So we focus on that. We focus in a handful of neighborhoods and we focused on certain floor plans. So we even were able to focus on specific, floor plans where we knew it just based on that floor plan. And we did 12 other like that, that these were gonna be our costs going into it. And we knew that we were creating comps for ourselves along the way as well too.

So one of the important things about a BRRRR is your backend. If you gotta make sure it plays out now, we were working through probably what would be the hardest time when it came to appraising. Cause there were no comps and appraisers were ultimately scared to do anything that was kind of pushed the line. If you're the highest comp in the neighborhood. That was a red flag in that 2013, 14. So now there's comps out there and be able to control that backend to make sure that a you're compping out based on stuff you're doing is one of the bigger pitfalls that people run up against.

Michael

And for our non maybe Midwest listeners, two flats and three flats are duplexes and triplexes.

Mark:

Yes, yes, yes. Yeah. We call them flats.

Michael:

Good deal. And so the vast majority, it sounds like you bought in cash. Did you ever purchase anything financed on the front end

Mark:

In the coming out of the great recession? You know, we had a couple of banks give us some deals or get properties off their hands. And what we thought were, sweetheart deals never turned out to be sweetheart deals. So this, the best deals we ever did were the ones that we bought cash.

Michael:

Okay. It's interesting. I was chatting with a meal a few months back about a strategy that I've used in the past for buying rehab and burn type buildings and the multifamily space. And what I did is I'll buy them for cash turn around day one and get a commercial refinance out of 80% because they were financial and then use that cash to then fund the rehab. Once it's done refinance again, and depending on what your refinance costs looks like, that can start to add up pretty quick. So you might want it to go about a different way, but for whatever reason, they only charge me like a thousand bucks to refinance. So it was the cheapest money I ever got.

Mark:

When you're borrowing the money on the front side. Uh, you maybe like, people always refer to the uncle, that's got money or whatnot, or a partner, but you know, a lot of people are going through call hard money lenders, and that gets really expensive. And I always tell people, I really figure out what your numbers are. So we were paying 10% across the board, but we just rolled that money over. We never had any points. We never had to refinance it. Those guys, they just want to keep their money working. So we might even refinance a project and have sit on that money for a couple of weeks and pay that interest. And that's where the costs, we always had to be efficient about it, but we're able to, as long as they're getting their 10%, they trusted that they're in good hands with us. So making sure that you're measuring that money out of pocket, and then that comes into the timeframe of doing the deal or how long it takes you to get to the refinance point, which people have pitfalls on when it comes to that, or if they didn't plan.

Michael:

And Mark, I want to get really specific on how you structured some of those deals. So that 10% was that interest only. And was that paid monthly or was there an end payment date to talk to us a little bit about how that work and how you structured it?

Mark:

Yeah. So how we did it, we did it on a monthly basis, 10% interest only, and we tied them to mortgage it. We had a mortgage and a note for every property. So if we sold the property, we have them sign off on the payoff and then we would basically move it to another property to make sure that they were always protected on their side of things.

Michael:

Perfect. And so I just want to give folks an idea of what those numbers look like. So on a hundred grand at 10% interest, only on a monthly basis, that's $833 a month. And so you're making those payments every month while you're using that money until you can refinance pay off the a hundred thousand and then look to go do it again. Right?

Mark:

Correct. Correct.

Michael:

I love it. Can you walk us through what your best Burr was? Cause I think everybody remembers the high notes and then we're going to ask you in a minute, what your worst one was.

Mark:

The best deal, I actually had this, uh, I talked about this when Joel Fairless, I was on his podcast and uh, you know, we got this property and the cool thing was, you know, we buy on the auctions, auction.com and uh, the couple other, um, I can't think of top of my head, but a couple of our different auction sites and this particular property bounced around to a couple of different auctions and were able to finally bid it. And it was a sight unseen. You know, we had to do all our due diligence. We could from the outside and we got the property. It was actually a four flat, uh, so four units. And, uh, we were, I think we bought them for 20 or 25,000 each they're small units. And I think we only put about 50,000 into it altogether. You know, when you do it enough, you just get lucky sometimes.

And this is one of those ones where we had some luck on our side, defendants were happy with even the, not a hundred percent updated conditions. So a lot of that money, we did have to spend on what we thought we're going to spend. So, you know, we actually ended up putting it into a roof versus updating a couple of units. And then we ended up selling that building turnkey to an another buyer a few years later. But the real ultimate win was we ended up clearing probably about end be about $130,000 on that one, uh, when we sold it. So we got the cashflow for call that first year, and then we made 130. So that is probably the best deal. And I still think about that all the time. Cause like, man, you can only duplicate that.

Michael:

That's fantastic. So I just wanna make sure I understood you, right. So you bought it for 25, a unit and four units or 25 total?

Mark:

So I think we bought it for if we're going to be specifically, I think we bought it for 28, so we had 80 into it. We put 50 into it. And so we had about a 130, we were getting about 3,800 a month. So yeah, I see your mouth dropping. It was sick and that sense and refinance it out and we refinanced and went out to, because it appraised really good. So we actually got more. So we actually cashed out then I think it was about 160. It appraised out for like 200. So we got 160 out and then ultimately sell it for, I believe we sold it for right around. I think it was around two 50 to two 70. I don't remember the exact number, but it was a hundred K plus that we made on the gross let alone, we were able to cash out some and we cash flowed all the way. So that is the best deal that I hands down. I even thought about that today. Make sure there wasn't anything I was missing. And that was probably the best one we ever.

Emil:

Yeah. Those are, those are those all star BRRRRs that you read about and people, I mean, you not only make your money, you cash out more on top. So you got paid for doing the renovation and you're still cash flowing. So it's like, yeah, the best of everything.

Mark:

That was a win. And I got plenty of lackluster ones too that offset that. So yeah. I only stay high on a moment for a few seconds. So I started thinking about the other ones, but.

Emil:

We try to always bring people back down to earth, have the right expectations, not always have Rose colored glasses. So tell us about a time when it didn't go so hot.

Mark:

Will you start back to the first property that we bought? You know, we were trying to combine that with another two units and make it a legal basement. And then the city came in, we got stopped in violation. So by the time we were done, we had about $280,000 out of pocket that we're paying that heavy juice on, on a monthly basis for, I think it was about three years. Wow. That was a, a gone wrong. And that was a painful one to say the least the other thing we had go wrong is the we've had a couple, bad appraisals where all day long, like what are you talking about? Reproduction of the building or comparables, you know, they wouldn't accept the off market comps for us. We knew a bunch of deals that happened in the neighborhood. One was us. We sold, we don't sell everything on them a lot.

So a lot appraisers will not go deeper than MLS. So it's up to us and for anyone out there looking to do a burn, make sure you know what your comps are on your exit side. So even going into the deal. So you're planning a refinancing at eight weeks from now, 10 weeks from now, you better hope you have two of those three comps on file right now that you could bring to that appraiser. And if they're off market, you got to make sure that you're getting the information to the appraiser so he can account for it in his appraisal.

Emil:

So now having kind of looked at like your best scenario, your worst scenario, it's kind of saving this for the end, but I want to ask it to you now. You've probably learned, okay, these are the types of BRRRRs I want to take on. And these aren't. So like, do you have like, like your tips or takeaways from the BRRRRs that go well, versus the ones that end up being just running really long and expensive

Mark:

As far as, you know, you buy a property that might have city violations on it, or some sort of a, if you buy a property in the city, Chicago, and maybe it's been vacant for a couple of years, if your attorney didn't catch the injunction on it, or some issue that you have to clear up a court before you can put a renter in there, that's something I see people get hung up on all the time where, uh, they bought a property, they fix it up, but they cannot refinance until that rental injunction on the title. The city puts out on the title is lifted. So dealing with the city is a pain in the butt pre COVID, let alone having to deal with self post COVID. So just having a property that has violations that are almost beyond your control, you know, you could take any sort of problems that need to be fixed a rehab and kind of put a timeframe on it.

But when you start working with municipalities or cities or a big city like Chicago, and now they're controlling it and you have to wait a month for a court date and all that stuff, that's where I've seen a lot of people, including myself, kind of get tied up in these deals that they take forever to get your money out.

Emil:

Is that something you see during title? Like when you run title during due diligence, but you just kind of say, Oh, we'll get through it later. Or is this something you couldn't foresee until like you bought the property?

Mark:

I've seen it happen both ways. So for us, we, we took it on not understanding what it was and then we got bit by it. But we've also had scenarios where we bought a property and it was in the process of being put on the title where we got kind of dinged, just bad luck in that sense.

But I see the problem with a lot more people. They just try pushing through it, thinking we'll make it work. I like to be part of things or investments that I can control. Uh, almost everything go along and, and the BRRRR part, the one thing that I think you have the least amount of control of when it comes to that, is that appraisal on the backend. Um, as far as how much you're gonna get out. So you can pretty much control everything every other step up until that appraisal part. And even then you could have influenced not the right word. Cause it sounds like you're, you're paying somebody off, but you can have a, some inclusion on the data that's being included if you provide a valid comps. So

Michael:

What a, what an eloquent w to say that you can have inclusion the outcome. So speaking of timing, Mark, a question that I, and Emil probably get all the time is seasoning period. How soon will a lender re give me a refinance based on a new appraisal, as opposed to the sale price? What have you seen in your work?

Mark:

So funny, quick story. Um, I had a guy call me up last week, looking for a bank that will take a property. That's not six months seasoned. And I said, man, you didn't talk to the bank before you he's like I did. I didn't know what season meant. He's like, I heard him kind of ramble. So by being in season, I just didn't understand. I thought maybe he was talking about the time of year or maybe it's busier in the summer,

Michael:

Or maybe he was talking about a cast iron pan.

Mark:

Yeah, and he goes, I know Mark, just, just laughing, get out with it, please help me find somebody. I could take a, take the letter, tell him like, Oh my gosh, like it's horrible, like scenario to be in. And I could see. So the season part is something that post COVID I, you guys probably know this, uh, the banks have really cut back on a lot of the banks that were saying, Hey, listen, you get the job done, um, we'll, we'll give you the money, but now they're moving back to that season piece. So for us, we were able to work with a lot of local community banks. And you know, there's, you know, the community banks, you get that relationship. It's almost like a 60, 1960s feeling relationship with some of these local community banks where they might have the seasoning issue with anyone new, but because you've been banked with them and you might have x amount of dollars in their bank, they'll work with you. But when you come from out of state and you want to do it, then their risk levels go up and they usually don't work with it. So I found, I don't know, uh, it was down in San Diego, but a guy that was, he found a, uh, bank there that was giving a higher interest rate, but he was, they were doing non season properties.

I don't know if it was a credit union or whatnot, but finding that bank that will do it non seasoned and they're out there. It just ends up taking a, you just have to figure, use your resources to find that out there. But the bottle is tough to do altogether. If you want to continue to build on it, if you have to wait for that six months for it to be a season now for us, we never had to wait. Um, and that we wouldn't have done 482 units if we had to wait six months every property.

Emil:

When I was doing research on this, I found that anytime you wanted to get a mortgage back… So any Fannie Freddie loan, they required a six months seizing period. At least every bank I called like four or five different banks. And everyone kind of told me the same thing where you guys getting different loans or were you getting Fannie Freddie loans when you were reading?

Mark:

We were not getting any Fannie Freddie. So we were working with local community banks and we were able to whether they get a credit line, we're getting, they're holding our portfolio again. If someone looking to do it has to build that relationship. And, uh, you have a little money in a bank that people will be flexible, um, all around the country, as far as banks go and stuff like that.

Michael:

And so for all of our listeners who just might not be familiar with what a seasoning period is like Mark's friend that called and asked him, it's basically the amount of time that you need to own the property for, until they will give you a reappraisal or refinance. And so that's often six months for those Fannie Freddie products, or it can be more flexible with those community banks. But so definitely have that conversation on the front end prior to, I would say, even purchasing the property and know what your exit looks like, who's going to do the refinance will do that. Will they give you a new appraisal? Are they only going to give you your purchase price, plus your costs? You just want to have a very clear picture and understanding of what that looks like. So you don't get caught looking on the backend.

Mark:

The other thing, when it comes to that appraisal, if maybe it's not a Fannie pretty type a low and you might get into, but other banks, they might not do it against appraised value. They'll do it against what you have into it. So that's another way I see people get tripped up. So they might have a a hundred thousand dollar property and they put 50,000 into it. So they have 150 all in and it pays off for 200. And I know they could get a, um, all their money out, but the bank will say, well, show us how much you have into it. And we'll only loan to, uh, to that amount. Uh, that's where I see another way people get, uh, caught up with that.

Michael:

I was gonna say, so shifting gears here, Mark, the podcast, you know, it's called the remote real estate investor. And so the vast majority of our investors are doing this remote. What would you say to them? Cause I think a question I get in the Academy all the time is how do I get started doing a BRRRR? I don't know anybody half. The reason I use Roofstock is because I don't want to have to get to know anybody. You already have these relationships. So if somebody wants to do a remote BRRRR, where do they start?

Mark:

Um, it's a generic answer to start, but, uh, you know, having the right team and I tell people to find someone that's already doing it, and then they have the resources and they have the know about to do it. So example with just saying myself, you know, so for any property management company, they have the ability to do turnovers, right? And where we've worked best with out of state investors, kind of going after the birth strategy has been all right, you buy this property and we can do a, what we call it. We call it heavy turnover. So anything in that 10 to $20,000 range would be a heavy turnover and you take a 900 square foot ranch. You could do a lot for 20 grand in a sense of redoing the floors, redoing a bathroom, you can update the kitchen and that amount and possibly a replacing a mechanical or two. So you can get that and then get it to refinance out and get a majority of money out. So having, whether it be a property manager company that has a little more of an expensive maintenance apartment.

So for us, we have all in house maintenance. A lot of property managers will outsource that part, but any property manager that has in house maintenance has the capability to do those shops, any other sort of a developer that a local to whatever region. I mean, they can usually put you in touch with the right people to do it. So having just the right team that you can trust, I guess, and if you're able to find a proper manager that that's going to actually be responsible for the property all the way through, and then have to put the right tenant in there, find a tenant that's gonna fit, whatever rehab you just did. And then ultimately be responsible or be around six months from now, if something went wrong with the rehab or maybe the deck that was fixed broke or whatnot. So if you're able to keep one group, like some of our clients have done together, um, for the whole time, then that just lowers your risk as an out of state investor as well, too.

Michael:

Perfect. And so for anybody interested in investing in Chicago or doing firs in Chicago, that's something that GC Realty can do for them.

Mark:

What I ended up doing a lot is people call me up. They might be looking to buy a property. Maybe they were working with a realtor in our office. Maybe they're working with another local realtor, but I'll tell them either a it's something we could do based on the timing. Or I'll put you in contact with two or three guys that I know can get the place fixed up for you. At least I can help him with the scope and then they could do the actual work and then they'll come back to us to manage. So ultimately the end of the day, usually if we don't help directly, we help indirectly as far as set people out, as far as Chicago goes.

Emil:

Michael you've had the same experience, right? Like you've your property managers in some of the cities you own property in, they've helped you find a contractor and kind of help manage the process. It seems like if you're an out of state investor, relying on your property manager to help with that whole process, they're like the key to this whole thing.

Mark:

Yeah. And I, I put myself out, you know, in Chicago, I got a guy, right. That's what you need. And there's those people everywhere. I mean, there's just those, uh, networking people that are just machines when it comes to connecting people. And, uh, you know, there's a lot of people I talk to on a weekly basis. I might never talk to again, but they'll, or at anytime soon, but they pop up a few years later with six or seven properties that they want me to manage now or something like that. So just kind of drive the people to where they could succeed. And I think the number one thing is starting with the right person to direct you in any of these cities. And I'm sure you guys have property managers all around your network that can at least be the starting point for somebody you're a restock Academy. People to be able to go from there then.

Michael:

Yeah, totally. And Emil to answer your question. Yeah. I reached out to my property manager and ask if they could put me in touch with, but then I still did screening interviews to make sure that it was going to be a good fit for me because the property manager wasn't involved because of the scope of work was just a little bit too much for them to handle. So I sought to make sure that it was going to be a good working relationship.

Mark:

I'll get every so often, uh, a guy that will be like, he'll want to a GCA from California. He wants to just be part of all and that's fine. And what I'll do for him. It's like, alright for the foundation, call this guy for the roof, call this guy and I'll give him seven or eight people and like go for it and they'll knock it out and they'll bring back the property to rent. So that's another approach to it. You, you can literally, you know, nowadays, you know, I know a couple of investors from California that literally do a couple flips a month here, whether it be flips or rehabs, but they, they, they have their trusted guy on the ground here throw up those little cameras in the corners and they're practically on the job site every day, seeing what's going on. So with technology these days, and, uh, I can't think of the service, uh, that camera, the security service, but, uh, it can almost be there on the job. So as long as you have the people, then they can actually trust you. At least know if they're coming or going even.

Emil:

That's super smart. I never thought of that. Like just putting up a ring cam and that's like hooking it up to wifi or whatever. And then you can check your job site.

Mark:

That's all that too. And, uh, you know, so they actually have the locks as well to where you can, uh, change the code from, from your phone in California. And so when that, when that contract came back, cause he's saying, Hey, I can't get into the code's wrong. I see some guys do that too, because they don't want to pay someone like us, a few grand to oversee it. Your times was funny at that point, but, uh, that's fine. It is what it is

Michael:

Right on. Mark, I'm curious to know, is there anything that you could see on a project or potential deal? That's an immediate, no, go for you. Like it's got a foundation issue or it's got a roof, you know, is there such a thing or do you, until you put a price on it, are you not scared?

Mark:

So I've never been a fan of fire properties, um, properties that might had a fire, even if it's just like the second floor has got a partial fire, you just never know. I would never feel comfortable, um, going through without having to really take the part the whole place. So we've never really messed around with fire properties. As far as a foundation goes, we talked about last time, the housing stock and age here, you know, you deal with the foundation stuff all the time. It just ends up being what you do with that foundation. Now, if a house is leaning and it's a hundred years old, more like we're not gonna mess with it. There's a couple of cracks. There's plenty of guys around here that can seal that stuff and make sure that you don't get that moisture in that basement.

Michael:

So, so the, the fire,It was like a dagger in my heart. So I don't think I shared with you Mark, but a lot of our listeners know that I have a mixed use commercial building that I'm converting to residential. And I had two fires, not one but two fires in the same building a week apart. Oh, wow. One in a commercial space and one up on the roof during the reroof project. So dealing with the insurance company right now, getting that whole thing adjusted. But yeah, it's a total nightmare.

Mark:

I'll tell you a quick story. I I've been very lucky when it comes to fires. Um, and luckily I haven't been investigated probably cause the coincidence of them, but, uh, lucky in the sense of we had a, a, a, a property that, uh, we had a really bad foundation issue and, uh, and no one's ever been hurt. So I'll give the caveat that we've had fires and no one's ever been hurt. So we had that building that, uh, um, was almost leaning. It was like a hundred thousand foundation and December 9th, 2017, it burned down. I'm like, Oh my God, total loss. And then we had another one that just being done. We had a four unit and I converted it to a two larger unit and it just didn't make sense. And the building ran horrible and I had to do something. I maybe converted back to four solid, this kind of lose money and it burned down.

So I got lucky two different ones. I had another building, a vacant building, a burned. Now the one thing I went wrong with on there, because this story is, although I made money and I talk about profit-wise, I made a killing, but I was under insured for some of these properties. I could have almost walked away with another 40% of what I walked away with if had I insured it now, there's always the, what you pay monthly versus what you, you know, you're preparing for something that more likely is not going to happen, but, um, just always have that serious conversation with your, make sure you have a trusted insurance guy that you're talking to that can, uh, uh, put that all in perspective here, what that looks like.

Michael:

It's so funny. Cause I come from the insurance world. And so a lot, a lot of people might be like, why the hell is this guy Mark laughing and celebrating that he burned his properties to the ground. And what people don't realize is that if you're going to have a loss, you kind of want to have a total loss. I want it to burn to the ground because then you just get the insurance money and you can go do with it. What you want. The issue is when you have partial losses, when the fire department's really good, or when the building was built, well, you're like crap. Now I got to go repair this thing. And it's, it's a whole nightmare. And that's what I'm dealing with right now.

Mark:

We had the two total losses that they were so bad that the city even came in and tore them down, like within 24 hours. So the one property we even know about, we went there, it was gone. It was something we didn't get to yet. We had a kind of a backlog of properties and it was vacant, but yeah, gone.

Michael:

Cause that's expensive. Property, you know, debris, removal, cleanup, all that stuff's expensive may or may not be covered under your policy. So yeah.

Mark:

Yeah. We had to definitely pay them back for that. They liened it. So they actually got us two properties later. They liened, uh, the land actually for that one. So…

Michael:

Well, that's crazy. That's crazy. Emil, you ready to start wrapping stuff up here?

Mark:

I got a couple other things you want me to hit on real fast. Yeah. So just let me run through my notes here real fast. So I think for the people that come out of state, they don't realize how long that, that time to get from the day you close to the day, you could actually get it rented to either a, have the opportunity to get reappraised or start the seasoning process. So I think, uh, making sure that people are allowing enough time in there, whether it be their borrowed money or their hard money, or be realistic by the expectation. So just even doing a $20,000 rehab is still going to take probably about 60 days from the time you start, you're going out there verifying scope and all that stuff where people are like, Oh, I thought you'd be done in a couple of weeks.

It's like, Aw man. Like, no, we've got to get permits. We got to do these things. So making sure you understand how long you have to maybe have that hard money out there or when you're seasoning period actually real, really start is something that I see people go wrong on. The other thing that I see, and this is a big one and we are, we did this too. When we first started buying these properties, we did whatever it took to get it rented. Um, we only did let me reword that. We only did what it took to get it rented, where we left a lot of capital improvements like, Oh, that Ruffino made me, you know, you can see through the roof by your name. I got a couple of years out of it or that hot water heater. That's literally rusted in drip. It's like, Hey, as long as maybe we get another year and we did those things in a, you know, maybe the, the garage, we didn't, uh, do something with the garage where now we weren't, it wasn't part of the rent.

And, uh, so we, we, uh, we, we shot ourselves in the foot where we were able to see how bad our maintenance was, uh, from not really doing a full project and our average, uh, for our kind of our first 140 units versus the balance of, um, you know, I think we spent about another 12 or 13,000 hours, average per unit, just on making sure we did all those things. That way we're not nickel and dime on maintenance for the next two years.

Michael:

That's really smart spending the money on the front end to making it more maintenance, proof, more tenant proof. You go so far.

Mark:

Yes. You know, when you're getting the appraisal, another thing is, uh, you have the full scope out there. Hey, mr. Appraiser here is the laundry list of everything I did. We have about X amount of thousands of dollars into it. And just want to accompany this with a couple off market cops there. So you can put a nice little package together for the appraisal. You can't tell him he has to use something, but you can at least provide them with the data for him to decide if it's worth using or not. And here's the thing, when an appraiser, he walks in the house, he doesn't necessarily know what the house looked like before he was in there. So he doesn't realize or appreciate how much you actually did. So I know one guy he actually gives before pictures and after pictures to that appraiser, so he can justify the 40, 50 grand. He might've put into it. So that's, that's another, uh, kind of good one to make sure you can at least control as much as you can in that part of the process.

Emil:

What type of investor is this a good idea for? Like, I'm sure you've done this with plenty of out-of-state investors who are interested in investing in Chicago, would you say there's a certain type of investor who like, is a good idea versus I don't know, some characteristics of people where it's like, like one thing I can think of is you have a super busy job and like all these other things where you make good money, it's like, is it worth all your time and energy spent in a BRRRR versus buying something turnkey? I don't know. I'm just curious if you've had that experience.

Mark:

So in a BRRRR, you might just say you run through a whole Burr and you might have only, uh, you might only get 95% of it. Now you have typically 5% of the deal, but if you bought that right, there should still be some equity in the deal that maybe it didn't appraise for enough. So one of the tips I have, or one of the things I say is make sure that when these property or buying or the reward is worth the risk, because there's risk when you're doing this type of strategy, where even if you're not getting all your money out, you should still have a nice piece of equity. So that whole add value piece is why you do it. You know what I think a lot of a turnkey model type investors or investors that are buying, I don't know, you call it top of the market. Um, they might have something that they could get very hands off of, low touch, but they are buying at the top of the market.

You might not get all your money out, but you might still have another 10% equity in there even for a future opportunity to maybe borrow against and do something more to it, or at least have on against your, a personal financial statement as something that you have some equity. And so I think someone that's looking to add a little more value and kind of build that equity worth a faster, this is what it's for. This is like, if you don't have time to be a full time investor, but you don't want to do kind of the armchair type investment, uh, this is kind of the go-between.

Emil:

Yeah, that makes sense. And you know, I've, I've always thought like, even if you leave five to 10% in the deal, like you're still getting a much better deal than you would had you just gone and had to put 20% down 25% down, whatever it is.

Mark:

Oh yeah, for sure. For sure. And so you have that 5% in, and hopefully you have another 10% equity still because it didn't appraise out for the full max. So that's a way better spend than just putting 25% down that, you know, you're not gonna gain money on.

Michael:

One additional point to on, on how long it takes to just get this stuff done. And what really surprised me and kind of caught me looking was the whole time and you're holding costs. And so if you're, you know, you're paying utilities for this property, the whole time folks are working on it. And the utility bill is going to be a lot higher than if people are just living in it. Cause they're using power tools and bathroom and water and all that kind of stuff. So I had a month where I had like 800 to a thousand dollars, just utility bills for this multiunit building, because there are a bunch of people working in it and I'm like, Holy crap, that's insane. And something else to keep in mind is you got to talk to your insurance carrier provider agent and ask them what a vacant property or property rehabbing insurance policy looks like, because that might be very different than a tenant occupied policy. And they're often a lot more expensive. So just make sure you're very accurately putting together what your numbers look like for your… whatever your cost of your money has. And then your, your insurance utilities, your property taxes. You still gotta pay those even though there's no one living in it. So just make sure you're very, you get a very clear picture of what the actual numbers look like,

Mark:

Cutting the lawn, shoveling the snow and, uh, that, that builder's risk policy is yeah, it adds up.

Michael:

Yes, it sure does. It sure. Does Mark. Anything else that you wanted to share with us and Neil? Anything else you got?

Mark:

One other thing that you could do with the appraisal. If you are, maybe you get a bad appraisal, you can always contest that. And I'm not sure if everyone knows that. But if an appraisal comes back, you say, hey, listen, you know, they might've had low comps now. It's not smart to contest it unless, you know, uh, that there's actual facts out there that can help you get closer to your value. But, you know, even if that appraisal that comes back gets you another five or 10 grand on a hundred thousand dollar property, that's a, that's a big chunk. Contesting the appraisal. Now we ran into the issue all time of we're trying to turn money too fast. So to appraise, try to contest an appraisal for another four or five grand. We were, it was slowing us down. So that was one of the things that was tough when we were trying to compound, uh, these deals. But if you're doing, what are you doing to take the time to test that a appraisal and try to get that other five to 10% out of it.

Michael:

Really good advice.

Emil:

Does it cost money? Does it cost money to contest? Cause I remember I was doing a cash out Refi on a property earlier this year and it came in low and we just tried to contest it. It didn't move anywhere, but I dunno if maybe there was like a formal contesting process.

Mark:

You know what, I want to say there's like a a hundred dollar fee. Um, but I might be confusing that with, if the guy couldn't get access and he charged you for it, I'm not sure. But uh, so worst case now I think it might be a hundred bucks. Yeah. Yeah. So again, risk versus reward is not that much, even if it keeps the fader $10,000 or even $5,000 out of pocket for an extra hundred bucks in a couple of extra weeks that there's value there.

Michael:

Money well spent.

Emil:

Totally worth it.

Michael:

Once COVID ends, if you could go out on a plane and go anywhere, where are you headed?

Mark:

Ah, just somewhere at the beach. I have not been to a beach for a long time. Um, I will literally take anywhere with an ocean. I've actually looked at like day trips, like flying down to quick day trips to like, fly out the morning, go sit on the beach for the day and fly home to Chicago down in Florida somewhere. Uh, but yeah, I've been to Vegas a bunch of times, but you don't get that beach satisfaction there for sure.

Michael:

No, you gotta be careful what you wish for though. Cause my brother went to school in Canada and he told me he threw a snowball from the beach into the ocean once. So you don't want to go to over the cold beach. You got to go to a warm beach.

Mark:

Nope. Headed down to Florida somewhere. That's the quickest cheapest flights it looks like. So right on time, change screws you up. I've told me down with it, but for a quick trip, the time change screws up too much.

Emil:

Come hang in. LA man. If you're ever here

Mark:

Yup Yup.

Emil:

But a day trip is tough to California.

Michael:

Awesome. Well Mark, thank you so much for joining us for round two. This has been super insightful, super informative, and I am sure we'll have you back on again. Soon

Mark:

I look forward to it and anybody that, uh, like I, I try to point people in the right direction. So anyone ever interested in Chicago or anyone that is looking for the right context in Chicago, feel free to reach out

Michael:

Perfect. And what's the best way for folks to get in touch with you?

Mark:

We got, uh, we got our podcast Straight Up Chicago Investor Podcast now, which we started a Facebook group for. And then, you know what, I'll put my cell phone out there, uh, in the, in the show notes. So if you guys can help that

Michael:

Fantastic and your website as well?

Mark:

GCRealtyinc.com

Michael:

Fantastic. Well, thanks again, Mark. Really appreciate it. And we'll chat soon, man.

Emil:

Thank you Mark.

Michael:

Alrighty, everybody. That was our show. Hope you enjoyed it and took some actionable takeaways. If you enjoyed it, feel free to leave us a rating and review as well as subscribe, wherever it is, you'll send your podcasts. It really helps us out. If there's anything that you'd like to hear covered on an episode, feel free to leave that in a comment that would be look forward to seeing them the next one and a big shout out and thank you to Mark. That was really, really great stuff.

Tom, Michael and Emil answer another round of listener submitted questions. 

Transcript

Tom:

Greetings and welcome to The Remote Real Estate Investor. My name is Tom Schneider and I am here with

Emil:

Emil Shour

Michael:

And Michael Albaum.

Tom:

And we are going to take on another episode of ask us anything. All right, let's do it.

Theme Song

Michael:

Before we get into it, how was the holiday weekend? Monday, yesterday was labor day. What did y'all do?

Emil:

I went out and shredded some gnar at the beach. It was so packed at the beach. I dunno, man. Little scary out there with how many people were at the beach.

Michael:

Didn't feel like the surface of the sun. There was a crazy heat wave in California. Pretty much the entire state where you feel on a down South.

Emil:

Oh yeah, there was that too. That the entire state of California was basically on fire. That was really fun.

Michael:

So the only logical place to be is in the water.

Emil:

That's right. It was nice. The water was cold, but it was so hot outside. So it was like the perfect place to be, which is why everyone was there, I assume.

Michael:

Did you trunk it?

Emil:

I did not know. I'm a baby. When it comes cold water. I always wear a wetsuit. The only time I don't is when I'm like traveling and the water is super warm, like in central America or Bali or somewhere. Alright.

Michael:

Right on.

Emil:

But in California, I'm always, I'm always in a wetsuit. I'm never, one of them…

Michael:

Always suited up.

Emil:

Every time I wear trunks, I immediately regret it, so.

Michael:

Tom, what did you get up to?

Tom:

I just, just managing this bit of a hellscape we have up in Northern California. You guys are further down South in Northern California. I think it's like record like 105 or 109. And you guys look at the air quality with all the fires. So I'm like constantly looking at yeah. Cause it's like, it kind of controls if you can like go outside or not. And it's funny, there are multiple apps out there and it's a Q, ACQ is the one that I'm looking at anyways it's like little bits of ash on the ground and it's, you know, you can't like go inside somewhere else with other people. Cause we're still doing some, some quarantine. It's like a, a, a triple whammy of the heat plus the bad air, plus the pandemic going on. So just being present with wife and baby at the house and making the most of it, playing games,

Emil:

It got up to 115 where I live this weekend. It was crazy. We have all these like roses and stuff in the front of our house. And they all got torched. Like they're all dead. After this weekend. It was crazy.

Michael:

Wow. One and done.

Emil:

What about you Michael, what went on?

Michael:

I was hanging out, up North, the central coast where I live for the weekend and my mom actually came up to visit. So we were hosting her and showing her around. But yeah, I was just super hot here as well. We were supposed to do some yoga in the park, socially distant yoga in the park on Sunday. And my buddy was like, dude, it's a hundred degrees. Like, don't come. It's just, you can't be outside. So they have an…

Tom:

Outdoor Bikram yoga,

Michael:

That’s basically it, yeah. Everyone would just be a sweat box. Yeah. We just went to the beach and hung out and got a little bit of a reprieve, but it was like 95 at the beach too. So we just ended up coming right back home to where I live and it was always a coastal breeze. So it was back in the seventies. So it was great. It was like the only place where we could be where it wasn't pretty much on fire.

Emil:

Yeah.

Tom:

Pierre did you do anything fun?

Pierre:

Yeah. This weekend. So we're starting a music channel here with the housemates and we're going to be running a live stream or more like a virtual concert where we can control the audio quality. So we started filming for that.

Tom:

Is it through YouTube or where, where is it published through?

Pierre:

Yeah, on YouTube. We just started a YouTube channel.

Emil:

Nice. Look at you, man.

Michael:

That's really cool.

Pierre:

Yeah. I'll drop a quick little shameless plug for Ansel Avenue.

Tom:

Ansel Avenue is that what it is?

Pierre:

Yeah, Ansel Ave is the page,

Tom:

Nice

Pierre:

It’s a music production channel and we'll be hosting five different artists on October 9th. And we've been following the COVID shooting guidelines for those of you worrying out there.

Michael:

Good man. Good man.

Emil:

Quick caveat.

Tom:

Awesome. All right, guys, let's jump into this. Ask us anything. So this is a grab bag. We're gonna cover a variety of different topics and we're going to start with what assumptions go into property tax estimates. And I will take the initial crack at this and then I'll, I'll pass it along. So we're going to be talking about property tax estimates, and I'm going to talk about some of the methodologies that Roofstock uses. And then we're also going to touch on ways that you as an investor can think about it, but just kind of riff on the topic of property taxes. So this is what you're paying on a semiannual basis to basically support roads and schools and all those other local great stuff that property taxes pay for. So property taxes, two aspects of it is a, a millage rate, which is a percentage of the assessed value and correct me if I'm wrong. I think it's usually anywhere between like 1% or 2%. Some areas are really high. So in Florida and Texas, where they don't have income taxes, that local area, they make all their money on property taxes. So it's significantly higher. But back to my point, so calculating property taxes, there is a millage rate, which is a percentage of the assessed value.

And then there's also what they call ad valorem or special assessments where it's just adding a flat dollar amount. It's not a percentage of the assessed value. And these could be for, you know, one year the voting populations votes for a bond to put in a new swimming pool with the school or whatever, totally making up things. And this would be like a flat dollar amount that would not be specific to the value of the home. So that's really the, the ingredients that go up to go into making the tax value.

If I'm evaluating a lot of properties at time, I may use a flat percentage just based on it, uh, of, you know, go through this exercise in detail on a couple of properties. And with that neighborhood, I can just apply a set percentage and for properties that make it through the funnel of ones that I want to evaluate further, then I'll go in and looking at the, at the millage rate after doing that initial exercise as a way to kind of batch it and doing a bunch, um, that would be the another way that you can do it, especially whittling down a bigger list of properties. And, um, I'd love to hear, let's see what, Michael, what do you have to say about property tax estimate?

Michael:

Yeah. I just have a follow up question. Ad valorem is that Latin?

Tom:

Yes. I think it is. It is the proposition to the estimated value of the goods or transactions concerned, shout out to google.

Michael:

Country of origin? Please use it in a sentence.

Tom:

It's just like an additional flat rate and, uh, you know, really good questions, Michael, really good questions.

Michael:

Really prevalent and pertinent question. Yeah. So on, on property taxes, I have a lot of thoughts on, on this subject. Um, cause it's something I see a lot of new investors get wrong and I've been wrong myself too. So there's three values that should not be co-mingled together. One is the assessed value of the property, which will often dictate what your property tax will look like. The other is the insured value from the insurance company. And the last is the sale price. Those three numbers often have no relation to one another. They can in a lot of instances like in California, the assessed value is the same as the sale price, which is then going to change your property taxes. But so just getting that out in the open. So Tom, I think you nailed it with the millage rate. Every County is going to have their own millage rate and they're going to calculate it based on whatever their needs are.

And then it's going to be multiplied by the assessed value and the assessed value can be any number of things. It can be this last sale price of the property. It could be a two year appraisal or a new assessment that the County does on a regular basis. They could do it based on a sale. There's there's any number of reasons why a property could be reassessed. And so you just want to call the County assessor to get a very clear understanding of how is this property going to be evaluated for the assessed value? What is the millage rate and what are the things that could cause the property taxes to change? Once you can ask those questions, you'll have a much clearer understanding of what the property taxes are. And I always tell folks, you know, look at historic to get an idea. You can make this ratio right of, I know what the last sale price is. A lot of that's public information, and I know what last year's property taxes were. So I can calculate, I can almost calculate out a ratio or percentage of the sale price. And you can use that going forward for your worst case scenario and say like, okay, look, if the last person paid 3% of the sale price and property taxes, I can assume I'm going to pay 3% of this new sale price and property taxes annually. As a worst case scenario, it might not be that bad. And so you just want to call the County sets or get an understand, how do you calculate property taxes for your property after the sale to get the most accurate picture?

Tom:

An important point I want to make about looking at last year's taxes paid is I think that could be a tricky in that they may have a homeowner's exemptions for some areas. You might get a major discount on your property taxes, if you're an owner occupied and you lived in the property. So that's a super important thing. And you know, Michael, you asked that question in jest about ad valorem and being Latin and I double checked on it and it is Latin and ad valorem actually is the tax based on the assessed value. So I had that a little bit mixed up. So the ad valorem is that, is that calculation of the road relative to the assessed value and its special assessments is what you're paying for on additional and on top of it, for those like, you know, bonds that pass and whatnot. So it was my quick cleanup, a meal. Any final thoughts?

Emil:

Yeah. I don't have much that you guys nailed it. The only thing I want to mention is that if you're evaluating different markets, let's say you're looking to buy your first property. This is such an important thing to pay attention to property tax, because you'd be looking at two markets, maybe two separate properties in two markets, you'll see one market that has an awesome rent to price ratio, right? Like let's say you, the sales price is a hundred thousand, but it's renting for $1,500 a month. So it exceeds the 1% rule of saying monthly rent should be 1% of the sales price. So if it was selling for a hundred thousand, it would rent for $1,000 a month and it far exceeds that. Right. But you'll go to another market and it'll be right at the 1% rule, but you'll see that the returns are completely different. And it's because of this property tax, some States, some cities just have super high property tax rates and others don't. And so you'll just be looking at two properties and you're like, why is it so different? And usually the differences of the property tax rate causing it to return to be much less. So that was my rant about price of rent and yeah.

Tom:

Yeah. And with, so just some experience. Just some other musings working on the operation side with Roofstock taxes can be a little bit tricky in that when Roofstock, when we had opened up a market there's little sub pockets in the markets where there can be big swings, like where perhaps there's a school assessment that isn't in one pocket. So we, I think it might've been in Memphis where we opened up that market. We did some diligence on some properties and came up with a good methodology of coming up with the taxes and we are up and running and we have these properties listed and then a couple of people close and they, on the closing statement, it said their property taxes were significantly more. And we back as an operations team said, Hey, what did we miss on these property taxes?

And it turned out in some municipalities, the city adds extra taxes on top of the County. So that's something to think about as well. If that area, if there are city taxes that are thrown on with the County taxes, it's, it's not a one size fits all taxes are not as transparent as it should be on what the prices are at the way that certain States they change the assessed value on what you're taxed on, can be really unique from state to state. Like some of them do it on a transaction. Some of them do it on a rolling seven year basis. It's a taxes is not super straightforward. And I think it's a great place where you can play offense where if you're buying a property, you can appeal the tax values, uh, in writing to the County commissioner and say, Hey, this property should be worth this, you know, trying to lower that value to manage your money. So kind of the takeaway is, is taxes can be a little bit tricky, but it's just, you know, do your homework. And I love Michael's point about talking to the County assessor or looking on the County assessor's website is a good one.

Michael:

What'd you say Tom, that taxes might almost be a little bit ethereal.

Tom:

They are definitely a little bit ethereal for sure. No question

Emil:

One additional thing, You'll also notice within your market that the tax rate will be different for a single family than multifamily. So that's, that's an important consideration as well. Often I've found that the tax rate on single family homes will be less than multifamily. So that's another thing. So if you're buying single families and you decide to move into multifamily, I wouldn't use the same rate you're used to seeing on your other properties. I would go figure out what multi-families of that size, what the rates seems to be. And you can, again, tax assessor website, you can ask an agent you're working with whoever, just people, local net market. And they'd be able to give you some insight on that.

Tom:

All right, I'm going to tee this one up for Emil. So question for you. Do property managers automatically collect the reserves or is that up to the owner? When you think of mail what's your strategy on this?

Emil:

They do not. So the, the only thing the property manager holds for you is they have like a minimum account balance. So some will be like $250 or 500. And that's just a minimum balance so that they can cover things when necessary, right? The property. Manager's not going to be your bank. So when little things come up, they maintain a small amount of reserves to be able to cover those things. All the reserves, you know, we talk about CapEx, repair and maintenance, all those reserves that's on you. So your, your property managers collecting rent, taking their fee and then distributing the rest to you. So they're not maintaining any reserve above that minimum I mentioned,

Tom:

It's a baby. They keep a baby reserves, right?

Emil:

Yeah. 250,500 is not a yeah.

Michael:

Yeah. I think that's not the reserve that most people are talking about when they talk about reserves. Like Emil mentioned it's for the one little stuff and the reserves that you should have for those, but the lender is going to require you to have, or for your cap tax and your maintenance. That's all on you as the owner to set that money aside to your market. When you get it out of the monthly rent to then have it sitting ready to deploy,

Emil:

How do you guys maintain your reserves personally? Like, do you have a separate account for it? Do you just leave it in your checking account where everything's deposited, like at a minimum level? I think it'd be good to…

Michael:

My property manager does it for me.

Emil:

Oh, nice. So you just, uh...

Michael:

I figure out how much I should be having and then set it aside. And I figured out how much cashflow I should be making. I try to not touch the cashflow from properties, or at least I did that when I was first started investing. Now I'm using much of that to fund other projects in my daily life. So my strategy has since changed a little bit, but I try to never take more than my calculator tells me I should be making on a monthly or annual basis from a particular property. And I leave everything else in the account.

Tom:

Yeah. Similar amount. I just have a separate, separate bank account where I keep a few thousand few thousand bucks, maybe a thousand, 2000 bucks a property on top of the reserves that the, you know, that baby reserves that the property managers all keep. And just within that one account, it's this, this beautiful flow of mortgage going out, rent payments coming in, and if need be, you know, pushing some additional of my larger reserve account into that particular property manager account.

Emil:

Nice.

Tom:

Excellent. Once this next question relates to 10 31 exchanges and we cover a lot of topics related to 10 31 in episode 15 of the remote real estate investor. Uh, so if you want to go deeper on this stuff, check out that episode. But this question is with a 10 31 exchange from, can you go from a multifamily to multiple single family or from a single family to multifamily or multiple single family? Basically that question of going up and down, uh, as an exchange and you gentlemen, like to a step on this one?

Michael:

Short answer is yes. From what we learned from the podcast episode about 10 31 exchange, episode 15, like you mentioned, Tom, and it just has to be like kind property. So that's the investment property for investment property, both ways the property you're selling into the investment property and the property you're buying needs to be investment property. And there are some very strict rules, guidelines, and regulations about the cost basis of those properties, the purchase price, the equity share that you have in those properties. So yes, you can go from a single family to multifamily or from a single family to multiple single families or from a single multifamily to one single family. Any combination of is my understanding that you can, you can go and I'm going to preface this all, talk to a tax professional, talk to a 10 31 professional accommodator, but this is my 2 cents. This is my understanding based on that episode, as long as you're following the rules. Yes, it's absolutely possible. But you just want to make sure that you're involving a professional accommodator to assist with that process. And they can absolutely walk you through the do's, the don'ts and everything in between of how to go about it.

Emil:

You can also do commercial to single family as well. We actually have a case study up on roofstock.com of two entrepreneurs who live in the Bay area who had a commercial property. They ended up selling it and 10 30ing into like 167 homes in the Southeast and Midwest. So you can, you can also do commercial insists.

Michael

Yeah. I think the restriction is only investment to investment. So if it's an investment property, industrial, whatever, as long as the new property is also an investment property, I think you're in the clear.

Tom:

Yeah. And just to redefine the value of the 10 31, it allows you to sell a property without paying any taxes on it. So as long as you, you roll all those proceeds into another and investment following all the 10 31 rules, but pretty cool. Like imagine trying to you buy a bunch of stock, it appreciates a ton, you sell it and you can move it into a different stock without paying any taxes. You can't do that with stock, but you can do it with real estate. It's just one of those really neat aspects, but makes real estate so fun and cool.

Michael:

Well, actually, Tom, there's something that I think we've covered on a previous episode, but there's the opportunity zone. And so if you sell stock and look to invest in real estate, there are ways to avoid paying capital gains on the sale of the stock. If you invest in an opportunity zone, but that's for another episode.

Tom:

A zigzag 10 31 that's right. I mean, not, not, not really, but you know, a different way to approach it. Okay. My, the next question I have here is what is a REIT or a real estate investment trust.

Michael:

Tom, do you want to take this one because you're kind of, you played in that space. Yes, you're right. My goal, I did play in this. I worked for a REIT. So a, a re is defined as a real estate investment trust. And essentially what it is is you're buying a percentage in a company, a collection of homes. So unlike buying an individual home and owning it in your name, you're just buying a percentage of this.

And it's a REIT is a company that owns and operates and income producing properties. Uh, it is a way to be really diversified in that you're buying it. And you automatically kind of have access to all the markets that the portfolio of that REIT is in. I worked for a single family REIT, it's called Invitation Homes. It previously was Waypoint Homes, and then it got gobbled up by another company and became colony Starwood Homes, and then got gobbled up by invitation homes as businesses do. But it is a, an easy way to invest in real estate. You know, you're not investing directly into the individual assets, but you're investing into this pool of assets. Some other aspects about REITs is most of at least the single family REITs, they have a similar makeup in that they're all using about 50%. They all have a similar market footprint covering, you know, mainly the Southeast, the, the Florida, maybe Arizona, Texas, a very similar footprint up makeup.

So an advantage of a REIT is you have great liquidity where you can get in and out very, very quickly. But what isn't as attractive as a REIT is you do not have the type of upside that you would on an individual property. It's ‘cause it's peanut butter spreading like the uber peanut butter spreading the risk. Something that also just kind of personal anecdote with a REIT is I, as I worked at this rate and I saw how the properties were performing and oftentimes the value of the rate, wasn't completely indicative of the performance of the property. Just the way that globalization has. There's, there's so many aspects that can affect a stock's price that doesn't have to do with the property. So, you know, one reason that I like to own property directly is the performance of the property is going to dictate the performance of the returns versus a lot of other stuff that's going on in the economy. So that's my 10 cents on a REIT. It is a publicly traded stock where you're buying a percentage of a collection of properties.

Michael:

Tom, you worked at the single family or read that own single family homes, but aren't there also REITs out there that own multifamily and commercial and kind of any kind of piece of property that exists. But is it fair to say that there's a REIT that probably owns that?

Tom:

That's right. Big multifamily data centers, hotels, offices, warehouses. So there's a lot of different flavors of reads and reads have been around for a while. Single family reads a pretty new just in that industry really came to fruition in the early mid 2010s. It's a relatively a baby versus some of the other types of REITs out there, but that's right. There are a REITs in all types of different flavors.

Michael:

Awesome. Thanks

Tom:

Michael:

Yeah. I always think it's, whatever account can get you the best interest rate that's as safe, insecure as they come. And it's kind of a hotly debated topic. I posted about it on Twitter a while back about, Hey, if you've got 10 grand that you're saving for real estate investing, but you need 20 to get in. Do you place that in the stock market or do you place it in a savings account and some folks at stock market to grow it? Others said cash in the bank. I'm of the opinion that if you're looking to invest in real estate cash preservation is really important because as we've seen in the stock market, especially over the last couple of weeks, there are some major ups and some major downs. And so for folks that are willing to ride that rollercoaster, they might have a very different opinion because they have big potential upside. So that 10 grand could turn into 20 grand in a couple of weeks, a couple months, depending on how good the stock market does. I'm not willing to play that game because it could also go to zero. So I like sticking it just in a checking savings account, whatever gets the best interest rate and it's free to have.

Tom:

Yeah, I think convenience could be a factor. I think just like Michael said, liquidity of being able to move quickly. If I know that I'm not going to move to buy something in the next six months, I mean, I could put it in a CD if I'm feeling a little exotic, not that a CD is very exotic, but anyways, if you look around, there are great savings accounts that pop up every once in a while, I know a couple of years ago, allied bank had a 2% return and I think Marcus, it might've been Goldman Sachs. They turned them on at this great rate and they often will kind of flow back down as an initial kind of teaser to get people, to put their money there. But it's worth looking at that. And it's, this is a good personal preference answer. I'm in a similar vein as Michael, where I'll keep it in a savings account, but you know, if you want it to put it in some ETF, like that probably would be okay, there's been a little bit more volatility as of late, but if you know that you're going to be sitting for a while on that cash, it could make sense where you can get a better return somewhere else on what your risk threshold is. Risk tolerance. That's the word. Yes.

Michael:

Yeah. I was gonna say on that note, you know, I had a, um, like an eight or nine month time horizon. So I bought some municipal bonds or some or treasury bills that were like paying at the time, I think like 2% or like 2.05. Cause it was just a super short term. And if it was better than the point, Oh 1% of the bank offered so super safe, you know, relatively liquid investment that if you need to get out of you can. But yeah, that's all I wanted to say on that. Those are gonna be good options as well.

Emil:

I think it really matters on your situation. Like, let's say you have 5,000 bucks and you need to get to 20 K and you look at how much you're saving each month and it's going to take you three to four years, right? Like you're just not saving enough. I would say you, you have more to gain than to lose. It's just going to take you awhile. I would personally go put that in something where I can get higher yield. Yeah. It's you could call it gambling or whatever, but right now you're really trying to accumulate capital. You don't have as much to lose. I, I would try to bank roll that into something bigger. And that's, I'm speaking from that personally. That's like how I bought my first property. I invested some money in the stock market invested for a couple years, got lucky and cashed out and bought some rental property. I mean, but if you're like looking to buy the next six to 12 months, I personally wouldn't want to take that gamble with such a short time horizon. I would just be putting it in the savings account. I would even say like the account type, even just like find a savings account, all these banks right now, they're pretty close to one another.

And the interest rate they're giving you is nominal because of how like interest rates are so low right now. I think I looked at my savings account. It was like 0.65% annual yield. It's like, it's irrelevant. You're not, you're not getting really any yield there. It's just cash preservation like Michael mentioned. Right? So if your time horizon is short, you just are saving cash to deploy in the next six, 12. I just put in a savings until you get to the, the amount you need to invest.

Michael:

That's such a good point in the order to make that you have in that instance, more to gain than you do to lose. If you've got a long enough time horizon and you're playing with the smaller amount of money, as long as you're not needing that money to pay your bills or whatever, that's purely allocated for investing. I think that's a really good point and something definitely to consider for each individual.

Tom:

All right, last question for the day is for this episode, is, are there any litigious trends against landlords? How likely is it to be sued? I'll kick this one off and say that, you know, this is not legal advice. This is, we're just talking from our own personal experiences within my portfolio. I've never dealt with any litigious issues. When I worked at one of these REITs, that own thousands of homes, we had some stuff pop up, but I think sometimes there are people that would see the big company and, you know, they would see it as an opportunity to come at them. So I'm not going to say that it doesn't happen, but I haven't seen or heard of any litigious trends happening within my experience. Haven't been sued or had any of those types of issues. Let's pass this off to one of the other hosts. What are your, what are you guys?

Michael:

I think he talked to anybody in this space, any professional in the space, they've got stories, then you hear about, it's a very litigious environment. And we know this, the U S is often referred to as a very litigious country. People are often suing each other for all kinds of reasons. And so I personally knock on wood. I have never been involved in a super, my older brother has, he was served actually, um, for a kind of ridiculous thing, ended up getting dismissed by the judge because it was somebody trying to make a cash grab and, and didn't really have much to their claim, but this kind of stuff happens at any time and we're in a people business. And so people do stupid stuff. People do all kinds of crazy stuff. And so you can only control what you're doing. And so protecting yourself from those types of litigations, I think is really important. And so just make sure you're doing your homework and talk to professionals about what it is you can do to set yourself up for success.

Tom:

And this is another annual episode, shout out to making sure that you, you know, you have a good property manager and a reputable property manager. Cause if I know if I were to have any sort of litigious issues, like they would be on the front lines of, of managing that with the tenant or the person living there at the property, they're really their first line of defense of deescalating, any types of issues and managing that. So shout out to getting a good property manager and vetting your property manage. Emil?

Emil:

I think this question kind of gets that too. Like, do I need an LLC? Do I need umbrella insurance? Like what all the different ways I can protect myself. And just, again, speaking from personal experience, first property I bought where I knew like most of my net worth, I hadn't really generated any wealth yet and still haven't generate anything meaningful. But I think again, when you have less to lose getting caught in the weeds and all these things, like you can just get brain damage from all the different ways to protect yourself when you don't really have a ton yet that needs protection. Again, personal experience, as you start acquiring more, as your wealth goes up and you have more things to lose, this is when it's like, you need like a real estate attorney having all these different protections, I think matter more and more and more like as you're, you're playing a lot of offense early on. And then as things grow, it is really about preservation and not losing what you've built. That's at least the way I've, I've kind of approached these things.

Michael:

It's such a good point and that's kind of the second time you've made it as is what's what's the risk. And so I come from the insurance world, we always ask ourselves, okay, what's the risk when we're making a decision? What's the bet, how big of a downside is it? And if it was a $1 billion semiconductor plant that was going to burn down or not based on the decision we made, we're going to spend a lot of time evaluating and analyzing that decision with a microscope and a fine tooth comb, if it was a $10,000, uh, swing one way or the other, which in the insurance world is not a big deal. We would just make a decision and move on because the impact wasn't really meaningful, same thing with your, with your personal finances. If the impact is not going to be significant make a decision and move on.

And I also want to caution people. There are tons of snake oil salespeople out there that are trying to use scare tactics, to get people, to buy products that they really don't need and protect themselves that they don't need. I remember talking to somebody a few months ago, they were talking about setting up series LLCs and Delaware trust and all this kind of stuff. And I was like, great. How many properties do you own? Well, none I haven't bought any yet. Okay, well, let's use that money to maybe go buy the property first. And then we can talk about all that type of protection. And that's not to say, don't protect yourself on the front end, don't do your homework if you're small, quite the opposite, you need to be informed, but you also need to understand what's overkill. And there's absolutely a point where you can be over insured and deciding for yourself as an individual is what's important because I can't tell you Tom or Emil, if you're over insured or not, if you feel comfortable, great, that's what matters. Doesn't really matter what I think. But I would say that there are, there are things out there and there are tactics being used out there to scare people into buying products that they probably don't need.

Tom:

Alright guys ready for the fun end of the episode, get to know the host.

Emil:

Let's do it.

Michael:

Totally.

Tom:

Alright, so get your phone out. This is going to be the exercise. You're going to go to your phone. You're gonna go to settings. I want you guys to talk about…

Michael:

If you make me change my language is something I don't understand I’m going to be really upset.

Tom:

Yeah. So click on settings, click on settings. And then you're going to click on screen time, which is below notifications. Okay. And then you're going to click on, see all activity. And you're going to look at your most used apps and we're going to talk very quickly on our top two most used apps. You can't count messages or Gmail or whatever, like the nonstandard apps. And so I'm looking at mine right now. I'll go first, my top two, Audible, I had a little bit of a car ride and I'm, that's one of my most recent ones. The audio book, one shout out to Eric Larson. That guy is such a, he writes these historical stories that are really awesome. He wrote this one called devil in the white city, the splendid and the vial is the one on audible. I'm listening right now. It's about Churchill and world war II. And what a neat dude. And the other one I've let's see, go ahead.

Michael:

Any relation to Gary Larson?

Tom:

I don't think so. Eric Larson. Super interesting guy. So, and the other one I've been using is downward dog. It's this yoga app, but like what? It creates a new routine every time, but it's you like set these settings like, Oh, do you want to be really tired at the end? Or do you want to as a more mellow and then you pick how long it is. And it's probably my favorite, one of those types of apps. So downdog is what it's called. Shout at the down dog. Emil you're up. What's your two most, Oh, sorry. Go ahead. Grill me. Go ahead.

Michael:

I wanted to say, before a meal goes, I want to know too, in addition to the, the top two, what's your daily average screen time?

Tom:

It one hour and 48 minutes. Oh, that's a good one. Yeah. You guys got to answer that. I have a big advantage in that I had my phone hidden for like four days last week. So I was just taking a break. If you guys are over that you guys are using way too much phone time.

Emil:

I feel like this is going to be very, very easy for you guys to guess mine. Top two. I'm going to say Twitter and Gmail. No, it can't be email. Yeah, exactly. No messages, no GMO, no phone. It has to be like apps,

Pierre:

Wave tracker or some other surf app?

Michael:

Oh, just apps. Okay. Twitter and boy littering and littering it right on Twitter. Twitter by LinkedIn. Instagram. No, I don't have, I deleted my Instagram. LinkedIn is Facebook. Worst list. I deleted Facebook off my phone surf line guys. Come on.

Pierre:

I said wave trackers.

Emil:

Oh, you did? You were muted. Okay. So yeah, surf line. So Twitter and surf line. I am very predictable. And uh, yeah. So that's me and Twitter by a large margin.

Michael:

What’s your daily average use?

Emil:

Two hours and 45 minutes.

Tom:

That's not bad at all. I, I bet you mine is normally way over. If I didn't have my phone hitting hidden from me,

Emil:

I've been trying to, I think some weeks it goes three and a half plus, but I've been trying to make a more conscious effort to like, not be on my phone, especially when I'm hanging out with my family it away. Yeah. Right. Michael your turn. Yup.

Michael:

All right. So we said nail apps don't count.

Tom:

Nope. You can't repeat one that Emil has picked.

Emil:

No I want to know if Twitter if it's on there.

Michael:

Yeah Twitter is my, it is my number two. Okay. Twitter is my number two. Let's see. Photos is the next, which isn't really an app. Facebook is next. I get a lot of, I like reading news stories on Facebook so that, yeah, Twitter and Facebook are my two.

Tom:

I like it. Right. And my daily average is one hour and 14 minutes.

Emil:

Oh my God. One 14. You're on Twitter or you just Twittering on your desktop.

Michael:

Yeah. I, I am. I do Twitter on my desktop. I do tweet from my desktop occasionally, but yeah. I try to not be on my phone a lot and I'm just constantly, I do a lot of work from the computer. So I think that's probably why I like, to be honest, I just make phone calls a lot. Um, yeah. I try to, I try to keep the phone away as best as I can.

Tom:

I like it. Alright Pierre?

Pierre:

I'm not seeing that option in my settings?

Tom:

Are you on an iPhone?

Pierre:

No I am on an android.

Tom:

Oh.

Pierre:

Nobody's perfect.

Tom:

That good news. You get to make up whatever you want.

Pierre:

That's true. What do you think your top two?

Emil:

What do you think? You probably know what apps are.

Pierre:

I have to say YouTube and either Google podcasts or Audible.

Tom:

And what do you think your average screen time is?

Pierre:

I don't know. A couple hours. I use my phone quite a bit. There's gotta be a way to tell that. I guess I don't track that stuff.

Emil:

Pssht, androids…

MIchael:

I remember my first smartphone.

Emil:

You don't, you don't even want to get into it with Pierre he will just tell you you're a, you're an Apple sheep.

Pierre:

No, there's some good things about Apple.

Emil:

Oh yeah. Just cause we're recording. It's just cause we're recording.

Pierre:

I'm about to put some new ram in my computer and I was considering getting an Apple until I realized I can't put more ram in an Apple, and I was like, get the hell out of here.

Michael:

Yeah. It's factory set. Right? You can't, there's not a whole lot of changes you can do. I think that's the big draw for non-Apple products, right? It's just a bit more customizable.

Tom:

I mean, if most of the software you use is like Gmail, YouTube, Chrome. Like why not go, go straight to the source, you know, and have Android. I've always thought about switching to Android. And I think at some point I will. I just get used to the, the smooth iPhone functionality

Pierre:

And also the power per buck. You know, the amount of power you can get per buck with a PC as opposed to an Apple for me, it's just a pretty great thing. Just get more value out of a smaller down payment.

Michael:

That make sense.

Tom:

All right guys. Well that wraps us up for today. We would appreciate it. If you like the episode to give us a rating and subscribe as always, this episode is brought to you by the Roofstock Academy. Roofstock Academy, your one stop shop for all things, getting to the next level in real estate, we have over 50 hours of on-demand lectures. We've got coaching. We've got really cool book clubs where we bring the author in, which is really fun. We sometimes do that. I hope to do it all the time and a really awesome Slack channel where you can get real time conversations with other folks in the program with the coaching, all that good stuff. And last but not least, we have $2,500 of credits back if you buy on Roofstock. So the program costs $1,250. And if you buy on Roofstock, you get $500 cash back for five transactions, totaling $2,500. You're actually making money. It's kind of like a buyer reward program. You can think of it that way. So we hope you liked this episode and happy investing!

Tom, Michael and Emil answer another round of listener submitted questions. 

Transcript

Tom:

Greetings and welcome to The Remote Real Estate Investor. My name is Tom Schneider and I am here with

Emil:

Emil Shour

Michael:

And Michael Albaum.

Tom:

And we are going to take on another episode of ask us anything. All right, let's do it.

Theme Song

Michael:

Before we get into it, how was the holiday weekend? Monday, yesterday was labor day. What did y'all do?

Emil:

I went out and shredded some gnar at the beach. It was so packed at the beach. I dunno, man. Little scary out there with how many people were at the beach.

Michael:

Didn't feel like the surface of the sun. There was a crazy heat wave in California. Pretty much the entire state where you feel on a down South.

Emil:

Oh yeah, there was that too. That the entire state of California was basically on fire. That was really fun.

Michael:

So the only logical place to be is in the water.

Emil:

That's right. It was nice. The water was cold, but it was so hot outside. So it was like the perfect place to be, which is why everyone was there, I assume.

Michael:

Did you trunk it?

Emil:

I did not know. I'm a baby. When it comes cold water. I always wear a wetsuit. The only time I don't is when I'm like traveling and the water is super warm, like in central America or Bali or somewhere. Alright.

Michael:

Right on.

Emil:

But in California, I'm always, I'm always in a wetsuit. I'm never, one of them…

Michael:

Always suited up.

Emil:

Every time I wear trunks, I immediately regret it, so.

Michael:

Tom, what did you get up to?

Tom:

I just, just managing this bit of a hellscape we have up in Northern California. You guys are further down South in Northern California. I think it's like record like 105 or 109. And you guys look at the air quality with all the fires. So I'm like constantly looking at yeah. Cause it's like, it kind of controls if you can like go outside or not. And it's funny, there are multiple apps out there and it's a Q, ACQ is the one that I'm looking at anyways it's like little bits of ash on the ground and it's, you know, you can't like go inside somewhere else with other people. Cause we're still doing some, some quarantine. It's like a, a, a triple whammy of the heat plus the bad air, plus the pandemic going on. So just being present with wife and baby at the house and making the most of it, playing games,

Emil:

It got up to 115 where I live this weekend. It was crazy. We have all these like roses and stuff in the front of our house. And they all got torched. Like they're all dead. After this weekend. It was crazy.

Michael:

Wow. One and done.

Emil:

What about you Michael, what went on?

Michael:

I was hanging out, up North, the central coast where I live for the weekend and my mom actually came up to visit. So we were hosting her and showing her around. But yeah, I was just super hot here as well. We were supposed to do some yoga in the park, socially distant yoga in the park on Sunday. And my buddy was like, dude, it's a hundred degrees. Like, don't come. It's just, you can't be outside. So they have an…

Tom:

Outdoor Bikram yoga,

Michael:

That’s basically it, yeah. Everyone would just be a sweat box. Yeah. We just went to the beach and hung out and got a little bit of a reprieve, but it was like 95 at the beach too. So we just ended up coming right back home to where I live and it was always a coastal breeze. So it was back in the seventies. So it was great. It was like the only place where we could be where it wasn't pretty much on fire.

Emil:

Yeah.

Tom:

Pierre did you do anything fun?

Pierre:

Yeah. This weekend. So we're starting a music channel here with the housemates and we're going to be running a live stream or more like a virtual concert where we can control the audio quality. So we started filming for that.

Tom:

Is it through YouTube or where, where is it published through?

Pierre:

Yeah, on YouTube. We just started a YouTube channel.

Emil:

Nice. Look at you, man.

Michael:

That's really cool.

Pierre:

Yeah. I'll drop a quick little shameless plug for Ansel Avenue.

Tom:

Ansel Avenue is that what it is?

Pierre:

Yeah, Ansel Ave is the page,

Tom:

Nice

Pierre:

It’s a music production channel and we'll be hosting five different artists on October 9th. And we've been following the COVID shooting guidelines for those of you worrying out there.

Michael:

Good man. Good man.

Emil:

Quick caveat.

Tom:

Awesome. All right, guys, let's jump into this. Ask us anything. So this is a grab bag. We're gonna cover a variety of different topics and we're going to start with what assumptions go into property tax estimates. And I will take the initial crack at this and then I'll, I'll pass it along. So we're going to be talking about property tax estimates, and I'm going to talk about some of the methodologies that Roofstock uses. And then we're also going to touch on ways that you as an investor can think about it, but just kind of riff on the topic of property taxes. So this is what you're paying on a semiannual basis to basically support roads and schools and all those other local great stuff that property taxes pay for. So property taxes, two aspects of it is a, a millage rate, which is a percentage of the assessed value and correct me if I'm wrong. I think it's usually anywhere between like 1% or 2%. Some areas are really high. So in Florida and Texas, where they don't have income taxes, that local area, they make all their money on property taxes. So it's significantly higher. But back to my point, so calculating property taxes, there is a millage rate, which is a percentage of the assessed value.

And then there's also what they call ad valorem or special assessments where it's just adding a flat dollar amount. It's not a percentage of the assessed value. And these could be for, you know, one year the voting populations votes for a bond to put in a new swimming pool with the school or whatever, totally making up things. And this would be like a flat dollar amount that would not be specific to the value of the home. So that's really the, the ingredients that go up to go into making the tax value.

If I'm evaluating a lot of properties at time, I may use a flat percentage just based on it, uh, of, you know, go through this exercise in detail on a couple of properties. And with that neighborhood, I can just apply a set percentage and for properties that make it through the funnel of ones that I want to evaluate further, then I'll go in and looking at the, at the millage rate after doing that initial exercise as a way to kind of batch it and doing a bunch, um, that would be the another way that you can do it, especially whittling down a bigger list of properties. And, um, I'd love to hear, let's see what, Michael, what do you have to say about property tax estimate?

Michael:

Yeah. I just have a follow up question. Ad valorem is that Latin?

Tom:

Yes. I think it is. It is the proposition to the estimated value of the goods or transactions concerned, shout out to google.

Michael:

Country of origin? Please use it in a sentence.

Tom:

It's just like an additional flat rate and, uh, you know, really good questions, Michael, really good questions.

Michael:

Really prevalent and pertinent question. Yeah. So on, on property taxes, I have a lot of thoughts on, on this subject. Um, cause it's something I see a lot of new investors get wrong and I've been wrong myself too. So there's three values that should not be co-mingled together. One is the assessed value of the property, which will often dictate what your property tax will look like. The other is the insured value from the insurance company. And the last is the sale price. Those three numbers often have no relation to one another. They can in a lot of instances like in California, the assessed value is the same as the sale price, which is then going to change your property taxes. But so just getting that out in the open. So Tom, I think you nailed it with the millage rate. Every County is going to have their own millage rate and they're going to calculate it based on whatever their needs are.

And then it's going to be multiplied by the assessed value and the assessed value can be any number of things. It can be this last sale price of the property. It could be a two year appraisal or a new assessment that the County does on a regular basis. They could do it based on a sale. There's there's any number of reasons why a property could be reassessed. And so you just want to call the County assessor to get a very clear understanding of how is this property going to be evaluated for the assessed value? What is the millage rate and what are the things that could cause the property taxes to change? Once you can ask those questions, you'll have a much clearer understanding of what the property taxes are. And I always tell folks, you know, look at historic to get an idea. You can make this ratio right of, I know what the last sale price is. A lot of that's public information, and I know what last year's property taxes were. So I can calculate, I can almost calculate out a ratio or percentage of the sale price. And you can use that going forward for your worst case scenario and say like, okay, look, if the last person paid 3% of the sale price and property taxes, I can assume I'm going to pay 3% of this new sale price and property taxes annually. As a worst case scenario, it might not be that bad. And so you just want to call the County sets or get an understand, how do you calculate property taxes for your property after the sale to get the most accurate picture?

Tom:

An important point I want to make about looking at last year's taxes paid is I think that could be a tricky in that they may have a homeowner's exemptions for some areas. You might get a major discount on your property taxes, if you're an owner occupied and you lived in the property. So that's a super important thing. And you know, Michael, you asked that question in jest about ad valorem and being Latin and I double checked on it and it is Latin and ad valorem actually is the tax based on the assessed value. So I had that a little bit mixed up. So the ad valorem is that, is that calculation of the road relative to the assessed value and its special assessments is what you're paying for on additional and on top of it, for those like, you know, bonds that pass and whatnot. So it was my quick cleanup, a meal. Any final thoughts?

Emil:

Yeah. I don't have much that you guys nailed it. The only thing I want to mention is that if you're evaluating different markets, let's say you're looking to buy your first property. This is such an important thing to pay attention to property tax, because you'd be looking at two markets, maybe two separate properties in two markets, you'll see one market that has an awesome rent to price ratio, right? Like let's say you, the sales price is a hundred thousand, but it's renting for $1,500 a month. So it exceeds the 1% rule of saying monthly rent should be 1% of the sales price. So if it was selling for a hundred thousand, it would rent for $1,000 a month and it far exceeds that. Right. But you'll go to another market and it'll be right at the 1% rule, but you'll see that the returns are completely different. And it's because of this property tax, some States, some cities just have super high property tax rates and others don't. And so you'll just be looking at two properties and you're like, why is it so different? And usually the differences of the property tax rate causing it to return to be much less. So that was my rant about price of rent and yeah.

Tom:

Yeah. And with, so just some experience. Just some other musings working on the operation side with Roofstock taxes can be a little bit tricky in that when Roofstock, when we had opened up a market there's little sub pockets in the markets where there can be big swings, like where perhaps there's a school assessment that isn't in one pocket. So we, I think it might've been in Memphis where we opened up that market. We did some diligence on some properties and came up with a good methodology of coming up with the taxes and we are up and running and we have these properties listed and then a couple of people close and they, on the closing statement, it said their property taxes were significantly more. And we back as an operations team said, Hey, what did we miss on these property taxes?

And it turned out in some municipalities, the city adds extra taxes on top of the County. So that's something to think about as well. If that area, if there are city taxes that are thrown on with the County taxes, it's, it's not a one size fits all taxes are not as transparent as it should be on what the prices are at the way that certain States they change the assessed value on what you're taxed on, can be really unique from state to state. Like some of them do it on a transaction. Some of them do it on a rolling seven year basis. It's a taxes is not super straightforward. And I think it's a great place where you can play offense where if you're buying a property, you can appeal the tax values, uh, in writing to the County commissioner and say, Hey, this property should be worth this, you know, trying to lower that value to manage your money. So kind of the takeaway is, is taxes can be a little bit tricky, but it's just, you know, do your homework. And I love Michael's point about talking to the County assessor or looking on the County assessor's website is a good one.

Michael:

What'd you say Tom, that taxes might almost be a little bit ethereal.

Tom:

They are definitely a little bit ethereal for sure. No question

Emil:

One additional thing, You'll also notice within your market that the tax rate will be different for a single family than multifamily. So that's, that's an important consideration as well. Often I've found that the tax rate on single family homes will be less than multifamily. So that's another thing. So if you're buying single families and you decide to move into multifamily, I wouldn't use the same rate you're used to seeing on your other properties. I would go figure out what multi-families of that size, what the rates seems to be. And you can, again, tax assessor website, you can ask an agent you're working with whoever, just people, local net market. And they'd be able to give you some insight on that.

Tom:

All right, I'm going to tee this one up for Emil. So question for you. Do property managers automatically collect the reserves or is that up to the owner? When you think of mail what's your strategy on this?

Emil:

They do not. So the, the only thing the property manager holds for you is they have like a minimum account balance. So some will be like $250 or 500. And that's just a minimum balance so that they can cover things when necessary, right? The property. Manager's not going to be your bank. So when little things come up, they maintain a small amount of reserves to be able to cover those things. All the reserves, you know, we talk about CapEx, repair and maintenance, all those reserves that's on you. So your, your property managers collecting rent, taking their fee and then distributing the rest to you. So they're not maintaining any reserve above that minimum I mentioned,

Tom:

It's a baby. They keep a baby reserves, right?

Emil:

Yeah. 250,500 is not a yeah.

Michael:

Yeah. I think that's not the reserve that most people are talking about when they talk about reserves. Like Emil mentioned it's for the one little stuff and the reserves that you should have for those, but the lender is going to require you to have, or for your cap tax and your maintenance. That's all on you as the owner to set that money aside to your market. When you get it out of the monthly rent to then have it sitting ready to deploy,

Emil:

How do you guys maintain your reserves personally? Like, do you have a separate account for it? Do you just leave it in your checking account where everything's deposited, like at a minimum level? I think it'd be good to…

Michael:

My property manager does it for me.

Emil:

Oh, nice. So you just, uh...

Michael:

I figure out how much I should be having and then set it aside. And I figured out how much cashflow I should be making. I try to not touch the cashflow from properties, or at least I did that when I was first started investing. Now I'm using much of that to fund other projects in my daily life. So my strategy has since changed a little bit, but I try to never take more than my calculator tells me I should be making on a monthly or annual basis from a particular property. And I leave everything else in the account.

Tom:

Yeah. Similar amount. I just have a separate, separate bank account where I keep a few thousand few thousand bucks, maybe a thousand, 2000 bucks a property on top of the reserves that the, you know, that baby reserves that the property managers all keep. And just within that one account, it's this, this beautiful flow of mortgage going out, rent payments coming in, and if need be, you know, pushing some additional of my larger reserve account into that particular property manager account.

Emil:

Nice.

Tom:

Excellent. Once this next question relates to 10 31 exchanges and we cover a lot of topics related to 10 31 in episode 15 of the remote real estate investor. Uh, so if you want to go deeper on this stuff, check out that episode. But this question is with a 10 31 exchange from, can you go from a multifamily to multiple single family or from a single family to multifamily or multiple single family? Basically that question of going up and down, uh, as an exchange and you gentlemen, like to a step on this one?

Michael:

Short answer is yes. From what we learned from the podcast episode about 10 31 exchange, episode 15, like you mentioned, Tom, and it just has to be like kind property. So that's the investment property for investment property, both ways the property you're selling into the investment property and the property you're buying needs to be investment property. And there are some very strict rules, guidelines, and regulations about the cost basis of those properties, the purchase price, the equity share that you have in those properties. So yes, you can go from a single family to multifamily or from a single family to multiple single families or from a single multifamily to one single family. Any combination of is my understanding that you can, you can go and I'm going to preface this all, talk to a tax professional, talk to a 10 31 professional accommodator, but this is my 2 cents. This is my understanding based on that episode, as long as you're following the rules. Yes, it's absolutely possible. But you just want to make sure that you're involving a professional accommodator to assist with that process. And they can absolutely walk you through the do's, the don'ts and everything in between of how to go about it.

Emil:

You can also do commercial to single family as well. We actually have a case study up on roofstock.com of two entrepreneurs who live in the Bay area who had a commercial property. They ended up selling it and 10 30ing into like 167 homes in the Southeast and Midwest. So you can, you can also do commercial insists.

Michael

Yeah. I think the restriction is only investment to investment. So if it's an investment property, industrial, whatever, as long as the new property is also an investment property, I think you're in the clear.

Tom:

Yeah. And just to redefine the value of the 10 31, it allows you to sell a property without paying any taxes on it. So as long as you, you roll all those proceeds into another and investment following all the 10 31 rules, but pretty cool. Like imagine trying to you buy a bunch of stock, it appreciates a ton, you sell it and you can move it into a different stock without paying any taxes. You can't do that with stock, but you can do it with real estate. It's just one of those really neat aspects, but makes real estate so fun and cool.

Michael:

Well, actually, Tom, there's something that I think we've covered on a previous episode, but there's the opportunity zone. And so if you sell stock and look to invest in real estate, there are ways to avoid paying capital gains on the sale of the stock. If you invest in an opportunity zone, but that's for another episode.

Tom:

A zigzag 10 31 that's right. I mean, not, not, not really, but you know, a different way to approach it. Okay. My, the next question I have here is what is a REIT or a real estate investment trust.

Michael:

Tom, do you want to take this one because you're kind of, you played in that space. Yes, you're right. My goal, I did play in this. I worked for a REIT. So a, a re is defined as a real estate investment trust. And essentially what it is is you're buying a percentage in a company, a collection of homes. So unlike buying an individual home and owning it in your name, you're just buying a percentage of this.

And it's a REIT is a company that owns and operates and income producing properties. Uh, it is a way to be really diversified in that you're buying it. And you automatically kind of have access to all the markets that the portfolio of that REIT is in. I worked for a single family REIT, it's called Invitation Homes. It previously was Waypoint Homes, and then it got gobbled up by another company and became colony Starwood Homes, and then got gobbled up by invitation homes as businesses do. But it is a, an easy way to invest in real estate. You know, you're not investing directly into the individual assets, but you're investing into this pool of assets. Some other aspects about REITs is most of at least the single family REITs, they have a similar makeup in that they're all using about 50%. They all have a similar market footprint covering, you know, mainly the Southeast, the, the Florida, maybe Arizona, Texas, a very similar footprint up makeup.

So an advantage of a REIT is you have great liquidity where you can get in and out very, very quickly. But what isn't as attractive as a REIT is you do not have the type of upside that you would on an individual property. It's ‘cause it's peanut butter spreading like the uber peanut butter spreading the risk. Something that also just kind of personal anecdote with a REIT is I, as I worked at this rate and I saw how the properties were performing and oftentimes the value of the rate, wasn't completely indicative of the performance of the property. Just the way that globalization has. There's, there's so many aspects that can affect a stock's price that doesn't have to do with the property. So, you know, one reason that I like to own property directly is the performance of the property is going to dictate the performance of the returns versus a lot of other stuff that's going on in the economy. So that's my 10 cents on a REIT. It is a publicly traded stock where you're buying a percentage of a collection of properties.

Michael:

Tom, you worked at the single family or read that own single family homes, but aren't there also REITs out there that own multifamily and commercial and kind of any kind of piece of property that exists. But is it fair to say that there's a REIT that probably owns that?

Tom:

That's right. Big multifamily data centers, hotels, offices, warehouses. So there's a lot of different flavors of reads and reads have been around for a while. Single family reads a pretty new just in that industry really came to fruition in the early mid 2010s. It's a relatively a baby versus some of the other types of REITs out there, but that's right. There are a REITs in all types of different flavors.

Michael:

Awesome. Thanks

Tom:

Michael:

Yeah. I always think it's, whatever account can get you the best interest rate that's as safe, insecure as they come. And it's kind of a hotly debated topic. I posted about it on Twitter a while back about, Hey, if you've got 10 grand that you're saving for real estate investing, but you need 20 to get in. Do you place that in the stock market or do you place it in a savings account and some folks at stock market to grow it? Others said cash in the bank. I'm of the opinion that if you're looking to invest in real estate cash preservation is really important because as we've seen in the stock market, especially over the last couple of weeks, there are some major ups and some major downs. And so for folks that are willing to ride that rollercoaster, they might have a very different opinion because they have big potential upside. So that 10 grand could turn into 20 grand in a couple of weeks, a couple months, depending on how good the stock market does. I'm not willing to play that game because it could also go to zero. So I like sticking it just in a checking savings account, whatever gets the best interest rate and it's free to have.

Tom:

Yeah, I think convenience could be a factor. I think just like Michael said, liquidity of being able to move quickly. If I know that I'm not going to move to buy something in the next six months, I mean, I could put it in a CD if I'm feeling a little exotic, not that a CD is very exotic, but anyways, if you look around, there are great savings accounts that pop up every once in a while, I know a couple of years ago, allied bank had a 2% return and I think Marcus, it might've been Goldman Sachs. They turned them on at this great rate and they often will kind of flow back down as an initial kind of teaser to get people, to put their money there. But it's worth looking at that. And it's, this is a good personal preference answer. I'm in a similar vein as Michael, where I'll keep it in a savings account, but you know, if you want it to put it in some ETF, like that probably would be okay, there's been a little bit more volatility as of late, but if you know that you're going to be sitting for a while on that cash, it could make sense where you can get a better return somewhere else on what your risk threshold is. Risk tolerance. That's the word. Yes.

Michael:

Yeah. I was gonna say on that note, you know, I had a, um, like an eight or nine month time horizon. So I bought some municipal bonds or some or treasury bills that were like paying at the time, I think like 2% or like 2.05. Cause it was just a super short term. And if it was better than the point, Oh 1% of the bank offered so super safe, you know, relatively liquid investment that if you need to get out of you can. But yeah, that's all I wanted to say on that. Those are gonna be good options as well.

Emil:

I think it really matters on your situation. Like, let's say you have 5,000 bucks and you need to get to 20 K and you look at how much you're saving each month and it's going to take you three to four years, right? Like you're just not saving enough. I would say you, you have more to gain than to lose. It's just going to take you awhile. I would personally go put that in something where I can get higher yield. Yeah. It's you could call it gambling or whatever, but right now you're really trying to accumulate capital. You don't have as much to lose. I, I would try to bank roll that into something bigger. And that's, I'm speaking from that personally. That's like how I bought my first property. I invested some money in the stock market invested for a couple years, got lucky and cashed out and bought some rental property. I mean, but if you're like looking to buy the next six to 12 months, I personally wouldn't want to take that gamble with such a short time horizon. I would just be putting it in the savings account. I would even say like the account type, even just like find a savings account, all these banks right now, they're pretty close to one another.

And the interest rate they're giving you is nominal because of how like interest rates are so low right now. I think I looked at my savings account. It was like 0.65% annual yield. It's like, it's irrelevant. You're not, you're not getting really any yield there. It's just cash preservation like Michael mentioned. Right? So if your time horizon is short, you just are saving cash to deploy in the next six, 12. I just put in a savings until you get to the, the amount you need to invest.

Michael:

That's such a good point in the order to make that you have in that instance, more to gain than you do to lose. If you've got a long enough time horizon and you're playing with the smaller amount of money, as long as you're not needing that money to pay your bills or whatever, that's purely allocated for investing. I think that's a really good point and something definitely to consider for each individual.

Tom:

All right, last question for the day is for this episode, is, are there any litigious trends against landlords? How likely is it to be sued? I'll kick this one off and say that, you know, this is not legal advice. This is, we're just talking from our own personal experiences within my portfolio. I've never dealt with any litigious issues. When I worked at one of these REITs, that own thousands of homes, we had some stuff pop up, but I think sometimes there are people that would see the big company and, you know, they would see it as an opportunity to come at them. So I'm not going to say that it doesn't happen, but I haven't seen or heard of any litigious trends happening within my experience. Haven't been sued or had any of those types of issues. Let's pass this off to one of the other hosts. What are your, what are you guys?

Michael:

I think he talked to anybody in this space, any professional in the space, they've got stories, then you hear about, it's a very litigious environment. And we know this, the U S is often referred to as a very litigious country. People are often suing each other for all kinds of reasons. And so I personally knock on wood. I have never been involved in a super, my older brother has, he was served actually, um, for a kind of ridiculous thing, ended up getting dismissed by the judge because it was somebody trying to make a cash grab and, and didn't really have much to their claim, but this kind of stuff happens at any time and we're in a people business. And so people do stupid stuff. People do all kinds of crazy stuff. And so you can only control what you're doing. And so protecting yourself from those types of litigations, I think is really important. And so just make sure you're doing your homework and talk to professionals about what it is you can do to set yourself up for success.

Tom:

And this is another annual episode, shout out to making sure that you, you know, you have a good property manager and a reputable property manager. Cause if I know if I were to have any sort of litigious issues, like they would be on the front lines of, of managing that with the tenant or the person living there at the property, they're really their first line of defense of deescalating, any types of issues and managing that. So shout out to getting a good property manager and vetting your property manage. Emil?

Emil:

I think this question kind of gets that too. Like, do I need an LLC? Do I need umbrella insurance? Like what all the different ways I can protect myself. And just, again, speaking from personal experience, first property I bought where I knew like most of my net worth, I hadn't really generated any wealth yet and still haven't generate anything meaningful. But I think again, when you have less to lose getting caught in the weeds and all these things, like you can just get brain damage from all the different ways to protect yourself when you don't really have a ton yet that needs protection. Again, personal experience, as you start acquiring more, as your wealth goes up and you have more things to lose, this is when it's like, you need like a real estate attorney having all these different protections, I think matter more and more and more like as you're, you're playing a lot of offense early on. And then as things grow, it is really about preservation and not losing what you've built. That's at least the way I've, I've kind of approached these things.

Michael:

It's such a good point and that's kind of the second time you've made it as is what's what's the risk. And so I come from the insurance world, we always ask ourselves, okay, what's the risk when we're making a decision? What's the bet, how big of a downside is it? And if it was a $1 billion semiconductor plant that was going to burn down or not based on the decision we made, we're going to spend a lot of time evaluating and analyzing that decision with a microscope and a fine tooth comb, if it was a $10,000, uh, swing one way or the other, which in the insurance world is not a big deal. We would just make a decision and move on because the impact wasn't really meaningful, same thing with your, with your personal finances. If the impact is not going to be significant make a decision and move on.

And I also want to caution people. There are tons of snake oil salespeople out there that are trying to use scare tactics, to get people, to buy products that they really don't need and protect themselves that they don't need. I remember talking to somebody a few months ago, they were talking about setting up series LLCs and Delaware trust and all this kind of stuff. And I was like, great. How many properties do you own? Well, none I haven't bought any yet. Okay, well, let's use that money to maybe go buy the property first. And then we can talk about all that type of protection. And that's not to say, don't protect yourself on the front end, don't do your homework if you're small, quite the opposite, you need to be informed, but you also need to understand what's overkill. And there's absolutely a point where you can be over insured and deciding for yourself as an individual is what's important because I can't tell you Tom or Emil, if you're over insured or not, if you feel comfortable, great, that's what matters. Doesn't really matter what I think. But I would say that there are, there are things out there and there are tactics being used out there to scare people into buying products that they probably don't need.

Tom:

Alright guys ready for the fun end of the episode, get to know the host.

Emil:

Let's do it.

Michael:

Totally.

Tom:

Alright, so get your phone out. This is going to be the exercise. You're going to go to your phone. You're gonna go to settings. I want you guys to talk about…

Michael:

If you make me change my language is something I don't understand I’m going to be really upset.

Tom:

Yeah. So click on settings, click on settings. And then you're going to click on screen time, which is below notifications. Okay. And then you're going to click on, see all activity. And you're going to look at your most used apps and we're going to talk very quickly on our top two most used apps. You can't count messages or Gmail or whatever, like the nonstandard apps. And so I'm looking at mine right now. I'll go first, my top two, Audible, I had a little bit of a car ride and I'm, that's one of my most recent ones. The audio book, one shout out to Eric Larson. That guy is such a, he writes these historical stories that are really awesome. He wrote this one called devil in the white city, the splendid and the vial is the one on audible. I'm listening right now. It's about Churchill and world war II. And what a neat dude. And the other one I've let's see, go ahead.

Michael:

Any relation to Gary Larson?

Tom:

I don't think so. Eric Larson. Super interesting guy. So, and the other one I've been using is downward dog. It's this yoga app, but like what? It creates a new routine every time, but it's you like set these settings like, Oh, do you want to be really tired at the end? Or do you want to as a more mellow and then you pick how long it is. And it's probably my favorite, one of those types of apps. So downdog is what it's called. Shout at the down dog. Emil you're up. What's your two most, Oh, sorry. Go ahead. Grill me. Go ahead.

Michael:

I wanted to say, before a meal goes, I want to know too, in addition to the, the top two, what's your daily average screen time?

Tom:

It one hour and 48 minutes. Oh, that's a good one. Yeah. You guys got to answer that. I have a big advantage in that I had my phone hidden for like four days last week. So I was just taking a break. If you guys are over that you guys are using way too much phone time.

Emil:

I feel like this is going to be very, very easy for you guys to guess mine. Top two. I'm going to say Twitter and Gmail. No, it can't be email. Yeah, exactly. No messages, no GMO, no phone. It has to be like apps,

Pierre:

Wave tracker or some other surf app?

Michael:

Oh, just apps. Okay. Twitter and boy littering and littering it right on Twitter. Twitter by LinkedIn. Instagram. No, I don't have, I deleted my Instagram. LinkedIn is Facebook. Worst list. I deleted Facebook off my phone surf line guys. Come on.

Pierre:

I said wave trackers.

Emil:

Oh, you did? You were muted. Okay. So yeah, surf line. So Twitter and surf line. I am very predictable. And uh, yeah. So that's me and Twitter by a large margin.

Michael:

What’s your daily average use?

Emil:

Two hours and 45 minutes.

Tom:

That's not bad at all. I, I bet you mine is normally way over. If I didn't have my phone hitting hidden from me,

Emil:

I've been trying to, I think some weeks it goes three and a half plus, but I've been trying to make a more conscious effort to like, not be on my phone, especially when I'm hanging out with my family it away. Yeah. Right. Michael your turn. Yup.

Michael:

All right. So we said nail apps don't count.

Tom:

Nope. You can't repeat one that Emil has picked.

Emil:

No I want to know if Twitter if it's on there.

Michael:

Yeah Twitter is my, it is my number two. Okay. Twitter is my number two. Let's see. Photos is the next, which isn't really an app. Facebook is next. I get a lot of, I like reading news stories on Facebook so that, yeah, Twitter and Facebook are my two.

Tom:

I like it. Right. And my daily average is one hour and 14 minutes.

Emil:

Oh my God. One 14. You're on Twitter or you just Twittering on your desktop.

Michael:

Yeah. I, I am. I do Twitter on my desktop. I do tweet from my desktop occasionally, but yeah. I try to not be on my phone a lot and I'm just constantly, I do a lot of work from the computer. So I think that's probably why I like, to be honest, I just make phone calls a lot. Um, yeah. I try to, I try to keep the phone away as best as I can.

Tom:

I like it. Alright Pierre?

Pierre:

I'm not seeing that option in my settings?

Tom:

Are you on an iPhone?

Pierre:

No I am on an android.

Tom:

Oh.

Pierre:

Nobody's perfect.

Tom:

That good news. You get to make up whatever you want.

Pierre:

That's true. What do you think your top two?

Emil:

What do you think? You probably know what apps are.

Pierre:

I have to say YouTube and either Google podcasts or Audible.

Tom:

And what do you think your average screen time is?

Pierre:

I don't know. A couple hours. I use my phone quite a bit. There's gotta be a way to tell that. I guess I don't track that stuff.

Emil:

Pssht, androids…

MIchael:

I remember my first smartphone.

Emil:

You don't, you don't even want to get into it with Pierre he will just tell you you're a, you're an Apple sheep.

Pierre:

No, there's some good things about Apple.

Emil:

Oh yeah. Just cause we're recording. It's just cause we're recording.

Pierre:

I'm about to put some new ram in my computer and I was considering getting an Apple until I realized I can't put more ram in an Apple, and I was like, get the hell out of here.

Michael:

Yeah. It's factory set. Right? You can't, there's not a whole lot of changes you can do. I think that's the big draw for non-Apple products, right? It's just a bit more customizable.

Tom:

I mean, if most of the software you use is like Gmail, YouTube, Chrome. Like why not go, go straight to the source, you know, and have Android. I've always thought about switching to Android. And I think at some point I will. I just get used to the, the smooth iPhone functionality

Pierre:

And also the power per buck. You know, the amount of power you can get per buck with a PC as opposed to an Apple for me, it's just a pretty great thing. Just get more value out of a smaller down payment.

Michael:

That make sense.

Tom:

All right guys. Well that wraps us up for today. We would appreciate it. If you like the episode to give us a rating and subscribe as always, this episode is brought to you by the Roofstock Academy. Roofstock Academy, your one stop shop for all things, getting to the next level in real estate, we have over 50 hours of on-demand lectures. We've got coaching. We've got really cool book clubs where we bring the author in, which is really fun. We sometimes do that. I hope to do it all the time and a really awesome Slack channel where you can get real time conversations with other folks in the program with the coaching, all that good stuff. And last but not least, we have $2,500 of credits back if you buy on Roofstock. So the program costs $1,250. And if you buy on Roofstock, you get $500 cash back for five transactions, totaling $2,500. You're actually making money. It's kind of like a buyer reward program. You can think of it that way. So we hope you liked this episode and happy investing!

Join Emil, Michael and Tom to discover the 5 most common misconceptions real estate investors have about new acquisitions.