Brandon: This is the BiggerPockets podcast Show 270.
“You know, every house I buy has a sad story and I take that house and I make it into a nice home for a new family and something that improves the neighborhood and the neighbors are always happy to see me come and fix up a house”.
You’re listening to BiggerPockets Radio. Simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place.
Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online.
Brandon: What’s going on, everyone? This is the BiggerPockets podcast. I’m your host today, Brandon Turner, here with my guest co-host, Mr. David Greene, author of—what’s your book called, David? Just kidding. Long Distance Real Estate Investing. I know your book.
David: That was funny, Brandon. Very funny.
Brandon: Anyway, how are you doing, boy? Boy. How are you doing, brother? Do you like that? Is that better?
David: I am really good, man. I think you’re having a little fun and you’re wired, getting a little silly over there.
Brandon: I’m also losing my voice. Do you hear that? It’s like gone. I don’t know.
David: Yeah, I think it’s from all the saltwater you’ve been swallowing as you learn how to surf.
Brandon: It honestly might be. Learn? I don’t need to learn. I’m an expert. Okay, I do need to learn. I’m horrible. But no, I drink a lot of saltwater. Maybe that’s it. I’m not really sure, but yeah. You know what? It’s been nice.
David: Hawaii is good for you, man. You’re looking good. You have a tan. You’re feeling lose. You’re already picking up on that island vibe. This is like a Brandon Turner 2.0. I like it.
Brandon: There you go. I like it. And David is actually coming out to visit in just a couple weeks right now. Actually, when the show airs, you will actually be back home again but I’m totally looking forward to doing some hanging out and surfing and doing some Facebook Live videos, which of course, we actually do Facebook Live videos a lot on the BiggerPockets Facebook page where we do live interviews and live chats and live Q&As with real estate investors around the country. It’s really, really cool.
David does them occasionally. I do them occasionally. And others do them. So that’s kind of I guess a sort of Quick Tip today is make sure you follow us on Facebook for that. That’s some of the most valuable content, I think, sitewide, is the Facebook Live stuff because it’s just real, unfiltered, Q&A live with experienced people. Like what better thing to do? So anyway.
David: So if you’ve ever been listening to the podcast and you thought, oh, I wish I could ask them this question right now, that would be so good. That’s what Facebook Live is. You get access to these people that are experienced investors and when they’re talking about something you’re learning and you think, oh, I wish I could ask them this question, you can and they will answer it for you in front of a bunch of people so I highly encourage everybody who’s listening to this, if you like the BiggerPockets podcast, if you want to learn more about investing, take advantage of the free information that’s out there and jump on the Facebook Lives.
Brandon: There you go. That was pretty much our Quick Tip today. Do you want to add another Quick Tip?
David: Yes. So today’s Quick Tip formally is going to be about buying houses and not getting sucked into kind of the visuals of it or maybe the fun. A lot of people are watching HGTV right now and thinking, oh, I’d love to go flip a house or buy a rental because I want to restore it to its former glory. And that’s great but what you need to be thinking about it is what are the numbers going to be on this deal?
As a real estate investor, we should be driven by the numbers, not by the look of a property. So today’s guest talks about, they look at real estate like they’re buying little people boxes. It’s kind of a really cool way of looking at real estate. I think you guys are going to love it. They just want to buy a little box and put a person in and collect rent from.
They’re not out there trying to buy the most expensive house and kind of like buy this old Victorian home. I think she mentions buying a seven bedroom, four bathroom house or maybe, Brandon, you brought that up. Yeah, that’s a terrible idea to buy as a rental, right? That’s four bathrooms that could go wrong. You don’t need that.
Brandon: Even as a flip, it might be a terrible idea.
David: Yep. So when you’re buying real estate investing, stay focused. Stay on the numbers. Make sure you know your numbers. The numbers are not going to lie to you and keep that in mind as you move forward.
Brandon: There you go. I love that tip. Love that tip, David. Nice job, David Greene. All right. Before we get to the actual show interview with our guest today whose name is Amy Arata, let’s hear from today’s show sponsor.
Hey guys, it’s Brandon. I’ve got some exciting news. So SimpliSafe, you know the company that we talk about a lot here on the podcast and that I use, I just released their brand new home security system, the all-new SimpliSafe. It is completely rebuilt and redesigned. They’ve added a ton of new safeguards to protect against power outages, down to Wi-Fi, cut landlines, bats, hammers, and everything else in between.
And the all-new SimpliSafe was redesigned to be practically invisible with sensors so small, you can blanket your home in protection and never notice. You know who will? The intruders. And this is what’s truly remarkable to me. SimpliSafe actually spent years building this system and they’ve added so much but you still get the same fair and honest price, 24/7 protection for $15 bucks a month. And no contract. It’s smaller, faster, and stronger than anything they’ve built before but supply is very limited so visit SimpliSafePockets.com now to order. Again, that’s SimpliSafePockets.com.
All right, big thanks to our sponsors always and now, before we go any further, before we bring in Amy, introduce you to Amy, let me just ask you guys, if you have not left a rating or a review on the show, can I implore you, beg you, high five you to do so? Just go to iTunes if you’re listening to us on iTunes and leave us a rating and review for this podcast. Same thing if you’re listening on Google Play store or on Stitchers. Ratings and reviews are what helps us reach more people for the message of financial freedom, which is what real estate can give you. Please do so. It doesn’t just help us. It helps out millions of people worldwide.
So with that, let’s get to today’s show. So our guest today is Amy Arata. I’m hoping I’m saying her last name right. She’s a former molecular geneticist. She became a stay-at-home mom then and then got into real estate investing. Her and her husband, Mike, have been able to reach their financial independence goal. They actually achieved financial independence through rental properties, which is pretty awesome, and you’re going to love her story, love her methodology, love what she does. I think she’s fantastic. She’s a lot of fun. So without further ado, let’s get to the interview.
All right Amy, welcome to the BiggerPockets podcast, it’s awesome to have you here today.
Amy: Well, it’s a pleasure to be here, Brandon. Thank you.
Brandon: Yeah, this should be a lot of fun today, talking about your story and you know, you and I met a few months back over in Bangor, Maine. Am I doing the accent well? You do it a lot better than I do.
Amy: Well, I say Bang-or.
Brandon: Yeah, I want to hear a good Maine accent. Can you do a really good Maine accent?
Amy: Well, I want to pack the car the other day and it was all stove up.
Brandon: Very nice. Very good. So good. So Amy and I met at a BiggerPockets Meetup, a gathering over in Bangor, Maine, and I really enjoyed our conversation. I learned a ton about you but I have a horrible memory so I don’t remember any of it so we’re going to start over at the beginning. Who are you? What do you do? How did you get into investing in real estate business?
Amy: Okay well, my name is Amy Arata. And I was born in Maine. I grew up in a mobile home park. We do not call them trailer parks. Remember that, Brandon. Do not call them trailer parks. That’s politically incorrect.
Brandon: I remember that. But my mobile home park I just bought has a big old sign out front that says “Trailer Park”. And I’m like, oh, that’s the first to go. So we are—
Amy: That was like a swear word growing up. So my great-grandfather is one of the first manufactured home dealers in the state of Maine, starting in the 1950s. So I grew up in his mobile home park and my dad was an employee of his. Later on, my dad started his own dealership but he always said he wishes that he owned a mobile home park but he never purchased one. But that’s why I brought him to meet you in Bangor, Brandon, because I thought maybe my dad could contribute some way to you and your research.
Brandon: It went well. We hit it off well.
Amy: Yeah, he’s a great guy. And so I had no interest in that business whatsoever. I preferred working on the farm with my other grandfather milking cows and driving tractors. So I got involved in science. I was really interested in science. I ended up going to the University of California at Davis, which is kind of near you, David.
And I majored in—well, that was for graduate school. I was accepted into the PhD program for molecular genetics and that’s where I met my husband. And I decided after seeing the lifestyle of a molecular geneticist, that I would not get a doctorate. Instead, I got a master’s degree and I got married and started having a whole bunch of kids.
I had three kids in three years. And my husband and I arranged ahead of time. We planned ahead of time that we would live off one income and that I would focus on raising our children and perhaps go back into the laboratory later on. We bought our first house in 1999. It was a fixer-upper in wine country over in Geyserville. Perhaps David’s been there. I don’t know. Geyserville. Not at my house.
David: I know the area of Geyserville. I definitely know about Davis. It’s a pretty small town, right?
Amy: Davis or Geyserville?
David: No, Geyserville.
Amy: Yes, it is. It is unincorporated. It’s out in the county. And that’s what I liked about it, kind of, being a country girl. I liked that. So we bought our first house and we were working hard on it. I’d be painting seven months pregnant, up on the ladder painting. I learned a lot working on that house and as the market improved—it tripled in value. And it was 2006 and I was really homesick for Maine even though I was living in one of the most beautiful areas of the country, in wine country.
I just really missed my family and I missed Maine. And I wanted to move back to Maine. And at the same time, I was seeing that the market was pretty insane. In California, they had negative amortization loans they were giving out and just all this ridiculous stuff and I said, you know, I think the market might level off at some point. I didn’t think it would crash like it did but I thought it would probably level off so I convinced my husband to sell our house and move to Maine.
He did take a big paycut, about a $30,000 a year paycut moving to Maine. But we took all that profit from our primary home, tax-free because it was our primary home, and invested it in real estate in Maine.
David: So Amy, can you take us back? Did you decide you wanted to get into real estate investing and then go do it or did you kind of back into this because your house went up a lot in value and you had this equity and you thought, oh, now I should start investing it? How did the kind of process start for how you get started in investing?
Amy: Well, we saw the power of real estate in the fact that our house had tripled in value. We said, wow, I just never imagined that that could happen. We were making more per year in equity growth than my husband was making at his job as an engineer. And you know, and my husband’s parents had a few rentals in the Bay Area in San Mateo and that allowed my father-in-law—he was able to retire at age 55 on the day that our first child was born. So that demonstrated the power of real estate investing to change our life, really. To give you the financial freedom you need to enjoy life a little more.
Brandon: You bring up an interesting point about how like—I don’t know. You can tell somebody about financial freedom and what it is, right? But like, the real thing that changed my life and I think changed most real estate investors’ life is when you see it in somebody else. You see somebody retire early. You see somebody spending time with their kids when you’re on a commute to work, driving an hour and a half every day.
You know, those kinds of things just make such a difference, which is why I love the podcast so much because you just hear stories over and over and over like this about people who do awesome stuff. So I just think that’s cool, to see stories. Which is why it’s important to tell your story, you know. You never know who you’re going to inspire on their journeys. So yeah, tell your stories, people. It’s good stuff.
David: Is that how you basically made your initial venture into real estate investing and that went well and you kind of expanded from there, Amy?
Amy: Sort of. We never intended to flip it but certainly we outgrew this house.
Brandon: Outgrowed it. Growed it.
Amy: I’m edumacated when I go and speak like that. So we outgrew the house and I was looking around the Bay Area. There was nothing that I could afford on my husband’s salary that was getting better. But when we bought this house, it had two bathrooms, each one was half-finished. My parents came to see it from Maine and they thought I was insane to be paying that kind of money for a fixer-upper.
But all the difficult things had been done. The roof had already been done, the foundation. It’s just that these people, I think, burned out. And so we came in and finished it off and made it a cute little wine country Victorian retreat for somebody. So it was pretty nice. I don’t know if I would do a live-in flip necessarily with kids because it is hard to live in a construction zone with children.
Brandon: You know what, one thing I’ve found, I’ve done a lot of live-in flips. Almost every house I’ve bought has been a rehab but here’s what I find I do, is I wait until like the very end to finish the house. The construction zone the whole time—it’s like, all right, well, we’re ready to move, let’s put it on the market. And like, that’s when I fix it up the rest of the way and then I’m like, I have a really nice house.
Like, why didn’t I just fix this up in the beginning? And then I could have lived in the nice house. So yeah, I’m a bigger fan of the live-in flip, fine. But I want to get that work done right away so I can enjoy the flip for a couple of years, maybe. Enjoy the nice house. Otherwise, it’s like, you’re going to spend the money anyways. Why not just do it at the beginning?
Amy: Right. We were really nervous about the lead paint being an old house that we lived in and I had the kids tested and they’re fine, you know. So we were just keeping an eye—well, at least so far. They’re doing pretty well. They tested negative.
Brandon: We should talk about that. I don’t think we’ve ever talked about it on the show. Lead paint is a thing. Like, it’s an issue with houses and with a 1978 and prior. It’s not like every house in 1978, but almost every house in 1930 used it. As you get older and older and older, it’s a higher and higher percentage of houses that used it. And for anybody who’s bought or sold a house, you know there’s like this form, a couple of forms you have to sign that says I either know or don’t know if there’s lead-based paint and it’s an issue. Because yeah, kids eat paint chips with lead paint, it can like mess them up.
Amy: Right, right. I’ve heard—I have not tasted them, but I’ve heard that they’re sweet. Somebody who tested children in Massachusetts told me that lead paint chips are sweet and that kids are drawn to them once they taste them. They like them. Who knew?
David: I’m very curious how that conversation started.
Amy: That was his job, was testing children in Revere for lead poisoning, yeah. But my kids, I fed them a lot of junk food so they were fine. They had a lot of sweets without eating the lead chips.
Brandon: Well, let me ask both you guys. Would you guys buy like—is it okay to buy—each of you are investors, right? Is it okay to buy, if a house is older and it has lead-based paint? What do you do if you’re going to buy a house from the 1950s and you find out there’s lead-based paint? What do you do as an investor? We’ll start with you, Amy.
Amy: I buy them all the time. That’s all I have. For the most part. And you just have to maintain it. It’s not a problem if the paint is actually still intact. It’s not a problem. It’s when it starts to peel and chip off that it’s an issue. So I just maintain those window sills, paint them for the tenants. Keep it from becoming a problem. I cover it with vinyl. I cover everything with vinyl.
David: I tell everybody that there’s probably not a problem that would keep me from buying a house. It’s all just a number that you have to factor in. If you could take any problem in real estate and change it from a problem into a number, you can figure out at what price you can buy that house and still make sense. Like I try to take every problem that can come up and convert it into math because math is simple. We can all deal with math, right?
Like, I don’t see lead-based paint. I just tell my contractor, what’s it going to cost to repaint over this to make it safe? And then they give me a number and I know what to do with that number. So whether it’s a new roof or a foundation or lead-based paint or a rodent problem, it could be a million things. What I care about is how much is it going to cost me to get rid of that problem.
Brandon: I like that. I like thinking about it, changing your mentality from problem to number. Look at that. That’s a zinger.
David: Yeah, problems’ our society, right? Numbers, that’s a spreadsheet’s problem. Once I turn it into a number, I plug it into a spreadsheet. I don’t have to worry about that anymore, right? That’s my contractors’ problem, my property managers’ problem or whoever. You’ve got to find ways to remove the anxiety that comes with real estate investing or you’ll just be paralyzed and that’s kind of the way that I found that works for me.
Brandon: I like that, I like that. So yeah, what I found with lead-based paint, it’s not like drywall that was tainted and is going to give off fumes and kill everyone in the house, right? People often think about lead-based paint but it’s not. As long as it’s covered well and kids aren’t eating the paint chips, you’re fine. There’s nothing wrong with that. So my approach typically has been like, if we’re going to do a massive renovation or a large enough renovation than required, then yes, I’m going to have a contractor check for lead-based paint.
But otherwise, I’m not going to worry about it. I don’t test for it and maybe that’s right or wrong—I don’t test for it if we’re not going to be disturbing the existing paint because I’d rather almost not know if that makes sense, because then I don’t have to say I know there’s lead-based paint. So I just deliberately don’t test unless I have to, which is a certain square footage and then you’re going to demo a bunch of stuff, then yeah. I’m going to go pressure wash the outside of a house that paint is peeling. Yeah, we’ll test for that. Anyway.
Amy: Just assume it’s there and take proper precautions.
Brandon: Love that, love that. All right, then you also mentioned that you sold the house in 2006 and you got the profit tax-free. Can you explain why that is? You made a ton of money on that house. Why didn’t you have to pay the government?
Amy: I did. I didn’t have to pay the government at all. It was great. I even got a tax deduction for my moving expenses because we moved so far.
Brandon: Why is that? Why did you not need to pay taxes?
Amy: Because it was our primary home for two out of the previous five years and as a couple, married, filing jointly, we were allowed up to $500,000 in capital gains tax-free.
Brandon: There you go.
Amy: There you go.
David: So can you tell us, Amy, after this house, what was your next investment and tell us kind of the thought process of did you collaborate with your husband and say, hey, we did really good on this first house, let’s do another one? Or did you fall into it again? How did that go?
Amy: So yes, my husband and I agreed that we wanted to buy rental properties and so, actually—so we did everything wrong. I mean, we moved to Maine. We paid cash for our house. An old farmhouse that I’m sitting in right now. Some big money pit. Terrible investment. But we paid cash for it and then I started analyzing multi-family buildings and I got a real estate agent, I had him send me all the data, the incoming expenses, which was spotty at best. I made a spreadsheet. I compared everything from two units up to 21 units in the area and looked for the best return.
I thought that I had invented cap rates. I didn’t know that that was a thing. I called it yield or I called it something. I was looking at my old spreadsheets from years ago and then I realized, oh, other people have done this before. Maybe I should buy a book or something. And so I did. And that helped a lot. I have the books. That’s—I guess that’s for the Final Four, right?
Brandon: Yeah, if we’re going to ask it anyways, you can save it. We’ll tease people—
Amy: I have one of my books. Okay, I’ll save it.
Brandon: We’ll tease people until the end.
Brandon: So what was that first deal then? What did it look like? What’d you buy it for? Where was it? The first rental.
Amy: It was a five-unit property in Auburn, Maine. It was in 2007. And we took out a—we cashed out, refinanced our primary home and used the money to pay cash for that five-unit. So again, we did everything wrong. That’s not what I would do now. But it worked. It worked back then.
Brandon: I want to talk about that because that’s actually kind of a cool strategy, maybe. What does it mean to do a cash out refinance on your primary home to be able to buy that other property? What does that mean?
Amy: It means exactly what it sounds like.
Brandon: For those people who have never heard the words cash out refinance. What does that mean?
Amy: Well, we had a lot of equity in our primary home and so we got a mortgage on it. It was pretty good interest rate and we used that to buy the five-unit. Now, being a five-unit property, we would have had to get a commercial loan and a lot of the commercial lenders want you to have experience managing a property before they’ll give you a loan. We didn’t have any experience so we got around that because the loan wasn’t on the five-unit. It was on our primary home.
Brandon: I think that’s clever.
Amy: So we paid $148,000 for that.
Brandon: Okay. $148,000 in 2007 for a five-unit? 2007, yeah. That’s cool. So the reason I ask is like, it is an interesting strategy. Like, if somebody has a lot of equity in their primary residence, they can go and get a loan or a second mortgage on their primary residence. Even if it’s not paid off. And get a second if it’s paid off then get a first. Use that money to go buy a rental property. And like you said, the money’s on—the loan is on the house, not the property you bought.
So a quick story about that. My in-laws did that. They had their house paid off free and clear. They wanted to buy a house so what they did is they ended up getting a line of credit on their personal residence, so not a loan, but a line of credit, which is kind of like a giant credit card but at a super low interest rate, and you only pay when you use it which is the beauty of it. So they got this like $150,000 line of credit from the bank and then they went shopping for a deal.
Now, they had that line of credit so when they found a deal, they were able to offer cash for it. So they didn’t have to worry about bank financing, which they got an incredible deal accepted. They bought it for cash, fixed it up for cash, and basically had a no money down deal by that. The other thing they’ve done before, I know they did later then, they went and got the equity on that deal because there was no loan on the second property.
They got a line of credit on that one and then they went and bought another property that was in a flood zone. Normally, flood zones require flood insurance but because the loan was on the other property that wasn’t in a flood zone, no flood insurance required. It was kind of fancy, cool little ways to put together a deal. But you said that you didn’t think it was a good idea. That was a bad idea at the time. Why?
Amy: Well because it doesn’t take advantage of the power of leverage.
Brandon: Okay, because you didn’t have a loan on that property.
David: So Amy, have you since taken a loan on that five-unit?
Amy: Oh yes, I have. Absolutely.
David: So you basically took a loan on your primary residence sort of as a bridge loan to buy the unit for cash. You got a better deal on it and then you refinanced it later. It was sort of using the BRRR strategy by getting a loan from yourself to purchase it, right?
Amy: Yeah, pretty much. Yeah.
Brandon: That’s kind of cool. You probably didn’t know that going into it but you figured it out. Yeah, that’s what most cool strategies are. They’re just like, I figured it out. I don’t know. Yeah, I made it.
Amy: You know, and we were so nervous. We were just afraid of messing this up. And by not having a mortgage, we didn’t have a mortgage payment, so that gave us a lot of room to screw up. But everything went well.
David: I really like what you did. I think for the listeners who are saying, I want to get into real estate but I don’t have any money, you may have equity or access to money that you’re not thinking about, right? Essentially, what you did was you tapped into equity in your home that was doing nothing for you at a really low interest rate, because HELOCs have really low interest rates because they’re secured by your primary residence. You went and bought an asset that made more money than it costs to get the loan to buy it. So you’re cash flowing right away. I’m assuming you improved that asset by raising rents and improving your NOI.
Then, you refinanced it and were able to pay off that primary residence loan and then you let your primary residence buy you a rental property without having to use any of your own money. And essentially, you were able to take advantage of all the tools that real estate investing offers without having to actually save up the $148,000 or whatever you paid for the house. That’s something that a lot of people can copy and they can get started and they’re not even realizing that they have access to do that today.
Amy: Yep, that’s right.
Brandon: Wait, so I have some questions about the deal.
Amy: This one?
Brandon: Yeah, before you go on. So first of all, you said you were freaked out, you were scared, you were nervous, right? How did you overcome that fear? Because a lot of people never do. I mean, I hear from people all the time. They’re afraid so they never pull the trigger ever. But you pulled the trigger and that’s awesome. How?
Amy: Well, the numbers told the story. I had—I made pages and pages of spreadsheets and I compared every multi-unit on the market to each other and this one, the numbers just proved that it was a winner, you know. Being five units, it was a little scary. A lot of people start with two units or three units. But those homes didn’t cash flow. The numbers told the story there. Those two units and three units would have been a waste of time or negative cash flow, and the five unit really—it was a crummy area. Not enough parking. But it didn’t have anything broken. I wasn’t going to have to buy and put a ton of money into it all at once.
Brandon: That’s awesome.
Amy: But you have to have some confidence, too. And we had seen relatives do well in real estate. Now, they were a little critical because they thought we should buy single-family homes like they had done. But we weren’t willing to wait for cash flow. We weren’t going to wait 20-30 years before we started making any money on it. So we did our own thing.
Brandon: Two quick, interesting points here. First of all, math overcomes fear in a lot of cases, right? Math overcomes fear. The better you are at analyzing deals—I tell newbies this all the time. Just go and analyze—if you’re afraid, go analyze a hundred real estate deals. Just go run the numbers on like a hundred of them. Don’t buy any. Just go run the numbers. Do you think you’ll be more or less afraid at the end of a hundred deals you’ve analyzed and determined the numbers? You’ll be way more confident.
Math overcomes fear. And the second thing is that, certain niches and certain strategies work better in certain areas. So you can’t just listen to somebody else saying hey, single-family houses are the best investment. You should do that. Because that might not work in that area. And I love that you were like—
Amy: In San Mateo, California, it worked. But in Auburn, Maine? Probably not.
Brandon: Yeah, I love that. So find people that are local. Don’t just be like, you heard some guy on the podcast say that, you know, this worked or this worked or this worked. Like, he doesn’t know your market. She doesn’t know your market. Anyway. Those two little points. All right, next quick question. How did you convince your spouse to do it?
Amy: Well, I’m married to an engineer so you take an engineer and a scientist together, we both have the numbers tell the story so it was pretty easy to convince him.
Brandon: All right. I like that. Again, math overcomes fear.
Amy: It does.
Brandon: Then did you have a property manager or did you manage that one yourself from the beginning?
Amy: We managed it ourselves and it was mostly me. I’m the one who did most of the managing and in fact, one of the mistakes I made was I didn’t even include property management as an expense in my Proforma, which is a common mistake, I think. Especially in a five-units or around that number.
Brandon: Can you expand on that? Why is that a mistake?
Amy: Well, you know, if I get hit by a bus, who’s going to manage it? My hit by a bus rule. So we have to have numbers in there for somebody—somebody has to manage it because my kids aren’t going to manage it. Or you know, if I got sick or something happened, I need to be able to have somebody manage it. Also, I think banks look for that, too, when you’re going for a mortgage. They want you to account for management expense even if you’re planning to self-manage.
Brandon: Yep. I agree. Because you’re not always going to want to manage. I don’t.
Amy: Well, I tried to get out of it. I actually—there’s another story. We’ll get there later.
Brandon: We’ll get there. Yeah, I found that like, I made the same mistake you did in the beginning. I was like, oh, I can just manage myself, no problem. The problem is, you like trap yourself into having to manage it in order to justify it being a good deal. So like if you stopped managing, a lot of my early properties, if I stopped managing, I will have negative cash flow, period. So like, I can either choose to not manage and have negative cash flow or I keep managing and make some money off of it. No more. Every deal. I’d rather pay myself a managing fee and if I want to get out of it, I pay someone else a management fee. Management fee goes in there.
David: Yeah, this is kind of a hot button topic, especially on BiggerPockets. You hear a lot of people go back and forth between manage is better or don’t manage is better. What I tell people is that if you’re looking to buy a business or an investment, you need to underwrite for a property manager. It’s very important. If you’re looking to buy a job, then you don’t need to worry about management. Right? If I was to buy like a franchise, like a Subway sandwich or something, if I underwrite the cost of hiring a manager to run it for me so I don’t have to be there, the business will be less profitable but I own a business. I don’t have a job.
If I pay too much for it and I can’t do that, I can still make money at it but I have to be there every day and I basically bought myself a job. So I think that every investor just needs to ask themselves, what is it that I’m buying here? Am I buying a passive investment or am I buying a job to make more money? And that kind of answers that question of should I use a property manager or not?
Because some people really like it. They just want something to do. They enjoy the aspect of talking to people. I mean, I don’t understand how anyone can like that but for some people, they love it, right? So that’s why they love to manage it themselves. But if you’re somebody who’s trying to do things other than manage a rental property, you absolutely have to underwrite for management in every deal that you look at.
Amy: I wouldn’t say that I enjoy managing it but I like the additional cash flow and I like the control over my investment. Because I have seen too many apartment buildings that are just trashed. And they’re under professional management but the asset’s value is just going down.
David: Finding good property managers is a big part of being a good real estate investor. It’s definitely not easy.
Amy: It’s very difficult.
David: You buy your first house. You did really well on that. You converted that money into this five-unit. You did really well on that. What was your next move after that?
Amy: I bought another five-unit, and this time, with a commercial mortgage.
David: And how was that different than the way you bought it the first time?
Amy: I had more closing costs and I had to go through a lengthy process to get the mortgage. But it wasn’t all that different. Mortgages were still somewhat easy to get in 2008, not as difficult as it would be later in 2013, 2014. So yeah, then I was up to ten units and a flip. And yeah.
Brandon: All right, with that unit, you started out with these rental properties. Can we fast forward to like today? And then we’ll work backwards. I like to do that because then people can get an idea of where you’re at today and then we can pick things in the journey since. So what do you have today? What does your life look like now? How many rentals do you have? How many deals have you done? Where are you at?
Amy: All right, so now, I’ve done 28 deals total in the last ten years. And we own 40 units and we have one flip we’re under contract to purchase right now. I have a kid in college and I’m paying for it. And yeah, we could live off of just the rental income. And that was our ultimate goal, to be able to live just off that rental income and be able to pay for college and give to charity and go on vacation once in a while. Maybe not to Hawaii for a month.
Brandon: Three months. Three months.
Amy: Three months. Oh, sorry.
Brandon: So in other words, you’ve achieved financial freedom through real estate. There’s kind of like a couple of levels of financial freedom. There’s like I own a jet and I buy people type of financial freedom and there’s like, I can pay my bills. That’s where I want everyone to get to. I can pay my bills if I stop working today. I think that’s awesome. So congratulations on that, by the way.
Amy: Thank you.
David: Yeah, that’s impressive. 40 units. Where are most of them located?
Amy: In central Maine.
David: Okay. So you moved out there not knowing anything about that market. How did you kind of plug yourself into the pipeline and figure out, what’s a good deal in Maine? How am I going to find good deals? That kind of stuff.
Amy: Well, again, it’s the math. I analyzed a lot of deals. And I got my real estate license. And that helps me to be able to look at all the data. I have better access to the data. Sales data. Income and expense data. Such that it is. I mean, whatever they give you in the Proforma is not always going to be accurate. But now that I have my own properties, I have years of expense data that I go back to and I look at when I analyze new property to purchase.
David: Okay, so how are you finding your deals now? Are you finding them off the MLS because you’re an agent?
Amy: Yes. I am. Mostly off the MLS. The flips, I usually buy at auction. But sometimes, they’re off the MLS.
David: Okay, that’s actually very interesting. What’s your strategy for buying houses at auction right now?
Amy: You know, I just go in and I’ve analyzed it to death. I know what things cost, I know what the resale value is, and I don’t overpay. I’ve been going to auctions since I was a little kid. I went to livestock auctions with my grandfather. I’ve seen how it was easy to get too excited and to want to win at any cost. Well, you don’t actually win when you overpay. You actually lose. So you have to be disciplined. You have to go to a lot of auctions and walk away empty-handed a lot. But that’s just part of the game.
David: Yeah, that plays to Brandon’s point about you need to analyze a lot of deals and then you’ll get comfortable knowing what a good deal is. You need to go to a lot of auctions and just kind of see the way the process goes. See other people getting too excited and overpaying, see people giving into that feeling of I’ve done this three times and I didn’t get something. I have to get something. And then overpaying, right?
But the more you do something, the more comfortable you get with it, and your brain will start picking out patterns of success. You’ll start to subconsciously recognize this is going to be where I can find the deal or this is a good opportunity. Whereas when you’re new, you don’t know any of that. And that’s where all the anxiety comes from. So I totally agree with you that repetition will create a familiarity that will kind of overcome a lot of the anxiety that newbies have.
Amy: Yes, and my first auction, actually—well, most of my auctions I go to, I’m the only woman there a lot of times. And sometimes, it’s to my advantage. Sometimes, you know, they’ll be gentlemen and not bid. But I don’t expect them to do that. But it’s happened. My first auction, this guy showed up and I was bidding and I was very confident with my numbers and he took me aside and he said, you know, how high are you planning to go? I’m not going to tell you. And he said, well, I just want to make sure you’re not getting in over your head or whatever. I said, no, no. I’m very confident in my numbers.
And so I went ahead and I bought the house. I was nervous. I was shaking. But I went through with it because I had the numbers. I knew what my numbers were. And then when I went to closing, I saw that same man working at the title company. And it was kind of weird. He hadn’t run the numbers at all. And I was told later that he just was, he found out about the auction that morning and showed up.
Brandon: That’s funny. It just feels condescending like, oh, look at the little old lady—not old, but you know. Look at the little lady.
Amy: I was only in my 30s then.
Brandon: It’s like—
Amy: I’m old to you.
Brandon: All right, it was like, look at this little poor lady here. She doesn’t know how to run her numbers. I’m a big scruffy man, I can help her. It feels condescending. But you know, play it up if you need to, if it helps to get a deal, I suppose.
Amy: Yeah, exactly.
Brandon: Let’s talk about that a little bit. The struggle. Like have you found it difficult being a woman investor? Like there are I think 80% of our audience is probably men.
Brandon: What are some of the challenges that you’ve encountered or have you?
Amy: Yeah, I’m frequently the only woman at the auction getting contractors. Sometimes, it’s hard to get them to speak to me as an intelligent individual. Sometimes they’ll bid higher and I’ve actually had contractors tell me, who are being honest with me—they’ve said, yes, we give higher bids to women and that’s just the way it is. And I have to deal with that. And again, it goes back to knowing your numbers.
You know, sometimes tenants—actually, I’ve had more problems from female tenants than male tenants so when that happens, I send my husband. Stand in the background and let him deal with them. I’ve only had a few bad situations with tenants where I felt fearful but I know to get myself physically out of that situation and not try and—I’m not going to win in a hand to hand combat. I’m not going to win. So I get the heck out of there. Does that answer your question, kind of?
David: I think so. When you’re managing your own properties, that’s the concern that you’re going to have. Because you’re playing the role of property manager. You’re not just playing the role of investor. There’s like kind of an art to that, that has to be learned and recognizing when you’re in a bad situation. It’s definitely an important point of that. Can you tell us, Amy, a little bit about how are you funding these deals now?
So we know how you’re finding them. You’re looking on the MLS. You’re buying them at auctions. You feel very comfortable with running your numbers and recognizing your deals. So how are you funding these deals so you can keep buying?
Amy: Well, my bankers love me. I mean, I just—conventional or commercial mortgages. And for years, I had a line of credit on my primary home that was prime minus one percent. That was awesome. I used that for purchasing the flips, mostly. But now that loan’s matured. I don’t have it anymore. I have to get another HELOC.
And I have had people over the years come and try and invest with me and they want a partner or something like that. I haven’t done that yet but I think, when people find that you have some integrity and you know what you’re doing, they seek you out and they try and loan you money. It’s great.
David: So are you basically combining commercial mortgages with private money that people are letting you borrow?
Amy: I haven’t taken any private money yet. But I’ve been offered some so now I talk about future goals, that’s something I’m looking at in the future.
David: Okay, what about the rehab of these places when you buy them and they need to be fixed up? How are you funding that?
Amy: Well, my very first one, I got a zero percent interest rate credit card with a $10,000 limit. That was wonderful. And I paid it all off before the zero percent interest rate time period was up. Now, I have lines of credit on a couple of my properties and that’s what I use.
David: Yep. I did a very similar thing.
Amy: My kid’s college fund. No.
David: You’re growing it for him, right? If anything, you’re growing their college fund. Now maybe they can go to a nice college like UC Davis instead of a junior college. Good job, mom. Can you give us some advice for people that maybe they’re not familiar with the process of getting a loan or how to build a relationship with a bank? You said your bankers love you. Can you tell us a little bit about how that relationship is and what other people can do to replicate that?
Amy: I guess you know, just go in there and talk to them and show them that you know what you’re doing. Show them that you’re not afraid to work hard, that you run your numbers, that you’ve done your research and you have the data to back up what you want to do.
David: Okay, so kind of demonstrating a mastery of how real estate work has helped for you with winning the confidence of these bankers that you’re going to apply for loans for?
David: Okay, that’s cool. Are you using more than one bank or is it just one?
Amy: I have a couple of local banks that I use and I have a mortgage broker that I used for my four-unit or less long-term financing. Because four-units, I can get a 30-year fixed for buildings that are four units or smaller. So I’ve done that on a few of them.
David: What’s your preferred building? Do you like to go four units or less or do you like to go bigger?
Amy: If I can find it, I’d like to go bigger. I have a 12-unit that I really like, the 12-unit. It’s just so much easier to manage when you have 12 units under one roof. And it’s in a nice location. So that makes a big difference. But again with that, that’s a commercial mortgage so I’m going to have to refinance it every five years or so.
David: That is a really good point. And for those that don’t know the difference between a commercial mortgage and a residential mortgage, can you kind of explain the differences and maybe highlight some of the weaknesses and strengths of each?
Amy: Sure. From what I’ve found, anyways, with a commercial mortgage, you have a five-year—well, I was able to get a five-year fixed rate, amortized over 25 years and I had to put down 25%. For a conventional mortgage, you can get a fixed rate for 30 years. So your payments are much lower. And in this interest rate environment, that’s just a wonderful thing to have because historically—we’re at historic lows right now so if you can get that, you should do so.
David: So if you can get a four-unit, you basically can lock in, oftentimes, a 30-year interest rate that’s very, very low. Whereas, if you’re going to go five or more, you have to get a commercial loan and those typically last for five years. Sometimes, you can find one for ten. Usually, they adjust somewhere during that period of time. So you’re always having to look to refinance. Have you used the same lenders for your refinances so far that you’ve been using for a purchase?
Amy: Let’s see. No, I haven’t had to refinance except for one. My second five-unit, I had to refinance that and I used the same local bank that I’ve used for a bunch of my other buildings.
David: Okay. So far, with everything you’ve done, what is your favorite part of real estate investing?
Amy: My favorite part. I love taking a house that’s been destroyed that’s had a lot of—every house I buy has a sad story and I take that house and I make it into a nice home for a new family and something that improves the neighborhood. The neighbors are always happy to see me come and fix up a house because usually there’s been a problem. Usually, a lot of houses, the bedroom doors have been kicked in. You know, there’s been a lot of strife and a lot of pain in that house.
I don’t buy foreclosures that are occupied. I don’t want to kick anybody out of their home. So I come along after they’ve been emptied for quite a while, usually. But I can see the evidence of all the problems that have gone on in those homes. One that really stands out in my mind was a little pink bedroom with flowers all over it. And the door had been kicked in, you know. So you know there’s bad stuff going on. But it makes me feel good that I can go in and fix that place up and kind of make it a joyful place again. Improve the neighborhood, too.
Brandon: That’s super cool. I like that a lot. My last question before—well, maybe the second to last question before we move on. You talked earlier about knowing the numbers. You talked a lot about knowing the numbers, which is something that we stress all the time at BiggerPockets so I have this thing called the laps funnel, which is, what’s the word? Anagram?
It’s like a word—anyways, LAPS, it stands for you get Leads that come in, so MLS or auctions or whatever, and then you Analyze them to determine how much you can pay, and then you Propose or you Pursue. In other words, you go after the deals somehow, whether it’s a formal offer or not. And then you get Success on some of them, right? So some of them will say yes, but most of them will probably say no.
Anyway, if you just keep working this funnel and clearly, it’s working for you, my question is how do you know it’s a good deal? What do you define as yes, that is a good deal. I’m going to pursue it. My numbers say yes. We can run numbers but how do you know?
Amy: Well, now that I’m older and pickier, it has to be in a good location. The numbers have to say yes but it also has to be in a decent location with parking for the tenant. Or if it’s a flip, it can’t have anything weird like a messed up floorplan that can’t be fixed. Or too close to a busy road. I’ve found that sometimes I can cure some of those problems but if there’s two or more of those problems, then I pass on it.
Brandon: What about the numbers in terms of, is there a minimum on a flip amount? What’s the minimum cash flow you’d do a deal at?
Amy: You want to know my numbers, okay.
Amy: Well, when I first started out doing flips, I was happy making a profit of $20,000. Now, I look for $30,000. And usually I end up right around there, right around, I think my average is right around $30,000. Sometimes more, sometimes less. I’ve had my $7,000 flip like you’ve talked about, Brandon. We’ve all had those. They’re humbling and sometimes we need that. And then as far as the multi-units, I look for a ten cap. I’m not getting that right now. I was getting it but I’m not finding it so much anymore. Especially if it’s in a bad neighborhood.
Like, I made an offer on a 45-unit and it was in a sketchy neighborhood so I said well, if I’m going to be working in this neighborhood, I want to be paid well for it. And it ended up selling to somebody else for $1.1 million over what I offered. So I think they overpaid and I’m seeing that more and more. And so I’m not going to compete with that. If I can’t make money, I’m just not going to do it.
Brandon: Yep, and that’s where the whole LAPS funnel comes in so handy. It’s like, it takes the emotion out of it. It’s fine. I’ll just get the next one. I’ll just keep getting leads. I’ll just keep analyzing. I’ll keep making my offers and pursuing them and then at the end of the day, if it works great, if not, move onto the next one.
Amy: Yep, that’s the emotional. I mean, I love old houses. I love the architecture of old Victorians but they’re terrible investments. They require a lot of upkeep and my husband and I like to joke about buying people boxes. We just want a box to put people in. A big, square box. And you know, that’s clean and efficient and that’s what we’re looking for. But there’s no emotion there. Because sometimes, we’ll put shutters on them. Other than that, they’re just very bland.
Brandon: I love that. Because that’s a point nobody ever talks about. A buddy of mine just said to me the other day, he wanted to flip—he’s got a house under contract and he’s going to go do it. And he’s telling me, oh, it’s just the most beautiful house. It’s this old built in the late 1800s and there’s like seven bedrooms and four bathrooms and this thing, we’re going to restore it to its former glory. And I’m like, this is a horrible idea. A horrible idea. Go find that simple little people box. Is that what you said, people box? I love that. Those have always been my best flips.
Amy: Victorians are nice to live in. For yourself. If you love an old house and you want to restore it, that’s great. That’s what I’m doing right now in my house but it’s not an investment.
Brandon: Yep. Man, I love that. Very, very cool. All right, so where do you see now, your future going? Like now that you’ve achieved that Level One base financial freedom, you can pay your bills. Are you done or are you going to keep going?
Amy: Well, you know, we’re starting to look for more opportunities maybe in areas that don’t freeze, unlike Maine.
Brandon: Yeah, it is getting cold up there.
Amy: Yeah, we’ve run out of places to put the snow, as you’ve found, right? So that adds a lot of stress, the plowing and the possibility of pipes freezing. That adds a lot of stress, especially if you’re trying to outsource things in property management. You really have to rely on them to make sure the heat’s on and the tenants are plowed out so that they can get to work in the morning. So we’re looking south, maybe a mobile home park, 55+ mobile home park maybe.
In Florida would be nice or a larger, multi-family. Somewhere in the South. I mean, I love Maine. Don’t get me wrong. I love Maine. I love the people. I love everything about it. But it gets tough in the winter. We’ve got to diversify, too. A little bit.
Brandon: All right. Well hey, let’s shift gears here a little bit and head over to the world famous Fire Round.
It’s Time for the Fire Round.
All right, let’s get to the Fire Round. These questions come direct out of the BiggerPockets forums, which of course, all of our listeners can go to and engage in for free, 24/7, by going to BiggerPockets.com/forums. Now, let’s fire these questions right at you. Number one, Amy, I am a 23-year-old single female and pregnant. I’m not, but this person is. Not a lot of income. But also not a lot of debt.
So here’s my question—where the heck do I start? I’m brand spanking new to the idea of real estate investing. I’m reading, I’m listening to podcasts, and I’m talking to people. But I’m having a hard time telling if a home is a deal or not in my area. Like, I know where not to get a house but you know, other than that, I’m not really sure what my first step is, or second, or third step. Any advice?
Amy: Okay. I think what I would do, at least in the state of Maine, because it’s so easy, is get your real estate license. If you get your real estate license—it’s not that expensive. Get your real estate license and then you have access to the MLS and all that data that it provides and that will help you know whether it’s a good deal or not. And if you’re pregnant, also don’t worry too much about that other stuff. Focus on yourself and your baby. That’s what it all comes down to, most important thing in life.
Brandon: Very good.
David: All right, Amy. I am considering buying a small multi-family property. Can you give me some advice on how to calculate the expenses for a property like that?
Amy: Okay. Well, you need to make your phone calls. You’ve got to call the gas company, call the electric company, call the town office and get the tax amount. Call the insurance company and get an estimate of what insurance is going to cost. Ask the real estate agent for data. If they don’t have data on that specific property, ask them if they have expense data on similar properties. And compile it and figure out, what is the average for maintenance on a property like this? A lot of the data you can get just by making phone calls. How much is garbage going to cost? Things like that. It’s not that hard.
Brandon: Here’s the problem with that, though. That requires some work. And I don’t want to do any work. I just want to sit down and watch TV and get wealthy. That’s what they said on TV. They said on the late night infomercial I can just sit on my couch and make a lot of money. So you need to rephrase that.
Amy: Aren’t you a princess?
Brandon: All right. That’s a great answer, by the way. Get on the phone and call people. It’s like, I don’t know how much the garbage bill is. Okay, go ask somebody, millennial. All right, number three. I’ve been renting to the same tenant going on three years. This is actually a really, really powerful question, so everyone, listen close because it’s happened to almost everybody. I’ve been renting for three years. Exciting, yes. And everything has been fairly uneventful with them and they take good care of the property. Great, right?
However, about three months in, they were late with the rent. No big deal. They gave a reasonable excuse but then it became a habit. Now, I’ve noticed they’re on the same pay schedule as I am with my work and they always have to make the rent payment later than the following paycheck. So they’re just not trained right. So it seems like a lack of budgeting. But that’s not a good excuse. And I know I need to nip it in the bud and I should have done it a long time ago. Three years in now. How do I fix this?
Amy: Three years in, it’s hard.
Brandon: You’ve got three years in of bad training.
Amy: And I saw that question on the forums, actually. But what I have done in the past is I’ve worked with my tenants. I said okay, you’re having a hard time saving up enough money to get to the 1st when you pay rent. So therefore, I’m going to have you pay me on your payday. So that way, it’s a win-win because if they’re paying me weekly, I get an extra couple of weeks of rent—I think it comes out to an extra month of rent. Yeah. So it’s more hassle, yes. I have more accounting to do. But I’m ending up with more money and they’re not always behind. So that’s what I’ve done in the past. I let them pay me weekly and that’s worked really well.
David: That is a really good idea. I don’t know if I’ve heard anyone talk about that yet.
Brandon: What if a landlord just did that? What if that was the thing to make more money as a real estate investor, is you offer your tenant the option of biweekly on their paycheck? An extra month? That’s an extra 12%, no, 8% increase in your revenue for your real estate business? For having to do the extra accounting.
Amy: And they’re happy.
David: Did Amy just invent rent hacking?
Brandon: She just invented rent hacking. Hashtag rent hacking.
Amy: Thank you. Thanks.
David: I really like that. It’s the same principle that goes with when you make your payments, if you make them bi-monthly.
Brandon: Yeah, on a mortgage payment, yeah.
David: You get an extra payment in.
Amy: Yeah, and the tenants think—they think it’s great. They’re so happy that I’m working with them instead of just kicking them out. I don’t charge them a late fee that way. I mean, in the state of Maine, you can’t charge a late fee until they’re two weeks late. Which is absurd. Yeah, it’s terrible. Brandon, welcome to Maine.
Brandon: Welcome to Maine. I know. Now, I’m a Mainer.
Brandon: That’s good. One tip that’s really worked well for me that I’ve found is kind of a little lawyer hack. I’ve badly trained some tenants when I first got started and this is what worked really well. I simply had a very short conversation with my lawyer. And I basically said, hey lawyer, if I treat my tenants differently, and I treat one better than another, like in terms of the rules, can I get in trouble for that? And the lawyer said, well, of course you can. You can be in trouble for discrimination. Great, thank you.
Go to my tenant. Hey tenant, listen, I talked to my lawyer and he says that I have to make some changes to my business because of some laws and some legal reasons. So going forward right now, my lawyer says I have to start charging a late fee on the 6th or on the 1st or on the 15th, if you’re in Maine, right? Basically blame it on the lawyer and say there’s legal—because it’s true, there are legal reasons why you have to treat your tenants legally.
And that’s a really good way to immediately retrain a tenant to say, and it doesn’t have to be just late rent. Anything. Like hey, I have to treat my tenants all the same. We’re friends but, or we have a good relationship, but my lawyer is making me do it. There’s a little lawyer hack for you.
Amy: Let the lawyer be the bad guy.
Brandon: Let the lawyer be the bad guy. Exactly.
Amy: Nobody likes them anyway.
Brandon: Exactly. I love it. All right, number four?
David: All right, Amy. This is also a really good one. We purchased our first duplex this past month, a large building that cash flows well and a nice one to boot. Anyway, I’m curious to hear from you regarding this. How often do you check your property and is it possible that you never hear from your tenants other than deposits into your account? I’m curious how involved I should be if the rent checks are coming in with no repairs requests or complaints. What are your thoughts on this?
Amy: It cash flows and it’s a two-unit and there’s no work? That sounds awesome. I’ll buy it. Well, you know I’ve had that happen. When I first had the first ten units and I forget about it. I’d be so busy with my kids and with everything going on. I drive by to make sure they’re still standing because they’re right near where I live, but I’d go and check on them and the garbage would be full of maggots and there would be trash everywhere and I’m like, ugh, how did this happen?
Well, I hadn’t checked on it in a couple of months. So you know, you’ve just got to make it a habit to go in there. Do the inspections. At least once a year, you’ve got to get in there or you will have a bad surprise at some point.
Brandon: Yeah, it’s funny because we never talk about that either. Sometimes like a rental unit, it would just be performing well and so you just ignore it for years and years, right? So anyway.
Amy: Yeah, I was in the town office once and this guy—another landlord was in there with pictures of his rental house. He was trying to get code enforcement to go in and shut it down because the person was a hoarder and it was awful. And he didn’t realize how bad it had gotten until he had a leak in the kitchen sink. And he couldn’t get to the kitchen sink to fix it. Code enforcement said no, this is a civil manner. Go to the police. Well, the police said to come to you. But you know, he should never have gotten into that situation in the first place if he had regular inspections.
Brandon: There you go. I love it.
Amy: So now I’m feeling guilty. I’m going to give out notices today that I’m doing inspections.
Brandon: Nice. I’m feeling convicted here.
David: And Brandon, you mentioned, too, that you’re like training your tenants with every decision that you make. So if you trained them hey, as long as you pay your rent, I’m not going to come look at what you’re doing, they may start to feel like they can do whatever they want in that house. That’s how you end up with the marijuana grow or some other things.
One really bad tenant that destroys a house can wipe out five to ten years of cash flow on something. So yeah, just because they are paying their rent doesn’t mean that they get a license to not have any checkups and if you train them to expect that there’s going to be checkups, it’s kind of sitting in their subconscious that they need to take care of the place because you’re going to see it. I really like that.
Brandon: Yeah, I love that, too. Very cool. All right, well let’s move onto the Famous Four. But before we get there, let’s hear what’s going on over in the BiggerPockets Money podcast this coming week.
Mindy: Thanks for asking, Brandon. Next week, on the BiggerPockets Money podcast, we interviewed your co-host this week, David Greene. David’s not a one-trick pony. He isn’t just a real estate mastermind. He’s a money genius, too. Tune in Monday to hear his mindset tips and tricks that made him a millionaire by the age of 30. Go to BiggerPockets.com/MoneyShow12 or download on your favorite podcast app. Okay, Brandon, I’m going to let you get back to your Famous Four.
Brandon: All right, thanks, Mindy. And with that, let’s get to today’s Famous Four. All right, these are the same four questions we ask every guest every single week. So Amy, I’m sure you’ve heard them before but let’s get to them. Number one, what is your favorite real estate investing book?
Amy: Okay, I have a pile of them, actually.
Brandon: Well, I said book, so.
Amy: Oh, come on.
Brandon: Okay, give us them all.
Amy: All right, for apartment buildings, I have What Every Real Estate Investor Needs to Know About Cash Flow and 36 Other Key Financial Measures by Frank Gallinelli. And I believe you’ve had him on your show in the past.
Brandon: We have.
Amy: And you need to have him again because the audio was terrible. I couldn’t hear half of it.
Brandon: Yeah, that was back on episode like what, 3? 5? 10?
Amy: The Dark Ages.
Brandon: The Dark Ages of the BiggerPockets podcast.
Amy: And then for flip, if you’re going to flip houses, you need the book called FLIP put out by Keller Williams. Rick Villani and Clay Davis. FLIP is really good. And another one that I found really useful and that’s going to be controversial, so are you ready for controversy?
Brandon: I’m ready.
Amy: It’s called Aggressive Tax Avoidance for Real Estate Investors by John Reed. And you can buy it online through his website and it’s kind of like getting advice from a really successful yet slightly grouchy uncle.
Brandon: I know. It is. That’s exactly how I describe it. John Reed is the man. But he is like a grumpy old, like, uncle.
Brandon: I love it.
Amy: Very successful, good advice, but you know. So I really don’t tell the advice—
Brandon: He’s like, don’t do this. You’re all stupid if you do this. It’s the best book to read. He’s got one on multi-families that’s just, it changed my life. It’s like one of the best books, if not the best book I’ve read on managing larger multi-family properties. But it just was like—
Amy: Oh, I’ll have to get that one.
Brandon: Yeah, it’s so good. It’s like, this is what you should do. Do this. I literally, that’s the book, I think I’ve told this story before. My library had it and it was the only place I could get it. I couldn’t find it anywhere else. My library had it and then I found out that if I didn’t return my library book, this is probably horribly unethical—but it’s like when I was young and dumb, we’ll say. Anyway, I found out if you didn’t return it, it was only like a $20 fine. So I just didn’t return it. I paid the fine because it was cheaper. It was like $100 on like eBay and I ended up paying the fine because I wanted the book so much. I know, I broke my—
Amy: It’s library hacking.
Brandon: Yeah, library hacking. Exactly. Anyway, great suggestions, great suggestions. Number two.
David: All right, Amy, what is your favorite business book?
Amy: Okay, so I have searched far and wide for a business book that would benefit me and I haven’t found one. I mean, because a lot of business books are rah rah rah, go out, get it done, do it. But none of them give me the nuts and bolts of how to hire an employee legally. How to make them my employee. How to do payroll. How to fire them legally. Manage them. Things like that. So if anybody has any advice for any business books, that would be great because I haven’t found one. I tried hiring somebody once. It was a disaster. I think I did everything legally. I really tried. The insurance and all the payroll deductions and all that stuff.
Brandon: Yeah, that stuff sucks. I hate that stuff.
Brandon: I just stopped hiring people like in-house now. I only work with independent contractors because I can’t—I played the employee game for a while and I hated it.
Amy: I really wanted the control of, okay, I need this painted. Show up and paint it. But one time, I found him, he was painting a room with a four-inch roller. Like, why are you using a four-inch—I have to be here to tell you not to use a four-inch roller? Stuff like that.
Brandon: It’s a trade-off between hiring people and telling them what to do and like all the annoyances that go with that because then you’re a boss and a manager and employees suck because they’re getting paid by the hour so what do they care? That’s the problem.
Amy: Right. They spend one hour on a smoke break, another hour in a bathroom break. And I’m not going to be a jerk and tell them, you’ve got to stay out of the bathrooms.
Brandon: No bathrooms!
Amy: No bathroom breaks. You’re in there for an hour.
Brandon: I know, it drives me nuts. I’m finding that when I hire people by the job, they get it done and I’m very specific about like, deadlines and bonuses or detractions when they don’t get it done in time. It’s shocking how well people get things done. So I’ve been moving towards that model a lot more.
Amy: Yes, and I’ve been reading David’s book and maybe I’ll follow some of that advice.
Brandon: Wait, David wrote a book? What book is that, David?
David: That would probably be Long Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Property. Amy, what have you thought about that book?
Amy: Well, I am not all the way through it. It’s next to my bed right now. So I fall asleep reading it. I’m only reading at night, that’s why. No, it’s a good book. I think—finding a management—I think I would go about the opposite way. Not the opposite, but a different direction than you have. Because you focus on finding the great broker and then the lender and then the manager. I think I want to find a great manager first because to me, they’re in it long-term with you and they can make or break you. They can make a wonderful deal a terrible deal. Or vice versa.
David: Yeah, I totally rely on my property managers as like a business advisor. They’re more than just a person that manages my properties, especially when you’re buying in areas that you’re not familiar with yourself. So just like a bad employee can just make you hate your life, a really good one can totally like just take your investing to the next level when you find a really successful, smart, driven person that can like bring you deals and help you manage them better. It can make you love real estate investing.
That’s a skill that a lot of investors kind of need to learn. It’s not just about analyzing a deal. It’s also about building a team of people around you, with people to handle the stuff that you don’t like and kind of assist you getting to the next level. And the stakes are high because if you get a bad one, you’re going to hate the whole thing. And if you get a good one, you’re really going to love it.
Amy: Absolutely. Yep.
David: All right, well, thank you, Amy. Other than reading my book, what are some other hobbies you have?
Amy: Lately, I’ve been volunteering a lot in my community. I’m on the local school board. The Maine Board of Education. I am a Sunday school teacher and I am running for the House of Representatives in Maine.
Brandon: A politician? Get her off this show.
Amy: I know. But you know what, guys? You really—investors have to really pay attention to the laws and there are a lot of bad laws out there so I would urge landlords to get more involved in politics. I know in the state of Maine, seven years ago, I went to the State House with a group of other landlords and we got a bunch of laws changed. There were some bad laws and we got them changed.
Now, you would think that the huge property management companies would have a stake in this and that they would be the ones lobbying but they weren’t because they get paid regardless. But the smaller landlords like us have to deal with this day-to-day and we’re trying to make a living. We’re really impacted by the laws more.
So a bunch of us got together and we had some laws changed and it’s been a lot easier. It makes our business easier. So I mean, that’s not the only reason I’m getting involved in politics, of course. But that’s something to think about and I think landlords really do need to pay attention. Because there are people out there trying to eat your lunch. They’re trying to—there are some laws that are proposed that are just horrible. And we’re so busy working and being productive that we don’t even notice until it impacts our lives.
Brandon: So true.
Brandon: Really good point, really good point. All right, well, let’s go to the last question of the day. At least, the last one for me. What do you believe sets apart successful real estate investors from those who give up, fail, or never get started?
Amy: I’m going to focus on those who fail. Because I know you talk a lot about people who never get started. And I like to observe people. And so when I see people fail, I ask myself, well why? Why did they fail? And I think there are two reasons that I have seen, one reason is that they either start too small—like, they’ll start with a duplex, and it’ll cash flow $1000 a year—that doesn’t change their life. But what does change their life is all the hassles. Oh, I had to go show it. Now, I have to go clean this. And then that forces them to give up. They say, this was terrible. Being a landlord was terrible. I didn’t make any money and it was a lot of work. So they started too small.
And then on the other end of the spectrum, I’ve seen people start too big. So you know, they’ll buy—I can think of a few guys in our area who purchased a hundred units. And that wasn’t a bad part of town but they were in over their heads. And they’ve—one of them ended up in jail and recently, he died last week and he’s only 53. I think part of it was the stress. Too many units, too fast. Not enough infrastructure. And he lost everything, including his life. This is sad. So, I went on BiggerPockets to inspire you.
So anyways, that’s what I’ve seen happen with several different people. They’re either too small or they’re too big. You’ve got to find the right size for you, something that you can handle but that will have enough cash flow to change your life. Maybe it won’t allow you to buy a jet, but it’ll allow you to quit your job so you can go to all your kids’ soccer games. So that’s kind of that’s my answer.
Brandon: I like it.
David: All right, Amy. Well, you have a fascinating story from scientist to real estate investor to politician. Where can people find out more about you?
Amy: I guess they can look me up on Facebook. I don’t have a website. I’m really not that techy. I’m old.
Brandon: You’re not. Should we play a game called guess your age? I’m going to go with like 23.
Amy: Ooh, I like you.
David: I’m going to go with 21 because if you go over, you lose, right?
Brandon: It’s a game.
Amy: That would be weird because my oldest son is 18. So that would be kind of weird.
David: That’s new data entered into the formula.
Brandon: All right, so they can hit you up on Facebook.
Amy: Facebook, BiggerPockets. Well, I don’t know if they can find me. I’ll have to change my profile so people can find me on BiggerPockets.
Brandon: We’ll link to it on the Show Notes or something at BiggerPockets/Show270. Anonymous is not bad when you’re running for office, you know. You don’t want people stalking you, maybe. I don’t know. We’ll see.
Amy: Yeah, people stalk me. I’ve been stalked by tenants and crazy people around town. I just—yeah. You know I had to make a decision at some point. I had to say, am I going to let them run my business or am I going to run my business? And I chose to run my business. And not be intimidated. And so far, so good.
Brandon: That’s an awesome way to end the show. Amy, this has been fantastic. Thank you so much for joining us today. Anyways, I loved talking with you so you know, come back someday. Go get your next massive 55+ mobile home park down in Florida. Let us know how it worked.
Amy: I’ll move into it.
Brandon: There you go. All right, thank you so much. It’s been fun.
Amy: Thank you.
David: Thanks, Amy.
Amy: Thanks a lot, guys.
Brandon: All right, that was our show with Amy Arata. Awesome stuff. I really like her a lot. I think she’s got a good head on her shoulders and she’s like crushing it in that little niche there, achieved financial freedom just like everybody listening to this show really wants to get to do. She did it and she just, I don’t know, awesomely. Is that a good word? Awesomely?
David: That works.
Brandon: Yeah, you know. She did it. What’d you think?
David: I think Amy is a very inspiring story in the sense that was just kind of a regular person that just said, you know what? I did well in real estate with my first house. I wonder where I can take this and she just followed that rabbit hole all the way to 40 units. I mean, if Amy can do this then you know a lot of people can do this. That’s what I took away from this. I kind of have a new source of encouragement now, that man, there’s like other every day people that are out there and they’re crushing it as well. And so, what excuse do I have not to?
Brandon: There you go. I love that. So anyways, I hope you guys enjoyed the show. If you have any questions for Amy or you want to comment on the show, please do. Just head to BiggerPockets.com/Show270. That’s BiggerPockets.com/Show270. Scroll down to the bottom and you can leave comments there.
You can also—here’s a little Quick Tip for everybody. We are now transcribing all of our podcasts, all of the new ones. So if you would rather not listen to you know, crazy me and David, and you want to read the results, you can do that as well on the Show Notes every single week. So just head to the Show Notes. Again, it’s always BiggerPockets.com/Show and then whatever the number is. Check it out there, and of course, leave a comment or a question for Amy in the comments section.
So anyway, should we get out of here, David? Anything you want to leave folks with? Any final tips or advice or anything going on in your life?
David: You know, I would just say that any time you’re getting discouraged with real estate investing, try to step back and take a 30-year view. That’s what I do. I ask myself, 30 years from now, will I be glad I stuck with it and I bought these properties or will I be saying, man, I wish I had played more video games and ate more Cheetos? Because most problems that come up with real estate that can be frustrating are temporary problems, but the reward is going to be you know, long-term. So as long as you keep yourself in a long-term frame of mind, you can put up with the problems and experience the reward later.
Brandon: Dude, I love that. I love that. Everybody, go and rewind that, the last 30 seconds and listen to David saying it again. And then repeat. So, let’s get out of here, David. Thank you so much for being my guest co-host today. I had a lot of fun chatting with Amy and with you and I look forward to doing it again with you soon.
David: See you soon, bro. Aloha!
You’re listening to BiggerPockets Radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place.
Be sure to join the millions of others who have benefited from BiggerPockets.com, your home for real estate investing online.
Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!