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BiggerPockets Podcast 535: Keep, Refi, or Sell and Scale? | Live Portfolio Analysis

BiggerPockets Podcast 535: Keep, Refi, or Sell and Scale? | Live Portfolio Analysis

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It has finally been decided. In the eyes of bidders at BPCon’s 2021 Coaching Call Auction, David Greene is worth more than Brandon Turner. Yes, that’s right, our beloved host who can turn any jiu-jitsu metaphor into a real estate lesson got the highest bid! The bidder? Long-time investor and rookie to commercial investing, Carla Holmes from Yellow Square Properties.

Carla has been cautious with her real estate investing and never took on debt after she went through foreclosure during The Great Recession. Now, she sits on over a million dollars in equity, spread across multiple properties in the Carolinas. Her recent acquisition is a 4.5-acre commercial property that she’ll convert into a parking lot for big rigs in her area.

Since this is a brand new real estate class she’s entering into, Carla wants to be absolutely sure she’s crossing all her t’s and dotting her i’s. David walks her through a live analysis going over the hurdles, work, expenses, and income that this property will bring in. He also helps Carla debate whether selling, refinancing, or keeping her current properties is best based on her one-year financial independence goal.

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

David:
This is the BiggerPockets Podcast show 535.

Carla:
I just want to know from you, David, am I on the right track? Am I crazy for doing this? What are other things I should be thinking through that might be a better use for the land or something? Just wanting touch base with somebody. I don’t have a partner and I’ve just ultimately researched this and I’m going it alone.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets Podcast, where we teach you how to build wealth through real estate by bringing on top performers, expert investors, and just plain regular people who have been successful. And we lay out the tactics and mindset that you can emulate to find financial freedom if you make sure that you take consistent, smart action. Today’s show is going to be a little bit different than a standard show, but that’s what makes it awesome. During BPCON21, we actually auctioned off different coaching spots with different BiggerPockets personalities where the money went to charity.
And the winner for my coaching spot was Carla Holmes. And on today’s episode, you guys get to see a live look at the coaching call between Carla and I where we discuss ways that she can either refinance or sell her current portfolio to put the money to good use, what strategies she should be implementing for her goal of retiring in 12 months with passive income, as well as an opportunity that she’s working currently, that she has under contract, but she will hear about soon, but offers a lot of different creative ways to make money, and it was a pretty fun conversation.
Make sure you listen all the way to the end because I give what I think is a pretty good analogy that relates to when you should smash on the gas and go hard and when you should move a little bit slower and find your place and figure out what you’re doing before you go fast and possibly make mistakes. So this show goes a little bit long and that’s because I wanted to give Carla as much value as I could since she donated money to charity to get a coaching call with me, and she’s a big BiggerPockets fan. You’re also going to hear why she chose me over Brandon Turner.
Do me a favor, if you like today’s show, comment on YouTube if this is where you’re watching it and tell us what you liked or what you wish we would’ve talked about. And if you’re not watching on YouTube and you’re listening to the podcast, just log into YouTube and leave a comment telling us what you thought about the show. Do you want to hear more of these coaching-type calls where we take an individual investor and I walk them through what I think they could do with their portfolio? Or do you prefer a different style like the Seeing Greene stuff or just their traditional interview format?
In any regard, if you like this variety, let us know, let us know what you would like more of so we can make the shows that you want to hear. All right. Without further ado, let’s bring in Carla. Carla Holmes, Ms. Carla, welcome to the BiggerPockets Podcast.

Carla:
Thank you, David. I’m so glad to be here.

David:
Yeah. We actually got to meet in New Orleans at BPCON, and you were the person who bid on a coaching call from me and you were the high bidder. Before we get into today’s show, which is going to be that coaching call that you paid for, I want to hear what made you want to bid on me and how did you become the top bidder?

Carla:
Two things, one, I’m a big believer in the veterans, I do what I can in Charlotte to support the community. My dad was in the military, so I grew up a military brat. I know what it’s like to travel, I know what it’s like to be the family member left behind when your dad goes off to war. So anytime I have an opportunity to support veterans, I’m here for that. And in this particular instance, we were building a house for a veteran, so I was all on board with that. And the thing too, David, honestly, I went to BPCON21 to see you.
I had said to myself, “If I get a chance to talk to David, I want to talk about this. I’m going to ask that.” So I went there with intentions and it just worked out that the auction was in support of something that I also wanted to do. So it was a no-brainer for me. And I kept trying to tell the people around me that were also bidding that it was just going to be you lost cause because I was going to win that one.

David:
So you called your shot like Babe Ruth, you went out there and said, “I’m hitting a home run, it doesn’t matter what you do.”

Carla:
I sure did. I went in with intentions.

David:
I like that. If you’re going to play, you play to win. Now, the next thing I want to ask you is, why did you bid so much higher on me than anyone wanted to on Brandon? That’s what I’m really curious about is, why you wanted a coaching call from me more so than Brandon Turner?

Carla:
I am a regular listener of the show. Fun fact, I listen to it in the morning when I’m getting ready, when I’m working, I don’t watch it. I didn’t quite realize that the podcast was a visual, so fun fact at there. But when I listen to the show, your teachings, your beliefs, your concepts, they really align with me and my spirit and what it is I’m trying to do. And a lot of times, I’m worried about something and you’ll be transparent about something that you’re going through. And based on your transparency, I’m able to say, “You know what, I felt like David felt.” And then it calms me down and I’m able to work through a situation.
So I just find some kindredness in some of your teachings and concepts. Brandon is probably more like me, so I’m like, “Okay.”

David:
You already have that in your head, you don’t need more of it from Brandon, right?

Carla:
That’s right.

David:
Well, that was a really good answer. And the reason that I ask is that as soon as Brandon saw the bid that I got for the coaching call, he ran up on stage and immediately like a used car salesman started throwing together whatever he could. He’s like, “You can come stay in Maui with me, I will cook you dinner, I will cut your toenails, I will give you a personal massage.” He was just throwing everything, but the kitchen sink to try to get a higher bid, which I thought was both awesome for the cause that we were raising money for, which like you said, was for a veteran and also just hilarious that he so badly wanted to beat me.

Carla:
The fact of the matter is, had Brandon gone first, I’m equally as competitive, and this is what I mean why I’m like Brandon. Had his gone first and yours went, I’d have made sure that yours exceeded whatever Brandon’s was.

David:
I like that.

Carla:
I’m your biggest fan, David. I got you. That’s why I made sure to have Brandon take our picture so that he couldn’t photo bomb.

David:
Yeah, you did. That’s very smart. Have you posted that on social media by the way, that picture?

Carla:
I haven’t posted it, but I did email it to you.

David:
Okay. I got to check and see that, it might have went to spam. Do you want to share your social media so people could follow you after for this coaching call?

Carla:
I do. I can be reached @yellowsquare_properties on IG, or if you want to talk to me directly, it’ll be [email protected]

David:
Okay. And make sure you post that picture that you had Brandon take. Because that’s hilarious so you guys can go there and see.

Carla:
I told you, I went with intentions.

David:
All right. Well, we have some intentions on this call and it’s going to be to try to figure out how we can maximize your portfolio. So give us a brief rundown of what your goals are, what you’re hoping that we accomplish from today’s call, and then maybe go over the assets that you have under your control that we can be playing with.

Carla:
Okay. Basically, there’s a particular piece of commercial property. It’s about four and a half acres, price was good, and it sits in a place where it was just conducive to something that I had been dreaming or saying that I wanted to do for about the last eight years. And that was build a parking lot for the big rigs. I don’t know about you, David, but when I’m on the road, I hate to see these guys parked on the side of the road to get their rest, and there’s people going by and I just wanted to do something. This was my way of doing something or giving back.
Even during this whole COVID situation, as much as our country was shut down, the big rigs were still going. They were still keeping us, keeping us in groceries, keeping us in shelter, you name it, and they were on the road bringing it to us even though we couldn’t get out ourselves. And so I think that it’s just important, it’s a another one of those areas of silent heroes where these people don’t get enough recognition or respect on the road, because I see time and time again, we’ll cut them off. They’re gentle giants, but we don’t want to deal with what happens when we drive badly or whatever.
So long story short, I just think that this is an opportunity for me to do something that’s going to be a help, it’ll provide a small number of spaces for folks to have a good night’s rest or just a few hours rest, whatever that is. And this particular property sits between a residential area and an industrial area. The property itself is zoned light residential. So I think that creating a parking lot, which will be quiet, will be a nice buffer between the residents and the industrial that’s already going on. So it’s something that I think flows in that area. Did I answer the question?

David:
Yeah. So what you’re describing here is actually buying some land developing it so that semi-truck drivers can park, have a safe place to sleep so they’re not parked on the side of the road where they have to worry about somebody running into them. And I also really liked that you mentioned they’re one of the silent heroes, because what we’re seeing now with all this stuff backed up in the porch is what it looks like when people don’t want to drive trucks and just how bad of a supply chain problem that’s causing and how that could continue to get worse.
So I think that’s awesome that you’re looking to provide something good for them. Did somebody else plant this idea in your mind or did you just come up this with this on your own when you saw that space?

Carla:
I myself had storage need for my own vehicles and other supplies for my personal business or for another business. And so this actually started out as an initiative to solve a problem that I had in my own business, but then it’s just spiraled into this much larger thing, I’m like, “Well, I can store my stuff here, but then I can also do some good and help some other folks.”

David:
That’s awesome. One of the things we’re going to talk about is how you can buy that land or are you still trying to figure out if that’s something you want to do?

Carla:
I currently have this land under contract, I should close on it, I think about the middle of November. And I guess what I’m wanting to know is based on where I am with the land purchase and with what my intentions are for this land, I just want to know from you David, am I on the right track? Am I crazy for doing this? What are other things I should be thinking through that might be a better use for the land or something, just wanting touch base with somebody. I don’t have a partner and I’ve just ultimately researched this and I’m going it alone.
Well, not alone, I should say, I’m building a team for this while I’m doing it. So I’ve got engineer and a couple of attorneys who’ve been supporting me through this process, but other than that, there’s no real estate support that I’m really receiving behind this. So I thought this was a great opportunity to run it by you.

David:
Okay. Here’s what we’re are going to do, we’re going to look at this deal, we’re going to analyze it at least from the high level, quick and dirty analysis that we can on a podcast. And everyone’s going to get to see how I’m looking at this and then what creative ideas you’ve got in mind, we’ll marry those together. The first thing when I’m going to look at a deal that I want to look at is what’s the income? What are the expenses? That’ll help me figure out the return, and then what is the work involved? And a lot of people don’t think about that.
So if you compare a short term rental to a long term rental, the return is almost always going to be better on the short term rental. So if that’s all you’re looking at, you say, “Boom, that’s the way I want to go.” But there’s also considerably more work in a short term rental than a long term rental. So that means for some people, maybe someone that has a good job, an entrepreneur that’s making good money, the long term rental might make more sense because even though the return is lower, so is the invest, a time and energy. And so they’re better off to put their time and energy into the job that they’re working, where they’re going to get paid.
So we do want to look at that too. And then the last thing I look at is, what could go wrong? What external hurdles are going to be involved? Is there red tape? Is there zoning? Am I going to be relying on a contractor and there’s no contractors? Are the supplies that I need stuck in China and we can’t get them over here to build? So what could prevent this from happening outside of that? So we’re going to call that hurdles. So let’s start with those. Are there any potential things you see that if you decided to move forward with this that could torpedo the project just by burying you in red tape?

Carla:
I don’t know if it’s a torpedo, but there could be a bit of red tape. The four and a half acres is a rectangular piece and there’s a 10-foot easement that allows one of my neighboring land owners access. But the access that he would have across my property doesn’t go anywhere, there’s a ditch. It’s like a 12-foot ditch. So he’d never have an opportunity to go anywhere because then there are other land owners on the other side of that.

David:
And is this one of the easements that has to transfer when you buy this property from the previous owner to you or could you decide you don’t want it?

Carla:
No, it has to transfer. I was going to say, I’ve already spoken with the seller and they’re supposed to be reaching out to said land owner to see if they can resolve it, that way, it’s his cost in that line.

David:
Yeah, that’s great. When we say an easement for anyone who doesn’t know what we’re referring to, it’s basically a right that someone else has to use your land. They don’t own the land, but they have the right to use it. So sometimes a developer will buy a piece of land next to a river, let’s say, and the only way to get to that river is you have to go through that developer’s land to launch your boat. So in order for that title to be transferred, maybe the government says, “Hey, you have to have an easement that lets people walk across your land to get to the river.”
You can’t put up a fence and say, “You can’t go through here.” So they don’t own the property, but they do have a right to use it. And then some easements transfer with title. So in that case, anyone who sells that land, the easement goes with it. So the new owner has to honor it. Other easements were just an agreement between two parties, maybe one of the neighbors said, “Hey, I got a chicken coop way back here and I can take a shortcut if I go across your land instead of mine.” And they record an easement where the person who has a shortcut says, “Yeah, sure, you could use this.”
But when that title transfers, they have the right of saying, “I don’t want the easement that that person had before. So I don’t want people going across my land because I don’t know this neighbor.” So in this case, what it sounds like is there’s no reason for them to want to use that land in a way that would negatively impact you because it just goes into a ditch. Is that right?

Carla:
Yes. That’s exactly right.

David:
So that is the only hurdle that you can see even as far as when it comes to developing the land? What’s the process going to look like to get it leveled out? Do you have to bring in utilities for these truck drivers to plug into or anything?

Carla:
There’s not a requirement to bring in the utilities, but it is a nice amenity to have for phone plugging or different… If it’s an RV, then they may want those types of utilities. And there are utilities in the ground that I’m able to tap into. So we reached out to the county and there shouldn’t be any issue with that.

David:
So you have that option if you decide, “Hey, I’m going to use this segment of it for semi-trucks and this segment of it for RV parking,” there’s already something in place where there’s like electrical, I’m assuming that the RV parking can tap into?

Carla:
The infrastructure will still have to be built out, but there are lines already running.

David:
Got you. So you have that option, you could put in septic tanks and you could put in electrical if you wanted to go to the RV? I really like that, because you don’t know when you actually buy this product or this land, what the highest of best use will be, and it’s okay. You can have a plan going in and once you get there, you realize there’s an even better plan and it’s okay to pivot as long as you don’t do something like pave the entire thing so now certain parts can’t be used for other uses. It looks like there’s relatively few hurdles to this project going forward. Is that fair to say?

Carla:
I think so. I feel really good about it. This is my first adventure into the commercial space, and so I’m just nervous based on that. But overall, it feels like there aren’t a lot of problems. I don’t know what may happen in the actual business because I do have to remind myself this isn’t just a real estate purchase, but that I’m building a business, I guess, in the process.

David:
And that’s a wise perspective to take. I think a lot of investors that get into real estate assume it’s completely passive. And I don’t know of any real estate investment that’s 100% passive. Passive income is a concept. It is comparing when I’m trading time for money, with real estate, I’m not trading as much time for as much money, but you’re still going to be putting time towards it, there’s no purely passive investment. And if you think you have one, either somebody else is managing it, so you’re a silent partner, which could be passive, or you’re losing money and you don’t realize it, things are falling apart.
You always have to supervise the project at minimum. But it is a business, all real estate is a business, and you’re walking into an understanding, this is going to be less passive than other income streams, so I want to make sure I know what’s going to be expected of me. Is that fair?

Carla:
It is. I’m hoping that long term, it actually ends up being much less passive… Wait, did I say that right?

David:
Yeah, more passive. That’s what you’re trying to say.

Carla:
Yeah. More passive.

David:
Much less work slash more passive.

Carla:
Exactly. That’s what I’m hoping for because like I do a lot of single family and small duplex now and I’m getting a little older, and so I’m definitely looking to take the more passive route.

David:
Yeah. Let’s make sure we talk about that later on in the call with what you could do to make it more passive once it’s up and running. I like that. The next segment is going to be work. How much work is this going to be? And we briefly just touched on that, actually, you want to make it more passive. What do you anticipate? What job responsibilities do you see yourself having once this thing is up and running?

Carla:
Initially, it’s going to be minimal. I’ve looked into different security pieces, the gating, the fencing around it, and all of that will use technology, so I’ll be able to manage that from my phone anywhere or turn those responsibilities over to somebody else on my team to manage. So I don’t anticipate needing any onsite full-time help. It might be good for marketing if they know that there’s someone driving through occasionally, but ultimately, I think that the work is going to be minimal.

David:
So when it comes to collecting income, when it comes to managing the property to make sure it doesn’t become dirty, what’s your plan in place for how you’re going to keep it operating well?

Carla:
That’s a good question about managing the property. There will need to be someone that goes through for that. I don’t know what exactly that’ll need to be, it’ll depend on how we build it out, but not a full time person. And then in terms of the income, there’s technology, I think, that we’ll tap into to be able to help with that, so there won’t be anybody required to be on site to make collections.

David:
So here’s what I like about that. Any work that would be acquired from you, it sounds like can be leveraged to somebody else, which means you’re actually moving it into an expense. And if you think about that hierarchy that we put together, income expenses, work hurdles, the ideal investment takes stuff that start at the bottom of hurdles, moves them into work, and then moves that into an expense. You’re moving everything up when you can. So some of the hurdles that we talked about would be… Remind me. There wasn’t very many of them. What were some of the things you think could become a problem?

Carla:
The easement, the maintenance of the property itself.

David:
There we go. So those hurdles can easily be translated into the work column, like, “I’m going to have to manage the property itself and I’m going to have to make sure this easement is not a problem.” Well, that doesn’t even have to stay at work, those can actually be translated into expenses fairly easily by leveraging that out to somebody else. So you find a person that checks on the property once a week and make sure that they’re not throwing garbage outside or illegal activities are being conducted. You don’t want someone to basically park their RV there and run a trap house out of it or something that could get that property could get a bad name.
There’s a lot of truck drivers that are awesome people, there’s also certain crimes that are associated with that industry, and so you don’t want someone to have like a mobile home that they put in there and they’re running some like a prostitution ring out of that house. So you have to have some sort of oversight, but it’s not going to be a ton. So the good news is, what I’m getting at is, that can be leveraged into your expenses, it doesn’t have to be you doing the work. And as long as the property’s income is high enough, it will support all the expenses, and bam, that’s the investment that you want to find, that it pays for its own problems to be solved by itself.
So let’s get into the expenses since it doesn’t look like there’s going to be a ton of work. There’s going to be some development expenses. Does it need fencing or does it already have fencing?

Carla:
It’s going to need that.

David:
Okay. Fencing and a gate. And then some sort of technology installed in that gate so it can be operated remotely. We’re going to need a basic maintenance plan of someone to look at the property, make sure it’s still in good condition and there’s no things that are going to become a cancer that could destroy the investment, like the stuff we mentioned earlier. So let’s just call that oversight. You’re going to have property taxes associated with it. Are you going to be getting a loan to buy the property?

Carla:
No, initially, it’s going to be self-funded.

David:
And then is your plan to BRRRR once you get it showing income for a certain period of time to then go take a loan against it?

Carla:
Absolutely.

David:
So at some point, you will have a mortgage after you BRRRR there, which I love that you’re doing. What am I missing here? What other expenses? I guess if you have the utilities installed, right?

Carla:
Yep, that would become an expense.

David:
Anything else you can think of?

Carla:
I don’t know if you called it out or not, but any infrastructure, the initial development costs, whether it be pavement or whatever that is.

David:
Do most semi-trucks have bathrooms in them or are you going to need to build some kind of a bathroom?

Carla:
I would like to have some type of amenity.

David:
Maybe you could have like a little building that has a couple of bathrooms and some showers or something in there. You think that would be something that they would want?

Carla:
Yeah. That may be fake too, but definitely.

David:
Are you comfortable sharing what you price of the property itself is that you have an under contract for?

Carla:
$230,000.

David:
And then those things that we’ve mentioned, I have fencing, a gate, a remote way to operate that gate, maintenance of the property, oversight of the property, paying the property taxes, paying the mortgage, the utilities that are going to be installed, and then you may have some maintenance associated with those, maybe like every quarter, so someone’s going to have to go out and make sure everything’s working right. And then building an actual structure that would house bathrooms and showers, because if they don’t have that in their semi truck, that they’re going to want to go use that. Would you be able to run down and talk with your contractor and budget out with them what they think those things would cost?

Carla:
I think so. I’ve spoken with a couple folks and I think if you include the cost of the land, I’m looking probably somewhere between 600 and 750, all in all, and it just depends on how extensive I want to go. Versus maybe initially I’ll leave off the bathroom building and that’ll bring that number down and we can start to see how it performs to know whether or not those types of amenities are going to be working.

David:
Very smart. Also, I forgot to mention, you had said you have an architect and an engineer that are working on this?

Carla:
Mm-hmm (affirmative).

David:
So those are some expenses that you would want to incorporate into the deal overall? I’m guessing that’s covered in your 600,000 number?

Carla:
That’s the one thing I left out. Well, I didn’t leave it out, I just left it out for the purpose of this conversation. But yeah, I’ve got a cushion in there for that as well.

David:
So let’s look at occurring expenses. So every month, you’re going to have to pay the property taxes, any insurance that you have. I don’t know if it’s going to be insurance on the land or insurance on the business, but you’re going to want something in case two of them get into a knife fight and then try to sue you or something like that, as well as the property taxes. Do you know what those are going to be every month?

Carla:
It’s run me close to about 2,500.

David:
Okay. And is that including anything that you’re going to have to pay if you have the utilities installed as well as the maintenance for someone that may need to go out there and check on the property?

Carla:
It does. It does.

David:
So you’re saying overall expenses look like they’re going to be about 2,500. Is that after the refi or before the refi?

Carla:
Before.

David:
So if you put 600,000 total into it, and then are you planning on trying to BRRRR all that money out?

Carla:
No.

David:
Okay. How much do you think that you’re going to take out the loan for?

Carla:
I wouldn’t even BRRRR initially, I’d maybe wait 12 months or so just to see what happens since this is so new to me, and then figure out where, when, and if BRRRR makes sense for this. So I would take a little bit of time first.

David:
Okay. So we’re going to keep our expenses low, not have a mortgage payment in the beginning, wait and see how the property works out. Now, we get into the fun part, how this property is going to generate income. How are you currently measuring how many spaces you’re going to have available, how many people you think you’re going to use it, and what type of use you’re going to have?

Carla:
So I’ve worked with an engineer to take what I have in my brain and put it on paper. And my original ask was, “Give me as many spots as this property will hold for the larger vehicles.” And so the way it was explained to me is that we could probably get more spots on there if some of the spots are smaller. So I’m going to sacrifice more spots for having the larger ones, because I think that that’s where the problem is. That being said, I’ve worked out a concept with the engineer for 77 parking spots right now, and then I’m looking at an average of about $110 per spot per month in rental income.

David:
I’m sorry, you said 100?

Carla:
About $110. It goes higher and there’s some low. So the average is about 110, I would think.

David:
I didn’t ask you, are they paying per night or are they paying per month? How do you think these contracts are going to be set up with the drivers?

Carla:
Based on my research in the industry, all of that. It could be that they just need to stop for a few hours to take a break. Whatever we set up, it needs to be conducive to supporting hourly, daily and month monthly, and weekly also.

David:
Okay. So considering all of those options, you think that each spot is going to average $110 a month?

Carla:
I do.

David:
Now, are you taking into account vacancy when you come up with that number or have you not worked that in yet?

Carla:
In normal real estate practice, I would factor in about 3% for vacancy. Honestly, David, I haven’t done it here because I think the demand is so high that I don’t think I’m going to have an issue.

David:
So does that mean that you think all 77 spots will be full all the time?

Carla:
For the most part, I do. I’m hoping to, and one of the things that I wanted to talk to you about is, I think in a perfect world, it would be great if I could find a business or two, maybe a small or medium sized business for who maybe they have parking and need some overflow or maybe they are just growing and don’t have any parking at all. And if I could work out a couple of lease agreements and then just have a few tenants, then that would be one way to go, but we’ll see. So if I don’t have that, then there’s the option to open it up to everybody driving by off the highway. It is right on off the highway. I just don’t think we’ll have a problem with the vacancy rate.

David:
And then is it in an area where there’s businesses nearby that might want the additional parking?

Carla:
Absolutely.

David:
Okay. I think that’s really smart, actually.

Carla:
Because it does butt up against to an industrial area, so there’s vehicles in and out of there all the time.

David:
Well, and also, you can offer secure parking there if you are gated and you have fencing, like some of those businesses around there might have open parking lots and there may be someone that wants to leave their car for a couple nights in a secure space and then go take a trip somewhere, take a flight. Are you close to the airport at all?

Carla:
No, it’s about 45, 50 minutes away, but I am close to places like, there’s a new Amazon warehouse. There’s a UPS hub there.

David:
Oh, they may all want that overflow parking for their vehicles.

Carla:
Absolutely. There’s UNC is over in that area. This is in the South Carolina area. There’s UNCs over there, and I’m told that there’s lots of tailgating opportunities. So even if I have space, if there’s a game, I’ll stand out and hold up signs and let them know they can come and tailgate over there.

David:
What might be fun is if you had people in that area that wanted to tailgate to put up a really big like projector screen or something and like do movies at nighttime, a drive-in movie theater, or tailgaters that can’t actually get into the game, they didn’t get a ticket or they couldn’t afford it can show up and you can broadcast the game from that spot. My next thing I was going to bring up is different ways you can generate revenue, and this segues into that really nice. We have, just under 8,500 a month will be your bread and butter, what you think that you’re going to get for leasing spaces themselves.
So now, the question becomes, what other services or goods can we sell to people that might use this? So if you do get people that want to use that space to go to a drive-in movie style or to watch the game tailgating style, can you put vending machines or taco trucks? I don’t know what the technical term is for those, but mobile food services, food trucks, they can go somewhere and they can pay you to actually sell food to those people. Or if you get a big enough crowd, that you could own the truck and you could make some money from selling food to those kind of people. Do you think that there’s an option there?

Carla:
There definitely is opportunity for that. I’m actually looking into the vending piece, but because I think to me, that one’s a no brainer. So I’m hoping to put some vending machines there. If nothing else, that was why I made sure there were utilities.

David:
That’s smart, and that’s another reason why you would want that building that has bathrooms in it. Because if you’re having people go there, they need a place that they’re going to be able to go to use the bathroom, if you could turn that into like a social area. So if you’re making 8,500 a month from the stalls and you’re spending 2,500 in expenses, that puts you at about a six grand profit, which is pretty nice. Before you add in some of these other services, which would just be icing on the cake, is that how your numbers are penciling out as well?

Carla:
Yep. You’re close.

David:
Okay. Is there anything that I’m not considering that you’ve thought about or that you would want to run by me?

Carla:
I think we’ve covered everything that I can think of. So if there’s something else out there, I want to know about it.

David:
The next thing I would say if I was you is I would find out from some commercial broker in that space what the cap rate would be for that area for a project like this. Because if you know you’re making $6,000 a month and then you multiply that times 12, which I should be able to do in my head, but I’m a little tired, you’re at $72,000 a year. You’re going to basically divide that into the cap rate and you’re going to come up with what that property would be worth, which will tell you what you could refinance to get out of it later. Or ultimately, if you wanted to sell it to Amazon, which feels like everything in this country is eventually going to be bought by Amazon at some point, what you could expect to get.
So that would be another thing that I would… I know you’re not looking to sell, you’re looking to build passive income, but if you get a really good opportunity to sell at a really good price, you could take that equity and put it into another project like this, that might be something you’d want to look into. So to me, when I’m looking at this deal, Carla, I think the best thing that you could do would be to figure out how you’re going to advertise this to truckers, is it just going to be a sign on the road? Are there billboards on the freeway like electronic ones before they get to this spot that you could say, “Hey, pull over at this exit and there’s a place to stay”?
What type of amenities do truck drivers want? Could you put a food truck in that area that they would just consistently be getting food from? And then, how could you use this space outside of just the semi truckers? Could you partial off a space for RV? I don’t know that area, but is there a demand for like Airbnb type places and there’s not enough hotels or the hotels are too expensive and you could have a couple of RVs that you own that you keep on the property that you rent out short term rental style?

Carla:
I didn’t think of that one.

David:
Because what you could end up doing is, over time, you could just keep on checking the classifieds and checking Craigslist and putting out the word that you’re looking to buy a mobile home or RV home or whatever, find one at a really good deal and then go buy that, stick it on the property, create some more income from it, and then you can refinance that money out of that project once you’re making more cash. And it may turn out to where you get a higher profit margin on that than on the semi-truck, so you start to slowly move a bigger portion of it over into that space.

Carla:
That’s a good idea. I hadn’t thought of that one at all.

David:
And I would also think, I’m not a truck driver, but I would bet there are apps or websites out there for people who drive trucks that they use for… Because I’m sure they drive through areas they don’t know all the time and they there’s certain things that they need. So if you can figure out what those apps are, you can probably advertise your space on those apps or websites and just make sure that when you contact the owner of the website, you say, “I’d like to advertise here, that they know you’re looking for geo-targeting, that you don’t want to advertise on their website to every single truck driver in the country.
When they’re in this specific area, they should see your ad, and that way, the ad dollars that you’re spending, they’re used better. I do that on Facebook, if I’m going to advertise a listing that my team is selling or something like the, I don’t advertise it to every person that follows me on Facebook, some of them might be in Georgia and they’re not going to buy a California house. We make sure we only do it within the area that we work in.

Carla:
Okay. That’s good advice. Thank you.

David:
Is there anything else you want to cover on that specific deal before we move on to your portfolio as a whole?

Carla:
No. That was very helpful. You gave me a few nuggets to think about, so I’m excited now. I’ve got homework.

David:
Awesome. I’m glad to hear that. I think this is a great opportunity. I like it, it’s creative. Other people aren’t thinking that way. Anytime you can get into an area of investment that isn’t just the bread and butter that everybody else is doing, run of the mill, buy a house, rent it out, you’re actually having to solve a problem, there’s almost always higher profit on the other end of that.

Carla:
I think so. And that was one reason why I was wanting to switch. I’ve done the single family and thought, “You know, what, this is something new, it’s different. It’s keeping me going, it’s keeping me motivated and energized.” So we’ll see.

David:
Okay. Now, the second part of this is we’re going to talk about your current portfolio, and you’re trying to figure out, “Should I keep it? Should I sell it? Should I refinance it? What’s the best use of that capital?” Right?

Carla:
Yes.

David:
Tell us about your portfolio as it stands.

Carla:
So I put together, there are nine properties, and they total out to about $1.24 mill in equity. These were all self-funded when I purchased them, so no mortgages or any of that on it. But in all the learning and listening that I’ve been doing, I’m wondering if now is the time when I should consider are leverage. David, I’m just not a fan of debt, I’ve always been raised that if you have an opportunity to pay something off, you do it and then you don’t go back and get in that same debt again. So I’m on that side of the fence, but with the way things are going and just all that I know about real estate now, I think an opportunity here for me to take my four houses and make a hotel, so to speak, at this point.
I’m just wanting your opinion on this lot of properties that I have. And there’s something specific about five of the properties in this lot. I purchased them together as a bulk multifamily units. So there’s some opportunities within the opportunity on that, and I’m just not sure what the next move should be. But I think that the next move can be big enough that it would also support my initiatives for more passive income.

David:
Okay. So you mentioned there’s $1.24 million in equity. Approximately how much cash flow are these nine properties averaging every month?

Carla:
9780.

David:
That’s really good. Let’s start off with your hesitancy towards having debt. Where do you feel like that psychological barrier came into place in your life?

Carla:
I guess it’s one of those preparedness things. It’s the less debt you have, the more cash you have, which means that if you have problems in life, you can solve your own problems with cash. In this particular case, because the numbers are so much larger than what a W2 might support on a month basis with my current standard of living, I just don’t know. I’m fearful that riding that debt merry go round will cause me to land on the side of just not having enough money to cover it all, I think.

David:
And where do you think those thoughts first got put into your mind?

Carla:
Well, like I mentioned, my dad was in the military, so I didn’t grow up rich, we didn’t have a lot, we didn’t do name brand, all that good stuff. So we lived very humble lives. And so now, to be even having conversations about this type of dollar figure is huge for me. And I don’t want to mess it up and I don’t want to be the person that takes all of this. I had something great, you recognize that the actual monthly cash is pretty good here. So I hate to take that and then turn it into leverage trying to do something so much bigger and then have something go wrong and me not be able to cover or recover from it.
I’ve gone through foreclosure, I’ve gone through short sales, I’ve been through it all, and none of that was pleasant. I’m one of those 2008 survivors, none of that was pleasant. And I think that I’m just having PTSD with thinking about all of this going back into something like that.

David:
That helps a lot. Now I understand, in your mind, debt equals risk and it becomes a dead weight that you can’t shake when you’re trying to run away from bankruptcy. Those properties that you lost would not have been lost if they weren’t in debt. Is that fair to say?

Carla:
That’s absolutely correct.

David:
Now, at the same time, those properties you lost, were they cash flowing when you went into foreclosure and short sale?

Carla:
Some yes, some no.

David:
So, the ones that were cash flowing, why did you let them go?

Carla:
Because at the time I was using the income as my own personal income as well, you can’t do that. So I wasn’t prepared for any mistakes, any errors. I had already spent it on my own mortgage or car loan or whatever that was.

David:
Okay. And now you’re doing things differently, right?

Carla:
Absolutely.

David:
You’re not living necessarily off the income. So here’s something I would say, debt was a problem that did contribute to you losing those houses. Another contributing factor was the fact that they weren’t cash flowing and that you as a person, Carla wasn’t cash flowing, Carla, was living above her means and that was another reason why you lost those properties. Fair to say?

Carla:
That’s right.

David:
So anything we do, we have to make sure that they’re going to cash flow and that you as a person are going to cash flow. I think that doesn’t come up enough. If we look at our own balance sheets, are we saving more money in our personal or our savings accounts, our checking accounts than we are spending. And if we don’t cash flow, our business probably isn’t going to cash flow either. And that’s something I think you’ve turned around, is that now you’re living beneath your means and you’re more responsible, so that this is where some of this debt hesitancy comes from.
I’m not going to say that there’s no risk associated with taken on debt, there obviously is. My perspective has been, it’s not as significant as we tend to give it the emotional credit for. So I’ve heard a lot of people say, especially in California, the Dave Ramsey line of thinking, which is, well, pay off your house and then you don’t have anything to worry about. Well, that’s totally not true. You still have property taxes on those things, you still have homeowner’s insurance, you still have maintenance.
And many of us that own real estate understand oftentimes maintenance is just as much or more than the dang mortgages sometimes. And if you live in an area like Texas that has no state income tax, it has very high property taxes. And so paying off your house does not equal not owing any money on that property. It’s the first thing, it’s taking a slice of the pie that’s usually a bigger slice and taking that off the table, but there’s still some slices of pie that have to be paid. And you mentioned that your goal was to try to be financially free in 12 months, is that right?

Carla:
I love that, yes.

David:
Okay. If that’s really what you’re shooting for, you might be in one of the positions where leaving your properties paid off makes more sense. If you were saying, “Hey, I got another five years of work, 10 years of work,” I would be pushing you more towards you should refinance or you should sell and we should put that equity to work harder for you. But if you really want to be done in 12 months, that’s not a bad idea. Now let’s move into the next phase. Do you have any questions before I do that?

Carla:
Nope.

David:
All right. Before we decide, do I want to sell? Do I want to refinance? Or do I just want to hold? I guess that’s like poker, do I want to raise? Do I want to check? Or do I want to re-raise somebody else?

Carla:
You said there was risk.

David:
Yes, there’s risk. Are these properties in an area that you want to own them in?

Carla:
Yes. Currently what I’ve done is I’ve targeted two areas around the Charlotte, North Carolina area. One’s out near the lake, it’s a little bit more upscale. So there are some there, and then the others, they’re further out into the suburbs and those are more affordable housing opportunities. So both very profitable, are very opportunity driven.

David:
Okay. What about the work associated with those properties? Do any of them have more work that need more oversight than others?

Carla:
Yeah. Most of the ones I buy need to be rehab. So a lot of the work that I’m doing requires me to go in and have that forced depreciation right up front because they do need rehab. And then the ones I was going to mention that are part of this, I bought a group of five properties, and in addition to them being a great deal, I later found out that there’s more land associated with these properties than what I knew when I originally purchased it. So it’s opened up some opportunities within the opportunity that I mentioned earlier. And I’m just not sure if I should just leverage just normal or if I should maybe hone in on some of this other opportunity and then follow up with it. I don’t know.

David:
Yeah. Here’s the reason I’m asking about the area, if we’re considering, should I sell and reinvest or should I refinance and reinvest, the difference between those two things, one of the difference is there’s more equity available too if you sell than if you refinance. You’re usually going to have to leave 20% of the equity in the property. So that’s one reason where selling is better if you need all of the equity. But the downside of selling, let’s say you want to sell all your equity and reinvest to get more cash flow, well, if you have to go buy properties that take more work to increase your cash flow, that might not be good.
If you have to go invest into areas that will not be appreciating as much in order to get more cash flow, that can be bad as well. So before I decide, am I going to sell this thing or am I going to reinv, I have actually right now, I have properties in Northern Florida that I am trying to sell, and I have properties in California that I’m refinancing. This is a perfect way of explaining this. I’m selling the properties in Northern Florida because I don’t think they’re going to be appreciating as much as other parts of the country like Southern Florida or Central Florida.
I want to go reinvest that money into an area that will appreciate more overtime and require less work, less headache, less tenant problems, less turnover. I’m keeping the California properties because I want the equity in them, but I also want the appreciation that keeps coming from California. So that’s easy in my head is I ask myself, “Well, which of these properties are causing me more work? Florida properties are causing more work. Which of these properties have a better long term outlook? California properties have a better long term outlook.”
So refinancing a property is keeping it. You’re basically like doubling down on that investment, you’re adding debt to it, which makes it heavier, it’s going to sit there for longer, so you want to make sure that’s an area that you want to keep. And then properties that you’re selling, you’re getting the equity, but you’re losing the asset and you’re losing all the appreciation that that asset could provide. So that’s why it’s a little more nuanced than just, I always refinance or I always sell. You have to look at it in different scenarios.
If I had a property of like 50 homes in Indiana, I’d be looking to sell those. I don’t think Indiana’s going to appreciate as much, I think your tenants are going to jack up the houses more often, I think the cost of the roof and the heating and the boiler system is much more significant to the rent you’re bringing in than if you owned a property in Los Angeles that was going up 100 grand a year. And when things break, a $5,000 air conditioner on a million dollar property is not as significant as a $5,000 air conditioner on a $50,000 property.
And I’m just talking out loud so the audience can understand how the advice that I give you, how I came to that decision so maybe they can replicate it. Considering those factors of your nine houses in the Charlotte area, are there any of them that you’re thinking, “I don’t really want to keep this one long term”?

Carla:
No. These particular nine, I bought them to buy and hold because they were in areas that show great promise for growth, which is why I didn’t mind going in doing the rehab because that way I knew what was behind the walls, because we were tearing all the walls down anyway. So I think that long term, it’s a good idea to hold onto these and not sell, I just don’t know about the leverage part.

David:
There we go. All right, perfect. If you had the money, what would you go do with it?

Carla:
I’d buy more land to build more parking lots.

David:
Okay. This is really good. Here’s what I’m going to advise you on, when I was in the police academy, we had to learn how to drive cars very fast, and they would set up a course for us to practice driving the car on with cones. And the rule was, if you hit one cone, that is equivalent to hitting a pedestrian and that is completely unacceptable. You can’t hit one or two people, you don’t get to hit any people. And at the same time, we had to learn how to drive fast because we’re going to someone that needs help or we’re going to try to catch a bad person or whatever.
So what I noticed was when we first started, and I see this with jujitsu, I see this with all kinds of things, certain personalities would just get in that car and smash as hard as they could, and they would hit a whole bunch of cones and they would just keep going at that same breakneck pace, assuming they would learn how to hit less cones in time. And I see people coming to jujitsu and they don’t like drilling, they don’t like very slowly practicing the movements. They’re like, “Let me just get in there and start sparring and I’ll just figure it out as I go.”
There are certain personalities that are like that, my best friend, Brandon Turner. He’s one of those guys. He’s the jump out-of-the-car builder person on the way down. At some cases in life, that does make sense. I am actually a proponent of that at certain times. At other times, I’m not a proponent of it. With the car driving, what I learned was, I would start off going very slow and I wasn’t trying to get a better time than anyone else, I was trying to like memorize the course. So I would be thinking, “All right, I come out of this turn and I got to go extra wide in order to hit this one at the right spot. And then I got to get on the gas quick, because I have a straightaway coming up, but at this part I got to break on the straightaway.”
And I would just do it so many times that my mind started to anticipate, “This turn is coming up, you’re not out there wide enough. This turn is coming up, you better break early. You’re getting on the gas too slow, you’re about to hit the straightaway.” And so what happens is your subconscious becomes your friend, like your co-pilot, and it starts reminding your hands as you’re turning the wheel, how much to turn and how fast you can be going. It’s an awesome feeling when you start to get that vision for what to expect.
When I got the vision is when I put my foot on the accelerator harder. I wasn’t going to hit a cone when I knew what was coming, that’s when I could really start to push it, and then I would push it harder until my mind could adjust to the new speed and it started warning me before the thing came what to expect. And that’s really the same attitude I take in jujitsu, I’m not out there trying to tap everyone out, I don’t really care if I get tapped out. To me, victory is I saw what they were trying to do before they did it, or I saw what I needed to do before I did it.
Now, I probably won’t execute it fast enough, I just saw what needed to be done. When my body catches up to what my mind is seeing, it’s time to go faster. I’m saying this because a lot of investors make the mistake of going and buying four houses at one time before they know how to buy one house, and they get themselves in very deep and it could work out eventually, but it’s messy and they hit a lot of cones, and they lose a lot of money. What would’ve been better is getting the first house, learning the fundamentals, learning the course, and then buying the second one, and that’s like your second lap on the course, you can go a little faster.
And then the third, the fourth and the fifth house, now you’re ready to go by five at a time, because there no surprises. Am I making sense so far?

Carla:
Mm-hmm (affirmative).

David:
So because this parking lot is your first type of deal, don’t go by seven of them and try to figure it all out at the same time. Do the first one, you don’t know what turns are going to pop out at you, you’re going to run over some cones. So you want to go slowly to limit the damage. After you get through this, you’ll have system in place, you’ll have contacts in place, you’ll have resources, you’ll know the right way to make money and the way that didn’t actually make money, you’ll be anticipating what could go wrong on the next deal.
When that is happening and you’re like… That’s how I got into long distance investing. I wrote that book because it’s like, “All right, I’m going to a new state, I’m going to have to get this, I’m going to have to get that.” I knew everything I needed to do before I bought the first house. That’s when I would ramp up and I started buying several a month. So for your situation, Carla, I think you should get this first parking lot and go very slow through this process and limit the amount of mistakes that are made and money that’s lost.
If you decide, “I like this course, I want to do it again,” look for another one and do that flow. And if you’re like, “This is now my jam, I like this, I want to do this a lot,” that’s when we would talk about refinancing the portfolio and putting that money into the next thing. It’s not selling the portfolio because you like the area. So that makes it pretty clear. Good houses, cash flowing well, they can support a refi and they have long term potential, not a lot of work, everything lines up, those are keepers. So you keep and you refinance, but you don’t do that until you have a use for the money, and you won’t have the use for the money until you’ve done a couple of these parking lot projects. Any pushback you have on that?

Carla:
Nope. Find use for the money first before I do it. I got it.

David:
Yes. Because here’s what happens if you go refinance first. First off, you pay interest on that money that you’re not using. Second off, that money’s becoming worth less sitting in your bank account than it would’ve been in the properties, inflation’s eating it up. Third, when you, let’s say that a year from now you’re ready to actually go and buy another parking lot, those properties will have more equity than they do today most likely. So you would’ve been better off to wait to refinance to get a bigger chunk of that money when you’re actually going to use it, versus you pull out a couple hundred grand, let’s say you pull out 400,000, no, you said it’s worth 1.24.
Let’s say you pull out 800,000 and then they go up to like 1.75 and there’s an opportunity that’s going to cost 900 and you only have 800. You’d have been better off to wait to where you could have pulled out 900 and then you know, I want the full 900 for this deal. Or if you don’t need the full 900, it doesn’t hurt you. You can still just pull out 800 if that’s all that you want to go put the deal together and you didn’t pay interest on it for a year without it doing anything. The only thing that would make me change that plan is if I saw something coming down the pipe or in the news that made me think values were going to be dropping or the ability to take money out of homes was going to go away, like COVID did that.
At a certain point when COVID hit banks, stopped lending on homes for a couple weeks. We had a lot of houses in escrow that just couldn’t close because lenders weren’t making loans. If something like that happens, guys like me will go and we’ll pull our money out very quickly just in case, but absent something like that, I don’t think there’s any need to.

Carla:
My original business was trend toward more multifamily, larger multifamily, that was the plan where I was going, and then this plan presented itself. So do you think there’s any opportunity to still use the leverage for this particular lot of properties and then use that toward my original goals of more multifamily?

David:
Yeah. And the reason I really like this parking lot plan is that it’s BRRRR-able. It doesn’t have to be done in three months, but like you said, you could put this together. That’s why I said, you got to know what the cap rate is so you could figure out what this actual business will be worth once it’s operating, because then how much of your money you can get out, or I’m going to guess you pull out more than you put in when this thing is said and done, which means you can take that and then go buy the apartment complex.
The beautiful thing about BRRRR, it’s BRRRR-tiful, I guess Brandon would be better coming up with these than me, is that you never have to choose option A or option B, it’s option A then option B, or option B then option A. But it recycles your capital so that after you put this thing together, you don’t have to give up on your multifamily dream, you just do it after the parking lot dream. And you may love both of them, and that may be when you can make the best decision about when to refinance your current nine homes, because what you want to do with that money.
Right now, there’s just no way you can know what to do with that money because you haven’t done the parking lot plan yet, you haven’t invested into multifamily. Taking out that money, you know that feeling of people say that money’s burning a hole in your pocket?

Carla:
Yep.

David:
Right. You don’t want that feeling as an investor. Bad decisions get made when you rush a 1031 and you got to put it somewhere or you got all this capital, “I got to go invest.” That’s not a good feeling to have. So don’t put the money in your pocket, leave it in the bank, when you are ready, then you go get access to it. And I’d be happy to refinance that property for you when the time comes and let you know what you can take out of it and help figure out where we can go re-deploy it.

Carla:
David, are you up in North Carolina yet?

David:
We are actually in talks right now to put an expansion team together in North Carolina because there’s so many Californians that are going investing there. For anyone listening, don’t go compete with Carla, but that’s a really good market to be looking into. I see really good things happening out there.

Carla:
Agree.

David:
And yes, the lending team is operating in North Carolina.

Carla:
Okay.

David:
All right. What did we not cover here, Carla? I know I just went on like a 10-minute rant there.

Carla:
No, that was really good. You gave me some points to think about I hadn’t thought about for the leverage side. So I appreciate that because I was really torn. So the best advice was just to hold on until I actually know what I want to do with the money.

David:
That’s exactly right. And I like that example I gave of the driving the car on the course, because a lot of people get into this binary way of thinking that creates anxiety. It’s, “Am I going to do it or am I not going to do it?” And this devil and this angel on their shoulder is screaming, “Do it, do it, do it. Don’t do it, don’t do it.” And they don’t know which one of these crazy voices to listen to. The reality is you should start moving in the direction you want to go, but don’t run so fast that you trip and fall and mess everything up. You always go slow at first.
When I’m first learning a technique in jujitsu, I’m going very slow, partially just because I don’t want to hurt my partner. I don’t even know yet how much I can put that thing on before something could break, so I want to go extra cautious. The black belts know exactly how human bodies work, they’ve been doing this for so long. They can go a lot faster. They’re a person who’s ran that course a lot of times. I think when we focus on how to drive the car like an expert and then we go fast, it forces us to really pursue excellence in what we’re doing, which is what makes you good.
Real estate investing is not a magic pill that you just start doing it and you make a bunch of money. And the people who do make money that way hardly ever keep it. You saw a lot of people that made a lot of money with Bitcoin just because they bought it and they don’t know why it worked, they don’t know what was going on that made it work. It worked, that’s probably not going to be sustainable, it’s not going to stay working for a long time because they don’t understand themselves why that worked. I like to know the asset class I’m investing in and what makes it work.
So you’ll know, Carla, when you’re ready to really ramp it up if that’s what you decide to do. And the way you know is that your subconscious is reminding you before things happen what the next step is. The guys that are really good at jujitsu, when we talked to Jocko, he said, “I’m not really thinking about what move I’m going to do to you. I’m thinking about what thing I’m going to do that you’re going to respond to that’s going to open up an opening that’s going to make you respond again, and then I’m going to hammer you with what I had in mind.” He’s seeing several steps down the road.
And that’s the best I can give, is give yourself permission to go slow as you learn where all the turns are and when you’re ready to go fast, it won’t be like you’re surprised by things. They won’t be jumping out at you like, “Oh, I didn’t know I wasn’t supposed to do that.” Your mind will be telling you, “What about this? What about that?” And it will all feel very clear.

Carla:
And I think that I’ve been able to see what was coming a few steps ahead and in preparation for that, was starting to think through the leverage. And so I didn’t know from a timing perspective, if it was, “Okay, you need to start formulating these properties, prepare them for leverage and get the money in place so that when the opportunity came along, I would already be ready to write the checks so to speak.” And it sounds like you’re saying do the exact opposite, which I’m fine with, and it makes perfect sense now because the money would very likely burn the hole.

David:
Yes. And so when it comes to a refi, we’ll do that in like 30 days or less, a lot of the time, unless we choose a lender, that’s a little slower to get you a better rate. So what you could do if you were worried about that is to have your finances lined up. So you know where to go to get a pay stub, you have your taxes saved and you know where to send them, or you can ask the lender, “Well, what are the documents you’re going to need to do this?” I would say send them all in early, but that doesn’t help because you need updated ones.
So just make sure where to go to get your bank statement. Do you know if you bank at Wells Fargo, how to get in their website and actually find your statement? And if you know what to do, when you decide I want to do this, it’s boom, boom, boom, you got it all lined up, all the dominoes are ready to go. You send it off, you know you’re going to have around 30 days before are going to have that money. And once they give you the green light, they’re like, “Yeah, it looks like this thing’s going to happen,” you have plenty of time to start looking at deals and analyzing them and even putting something in contract, because the escrow’s going to take 30 days or more, and you’re going to need time before the escrow to even start looking.
So you’re not going to lose time waiting on the refinance. And also I will say, part of why I’m advising you that the cautious approach makes more sense here, is that your goal is you want to be done in 12 months. If you were like 22 years old and you inherited all these properties from someone else and you said, “My goal is to become more 10 million in this period of time,” I would be giving you a much more aggressive way of going about this because that’s what your goal would be, but you’ve already done really good. These properties have done a ton of work on your behalf, Carla.
This is impressive that you’ve been able to accumulate this while working a job, while running a separate business, and you made incredibly prudent decisions. For the most part, these properties have created momentum, and that momentum is going to help you smash through any obstacles that you hit.

Carla:
I agree. I’m excited.

David:
You should be proud of yourself. This is a really, really good situation to be in. And you’ve got a good mix of stability from cash flow from paid off properties and potential upside from value-add opportunities. So your creative side is going to get to scratch that itch, and your need for safety and security, that itch is going to be scratched too. So you’re in the perfect spot for investor to be.

Carla:
Good. I’m glad to hear that, because I don’t have a partner and my circle doesn’t necessarily love real estate I do, it just was nice to hear from somebody else that I’m not crazy and that I am going down a path that is right. We know there is multiple paths that could be right, but it’s good to hear, especially from you that it’s looking good.

David:
It’s looking great. And in fact, I bet all the listeners that are listening to this are sitting, there saying, “You go girl.” There’s a whole lot of people that are just very pumped up just hearing the situation that you put yourself in and that you now have the luxury of taking on some of these cooler, more unique projects that are going to allow you to be creative and think outside the box as opposed to being enforced to just do the typical, got to get a duplex, got to try to use my FHA loan, got to get a little bit of momentum going before I can access that equity to get the next one.
You already went through that phase, you’ve done a really good job. When did you start buying properties, like 10 years ago or so?

Carla:
No longer than that, but I won’t date myself.

David:
All right. You’re in this position because time worked for you just like me. And there’s so many people that are trying to outsmart real estate, and I swear, I’m not an old man, but I’ve done it for long enough that I’ve recognized, my intelligence is not what is going to get me to win, it is literally time in the market. Time in the market opens up doors, creates equity, teaches you things, helps you see angles that you didn’t see. I tend to way overemphasize my own intelligence when it comes to like, “Oh, I’m clever, I’m going to get this good deal.” That almost hurts me more than it helps me.
You’re better off to just buy properties, let them do their thing. When you first bought them, they weren’t cashflowing amazing. There’s probably some months that you were very nervous because you had PTSD from what happened in 2010. But now, they’re performing great. So time is the ingredient-

Carla:
And for some of them, David, the thing that the numbers doesn’t reflect is that for some of them I’m not even charging rent to what the market says I could be. So there’s that that’s still sitting in there, and I was just going to leave that until after the properties were remodeled, and then that would justify the rent that the market says it currently can hold.

David:
I bet if you wanted to, you could charge higher rent without remodeling them. I’m guessing that part of you just enjoys going through this remodel process. So it’s just fun and it’s that creative, there’s nothing wrong with that. It’s okay to scratch that creative itch every now and again, you just don’t want to do it on properties that are not cashflowing. Don’t be creative at the expense of the finances, but if the financers are lined up and the fundamentals are solid, heck yeah, use that opportunity to have some fun with it. All right. Anything else you want to discuss before we get you out of here?

Carla:
I think that’s it. Those were my two big things and you’ve settled me down a little bit from all the anxiety that I’ve been having over it. So I appreciate that.

David:
All right. Anybody listening, do me a favor, go to biggerpockets.com/show535, and leave a comment telling Carla what you think about where she’s gotten with her investing, what you think we didn’t cover or what we could have covered. Maybe you were listening and you thought David didn’t think of this idea and you’d like to share it with Carla. She’d love to hear it, I’d love to see it. Go to the biggerpockets.com/show535 page and let us know what you think. Carla, can you remind me what was your Instagram app for people to follow you?

Carla:
It is yellowsquare_properties.

David:
Yellowsquare_properties, which you can remember because Carla is wearing a nice yellow shirt. I am davidgreene24 if you want to follow me, and of course, follow BiggerPockets on Instagram as well. Any last words before we take off here, Carla, how can people help you?

Carla:
If there is somebody out there in the commercial space that does not mind having a mentee, I would love a mentor because I want to explore more in this commercial real estate.

David:
The mentor to explore more, nice little rhyme that you left us with there. All right. Thank you very much, Carla. This is David Greene for Carla Yellow Square Properties Homes signing off.

 

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In This Episode We Cover:

  • How to analyze a commercial property from scratch with limited property information
  • Identifying the drawbacks and new potential income stream opportunities on a property
  • Why so many frugal investors avoid debt, even if it could be of benefit to them
  • Why you shouldn’t “hit the cones” when investing in a new real estate class 
  • Thinking multiple steps ahead when making a move in real estate
  • And So Much More!

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