Rookie Podcast 07: 6 Things New Investors Should Be Doing Right Now

Rookie Podcast 07: 6 Things New Investors Should Be Doing Right Now

54 min read
Real Estate Rookie Podcast Read More

If you’ve been telling yourself, “I’ll invest in real estate when prices come down,” well… that time may be coming.

So, what should rookie real estate investors be doing now to prepare?

Today we outline six action items—from shoring up your financial position to making yourself an attractive partner. Also, we bring back the “Rookie Request Line” so you can hear Ashley and Felipe’s answers to a few questions from the audience.

If you feel stuck, fearful, or just restless while you’re cooped up inside… then check out this episode and take action!

If you’re enjoying the show, please take 30 seconds to give us an honest review on Apple Podcasts.

See you next Wednesday!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
This is the Real Estate Rookie Show, number seven.

Felipe:
I have a property right now under contract for $185, so I feel like the market’s shifting a little, but it’s because I know that area. My realtor sent me the listing and I didn’t even have to fully look at the property. I said, “I know what street that is. I know what houses are built on that street. I know it works for my portfolio.”

Felipe:
She said, “The price is $199.” I said, “Offer $185.” And they took it, right? So, deal analysis right now is very important. Because if you are bankable, if you have cash reserves, if you’re securing a long-term debt, you are able to continue to purchase properties.

Ashley:
Hi, I am your co-host, Ashley Kehr, and I am here with my co-host, Felipe Mejia. And unfortunately, I’ve nothing witty to say today.

Felipe:
Oh, I’m waiting in anticipation for you to say something. I’m like, “Okay, what is she going to call me?” If you guys listened to the last episode, episode six, she’s like, “Oh, look at Gap Model Felipe, today,” or something, and I got tons of funny comments about that.

Ashley:
Yeah, I even offered for Felipe to do the intro today. I said, “This is a one-time deal, because I don’t have anything witty to say when I introduce you.” And he turned me down, so he will never ever get to introduce the show again.

Felipe:
Oh, gosh. See, that’s what happens when you’re not prepared. Just like in real estate, if you’ve got to take it when you can.

Ashley:
Yeah. Today we’re doing the show a little bit differently. Felipe and I just talk about six things rookie should be doing right now. Did you write down six things?

Felipe:
Yeah.

Ashley:
Are you prepared?

Felipe:
I wrote down four things, I thought. Well, I’m just kidding. Of course, I wrote down the six things. I have them in front of me. No, I was really excited to do this show, because I get a lot of questions, like on my Instagram and stuff, of like, “Hey, what are you doing right now? You know, during this time.” Right?

Felipe:
It seems like for the past couple of years everyone’s been talking, “Okay, a downturn is coming. Let me prepare for it. What is it going to look like? Is it a housing? Is it, are we going to be at war?” No one knows.

Felipe:
And I feel like now that we’re in a situation, unfortunately, like coronavirus, this is the time that we’re going to talk about these six things that we need to be doing as investors, especially as rookie investors, to come out of this a little bit stronger, a little bit better.

Ashley:
Yeah, I completely agree with you. And so, our whole point of this show today is to really focus on what each rookie can be doing and should be doing to set themselves up for success during this pandemic. And afterwards, and for any other future emergencies that come up, or different things that you don’t think could happen. Like, who would have thought we’d be worried about collecting rent?

Felipe:
Yeah. You think that cashflow producing properties are the safest way, and then you go towards like Airbnb, and some of these things. And we’re seeing some people get really hurt during this time, because we can’t travel, and things like that.

Felipe:
So, let’s talk about these six topics that even we, me and you, decided that, “Hey, these are the things that we’re definitely going to be during this time, to make sure that we can come out better on the other side of this pandemic.” And hopefully, everyone’s safe and everyone’s healthy, practicing social distancing, and everyone’s family is safe for that.

Felipe:
I’ll kick it off here. The first one that me and Ashley decided were probably one of the strongest things that we need to do during this time is, have cash reserves. I think that’s really important. And Ashley, I’ll let you go first. Go ahead. Well, why do you feel like cash reserves are so important during this time?

Ashley:
Honestly, the first thing that comes to mind is that I can sleep at night. And even before the pandemic, having cash reserves was really important to me, especially after I found Dave Ramsey, and started to become debt free and get my finances in order. Having those cash reserves, I sleep so much better at night knowing that something happens, I have that emergency fund, that stash to cover.

Ashley:
Most people have three to six months’ cash reserves. Really, you could have whatever makes you sleep at night. That’s what I always say when someone asks me, if you feel comfortable having one month, then that’s fine. That’s what works for you. For me, it is six months’ cash reserves to cover mortgage insurance, property taxes on each property.

Felipe:
Absolutely, I agree, cash reserves are very important. I know when we first met, actually, we talked about our cash reserves and you thought, “Oh, Felipe, you have a lot of cash reserves.” And I was like, “That helps me sleep at night.” And I have a family, right? I think everyone’s situation is just a little different. If you have kids, if you have just you and your spouse, or if you’re by yourself, just single, and doing your thing, then everyone’s cash reserve is going to look a little different, just based on what they need.

Felipe:
And I think, ultimately, the best definition for that is going to be, do you have a peace of mind with the cash reserves that you have? Are you sleeping at night? The concept of saying, “Oh, it lets me sleep at night.” Is really saying, “I have a peace of mind.” And if you have the right cash reserves to weather a certain storm, then you can sleep peaceful at night. Let’s say your tenants say, “Hey, I can’t pay rent this month.” And the last thing any of us investors wants to do is just kick people to the curb. We’d rather have the heads in the beds.

Felipe:
So, if you have a little cash reserves, you have a little bit more flexibility than automatically jumping the gun and having to kick someone out. Especially during a time like this where we need to be more coming together as a community, and even as a country, rather than dividing ourselves with, “Oh, well, you can’t pay rent.” It’s landlord against tenant. No, it’s, we’re all in this together. And I think cash reserves gives us, as landlords, that peace of mind to make decisions properly, and things like that.

Ashley:
Yeah, I completely agree with that. I also think that as an investor, if there was a family that was going through a really true hardship, because of this pandemic or something else, it would feel great for me to say, “You know what? Let’s work out a deal because I have those reserves, I’m financially stable. And I’ve gone through hard times too.” And that would feel really great.

Ashley:
Fortunately, most of my tenants have paid as of right now, and no one has reached out saying they’re not going to. So, we’ll see how it pans out. But I think having those cash reserves just puts you in a position where you’re not only helping your family, but you might have the opportunity to help someone else. And I’m not all about letting people live for free and letting them-

Felipe:
We’re still a business, Ashley. Whoa, whoa.

Ashley:
Yeah, exactly, but sometimes they’re a special circumstance.

Felipe:
Sure. And one other things, before I’ll let you introduce our number two, but before we get off of cash reserves… And I’ll ask you the same question, one of the things that I’m doing right now with cash reserves is, I’ve actually told tenants, “Hey, let’s pay rent, but if you’re missing food, or water, or essentials, just call me. “Let’s talk about that, right?

Felipe:
“If you need groceries, I can have those shipped to you, or we can figure out a way to feed your family. We’re not going to kick you out to dry, but let’s… The rent is a little non-negotiable, but the rest of it can… I can help you with, if you need food. If you need to pay the water or the light bill, I can help you out there.” But let’s try to avoid the, “Let’s not pay rent.” Right?

Felipe:
And that way, that also gives the tenant a sense of community with you and them. A partnership and agreement. They feel good that the landlord wants to help them out, you know? I would rather them say, “Hey, Felipe, I don’t have money for the grocery.” “I got you. That’s what my cash reserves are for.” And like you said, that makes me feel good, that I’m providing for my tenants, right? We’re in this together. Do you have an example of something like that, Ashley?

Ashley:
I haven’t done that to anyone, have had that opportunity, I guess, which is a good thing, that everyone’s in a good circumstance.

Felipe:
There you go.

Ashley:
But I do want to add to that, talking about helping them, everything like that. Especially in when you bill as a small investor, small landlord, where you are managing your own apartments or… I’m not doing that anymore, I have a property management company take care of that. But as that small investor, I have seen, over the past couple of weeks, the people who have really built those relationships with their tenants, and their tenants want to pay them.

Ashley:
They like their landlord, they know that they want to stay in those houses. They want to pay their landlord because they built such a great relationship. And I’ve seen how much value that has come right now, because these people aren’t going to say, “Oh, screw my landlord. I hate him. I’m paying him last if I can get away with it right now.” So, building those relationships with your tenants can really be key during something like this.

Ashley:
And, of course, there still will be the people that try and take advantage of it. But if you’d done your tenant screening, and you’ve got good people who, like Lucas Hall said, “You want to find people who are willing to pay and can.” Which, I thought that added tremendous value in last week’s episode. That you just don’t want to make sure they have the income to pay, but that they want to pay too.

Felipe:
That they want to pay, correct. Yeah, I was actually just thinking about that. Having the availability to pay and also the willing is two separate things. And I think willing comes with relationship and trust building with that tenant. And now I’ll finish with this, I think cash reserves gives you options. I think cash reserves give you options in a tight situation. And you would rather have options in a tight situation than having to, like, “Oh my gosh,” freak out and figuring out.

Ashley:
Well, let’s move on to number two. This can go along with cash reserves, because it can be an option for you. A second strategy, per se, or second exit strategy, securing HELOCs and long-term debt during this time. When you have a line of credit, even if you don’t have one now, go and open one now. Use your primary residence, use an investment property, and have that available.

Ashley:
You don’t have to draw from it. A lot of times, they’re interest only payments, so you’re only paying if you take money off of that. But if you run out of your cash reserves, this can be plan B to start supporting your business, if you have that line of credit. Do you want to talk a little bit about long-term debt?

Felipe:
Yeah, absolutely. Let me touch base a little bit, a lot about line of credit, and then for long-term debt. I actually use my line of credit before I use my cash during this time, right? And I’ll explain why. Now, in the past, yeah, I would use cash and line of credit together. But right now, to get through this pandemic… And I hate even using that word, but it is. I’m using my line of credit.

Felipe:
Let’s say I use $100 for something, then I’m going to pay a certain small percentage on that monthly, but that $100 buys me 30, 60 days. And that’s, sometimes, what you need. And then my cash, I’m using a small portion of it to hold that loan until I can pay it back, once we’re past this pandemic. Then what I’ll do is use some more…

Felipe:
Like let’s say I’m allocating 16% of rents towards my line of credit, maybe I’ll up it to 25 once we get out of this pandemic, to pay it off sooner, and then just go back. But everyone has a different scenario on how, but actually right now, I’m using my lines of credit, and backing it up with my cash. When in the past, I would probably go 50/50, or something like that, to not be over leveraged, right? So, just trying to use this strategically.

Felipe:
And another thing that I did, and this is really cool, I called my bank and I told them, “Hey, I know that I was paying $500 a month towards the line of credit’s debt, some of it towards principals, some of it towards interest. But now I’d like to break that in half while we’re through this pandemic. Can I switch it down to $250 a month?” And they’re like, “Yeah, your payment’s only 70 bucks off of your 30…”

Felipe:
I think I’m like at $30,000 on my line of credit used for properties that I was renovating. And they were like, “Yeah, you actually only have like a $70, $80 that you have to pay.” And I was like, “Okay, so let’s go down from $500, to $250.” That’s why I personally love lines of credit, because I have that flexibility of how much I want to pay during certain situations. I went on a tangent there, but you get what I’m saying.

Ashley:
No, I think that was great information. That was really interesting to hear, that you do your line of credit first before you get into your cash reserves. And thinking about it, if I have to start breaking into my cash reserves, I think there would actually be a point where I would say, “You know what? I’m stopping right here at my cash reserves, maintaining this minimum balance, and I’m going to start using my line of credit.” So, that’s really interesting. I’m glad you shared that with me. Hopefully, everyone else saw that valuable.

Felipe:
Yeah, I feel like we both learn a lot, all the time, when we talk this.

Ashley:
Yeah. Well, I just want to add too, real quick, is how you just asked your bank. And it just, once again, it’s one of those things I like to harp on, is just, you don’t know until you ask. And that they reduced it for you.

Felipe:
That’s it, I just asked. I just called in. I was like, “Hey, my minimum payment is what?” And she’s like, “Oh, it’s 70 bucks.” And I said, “Okay, well, I was doing an automatic payout of $500, can I break it in half during this pandemic?” She’s like, “Yep, you do what you need to do.” Perfect.

Felipe:
You asked me about long-term debt, I want to touch base on that a little bit. For example, and I’ll give a perfect example, because I’m in the situation right now. If you follow me on Instagram, you’ll see that I actually have a small five-year mortgage on a rental, on a property that I didn’t want to lose.

Felipe:
You could consider it a bad loan, because it’s got a high interest rate, but I wanted this property. And I was okay with losing a little bit of cash flow for the first three or four years. Because I knew that I was going to get into a 30 year mortgage, I was just waiting to see when.

Felipe:
I calculated, I said, “Okay, we’ve been in a really good market for the past eight or nine years. Something’s bound to happen in the next five, so I’m going to get this bad loan…” I call it a bad loan, because it takes out about 100 extra bucks of my cashflow to cover the extra interest payments. And now I’m refinancing it into a 30 year mortgage with a very low interest rate, versus what I had, because we’re in this situation.

Felipe:
I always say, “Take advantage of the situation, don’t take advantage of the people.” And what I mean by that is, now I’m refinancing into a long-term debt with that property, it’s only going to… My mortgage, I think, shifts like maybe 60 bucks. My cashflow is great. I’m going to be in a 30 year mortgage at a fixed rate. It’s clean, it’s simple. I tell people, “Look at your debt right now and get it into a longterm low interest rate.”

Ashley:
Yeah, you really want to get away from any balloon payments. So, balloon-

Felipe:
That’s what it was.

Ashley:
Yeah. A balloon payment is, if you are making small payments for a year or two years, but then at the end of the two years, you owe the remaining balance. And a lot of times, with not knowing what’s going on, or what’s going to be coming up within the next few months, if you have something, a balloon payment coming up, where you’re going to owe this lump sum, I would recommend getting something lined up now so that you’re prepared for when that balloon payment comes due.

Ashley:
And that’s always been one thing, I did do a balloon payment once. It was seller financing. I did interest only payments for one year, and then I had that balloon payment where it gave me a year to fix up the property. And then I went and refinanced with a bank, and that worked out fine. We actually closed the day before my balloon payment was due.

Felipe:
Wow.

Ashley:
Yeah. And-

Felipe:
Cut me close there, actually.

Ashley:
Yeah. And actually, we set it up that way, and it wasn’t nerve wracking at all, as bad as it sounds.

Felipe:
That sounds pretty close.

Ashley:
Yeah. It worked out well, but right now I’d recommend long-term debt, for even if you have maybe five year commercial loans, if those are maybe switching to a variable rate coming soon, I would get into a fixed rate. Do you agree?

Felipe:
Yeah, absolutely. Jeez, thanks for breaking that down. I don’t fully understand the way the balloons work. There’s a lot of jargon there. I graduated last into my high school class, not anyone doing that. But she explained it too, and I was like, “Okay, that makes sense. I wish I would’ve known a little more.” But I knew right now that what I needed to do was get into long-term debt. Secured long-term 30 year debt. So, yeah, thanks for explaining that, because I wouldn’t have been able to explain it.

Ashley:
And it’s not like balloon payments are bad. It can definitely be an advantage to you, but you want to have those multiple strategies as to, “Okay, if I can’t get bake financing for that balloon payment, then why don’t we go ahead and… Do I have a private lender who would come and cover that balloon payment, or a hard money lender?”

Felipe:
Yeah, absolutely.

Ashley:
I think having those multiple options, or maybe you have a line of credit you would draw off instead, or you have another house that you would take a mortgage on to cover this balloon payment.

Felipe:
Ashley, will you explain what balloon payment is, for everyone listening? Break down how that balloon works.

Ashley:
Okay. What I’ll do is, I’ll do an example with numbers.

Felipe:
Sure.

Ashley:
You’re purchasing a property for $100,000. And I’ll use a seller financing example here. So, Felipe is selling me his property for $100,000. He wants $5,000 down at closing, and then I’m going to be paying interest payments to him for one year. Say, interest is 7%, and I can’t do that math off the top of my head. But let’s just say I’m paying him $150 a month, or whatever, at $95,000. It’s going to be more than that, but…

Ashley:
I’m paying him for one… Or each month, I’ll pay him that, $150. Then on month 12, he is going to want that $95,000 paid to him in one lump sum. So, that’s where I would have to plan ahead to get bank financing a couple months ahead, or line up where I’m getting that $95,000 from. And there are banks that do balloon payments too, where the bank will… Maybe you’re even paying principal and interest over a certain term. And then you’ll make that lump sum payment at a future date.

Ashley:
So, instead of amortizing like a conventional loan, where it’s a fixed rate for 15, 20, 30 years, and it’s, you’re making principal payments. And at the end of that term, end of the 15 years, everything’s paid off. This is where you’re paying a little bit, and then it’s one big lump sum payment. And that’s what we call a balloon payment.

Felipe:
Nice. Everyone needs to listen to that. I’m going to go back and listen to that, because I think you explained it better than my banker did. She was just like, “Well, this is what we can do. You can get a…” I’m like, “Whoa, okay. We can get the property. We can cashflow. Okay, good. I’ll have to figure that part out later.”

Felipe:
But it was on the back burner, but I didn’t want to forget about it. So, great explanation of how that balloon works, and how you can use it to your advantage. Be careful, though, it is a two-edged sword. You’ve got a certain term, one to five years, depending on what your bank offers you.

Felipe:
The next topic that we had there, we’re not on the number three yet. Just the second part of securing HELOCs and long-term debt is make yourself bankable. And, basically, what I feel like saying, make yourself bankable means, making sure your taxes are in order, making sure your cashflow is in order.

Felipe:
Right now, during this time of quarantine, take advantage. If you can, jump on your computer, clean up your Excel sheets, or clean up your QuickBooks, or whatever the case might be that you’re using to keep your properties in order, just make it very nice and clean.

Felipe:
I have found out that banks work so much better when you have your things organized and clean. And if they’re asking for like, “Okay, can I see the rent roll?” Right? You don’t want to be like, “Oh my gosh, okay, so this person pays, this person…”

Felipe:
If you have a very clean cut sheet, or you have a program that you use, you can just turn it in, and banks love that. They love to see that you are responsible in your business, and things like that. So, that’s one of the ways that I’ve made myself bankable. Ashley, what about you?

Ashley:
Well, I think it’s really important to call a local bank and see what they want from you.

Felipe:
Oh, good.

Ashley:
What does their application look for? They can email it to you, take a look at it. Some of them even have it on their website, and it will list what documentation they also want from you. A copy of your driver’s license, two or three years of tax returns, four weeks of pay stubs. I think it’s really important to make sure you have all those things in order. Like Felipe said, you want to be prepared, you want to be organized, have these things available. Maybe you just have a folder on your desktop.

Ashley:
You also want to make sure that your credit is in great shape, too. That you’re going to be able to get a good interest rate, and that they’ll even want to lend to you. If you don’t have that great of credit, take this time to clean that up. Work on getting your payments on time, work on getting any judgments paid off. Credit is a very important tool, and if you want to secure that, those home equity lines of credit and that long-term debt, your credit is going to be a huge factor into whether or not you’re going to be able to be bankable.

Felipe:
Yeah, that’s right. In the middle of this refinance that I was telling you about a minute ago, getting into a long term 30 year mortgage, I was very surprised, in a way, where he said, “We want to make sure that you have a good amount of cash reserves.” And I was like, “Wow, I’ve never been asked how much cash reserves I have in the bank.”

Felipe:
This is the first time I was asked that. And I was able to show, “Okay, this is what I have for cash reserve.” So, you’re able to use that cash reserve in different ways. That same money, the refinance is going to… I believe it’s going to go through, because we have a nice little cash reserve there and they’re not worried about us missing payments, and stuff like that.

Ashley:
Yeah, that’s definitely, the more you can show the bank the assets you have, and that you are an asset, is very important. I always like to add to that, when you’re going to a bank to get financing on a deal, maybe it’s your refinancing, or you want to purchase a deal, is bring the deal to them. Do the BiggerPockets calculator report and show them what the numbers look like. What your cashflow is going to be, how this property will pay the mortgage payment, what your rents are going to be.

Ashley:
Give them as much information about the property as you can, to make them feel secure and be like, “Wow, this looks great.” And if this is your first time approaching a bank and you’ve done other deals before, put a little binder together with your portfolio, showing them the other deals you’ve done and how successful they have been. Bring pictures, show them a lot of information to… Because they’re going to be, they look at your portfolio, they look at the… You want to keep doing this, they’re going to want to maintain you as a partner.

Felipe:
I like what you said a minute ago. You said, be an asset to the bank. I don’t know if you worded it like that, but that’s true. You be an asset to the bank, not a liability. And everyone loves an asset, right? So, that actually goes into what our next topic is, which is… The first one was cash reserves. The second one is securing HELOCs, long-term debts, be bankable.

Felipe:
Our third rookie thing that you should be doing right now is, be analyzing deals, right? Deal analysis, tight numbers, estimating repairs, practicing in your market and where you want to be is very crucial, especially right now. And I’ll give you a perfect example. I’m used to buying properties in my area for about $200 to $220. That’s just typical for me, within the $20,000 range, because I know my markets so well.

Felipe:
I have a property right now under contract for $185. I feel like the market’s shifting a little, but it’s because I know that area. My realtor sent me the listing and I didn’t even have to fully look at the property. I said, “I know what street that is. I know what houses are built on that street. I know it works for my portfolio.” She said, “The price is $199.” I said, “Offer $185.” And they took it, right?

Felipe:
Deal analysis right now is very important, because if you are bankable, if you have cash reserves, if you’re securing a long-term debt, you are able to continue to purchase properties. So, that’s a perfect example of just continuing to analyze deals because when one comes at you, you are able to make a move on it. Pounce on it, if you will.

Ashley:
Yeah. And I want to talk about the numbers. You mentioned having tight numbers. You don’t want to overestimate what the rents are. Don’t say, “You know what? I think I can get $1,000 a month.” Really do your research and look at other listings. Go to even Craigslist, Facebook Marketplace, apartments.com, and look at what other properties are listed for in your area. Start a little Excel sheet saying, “Okay, here’s the addresses. These are what they’re rented for.”

Ashley:
Go back and check every week. Are these places getting rented? Are they still being listed? And just track it for a while, and you’ll start to see a pattern, “Okay, this apartment that was for $600, for a two bedroom, that it rented immediately, it’s no longer listed.” Or you can even call around, and call property management place, and just say, “Hey, what apartment does this apartment complex rent for?” And stuff like that. And really low ball your rent income.

Ashley:
When I see a deal analysis, I want to see the lowest you can get on there as your number. Because, going forward, if we have another recession, you might see rents drop, or you might see them increase. You don’t know, but you want to, you rather have that rent increase as just extra money. Extra cashflow that’s not already worked into your numbers. And then I want to see insurance, property tax, water, garbage fees. All of those fixed expenses, I want to see you overinflate those.

Ashley:
You don’t know when your property taxes are going to be reassessed. So, the city of Buffalo did an assessment this year and my property taxes went up. I’ve owned the building for three years, and it’s still not as high as I had put in as my property tax number when I ran the deal. Because I always like to put that little buffer, and knowing that going forward, my property taxes aren’t going to kill my deal if they are going to go up. So, I always like to overinflate as much as I can, but I don’t over-exaggerate where you’re never going to find a deal.

Felipe:
That’s where you get into analysis paralysis. Don’t go way overboard. One of the things that I do with finding tenants and making sure that I get… Or that I know my numbers regarding what tenants can pay, or be willing to pay for rooms and stuff, is I see what other people are posting. And I’m like, “Okay, how long did it take Joe Schmo to rent his room that he had up for $800? Oh, it looks like Billy Joe Bob put his for $600, and it went off the market in two days.”

Felipe:
Joe Schmo maybe here he’s got it for three months and still hasn’t rented it, I’m going to probably get somewhere in the middle. Take some really good pictures, a really good description, maybe even a video. And then I’m going to fall in the middle, and I know I’m going to get taken up pretty quick. So, I don’t want to be at the top. I run my numbers at the bottom, but I rent in the middle. Does that make sense?

Ashley:
Mm-hmm (affirmative).

Felipe:
Yeah, I look at the top, I say, “Okay, that’s a potential. I know that I can get this, so I’m going to rent right in the middle.” But like you said, I run my numbers based on the bottom.

Ashley:
Yeah, that’s a great advice, because I’ll do one as the exact numbers, like as of today, if it’s already rented, or what I think I can get right now. And then what the exact property taxes are to the dollar, what the exact insurance would be. And then I run it like that.

Ashley:
Then I run the inflated one, making sure that it still works that way. And that’s what I go off of, the inflated one. Because property taxes can change, insurance can change. You might get a tenant that washes their car every single day in their driveway, and your water bill goes up. Actually, a quick-

Felipe:
I end up, when I go to properties, I take off the hoses. That’s like-

Ashley:
I have a quick story, real quick.

Felipe:
Oh, that’s got… Go ahead, tell me.

Ashley:
This is one property I bought, it was maybe my fourth or fifth one. And when I did the inspection, I wrote down, “The faucet for the exterior of the house isn’t even hooked up. We want that fixed.” Then the guy told me, he said, “Well, I do that so that they can’t wash their car in the driveway.” And I’m like, “Great idea, leave that.” You know?

Felipe:
That makes sense. I’m going to do that. They would have to pay a plumber, or somebody to come out. That’s hilarious. I love that. So, actually, deal analysis, yes, is very important, guys. Definitely be doing that. And that fills just into our next topic. Ashley, do you want to bring that in for us?

Ashley:
Sure. We’re going to talk about leases. And going forward, what your lease should have, or shouldn’t have, because I bet a lot of you don’t have pandemics listed in here. Leases do.

Felipe:
I don’t. I don’t.

Ashley:
What’s going to happen? A couple of weeks ago we had Steve Rosenberg on the show, and he actually shared with me his emergency preparedness manual that his property management company uses. And I thought that was very great. They even had a section on it about pandemics, and what the steps the property management company will take, and what steps the residents should expect, and what they should do during this time.

Ashley:
They had it listed for, if there was a war, if there was a fire, if there was a flood, a hurricane. It goes so on and so on, and you don’t need anything large like that. I’m sure you can go out and purchase samples, or find a free samples, probably online, of an emergency preparedness manual and tailor it yourself. But let’s talk about leases. What’s one thing you think you’re going to add to your leases, going forward, on renewals, or any new tenants you get?

Felipe:
Absolutely. I love this topic because revising your lease right now is very important. As whether you have a lease coming up, one of your tenant’s lease is coming up and you have to renew the lease, you might want to add something about pandemics. And how you’re going to accept or not accept certain rents, or deferred rents, or whatever the case may be, but giving tenant, maybe, that option.

Felipe:
And I would revise my lease now, going forward, every year. What I would do is probably call my bank and say, “Hey, what options do I have if we’re in a pandemic, or we’re in a war?” Because the banks, surely, are going to have something. And then you’ll be able to reflect that onto your lease and say, “Okay, if my tenant can’t pay, I know the bank does this, so I’m going to merge that.” Because you’re just the person in the middle, right? Rent comes in, you take the cashflow, you pay off your mortgage.

Felipe:
I think, for me, personally, is I’m going to have a little bit better communication with my bank. Find out what options I can give to my tenants, going forward, if we ever have a pandemic again, or a war, or things that are possible, that can happen. And you want to make sure you have those in the lease.

Felipe:
I believe Brandon Turner, from the OG show, says that his lease is like 14 pages long. When I first heard that, I was like, “That’s insane. Mine is like four.” But I get that now. You have to think of every possible situation and really protect yourself. So, when it comes to leases, I’m definitely going to be revising my lease and making sure that I have an open communication with my bank to what options that I can forego to my tenants.

Ashley:
Yeah, think the lease has definitely become more and more important for me than it did when I first started. When I first started out as a property manager, it was a two page lease that was given to me when I started the job to start doing. And I think mine has maybe now up to seven pages, I think. But I love to use it as the rule book, the law, or the decision maker.

Ashley:
Instead of being the bad guy, I say, “It says in the lease that this is what we would do, or this is what happens, or you’re responsible for this, per the lease. We both agreed upon this when you moved in.” So, I really like to rely on my lease for that kind of thing. And I think with the pandemic, thinking about other things that should be added in, I really don’t know if there is such a thing as a lease that’s too long.

Ashley:
I remember, when I… It was, I probably worked for a property, or worked as a property manager for a year. And the guy who worked for his daughter was in college. And she moved into an apartment complex that was student housing and the lease was like 32 pages long. And I remember going through this. I mean, just every single little detail.

Ashley:
And they had to initial each paragraph, that they read it, acknowledged it, and went through it all. I thought that was overkill at the time, but now, as I’ve had more and more experience, say, okay, to think that there’s no such thing as a lease that’s too long.

Felipe:
Yeah, I agree 100%. I think revising your lease right now is very crucial, especially if some of… We’re supposed to be quarantined to our home. If we’re not supposed to be out socializing, take this time to revise your lease. Make sure that it’s tip top. Every T is crossed, and every I is dotted, to make sure that nothing slips through the cracks. Add things about a pandemic, because you’re living it. So, add those things to that lease.

Felipe:
I think that’s very important, to make sure that you’re revising your lease, having an emergency manual prepared. And just really, really, really tightening that belt of, “Oh, okay, we’re in the past.” We were like, “Okay, I’m sure everyone can pay their rent. We’re in a great market. We’re going to be okay.” You have a very skinny lease. I think right now the time, it’s really time to beef up your lease.

Ashley:
Yeah. One thing that I would like to add, going forward, in a lease is, talking about resources. My property management company did a great job of blasting out emails to residents. And this all started going on listing resources where if they’re not going to be able to pay, where they can get assistance from. I think that would be a great thing to put into the leases. If there is a circumstance where you can’t pay, whether it’s because of a pandemic, or something else, please visit these resources ahead of time or first before coming to us and tried to do that.

Ashley:
I think that there is a lot of help, and resources, and grants, or social security welfare, a lot of different programs that can help people pay rent. And I’d like to be more proactive on that, of being able to provide people with these resources so that it benefits both of us, going forward. And in the lease, I would like to put in there, “If you know you can’t pay, and you reach out to these resources.” I think that will make a better relationship between us, knowing that I want to help them as much as possible, “But here, try these resources first.”

Felipe:
I agree. I think that builds a tenant relationship, tenant rapport, and things like that. Okay, so we’ve talked about cash reserves, we’ve talked about securing HELOCs. We’ve talked about deal analysis and revising your lease.

Felipe:
So, moving onto the next part of our six things that rookie should be doing is, partnerships. If you’ve put these things into place, you probably expect your partner, if you’re going to get into a partnership with somebody, to maybe I’ve done the same amount of research, or be at least educated in what you want to do and bring to the table.

Felipe:
When it comes to partnerships mindsets, make sure that they’re bankable, make sure that their strategy is aligned with you in the future. Who do you want to partner with? Be looking at what you want to partner with, and who’s doing something at this time. There’s a lot there, so let’s break that down.

Felipe:
One of the things that I was telling Ashley, prior to the show was, “Hey, if I’m looking for a partner, I’m looking at what they’re doing right now, and how they are reacting during this time.” Are they running around, pandemic really just freaking them out? They don’t know what to do with the rents. They have a lot going on and they’re not prepared? It’s probably someone that I’m not going to want to partner with in the future.

Felipe:
Right now, if you have an idea that, “Oh, I want to partner with someone this year in buying another rental property.” Or, “I’m looking at this potential person.” Really be scouting that person and seeing how they’re reacting during this time. Are they doing what me and Ashley are saying here?

Felipe:
Are they revising their leases, getting bankable, continuing the good fight of renting or buying and hold properties? Are they doing things that align with what you want for your goals? And really just get, are they in that right mindset to weather this storm and get great advances on the other side?

Felipe:
That’s what I’m doing right now. I’m looking at people that I potentially want to partner with and seeing what they’re doing during this time, which is going to tell me what they’re going to do in the future if this happens again, if we’re in partnerships together.

Ashley:
If I would’ve known this pandemic was going to happen, and if I would’ve known Felipe was going to quarantine himself in Cocoa Beach… or not, Daytona Beach, right?

Felipe:
Daytona.

Ashley:
Daytona Beach, Florida, and I was going to be stuck here where it’s currently snowing today, I would’ve said, “No.” Knowing that last week I had to watch his beach view of the ocean, the beach, from doing the podcast. And today, I have, it’s snowing in my window. I said, “No, I don’t want to partner with him on this podcast.”

Felipe:
She doesn’t want to partner with me anymore. I have this beautiful tan out here from Daytona, Florida. I’m going well out here.

Ashley:
I just keep getting whiter and whiter. But in all serious-

Felipe:
No, but it’s true. I mean… Yeah.

Ashley:
But I want to-

Felipe:
You’re still laughing.

Ashley:
I know. I want to talk about how you talked about finding the partner, and how they handle what’s going on right now. How are they handling this situation? And I think it will be very important to watch that, to see if they’re going to be a good partner, going forward. I want to make sure that my partners are saving their cash reserves, still. They’re not freaking out. They’re remaining calm and cool, and that they’re in it for the long term.

Ashley:
They’re not texting me to say, “Hey, we should sell right now before the market drops.” I’m looking for people who are in this for the long term. And right now is a great time to study those potential partners, or even your current partners, if you’re going to continue to do deals with them. How are they handling this thing someone’s thought wasn’t going to happen?

Ashley:
I mean, who would have expected, a year ago, that we would be worried about collecting rent, and be quarantined in our homes. And how is your partner making use of this time? Or maybe they’re more busy and don’t have the time to grow your empire, or whatever, during this time. But it’s definitely something to keep an eye out, if you are looking to partner with someone, is how they’re handling it now.

Felipe:
I agree, 100%. Finding the right partner is crucial. That’s right.

Ashley:
And not even your business partner, but also, how is your accountant or your CPA handling this?

Felipe:
Oh, yes.

Ashley:
How is your attorney handling this? How is your property management company handling this? How is the bank handling this? Are you trying to get an SBA loan? Is your bank helping you through that process? I did one for my dad on Monday, and he uses a bank that I’ve never banked with, and it was the worst process ever. And I’m like, “You need to switch banks.” Going over my things. And so, I think this-

Felipe:
Yeah, that’s true. I didn’t think about your partnerships with those.

Ashley:
Yeah, so those are all people that are part of your partnerships. What’s that? The book, it’s called… Something about how all of these connections. As an entrepreneur, these are your key people. I think it’s called something like that, Key… We’ll put it in the show notes, but it’s how your accountant, your lawyer, all these people really help you grow your business, and they are a part of your partnership.

Felipe:
Yeah, I agree 100%. Partnerships are crucial. And I didn’t even think about reassessing my bank, my realtor, everyone that’s in my bubble, that helps me grow. Who is your team? We should have named these team players, not just partnerships.

Felipe:
But yeah, that’s true. We need to be evaluating everyone, and how they are reacting to this in a positive or a negative way. Are they out there still in the grinder? Are they saying, “Nope, I’m not going to send you any more deals. I have this to worry about.”? So, yeah, that’s perfect. I love that.

Felipe:
Double check everyone in your team. Make sure that everyone’s positively affecting you. And then re-evaluating if we need to make some changes on the other side. And that’s okay. I do it with contractors all the time, so no need to not look at the rest of my team as well. You want to introduce the last one there, Ashley?

Ashley:
Mindset. This is something Felipe and I both love and like to focus on, is your mindset. I think it plays a very important role in being a successful investor. Especially if you want to be a long-term buy and hold investor. You can’t panic, or freak out, or… You really have to have your mindset in a good place to handle these things, not knowing what’s going to happen in the future.

Felipe:
That’s exactly right. Mindset is crucial during this time. And one of the things that I was actually telling my mother-in-law, because that’s who we’re quarantined with out here in Daytona, I was telling her, I was like, “I feel like a lot of times people get emotionally attached to their money, which makes them make emotional decisions with their money.”

Felipe:
Like during this time there, they’re like, “Oh, I’ve got to hoard all this cash, and I don’t want to invest any of it. And I’ll just wait until the other side, to start investing again.” Which is the opposite of what I think people should be doing.

Felipe:
I think right now, I would be still looking for analyzing deals, making sure the numbers work, and still investing that money. Not being emotionally attached to my money, but more of a mindset where, “Okay, this money has to get deployed to make me more cashflow.” And not being scared that the market’s dropping.

Felipe:
We all talked about, right? “Oh, once the market drops, I can’t wait to buy more rental properties.” This is a perfect time for something like that. For you to look at the market, analyze a property, make sure that the numbers work, and then pull the trigger. It’s that, pull the trigger on buying a property that you know is going to work if you ran your numbers correctly.

Felipe:
And BiggerPockets has great calculators for this, right? Deal analysis, BRRRRs, flips, there’s great… on BiggerPockets, you can see all those calculators and you can use them. And I think if you have the pro membership, you can actually… there’s just a lot more that opens up to you. Right.

Ashley:
Yeah, you can use it unlimited times. You can go to biggerpockets.com/calc. And if you don’t have a pro membership, you can do, at least run five deals for free on the calculator reports. Yeah.

Felipe:
Yeah. So, using that to take the emotion out of it, and just seeing the numbers. You have to just be able to see the numbers, take your emotion out of it. And my youth pastor, when I was young, would always tell me, “Felipe, numbers don’t lie, they tell a story.” And that’s it. If you can get yourself away from the emotional attachment of your money is attached to this, that, the other, just say, “What do the numbers tell me?” And I go from there.

Ashley:
Right. And that’s the reason you have cash reserves, too, is so that if something like this happens, that’s what they’re there for. And you can’t be afraid to use your cash reserves, because that’s what they’re there for. They’re that safety net. You should be saving them for rainy days like these.

Felipe:
Right. Exactly. This is the rainy day.

Ashley:
Right. And don’t get yourself defeated if you have to go into those cash reserves, or if you have to tap into that line of credit. But make sure you’re doing everything you can to help your tenants find those resources to pay. This is still a business, and as much as we want to help them, you still have to prioritize your family too.

Ashley:
I mean, my family relies on the rental income. Your family relies on the rental income. And you have to have that mindset where you don’t want to be a dictator, is, “They’ll pay their rent now or I’m knocking on the door.” And you also don’t want to be like, “Oh, it’s okay. Just don’t pay me for six months,” either. Because then your business is going to fail. You have to find that happy medium.

Felipe:
That’s exactly right. So, mindset, super crucial. And the last thing I’ll say about mindset, I know Ashley is going to love this as well, is get involved in REI meeting. Get involved in Facebook groups. Definitely. I mean, Real Estate Rookie on Facebook group, follow us there.

Felipe:
And let me say something about real estate rookie, real quick. Guys, when you are requesting to be on there, make sure that you are agreeing to the terms. Because a lot of people are requesting to be on there and they don’t hit that they agree to the terms of the real estate rookie.

Felipe:
Make sure that you are saying, yes, you agree to the terms, or we cannot put you on there. I think we’ve denied four or five people because of that. So, go back, make sure that you agree to the terms and conditions of the Facebook group.

Felipe:
We want to make sure that everyone’s safe. And that there’s not a bunch of salesy pitchy stuff out there. We really want a community and a tribe of rookies that are bouncing ideas off of each other. And me and Ashley are on there all the time, so definitely go do that.

Ashley:
And I think that’s really growing, too. We’ve had so many people be interactive in there, and such great… I mean, things are posted and there’s, immediately, people are commenting, giving advice, or asking a follow-up question. I’m loving all of the interaction that everyone has on there. If you haven’t joined yet, just search real estate rookie on Facebook, and become a part of it.

Ashley:
And we’ve actually been doing some of our shows live on Facebook, too, on the BiggerPockets page. So, make sure you guys follow that page as well. But let’s talk more about meetups, and even mastermind groups. Because that goes along with mindset, and I even wanted to talk about that today. Is that can be something really important for rookies to be involved with right now.

Felipe:
Yeah, absolutely. The importance of having your tribe is crucial, because during these times is when you’re going to rely on that. I don’t know about you guys, but me, personally, I don’t have a lot of friends in real estate. One of my best friends is a stay-at-home dad. I think that’s awesome, don’t get me wrong, but I just don’t have other people to lean on when it comes to real estate investing, so I rely on the people I meet.

Ashley:
You mean in real life? Like, you have all your online friends, yes. I-

Felipe:
Yeah, yeah, yeah, sorry. I have all my online friends, yeah. I bounce ideas off of them all the time. But in real life-

Ashley:
Join our Facebook group so you can be Felipe’s friend.

Felipe:
Be my friend, please. I don’t have friends. No, my friends are not invested in real estate, and I’m okay with that. I love them to death, but I just can’t tell them, “Hey, can you… What do you think about this ROI on this property?” They’d be like, “Dude, what is ROI?” They don’t care. And that’s okay, because I’ve built my relationships with friends and family based on relationships, not based on money, and stuff.

Felipe:
But what I’m trying to say is, you still got to have that tribe to back you up. So, find those people in your community, in your city, find those people that are going to hold you accountable to your goals. And then that you’re able to bounce ideas off of as well. I feel like a lot of times people come and tell me, like, “Dude, I found some of my best deals at REI meetings.” And, “Or at my tribes.”

Ashley:
Yeah. And now, meetups are all virtual, right now, because you can’t meet in person. So, you can join a mastermind group. There’s tons of paid and free ones that they’re virtual all the time. Or maybe you even have a local mastermind group. But let’s talk about the difference between a mastermind and the difference between a meetup.

Felipe:
Sure.

Ashley:
A meetup is usually free, or a small fee, and you go when you can. And just, anybody can come to that. And maybe there’s a different topic you discuss, or it’s just social happy hour, and you just connect with people during that. Maybe the one that I go to, in Buffalo, there’s a 15 minutes in the beginning, where the guide that’s leading it talks a little bit, and then there’s a guest speaker. And then you break out and just connect with people the rest of the time. Then, a mastermind group, that’s more focused on what your current goal is.

Felipe:
Right. That’s exactly right. When you have a mastermind, it’s more of a directed, like, “Okay, I’m Felipe, this is my goal. Can you guys help me keep me accountable to this?” And if you’re paying for that you have someone that’s going to be grinding you, that’s going to be helping you, that’s going to be pushing you.

Felipe:
It’s more of like, if you go to the gym… Let me use this example. If you go to the gym, the open gym is social. Everyone can go, it’s great. That’s an REI meeting. You see power lifters, you see CrossFit, you see swimmers, you see it all, right? But you’re like, “Dude, I really want to get my bench press level up. I really want to get this massive, just big numbers on the bench press.”

Felipe:
You hire a coach to get you past that peak. Let’s say that you’re at a peak, right? So, that’s how I will use the example as a mastermind. A mastermind is like a coach that’s directly correlated to your goal. My goal is 10 properties by the end of the year, I want to join a mastermind that’s going to make me do that. So, I think those are the difference between REIs and mastermind groups>

Ashley:
I’m loving all your analogies, because that is perfect. That perfectly explains that we’re going to be more focus. My point of talking about all this is, if you are not involved in a meetup or a mastermind and you want to be in one of them, that, start your research now in finding one in your area. Now is the time to start looking, because for a meetup, there might be some virtual ones. But you’re not going to be missing the in-person ones, and you can take your time to find the right fit for you. Or even a mastermind group.

Ashley:
And then, even a mentor. If you want a mentor, that can even be more one-on-one. If you would prefer that than a large social setting, find a mentor. Search people on Facebook, Instagram, social media. There’s probably people that would do it for free. And then there’s some paid people too, but I’ve never heard, at least in my experience, heard anyone tell me that it wasn’t worth paying for a mentor. What about you? Have you-

Felipe:
Yeah, absolutely.

Ashley:
I mean, there’s the guru people out there, but-

Felipe:
Yeah, there’s all the gurus, there’s the, “Pay me $1 million-

Ashley:
The one-on-ones, I’ve-

Felipe:
… and I’ll teach you how to buy one rented property.”

Ashley:
Yeah, the one-on-ones, I’ve never heard of anyone saying that there’s no value in that.

Felipe:
Yeah. And then tons of people that I know that are legit in the real estate talk about adding value to… Like someone bringing value to them, and then they’ll be able to reciprocate, right?

Ashley:
Mm-hmm (affirmative).

Felipe:
I get tons of messages on my DM, that it’s this 20 paragraph thing of how they want to add value to me. And I’m like, “I’m going to read none of that.” When you’re looking for a mentor, or you want to just add quick value to them, bring something to the table and I feel like that’s going to be the quickest. So, build a… You know what? Even past pay, build an honest relationship with who you want to mentor from. Be genuine. That’s going to get you a lot farther than, “Hey, here’s $1 million, can you mentor?” Well, maybe I’m not going to be able to do that.

Ashley:
Right. Yeah. That is very true. And I-

Felipe:
Be genuine.

Ashley:
The person that mentors me, he said to me, “I believe in what goes around comes around. That if I help you, that in some way, I’m going to be helped in another way.”

Felipe:
I agree with that, 100%.

Ashley:
So, right now, I’m managing a social media account.

Felipe:
Oh, God. You love social media. That’s fantastic. And I know who it is. I won’t name him, but I know who it is. And I think that’s absolutely right. He’s a big player in the field, and I’m really surprised at his numbers, but they’re growing.

Ashley:
Yeah, you better like his-

Felipe:
I see what you’re doing there.

Ashley:
You better like his posts, yeah.

Felipe:
No worries. All right. So, let’s review these six, and then we’re going to move on to the next portion of the show. We have, number one, cash reserves, securing HELOCs. Deal analysis, revise lease for your future and now. Partnerships and mindset. Those are the six things that we are even doing right now as rookies. And every single one of you should be looking into the minimum those six things during this time.

Ashley:
Okay, let’s move on to the next topic we have today. Felipe and I had a lot of fun getting to write our own show today.

Felipe:
We did.

Ashley:
We’re going to talk about what we’re doing right now, what current deals do we have going on, and if they’ve been affected at all. So, why don’t you talk to me first about, I saw it posted on Instagram, about a deal that you have under contract.

Felipe:
Yeah, absolutely. I talked a little bit about… Earlier, I talked about the deal that I’m in, and that all comes from these six things, right? I have cash reserves, I secured long-term debt. I’m still analyzing deals, good partnerships, and getting mindset. So, I found this property for $199, and I was like, “Oh, okay. I’m used to paying $220 for that. The markets may be shifting a little.”

Felipe:
I put in a crazy low ball offer of $185, right? And that’s unheard of 30 days ago, right? I would’ve been paying $5,000, $10,000 more, but there’s, the market’s shifting So I offered $15,000 less, or whatever that number looks like. But I offered $185, and I got the deal. Now, I actually want to buy it for $175, so what I’m going to do from here is, I’m going to use my $300 inspection. What my inspector does is, he gives me a full report, and past that, he actually now has a system in place where a third party company will tell him exactly how much they will charge to fix every-

Ashley:
Wow.

Felipe:
… single thing on that report. Yeah. So, I use that-

Ashley:
Do you want to share that… Can you share that company?

Felipe:
I actually don’t know what it’s called, but I’ll tell you what, I’ll get it to you.

Ashley:
Yeah, find out.

Felipe:
I’ll get it to you guys, and I’ll post it on my Instagram if I can, if I can’t get it to the show notes. But I don’t remember what it’s called, but it’s just a third party company that will literally, dollar for dollar, exactly how much they will charge to fix it. And I use that as leverage. Typically, that number comes like 30, 40 grand. And I’m like, “Hey guys, if you give me half of that off the purchase price and some towards closing, we’ll continue with this deal. If not, I’m pulling out.”

Felipe:
And then I get it down to the lowest possible number that I can, and moving forward with the deal. And then, if you follow me on Instagram or YouTube, you know that on there, that’s my number that I use for the rehab. The equity in the property that I get, let’s say it’s 20 grand, I typically like to stay within that 20 grand to fix my property. So, stay tuned guys. The inspection is Monday, and I’ll let you guys know how that goes. What about you, Ashley?

Ashley:
And you can follow Felipe, @felipemejiarei, to stay up to date on this deal.

Felipe:
You always say it so funny. But, yes, that’s how you follow me on Instagram.

Ashley:
Right now, I don’t… Well, I actually, I do have one deal under contract. My husband is buying another farm, and it has 100 acres with a barn. And then manufactured home, and then two single family houses on it.

Felipe:
Wow.

Ashley:
And we actually found out it’s going have to be a short sale. So, this will be our first time doing a short sale. Luckily, we received our commitment letter from the bank, right when this pandemic hit the US. Nothing was crazy with the SBA loans, or anything like that yet. Everything is rolling along. We’ve ordered the appraisal, everything like that. So, that deal has not been affected by that, yeah. And then the next thing I’m working on-

Felipe:
What about your rehab?

Ashley:
Yeah, that’s what I was just going to say now. I have my rehab going on for a commercial building I purchased. I started the rehab in December, and we’ve been rehabbing one retail unit, and then completely gutted, and started one bedroom apartment that we’re working on. And right now, I have my partner, he’s tiling the bathroom floor right now.

Ashley:
So, I’m getting excited that it’s getting closer and closer to being done. And actually, it’s worked in my favor, because he, right now, would be doing landscaping. He has a landscaping company and he cannot do that, because in New York state, it’s essential services only, so landscaping people’s guards, it’s not. And so, he’s had a lot of time to work on the rehab this week.

Felipe:
Getting him to work. But that’s the crucial of a partnership, right?

Ashley:
Right.

Felipe:
You’re doing this and he’s out there working, and he’s not like, “Hey, Ashley, you don’t need to be doing that. You need to be helping me here work.” That’s the importance of partnerships. That he’s out there working, he’s letting you do your thing, because you’re also out there working a lot. So, sorry, I didn’t mean to cut you off, but I love that.

Ashley:
And I did deliver him a coffee and breakfast this morning too, because I did feel bad that I wasn’t there to help this morning. So…

Felipe:
“You’re going to do all this tile work, I’ll bring you some coffee.”

Ashley:
Yeah.

Felipe:
That’s hilarious.

Ashley:
But I have been thinking about, if our… I’m doing this as a burst strategy. So, I purchased it, I’m rehabbing. Then I’m going to rent it out, and then I’m going to go refinance it. And then repeat it for another property. But I am curious-

Felipe:
It’s perfect.

Ashley:
… as to if this will affect my refinance. As of right now, we’re planning to refinance, hopefully in July, once we have everything rented and we still have one more unit we need to renovate in there. So, it will be interesting to see. As of right now, we have cash into the deal only. It’s not like we have a mortgage payment we have to worry about, but we’re still paying holding costs-

Felipe:
I see.

Ashley:
… such as insurance, property taxes on it. And actually, our insurance is pretty high on it just because we are doing the rehab. So, I would like to switch over to a more long-term insurance policy-

Felipe:
To get out of that.

Ashley:
… once we do finish up the rehab. Yeah.

Felipe:
Very cool. Very cool. Yeah, and then, Ashley, go ahead and shout out your Instagram, because I want to tell people about-

Ashley:
You don’t know it that you can’t shout it out for me?

Felipe:
Wealth From Rentals?

Ashley:
Yeah.

Felipe:
Of course, I wanted you to say it, though. Okay. Anyways, go follow Ashley on Wealth From Rentals, on Instagram, guys. She posts great videos on how she does her rehabs. And I think it’s really crucial because you get ideas on, “Oh, maybe I could do that, or do this.” Or maybe use your kids for labor, I’m just saying. I’m just saying.

Felipe:
Ashley does that, I’m just saying. I love when your kids come in with a box, or something, and they’re looking around. And you’re in there grinding it out, and your kids are walking. And like, “Let’s go.” I love that. They’re going to really appreciate that when they grow. I can’t wait to use my son for free labor, as well.

Ashley:
Let’s move on to our segment called The Real Estate Rookie Requests Line. This is where you guys can call in and leave us a voicemail with your question. Today, we have actually two voicemails for Felipe and I to answer. So, you can call in at 18885 rookie, and leave us a voicemail at any time, and we could play yours on a show.

Josh:
Hi, Ashley and Felipe. This is Josh, from the North Jersey. Oh, the question about a quadplex that my wife and I are looking at. We’re going to be first time home buyers and wanted to use that extra leverage that you get with a first time home buyer, to try and get into a large quadplex. But in North Jersey, here, it’s over $1 million, and conventional financing might not be the easiest thing to do. How would you guys recommend going about trying to get seller financing on this kind of a deal? Thanks.

Felipe:
To answer Josh, one of the first things that I would do is I’d make sure I run my numbers, right? I would make sure that I have the numbers down tight conservatively. And if the numbers work, with saying, “Hey, I’m going to move into one side. I’m going to be able to rent the others for cashflow.” I don’t see why a bank wouldn’t finance it.

Felipe:
And if you have to get seller financing from whoever is selling that property, just make sure that you have a large down payment down, or find out what the seller really wants. Sometimes, the seller doesn’t necessarily want money. I have found, in the past, that if I find out what the seller really wants and needs, and I can meet that need, then we can come to an agreement.

Felipe:
I would tell Josh, don’t go in just assuming that the seller wants money. If it’s maybe an older gentleman, or an older couple, or whatever the case may be, and they’re like, “Well, you know what? I still want the cashflow, but I just don’t want the headache anymore.” “You know what? What if I can match the cashflow every single month, but you don’t have the property anymore? I’ll give you the same amount of cashflow, and you don’t have to do worry about the tenants. I’ll take over for that.”

Felipe:
Or what if they just want a large lump sum to get their kids through college? Figure out a way to do that. So, find out what the seller really wants, because it’s not always money. Build that relationship with that person if you have to do seller financing. Find out what they need, try to meet that need. That’s what I would tell Josh.

Ashley:
Yeah, and I think Josh, maybe he’s referring to that since it’s over $1 million, that it’s a huge down payment if you’re going the conventional way, or maybe seller financing you that down payment will not be as big, upfront. So, it would be easier to get into the deal. And my recommendation would be to write it out. Write out your offer, lay out the numbers.

Ashley:
When I did seller financing for a guy, I asked for it. He didn’t offer it at first and I wrote down, like, “This is the interest rate I would pay, and this is what my monthly payment would be to you. And this is how much interest you would make.” And then I added that interest to the purchase price and said, “Look at, you’re actually going to be making this much off of me. Even though I’m only offering this purchase price, you’re still going to be getting this much interest off of it.”

Ashley:
I would also supply him with some financials about you. Whether it’s your tax return, or your credit report, and maybe credit references from banks, or maybe other people who have loaned you money, or something like that. Make sure he can see that you are going to pay, and that you’re a reliable person. Because that can be scary for someone who is doing seller financing if they don’t know you, and that, how are they going to judge if you can pay or not?

Ashley:
And give them that information up front, showing them that you don’t want to hide anything about yourself. And that you are credible and you will pay. I think the more information you give them, the better chances you will have of getting that seller financing.

Felipe:
You give way better answers than I do. I’m even listening. I’m learning.

Ashley:
Okay.

Felipe:
Take the next one, Ashley.

Ashley:
I’m not going to argue there with you. Just kidding.

Felipe:
Thanks.

Ashley:
Okay. So, the next question we have is…

Brenna:
Hi, my name is Brenna Crowe. I’m currently living in Boston, Massachusetts. And my question is, when you think the BRRRR strategy, what’s the difference with using traditional bank lending versus hard money? Especially how it affects your cashflow after refinancing.

Brenna:
I’m currently working on my first BRRRR deal, and it’s out of state, in Virginia. So, aside from being super nervous, I’m a little confused on how using hard money and traditional lending differ. If we refinance, is it going to lower the cashflow?

Brenna:
We’re going to be putting 25% down and have the property under agreement for $140,000. I think the renovations are going to be about $30,000. And then, afterwards, it’ll probably be worth around $210, to $220. On the low end, the rents for both units combined would be about $1,750.” Thank you, guys.

Felipe:
Okay. The biggest difference between bank lending and hard money is, hard money is going to have a higher interest rate and it’s going to come from a private company, or someone with a ton of money, or something like that. Bank lending is going to have probably better interest rates, but it’s going to be harder to get. I traditionally still go for bank lending. I try to keep myself bankable. I try to not be over leveraged.

Felipe:
And I try because it’s the least amount… or it’s the lowest interest rate, so it secures my cashflow to be as high as possible when getting a bank loan. Hard money is typically also on shorter terms. You have to pay that money back quicker. Four, or five, six years, maybe one year. It just depends on how you set it up. So, it’s very, very, very important that you read the rules of your hard money versus your bank lending, and things like that.

Felipe:
One of the things that I would want to tell Ms. Brenna as well is, make sure that you know how much rents are. Make sure that you know how much the ARV is going to be. Make sure you know how much the renovations are going to cost. Please, please, please do not assume anything. Don’t assume rents are going to be this much. Don’t assume the renovation is going to cost as much.

Felipe:
Do your due diligence. Have a contractor go through and look at it, and give you hard money within a couple of hundred bucks, of how much this should cost. Find out what rents are in that area, and what is the minimum you’re going to be able to rent that property for. And run your numbers based on that.

Felipe:
And lastly, and one of the most important is, if you’re going to BRRRR the deal, talk to the bank, or a couple of banks that are going to offer you the refinance on that property. Tell them what you’re going to do. Show them the numbers, that you can find that on BiggerPockets, on their calculator there. Run the numbers, take it to the bank and say, “Hey, can we do a refi on this?”

Felipe:
Something that I have found out recently is you can actually start that process and pause it. And what I mean by that is, you can actually start the refinance application and finish it once the property is done. Because they want to see your financials, they want to see your license, they want to see your taxes. They want to see all these things and just say, “Okay, I want to start the application.”

Felipe:
You can freeze the application, and when you’re done with the refinance, then you continue it. And that’s something that I learned recently with my refi. I sent in all my information, and now I’m able to refinance the property. So, you have to have all that in place and make sure that you’re not guessing on any of your numbers. Please, please, please don’t guess. Make sure that you have solid numbers so you don’t have a hiccup, or a surprise when you’re going to refinance that property. That’s what I would tell Ms. Brenna.

Ashley:
Yeah, that was really great, Felipe. Great job explaining that. Let’s talk about, now, if she does refinance, is it going to lower the cash flow? So, right now, your mortgage is lower than when you go to refinance, unless you refinance for the same amount. It really depends how much money are you going to take back out of the deal when you go and refinance. Because your mortgage payment could possibly be higher if you’re taking more money out.

Ashley:
It also depends on the terms of the loan, too. I mean, maybe your first loan is only a 15 year amortization, and this new loan would be 30 year amortization, which may make the payments a lot closer to what the first loan amount was. So, there are a bunch of different variables, but just looking at it, I would say, generally, yes, your payment will go up, which would affect your cashflow, if you are going to take more money out of the deal.

Ashley:
If you’re going to try to take as much money out as you can, then your monthly mortgage payment is going to go up, and that would reduce your cash flow. So, you need to look at, how much money do you want to leave into the deal, and then your cashflow will be higher? And how much money do you want to take out, and your cashflow will be lower.

Felipe:
She’s still going to have some money in the deal?

Ashley:
Yeah. She would not get all of the money back.

Felipe:
All of it.

Ashley:
So, I would caution, if she is going to use a hard money lender, how much exactly is she going to be borrowing from them?

Felipe:
Right. This is a perfect example of tightening up your numbers and figuring out exactly how much the rehab is going to be. Because if you think you’re only going to be able to get that percent back, it’s 17, that’s not your full 30 back, are you okay with that? You’re not always going to get all your money out. And I’m okay with that, leaving some money in the deal, but can you live without that money? Is the question, right? Can you continue on with having a little bit of money in your deal?

Ashley:
And then she also asks, when she does the refinance, if this is going to affect her cashflow? The rents will be, it says about $1,750?

Felipe:
$1,750.

Ashley:
If she did a loan amount out, $157,000, say 5% interest, amortized over 30 years, that’s about like $100… Or $840 a month would be her mortgage payment. Just principle and interest, not insurance and property taxes.

Felipe:
Not insurance, yup.

Ashley:
So, it-

Felipe:
So, she has to look at her property taxes and insurance as well, to figure out what her cashflow is going to… Will it be affected? Yes. It’s up to you whether it will be negatively or positively affected, based on the research that you do, of how much your insurance is going to be, and how much your tax is.

Ashley:
Yeah. And her first loan was only $105. That mortgage payment would definitely be a lot lower. So, yes, when you refinance for a larger amount, your mortgage payment will be higher.

Felipe:
Ooh, good job, Ashley. You got put on the spot there, you crushed it.

Ashley:
Okay. So, let’s wrap it up, going back over our six things rookie should be doing right now. First we have cash reserves. Two, securing HELOCs, long-term debt. Make sure you are bankable. On deal analysis, tighten those numbers up. Practice, practice, practice doing that deal analysis. Do your market research, what kind of rents are coming in. Or even if you’re a flipper, what are the comparable sales in your neighborhood? Track it over the coming weeks. Is it changing?

Ashley:
And then number four is, revise your lease, if necessary. If you think there are things that this pandemic affected, that weren’t in your lease, go ahead and put them in for any future tenants you have, or for lease renewals. And number five, we have partnerships. Evaluate your partnerships, not only with your business partners, but with your accountant, your attorney. Your property management company, your contractors. How is everyone handling what’s going on?

Ashley:
And then number six is mindset. Set yourselves up for success. There are so many great resources online of how to get into the right mindset to be a successful real estate investor. If you guys want, we can even do some book recommendations to you. At the top of your head, do you know a book you can recommend right now to get yourself into a good mindset, Felipe?

Felipe:
100%, Tax-Free Wealth, the second edition. The BRRRR Strategy book at BiggerPockets is really, really good.

Ashley:
Yeah. Yeah, those are all great books. And the one I would add, that I’m reading right now, is The Daily Stoic, talking about a great impact on mindset. I like the way it makes you think a little differently. Okay.

Felipe:
That was it.

Ashley:
Anything else you want to add today, to today’s show, Felipe?

Felipe:
No, I think those were great, and I’m glad people are listening to the show. Definitely, rewind this, listen to those six again, individually. And then take a little bit of notes. I know that I’m actually going to go back and listen to what you said. Not that I’m creeping to see if you’re a potential partner, but I want to see what you’re doing during this time. But, yeah, no, I think that was great.

Ashley:
Okay. Well, thank you, everyone. And don’t forget to check out our Facebook page, The Real Estate Rookie. I am Ashley Kehr, and you can find me at Wealth From Rentals. And my co-host is the Gap Model, Mr. Felipe Mejia. And you can find him on Instagram, @felipemejiarei, and you can shop his looks on his Instagram.

Felipe:
Oh my gosh. No, you can’t. All right, guys, we’ll see you later. Thanks so much for tuning in. Bye, Ashley.

Watch the Podcast Here

In This Episode We Cover:

  • How to secure long-term debt now
  • How to make yourself bankable
  • Why now is the perfect time to practice analyzing deals
  • Why you should take a fresh look at your tenants’ leases
  • How to make yourself an attractive real estate partner
  • What balloon payments are and how to plan for them
  • Emergency preparedness procedures
  • Getting your mindset right before jumping into real estate investing
  • And SO much more!

Links from the Show

Books Mentioned in this Show:

Tweetable Topics:

  • “You want to find people that are willing to pay and can pay.” (Tweet This!)
  • “There’s no such thing as a lease that’s too long.” (Tweet This!)
  • “The importance of having your tribe is crucial.” (Tweet This!)

Connect with Ashley & Felipe

If you've been telling yourself, "I'll invest in real estate when prices come down," well... that time may be coming. So, what should rookie real estate investors be doing now to prepare? In this episode, we outline six action items—from shoring up your financial position to making yourself an attractive partner.