Rookie Podcast 08: Why Pay Someone Else’s Mortgage? Ditching $20K/Year Rent with Mallori and Lucas

Rookie Podcast 08: Why Pay Someone Else’s Mortgage? Ditching $20K/Year Rent with Mallori and Lucas

55 min read
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Banks tend to love a certain type of borrower… and Mallori and Lucas don’t quite fit the mold.

They’re not 9-to-5ers. They rely on tips and seasonal work. And they live modestly but aren’t swimming in cash. So, when they took the plunge into real estate investing—in pricey Tacoma, Washington—they had some work to do to become “bankable.”

Today you’ll learn how despite a few roadblocks, they dumped their rent payment and pulled off their first-ever home purchase: a house hack in an up-and-coming area. From shopping around between banks, to securing a “rehire” letter to verify employment, to negotiating “early access” to the property and doing some repairs before closing, this episode is full of great tips for those just starting out.

Also—it’s a reminder that “sweat equity” doesn’t always mean physical labor. Sometimes it’s just as important to stay focused and organized when it comes to the huge amounts of paperwork involved in a real estate transaction!

Let us know what you think of the show in our Facebook group (just search “Real Estate Rookie”), and subscribe so you won’t miss out next week. See you 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 Eight.

Mallori:
I had to face fear, because I had been so against owning or having a mortgage. But what always got me over that fear is running the numbers. Look, we can live in this duplex and be paying $400 a month for our mortgage. That’s insane. So, let’s do this.

Lukas:
Yeah. And ultimately, we were going to be paying a mortgage one way or another. It was just a question of whether it was ours or someone else’s, and that’s really kind of what a lot of it was anchored on.

Ashley:
My name is Ashley Kehr, and I am here with my co host Felipe Mejia. If you’ve ever heard the phrase waiting on a woman, that is Felipe today, after my 30-minute wait to record this in show.

Felipe:
First of all, first of all, Ashley thinks it’s funny but I actually legit just had a heart attack. Basically, I’m on here on Zoom, we’re ready to record, I got my garage band set up, I’m ready to rock and roll. And my computer freezes the moment I hit record. Now I’m freaking out because this could have been a live show and I’m like, oh my gosh. And Ashley is just watching me on the screen cracking up, and I’m freaking out because everything just froze, I’m having to reset my life here. And terrible.

Ashley:
Yeah. It was funny because I could only see you on your facial expressions, and I couldn’t hear you, so I had no idea what was going on until you texted me. And then, I completely lost video of YouTube. But before we go on into the show, I want to thank everyone for joining the Real Estate Rookie Facebook Group. We have close to 4000 members already in the group.

Felipe:
Yeah, and that’s a lot of people. And it’s awesome because I’m sometimes scrolling through there, and I see that people are posting the deals, or what they’re doing during this time. And a lot of really good wisdom is coming out of it because people are commenting, they’re saying, they’re saying that. Very positive energy in there, and I love it because people are taking action and still contributing, which is great. Now let me do put a reminder out there, a quick PSA, if you’re going to join the Facebook group, Real Estate Rookie, make sure that you agree to the terms and conditions at the very bottom before you submit because we will decline you if you do not agree.

Ashley:
You’re so strict.

Felipe:
I [inaudible 00:02:14]. Well, there’s someone out there stricter than me. I know she’s listening.

Ashley:
Yes. Okay, so on today’s show, we have Mallori and Lukas. We actually recorded the show back in March. And then Coronavirus happened, and we kind of switched gears, did a couple live episodes for you guys. But we talked to Mallory and Lucas earlier this week, and they said that not a lot has changed for them. So we want to play their episode for you guys today, because there’s so much value from what they said, especially about how they got finance.

Felipe:
Yeah, exactly. One of the things that I really like about Mallori and Lukas was that they don’t have the typical W2 job. They don’t fit the mold, if you will. They’re not like a nurse and a doctor, or something like that. It’s like, I think Lukas is a firefighter. He fights he wildfires, God bless him. And Mallori is a barista and get tips, and it’s not all on the W2s. And it’s just kind of crazy there, and they’re still able to invest. So, don’t let those things hold you back.

Ashley:
Especially now, I’ve seen a lot of lenders are tightening their standards as to who they’re going to loan to, how your credit score and showing more income more reserves. And Mallori and Lukas talk about how they got financing, building their credit, lowering their debt to income ratio.

Felipe:
Yeah, exactly. They’re definitely talking about strategies back in March that are very, even that are still real relevant today during Coronavirus time. And they didn’t expect this to happen, but they were talking truth and it’s still relevant today. Now, for those of you who don’t know, basically we recorded this episode back in March. We’re letting it out now, because we wanted to bring different value while Coronavirus is going on. It’s still there, but we wanted to bring Mallori and Lukas’s episode to show that things that were if you prepare even pre-Coronavirus, you can still implement those strategies today.

Ashley:
Yes, so let’s bring them on.

Felipe:
Mallori and Lukas, what’s going on guys? So, excited to have you on the Rookie Real Estate Podcast. We’re so excited to dig into what you guys got going on, so tell us a little bit about yourself. I mean, who are you? What do you do? Talk to us.

Mallori:
Oh, man.

Lukas:
Begin.

Mallori:
Yeah. Well, I’m Mallori, obviously.

Lukas:
I’m Lukas. We live in Washington [inaudible 00:04:27] Olympia, Washington right now. Just bought a house in Tacoma, Washington. Mallori is a barista. Works at a coffee stand here’s, kind of a common business platform here. And then I am a wildland firefighter for the Department of Natural Resources here in Washington.

Felipe:
Cool. Cool. That’s amazing. Tell us a little bit about what you guys do in real estate, and how you even got started.

Lukas:
Boy, we kind of got started with a roommate situation gone wrong. We were living with some roommates last Summer, kind of ended up finding out that we’re going to have to move out of that situation and look for something different. And here in Washington the way the rental market is, prices are so high right now you’re kind of splitting hairs between paying the mortgage and paying rent. And so when we were looking for a new place to live and kind of looking at what was available for rentals in the local market, we shifted the conversation a little bit to maybe purchasing a property. And it all kind of snowballed from there into a conversation about some sort of a more investment oriented property. I think it was me, originally. I had a coworker, one of the pilots that I worked with in fire that mentioned bigger pockets to me, hey, Coby.

Lukas:
I started checking that out, and listening to the podcasts. And from there, we really kind of just started

Mallori:
[crosstalk 00:05:34].

Lukas:
… Devouring information all over the place. It was a lot of Bigger Pockets podcasts, so I got into some audio books.

Ashley:
You do.

Lukas:
I ordered a couple of books, lots of YouTube. Yeah, lots and lots of YouTube. And just started consuming information. And then when I got out of my fire season and had a lot more free time, we really got serious about shopping for what was available in the local market, and figuring out what might work for us in that area. And it was a bit of a transition. I think Mallori, initially, we grew up in an age where we were a little nervous maybe about committing to purchasing a property. And at the same time, then the more we started looking at house hacking options and things like that, we realized that it could actually be…

Mallori:
Liberating.

Lukas:
… Liberating financially. And hold conversations kind of snowballed from there for us.

Mallori:
Yeah.

Ashley:
I love that. Obviously, Felipe and I love BiggerPockets and are big supporters. But how long did you do your research and your analysis before you actually started shopping for a deal, like you got your pre approval, you’re ready to go? How long until you took those steps to actually purchase?

Mallori:
Well, I’d say we started listening to BiggerPockets in August of last year. And then we put an offer on the house that we ended up buying, I believe either at the end of October or the beginning of November. About two or three months of [crosstalk 00:06:51].

Felipe:
Wow, that’s really quick. You don’t hear that often. Most of the time, people stick around and analysis, and analysis, and then they get into analysis paralysis.

Mallori:
Totally.

Felipe:
I’m going to jump a little ahead here. How did you get over that fear of investing? I mean, you, you only hurt for just a little bit.

Mallori:
For me particularly, I was nervous about owning a home. My coming of age was during the financial crisis, so owning a home and having to pay a mortgage for 30 years felt like, wow, like a revolving chain that I do not want to deal with.

Felipe:
Too much commitment.

Mallori:
We both… Yeah, seriously, and we both love to travel a lot, so I’ve always wanted to be able to do that. But then, Lukas’s somewhere mentioned house hacking, and how we could actually make money owning property. And so, that made logical sense to me. So, I just was actually full on board with that. And then, so that was how I got out of my analysis paralysis. And then once I decided to do something, I do it.

Felipe:
Because it’s going to happen.

Mallori:
Yeah.

Lukas:
Well, and yeah, and I think a big part of the transition for us too was just, as we were gathering information, it was like trying to figure out how that actually manifested itself in our local market. And that’s where the shopping really was as much just trying to see what was reasonable in our area. And it was a pretty interesting learning lesson first, to look at different things like the one percent rule. And for us, that was something that was really hard to find price wise in our market. It’s not easy to find a duplex in this area for under $300,000. And with rent rates as high as they are, it’s still tough to hit that one percent mark.

Lukas:
So it was initially just trying to find out what was even feasible in our market, and compare that against what we were learning in the books and podcasts we were checking out. And then from there yeah, it was… I mean, that was, the house we bought was actually the second property that we made an offer on to. We had made an offer on another one. I think it was a little bit earlier in October, maybe. And that didn’t end up panning out. Funny and looking back, it ended up selling for a little bit less than…

Mallori:
Less than what we offered.

Lukas:
… We offered on it. But yeah, so it was just a matter of kind of looking around and seeing what was realistic. And then when the opportunities were there, and we kind of had a rough idea of what kind of timeline we needed to get the whole thing off the ground before I would be returning to work for the Summer was kind of like, let’s do this.

Lukas:
It was a lot of taking it one step at a time. We didn’t worry too much about making initial commitment where if we made an offer on a house and it didn’t work out, or something didn’t work out somewhere along the line, we always knew we could kind of back out at some point. So probably five days after we’d actually closed on it, and we realized the whole thing was very real and it’s time [inaudible 00:09:34] from there. Just taking little bites as we went through the process, and then finding our way through it. It really, that’s still where we’re at is just taking things one step at a time.

Ashley:
Yeah.

Mallori:
Yeah. One other thing I would add too is that when we were thinking about buying versus getting into another lease, we realized that, that’s throwing away 20,000 plus dollars. So do we want to just throw that out or…

Lukas:
No.

Mallori:
… Or take a leap and do this?

Lukas:
I think that’s a big part of what it came down to for us, was we’re going to be spending this money one way or another. And it either can go into our own equity, or it can go into somebody else’s. And that was a big part of encouraging us to kind of take the leap initially, I think.

Ashley:
Now when you were where you bought your house, was that your first location you wanted to buy in? What made you decide, or how many areas did you have to look at? And what were the key factors on deciding where to actually buy, what location? In some places, it’s not affordable for most people. So, how did you decide what market you were actually going to go in? And was this your second, third market you looked in?

Mallori:
We were pretty flexible about where we would buy. So Lukas works, he’s gone all Summer fighting fires. And where we live, it doesn’t really matter because he’s gone all Summer, and then is home for the wintertime. So for us, it was more of my work. So as long as we were 30 minutes from my work, we were willing to buy. So that was all along the [inaudible 00:11:08] Corridor, and then East West, 30 minutes, so that was a pretty big swath of towns that we went in.

Lukas:
Yeah, a lot of variability there too. I mean, south of where we are in Olympia is a little bit more rural, it’s a little bit smaller town. And then north of us is Tacoma, and right in the middle of that is Olympia. And there, we kind of had the good fortune of being in a spot where 30 minutes this way and 30 minutes that way were pretty different markets as far as what was available. And also with everything in our area, I mean, everything in the greater Seattle area up and down, The Puget Sound areas is growing, and you have a pretty stable rental market and growth pattern there pretty much regardless. So, it was kind of a matter of just finding something that was [crosstalk 00:11:52]

Mallori:
Where the numbers worked.

Lukas:
… For us. And the house that we initially offered on was south of us in a little bit smaller town. That one kind of had, we were a little bit nervous about how consistently we’d be able to keep renters in a property in that area, despite the fact that the available properties were a little bit more affordable on average. And then the house we ended up buying was one I’d kind of, it was pretty poorly redone. And most of our shopping on Redfin, and it wasn’t presented very well. There was like one picture from the outside of the Isles.

Mallori:
It was a google street view.

Lukas:
Yeah, it was a street view photo, and it was like one I’d had saved for a while. And I kind of mentioned like, hey, maybe we should do a drive by on this one sometimes. And when we finally got access to check the place out, we went in, and I was kind of like, whoa, there’s a lot of work that needs to happen there. And Mallori walked out, and we were buying this house. And that’s that like, like [crosstalk 00:12:43] when she decides something is happening [crosstalk 00:12:45].

Felipe:
I’m assuming you bought that house, right? [crosstalk 00:12:48].

Mallori:
Yeah.

Lukas:
Yeah, because [crosstalk 00:12:49]. Yeah, there every day now.

Felipe:
Earlier, you guys had mentioned the one percent rule. Could you kind of define what that means for our listeners? And then, how important those things play in when you’re buying a property.

Lukas:
That’s a great question that we’re kind of still asking ourselves. My understanding of the one percent rule is essentially that your total monthly rent that you can get from a property should be, at least one percent of the purchase price of the house. So if you buy a house for $100,000, you should be able to rent it out for $1,000 a month. That’s just kind of like a rule of thumb to look at what’s available in the market, and kind of do a quick check on whether or not it’s worth digging more into a property. It’s interesting, because in our local market, we’re still trying to figure out. You look at some of these houses, duplexes in particular what the local rental rates are, and what they’re consistently selling for. And in a lot of cases, that one percent rule isn’t there. We’re still kind of very curious every day as to whether that’s larger companies that are buying up real estate for a longer hold, or how exactly they’re manifesting that.

Mallori:
Or just people who want to own a home. But we even see duplexes that are selling for 400 $500,000, so I like, there’s no way you’re going to meet one percent with the renters.

Felipe:
No. And I think that’s interesting because I think the one percent rule for investors like us is like a way to keep you grounded to where you’re like…

Ashley:
Totally.

Felipe:
… Okay, I’m not go pay overvalue, because I know at least I have to make that one percent rule. Let someone else make that mistake, if you will. But definitely, that’s the way to kind of keep us grounded. Would you guys agree?

Mallori:
Oh, yeah.

Lukas:
Oh yeah, absolutely. It’s a good way to just kind of sift through what you’re seeing locally, and rule out some things that maybe aren’t worth putting more time into researching [crosstalk 00:14:35].

Felipe:
Exactly.

Mallori:
I think it’s important too to realize that, that’s not the only factor that you should take into consideration too. Because in New York state, that we have really high property taxes, so our purchase price are lower and you’re getting the three percent rule but you’re not meeting the 50% rule. So your expenses are more than 50% of your rental income, usually. I mean, there are exceptions. But a lot of times, it’s you got to remember to look at all of these rules and not just say, the one percent rule, but yeah.

Ashley:
Totally.

Lukas:
Yap. Yeah, and that’s that was just the starting point for us. And I kind of set up some different spreadsheets that were kind of cash flow estimates for us, so that we can plug in different properties side by side and see how they might compare to each other. And then I did use too, like on the BiggerPockets website, they have a property analysis calculator. So I plugged a bunch of numbers into that, see how things mapped out. And even just going through that process in the early stages before we really pinned down a specific property was good just to go through the process of analyzing a couple of different properties before we were ever really narrowed down on something we were serious about making an offer on.

Ashley:
Yeah, if anyone wants to check out those calculators that they’re talking about, it’s at biggerpockets.com/calc. And pro members get unlimited use. And then you can just sign on, and you can use it a couple times and try it out for free. But I want to go back to, so you guys super fast did your research. What steps did you take then, when you’re ready to buy? Did you get a loan pre approval? What kind of financing options did you look for? What were those steps when you said okay, I’m ready to buy. This is what… This is our checklist of things we need to do to be ready. We need to have our proof of funds letter, and we need to get this kind of financing. What did that look for you guys?

Mallori:
Well, at first we did the class.

Lukas:
Yeah, so the Washington State Housing Finance Commission has some really good programs here in Washington. That was actually something we’d run across when we… I forget where I’d read about it. But it was something to do with the possibility of getting down payment assistance, which we had a little bit of savings in place and we were prepared to make a down payment. But we kind of knew whatever we were going to purchase would most likely require some additional cash after purchase. So if we could kind of say cash flush is best as possible through the purchase price. That was something we wanted to research.

Lukas:
And as part of that program to get certified and eligible for that, we had to take a class. And it’s actually one of the more productive things we did. It was the two nights, I think, or six hours. Yeah, and really informative. Just as in general information for first time home buyers, it was super valuable. That’s kind of where that started, and then seeking pre approval. And we went with, actually…

Mallori:
The people who taught that class was a loan officer and a real estate agent.

Ashley:
Wow, cool.

Mallori:
So, yeah. And so, we loved the real estate agent that taught it. And we had told them, oh, we think we’re going to buy in a couple months in. Then two weeks later, we contacted her like, “Suzy, there’s this offer and we want to put an offer it.” She was like, “What the heck? What happened in two months?” So yeah, that’s how we [crosstalk 00:17:52].

Lukas:
It’s actually how we met, yeah, both our real estate agent and our lender that we ended up going with. We did get a couple of other pre-approvals from [inaudible 00:17:59] loans. And I think kind of the time and attention we felt we got through the application process there just wasn’t quite what we were looking for. But really, I mean, we got pre-approval pretty early. And that was something too, we wanted to make sure we kind of had all our ducks in a row right from the start. Because with me being a seasonal employee and Mallori being a big part of her income is tips, we were kind of a little bit concerned initially about the approval process. We knew where our income was and what we could have put it was going to be a challenge of making a potential lender uncomfortable with our particular situation, because we’re not exactly cookie cutter…

Mallori:
Nine to fivers.

Lukas:
Yeah, exactly. And so that was a big part of it, too, is even just figuring out who would have the time and understanding to be able to work with us as far as figuring out how my employment system works and things like that was a little unorthodox. That was a part of it was just kind of researching, specifically what was going to work for us and what we’re comfortable with. And from a lending standpoint, who would have the time and attention to help us find a way kind of thing?

Mallori:
Yeah, so we went and got pre-approved. We found a house or duplex that we were interested in buying, and we had to put an offer before they would allow us to see it. And so we put in a contingent offer with our real estate agent. And that’s when we had to get pre-approved. So then we were pre-approved, and they wanted that duplex and wanted us to, I think go to closing without an inspection or something. Like, go to closing without being seeing it. So we were like, no, this isn’t right for us. We don’t feel good about it. At that point, we were pre-approved. And then we just kind, we looked at all real estate listings online every day, multiple hours a day until we could find something where the numbers looked like they could work.

Mallori:
Lucas found this duplex that had the Google street view as its image, and not the best description. And he was like, I think we should go look at this. And I was like, I don’t know about that. It was a sketchy pictures, sketchy. It seemed like a bad Craigslist, or something. I don’t know. So we ended up like we said, we ended up going to see it. And that so at this point, we’re pre approved. We had our real estate agent, and we put an offer on it and then the chaos began.

Lukas:
Yeah, and that’s kind of the funny, it’s, is we really kind of lucked out with that how everything worked out. Because you’re talking to a realtor, she thought we could probably pull the place off. But the state of it was, there were renters in one side, and it needed a lot of cosmetic work, at least at the time. Then the other side was pretty much got it. It was down to sub floor. I mean, drywall was still in place. But when we went through the inspection process, there were a lot of things there that were somewhat cause for concern. And that was something too that we when we had a lot of conversations about what we had to offer kind of individually as a couple as potential investors, and one of those was my time.

Lukas:
Being a seasonal employee, I have time that I can invest kind of sweat equity into a potential property. And that was what we were looking for was something that on the front end, maybe we could have kind of a forced appreciation add value right out of the gate early on. But we were looking for something that needed some work initially anyway, because that was going to be an opportunity there to find the right kind of deal for us. What ended up happening was we got the inspection, we had a pretty good idea of what was wrong with the property and what needed to be done. At the time, the sellers had a couple of cash offers on the table, but they weren’t really excited about. We kind of gotten that through our realtor. And so we were able to negotiate down in price a little bit, because we knew we had some wiggle room there and they didn’t have any conventional offers at market value yet.

Lukas:
So, we were able to negotiate down in price from the inspection process. And then when the appraisal came along, the lender had some concerns in that category. And that’s kind of where things got interesting, was essentially came down to a list of a fairly long list of items that we got kind of right at the start of December from the appraisal process saying what needed to be done to the property before conventional financing could ever be approved. We communicated back and forth a little bit through the realtors, with the seller to determine essentially that they were done with the place and just wanted to get rid of it. And if we had to do pound one more mail, they were just going to take a cash offer and walk away. And that’s where between us and talking to a realtor, we came up with the idea of negotiating early access to the property.

Lukas:
So before closing, or signing or taking ownership of it in any way, we were able to negotiate early access. And that was something that we took a risk on it in a big way. We did negotiate as part of that contingency in there, that it would be a requirement if the sellers backed out of the deal for any reason, they would have to reimburse us for any materials we’d put into the place. But we were still taking the risk of putting a lot of man hours into working on that house and trying to get it ready to close on. And that’s pretty much how we spent our December. It was a lot of time in December doing, we installed water heater, replaced some siding.

Lukas:
It got really interesting when it came to the flooring because we didn’t want to invest too much in the finished product, so we ended up actually kind of scrounging around for whatever used carpet we could find through some local contacts. And did what we had to do to make the place pass. And then a lot of that actually came back out, and we started over on some of it once we finally closed on it. But in hindsight, we kind of created our, I think our own little niche that we’d never really anticipated that allowed us to close on something that really…

Mallori:
Wasn’t…

Lukas:
… In the local market was only available to those cash offering, flipping type companies.

Mallori:
Yeah, and it wasn’t going to pass conventional [crosstalk 00:23:46].

Lukas:
… Financing, unless you got that early access and did the work that was needed to get it there.

Felipe:
That’s a really interesting story, because it seems like you put some sweat equity into it before you even bought it. But before we get to that part, I did want to ask something. I had written something down because I think this is really important. The loan application that you guys had was not typical, so I know this is a little bit farther back. But I really want to hone in on this because this was a problem that I had, and many of my friend investors had as well when they first started. Whether or not regular W2 jobs, they’re a square peg trying to get in a circle, and they can’t fit. And it seems like you guys have that; yours is mostly tips. It seems like Lukas there is working only a certain amount of time, so how did you guys get past that pre-approval process?

Felipe:
I mean, you said it so nonchalant. But I know that my listeners are going to want to say, well, how did they get it if they didn’t fit that criteria? So can you talk about some of the loops that you had to jump through, some of the obstacles that you had? And why you just didn’t give up? Because I know a lot of people that give up in that process where they’re like, well, I can’t pre-approved because I don’t fit the criteria. So, I’m going to walk away.

Mallori:
Well, we saved aggressively for an entire year. So, we had a pretty good savings account. Lukas had paid off almost all of his debt for… So our debt to income ratio was really good, so that was the two steps that were kind of like conventional way of getting ahead. But then, we also did a lot of research about which lenders were willing to look at out of the box criteria. That was, I spent a lot of time. I made a document about the kind of lenders, and what their criteria is, or what they’re willing to look past or use for evidence that they’ll fund you. But then additionally, we had to get, well, a rehire letter for Lukas.

Lukas:
Yeah, and to do some back and forth with my employer to give a little extra documentation just to kind of supplement some of the question marks there. I think in a big way too, just being prepared helped a lot.

Mallori:
Yeah.

Lukas:
Have, and being able to demonstrate a certain amount of literacy in the process in anticipation with the lender, I think went a long ways. Being able to demonstrate that we kind of had an idea where what we were up against, and we knew we were going to be a little bit of a challenge. And communicating that willingness to bring something extra to the table. Then just having our ducks in a row in advance as far as where our finances were, our debt to income ratio. Our credit scores were in a pretty good place, but then just being patient with the lender. I mean, there were things where they said, oh yeah, that’s not going to be a problem initially, and then down the road, it came back up. And it was something we had to sort our way through.

Lukas:
A big part of that was coming up with some kind of rehire letter from my employer. But yeah, it was a matter of being patient and persistent is ultimately, I think what it boiled down to, was looking for a lender that was willing to take the time to work with us. And then doing that something extra to make them comfortable with our situation because it is unorthodox, and they don’t have a standard system for our situation.

Mallori:
Yeah, I do think it was really important that we went with a local in-person lender, because we could go, sit down and chat with her and she can get to know us. She knew how literate and informed we were, so I think that was an important step too.

Ashley:
Yeah, I think the research you guys did and the time you put into the information you got before you even approached the lender was probably very valuable to the lender. And it made it easier for them to work with you too, knowing that you have all this stuff already together, and near ready to work with them and do whatever it takes.

Mallori:
Totally.

Ashley:
I wanted to ask if you would share some of those lenders, because I know this will be a big question, especially if people live in Washington state or if you even found nationwide banks that are open to working with you guys.

Mallori:
Yeah, so we ended up going with Guild Mortgage. I think that they are a nationwide, or at least in lots of states. I know I have a list of my document that I had created of the lenders, but I don’t know exactly where it is on my computer at the moment.

Ashley:
Well yeah, no, that’s fine. We can actually attach those in the show notes if you wanted to share them. So people can go to biggerpockets.com/rookie[inaudible 00:28:06]. So we’ll attach that right to the show notes, so anyone who’s interested and look right into it. So, thank you for…

Mallori:
Cool.

Ashley:
… Sharing that.

Mallori:
Yeah.

Lukas:
Yeah. And then I think that ultimately was what it boiled down to was just working with, finding somebody that could work with us, and Guild was great. We had our challenges throughout the closing processes and things like that, there were things that were hiccups along the way. But kind of having somebody that we could work with directly and be personal with, it’s really ultimately the linchpin in the whole thing.

Felipe:
That’s great. That’s perfect, because I think a lot of people do struggle with that part. They’re trying to get that. Going into it not expecting, like I deserve to get this loan, but you guys went in prepared. And that I think, is what made the difference, being prepared to get the loan. Not expecting, oh, I deserve this loan. But no, no, here’s why I think, and here’s everything that I’ve prepared.

Felipe:
With that, you guys have already hinted a little bit about the deal analysis that we’re going to dig into, the deal of the day. I’m super excited to talk about that, especially because I already read the notes a little bit. So, I got really excited about it. Go ahead and tell us what the deal is, what you have in mind, how you negotiated, how you financed it. I mean, give us the nitty gritty, A to Z. You’ve already hinted a little, but I want to hear the whole story, really break it down for us.

Lukas:
Yeah.

Mallori:
Yeah, so we pretty much, we ruled out single-family houses in Washington for our first investment because everything is so expensive, and there’s no way it would cash flow. So we decided we were going to do a duplex, or something of the like. Everything on the market was, at least 350, and/or 500 for duplexes. And we had found a couple that were under 300, that’s the first one we put an offer on that we didn’t continue forward with. This one was on the market for 285, which was like, we thought a screaming deal compared to everything else in the market.

Lukas:
Considering yeah, what specifically in that Tacoma area anyway, that was about as reachable as it got for us. And some of it even just came down to kind of contingency planning and being realistic about our own budget, and what we could afford to pay for if we didn’t have a renter in at all. And that was something for a backup plan if times got tougher or whatever, and we couldn’t find renters for a few months on both sides. Some of that came down to just our own going back and forth with the lender, okay, if we got it…

Mallori:
Yeah, so we actually got like, yeah, if we buy a $285,000 house, what is our payment going to be?

Lukas:
Yeah, what’s your monthly pay?

Mallori:
What are the property taxes in that county? So knowing at each price point what the monthly payment would be and then what the surrounding area of rents rates are, will we be able to cash flow that? What will our payment look like? If it’s just us living in there, what will look like. If there’s, we’re running out both sides. So, we found this one for 285. It had a Google Maps picture. It was terrible. We went in, and the description had said that it was completely gutted. So we were like, okay, and we’re not sure what to expect. And we walk in, and it’s just some floor. So, yeah.

Lukas:
The one side was gutted, and the other side had been advertised. at least on Redfin as basically being rental ready, just needed some trim work. And the more we looked at that, we kind of realized that there was actually a lot of rework that needed to happen. There was rot and mold issues, the flooring was poorly installed. We actually pretty quickly came to the decision that, that was probably the side that needed the least work.

Mallori:
The one that was [crosstalk 00:31:46].

Lukas:
I’m sorry, the most work. Yeah, because if we were going to tear some things out and do some more demo before we could really get into the rebuild process.

Mallori:
Yeah. So then we, like I said, we walked away and I said, we’re buying this house. We hadn’t even gotten the car yet. And Lucas was like, oh, okay. [crosstalk 00:31:59] with you. And so we…

Felipe:
Got to keep him on his toes.

Ashley:
Yeah.

Mallori:
Yeah, it didn’t work but the layout was good, it’s in a great area. It was cashflow price, so I knew this is, we have to put an offer on this one. So we put a full block [crosstalk 00:32:17].

Lukas:
[crosstalk 00:32:17] at asking price.

Mallori:
And I think in our offer, we asked them to pay closing.

Lukas:
Yeah.

Mallori:
Right?

Lukas:
Yeah, it was, I think maybe after the inspection.

Mallori:
No.

Lukas:
No?

Mallori:
We offered full price, and they would then paying closing up to 7000. Then from there, we got the inspection. And we actually had met in person that we hired for our inspection. We had talked to the first time home buyer class that we were a part of. And he was just like, you could just tell that he loved his job, and he’s loves inspecting homes and finds it… He was passionate about it, so we hired him. He inspected everything and took pictures of everything. Then we sent that to the sellers, and they dropped the price by 10,000.

Ashley:
Wow.

Mallori:
Yeah. And so on the inspection report was like one side of the house needs new siding, needs new flooring throughout. There’s some leaky faucets. It needs a new water heater, like not terrible things. There’s no bad foundation work, there’s no, it just…

Ashley:
Cosmetic things and just kind of, no structural issues, stuff like that.

Mallori:
Right.

Ashley:
Yeah, that’s awesome.

Lukas:
Then I tell you what too, it was kind of mind blowing to me because talking to a realtor, she said that oftentimes, it’s tough for them to convince a potential buyer to go through the inspection process. I think we… I mean, we got a little bit of a discount because we went through the class that we did. I think we paid maybe $500 for that inspection.

Ashley:
And they dropped the price $10,000.

Mallori:
Yeah.

Lukas:
It [crosstalk 00:33:47] just literally [crosstalk 00:33:47] dollars.

Mallori:
So then we said, we said, how about 15? And they said, okay.

Lukas:
Yeah, so [crosstalk 00:33:51].

Felipe:
Just for asking?

Ashley:
[crosstalk 00:33:52] guys. Oh, wow.

Felipe:
Really.

Mallori:
Yeah.

Felipe:
That’s [crosstalk 00:33:54].

Ashley:
That’s great.

Lukas:
Also with all told with that reduction in price and then the closing cost, I think we ended up at 25 in…

Mallori:
In seller.

Lukas:
… Seller concessions, after all was said and done. Then also for us just going into the deal to go through that inspection process, we were there the day that he did it. And he was in and out of the attic, and then out of the crawlspace, tested all the outlets. I mean, he was incredibly thorough. And for us to have that sense of security and knowledge going in, I mean, that’s really, that inspection report is essentially my to do list at this point in renovating in the property two years is, it just told us so much about the purchase we’re about to make it. And it was incredibly valuable.

Mallori:
One thing I will say too, is that we just, we weren’t emotionally attached to this property. So we were like, let’s try it for 15. If they accept, that’s awesome. If not, then we’re on to them [crosstalk 00:34:46].

Ashley:
Right, and it doesn’t hurt to ask.

Mallori:
Yeah, totally.

Lukas:
Yeah, and he made 15 grand.

Felipe:
That’s the best $500 you could have invested.

Mallori:
Yeah.

Lukas:
Yap. Yeah.

Felipe:
[crosstalk 00:34:56] it keep going, yeah.

Lukas:
And I think that patience to is really helpful for us, is not getting overcomitted with anything. Even when we got pretty well underway and being willing to kind of walk away if things weren’t going the way that we wanted them to. Even when we were cautious about getting sucked into something that was not going to treat us [crosstalk 00:35:11] in the long run.

Ashley:
Now that the price has decreased, your mortgage payment has obviously gone down too. How did you find what comparable rents were? How did you do your research for that, and so how other apartments in the area are renting?

Mallori:
We just looked on, gosh, so many websites. We just looked what was available out there for a similar two bed, one bath unit. And I used Zillow HotPads, PadMapper, Craigslist. And I still now while we’re renovating, I look at it at least twice a week just to see what things are going for, so that I know when we list ours, what I can expect or what we can expect.

Lukas:
We’re still yeah, pretty religiously looking here and there at Zillow and Redfin in particular, they are markets or popular ones that we used. And we’re always adding stuff to our kind of like our wish list, say properties thing. And just tracking what’s happening in the local market, what things are selling for, what things are going on and off the market, and might go pending and then not close. I mean, we’ve got a wide variety of different properties we’re kind of tracking just to kind of keep a finger on the pulse of what’s happening locally. Both on the rental side and purchasing for [crosstalk 00:36:25] down the road too. It’s yeah, it’s kind of just a hobby for us as much as anything at this month. And kind, and we’ve made a game out of it. And it’s been, we have a lot of fun kind of looking at what’s going on. And so, then it doesn’t feel like work. It’s like pop open your phone in the morning. Flip through Redfin and see what’s going on in the local area, and keep tracking those things as they develop kind of thing.

Felipe:
The reason I like what you’re saying about the Redfin and kind of looking at that, I do the same thing. And the reason I’m able to do that, or the reason I guess I should say the reason I do, do that also is because when my realtor sends me a property that he knows that I might want to buy, I’ve already been looking at that street or that city over, and over and over again. And I can tell you, if it’s 100,000 more than I usually pay, I don’t even look at it anymore. I don’t waste my time. But if it’s accurately priced, it’s in the right street that I know, I’m like, well, wait a minute, this is something that I can look at. And since I’ve already been doing the research, there’s tons of back end stuff there. I agree, I do the same thing.

Felipe:
Earlier, you had hinted at the appraisal and having to do some work on the property. Walk us through that. And then, definitely explain to us the ARV. And kind of after everything went through, where it’s going on there, and then rents and all that fun stuff. So, let’s get to that part of the story.

Mallori:
Yeah. Yeah. So post inspection, like we said, they dropped the price 15,000. Then we had the appraisal, and it was, it took longer than we wanted. It took a couple weeks or something for the appraiser to get out there. Which was a bummer, because we were really wanting to get to closing. But the appraiser came out, and he called out that there was no flooring but in one unit. There was, it needed a new water heater, it needed a new siding on the south side.

Lukas:
It had some subfloor that needed to be replaced.

Mallori:
It had…

Lukas:
It [crosstalk 00:38:09] been flooring throughout the garden [inaudible 00:38:10]. Yeah.

Mallori:
… Leaky faucet, a fireplace that didn’t properly exhaust or whatever, so…

Lukas:
It was an interesting list too, because part of what happened specifically with that situation was that when the appraiser came to the property to check it out. And one of the tenants, who was supposed to have been out of the property roughly a month before…

Mallori:
Was still there.

Lukas:
… Was still living in the one unit, and kind of got into his ear about a lot of the things that was going on with the properties, some leaks that didn’t actually exist and things like that.

Mallori:
[crosstalk 00:38:44].

Lukas:
[crosstalk 00:38:44] maybe she liked the very affordable rent she was getting and didn’t want to move out, so she was kind of trying to sabotage the deal maybe. But yeah, so it was, we ended up basically just with a list of things that they were contingent for conventional financing.

Mallori:
And the seller said, we’re not. We’re over it, we’re not going to do… We already conceded 22,000, we aren’t and we don’t have the time to do this. If that was their answer, so then we said, hmm…

Lukas:
We have time.

Mallori:
… What if? What if? We were like, is this crazy? But our real estate agent is excellent at what she does, and so she wrote a contingent response and said that the buyers will do the work to get it through appraisal if… But if you back out, you have to pay for the materials. And like Lukas said, we were risking our time. But for us, it was a learning process anyways, because we had never done home renovations before this. So we’re like, well, we’ll learn how to replace a water heater or…

Lukas:
I’m sure it’s on YouTube.

Ashley:
Yeah.

Mallori:
So we sent that offer back and they said, okay, that they would let us do the work. So they gave us the keys, which I thought was just kind of insane.

Lukas:
Yeah [crosstalk 00:40:03].

Ashley:
Yeah.

Felipe:
That is not typical. For our listeners that are out there saying what, that is not the norm. But that is a way that you guys made it work, and you did whatever you had to do to make this deal work. Sorry if you’re going, but I love that.

Mallori:
Yeah, no, that’s okay. And that’s what was important to us, or that we wanted to share is that we did what it took to get it through. But yeah, the seller are like, they were just over it. This was a property that they had thought that they were going to renovate and found that they didn’t have time, so they gave us the keys. The renter was out, thank goodness, but all of her garbage was still there. So, we cleaned up the property. And then as Lukas hinted at, we know, I know someone who works here at local flooring store. We hit her up and we’re like, hey, what’s the cheapest carpet you can get us? Because we said we’re going to get it through. We’re going to get through appraisal and tear it down. And she was like, “Well, how does free sound?” We’re like, “Okay.” She’s like, “there’s a dumpster out back with people’s carpet that we have taken out, because it was [crosstalk 00:41:10] that they had taken out of homes.

Lukas:
It hasn’t in a couple days, so it should be okay.

Ashley:
Oh my gosh.

Mallori:
And we’re like, okay. Fine [crosstalk 00:41:17].

Felipe:
Okay, hold on.

Mallori:
Yeah, I know.

Felipe:
This is funny… No wait, stop. Okay, this is funny because people probably don’t know this but I used to install carpet.

Lukas:
Oh, boy.

Felipe:
So the carpet that we throw in the dumpster, that is all my…

Lukas:
He’s got [crosstalk 00:41:31].

Felipe:
I really hope that you peak throw it.

Mallori:
Oh, we did yeah. Yeah.

Felipe:
Well, you tried.

Mallori:
Yeah, we tried. But like Lucas said, it’s the cutting three foot strips. So it’s like, God, but we should send you guys pictures of what it looked like when it got through appraisal, because it was just strips of carpet that were not put down. We used double-sided tape or something.

Lukas:
[crosstalk 00:41:51].

Ashley:
Did they even match?

Felipe:
Did they even match?

Mallori:
It did match.

Lukas:
Most of it [crosstalk 00:41:55].

Mallori:
It was matching, yeah.

Lukas:
And then, some stains here and there?

Mallori:
Yeah.

Felipe:
Yeah. Oh, God.

Mallori:
But we didn’t want to pay to put a carpet in it that we knew we were going to rip out.

Felipe:
Rip out, yeah.

Mallori:
Because…

Ashley:
Right, yeah.

Mallori:
… It had other work that needed to be done before flooring was put in, so we did end up having to buy a little bit of carpet. We went to Home Depot and asked them for their cheapest carpet. I think it was like 50 cents a foot or something.

Lukas:
Yeah.

Mallori:
And we put that in. Lucas learned how to replace the water heater. Him and my dad replaced some siding on one of the sides. So all told, what did we say and end up spending before?

Lukas:
Maybe a couple of thousand dollars.

Mallori:
I think was 1200.

Lukas:
1200, something like that.

Mallori:
1200.

Lukas:
I mean, it was a bit of money but it wasn’t a huge amount that the bigger investment was definitely the time. But some of them were tough things, and some of them were quick fixes. I mean, one of them was being written down that one of the toilets didn’t work well, the water was just turned off. So we turned the valve on, and then it flushes just fine. I mean, it was a matter of figuring out what we were dealing with individually.

Mallori:
Yeah, and some of those things.

Felipe:
That’s the story of grid.

Mallori:
Yeah, grid.

Lukas:
Yeah, grid. And also, I mean, I think that the time and effort that we put in initially too to research a lot of the options. I mean, I remember running across something in a podcast at one point about getting early access to a property for certain things on those lines. It was just really, we had done so much research, I think, at that point, in a very short period of time that it really kind of added to our tool set as far as what kind of ideas we could come up with to solve different problems. This being a great example it was like, we were willing to be flexible, and creative and find a way through it.

Lukas:
And when it came down to negotiating with the sellers, a lot of it just came down to, well, sounds like the deal might fall through anyway. So it doesn’t hurt to ask one more and one more thought, and so just [crosstalk 00:43:50] out there worst case scenario, it falls through like it was going to. Best case scenario, we find a way to make it happen. And that’s really what it boiled down to in a lot of cases.

Ashley:
It seems like a lot of the repairs you made though were going to be permanent, like the hot water tank too.

Mallori:
[crosstalk 00:44:04].

Ashley:
So to put that money in, it felt like you had to rip that $1200…

Mallori:
Exactly.

Ashley:
… Out.

Mallori:
Yeah. Yes, totally. And that’s that the flooring was the one thing that would have been a waste of money, and so that’s why we really wanted to go super cheap on it. But everything else, we were like, we were going to do this to this property anyways.

Lukas:
Yeah.

Mallori:
So I guess…

Lukas:
Yeah, and the most of the work that we did were things we wanted to do ultimately, anyway. It was maybe a little out of out of order [inaudible 00:44:27]. Out of order with how we would have done things initially if it was a normal renovation situation.

Ashley:
Yeah. And the first duplex that I ever bought, I bought it with a partner. And we actually did the same thing did the early access. And we were doing a cash offer, though, so it wasn’t mandatory. We just had heard that that was something you can do. And we’re like, great. Let’s get started, and we can get tenants in here on the day of closing. Well, by the time we’ve got the sellers to agree to do that, it was only 10 days from closing and we got a little bit of a head start. But a factor for us was these were out of state sellers, they wanted to get rid of the property. We’re already so close to closing that the chance of them backing out was very slim, so we started putting a new kitchen in, a new flooring in. And we were doing a cash offer. We already had our fun so there was no bank financing that could fall through.

Ashley:
So for me, that felt safer going in and putting money in, but I find it’s so daring how you guys did that. It’s really awesome.

Lukas:
Daring or foolhardy though? [inaudible 00:45:36] question.

Felipe:
Mallory Lucas, what was the outcome of that story? What is the final? What did it come down to?

Mallori:
Well, the appraiser came out and reappraised, and Lukas was like, I want to be there when he’s there.

Felipe:
Were you strong or only him, Lukas? Or were you like, I can’t even…

Mallori:
No.

Felipe:
… Pass this?

Mallori:
[crosstalk 00:45:55] in Minnesota, and he doesn’t. He all he does is nice.

Lukas:
Well, I admit too as I was working on the property before we closed…

Mallori:
We were closing the same.

Lukas:
… Some of what needed to be done was, seemed silly to me at the time. So, I harbored a little bit of ill will towards him. But when I met him then, he was a super nice guy. And you know what he ultimately told me was, he apologized. He’s like, I know some of this seemed ridiculous probably, but we just don’t see properties like this anymore. What’s happening more often than not is that properties that need this much work are being purchased cash purchases by flippers, and we don’t end up seeing these with conventional buyers because most conventional buyers are looking for something that’s move in…

Mallori:
Move in.

Lukas:
… Ready. And so it’s just a very unorthodox situation. And ultimately, he went through. It was the whole process. On the follow-up appraisal, it was almost kind of laughable. He didn’t care one bit about the state of the carpets. In hindsight, I would not have you double stick tape…

Mallori:
Yeah, we would have just put it in the [crosstalk 00:46:57].

Lukas:
… To [crosstalk 00:46:57] and just laid them on the floor. Yeah, we’ve tried a little harder in some areas then we even needed to. And I think, really it was about him being able to just be thorough and make sure he’d done his job, and protect the lender the way that he’s expected to protect the lender. And so yeah, we were able to close on the house, and it’s been go time on renovations ever since. So our priority now is basically to get the first unit that we don’t intend to live in rental ready, and we want that to be, you get a tenant in, is make as few full price mortgage payments as possible. Then from there, we’ll be focused on getting ourselves a spot to live.

Lukas:
We are as part of the financing required to live in the property for one year. It was a five percent down conventional financing, first time home buyer type loan. So we’ll put at least a year into that, and then kind of based on what we can find for deals and how it times out with my work schedule and things like that. We’ll start shopping for the next deal…

Mallori:
Next year.

Lukas:
… Probably next summer, I think.

Ashley:
Yeah, that’s great. I think that’s an awesome way to get started is house hacking. So where are you are, do you guys want to share kind of what house hacking is and how your numbers are going to be? I mean, do have an estimate of what the rent will be and what your mortgage payment is?

Mallori:
Yeah.

Lukas:
Yeah, we’re still figuring that out somewhat initially here because the property’s still under renovation, and we want to get somebody in as soon as we can. In our local market, so our monthly payment’s about 1700 dollars. And where we’re at to be able to get right around 13-$1400 dollars per unit rent is pretty spot on. You can see a lot of stuff in the local area that’s right around that or maybe a little bit lower, but won’t be as up to date as what we’re seeking to achieve with our renovations. And that’s kind of a nice thing about having something that’s a fixer upper like it is, is we have the opportunity to tear out a little bit more and bring things up to kind of the more contemporary current style inside. So that’s the priority.

Lukas:
So right now once we get a tenant in, we might try to seek maybe a little bit of a shorter term lease at a below market rate, kind of factoring in…

Mallori:
That we have [crosstalk 00:49:09].

Lukas:
… The consideration that we still have work to do on the property.

Mallori:
Landscaping.

Lukas:
Yeah, we’ll be nextdoor running saws and [crosstalk 00:49:15].

Ashley:
And renovating [crosstalk 00:49:15].

Lukas:
And we’ve got to fix fence, and put some papers in on the patio. So factoring that in, we’ll probably try to get somebody in…

Mallori:
13.

Lukas:
Yeah, I mean, somewhere around 1000 to 1200, maybe for that first tenant. And we’ll see what we can find something… Somebody that’s willing to work with us on that. We might even kind of target shop a little bit. There’s a local hospital nearby, so if we can find some traveling nurses…

Mallori:
Traveling nurses.

Lukas:
… Or something that are looking for something shorter term. And then as soon as that’s over, we’ll be looking for something around that 13, $1400. So living on our side, we’re paying less than $500 out of pocket…

Mallori:
For our mortgage.

Lukas:
… Before utility is for our mortgage.

Ashley:
I know.

Lukas:
Yeah, I mean…

Ashley:
For what? Well, what will [inaudible 00:50:00] for you think like, what would the value be after you’re done renovating 250, 300?

Lukas:
Two.

Mallori:
Yeah. Yeah. So we ended up financing 258, and we’re thinking that after the ARV is going to be at least 350.

Ashley:
Wow, that’s awesome, and then only spend 900 bucks to live there.

Mallori:
To live there.

Lukas:
Yeah.

Mallori:
Right.

Lukas:
Yeah.

Ashley:
And that’s great.

Lukas:
We’re putting our own cash into the renovation process. I’ve kind of run some budget estimates, and looked at what we need to do that still to be done to the place. And ultimately, I think we’ll be putting in somewhere in the 35 to $40,000 range into the property.

Mallori:
Including closing costs.

Lukas:
Yeah, including closing costs in everything. Every trip to Home Depot, I put that receipt into a spreadsheet. But in the end, I mean, we’re looking at putting some 50,000 in, and we should see at least roughly 100,000 in forced appreciation in the first year.

Ashley:
Wow, that’s great.

Lukas:
So we’re basically just translating that into wealth, cash into wealth, at a very good return. And from there, we’ve got a functioning rental property that we can continue to maintain for the years to come.

Ashley:
Right.

Lukas:
Yeah, it’s really exciting.

Mallori:
It’s exciting.

Lukas:
And looking back at where we were a year and a half, two years ago, we were still working on credit card bills and student loans, and setting a budget and getting serious about following it has been an incredible turnaround for both of us to just see what we can achieve in a very short period of time spent absolutely incredible.

Ashley:
Yeah, you guys. I mean, congratulations on what you’ve…

Mallori:
Thank you.

Ashley:
… Accomplished in a year.

Lukas:
Thank you.

Ashley:
I mean, it really is great, and I’m sure a lot of people are going to find it motivating, and inspiring. Throughout this whole journey for this past year, I want to find out who was a key player for you guys? Who was that accountant, that lawyer, that realtor, who was it that really was the MVP for you? So Felipe, you want to do your little chant for the us first that we call the segment’s [inaudible 00:51:58].

Felipe:
MVP. MVP. MVP. It’s really important to us because we really want to know who has been that key player for you guys, right?

Mallori:
Yes.

Felipe:
A lot of times our listeners will say, oh well, I need a good lender. I need a good realtor. I need a good, all these different concepts. And they get caught up in getting the best of the best of everything. So for you guys, what would you say was your MVP for this deal?

Mallori:
Susie William, sir.

Lukas:
Susie William, sir.

Mallori:
Yeah.

Lukas:
John L. Scott [crosstalk 00:52:26].

Mallori:
She was our real estate agent.

Lukas:
Yeah, she’s been huge. She was, and has been super patient with us as we learn what we need to learn. She’s had great tips, but she’s let us kind of keep hold of the wheel and make the final decisions on everything. She’s been a huge resource for us. She’s got a couple…

Mallori:
She’s a mentor.

Lukas:
Yeah, huge mentor pack. I think we still have a couple of her brooms in a stretch [crosstalk 00:52:50]…

Mallori:
Yeah, we do.

Lukas:
… At the house that she loaned us.

Mallori:
That she loaned us.

Lukas:
[crosstalk 00:52:52] process. Yeah, she’s just, she’s shown up whenever we needed. And also, she brought a really good team of people around her, so that’s how we got access to the inspector that we used. She’s got some references we’ve used for potential electricians and things like that. So finding somebody that understood what we were looking for in a rental, and to be able to use some references.

Mallori:
She owns rental properties as well, so she understood that we needed it to cash flow. That it wasn’t our dream home that we were buying. We were buying an investment property, so she understood that and she was fierce in the negotiating.

Felipe:
So you found her because of the classes you’re going to, and then you’re going to tell us in a minute. You said you’ve learned some great lessons from her. She is an investor friendly realtor, because she and also invests in rental property, so she understands the cash flow game. But some of our listeners are probably thinking, does realtors cost money? And I know that’s sometimes simple for us to think maybe, well, no, the realtors work for you and they help you. So people are saying, can I afford a realtor? And it’s like, no. So, explain that part to our listeners the cost of a realtor, if any.

Mallori:
Well, I think it varies state to state. So we actually, I think it was last year that Washington State actually changed it. It used to be that the seller paid for the realtor, both realtors selling and buying realtors. They…

Lukas:
Paid their commission.

Mallori:
Yeah, they paid all the commission. Last year, I’m pretty sure, Washington State changed it to the seller and the buyer have to pay, I think a percentage of the commission. So each, I don’t know how it’s decided. But each deal, each house is different. So on ours, I think we had to pay 3.5% of the commission or something to Suzie.

Lukas:
I believe it was only one and a half.

Mallori:
Well, oh, you’re right, it was one and a half.

Lukas:
It used to be that the seller of the property was responsible for commission for both realtors. Now according to this state law here that’s no longer a requirement, so it’s kind of in a gray area where a lot of realtors are kind of going the conventional route still and sticking to the way that it was. But it ultimately boils down to what the seller wants to do, and how much they’re willing to take responsibility for. [crosstalk 00:55:12]…

Mallori:
One thing I…

Lukas:
… Four percentage but…

Mallori:
But Susie, our realtor, she talked down the price essentially $22,000. So that paid for Susie completely and more, so she was a huge asset to us. And especially, as first time home buyers, we didn’t really know what to expect from the process. We’ve done so much research, but you just don’t know until you get into it yourself, so having someone that can lead us through.

Lukas:
We mean, ultimately, it’s just an investment. That’s the whole thing is you got to put some skin in the game. And in the money that we spent on our inspection and on our realtor, that we’re seeing it in immediate returns already, and it’s already paid for. It’s just a part of what we had to put into the process in order to get what we wanted out of the deal. And that’s, that’s it’s like paying for the right tools before you start working on something is really what it boiled down to was, we had to invest what we needed to invest to get what we wanted out of it.

Mallori:
Yeah. And I have heard horror stories from people with real estate agents, so I feel like you have to find someone that, either through recommendations or someone that you meet in person that you can trust because yeah, I’ve heard horror stories.

Ashley:
Yeah, I agree with that. I was just talking to someone the other day who was saying, oh, be weary of realtor recommendations for contractors because you never know. They might be getting a percentage of that, and there are those horror stories out there, so what would be your recommendations for someone to find a good realtor? Say they don’t have the classes like you went to, where would be another good place you would recommend someone find a realtor?

Mallori:
BiggerPockets.

Lukas:
I would say BiggerPockets, yeah. Or just whether it’s Angie’s List, or look locally because from our experience we got some references from people that we knew. But a lot of the people that we talked to it was, somebody’s cousin or a friend of a friend. And in a lot of the cases, it was somebody that they just took a reference from someone, but they weren’t necessarily super comfortable with that person. And for us, just taking the time to get to know Susie first and develop some comfortability there. Yeah, look for people. And if they’re doing their job, they’ll be willing to show up and have a cup of coffee with you, and get to know you before.

Mallori:
Well, yeah. And if you aren’t satisfied with how it’s happening unless you’ve signed a contract, I don’t feel bad about not giving them your business. But yeah, if you’re in Washington State, though, Susie Williams.

Ashley:
Yeah, and we will link her information…

Mallori:
Okay, cool.

Ashley:
… Or anyone who is in the show notes, so you can find that at biggerpockets.com/rookie eight. So let’s move on in now that we found out how great your MVP is, and hopefully people will be able to check her out. I want to go to the rookie request line where we have a rookie call in and ask their question. So, we’re going to play the voicemail for you. And if anyone else wants to call in, you can leave a voicemail at 1885 rookie, and we will play it on one of our podcast episodes. So make sure you pay attention to the directions and leave us a voicemail. But today’s question is from Annie Johnson in Seattle, Washington.

Annie Johnson:
We have a cash offer accepted on a duplex in New York State. The lady selling to us wants to stay and live there a few weeks longer while looking for new housing. We haven’t closed on the house yet, and we were wondering if we should close and rent to her or wait until she vacates.

Ashley:
Oh, man.

Lukas:
That’s an interesting question, and i definitely isn’t in the wheelhouse of what we’ve dealt with. But sorry, our answer at best is probably going to be based on a lot of the research that we’ve done. I would say that kind of depends really on your own comfortability. If you have the opportunity to meet with the person. And of course, looking at what’s there contractually to hold that person accountable for taking care of your property after you close on it. Worst case scenario, this is something that ultimately is up to the seller. It’s kind of their responsibility if they’re the one that put this person in place and it’s currently their property, it’s a matter of working with them.

Lukas:
I know, from my research, like a cash for keys type model is something that people have achieved a lot of success with. And the whole market seems to kind of, from what I’m hearing be shifting to that. That would be a scenario where maybe if you’ve got a tenant that you’d like to get out of the property sooner rather than later, and you want to make sure that they go peacefully and take good care of it, it might be worth investing a little bit of money to help them transition in their next property.

Mallori:
Yeah, I would say personally from our experience, because there was a tenant in the property when we were buying, we said we will not go to closing if there’s a tenant in the property. So, I don’t know if this is the right answer. But I would say, probably wait to close until she vacates, because I’ve just heard lots of terrible stories about inherited tenants.

Felipe:
Mallori and Lukas, I could not agree with you more. I don’t take inherited tenants period. I think that’s a rookie mistake sometimes where… And this is just personal advice. I mean, this is just me. I feel like rookies sometimes take on inherited tenants, because they see, oh, that’s immediate cash flow money. It’s going to immediately pay the rent. But that can be so expensive when having to evict, when having to ask them to leave and they destroy the place. I recently bought a property where I didn’t inherit the tenants but I said, hey, you guys, I need it vacant before they leave. And if you go back and check my Instagram stories, or I think I even posted it, somebody had actually poured concrete down the toilet. So we had to install a brand new sewer line, 10 grand….

Ashley:
Oh, my God.

Felipe:
… Right off the muscle, because they poured concrete down the sewer line. So all that to say, I do not inherit tenants, and I need the place vacant. And your final walkthrough is very important. But I mean, that’s what I would say. I mean, no, I don’t inherit tenants. I feel like a lot of times you’re just inheriting someone else’s problem. And if someone’s selling a property with tenants, then you have to ask yourself, well, why are they selling the property if there’s still tenants there? If everybody’s paying rent, what’s really going on? That’s what I would say. I mean, Ashley, what do you think?

Ashley:
Well, I’ve inherited a lot of tenants, some great, some bad. But I’m also wondering if I the question, again, if maybe it’s the seller, that’s still living there too. Because that would change things if it’s actually the seller that’s living there and she’s waiting to find her new housing, because then I would definitely do it. Because if seller’s already cared for the property, then I would continue to rent from them because my goal would be to get a new renter right away. But if I’m going to rent to her for a little bit. You could also do something where you hold some money in escrow, which if this was a tenant, I doubt any seller is going to say, oh, yeah, I vouch for them. They’ll be for sure be gone in a month.

Ashley:
But maybe if it’s the person who is selling it, they would do something like that. But the eviction process has changed in New York State last June. And it can… It takes over 30 days to evict someone, if not two months. So I would be even more cautious about keeping someone in there for that reason.

Mallori:
Eviction laws are might be changing in Washington too, so we would be very wary about inheriting tenants.

Lukas:
Mm-hmm (affirmative). Yeah.

Felipe:
Yeah. Good answer, guys. That’s fantastic. I love that. Let’s wrap this up, but before we do that, we have a few semi random questions for you guys that we’re going to give you a chance to tell everybody. And then also, we’re going to get to a part where you guys can tell us where people can connect with you. So we’re going to ask you a couple of questions that are just fun questions, and just off the top of your head. Here’s one of mine. What’s a quote that sums up your approach to real estate?

Lukas:
Nike, just do it?

Mallori:
Oh, man.

Ashley:
Yeah, that is a good answer.

Felipe:
That’s a good one, yeah, thank you.

Lukas:
Yeah, I don’t know. I mean, I think ultimately, for us, that’s kind of what it’s been about is just go for it.

Mallori:
Just do it, yeah.

Lukas:
And we knew from the start, no matter how much research we did, we’re going to make mistakes along the way. So at some point, you just got to go for it and work your way through those as they happen.

Ashley:
Yeah, I love that. Did, no… What my question is gonna be, what did your family think about this? Because it did seem to happen really fast, what did they think about you buying this fixer upper and becoming landlords?

Mallori:
Yeah. Well, my dad was like, gung ho from the start. He’s like, that is so brilliant, that is so awesome. He’s like, renovations, I can help you with it. No problem. Super [inaudible 01:04:09] from the start.

Lukas:
Yeah, we’ve been really fortunate on both accounts with our families who’ve been super supportive. And I think part of that even just came to, they know us and they know we do our homework. And they were already seeing that coming into play right from the start. I mean, we’d already done a bunch of research before we really even told them too much about it. And by the time we were telling them, and in my family, I’ve got a couple of aunts and uncles that have owned rental properties over the years and things like that too. So it wasn’t something that they were totally unfamiliar with to see us building it together, and they were just really excited.

Ashley:
Yeah.

Mallori:
Yeah, and we’re grateful for that.

Lukas:
I mean, when that was a tough thing for us really, I think too when we think about who our MVPs were. I mean, we’ve got a couple of friends…

Mallori:
We’ve got friends who are building their own house.

Lukas:
Yeah.

Mallori:
We have friends who built a tiny house. My dad’s always done his own renovations on his house, same with his dad. We have too so many people that influence us and support us.

Lukas:
And inspire us, yeah.

Felipe:
What was your biggest fear going into this? And what was the biggest, or what was the overcoming part of that?

Mallori:
Biggest fear.

Lukas:
I mean, I think getting in over our heads was definitely a big concern for us. Ultimately, we were worried we may lose money or something like that. But we did our homework to cover ourselves there. I think maybe with the renovation side of things and things like that. For me, that was a big part of it. I’ve done projects with my dad over the years and stuff like that, but I was going into something that I was going to have to do a lot of things that I didn’t know how to do yet. And ultimately, it was just a matter of continuing to do the homework, and watch the YouTube videos and study what we could to learn, learn what we needed to, to have at least an idea of what was going to be needed. And then having faith in ourselves to just go for it, and realize that there’s nothing we’ve done in our lives that we already done the first time we did it.

Lukas:
I guess if that makes sense it was like, a lot of it was going to be new, but we could trust ourselves to find our way through it in the end. And that was [inaudible 01:06:12].

Mallori:
For me, personally, I even though when we found that house, I was like, we’re buying this. Every step of the way I had to face fear, because I had been so against owning or having a mortgage for so long that I constantly was a little bit scared about something. But what always got me over that fear is running the numbers. Look, we could live in this duplex and be paying $400 a month for our mortgage. That’s insane, so let’s do this.

Lukas:
Yeah. And ultimately, we were going to be paying a mortgage one way or another. It was just a question of whether it was ours or someone else’s, and that’s really kind of what a lot of it was anchored on.

Felipe:
I’m going to put that on an Instagram quote, you can either pay my rent or someone else’s.

Lukas:
Yeah. Yeah.

Felipe:
True, that’s true.

Ashley:
Yeah, but running your numbers, a lot of times people will say, what should I do? Should I go with this loan? Should I go this loan? Should I put this much down that much down? And you’re so right. It’s run your numbers, and see how it comes out. Run it for today, what will happen today, and then run it for 10 years from now, where were your numbers end up?

Mallori:
Totally.

Felipe:
Yeah.

Ashley:
Yeah, I really like that advice. Let’s go to our last question, and it’s a little bit of rookie hazing.

Mallori:
Oh, boy.

Ashley:
What song is your guilty pleasure? And can you sing a little bit of it for us?

Mallori:
Oh, no. You have to sing you were doing it today.

Ashley:
I don’t know. (singing) Fortunately, my example is one where the set wasn’t all that great to begin with, so I went with a high bar to reach to.

Mallori:
Oh man, I’m really [inaudible 01:07:51].

Ashley:
That was really good. That was.

Felipe:
I bet you sing that doing the renovations, don’t you?

Mallori:
He was singing that in the shower today. And I was like, wow, this is actually spot on. You sounded like, which, like you said, he’s not a very good singer, so.

Speaker 5:
I do, oh yeah. [crosstalk 01:08:03].

Ashley:
Oh, yeah. Mallori, did you want to do it too?

Mallori:
No, oh my gosh.

Ashley:
No, oh no, that’s right. That’s right.

Felipe:
That’s hilarious. Mallori and Lukas, where can people find out more about you guys?

Mallori:
We’re pretty active pretty much exclusively on Instagram. My handle is Iammallori, which is M-A-L-L-O-R-I, Iammallory.

Lukas:
And Iamminesnowda, LA. Minnesota but with snow in it instead. But I think if you search Lukas…

Mallori:
[crosstalk 01:08:39].

Lukas:
… AndersonL-U-K-A-S, you will find me.

Ashley:
[crosstalk 01:08:42].

Mallori:
Yeah, we post a lot on our story. Like [crosstalk 01:08:44] for the day.

Lukas:
When we’re doing the updates on the renovations and everything, yeah.

Ashley:
Cool. Yeah, and we’ll link your guys’s Instagrams to our show notes. You can find all the show notes, things we talked about highlighted. We’ll post them on there, and maybe we can even get some pictures of your guys’s current renovation.

Mallori:
Oh yeah, we should put some appraisal pictures in there too.

Ashley:
Yeah.

Lukas:
Yeah [crosstalk 01:09:07].

Ashley:
Yeah, that is really cool.

Felipe:
Oh, probably it looks good.

Ashley:
Yeah. Well, thank you guys so much…

Mallori:
Thank you so much.

Ashley:
… For chatting with us today.

Mallori:
Yeah, thanks for doing this podcast.

Ashley:
Yeah.

Felipe:
Yeah.

Ashley:
I’m [email protected] He’s [email protected] And don’t forget to join our Facebook group. Search real estate rookie to join our community, and keep each other accountable to starting in real estate.

Felipe:
Thanks, guys.

Lukas:
Welcome. Thank you.

Mallori:
Thank you.

Watch the Podcast Here

In This Episode We Cover:

  • What Mallori and Lucas learned from a first-time homebuyer class
  • The mindset shift that helped them overcome their fears
  • How they avoided analysis paralysis
  • Getting access to a property to do repairs before closing
  • How they ensured their property passed the appraisal
  • How they got free carpet for their rehab
  • How blue-collar workers can be real estate investors, too
  • How seasonal workers can make themselves more bankable
  • What a “rehire letter” is
  • How they analyzed several house hack deals
  • Why listings with one Google Street View photo can be hidden gems
  • Websites where they check rent comps
  • Why their real estate agent turned out to be their “MVP”
  • And SO much more!

Links from the Show

Possible Lenders:

Lucas and Mallori’s MVP:

Tweetable Topics:

  • “Most conventional buyers are looking for something move-in ready.” (Tweet This!)
  • “What always got me over the fear is running the numbers.” (Tweet This!)

Connect with Mallori and Lucas

They're not 9-to-5ers, are reliant on tips and seasonal work, and weren't swimming in cash. So, when they took the plunge into real estate investing—in pricey Tacoma, WA—they had to work to become "bankable." Learn how despite a few roadblocks, Mallori and Lukas pulled off their first house hack.