Rookie Reply: My Debt-To-Income is Too High to Get Another Property, How Do I Keep Up the Momentum?

Ashley:
This is Real Estate Rookie Show number 52.
I am your cohost Ashley Kehr, and I have Tony Robinson with me. We are back for another Saturday episode.

Tony:
What’s up, guys? Excited to be here, excited to give the folks some more good stuff to listen to, and chat real estate with you, which I love doing obviously.

Ashley:
I know, I know. I think we talked for half an hour about different real estate stuff we have going one before we actually started recording today.
So today’s question, Tony found this one in the Facebook group and actually responded to it, and had some great banter. So Tony, go ahead and read it, because I really want to read your response, and then what Megan said after that.

Tony:
All right. Hang with me here guys, I want to make sure I get everything that Megan’s got. But, here’s her question.
Megan says, “I’m closing on my first real estate investment property tomorrow. I’m so excited, I’ve already got another one under contract. After that, I’m running out of room on my debt to income ratio to personally finance, and my lender requires a year of rental income plus tax returns, which puts me about 15 months from being able to buy another property.” So she’s almost out of cash, and she’s looking for any suggestions for how to keep momentum going in 2021.
She says, “Looking for a partner might be an option, but I’m too new to bring experience to the table, and without much cash or financing, what do I bring to the partnership? Please help me think outside of the box. My strengths include time to hunt for deals on the MLS, I haven’t done any off-market deals. My background in accounting, my ability to run the numbers and enjoy doing it, and I’m very organized and I’ve already started making several contacts in the market that I’m investing in. Thanks in advance for your insight.”

Ashley:
Tony found this question and he responded to her. You wrote, “‘But, I’m too new to bring experience to the table.’ and this, ‘I’m closing on my first real estate invest property tomorrow. I’m so excited, I have another under contract,’ in the same paragraph. This might not seem like a lot to you, but to someone that has zero deals, you’ve got plenty of experience.”
And I have to 100% agree with Tony. Reading through her question, she’s telling you all the things she’s doing, all the things she has experience with. She sounds like she could be the potential for a great partner.
Then Megan responded and said, “Tony, thank you. That is a great point, and definitely why I wanted to get an outsider’s perspective. I’m not great at selling, especially myself, so I really needed to see myself through other’s eyes so I can turn those negative statements into positive assets.” I love that last statement she said, because real estate is a lot about getting in the right mindset. It’s a rollercoaster ride. Like a lot of other things, there’s going to be ups and downs, but you just have to keep grinding, and put yourself in that positive mindset.

Tony:
Yeah. It’s just so strange how we don’t see the strengths that we have within ourselves. We just don’t see that.
I was talking on the phone with a friend a couple weeks ago, and her and her brother were looking to get started in real estate investing. They’re like, “Yeah, but we don’t really know anything. We’re just really, really scared, and we feel like we won’t be able to build the right team.” I said okay, I started to talking to them and they mentioned that their dad is a general contractor. I said, “Your dad’s a general contractor, he builds houses?” They’re like, “Yeah, he builds nice homes here in Southern California.” I was like, “You guys have the perfect built-in team to go flip, to burr. That’s what people die for, is a good construction person.”
But, for whatever reason when we’re looking at ourselves, we really struggle to see what the strengths are that we have. I’m glad that Megan posted that, because hopefully she was able to get some feedback from myself and others that she does have the skills that are necessary.

Ashley:
Yeah. Tony, let’s give her a couple recommendations as to how she can actually go out and find a partner.

Tony:
Yeah.

Ashley:
I’d love to do an actual Saturday episode on this whole topic. But real quickly, the first thing I can think of is putting together all of your personal financial information, and showing that you have a strong foundation, you can manage your own finances, and you would take care of someone else’s money.
What’s something you could recommend to her?

Tony:
I recommend that people be very vocal about what they’re doing, because you never know who’s paying attention or who’s watching. I found my first partner, who was my wife’s cousin, because we both followed David Green on Instagram. You just never know how you’re going to connect with someone.
But, when you start posting things, you’ll get people who you haven’t talked to in years who will reach out to you and say, “Hey, that’s so funny. I’m interested in real estate investing, too.” Be vocal. Megan, you’ve already got two deals pretty much under your belt. Talk about those experiences, say what you’ve learned and people will come out to you and say, “Hey, can we do something together?”

Ashley:
I’ve heard people often say, “Oh, on social media I don’t want people to know what I’m doing, or how much money I’m making, or what I’m doing with my money. Money is personal, money is private.” But, if you want to grow, you’re going to have to share what you’re doing to bring those partners in. Someone that’s investing, I don’t want them to keep what they’re doing a secret because if I’m going to be investing my money, I want to know exactly how that’s going to be taken care of. And when you show it on social media, that’s going to make more people more comfortable to approach you because you’re being open, you’re being honest about what you’re investing is, how you’re getting your properties, how you’re making those numbers and those deals work. That’s a great point. Just telling anyone and everyone, and going to meet ups, and networking with new people also can be super beneficial.
Let’s talk about creating an opportunity, though. She’s done these successful deals, and she needs to, in order to keep growing right now, she needs to find money. How can she pitch this to someone without it being a pitch, and making it sound like an opportunity? What do you think about that?

Tony:
That’s always tricky. But, I think what you said is the exact way that she needs to approach it. It’s that she’s not asking for help. As she’s reaching out to people, she’s not asking for help, she’s giving them an opportunity to invest in something that’s going to benefit them. So I think the mindset shift has to happen first, that when you are reaching out to folks about working with you and partnering, that you’re not asking for a handout. You’re giving them an opportunity to be part of something that’s going to benefit both of you, mutually.
I think once you have that mindset in place, it comes easier. Because then, it’s just the mechanics. Then it’s about putting the underwriting together, it’s about running it through the Bigger Pockets calculator and having the nice report come out. And then, sharing this with people and saying, “Hey, I know you were interested in real estate investing. What do you think about this deal?” And talk through it. “Hey, do you want to do it together?” If they say no, no hard feelings, we’re still friends and you go onto the next person, and you just repeat that process.

Ashley:
I heard Brandon Turner say this the other day. We were both on this Zoom call together, and I was talking about how making it an opportunity for a partner, and stuff like that. And he’s like, “Ashley, I have to interrupt you, I’m sorry. But, I just need to tell you guys that when you are approaching someone, say this.” He’s like, “Someone told this to me before, and I’ve lived by it.”
He said, “When you think that someone might be interested in investing with you or be a good partner, say ‘Hey, do you know anyone that would be interested in partnering with me on a deal?'” That way, you’re not directly asking them, and it becomes awkward and uncomfortable waiting for them to respond. But, you just throw it out there. “Hey, do you know anyone?” And then, maybe they might just say, “Actually, I might be interested.”

Tony:
Yeah.

Ashley:
That just puts a little bug in their ear.

Tony:
Yeah. No, I love that advice. There’s two different ways to approach it. I think I’m a bit more of a direct person, but that’s my comfort level. I’m okay with someone telling me no.
But, I guess the point I’m getting at is that, as an investor, you’ve got to build some level of comfort with rejection, and knowing that not everyone’s going to be a good fit but it’s totally fine. I can pitch someone … Not pitch. But, I can explain to someone all day how I partner with people, and if they don’t want to partner with me, it’s totally okay, I understand, and it’s onto the next one. But to your point, it’s all about comfort levels and what you feel comfortable doing.

Ashley:
And, it’s also about the person you’re approaching, too. How do you think they would be more comfortable? They want to just be direct, get it over with, just ask them the question. Or, is it someone you know that’s a thinker, and would rather think about something, and doesn’t want to be put on the spot, too. So, that’s a great point that you brought that up, because it’s really what you’re comfortable with and what you think they would be, too.

Tony:
You also don’t want to pressure people. The last thing you want to do is be so persistent that you force someone into make a decision that maybe they don’t want to make. So I think your point about reading the situation and understanding who needs space is a good one, too.

Ashley:
Yeah. I have one more option for Megan actually, that we haven’t discussed yet. But, she could also do commercial lending. On the commercial side, they’re less likely to look at your debt to income ratio, and more likely to look at the property as an investment. That would be something else I would recommend to Megan, is to look at the commercial side of lending and see if she would be able to get a loan that way.
You’re not going to get as great of financing, but right now rates are so low, I got I think it was 3.74% on a commercial loan I did recently. It’s only fixed for five years, yes not great like the 30 year fixed, but it keeps me going it, it keeps me growing, and then it’s amortized over 25 years. My payments are still low, I just have to be ready for that refinance in five years. That would be another option for Megan, too.

Tony:
Yeah. There’s so many options, so many different ways to slice it. And that’s the beautiful part about real estate investing, is there are almost never is one perfect answer, there’s just which option do you feel most comfortable with.

Ashley:
Yeah. That’s a great point, is you’ve got to look at what your goals are, and then work back. So what kind of financing would work in that scenario?
Even before we got on the call, Tony and I were talking about why haven’t I taken on investors besides the small group of partners I’ve worked with forever. For me, I just don’t like being responsible to anyone. I really don’t have a W2 anymore, I really don’t work for anyone anymore. And as of right now, I just enjoy that I’m comfortable with getting bank financing, and not taking on hard money lenders, or doing joint ventures or anything like that. I like that, and I used this with Tony … I said, if there is a $10 expense that I’m going to save by doing it today, or it’s going to cost me $10 by doing it tomorrow, if I want to do something with my family or there’s something else I want to do, I am okay with losing that $10 waiting a day. But, I would feel so awful and uncomfortable losing that $10 for an investor.
I think eventually I’ll have to get out of that mindset, and grow to grow even more, but that’s just a reason that haven’t yet.

Tony:
Yeah. Awesome, Ashley. Well, I think we gave Megan a lot.

Ashley:
Yeah, I hope so.

Tony:
We just gave her a lot of good stuff to chew on, so hopefully she can take it from there. And everyone who’s listening, obviously, as well. I know that Megan’s question was her own, but so many people have probably felt that same way. So hopefully you guys can now frame your view of yourselves in a way that’s more positive, and really represents all the strengths that you, as an individual investor, can bring to the table to someone else.

Ashley:
Yeah. The thing I love about real estate is there’s so many different ways to do it, so many different strategies. You can really fit this to your life. Even if you aren’t comfortable with hard money, there’s private money, there’s commercial money, there’s taking on a partner, there’s so many different options out there. Look at what your goal is, what your plan is, and work back from there and see what strategy is going to fit into your life, not the other way around, and then take action. Start going after it, start calling lenders, make a list of potential partners. There’s so many actionable items you can do. You’ve got to sit down, make that list, and then just start doing them.

Tony:
Yeah. We should do an episode, maybe one of these Saturday episodes, where we talk about how do you choose the strategy that makes the most sense for you, because I think everyone goes one route but there’s so many different ways to do it. We should spend some time to talk about that, at one point.

Ashley:
That’s a great idea. And then, there’s people like me who have shiny object syndrome. “Oh my God, that’s such a great idea! Okay, I’m going to spend my whole Sunday looking into this.”
Well, thank you guys very much for listening, and don’t forget to post your questions in the Real Estate Rookie Facebook group. You can also send them to us on Instagram, I’m at @wealthfromrentals and Tony’s at @tonyjrobinson, so send us some DMs with your questions. If we like them and we know how to answer them, we will play them on the Saturday episodes. But also, give us some hardball questions. We would love to do some research and really dig into answers to you guys’ questions.
We will be back on Wednesday with a brand new episode, and then we’ll see you guys next Saturday, too. Thank you for listening.