Starting at Age 45 With a “1% Rule” Property (in New Jersey!) With Tricia Baxter

Ashley:
This is the Real Estate Rookie Podcast, show number 18.

Patricia:
And it is a tourist market where if I did Airbnb then, it would probably get us more money, but I wanted year-round income, I wanted less work and Airbnbing is much more work than year-rounds.

Ashley:
I am Ashley Kehr and I am here with one of the Tesla owner, Felipe Mejia. Today in the show, we bring up a Tesla. So of course I have to call you on on your Tesla that you’re still shopping for.

Felipe:
That’s exactly right. Today, we have a great guest. I can’t wait to introduce her, but she does talk about a Tesla and how I believe her husband wants one. And I’m in the same boat. I really wouldn’t mind buying a Tesla, but every time I have the down payment for one, I get into this mode of like, I better not. I’m going to buy another property that’s going to cashflow and I’m going to use that money to buy the Tesla.

Felipe:
Then I have the money, then I buy another rental and I get stuck in this like buying rentals rut.

Ashley:
Yeah. And Tricia mentions that her and her husband go through the same thing like, “Oh, well, we could use that as a down payment on a property.” Tricia started investing when she was 45. She has a law firm, she’s a lawyer. She has her own podcast. She has two kids. She is busy, busy, busy, but still has made time for real estate and busting.

Felipe:
Yeah, I love it because she talks about some great nuggets, including property management, her managing her own properties, creative financing on one of the deals that didn’t fund the day of, that’s got to be scary. Then she gives great tips on how to find great people to help, plumbers, and handyman, and painters, how to find the best of the best in your area. She gives a great tip on how to find that.

Ashley:
Yeah, she has put it in place now where she self-managed for so many months, I think 10 months, she said, and now she has everything in place that someone is just taking care of all that property management for her.

Felipe:
Well, hey Tricia, welcome to the show. Thanks for coming on. Super excited to have you. Well, let’s get started, Tricia. Why don’t you tell us a little bit about yourself so we can get to know you?

Patricia:
Sure. I am a practicing attorney right now living in New Jersey, but I practice in Pennsylvania, our office is in Philadelphia, and married. I have a seven-year old daughter, a 17-year old stepson stranded at the shore, which is the beach. We in Jersey, we call the shore, which no one’s going to feel sorry for me. But since COVID, we were like, “You know what? I don’t want to be in my house. Let’s go to the shore.”

Patricia:
That’s where I’m at. That’s where we’re filming from today. Super excited to be here. I’m a big fan of Bigger Pockets. It really taught me so much, so I’m fangirled out a little bit here. So thanks for having me on.

Ashley:
Yeah, we’re very happy to have you. Let’s look it back into how you started with real estate. Did you just all of a sudden wake up one day and decide that You wanted to become a real estate investor?

Patricia:
I wish it was that easy, but no. And I didn’t get started until mid 40s. I’m 47 years old and I manage my Northeast law firm’s office, so the satellite office and part of that growth really took an effort to diversify our revenue streams and business. Then through that process, I was like, “But I’m not diversified.” We had two revenue streams, which was my husband’s and mine, our jobs, and if either one went away, it would be bad.

Patricia:
My husband and I have been always been very good with money, so it really didn’t take a lot of convincing for him. I started reading a lot of books, I started reading Tony Robbins. Tony Robbins led me to another offer, which led me to Robert Kiyosaki, which I’m sure your guests always talk about, but that book changed my life. It was a light bulb moment. Made me angry that I hadn’t been taught those principles.

Patricia:
From that, I hit the ground running and I read everything I could. I listened to every Bigger Pockets podcast I could. And then about six to maybe eight months later, that’s when we had our first investment property. But I was obsessed, probably not in a healthy way and I loved it. I was surprised at how much I loved it. I was 45 years old when we bought our first investment property.

Ashley:
So did you have to convince your husband on this or was he just automatically on board with it?

Patricia:
He was automatically on board with it. He’s always automatically been on board with what I’ve wanted to do. I have more of an entrepreneurial mind. He’s a math teacher, so he’s a math mind. He’s black and white, but it made sense to him. I was like, “If you lose your job or if I lose my job, what are we going to do for revenue?” So it just made sense to him, not to say it wasn’t easy. It was very hard, but it made sense to him.

Patricia:
I’m super fortunate I had a very supportive partner. He doesn’t love it as much as I do, but he supports everything that we do.

Felipe:
I love your stories so far, Tricia because I think a lot of people think that they have to do one or the other. Sometimes I think people are like, “Well, I can only do real estate or I can only do what I love and what’s my passion.” And sometimes I feel like people are like, “Well, I have to give one up. I can’t have both.” Not just that, you’re also a mother, you have a successful practice, and now you’re in real estate as well.

Felipe:
Can you tell us a little bit about maybe how you juggled that at the beginning, before we get into your story?

Patricia:
At the beginning, I would say it all has to do with Hal Elrod’s book, The Miracle Morning. I always get that backwards. And I read it and for a year I did exactly what he said. I was up at 5:00 AM and I had an hour-and-a-half before my daughter got up to really focus on me, and I took that time to focus on real estate. I did my workouts too, but that’s what I read.

Patricia:
That’s when I created an Excel spreadsheet to analyze properties. That’s when I listened to podcast, and that’s where my knowledge came from. That really made the different for me because once my day starts, at least from about 8:00 until about 6:00, there’s not much room for real estate. So it’s family, it’s law, it’s everything else. So that’s how I got started.

Patricia:
I don’t do as much anymore. I always love to go back to a 5:00 AM routine, but now it’s more like clockwork. You just get into habits and it’s so much easier now that I’ve had a couple of investments under my belt. So I don’t have to do the reading as much anymore, but that’s how I got started.

Ashley:
That’s awesome. Oh, a lot of times it does take that time commitment where you… Everyone has the same 24 hours in a day, but it’s what you do with those hours. Instead of sleeping in or waking up and just enjoying a cup of coffee, watching the sunrise, you took advantage of that time to learn about real estate investing. That’s great.

Ashley:
Let’s talk about your very first property. How did you find that deal? What market was it in? Let’s find out everything about it.

Patricia:
Sure. We found it off the MLS. It was a triplex. It’s in the Jersey shore, so we invest on the Jersey shore. I’ve come to realize it’s a fantastic market as far as year-round rentals. We have a condo here and it made sense to look in this market as well. The real estate agent that sold us our condo, we started to Airbnb our condo, our personal vacation condo and he was like… I said, “I want to invest in real estate.”

Patricia:
So we started thinking we would just buy another vacation condo and we would Airbnb that, and we couldn’t find any of the numbers that worked. And he suggested, “Why don’t you try year-round? Why don’t you try a duplex or triplex?” I’m like, “Okay.” And he started showing us some. This one was off the MLS. It was overlooked, had been on the market for almost a year, so I was nervous about really proceeding with it because I’m like, “What’s wrong with it? No one’s snatched it up.”

Ashley:
There is that misconception sometimes that if a property’s been on the market even 30 days, people automatically assume, well, there must be something wrong with it if no one else bought it.

Patricia:
Yeah. And we-

Ashley:
So that’s great you still went after it.

Patricia:
Yeah. We went after it, we put a bid. We came in really low and they pretty much accepted close to our low offer, and we hit the ground running on that. Not to say we didn’t have hiccups, we got the inspection report back and I almost backed out of it. And I think because of what we saw, and I think more back now, it was more of like an analysis paralysis. That fear of like, oh Lord, I don’t know what I’m doing. This inspection report highlights things that I’m not sure I can handle.

Patricia:
But we pushed through that fear we closed, and in retrospect, it is I think our second highest performing property as far as numbers go, so super happy that we did it.

Felipe:
I wanted to piggyback a little bit before we move on to the numbers. This is an area that’s known for travel, right? And you said you did more of… Did you Airbnb this property or did you say you’re going to… You did more traditional renting? That’s one question that I had. Then the second one was, if everyone else was doing Airbnb and the trend was following that, why did you decide to go a different route?

Patricia:
All of our rentals are in this Jersey shore. They are all year-rounds. We don’t Airbnb anything, and it is a tourist market where if I did Airbnb then, it would probably get us more money, but it would be a summer seasonal rental thing, and I wanted year-round income, I wanted less work. And Airbnbing is much more work than year-rounds. It’s just easier, and I wanted it easier. I wanted the low-hanging fruit. I wanted to put somebody in there and hopefully you get a longterm tenant, so you’re not dealing with turnover, which is exactly what our experience has been.

Patricia:
That in a tourist market, where Airbnbs are in high demand, that’s where most people go. So the year round market isn’t being filled and we don’t have a vacancy problem because of that. We have a tenant that notifies us that they’re moving out, we have it filled usually before they leave because of the demand. We get 50 inquiries on like by week one. I want to be in that market. I want to be in that situation where I’m not worried that whether we’re going to be able to fill a property or units, so-

Felipe:
Correct me if I’m wrong, Tricia. I bet there’s a shortage of longterm rental properties in that area because it is such a touristy. I bet all landlords are going towards that tourist money and they end up probably leaving behind the longterm renters. Is that about right?

Patricia:
Yeah, and it’s getting worse. As they tear down the older properties and they put up these new condos, they sell them to people either want second homes or who do want to Airbnb. So more of the residents end up moving off the island in another area, but have to commute onto the island for jobs. So if you can offer a year-round rental, it’s just such a great on demand unit.

Felipe:
This is such a good example of Tricia selling the shovel when everyone’s digging for gold, right? Everyone’s out there digging for gold with Airbnbs and doing all this, but Tricia decided to do, you know what? I’m going to rent full time to those people out there digging for gold, and now they’re having to pay Tricia in gold. So you don’t have to do that digging, which is that hard work that you’re talking about, and I love that.

Felipe:
Because you have found a niche within a niche that’s even better for yourself, less work. Let everyone else do the hard work for the little bit extra money, and that’s the second thing that I’d like to say is, it’s not always about the money. Sometimes it’s just wanting to work less and having that opportunity and that option to do as you want. So I love that. The low-hanging fruit is still a fruit.

Patricia:
Yeah.

Ashley:
And Tricia, you were self managing this property?

Patricia:
Yeah. We committed for our first year, at least I in my head, I committed. I’m not sure I ever voiced it to my husband, but we committed for the first year to manage. I didn’t know anything about real estate. My husband and I are not handy in the slightest. It’s not natural to us, so I’m like, “I’m going to treat it as if I’m going to a college or university.” I’m getting a degree in property management and what a learning curve that was. I learned so much.

Patricia:
I didn’t make it the whole year. I made it 10 months, and then I was like, “All right-

Ashley:
Close.

Patricia:
… enough. I done, I can’t do it anymore.” But it taught me one, I’m not the best at it. There were strengths that I had and there were a lot of weaknesses that I had, so somebody coming in and doing it for me was the better route. So it also tells you if it’s right for you or not. I learned a lot about my properties, the problems they had, the things that continued to come up, and I learned the tenants.

Patricia:
I learned who was the ideal tenant, what they were looking for. And really every month I self-managed, when we went to buy our next property, it was so much easier. So I knew exactly what I was looking for.

Ashley:
Yeah. Especially when you look at the Airbnb model or longterm model, when you’re self-managing, there is a lot more work to the Airbnb. Even if you hire out the cleaning, you still need to make sure that someone’s going to be there to do those turnovers. You have to communicate with every single guest, making sure they’ve checked in okay when they check out, if they need anything.

Ashley:
So anyone that’s looking to self-manage, there does seem to be a lot more work on the Airbnb side than the longterm rental side. So now that you’ve put this full property management in place, let’s talk about that a little bit later, but I want to jump back to that first property. What were the numbers like on that deal?

Patricia:
We bought it for 215, 215,000. It was a triplex. There was two buildings, the front was a duplex, three bedroom, two baths. Each unit was three bedroom, two baths. The rear was a cottage, separate building and that is a two bedroom, one bath. The rents were very, very low compared to market, so when we bought it, we raised rents instantly and I was nervous about that. But I was confident that what they were paying was like three to 400 a month below market.

Patricia:
So we didn’t even raise it the whole amount, we raised it half way. They were longterm tenants, they’d been in there for four or five years. They’re still in there. So raising rents, even though they had said to me, “We can’t afford it. We’re moving out.” I said, “I understand.” They didn’t and they’re still there today. They’re amazing tenants.

Patricia:
My market’s a flood market, so we had to look at flood insurance, which is expensive and you have to make sure you have to incorporate that in. And then we knew that we had some work to do. The inspection report came back with some stuff, so we had to budget that in, but it turned out to be on a numbers perspective like… I think we talk about the 1% rule. It was like 1.7%. It was fantastic.

Patricia:
I felt like my first property, I hit a home run, and my next two weren’t home runs. They were like second, maybe first base, so I got spoiled. But I stumbled on to a home run and I was like, “Oh, thank God.” If I had not stumbled onto a home run and really hit a brick wall, who knows what would have happened with my real estate dream, but we really lucked out.

Felipe:
Tricia, I love when you talk about your tenants and raising the rent because I think a lot people are afraid to do that because they’re afraid to lose tenants, good tenants at that. One of the things that I’ve heard quite a bit of people that are successful in real estate when it comes to raising rent is what you did, which is, if you know the value of the property and the value that you’re bringing, it’s okay to raise rents, because if the people respect you and respect the property, they know what it’s worth.

Felipe:
And like you said, they didn’t move because they knew that the market is going to charge them that anywhere they go. So why would they move out of a place that they already feel as home? And if you’re allowing them to feel that way at this property that is yours, but you’re allowing them to feel like home and you raise the rent, not past market, you’re not doing anything wrong by being like, “Oh, I’m going to raise it $100 past market value.” No, you’re just raising it to market value.

Felipe:
And I think you said you even did less than market value, just a little. Well, then they’re obviously not going to move because they’re going to pay more at a different place where they don’t feel like it’s home yet. So I would challenge everyone listening, don’t be afraid if you do inherit tenants to raise the rent to where it’s supposed to be. Because most people, if they respect the area and the place, they are going to want to stay there.

Felipe:
Anywhere else they go, they’re going to have to pay more, not including the cost to move, the cost to take… All of these other costs that they’re going to incur when they’re moving. So kudos to you for taking that step. But my question to you is going to be, what would you tell our listeners that have that fear of raising rent on tenants? Or inheriting tenants and then having to go in and immediately raise the rent because it isn’t under market rent? What would you tell them?

Patricia:
I would say, make sure first, maybe go back and double check and triple check your rates and what the market sustains. And if you’re really confident that the rents that you’re buying into are lower than market, then you just have to push through that fear. I had that fear. We sent those letters out and I held my breath. And even for the next two months because one of the tenants is like, “I can’t afford this.” And I’m like, “I appreciate that and will let you out of the lease if that’s the case.” But she didn’t, she stuck it out.

Patricia:
And you just have to push through that fear, and if you have that fear, if it keeps popping up, just go back and do your market research again because you’re not wrong. Just do it.

Ashley:
Yeah. One thing I have done before when I was raising rent for a property I had purchased, I think the market value rent was 550 and this guy was paying 400 a month. And what I did was I pulled some comps in the area. I had friends that owned property, I called apartment complexes and I just wrote down like, “If you moved to this address, this is what the rent is for a two bed, one bath.”

Ashley:
And I just pulled properties that were similar to what his apartment was and I showed him that I’m only raising it to 450. If you move out and don’t renew your lease, you’re going to be paying 550 somewhere else. And he was fine, very receptive with doing that. So I’ve done that a couple more times. Then I think it makes it a lot easier for the tenant to understand that I’m not doing this to try to increase my profits.

Ashley:
I am, but not doing it to be harsh, but-

Felipe:
Let’s be honest here. Let’s be honest.

Ashley:
But I want to show them that even if they moved out, I’m comparable, I’m very competitive with my rental or I’m even lower than if they moved out. Then plus there’s the moving costs. So I find that writing a letter showing those has helped very well. Then anyone who wants to find out what the market rents are, BP is launching BPInsights. Actually I think by the time this episode comes out, we will have already launched.

Ashley:
You can find that at biggerpockets.com, and also if you subscribe to Wealth Magazine, also every month they do an issue. I think every other month a new issue is released, Felipe? Is that right?

Felipe:
Yeah, that’s right. Yep.

Ashley:
Yeah. So they will do an article in there at the BPInsights too. There’ll be lots more data, not just what the rental market is, but go ahead and you can search in there if you guys want to find out what some of the rents are in your area.

Ashley:
But let’s go back to talking about property management. How did you find a property manager and how do you think self-managing helped you find that property manager and oversee them?

Patricia:
I struggled to find a property manager. I went on Bigger Pockets, the chats and stuff and reached out to some people. I wasn’t big enough at the time for some of those people to take me on, or I reach out to people, referrals and they wouldn’t show up. I had a lot of bad experience getting property managers to talk to me. Then I started combing through Craigslist and seeing if I can figure out what listings were managed by a property manager.

Patricia:
And we had some listings on Craigslist and it turns out I had a woman reach out to me because she had seen my listing for vacancy and she reached out to me and I’m like… It was like karma or something because not nothing I had done worked so far. And I met her, I liked her. She was new to property management, but she had a paralegal background with foreclosures and she knew the legal aspects of it.

Patricia:
She had run a repair company and maintenance company. I’m like, “She has the skill sets. Let’s give this a whirl.” And she worked out fantastically. We definitely had some trial and error, and she made some mistakes, and I made some mistakes, but we’re instinct now and it’s been a year and it’s been great. But yeah, it definitely helped me because when she would come to me for questions because she had a lot of them, like the first three or four months. She’s still relatively new to this, so she had a lot of questions.

Patricia:
If I had not self-managed, I wouldn’t have known how to answer them, so it was very helpful. So she would come to me and say, “This property, this sink is backed up,” or “this toilet’s backed up.” I’m like, “Oh, well, that one has a sewer problem. We’re going to have to go drain the sewer line.” So I knew how to direct her a little bit versus I think we would have been spinning our wheels together if I hadn’t done that.

Felipe:
No, it’s really important to be in sync with your property manager because, like you said, you self-managed for a while, so you knew the little kinks in your property, the little things that were like, “Oh, just do this, that’s fine. You don’t have to do a brand new sewer line. Just drain the line, you’re going to be fine.” I think it’s really important to do that.

Felipe:
What would you tell our listeners who are like, “Well, everyone tells me that I need to immediately buy a property and give it to a property manager.” They’re like, “I want to be completely hands off.” What are some of the key roles that you learned by being your own property manager before you passed it onto someone else?

Patricia:
Well, I would definitely say don’t do that. I know there’s a school of thought that says you should immediately get a property manager. I personally didn’t walk that walk, so my experience about self managing for 10 months, I wouldn’t take it back for the world and I would recommend everybody do it for the reasons we’ve talked about. But I learned really how to get a list of vendors together because we were an hour-and-a-half away from our properties.

Patricia:
And it wasn’t like I could just pick up and move and go and look at a toilet. Right? We put together a list of vendors. We had everything systematized, so my tenants knew when they could call me for the mundane, and they knew when and how to get in touch with me for emergency, so I could ignore essentially during the day anything that was not urgent.

Patricia:
But if I got a text at 10:00 on a Saturday, I knew it was a problem. So we really worked to get those systems in place. And really the vendors, having local vendors, we went through a lot. We went through a lot, they didn’t show up or told us they did the work and they didn’t. And we found some really quality, good vendors that I don’t even give out to anybody anymore because they’re ours. But that was really the key for me.

Patricia:
Then with every complaint that I got, I handled the next one better. I know like, “Oh, call that guy at the HVAC,” or, “That’s a plumbing issue. Call that guy.” Or whatever it may be, it was easier. So-

Felipe:
Tricia, can you give us some tips and tricks on how to find good vendors? I think that’s a lot of people’s questions, how do I find the good ones versus the bad ones? Personally I’ve had to, that’s really weird, but kiss a lot of frogs before I found the right. Hey, girls [crosstalk 00:22:53] crushed it in real estate as well, right? Girls can do the same thing any guy can do, so I was thinking about that, I was saying it out loud. I was like, “Wait a minute [inaudible 00:22:59].” But you get what I mean, right, Tricia?

Patricia:
I do.

Felipe:
How do you find the Prince charming in real estate?

Patricia:
I think my most successful has been Facebook groups, neighborhood Facebook groups. In my area, there’s several that are closed groups owners. For me, there’s a shore rental owners and you can go on and you can be like, “What’s a good plumber?” Usually what I do, I would wait for five people to recommend the same guy, and then I’d reach out to that guy. That was my most successful.

Patricia:
Looking up on a phone book, looking on Craigslist, none of that worked for me. Even my circle of friends, they weren’t in real estate. It wasn’t all that helpful, but my fellow rental owners really were super helpful. And we did that in the shore, and we also did that where we live in New Jersey at home where we joined a local Facebook group for even vendors there. But number one tip, seek out those closed groups, get in them and start asking questions.

Ashley:
I really like the advice because really you’re just getting referrals. It’s not even them advertising. Like if you looked up Google, searched a plumber in whatever city, I like that you’re getting referrals on those people. Especially in a closed Facebook group, someone’s probably not going to give a bad recommendation in that group because then someone could easily come back at them, “Hey, so-and-so recommended this guy. He was awful.” Blah, blah, blah.

Patricia:
Yeah. We put security cameras on one property, and so I put a little post in the group, I’m like, “I need a security guy.” I had this one guy pop up 30 times, 30 times as, “This is the guy.” I’m like, “Okay, well, that’s the guy.” And he was fantastic. So I highly recommend it.

Ashley:
That’s good, good.

Felipe:
That’s really good because I feel like word of mouth is something that you can’t fake. If you get 30 reviews from a closed Facebook group, clearly you’re doing something right. What I like about that as well is usually when I meet with a contractor, I end up telling him, “Hey, you were given great reviews on this private Facebook group.” And then I feel like that gives them a little more pressure to do what they got to do. You know what I mean? To do it better and it puts a little bit more pressure on them as well.

Felipe:
How are you able to now translate and transfer all this great information that you have in your city to your property manager? How did that transition happen? I know you told us a little bit about it, but what system did you create for her to follow?

Patricia:
I think I really just started with my list of vendors, “Here’s my list of vendors.” I would love to say that I had a really nice thoughtful system in place, but it was really an on-the-job, two months where I still was self-managing while she was on board, and we would tour the property together. I would show her like, “Here’s the listing that I normally do. Here’s the happy tenant I normally look for.”

Patricia:
It was just, I think multiple conversations over two months and I knew that I had to give her that learning curve. I knew that I was taking a little bit of a risk on somebody new, but she was hungry and she had the background. And I knew I had to give her some space to do it, get it right and get it wrong. And we would just be in contact.

Patricia:
The first two months, I think it was daily that we were in contact, whether it was a text, or a phone call, or an email. And eventually that starts to taper off. So I think anybody who is self-managing and passes that off to a property manager, you have to expect a little bit of that learning curve, especially if you go independent. I don’t know.

Patricia:
If you have this large portfolio of rental properties and you give it to a rental company, maybe it’s different experience, but when you’re passing it off to a single property manager, walk into it with that mindset.

Ashley:
How many properties do you own now and have you passed on to her to take over?

Patricia:
We have four properties, 13 units and we are actually looking for our next one. And she’s-

Ashley:
That’s awesome. Congratulations.

Patricia:
Thank you. Yeah. I love it. Out last one, we I did a year ago. It was more than a year, is April ’19 and it was so hard. It was so hard that we were like, “We’re going to take a break.” And now I think we’re through that the scarring of what happened on that property, but we passed them all onto her and it has been amazing.

Patricia:
Because in retrospect, my husband and I went through some family stuff this year that we would not have had the mental capacity to handle the rentals. And we had to do two evictions this year and we had never done that before. So it was all in the same time and him and I thank our lucky stars that we had her because she handled all of that. It would’ve made our life a 100 times worse if we’d had that stress as well. So she manages them all. I love it. She’s fantastic and we never we’ll never go back.

Ashley:
That’s great. I think everyone wishes they had someone like that. I know Felipe needs someone like that to pick up his rent, right?

Felipe:
I do. I need a great property manager out here in the Nashville area seriously, but I want someone like what you found, Tricia. Someone that is hungry, that’s not necessarily new, but still wants to learn. Trainable, I don’t know what the word for it is there, but someone that I’m going to mesh with well. It’s a business that you create and you don’t want to just hand it over to anybody to take over.

Felipe:
But you know what? It’s interesting. I know the importance of it because now you’re able to just plug and play, right? Now, you have a great property manager, great systems in place, great plumbers, handyman, painters, whatever the case may be. And literally now it’s just plugging in the next property to that and plugging in the next property to that, and you’ve created a system that works very, very well.

Felipe:
So kudos to you for that. You’re definitely going to keep growing. You’re going to be adding more properties. You’re going to be crushing it. I can already see that.

Patricia:
Oh, thanks.

Felipe:
And like I said, what you’re doing is remarkable because if I’m not mistaken, you still have your job, correct?

Patricia:
Yeah. I’m still practicing, I’m still trying to grow my business, which takes up 90% of my time. Real estate, it’s like my little side baby that always will be. It’s little love of my life. But yeah, I’m still doing that, but it is… Our goal when we walked into it, we had a monetary goal, here’s the free cashflow we want to hit because we want options. Maybe there’s one day where I don’t want to run the business. Maybe there’s one day where my husband doesn’t want to teach anymore and we want options at that point.

Patricia:
So we haven’t hit that number yet, but we’re getting there and every time… My husband desperately wants a Tesla, desperately. And I’m like, “Yeah-

Felipe:
Who doesn’t?

Ashley:
So does Felipe.

Felipe:
Who doesn’t as a real estate investor? Oh, you just perked up my ears. Who doesn’t want a Tesla as a real estate investor?

Patricia:
I hope he’s not listening right now, but I’m like, “We could buy a Tesla or we can use that as a down payment on our next rental property, which then lets you retiring for years.”

Felipe:
No, Tricia, don’t think… No, don’t think that way. Just do it. No, I’m just kidding. That’s actually a perfect plan. I do the same thing.

Ashley:
Because Felipe thinks the same way.

Felipe:
I do the same thing, Tricia. I literally will have the money for a down payment for a Tesla and it just so happens that this beautiful real estate property comes up on the MLS, and I’m like, “Well, look at that. That’s another five, $600 in cashflow.”

Patricia:
That’s me.

Ashley:
With all your deals, how are you financing them?

Patricia:
We have them on mortgages. The first three were really easy because we have a conduit at the beach, at the shore, and because we Airbnb it, the mortgage company treated that as a rental investment. So the first three were easy peasy, and we went back for the fourth to that bank and they’re like, “Sorry, you already have four. We don’t do more than four.” And we struggled to find the fourth one.

Patricia:
And we made some big mistakes. We ended up getting a broker who promised us financing. And on the day that our commitment was due, he was like, “Sorry, I don’t have it for you.”

Ashley:
Oh my gosh.

Patricia:
And I was in panic mode and we just had to really scrape to find financing and we did at a very crazy interest rate at the time. It was like 6.5 or something, which was not market. But yeah, they’re all on mortgages and we’re debating the next strategy. We want to buy the next property, but we’ve thought about, do we maybe start to pay down the other ones? But they are such good numbers right now.

Patricia:
We’re doing pretty well in the recession, so we’re leaning towards buying another one, but that’s certainly something, a conversation that we have constantly is, “Well, maybe we should start to take this extra money from the rents and pay down this mortgage.” So I don’t have an answer for you, but it’s part of our current discussions.

Felipe:
Tricia, I love what you said and I’m over here laughing because every investor goes through this. I know me and Ashley text about it all the time. Cashflow to pay down the property, cashflow to buy more property, refinance to buy more property, pay the loan down. What do the numbers work? And honestly, I think I’ve come to the conclusion that you got to do what’s best for yourself and what’s going to make you sleep comfortable at night.

Felipe:
Here’s the thing, I have never regretted a property that I paid off, but I’ve also never regretted a property that cashflow’s where someone else is paying down loan. So I don’t think there’s a bad option, but I would say just do what makes you comfortable and allows you to sleep better at night. What would you say Tricia?

Patricia:
Yeah. I don’t have the answer to that. I think we’ve teetered between both as we go into what I think many think may be a downmarket, and with interest rates where they’re at, it seems silly to pay off a mortgage that has 4% interest rate. It seems silly to do that when I can get a property that returns eight to 9%. But the conservative side of me is if we really do go through a downturn in the next couple of months and our tenants really aren’t able to make the rent, having that mortgage payment is going to be a pain.

Patricia:
So I think you just go through your exercise. My husband and I have different risk tolerances, his is lower than mine. I have a pretty high risk tolerance. And I look back at where do I want to be in five years? What is my rental portfolio? What do I want it to look like? I want it to be bigger. I want to leave something to my daughter and my step son. I want to pass something off, I want assets, have things of value. I like that.

Patricia:
But talk to me in a year, I’ll know more and what we ended up doing with that.

Ashley:
I can completely relate to that. Just like not knowing which way you’re going to go, but with that high interest rate mortgage, do you have plans to refinance out of that? Going forward now, do you have multiple strategies for financing having gone through that one where the deal fell through that now when you’re looking at this next property, are you going to have backup financing plan in place?

Patricia:
Oh yes. Oh, we’re definitely going to have a backup. After what we went through on that, we’re definitely going to have a backup, but yeah. We’re either going to refi, and we might do simultaneous, we’re either going to refi the 6.5% property. We’re going to work to pay it off as quickly as we can. Those are the two options for that property. We’ve saved up, we haven’t taken anything out of the business yet.

Patricia:
Every piece of rent gets used to build up reserves or used for the next down payment on the next rental property. I don’t know what we’re going to do, but on that 6.5, it’s one of those options and we’re going to do that soon. I know interest rates, which are crazy low right now, so I want to take advantage of that. And then we have, from that last property that we had that bad experience, I have two guys that are willing to finance me, so I’m keeping them in my back pocket.

Patricia:
I think I feel pretty confident about them. If I were to go to them with a good deal on a good property, I think we could get the financing.

Felipe:
Tricia, I love that you still took action even though it had a high interest rate. I’ve heard so many people, they’re like “Felipe, I didn’t buy the property because the numbers didn’t make sense. The interest rate was like six-and-a-half.” And I’m like, “Okay. But when you run your numbers, does the mortgage still get paid and do you still cashflow some?” “Yes, I do still cashflow, but the interest rates too high.”

Felipe:
Personally, I don’t think that’s the best way to look at it. I think if the numbers don’t make sense at a higher interest rate, then your next goal should be to eventually get that interest rate to a lower rate where your numbers are going to make even better sense, but don’t lose the deal because the bank is going to make more money, don’t worry about that. Get the property under your name.

Felipe:
If it’s at a high interest rate, but the numbers still make sense with cashflow or whatever it is that you want to do with that property, don’t lose it because someone else is going to make more money. Lose it because it’s a bad deal, don’t lose it because the interest rate is too high where eventually you can cash out refinance, or refinance, or whatever the case may be.

Felipe:
And my perfect example to this was one of my second rental properties that I purchased, the interest rate was like a 5/5 on an adjustable rate mortgage in five years. I had five years to figure it out. When I bought it, I was freaking out. I was like, “Oh my gosh, I have five years and I have to do this quickly.” Then I realized, wait a minute, that’s five years that I have to figure this out.

Felipe:
Three years later, I refinanced, cashed out about 80% of my money, still 20% of my money is in there, but now I have a lower interest rate, a 30-year mortgage and I still cashflow only about $50 less than I was when I had the higher interest rate. So I’m glad I took the plunge just like you did, so kudos to you for doing that.

Felipe:
Now, I guess my question with that is, and then we’ll move on from here is, when you heard the high interest, why did you say yes versus saying no?

Patricia:
No wasn’t even an option in my head. I’ll be honest, it was just not an option. I wanted this property so bad, from a numbers perspective, it looked better than anything else we had already purchased and I knew what we were buying it for and then the rents that we could get would make this a slam dunk no matter what interest rate. I think it would have worked at 8% interest rate. It was crazy good, so I was not letting go of this property.

Patricia:
I couldn’t find anything else even close to the numbers on this, so no wasn’t even an option. We were initially quoted I think like four-and-a-quarter, so when I heard six-and-a-half, I was like, “Oh my God.” So we went back and ran the numbers again and it’s still cashflowed very well. So it was just a matter of how do we do the deal?

Patricia:
When that guy told me he could not get me financing, there was that moment where I’m like threw my hands up. All right.

Felipe:
Panic, panic, panic.

Patricia:
Panic. I think it lasted for five minutes, I’m like, “All right, put your head down. You’d solve problems for a living, you can solve this one.” And I reached out to friends and I’m like, “Does anyone want to come in and we can do an all cash purchase?” I was doing everything. And then this one came and I just took it. We had to go back and ask for an extension for the mortgage commitment and the seller was getting nervous that I wasn’t going to be able to deliver.

Patricia:
So I was like, “All right, we just need to get the first thing.” And we just [crosstalk 00:37:39]-

Felipe:
And you don’t want to lose your earnest money either.

Patricia:
Right. And we did a seven year ARM, I think that’s what it’s called seven year adjustable-

Felipe:
Yeah, ARM. Yep Adjustable Rate Mortgage.

Patricia:
It’s fixed and [crosstalk 00:37:47]. So we did the same thing that you did, we were like, “We have seven years. Seven years is a long time, we can figure something else out with this property. We can refinance to a better rate at some point.” So I’m with you on that, but no is not an option and I think you have to go with that mindset. You just have to figure out a way to round that whatever problem’s in front of you.

Ashley:
I actually had that happen before too where it was actually the first property my husband and I were buying together. And I had had a partner before that where we used his cash to make offers, and then we would refinance, and then pay him off, and then use this cash again. So the first property we did, my husband just went on the mortgage with me and we had this bank all lined up, we submitted our application.

Ashley:
And it was a week before the commitment letter was due and the loan officer hadn’t even input the information into the computer to start the application process.

Felipe:
Oh my.

Ashley:
And she had had every single document she needed-

Patricia:
Oh, man.

Ashley:
… for at least two weeks. That is one thing I’m really good about is getting information to loan officers and getting financing in place. And so I called my realtor crying, I’m like, “I don’t know what to do.” So we got an extension also and she recommended a loan officer to me that she recommends to a lot of people.

Ashley:
They had such a great relationship that the loan officer just expedited this for me and we got commitment in time, and we didn’t even need the extension. But that was so scary and I was also in panic mode and that no is not an option because I had put my deposit down and I really wanted the house.

Patricia:
Yeah. That fear, oh boy. I remember that. A year later, I remember what that felt like.

Felipe:
Definitely something that no one wants to go through. Definitely understand that. But hey, Tricia, if it’s okay with you, why don’t we move on to the rookie requests line portion of the show? Are you ready?

Patricia:
I’m ready.

Felipe:
All right, let’s do it. So this is the portion of the show where we allow one of the rookies to call in a question and we’re going to have you answer that. Now anyone can reach us at any time. It’s 18885ROOKIE. You can leave a voicemail and then we’ll have our guest answer it. All right, are you ready for this? And here we go.

Patricia:
I’m ready?

Amanda:
Hello. This is Amanda, a rookie investor from Wyoming. My husband and I currently have three out of State rental. Between all our properties, we have three mortgages, including our primary plus one HELOC. After acquiring our most recent rental, we focused on building up large reserves for each property. After we hit that goal, it’s possible we may qualify for one additional property using conventional financing though we may have to explore alternative financing because our properties are too recent to be included as taxable income.

Amanda:
My question is, when evaluating whether or not to acquire more rentals, how can we make sure not to over leverage our position? Is there a sweet spot of balancing equity and debt or are reserves enough protection?

Patricia:
Oh wow. Has fantastic question. I feel like you should get-

Felipe:
We just talked about that too.

Patricia:
I think you should get that person on your podcast.

Patricia:
I think the sweet spot is different for everybody. For us, it is six months of reserves for principal, interest taxes and insurance and we’re fine with that. After that, any extra money, it goes to the next property or whatever we want to do, I guess. We haven’t pulled anything out yet, but that’s our sweet spot. We don’t have a vacancy issue. I don’t fear that on a regular market that we’re going to have it six-months vacancy.

Patricia:
Now, COVID is a concern certainly if we go through something like this again, but six months for us is really our sweet spot. I know people that have zero reserves, I know people that have three months reserves. It’s really what your comfort level is like and that’s where ours are at. I don’t know if I answered that right, but it’s where we’re at.

Felipe:
No, I think you answered it perfectly and I’ll give my example. I only have three months in reserves, but I have one paid off property with a full HELOC, and my HELOC is my cash reserve if something goes wrong. So that’s where I sleep comfortable at night. It used to be about seven to eight months in reserves and Ashley laughed at me, so I invested half of that into another rental and went down to about three or four months, and then put a HELOC on it. But I just didn’t tell Ashley about that last part.

Ashley:
Are you still sleeping comfortable at night?

Felipe:
I sleep very well.

Ashley:
I see that’s all that I care about.

Ashley:
When a lot of people ask that, “How much should I have in reserves?” I think they’re more just looking for other people’s opinions because there is no right or wrong answer for that. You can take what… I think the common answer is three to six months, but I would say maybe not having a new reserves might be the wrong answer, but maybe you have a HELOC and you’re comfortable using that and you don’t think that would ever be taken away by the bank, but yeah, I do six months reserves right now, so the same.

Patricia:
We have HELOC too, it makes me nervous to use it or rely on it again. Then I think that’s just a personal preference. Do you have a HELOC as well as a backup? Or are you good with six months reserves?

Ashley:
I have-

Felipe:
Yeah. Okay.

Ashley:
… a HELOC also, but mine right now is maxed out on two properties waiting to refinance. I don’t like to rely on that because I use it to purchase properties, so that’s why I don’t count it towards any kind of reserves.

Felipe:
That’s not really fair though. Ashley picks up properties for like 20 grand, so that’s-

Ashley:
Yeah, but I am [inaudible 00:43:27].

Patricia:
I want to come to your market. It sounds like an awesome market.

Ashley:
Yeah, today… The last property I just purchased was 27,000 a week-and-a-half ago-

Felipe:
Oh my God.

Ashley:
… and I’ve got the [Amish 00:43:39] there today, putting on a new metal roof on the property and National Fuel’s there and they already called me and said that I’m going to need a new service line plugged in, but yeah. So we’re just spending money, spending money.

Felipe:
Look, she smiles-

Patricia:
Making money.

Felipe:
… she’s good at it. Slipe it, slipe it, Ashley.

Ashley:
Yeah. Except for the Amish, they’ll only take cash, so [crosstalk 00:44:00]-

Patricia:
You have a great workmanship though. You get really [crosstalk 00:44:04]-

Ashley:
Yeah. Oh my God.

Patricia:
… great workmanship.

Ashley:
Yeah. Yeah, they’ve done like half of the furniture in our house. They do such a great job.

Ashley:
So let’s move on to our next segment here and this is someone who I already think I know who your answer’s going to be, but this is someone who has really helped you build your business, has been a huge asset to you. And we call this segment our-

Felipe:
MVP. Tricia, who is your MVP? Who is the person you could not live without in real estate investing? Like Ashley said, I think we already know who it is.

Patricia:
Yeah, you know who it is my property manager. Man, I would be pulling my hair out. I would be bald right now if I did not have her to rely on. And with every property we add, I’m so thankful. She called me about a couple of weeks ago, so we haven’t talked in a while, and she’s like, “I just want to check in. The property manager agreement is coming up for renewal and make sure you’re still good with it.” I’m like, “Yeah, yes, please don’t leave me.”

Felipe:
“Don’t go anywhere.”

Patricia:
Yes. You’re stuck to me. Sorry, you can’t go anywhere. And you know what?

Felipe:
Of course.

Patricia:
I want to start purchasing in other market markets. I want to diversify my markets, but I don’t want to lose her. Trying to find another her I feel like it’s going to be really hard, so I’m so hesitant to go into a different market for that reason.

Ashley:
You’ll just have to have her train your new person.

Patricia:
That’s a great idea.

Ashley:
Yeah.

Patricia:
That’s a great idea.

Felipe:
Ashley is really good at that.

Ashley:
Have her be in charge of that. Have her hire the person. Have her do the legwork and find that person for you.

Patricia:
I’m going to write that down. That’s beautiful. I hadn’t even thought about that.

Ashley:
I need just love-

Felipe:
There you go.

Ashley:
… to take my own advice because I’m already thinking of some areas of my life where I need to have someone hire someone for me.

Felipe:
I love that, I love that.

Ashley:
But let’s go on to, we have a couple of random questions that we like to ask our guests. Felipe, go ahead. Why don’t you pick the first one?

Felipe:
Tricia, this is just a list of four questions that we’re going to ask you and they’re just fun questions to get to know you a little bit, so there’s no wrong answer here. What is one bucket list item that you’ve yet to cross off that you are ready to knock off your bucket list?

Patricia:
Real estate or non real estate, or doesn’t matter?

Felipe:
It doesn’t matter. There’s no wrong-

Patricia:
Okay.

Felipe:
… answer.

Patricia:
I’m going to be geek out and say, I want to buy an apartment. I want to buy apartment complex. That’s my-

Felipe:
Oh, wow.

Patricia:
… my bucket list. I want to go bigger. I want to do bigger deals.

Felipe:
Let’s go. And your husband, Tesla? I’m assuming.

Patricia:
Right, right. After we get the Tesla, but-

Felipe:
After you get the Tesla, there we go. I just wanted to make that sure that was clear.

Ashley:
Okay. When you were a kid, what did you want to be when you grew up?

Patricia:
A veterinarian. I think I just-

Ashley:
And what changed?

Patricia:
You know what? I think I started to see like blood and stuff and guts and I’m like, “I just…” I had no idea what veterinarians do, but I loved pets, so I was like, “I’m want to be a veterinarian.” Then when I got in school, I’m like, “I don’t know if I want to do that anymore.” So somewhere-

Ashley:
You guys did the frog dissection? We had to do the frog-

Patricia:
I think that’s what it was.

Ashley:
… and the frozen cats, I remember in biology.

Patricia:
And the pig. Did you ever do the pig? We did that too.

Ashley:
Oh, yeah, yeah.

Patricia:
Of course-

Ashley:
We did the pig.

Patricia:
… it freaked me out.

Ashley:
Yeah.

Patricia:
Yeah. I’m just not that [crosstalk 00:47:07]-

Ashley:
Felipe, did you do any animals?

Felipe:
God, no. I don’t know where you guys grew up. I did not do that. Are you kidding me?

Ashley:
Did you grow up in the Northeast, in New Jersey?

Patricia:
I did, yeah.

Ashley:
Yeah, I’m in New York.

Felipe:
No, I’m down here in the South or I guess it’d be. I want to do none of that. That’s weird. I never heard about that. No, that’s fine. That’s exciting. I would never do that though. Anyways, moving on. Tricia, what is one of the best habits you’ve formed regarding a real estate? What’s one thing that you’re like, “If I didn’t start doing this contest over and over again, it would have failed.”?

Felipe:
What’s a good habit to have as a real estate investor?

Patricia:
I think for me, it was analyzing a property every day, even if I knew it was out of my reach or it wasn’t quite in my market or whatever. Every day I would go on the real estate websites and look for multifamily, small multifamilies and I’d pick one. So I have a million Excel spreadsheets of-

Felipe:
A million.

Patricia:
I might be exaggerating a little bit, but I have a ton of them. And it’s what helped me tweak my Excel spreadsheet, it’s what helped me then eventually get away from… I don’t even use them anymore. I can do the numbers in my head based off what I know. But if I hadn’t gone through that process and sit down and list out the expenses and here’s… I probably would have forgotten stuff.

Patricia:
At first, I was like, “I didn’t include landscaping in my numbers.” And that turned out to be a bigger number than expected. That for me was creating an Excel spreadsheet for me, and there’s a ton… I know Bigger Pockets has tools out there that you can use, but I know mine needed to be tweaked for my market, so I created one. It wasn’t complicated, but I tweaked it every time, and then I would just analyze a property every day.

Ashley:
That’s one thing I’ve been working on too, is creating lists and especially for… My partner and I, we just did concrete countertops. We had watched YouTube videos, we held our supplies, well, in the middle of it, we realized we forgot a step. And so now, whenever we’re doing something for the very first time, we are just writing out the steps, even if it’s the simplest things. Just writing it out and as helped us tremendously.

Ashley:
And now I’m starting to do that even bigger picture for a rehab, okay, what’s the order of contractors I need to hire people? Check, I called them, check, I got their quotes, stuff like that, so I’m really trying to get into those systems even more.

Ashley:
So the last question I have for you is a bit of a rookie hazing. Felipe will help you out though. What song is your guilty pleasure? And can you sing a little bit of it for us?

Patricia:
Oh boy. It’s-

Felipe:
Let’s go. Come on. You got it.

Patricia:
It’s the Lego song from the Lego movie. I don’t know the name of it, but it goes something-

Ashley:
Oh yeah.

Patricia:
… like that.

Ashley:
I know exactly what song you’re talking about. My kids love Lego.

Patricia:
My daughter watched the movie and got stuck inside my head, so… Now-

Felipe:
That’s hilarious.

Patricia:
… I want to play it and she was like, “Mom, that’s a dumb song.”

Felipe:
You’re like, “It wasn’t dumb a year ago when you had it stuck in my head.”

Ashley:
Yeah. Yeah.

Felipe:
Tricia, I know that you said that… I think you had told us before we started recording that you have your own podcast actually and I’m really excited. Tell us a little bit about that before we move on.

Patricia:
I have to give kudos to Bigger Pockets because Bigger Pockets is the first podcast that I religiously listen to. Fast forward a couple years later and for my law job, my legal job, I wanted to start a podcast and I just mirrored what I saw on Bigger Pockets. I don’t know if that’s illegal or not, if I just copy you guys, but I did as far as how we set up and it’s the coolest experience. And I really wanted to capture the spirit, which I think Bigger Pockets does so well, which is a fun approach to real estate.

Patricia:
You laugh, you tell great stories. So that’s what we did with our podcast, but it’s all based on legal stuff, so it’s more for lawyers, and risk managers, and general counsel, but we try to talk about issues that are important to them just like you guys do in the real estate market and try to make it just a little bit fun and based very much on stories, because I think that’s really what people want to hear.

Patricia:
They don’t want to be dictated to, they want to hear your experiences, and what worked, and didn’t work for you. And so we’re trying to capture a little bit of that.

Ashley:
That’s awesome. That’s really cool. And where can people find out more information about you and your podcast?

Patricia:
I’m really heavily on LinkedIn and Business Minds, I’m on there, I post every day. So you can find me on LinkedIn. You can also find me at my website, which is morganandakins.com. You can find me there and you can always email me at [email protected], I’m there too. And if you are in the legal world and you want to check out my podcast, The Defense Never Rests. That’s what it’s called. I love it, it’s so fun.

Ashley:
Yeah. That’s really cool. Well, thank you so much for being on the show with us today. We really appreciate it.

Patricia:
I love it. I love it. Anytime you need a guest to fill in if somebody backs out, call me.

Ashley:
We will, we will. We had fun today.

Ashley:
I’m Ashley Kehr and he’s Felipe Mejia. You can find us on Instagram @wealthfromrentals and @felipemejiarei.