Rookie Reply: Next Steps After Buying Your First Property

Ashley:
This is Real Estate Rookie show number 74. My name is Ashley Care and I’m here with Tony Robinson. And today is another Rookie Reply. Though, we have a question from the Facebook group today. Tony, anything before we jump right into it?

Tony:
No, I’m excited. I mean, I love the interaction we’re getting with folks in the Facebook group. So for those of you that are listening, if you haven’t joined yet, look up the Real Estate Rookie Facebook group. I think we’re almost at 26,000 members now. So we’re growing every single day every single week. And there’s a lot of activity in there. If you post a question, you’re going to get tons of responses. Ash and I will hop in there from time to time as well. So if you’re looking to connect with us, that is the place.

Ashley:
Yeah. So we actually posted on Facebook this morning and said, “Hey, we’re doing a rookie reply. We need topic ideas,” so we actually just recorded one that you guys probably listened to last week. So we’re pulling another question from the same comments. This one is from Gen Z Fidelis, “The next step after your first property as far as financing and steps to scale to a larger portfolio.” So we were just talking about this, how that’s a very common question is, “Okay, what do you do next? How do you grow? How do you scale?”

Tony:
Yeah, I think the first thing I’d say Ash is, for those of you that haven’t done your first deal yet, don’t worry too much about scaling to five, 10, 20, 30, however many properties. Like just really keep your focus like laser focused on that first deal. But once you get that first deal done or if you’re just thinking kind of long-term, I think the first thing that you want to focus on is the financing portion. That’s I think what kind of trips people up the most is, “How do I get financing? How do I have the capital? How do I afford that second deal?” I can kind of share my experience. Hopefully, you guys can get some instruction from that. But I partnered with someone else and me partnering with that other person is what allowed me to have both the time and the capital to continue to grow our business. Between the both of us, we had enough available capital, enough W2 income to qualify for these mortgages, to cover the debt to income ratio, to afford the down payments, a lot of these short-term rentals so to furnish them. So for me, from a finance perspective to scale, it was partnering with someone else that had a strong enough balance sheet to match mine and that’s how we were able to kind of keep that train moving.

Ashley:
Yeah. My situation was very similar to Tony’s. I partnered with somebody and they brought the money and I was the experience. So once you have that first property though, you are at a huge advantage because you’ve done one deal. You have that track record. You have that experience. You can show the numbers. You can show how that property is cash flowing, and you can actually go out and find a partner, or you can find a hard money lender. You can find ways to get money and it’s going to be a lot easier than if you’re going out looking for your first property. So Tony, let’s talk about the different ways of where they can get money. I mean, the first obvious way to purchase properties, you save 20% and you go out and you get a conventional mortgage to buy your next property. But if you’re like Tony and I, you’re pretty anxious and you’re not patient and you don’t want to sit and wait and save 20%, but let’s just give the full disclosure.
Make sure you have cash reserves in place, so it’s so much better to have the money, but spend other people’s money OPM. So just make sure you have some money. I don’t want people going out buying properties and having no cash reserves because you’ll just end up in trouble and it can be beneficial to find a partner. If the partner has cash reserves and you feel comfortable trusting that partner, and you can put it in your operating agreement that they’re putting cash reserves into a joint bank account with you, then that’s fine. That’s a situation where you don’t need cash reserves if your partner is bringing that to the table and that’s part of your agreement and you guys have that into a joint account. Okay. So your first option would be go to get conventional mortgage, save that 20%, buy the next property.
Another option would be to find a partner. So find a partner that has money. I’m sure you guys have heard Tony and I talk about this plenty of times, but to put together your little binder, your presentation as to, “Here’s the deal that I’ve done. Here is the deal analysis that you did on bigger pockets using the deal calculators. Here’s my tax return. Here’s my personal financial statement.” Give these people who you want to partner with all of your information, be an open book and show them, “Here’s the deals that I’m looking at. Here’s what I think your cashflow could be, what your return on investment could be.”
The next option could be going after a hard money lender. So talk to hard money lenders in your area. I’m sure if you just Google them, you can find some. Ask in the Real Estate Rookie Facebook group, “Hey, does anyone know any hard money lenders in the area?” Reach out and network and get referrals on hard money lenders, and then make sure you vet them. Make sure you know what all their fees are, what you’re coming into and really, really focus on what’s going to happen down the road if you can’t pay and how the whole process works dealing with the hard money lender. The next, you could go out and find private money. So is there anybody you know that isn’t exactly a hard money lender, but you think would actually loan you money on the property and you’re probably going to get better terms of a lower interest rate.

Tony:
Man, we hit all the good stuff on the financing side. I want to talk a little bit about like the systems and processes. Is that all right, Ash?

Ashley:
Yeah, definitely. That’s a great thing to add to it. I’m always like numbers, like numbers, numbers, numbers, and Tony’s like, “Well, there’s other stuff that goes into this.”

Tony:
No, the numbers are important. The numbers are important. But for me, I’m a big systems guy like whenever I start something, I always want to think like, “Okay, what are the and processes that we need in place to sustain this?” So I think the first, Gen Z for you, the first thing you need to identify is how big do you want to get. Do you want to get to 50 doors? Do you want to get to 1000 doors? What is your goal? What is your strategy? And once you kind of think of that in state, you want to start laying the foundation for that size today. And obviously this is like a gradual approach. I’m not saying that you need to have… if you’re at one door today, you obviously need all the infrastructure to support 50 doors today, but you need to start thinking about how you lay that foundation.
The first thing that kind of comes to mind for me is that the team. If you’re currently self managing one property, do you want to self-manage when you get to 50? And if the answer is no, then you need to start thinking, “Okay, what are some of the steps I can take today to put me in a position to eventually hand off the property management?” Obviously, you can just hire a property manager. You can bring someone in house. If you bring someone in house, then you need to start thinking about documenting all of the steps and procedures and policies you have within your business today, so that way when you do hire that first person, you’ve got a nice operating training manual for them. And this is kind of what I’m doing in my business right now as well like we self manage all of our short-term rentals. We have a property manager for a long-term rental, but for our short term, we do all that in house and eventually, we want to bring someone in to kind of take that over for us.
So I’ve been really focused on identifying all the different steps to launching a property, what’s the checklist that we need to follow. And then when we’re actually operating the property like, “What are our procedures? How do we communicate with guests? What are all the different things we need to do so that way when we bring someone in, it’s an easier transition to kind of get them up to speed, which then allows me to continue to focus on scaling the business.” So just start thinking about the systems, the processes, the people that you’ll need to go from two doors to 10 doors and start putting those things in place.

Ashley:
Yeah. I can’t agree more with Tony because I did not do this until this past year like that was my COVID project is putting systems and processes in place. So definitely, your first property use that as your sample property, your second property. Every time you do something, write down how you’re doing that. So a great tool to use is Asana, so this is like a workflow management and you can put in there, “Okay. So acquisitions. When I got a property under contract, what happens next?” And you’re like, “Okay, what’s your step for financing? Are you doing loans? I have to contact the lender. I need to get insurance on the property. I have to put the utilities in my name. I have to lease it for rent.” Whatever your steps are during your acquisition, put all those in.
I mean, you can do this for every single process and then in Asana, you can create templates so that every time you [inaudible 00:08:42] property, you just pull up that template and okay, maybe you need to customize a little bit for that property. You say maybe this time it’s a triplex instead of a duplex and just keep using that over and over and you’ll keep adding to it. You’ll keep changing it, but you’ll have that insight and just doing the check marks. Even creating for bank reconciliations, I gave a lot of my stuff over to a bookkeeper this year and I just created a huge checklist and literally wrote down log in to the bank account, going to www… click up in the right-hand corner, log in. I broke it down so easy, so you can even do it like that so that when you are ready to hire someone, like when Tony’s ready to get a property manager in house, like he’ll have everything ready and they can just easily follow it.
Another great tool is Loom. So this is where you actually video record your screen. So if you’re doing a task, you can just start the video for Loom and it will record all the steps you’re doing and you can actually talk while you’re doing it too. And that’s a great resource if you’re trying to hire someone or even to refresh yourself, so you can use these for yourself like “How did I pay that water bill three months ago?” And, oh, here’s the Loom video here on how to pay the water bill. So just keeping track of these things because it will make it so much easier for you if you just have a checklist to follow and you have your systems, your steps in place. So that’s a really great point, Tony. I’m glad you brought that up.

Tony:
Yeah. I’m glad you brought up too kind of like keeping track of everything. So I use Stessa right now for all of my kind of like bookkeeping and even just kind of budgeting from our properties as well. It’s a really cool tool-

Ashley:
They call it asset management, that tool. I feel like it’s asset management. Yeah.

Tony:
Yeah. Because it is a little bit of everything, right? It’s not just bookkeeping, but it does some other things as well. And they actually just got acquired via Roofstock, which is, I thought was a unique kind of combination of companies. And Stessa is really cool. We’ve talked about it a lot on the show as well, but I use that to project what my monthly expenses and income will be on each property. If I’m ever wondering like, “Man, what do I pay in insurance on this property on a monthly basis?” I just log in to Stessa and I can check it there, so when you’ve got kind of a growing portfolio, it is kind of tricky sometimes to remember what goes where and what bill is what, so Stessa helps me kind of keep tabs on those things.

Ashley:
Yeah, I think so basically to wrap it up, the big things are, where’s your money going to come from from the next deal and then making sure that you can handle more deals. I mean, maybe you’re going to have partners coming at you, you’re going to have deals coming at you and can your systems and processes handle that influx of deals?

Tony:
I guess one of the things to add because you just mentioned on the deal flow side, is that… and I’ve heard this from varying other people, like from multiple other people, is that when you get your first or second or third deal done kind of in the same market, you start to build a bit of a reputation for yourself in that market as well. And before you know it, your deal flow just kind of naturally increases. So I know a lot of times folks are nervous about like, “Where can I get deals? How can I find deals,” but once you get a couple of deals out in the market, you make a name for yourself and deals kind of start finding you. So it’s not uncommon for me now to get an email or two every other week about, “Here’s this off market deal. Take a look. What do you think,” and it’s only happened because we’ve closed on a few deals. I’m assuming that Gen Z, as you start to build your portfolio, you’ll see the same thing as well.

Ashley:
Yeah. That’s a great point. And usually those are the best properties, the best leads when they’re word of mouth, they’re not on the market just, “Hey, I need to get rid of this property. I know Ashley buys properties. Let’s reach out to her.” Actually, I have to tell you guys a quick story real quick because this is so exciting. So that happened to me where my cousin’s friend approached me and said, “I have these two properties with my sister. We’re fighting over them.” They got it and rehabbed two duplexes. And so I purchased them for, I think they told me 100,000 for both. I countered 88,000 and they said, “We’ll take it,” and obviously I was offended because I should have offered lower if they accepted it on the first time. So got them for 88,000 and I just had them appraised and I have over $100,000 in equity between the two of them and I’ve done nothing to the properties and I just purchased them three years ago. So those are the best deals I feel like because you’re not competing with other people and they’re usually motivated sellers that want to be like, “Hey, let’s just sell this to somebody. We know they like to buy properties. Let’s just get it done.” So definitely-

Tony:
Oh, there it is. The proof is in the pudding.

Ashley:
Yeah. So you guys go tell everybody and anybody about your real estate investing that you are looking for properties. And then another quick little tip too, when you are finding someone to… Hey, we’re going to get sued for copyright infringement. So when you are going after people for money because you want to partner with them or you want them to be a private money lender or anything, and actually Brandon gave me this and he probably has used it as a quick tip on the OG podcast, but when you approach them and say, “Hey, do you know anybody that is interested in investing in real estate or is interested in lending money on a property,” instead of just asking them directly. And that kind of takes the pressure off them, takes the awkwardness of the confrontation off you and lets them know that you’re looking for somebody like that. So if they’re interested, they can actually come back to you and say, “Hey, actually I would be.” So that really has resonated with me and you guys have probably already heard me tell that 10 times, even though he just told that to me two months ago because that really helped me just because I don’t like confrontation and I don’t like asking people for things. So hopefully, that helps some of you guys, but I think that’s it. Are we ready to wrap it up today, Tony?

Tony:
Yeah. No, I think hopefully we answered Gen Z’s question and he got a lot of value out of it, and I know there are a lot of folks in the Facebook group that were kind of thumbs up’ing that question. So hopefully you guys got some value out of here with what Ashley and I had to say today.

Ashley:
Yeah. Thank you guys so much for joining us today and listening. Make sure you join the Real Estate Rookie Facebook group. Let us know. Take us in the group. If you have a question that you want us to talk about on the show or even just a specific topic, we’d love to answer it and then you can send us DMs on Instagram. I’m Ashley@WealthFromRentals and he’s Tony@TonyJayRobinson. Thank you so much for joining us with this Rookie Reply.