0:00

This is the BiggerPockets podcast. What's going on,

0:02

everyone? This is David Green, your host of

0:04

the BiggerPockets Real Estate Podcast, the show

0:06

where we arm you with the information that

0:09

you need to start building long-term wealth through

0:11

real estate today. We've got a seeing green

0:13

episode with you and I brought backup. I

0:15

got Robby Abasolo here joining me today.

0:17

We've got an amazing show. We're going to

0:20

be covering several topics, including if you should

0:22

invest extra capital in a house hack or

0:24

save the money to get additional properties, when

0:27

to sell your primary residence to take advantage

0:29

of the tax exceptions for it, and

0:31

when to keep it. And we're also going

0:33

to be talking Greek casting and

0:36

how that could be a significant play for you

0:38

if you have the option. That's right. If you've

0:40

ever wondered what happened to Judy in Family Matters,

0:42

we've got the answers for you, along with some

0:44

real estate stuff today on seeing green.

0:47

Up first, we have Ronnie from Napa,

0:49

my hood, joining us live with his

0:52

question about how to generate leads for

0:54

his real estate business while working a

0:56

full-time job. And as always, please remember,

0:58

we would love your comments. We want

1:00

you to be featured on an episode

1:02

of seeing green. So head over to

1:04

biggerpockets.com/David and submit your questions there. Let's

1:07

jump into it with Ronnie. All right.

1:09

Our next question comes from Ronnie Galindo.

1:11

Ronnie, like me and one of the

1:13

realtors on my team, Robert Reynolds, funny

1:15

enough, is a real estate agent and

1:18

a law enforcement officer. So Ronnie, thank you for your service. Tell

1:20

us what's on your mind. Yeah. Thank you,

1:22

David. And hey, Rob. Nice to meet you both.

1:24

Nice to meet you. Just

1:27

trying to kind of get ahead of the curve because I

1:29

have dabbled a little bit in real estate and

1:32

being a full-time W-2 employee, it's challenging

1:34

to find a little extra living here

1:36

in California, even though we get paid

1:39

decently. So got

1:41

my license for real estate and

1:43

trying to get deals, but my

1:45

sphere of influence is small. And

1:48

so just looking to kind of get

1:50

some advice on how you kind

1:52

of build up your real estate business and start

1:54

selling houses so that you can buy some

1:57

additional real estate for yourself on the side.

1:59

Well, Ronnie... You came to the right place.

2:01

I don't think that I don't think there's a

2:03

better person to answer this than former police officer

2:07

Realtor himself David

2:09

Greene. Yes. Yes. I am happy

2:11

to help Ronnie. All right, first off. Let's get into

2:13

it. Do you own real estate yourself? I Did

2:16

had to sell it. It wasn't making the

2:18

numbers. I needed it too. And so

2:21

I just have my primary right now All right. Are

2:23

you house hacking? No, unfortunately, I got

2:25

a wife and two little ones and so Basically

2:28

all the rooms are full up That's one thing

2:30

that would help if you could find a way

2:32

to get a property that had more than one

2:34

unit That has something that could be rented out

2:36

It gives you something to talk about to your

2:38

co-workers Right if you can't that's still what I

2:40

would do as I would still talk about house

2:43

hacking I'm like man I have this other client

2:45

make it up and We

2:47

bought them a house and he lives in the

2:49

master bedroom and rents out the other three bedrooms

2:52

And he basically comes out of pocket four hundred

2:54

dollars a month or six hundred dollars a month

2:56

And has all of his roommates paying his mortgage off

2:58

for him and like you guys he's a police officer

3:01

So he's never even home doesn't even bother him at

3:03

all and he's gonna do this every year And he's

3:05

gonna have five houses in five years and he's not

3:07

gonna pay for any of them, right? Like

3:09

I would tell stories like that to the

3:12

other guys I was working with because telling

3:14

people a strategy. This is the burr method.

3:16

This is house hacking It

3:18

makes them think about it. Oh that that makes them

3:20

say Ronnie sounds smart. He knows he knows good stuff,

3:22

right? But telling them a story

3:25

makes them think I could do that. I

3:27

could rent out bedrooms That doesn't sound so

3:29

hard. I could live in one unit

3:31

rent out the other two I could live in a

3:33

basement sheet I'm already doing something like that Now

3:36

they start to get that feeling like they could and

3:38

then net the natural next question would be what do

3:40

I have to do? Well, we're gonna

3:42

get you pre-approved. We're gonna run some numbers I want

3:44

to make sure you're not paying too much for a

3:46

house then I'm gonna look for houses that would work

3:49

for that We're gonna make sure that it's close enough to

3:51

where you report to that your drive isn't too long This

3:53

is what we're gonna do to look for tenants You

3:56

start like painting a picture for people because the more

3:58

clear they are on what will

4:00

look like when they're done, the more likely they're going

4:02

to be to move forward. A lot of the time

4:04

realtors make the mistake of just telling people what they

4:06

should do, but not explaining to them what

4:08

it would look like when they do it. So that's one thing.

4:11

The other thing I would say is if you're not

4:13

working, you need to be hanging out with your wife

4:15

at social events. You need to be meeting all of

4:17

the other parent friends that you know, the people at

4:19

your church, you need to know all the people at

4:22

your kid's school. My buddy Kyle,

4:24

he would just at an event for his kids,

4:26

they go to an acting academy in the Sacramento

4:28

area, and he went to like a

4:30

father-daughter dance and came home with four leads of people that,

4:32

two of them that have houses to sell and two of

4:34

them that want to buy. So every

4:36

time he goes to a social event, it's not

4:38

time off. He's actually making money when

4:41

he's there. You got to be thinking that way when you're

4:43

a real estate agent. Okay? Like you're

4:45

not on the clock or off the clock. You are always on

4:47

the clock, but you're also really never on the clock because you're

4:49

getting to make money at social events.

4:52

Getting yourself in front of people is the most important thing.

4:55

Good advice. Rob, you want to weigh

4:57

in on anything there? Ronnie, how many real estate meetups

4:59

have you gone to in the past year? Around

5:03

here, I haven't gone to any. I've

5:06

been meeting, I joined one in Sacramento, that's like the

5:08

closest one I could find. And I've

5:10

actually been meeting to start one here in Napa because

5:12

I'm in Napa, which is a small

5:14

little market here that I don't

5:17

really have a RIA that I can attend.

5:20

But Finan talks with some of the other agents that are

5:22

around me just haven't done a meetup. There

5:24

you go. I mean, that to me is step

5:26

one and I think there's an actionable way to do

5:28

that. You can go to different

5:30

Facebook groups, different real estate Facebook groups

5:33

in Northern California. You can go to

5:35

the Bigger Pockets forums, talk about who

5:37

you are, what you're looking to do.

5:40

And look, you're not going to start a meetup and have

5:42

100 people show up on day one, but maybe on month

5:44

three, you might have 10, 15, 20

5:46

people and it snowballs from there. The

5:49

reason I say this is that if you're new into

5:51

the real estate game in terms of

5:53

being a realtor, getting someone to

5:55

take a chance on you as a newbie

5:57

realtor is always really hard and this is

6:00

why new realtors have such a hard time

6:02

building up their roster in the first year

6:04

because they don't know how

6:06

to market themselves and no one wants to take

6:08

that chance but you know who

6:10

I will take a chance on is a

6:12

guy that I meet at a real estate

6:14

meetup that's a new realtor that I like.

6:17

Maybe we're at a brewery together, maybe we're at

6:19

a Napa winery together and we're

6:21

having wine and I'm talking, oh what do

6:23

you do? Oh I'm a police officer and

6:25

I actually just started being a realtor blah

6:27

blah blah and if I like you, that's

6:29

what this business is all about. It's all

6:32

about networking, it's all about building rapport. So

6:34

I think the most important skill a

6:36

realtor can have is learning how to talk

6:38

to people in as

6:41

much quantity as possible their first year because

6:43

that's how you're gonna build your book of

6:45

business in year one, two, three in my

6:47

opinion and then it's no balls from there.

6:49

Year two, year three, year four, you're gonna

6:51

have so many clients from word of mouth.

6:53

I think that's a typical trajectory for a

6:55

realtor. That's my advice for you is get

6:57

started on that real estate meetup. The second

6:59

one, this is just a bonus, I'm not gonna charge

7:01

you for this one but you can always pull people over

7:03

and say hey I'm gonna let you off with

7:05

a warning but you

7:08

have to use me as a realtor next time you're considering

7:10

buying a house and then drop them your card and go

7:12

back to your car. Sounds like a solid

7:14

plan. It's the greatest. I'd

7:16

be so really like oh I'm not getting a

7:18

ticket, I'll definitely use you as a realtor. And

7:21

we're gonna take a quick break but right after

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that I'm gonna share what I think is the

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10:54

welcome back. We're here with Ronnie, a

10:56

police officer in Napa. He's looking for creative ways

10:58

to grow his network and increase his business, and

11:00

Rob is going to help him with just that.

11:02

Yeah, this is really good advice for real estate

11:04

agents, not just a

11:06

police officer real estate agent, okay? Like, I'm

11:09

at a real estate conference right now for Kellan

11:11

Williams, and I'm teaching real estate agents what to

11:13

do to make money, and this is something they

11:15

all need to understand. Your job

11:17

as a real estate agent is not to know

11:19

what forms to fill out, what the laws are,

11:21

what the fair housing process is like. Your

11:24

job is to make everyone fall in love with

11:26

real estate. You've got to be preaching

11:28

it from the rooftops. They got to sense your passion.

11:30

They got to know that you love it, and then

11:32

they have to feel safe, just like your job as

11:35

a police officer is to make people feel safe. I

11:37

want you to think about your first day on the

11:39

force. You're with your field training officer, and

11:41

you get a pretty, like, serious call that can be kind

11:43

of scary, and they look at you, and they're like, what

11:45

do you think we should do? Think

11:47

about how that would feel, okay? Like,

11:50

man with a knife running around stabbing people, and he's

11:52

like, oh, man, this is rough. What do you want

11:54

to do? How many agents talk to

11:56

their clients like that? They show the house,

11:58

and they say, well, what do you think we should do? Right?

12:00

They get the inspection report and they say, what

12:02

do you think we should do? They want their

12:05

client to lead them through the process and it

12:07

fills their client with terror and nobody can really

12:09

articulate that's what's going on so then the client

12:11

never makes the decision what to do. Or

12:13

you meet with them and say, I wanna sell your house, here's what I think it's

12:15

worth, what do you wanna do? You gotta

12:17

be telling them, here's what comes next, here's what we're

12:19

gonna do. If you choose to work with me, this

12:22

is what we're gonna do. If you're

12:24

gonna have me be the one that trains you, Officer

12:26

Galindo, this is what you do when this happens. Now,

12:28

you're gonna go do it and I'm gonna be right

12:30

behind you to help you. That's the attitude that

12:32

we have to have as real estate agents and

12:34

this is why so many agents are not good.

12:37

This is why there's such a bad reputation amongst

12:39

the agent community, especially with investors

12:41

that are not happy with the service they're getting

12:43

is because their agents want the clients to lead.

12:46

So think about it's your job to make everybody fall in

12:48

love with real estate and then it's your job to lead

12:50

them through the transaction and you gotta know where they wanna

12:53

go to know where to lead them. You

12:55

gotta have clarity on what their goals are, what

12:57

type of property they want, what strategies they have

12:59

and once you've given them that, they'll follow you,

13:01

you'll put people in contract and they will spread

13:03

the word for you. That was great

13:05

advice. And I definitely, I know I need to start

13:08

that, Rhea. Yeah, go do

13:10

that, man. That's the answer to your problems. Thanks,

13:12

man, thanks for calling, we appreciate you. Thanks for

13:14

coming on. Thank you. All

13:16

right, great job, Ronnie. That was so good

13:18

that Rob and I had to take a

13:20

quick minute, jump on a plane and fly

13:22

back to our studios where we could jump

13:24

into recording this again after we debriefed on

13:26

Ronnie's situation. We love it when you guys

13:28

send us information about what you got going

13:30

on, what struggles you're facing and how we

13:32

can help you. So please remember

13:34

to continue to send us your questions and

13:37

videos at biggerpockets.com/David. In this segment of the

13:39

show, I like to get into what some

13:41

of your comments were on previous YouTube videos,

13:43

what some of the questions were from the

13:45

BiggerPockets forums or what reviews were left

13:47

for us. So please make sure that you like,

13:49

comment and subscribe to this video and maybe you

13:51

can be featured in this segment of a future

13:53

episode of Seeing Green. Our first

13:56

comment comes from YouTube and it's

13:58

from Narcissist. funny

14:00

someone admitting that they're a narcissist.

14:02

Hi David, I recently moved all

14:04

of my properties from my name

14:06

to individual LLCs. Unfortunately the county

14:08

zonas the properties change hands and

14:10

they reappraised them. I

14:12

lost the homestead exemption on my

14:15

best cash-flowing house. So I

14:17

lost a lot of cash on the process. In

14:19

the future I will place properties into LLCs upon

14:21

purchase just a word

14:23

for other investors. This is cool

14:25

and it's very un-narcissistic of narcissist

14:28

to share this information with

14:30

everybody else. You often hear people say I'm

14:32

gonna move it into an LLC later as

14:34

if there's no consequences but in this case

14:37

there was. What do you think Rob? Wow

14:39

yeah I have never considered that consequence. So

14:41

it makes total sense because basically once the

14:43

county notices a change you know

14:45

everybody's just trying to make more money here. So

14:47

county just wants to tax you. The one thing

14:49

that seemed a little peculiar about what he said

14:51

though is that he lost the homestead exemption

14:54

on his best cash-flowing house

14:57

which sounds a little fishy to me because you

14:59

shouldn't have a homestead exemption unless you're living

15:01

in it. Yeah? Yeah that's exactly

15:04

right and you can't be living in

15:06

it if an LLC owns it in

15:08

many cases. So what? Hold on wait

15:10

is that true? Well if you buy the house as

15:12

your primary residence and you're telling the letter I'm

15:14

gonna be living in it and then you transfer

15:16

it into an LLC you can't

15:18

get a primary residence loan in an

15:20

LLC. Oh yes I see. So

15:22

you got right off the bat that's not the case

15:25

and then most of the time if you're going to

15:27

get a loan in an LLC they'll tell you you

15:29

can't use it as a primary residence. It has to

15:31

be something that's collecting income because they're making a loan

15:33

to a business not a person. So

15:35

it's not like legally I think that's what you heard

15:38

like there's no police that are gonna come and say

15:40

you're not here but according to what you agreed to

15:42

with your financing. Yeah yeah no I

15:44

just was more saying like yeah yeah that

15:46

makes sense. Thanks for the clarification. So yeah

15:48

just make sure people when you're doing the

15:51

homestead exemption that is a tax

15:53

break that you get when you live in that

15:55

home because you're marking it as like your primary

15:57

residence and you get like a tax cut. So

16:00

you don't really want to do that when

16:02

it's an investment property because I would imagine

16:04

that's some version of mortgage from it

16:07

is my guess. That's exactly right. And as

16:09

technology increases, it becomes easier and easier

16:11

for banks to find out that

16:13

people are doing that. We see that with my loan company. More

16:15

and more frequently, we get contacted about, hey, one of those people

16:17

you did a loan for, they were naughty. They said they were

16:20

going to do this and they didn't do it. Now

16:22

you're going to have to buy this loan back or they're

16:24

going to have to fix it. So keep an eye out

16:26

everybody. Next comment comes from,

16:29

oh boy, Masha Hurim

16:31

Fundishi, 5826. Rob,

16:34

how do you feel I did on that first

16:36

take? I think it's great. Honestly, I was impressed

16:38

and I just can't believe there is 5,825 other Masha

16:40

Hurim Fundishis. Yeah,

16:45

that's a funny point there. But

16:47

you never know, there's a lot of people in this world

16:49

and apparently this is a popular name. Yeah.

16:53

Masha Hurim Fundishi, 5826 says, what

16:55

is the issue with recasts? I

16:58

only hear about refis. Have

17:00

you heard about this Rob? I have not. This is

17:02

a thing? Yeah, it's kind of a thing.

17:04

It's not really the same as a refi. A

17:07

recast is when, let's

17:09

say that you've paid, I'm trying to describe this.

17:11

You get a loan for a property, you

17:13

take out a certain amount of money, you

17:16

have principal and interest that equals a payment

17:18

on said loan. If you

17:20

go in there and say, hey, I want to put an extra 50

17:23

grand towards my loan balance and I want to

17:25

pay off what I was paying principal and interest

17:27

on and at $50,000 less, $100,000 less,

17:31

you can get them to basically restart

17:33

the clock on your loan with principal

17:35

and interest that are calculated on the

17:37

new loan balance. So it's less. In

17:40

a sense, it's almost like buying cash flow. Maybe you

17:42

could look at it like that. You go in there

17:44

and you put money towards your loan balance and now

17:47

your principal and interest are less than what they were.

17:49

Our refinance is like you literally get

17:51

a whole new loan on the house

17:53

and you use the money from that

17:55

loan to pay off your own loan.

17:57

People typically do that when they're getting

18:00

a lower rate. So that's why their

18:02

price is dropping but you don't have

18:04

to bring cash into the deal. So

18:06

a recast is not as good as

18:08

a refi when you're getting a lower

18:10

rate. Got it. Okay, so I thought

18:12

this was whenever in Friend season one,

18:14

Ross Geller's ex-wife Carol, whenever they recast

18:16

her. But now I know that

18:18

it's actually – I'm doing this right now on

18:20

a new construction loan. This

18:22

is basically – this is actually really

18:25

great because what they said is – I did

18:27

a one-time close. I got a 4.75% interest rate

18:29

on this, like right before the big interest rate

18:31

hike. Well, I remember you were all – you

18:33

were mad about that rate. Now you're like, that's

18:35

so bad now. I was

18:37

like, how dare them give me a

18:39

better rate than the market? And then

18:41

basically they said that I can – it's a

18:43

one-time close so as soon as they nail that

18:46

last nail in the house, it's mine. But what

18:48

I can do is come in with whatever size

18:50

down payment that I want and they will re-amortize

18:53

the balance and keep the same interest

18:55

rate. And I was like, I wish that this was a

18:57

thing across the board. Is this ever an

18:59

option? Like is this normal? Do you have to seek

19:02

out special lenders because this is like the greatest thing

19:04

ever? It's in your loan documents that you can or

19:06

can't do it. Most lenders will let you do it.

19:09

Sometimes they have like window when you're allowed to. They

19:11

may not let you do it four years after you

19:13

get the loan. But in almost scenario,

19:16

within like six months, maybe six to 12

19:18

months, you can come in and do exactly

19:20

like you said. Interesting, yeah. Okay. And

19:22

that is a very powerful tool. So we're going to

19:24

be doing that hot take. We're

19:27

actually considering selling a

19:29

couple of properties that I've purchased over the

19:31

last seven years, taking all that equity and

19:33

dumping it into this house and just trying

19:35

to get my mortgage balance as

19:38

close to zero as possible, something that is

19:40

unheard of in the real estate world. But

19:43

I like the idea of this. So recasting, I'm

19:45

all about it. So Rob is all about shrinking

19:47

his portfolio. If you want to learn about scalage,

19:49

get my book Scale. And if you want to

19:51

learn about shrinkage, follow Robilt. All

19:54

right. Next comment. Yeah. Comes

19:57

from HavansArmiento71. Bigger

20:01

Pockets, can you start saying FHA has

20:03

PMI for life of loan? Unless

20:06

you put down 10%, PMI goes away

20:08

after 11 years. Correct me if I'm

20:10

wrong, just would be helpful. Peace to add. Thanks.

20:13

All right, Hovind's me and so let's see

20:15

if we can bring some clarity to the

20:17

FHA loan. A couple of common misnomers that

20:20

maybe some of you listening could be ill-informed

20:22

about. FHA does not

20:24

stand for first homeowner. That's

20:26

not what the F and the HR. It

20:28

actually stands for Federal Housing Administration. It is

20:31

a loan that was created for people that

20:33

were going to have a harder time buying

20:35

real estate. If you didn't have 5% to put

20:37

down, they let you put 3.5% down. If

20:40

your credit scores were lower than what the

20:43

conventional loans were requiring, you could go get

20:45

an FHA loan with a less than ideal

20:47

credit score. Oftentimes

20:49

FHA loans will

20:51

allow you to have a lower interest score to get

20:53

the loan. Now this comes at a cost. PMI

20:57

stands for Private Mortgage Insurance. On a conventional loan,

20:59

this is an amount of money you have to

21:01

pay a lender to compensate them for the risk

21:04

they're taking if you did not put 20% down.

21:07

If they have to foreclose and you put 5% down,

21:09

you put 10% down, they have more risk. They may not

21:11

get their money back so they make you pay for that.

21:14

On a FHA loan, there

21:16

is mortgage insurance but it's actually called MIP.

21:19

It's the same thing. It's just the name

21:21

that the Federal Housing Administration uses for their

21:24

PMI. It doesn't go away.

21:26

For as long as you have an FHA loan, it

21:28

always will have that MIP even when you pay it

21:30

down to the 80% loan to value or 70% loan

21:33

to value. Another

21:36

thing that they won't tell you and I know this because

21:38

I am a mortgage broker and I often steer clients away

21:40

from FHA loans and into conventional

21:42

loans where you can put 5% down instead

21:44

of 3.5% is that they

21:46

collect that first year's MIP upfront when you

21:48

close but they don't get the cash from

21:50

you because you don't have the cash. That's

21:52

why you're using an FHA loan. They tack

21:55

it onto your loan balance. You're

21:57

putting 3.5% down but then they take that

21:59

year's MIP. my P say it's like $10,000,

22:01

they add it to what you borrowed from

22:03

them. So even though it's not

22:05

cash-in-close, you're still end up paying for it and most

22:08

people using FHA loans have no idea this is happening.

22:10

This does not mean FHA loans are bad. It

22:12

just means that there are more costs associated with them

22:14

that people don't always know about and in most cases,

22:16

you're better off to use a conventional loan which you

22:18

can get 5% down or 3% down

22:21

assuming that your credit score is eligible. So

22:23

thank you, Javan's Armiento for allowing us to

22:25

bring this up. I do have a flip

22:27

side to this though. On the second home

22:29

loan that I have, we

22:31

actually just got the PMI removed because I

22:34

believe on that specific loan, it was

22:36

once we had equity of 20% or

22:39

more, we could apply to get it removed.

22:41

So basically, we

22:43

called the mortgage company. They

22:45

sent out an appraiser. I'm not sure if

22:47

we paid for the appraisal but my guess is yes.

22:49

Appraiser came out, appraised it for I think we have

22:52

$300,000 of equity in that specific home. And

22:56

yeah, they took it off. So now we save $200

22:58

a month in PMI which is a beautiful thing. That's

23:00

a great example. That was a conventional loan. That

23:03

was not an FHA loan that you did

23:05

that on. Yeah, that's exactly what should work

23:07

is you pay PMI until you hit usually

23:10

80% loan to value, 78%

23:12

loan to value and then if you get an

23:14

appraisal which you probably did pay for but it's

23:16

like $400, $500 and yeah, now you

23:18

don't have PMI anymore and that's how it should

23:20

work. That's the life cycle of how PMI should

23:22

be. And in a market where prices are appreciated

23:25

as much as they have been, some people it's

23:27

like two or three years and it was

23:29

gone. But if you get the FHA loan,

23:31

it doesn't go away. So never say

23:33

we did nothing for you here at Seeing Green.

23:35

Thanks everybody. We love the engagement.

23:37

We love the questions. Thank you. Please

23:39

leave us a comment as you're listening to this.

23:41

Like and share and subscribe to the channel. All

23:44

right. Our last piece of

23:46

this segment is a review from Apple Podcast

23:48

from Greg Virgse

23:50

brought to you by Rob

23:52

Abasolo. Okay, so he says

23:54

great all around knowledge as the title five

23:56

stars and he says I've been listening for

23:58

about six months. I love the

24:01

show from success stories to educational podcasts.

24:03

Every episode has been something you can

24:05

take away to build and grow your

24:07

real estate portfolio. Isn't

24:10

that just heartwarming? That makes this

24:12

day for me, David. Yeah, nice job rhyming

24:15

there. Build, grow, real

24:17

estate portfolio. Rap and Rob,

24:19

rap built. You know, I just

24:21

looked at it. He said your real estate. I added

24:23

portfolio maybe because I just felt like we needed- I

24:25

know you did. That's what I was saying. Yeah, we

24:28

needed the closure. Or maybe you just like Eminem you

24:30

think and rhymes. Very nicely

24:32

done. Let us know in the comments what

24:34

you think about Rob's rap skills. He drops

24:36

hammers, he drops knowledge, and now he's dropping

24:38

bars. All right, let's take a question about

24:40

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29:07

back. Thanks for being here. We missed you.

29:09

Rob and I were just sitting here shedding

29:12

tears, and we're happy because you're finally back.

29:14

Let's get into if you should invest extra

29:16

capital into a house hack or use that

29:18

to buy new properties and scale your portfolio.

29:20

I think I know what Rob's going to

29:22

say, but let's see if I'm right. The

29:25

question comes from Connor Castillo in Georgia.

29:28

Hey, guys. This is Connor Castillo from Atlanta, Georgia.

29:30

I live here with my wife and four kids.

29:32

We have a two-part question for you. One is

29:34

about our two rental properties. One

29:36

is low interest rate and cash flows just

29:39

over $1,000. The other has

29:41

a high interest rate but also cash flows for just

29:43

over $1,000. We're thinking about

29:45

taking the $3,000 to $4,000 of equity out and

29:48

putting a cash offer on a house so that we

29:50

could cash flow close to that

29:52

$4,000 range, not to worry about a

29:54

mortgage. Then our other question is

29:57

we have this tiny house in

29:59

our backyard as like... electricity, we

30:01

flipped the inside, obviously need some pressure

30:03

washing, but we were wondering

30:05

if maybe it would be a good house

30:07

hack to bring out water here, put it

30:09

in the kitchen, put it in the bathroom,

30:11

spend about $40,000 to $60,000 to

30:14

get it to where somebody could potentially rent

30:16

it as a short term or long term

30:18

rental and help us with our

30:20

overall mortgage payment of $3,200. We

30:23

think we could get anywhere from $2,000 to

30:26

$2,500 a month in this good neighborhood. Thanks,

30:28

bye. All right, Rob, what are you thinking? Okay,

30:31

we know what I'm going to say here.

30:33

Listen, he's already got a structure in his

30:35

backyard. He needs to bring out the water,

30:37

which that part is easy. I think

30:39

it's the sewage and then making sure that there's a

30:41

proper slope and making sure that the sewage water can

30:44

leave the tiny house and go to the street. There's

30:48

some permitting there. You have to go to

30:50

the Environmental Health Services Department and the Building

30:52

and Safety Department. By no means

30:54

is this an easy project, but I think it's

30:56

a really obtainable one. I

30:58

think that when you're getting started in the world of real

31:00

estate, it's pretty important. It doesn't

31:02

seem like he's got a ton of experience

31:05

in the world of real estate. Because

31:07

of that, he isn't privy enough to understand

31:10

that this is a bad idea, but I think he

31:12

should do it. I think he should do it. I

31:14

think he should learn the skills involved with project managing.

31:16

I think he should do some of the work himself.

31:19

If he invests $40,000 to $60,000, let's just go in the

31:21

middle there, $50,000 so that he can

31:25

make between $200 to $2,500 a month. That's

31:28

a grand slam of an investment because he's looking

31:31

at a 40% or 50% return to get there.

31:35

Yeah, I think there were two parts to the question.

31:37

Should I refinance existing real estate to buy new real

31:39

estate with cash? Then I've got

31:41

this structure in my property that I could turn

31:44

into a tiny house, $40,000 to

31:46

$60,000 to make that a rental property was the

31:48

second part. Answer in part two, like

31:50

you said, Rob, is absolutely. To be able to

31:52

get a return of $2,000 to $2,500 a month on a $40,000 to $60,000 investment is

31:57

crazy good. It's quacy. Yeah,

32:00

we're talking like 60-70% there. So that's definitely

32:02

that should happen and that's one of the

32:04

things I look for in houses I want

32:06

to buy is do they have a structure

32:08

like that that I can convert pretty easily?

32:10

That's how I make burs work in 2024

32:12

is I'm buying properties that I can add

32:14

square footage to that way. Now the other

32:16

part is a little bit trickier. Should

32:18

I cash out, refinance a

32:20

property to buy another property

32:23

in cash? To my mind,

32:26

it's almost a confusing

32:28

way to look at this question because even

32:31

though you're buying something with cash, so you're saying

32:33

I won't have a mortgage on it, you're taking

32:36

out another mortgage on another property that will be

32:38

higher. Yeah, and really if you do a cash

32:40

out, refinance on your other property, your rate will

32:42

be higher than if you got a new loan

32:44

to buy this property if it's a primary residence.

32:47

If they're both rentals, then it'll be a wash

32:50

but you're not actually gaining

32:52

anything here. You're just taking on more debt

32:54

on a different property and that's why you

32:57

kind of have to look at portfolio architecture.

33:00

When you look at every property like its own

33:02

unique individual thing, this can be confusing. It feels

33:04

safer to buy something with cash but if you

33:07

look at your portfolio as a whole, it's

33:09

not safer. You're adding extra debt onto something else that

33:11

would have been paid off. So am I missing something

33:13

there you think Rob with that question? No,

33:16

no, you're not. Honestly, I

33:18

get this dilemma. I

33:23

think so many people are in this dilemma right now in

33:25

2024. They've got six figures of equity but

33:28

they've got this 2.75% interest rate and they're like,

33:31

should I get out of this and use it

33:33

to expand? I find that

33:35

I don't want to be as aggressive like this in 2024. I think it's

33:37

a gift to have a 2.75% interest

33:39

rate. Now with all that said, if he can take $300k, I'd imagine

33:41

he can get like 75% of

33:48

that. So let's say $250,000. If he can take that $250,000 and

33:50

invest it into another property, whether

33:56

it's buying cash or leveraging it

33:58

and it can get him a... greater return

34:00

than what he's getting right now, then

34:03

I guess the answer is yes. But

34:05

I would also raise the question

34:07

of how much work will it take to

34:09

do that and how much more is that

34:11

return? Because let's say that he's getting

34:13

a 20% return right now and

34:16

this is arbitrary of course. But

34:18

let's say he's getting a 20% return and he's like, alright, I'm going to do it. I'm going to

34:20

refi or sell this property, take my equity, go and buy

34:23

this house, do this, do that, and then he's going

34:25

to make like a 25% return. Yes,

34:27

he's making 5% more but I don't think it

34:30

was worth the hustle and bustle. So I'm kind

34:32

of in the mindset of like, I don't

34:35

think there's anything wrong with coasting right now on a

34:37

2.75% interest rate. Am I crazy?

34:39

I feel like it's so counterintuitive to the real estate

34:41

community. I don't know that I would care what the

34:44

interest rate was as much as I would think. You're

34:47

losing your cash flow when you go from a 2.75

34:49

to 7.5 or whatever it's going to be. And

34:53

now you have to have a significant delta

34:56

to make up on the next property in

34:58

a market where it's very hard to find

35:00

cash flow. So I think the low hanging

35:02

fruit here is convert that property in your

35:04

backyard and don't let the equity burn

35:06

a hole in your pocket. It's okay to be

35:08

sitting on equity. You don't have to deploy all

35:10

your capital. The only other thing, the only thing

35:12

I'm going to ask is does he need to

35:15

use that $300,000 of equity or

35:17

part of it to do his tiny

35:20

house house hack conversion that will cost him $40,000

35:23

dollars? Yeah, so Connor, if you don't

35:25

have the 40 to 60 grand in the bank and

35:27

you have to get that from the equity in the

35:29

property, don't do a cash out refinance

35:31

and lose that good rate. Do

35:33

a HELOC on your investment property, which they have products

35:35

for those now. We do them all the time. Use

35:38

the 60 grand from your HELOC to make

35:40

that into a cash flowing property. Take

35:43

the cash flow from the property and put

35:45

it back towards paying the HELOC down. And

35:47

when you paid it all back, it's basically

35:49

like you got a free property. Yep.

35:52

And you could do that. It sounds like in two, maybe

35:54

three years. So if you can give

35:56

up a little bit of instant gratification, be diligent

35:58

about paying that And you

36:00

got some pretty good cash flow my friend. Yep, and you

36:03

did it smartly. Gooder, best of luck

36:05

to you. Next question here

36:07

comes from Todd Lawrence in Jackson,

36:09

Wyoming. My question is,

36:11

what factors do you consider when taking a

36:13

homeowner's tax exclusion if you've leveraged a former

36:15

primary residence to fund the purchase of a

36:18

new primary? I bought a duplex in

36:20

the house act using the equity in the duplex to put

36:22

a down payment on my new primary. The

36:24

duplex is currently cash flowing and appreciating. Should

36:27

I still take advantage of the tax exclusion and

36:29

realize the gains tax free? The

36:31

market here is very tight and there are not

36:33

many alternatives apart from investing outside of the Jackson

36:35

area. I have about 500,000 in equity. Okay,

36:39

so I think what he's asking is, should

36:41

he sell the property now and take advantage

36:43

of the $250,000 like

36:46

tax exclusion where he won't have to pay capital gains

36:48

on it? Or should

36:51

he keep it and forego that? I think you are

36:53

in that window like two out of the last five

36:55

years if you lived in it. I

36:59

think if he has plans on using this money personally,

37:02

then like whether it's for

37:04

real estate or whatever, then I guess I would

37:06

say sell it if you know you want to

37:08

use it to do more real estate so that

37:10

you can avoid the capital gains question in the

37:12

future. But if you like this house and

37:14

you don't really have a plan of action and you don't plan on

37:17

buying more real estate, then I don't know.

37:19

My answer might change there. I mean it's a

37:21

little situational. What do you think? I mentioned the

37:23

market here is very tight and there's not much

37:25

to buy outside of the Jackson area. That

37:27

makes me think if he sells it and he gets that

37:29

equity, he doesn't have anywhere else to put it and he's

37:32

sort of acknowledging that. I think that

37:34

Todd's dilemma here is he

37:36

wants to take advantage of the tax exclusion, but he

37:38

doesn't know where to put the money if he does.

37:41

So Todd, let's reframe this for you a little bit.

37:45

Before we even talk about the tax exclusion,

37:47

do you want to sell this first house

37:49

that you've already pulled equity out of to

37:51

buy your next house? So you don't need it

37:53

to buy another property because you

37:56

already bought a duplex with money that you got

37:58

from this first one. So, is there

38:01

debt on this first house that's drowning you that

38:03

you're like, man, I want to get out from

38:05

underneath it because once I refinanced it and I

38:07

bought the new property, it's hurting and

38:09

I want to get rid of it. If that's the case, yeah,

38:11

sell it, get out from underneath it,

38:13

wait to buy another primary when you see one.

38:15

But if there's no current

38:18

pain that that first house is causing you and

38:20

you believe it will continue to appreciate and you

38:22

believe the rents will continue to go up, the

38:25

house is in good shape. If you have any

38:27

big capital expenditures coming up that you're trying to

38:29

avoid, I don't think there's any

38:31

pressing need to sell it because there's not much

38:33

else to buy according to what you're saying. So,

38:36

let me ask you this. Let me pose a question because

38:38

this I think I could go both ways on as well.

38:42

Why not, if he's like in

38:44

this conundrum and he's on a timeline,

38:46

why not sell the house right

38:48

now, take his equity however much that

38:50

is and then just dump it into

38:52

the primary residence that he currently

38:54

has and just stack his equity

38:57

into that one house, maybe even recast

38:59

it. He could, yeah, but then he's

39:01

going to be in the same problem as he is

39:03

now where he says I got this equity, should

39:06

I capture it tax-free and then what do I do?

39:08

So if he moves the equity out of the

39:11

first house and puts it into the second one,

39:13

he goes from having two loans he's paying down

39:15

to one loan he owes

39:18

much less on. He

39:20

may gain some cash flow doing that

39:22

but he loses future upside with rent

39:24

increases and appreciation. Yeah, yeah, I

39:26

don't disagree with that but I think it's

39:28

more just about buying him time. It sounds

39:30

like he really wants this 250K

39:33

capital gains free which I understand. I'm

39:35

actually in a very similar position

39:37

with my Los Angeles house where I'm like,

39:39

if I sold it right now, I

39:42

wouldn't have to pay any capital gains taxes but in

39:44

about six months, I'm going to have to. And

39:46

so there is something to be said about he tosses it

39:48

in this and now kind of that

39:50

clock restarts, he's going to have to live in it

39:53

for two years. And now if he's married, he has

39:55

half a million dollars that he can claim tax-free if

39:57

he were to sell this primary. So I think it's

39:59

more about like. I guess what I'm getting

40:01

at is more about how pressed he is. Does

40:03

he want to make a decision right now? That's

40:06

kind of what you were alluding to or does he just

40:08

want to kind of let it ride? And if so, I

40:10

would say maybe just dump it into the current primary. But

40:13

again, that probably goes against

40:15

most real estate investing

40:17

philosophies. I'm going to say this. If

40:19

you think that Jackson, Wyoming is a

40:22

crazy good market that's appreciating very fast,

40:24

keep it. If it's

40:26

stalled, if it's not crazy good, I

40:29

would lean towards sell it and buy something

40:31

in a market that you think is stronger

40:33

than Jackson, Wyoming. Go to where

40:35

the population is increasing. Go to the southeast. Go to

40:37

the places that you see everybody moving into. Put

40:40

that $500,000 of equity into an

40:42

asset where rents are going to go up. Maybe

40:44

you do a short-term rental so you get more

40:46

cash flow where values are

40:49

going to go up and let it grow faster than it would

40:51

have in Jackson. Can I toss out

40:53

one more idea? I don't want to derail this too much.

40:56

Going back to the idea from the last person

40:58

that we just answered, what if he took the

41:00

capital gains on

41:02

this and he bought

41:04

an investment property cash so

41:07

that if he ever wanted to sell that

41:09

property, he could at least $10.30 wanted

41:11

into more real estate. How

41:14

do we feel about that? That would

41:16

work because he's got the exclusion of

41:18

the primary residence. Normally that wouldn't work because if

41:21

he sold it and he $10.31ed into another property,

41:23

he would have to keep debt. That's

41:26

what I was originally thinking. He wouldn't be able to own it

41:28

debt-free. But because he's got

41:30

this exclusion, he can sell it, take the

41:32

cash. He can buy something without

41:34

a mortgage in cash. Then

41:37

he has flexibility. He can refinance it later. He

41:39

could put a HELOC on it later. He could

41:41

sell it later and buy something else without having

41:43

to take on debt or it will cash flow

41:45

in the meantime. So that's not a bad plan

41:47

at all actually. It'd probably be your best bet

41:49

to improve your cash flow while keeping your options

41:51

open for the future. Yeah, that's what I love

41:53

about real estate because initially I was like,

41:55

oh, it's dumb to buy a house cash. But that actually makes a

41:57

lot of sense for this specific situation. it's

42:00

all about getting creative and getting

42:02

creative in tight timelines is probably the

42:04

most important skill you can learn in

42:06

real estate. All right. Our next question

42:09

comes from Josh Pratt, who

42:11

has his first investment property in Huntsville,

42:13

Alabama. Have you had

42:15

a rehab budget increase unexpectedly on

42:17

a project? And have

42:19

you ever had to cut your losses

42:22

on a property due to unforeseen expenses

42:24

coming up during the rehab? How

42:26

did you decide that it was better to

42:29

take a loss and sell a property rather

42:31

than continue putting more money into a bad

42:33

deal? Just wanted to hear about some experiences

42:35

you may have had that were similar to

42:37

mine with unexpected costs arising. So

42:40

pretty cool question here. Yeah.

42:42

Okay. I'm in this exact scenario right now. I

42:45

may have mentioned it on the show, but I've

42:47

got a house that was supposed to be a whole

42:49

tail, which is basically like a very quick, a micro

42:51

flip, if you will. And I was,

42:53

you know, I bought it for 75,000. I

42:56

was supposed to put in 25K and make like $20,000

42:58

somewhere in there. And

43:02

long story short, that's not the

43:04

case. So it's actually going to be more like a $5,000

43:06

loss if I were to sell it based on

43:09

the offers that have been coming in. So my

43:11

other option is instead of taking a $5,000 loss, I

43:13

could invest $60,000 into the

43:17

same property and make 20, but

43:20

it would take me six months to do it. And

43:22

I've never lost money on a deal before, not

43:24

like this. And so I keep wanting to go

43:26

that route, but pretty much every successful real estate

43:28

investor talks to a lot of the bigger pockets

43:30

hosts. A lot of them are all like, yeah,

43:32

just take the $5,000 loss, man. Just

43:35

get the $100,000 that you invested, put that

43:37

back in your bank account and move on.

43:40

So yeah, I guess I might cut my

43:42

losses, but gosh, I'm so stubborn. That's

43:44

the reason we don't is because the ego

43:46

does not like to say that I lost.

43:49

Like really hardly any real estate will ever

43:51

lose money if you wait long enough. We're

43:54

still ever, if you wait 20 years, you're going to get

43:56

your money back. Right? So when we're talking about taking a

43:58

loss on a property, if you can move yourself. away

44:00

from thinking of it as money and move yourself

44:02

into thinking of it as time makes the decision

44:04

a lot easier. Does

44:06

Rob want to wait X

44:08

amount of time, six months to be able to

44:11

not lose $5,000? How much can

44:13

Rob make every month for the next six months if he doesn't

44:15

have to have this thing hanging over

44:17

his head? Significantly more than the $5,000, so

44:19

it's an obvious answer. Now somebody

44:21

else in this situation, like we have in our background

44:23

notes here that he said, I think the deal is

44:26

still going to work for me. It's just going to

44:28

increase the payback period and slow me down on getting

44:30

the next property. That's the real

44:32

question here. The deal will make sense. If you wait long

44:34

enough, it's going to appreciate you're going to get your money

44:36

back out of it. It'll be

44:38

good. Do you want to wait a couple of years to be able

44:40

to say you didn't lose money or do you want to get out

44:42

of the deal and get into the next one and hopefully make money

44:45

there? Part of that answer

44:47

is, well, what opportunities is the market offering

44:49

you? Today's market, I don't see

44:51

tons of deals everywhere where if you get out of

44:53

this deal and you get your capital back, you could

44:55

go make money on another one really easy. You

44:58

may be waiting a long time to find another deal you can

45:00

make money on. You may not find another

45:02

deal to make money on. You may run into

45:04

another problem with a similar house because everybody's looking

45:06

at these properties and they're picked over pretty good.

45:09

In this case, I'd probably be inclined to just

45:11

stick it out, take it as a learning lesson. This

45:14

is part of the tuition you pay to get

45:16

into real estate university. Have a great story and do

45:18

better on the next one. Fine.

45:20

I'll take the $5,000 loss. Golly,

45:23

the whole time I'm just like, why have I

45:26

been doing this? Here's the dumbest

45:28

part and I'm going to admit

45:30

this on national TV, aka

45:33

the Bigger Pockets podcast. Yeah,

45:36

I've been putting this decision off for like

45:38

two months. I

45:41

could have had $100,000 back in my pocket like

45:44

two months ago and I keep thinking. I have

45:46

contractors lined up. We've been doing things. I'll

45:48

just say I could have been a little bit faster to make

45:51

moves here but I just

45:53

am so caught up on not losing on a

45:56

deal Whereas now I've realized

45:58

that I have already lost. The

46:00

the amount of time lost some things for the advice

46:02

of the sell it. On the cell and

46:04

I'll take the five thousand dollar loss and I'll take the hundred

46:06

k that I have in figure out how to make more than

46:09

five thousand dollars that I lost. Yeah,

46:11

grow. It up right before our

46:13

eyes on the big part of part. guess

46:15

it could be worse. My bad habits should

46:17

be specific assists the I guess he bought

46:20

a bad your July specific fitness nut. No

46:22

possibility of are going to hear this mess

46:24

with Rob. I love usability. Yeah it's I

46:26

your use you had a deal go bad

46:28

which happens and the consequences. the last five

46:31

grand that's like almost doesn't even count I

46:33

know can be so much worse. The only

46:35

person I didn't lose as a wholesaler but

46:37

that's fine. That's often the way goes in

46:40

Sauces case. The only person I. Didn't lose.

46:42

As a contractor they made more money on

46:44

this deal because there was a kitten issue

46:46

and a bathroom issue the he didn't see

46:48

going into it's to the contractors Get it

46:50

You great? The wholesalers gonna do great. So

46:52

what's the lesson here? If you're somebody is

46:54

trying to make money and real state stop

46:56

trying to do it without work. Considered getting

46:58

into the trades of real estate. I like

47:01

people that say I'm here the i'm going

47:03

to get by contractors license. I'm gonna get

47:05

into doing remodels. I like people to say

47:07

I have a good business wind up Going

47:09

to get into generating leads for other people

47:11

are. Going be a real cities and I'm gonna

47:13

be a loan officer, I'm gonna be a property

47:15

manager. If you got skills, put them to use

47:17

serving real seen investors and you can decrease some

47:20

of us that way. All right. Thank you so

47:22

much everybody for joining us today! We love you

47:24

and we will see you on the next episode.

47:26

Just like Doctor Jay, this is David Greene for

47:28

Rob. Willing to get double Glock as burrito but

47:30

can't stand the thought of losing five thousand dollars

47:32

up a solo. Signing.