BiggerPockets Real Estate Podcast - 555: Buying in Expensive Markets & When to Jump Into Real Estate: Live Q&A w/Henry Washington

Episode Date: January 9, 2022

If you’ve got real estate investing questions, David Greene and Henry Washington have answers. These two real estate investors have been through the good times and the bad times, dealing with dozens of tenants, plenty of 2 AM maintenance calls, and all the fun that comes along the way. Today, they open up their minds to help share answers to some of the most asked real estate questions. These questions were taken directly from real estate investors, just like you! You’ll get to hear exactly how David and Henry answer tough questions like these, on the spot, with no preparation. If you’ve been itching to ask a question to a high-level investor like David or Henry, stick around, as they might answer your question on today’s episode! Want to ask a question next time? Submit yours at biggerpockets.com/david!  In This Episode We Cover: How to buy properties in an expensive market (and still cash flow!) Whether or not you should convince a seller to owner-finance you a deal Saving up down payments vs. using HELOCs (home equity lines of credit) to purchase your deals When the right time to jump into real estate is (and how much you should have saved) Whether or not you should buy a house that’s on a septic tank How to finance more properties when you’ve personally maxed out your DTI (debt-to-income ratio) And So Much More! Links from the Show BiggerPockets Youtube Channel BiggerPockets Rent Estimator BiggerPockets Forums BiggerPockets Talent Search Submit Your Questions to David Greene David Greene Team David’s Instagram David’s BiggerPockets Profile Click here to check the full show notes: https://www.biggerpockets.com/show555 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pock's podcast show. Five, five, five, the triple nickel. It's just like, if you look at like a fire, we're just adding so many kinds of Knaws on that fire that all makes real estate go up. It's, I don't think it's a good idea we're doing this as a country, but it is what we're doing. And that's why I'm betting on real estate. What's going on, everybody?

It is David Green, your host of the Bigger Pockets podcast. Here today with my co-host, Henry, the Wise Guy, Washington. Henry, what's going on, brother? What's going on, David, man. I'm glad to be here again. And this is always a good time. You are always a phenomenal host, man. And so I appreciate the opportunity.

Well, thank you for that. Today, Henry and I get to have a lot of fun as we are surprised by people who are on the show live asking us their questions in person. And we don't know what's coming at us. So we get into some really good stuff today on the Bigger Pockets podcast. Now, before we get into that, let me just remind you, this is the podcast for anyone who wants financial freedom specifically through real estate. We help you achieve that by bringing in other people that have successfully found that same goal that you have as well as other people

that are on the journey just like you, like on today's episode, asking the same questions that you are thinking. Now, you can ask your own question at biggerpocket.com. So, David, we will take that question and we will air it on one of these episodes where I get answered live. But today, you get to benefit from both Henry and I's perspective on very commonly encountered problems in real estate. So we talk about should you buy a property if it's on a septic and a well. We get into, is this the market to really double down and go big, like pull equity out of your properties and keep investing? Or should we hold back and wait because we've already seen prices come up a whole bunch?

What else would we talk about? Henry, what were some of your favorite questions? Yeah, man. Oh, you just hit on my favorite, man, because that is what everybody is asking. Should I buy now? should I wait, right? And everybody's throwing the all adage, you know, buy real estate now, right? Instead of wait to buy real estate. And so I loved, I loved hearing your perspective. I share a very similar perspective. Yeah, but we also talk a little bit about, you know, on the mortgage side of

the business, right? And what types of loans should we be using when going to buy property? And we talk a little bit about debt to income ratio and how does that affect your ability to continue to buy property. And so there's lots of helpful information here. A lot of frequently asked questions, but answered in ways that will allow you to take that information and continue to take action. Yeah, that's a really good point. I spend so much of my life, like my team members get to have all the fun. They get to deal with all the easy stuff, right? The only stuff that makes it to me is the CEO of those companies is the problems that nobody else can solve. So I'm constantly trying to figure out like, how do you help someone get a loan once their debt to income ratio doesn't support it?

or what about when they get this many properties? Or should people be buying? And if so, where should they be buying? So it's fun when I get to share some of that stuff that I learned getting my teeth kicked in every single day in the business. And then you, Henry, you're actively involved. I mean, you're scooping up doors fast. And so you get to share a lot of the stuff that you've learned as you move quickly and made mistakes quickly, as well as had success quickly. So you're forced to learn things really fast.

And you get to share that on the show too. So I love getting your perspective there. And make sure you listen all the way to the end. because we have a very cool question about the best ways to add value if you want to start a real estate meetup in your own area. So I think this is a great way that people can all come together, that you can get deals brought if you're the one who's hosting the RIA. So make sure that you listen all the way to the end. Now, if we are about to bring in our first guest before we do, Henry, any last words? Yeah, man.

One thing people should be on the lookout too is we talk a little bit about some short-term rentals and then creative ways. to think about how to invest in expensive markets. That's another huge, huge thing. People have a roadblock in their mind about investing in expensive markets. And you and I right off the bat go into some detail about how you can go about doing that and even how and why you started doing that. Totally forgot about that. I'm the first guest of today's show.

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All right. So I would like to introduce myself as today's first guest of The Bigger Pugust Podcast. Allow myself to introduce myself. All right. So on Tuesday, we're going to be airing another show similar to this one where I am taking calls live from Bigger Pockets, community members and fans or just real estate investors in general and answering them in a format very similar to this one. I've been working Henry pretty hard, so we're actually going to give him a day off,

but he will be back on Thursday where we interview another very successful real estate investor who has seen their success skyrocket. That's a very good show. I think Henry actually probably does most of the heavy lifting on that one as well. So good thing he's such a big, strong guy. Yeah, man, that was a great time. so I'm excited for people here. All right.

So why don't you tell us a little bit about David or tell me a little bit about what does your actual investment side of your business do? Because I know you've got a business for every part of real estate. So tell us. Yeah, that's a good point. On your investment space, what are you focusing on? So here's how I kind of broke down my own strategy or approach to real estate investing. I have a three-step process.

It's very simple. You make money, you amplify that money, and then you invest that money. So a very simple explanation could be, I make money selling houses and I get commissions. I then go flip a house or I do a hard money loan or I do a bird deal and I get that money back. It's been amplified now, either through cash or equity. And then I take that and I invest it. So the idea is instead of just make 50 grand, invest 50 grand, make 50 grand, turn it into 75 grand, and then invest that. So you're automatically like you have a bigger amount of capital going in. So that's why I have these other businesses is the mortgage company, the real estate company,

the mastermind, all the different things I do, the book sales. All of that is just a way to have capital coming in so that I can then invest it into real estate at the end of the cycle. Now, how I've been doing my investing is, a little bit different because when I first started, it was really simple. I would just buy single family houses and fix them up and burn and get the money out and move on. But I think as you probably have seen, you hit a point of diminishing returns with that where getting another house is like getting another cat, right? And I'm not a cat guy, but I imagine there's probably some value in

having cats. But I don't want like 50 of them. That's a lot of cats to have in one house, right? Like when you first get a cat, maybe you were lonely and it's cool and then two cats, they can play together. And then you hit a point where like, oh, my word, this is a lot of. work. You've got to hire someone to manage the properties that you've bought. So I'm now shifting into bigger deals so I can do less of them and preparing to sell my portfolio of smaller houses to just 1031 that money into bigger property. So in 2020, I bought a couple short-term rentals. It was my first time getting into the space. Those were both in Maui. They're doing very well. I bought a triple net property in a suburb of Minnesota. That was the biggest deal that I ever bought.

then it was probably like, yeah, I think 18 units or so. And then I also bought a house in Pleasant Hill, California, which is a really nice city in the East Bay. I bought that one for $1.8 million. It's a really big house, like 5,000 square feet. And I'm going to basically turn that property into smaller units that I'll be able to rent out to individual people and do some stuff like a garage conversion where I'm going to get some extra units out of that. So it's kind of one of those. If you can't find a great deal, make a great deal. That's how that deal's working. Moving into 2022, it's going to get even a little bit more complicated. So now what I'm doing is I'm looking for partners that are experienced in an asset class and I'm looking to invest with them so that I don't

have to worry about sort of the operations of the property as well as building the funnel in the first place to get the deal. So instead of looking for properties, I'm now looking for people that know how to find properties. So I'm looking to get apartment syndicators, really good short-term rental investors, other asset classes. and raising money that we will then invest into the stuff that they're doing and sort of just playing, like, I guess the way I look at it is like Nick Fury with the adventures. I'm trying to figure out like who's my Thor, who's my Captain America in all these asset classes, raise money and help them invest it.

Now, as most new strategies go, it takes time before you actually start to see fruition, right? Like it's a good take the whole year. I hope it doesn't. But that's what I'm looking for now are people like you that already know how to invest and have like a good thing going like in your city or whatever. you've got the wholesalers bringing the deals to you, but you just need to expand. You need some more money. I'm not looking for someone who has never bought a deal before. And it's great that they're hustling. This just isn't the right scenario because I'm going to be raising money from other people.

So I don't want to be putting their money into someone who is an experience. And so I'm still big in single family real estate at this stage. I'd say I've moved away from just looking at cash flow. And I've moved more into what's the right area where I'm going to see a lot of appreciation and have low headache factor when it comes to owning properties and then see like can I make it cash flow right like that one in Pleasant Hill I bought it because it's in a great neighborhood but normally you don't get cashling properties there well I found a floor plan that I could make cash flow so yeah yeah that raises a ton of questions just on that one property I don't know if you want to go into that but like that's I mean because you got zoning potential zoning issues there and like you know it's one

thing to say like, yeah, I'll just go by a big house and then I'll turn it into a bunch of small rentals and it'll be awesome, right? But there's some logistics and some and some politics sometimes you've got to play with there. How does all that work? That's exactly right. It's the thing that you kind of have to look into a little bit deeper. So here's why with this particular property, I really liked it. It has a lot of parking. So the tenants are not going to have to park on the street in front of the neighbor's houses that's going to irritate everybody when they're there. even though it's in a residential neighborhood with a very high walk score, it just happens to be right next to like a 30 or 40 unit apartment complex that's put right in the middle of a bunch of multi-million dollar houses. So it was perfect in the sense that the people who live there are used to tenants that are like walking around in that neighborhood and kind of like driving in and out.

So it was just it could not have been a better scenario to be right next to an apartment complex. and then having all of the space inside of the property where people can park their cars so that the neighbors aren't going to have to see it. Now, I'll be living in the property most likely. So you get around some of the restrictions about how you're using it when it's your primary residence as opposed to a rental property. But it's one of those things where like, you know, I'm not telling people go violate zoning issues. I don't know that this is a violation of zoning, right? I think it's a very subjective thing where the city could look at it and say, we don't want using your property. way or they could look at it and say, thank God, somebody is providing more housing, right?

This happens to be an area where there is not enough places to live. So I felt better about making that risk that I don't think this is going to become an issue. I would not recommend this to somebody who is in an area where the city is already against landlords or they don't like the price of homes going up because investors are moving in. So you are asking a relevant question, but I did do some work to try to avoid that becoming a problem. Awesome. The other question I have for you, and I think a lot of people, I know a lot of my followers of people that I deal with, they always say the first thing out of their mouth is, you know, you can't do that in insert an expensive market here, right?

And you've operated in the Bay Area. You bought this property in a, you bought it for over a million, right, in California, right? How, what advice do you have for people who live in an expensive market who want to invest in they don't want to go somewhere else to invest. That's a great question. And I'm probably the perfect person to ask it to because I started off in a market that was too expensive. I then went invested in other markets.

I've now come back to my expensive market and I invest in both. So I invest in California as much as I can. And I also invest out of state. I think the key, the reason I went out of state at that time in my career was I was looking at real estate from a very like not a multifaceted lens. It was very singular focus. If I buy a three, two or a four two, what will it rent for? I got to go somewhere where the price and rent ratios make sense.

Well, since then, I've just become more creative and how I look at properties. So now we just interviewed Sam Wegert and he talked about how he rents by the room. He can now make properties work renting them by the room instead of just renting out the entire house because you're getting a lot more revenue coming in every month. You've got the short-term rental craze that's going on. And if you live in an area where people travel to, you can make it cash flow pretty well as a short-term rental in a lot of cases where you couldn't do it if you just went on the traditional, you know, yearly lease where they pay every single month. So the answer to your question of why I'm investing

in an expensive market is I'm actually looking not just at the market, but the property itself. That's the key. That's one of the reasons that David Green team has done really well is we've learned like you can't look for a house with 1,200 square feet and try to do what I'm doing with is it's got to be a bigger house. It has to have the right floor plan. Track homes very rarely ever work. for this because you've got two levels but you got to walk in the house to get up to the upper level right we look for floor plans usually older homes that were maybe originally 1,200 square feet when they were built and they've had additions added to them over the last 80 years to where now you can have separate entrances that become easily extra units or a basement versus the house the rest of the house or maybe a house built

on a hill so that stairs are on the outside and there's separate entrances to each of the floor levels right Then we look, is there a bathroom on every floor or a place a bathroom could go in, right? Like there's a lot more screening that goes into making this work. But when you find a property that you can buy for like $800,000 or a million dollars, and I know people listening might think that's insane. It is insane if you're making Kentucky wages, but you get paid pretty good to live in California as well. So when you actually look at what that cost is based on the debt to income ratios of the people

that are here, you can buy a million dollar house and you can rent it out as three different units and you can actually cash flow. California rents go up so much every single year. It's just something. It's not just the price of the home that goes up, right? Some of the first properties I bought in 2009, they were renting for $1,100 a month or now $2,300 a month. And less than a 10-year time frame, they've doubled or more than doubled sometimes. So there's a little bit more like creativity that needs to happen to invest in an expensive market. You have to also understand you're competing, not with other investors. You're competing with people who want to live in the house.

Right. So sometimes we look for a really funky floor plan that someone who wants to live there would never like, but an investor, it might be perfect. Absolutely. You know, I always tell people like you, in an expensive market, is it possible to invest?

Absolutely. There's houses everywhere, and people have figured out how to invest there. So if you don't know how to do that yet, it just means you haven't done enough research to understand what you can. can and can't do to make money investing in that market. So you just need to keep digging and you need to be a, you need to be a little more creative. We, you know, not all markets are, are created equally and some

people have it easier than others. You know, some people live in markets where you can just hop on the MLS and go, I want that one. And then you buy it and then the cash flow, right? Yeah. It's just not the market that I'm in. So I have to be a little creative with how I find my deals. I love that. Somebody else in a more expensive market. They can't do either of those things. usually, or it takes a whole lot more money in time to find the off market deals where they can get creative with some of the deals that are on the market and find a way to cash flow them that way. Like you said, short-term rentals. I've seen people that take houses and they do, because one of the things I was going to ask is, you know, when you talk about a large house and converting

it to smaller units, the first things people think about are kitchens and bathrooms, right? Does every unit get a kitchen? Does every unit get a bathroom? Or are you doing some sort of community kitchen bathroom type situation? That happens in places. There are houses or places you can rent where you rent the room and you share the kitchen and you share the bathroom, right? Just because it's not traditionally something that everyone is used to or traditionally something that you see everybody live in doesn't mean it's not something that people can or want to live in, especially if you're in a market where the vacancy is so low that anything that comes on the rental market is gone, right? I really like, I think it's cool that real estate has become so competitive that the way. you have to win has changed. I know it's very frustrating if you're a spreadsheet person.

Like I just want to punch numbers in a spreadsheet and find the ROI and move. It's sort of moved more to like we're all digging through a scrap heap and we're trying to find some piece of material that be converted to be useful in some way. You have to have some vision. You have to have creativity in making this work. And then you have to have people helping you. So like if you don't have an agent that's going through the MLS like we do to look for the type of floor plan that would work.

to know where the rents are good, it's very discouraging. If you don't have a contractor that you can trust, they can give you a pretty quick answer on, hey, if I tore down this wall and moved it here, I could make two units. What would that cost? And they can't give you a ballpark. It's very overwhelming. You're just going to get frustrated. So the advice I'm giving is to have a paradigm shift from, I'm looking for a market that

will cash flow. And when I find the cash flow that I look for a house to buy, switch it to I'm looking for a house that will work in an economy. expensive market and I'm trying to find a way to make it cash flow. Right. So instead of looking for cash flow first, find the property first and then analyze it and say, is there a way to make this thing cash flow? And if the answer is no, then you move on to the next one. I think eight years ago, nine years ago when I got into it, I don't have to do any of that. I was like, okay, Phoenix, Arizona is amazing. This is the right neighborhood. What's the best deal I can find in that

neighborhood? So I basically looked for the area and the cash flow that I would get and then found the house. It's almost different now. I'm like, all right, what are the houses that have over 5,000 square feet with a lot big enough that there's parking in an area where rents are going to go up. Now I want to see, has it been on the market for at least 25 days because I don't want to be chasing after the houses. Everyone else has seen. And my agents are sort of get those marching orders and they run through it. And then they come up with the list of six houses that meet it.

Then we individually analyze that house and say, all right, what would be the plan? Could we make this one work? Nope. That one doesn't have enough parking. That's something people don't think about when you're trying to house hack or do something. Right. Or, all right, this one has eight bedrooms, but it's got one bathroom. That's not going to work.

There's not a way to make it happen. So as long as people keep that kind of like open mind and that creative approach, I think real estate investing becomes more fun and it gives an advantage to the person that's committed to it. But it definitely doesn't work for the person that just wants to kind of do this on the side and just have deals that come easy. Yeah. Now, that, you know, that brings up a couple of great points because I am, I am finding

myself now thinking a little differently about properties as well. And in my market, I can still find good off market deals as long as I keep marketing consistently. But I'm also thinking long term as far as now, if more people are coming here and the prices are rising, where is that going to push people to? And now I'm starting to look at some of these ancillary markets kind of outside of where I am, where I can get in now, capture cash flow and get appreciation down the road. But I'm also thinking strategically about how I find properties in those areas because I'm not marketing in those areas like I'm marketing in my. own area. And so one of the things that I did was I reached out to an agent out there and I said, hey, if you've got any pocket listings, make sure you send them my way, but also what multifamilies do you have on the market that might come with an additional lot? And so I had him send me everything

that's a multifamily that has an additional lot that comes with it that's next to it or something that I can lot split. And right now, I put one under contract that we're going to buy the property because the duplex cash flows as it sits, it's not a home run deal, but it's a solid single. But I'm also going to sell a lot next to it. I had to make sure he could sell it and what he could sell it for. So I'm buying the property. I'll have to put about 15,000 down, but I'm going to sell that lot for 20 grand. And so I'm getting paid $5,000 to buy a cash flowing asset because I bought something

somebody else didn't want to buy because they didn't want that lot. That's exactly how you got to look at it. And that's why we have you co-hosting with me, Henry. That's brilliant. All right. Let's see who we've got that we can bring in to ask more questions. Hello. What's up, Tyler?

Hey, Henry. Hey, David. Nice to meet you guys. What's going on? You know, just working. Good. So my question for you guys is I'm currently living in Canada, Ontario specifically, and I was wondering about some seller financing options and how do I really lay out the options to a seller?

and what do you guys usually see sellers are most comfortable with? Do you want to start, Henry? Sure. Yeah, absolutely, man. So when I want to do seller financing, so I'll speak in terms of what I do. So when I know I've got somebody on the hook who's interested in seller financing, so first and foremost, I always ask, I'll ask a lead before I even go see the property. I always ask how much do they owe, right?

as part of my vetting process to determine if this is going to be a good deal or not. A lot of the, and when you ask, some people are worried about asking people what they owe. And what I found is you just ask it like a normal question with confidence. Like you would ask them how many bedrooms the house has, right? Like it's normal. This is just part of the process. Hey, how many bedrooms does the house have? Great.

How many bathrooms? That's awesome. Cool. How much do you own the property? Right. And so if you just ask those questions, I found about 50% of the people will tell me. right? And so if I know ahead of time that you don't owe anything or you owe very little, then I always pitch an owner financed offer. And so when I'm going to make offers on the

property, I can typically pay more when I'm going to do owner financing. And so I'll usually pitch two to three offers or two to three options. And I'll start with the lowest one. And if that doesn't work for them, then I'll pitch an owner financed option, which is a little higher on the price point, but like I said, it's an owner-financed option. So I try to give people multiple options when they have owner-financed. But typically for somebody to want to sell a property to you, owner-financed, they have to, a lot of the time, both times or three times I've done it, the three times I bought it, they've all wanted to avoid the taxes. So you might want to ask them. Another question you want to ask when looking at doing an owner-finance option is, hey,

what's your plans for the money, right? And again, if it's just in conversation as you're building rapport, right? They'll typically tell you, oh, hey, yeah, you know, I got to pay some medical bills or hey, I want to give my grandkids X, Y, and Z money, or I want to put it in a college fund, or right, they'll tell you. And some of them will just say, oh, it's just going to, you know, I don't have any plans just going to sit in the bank, right? And if they say that, I'm like, well, have you thought about the tax implications? And then that starts to get the ball rolling, because if you can save them, you know, 40% by them not having to pay that capital gains taxes, it makes your owner financed option more juicy for them.

Does that make sense? Yeah, that does. Great question. Why don't you give me a response to that before I chime in? Based on what he said, what problems do you think you still might have? Some problems that I might think of are that she, or the seller doesn't want to do seller financing, but if this listen did, I'm not really sure what problems that would arise in the seller financing. I think if there was someone that I wanted a relationship with that didn't want one with me,

you would tell me to move on and find someone else. You can't make someone like you, right? This is a problem that a lot of people make when they first get started is they're asking the wrong question. That's not a criticism at all. It's just by saying, how do I convince this person to do seller financing? You're already going in the wrong place. You should be looking for the person that wants to do seller financing. So if they tell you, that's not like I wouldn't sell that you on seller financing. That would make no sense for me. I want. my capital so I can go reinvested in new properties. So I'd be the worst person ever to try to convince you should do seller financing. Now, you talk to David in 40 years from now when maybe I

just don't want to deal with the headache of the property, right? And I maybe want to help somebody out or I don't want to pay taxes. Now it might actually work. So you should probably change the demographic of person that you're pursuing here. Look for someone like Henry said who doesn't want to pay taxes because they don't have the capital gain hit if they do seller financing. They're only going to pay capital gains taxes on the interest that they make from the loan that they give you. Or look for someone that doesn't want to be investing in real estate anymore. So they don't want that equity to go put into the next property.

Look for someone who's more likely to like you. That's what we're getting at instead of trying to convince somebody when you're not their type to like you. And you will find that the entire thing becomes so much easier than the way you're approaching it now. Okay. Yeah, that makes total sense. Every single person I've done seller financing with has been an older landlord who wanted to retire who didn't want to pay capital gains.

Every single one. So try to think about that demographic because they love, they like cash flow because they're landlords. And now they get to keep cash flow without having to deal with any problems. Right. And they don't want to. And most landlords don't want to pay taxes. Right. And so that that's a great target market for owner financing.

Great question, though, Tyler. Thanks for asking that. So, Matt. Hey, David, hey, Henry. Congrats on all your guys' success this year. Thank you. Thank you, Matt. Congrats for making it on to the bigger pockets podcast.

Your Stud. All right. So my question, and this is a concept, David, you've talked a lot about, is like the velocity of money. And you mentioned, like, when you're a police officer, you kind of would like save up your day job money, get a deal, grow it, save your day job money. And so I've kind of expanded where I have several rentals and really trying to make the decision, do I, do I?

start that velocity concept this year and take a line of credit out over my, some of my older properties? Or do I continue with what's worked well for me, which is to be patient, save up down payments and move forward, slow and steady? You know, I got pretty good equity now because I've been doing this for a while. So I might be ready, but, you know, that's a big change in mindset from one strategy to the other. Why don't you start with that, Henry? What do you think? man. If you want a minute to think, I can, I can go. No, no. You're just, you're just asking the guy that went from zero to 30 doors and like, wow, in like less than a year and then went from 30 to 60 and another year and a half. And so, you know, it sounds like me and Matt are just on a different levels of

comfort, right? There's no right or wrong strategy. I think you use the strategy that fits your financial situation and your, you know, your, your comfort level with, with, with, with, with, risk, right? If, if you're, if you're, if you're, if you're a person that is not a fan of leverage or, uh, and this may not be you, but I tell people like, that is a tool, right? And so it's just like a hammer. Like, you can take a hammer and you can build a house with it if it used properly or you can take a hammer and you can bash the crap out of your thumb, right? If you use it improperly. And so if, if you're the kind of person who understands it like, leverage isn't for me.

You know, I'd rather build up the, build up the money in my hand, in my bank account, and then go buy a property and it's working for you. Then, and then that's what you feel like you should keep doing. You should. You know, for me, leverage was the way I am, I am comfortable with the amount of leverage that I have because I focus really, really, really intently on buying phenomenal deals. because buying phenomenal deals is my exit strategy, right? If things start to shift, if the climate starts to shift, my equity and my properties buys me time to switch strategies, whether that

means to sell it, convert it to a rental, flip it, whatever that means, because I bought it so well, I have time. My buying it well is my parachute because I know I can sell it. it to somebody else. I know I can flip it. I know I can make it a rental and it's still cash flow. And so that affords me comfortability. And then I pay attention to how leveraged I am. Right. I have close to 50% leverage in my property. So I know that if it's all said and done, I can dump everything and be in a pretty fantastic position. So it just depends on where you are with those properties and how uncomfortable you want to get with leverage in my opinion. But I'll let you take that, David.

What do you think, Matt? Why don't you chime in first? No, that's good insight. You know, the other factor, though, that you didn't bring up that I kind of want your opinion on is there's always the value of time, right? So even if you buy something, you know, for market price, I think, David, you said you didn't really exponentially grow until you started exponentially getting in more deals using equity of your other deals.

So I'm bullish on the Texas market. But so I'm not really super, you know, trying to nitpick every little part of the deal. I'm just trying to buy good properties and good neighborhoods. Okay. That's kind of my mindset. All right. Good. So first off, based on what Henry just said, what I'd like everyone to hear from that is equity equals options.

When you have equity, you have options. and the better you are real estate investing, though more that option starts to become something that you can convert into revenue. That's why in general, I don't like just chasing cash flow because you may get cash flow, but if it doesn't work out, the area ends up being bad, something goes wrong.

If you don't have equity in that property, it's very hard to move around unless you're liquid, right? Liquidity is just equity that isn't a bank. It's not in a property. So assuming that you're not liquid, equity becomes extra important as you start to have more money and reserves or set aside, equity can become less important. But I'm 100% agreeing with Henry's strategy, which is I find a great deal. I find a lot of meat on the bone and then I figure out what I'm going to do with it from there. Now, Matt,

to your question is, should I go big or should I keep going like predictable and steady? It sounds to me, and I'm basing this on the assumption that you want financial freedom. You're not concerned about taking too much on in your personal life. It's more of a like, where's the market headed? Is this a bad time to go big? And that's why you're asking about the velocity of money. Am I somewhat close there? I would just say, you know, I have a lot of equity in these old properties that I bought several years ago that it's just kind of sitting there. And, you know, I've systematized things where it's not time commitment. It's not a time issue. It's just, is it time to pull the equity out? Or try to time it, time the market differently.

All right. So that's really good. You don't want to take your money out by new properties, then have the market drop. So we're talking about what's the market? We're talking about what's the going to do that and that's a great question here first off this concept of velocity of money i didn't come up with that that's a term that the actual federal government came up with to describe in economics how often a person can spend a dollar because every time a dollar gets spent taxes get collected so obviously the government wants a higher velocity of money because more taxes are collected for them you the credit you came up with it yes thank you for that i've converted it into bigger pocketsville and i've now taken that concept and i've applied it into real estate investing and i talk about this a lot

it's it's why burr works because you can take you know 80,000 end up investing that into a property, make the property worth 120,000, pull 80,000 out, go buy another one. You're taking the same 80 and you're putting it to work over and over and over. The velocity of that money is high and every time you turn it over, you get another theoretical $40,000 in equity. So if you do that five times in a year, that's making $200,000 in equity versus if you do it once or twice, it's only $40,000 to $80,000.

Now, what you have to understand about this is that if the market's going down, having a higher velocity of money actually spins you down faster. It's not always good. Okay, if you're buying more properties with this dollars and you're losing 40 grand per property, it can work against you just the same as it can work for you. So I do want to highlight, this isn't one of those just like, I'm just saying just go, you know, spend the money everywhere that you go. My opinion, and this is just my opinion, this is not the pin of bigger pockets.

This is not me giving you financial advice. This is just my opinion, but I am putting my money where my mouth is because, as I told Henry, I spent a lot of money on real estate is that we have the perfect storm for rising asset prices. And let me just give you the argument I make about why I think, yes, you need to go big and you need to go big fast. All right. Our price is going to go down. We typically see prices go down and people cannot afford homes. And so the thought is if we have a recession, prices will drop. A few things to think about.

for one, it's not just homeowners buying houses like in 2010 when most people buying a house as a homeowner. You now have venture capital. You have people like me, people like Henry, and we need somewhere to put that money. So there are still people that are going to want to buy houses, even if a recession comes and people lose their jobs and it's harder for them to own, right? That might affect your tenant pool, which means you got to invest in the right areas. But as far as the demand for those houses, I don't see that going down. interest rates have been kept stupid, stupid low. And while we know that's good for the economy,

it also puts pressure on people to spend money. You don't want to keep it in the bank if you have no interest. So now you're having to chase something to get a return on that money because you can't open a certificate of deposit. You can't buy bonds. They're just way, you're not getting a good enough return. So more people want to go buy real estate. Oh, in addition to that, inflation is, well, that's why that's coming to.

But inflation is coming. So now as inflation is growing, you have to get a return on your money and they're keeping interest rates low. That's even more pressure that people have that now I have to spend my money and I'm going to spend it on real estate because real estate's going to benefit from all this inflation, right? It's just like if you look at like a fire, we're just adding so many kinds of Knaws on that fire that all makes real estate go up. I don't think it's a good idea we're doing this as a country, but it is what we're doing. And that's why I'm betting on real estate. And then the last piece is exactly what you just said.

They cannot keep up with building homes for the demand we have. And there's so much regulation on home builders and taxes that many developers are only building really expensive houses because they need the profit margin to be a wider spread to make any money. So like low income housing is not going to be built. It just is too hard to do. So the existing supply of low income housing is going to become more desirable due to scarcity. So those are all reasons that I think even if like interest rates went up, if we still have a lot of inflation, the value.

the asset's still going to be going up. There's all these things that make it very hard for me to see that in our market we're in right now how prices could go down. It's more likely that you buy a house for 500,000 that used to be 400,000 and you think, oh my God, I overpaid. The reality is that 400,000 is now worth 500,000. Inflation has eaten up the value of your money. So we're all taking credit for being a lot smarter than we are, right? It's real estate that's going up. It's not that I'm the most genius person. I just put a buoy in the water because the tide was going up. So the last piece I'll say, Matt, is you're in Texas. I am very bullish on Texas. I'm living in California and I'm seeing a lot of people leave California and move to Texas. I'm seeing a lot of people in other states

that are going into those areas that have sort of that political climate and that business environment. You're seeing a lot of companies that are moving to Texas as well. So if you were saying like, hey, I want to go by New York City. I might be cautioning you to hold on. right? That specific market, I think, has some more room to go down before it recovers. I don't see anything slowing down Texas. There's so many people and so many companies that are all moving there that you're likely going to do very, very well investing in that market. Well, I appreciate your guys' time. Henry and David, much success in 2022. Thank you. Thank you for that. Very good question.

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Go to mine.co slash show me to see how mine performs and get your first month free, which is much cheaper than learning the hard way. My name is Camarach Gokul. I live in Albany. New York, Capel, you know, Capul C in New York. First, first I want to say a big fan of David and Henry. You guys are awesome. Love what you guys do. First got introduced to Henry through Vigure Pockets. We watched one of the podcasts, you guys that I interview on himself, you know, start following him on Instagram. So, question real quick. I just, I'm now starting off, well, about a year ago,

I'm starting off my real estate journey. I, you know, bought two rental properties that I have currently under my belt. And my question is, I want to become a real estate agent. And the reason for that is I want to learn the business from that end of it and want to use whatever money I have, you know, as whatever money I make as a real estate agent and pour that into more rental properties. Currently, what I'm making, you know, it's 50% of my income or what I need to survive. That's covering 50% of that. I still do a 9 to 5. I love what I do, but real estate, working in real estate as an investor as an agent, I feel like that's my calling right now and something I want to pursue and build this life of, you know, being able to have financial freedom, you know, do the things I want to do help that people want to help. And I think this is the business where I can know, you change my family tree pretty much.

So this is where I'm at right now. So do I just jump right into it, you know, without having a, you know, enough money coming into cover my monthly expenses or should I just, you know, wait till I have that safety net? Because you guys have been here from day one and I'm starting out. So what would you do if you're in my shoes? You know, you have to and you want to, you know, take the jump or just wait. Yeah, man. I mean, I was in your shoes.

I didn't, I didn't plan on going the agent round. And I still haven't done that. But I was in a boat where I didn't have much money and wanted to start investing. And, you know, it's funny. I haven't told this story many times. But I went and I sat with a guy who was a local business person, owned a bunch of rental properties, owned an insurance firm. He ran the local RIA.

And so I went and I sat with him. And I said, hey, man, I'm trying to dive into this real estate thing. and I really want to get going. And he said, great, how much money do you have? And I said, and I said, I don't have any money. And he said, okay, awesome. Do that first. He was like, it's going to take money to buy real estate.

And so he, you know, he, we got into specifics, but he basically asked him, he's like, how much do you make? How much are you saving? And the answer was, I was making six figures, but I wasn't saving anything. Right. So he basically told me. don't start investing until you save up some money. And here's what I learned through that.

It's that it does take money to buy real estate, even if you can find no down payment programs or, you know, I use small banks and small banks finance the majority of my deals. But I also just posted something the other day. My very first duplex I bought two days after I bought it, the HVAC went out and I had to spend five grand, right? And had I not had some money saved up, I'd have had a tenant who needed air conditioning in a hundred-degree summer that I didn't, that I couldn't

afford to pay for and would have to put it on a credit card or do something potentially damaging from a financial perspective. And so, yes, there are ways to buy real estate without money. But my first several deals that I did were assignments, right? And I did that so that I could build up a nest egg to have some money in case something happened, right? And so I think, I think making sure that you are in a financial position where you're not going to put yourself in a worst financial position by starting to invest is smart. And so the first thing I did was I just started saving 10% of everything that I made

and I just put it in an account. And even that probably wasn't enough, but it was more than I was doing, which was nothing before. And so my first moves in real estate were saving 10% of everything that I made and then doing the kinds of deals that would allow me to, to make money without having to spend a bunch of money because I had to have that mistake. And like I said, I got hit in the face with my first property, five grand out the door before I ever made a single dollar. So just keep those things in perspective. What's your thoughts after hearing that?

I need to do a little, a bit more saving. And then what one thing in the back of my mind is saying, bur, bur, bur, burr, bur. Yeah. So that's the one thing I'm thinking of in the back of my head right now because I do have equity. But I don't think I'm, I don't think I'm comfortable doing that yet. But I will definitely save up a lot more. That's, I think that's fantastic advice. The other piece I would add specific to being a real estate agent. That is a career where you're moving from a W2 worker into a 1099 and you're going to have to learn how to go from when you have a W2 job. Your boss basically brings you a can a tuna every morning like a house cat and says, here you go. And you just got to open it and eat it. The problem is because you have so much security, there's also restrictions and a ceiling that are put on you. And that's why everybody says, I want to work for myself. But what they don't realize is that when you work for yourself, you have to become a tiger that hunts its own food. And there's a

whole host of skills that a tiger has to develop or it will starve. Okay. So for everyone listening in this scenario, you have to know, just like if you're in terrible shape and you first go to the gym, You don't get results right away. You're just in pain and it's really hard and sucks until you build up a foundation and then you start seeing gains. So what I like to recommend people to do if possible is you keep your W-2 job while you start working as a real estate agent because you're going to have this period of time where you make like no money before it takes off.

You want to either have a lot of money saved up to get you through that or have another job that you're working while you're trying to get through that. And I didn't make the jump to being an agent. I didn't leave being the police officer until I had so much business coming in that I didn't have time to do both. I didn't just jump out of one and into the other one. So I don't know what your family obligations are like, but I think in addition to saving money, which is super smart, you should also consider, I'm just going to have two jobs until I learn how to do this other one. And that should be motivation to take the steps that you need to get good at it faster. Got it. Appreciate that.

One good thing. The other thing that I say is a lot of people are in that boat where they're like, do I save or do I get started? You don't have to just save. You can go earn more too. A lot of people can find time to go earn more money. Another thing that I did was I found I started flipping stuff. I would find stuff wholesale around auctions and then I'd sell it on Facebook marketplace or eBay just to make extra money. And then I would add that to my savings, right? All that didn't take a ton of extra time, but it was a little bit more money here or there to help build that cushion. I think a lot of us can cut some things out from a time perspective in our life and put that time into making a little extra cash. So just go get it.

Got it. I really appreciate everything, guys. Thank you. Hi, Henry. Hey, David. So I have my two beautiful sisters here with me as well. And we're all fan of yours. So, you know, thank you for all you do. And David, you did send me my birthday video, if you remember. So thank you very much for that. I, I, I, I, I actually have one question for each of you. First question for David. I know that Brando Turner is leaving the show after 500 plus episodes, and I have watched all of them.

How do I apply for his position? That's really funny. Eric, don't we have a place that we're pushing people to that want to? And I mispronounce everything like he does. So I should, you know. I would hope so. As a matter of fact, you can go to biggerpockets.com slash talent

and submit for any upcoming things with, whether it's the real estate show or if you think you'd be a good fit to do a YouTube series for us or anything like that. So BiggerPockets.com slash talent is the application. All right. Thank you. So my next question is for Henry. And we, like, you know, you and I, we both are in IT industry. We come from the software background and whatnot. I also had a very limited knowledge in real estate when I joined. But right now I have an opportunity to take over my friend's mortgage because he was recently let go.

It will be a wraparound, a usable loan. But I don't know what happens after three years if I would like to refinance it. Like, you know, does the mortgage loans will still be in his name or like how do I go about it? Yeah. So I haven't, I have not done a loan assumption before. So I can only speak at a pretty high level about it. I'm not sure if David knows much about it. But from my understanding, the mortgage will be in your name, but it's still tied to his credit.

So I think you can refinance it or sell it when you want to. But the thing that you have to watch out for is when you do the assumption, the due on sale clause is always potentially. looming in the background, meaning if the bank finds out they could call the loan due, which would mean you'd have to find some way to refinance that property in order to pay it off. But I've never done one. That's not a strategy that I use, but maybe David knows a little more. Yeah, this one's not too complicated. You'll be good, Reshma.

When you assume his mortgage, what will happen is he will stay on the loan. So his credit and it will show on his debt to income ratio as a debt he owes, but you will be making the payments and he will sell the title to you. That's the gist of what you're going to be doing. I think you understand that part. The question about the refinance is, yes, when you refinance it, you will be taking a new loan in your name and paying off the loan that was in his name. So he will then be completely removed from the property and you'll be the only one on it. The key is you have to make sure that your debt to income ratio can support the loan that you need to take on to pay his off. And we'd love to help you with that when that time comes.

Any other questions or is that what you got? So I am actually looking at a waterfront property. I'm in Carolinas and the house is actually permitted for three bedrooms, septic and well. I have a gorgeous sister is here too and I'm a family of six. So should I be concerned about it that it might run out of water or septic might have issues or is it like it should be fine? like what would be the worst case scenario, I guess is the question. Yeah, no, I have several properties on septic. And I mean, the worst case scenario is you need to put a new septic in.

And those can run you about 10 grand, sometimes more, sometimes less, depending on where it is, how big it is, that kind of thing. And so, but the septics that I've had, I typically, if I'm buying a property with a septic, I have it inspected by a septic company before I buy it. It's just so they can tell me the shape that it's in. if it needs to be pumped or drained. And typically before I buy it, if it does need to be drained, I just ask the seller to do that.

And most of the time they will, it costs about two, three, 400 bucks to have one pumped or drained. And then you're usually good for a while. Now, the one problem I've had with the house, one of the houses I have on septic is heavy rain, caused the septic alarm to go off and also cause some backup.

And so we had some backup into the shower, but we just sent a plumber out there. And they take care of that. I haven't had a whole lot of septic issues. The biggest issue is just they're expensive. So be prepared to pay for one at some point in the future. Find out how old the septic is and the property that you're buying. And make sure you have it inspected so you know the shape that it's in.

And then well, I don't have any properties on well, but my wife grew up on a property on a well. You know, I don't think you're going to run out of water. It's usually cheaper, too. Cheaper for your tenants or for you, whoever's going to live there than paying. city water. Okay. All right. Thank you. Thank you, Rashma. Great questions. Thank you. And bye to your sisters. All right. Next up, we have Shane. Hey, guys. How's going. Hey, David. What you got, Shane? Happy to be here. So, I'm Raleigh, North Carolina, purchasing our first short-term rental on the beach in North Myrtle Beach. And my question is,

have a W-2 job. If you're maxing out your debt-to-income ratio on your first property, and I'm using a second home loan. If you plan to use another second home loan on another market, how would you proceed to find financing? I have some ideas, but I would love to hear what you guys have to say about it. And maybe there's some other things that I should be thinking about before jumping into that second property.

This is all, David. All right. So can you restate that question a little more clearly for me what your main concern is? So my main concern is I would like to use another second home. loan in another market. So mountain property, I'm doing a beach property, would like to go into the mountains. But my loan that I'm receiving is going to put me at the typical 50% of income. There we go. So how do I get that second loan? First off, there are three main kinds of loans.

There's a primary residence loan, which is considered lowest risk and has the best rate. Then there's a secondary home or vacation home that has a little bit more risk and a little bit of a higher rate. And then there's investment property loans. This is generally speaking. And those have the highest rate because they're considered the highest risk. When you get into investment property loans, you typically need to put down 20%. Secondary homes are usually right around 10%. And then primaries can be anywhere between three and a half and whatever you want to do.

So your question, though, is an awesome one because it has to do with when you personally, your debt to income can't support the next house that you want to go buy. And you're like, ah, I can't invest in real estate anymore. This is terrible. I had the same problem, right? It's not that my debt to income ratio wasn't good enough, but luckily I've been blessed in that way, but it was that I had too many properties to get further loans. So they, Fannie Mae and Freddie Mac say, nope, you can't get anything else.

You've already got X amount of properties. So when I started the mortgage company, I tasked them with, you guys go figure out this problem. I need you to fix it. And they did. They found lenders that will give loans that are based on the income the property makes, not the income that Shane makes. So you can hit us up and I can get you connected with them. But what you want to do, if you're not going to call me, is to find a mortgage broker,

not a person at the bank. You don't want to go to Wells Fargo and say, hey, can I get a loan to buy this health in Myrtle Beach? You want to go to a mortgage broker whose job is to go find different lenders. And basically, they need to shop and find the one that can do it. And hopefully they've got a preexisting relationship, like a mortgage agreement with a lender that will lend based on the income that the property makes. So anybody listening to this, that's what you're looking for, is you want to go and find a lender that's a mortgage broker and say, hey, I need a loan that will use the income from the property, not my own income. And we do that. It looks like someone's asking the question. The company is called the One Brokerage. If you go to Onebrokerage.com, you can see that. But there's probably lenders also on bigger pockets or maybe you have a lender that you really like to use and you can go to them first and ask that question. But Shane, that's actually not a hard problem at all, especially like you said, if it's a short-term We're able to push these loans through based on state it. Like the appraisers goes, yep, that's probably what it would rent for a night. And they look at the income and they say, okay.

And they give away the loan. So I mentioned earlier, Henry, that I bought a house in Pleasant Hill. I used that same loan to buy that property. And it wasn't even a short-term rental. Like it can have a debt service ratio of less than one on some of these loans. So this is what I'm getting at is one of the best times ever to be trying to do this because there's so many loan products available because interest rate. are so favorable. You can also look at local small banks in that area who do portfolio loans or

portfolio lenders because they can be a whole lot more flexible on your debt to income ratio because they are experts in their market and just like David said, we'll know what that property can make and they might be a whole lot more comfortable lending because they know that's a good deal. Shane, send me either a DM or message me on bigger pockets and I'll get you connected with everybody and we'll see if we can do that for you. Awesome. Great question though. I'm so glad you that because now everybody gets to hear it doesn't it doesn't begin and end with my debt's income ratio there's other options absolutely thanks Shane thanks so much guys appreciate it all right our last question of the day comes from victoria who says what should i focus on when starting a real estate meetup to make

sure that i add the most value possible yeah this is the piece of advice i give most new investors right and so value adds so you want to think about what are the problem that investors are having. What are the main problems? All right? And then you want to bring people in or speak on topics that solve those problems, right? Most investors will tell you their main problem is how do I find deals that make sense? How do I find good deals? And then how do I buy those deals without spending a whole bunch of money? Those are the things that most investors are looking to solve. So if you can help people focus on where and how to find good deals, maybe it's bring a speaker in who does off market deal finding. Maybe it's tell everybody to bring a deal, right? Maybe

it's bring your business card. We're networking. We're talking about deals that we all know about, right? It doesn't have to just be a speaker coming in. But finding deals, one of the best ways to find deals is just networking because what I may think is not a deal for me may be a phenomenal deal for somebody else because their strategy may be different. So I think the two main problems are figure out what and then the other thing is what do good deals look like, right? You can't buy a good deal if you don't know what one looks like, right? So maybe you can bring an investor in who's done several deals who can tell you go into detail on some deals that they've done to try to give people investors in that area and idea of what a good deal looks like in that market because good

deals are market specific. What's a good deal for me is probably a great deal for someone in California, but what's a what's a good deal for someone in California? I don't I want nothing to do with. Right. So they're very market specific. They can even be very neighborhood specific in some areas. So yeah, those are two topics I think I would focus on. I think that's fantastic. Very good advice. The only thing I would throw in is because meetups are typically held in person, you're only going to be getting people from your geographic area. So maybe say like, this is how we can help you get deals in this area. There's some people that do long distance meetups, but then you get like long distance

people that want to zoom in and it's really hard to build the relationships. It just becomes like a seminar that you're basically teaching. And then it moves into a course. So the heartbeat of a meetup is the people that are all meeting together and getting to know each other. So maybe just throw in if we're in Columbus, Ohio, we're bringing in home inspectors from Columbus, Ohio. We're bringing in mortgage officers. We're bringing in real estate agents. We're bringing in an appraiser, whatever the case is, someone specific to that area because the people who are attending probably care about what's going on in that specific market. Love it.

All right. That is our show for today. Frankly, I have a lot of fun doing these where people throw something at us that we don't know what's coming and you get to kind of hear in their voice like the hesitations. or the fear, the excitement, you get a better feel for what's going on. And I just think that that resonates with our audience as they're listening to this. Like, yes, I think that too. I love it, man. This was super fun. I love just helping investors in general is a passion of mine and giving me an excuse to talk

about real estate. I mean, I'm all in for that, man. So it was great being able to help people. And I learned a whole lot from hearing kind of what you're doing in real estate. And I also loved hearing your perspective on the climate. of the real estate market here and whether it's a good time to go all in or slow down, man. So I think it was awesome. Well, thanks for that.

I thought you gave some really good insight. I'm glad that we had you on. You're a wise man, Henry Washington. Well, thank you. If you are listening to this and you would like to ask a question, go to biggerpockets.com slash David, because my name is David. You can submit a question there and we will put that on the podcast. What we would like to do is get more shows like this where we get more questions from

people just like you. We answer them on the air for everybody. to get a chance to hear and benefit from. If you like this, please leave a comment telling us what you liked, what you would like more. Make sure you go to BiggerPogus.com slash David to leave your question. And then if you are too shy and you're just not going to do that, Henry, where can people follow you if they want to reach out and ask you personally? Yeah, best place to follow me is on Instagram.

I'm at the Henry Washington on Instagram. So feel free to reach out there. That's at the Henry Washington. I am at David Green 24. And we had a fantastic time together. So please let us know what you think, leave your comments. Make sure that you like, share, and subscribe. You guys know what to do.

Make Bigger Pockets the best freaking podcast in the entire world. This is David Green for Henry, the Wise Man, Washington. Signing off. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer.

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