BiggerPockets Real Estate Podcast - 666: Seeing Greene: The 10-Second Formula to Solve the "Sell vs. Rent" Situation

Episode Date: September 25, 2022

Unless you’re trying to invest in real estate using all cash, you’ll need to know which investment loans work best for you. But what if you’re a contractor, a business owner, or self-employed? What if you’ve already used up all your financeability and your DTI (debt-to-income ratio) is too high for lenders to take you seriously? What’s your next step? Fortunately, even if you’re feeling the crunch of difficult financing, you still have numerous ways to buy rental properties. You just need to know where to look! We’re back! Or more like David is back on another episode of Seeing Greene where he takes the most-pressing questions from our audience and answers them live for all investors to benefit. In this episode, we’ll be talking about mid-term rentals and the threat they pose to “regular” rental property investing, why it’s so challenging to find investor-friendly agents, how wholesaling real estate could get you into trouble, and house hacking in an expensive market (even with VERY little down). Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can hop on a live Q&A and get your question answered on the spot! In This Episode We Cover: Why mid-term rentals may be the perfect sweet spot between effort and cash flow How to grow an investor-friendly team of agents when most agents simply won’t cut it Scaling your rental property portfolio using DSCR loans and other investment property products The 10-second calculation that’ll help you decide whether to sell or rent out your house House hacking in an expensive market and whether the “5% down” method is just a myth Why agents could find themselves in serious trouble when trying to wholesale real estate And So Much More! Links from the Show BiggerPockets Youtube Channel BiggerPockets Forums BiggerPockets Pro Membership BiggerPockets Bookstore BiggerPockets Bootcamps BiggerPockets Podcast Get Your Ticket for BPCon 2022 Listen to All Your Favorite BiggerPockets Podcasts in One Place Learn About Real Estate, The Housing Market, and Money Management with The BiggerPockets Podcasts Get More Deals Done with The BiggerPockets Investing Tools Find a BiggerPockets Real Estate Meetup in Your Area David's BiggerPockets Profile David's Instagram Partnerships—What to Do Before You Jump in With Another Investor 3 Reasons I Think Medium-Term Rentals Beat Short-Term Get Closing Costs Covered with Kyle Renke Housing Market “Soft Spots” with Kyle Renke Click here to check the full show notes: https://www.biggerpockets.com/blog/real-estate-666 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 666. In basketball, we had this concept called a four-point swing. So imagine that you're on a fast break, you got a wide open layup, you miss it, the other team gets the rebound, they throw the ball the other side, and then they get an open layup. It's not that they score two points. It's that you lost two points and they scored two points equaling a four-point swing. That's like the worst thing that can happen. The same is true if you don't house hack.

Not only are you not raising rents on your tenants, but you're having to be a four-point-point-swing. them raised on you. That doubles the impact of the power of real estate, but it's working against you. When you own the asset, you're getting the four-point swing in your favor. Hey, everyone, this is David Green, your host of the Bigger Pockets Real Estate podcast here today with a seeing green episode. You haven't heard one of these before on these episodes. We take questions from you, the Bigger Pockets community, and have me answer them with my experience with investing in real estate. I try to teach. I try to share and I try to give advice to the people who are some any questions so that they can grow their wealth in real estate.

Some learn how I was able to do for myself and get out of that job you hate and into a life you love. Today's show is pretty awesome. So I bring some clarity to house hacking in an expensive market. This is a question that comes up all the time. People don't quite understand the right way to house hack or how it can be so powerful. So I get to kind of expand on that point and give some really good advice to one of our listeners who is in Sacramento, California and having a hard time finding a deal that works.

We talk about what to consider when you are an agent and you're a agent and you you are also trying to wholesale or wholesale a deal, the right way to get into that. And then we talk about scaling using DSCR products. So DSCR products are loans that take into account the income from the property, very much like commercial property is evaluated, not the income of the borrower. And I come up with kind of an entire plan for a firefighter who's trying to scale their portfolio, but concerned about prepayment penalties. All that and more on today's show. Before we get into it, today's quick tip is. We're near the end of September, which means right around the corner is October.

At October, from a realtor's perspective, is when the market starts to slow. We find less buyers are active in the market during the winter months, especially during the holidays. So let's say you've been sitting on the fence. Let's say you want to buy a primary residence, but you're tired of being outbid because every house gets so much attention. Now is the time that I would recommend you reach out to your agent and you put a search together and you start licking again. There are going to be a lot less buyers for every existing house than there was before, which means you have less competition, which means if you're buying, that's good for you. If you're selling, you may want to wait until springtime when there's more buyers that are

looking and you're more likely to get multiple offers unless you need the equity now so you can go reinvest it into the slower market. As an investor myself, I totally take advances of seasonal fluctuations. I do not think that that's urban legend. I've seen from my experience. It's very true. I often tell the David Green team clients, if you want to get top dollar, let's wait till spring, if you want to get the best deal possible, let's start looking for you in the wintertime.

And I increase my own buying during the wintertime. And if I'm going to sell, I try to wait till spring. So just wanted to pass that along to you so you can take advantage as well. Real estate investors, the April 15th tax deadline is coming fast. If you own rental property and haven't done a cost segregation study yet, you could be handing thousands of dollars to the IRS that you don't have to. These studies let you write off as much as 25% of your building and generate huge tax deductions. Costsegregation.com is an online self-guided software that makes cost segregation fast and affordable.

So it finally makes sense for smaller rental properties purchased for as low as $100,000. With pricing under $500 and an average savings of over $25,000, it's just a no-brainer. What's more, audit support is included by the number one cost segregation, company in the U.S., but you must complete it before the tax deadline. Go to costsegregation.com and use code tax deadline to get 10% off your first report. Don't overpay the IRS. Head to costsegregation.com before April 15th. We all joke that rentals are passive, but if you're spending nights matching receipts

or guessing what a property earned last month, that's not passive at all. Baselain fixes that part of landlording, the financial chaos. Their banking and AI bookkeeping system automatically tags every transaction, updates cash flow insights in real time. and builds the reports you need for tax season. You can even automate transfers and move money around without paying wire fees. It's just cleaner. Sign up at baselane.com slash BP and get a $100 bonus.

Baselane is a financial technology company and not a bank. Banking services provided by Threadbank, member FDIC. Most investors spend all their time talking about their high level returns. But that's not the number that actually matters. What actually matters is what you keep after taxes. And that's where multifamily real estate quietly stands out. With built-in advantages like depreciation, the right deals can generate steady cash flow while reducing the tax drag.

Bam Capital structures its multifamily investments around those fundamentals, pairing tax efficiency with disciplined operators and a long-term approach. This isn't about chasing hype or guessing market timing. It's about building durable, tax-aware wealth over time. Learn more at biggerpockets.com slash bam. Okay, let's get to our first video. Hello. My name's Jessica.

and I live in Dayton, Ohio, and I'm a relatively new listener, but I love the seeing green episodes the most. So, David, I'm really hoping you can help me with this question. We are looking to get into the real estate investment market. Both work full time. Our home has really appreciated. And so we took out a home equity, a fixed. loan for about $53,000 in hopes that we could then have money to put down towards a rental property. We're finding that a lot of the things that, a lot of the homes that are within our price range,

which we're trying to stay as close to $100,000 as possible, which in this market in the Dayton area isn't unheard of, but it's definitely difficult. Our realtor mentioned that she, another client she's been working with recently started Airbnb their property as a long-term extended stay Airbnb. So they've had a lot of success running it out to families who are looking to move, but who haven't secured a new home yet and need a place to live for a couple of months. Or the other thing that is really, really popular around here, we have several large health care organizations. We have several large health care organizations in the area. And they're growing. They're massively growing. So that's booming. So my thought, too, is like what stops us from using a long term, turning it into an extended stay

short-term rental. And I haven't heard you guys talk a lot about that. I don't know what your guys' thoughts are. It seems that the profit is a lot easier to get a property to cash flow in today's market using that strategy. And so I just was curious what your thoughts. thoughts were on that. All right. Thank you, Jessica, for that question. Also, please give your dog a high five or a high paw for me. We saw a little cameo there in the back. Very cute. Wanted to get into show business I see, and it worked. Also, thanks for saying that seeing green is your favorite of the Bigger Pocket podcast. I appreciate that, mostly because I'm here and you're seeing green. All right, so let's get into your question. I like it. You're talking about, I think what you call

the more extended stay short-term rentals. There's all kinds of names. I typically refer to them as mid-term rentals. If you've never heard of these before, basically mid-term rentals is something to have on your radar because I think that this is sort of the next wave, the next common trend. There's always a trend in real estate

that people do really well with. This is the next one. I've got 13 units that I'm working on rehabbing right now to bring online. And when that happens, I will have more information for you guys about how to run them efficiently, how to run them productively.

I'll be able to bring all the edge of, that I can. If I talked about it right now, the problem is I would be speculating. I'd be telling you what I think works and what I'm planning on happening, but I don't have the data yet to support it, so I don't like to talk until I know for sure. It's just my personality. So keep an eye on that. The reason midterm rentals have sort of become popular and are becoming popular is because many areas are outlying short-term rentals. And when they say you can't do short-term rentals, they're typically putting a limit on how long someone can stay in the place as the minimum amount of time. So they'll say they got to be there 30 days or more. You can't rent your unit out for

less than 30 days. This is the case in many parts of Hawaii where I own real estate, where Brandon lives. And then other municipalities are sort of adopting this because the neighbors don't like these people coming in for two days and throwing big parties and kind of bringing a bad name on short-term rentals. So because there's moratoriums put in place and laws being changed that force someone to stay in a rental for 30 days or more, you're seeing a lot of people that are owning real estate are getting into catering to people that would stay somewhere for that long. And who's that going to be? Traveling professionals like nurses or corporate executives, people that are maybe moving

near a hospital because they have a sick family member that's going to be there for a long period of time and they want to be close by. Somebody taking a temp job sometimes. Maybe someone who's moving to an area but isn't sure if they want to buy or if they want to rent. Like sometimes you take a job somewhere and you don't know if you want to buy a house where you don't want to pay the expensive rate of a short-term rental. You don't want to live in a hotel.

So you've got these like medium-term rentals, which is what I'm calling them. I've also heard them called long shorts. Extended stay short-term rentals was the phrase that you came up with there. And that's what we're doing is they're furnished just like a short-term rental. They operate just like a short-term rental, but you don't charge as much because you're not renting them out nightly. And they're a little bit less work on the spectrum of tons of work versus very little work. Tons of work tends to have higher profit margins. So maybe I look at it like short-term rentals are at the very, very end where you get the most profit, but the most work.

Long-term rentals or traditional rentals are on the other side, the least amount of work and the least profit and midterm are right there in the middle. So I'd like to be able to tell you more about it. I don't know for sure. I'm anticipating it's going to be very good. I've got three properties that are all in California that I currently bought and two of them are burrs and one of them is not, but I still had to do a rehab to basically get the houses ready to be in really good shape so that I can rent them out to traveling professionals. I think in areas like California that allow ADUs. So we have a law in California where you are not allowed to restrict homeowners' ability to have an ADU. Cities cannot say you can't build an ADU. We're actually allowed to have up to three.

A regular house, an ADU and a junior ADU. Of course, there's permitting and code requirements you have to follow. But this is a great market for something like that because you can turn one property into three different units and rent them out to traveling professionals and get much more rent than traditional rentals. Now, before I get into, like, the details I can't share because I don't know yet, I do want to bring this up as a point to be aware of. I would anticipate that, like, you knew that short-term rentals weren't going to last because the neighbors complained. So if you were paying attention, you would have anticipated like I did, that medium-term rentals would be the next phase. My guess here, and I don't know this, this is me trying to put on my crystal ball, which looks a lot

like my head, is that you're going to start to see a lot of tenants that start complaining that there are no places left that are affordable to rent. Because all of the real estate investors that were using existing inventory that they own to rent to traditional rentals long term, many of them have moved into short term, and now you're going to see them getting into medium term, which means of the rentals that were out there, there's less supply for long-term tenants,

and they're going to start complaining. When that happens, you typically see politicians pass laws, either at the federal, state, or local levels, that restrict your ability to use rentals maybe as a medium term or short-term. So again, there is no quick answer to real estate. You always have to be adapting. You need to be listening to podcasts like this and staying ahead of the information curve so you don't get stuck with an asset that you can't use the way you intended. I would expect some backlash from the tenant pool that have been renters for a long time as they see their ability to find places to rent is diminishing.

And the rents are going up on those significantly because the supply is restrained. So to sum up what I just said, I think the future is midterm rentals. I think after that you're going to see laws that are passed that force landlords to rent their places out as long-term rentals. And then if we don't build some more freaking houses in some of the busiest areas, this is going to constantly come back to make investors look bad. And it looks like you had a follow-up to your original question that I missed. So we're going to air it now and I will reply.

The other thought that I have that I wanted to throw by you guys and see what you thought. So we have several friends who are also interested in getting into the game. Accumulatively, we could probably put money down on a very nice or multi-home property and do a long-term rental that way. And we have friends who have a little bit more experience than we do, who are interested in partnering. But honestly, and it sounds great. We're very interested. We trust these guys. They have more experience.

So we would love to learn from them. I don't know where to start with a partnership. Like, do you, what kinds of things should a person be considering when partnering on a real estate investment? I guess I'm just curious, like, is there a contract template or how have you guys done that in the past to kind of make everybody feel secure in the plan? You guys talk a lot about partnering. And so I know you have these answers. I think it's one of those things that when you're a newbie, you're like, you have no idea where to start. But when you've done it a few times, you don't realize the little details that the newbies are wondering.

I'd love to know your thoughts. I can't wait to hear what you think about these things. Thank you so much. When it comes to partnerships, first off, let me say everybody at bigger pockets, all the different hosts and personalities and advisors, we all have a different perspective on this. And a lot of that comes down to different personalities, different business goals, different perspectives. There is no right or wrong answer. There is a right or wrong answer for you. Now, this may come as a surprise, even though I do talk.

about partnerships, I tend to err towards not being in favor of them. In fact, I have people that reach out to me about partnerships and it just always seems to go wrong whenever I take that road. I recently did one with someone that I didn't know and something came up right after the partnership that caused me to sort of question how much I can trust this person, but I've already got the money in the deal. I don't really love that. Other times I've partnered with somebody and they've wanted, they're fascinated by real estate. They have a million questions and I'm more like I want less time put. That deal's already done. Let it sit. Let's look at the next one. So we have different goals. If I do partner, there's a couple rules of thumb. The deal has to be big enough that

it makes sense. So I'm typically only going to a partner on very expensive residential real estate or multifamily real estate. I don't want to partner on a smaller deal because instead of the work getting cut in half, you just have to do all the work twice as both sides want a say and some control over how things go down and it's not worth my time if it's not a big deal. Or the deal has to be something I'm getting in and out of. I would definitely partner on a flip. I would definitely partner on if it was like a big deal and a burr where I thought I could go in, get my money out and be okay.

Those are some of the qualifications that I would say I have when I'm going to partner with somebody else. The right reason to do it is because you have complementary skill sets. Somebody's great at finding deals. Someone's great at managing deals. Somebody has construction contacts. the other person has management experience. The wrong reason is for emotional ones.

You don't want to partner with someone just because you're afraid to do it on your own. So I know what you asked for was tactical stuff to make sure you're doing in a partnership. What I'm going to say is you're probably better off if this isn't a very big deal to do it on your own without the partner because I haven't had the person yet who came back and said this deal I did with a partner went well. I've always heard it didn't go well and then they're not partnering on future deals. The only exception is if you are going to partner in a company and that company is going to own several properties and this is someone you've known for a long time and you trust. In that case, the tactical advice I'll give you is spell out in the operating agreement exactly who will be responsible for which parts of the managing it.

Talk with that person about how long they're okay having their money or their equity in this partnership. Some people are willing to let it ride for 40 years. Other people want to get that money in and out is six months or two years and you will have conflict with your partner. if you're not on the same page as far as the time horizon of the velocity of that money, how soon you want to see it returned to you. Thank you for reaching out. This is also a really good question to put in the forums and see what different people on bigger pockets have to say about partnerships that they've had that went well or went poorly.

Last pieces of advice that I will give you, take all the questions that you're asking me right now, put them in a Google document and sit down with your partner and say, here's what my questions are. How do you think we should handle each of these things? and then see how many things you're on the same page with with the partner. It's way better to ask more questions than less. And then finally, you can search bigger pockets for partnerships. We've done episodes with Rob and I talking about the house that we bought in Scottsdale together.

Tony and Ashley on the Rookie Podcasts have done several episodes on partnerships. There's much more available to you than I could possibly answer on an episode like this if you go to Bigger Pockets and search both the forums and the podcast for partnerships. Let us know what you find. All right, our next question comes from Tommy C in Georgia. Tommy says, I'm a real estate broker in Georgia and an investor. My favorite people to represent are other investors. I've grown my business like crazy over the last five years.

I did $27 million last year and over 160 transactions. The first quarter, I'm already at 63 transactions and $8 million in sales. My question is, how do I grow a team of agents that want to work with investors to help me serve more clients? What should I look for in those agents? Currently, I'm struggling to get to everyone. I don't want to let anyone down, but there's not enough time in the day, any thoughts? Thanks. Well, Tommy, very similar problem to what I have run into is you have a whole bunch of people that want your help because there's not very many people that understand

how to help clients build wealth through real estate. There's tons of agents that will help you find a cute kitchen or be near the school district that you want. There's not many that understand the way that money is built within real estate. Once you get good at that, you start to find that there are more clients coming your way than you have time in the day, which is definitely the case because you look like you're doing awesome. The problem is the reason all those clients are coming to you is because there's not many people that could do what you do, which is the irony in your inability to grow because you can't find agents that can help those people because there's not as many people they can do what you can do. I've had several different ways I've tried to approach

this problem. They've all been serviceable. None have been amazing, right? One way is I've tried to train agents how to do what I do. The problem with that is you'll often spend a ton of your time and energy training the agents instead of helping the clients. And then those agents either won't get it figured out or they will get the information and leave. This happens all the time. Another one is that they will understand the information, but they won't have the same work ethic or integrity that you do. So they will know how to run the numbers. They'll know how to find the houses, but they treat the clients like a transaction. You're just a number. I'm here to get you in and out. The clients don't like how that feels. You lose your future business. The reality is it is very difficult to grow a real estate sales

team. One of the hardest things that there is to grow. And that's because the people that you're hiring tend to have different motivations. They just want to get paid more. They want someone to teach them. They want someone to hold their hand. They want someone to help them grow. Then you have, which is you want them to treat your clients as if it's their own. And there is no easy way around this. This is why most of the advice that I give to the investors and the buyers is quit expecting your agent to be able to do everything you need them to do. You almost have to train your agent. If the people that you work with know how to run numbers, know how to figure out the ARV and they can just tell the agent what they need and the agent could go and gets it, that's typically the

best situation for all parties involved. I wish I had an easy answer to give you, but I'm in the same boat. We constantly hire agents, train them and then they leave or it was harder to make money than what they thought they were going to make. Now, I'm in California where even if we have the information, people trying to buy the best houses that are getting tons of competition, get outbid. It's very frustrating. I think in Georgia where your price to rent ratio is a little more solid, finding cash flowing deals is probably a little bit easier for you. In fact, I like your your model so much. I'm actually going across the country. I just got back from traveling for 30 days and meeting with different agents to try to find

David Green Team expansion agents in the markets that cash flow strong. So when people come to me and want to buy investment property, I can say, boom, I've already got this person that I've trained. It might be worth you and I having a talk at some point in the future. But that's really the challenge that you're having is that we have to figure out a way to serve our clients. That's the ultimate goal. And doing that is something you've done well.

That's why you've grown the brokerage so big. finding that people that are going to have the same level of care that you do is very challenging. So my ultimate or my last response for you would be probably focus a little bit less on the knowledge they already have and focus on the integrity of the person that you're hiring. You can always teach them the knowledge, but you can't change their character. And focus on hiring agents that also own property. As part of why you work so well with investors is you are an investor, you understand when you're looking at the deal what you would be doing for yourself so you know how to help the clients

If you find agents that also own real estate, they are much more likely to be looking at that opportunity for the client from the lens that they would be looking at it themselves. And we always do better when we're thinking about what benefits us than when we're thinking about what benefits other people. So if you can get those interests aligned, that will help. Thank you for your question. Let us know how that goes. All right, we've had some great questions so far. And I want to thank everyone for submitting them. Please take a minute to make sure to like, comment, and subscribe to the YouTube channel if you're listening to us on YouTube.

I got all dressed up for you guys today. What do you think about the clothes that I'm wearing on today's show? Here are some comments from our previous episodes I'd like to share with you. Mateus Chaves says, thank you, David Green. I listen every day to your podcast. First off, thank you for thinking it's my podcast, but I'm really just a humble servant of the podcast itself. I'm finally going to get myself into real estate, and this was the show that gave me the final push. Okay, that makes me feel good.

I'm very glad to hear that I helped you get over. that hump. Have very low expectations for your first deal, slightly lower expectations on your second deal. By your third deal, you can expect to be doing pretty good. And by the fourth, fifth, and sixth deal, you'll probably be good at it. That's the best piece of advice I could give you. Next comment comes from Nri Vera. I love the long answers. Love David with and without the others. The entire show with all of his personalities is incredible. Well, thank you for that. I've often wondered if I need to keep my answer shorter or if I should go on the longer stream of consciousness so you you guys can kind of understand the logic behind why I give the answer. Glad to hear that you like it

when I take a little bit more time and effort to answer the questions. Tim Coughlin says, What happened to the green background? How am I supposed to know that this is really seeing green? Funny you say that, Tim, sometimes I forget to change the light that's behind my head because I am so excited to start sharing information with all of our audience. Today's shows was one of those shows and because I saw this comment, I went back and re-recorded everything with the green light instead of the blue. That's one of the telltale signs that it's a seeing green episode. A few other telltale signs you can know. It says seeing green in the title. There's no other podcast hosts with me. And it's me playing videos and listening to them and commenting on those videos. So if you don't see the

green light or if you're listening to this on iTunes or Spotify or Stitcher and you don't see the background, you can still feel assured that you're listening to the seeing green episode if it fits any of those qualifications. And lastly, if you're seeing me, you're already seeing green. So it doesn't matter what color the light is. Angelo comments. Thank you for reading my question, Dave, very much appreciated. Even missing fine detail like we all do, your points come across crystal clear, great skill that you have. I like the longer form answers, the creative ideas on how to approach all of the questions people have. You take time to answer, give examples, and provide analogies. Well, thank you for that, Angelo. I'm glad that you like it. Make sure you subscribe

to this channel so you get notified when we put out future seeing green episodes. And our last comment comes from Carl Hackman. I love your content and the way you break it down so anyone can understand. Would love if you would show your book collection favorite books. So a bit of an Easter egg there. I've got my book collection right here. However, they're too blurry for you to actually read because I'm doing that cool thing that YouTubers do where we're in focus, but what is behind us is not. So you can't really see what those books are. However, if you want to actually submit a question and on scene green and say, David, what are

some of your favorite books that are behind you? Maybe I'll take a minute and make a segment where I pull those books out and show them to the camera so you can all see what some of my favorite books are. All right, are these questions and are these comments resonating with you? Do you have situations that are similar and you'd like me to answer? I need to know. Tell me in the comments. Tell me what type of stuff you'd like us to cover, what we can change to make the

show better, what you didn't like about it, or what your favorite parts are, or just say something really funny because I read them, and so does the staff at Bigger Pockets, and we love to see what you guys are thinking. The comments section is the best way to get your point of view across, so please go there and leave comments, and hopefully we read one of them in a future show. When I bought my first rental, I thought collecting rent would be the hard part. Nope. The admin crushed me. Every night was receipts, tax forms, and checking who was late on rent. I kept thinking, if this is one unit, how do people run 10? Base lane changed that. It's Bigger Pockets official banking platform that handles expense tracking, financial reporting,

rent collection, and even tenant screening, all in one place. It's the system I wish I had from day one. Sign up today at baselane.com slash bigger pockets and get a $100 bonus. Baselane is a financial technology company and is not an FDIC insured bank. Banking services provided by Threadbank. Member FDIC. Here's the truth about passive investing. If the strategy isn't right on day one, the returns won't save it. Multi-family real estate offers structural advantages. Many investors are overlooking, including depreciation that can help offset taxable income while cash flow continues. Bam Capital builds its investment with that reality in mind. They are focused on solid operators, tax efficiency, and long-term performance.

For investors who want real estate exposure without being landlords and who care about consistency over hype, this is a smarter way to allocate capital. Learn more at biggerpockets.com slash bam. Managing properties can feel like a full-on circus. You're juggling vendors, tracking payments. tracking payments, chasing approvals across multiple properties, and maybe a few HOAs, all while trying to keep tenants happy and owners confident. One delay can throw everything off, and suddenly your day is all clean up, no progress. That's why hundreds of property managers rely on bill to streamline their finances.

Bill for property management lets you add all your properties, assign permissions, pay bills, and receive payments quickly and efficiently without the usual bottlenecks. It syncs with platforms like QuickBooks, Zero, NetSuite, and Sage intact, so your accounting stays aligned. You can automate bulk payments across properties and HOAs. Choose flexible payment methods like Same Day ACH, international wires, card or check, and set custom roles in approval policies.

There's even a dedicated bill inbox for each property to keep everything organized. Ready to simplify your workflow, book your free demo at bill.com slash bigger pockets, and get $100, Amazon gift card. That's bill.com slash bigger pockets. All right. Let's get to our next question from Sean Nichols. Hey, David, thank you so much for taking this question. Essentially, my question boils down to

what tips, tricks, or pitfalls do I need to watch out for when wholesaling or essentially working as an eye buyer? So I'm a real estate agent and investor in the Columbia, South Carolina markets. And I actually work with an investor who runs an eye buyer program. And essentially what we do is I go in as his local regulations. and make an offer on a property, 100% of market value, no repairs, no showings, all that good stuff for like a 12% fee plus the 6% realtor fee. Or we give them the option, hey, you can either sell it to my investor or I can put it on the market for you at just a 6% fee.

And he's willing to do it for any property under a million dollars. Essentially, I'm wanting to do the same thing. I'm wanting to be able to go in and tell a client or a potential client, hey, I'm willing to buy your house at 100% of market. value as is for a 12% fee or a list your property for a 6% fee and give them both options to see whatever works for them. If they do decide to sell the property to me, I'm just planning on putting it right back on the market for the exact same price that they sold it to me for. So what things do I need to be watching out for with this? Obviously, it's going to take a lot of cash, a lot of capital,

to be able to do something like this, especially if you're planning on buying the house in cash. but I love your opinion on things I need to watch out for. Obviously, I don't want to be like Zillow and go in and offer what this estimate is and go broke. So any advice or feedback you can provide me, I'd really appreciate it. Thanks. Talk to you soon. All right. Thank you, Sean. A few things that you are indeed going to need to look out for.

The first is you're blurring the line pretty significantly here between the fiduciary duty of a licensed real estate agent and the non-fiduciary duty of buying a house for yourself. I would have a long and well-thought-out conversation with your broker to find out what forms they would need you to get signed to where it was disclosed to the person when you're acting in the capacity of an agent and when you're buying it for yourself. One angry family member could get you in a lot of hot water with a lawsuit when you buy grandma's house for what ends up being a discount and they feel like you could have sold it for more on the open market.

And even though you explain this to them in your opinion, they thought that as a licensed real estate agent, you were telling them that the I buyer option was her best option. And this can happen. This is one of the reasons that wholesaling is in some ways considered to be illegal in a lot of different markets. And it's especially troublesome when the person's a licensed agent. Now, I understand how frustrating this is because as a licensed agent, there's a bazillion hoops that they make you jump through. And then as a wholesaler, it's the Wild West. You could do whatever you want. Personally, I think that there needs to be some legislation passed to bring some clarity on this because it's not fair that people who play the game fairly and go get their real estate license

have so much more restriction, so much more regulation, and so much more exposure to being sued than the person who doesn't have their license isn't representing the client and it's just going there to buy the house for themselves. But as the way it stands now, in many areas, you are able to do both. So talking to your broker to make sure you don't get in trouble with the state or the governing board over your license would be the first thing that you should do. having disclosures to fill out would be another thing for you to consider. Now, the third piece would just be your personal exposure. If you're going in and you're paying fair market value for houses like what the I buyer

person you work for is doing or if you're trying to get them at lower priced houses but you don't have cash, you actually have to think about you're taking on some risk. If you're going to borrow money from a hard money lender, if you are going to borrow private money, if you're going to take out a HELOC, like where's this cash going to come from? because if you try to refinance out of these houses that you buy, you're only going to probably pull 75 to 80% of the value of the home out. That's about the LTV that you're going to get. So if you use cash to buy the property for 100% of the appraised value,

and then you go get a loan on it, you're still going to be stuck with 20 to 25% of the money you borrowed from the hard money lender that you can't get out when you go to refinance into conventional loan, which means that you probably have to be buying them at 20 to 25% under-marked. value to not run out of capital, which now puts you back in the tricky spot where you're offering them significantly less to buy it yourself versus if you go sell it and put it on the market. I don't know for sure and I can't give you legal advice, but here's what my gut is thinking if I was in your spot. I would find a different licensed person to refer business to when you find a person

that wants to sell it and put it on the market and focus more on buying the houses that you want to buy yourself than trying to do both and sort of remove yourself from that. legal problem that you can rent into when you're trying to act in two different capacities. Thank you for your question and let us know how that goes. And our next question comes from Tony Spencer. Tony asks about scaling using DSCR loans. If you haven't heard of these, DSCR stands for debt service coverage ratio. And it's a fancy way of saying a loan that is based off income the property makes,

not income that the borrower makes themselves. Hello, David. I wanted to ask you a question about scaling a portfolio, specifically investing in short-term rentals. My understanding is that a DSCR loan has a five-year prepay penalty, and I'll say most of them do, Tony, and a five-year prepay penalty means if you refinance or sell that loan or pay it off it anyway within five years, you typically are going to receive a penalty and money that you have to pay back to the lender because they gave you that loan expecting to receive interests on it for at least five years. Right now, I'm burying an investment property with about $400,000 in equity once it's done. My debt to income ratio is now max. So a DSCR loan for my first out-of-state short-term rental makes the most sense. Like I said earlier, DSCR loans take into consideration the income from the property,

not the income from the borrower. So if Tony's debt-to-income ratio is maxed out and he can't get a loan with his own income, he still can with the property's income. But then, how do I buy the next few deals after that? I'm sure I can just save up the cash for another down payment, but that could easily take two to three years. Is it possible to do a helock on a DSCR property or do I just bite the bullet and pay the penalty once I've got the equity needed?

I do have roughly 750,000 in equity in my primary residence, but my wife and I are really not comfortable pulling that out. Another possibility I've considered is some type of partnership deal, but that is totally foreign to me and that's definitely not my preference. Side note, I'm basically working two jobs right now, full-time 24 shifts as a firefighter and remodeling an investment property on my days off. In addition to that, I've got a one-year-old and a three-year-old at home, but I still make sure to schedule time to listen to this podcast and interact with the BP community.

That's how much value represents me. Such an amazing platform and source of information. Amazing. Well, Tony, thank you. And let me just give a shout out to your fire department. I don't know the name of it. But if you guys are working with Tony and you listen to this, thank you for the service that you do.

I hope all you firefighters out there are eating healthy food and getting workouts with weights and getting to sleep at work. Like us, police officers never got to. All right. Now let's get to your actual question here. How do you keep buying properties when there's a prepayment penalty and you have to use the DSCR loans? Well, the first thing I would say here is you can usually avoid the prepayment penalty if you pay more up front for the loan. So if you increase your closing costs, usually a couple points.

You can have that prepayment penalty waived. If not, yeah, you might just have to pay it when you go to refinance. It's better than not getting a deal at all if your personal debt to income ratio is maxed out. Another thing you could do is use these DSCR loans while it paying down your own. debt and increasing your income so that you can use your DTI to get a conventional loan when it's clear and use DSCR loans for whatever periods of time. It's not. Is it possible to do a HELOC on a DSCR property? It's possible to do a HELOC on any property. It doesn't really matter what loan you get against the property because the bank giving the HELOC is just concerned with the

equity that you have in the property. They don't care what type of loan you have in first position. A HELOC is a second position loan basically that's qualified based off of your ability to make the and the equity that is in the house. So they end up in second position to the first. In that case, your problem isn't going to be because it's a DSCR loan. Your problem is going to be because helox are notoriously difficult to get on investment property. They are much easier to get on a primary residence, which is why it would make more sense for you to pull it out of your primary. But then you say that your wife and I are not really comfortable pulling it out. Here's my question to your wife and you. Does it matter if you're pulling the equity out of your

primary residence versus the investment property. Are you planning on not making the payment for either one? If you're a firefighter, I'm assuming that means that you can work overtime if you end up in some kind of financial jam and you have to pay back the loan that you took out. So if you're going to take a HELOC on investment property, why wouldn't you just take a HELOC on your primary residence? You're going to get a better rate and it'll be easier. In my mind, it doesn't really make a difference which asset you take the HELC out against, especially if you have so much equity in your primary. So let's go worst case scenario. Let's say you take the HELOC on your primary and someone steals your money. You buy the worst deal ever. Aliens come and take your house and fly away with it and you have no

collateral. Something crazy happens. Well, you didn't borrow against the whole 750,000 that you had in your primary. You probably didn't need that much cash. So worst, worst, worst case scenario, you can't work overtime and pay back that money over a longer period of time. You can't afford the payment. You sell your house because it still has a lot of equity, you pay off all the debt you have, you and your wife go house at a smaller house. Okay? That's not ideal, but that's not bad for a worst case scenario when you could be buying more real estate with the money that came from that, growing a portfolio that will pay your mortgage for you and your HELOC for you with the rental income that comes in. So I'd probably have the conversation about why are we afraid about taking a HELOC on our primary, see if you can

get to the bottom of where those fears come from, and maybe look at that. differently and then yeah you're probably going to have to use d sCR loans until your dTI is changed and that's okay if you got to pay a prepayment penalty that's okay if you don't want to pay the prepayment penalty get the loan in the beginning and pay to not have it you're just going to have to pay a little bit more up front thanks for that question and i hope work goes well and you stay safe out there brother next question comes from chris roberts in chattanooga it's funny i was just in chattanooga not too long ago flying out of their airport hi david bp has become sort of therapy hour for me lately and i appreciate it. I've spent my life in the food industry and need to be doing something different.

My wife and I bought a second home to fix up, got a HELOC on our primary residence to finance the rehab. And now I'm trying to figure out if we should sell the primary when we're moved in. Walk away after the HELOC is paid back with maybe $15,000. Or keep it and rent it out. That'd give me about $450 a month in cash flow considering the HELC payment in this equation and then the journey could start. I'm also a real estate agent here and love working on project homes. I'm just feeling a little loss in the direction to take with my life, but feel like could be a part of it. Thanks for all you offer.

And Rob is awesome to Chris. All right, Chris, I think I can actually make this question very simple for you. You took out a HELOC on your primary. You used that to buy the second house for fixing up. And now you're trying to figure out should you pay off the HELOC or should you sell your home and use the proceeds to pay it off and walk away with about $15,000. The question that you've got to ask yourself is, would you rather have your house you have now or would you rather have $15,000 in cash? Now when I say the house you have now, what I'm

referring to is the house with the he lock against it. When you consider keeping the house, it looks like you're saying that you could rent it out for $450 a month extra. That's the cash you're going to make after your primary mortgage is paid and your HELOC is paid. So now the question becomes even more simple. Would I rather have $450 a month or would I rather have $15,000 in the bank. Let's do a little calculation to see what kind of a return 450 is on 15,000. We're going to take 450 times 12, which is 5,400, divide that by 15,000. And that's a 36% return on that money. So, do you think you can sell that house, take 15 grand, and get more than a 36% return on the money? Probably not. It makes it pretty clear that you need to keep that house as a rental

property, rent it out and go buy a different house to live in. I especially like that idea because now you get to use an FHA loan or a primary residence loan somewhere between three and a half to five percent down to get your next house, which means you don't need a ton of capital to do it. And that house could become your next rental property after you're done living there. You are in a great position. You shouldn't feel bad at all. Well done, my friend. Keep going. Hi, David. My question is about the three or five percent down. You've mentioned several times that your suggestion is to take great funding, put three or five percent down, house hack, and then just rinse and repeat that. My question lies in the fact that I live in California. I live in Sacramento and properties

are quite expensive out here, like 400,000 easy. and I hate where I live, so it doesn't do me any good to buy something super cheap just to end up in a crummy neighborhood like where I'm currently living. So I'm looking to purchase something in a nicer neighborhood. So you're 500,000, 600,000. And if I want to house hack or create a situation where I can, generate some income, then it's definitely going to be in the higher price point. So I don't understand how I can make this work according to your suggestion because putting three or five percent down makes the mortgage unpayable. So can you give an example or give some specifics on how I can

make this work in my California market? That would be awesome. Thank you. All right. Thank you, J.D. Now, I understand that you actually had a little bit of trouble getting acknowledgement for the video submission that you put in here. I can see that you are very eager to make some progress. So a few words of suggestion for you. One, if you ever have a question like this that you feel is very urgent and you need answered, please consider, in addition to spending it to us here at biggerpockets.com slash David, go to the bigger pockets forums and ask it there. Also, I have an agent on my team. He's been interviewed on the Bigger Pockets Money Show. He's been on the Bigger Pockets YouTube channel, Kyle Rankie, he and Brandon Turner are my two best friends. He works in the Sacramento market.

You should reach out to him. He would be happy to help you with this question because we know that market very well. Now, I'm really glad you asked this question because it gives me a chance to clarify a few things for you. You said that it's very difficult to find a property that will generate income as a house hack when you're only putting three and a half to five percent down. That is right. It's notoriously difficult, almost impossible most of the time. Here's where I think you got confused. House hacking is not meant to generate income. House hacking is meant to save money that you were spending on rent. It's not something that you should be approaching thinking how much money am I going to make. It's something you should be approaching with the idea of how much money can I

save. So for instance, if rent in Sacramento where you're living is $2,500 a month and we can get you a house hack that after your tenant pays you rent, you're only paying 500 a month or a thousand a month. You're actually saving $1,500 to $2,000 a month. Now, you're not making anything because you're still coming out of pocket somewhere between $500 to $1,000, but that is significantly less than what your rent would be. Now, you may say, well, I'm living in a house. I'm not paying rent. That's true, but you have a mortgage still.

If you're able to move out of the one you're in, if you own it, rent it to someone else, break even or make some cash flow on that, and then drop the payment that you were making of maybe $2,500 a month or $3,000 a month, down to the $500 to $1,000 a month that you're coming out of pocket to house hack. You're saving money and you're adding an additional property to your portfolio. Now, I'm really glad that you submitted this question, and we selected it specifically because I need to highlight, I'm always telling people to house hack. But the assumption is I should be able to live in a property, which takes up one of the units that would normally be rented, put very little money down, three and a half to five percent instead of 20 percent, and still have it cash flow. And this is why house hackers get so frustrated. In some markets, that might work. If you're in the South, if you're in the Midwest, if you're in a place with very low price to rent ratios and it's a fourplex or a triplex, you might be able to house hack and still make a little bit of money. But if you're an expensive market, like California,

Sacramento, Northern California, the value is not that you're making money every month. The value is that you're owning real estate that's going to go up in value. The rents are going to be going up in value. The price of the asset is going to be going up in value. And most importantly, the rent that your landlord is charging you isn't happening anymore. Because when you are renting, your rents go up every year. Just like when you own the home and you get to increase the rents every year, when you don't own the home, the rents get increased on you.

In basketball, we had this concept called a four-point swing. So imagine that you're on a fast break, you got a wide-open layup, you miss it, the other team gets the rebound, they throw the ball on the other side, and then they get an open lay-up. It's not that they score two points. It's that you lost two points and they scored two points equaling a four-point swing. That's like the worst thing that can happen. The same is true if you don't house hack. Not only are you not raising rents on your tenants, but you're having them raised on you.

That doubles the impact of the power of real estate, but it's working again. against you. When you own the asset, you're getting the four-point swing in your favor. You're getting to increase the rents every year and you're not having them increased on you at the same time that the value of your asset is going up over time and you're adding another home to your portfolio. So what I'm getting at here is house hacking is incredibly powerful, but it doesn't work if you're trying to force it to cash flow. Don't just think about making money every month. Think about the money you're saving in doing this. And the last piece of advice I'll give. If you go make $500, in cash flow investing at a state somewhere else, that's going to be taxed.

Let's say you get to keep $350 out of that $500, okay? If you save $500 in rent, it's not taxed. You're actually keeping the full $500. So you're only taxed on money you earn. You're not taxed on money you save. And this is why I constantly tell people that are trying to build wealth. Start with what you're spending. Start by spending less.

Start by decreasing the amount of money you spend all the time because you're not getting taxed on what you save. has a bigger impact. Okay, if you want to actually make 500 bucks, maybe you have to earn 700 because you were only going to keep a percentage of it. So saving 500 in rent is the equivalent of making $700 in an out-of-state market, which is very difficult to do. So hope that helps answer your question.

Thank you for your patience and working with this and get on those bigger pockets forums and ask more questions there. All right. I am very glad we got another episode of Seeing Green on the Books. I went pretty quickly here, but that let me bring more of value to you by answering more questions. I hope you guys enjoyed this, and I hope that if you'd like to be considered to be on this show, please go to biggerpockets.com slash David and submit your question.

Also, if you're not following us on YouTube, please do that there where you can like, comment, and subscribe, and we can see what you have to say about the show. If you'd like to follow me on social media, I'm at David Green 24. You can find me there, but your best chance of getting a hold of me is to submit a question here through Bigger Pockets and hopefully be on the podcast. podcast yourself. Thanks again for giving me your attention and for coming here to get your information about wealth building through real estate. I appreciate that I am the one that gets to lead you through this journey. Thank you for your support and we'll catch you on the

next episode. 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. The show is produced by YouTube. E&K. Copywriting is by Calicoe Content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. BiggerPockets LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented. in this podcast.