BiggerPockets Real Estate Podcast - 699: Seeing Greene: How Do I Buy Another Property When My DTI is Too High?

Episode Date: December 11, 2022

Having a high DTI (debt-to-income) ratio is enough to stop many would-be investors from taking the leap and buying their first, or next, rental property. So, what do you do when your income isn't enough to buy the next property? What if you've used up all your financeability on your primary residence or house hack? How can you squeeze out a loan to buy another property? We’re back on another Seeing Greene episode, where your “one away from seven hundred” host, David Greene, is here to give you practical advice on buying and selling properties. In today’s episode, we take multiple video and written submissions, with topics touching on how to buy more real estate when your debt-to-income is maxed out, what to do with a dangerous tenant, refinancing at today’s high interest rates, and why off-market deals aren’t always what they seem to be. And, if you’ve struggled with setting standards before, you’re in for a special treat, as David gives himself (and all of you) a personal pep talk on expecting excellency. 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: The bright side of BRRRRing even with rising interest rates  DTI (debt-to-income) requirements and getting around them for your next deal When it’s worth selling a rental property that has a low interest rate loan on it Off-market real estate deals and knowing when a difficult deal is worth pursuing  Setting high standards for yourself and your team while not getting bogged down by lackluster work effort  What to do when a tenant poses a danger to not only themselves but your property  And So Much More! Links from the Show Find an Investor-Friendly Real Estate Agent BiggerPockets Youtube Channel BiggerPockets Forums BiggerPockets Pro Membership BiggerPockets Bookstore BiggerPockets Bootcamps BiggerPockets Podcast BiggerPockets Merch 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 David’s YouTube Channel Set Your Goals with David and Rob Books Mentioned in the Show SOLD by David Greene SKILL by David Greene Buy, Rehab, Rent, Refinance, Repeat by David Greene Click here to check the full show notes: https://www.biggerpockets.com/blog/real-estate-699 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 699. Frequently in life you'll find, the majority of people you find do not have a high standard for excellence. It's a matter of the heart. And what I mean by that is that what's in our heart will determine the actions that we take. If you feel a sense of obligation to do a really good job, you're going to look for answers, you're going to anticipate problems, you're going to solve things without bringing problems to other people. If your heart isn't a place where you're saying, I just want to get paid and do as little work as possible, you're going to bring people problems instead of solutions. You're not going to anticipate what could go wrong.

You're going to cut corners in your work. We're coming up on 700, so stay tuned. We're going to get there. My name is David Green, and I'm your host of the Bigger Pockets Real Estate podcast here today with a seeing green episode. In these episodes, if you haven't seen one before, I take questions from you, our listener base, and answer them for everybody to hear. and we have a heck of a show today. Heckeva is spelled Hec-K-U-V-A, if you weren't sure. You're going to love it.

We get into how to give up control over projects or people not doing things the way you want. This is an excellent question that we answer. And sometimes you have to go dark green to find the light. Listen all the way to the end and you'll know what I mean by that. Why an off-market deal may not always be as good as you want it to be or you're hoping it will be and how to evaluate that. And if someone is thinking about bur the right ways, we have a very interesting and cool burr question from Suzanne who's like, am I crazy here?

Everyone's telling me that I should go this way, but I think I should go that way. We answer that question and I think you guys will really enjoy that. All that and more in today's show. 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 cost. 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. You've upgraded how to buy properties, but did your insurance get the memo?

When investors start scaling, insurance can't be an afterthought. Most policies were designed for a single property, not multiple rentals, LLC ownership, short-term stays, or properties mid-rehab. That's where blind spots can creep in. NREG works exclusively with real estate investors. They understand portfolios, how risk compounds as you grow, and why insurance should protect your upside, not just a checkbox. One uncovered claim can undo years of progress.

Before your next acquisition, review your insurance. Talk to NREG and get investor-specific coverage from specialists who actually understand real estate at nreg.com slash BPPod. That's nr-eig.com slash BPPod. Did you know your house gets bored when you leave? I can't actually prove that, but it probably misses out on the action. The footsteps, the late-night fridge raids. Yeah, when you're gone, your place is basically on unpaid leave. It's sitting there in the dark thinking, I could be contributing right now.

Your side room wants a side hustle. Even your Wi-Fi is like, we could be networking. You're on vacation, spending money like it's a sport, while your staircase at home is fully capable of sending your income upwards. Here's the twist. can go on a trip and actually earn money. Airbnb makes that possible with the co-host network. If you're away for a while or have a secondary property, you can hire a vetted local co-host with real hosting experience to handle it all. A co-host can handle guest communications,

it can manage reservations and keep things running smoothly so you don't have to check your phone between beach days. That means less stress and more time enjoying your trip. You can relax, knowing guests are taken care of, and your place is in good hands. You travel, your house works. Everyone wins. If you're ready to host but could use some help, find a co-host at Airbnb.com slash host. First off, thank you guys for being here. I really love the people that listen to the Seeing Green episodes. And many of you have reached out and said that you like these. So if that's the case, please let me know and leave us a comment on YouTube's telling me you like these shows. Second off, today's quick tip is, we have bigger pockets

want to help you stay accountable to meeting your goals. The new year is right, the corner as crazy as that sounds. If you want to make sure you hit your goals, you're going to need two things. One, you got to know what those goals are. So write them down. I did a goal setting episode with Rob Obasolo where we went over our goals for 2023 as well as how we did in 2022. So check out that episode if you want some advice on how to write down your goals.

It's harder than it sounds. And two, you need accountability because if you leave it up to yourself, you're probably going to fail. So find another accountability partner. And if you don't have one, we want to be that accounting partner for you. You can check out how to find goals on episode 696. And you can subscribe to this channel so that you're listening to it frequently so that you hear about our goals as they're being done and make sure you stay on track to hit yours as the year progresses. All right, let's get to our first question.

Hi, David. I hope this finds you well. Thanks so much for the show you do and answering our questions. My name's Eli. I'm very early on my real estate investing journey. I just purchased my first property back in January of 2022. it's a five-bedroom two-bathroom south of Salt Lake City in Utah, and I purchased it as a house hack, which works well for me as a strategy because I don't have very much capital right now to make down payments.

In a previous episode of this podcast, I heard you mention that buying a house per year via house hacking with a low-down payment is a great way to get a good return on equity, and it's a strategy I'd like to continue to implement. However, one of the major blockers that I foresee to doing this is debt-to-income ratio. My understanding is that I should be able to use the signed leases from my tenants as additional income to sort of cancel out the debt taken on from the mortgage of the property, enabling me to house hack again in the future. I do have a W-2 job as well. W.2 job as well. Wondering if you could talk a little bit more about the logistics and the debt-to-income ratio concerns of repeatedly house hacking and any other advice you'd have for someone seriously looking to purchase a

house a year and get good return on equity and build a portfolio with minimal upfront payments. Thanks so much and look forward to hearing your thoughts. Thank you for that, Eli. You are asking great questions. So before I answer it, I do just want to commend you on your strategy. Don't have a lot of money. Not a problem at all. Do exactly what you're doing. House hack every single year. You're going to learn the fundamentals of how to be a landlord. You're going to start building equity. If you're buying a house in that area of Utah, it's that big of a house. You're going to gain equity over time. I'm going to be very glad you bought that property. So well done making the most of what you have. Now let's get to the brass tax of your question. I can tell that what's behind the concern is not being able to qualify for

future properties. You're concerned about the debt to income because what happens if you're not aware, well, you're aware, but if our audience isn't aware, is that when you take out a loan for this property, that now becomes debt against your name that we compare to your income and create a ratio there and you have to have more income than debt to be able to qualify for new properties. When you bought this property, you took on more debt. So it affects the ratio when you compare to the income that's coming in. Now here's one area of potential concern that we should, be looking at. I am a loan broker, but I'll admit, I don't know every single detail of how loans work. So you should reach out to me. I'll connect you with somebody at the one brokerage and they'll

actually look into this for you. But my understanding is that you can't use the income from tenants if it's your primary residence, which is what a house hack is. So you're going to have trouble if you need the income from those leases to cancel out the debt you took on when you bought it if you're living in the house, which you probably are if it's a house hack. Now you've got a couple options. you could move out of the house and now make it a rental property, which is perfectly fine, as long as you've been occupying it like you have. They're not going to come check on you for that in most cases. And even if they do, you don't have to stay in the house. You just had to intend to occupy it. And if you move out, it's not your prime residence. Now you can use the income that's

coming in from those tenants. You'll also have another room to rent out because it sounds like you're staying in the fifth bedroom and renting out the other four. Then you can buy your next house and move into that one, and the one that you bought the first year becomes a rental property. The cool thing is you didn't have to put down 20 or 25 percent. You put down the lower down payment. There may be a loophole. In some cases, we may have some loan products for you that would allow you to use that income, but most of those loan products require you to put 20 percent on in the next house.

So that's the struggle that you're going to get into working this strategy, but it's okay. There's ways around it. You just got to figure out a way to not make it your primary residence when you want to include the income. reach out to us. One of the guys on my team would be happy to talk with you about this and come up with a strategy so you can keep replicating it. I love what you're doing, man. Keep your foot on the gas pedal. All right. Our next question comes from Rose Moore in Illinois, and Rose has herself in a little bit of a conundrum. Thanks so much, David, for all the education that you provide. I have learned a lot from these shows. I have a tenant in one of my units and I'm worried about her. She moved in in February of 21. I've been informed that 911 was called on February 15th because the neighbor found her on the floor unresponsive and that paramedics took her to the hospital. Again on March night, the police was called for a welfare check and the fire department had to kick in the door to gain entrance. The door is currently damaged and has to be repaired. I don't understand why she's living by herself if she's having all these problems. I'm worried something serious may happen to her. I also learned that she

smokes to and I'm afraid she may accidentally cause a fire. What can I do to protect my property? Please advise. All right, Rose, well, first off, I'm sorry that you're in this situation. This definitely doesn't sound like a fun situation to be in. Regarding what you can do to protect your property, I'm not aware of anything from a legal perspective that you can do here, even though it does sound like she's at a bit of a risk to be living by herself from a humanitarian standpoint, it's good that you're concerned. But from a legal standpoint, there's nothing that says she can't do that. I don't think she's in violation of her lease because she's living by herself.

As far as the door getting kicked in, I would contact the fire department and see if they have any kind of a reimbursement policy where you could get some of that money or if your insurance is going to cover it. If not, that's probably going to fall on you. Regarding the smoking, that's something that you're going to have to check to see if it was included in your lease. If it doesn't say anything about not smoking in the home, she's able to smoke in the house. And even though that is a fire concern, that's not something that you can tell the tenant she can't do. Because there's not any obvious answers here of what you can do to protect yourself. Here's my advice for you. This is something where you should talk to a property

management company and see if they have an attorney they can recommend or talk to other investors and see if they have an attorney that they can recommend and ask them if you have any legal grounds of either adjusting the lease or implementing something that's not in the lease to protect yourself and the situation with this tenant. I don't think anything is going to stand out here. I might ask the tenant if she has family members and say, hey, I need an emergency contact since the last time you were alone. You passed out on your own and the fire department had to come. to be able to call somebody if something that happens again and ask her if she's comfortable with you stopping by to check on her or the property a certain amount of times. She doesn't have to agree

to that though. That's what I want you to understand is there's a very good chance. She's going to say, no, leave me alone. I'm paying you the money for the house. I'm going to stay here. I don't know that you need to be incredibly worried about the house catching on fire. I would definitely make sure that my insurance was healthy and I was going to cover that. And I'd probably open up the dialogue and just explain your concerns and see what she's open to. At minimum, though, this is a good lesson because the next time that you have a property to rent out or maybe this property, you might screen for tenants differently and you can adjust the lease to say things like no smoking or ask a lawyer if there's a way that you can put a welfare clause in there where if you're going to rent to somebody else, you might have health problems or be older, that something is worked out where you can send somebody by to check on the property and make sure that nothing crazy is happening, right? Like coming from a background in law enforcement, I've seen things that other people don't necessarily see. A lot of these older people end up being. taken advantage of. And I've seen situations where gang members in a neighborhood literally moved

into old people's houses and in a sense held them hostage as they used that house for criminal activities. And these old people were threatened that if they called 911, they'd be in trouble. And they were just basically like put into a bedroom and locked in their own and a little bit of food was given to them and water. And their house was just taken over and there was nothing they could do. So sometimes people like this are in a situation where they can be taken advantage of and I can see why you'd want to check on the property and make sure that nothing like that's happening. Don't let this freak you out. It doesn't happen all the time, more than likely. Nothing like that's going on with your house. And you're just a caring person that cares about your

tenant. And a lot of that care is now bleeding over and to worry about what could happen with the property. I'm not hearing anything in here that's necessarily causing me great concern. I think that there's a lot of landlords that have tenants that are in situations like this. If it's really bad, she may end up being admitted into a hospital or other health care facility at some point, in which case you'd be out of that lease. And you could pick another tenant that would be better suited for the property and for your own business purposes. Thanks for reaching out, Rose. If anything else turns up, please let us know. Go to biggerpockse.com slash David and give us an update or ask another question. We'll follow up with you there. Our next question comes

from Suzanne Johnston out of Lubbock, Texas. Hi, I'm Suzanne. And here's my question. I bought a property in May for $140,000 at the time it appraised for $172. I have finished the renovations on that house with the market softening as it has. I'm sure it's still a will appraise between $2002.20. I had planned on burning that property and taking the proceeds out and invested in my next property. However, since then, I have decided that I want to scale a lot faster than I have been. and so I'm planning on using hard money for my next property. That being said, I'm still inclined to burn that property and put the money in reserves. Even at a higher interest rate, my interest rate, if I didn't say, was 5% at that time.

So I guess I'm asking, am I being stupid? But basically, my thinking is that I do not have an amount that I'm quite comfortable with in reserves anymore. because I've bought two very deletered properties in the last six months. And so I'd like to have more money in the banks and being more dead. And I just wanted to make sure that makes more sense to somebody other than myself. And so anyway, I guess just let me know. Thanks. Bye.

Hey, Suzanne. So I have good news for you. No, you're not being stupid at all. And I actually really appreciate you for asking this question because it gives me a chance to provide a different perspective on this than most people. would look at. I personally think people are more interested in interest rates than they really need to be. It creates this false sense of security. So everything is going wrong in the market, but at least I got a good rate and I can feel better about myself. It just isn't really practical. Furthermore, on this property,

that's worth 200 or 220,000, you're going to refinance 80% of that. So maybe you're going to be, like, getting a loan for 160. On a loan amount that small, like, let's actually run the numbers on that very briefly so I can make my point here. Okay, you said you're at a 5% interest rate on a loan of 160, which would mean that your, actually your loan amount might be even less than that, but we're going to just compare it 160. Your principal interest is right around $8.59. That that bumps up all the way to like 8%. What did I say it was? So we were at 859. It's going to go up to 11.7.000. It's going to go up to 11.7. 74, so about $300 a month more. Okay. Nobody likes that. If you're trying to maximize your cash, so of course you don't want to do that. Now, I also don't know you're going to get an 8% rate.

It might be less. Who knows? The point is $300 is not going to make or break anyone's portfolio. It's relatively speaking, an insignificant number in your overall wealth building journey. It doesn't change your life. Now, if you're looking at the ROI on the property, that 300 could be pretty significant. You're like, well, I was getting a double-digit return and now I'm not. And that can emotionally hurt. But if you zoom out and you look at the big picture, it's not that big of a deal on a loan amount that's that small. Now, having that extra cash in the bank, the peace of mind that that would provide you, that probably is significant in your life. In your wealth building journey, if you have more money in the bank and you feel that you're more prepared to weather a storm,

you're okay if something breaks in the property. Nobody likes living paycheck to paycheck. That's terrible when you don't have money in reserves. And that will have a significant impact on future properties that you buy, how much you like real estate investing, the peace of mind you have, how well you sleep at night. Your overall experience is probably not going to be a whole lot less because of $300 a month. It would be a whole lot worse if you didn't have any money and you were like no reserves

and you were just praying to God, nothing goes wrong. For that reason, I don't think you're wrong. your instincts here. Refinance it, put the money in the bank, get the piece of mind. That's actually probably the prudent thing to do. Defensively, that's the right move, even though offensively you might lose $300 a month. It's better defense. And worst case scenario, you just wait a couple years, rents go up by that $300. You're right back to where you were. But you know what's likely to happen? Rates are going to come back down. And you're going to refy back into a 5% or a 4.5%. It's going to be right back where you were and you got the peace of mind during that whole period of time.

Like people forget rates don't go up forever. They don't go down forever. They fluctuate. So it's okay to put that money in the bank. Wait if rates go down, refi. If they don't, just wait a little bit longer. But overall, the defensive move is almost always the right move to make. So trust your gut. You're thinking the right way. And thank you very much for sharing that with us, Suzanne. All right. Thank you everyone for submitting your questions so far. I freaking love these episodes. Are you liking this seeing green? Man, I got to fire my tech guy. I can't believe that we were recording in blue this whole time.

It's not called the Seeing Blue Bigger Pocket's podcast. It's seeing green. All right. Now that we are seeing green, let's get to the comments. In this part of the show, I like to read, comments that you all have posted on our YouTube channel about the show. So everybody can hear what is being said. And I want to encourage you to go to YouTube and leave me a comment on today's show.

And while you're there, subscribe to the channel and hit the notification bell so you hear when we're doing an episode like this. Our first comment comes from the effortless approach. The best investment I made was getting a brand new Subaru going on seller appointments and that changed everything. The seller's shooting me with way more respect rolling up in a new car compared to my chipped paint one. Come on, perspective is everything.

It's literally earned me 10 times more money than if I didn't have it. My old car had a bad axle. I had anxiety any time I drove it in the snow in Colorado. Once I got the new car, I want an appointments more than ever, which equaled more deals I wouldn't have had, especially those times I had to drive an hour away to make sure I get the deal. That's the worst advice is to not get a new car. It starts every time. This is hilarious. It sounds like this is a real estate agent who's talking here. I like the boldness. Now, it sounds like this car gave you confidence, which probably led to your business and being improved more than just

having the car. And I'll say if it had a bad axle and you were holding your breath every time you had to start the car, it's not that you needed a brand new car. It's that you needed a new car for you. You shouldn't be driving around in anything that you don't trust if it's going to start when you want it. So congratulations, the effortless approach for your new car, your new confidence, and your new progress. Please keep going. Consider checking out the books I wrote for bigger pockets for real estate agents. They are called sold, skill, and scale. Our next comment comes from Alan Hernandez. He's talking about episode 684, which was a live call with Parker. The moral of this interview and a reminder to myself is that you can't be too quick to leave your job. Quitting your job

can be a major strategic blunder if you bounce too soon. Hunker down folks and milk that W2. P.S., I promise jobs start to suck less when momentum builds, when working on building your dreams and your earnings are higher than all of your bosses put together. Keep grinding folks. Alan, thank you for sharing that perspective. That's very cool.

Now, should everyone keep every W2 job they have? No. Is it good to have the goal to replace enough income that you can quit your job when you want to? Yes. But what we're talking about there is freedom. The freedom to quit if you want to quit, the freedom to do work in different areas. And the point here isn't that you need to quit your job to go build that freedom. The point is that working your job can speed up the process with which you get to freedom.

And my personal opinion is what really matters is what you're spending your money on. If you don't love your job, you should be saving money more than everyone else. The next book I'm working on for Bigger Pockets is a lot about this, is what do you do with your money and what does that say about you? If you love your job and you want to work there every day, I can understand why you might not save money as much because you have no goal that you're saving towards. But for everyone listening to this that doesn't love their W2, use that as incentive to save even more to live beneath your means so that you can get enough money that you invest that you can eventually change that scenario. Alan, thank you for sharing that. Our next comment comes from Kurt Anderson. The live coaching call was pure gold.

I probably skip one out of every three or four episodes, but if I'm confident that you do that every episode, I wouldn't miss a single one, one man's opinion. Thank you very much for that, Kurt. I love the live coaching calls too. They are harder for us to do from a logistical standpoint. We have to schedule the people and get them to be there, make sure their internet is working and it has to work around my recording schedule,

but they come out really cool. So if you guys would like to be on a live coaching call, please go to BiggerPockts.com slash David and let us know by submitting a video that you'd like to be on a live call. We plan on doing more of these real-life scenarios in 2023 to help you navigate the market conditions that we're all facing as they change more rapidly every month. Francois Boizzo.

David, you were very encouraging and uplifting. To the dog trainer and the new investor, you did not take the hammer and bang it on his head. Rather, you saw an exit and opportunity of what he called a mistake or failure. Awesome man, failure is not the opposite of success. It is a part of success. boy, that's good. I'm going to give you a custom analogy I just thought of right now,

Francois. Yeast, I've never had it, but probably taste gross and probably isn't that great for you to eat raw. But if you put yeast into bread, it makes the bread way better. Failure may be the yeast of life. You need some of it within the bigger picture to make your success better and make it even possible. But if all you have is failure all by itself, it sucks. So thank you for the encouragement you gave me when we were talking to the dog trainer. I remember that show too, and I remember seen his eyes light up when he realized it wasn't that he had failed. It was just a different opportunity that he could be taken advantage of. And I'm hope he's making more money now than he ever was before. Gone with the shirt. OMG, that is exactly my situation too. Thank you so much

David that you gave those great advice. I'm too shy to be on camera talking to you, but I knew someone else will ask my questions. And today is the day. Now I'm much more clear on what to do. not exactly sure which of the shows you're referring to, but I'm very glad to hear this, Gone with the shirt. That's very good to hear. I'm also very curious to know what on earth your YouTube handle came with.

Gone with the shirt's kind of funny. It was probably the show that we did with Parker, it sounds like. But this is the point. We make these shows so everyone here can hear that they're not alone. You're not the only one going through these problems. When your deal doesn't go the way you thought, it doesn't mean you did it wrong.

Everyone's deals don't go the way they think. My deals don't go the way they think. I just found out here's a crazy story of what's going on in my own portfolio and I'm experienced. Okay. I had a short-term rental city inspector set to go to a property that I want to get a short-term rental permit for in South Florida. And we sent them to the house while construction was still going on. And not only did we not get the permit because the house was under construction and clearly not ready to be licensed as a short-term rental, but they also went and tagged up all the work that was being done by the contractor there and now said you have to go redo all of this work so we can come check on it.

That sucks. It's going to set me months behind. It's going to cost more money. I'm going to have to go talk to the contractor, figure out what they were doing. It even happens to me. This stuff happens all the time. And the more you listen to episodes like this, the less crazy and less discourage you feel hearing. It's not just you. It's all of us. But hang in there. That property will become profitable. 10 years later, I won't care about what I went through right now. I'll be. very happy that I own it and real estate investing is all about planning for the long term. Our last comment comes from Missy Q. My 2023 goals. I'm going to flip my first home in 23 after I buy my first home. I've been engulfing myself and learning all that I can so that I can be prepared. That was from our goal setting episode and I would like to encourage all of you to use this podcast as your accountability partner. We talked about how important it is to have an accountability partner when you're going over your goals. Keep listening to this. Set the notification bell, like the video, and keep tuning in because you need to be putting it at the front of your head what your financial goals are.

We tend to push those to the back all the time. Life keeps throwing stuff at you and you tend to get caught up in PTA meetings and kids homework and paying bills and things breaking that need to be fixed and holiday events you got to attend and drama that's going on in your friends live and you forget all about your financial future. Well, episodes like this can help it stay top of mind. another piece of advice I'll give you is consider buying some AirPods and subscribing to YouTube premium. That's what I did. Now, I don't get paid at any kind of an affiliation fee by YouTube or Apple, but what I do get is a gratification of knowing that I'm helping you. What I've done is anytime I'm taking a walk, I'm taking a run, if I'm going to the grocery store anywhere. I put in my AirPods and I listen to different educational programs on YouTube. Oh, I just said programs, but I sound like

my grandma. Nobody says programs anymore. What do you call? I guess a YouTube. channel. I just couldn't think of the word at the last minute there. Don't say programs. That makes me think of Golden Girls and Matt Locke and murder, she wrote. But I do listen to different people on YouTube that are talking about the economy, economics, real estate, finance, interest rates, the Fed, all the stuff that you guys depend on me to know so I can give you the information. And I'm not taking extra time in my schedule to do it. I'm taking time that I already had to be walking through the grocery store or waiting at the DMV or running whatever Aaron I had to run and I'm listening while I'm doing that.

Highly encourage everybody else to consider doing the same thing and listen to podcasts like this. All right, we love and we so appreciate your engagement. So please keep that up. It's very encouraging to see. I'd also like everyone else here to like, comment and subscribe on YouTube if you haven't done so. And go and give me a five-star review on whatever app you listen to podcast if you're not on YouTube right now. Those reviews really help when it comes to making sure that we have bigger pockets stay

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heard about Indeed on this podcast. That's indeed.com slash rookie. Terms and conditions apply. Hiring Indeed is all you need. Our next question comes from Kevin in Phoenixville. First time I've ever heard of Phoenixville. Should I consider selling this unit that I know has no major issues given that it's newer and give up such a low rate, 2.5% to purchase three to four other units while borrowing at the current 5% interest? Alternatively, I could use a helot to tap the equity, but suspect that would be a bit more expensive than the 5%. Ah, so this is a question of how to scale, Kevin. So let's dive into this.

off, don't let the rate make the decision. Okay, doesn't matter if you're at a 2.5, going to 5, going to 8, going to 12, doesn't matter. What matters is the overall cash flow that you're going to get having one property versus several. So if you can sell this one that's making X cash flow and reinvest irregardless of the rate at Y cash flow, if Y is more than X is probably a good move to make, then the next thing you could look at is the equity.

How much equity do I have in this property? Can I increase that by going over several properties? Now, if the value of real estate continues to decline going from one to three could amplify your losses. But if the value of real estate goes up going from one to three will absolutely amplify your gains. So that's a question you have to ask. Do you think real estate's going to go up long term? If you do, I'd say yes. Sell it by three more.

They may go down a little bit in the short term, but eventually they're going to be worth much more. If you think real estate's never going to go back up and it's going to go down for a long time or not just for the near future, but for the long future, the far future, now's not the time to make that move. But I do want to highlight that looking at the interest rates isn't what's important. Because if you can buy more properties at a higher rate, but they cash flow more because the price to rent ratio is in your favor, or they're in a better location where the rents are going to increase faster and they're increasing on three units as opposed to one, than it is a good move to make. In most cases, selling a property for more good cash filling solid properties in great

locations is almost always the right move. But make sure you're analyzing from an overall cash flow perspective and not the interest rate. All right, our next clip comes from Jared Haxston in Prescott, Arizona. I'm a relatively newer listener to the podcast, but I have devoured every episode that has come out since May of this year, and I just signed up for the pro membership. So the extent of my real estate history is doing two of what you dubbed sneaky rentals by turning my primary residences into rental properties. That leaves me with two rentals and a primary right now. I work in IT, but I spend all of my free time and travel time listening to bigger pockets, so apparently I need to be doing more to get into the real estate arena. And that is actually what

brings me to your doorstep today. I decided to take some action, and I have found myself with the exclusive opportunity to put together a deal on a piece of off-market commercial industrial real estate that I have somehow maneuvered my way into. So as quick as I can, here are the details. The two owners are in their late 60s and 70s. The two owners are in their late 60s and 70s, and want to retire and, in their words, ride off into the sunset. It's two parcels that total about four acres with a 6,400 square foot office building. There are 13 different tenants that pay anywhere from 2,600 a month down to $50 a month, and they are confident that they can get $2 million for all of it. If taxes and insurance remain the same for the next buyer, the total net cash flow

is about $9,500 a month. They really don't want to finance any portion of it themselves but said it wasn't a full-on deal breaker if they carried a small part of it. There is about an acre of open land that I'm thinking could be used for mini storage, and the location has some nice things going forward as well. I walked in there like I had done this a thousand times before, got all the info, condensed it all, researched a bunch of stuff, posted in the bigger pockets forum and made some really cool connections, and got some great feedback that I decided to add to my pitch preparations. I am very aware that I know almost nothing about this, and regardless of what happens in my first, deal here, I want to maximize the training opportunity and run down every path that I possibly can.

I figure if none of the roads hold a solution for this deal, at least I have traveled a lot of paths, and that will undoubtedly come in handy for my next deal. So I have a flurry of questions in my head, and it looks like this. What do you think of this deal on the surface? How many different ways could I come at the financing, since I don't have any meaningful capital of my own to contribute? I'm local and I'd love to manage the property on the side, but I'm not sure if that actually matters to anyone. If the owner's got their $2 million, it would have around like a 4 or 5% and your return baked in, but rates are pushing the 7s. Are there any cool ideas on creative financing that would at least be valuable for me to travel down as a newbie, or they might even have a chance of working? There's nothing like being in the pressure cooker of my first live exclusive deal to accelerate my learning curve.

So I'm ready to turn the heat up and try some stuff. You guys are doing an incredible job out here, and I can't wait to hear any thoughts you have on this. Thanks. Oh yeah, and if you ever want to do a live coaching call, I am 1,000% on board and available at any moment of any day. Thanks. All right. Thank you for that, Jared. Let's talk about the positives of the deal.

It sounds like you're interested in this because it's off market. That might be the only reason, because when I'm listening to you talk about the actual metrics here. I'm assuming this is triple net based on the way you're describing it, a four to five percent return without a huge amount of value add and quite a bit of labor. Like if you've got some properties that are going to be renting for $50, I don't know how that's really beneficial to you. So I'm just kind of like trying to turn this over in my head because you gave me a lot of information there. It was all really good stuff. I don't love triple net for in a highly the inflationary environment. And the reason is the lease terms are usually set in place to go up

if they go up at all by like 2 to 3%, 4%'s high. Oftentimes they're locked in place for the same amount every single year. And that's fine if there's no inflation or inflation is low. But when inflation is at it like it is now, which who knows how to measure it. But personally, I think it's probably in the 30 to 35% range is based on how much money that we've created that wasn't there before. The price of everything else is going to be going up much. faster than the price of your properties. That's one thing I don't love about the deal. Now, if you were coming and saying, hey, David, it's a 20% return right off the bat. So even though it's not going to keep pace with inflation, it might be more excited. But four to five percent isn't that exciting either.

You could get a better return than that on a lot of stuff. You could invest in residential. Now, let's say you said, well, yeah, David, but I got a bunch of cash I want to deploy and I want to put it into one property. So if I can buy this one for $2 million, put $400,000 to work, I'd say, okay, that might make sense for you, but you're saying, I don't have a ton of capital. I actually need the money from someone. And so I think, well, let's figure out how you could get someone a partner on this deal. But no one's going to be excited about partnering on a four to five percent return when it doesn't have big value add to it. So you're not able to find a partner, most likely. And then I thought, well, what if he needs the tax benefits and there's a lot of

depreciation that he's going to get out of this triple net property? That would be a reason. but you haven't mentioned anything saying that you're a real estate professional or that you need to shelter income. So as I'm running through this scenario, nothing about this deal is really jumping out at me is something that you should be excited about. And then I wondered, well, why is he looking into it this deeply? And I think it's because you found an opportunity that's off market. You're talking directly to the sellers. And there's a good learning lesson there. Because just because something is off market does not mean it's good deal. In fact, many times off market can be bad deal. Think about the Zillow make me move feature.

Do you think you were getting a great deal on a make me move? That's something we have to literally pay such a high price to get the seller to consider selling their home, that you're getting ripped off just to get that property. For a long time, it was so hard to get anything at a reasonable price that if you could go off market, you were guaranteed to get the property because you didn't have to bid with 12 other buyers. And I think the phrase off market became synonymous with better deal. And in many cases, you do get good deals when you go off market. But that's not going to be a 4 to 5% return.

Okay, so off market doesn't mean good or bad. It just is. Now you've got to analyze to determine if it's good or bad. And the numbers here are telling me bad. So if there's something that I forgot you said in the video or that wasn't mentioned, I don't want to turn you off from buying this deal. But if the only reason that you're looking at it is because it's off market, I don't think that this is worth pursuing.

I think those two older gentlemen probably don't know what the market's worth when they say. that they can get $2 million for it. They may not know what interest rates are doing right now. They may not understand that the market isn't super thrilled about a 4 to 5% return. They may not realize that triple net properties are not the flavor of the month like they are in some economic environments where they're considered really safe. There's actually a lot of people that are holding money waiting for the market to continue going down so they can get better deals.

And this doesn't sound like a great deal. So you'd have to get it at a much, much lower price or with incredibly favorable terms. The other thing I want you to be careful of, I know I'm going on on this one for a long time, is that when you buy a triple net property, and this is the lesson I had to learn the hard way, you often don't realize how much money you have to spend every time a tenant leaves. Okay, on the property that I own, it's not uncommon for the tenant to request $120,000 in improvements to that actual unit before they move in, because they need to take that space, whatever it is, and have it converted to work for their business.

If you don't have enough cash to buy this place, you're probably not going to have enough cash to deal with those problems when they pop up, and I'd hate to see it end up in foreclosure, which just makes me that this asset class isn't the best place for you to get started. I'd rather see you start with something like a house hack where you can put three and a half percent down and learn some of the fundamentals and ways you can exercise your creativity in real estate in a much safer way. The other problem with triple net properties is that the only time you can get out of that two to three percent increase in lease ups is when the tenant leaves.

So you'd be happy the tenant left. but then you got to go dump all the money into getting the property ready for the next tenant, and there goes all of your profit. So in general, I wouldn't be looking at a property like this unless it was an incredible deal where you're getting it far below market value and the cash flows were way stronger than they're at now unless you bought it for tax purposes. However, do not let this discourage you. I love your attitude.

I love your energy. Keep going. Find another deal and send us a video here on biggerpox.com slash David for us to review. Also, I want to let you know I love the fact you're using my sneaky rental. strategy where you buy a primary residence and you turn it into a rental property without having a put 20% down. Keep doing that. Maybe just look for ways to maximize that. Find some fixed wrappers, find some houses in better neighborhoods, find some people that are looking to sell or they think the market's going to crash so they're willing to take a discount on their home before the market

crashes. And then when it doesn't crash or if it doesn't crash, you will have gotten a better property in a better location for less money down that you can still make cash flow. And our last question comes from Michael Retzel in Arkansas. I have three rentals currently. I have sold a few in the past. One flip under renovation and one house under contract with the idea of it being a long-term hold. I'm looking for advice on the renovation mindset.

What do you say to a person who has trouble with wanting too much perfectionism and control? So funny that you say that, Michael, because this is something I'm dealing with in my own life. It is not uncommon for me to see employees that work for me or people that are my business or people that are working for me like a contractor or an insurance provide anything that just don't care as much about excellence as I do. All right? So luckily, I don't have that problem with bigger pockets. My producer Eric is awesome. He does an incredible job producing these shows and we get along and we work very well together. But that's because he has a very high standard

that he expects from himself and he knows that I have a high standard and so we get along. Frequently in life you'll find the majority of people you find do not have a high standard for excellence. It's a matter of the heart. And what I mean by that is that what's in our heart will determine the actions that we take. If you feel a sense of obligation to do a really good job, you're going to look for answers, you're going to anticipate problems, you're going to solve things without bringing problems to other people. If your heart isn't a place where you're saying, I just want to get paid and do as little work as possible, you're going to bring people problems instead of solutions.

You're not going to anticipate what could go wrong. You're going to cut corners in your work. And the problem is the people that are trying to do as little work as possible and still get paid are always clashing with the people that are trying to do the best job possible for different reasons. And this is probably what you're experiencing and it's very likely what I'm experiencing. And as people listen to this, they're either in the camp of, yeah, why does everyone suck and they don't try very hard? Or they're in the camp of why is it never good enough? And how come no matter what I do, you always say I could have done it better.

This is a struggle that has been going on with human beings for the as long as time has been going on, right? I'll talk to one performance coach or one psychologist and they'll say, yeah, David, you just expect too much of people. You have a problem where you want everybody to be like you. And I'll talk to another one that will say, yeah, David, you don't expect enough of people. You need to be raising your standards. And if people want to play in your world or they want to live where you are, they need to step up their game. and I don't know if there is a right answer to this. I really think it comes down to what's going on in the heart.

My advice to you for someone who's dealing with too much perfectionism control is the same advice that I'm giving to myself. Rather than continuing to try to push certain human beings in one of my businesses that do not want to step up their game, I need to just make sure that they're doing good enough and put my energy somewhere else where people do respond to it. So here's an example of that, okay? let's say that I have a group of loan officers, an individual team on the one brokerage, and I see them and they just kind of lolly gag through the day.

They do their job. They help their clients. They don't make mistakes, but it's kind of the bare minimum. Okay. They wait for the underwriter to come back with conditions. They go get answers. And I go to them and I'm like, listen, I want you anticipating what the underwriter's going to say before you submit that file.

I want you to think like an underwriter so that we get the stuff they need before we submit it and four days go by and they kick it back. to us and then another three days go by that we get it from the client. Now it's been a week. We could have closed a week earlier. And they're, uh, why is it always not enough? No matter what I do, David's never happy. Like when I get that type of energy, I instead of banging my head into that wall, I just need to be grateful that I have them. Let them stay in the position they're at in life with the understanding that they're never going to be a top producer. They're never going to be the one who gets the best clients. They're not going to be the one that I go personally recommend somebody to

they're not bad. They're doing their job, and frankly, they're better than their competition, and they know that. They're just not excellent, right?

I want them to be Olympic-level black belt stuff. That's how I'm always trying to be. And I get very frustrated when I'm pushing people that don't want to be pushed. And they get frustrated too because they didn't sign up

for this job to be pushed. They signed up for this job to be who they are. And that's who they are. They're one of those people that says, like, yeah, I just want to have fun or I just want it to be easy.

I don't want to have to work out out of my comfort zone. Instead, I need to just let them stay and find a different team within the one brokerage that's craving my direction and craving my leadership and really wants to hear how can I get better and put my energy there. I'm going to give you the same advice. So frequently on my rehabs, I'm not happy with the contractor or I'm not happy with my employee that's managing the contractor. And I just gave an example earlier of how one of

my employees sent someone to one of the houses that was under construction and was told by the contractor like, hey, you're good to go. Send them. And it turns out it wasn't good to go. rather than getting angry at all those people, which is just not good for them and it's not good for me, I've just accepted rehabs aren't going to go as good as I think. Let me put my energy towards something else that wants it. And I would give you the same advice. There's people in your world. There's part of your business.

You've got several things going on. You have three rentals that you already own. You have a flip under renovation and another house under contract, right? There's someone out there in this world that does want to pursue excellence. the agent helping you find the next house or the property manager that's managing the houses that you already own. There's something out there where people are perfectionist based and you're just better off spending your time with them and doing less deals or putting less of your business's

significance in the area where people don't think like you. I can't assure you of this. You're not going to find a person that cares about your deals as much as you do and that's what you want. You want them to be paying attention to every detail the way that you do. And if you really want to go deep, perfectionism and control often come from dark places that aren't necessarily positive. They feel positive to us because we see how it would benefit us. But sometimes perfection and control comes from a parent that you had that you were never good enough for.

And you were always trying to get their approval and you thought you had to be perfect. And now you've taken that standard and you put it on everybody else and they never asked for that. And you're making other people feel the way that that parent made you feel. Or sometimes they come from a place of absolute fear, that you're just terrified of what's going on in the market. You can't control any of it. So you look for what you can control and you put way, way, way too much emphasis on that and you're making people unhappy that are around you. There's probably no right or wrong answer. This isn't a black or white issue, though it feels that way to people that want everything to be perfect. It does feel black and white. But if the people that you're dealing with, they're not

on the same page, they're just not going to respond and you're going to waste a lot of your energy and constantly be frustrated and not enjoy this wealth that you're creating. So what I'd like for you to do is think about how to enjoy the wealth you're creating, how to enjoy the journey that you're on, how to see the things that you're happy about, let that make you feel good instead of the stuff that's going wrong that makes you feel bad. And as I'm talking to you, I'm also talking to me. So thank you very much, Michael, for making me have this deep dive that I just did in front of 250,000 people on a seeing green episode. I think it's going to help me.

All right, that wraps up our show for today. And what a note to leave it on. You guys just got a personal therapy session with David Grim. going into the dark green places of my mind. What color is dark green? Is it like a forest green? What do we call dark green, right? That's what we should call it whenever I go into those deep, deep places.

Anyways, I enjoy you guys being here with me. I appreciate you guys being here with me. And I hope that's sharing what's going on in my world, what's going on in my businesses, the problems I'm having, and the issues everybody else is having makes you feel better about your life. It's better than watching an episode of keeping up with the Kardashians to feel good about yourself, because you're actually learning how to make money and find more freedom. So thank you for being here with me. One last thing I'd ask for if you could please leave me a five-star review on Apple Podcasts

or Spotify, wherever you're listening to this podcast, as well as subscribe to our channel and leave us comments. We read them, and as you see, we put them in episodes and we take them serious. So I love you guys for being here. Thank you so much for joining me if you'd like to follow me. You can find me online on all the socials at David Green 24. Please go give me a follow there on Facebook, on Instagram, on LinkedIn, on Twitter, on wherever.

You can also find me on YouTube at David Green 24. Now they included handles. So follow me there, see what I got going on. Let me know what you think. And make sure that you listen to another Bigger Pockets podcast when you're done with this one. Remember, YouTube premium those AirPods, best investment you can make. Thanks, guys. I'll see 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 Ian 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.biggerpockets.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. Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.