BiggerPockets Real Estate Podcast - 957: Seeing Greene: Flood Zones, New Builds, & Does Mexico's Cash Flow Beat the US?

Starting point is 00:00:00 This is the Bigger Pockets Podcast Show 957. What's going on, everyone? This is David Green, your host of The Bigger Pockets podcast. Today I am going to be joining you from Austin, Texas, where we have a Seeing Green episode, and I brought in my good buddy, Robbie Yabasolo to help. Rob, how are you today? Very good. Excited to jump into today's episode because we kind of talk about something that my mom did

Starting point is 00:00:23 in the real estate world that making me sweat a little bit after talking to Bobby today. So for anyone that's thinking about investing in Mexico, you're going to want to listen up. That's right. We're going to bring you mama drama, clarifying ADU financing from a previous show, building duplexes and flood zones, what to analyze when you're considering building to rent as well as calculators that can help you on that process. If you have questions that you ever need answered, you could always ask them on the BiggerPockets forums and let the community answer them for you. Or if you want a chance to ask your question on the show, you can head on over to biggerpockets.com slash David. the link is in the description. So go pause this, send your questions, and let's jump back in. He's in Houston. I'm in Austin. We're coming to you from Texas. Do us a favor. Count the y'alls that

Starting point is 00:01:05 come up on today's show and put the number that you got in the comments on YouTube. Thanks, y'all. Sorry. We had to get one. I just wanted to kick off the counting. All right. Now let's get to our first caller. All right. Rob and I are here with Bobby, a Mexican-American from Arizona, who has bought two properties in Mexico in the last year. And I'm very interested in this. He's going to be breaking down how Americans can invest in Mexico and how that compares to being a citizen of Mexico, as well as if Americans should consider putting their money abroad. Bobby, welcome to the show. Absolutely. Thanks, David and Rob. I appreciate the opportunity and happy to provide value where I can. Man, I'm really excited to talk about this because my mom just bought a house in Puebla, Mexico about a year ago. Nice.

Starting point is 00:01:49 And the process that she walked me through was very scary. It was basically like, oh, yeah, I'm showing up to the. this house with the briefcase of money and then there will be a lawyer there who signs the papers. And I'm like, mom, this can't be true. And she's like, it is, it is. And luckily it actually ended up all being legit, but I was like terrified of the process. I want to clear up my perceptions of like what it's like to actually buy real estate in Mexico. Okay. Well, that's an interesting story right there for sure. My experience was a little bit more standardized, I'd say. I hope. I would say it's very similar to the United States with some little nuances for sure. Obviously, there's no hardcore MLS out here. So when you're even doing, you know,

Starting point is 00:02:31 competitive research and whatnot, I did it by just being boots on the ground, just actually doing my own research for a good first year, understanding which Colonias are popular, what's happening economically, stuff like that. Yeah, yeah. Well, we definitely got some questions for you. But before we jump into sort of the nitty gritty here, tell us a little bit about what you own and, yeah, some of your portfolio in Mexico. Yeah. So with everything that changed the United States with inflation and whatnot, once I was in Mexico, that's why I instantly started looking at the real estate market here. Because you could buy two beds, two beds and stuff like that for 140, 150K by the beach type of deal, for example, like in Mazathana and whatnot. So that's what

Starting point is 00:03:12 kind of started everything. So because I was living in Mexico City first, I looked at the real estate market here. I saw where foreigners were usually staying. I saw how much the properties were appreciating as well. It's definitely way more than the U.S. in terms of how the percentage of how much they appreciate. And so, so yeah, so that's why I was said, okay, you know, I want to buy one first here. That was just a loft here in Roma, Sud, which is pretty much right in that area of Condessa and Roma and whatnot. Nice. And then the second one is in Masatlan. And that one is two blocks from the beach in a Colonia called Sabalo country. Very cool. Very cool. Yeah. I mean, every time I talk to people, not in America, about sort of financing and loan programs, it always seems like

Starting point is 00:03:59 the American way of financing is very different from pretty much how all countries do it. So tell us a little bit about the financing in Mexico. How do loans work? What are the different options out there? Yeah, for sure. So you have your standard mortgages from big banks, which is, whether it's HSBC, Santand de, stuff like that. Now, these banks are opening up with foreigner mortgage loan programs and whatnot. So they're opening their products, you know, their suite of products for foreigners. The one thing that I did consider was a company called Moxie that is head of court in the United States.

Starting point is 00:04:33 They specifically will do mortgages for Americans looking to buy a purchase property in Mexico. And so they take care of really simplifying the process and whatnot. They have their requirements of how they finance, for example, they'll require still 40% down, I'm 30% down and then they'll finance the 60 or the 70% of the deal. And Moxie, they might have changed that stuff by now since the last time I spoke with them. Now, the way I did it was there's two scenarios. The first one is I actually used the HELOC from the United States. And so technically in Mexico for Romarsu, this is like it was paid cash.

Starting point is 00:05:08 And the second one in Masozon, that one I did finance through HSBC. That one I went through a loan officer that I was recommended through. Just like in the United States, there's real estate agents. Those real estate agents have their networks of who they recommend for mortgages and whatnot. And so that's how I got connected with Hector. He ended up doing tremendous of a job, really walking me through the process and everything, really educating me. And so if you meet the right people, it should go pretty smooth, to be honest. Okay.

Starting point is 00:05:37 What about ownership? Can Americans own in Mexico? How do those have to be structured to take title? If you're a foreigner purchasing, you have to go through a process of submitting basically like a, a permission to purchase property in Mexico. And that's going to be through the Secretary of exterior relations. Basically, the notary in the process, the notary is the entity that handles those estuitturas, the title, all that stuff like that. Well, they are also in charge of submitting that request to that secretary of exterior relations. And that document will outline all the specifics

Starting point is 00:06:08 of the property you're looking to purchase, even the size of it where it's located, the dimensions. I mean, the nitty gradia outlines everything. And so that is the extra step that a foreigner has to take to purchase property in Mexico. Now, I was going to go through that direction, but since my grandparents were born in Mexico, by the time that we got to that phase, I had already applied for my Mexican citizenship. So I learned about that process, but I didn't have to go through it because I was able to obtain the citizenship route. All right. Now, when people are buying there, you mentioned that they don't have an MLS. So you're kind of looking word of mouth. Are most people buying vacation rentals?

Starting point is 00:06:46 Is there a long-term market? Is a burr possible? And if so, is there different databases people are going to to look for these different kinds of deals? Yeah, for sure. Great question. So there is a popular site called imuelas, made biguadro.com. That one is the one I specifically used. The only unfortunate thing about that, and I just would recommend to a lot of people,

Starting point is 00:07:06 is you got to watch out for scams still because there for sure are still fake properties on there and stuff that is just a scam. Yeah, it's just a scam. So you got to do your homework and stuff. I mean, I've literally, it's unfortunate, but like, if I submitted a request or inquiry that was interested about a listing or say about eight listings, I'd probably get like three real estate agents back that would follow up with me and that were professional and stuff like that.

Starting point is 00:07:32 And then the other six would just fall off. And so in terms of MLS, there is like a database, but it's not accessible to the public. I know the real estate agents have that system, but it's not, it's not like, the U.S. It's not like you can go to Redfin. And Mobez Vente Guater is probably the closest version to that so far. I know it's getting better for sure, but that's probably the closest version to that so far. Well, I like the name of the website. It sounds like David Verde de Ventechato, which is also a wonderful website, which Rob makes fun of me for all the time, picking the most boring name. And now I'm vindicated as it's very popular in Mexico, Rob. I think you should take a look

Starting point is 00:08:08 look at that. You are vindicated. You are selfish. You are strong. Yeah, what's the name of that? just a little slower? Yes, Inueblis. So I N-M-I-M-I-M-Eweblis 2424.com. Inueblis is the word for basically like properties. Got it, got it. Coming up, I am curious what challenges investors will face going out of the country and what big opportunities you see. So we're going to talk about that right after the break. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming and expensive. But imagine if real estate investing was suddenly easy,

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Starting point is 00:11:23 your income slips, and your trust slips too. And most PMs don't hold themselves to performance standards. They focus on activity, not outcomes. Mind is different. They obsess over the metrics that actually grow your cash flow. Go to mine.com slash show me to see how mine performs and get a month of management for free. Because if you're going to hire a property manager, hire one that manages your investment like an investment. So I've got a question about sort of the tourist scene and everything like that. I mean, I think you mentioned short-term rental, or you mentioned it's like very touristy. And so obviously, that's got to be a booming short-term rental market. These types of places can seem like they could get oversaturated with very similar types of listings,

Starting point is 00:12:05 right? Beachfront or very close to the water. Are there any tips or tricks for standing out in the short-term rental market out there? It's all about the photos, of course. So we're just doing everything through Airbnb. Long-term rentals are nice, but you don't make us, obviously, the cash-tals not the same as nightly rentals. And so I just stick to Airbnb. for these two. And it's all about the photos. And I would say this, it's kind of silly, but it was like even as basic as having a smoke alarm and monoxide detector. If you go on Airbnb right now and you look at properties in Mazathlund, like you'll see it X'd out and no one has that. And so it's like, interesting. It's like little things like that that I'm like,

Starting point is 00:12:45 okay, well, it's probably a good idea to have that. And foreigners would appreciate that. Is there a reason why carbon monoxide detectors are not common? I don't know. I, I scratched my head on that too. Oh, okay. Got it. Yeah. So photos and carbon monoxide detector. Yeah. The two tricks of the trade. Yeah. And you know what? The other thing, too, is just think about your digital nomads or remote workers and just making it comfortable for them. If they, like specifically, these two, they're comfortable so that if someone needs to do remote work and stuff there, they can. Because that is very, that has grown a lot of obviously the last three years. That's grown a lot, in Mexico. You mentioned the down payment for some of these loans. What are interest rates like in

Starting point is 00:13:27 Mexico at the moment? Are they comparable to the United States? They are higher. So interest rates for like a normal one will end up being around like 10 to 12 percent interest. Wow. And so, so it's definitely much, much higher, which is why I use the HELOC route the first time around. The only reason why I actually did the mortgage on the second time around here with the HSBC for the Muscat apartment was because the cash flow actually made sense. So after paying debt service and all that stuff like that, I knew that this property in Mussela then would still be positive cash flow by 40, 50%, which that was like, okay, well, the numbers make sense.

Starting point is 00:14:06 So this actually is still a pretty good bet. Now, since it was my first mortgage here and I technically don't have credit history, they only financed the 70% and then I had to come up with the 30%. Got it. So, Bobby, you mentioned your cashling at 50%. What's your ROI on this deal? And if you weren't going to use your HELOC, if you were going to go finance the property, just give us a rundown of what somebody could expect to put down on a property and what

Starting point is 00:14:29 kind of cash on cash return they'd get on some of these short terminals. Great question. What I'll use is the Musilin example, since that one has even a little bit more history. So the mortgage on that is $1,200 a month. It depends on where the best is sitting on against the dollar course. And so we're talking about 1200 a month. I only put about $6 grand into it after purchasing the property to uplift it. So call it 13 or 12 and change.

Starting point is 00:14:55 After maintenance costs and even utilities and stuff, let's just round it up to $1,300 a month. That property will cash flow $2,000 to call it $2,600 a month. And it'll be booked about 20 days out of the month. So you'll still have your ups and downs. but if you take probably a whole year, that's where it would average out as to where the cost are $12,300 and you're bringing in $2,000 to $2,600 around there. Okay, on $140,000, you'll put $30% down, which is $42,000. You said you put $6,000 into it.

Starting point is 00:15:27 So you're all in the $48,000 to $50,000 world and you're doing $20,000 to $24,000, something like that's pretty good. Yeah, that's the main reason why I said, I'm going to focus on Mexico right now. Now, the thing is you still, and this is why I would tell everyone, it's still not like, you could just go find a property and you got to still do your research, be boots on the grounds, you know, stuff like that. And look for opportunities. Like, for example, the one in Musa's on, that property had been sitting on the market for seven months. And the guy was already ready to sell because he was like, dude, I need to get this money into another property that I'm trying to do. And so when we purchased it, the property valuation came at like 2.7 or yeah, no, no, it was like almost 2.4.

Starting point is 00:16:09 And we purchased it at 2.5. So even just purchasing a route to the bat, we had equity made. And so it's just kind of looking for those opportunities to, like all the context of there matters. Awesome. Yeah. So higher interest rates, but still possible in Mexico today in 2024 to do okay on real estate out there. Very cool, man. Thank you so much for coming on to the show.

Starting point is 00:16:29 We appreciate your insight. And we're going to hit the next segment now. So Robbie, we just talked to Bobby. What did you think? I think my mom got scammed. out of $56,000. You scared me a little bit. When you started talking about how your mom showed up with a briefcase full of money and met some guy at the house,

Starting point is 00:16:49 it's like there wasn't a title office, there wasn't a business. I'm telling you, bro, I called her and I was like, mom, listen to me, you cannot do this. And she's like, Miho, this is how it's done. And I was like, I couldn't get her up. But she's still living there. So I think it's fine until someone shows up and they're like, what are you doing in my house? But all jokes aside, I do think that it's really nice to kind of hear this because you hear, I've been really interested in the international investing scene.

Starting point is 00:17:18 I've just never done it. I have a lot of people on YouTube, they're like, oh, tell us more about investing internationally. And I'm just like, you know, truthfully, I don't do it. I don't know why I'm so scared of it because when I talk to other investors, they're like, dude, it's the same exact thing. There's no actual difference here. You find a realtor. you go through a bank, you finance it, you build your Airbnb Avengers, just like you do

Starting point is 00:17:39 with all your houses in America, and you run your property, you know, 20 hours away versus 15 hours away, but there's no real difference. So it's got a reassuring after hearing Bobby talk about it that I actually think it's really not as crazy or not as a not as scary as one would think. Well, I mean, the fundamentals are going to be the same. I think the biggest differences that we covered would be financing. You're not going to get 20% down, which frankly 20% down is a problem for a lot of people right now. And so if you got to put more than that, that could be a problem, but that may be offset by the lower cost of the real estate. Right. 140K. Exactly. 140K was not much. Even 280K is not that much compared to American real estate prices.

Starting point is 00:18:18 And then the interest rates were higher, but that's offset by lower loan balances. Higher rates don't hurt you as much when you're borrowing less money. They make a very big deal when you're borrowing a million dollars, not so much if you're borrowing $200,000. And then the management of it. obviously if you don't live in the area, you won't have as many connections. It's going to be harder to put your Avengers together. But if you follow the principles in long distance real estate investing, which would apply to out of the country, not just out of state, you get your core for and those people have referrals for you that you slowly put things together. So I really think in the future are going to be hearing a lot more of this because American real estate is becoming so

Starting point is 00:18:53 expensive and there's not enough supply. I think you're going, you're already seeing it basically. People are going to other countries. They're buying vacation rentals there. They're going to start moving to those countries. You're going to see a lot of Americans that build up their wealth in America that see the inflation that's going on and they're going to move to other countries to make their dollar stretch further. Well, in the time that you said all of that, I have looked up a mansion on the water for $895,000 and I have texted it to my wife and I said, should we? Maybe we sell Scottsdale and we 1031 into that. There you go. Very nice. Thank you. And also everyone, if you're listening to this, DM me personally on Instagram as I'm setting up a GoFundMe account for Rob's mom to try to get her back some of the doubtment that she undoubtedly just lost. Help her. Help her. All right. Thank you everybody for listening. We would like to have you featured on an episode of Seeing Green. Simply go to Biggerpox.com slash David, as in me. And you can submit your question there. And we will get that answer to this part of the show. We like to go through comments that we've got on YouTube sections of previous episodes.

Starting point is 00:19:56 Sometimes we get into the bigger pockets forums and we bring you what the people are saying. Remember to like, comment and subscribe if you're listening to this on YouTube and if you're listening to this on a podcast app, make sure you subscribe. Our first comment comes from Michael Sokwell, who says, Am I the only one pulling my hair out that they ignored the entire premise of the ADU question and went on a tangent about how to spend $210,000? He said he had a way of doing it for 10 to 15% of the 210k and he cannot buy. a 400k property or build a house with $30,000. I really wanted to hear a rational thought on that one too. Now, Michael here is referring to the Bigger Pockets podcast episode number. I think it was number 932. Very nice, Rob. Thank you. That's exactly why we keep you around. You get a mind like a steel trap.

Starting point is 00:20:45 Yeah, I think that. And in that show, we had one of our seeing green guests who was asking us, hey, if there was a way to put less than 20% down and build an ADU on your property, would you do that or would you put 20% down on another property? And we didn't answer the question because there is no way to put 10 to 15% down on an ADU, at least not on a 30-year fixed rate mortgage that any of us are aware of. I own a mortgage company. I've never seen anything like that. In fact, it's one of the things I've been looking for is a lender that would do it

Starting point is 00:21:18 because you'd see ADU starts springing up everywhere. if that were the case. So we ended up answering the question as far as like, well, does it make sense to put the full cost of an ADU to just build it with all cash or to use that money as the down payment on another property? Yeah. So the asker of the question, his name is Kyle, right?

Starting point is 00:21:38 I believe that he started off by saying, hey, if I found a loan program that allowed me to put down 10 or 15% what are your thoughts on doing this? I guess if we want to just make Mr. Michael Sockwell 7602 here happy. Yeah, I would do it because the return is great if you could put 10 to 15% down, but that's not really much of an answer if it's not actually something you can do. So, so yeah, uh, I think we did our, I think we did an okay job answering a more realistic version of that question. Yeah. And if somebody's wondering, well, why don't they offer 30 year

Starting point is 00:22:10 fixed rate mortgages on ADUs? It's because the ADU is still part of another property. Okay. It's still part of the main property. And there's usually going to be a first position lien on property. So if you wanted to get another loan at a 30-year fixed rate for the ADU, the lender isn't looking at it like it's a second property. They're looking at it like it's a part of the original property. It's an improvement. To them, it's not any different than if you're putting a new roof on a house or you're going to remodel it. People don't give you 30-year fixed-rate loans to go remodel your kitchen. So they're not going to do the same thing on an ADU. This would have to be some separate company that comes along and offers loans in second position to build ADUs with low-down payments,

Starting point is 00:22:50 but those people don't do 30-year fixed rates. That usually happens because the government sponsors Fannie Mae and Freddie Mac loans. And so because the government's involved and they buy the loans, they end up as mortgage-backed securities, they can offer you 30-year fixed rates and sell the loan to someone else. But in most cases, that doesn't happen. So there you go. I mean, if they were going to offer a second lien position on it, their interest rate would probably be mega-high, right? Because it's a little bit riskier.

Starting point is 00:23:14 It'd be way higher, and it wouldn't be for 30-year fixed rate. It would be like a adjustable rate mortgage type of a thing. Yeah, I mean, even if you got a private. money lender to lend the money on that. You know, you'd put the down payment, but then you'd still have some probably 8 to 12% interest rate that you'd be paying on top of whatever the amortized rate is. So you'd still have to work that into your numbers to make sure that cash flow and all that good stuff. So it's really not even all that accessible, I think, for the everyday person. That's why ADUs are kind of a cash game unless you're doing a new construction loan from the beginning

Starting point is 00:23:45 in building both the main house and the ADU at the same time. Exactly. There you go, because it's the first position lien on the property. Great point, Rob. All right. Our next comment comes from player GN3 DC who says, I heard an ad on Spotify trying to tell people to open a helock to help pay for groceries. It's so over. And that was followed up by a comment from K. Burree 4142 that said that's not the worst it gets. McDonald's is sending out ads to help people split fries at their chain. Like maybe don't get fries if you need to split the cost. Fair. All right. When it comes, to using a HELOC to pay for groceries. Terrible advice. This is the stuff that got people in trouble in 2010 or before. This is the stuff that gave HELOCs a bad name, frankly, because for a long

Starting point is 00:24:31 time, when you said, Helac, everybody immediately cringed. And we're like, oh, that's how you lose your house. We don't advocate here for people using HELOCs for anything other than something that adds cash flow or adds value to your portfolio, unless it's like a credit card consolidation type play or something. And even that's dangerous. Because then once your credit cards are paid off, you can go run them up again if you're not disciplined when it comes to your finances. With that said, I agree. Helox should really only be used for real estate or something that's going to cash flow. I mean, I think the other argument to be made, I'd be curious about your thoughts here.

Starting point is 00:25:06 I mean, the other way that people use it is for emergencies, right? Like some kind of medical thing, some kind of emergency where you literally just have no other form of getting out of that emergency. But there's not an ROI there other than that it's helping you in a really, really tough spot. So yeah, man, it's a HELOC, real estate. Just use it for that. Use it for leverage that will pay you. That's the only way I can really endorse the use of a HELOC. And if you're someone who's listening to this podcast and you're thinking, you know, I'd like to learn more about financial independence and saving my money to go with my real estate knowledge. Well, kudos to you. You can learn

Starting point is 00:25:41 more about that by listening to the BP Money Show hosted by Scott Trench and Mindy Jensen, who are helping our community, reach fire, financial independence, retire early. You can also listen to us on how to get deals done once you're in a financially stable position. I say it all the time. Owning real estate and being in a financially sound position go together. I'm not a huge fan of trying to use real estate to get yourself out of bad financial habits, but I am a fan of using it once you've got good financial habits. All right, we're going to take a quick break and then come back with two questions about

Starting point is 00:26:11 building to rent instead of buying to rent. So stick around. We'll be right back. For decades, real estate has been a cornerstone of the world's largest portfolio. But it's also historically been sort of complex, time-consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Funrise flagship fund.

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Starting point is 00:30:16 And welcome back. Thanks for taking the time to support the sponsors that help us bring you this content. Our first question comes from Deontay Hill, a pro member in Bigger Pockets, who says, I'm looking to do my first deal and have decided to go the route of building a duplex. I'm faced with the decision of paying more than 50K to purchase a lot in the regulatory flood zone or more than 75K to purchase a lot that's not in a flood zone. Obviously, as investors, the numbers matter. So is this an action I should enact on or should I avoid the flood zone?

Starting point is 00:30:46 zone and purchase the higher price property and take the risk. All right, Rob, so does he buy the cheaper property that is in a flood zone or the more expensive lot that's not in a flood zone? I guess there's a couple of qualifying questions there, right? Like, are we talking like a 25-year flood zone, 50, 100, all that good stuff? I would say, you know, if he's got the ability to do it, extra $25,000 for peace of mind that you'll never have to deal with like floods is pretty nice if you ask me, and I think probably worth it in the long run because, yeah, even if it's a, I don't know, 15 or 20 year flood zone, that just means that's kind of the general frequency, but floods could happen pretty much at any time. So I don't know. I don't know if it's really

Starting point is 00:31:28 worth the savings there because it'll end up costing it a lot more in the long run. Well, when you look at it like 50 to 75K, it's about 50% more expensive to buy the more expensive lot. So now immediately you're like, ooh, I don't want to do that. But when you look at it at the total cost of the project, the lot is probably going to be a very small portion of the lot. this. You're going to spend 50 to 75K on the lot, but then you're going to build a property. That's going to be like 100 and 150 to K, maybe up to 200K, depending on how big it is or where he's buying it. Now the $25,000 seems like a much smaller deal. And then when you think about the fact you're going to be financing probably 80% of that, it makes way more sense in my mind to

Starting point is 00:32:04 go and not buy in the flood zone and not have to deal with it. And that's only strengthened by the fact that I see insurance rising every single year. Yeah, breaking news here. Turns out he is in Houston, which I'll tell you, man, Houston had been hit with some floods in recent history. So, yeah, knowing that it's Houston, I'd probably say, yeah, just spend the extra 25 grand, especially if you can leverage it just like you're saying at an 80% ratio. Yeah, we used to tell people, well, just get insurance to cover yourself, run the numbers that way. But now you don't even know what numbers you're running on insurance. Like I've been saying for years, the rent that you run the numbers on when you buy the property is not going to be

Starting point is 00:32:42 the rent in five years or 10 years. But the insurance, wasn't really changing a lot. I'm almost looking at your expenses that way. Like, well, yeah, you're underwriting it at this insurance cost right now, but what's that insurance going to cost in five or ten years of inflation and natural disaster? So I would err on the side of caution here and spend a little bit more to get the lot in the better area. Good question, though. Thanks, Deontay. And our last question comes from pro member Anna Katrown, who writes in the pro-exclusive forums on BP.com. So can you just break that down? What is a pro-exclusive forum just for anyone at home that doesn't know what that is. Well, sometimes wealthy people like Rob travel in airports. And I do the same.

Starting point is 00:33:19 And when I travel in an airport, I sit in a normal chair with normal people and I rub elbows with the common folk. But Rob does not. Rob goes to, what do you call those places, these VIP exclusive? The lounges? The lounges? Yes, Rob travels first class and he sits in lounges where rich, wealthy people cozy up to each other and talk about things like 401K plans and tax changes and roll. Rolex watches. The pro forums is the equivalent of a lounge in the bigger pocket's website, but you could get in for only like $350 a year. It's very, very cheap. It's one of the best deals in all of real estate. So Anna is asking her question from the lounge while all the rest of us are sitting out there lifting up our legs for the people to vacuum the cheese at crackers

Starting point is 00:34:05 from underneath us while we're waiting for them to call for a flight. And Anna says, is, Ola! We're in Fort Worth, Texas and building duplexes to hold and rent. We'll build with cash and then finance out into a 15-year note. So she's going to spend 150K to build, then pull 100K out of that and finance it on a 15-year note. I like the sound of this already. Our numbers are pretty solid as we already own a prototype in the same area. Is there a calculator for this? And do you have any ideas? Okay, Rob, so you're going to be building a $150,000 property. You're then going to pull $100,000 out. So this is, a Burr method, but instead of buy rehab rent and finance repeat, it's build rehab rent. I guess rehabbing is part of build. But you know what I'm saying? Yeah, for sure. And then you're going to pull money out. What are some things that you'd be looking at to run your numbers?

Starting point is 00:34:50 So I'd be looking at ARV after repair value. And basically that's going to be the total worth of the house after the house is built. And then I'm going to be looking at what my cash out refi amount is going to be typically. I mean, it was for a long time 75%. I think maybe right now it could, I'm sure it straddles me. between 70 to 75%. And I'm really just trying to calculate how close I can get to pulling out all the cash I invested into it.

Starting point is 00:35:16 But I'm fine with leaving a little bit of money in there so long as the actual cash flow amounts to a return that I'm happy with, which could be anywhere in the 10 to 15% range for something like this. What about you? Yeah, that's really good. The first thing you're gonna look at is cash flow. So obviously, if you're gonna be refinancing

Starting point is 00:35:32 into a 15 year note, your numbers are gonna be higher than on a 30 year note. So you wanna make sure that you're gonna get some kind of cash flow. The next thing you want to look at is just like you said, Rob, well, how much of the money are we going to pull out? If we can build for 150K, do we only want to pull out 100K? Because what if you build for 150, but it's worth $2.25 or it's worth $250? Yeah. You could pull out your whole $150, get all your money back out. So you want to, that's going to be limited by how much the property cash flows because you probably don't want to pull more out of the property than what the rents

Starting point is 00:36:00 are going to be supporting. So that's the second thing that I would look at. The third thing I'd look at is how much equity am I creating on every deal. If I'm building for 150 and it's worth 150, if you're getting cash flow, it's worth doing. But I like it a whole lot more if I'm building for 150 and it's worth 200. Now I'm adding 50K of equity every time I do this. So I'd be looking at how can I make this as sustainable as possible? If it turns out it won't cash flow on a 15 year note,

Starting point is 00:36:25 I'd put it on a 30 year note so that I could keep getting that 50K of equity. Smart. If I'm not getting the equity, now I maybe look at the 15 year note instead of 30 so that I can pay it off faster and I can build my equity that way since I'm not buying equity, I'd be getting it through the loan pay down. Yeah, great answer. I would say she said that she's looking for a calculator for that. I'm relatively certain that the burr calculator on bigger pocket should do that. Now, obviously, a burr is technically different than a new construction, but very similar mechanics where you're

Starting point is 00:36:55 investing a certain amount of money to improve the value of a property and then you're cashing out that final value of the property to figure out your return. So I feel like she's, you're investing a certain She's pretty closer replicating a new construction calculator with the BIRC calculator, I think. Yeah, and if she already knows the numbers to build, she's at $150K,000, that makes estimating your rehab cost super simple because the contractor's already done it for you. So you wouldn't even need to worry about all of the part that is usually the trickiest part to get down, which is your rehab cost. So I think this would be a pretty straightforward calculation and the Burt calculator would be your best bet. And since Anna is a BiggerPockets Pro member, she gets unlimited use of these calculators. If you would like to learn more about those, head to Biggerpox.com slash calc.

Starting point is 00:37:35 And you get a couple free uses of all the calculators. Then you can decide if you want to go pro. And folks, that is our show for today. First off, we just want to genuinely and candidly thank you for listening to this. We really appreciate it, especially that you're here on Seeing Green with us. We could not have a show without you. So if you'd like to have a question featured on Seeing Green, hand to BiggerPox.com slash David and ask it there. Rob, I'd also like to thank you for being here with me today.

Starting point is 00:38:02 guys are listening to this anywhere you listen to podcasts it's a huge deal you've got to go and subscribe to get notified when the podcast comes out in today's show we brought just for you buying in mexico and questions you should ask when buying abroad as well as how as u.s investors can get into other countries clarifying adu financing from a previous show building duplexes in flood zones and calculators for building to rent which i think we're going to see more people doing as the existing supply of homes gets thinner and thinner. Thanks, everybody. We appreciate you being here.

Starting point is 00:38:35 We're going to let you get out of here. This is David Green for Rob Cinnamon Toast Crunch Abas Solo, signing off. Nice. 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.

Starting point is 00:39:18 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.w.w.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.

Starting point is 00:39:40 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. podcast.

BiggerPockets Real Estate Podcast - 957: Seeing Greene: Flood Zones, New Builds, & Does Mexico's Cash Flow Beat the US?

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