BiggerPockets Real Estate Podcast - 965: Seeing Greene: Insurance and Taxes Killed My Cash Flow, Should I Sell?

Episode Date: June 4, 2024

Want a quicker way to buy rental properties? One that takes less cash, less time, and is beginner-friendly? Then you’re in the right place! In this Seeing Greene, we’re talking about the “sneaky rental tactic” that can help you build a real estate portfolio in just a few years. And if insurance and property taxes have been eating away all your cash flow, we go through a real-life investor’s situation to determine whether he should hold, fold, or change his real estate strategy. All that, and more, is coming up! Like most investors in America, your property expenses are rising, but rent isn’t climbing at the same rate. What do you do when your cash flow disappears? That’s what our first investor is asking. Then, a house hacker wants to know how to get into his second property and what rules he has to follow to house hack once again. A rent-by-the-room investor gets given an ultimatum by his potential tenant—what should he do? We’ll also discuss the difference between “cheap” and “bad” houses, what to look for in a home inspection, and what to do when guests throw a party at your Airbnb. 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 jump on a live Q&A and get your question answered on the spot!  In This Episode We Cover Whether to keep or sell a rental property if it no longer brings in monthly cash flow The “sneaky rental tactic” anyone can use to buy their first (or next) investment property  How many checking accounts you should have for your real estate portfolio Renting-by-the-room and what to do when a tenant has make-or-break demands  The problem with buying “cheap houses” and why we steer clear of them  What we look at in a home inspection report and what you should always ask the inspector  How to stop parties and large gatherings from happening at your Airbnb or short-term rental  And So Much More! (00:00) Intro (01:51) Sell My Low-Cash-Flow Rental? (07:30) The “Sneaky” Rental Tactic (12:55) How Many Checking Accounts? (15:05) Buying “Cheap” Houses (21:50) Home Inspections 101 (27:58) Ask Airbnb Guests for ID? Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-965 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [e-mail]. Learn more about your ad choices. Visit megaphone.fm/adchoices

What's going on, everyone? This is David Green, your host of the Bigger Pockets Real Estate podcast here today with a Seeing Green episode. In today's show, we take questioners from you, our listener base, with very specific, intense, and insightful questions about what to do in your dilemma. And my co-host, Rob and I do our very best to help you get through it so everybody can learn. Rob, how are you today? Howdy? Coming to you from Los Angeles and my first ever short-term rental. It's nostalgic. It's decommissioned a little musty. But hey, we're here. It feels good to be back. Is it safe to say that you were going going back back to Callie Callie? It's safe to say that I'm seeing green, if you know what I mean. I do know what you mean. And that

rhymed. And guess what else rhymes? Nothing else in today's episode. That was the only time we're going to rhyme the entire time. Lying, I just did it right there. But other than that, there will be no more rhyming. We're actually going to cover a lot of real estate stuff. We're going to talk about cheap houses versus bad houses and how to get started when you don't have a lot of money. Rent by the room tenant selection issues. What to do when you have? have a picky tenant that doesn't want to move in unless you meet their demands. How to get a second house hack and a third house hack and a fourth house hack, as well as what loans are available to first-time homeowners.

Short-term rental debacles and dilemmas when you have somebody renting your house and they're not taking good care of it, what you can do to prevent this and more in today's episode. Up first, we're going to talk about taxes, insurance, and a loss of cash flow. And if you should hold them or you should fold them. And most importantly, if you want a chance to ask your question, head on over to bigger Pockets.com slash David. The link is down in the description below. Pause this, send us your question, and let's jump in.

And Life Pro Tip, even if we don't answer your question, you can always head on over to BiggerPockets.com. Head on over to our forums. Get a whole community there, tens of thousands of people that are happy to support you and answer your question. So go join that if you're not already part of it. Hello, David. My name is Zach Palmer, Cape Coral, Florida.

I have a question about what to do with my long-term rental. It was cash flowing. This year, the taxes and insurance went up, so now I'm at a loss of about $67 a month. First option we're thinking about is just keeping it. We're trying to play the long-term appreciation game. It's in an A neighborhood, a 3-2. We think it's going to appreciate heavily in the next 10 to 20 years. Our second option, just sell it.

We have about 80,000 equity. Can redo the bathroom's kitchen, some other minor things to get more money out of of it. Our third option we're considering is turning into a midterm rental. We're about one mile away from downtown and one block away from the local hospital. Either way, we have a lot of options, but with all this info, what would you do? All right, Zach, we've got the age old question. I am no longer cash flowing. Should I immediately abandon ship? A few things. I thought it was very funny that you said it's negative about $67. Did you want to be?

Roughly $67 and $53. Was it that he left off the $53. And that's why he didn't go with the exactly 67. Zach, I think it's okay. Because if you're, if you just step back a little bit here, your negative 67, let's say you were positive 167, right? What we're really talking about is you're losing $100 a month that you weren't,

or maybe a couple hundred dollars. a month. Whether that crosses this imaginary threshold of positive to negative cash flow is all in our heads that we determine what it's worth. You did mention you think it's going to continue appreciating a lot over time. That's going to dwarf whatever cash flow you would have got. And I imagine that most people can probably cut back and save $67 a month if they really need to. Maybe you get the family plan at the Chinese restaurant instead of ordering the individual entrees or something. But that's not too hard to recover 67 bucks. So if it's long term, going to keep going up, I like that. The other option that he had there was the medium term rental. My thoughts on that were how much

you're going to have to spend in furniture to try to get a little bit more every month. So, right? 30, 30, 30, 30 grand. That'd be good if it's only 2030 grand. Right. And that's just to figure out if it's going to work as a midterm rental. It might. But it's, this is the misconception I really dislike about midterm rentals is that it's not actually easy. Like, if you want to do it, the Jesse Vasquez way, he's got an amazing empire. He's so good at contacting hospitals and construction companies and tech companies and building relationships and having a book of business that will basically book his places for a month at a time. That is like, that takes a full on team to do that type of thing. But you can't, one simply does not say, I think I'm going to turn into a midterm rental.

Let the 30-day bookings begin. It doesn't really work that way, unfortunately. So I would say make sure, see, analyze it, run your comps, but $67 bucks a month. Obviously, I hate losing money, but that's nothing. That's really nothing. He said it's an A plus neighborhood. That's one really important piece here. I imagine it's going to appreciate more than $700 a year by a lot.

So he's actually not in the negative here, really just more so from a cash flow perspective, but certainly not from like a net worth perspective. So I'd say keep it. Zoom out. That's the key. Zoom out, right? You're looking at it every month. It's losing 67.

Zoom out to what it's going to make in a year. All right. So you're losing $700,800. There's properties that lose more than that in a year because one thing broke. You had one leak that caused your property to lose $1,000 in the year, right? But even if it was cash willing positively, so you felt good about it. Zoom out even more. This is one year.

In the future, rent should be going up, right? You're going to be glad that you bought it. So you made a good financial decision investing your money into real estate instead of spending it on stupid things. just feel good about the fact that you did it. It's a long-term investment. We like real estate to cash flow. We try to make it cash-thel. If it doesn't cash-full, it does not mean that you failed at this. When 30 years, when that's a paid-off property and rents are like eight, nine times, whatever they are right now, you're going to feel really smart. So hang in there, my man. One other thing that he said was that he has about $80,000 in equity. Well, if he sells it, realtor fees, commissions, all that stuff, he's going to walk away with like, what, a $60, $65,000 check. I'm not really He's going to be able to move that money into a property that's going to be that significantly different. If he's talking about leaving an A plus neighborhood or an A neighborhood in his area, yeah, I would say just stick with what you got. One rent increase of three to five percent year over year is going to fix that for him pretty quickly, I'd say. And this is a unique problem

that we're experiencing right now, especially in places like Florida. It's the insurance and the taxes are going up faster than the rents can keep up with. My whole career investing in real estate, I've never seen it, where your expenses go up faster than your income are. But the insurance problem and all the inflation that we've created has created this problem. But you know what? If you've been listening to this podcast, you've been warned about it for years. So you've got healthy reserves built up. You've been making financially responsible decisions and you will weather this storm.

No pun intended because you're in Florida. Thanks, Zach. Is the pun that there's a lot of storms in Florida? Yeah. Nice. I don't feel so nice about it if you have to ask. It was good, man. I'm the dumb one.

I said if you could weather this hurricane with that event better. Ah, there it is. Ha ha ha. I get it now. Thanks for the pity laugh, man. I ain't too proud to beg. It was real. All right, we're going to be getting into a rent-by-the-room tenant question and what to do after my first house-hack question directly from the bigger pockets forums right after this quick break.

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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. You can go on a trip and action. earn money. Airbnb makes that possible with the co-host network. If you're away for a while

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like an investment. And welcome back, everybody. We're getting into it with Nicholas Sanchez from Tejas, who wrote in the forums on BiggerPockets.com. Hey, David, I'm in the Dallas-Fort Worth Metroplex, and I'm curious if you could go over some of the strategies for buying the second house hack in the 2024 market. Would I have to refinance the first property after a year because it would no longer be my primary and along with the first, the second property, and future?

Would it be good practice to have separate checking and savings accounts per property? Thanks in advance, Nikki Sanch. All right, so let me break this down because we do talk about this strategy a lot. I believe you've coined it the sneaky rental strategy, if I'm not mistaken. So what Nick wants to know is, hey, if I'm ready to execute this sneaky rental strategy, is there some kind of technical process, some kind of paperwork that he has to file in order to basically turn his quote-unquote primary residence into an investment loan? There is not.

And that's why I keep telling people, this. is it. This is what everyone should be doing every year before you even look at Burr or long distance investing or anything. Buy a dang house hack. You get the best loan possible, the best rate and the best down payment. And it's not only better. It's not like, well, you could go 20% down for investment property, but 17% down for a primary residence. You could get one for three percent down, about one seventh. You can buy seven of these things for the same down payment it would take to get one investment property. And you do not have to do anything when you move out. As long as you intend to live in it as your primary residence when you buy it, there is no rule for how long you have

to live in it. They can't force you to do something. If your mom gets sick, if your job wants you to relocate, if your barber is no longer able to get your quaff the way you want it and you're forced to move somewhere else to get the same quality service. If you found the perfect house to move into with the better in-home movie theater so that you can watch Interstellar in Surround Sound 5.1 Dolby. All of these are legit reasons you can leave your primary residence and get another one. And you don't have to do it. You have to tell the bank you're doing it. It does not matter. That is not a part of the loan. So sorry, did you say you have to tell the bank or you don't have to tell it? You do not have to tell anybody at all. The only situation you will get yourself in trouble is when you buy it saying you intend to occupy it as your primary residence and that is a lie.

You cannot Mori Povich your one. If the lender says this determined it was a lie, you could get in trouble there. If they can prove that you never intended to move into it. And so that's what we avoid. I shut that. I always hate crushing dreams because I have a lot of people that are like, all right, Rob, yeah. Yeah, I'm buying this house. What do you think?

And I'm like, yeah, how much is it to get into it? And they're like, oh, I only need like $10,000. I'm like, what loan program is that? They're like, oh, FHA. And I'm like, that's what we call mortgage fraud. You're going to have to save up a little bit more. I hate being the bearer of bad news. But yeah, you can't buy an FHA property with the intention to rent it out.

That's exactly right. That will get you in trouble. So we're very clear, don't do it. But if you buy it with the intention to move into it, which a great way to prove that you intended to move into it is to move into it. And then when you've moved into it, I can't recommend a better way. Then when you change your mind about that house, you move out of it. As long as there's no evidence that you intended to do that the entire time and you keep

making your mortgage payment, you're going to be fine. even if you don't keep making your mortgage payment, they can't prove fraud if it wasn't fraud. So typically the reason we say live in it for a year is not because the lender requires you live in it for a year. And that's where the problem comes from. It's because you can't get the next loan until you've waited 12 months in most cases. Okay. So if I tell you, Rob, hey, buy a house to house hacking, you do. And six months later you want to move out, nothing stops you from moving out.

But you might have to wait a full 12 months before you can get another prime. primary residence loan to buy the next house. They're two separate things that often get mismashed into one. And so that's why people think this. Oh, so you're capped out at like one FHA loan, for example, per year? You can only have one FHA loan at a time. You cannot get another FHA loan. You can get another primary residence loan that's not FHA.

You can get a conventional loan. So this is another misconception. Oh, man. Yeah, you're blowing my mind here. People think FHA, they think the FH stands for first time homeowner. That's not true. It stands for the federal housing administration. FHA loans are government loans meant for people with lower credit scores and lower debt-to-income

ratios. And so they let you get by with three and a half percent down payment. But you could get a conventional loan at three percent down. Wait. Lower or higher debt-to-income ratios? It's for people that have worse debt-to-income ratios. Got it. Okay.

Okay. Got it. Yeah. But you can get a conventional loan with a slightly higher credit score than FHA and a slightly better debt-to-income ratio for three percent down or five percent down. Okay, it's FHA loans are not the only loan you get to start. In fact, they're usually not even the best one. Yeah. At the one brokerage, we try to put people into conventional loans because the mortgage insurance goes away on a conventional loan. It does not go away on an FHA loan. Wow. Interesting. So you can only have one FHA. So you put that three and a half percent down one year later. You don't have to go notify the bank. You can just go put three percent down on another conventional loan. That's also intended to be a primary residence loan, living it for a year. And that's what you mean when you say keep doing it year after year. Nice. That's good clarification. That's it.

You're seeing green ban, and we appreciate it. I've come to the green side. All right, everybody, there you go. The second part of this question was, along with the first, the second property in the future ones, would it be good practice to have separate checking and savings accounts per property? What's your thoughts on that, Rob? It's good practice because if you're actually talking about, I mean, it depends on what type of method you employ, like if you do the profit first or anything like that. But I would say it's good practice just for the purpose of tracking expenses and everything. mostly not, it's not going to be that big of a deal on probably too, but if you're talking about

being a real estate investor and buying like 45, six, seven, eight, nine, ten properties, you will have to have some type of system that you figure out at that point. So if you start early, it's not super hard to convert. But for what it's worth, I have different bank accounts for every single property that I own. Whoa. Every one of them has their own bank account? Oh, sorry, every, every LLC, but yeah, pretty much. So do you just name every account, the property address? So that's how you track them? or like the nickname, like Pink Pickle or Treehouse or. So Pink Pickle has the mortgage come out from that account.

It has the taxes, the insurance, the utilities. Everything comes out of the same account. Yeah. Yeah, it's just so that I can kind of, because my books aren't always super like up to date. So it's my way of saying like, oh, hey, like we're trending up here. And I can keep tabs on my properties. Yeah, I don't know. Now you make me sound like I'm crazy.

Is that not how you do it? Oh, God, no. Like, that's so many different checking accounts. I don't know how I would keep up with that whatsoever. I just use one account for all the different properties, but I have a full-time bookkeeper who keeps track of everything. Okay, so what would you tell Nick? I think your way's better if you can handle it. That just seems like so much work and it'd be so confusing, but I think your way's cleaner.

Yeah, it's not that bad. I mean, I just sync up, like, because also you can create virtual debit cards for every single one. And so I just put every single expense when I'm, it's easier now that I'm doing it. It took me a little bit to convert to this. But basically, I have a virtual debit card that goes to every single utility, every single, you know, or everything like that. That way it truly is kind of like in real time. I can engage the health of all my rentals. But maybe I'm crazy. You're crazy busy. You're crazy complicated, but your books are going to be a lot cleaner. Yeah. Yeah, I don't, yeah, I guess I could just trust my bookkeepers more.

But hey, here we are. There we go. All right, moving on. Our next questions come directly from previous episodes of Seeing Green on YouTube where we grab comments out of the comment section. I love this part of the show. You get to see what people are saying about the show. we get to interact with our audience. It's the comment section, if you will. Sometimes we grab stuff out of the Bigger Pockets forums, but we keep our finger on the pulse of what's going on in the real estate community. Remember, we want you to be featured on an episode of Seeing Green.

So go to biggerpockets.com slash David to submit your question, or leave us a comment on YouTube as you're watching and let us know what you think of our advice. Rob, I'm going to let you take the first question from Matt here. Okay. Matt says, I've been a longtime fan and avid watcher of your content. as a blue-collar worker myself, I want to offer a word of advice. Many of us who likely make up a large portion of your audience are blue-collar workers who love what we do and are committed to our careers due to pensions, medical coverage,

and the need to support our families, unlike those who might have started investing when interest rates were low or are single and don't have mouths to feed. For many of us, buying a quote-unquote cheap home is the only option to enter the investing world, even if that means working extra hours and spending time away from our families just to save enough for the down payment. Instead of constantly pointing out the drawbacks of these investments, could you use your experience to help us make the most of them? We appreciate your continued information and hope it can be tailored to help us succeed with the resources we have. Thank you. Well, too bad, Matt. No, I'm just kidding. I actually saw this on YouTube whenever he posted it.

I completely agree. I was thinking the same thing. I feel for them. We kind of don't talk super positively about cheap old houses. We always say cheap houses are the most expensive ones, which isn't untrue, but we all got to start somewhere. And so with that, I appreciate the feedback, Matt. Yeah, duly noted. I'm changed. I don't know that I'm against cheap houses because cheap has to do with the price point. Of course, I'm going to prefer a lower price point over a higher one. The concern is the location. Because cheap houses are typically in the worst areas and the location of the home is the only thing you can't change. That's what makes me nervous because where he was mentioning here like, If that's our only way in the game, tell me how to do it.

Our concern is that you can't get out of the game. You buy a house that becomes a money pit and you're saying, I had to work really hard to get this down payment. I buy the house. Now I'm working all the time to dump more money into a property and there's no way out. You just consigned yourself to a lifetime of overtime to keep a property afloat. That's what our concerns are. It's not the price point.

It's the safety and the desirability of the area and the tenant pool that you have to pick from. So if you have a way to buy cheap houses in good areas, that's what you want. That's what we're all. Best case scenario. Right. Do you think, Rob, that we're just not doing a good job of differentiating between bad location and cheap price point? Yeah, I don't know.

I can see what he's saying because we do, I mean, there are times where we're not super friendly to the concept because we're just like, don't do that. Why would you do that? But what he's basically saying is, well, I have no choice. This is literally the only way I can do it. it. Now, on the flip side of this, I think that the solution that we offer, which isn't for everyone, but it is the solution is the sneaky rental strategy where you say, hey, if you can't afford to go out and buy a rental property in a good neighborhood, house hack and build your wealth

from there. And I think that doesn't really help half the people who are very, like, I would never do that, which unfortunately, like, we can't, you know, we can't make them want to house hack, right? And truthfully, I don't have an answer. It's probably case by case, but I think what he's basically saying is like, can we develop a start from the ground up strategy? And if I'm reading between the lines, that's maybe not house hacking. But I just don't know if that necessarily exists. I think, you know, even Scott Trench, everybody on the network would just say like save up your money until you can't get into that first property. Yeah. And let's talk about just the amount of money that it takes to get into a house. Okay. Let's say you're doing an investment property. You got a house at

200,000, 400,000 or 600,000. We're going to call that like cheap, medium or expensive. If you're putting 20% down, that's going to be $40,000 on the cheap house. That's going to be $80,000 on the medium house. That's going to be $120,000 on the expensive house. $40, $80,000. That's a lot of money. Even the cheap house at $200,000 is still $40,000 down payment plus closing costs. It's a lot.

Now, let's look at house hacking on those same houses. Okay? The cheap house would require $6,000. The medium house would require $12,000. and the expensive house would require $18,000. Very big difference. Yes, that logic is all sound. It makes complete sense.

I'm with you there. I think what Matt is saying is whenever we poo-poo the idea of buying like a $50,000 house in the suburbs of like, I don't know, some random little town type of thing. I think that's more of the scenario. Not necessarily that $200,000 house, but it's like, hey, all I can afford is this little like $45,000 fixer type of thing. Yeah, maybe we could try to do a better job with it. Those are difficult, though, because.

you often can't find a loan for a house that's priced below like $75,000. And so it just becomes now you almost see cash to be able to play in these cheap house area, which means you have to be wealthier. And we get right back into the same scenario. So I will do a better job of trying to think about for the people that are investing in cheap houses. But let us know in the comments if you think there are strategies that we are neglecting here that people can use to get their foot in the door to start building equity when it comes to real estate. Yeah, but it's hard though.

It is. I mean, thinking through even like a $75,000 house, if you're truly trying to fix it, like an AC could be like seven grand. So it's like... Yeah, it's literally 10% of the value of your entire house. A roof could be 25% of the value of the whole house. That's why we say cheap houses sometimes are the most expensive ones. It's just hard to make investing work when you're playing at that price point. Yeah.

And I see where you're coming from on that oftentimes because what you were saying at the beginning of this was just like, what we're trying to do is if you're all kind of got, you know, a little bit of savings and you're just trying to get into your first house, we don't want that house to be like a money pit that you basically regret buying. Yeah. All right. We're going to do better. We're going to try to attack questions from every angle moving forward and not poo-poo anything. Because everyone, you know, anyone can make anything work.

It's happened many times in history. So we will do better. Spoken like a true politician. Way to go, Rob. We may or may not do better, but we will, we may or may not try our best. But we will not do the same unless that's. what you want us to do, in which case we will do the same, but we will do it with a different paint color, so it does indeed look different. Our people will get with your people.

All right, our next question comes from Sunny Body 9567, who says, what do you look for in a good property inspection or how do you find a good property inspector? And how do you do your own due diligence? Rob and I are going to tackle this often neglected question right after a quick break. 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. You 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.

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Tax season reminder for all the real estate investors listening. If you own rental properties, short-term rentals, commercial buildings, basically anything that's not your primary residence, you need to know about cost segregation. It's an IRS compliance strategy that lets you accelerate depreciation on your properties, which means you're paying less in taxes this year and keeping more cash in your pocket for your next deal. Cost segregation guys is the go-to firm, having done over 12,000 of these studies with 500 million in total depreciation identified. head to costsegregationguise.com slash BP to get a free proposal and see your potential tax savings. All right, welcome back everybody. Rob and I have been holding our breath the entire time and his face is blue.

My face is green because it's always green and we're going to answer the next question. Rob, I don't imagine that you spend a whole lot of time looking at home inspections. I'm guessing you probably have people on your team do it yet. What do you think? Do you put into meticulously pour over these things? Is there anything that jumps out at you? Okay, what's your advice? Well, this is selfish, but it's like property inspections are so long sometimes,

and it's really hard to, like, figure out what's actually wrong and what's not wrong. I guess, ultimately, I do really like a good report that puts, like, the bullet points of everything, and then it gives you the actual report at the back end. That's what I'm always looking for, like, because at this point I know enough about homes construction to see what's good or what's bad. So I like to see the bullet points for what needs to be addressed, but then read the full report. For me, I guess I'm typically looking, I kind of want an inspection report that's a little bit more doomsday for a couple of reasons.

I like to just have everything in front of me so I can see it. So the more thorough an inspector, the better. It doesn't happen often, but sometimes I get an inspection report that's a little like, oh, that's not that bad. Those are the ones that worry me. I feel like a good inspector is really good at pointing out things. that can be catastrophes for you down the road. But then when you actually talk to them in person,

I've met with most of my inspectors in person, they can usually level with you and say, hey, yeah, I have to put this here. This is definitely something that can be wrong, but between you and me, this is not something you have to worry about quite yet. So I like an inspector that can kind of give me both sides of it, not just the doom and gloom, but like,

hey, here's when you actually have to worry about it. All right, let's start with what is due diligence. Most of your due diligence will be the home inspection report. You're basically inspecting the home itself, the area around the home and the greater overall area. So the majority of people don't even go put an offer on a house until they've already picked the city and they like the location. So there's not a whole lot of due diligence for your average buyer regarding the area.

But it might be like, is there any trains going by? Are there airplanes that fly directly overhead? Do I have a neighbor that's going to go make my life hell? I know some of our clients have gone literally knocking on doors and introducing themselves to get a feel for what the neighborhood's like if they're going to be living. there, but still, the majority of it's going to be the home inspection. You want to look for a thing, because they're going to find so many things wrong. Every house has so much stuff wrong with it. What you're looking for is what has to be fixed now and how expensive is it going to be?

So hinges that are loose, a lot of the times they'll talk about exposed wiring and it's still just like, it's not like it's actually a fire hazard that it doesn't have the right sleeve around it. So my advice is you talk to the home inspector. What are the things that all ask them, sometimes I'll have my client on the phone is I'll say how does this house compare to the other houses you inspect? Like, oh, this one was great. What? There were 77 things that were wrong with this house and they're freaking out. And they're like, oh, this isn't even that bad. This is in better shape than a lot of other houses were worth. So I like to get context from the inspector themselves. And then I say, if you were buying this house, what in this report would concern you? Because remember, you're asking a person

that does this every single day for a living, right? Well, that foundation was very scary. I've never seen one that bad. Well, the report just listed there's a problem on the foundation. That's different than them saying, objectively, I feel like this is a very scary thing. I wouldn't want my kid living in that or no, all foundations look like that. That's just over time, that's what they do. Yeah, that's really good. The actual frame of reference for that house and that time period relative to other houses in that same time. Correct. The house from the 1950s, they have to say, hey, the foundation is crumbling, whatever. And then they're like, but by the way, all houses from the 1950s are exactly like this. Yes. And then a lot of the time they'll point things out because they're trying to

not get sued. They don't want to miss anything. But the house might go another 55 years with that same issue and it's been there for 55 years. It doesn't mean that everything in the report has to be fixed. In general, I lump about five things together as the things I worry about. And those are going to be foundation. They're going to be water leaks. They're going to be electrical hazards. Like this is an unsafe electrical condition. They're going to be roofing. issues that lead to the useful life of the roof not being able to last. So there's always going to be broken tiles. There's going to be issues with the roof. But when they're like, this roof is about to need to be completely replaced, that's something that I look into that's really big. And then the last thing would

be the major appliances. Like you're talking about the air conditioning unit, the water heaters. You're basically trying to figure out, do they have 10 years of life left? Do they have six months of life left? because those are all issues that you have a very good chance of getting the seller to give you a credit to fix in the home. When it's cosmetic, I guess I didn't mention dry rot. That's not on a home inspection. That's on a pest inspection. That's why I didn't mention it. But that's another issue.

Every house has some kind of dry rot. But if it's really significant, you're going to have to fix it before the wood gets eaten up by the fungus. How's that, Rob? Yeah, very good. Very good. Very thorough. I think, yeah, you have to, I mean, is it not common to always speak with your inspector? I feel like I speak with, whether it's in person or on the phone, so they can actually run me through like, hey, yeah, by the way, let me distill this for you a little bit so that you don't freak out when you read it in the report.

No, I think people would rather spend four hours looking at the report and freaking out than picking up the phone to talk to the person and asking them. Yeah, I mean, I always say this. 99% of problems in real estate could be solved with a simple phone call. And, yeah, I bet you a lot of houses have a lot of deals have fallen through because they didn't actually have a conversation with the inspector about it. Yeah, remember, when you're dealing with the title company, the escrow company, the loan officer, the home inspector, the appraiser, everyone, their first priority is always going to be to not get sued. They don't want to miss something or not disclose something because that gets them and their license in big trouble. But if you want to interpret what has been disclosed to you, pick up the phone and call them and ask them, how concerned are you and how do we fix this problem? All right, our last question comes from my cousin, Shannon Green. Just kidding, Shannon doesn't have the E at the end of her name, but it is green. This comes from the BiggerPockets.com forums in the short-term rental and vacation rental subsection. Asking for IDs for all renters per stay, is this good or bad? We have an STR Beach Home in South Padre Island.

We recently had a large group, larger than what was allowed. Stay at our home and their behavior was unacceptable. We found out that one of the kids' mothers rented the house was never on site. It was a bunch of young, underage kids doing dangerous things. Question for everyone. We use VRBO. How do you handle preventing this? We have changed our language to state the person renting must be at least 25 and must be present during the entire stay.

We would like to request IDs before renting for everyone staying. Just a thought, is anyone doing this? We have a local manager that can check IDs upon arrival. What are your thoughts? Any advice would be appreciated. Hmm. That's a hard one. I mean, you're never going to be mad that you are overly secure, but you might be mad that you were so secure that you lost out on booking info, right?

Or on booking. So there are actually services that you. you can use that will do this for you. I think it might be a little hard if you're saying, hey, I need everyone in your party to send me this random person on the internet, your ID. But I use a service, what are the super hog. Basically, I say, hey, everybody will need to get verified through this service. They're going to require everyone to upload their IDs, do a background screening, all this good stuff. Here's the link. And basically that service is the intermediary. Every time I've ever asked people to do that, I've had no issues whatsoever. Most people are like, oh, okay, you know,

It's a little bit of friction, but a lot less friction than asking people to send me like eight photos of IDs. So I'd probably try to find some kind of intermediary service that will do that versus asking for it yourself, which some people do, but I don't know. It kind of feels weird. Someone asked me for my ID. I'm always just like, why? Yeah. It's a supply demand thing, right? I tend to say be as restrictive as you can get away with. Yeah, there you go.

So if you have a amazing house, tons of demand for it, it's renting all the time. and you can turn somebody down who says no and just fill it with somebody else, have more rules. If beggars can't be choosers and you're having a hard time getting it filled, this may stop the situation you had from happening, but now you have another problem and that's nobody's renting your house and you're losing money every month, which is worse, to have a problem with more people at your house than you should doing dumb stuff or to have a vacant property. We can't give you an answer exactly what to do, but this is the way that I think you need to weigh the decision that you have. Another thing would be to figure out some way to just make your property undesirable for young kids doing dumb stuff. Okay.

Like if you bought a property that has a pool and then an overhanging roof right over it and it's like an easy access to the roof, you're going to have people that want to jump off the roof into the pool. So can you put something on the roof to make it very difficult to do that? Yeah, like the pigeon spikes at restaurant so that the pigeons can't sit on there. Pigeon spikes at restaurants, a big fence or something up there. A whole bunch of signage that says. says, if you do this, you will be charged a god-awful amount of money or something like that. Having a manager that greets everybody when they check in, even if they don't give IDs. Well, I've done that before.

We've rented luxury short-term rentals to host retreats at. And the person who owns the property had somebody that met us when we got there. So if you show up with a bunch of underage kids, 40 people deep party, there's someone who sees it right away and it deters them from wanting to do that. I do think that that's a happy medium if you can't go all the way. way to getting people to give IDs, that there is someone that goes on site when they check in to says, hey, I'm just here to see if you guys need anything, but makes it very clear, we see you. That's hard, though. That's not really an option for, I would say, most operators, unless they have

property managers. I would say, there's a couple things I do. I have very stringent house rules that are over the top ridiculous. I mean, I don't really think this is best practice, but honestly, it's worked for me. And I'll say, like, absolutely no parties. If I find out there's a party, I'll charge you $500. I'll have you escorted off the property. We have ring cameras that show how many people. I mean, I'm very much lay into the rules. And then I get so many inquiries every single week that's like, hey, does everyone

in the party have to be 25 and blah, blah, blah, and we're able to weed people out because they read my rules. They never even think about booking to begin with. So I feel like you can go a little extra with your rules to kind of deter that. And most people will read my rules. If they're normal people, they're going to say, oh, man, a lot of rules, but that's not me, and it won't really bother the general population. So I've actually had pretty good luck doing that. So far, no one's really ever called me on it, except, you know,

some people will say like, hey, I'm booking your place. It's for my daughter's fourth birthday party. I know you said no parties. Is that okay? And I'm always like, the rules weren't written for you. It's okay. You can have your four-year-old birthday party. Yeah. There you go. So the answer is subtlety and nuance to set a tone that would discourage people if you can't get away with getting an entire ID. Good question, though. Thank you, Shannon, for sending this. And remember, we want to hear your questions, too. So head to biggerpox.com slash David. Submit your question, be featured on seeing green and learn how you can make more wealth in real estate with Rob and I. Rob, any parting thoughts before we let these good people get on with their lives? No, man. I'm happy to be here.

I'm in LA. I'm actually in, I'm, I'm bigger pocket. I'm using the influence of bigger pockets to change what I might be doing with the room that I'm sitting in. This is the first rental I ever had that I decommissioned because there's a lot of reasons. But I'm thinking about renovating it and making an extra $1,800 a month, pure cash flow. So thank you for all the influence you've had on me, bud. All right, awesome. Rob, thanks for being here with me today. I really appreciate it.

It's always fun to do Seeing Green when you're here. Good luck with your renovation. Make sure you keep me in the loop with how that goes. I know that you're probably ready to start swinging that hammer and using that saw. So I will let you get out of here. All right. This is David Green for Rob. See in Verde-A-A-A-A-Solo.

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 Calico 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.