BiggerPockets Real Estate Podcast - 985: Seeing Greene: How to Use Home Equity to Retire, Buy Rentals, or House Hack

Episode Date: July 9, 2024

Should you use a HELOC to buy investment property? Would we use home equity to retire? When is it time to sell a performing property and exchange it for a more expensive one? If you’ve got home equity, this episode could help you reach financial freedom faster as we answer real listener questions, many about home equity, on today’s Seeing Greene! If you’ve been investing for a while, you may have some paid-off properties. Should you get a cash-out refinance and live off the loans? That’s what one of today’s investors is asking, but Rob and David have different views on whether this is a good retirement plan. Did your property almost get destroyed by the city this week? Rob’s did! We’ll share the full story at the start of the show. Next, an investor debates selling her performing rentals to scale into a bigger property. We also answer how to use a HELOC (home equity line of credit) to quickly grow your real estate portfolio. Why are contractors so hard to find? A veteran investor/contractor shares the reason why most contractors suddenly disappear. Finally, a listener has inherited multiple lots of land but wonders if he should build multifamily rentals on them. Can he use the lots as collateral to get the funds to start his investing journey? All that in this Seeing Greene!  In This Episode We Cover How to retire using home equity and cash-out refinances (and whether you should!) Why Rob was close to having his newly-renovated home destroyed by the city  When to sell a performing rental property and trade up into a better area  Using a HELOC (home equity line of credit) to invest in real estate  Why good contractors are so hard to find and often vanish from investors’ lives  How to leverage land to fund build-to-rent investment properties  And So Much More! Links from the Show Ask Your Question and Network with Investors on the BiggerPockets Forums Join BiggerPockets for FREE Property Manager Finder Ask David Your Real Estate Investing Question See David and Rob at BPCON2024 in Cancun! Real Estate Podcast 978 – How to Build Your Real Estate Investing Team (Agents, Contractors, Lenders) Real Estate Podcast 972 – 3 Beginner Steps to Find Undervalued Real Estate in ANY Market Grab David’s Latest Book, “Pillars of Wealth” (00:00) Intro (01:06) The City is Destroying My Property! (06:12) How to Retire with Home Equity (13:00) Sell Rentals for House Hack? (18:45) How to Use a HELOC to Invest (26:04) Comment Section Callout  (28:47) Contractor’s Advice for Investors  (35:46) Build Multifamily on Inherited Lots? Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/real-estate-985 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

This is the Bigger Pockets podcast show 985. What's going on, everybody? Welcome to Seeing Green. I'm your host, David Green, and if you are listening to this podcast, you are part of the growing and thriving BP community. This is the show where we get to connect with community members like you, directly answering listener questions that everyone can learn from. And I brought some help. Joining me today is the man, the myth, the legend. Rob Abas Solo.

How are you, Rob? Ahoy. I'm back in America. We're in the same time zone once again, and it is beautiful to not be doing this podcast at 11 p.m. That's right. Rob does not have to be recording at midnight, and we are both in our offices, locked, loaded, and ready to bring you the best podcast out there on the interwebs. In today's show, we get into contractor tips, how to trade equity for a house hack. One of the best comments that we've ever had on this show, as well as what to do when the city

threatens to tear your house down, and you have only two days. to solve that problem. All that and more in a stellar episode of Seeing Green. Now let's hop in. All right. Our first question of the show comes from no name here. It's a gentleman that looks like a mix of Antonio Banderas and Jason MoMAO. Sir, welcome to Seeing Green. How can I help you today? Hey, David, long-time listener, first-time caller. So I've got a situation where I was supposed to close on a property today and make $105,000. but we found out that the city of Houston is going to demo my house and there's nothing I can do to stop it. I was just wondering, based on your experience, what should I do? Thank you, big fan of all your books.

Wow. Okay, they're demoing your house. Did they tell you why? Yes, they did. So basically, I bought the house in 2023, but in 2017, it was condemned by the city. and then it got recondemned again in 2022. And in 2023, when I bought the house, I made all the necessary repairs that the city asked for, but I didn't file for an extension to basically make the repairs. And because of that, they basically condemned it again. And then they went on to basically find me $600 for long grass.

I mailed a check to pay the fine. It got sent back to me. and because the check was sent back to me, they said, oh, well, the owner of this house is, you know, not here. It's an abandoned home. Let's send the wrecking ball to close, to basically knock down the house. Wow. Well, this is a lot of condemnation going on. First off, Houston sounds very jengy. And so I'm sorry that you're having to deal with that. It sounds like the city believes that nothing is actually being done on this property. Have you been able to get through to them to show them that something is indeed being done? Yeah, so I went to the neighborhood city department today, and I basically said, hold on, what's going on? Why are you demoing my house today? I was supposed to close on this property and make $105,000. And they said, oh, yeah, do you have any photos of the repairs that you made? And I was like, yes, I do. And I, like, showed photos, time stamps, receipts, everything. And the guy, the head inspector looked through all the photos and said, oh, yeah, it looks like you did make all the repairs. Okay, yeah, we'll approve your permit. And so basically, when it was all said and done,

they gave me the extension. I'm good to go. I freaked out. I panicked. For anyone listening at home, the charade is up. The person is me, Rob Abbas Solo. I was dealing with this over the last 24 hours. I thought you looked familiar. I called David with, yeah, in a huge panic. And I was like, David, what do I do? And David said, take a deep breath. They probably can't just demo your house without your permission. So I said who, not how. And I started making phone calls to people that had more answers. And I went to the office today very calmly. And I just, you know, I went through the process and everything's going to be okay. But I did lose out on the sale. Yeah, you're losing the deal. That's true. My backup advice to you was chain yourself to the doorframe and stand there

live streaming this so that they can't demo your house with you attached to it. And everyone would see what the judgy city of Houston was up to. I'm glad it didn't go to that because you don't, it's not always a good day when you find yourself playing chicken with a wrecking ball. This diplomatic approach you took seems to have worked out much better. Yes. Well, you know, I just was taking your advice and Henry Washington's advice that, hey, you know, I've been holding onto this property for a long time.

I didn't want to lose money on it. Y'all were like, hey, just lose the $5,000 on it and be done with it. And I was like, fine, I'm going to do it. So I decided, hey, I'm going to lose $5,000 on this property. I've been holding onto this property for a little less than a year now. I was so excited. And, you know, in real estate, sometimes there's good luck, sometimes there's bad luck. This was a bit of bad luck for me. But I followed the process. I try to remain calm after I frantically called Henry Washington and Dave Green on FaceTime. And good news is the house isn't getting demoed. Bad news is I got to find a

new buyer. But hey, that's real estate, baby. All right, let me give you a little bit of advice. Have you put this thing on the MLS yet? Yes. Okay. That will help. I don't think. there's a whole lot of houses listed at $100,000 in the Houston MLS. So you will get interest. You will have an investor that will find it. I wouldn't expect it to be sold in three days, like if it was a primary residence that was price really low. It's been on the market for like six months. Is it that long before you found this buyer for it? Well, we get a bunch of offers in the 50, 60, 70, 80, 90,000 range. So whenever someone's kind of close in that $100,000 range, we say, hey, the least we can do is this amount and we kind of negotiate from there. So, yeah,

Yeah, we get offers all the time. But yeah, this was the only one where I was going to come out unscathed for the most part. Well, if you want to go in on it together, partner and make it the green pickle, let me know. That might be a good backup plan. Thank you. Thank you, sir. Hey, don't forget, Rob and I want to hear from you on a future seeing green episode. So simply head over to biggerpogs.com slash David and submit your question.

We'll do our best to help figure that out. All right. Our next question comes from Bob, who has questions about strategies. you tap into equity when nearing the end of an investing journey. Quick question, this may be a standard strategy, but what is your best plan when you start thinking about retirement and you own real estate? You don't want to eat the equity. I know this, you know this, we all know it. So what's the answer to getting access to our equity for those of us who have some but don't really want to continue acquiring properties?

I want to slow my life down a bit and enjoy the fruits of my labors. I had cancer a few years ago and I acknowledged my time to enjoy life is finite. It occurred to me that I should just cash out refinanced by properties that are fully stabilized that have significant equity, but that also can support the new debt incurred. For example, if you own a property with $400,000 in equity and you can still easily cash flow with a $300,000 cash out, what's the downside of doing this? You just got handed $300,000 tax free. If you have multiple properties where you can do this, you can finance a very nice lifestyle and still retain the underlying assets. Just curious, group thoughts on this. Rob, it looks like Bob here is looking for a little real, you know,

assurance that cashing out a property and living on that tax-free money is a good idea. What are your thoughts? I don't like. I think that if you're going to cash out this gift, this savings account that you've built up and you've sacrificed so much to build, you should use that to get a return on equity, which would mean take that equity, go and invest it in more real estate that's going to cash flow you more than the current situation that you're in. That to me is really the only acceptable time to cash out. I like the idea. It's like, tax-free, they could live for 300K, but I mean, I guess it's a philosophical thing. I'm not going to poo-poo it. I'm not going to yuck their yum, but I really only think that

the only acceptable time to cash out is, A, you know, develop the empire, or B, you're truly retiring, which at that point, you know, maybe I'd consider more selling it and just being done with all of it. But what do you think? I'm going to take the opposite approach here. I think Bob was mentioning he doesn't want to have more work. He wants to wind down. So he doesn't want to reinvest the money. He doesn't want to see another renovation. He doesn't want to analyze another deal and go digging for deals, right? Yeah. So as far as taking equity out of a property, it does not get spoken about very often on podcasts. And that's because most people listening to a podcast like this. And of course, we're speaking to our listeners here.

They look at real estate as a way to grow. But like, he's at the end of his journey. He doesn't want to grow. He actually wants less work, less headache and an easier life. I get that. In Pillars of wealth, I talk about what I call the 15, 15, 15 strategy. And basically, it's a very simple way where you buy a house once every 15 years and you put it on a 15 year note. And you may not cash flow as much or at all in the beginning, but you start paying off huge chunks of principle right off the bat. And at the end of 15 years, the house is paid off. You then refinance it, live on the money that you pulled out of it tax free. Yeah. And then the second year, the second house that you bought is now paid off.

So if you can sacrifice 15 years of hard work building a portfolio, you would be able to cash out refinance a new house every single year and live on that money tax free, which could be $100,000, $200,000, $400,000, depending on how expensive a real estate you bought. I think Bob's in a similar situation here where if he doesn't think he has a terribly long time to live, he thinks he has enough equity that will last him for the rest of his years, taking out a loan, not paying capital gains taxes, not having to reinvest that money. and new properties is actually a viable strategy. It's similar to like having a 401k that you're cashing out your stocks.

And you're getting less dividends from those stocks and less growth from those stocks, but you're getting to spend the money. He's just doing the same thing with real estate. He's going to get less cash flow because he's going to take on more debt. He's going to have less growth because he's not buying more real estate where he's going to get more appreciation. But he's going to gain the use of the money and an easier life, which for many people is the reason that they started this journey.

Yeah, it is the point. What Bob is suggesting, and it's Bob maybe at one point he was Rob, and now he's an older, wiser guy, you know, and I'm just a young in here. I personally would feel guilty because I'm sacrificing so much so that I can build wealth for my family. So the concept of, like, taking out equity to go live on a beach or something, that's probably not what Bob's going to do, but whatever, like, I guess I just naturally feel guilty because that's just so anti the purpose of real estate when you're first getting started. But if I guess, you know, I could see it. Like I said, I'm just too young to have that perspective truthfully. If I'm being honest, I can't relate with it because that's just not something I would do. But I understand. He's just trying to cash in on

all of his hard work over the years. So, you know, I think you gave a pretty good presentation there. Maybe I should, maybe I should take a page out of your book. I want to just take a minute in front of all of the seeing green audience to say, how mature of you to recognize your own bias? And you're like, you know, David, it's just not how I think. And so my advice was colored by that. But it might make sense for Bob over here. Yeah. Yeah, I get it. Well done. All right. Thank you. You're growing up in front of my eyes here. We grow up so fast, don't we? Yeah. Now, I will say there is some risk in this because you're taking on additional debt. So I'm giving this advice under the assumption that Bob has so much equity and so much cash flow that cash out refinancing whatever he's going to take out is not

putting him in a financially dangerous position. If your cash flow was like really thin and this is going to make it even thinner, I don't like it. But if Bob can pull out $300,000 or $400,000 and he maybe only needs 50 or 60 to live, he's basically bought himself a couple years of living on the money that came out and he doesn't have capital gains taxes. He hasn't lost the asset. So he's still getting future growth, right? Like, this is really what a lot of people are working towards being able to do. I think the tricky part is knowing when you make the jump, right? Because at the point that you pull money out of your property and you don't buy more property, you're sort of putting yourself in a dangerous position where there's no more growth. And the worst thing would be if you ran out of

equity to cash out refinance and you didn't have a way to replenish it. Does that make sense? It does. It does. Well, how about this? To round this question out, if you're watching on YouTube, drop us a comment, are you team Rob or are you team Bob from a point of view standpoint? I'm curious where where people land. Are you team Rob? Are you team Bob? Are you real estate snob? And where do you fall in the real estate mob? Let us know in the comments on YouTube what you would do if you were Bob. Very good. Impressed, honestly. All right. Coming up, we're going into our first ad break, but stick around because we're going to be talking about if someone should sell their current home to scale into small multi-family and what to do after you get a he lock. We'll be right back.

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Don't just dream about real estate. Make it happen with PropStream. All right, welcome back. Up next, we have a question about selling two properties to trade for a smaller multifamily property. Amber in California says, hey, David, I love the show. It's my go-to podcast and I appreciate all you do. My question is regarding selling to scale up. I have two single family rentals in Riverside with about 400,000 plus in equity in each and good

cash flow. I'm looking to purchase a two to four unit house hack near Orange County to be closer to my husband's job. Due to the higher interest rates and still inflated home prices, we are being pushed out of the market. When does it make sense to sell one of my current homes to scale up? Thank you for the help. Oh, Rob, this is the best part about doing seeing green in an incredibly challenging real estate market where everything. used to be pushing us forward and now it feels like everything is pushing back. This is a legit question, right? I've got a lot of equity and a lot of cash flow. I want to move that equity from one asset to another, but my rate might be two or three times as higher and the prices haven't come down. So

what are your thoughts on moving equity when you're going the opposite direction with interest rates? Yeah, you know, this is an interesting one because, you know, I'm a, I always say that equity is a gift and I think I don't like to move equity around as much as other people, but I think it's a totally viable solution, obviously. What I like about this is that not only is she open to selling one of her properties or she has 400K in it, she is wanting to sell one of her properties that has 400K in it to buy another property that she can house hack in. So I think it's really great. Maybe if that allows her to, you know, upsize and have a better home for herself, and on top of that have anywhere from one to three additional units on the property, even if that property requires a little bit more leverage

and she can build more equity over time in a more expensive property. And if the return is pretty similar or kind of in that same area, then I'm totally fine for it because as you've mathed out before, the return on investment on a house hack is great whenever you can, you know, if you can subsidize your mortgage pretty substantially. Okay. So your advice is that if you're going from a smaller asset into a larger asset, larger one, you like it if it's going to consider. continue to grow. Yeah, and she's also house hacking in this in this asset as well. I like the house hack, definitely. I wouldn't recommend doing this at all if it wasn't house hacking. I don't know that I like going from a cheaper asset to a more expensive one. I liked that a lot more when rates were

going down. So when you had a house at a six and a half percent interest rate and you were going to exchange it into a bigger, better house that was taken on more debt, but you were going down to a three, three and a half percent interest rate. Yeah. It really like tip the scale. It really like tip the scales in your favor to take on the additional risk to get the additional reward. And that's one of the reasons real estate was so popular for so long is you could make these big gambles, but you could mitigate your risk on the gamble because you were getting a better rate. You were getting more inflation. You were getting the odds of rent going up and the odds of the asset itself appreciating. Like, kind of everything was going in your favor. So I do like the idea of trading one asset for

another asset, especially if you're going to a better location. The area that I might advise differently than you, Rob, would be, I don't know the person's financial situation if they're rolling in the dough. Obviously, this isn't as important. But I'm almost happier to see someone sell a $600,000 home at a 3% interest rate to get into a $400,000 home at a 7.5% interest rate. I feel like if you're taking on less debt when you make the move, your payment isn't going to jump up as much, but you've still moved the exact same amount of equity from one asset to another. Sure. I think you and I are more similar than you think. Please elaborate. Well, because she said she's putting down 400K and then she's looking to purchase a two to four unit. So I assumed that she's going to take that entire 400K plus equity, dump it into the unit to try to get it as close as possible to whatever her living situation is now. And then also have the subsidized mortgage in those other units. So I mean, it's hard to know without all the information in front of us. But I feel like, yeah, I feel like that's kind of what she's. getting at. Because there's so much equity. So I guess if you're moving the equity from one asset to another, ideally, you always want to be going into the same or a better location because that's going to lead to more growth. Even if the house itself isn't more expensive, theoretically,

the house is in a certain area will appreciate at a similar rate. So an $800,000 house will go up more than a $400,000 house, but they're probably both going to go up around the same 4 or 5%, if that makes So you can move your equity from one asset to another, but if you take on less debt, that helps combat the higher interest rate and it keeps your expenses from getting disproportionately high, which is where the risk comes from. There you have it. I think we're saying the same thing, just looking at it slightly different. Again, need a little bit more info, but surface level, I think I like it to move a much of equity into a house hack and then not pay a mortgage is what I'm hoping she's going for. Yeah, now Rob and I are both somewhat familiar with Southern California. I think,

Rob, you're probably even more familiar than me. I live in California. I live in Northern California. But I do know that moving equity from Riverside, which is a so-so area into Orange County, which is a grade A area is a very smart move, especially with the economy of California somewhat in flux. When you see that things are possibly going down or getting rough in a state or a location, the best school districts, the best areas will hold their value more.

So moving that equity into Orange County is almost guaranteed to be a smart move because it's going to hold its value. and appreciate more there than it would have in Riverside. Totally. You're never going to go wrong investing in Orange County, in my opinion, I think over time, you're going to see some pretty massive appreciation. Pretty, I'm not, nothing is guaranteed. But over the course of the long-term investment, that's a huge hitter.

That's right. There's only one county better than Orange County, and that's a green county, which is where you are right now seeing green. All right, moving on to our next question from Claude. Claude asks, what of my goals is to grow my portfolio to 30 units. I currently have two properties with four units total. I'm getting a he lock. What do I do now? I understand that this money is borrowed money, so I don't want to have it locked in a deal for a long time and pay the interest payments. What's the best way to utilize this helic to grow my real estate

portfolio and mitigate the risks of borrowing a large sum and not pay it back or worse consequences? I figure a fix and flip project, cash out refinance, pay off the helic and then repeat like the burr strategy. How else have you all used helic loans? And what are the risks that I may not be? seeing or aware of full transparency and that I do not know the best path forward. I also understand that there is no blanket answer to this question. I'm more looking for perspective. Well, Claude, you came to the right place because this is perspective central. This is perspective. Oh, that's even better. That's pretty good. Perspective. Isn't that your seventh book that you're writing with bigger pockets? Give yourself a pat on the back. It'll be my 17th book.

Actually. 17th book. Yeah. Do you want to illustrate it? I need to write a book that says written by David Green illustrated by Rob I'm I'll do the four word it'll be four words that's very good look the rap is strong in today's episode that's right go back and listen to that one again if you guys didn't catch it all right Rob you and I have talked quite a bit about ways to use helox and this mainly comes up because for years when rates were low and real estate was appreciating it was a semi safe strategy to pull money out of a

property via helock put that money into new real estate because the cost of borrowing the money was low and the odds of the house appreciating that you bought with it was high, meaning all wins were in your favor. It's not like that now. Real estate is not appreciating at the same level or at all in many markets, and it's more expensive to borrow the money. So it's not a slam dunk that you just pull equity out of a house through a HELOC

and use it to go buy the next house. You have to think about a little bit more. So what are some of the ways that you like seeing investors using HELOC's responsibly? I think that I'm more on board with sort of the velocity of money and kind of moving money quickly around. I think that's the purpose of a helock. For example, that house that I referenced at the beginning of this, my plan for that was basically to use my helock

to pay for the renovation until I was advised against that. So now I'm actually using my helock for a motel renovation in New York, motel that I've been working on for a little while now, because I know that there is a quicker exit on that. So for me, I like having the mobility of a helock that I can kind of use however I want to. I probably am not the kind of guy that wants to trap a heloc for a 30-year loan just because the interest rate is better than that of a bank.

But some people do. I'm more of a, how can I quickly use a helock to kind of scoop up a few projects and move it around quickly? Okay, give me a little bit more specifics there. Like, what would that look like if you could paint a picture for me? So just like this, a fix and flip project, or let's say that you have a property that could be a burr, maybe you take the hard money out on the outside. actual purchase price of the burr itself, but you have the he lock that is a significantly

lower interest rate in theory to go out and make the renovations to actually get you through the cash out refi of that property where you can get all that money back. Okay. Or if you want to build, like we always talk about ADUs. If you have a HELOC, that's enough money for you to go out and build an ADU to increase the value of your property. That's going to take you about a year or so. But then in theory, if you do increase the value of your property, you can go cash out, pay back your Heloc and have gotten basically a free ADU out of it. That's great. The pattern here is we're looking for ways to use HELOC money that are short term.

Pretty much. When somebody uses the HELOC as the down payment for a new rental property, unless it's a Burr strategy, there's no way to get that money back out of the property to pay down that he lock. And so you end up with two loans. You have an 80% loan in most cases, which is your first position mortgage. Then you have the HELOC, which is 20% of the purchase price. it's already hard to find cash flow.

Now we've got to find cash flow with two mortgages. Very difficult to do. Very hard. I like it more. Rob likes it more for short-term projects. I'd rather see that you pull the money out, use it to flip a house, maybe two or three houses, take the money from those flips. That becomes the down payment for future purchases.

It's not as easy. It's not as fast, but it's safer. This is assuming you know how to flip. Something else that Rob and I have talked about if you're a short-term rental operator. Take money from a helock and put it into improving a product. you already have, not necessarily acquiring a new property. So you build an ADU on a property, that improves the property. It also could, what I call force cash flow. As long as the cash flow that you forced is more than the debt service on the HELOC, you won with cash flow and you won with

equity and you made your property better. This creative type of thinking is needed if you're going to use a HELOC in today's market responsibly. You could also consider pulling out the money and lending it to another investor if you trust them to do good work, or you could put it into a project that somebody else is doing as long as the return is higher than the money you're getting. I don't love that as I don't talk about it as much because let's say you're getting a 16% return, but you're paying 11% on your HELOC. You're basically risking losing it all to make a 5% return, right? The minute that you're taking on debt in order to put into somebody else's deal,

but you're still keeping the risk, your upside goes down and your downside stays the same. So, Clyde, to sum this up here... No, your upside goes down and your upside and your upside goes down. Wait, no, your upside goes down and your downside goes up. There you go. Your downside doesn't stay the same. You can still lose the capital. That's what I was getting up. That's what I'm saying. Your downside, like the risk goes up. I love that you thought about that for 14 seconds before you interjected it into this conversation. It's a little wheel on Rob's laptop was spinning.

So short answer there, Claude, Burrott. yes or flip it yes but don't stick it somewhere that you can't get it back out especially if rates go up again those helocks can become a trap i have a buddy justin who is advised by a loan officer that wasn't one of us to take out a helock on his primary he did it he spent the money on a short term rental rates went up significantly and his payment tripled and he's just like he's stuck working overtime every single month just to stay even and every time he has to drive to work and get up early he's cussing out his loan officer friend in his mind because he got screwed on this. And it wasn't told to him that, hey, rates do go up on these helocks and they can be significant. I got one more use case that I've used a helock for. One of the first times I ever used a helock, I built a property out in Joshua Tree, used a helock for the majority of it. And then it appraised for much higher. I did a 75% cash out on it, paid back the helock entirely. Got a free house. Not free. I still have to pay the mortgage. People in the comment. it's always common.

They're like, it's not free. Oh, yeah, yeah, yeah. But I got the house basically, I got all the money that I paid for the house, paid back to me, and now I just pay a $900 mortgage on it and cash flow every single month. It's awesome.

So it doesn't matter. If I cash flow $100 or $1,000 a month, I don't care because it's an infinite return for me at this point, all because of a heloc. There you go. That's how to use a helic. Get in, get out. Don't stick around.

All right, at this part of the show, we like to open this up and read comments from previous shows that you, the best audience in the entire world, have left for Rob and I. We get these out of the YouTube comments. Occasionally we get them out of the bigger pockets forums, or sometimes we get them when someone leaves us a review. So if you're listening to this, make sure you go leave us an honest review.

Let us know what you think about the show and make sure you subscribe as well. Our first comment comes out of episode 972. In this show, we had a somewhat controversial discussion, Robin I. And if you've been holding your breath, you can now let it out and breathe the sigh of relief. we have a verdict on the does Rhode Island have an accent debate thanks to a life to summit? Rob, would you like the honors? Yes, he said, one of my best bros is from R.I. Rhode Island. Him and his entire family have one of the best and worst accents in the country.

It's like Boston met New York and made an idiot baby. I feel wrong reading that. This might be the funniest comment we've ever read on scene green. We apologize if you've got kids in the room. We should have given you a warning. We use the I word there. But that is hilarious and made even better by Rob adding Boston in New York into the accents into this. I had no idea.

And frankly, that's because I don't know anyone from Rhode Island. I forget Rhode Island is in fact one of our states. So if you're listening to this in Rhode Island, I blame you for the fact that we forgot it was a state. We need more of your comments on YouTube so we can remember that you exist. Oh, can I add, can I add something? I've got a list of notable and famous people from Rhode Island. You ready? Cormick McCarthy, H.P. Lovecraft, Damien Chazette, George Michael Cohen, Mary.

I don't know any of these people. Do you? That's what makes us. so funny. Deborah Messing. Harry Anderson. Oh, I know her. Yeah, she was on the show. Is that with Ray Romano, right? No, Harry Anderson is a man. Everybody loves Raymond? No, Deborah Messing. Oh, oh, oh, yes. Oh, Viola Davis. We got one. We got a live one. Who's Viola Davis? Oh, my God. Let's move on. All right. Somebody out there, Rhode Island needs you to become famous, successful, and powerful so we can improve this list. Oh, Polly D. Who's Polly D? Is that a celebrity?

He's from Jersey Shore, which is funny. Okay, I was like an MTV person or something. Yeah. All right. Carry on. Right after this quick break, we have a question about inheriting property and some advice from longtime contractors for investors. You definitely don't want to miss that. How often do you hear a contractor telling an investor how they could be better? We'll be right back after this quick break. And while we're away, make sure that you follow this show wherever you get your podcast. The rise of the tech savvy investors here. You don't need a huge team or tons of overhead to manage rental properties. Just the right tools. So I want to tell you about how I use rent ready to get ahead. For landlords who treat their time like capital and recognize the cost of

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All right, getting right into it. Our next question comes from Dennis Gaiman. Not a question, but more advice. And Dennis asks us to comment on what we think of it. I'm a real estate investor with five properties worth about $4 million that are all paid for. I have a mix of residential commercial and storage base. I also own a remodeling contracting business. So you are a busy bee, Mr. Dennis.

I frequently listen to and enjoy the Bigger Pockets Real Estate podcast. I just finished listening to Show, 978, how to build your real estate investing team, agents, contractors, and lenders. Second pop quiz, Rob. What book did I write that talks about how to build your team? Burr, the Burr Bible, the Burr book. Unfortunately, that is incorrect. Would you like another guess?

And we've got a winner. Luckily, Rob phoned a friend and our producer was able to step in. This is evidence that Rob has only read one of my books and apparently doesn't remember anything that was in it. David and Henry had a lot of great information to share in episode 978, part of which was how to find good contractors from my seat as a contractor in business for 34 years and having worked as a tradesman since 1975. Rob, I believe you're only like 14 years old at that time. I would like to share a couple of my thoughts about contractors working for real estate investors. Number one,

real estate investors can't afford to hire top-notch contractors. When a real estate investor calls our remodeling company to do work for them, I have to tell them that I can't even afford to have my trade employees work on my own real estate investments. They cost too much and they take too long. I hire other contractors to work on my own properties. Well, that's a shock. I was expecting to hear that. I thought he would get it at cost here and it's like a beautiful symbiotic relationship. Number two, contractors work out great for a few properties, but then they stop getting back to me. This is because they haven't been good business people. Most likely they know their trade well, but they weren't making money doing it. They either went out of business or got

wise and realize that if they want to stay in business, they need to start charging more. Construction contracting in most areas is very easy to start your own business, but the track record is that over 90% of contractors don't make it past two years in business. Did not know that either. Of those who make it past the first two years, less than 10% make it past five years. This means that only 1% of contracting businesses ever make it past five years. And number three, contractors that become good business people will soon realize that are worth more and deserve more money than real estate investors will pay them. Real estate investors must make their investments work financially and can't afford to make

decisions based on emotions. Wise contractors know that the place to make money is with homeowners who want to make their house work for their families or they want to catch up with the Joneses and they are willing to pay the right contractor top dollar to make that happen. All right, Rob, we've been given three pieces of advice from a contractor who claims he is also a real estate investor. So we're getting kind of a balanced perspective. What are you feeling after hearing this?

wouldn't say it's advice. I think it's more anecdotal perspective. I would say he seems a hair jaded, but as much as I also, as much as I think that, I also think that he's kind of right for the most part. I would say a lot of contractors, I do catch them early on. I grow to love them because they're affordable. I end up referring them out. They do a great job for other people. They get referred out. And so after a few cycles of investments, they end up being. a lot more expensive than where we started. So I definitely agree there. And then I would also say that, yeah, contractors, not good business people, but the ones that become good business people end up really marking up their services a lot. And so there are oftentimes where I do have to

part ways with the contractor because they become too expensive. That's just the name of the game for me, though. I mean, have you been able to maintain the same contractor in your entire career in certain markets. Negative ghostwriter. That has never happened. Usually they get to be well known in the industry. They have more business. So now they can be picky and they can choose the jobs with higher profit margins, which you have to expect out of capitalism. You and I would do the exact same thing. We're in that position. We all raise our prices. Yes. Or if they're not getting more business, it usually means they're not doing a great job or they're operating unscrupulously. So the key is kind of like you're looking to draft that really talented ballplayer before everybody else sees how good they are

and get as much out of them as you can. And that is also what makes it difficult to get a referral of a contractor. Other investors don't want to give up the most valuable part of their team to you because then you're going to use them and you're going to tell your friends about them. And the next thing you know, their phone is blowing up and they're not working for you anymore, Rob, but they're not working for me. So this is always a problem. I wish more people would listen to this and think, you know what?

I'm going to start a construction business. I'm going to become a contractor. I'm going to become handy because the industry clearly needs it, and I can make an honest living being in high demand doing this job. And at the same time, I'm going to pick up some rental properties while I'm at it. And I'm going to have my crew working on my deals. I'm going to have my crew doing my maintenance. And I'm going to have my crew doing other deals for other investors sort of shotgunning out

this approach. I don't know why we don't get more of that, right? Everybody wants to become the real estate agents or they want to become like the white collar worker, but it's the trades where I think most opportunity is because there's less competition. Now, Rob, you are a bit handy yourself. When Brandon and I first interviewed you on the podcast, you were quite frankly, very bold and arrogant in your assessment that you know how to change the lock on a door. Do you remember this?

Oh, my goodness. Yes. Uh-huh. Yeah, and this was true. And I had to step in because the maintenance people showed up at my apartment at 3 a.m. because there was a lockout, and they came from a party. They were very drunk, and they kept falling on the ground trying to drill a hole. So I had to step in and do the job myself. I did. And I'm just kidding. He was not arrogant at all. Rob was an absolute pleasure, which led to him

being my co-host on the show. But yeah, being handy is a superpower in today's era where very few people are. If you agree with me or if you disagree, I want to know, let us know in the comments on this show what you think about a career in the trades. I don't know. I don't know. I think this is pretty good stuff. Again, we cannot confirm if any of this is true, but I have no reason to think that it's not. I believe that Dennis here is making some solid points. Yeah, I don't know what advice to give, though, about how to overcome this other than just expect that you're always going to be having to cycle through contractors. Pretty much. Yeah, it's part of the game. And if you find a good one, take care of them, pay them on time, don't take advantage of them,

and get them excited about working with you and send a business. Like, hey, I'm going to send you business, but remember to always take care of me. I do still have some of those contractors in my life. And yes, over time, become more expensive. But I also believe that you get what you pay for. And if you find a good one, you got to hold on to them. Final question from Oscar in Texas. Hello, David. Rob, I'd just like to formally apologize that none of our audience acknowledges you. I try to let you talk as much as possible for whatever reason. They don't ever remember your name. Hello, David. My brother and I recently inherited six lots from my grandfather. That just sounds like something that you'd expect from a grandfather, right?

That they would own lots. Like, who else owns these lots in the world? I ever driven by an Arby's and thought like, who is eating at these places? How are they still in business? I never see anyone in the drive-thru. You got all these lots for real estate everywhere, and I'm pretty sure that they're all owned by grandfathers across the country. One has a commercial building on it that is being rented.

Well, then it's not just a lot, is it, Oscar? Come on now. The properties are paid off. We have four lots right next to each other that the city has told us that we can build multifamily on. We currently don't have any money saved. but we would like to optimize what was given to us as we are paying taxes on these properties either way.

Do you think leveraging the commercial building and land to develop is a good idea? If so, what would that look like? Thank you so much. All right, I'll take first stab at this, then I'll hand it to you, Rob. My loan company does have a product where you can borrow money to build

and you can use the value of the land for your down payment, whether it's all of your down payment or part of your down payment. It's very cool. So the builder's like, hey, you have a $50,000 valued lot here, we will let that be the $50,000 down payment of your property. So you would be able to build a $250,000 property here. And if the cost of building is $250, to build multifamily,

but the property is worth $700, $600, $500 when you're done, you're building a lot of equity. And I don't disagree with this idea of building to rent in today's market if you know how the process goes. And that's where it falls apart for a lot of people. Building, dealing with the city, dealing with inspectors, dealing with permits, dealing with this stuff. Some areas, they're great. They want people building in their cities. They want families to have a place to live. Others make

your life absolute hell. What's your thoughts on this idea of building on land that you already own? I think it's great, especially like you said, you can use the land as collateral towards your down payment. So if you already have the land, I think you should use it. I would say if he's got six lots, maybe let's not go all in on six lots and build something all at once, scale accordingly. That's always been my opinion. Take it day by day. Try one or two. And if you really like the grind of building new construction and going through that process, at that point, consider finishing it out in the second phase or maybe a third phase. Very well said. That might be the most concise thing you've ever said on seeing green. Do you have to go to the bathroom? Are you trying to rush out of here?

No, I could give a longer answer, but I choose not to. All right. In today's show, we've covered quite a few topics, which is awesome, including how to save your property from a wrecking ball, what to do when a judgmental condemning city wants to condemn your property, contractor tips, tricks, and advice, trading equity for a house hack, building to rent, and more. And most importantly, we want to thank you all for listening to this. We know that you can be getting your real estate information everywhere, and we really appreciate that this is where you go to get it. If you'd like to know more about Rob and I. You can get our information in the show note. So please do go look us up because we want to hear from you. Send us a message on social media. And if you have a question

that wasn't answered, you can submit it at biggerpockets.com slash David, or you can head over to biggerpockets.com and you submit it in the forums. My advice, put it in the forums and then also submit it at biggerpockes.com slash David. So Rob and I can take our crack at answering your question. Keep an eye out for a future episode of Seeing Green and we will see all you lovely people on the next one. This is David Green for Rob forwards, forward, Abasolo, signing off. Thank you for listening.

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.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. And remember, past performance is not indicative of future results. BiggerPockets LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.