Money Rehab with Nicole Lapin - How To Buy Your First Home with Scott Trench, CEO of BiggerPockets

Episode Date: June 23, 2023

Wannabe first-time homebuyers: How are you doing? Are you hanging in? If you are having a hard time, you are certainly not alone; it is not a simple time to buy a home. So this episode is all about helping you develop a game plan that is right for you. To help break this down, Nicole is joined by Scott Trench, real estate investor and CEO of BiggerPockets - a platform that offers various stellar resources and content for real estate investors.  Scott and Nicole talk about strategies to find a good house, whether your first home should be an investment property, and whether you should even buy a house at all.

One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime, you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that

I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bancorp Bank N.A. or Stride Bank N.A. Members FDIC. SpotMe eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in SpotMe and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details.

I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. To all my money rehabbers out there who are trying to buy their first house right now, how are you doing? Are you hanging in there? If you're having a hard time, you are certainly not alone. In 2010, first-time homebuyers made up 50% of all homebuyers. 11 years later, first-time homebuyers made up only 34% of all homebuyers. And only one year after that, in 2022, that number dipped to just 26% of all homebuyers. So the data is clear. It is not easy to be a first-time homebuyer right now, and it is only getting harder.

So this episode is all about helping you develop a game plan that's right for you. And to help break this down, I'm joined by my pal Scott Trench, a real estate investor extraordinaire and CEO of BiggerPockets. It's an awesome platform that offers resources for real estate investors. Scott and I chat about strategies to find a good house right now, whether or not your first home should be an investment property, and whether you should even buy a house at all. Here's our chat. Scott Trench, welcome to Money Rehab.

Thank you, Nicole. It's great to be here. It's great to have you on the show. I came over to your podcast home, I suppose, and now I'm inviting you into mine. Yeah, thank you so much. I'm really excited. You guys have a wonderful show here and always learn a lot. So I'm excited to chat with you and learn some more and talk about some real estate potentially. Let's do it. So let's show some

love to first time homebuyers right now, shall we? Because they're struggling, Scott. You know, cards on the table. It's not an easy time to buy a house. And even in more advantageous economic times or interest rate environments, buying a house is not for everyone. I have a whole checklist that I say people should cross off before even thinking about buying a house. I won't go through the whole spiel with you, but basically if you're going to live in it for a while, if you can afford it, if you have a steady job that you love, things like that. that you love, things like that. I want to hear from you, though. What are the guidelines that you give around whether folks are going to be in a good position to begin with to think about buying a house? Yeah. So I always start the home buying discussion with the concept of should you rent or buy, right? And right now, in most markets, in most parts of the country, it's cheaper to rent than buy unless you plan to live in the house for a very, very long time and have very, very long-term horizon expectations. But in terms of if you are willing, if you are ready to buy, I think that my checklist would be very similar to yours. It would include having a great credit score,

having a steady stream of income that is something you can borrow against, having a substantial amount of cash savings. I like to have the down payment plus all closing costs that you're going to pay in cash, plus all anticipated repairs or maintenance you're going to make shortly after closing, plus a $10,000 to $15,000 cash buffer. So yes, that's a pain in the rear to accumulate, but I think it's the responsible position going into that purchase. Notice, however, that I didn't say you need to have a 20% down payment. I'm fine with a 5% or if you're a military person, a 0% down payment. You can use a VA loan, for example. Oh, let's double click on that. Why is that?

Well, I just think that, first of all, it delays your purchase by so long if you have to save up 25%. And second, in my position as a real estate investor, I like to use as little as possible down on a primary home purchase, or in my case, a house hack or investment property that I'm turning into a future estate investment. And that gives me more cash available for other investments. I also think it's more conservative, right? If you have a hundred grand and you're buying a $400,000 property, if you can put down 20,000 and have $80,000 in the bank, you've got $80,000 property, if you can put down $20,000 and have $80,000 in the bank, you've got $80,000 in cash to withstand any storms. Sure, your payment's a little higher on that mortgage, but that's actually a more conservative position than putting the entire $100,000 down or even

close to that and having very little leftover in your bank account. That's how you become house poor, which can make your house a chain or a trap instead of the American dream that I think a lot of us make it out to be. But then you're paying a lot more in interest overall. How do you balance that? Yes, you're paying more in interest, but it's about what you can earn in other types of investments as well. So for example, as a real estate investor, even at a 6% or 7% interest rate mortgage, I think I can earn a better return than that in other investments like the stock market and like additional rental properties. That was certainly more true, more obviously true three or four years ago with three or 4% interest rate mortgages. And it's a little harder now that six or 7% is right in the bubble for a lot of people in terms of the types of returns they can

get in other investments versus paying down their existing mortgage. But that's how generally I've approached it in my life to this point. Yeah. I mean, right now we're in a totally different interest rate environment. So the arbitrage or like the area where you can profit from having a super low mortgage and then getting, you know, seven or eight percent inflation adjusted in the stock market has narrowed a lot. So it's almost a wash if you have a 7% mortgage and you can get 7% in interest. Has it changed your calculus in this interest rate environment? Yeah, 100% it's changed the calculus. And the way it's changed the calculus is it's made renting a more attractive option than buying in many markets for all but the people with the

longest term horizons in terms of owning that property. So that is a major issue here. Higher interest rates have changed the housing market in a number of ways. I don't know if you guys have talked about the lock-in effect for a lot of homebuyers out there. Let's talk about it. So this is where if you have a 3%, 3.5% interest mortgage on your house from the last couple of years before rates started rising in 2022, you feel locked in.

And you could talk to a lot of your listeners here, and I bet you they'd say this. They're not planning to move. If you have a $500,000 house with 3.5% interest rate mortgage, you're not selling that thing and moving down the block into a $600,000 house, even if it is an upgrade, because you're going to be paying twice as much in interest on that new mortgage. So that's why existing home sales are down dramatically year over year in the housing market. And there's so low inventory. It's because of this lock-in effect. Otherwise, if this effect weren't happening, I think you'd be seeing significant declines in property values and prices because people would be obviously transacting at the same rate and you can't afford the same amount of property at today's rates if there was enough inventory to

go around. All right. So you say that housing is an expense and not an investment though. So tell me more about why you think people should view housing not necessarily as an investment, I'm assuming out of the gate. Yeah. So if I have a car, right, my car is not an investment. And the reason why people don't have a problem with this is because the car is typically depreciate in value. But a house costs you money to live in. You're going to pay a mortgage. You got to pay property taxes. You got to maintain the property. And yes, while it typically holds its value with inflation over a long period of time, if you were to plot out your net worth based on whether

you could live for free in your parents' basement or in a house that you own and have a mortgage on, you will find that the house is going to decrease your net worth, even though, yes, you are building equity relative to an alternative, for example, like renting. What's fundamentally true, and model it out yourself if you want to, is that the more house you buy, whether that's renting or as a homeowner, the less wealth you're going to have, especially when you layer in the opportunity cost you have of investing the cash that's going towards your housing payment or your rent in things like the stock market or real estate investments. So that's why I classify housing as an expense. What do you need in determining a liability other than the more you buy, the less wealthy you are and the higher the cash outlays to maintaining that lifestyle you have.

So that's the first way to think about it. And then that enables us to think, okay, I'm going to change this from an investment decision to a cost benefit exercise. What is the least expensive way to live my preferred lifestyle? Is it renting or is it buying? And a few years ago, I would have said it's about a five to seven year break-even point. If you're going to live in a place for less than five years in most parts of the country, it's better to rent than to buy. And by the way, you don't have to live in the property more than five or seven years. You have to own the property for more than five to seven years to cover the transaction costs with that. And if you're going to live or own the property for more than seven years, I think it's better to buy than to rent. I believe that with the rising interest rates in the last

18 months, that math is pushing things out to the 10, 12 year mark. So you got to be even more thoughtful about that bivers rent decision in most markets in the country. Yeah, because even when you look at listings, I mean, I love housing porn all day, every day. If you look at how much that house is appreciated over time, oftentimes it's not that much, depending on the area, of course. But then you have to, when you're looking at the history of what it traded for, oftentimes you

can see that you'll make much more in the stock market or different investments. Yeah, I think that's absolutely right. And what a lot of people don't do is they say, oh, that house looks beautiful. It has all these things. They don't understand what that means for them a few years down the road, which is why I think you got to think through what's called exit options whenever you buy any piece of real estate and especially your house. And there are three basic exit options for your typical homeowner in this country. One is you move into the property and you live there happily ever after. And too many people overweight that as the only option and just kind of have that as their

standard assumption here. The second exit option is that you hold the property and keep it as a rental, right? Preferably, that's going to be a positively cash flowing rental where money is going into your pocket and you're not subsidizing your future tenants' housing costs by paying a mortgage or having expenses that are greater than their rent, which is how many homeowners that turn their primary houses into rentals actually turn things out. And the third option is to sell the property. And again, hopefully at a gain. And so the better you can maximize a happy combination of those three options. And the sooner you can do that in your home buying experience, the better off you are, the more free you are, right?

If you buy a house and you do your numbers correctly and you finish the basement or add value to it in some way, it's worth more. Maybe it cash flows if you were to move out six months, a year later as a profitable rental, and maybe you're happy to live there for as long as you want. That's the framework I think you should have going into your first home purchases. How do I maximize happy choices in those three categories? Because a lot of people go in there and they only have one exit option, live happily ever after and close my eyes and pray for continued appreciation

so I can sell it at a gain. And that's where you find yourself stuck in the same job. That's where you find yourself in this trap that tens of millions of Americans are in right now, where they're locked in to their current housing situation and cannot move in a reasonable context, can't take that job in the next city if it's a better opportunity, but doesn't pay enough to cover the new housing costs that they're going to have. But you assume that exit option of renting it out and being able to cover basis and all of that, it's a pain in the ass to do that. It's hard to have renters. I think that somehow this has been glorified this idea of like, I'm just gonna, you know, get my duplex and I'm gonna rent half of it out. Or like, I'm gonna live in the ADU in the backyard and I'm gonna rent out the house and it's

gonna be like rainbows and butterflies and the person's not gonna suck and they're not gonna have parties and they're not gonna, you know, mess up the toilet. And like, it changes your lifestyle completely. It's beyond like a cool TikTok of like, hey, I got like this rental property and it's paying for my suite like yacht when I go to Dubai with my wife that somehow I'm getting all of these TikToks fed to me. It's hard in practice. Absolutely. Where do you live right now? I live in L.A. L.A. And do you live in an apartment complex, a house? A house. A house. OK. And how close are your neighbors? Supes close. Supes close. Okay, great. Do you like all your neighbors? I don't know all my neighbors, but the ones I know I do like. Okay, fair enough. Well, I haven't always liked all my neighbors, but I have generally been able

to not have them continue being neighbors after a year if they behave poorly or cause problems in my life. And so I think that's the framework. That's how I'd reframe the discussion around landlording. Yeah, it's obviously work. It's about the ROI of that work and the other tangible benefits that come with it. So most people in this country... When I started out my investing journey, I was making $50,000 a year and I bought a duplex for $240,000 in Denver. Can't do that anymore. That place rented for 1150 on the other side and I had a roommate for 550. So if you're doing that math, that's 1700 bucks a month. 1700 times 12 is what is that? That's about 20 grand in annual income. So that's two fifths of my salary are going into this exercise.

income. So that's two fifths of my salary are going into this exercise. Obviously, it would have been better not to have tenants in my place and to have the whole place to myself and not have to worry about those problems. But I got paid 20 grand in order to do that. And that was worthwhile to me. So today, fast forward to today, I run this real estate company. I've got a very good income. Life is good. My wife decides that she wants to move into one of our duplexes. And I'm a little bit resistant at first because I want to go back to house hacking. I go back here and we have this big five bed, three bath duplex on each side. So it's a nice house. You guys have your own separate side or what's happening? We have our own separate side. Yes. And the other side pays $2,700 per

month. And the mortgage on this property, I bought it two or three years ago, is $3,200. So every once in a while, I got to interact with the tenants. They let the lawn grow pretty high before mowing it recently. Send a friendly reminder over there, please mow that thing. But on the other hand, I'm living in this really nice place that's pretty big here in Denver for essentially $500 a month, plus the maintenance and utility fees for my side. So it's all in that perspective. Obviously, it would be better to just pay $2,700 a month in rent and not have to deal with that. It's about how much benefit I'm getting in order to do that. So that's, I think, the glorification, if you will, of this is when you do it right, if you go through the hard work of educating yourself on how to find quality tenants that have good credit scores, have good income, do your reference checks, you can still have problems,

but you're a lot less likely to have those problems. And you're much more likely to have a quiet, peaceful existence with your neighbors that are, they share a wall with our property, but there's another house on the other side that is 40 feet away. So I actually see that person more because the way our structure is set up than I do the tenants that I have living next door to me. Yeah, but you don't have to tell them to mow their lawn, right? Like you don't have to interact with them. They could be assholes. They could not pay. They could squat. They could TP your house. TP your house. There's all sorts of things that people don't talk about. It could have been the case when you were younger and had your duplex and had your roommate

that you couldn't find a roommate or that you couldn't find a tenant or all of these things. I think sometimes we get colored by the perfect case scenario. Oftentimes, we don't talk about the variables that can really suck. And by the way, you're running a big company. Scott, how many employees do you have? We have about 80 folks here. And a bunch of people report to you. You guys make a bunch of money. It's a big company. And you're dealing with this dude's like lawn. Like that is opportunity cost for you making even more money. I agree, but I also like where I live. And here's where I put it back to you.

I've had neighbors I haven't liked in the past. So for the three years prior to this move that happened a couple of months ago, I lived in a quadplex as a tenant, nice place, downtown in Denver, near one of our fancy parks, Wash Park. I can say that I didn't always get along with some of the neighbors there. Unfortunately, not owning the rest of that quadplex, I couldn't tell them, go mow your lawn and please stop going through my stuff over here. Please don't do this stuff. Guess what? I own this duplex. And so my tenants who have not caused any problems whatsoever, literally, the long grew a little high. It's not even a big deal. I just texted them to please mow it at some point.

If that was to repeat, I'd have a little bit more control over that situation. So I actually almost prefer that in my situation. Now, I want to also stop rose coloring the whole real estate investment process because you're absolutely right. There's a pain and a price to getting into real estate investing that has to be paid. And it's not really in the form of dollars. And I would even say at this point, it's not really even an ongoing time spent managing the property. The price that you're talking about is paid upfront. And it's in the form of hundreds of hours of self-education. And so I paid that price, right? I spent hundreds of hours listening to podcasts and reading books and meeting people in the real estate investing world to get this framework. And I paid that price

when my time was worth $25 an hour, right? So that's a great investment for me. For Nicole, this is not a good investment, right? I would encourage you not to invest in real estate. Why would you spend... You are this finance superstar, right? Why would you spend 250 hours learning about real estate investing to get into this, to buy a bunch of duplexes, unless you really wanted that extra bit of return, that spread maybe you can get with leveraged real estate between the stock market over the next 20 years. Then I'd encourage you to do it. There is some benefits to it.

But I think a lot of high income earners don't like real estate investing for exactly the reasons you just described. The difference is once you've paid that price, especially if you can pay it early in life, you can reap the benefits for the next 50 years of your career more or less. By the way, if you get into real estate without paying that price, you will pay the price later. You'll just do it in the context of major losses and huge problems with tenants and lots of surprises. You'll call them disasters. I call them capital expenditures in my business. I also call them cap ex in my business, too.

However you want to spend it, you're going to have a price to pay sometime. And I think you and I can agree. It's better to pay that price early when the value of your time, like on the open market, you can always get more money. You can't get more time. Right. But when that value of your billable hours, because we all have them, is lower. So I think we can agree on that because I hear all the time from people who want to do this thing and think it's rose colored glasses, glorified investment properties, buy the house, get the rental income. And they think that renting out their house and you can rent a cheaper spot and do all of this stuff is

going to be net positive and that it's going to be a slam dunk. So I'm really glad that we are finding this common ground because there is a place where it can really be a slam dunk. But having that education out of the gate is super important. I think that you might have a suggestion of where they can get that education. I'm happy to, of course, plug BiggerPockets. We try to have a bunch of free content and stories that can talk about that stuff. But yeah, I think you should be, if you're going to dabble in real estate or BiggerPockets or any of those things, be prepared for the, it doesn't have to be like an active, like every day I'm spending four hours, but I listen to a podcast every single day on the way to and from work. And while working out, I probably consumed 400 hours of this stuff before buying my first property. In addition to that, plus the meeting

of people attending mastermind groups, looking at properties and those types of things. And that's just not a reasonable investment for someone that's maybe making millions of dollars or several hundreds of thousands of dollars, unless they plan to invest for a decade or two, at least, and really attempt to drive that net worth and that spread. Because again, if you're going to do all that work, you have to believe that real estate is going to produce at least a little bit better of a return than an alternative like a stock market index fund or something that's totally passive and easy in there. And that's what I fundamentally believe. And that's worked out so far. But that's the trade off there. But it's not a cheat code. Like you're going to spend time

somewhere like whether, you know, for me, I just don't want to spend my time that way. I just don't like I'd rather be a passive investor. But, you know, you're going to spend your time dealing with tenants or you're going to spend your time likely or hopefully on the education front. But don't do this just off of a TikTok that you watch. Yeah, we see a lot of overnight successes in like 10 years through of hustle, grind, sweat, saving, extreme frugality, moving into properties, fixing them up and painting them and stuff on the weekends. And then we do see those folks emerge again as overnight, I'm saying that facetiously, successes in seven to 10 years of this very consistent approach. And that's the power, right? Real estate is not your get rich quick mode. If you want to really make tens of millions or hundreds of millions of dollars, start a business and go all out in that field. If you are already a high income earner and you want something totally passive, stick with stock market index funds. In fact, most of my personal dollars invested

have been in index funds. I own more real estate because I've used leverage to purchase those real estate properties in there, but I actually have put more personal, my personal dollars into index funds. And I've, I've mentioned this all the time on bigger pockets than I have into my real estate. That's given me a diversified portfolio. that's pretty balanced because the real estate has done better with the leverage than the index funds that I put money into. But that's completely consistent with my philosophy. Real estate's this great sweet spot for somebody who wants to build a significant pile of wealth over a seven to 10 to 15 year period and have the tax advantages and have the cash flow from that. You can retire or come pretty darn close in 10 to 15 years if you make some reasonable bets, take some reasonable risks

and work pretty hard in this business. And that may not be quite as accessible from an index fund investment. I think you're totally right. Hold onto your wallets. Money Rehab will be right back. Totally right. Hold on to your wallets. Money Rehab will be right back. One of the most stressful periods of my life was when I was in credit card debt. I got to a point where I just knew that I had to get it under control for my financial future and also for my mental health. We've all hit a point where we've realized it was time to make some serious money moves. So take control of your finances by using a Chime checking account with features like no maintenance fees, fee-free overdraft up to $200, or getting paid up to two days early with direct deposit. Learn more at Chime.com slash MNN. When you check out Chime,

you'll see that you can overdraft up to $200 with no fees. If you're an OG listener, you know about my infamous $35 overdraft fee that I got from buying a $7 latte and how I am still very fired up about it. If I had Chime back then, that wouldn't even be a story. Make your fall finances a little greener by working toward your financial goals with Chime. Open your account in just two minutes at Chime.com slash MNN. That's Chime.com slash MNN. Chime. Feels like progress. Banking services and debit card provided by the Bank Corp. Bank N.A. or Stride Bank N.A. Members FDIC.

Spot me eligibility requirements and overdraft limits apply. Boosts are available to eligible Chime members enrolled in Spot Me and are subject to monthly limits. Terms and conditions apply. Go to Chime.com slash disclosures for details. And now for some more money rehab. I love talking with you about this stuff because I think you have a really measured outlook and really realistic outlook on where the opportunities are and what some of the cautionary tales are. I mean, I've somehow gotten into the TikTok algorithm or the Instagram

algorithm where I keep getting fed a bunch of this content around like investment property hacks, creating an LLC for each of the properties you buy, putting the LLC in Delaware or like getting the trust in the offshore account or like, and then all these charts and flow charts and things like that. You're shaking your head. Yeah. I mean, this is where like, this is really tactical item here, but the LLC thing always ticks me off. If you listen to a law and I'm not going to give legal advice, this is not a legal advice thing. This is just an illustrative example in a personal situation here. But like when I bought a house hack in 20, what was it? 2014, right? This duplex, right? Am I going to put the thing in the LLC? Wait, what protect? I have nothing to protect.

I'd saved up 20 grand in my whole life. There's no assets in my life, right? All of my 12 grand, I have eight grand in the bank account. I have 12 grand in equity in this property. And that's even wiped out because of the transaction costs someone would have to foreclose on me. So am I going to put this thing in an LLC? Even if I did put it in an LLC, I wouldn't have any protection because I live in the property and manage it myself. And so someone could pierce the corporate veil on this, right? After I moved out of the property, I lived in the property for like the year prior, pierced the corporate veil. I still self-managed the property, which I believe, by the way, many investors who earn below a certain amount should do for the early years. And then you shift it to property management and make it

less or more passive, but not totally passive to your point in future years after that. Okay. And so like, when does that take place? Nowadays, I've put my properties into an LLC. I put them into one LLC in there. I think that if you are not careful in this space and you let a lawyer scare you, a lawyer is going to make a great return on your real estate investing portfolio potentially. If you allow them lawyer scare you, a lawyer is going to make a great return on your real estate investing portfolio potentially if you allow them to help you create a series LLC, which is what you're talking about, where you put each property in LLC and then you strip the equity out into a parent LLC. And by the way, you can never touch or even, I'm kidding here, I'm getting facetious. You can never touch or even look at your properties in that case because you're going to be putting

yourself at risk of piercing the corporate veil. Not the way I want to live my life. I like an insurance policy and a very simple LLC structure. Sure. I might be consuming more, assuming a little bit more risk than other approaches, but that's also the great thing about bigger pockets is if you were to type this question into a forum, you'd get like 20 different investors given different opinions on this. And of course the lawyer scaring you and telling you exactly why I'm so wrong and why uh that LLC that equity protection is so important because of this case this case in this case so I think I I hit on some cord Scott oh this is just but this is okay what you hit on is this is this is what I was talking about earlier this is the 400 hours of self education or whatever it is that you need in order to get

comfortable with this is I can now debate this topic with you reasonably intelligently. And if you can't, you're going to get sucked one way or the other by someone who may not have your best interests at heart. And so you have to come to your own conclusion in this. That's the cord you're hitting is there's 30 things like that, that you need to have an opinion on. Should you allow pets in your rentals? That's another one. This is just like one of a hundred different concepts I can get going on. Well, in Denver, yeah, you should because you're going to have a way better quality tenant, in my opinion, and way more applicants applying for your property, even though there are going to be some damages or some risks that you're going to assume

from having those pets in the property. So there you go. This is just proving your point that this is not a passive thing that is for everybody. It's for somebody who is ready and willing to divert a little bit of nerd out to it. Like you can see, probably I have. We definitely get the nerd out vibes from you, Scott, for sure. So yes, we're not giving any sort of legal advice, like disclaimer understood. But at what point should somebody think about buying their properties in LLCs? Look, and this is a lawyer question, right? But like, for me, it was like, I'm going to put my properties into LLCs and work through this concept of assets protection, once I have assets to protect, right? So for me, that was

several $100,000 in personal net worth. And, you know, a, that was several hundred thousand dollars in personal net worth and a career that was blossoming and looking promising where insurance alone doesn't necessarily cut it for some of those things. Okay. Because I think what's happening right now is the TikTokification of this. And I think we're both agreeing that it can look really glorious and simple and just get these different LLCs and then go hide your taxes in the Cayman Islands or Dubai or something like that. The shit is scary. Then if you do that, then you're getting a whole bunch of complexities that your lawyer and CPA may not be telling you about.

So if you have five LLCs in California, for example, you got to pay an annual fee for each one of those, right? And then you got to file a tax return for each one of those LLCs in California, for example, you got to pay an annual fee for each one of those. And then you got to file a tax return for each one of those LLCs. And if you miss your tax return filing, you got to do it. So let's say that I'm a lawyer and CPA combo, and I want to take advantage of a five property investor who's worth $700,000, $100,000 in five properties, 200,000 in their 401k. I might tell them, go form a series LLC here. We're going to put five properties and we're going to have a sixth on top of that. I'm going to charge you a thousand bucks, really good deal to set this thing up. And then every year for the next 20 years of your life,

I'm going to charge you $2,500 to file your taxes for each one of these things or 5,000 or whatever it is to file your taxes for each one of these things. And you have to pay that because I'm the one who knows all this stuff. I can still do it more efficiently, legitimately than the next person and cheaply. And you're going to be paying $800 times six now for your six new entities that you've got here. By the way, never manage them, never do any of the work on those properties and stay the heck away from them so that you can get all the benefits of this protecting, of not being able to pierce the corporate veil here. So you're going to need to use a property manager and pay 10%. I'm not saying that that is actually

what would happen to many investors, but that is one way I'll scare you when you're talking to these lawyers and CPAs. Think through it and have a thoughtful approach and nobody's going to look out for your assets like you are. And I think you need the opinions of a CPA, an insurance broker, a lawyer, and investor peers or mentors that can all give you the help in constructing a practical framework. Because a perfect series LLC setup and protection like that has its own costs and risks. I totally agree. I'd love to know why the insurer is part of the personal board of directors in this, why the insurance broker is part of the personal board of directors. Typically, if you're setting up an LLC, a huge part of the reason for

that is the liability protection, right? It's a limited liability company. It's literally why people set it up. So if asset protection is the game, then when we think about asset protection, right? It's a limited liability company. It's literally why people set it up. So if asset protection is the game, then when we think about asset protection, we think about all of the things that we're doing from a business perspective, abiding by all the laws, right? Making sure that we don't run afoul of discrimination laws, making sure the property is habitable, it's code in our city, making sure that, and the LLC then protects your personal assets from lawsuits that might go against the business, right? Well, if you can protect those assets with an insurance policy just as well, or as part of that overall strategy, I think your insurance program is a big part of that. That's why I think there's more to this than just the LLC and lawyers input. There's also the

tax angle and there's also the insurance angle on this. And then there's how you conduct yourself in a general sense. Smart. So we end all episodes, Scott, with a tip we can give listeners to take straight to the bank. What's your one piece of advice for wannabe homebuyers right now in this crazy market? Can I give you a two-minute answer on this one? Sure, yeah. Okay. So in addition to thinking through the exit options that we just articulated earlier, you need to set up a process for buying the home that puts the advantage in your court and not the seller's court. So bad process first. A bad process is

my lease is expiring August 31st. Therefore, I need to go under contract and buy my home before August 1st. Now I've created an artificial timeline. And what's going to happen is you're going to look at the market. You're going to look at the properties. And at the last minute, a property is going to come on the market. Your agent's going to be a hero. You're going to go under contract and you're probably going to overpay, right? Better process here. Say my lease is expiring August 31st. I'm going to pay my landlord two or $300 a month more so I can go month to month. I'm going to extend my timeline indefinitely. I'm going to pay my landlord $200 or $300 a month more so I can go month to month. I'm going to extend my timeline indefinitely. I'm going to look at the past properties sold in my market.

And I'm going to narrow down my search with my criteria until I found five or 10 properties in the last 90 or 180 days that meet my criteria and I believe are good deals. Now I've defined a good deal. And if there's five properties that sold in the last 90 days that were good deals. Now I've defined a good deal. And if there's five properties that sold in the last 90 days that were good deals, that means a new property is going to come on the market on average every two and a half weeks going forward. All the ones that are on the market currently are probably something's wrong with them. They're overpriced. They got something wrong with them. They're in the wrong part of town. They got at the wrong intersection. So know that when you

look at the active listings, you're looking at the worst deals than what is actually sold recently, most of the time. I always wonder that, by the way. I'm like, what's wrong with this place? It's been here too long. That's right. And if you look at sold, maybe there is one that's on the market that makes sense. So anyways, now that I've got my properties that I know what a good deal looks like, and I know that every two and a half weeks, I go fishing, right? I wait until one of them hits the market. And when it does, I cancel my evening plans and I go look at that property with my agent and I'm prepared to make an offer that night or the next day.

I'm not making an instantaneous decision. I'm making a cool, calm and collective decision once in advance. I'm just reacting instantly so I can get my good deal. That's how you get a good deal in real estate investing and in buying your first home. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News

and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.