How to Buy Multiple Rental Properties a Year + Auctions 101

Ashley:
Let’s get your questions answered. I’m Ashley Kehr and I’m here with Tony J Robinson,

Tony:
And welcome to the podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today, guys, we’re diving back into the BiggerPockets forum to get your questions answered. Now guys, if you are a real estate rookie, or even if you’re not a rookie, the forms are the best place for you to quickly get all of your real estate investing questions answered by so many other real estate investing experts. Now today, we’re going to discuss how to grow your portfolio in 12 months or less. The best way to increase rents and an off market sourcing strategy that not enough people are taking advantage of. Now, before we jump in, we want to thank Corporate Direct. This episode is sponsored by Corporate Direct. We want you to protect your properties with an LC and let corporate direct take care of the paperwork. Go to biggerpockets.com/direct for a free 15 minute consultation and 100 bucks off if you mention the podcast. Now, let’s get into the show.

Ashley:
Okay, so the first question that we found this week in the forums is how do people buy multiple houses a year? I’m new to investing and was curious how people buy multiple houses in one year. With my VA home loan, I have to live in the house for a year before I move out. Would be cool if I could split the VA loan and buy two houses in the same year. So Tony and I have neither one of us are eligible to use a VA loan, but we do know a little bit about this. And yes, that’s correct. You have to live in a property for one year with your VA home loan in order to be eligible for the VA loan. The part of the reason they don’t let you split it and buy two houses in the same year is because this loan is supposed to be for your primary residence to give you a place to live and not supposed to be so that you can invest in rental properties or whatever it may be. So the purpose is not to have an investment even though a lot of people do decide that once they move out of the property in a year to turn it into a rental. So Tony, besides the VA home loan, what are some ideas that someone could use who’s purchasing a primary residence with a VA home loan as to how they could buy another house in the same year not using a VA loan?

Tony:
Yeah, I think I would probably ask a few follow-up questions first. I think everyone’s situation is going to be slightly different. So the person that asks this question, I guess, where do you feel your constraint? Is your constraint on the ability to get approved for the additional mortgages? Is your constraint on the capital that’s needed to fund the deals? Is your constraint on where is the constraint? Because there are some folks who have $300,000 to sitting and they want to go deploy that capital. Maybe you can buy two or three houses just by plop ’em down 20%. If you buy at the right price, maybe you’re in a situation where you took all of your cash and put it into that first deal. So now it’s the constraint. So I think the first question that I’d ask is, Hey, what is that constraint? So let’s just assume that you’ve got some capital and that it’s the debt that is the potential constraint first, and we’ll go to the cash piece afterwards.
But just because you got your first loan with the VA doesn’t mean that every loan has to be a va. There are so many different loan products that are out there, and every lender that you speak with probably has a different set of loan products than the next lender that you talk with. So I would say go out there, network with both local lenders in whatever market it is that you’re buying in network with national folks. If you know people who play at the national level, but talk to a lot of different lenders, explain your situation and see if they have a loan product that matches with what it is that you’re looking for.

Ashley:
Yeah, I think that’s a great point as to looking at the different loan options available. And you’ll have to understand your debt to income ratio too, as to can you even get approved for another type of loan too based on what your VA loan is and then how much income you’re bringing in, what that monthly payment compares to how much monthly income you’re coming in. So if you haven’t used your VA loan and you’re trying to plan this out, be strategic with it as to, okay, I want to use my VA loan for my primary residence, but I also want to go and to buy an investment property. Search the loan options available to you, figure out how much capital you would need, what is the debt to income requirement for that type of loan to make sure that you can balance it out. And maybe that means you’re not going to buy as big of a house or as much of a house with your VA loan so that your debt to income isn’t affected as much so that you can go out and get another loan product too.

Tony:
So guys, if you go to episode 127, Ash and I interviewed Angel Garcia who he’s actually active duty, but he’s leveraged his VA loan to help scale his portfolio. And he talked a lot about the nuances that come along with the VA loan and he’ll be able to do a much better job than Ash and I can so just go back to that episode 1 27 to hear from Angel. Now that’s the mortgage piece of that was the constraint for you, but say that the constraint was the actual cash. There’s a lot of different ways to get the cash that’s necessary to fund your deals. You can leverage your partnership. Ashley and I wrote the book for BiggerPockets on real estate partnerships, and you can have someone come in as an equity partner, you can have someone come in as a debt partner. There are different ways to leverage the capital that other people have to help fund your deals.
So if the cash is the issue, that’s the lowest hanging fruit. But then the other thing, and this kind of depends on what you do for your day job, but sometimes it would just put your pedal to the metal, put in a little bit more elbow grease and see if you can earn some more at your day job, right? Can you work overtime and get a 20% increase in what you typically make by working some overtime and take all that overtime capital and put that into your deal. Can you reduce some of your living expenses, right? Can you save on what you’re paying on rent or mortgage or it may be. So if cash is the issue, look at yourself personally. Are there ways to decrease expenses, increase income? And if not, or if you’ve maxed those things out, are there ways to go tap into the network of the folks that you know and access some of the capital that they have to fund that next deal?

Ashley:
Before we jump into our second question, rookies, we want to thank you so much for being here and listening to the podcast. As you may know, we air every episode of this podcast on YouTube as well as some original content like my new series, rookie resource. We want to hit 100,000 subscribers and we need your help. If you aren’t already, please head over to our YouTube channel at youtube.com/at realestate rookie and subscribe to our channel. Okay, welcome back, Tony. What’s our next question we got here?

Tony:
So the next question here is about buying a fourplex. So this says I’m closing on a fourplex in Bridgeport, all units are two beds, one baths, and the current rents are under market at $600 against a fair market rent of $1,200 plus. So a lot of opportunity here. That’s amazing. All of the other two beds in the neighborhoods are renting for 1200 plus. So I know it’s a fair price. I will be introducing myself as new landlord soon, and I’m nervous. I was thinking to increase rent by $200 over the course of three months to get to fair market price. They’re month to month and are free to leave, which is even better because I would like to renovate the place one unit at a time. Does anyone have experience handling raising rents that are under market rent? Love this. Now, I’ll point to one resource and Ash, obviously, I’ll let you take it from here.
You’ve got way more experience here than I do. But we did an episode with Dion McNeely, episode 463 where Dion talked about the binder strategy and it was a very, I think, unique way to approach rent increases from your tenants. And it was so effective that Dion’s tenants would literally tell him, here’s what I want you to raise my rent to, and he wouldn’t have to ask themselves. So episode 463, go check out the binder strategy with Dion McNeely. But for you, Ashley, you’ve inherited a lot of tenants, you’ve raised rents. What have you found to be the most effective way to do that?

Ashley:
Yeah, if I’d rather not do a turnover and I’d rather keep the tenants in place so that I don’t have to spend the money to go in and renovate right away when I close on the property, I usually do an increase. So I really like that that’s already an option they’re considering as to slowly increase it over several months. And I’ve had really good luck with that. I also like to show comparables as to if they did decide to move what’s even out there available at usually even a higher price than what I’m increasing the rent to. But if you would actually like them to leave, because then you could go ahead and renovate the place. Maybe you don’t want them all to leave at once, but then you’re kind of in a no lose situation. If they accept their increase, great, you’re getting what you want, or if they decide to leave, you’re going to get to renovate the unit.
So I think you got to look at it as this is a business and you’re nervous because you don’t want them to be upset, you don’t want to hurt someone, you don’t want to change their living circumstances, but also you have the bills to pay and this is an investment for your family, for your future too. So you have to get over the fact that you may be hurting them. They may not be nice to you when they realize that there is an increase, but you can’t be nervous about it. You just got to take that confrontation head on. And trust me, I am one person that does not like to have confrontation, and that’s why I usually do not introduce myself as the landlord. I kind of do all the behind the scenes stuff and a lot of communication is done through mail, email, text, so that I really don’t have to deal with that confrontation. So if that is something that you’re uncomfortable with, you can always handle it that way too. And then plus you have everything in writing, which I really like too.

Tony:
Yeah, and I think you touched on a big part there too, Ashton, which is you as a landlord, you bought this property as an investment, and it’s not like the person asked this question in a way that, Hey, fair market rents are 1200, but I want to charge ’em 2000, right? It’s just, hey, fair market rent is 1200, we’re at 50% of that. So I don’t think that as the owner, you should feel necessarily bad for trying to get them to where the rest of the market is spending. So just know we bought these as investments and you’re being fair with them.

Ashley:
And too, if they’re on month to month leases, they have to understand that that means in 30 days notice or whatever the state laws are like New York, if you’ve lived there for over a year, it’s 60 days notice if you’ve lived there for over two years, I think it is 90 days. So they have to understand that being on that month-to-month lease, there always is the option that at any time they could receive a rent increase or that they could be asked to leave the property with a non-renewal. So as much as people aren’t really educated about that, oftentimes as tenants, that is the way that it is. And you have to think about it as a business that even though this is someone’s home and their livelihood, you have the right for your family too to make the best decision based on you.

Tony:
Actually, let me ask, so just in terms of tenant communication in general, what have you found, at least during that initial conversation, as the best way to get off on the best possible footing, even if you’re not doing rent increases, but just in general, how do you make sure that when you inherit tenants that you’re really setting yourself up to have a productive and I guess as good of a relationship as you can with those tenants?

Ashley:
Yeah, one thing I’ve learned is to give them an option. So I always do what the rent increase would be, and so I give them that to sign the new lease agreement with the increase, or I send them the letter stating that we’re not going to renew their lease after this date. So I give them the rent increase with the new lease agreement stating what the increase is and when it’s effective, what the terms are. But then I also send them a non-renewal, so stating that if they don’t sign the new lease agreement, their lease is no longer and it’s going to be terminated, and this would be their move out date. So I recently had my first pushback on this, and the person called our admin that answers the phone for us, our va, and she said, this person is really upset. She said she’s on a fixed income and she can’t afford the increase.
So the increase was, I think $50. She was paying 500, it was increasing to five 50. Market rent still in that area is probably 6 50, 700 for that property. And I’ve had the same tenants in it since I’ve bought it. So it was not a large increase. And so I just had my VA respond back to her and just say, we understand, please let us know what you decide. So in it’s your decision, putting it back in them, you can move out, you can find somewhere else or you can accept it. And she ended up accepting it and she’s been paying. So I think, and that may go along with the binder strategy too, is making it their decision, even though that kind of sucks. You accept then rent increase or you have to move out, but at least you’re giving them options, I guess, and making it on them. But yeah, I mean, property taxes are increasing, insurance is increasing, the water bills are increasing, which we do pay for that property. So that is a large part of it too.

Tony:
You have to obviously balance the human component with the business aspect of this. And we’re real estate investors who purchase these properties in hopes to get a return, and that allows us to live, feed our families and put roofs over our heads. And so we’ve got to make sure that we’re bouncing both of those things. We’re going to take a quick break, but when we get back, our next question will be discussing an off-market strategy that most people are sleeping on.

Ashley:
Okay, so welcome back. And our last question is about an auction buying a property at auction. So this question states, I found a deal through auction. It’s a three bed, three bath, 1400 square foot house in Colorado, and the purchase price is 177,000. I wondered if anyone had purchased this way before, and what landmine should I be aware of? The first thing Tony, I think of is the 177,000. Is that the buy outright bid or is that the starting bid? That’s what I am unsure about in this question, but I think that we can go ahead and talk about the process of this. Have you ever bought a property at auction?

Tony:
I’ve never bought at auction. I’ve actually never even been to an auction, but we’ve interviewed quite a few guests that have, and I know you’ve been to one yourself before as well, Ashley. So yeah, good call out on the one seventy seven K if that’s the price you’re seeing. Typically that’s where things are starting and it’ll kind of go up from there.

Ashley:
So I’ve done online bidding and then I’ve gone in person. I’ve never actually bought, I think the website that we had used, it was actually a handyman of mine when I was managing an apartment complex. He wanted to buy his own property, fix it up, and we bid on auction.com on this property, and it was super dilapidated, needed a lot of work, but he ended up winning the auction on auction.com. But this was a really long process because it wasn’t meeting the minimum bid. So no matter what, it would start out, say at a hundred thousand, and then people would bid it up, but if it didn’t reach 150,000, they would just close the auction and nobody would get it. And then they’d list it again a week later and you’d have to go back and bid. And sometimes they would adjust what the minimum bid was that they actually needed, and finally he got it.
But you don’t get to go to the property. I mean, this property was vacant and we definitely walked around the outside. He might’ve shoved me into the window too. I can’t remember exactly to see the inside, but a lot of times you’re not getting access, especially if it’s an occupied home, because it’s probably going to auction because the bank owns it or there’s back taxes or whatever it may be, and it’s going to be your responsibility to evict the people that are living there because maybe there’s a tenant in place, or maybe it’s that people that actually used to own it before the bank or the county took it over and sold it at auction too, so you won’t be able to get inside of it. So I think that’s the biggest thing is how much access do you have to the property, especially as a rookie investor, not knowing a ton about purchasing properties, about the auction process, but also the rehab costs and what goes into doing a rehab by just looking at pictures if there’s even detailed pictures of there. But a lot of unexpected costs can come up when not being able to view the property or having someone view it for you. So that would kind of be my first thing.

Tony:
Yeah, I couldn’t agree more because when we talk actually about investors buying sight unseen or buying remotely, we always talk about, well, hey, you can mitigate that risk by having your realtor walkthrough and give you their perspective. Having a property inspection done and letting them in a very detailed manner, point out all the things big or small, that may be an issue with this property, having a contractor walk through and give you a bid and you lose out in some auctions. I know there are some auctions where you actually can get access depending on where it’s going, but to those where you can’t, it’s like you lose out on all that risk mitigation. So I think for me personally, if I’m a rookie and I’m doing this for the very first time, it would be difficult for me to have the confidence to jump into an auction property site unseen where I get zero access until I hold the keys, because you could end up having a property. What if I know I was just with an investor this weekend and they had to replace their main sewer line, and that is a big expense. So imagine if you buy a property at an auction and you’ve got to replace the main sewer line connecting to the city’s sewer system, massive, right? That could blow your whole budget. So I would be somewhat hesitant. I think jumping in as a very first time Ricky to buy something at auction.

Ashley:
Okay, so let’s say you can expect the worst that everything needs to be rehabbed into the property because you can’t get into it. You’re counting on a new furnace, a new hot water tank, and new drywall, new paint, everything. Then you have your contingencies for even more unexpected. Then maybe it makes sense that you don’t have to go into the property because you’re already have this huge rehab budget expecting the worst. But let’s just assume for this, you are able to get access to the property through the auction process, and now it’s actually time for the auction. So what are some things that you have to watch out for when going to auction? Tony? I think the first thing is is that you know what your maximum bid amount is and you stick to it, and you don’t go over that where your numbers do not work anymore.

Tony:
Most auctions, they’re going to want you to either have, I’ve seen some auctions where it’s a big deposit upfront, and then you’ve got to come with the entire amount within 48 hours or some, it’s like we talked with guests in the past before where it’s like, Hey, you’ve got to bring certified funds to the auction to even be able to get in. So totally agree, knowing what your upper and limit is and what kind of cash you can actually bring, because the last thing you want is you’re there at the auction, you give some kind of non-refundable earnest money deposit and they’re like, Hey, you need the whole balance tomorrow and you don’t have it. Well, now you’re scrambling, or maybe you just lost out on those funds.

Ashley:
And that is a huge deal too, is understanding the auction process. So what happens once you win the bid? What happens next? So I’ve seen typically it’s like a 30 day close where you have to actually bring cash, and maybe that’s even from a hard money lender or off your line of credit, whatever, but you can’t go and get approved for a loan and then pay for it with a loan. There are sometimes I’ve seen on auction websites where they do allow you to use some kind of loan product to purchase these properties, but a lot of times you have to have the cash within the 30 days or whatever that time period is, and you’re bringing certified funds to the auction. Or if you’re doing an online auction, you’re linking your credit card and you are paying that deposit by your credit card, which you get your credit card reward points.
So that’s a bonus, but you have to understand what that process looks like to make sure that you can actually meet that. In New York State, we have attorneys involved with every closing. So I think that is also a bonus as to you can go out and find an attorney that specializes in dealing with auction properties and closing on them. But as far as the title work, so New York State, my attorneys pretty much take care of that. They review all the title work for me and I’m pretty hands off. But Tony, in your experience, are there things that could happen with title for an auction property?

Tony:
Yeah, I’m trying to think through of what that process might look like. Again, I’ve never purchased anything at auction, even here in California, but I would assume that even through auction, we still would have to go through some kind of escrow and title company here as well to facilitate that transaction. And that title company still should be doing a search against that title to make sure it’s free and clear. I guess worst case, you could maybe just pay a title company yourself to go through that process. But I definitely would not purchase a property without having a clean and clear title and having title insurance. Actually, an investor, we both know he’s flipping a house, Derek Acuff on Instagram, but he told me about a property that he purchased where during the closing process, the title company missed that there was some previous lien, but because he had title insurance, it was the title insurance that kind of covered all of the legal expenses to get that title issue cleared up. So yeah, I would definitely make sure, especially purchasing at auction, clean and clear title and title insurance.

Ashley:
Yeah, I am actually closing on a property that I’m selling right now, and I got my closing statement. I went in to sign and I was getting a way larger check than I expected, and it was because neither attorney accounted for the lien that was on the property. And it’s actually a friend of ours that was a private money lender, and I can’t wait to tell him that. I always just got the walk away with everything. But yeah, so you want to make sure there’s no liens, no judgements, contractor’s liens. You can even go to county records too and do some kind of due diligence ahead of time before you actually offer on the property or make a bid to look up the properties. I also like to look up, you can look up owners too. So if you go to your county clerk database and you search the owner’s name, it will show you counties differ as to what they have available online, but any mortgage that was taken out by that person, any deed that was transferred into their name, any lien or judgment against them too is in there.
So you can kind of maybe piece those together to see if there is anything for that property out withstanding. Okay. Well, thank you guys so much for listening or watching. If you’re on YouTube to this episode of Real Estate Rookie Reply, if you have a question of your own, make sure to join BiggerPockets and you can post into the forums to ask a question or you can go in there and answer some questions. You’d be amazed at what you know just from listening to episodes like this. I’m Ashley. And he’s Tony, and we’ll see you guys next time on Real Estate Rookie.