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Paying Off Rentals, Estimating Crime


Should I pay off my rental property or reinvest? How do I replace my six-figure salary with cash flow from real estate investing? And what’s the best way to analyze crime BEFORE I invest in an area? You asked, and we’re here to answer on this episode of Seeing Greene as we take questions from rookie real estate investors, veterans in the rental property game, and everyone in between. If you want to scale your portfolio faster or quit your job with real estate, this is the place to be!

First, we take a question from a high-earner asking whether they should pay off their rental properties OR use their extra money to build a bigger portfolio faster. A fledgling house hacker wants to know the best way to analyze an investing area for crime now that many online listing websites have taken down this data. A business owner is struggling to find real estate write-offs and asks for help, and a rental property investor needs to know which commercial real estate investment boasts the biggest cash flow. Finally, an anonymous question comes in from a techie who’s about to lose their job. How can they replace their six-figure income with rental properties fast?

Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can jump on a live Q&A and get your question answered on the spot!

David:
This is the BiggerPockets Podcast show 9 37. What’s up everyone? It’s David Greene, your host of the BiggerPockets Real Estate podcast here today with a Seeing Green special joined by Rob Abasolo in a green sweatshirt. What’s going on Rob?

Rob:
A hoy. I’m excited. I’m ready to traverse the world. I just booked a 20 day stint in Copenhagen.

David:
If you guys aren’t following Rob on Instagram, you need to be, I was on the edge of my seat for days as he was going back and forth sharing. Where will I be traveling? Will it be Holland? Will it be Copenhagen? Will it be Bosnia? I wasn’t sure what you’re going to decide on, but you end up up with Copenhagen, huh?

Rob:
Did, yeah, so I’ll be coming live for you all from five hours ahead. I’m a little nervous about the time change. It’s going to be great.

David:
Alright. You know what else is great? Today’s freaking show. We’ve got tons of good topics including how to navigate tax benefits as a business owner and real estate investor who doesn’t like saving in taxes. How to find crime data for buying in a neighborhood that you might want to live in. Cash flowing, commercial real estate thoughts, how to improve the value of commercial real estate and what to do when you think your job might be on the chopping block. Some really good stuff here and up. First, we’re going to talk about using extra income to pay off your rental mortgages early or putting that money towards cash flowing real estate

Rob:
And most importantly, we can’t do this show without y’all, so go submit your question over on biggerpockets.com/david, pause this really fast and send me your question and then jump back into the pod. Let’s do it. Let’s get into it.

Dorone:
Hi David. My name is Dorone from Houston, Texas and my question is the following. I’m about to buy my first investment property and my monthly income allows me to make large payments toward the mortgage to pay it off much quicker than the 30 year rate. The property will cashflow a little bit even with the current interest rates and my question is, is it a better strategy to pay off the mortgage as quickly as possible using my own money and then of course refinance once interest rates go down and then just repeat the process? Or should I just let the rent payments slowly pay off the mortgage and slowly increase equity at the current environment and refinance once interest rates go down, but just with less equity in the property? Thank you.

David:
Hey, thanks Jerome. This is a great question. All right, what we’re talking about here is a best use of deploying capital. So you’re asking the capital that I have coming in, should I put it towards the loan of the property that I have and pay it down faster or should I put it somewhere else? Now I know that you’re cash flowing in today’s interest rates, but our notes show that you didn’t mention. That’s because you’re putting 35% down. Now, here’s the ugly truth that a lot of people don’t want to hear. Properties do cashflow today, they often don’t cashflow at 20% down. We’ve become accustomed as investors to putting down the bare minimum and thinking that it’s supposed to cashflow at 20% down. Hey, sometimes I hear house hackers say, Hey, I want to put 3.5% down and I want to live in one of the units and I still want it to cashflow.

David:
You’re just making such an uphill battle for yourself. You can get cash flow in real estate, but when rates go up, that just means your loan to value has to adjust for that and you got to put more money down. So here’s my advice to you, Jone. Rather than putting the money towards the mortgage, I’d rather see you save that money up and buy more real estate with a bigger down payment. So to simplify that, don’t think about putting your capital towards the loan you already have. Put it in the bank and use it to buy your next property, but put more money down on that. That’s why I don’t want you paying off the loan in this case because you need that extra capital to put towards the next property in order to make it cash flow and if you’re able to continue buying properties when other people can’t, which is what you can do if you have more money to put down and you can hold those properties when rates do drop again, you’ll be able to refinance all of them. So if I was you, I’d be thinking how do I save up as much money as possible to buy as much cash flowing real estate as possible with bigger down payments so that I have more of them to refinance when rates drop and then you’ll get the best of both worlds?

Rob:
Yeah, I think that’s good. 35% on 85 to a hundred k. I mean I like that part of me wonders is it better to hold out and see if there’s a 20% down payment on a more expensive property and if maybe he could achieve cashflow there. Obviously he probably explored that option. I’m going to just throw in my little philosophy here on paying down equity because I’ve been a big fan of this. I’ve been talking about this lately. I’m a big fan of paying down my personal equity like in my primary residence. I probably wouldn’t use my personal income to pay down rental equity or pay down rental mortgages. I would just use the actual income from the rental itself to pay down the mortgage. It’s a fine line there and it’s a very subtle difference, but personal money, I don’t use that to pay down my rentals. I just use rental money. All profits from that to bring that down. That’s my personal stance anyways.

David:
All right, our next question comes from Sean Chua in a TL. Sean is looking for his first house hack and he wants to know how do you analyze the neighborhood for crime rates? I’ve tried using city data, but most information seems outdated and it usually can’t give me specific neighborhood crime rates. For example, I’m looking in a 20 minute radius for in Atlanta, but I’m not sure which neighborhoods are safer to live in. Thank you for your help. Well, this is fun because this used to be public information on a lot of the websites. My gut tells me they probably took this data down because of fair housing laws. It’s often interpreted when you share crime information that somehow relates to fair housing regulations, and so everyone says, Hey, it’s safer to just not tell you. So now you’re going on the BiggerPockets podcast and ask you the same question that all these other companies said they didn’t want to answer, and I’m going to let you handle this one, Rob, since you’re not a licensed broker.

Rob:
You know what? I try to look it up back in the day. I guess the hack, if you’ll was to go to Trulia and look up the crime map, but I do think that sometimes that data does skew things a little bit. I remember living in LA pulling up the Trulia map and thinking, oh my gosh, nothing in LA is investible or livable really. I think there’s a couple of ways to do it. I think this is the very unofficial answer, drive by, I drive by and if I don’t live in the same city, I’ll ask my realtor to drive by two times, one during the day, but most importantly at night, and that’s my initial. I have to feel the neighborhood is ripe if I’m going to buy a property. And then outside of that, typically what I’m doing is I’m actually looking for anecdotal stories or insights from people in the neighborhood. So probably not going to look at a nextdoor or a Ring app because typically those apps are very like Everything is on fire. Do not, this neighborhood is blah, blah, blah. I actually look at Reddit personally because you get a lot of people from the community actually talking about their community and talking about the nuances. Not an official answer though. That is not how you look up crime or statistics. You’re

David:
Doing a great job politicizing your way right out of this thing. Say a lot of words without answering the question,

Rob:
You will not cancel me. Okay, so Reddit is how I get the personal anecdotes. That’s step one. And then step two would also be like the BiggerPockets forums and actually talking to investors in specific neighborhoods. The BiggerPockets forums is really, if you want it from the lens of an investor or people in that community that actually have properties there, I think you’re going to get a little bit more of insight that you actually need for investing in that property. And then I need my realtors to go and drive by or I’ll drive by two times a day.

David:
You know what I think we need? We need a Karen map. I want to know where you got a bunch of annoying nosy neighbors that are going to just blow up your deal or like a NIMBY map where you can see how favorable the neighbors are. I’m just kidding.

Rob:
Is it in the shape of a bob? That’s

David:
That map. Yes, that’s right. And it comes with a casserole counter. That’s one of the ways you can tell how many Karens are in your neighborhood is by the casserole count.

Rob:
So can you tell us, I know you probably have a little bit more of an official answer, so how should someone actually look at the crime and everything?

David:
Yeah, you’re not going to get the data the way that you are looking for it here, Sean, because of fair housing laws. That’s the short answer, but that doesn’t mean you can’t get it. You just have to do more work. That’s all it comes down to. So one thing that you can do is you can actually call your local police department like the Atlanta PD and you can say, Hey, I’d like to talk to an officer that works in a beat in this neighborhood or a dispatcher that could tell me, Hey, off the record, I’m looking to buy a house here. If you are going to buy an Atlanta, would you be nervous about this neighborhood versus that one? What are your calls for service like over there? You may not get that data that the highly analytical people love. You might not be able to put this in a spreadsheet and that’s going to be very disappointing to all my Excel lovers out there, but you can still get the information.

David:
You’re just going to have to do more work yourself. Another thing you could do is you can ask real estate agents that work in the area, but you’re going to have a hard time because they’ve been trained to not answer this too. Everyone is just walking around keeping their lips closed, all thinking the same thoughts. But yeah, because real estate agents are susceptible to fair housing laws too, I mean that’s truly as less susceptible to it than a real estate agent or a broker would be. Interesting. So we get this all the time. People we’re driving a neighborhood with a client and they say, what do you think about this neighborhood? And the agent just straight white knuckle it, looking straight ahead. Well,

Rob:
It’s up and coming there a lot of good things. There’s a lot of changes, a lot of interesting activity.

David:
Yes, that’s what you’re going to get. So whenever you get that generalized answer, it might mean they don’t know, but it also might mean they don’t want to tell you. And so I’m just shooting straight with everybody here. This is the Brass Tax Pockets podcast. We don’t want you to be frustrated. So what Rob’s advice was really good. You’re going to have to drive the neighborhood and look for signs of violent crime. So Oakland’s an area that I worked in a lot. I also police there a lot and my team sells a lot of houses there and I can tell you there’s certain parts of it that are much better than others and you can tell when you drive through it. So the longest short of it here, Sean, is you’re not going to be able to get that data anymore. It’s been taken out of circulation. You’re just going to have to be a little more clever with how you get it.

Rob:
Yeah, I think really my stance is very clear talk to people in the neighborhood because I just think there’s the perception of what maybe a neighborhood is and then there’s the actual insight that you get from someone that’s like, Hey, all the stuff out, there’s a little overblown. I say this as someone that lived in a neighborhood right next to it’s on the border of Inglewood and I mean pretty much one street over is Inglewood. Dude, everybody told me not to buy. Everyone’s like, dude, do not do it. And I was like, it’s fine. And I talked to people and I drove it and I was like, I’m so glad I made that decision and so many times I almost walked away from that property because of the

David:
Scary, the reputation of it. Yeah, the

Rob:
Reputation. Yeah. My whole life would be different had I just listened to what the scary headlines were, if that makes sense.

David:
Alright folks, we’re going to take a quick break and when we come back we’re going to get into suggestions for a business owner trying to take advantage of tax benefits in real estate. So stay tuned. Alright, welcome back. We’re here with Lindsay, Pete in Philly. She’s actually from West Philadelphia. Rob, I believe you are also from West Philadelphia. Born and raised. Born

Rob:
And raised, yes. From the playground. It’s where I spent most of my days.

David:
What were you doing there?

Rob:
I was chilling out, Maxon, relaxing, it was all cool, just shooting some B ball outside of my school.

David:
Alright, well let’s see what Lindsay beats up

Lindsey :
To. Hi David. My name is Lindsay and I’m from Philadelphia, Pennsylvania. I’m a new investor and currently have one investment property and my husband and I close on our second one in a month. We own and operate our own business and our accountant recently informed us that if we make more than a certain amount of money a year, we cannot deduct more expenses than we earn in passive income. The house we are closing on in a month needs some work and most likely we are going to incur more expensive than our passive income for our property this year. We invest in real estate for cash flow appreciation and for the tax benefits. Do you have any suggestions for how to maximize the tax benefits with this income rule? Do you suggest that I qualify as a real estate professional by spending at least 750 hours a year in real estate and more than half my total working hours in real estate or is there another way to get all the benefits of real estate while working full-time in our own business? Thank you in advance for your advice and time.

David:
Well, thank you Lindsay. Rob, I’m going to let you start off with this one. You do a lot of short-term rental loophole work. What do you think

Rob:
Here? Here’s my take on it. I would say probably going the real estate professional route, it’s going to be a little bit tough because figuring out how to spend 700 and if she’s not already a full-time real estate investor, she’s not going to be able to get 750 hours in, especially if she does have a full-time self-employed job. I don’t think that’s going to be possible. However, what is possible is she could turn it into a short-term rental and if she materially participates in the management of that short-term rental, in most cases that means she’s self-managing it and she’s spending a hundred hours a year and spending more time on that property than anyone else. She could actually qualify for bonus depreciation if she gets a cost egg report. If she can get massive bonus depreciation in year one, that’s going to be the easiest way to do it. Otherwise, I don’t know. I think getting qualified for 750 hours is it’s kind of hard unless you’re just really full-time like a realtor, a broker, a flipper, anything in the real estate space, what do you think? I

David:
Think there’s several layers to this question. So first off, we do share these strategies with people because we want ’em to save in taxes, but they’re often portrayed as if it’s just like a push a button and get the bonus. But these things come when you make adjustments to your life, you are a full-time real estate professional or you are actively managing a property. It doesn’t come easily. You can’t just avoid taxes because you don’t like them. If you want the benefit of avoiding taxes, it’s going to come at a cost and it’s going to be restructuring how you spend your time or how you make your money. So I’ve told people before, Hey, I’ve avoided taxes by buying real estate, but it wasn’t just buying real estate, it was buying big real estate and the money that I make comes from real estate. I’m making real estate commissions as an agent.

David:
I’m making real estate commissions as a loan officer. I’m flipping properties, I’m making rental income, I’m selling properties. My gains come from real estate basically because I wanted to take advantage of these taxes had to change my whole life and structure my entire income around real estate. It’s one of those things where you kind of have to decide are you going to be all in on this or are you not going to be all in on this? It’s tough to dabble in real estate. That’s another way to put that. It’s tough to stick your toe in the water and want all the benefits that come from real estate and also get all the tax benefits that come from owning real estate.

Rob:
And also, one thing that I probably should have said, I mean obviously the SDR loophole is amazing, but your property may not be a good short-term rental property, so don’t go that route if it’s not going to cashflow or if it’s going to lose money, that should be obvious, but some people, they go all in on the cost egg stuff and yeah, you still want to make sure it’s a sound investment. If you want to learn more about the short-term rental loophole, we’re going to point you to two places. You can check out Natalie Kilo’s rookie episode, which is I think episode 360 8 or you can check out our episode on the SDR loophole on the BiggerPockets Real Estate Show with Mitchell Baldridge and that’s episode 8 23. I’ll

David:
Sum it up for you this way, Lindsay, if you want to get normal depreciation, you can only get the depreciation out of the property itself if you want to get accelerated depreciation. You can only get depreciation if you’re a real estate professional out of the income that real estate professionals make, but it’s still the depreciation and from real estate kit is used to shelter income from real estate. It’s not used to shelter income from other things unless, like Rob said, you take advantage of the loophole in which case we have a short time period where if you’re owning a short-term rental, you’re able to depreciate W2 income, which is typically done by doctors or other medical professionals. But if you’re serious about it and you’ve got that much income to shelter, my advice would be you buy a short-term rental, it’s going to have to be expensive to have enough depreciation to cover your income and you have a professional that you trust, manage it to at least limit your losses if it doesn’t perform very well and make sure that the tax benefits offset whatever those losses would be. I

Rob:
Think that’s mostly accurate, but I think that if you’re a real estate professional, you can use cost eggs and the bonus depreciation against other 10 99 income, just not W2 income because you can’t be a real estate professional and have a W2 job at the same time.

David:
But the 10 99 income you’re talking about comes from real estate related activities because you’re a real estate professional

Rob:
Technically, but you could also have other 10 99 side hustles and stuff like

David:
That. I guess, yeah, you could be a person like me but have a cleaning company or something. You could shelter the income that way, but in practical terms, if you’re a real estate professional, you’re doing real estate stuff, it’s very difficult to say, Hey, I’m going to be over here as an ice cream store owner and I want to get all the tax benefits that come from real estate without being fully engaged in managing an asset.

Rob:
Sure. Do you know that episode of Key and Peel where he starts sweating profusely? That’s me right now. The more we get into this tax talk, I’m like,

David:
Yeah, you’re questioning me and you’re doing it with taxes. That’s it. Teetering on the edge like Wiley Coyote looking down, am I going to fall? Thanks Lizzie for asking the trickiest questions in the world. Alright, so far we have somehow navigated fair housing laws and tax related CPA questions. Two things that everybody on our industry runs away from, but Rob and I are charging into the storm like Big Harry Buffaloes. Alright, at this segment of the show, we like to get into your comments on previous episodes, so thank you so much for submitting all your questions and making a show like this possible. If you would like to submit your question, please head over to bigger p.com/david where you can upload it there. At this segment of the show, Rob and I like to get into going over comments on previous episodes. Make sure that if you’re listening to this on YouTube you like share and subscribe as well as leave a comment so we can read your comment on a future episode. Our first comment comes from user MG one y, P four XC one H, who looks like he made a fake account just to say,

Rob:
I can’t believe user MG one YP four XC one G was taken

David:
Inside. Joke there, if you guys caught that one, you’re a loyal BiggerPockets listener and if you didn’t, it means you need to be listening to more of our podcast user says, let’s start a trim, the beard chant, LOL,

Rob:
Which actually quick aside was making me think, you said like two hairy buffaloes and I didn’t know if you meant like two hairy buffa fellows or two Harry buffaloes as in bisons

David:
Bisons charge into storms to get out of them faster. That’s where I was taking it. But you are a buff fellow and I suppose one might refer to me the same way when not No, I’m not caught up on my beard, so I will say your is buff. Yeah, I don’t love it, but I don’t want to cut it. It takes a long time to grow. I was hoping that as we went it would sort of develop into something and fight its voice. It seems like my beard is stuck in a perpetual puberty and I can’t get out of it, so I may have to actually shave it. Rob, what do you think? Because you kind of got a beard growing on the top of your head. I’ve

Rob:
Been waiting for you to build me a house without modern electricity and modern power tools

David:
Based on the hair of my chin, chin, chin.

Rob:
And of course I expect you to arrive to the build site in a horse and carriage.

David:
That’s right. And we’ll store it in the A DU that we built to add value to the property. So Rob’s trying to say that I look Amish, let us know when the comments, do you think my beard is out of control or should I give it a little bit more time before I make a decision and possibly cut it down? Alright, our last comment comes from Midwest Matthew. Pretty cool name. I’m a newbie, but doesn’t appreciation. Basically just keep pace with inflation. It couldn’t outpace it by much. At any rate, seems more like a savings account than an investment, albeit one where dependents make the deposit. Am I wrong, Matthew? I love this question actually. I wish people recognize this more. It sort of does imply that real estate appreciates, but you’re not gaining wealth, you’re just keeping wealth you’ve already gained. That’s one thing to think about. If you’re not investing in real estate, you’re actually falling behind. This is an important mindset shift because a lot of investors see real estate investing as risk. I don’t want to buy something because what if I lose money? They don’t understand that not investing their money is losing money and that not making money is also losing money. So no, you are not wrong at all,

Rob:
Rob. No, this is great for being a self-proclaimed newbie. Matthew, I think you really hit it on the head because he’s like, Hey, I mean it just seems like all you’re doing is keeping up with inflation and I’ve always told people, you should think of real estate as a savings account. Don’t spend it. You really, it’s a savings account you can’t really touch until you sell. So if you own a property for 30 years, you’re paying down that equity and then in 30 years you can sell it and great you have this savings account that has gone up with inflation over time. One thing I would say though is you shouldn’t just look at a real estate investment from the standpoint of appreciation because if you’re looking at it that way, then yeah, it is just keeping up with inflation and it’s a bit of a break even.

Rob:
But once you start adding in cashflow, like if you’re making 500 bucks a month for 30 years, that’s significant. Once you think about the fact that the actual debt pay down has gone down to zero, that doubles with the appreciation. And then you have your tax benefits too where you’re able to lower your tax bill every single year, keep that money in your pocket and of course you do have to eventually repay it. That’s just the tax game. But if you can hold onto money every single year because you’re able to lower your taxes, that’s more money in your pocket that you can then reinvest into more real estate. If you do this 5, 10, 15 times, you’ll retire a millionaire.

David:
If you’ve ever had similar thoughts to Midwest Matthew or if you like the commentary that Rob and I just gave, head over to bigger pugs.com/pillars and get a copy of my latest book, pillars of Wealth, how to Make Save and Invest Your Way to Financial Freedom. In that book I cover how many of us think that we’re standing on a stairwell and we’re like, well, I could go up the stairs, but that’s a lot of work. I don’t really have to. That would be buying more property, but you’re actually standing on an escalator that’s going down as inflation is continually eroding your wealth and you have to go up the escalator just to stay even. You got to run up the escalator if you want to make progress, which is what this podcast is all about, trying to help you, convince you and equip you to run up that escalator going down so you can save more of the wealth you already created.

Rob:
Love it, man. All right, we got one more Apple review for you all and this one says, this podcast has changed my life for the better as I now own five properties and I’m a licensed agent in Denver, Colorado. I specifically love the tricky balance that y’all strike of due diligence and taking action. It can be easy to lean one way or another, but BiggerPockets consistently places value on both. Thanks so much. And this is brought to us by the mam Cub via Apple podcast, which was actually, that was your nickname back in college, right?

David:
Still is. Go by that all the time or rookie. Alright everyone, thank you so much. We appreciate your engagement. Please continue to comment, subscribe on YouTube and if you’re listening on a podcast app, it’s even more important that you go leave us a review and subscribe to the podcast there. If you love seeing green and you don’t want to miss an episode. Alright, we’re going to be taking a quick break, but when we come back we’ve got a pending tech layoff question as well as how to get into real estate more seriously with commercial cashflow where you have opportunities to do so right after the break. All right, welcome back. Our next question is about commercial investments for cashflow and how Rob and I would handle a similar situation. The question comes from a Ken K in Charlotte. Ken currently has six residential income properties in North Carolina, and Ken asks, what commercial real estate investments do you think are currently best for generating cashflow? Well, Rob, I believe you have zero commercial assets, so why don’t we let you start with this one.

Rob:
I’ve got one, I’ve got one time. Oh, you’ve got the hotel,

Rob:
I’ve got a hotel. And then yeah, we’re looking at, we’ve been in the trenches analyzing another hotel deal in San Diego, but to be honest, after all fees and everything like that, it’s kind of funny. Even a $7 million hotel deal after all splits and everything, the cash flow is really one or $200,000. So I don’t really enter in commercial deals necessarily expecting to cashflow out the gate. I think the job that you have going into commercial real estate is trying to figure out how to get cashflow up because the more cashflow you make on that property, the more that cap rate gets juicy and the more money you actually make on the backend when you sell the property. So for me, and I don’t know you have more experience in this, but I go into commercial real estate typically with not as much cashflow with the expectation to raise the cashflow, which I guess I don’t know, is that a dumb thing to, I guess everybody does. No, but I mean

David:
You’re not buying it for cashflow, you’re buying a value add opportunity.

Rob:
Exactly. That’s like I buy it expecting to exit that property with a seven figure profit. I don’t go expecting a seven figure cashflow. Very rarely does that actually happen. It’s really a

David:
Question of equity, which is that nobody wants to talk about, but that’s where the opportunity is in real estate today. It’s incredibly hard to just buy cashflow, just get an income stream and not have to work. Everybody wants it and so everyone’s going for it, which makes it very difficult to achieve. This is an aptly timed question because my next book for BiggerPockets is going to be titled Better Than Cashflow and it’s all about the 10 ways that you make money in real estate. And I’m writing the chapter on forcing equity in commercial real estate. That’s funny, Rob, you just mentioned it because commercial real estate is valued by its profitability, the net operating income, you add equity to it by increasing its cashflow. The two of them work synonymously. I don’t know that there’s an investment that’s best for generating cashflow. You have to find something that someone else is operating poorly.

David:
So somebody in my mastermind had a property that they brought to Kyle, my chief operating officer, and they’re like, Hey, I got this hotel, it’s in northern California, my contracting business took off. I don’t have time to work on it. I lose money when I pay attention to the hotel compared to what I can make as a contractor. I just want to sell this stupid thing. So one of the members in there was able to buy this thing off market similar to how you do Rob with creative financing. They picked it up, they’re going to move there, they’re going to put some time into getting it ready and it’s like 20, 25 units that they’re going to turn around. That’s an amazing opportunity. But you didn’t find it on a LoopNet. You kind of had to know somebody that knew somebody who’d be in the right circle.

David:
That’s just typically how it was for me. Go down. Same idea, right? Same thing. But when you find them, you’re not just walking into cashflow, you’re walking into a problem and when you solve that problem, you earn the right to cashflow. That might be a better way to look at this. You don’t walk right into fitness, you walk right into a problem, you’re going to go sweat and be uncomfortable and you earn your way into fitness. That is the future of real estate investing, at least until we have our next recession. Now you will find more opportunities in investments that are less passive and that’s because everybody wants passive. They’re like, how can I just buy something that makes a bunch of money and I don’t have to work on it? So something like a carwash, it’s real estate that’s tied to a business that is something that you can actually make more money in.

David:
The same with the hospitality industry. So Rob’s hotel, he had the opportunity to buy that sucker. It’s also a business he’s going to have to bring his systems, his models, the way that he advertises properties his when it comes to design and management, there’s going to be active energy put into that property and if he pours it into there, ideally the property will become worth more. That energy will grow inside the asset, then he’ll be able to sell it or he’ll be able to keep it and have a cashflow. So if you’re in a similar position and Ken K here, start looking for opportunities that require active work. Get away from the passive trap and you’re probably more likely to have some luck

Rob:
To drive this one home just to hear more. That specific deal I was looking at was actually a break even at its current and it was already operational remodeled, but our job is to buy that at a break even maneuver the systems if you will, increase rents. And by doing that we think it’ll go from seven to $11 million and that’s from increasing the cash. I can’t remember off the top of my head, but it’s like from 200,000 to 400,000 and that’s our opportunity is moving that NOI up as high as possible. So I would not go into commercial real estate. If you plan on retiring off the cashflow, you’re going to retire off the exit.

David:
That’s a great point. Alright, our next question comes from someone in the Bay area who wants to remain anonymous and I don’t blame them. In fact, Rob, I’m going to let you read this one, but before we do, I just want to say to whoever wrote this question, don’t feel bad. I have been warning people about this both in my teams and occasionally on the podcast for about two years now. And I think that wise listeners will ask themselves, what would I do if I was in Mr. Or Mrs. Anonymous position myself?

Rob:
Okay, so the question here is, hi there. I’m in my mid forties and anticipate losing my job in big tech this April. I have about $400,000 in savings. Congratulations. That’s a lot. $750,000 in a 401k and significant equity in two single family homes, $1.7 million in our primary home and about $700,000 in our second home. That is a profitable Airbnb rather than returning to a corporate job. I’m interested in using my capital to make money in real estate. Concepts I’m considering are house flipping burr and or acquiring multiunit rentals. I live in the Bay area, so likely need to seek other markets for investment. What would you recommend as a first step to building a new career and cashflow in real estate? And then a side note, should I take out a HELOC now while I have steady income coming in to give myself options? Creative?

Rob:
I like that. Last question. So I guess he’s basically going against the grain here because our recent episode was how to quit your job for real estate. And we said, Hey, make sure you make a lot of money before you do that. And he’s saying, Hey, not only am I not quitting my job, I’m losing my job and I’m going to be a full-time real estate investor. My harsh advice here, tough love is go get a job, go get a job and do the real estate stuff at the same time. I think trying to build a career without much experience in real estate is not a good idea because you’re going to eat through those savings and your 401k and I’d hate for you to do that without the security of a job. I’m going to assume that’s probably easier said than done and maybe he’s already considered getting a new job or maybe that’s really tough, but man, I do not like this whole like nah, I’m not going to get a job. I’m just going to become a real estate full-time investor. That’s not that easy. That is one of the hardest things in the world to do.

David:
I am more worried about people saying I can’t find a job versus I don’t want a job. I want to invest in real estate instead. And that’s what Rob’s getting at here is sometimes you got to be grateful for what you got instead of just thinking that you deserve more. So what’s your advice to somebody who is in this position where they’re saying, I don’t want another corporate job, which understandably, they probably feel burned. They don’t want to go back to a job if they’re just going to lose it again. But what’s your alternative right now?

Rob:
Yeah, still fine. It’s like I am fine with them undergoing a house flip or a bur. I just don’t want that to, I mean it’s a long road like a bur they’re not really going to solve their problem with the burr. They’ve got 400 k. Let’s say that they bought a house cash and they bird it and they got their 400 K back. That would, I mean they might make some cash flow, right? But it should be

David:
A couple hundred bucks. It’s not going to replace your six

Rob:
Figure income. And then if they are flipping a house, well sure they could make a $20,000 rip or a 50 or a hundred thousand dollars rip, but that’s going to take six to 12 months. And also the market could correct and it could still be a break even or it could be a loss if it’s its first property. So I am not saying don’t do a house flip. I’m just saying you shouldn’t just rely on that. I think I don’t like it, I don’t like it. I think they should try to get a job. I agree. And it may not be a job in big tech unfortunately. I think you got to just figure out how to make money. It’s

David:
Just a longer road than it ever was before. I like that you said that, Rob. It’s a long road. It used to be a short road. Hey, start buying real estate. It goes up in value right away. Stop flipping houses. I mean man, when I was on my bur run, I was buying ’em off the MLS, I would just have a meeting with my agent and she’d bring me a whole bunch of distressed properties in northern Florida and I just find the gnarliest ones that I could get at the best price that needed mostly cosmetic work and that was all that it took. We were constantly telling people about this method and if you got in at that time, there was a lot of opportunity. Well, eventually everybody heard the message and they’re all buying those properties and now you’ve got people buying off market deal. So they don’t even make it to the MLS anymore. You can’t buy some of these properties because they get scooped up by wholesalers or other investors that get ’em because they’re actively targeting these things through direct mail campaigns and cold calling and driving for dollars. They’re hungry for this stuff. It’s not an easy time to go replace your income with real estate. It’s a slow burn at this stage in the game.

Rob:
Gosh, I don’t know. I want to give them something, but I feel like the advice is to not do this without getting a job. Do all that at the same time of at least a part-time job. At least figure out what your fixed income is and do the other stuff with the nest egg that you’ve earned. But you got to earn the right to be a real estate investor before you do it and they haven’t earned it with one house. Not in my opinion.

David:
And that doesn’t mean you shouldn’t, it just means you got to work harder to earn it. That’s a great way to put it, Rob. So I like this. I think that this needs to be, I’ve said this for years, real estate should be the carrot that gets you to put your financial house in order, not the meal replacement where you say, Hey, I don’t want to have to work hard, I just want to do real estate instead. So ask yourself, what skills do you have? How did you get to where you got in your previous job? Who needs the skills you have and how uncomfortable are you willing to get in order to start a new opportunity? I am constantly telling my employees we need to be asking where’s their demand in the market and how do I meet it? Because if you’re not asking that question, you know what question they end up asking instead, Rob, what’s the easiest way that I can make the most money? It’s a problem right now. That’s the question that you ask when the economy’s amazing and you’re full of options. But when your options go away, if you still have that old mindset, you’re going to get hurt. So for everybody listening to this, please take us serious. We love you and that’s why we’re talking about this. If you got a competitive advantage, you can do it, but this might be the time to look at how you can go get a different job and how you can improve your skills

Rob:
And scene. We’re going to leave him with a little fluffy nice rainbow and butterfly tip there.

David:
But as a side note, you did ask us, should I get my HELOC now before I lose my job? That’s a hell yes. Go get the HELOC while you’re debt to income

Rob:
Ratio. Yeah, definitely need that. Absolutely. Just

David:
Don’t take the money out. It’s not free money. You still have to pay for that. So you want the HELOC available to you, but you don’t want to actually go spend that money until you have a really compelling reason to do so. But

Rob:
You will never get that HELOC back if you don’t get a W2. So you may as well at least qualify for it now.

David:
Alright everybody, thank you for joining us on Seeing Green, the podcast where we give it to you straight and healthy, just like your vegetables. And we enjoy all of you that have been with us today. If you like to show, please make sure you stop what you’re doing right now and go subscribe to this podcast on Spotify Apple Podcast wherever you listen to ’em. And if you’re on YouTube, make sure you leave us a comment that head over to bigger podcast.com/david and submit your question. We want to know if you would like to know how to get in touch with Rob or I. You can find our information in the show notes. And if you got a minute, check out another BiggerPockets podcast. This is David, the Harry Buffalo Green for Rob, the Squish Malo ABBA Solo signing off.

 

 

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