Ashley Kehr:
Buying a first home in a market like Los Angeles already feels out of reach for many rookies. Rick Albert did it with a $225,000 condo that had been occupied by a heavy smoker for more than 30 years. He put 10% down, fixed it up, and rented one room for $800 a month.

Tony Robinson:
And that first house act eventually helped Rick fund a far more ambitious second one, a renovation he expected to finish in four months that ended up taking 12. And today we’re breaking down the financing, the warning signs he ignored, the unusual living decision that helped the numbers work, and how those two Los Angeles deals became a 17 door portfolio across three different states.

Ashley Kehr:
This is the Real Estate Rookie Podcast. I’m Ashley Kerr.

Tony Robinson:
And I’m Tony J. Robinson. And with that, let’s give a big warm welcome to Rick. Rick, thanks for joining us today, brother.

Rick Albert:
Thank you so much for having me. I really appreciate it.

Ashley Kehr:
So Rick, take us back to before real estate investing. What was your career? What was your life like before you even knew real estate investing was a thing?

Rick Albert:
Yeah. So December 2009, I was still in college, didn’t know what I wanted to do. A good friend of mine convinced me to come down and visit and I met with actually his dad and we just talked business and he happened to be really big into real estate. So I was like, “Hey, I kind of like this. You can exercise both sides of the brain, creativity, financing.” And he’s like, “Cool. You want to come down here? I’m happy to help and mentor, but you had to meet certain criteria, which was work on getting your real estate license. Here’s three books you got to read and get an internship.” And so that’s what I did. I started studying for the real estate exam, got an internship at a commercial real estate office, just helping property management. And I started reading the books, which was Gary Keller’s Millionaire Real Estate Investor, Gary Keller’s Millionaire Real Estate Agent, even though at the time I didn’t know I wanted to become an agent.
And then The Richest Man in Babylon, which is a fantastic book if anyone hasn’t read it yet. That’s my favorite.

Tony Robinson:
I have not read that book yet. Yeah. I hear it a lot, but haven’t dove in.

Rick Albert:
Yeah. No, it’s basically the basic fundamentals of financing, like only talk to experts, things like that, but it’s more like storytelling.

Tony Robinson:
Like a fable.

Rick Albert:
Exactly. Exactly. It’s like a hundred pages. So yeah, I did that. Then my friend said, “Hey, I’ll give you cheap rent. Just bought a place, but you got to move down here to Southern California.” So I moved down here the weekend I graduated college and I worked for him in his IT office doing some stuff on the back end. But then primarily for his dad, I helped him buy foreclosures because they were flipping properties. So I was the kid at the courthouse steps with cashier’s checks bidding on –

Ashley Kehr:
How fun. With someone else’s money

Rick Albert:
Getting

Ashley Kehr:
To bid.

Rick Albert:
It was wild. And then there’s also different strategies, right? Because people, what they’ll do is they’ll bid up properties they actually don’t want. So that way other people spend their money so that way they leave so money spent and the properties are left for them. Oh,

Ashley Kehr:
Interesting.

Rick Albert:
Or what I would do is I would do different dollar amounts when I would raise. So if let’s say my cap was a million and the property started at 800, I might be like, “All right, 50,000 more, 5,000 more, 10,000 more, 100,000 more.” And I do that because what they noticed is if people started shrinking how much they were willing to bid up, it gave the impression that they were hitting their max. I didn’t want them to know what my max was. Whether it worked or not, I have no idea, but it was a lot of fun.

Ashley Kehr:
So once you got comfortable with your decision to start investing, what was the first property that you decided to buy?

Rick Albert:
Yeah. So one of the great things about house hacking is you do look at the numbers, but you also have to do look at your lifestyle because you’re going to be living there. So I knew I wanted to go with the condo route because it was the low barrier to entry. I also didn’t have to worry about the roof, the sewer line, those risks were kind of taken off the table. And a lot of my friends and clients that were house hackers started with condos. I’m like, “Well, if they’re doing it, so should I.” And so I found a great condo that had really good walkability. It was 10 minutes from the office and she was a heavy smoker. It was a major fixer. Imagine the condo complex was motel style where everything was outdoors. So you could open the door. She was on the second floor, you could smell the smoke from the first floor.

Tony Robinson:
Man, that smelled like a deal to you, right? Right. I

Rick Albert:
Was like, this is so bad. I have cologne that smells worse.
And so yeah, we went in, it was actually me and my girlfriend at the time. She wasn’t buying it with me, but I valued her opinion and we were just looking. It had vaulted ceilings. It was fairly private with the balcony. I’m like, “This is a cool place.” And with condos, the cost of renovation isn’t as big a deal because you’re dealing with smaller spaces. You’re not really dealing. Yeah, we had replaced the electrical panel. That’s not that big of a deal. It’s a sub panel. New kitchen, updated the bathrooms a little bit. Re-glazing goes a long way, changing up floors, things like that. And so yeah, that’s how we bought it. Bought it for 225, put about 18 grand into it. Then later on when it was a rental, we ended up replacing the HVAC and there you go.

Tony Robinson:
I think a lot of times people hear house hack though, they think of small multifamily, but you said that you bought a condo. So how did you house hack a condo?What did that process look like?

Rick Albert:
Sure. So I bought the condo, bought it for 225,000. The previous owner, she had lived there so long. So what people don’t know necessarily about LA is a lot of these condo complexes used to be apartments. So she was there when it was a rental and then she ended up just buying it.

Tony Robinson:
She’s like, “I’m not moving.”

Rick Albert:
Right? That’s super efficient. You don’t have to move. So she was just a heavy smoker and she just lived there for over 30 years. And so we decided on a condo primarily because of budget.
It was budget and location was really the big ones.This was very much before ADUs came into play, the accessory dwelling units. So it wasn’t like I could buy a house and add a second unit. Some of the multifamily was kind of expensive and I only had so much money to play with in terms of down payment and the renovation costs. So that’s why I went down the condo route and I knew a lot of my friends who started house hacking with condos. I mean, when I first moved down here, he had owned a condo and was just renting out the second bedroom.

Tony Robinson:
Can we talk a little bit about 30 years of smoking? Because I feel like for a lot of people that would immediately turn them off. And Ash and I talk a lot about things can seem like maybe red flags on the surface level that turn a lot of people away. We talk about mold. Mold, yeah. We talk about even foundation issues and people always walk away from those deals. I feel like smoking is one of those other issues. Why didn’t that scare you away?

Ashley Kehr:
You’re also a heavy smoker. I’ve been

Rick Albert:
Able to pull up not coffee once and here we are.
No, so it’s funny because it was one of those condo complexes where it was almost like motel style. Everything was outdoors. It was an upstairs unit. You open the door and you could smell the smoke from downstairs and I’m like, “This is a good one.” I’m like, “This is good. This is good.” It didn’t scare me because I was like, “Anything can be fixed.” I don’t really have the belief that properties can be money pits. Yeah, they might be expensive, but at some point there’s an end to it. And so I saw it and I did a little bit of research and I’m like, “It’s not that big of a deal to get rid of cigarette smoke.”

Ashley Kehr:
Do you remember what you did? What was the exact process?

Rick Albert:
Yeah. So air purifier, which I’m pretty sure broke at the end of it. And then you do what’s called TSP, tri-sodium phosphate. And it’s like a chemical you just buy it at Home Depot. And so the guys just scrub the walls with it to clean it off. And then –

Ashley Kehr:
Is that like a Kill’s paint?That’s

Rick Albert:
The second step. You’re getting ahead of me. Thank you. So yeah, Kill’s is the. They actually have one that locks in nicotine. So I think we had to do two or three coats of that.

Ashley Kehr:
Wow.

Rick Albert:
And then you just paint over it and then you just try to forget about it.

Tony Robinson:
Did that actually work?

Rick Albert:
Yeah, it worked. Yeah. You smelled it for a little bit afterwards, but you leave the windows open, stuff like that. And eventually, yeah, it actually got rid of it. I was super nervous because I had also heard sometimes you have to replace drywall.

Tony Robinson:
That’s what I though you were going to say, like replace the drywall.

Rick Albert:
Did you have to replace the

Tony Robinson:
Flooring?

Rick Albert:
We did that anyways. It was carpeting. I mean, everything seemed original. When the furniture was moved, you could see where the outlines of all the furniture was brand new remnants of carpet. But yeah, no, I mean we did anyways. We got rid of the kitchen. We just re-glazed actually the tub and countertops and painted the countertops for each of the bathrooms. So it didn’t do a lot there. It didn’t have lighting in the bedroom, so I just did ceiling fans so that way we wouldn’t put a lot of work onto the AC because we didn’t replace the AC until years later.

Ashley Kehr:
How much do you think you spent altogether for the rehab?

Rick Albert:
Initially spent about 18,000. And then later on when it was a rental, I had to replace the ACs. That was like 13 just because it was on the second floor, so you had to do the whole bring a crane up and do all that.

Tony Robinson:
I just want to break down the numbers a little bit, right? Because you said the purchase price was how much?

Rick Albert:
225.

Tony Robinson:
And what was your down payment on that?

Rick Albert:
10%, so 22,500.

Tony Robinson:
And then closing costs, maybe another.

Rick Albert:
Yeah. I mean, I used my commission to help cover some of that, but yeah, it probably would’ve been a couple thousand bucks.

Tony Robinson:
So you’re all in for like 25K to get into this condo. And then you said another 18 to get it renovated. Were there any other costs associated getting into the deal and getting it ready? I mean, because that’s what, 18, 35, 40-ish thousand bucks that you spent to get into this condo.

Rick Albert:
That was about it. With these condos, one of the reasons why they’re a good start is because they’re smaller. So you have economies of scale when it comes to renovations, but it was 938 square feet. So it was like flooring wasn’t bad. It was also 2015, so costs weren’t as high. It didn’t cost as much to do those type of renovations.

Tony Robinson:
Was it listed on the MLS or were. Yeah.

Rick Albert:
Yeah, it was listed for almost 250. But again, the smoking I think turned off a lot of people because properties were still selling back then. So that didn’t scare me.

Ashley Kehr:
And then what did you end up charging someone for rent? Was it 800? Yeah. And then what was your

Rick Albert:
Expenses? Yeah. It was about 1600. I included utilities because I didn’t feel like going through the effort of splitting on a condo when it’s like $8 for gas and 25 bucks for electricity. So I’m like, “Oh, I’ll eat that cost. I’ll take that one.” And then I actually did include twice a month house cleaning. Oh, cool.

Ashley Kehr:
Okay.

Rick Albert:
I learned that my best use of time was not to clean the place, and so I didn’t want to have the fight over who’s cleaning what. And so I was like, look, I think it was like 60 bucks a visit or something for someone to come clean. I was like, “Let her come.”

Tony Robinson:
How did you find this person? Because I think for a lot of people, when they think about house hacking, especially when you’re sharing the same actual living space, for a lot of people that turns them off because they’re worried about, “Hey, who’s going to come live with me?” So how did you source this person? How did you get to a point where you felt comfortable living with them?

Rick Albert:
Yeah. So I actually reached out to my own personal network of people I knew, and I had a friend of mine who was already renting a one bedroom, and I already knew he was paying more. So I’m like, “I already know he’s well qualified because I’m going to offer him way less.” I’ve known him for. Oh, it was 27, so most of my life because our moms were best friends. So I actually just asked him. I was like, “Hey, I’m buying this place. Are you interested in renting? 800 bucks. It includes everything.” And he was paying 1300 at the time. So he’s like, “Yeah, done.” He was a little nervous because he would come by when I was still under construction and I’m like, “It’s going to be ready. Don’t worry. I got this.”

Ashley Kehr:
Did you ever worry that you wouldn’t be able to rent it out? You’ve already got it under contract. Did you worry that you wouldn’t be able to find a roommate at all? No. Or what made you confident that you would?

Rick Albert:
Yeah. I do a lot with networking, just with friends. When I was in college, I joined a fraternity. So there was chapters nationwide, so there’s multiple chapters. I could always reach out to one of them and be like, “Hey, does anyone need a room?” And so you do that. Obviously there’s Facebook groups, things like that. So I wasn’t really concerned and it was a good area, so it

Ashley Kehr:
Was more desirable. I think that’s a lesson right there is you didn’t just wait for somebody to come to you. Oh no, not at all. You started putting it out everywhere as to Facebook groups. You had all these different networks or these ideas of where to go to find someone instead of just thinking. Because I see that commonly as people are like, “Well, I don’t know if I’ll find someone. I don’t know if I’ll get a great tenant.” Well, you’re not even doing the things to try and put yourself out there. It’s like you got to do some marketing, especially if you’re house hacking, you got to market yourself and the house. I’m a great roommate.

Rick Albert:
I agree. I mean, there’s two reasons why, I guess three reasons why a rental doesn’t rent, right? It’s either the price, the marketing or the rental criteria. So if you’re not doing the right marketing, maybe you’re just not reaching out to enough people. To your point, you just can’t post it online and hope for the best.

Tony Robinson:
I’m glad that you found someone that you knew, but then that kind of opens up a different can of worms where it’s like, well, now there’s this personal relationship, but there’s also this tenant landlord relationship. How did you navigate being the landlord to a friend who you’re also right next door to?

Rick Albert:
Who’s also a paralegal? Yeah. Yeah. Let’s talk about that.
So there’s a couple things. One, we did have a sit down and I always like to explain, look, we’re friends. Our mom’s have been friends for over 60 years, but I got bills to pay. So that’s the relationship here. And then we kind of went through scenarios of like, okay, what would happen if this happened or that happened? And we just realized it was a good fit. And to be fair, we were both super busy professionals, so he was busy going to work every day. I was busy out and about. So I knew it was going to kind of work to begin with just because we wouldn’t be doing a ton of hanging out in general anyways.

Ashley Kehr:
I think sometimes too, it gets over complicated as we get adults because think about as college students, so many, not necessarily house hacking, but you’re living with roommates, you’re living with your friends, you’re each expected to pay rent. So a lot of times it’s not that much different. If one friend doesn’t put in their pool of money to pay the rent, you’re still going to have the same conflict you would if you’re the landlord and living with your friend. 100%. I think that we sometimes over complicate real estate investing with that fear of analysis paralysis or that you’re not doing everything right and you got to do it by the book and do it this. Sometimes it’s not that hard.

Rick Albert:
What I love about real estate is you can stumble as long as you’re stumbling forward, you’ll be fine. You’ll live. Just don’t buy a house on a hillside that might be slipping, that’s an exception. But generally speaking, most deals eventually work out if you give it enough time.

Tony Robinson:
Knowing what you know now, is there anything you would’ve done differently with the lease or just anything with that first house hack tenant to make that process gone a little bit smooth for you? Or was it just simply smooth enough where it’s like, “Hey, I nailed it that first time?”

Rick Albert:
We did pretty well, I will say. And part of that was because I talked to my friends who were also already house hacking. So things like, because I included the utilities, I still had to put a cap on the utilities to make sure the AC wasn’t being blown all day. So we did a lot of that. I guess in hindsight, again, with him it was fine, but typically now with leases, I’ll put quiet hours. What are those quiet hours? Is it from 10:0 PM to 70 AM? Something to kind of more like, “Hey, we’re all living in the same community. Let’s have some guidelines.” I probably could have had more of that. I didn’t actually need it with him, but I did add that in my leases going forward.

Ashley Kehr:
We’re screening your tenants, managing them. Are you using any kind of software?

Rick Albert:
Yeah. So in the beginning I didn’t. It was a lot of spreadsheets, things like that. We did use, there was a website called mysmartmove.com for the tenant screening because they also did evictions, full on background checks, things like that. And then for the leases, being in real estate, I can use the realtor forms with all the disclosures and all that.

Ashley Kehr:
You’re probably already paying for all those anyways, right? Exactly. With your license.

Rick Albert:
Right. So now that we do investing out of state, me and a business partner, we actually own two properties together. One, we do self-manage. I handle more of the front end stuff, so dealing with tenant relations, vendors. He does the backend stuff and he’s using more of the property management software. I think he uses Tenant Cloud, which has no been bought out by TurboTenant. So we’ll see how that plays out, but we

Ashley Kehr:
Still – I love TurboTenant, so you’ll like it. I’m

Rick Albert:
Excited. I’m super excited. But yeah, so we use some of that software. And then for the leases, because it’s out of state, I don’t necessarily have access to those. There’s a lot of trade organizations that have leases. So the latest one we used was the American Apartment Owners Association. They have those. And then we just add our own addendum to kind of fill in the gaps.

Tony Robinson:
So the condo sounds like it worked out well for you as a first house hack, but you didn’t stop. Obviously you’ve grown your portfolio. So explain to us how that $225,000 condo funded your next deal.

Rick Albert:
Yeah. So I had a roommate, he got engaged, moved out. So I had my own place. I was going to get another roommate, but then I knew I was going to propose to my girlfriend at the time.That’d be kind of awkward. I was like, “Okay, I’m going to not have not house hack for a couple months, proposed.” And then we did a HELOC, home equity line of credit. So it was like a second on it. What I like to do yearly is review all of our properties, determine values. So what’s the property worth today? Is there anything I can do with that equity? Does it mean selling? Does it mean line of credit? Whatever. At the time it was like they had good rates. I went with actually a big bank on that one and it was up to 80% loan to value. So I pulled out the.
It was like 80,000, 84,000, and then used that as the down payment and closing cost for the second house hack that we did.

Tony Robinson:
Define HELOC for folks that aren’t familiar with that phrase. How is that different from a refinance or even selling your property?

Rick Albert:
Sure. So a HELOC is a home equity line of credit. It’s like a loan in a second position behind your main loan. So sometimes you don’t want to refinance the first one because it could have a really good interest rate, some other good terms. But then also more importantly, with a HELOC home equity line of credit, you only pay on the money you use. Imagine a credit card. So why would I do a cash or refinance, get all the money out, and now I’m stuck with this high payment, but I haven’t bought anything yet. So it gives me that more flexibility on what to do with it. And so we use that to go buy the next one.

Tony Robinson:
It’s a great tool. And for all of our rookies, if you live in a house right now that has a good amount of equity and you’re thinking about moving, get the HELOC before you move because it’s significantly harder to get lines of credits on traditional rental properties than it is to get it on your primary residence. So get the HELOC first, then move, move on to

Ashley Kehr:
The next one. And there’s nothing in most documents and most lenders, there’s nothing wrong with you getting the HELOC and then moving. You’re not violating any kind of fraud

Rick Albert:
Or

Ashley Kehr:
Anything. There’s no requirement that you have to live in the house like there are with a lot of mortgages, like FHA mortgages and stuff like that.

Tony Robinson:
But this little condo gave you $80,000, which is incredible. So what’d you do with the 80? Where did that go next?

Rick Albert:
I convinced my now fiance to house hack again.
Bless her heart, if she’s watching. And originally actually the plan was to buy another condo. And then it was 2017, so ADU started coming into play, which is the accessory dwelling unit. So you can convert a garage or build from scratch. Most people build from a conversion of a garage and it’s basically a rentable guest house. So it has its own address, it could have its own separate utilities, and you can legally rent it out. And so we’re like, “This is cool.” And I had clients who had done it where the garage is already partially converted. I was the first in my group to do one from scratch. So I had to explain to my fiance that we’re going to be a guinea pig.

Tony Robinson:
Let me ask, why did you decide? Because I’m assuming the reason that people are doing the garage conversions first is because it’s easier, right? The structure’s there, it’s more cost efficient. Why did you lean away from the garage conversion into actually building something from the ground up?

Rick Albert:
So building from the ground up is very expensive. There’s different building codes you have to abide by, different fees for construction. The permitting fees might be different. There’s probably school fees, things like that.

Tony Robinson:
You’re not selling me on the reason why to build from the ground up yet, although sound like reasons not to.

Rick Albert:
Well no, but to be fair, the rent’s not going to be that much different.

Ashley Kehr:
If you already have the garage there.

Rick Albert:
Exactly. So the only advantage to doing it is if you want to keep your garage, maybe you want to build on top of it, but even then you’re basically rebuilding the garage anyways because the garage skipped leg day, can’t support the weight. Or if you just want to build bigger, if you’re going to build bigger anyway, sometimes it’s just easier to scrap it and start over. So at the time people were doing more of the garage conversions. Now we’re seeing more of the new construction, 1200 square feet, building a couple of them on a property. We’re seeing a lot more of that now.

Tony Robinson:
But sorry, let me clarify. You did do new construction or you did not? Oh,

Rick Albert:
You didn’t. Sorry. My apologies. I did the garage conversion.

Ashley Kehr:
They did the garage from scratch. His other friends bought them partially. Yeah, they

Rick Albert:
Were already partially converted. So they finished the process. I was the one who –

Tony Robinson:
I misunderstood. That’s why I confused. I was like, tell me why you didn’t just listed all these bad things. I was like, that is not selling me on why we should do it that way, but it makes sense.

Ashley Kehr:
When you bought this next property then, how did you calculate into your numbers what the cost would be to do this renovation? And was this cash you had saved up? Was this part of the HELOC?

Rick Albert:
Yeah. So really good question. And it was really tough because not everybody really had an idea of what the actual cost was going to be because not everyone hadn’t even heard of it yet. So we did what was called the FHA 203K loan. That is where you put three and a half percent down of the purchase price plus construction costs and you finance everything else. So we did an addition on the house, we remodeled it, and then we did the garage conversion. I

Tony Robinson:
Just want to pause you there because a lot of folks know about the traditional FHA loan, but you’re saying there’s another version, the 203K loan where you can fund both your acquisition and the renovation costs.

Rick Albert:
If it’s your primary residence, yes.

Tony Robinson:
I would assume that there’s probably some stipulations around that, right? They’re not going to let you maybe take a house that’s worth $500,000 and spend another $500,000 building up. So how do they put a cap or put guardrails around the type of renovation you’re allowed to do?

Rick Albert:
Yeah. So right off the bat, you can do additions, but you can’t do something brand new. So you can’t add a pool. I couldn’t do an ADU from scratch. So you had to work with what you had. And I think part of that is also because they’re probably assuming that the people who are getting these loans don’t have that kind of experience. And then in terms of the calculations, it all has to appraise for the after repair value. That’s all they care about. What makes this interesting, especially in my case, because the challenge with ADUs at the time was there are no comps. People hadn’t been building them. They hadn’t been selling them. So it was a little bit of a shot in the dark. With the FHA 203 loan, they’re allowing you to. Basically they’ll lend up to 110% of the appraised value. So you got that little extra bump, which worked out for us because our appraiser gave the value zero because he’s like, “Oh, $10,000 for the ADU.
Oh, but you don’t have parking. I’m going to take away $10,000.” Oh my God. I’m like, “This is hilarious, but whatever, we got the loan done.” And it still caps out at your county’s loan limit. So at the time it was like 700,000, I think basically all in.

Tony Robinson:
So you’re saying that when you did yours, the person who appraised it literally did not account at all for the fact that

Rick Albert:
There was no loan. Basically, yeah it basically canceled itself out because I talked to him on the phone. He didn’t know what it was. And I’m like, “It’s a rentable guest house. You’re an appraiser. You should be doing your research. Just throw that out there. That actually

Ashley Kehr:
Happened to me on a property. It was a single family home with a guest house and we completely finished it into, they counted it as three bedrooms. It was one bedroom and two lofts, and the lofts each had a closet. And so it was three bedrooms, one bathroom. But since it wasn’t the primary home and it was just the guest house on the property, I mean, brand new kitchen, granite countertops, beautifully redone. They only counted it for $20,000 because it was just the guest house. It’s painful. Yeah. And it was like, oh my God. So we actually fought it and they brought it up a little bit more, but not by much. Yeah. But that was a big lesson is we dumped probably, I want to say $80,000 into getting this to where it was, and then it only added $20,000 in value. Well,

Tony Robinson:
Your situation is probably even trickier because you had to do the work first, right? You have to do the work first and then go back and get the appraisal. But yours is done beforehand. Yeah. So was that done while you were in escrow? Yes. Gotcha. So you knew before you even closed if you were going to have enough to actually execute.

Rick Albert:
Yeah. So that was the idea. We ended up. Well, I guess I should backtrack because I think you guys would appreciate this. We were one of 17 offers on the property.

Ashley Kehr:
Wait, and this was in 2017?

Rick Albert:
This was 2000. We ended, I think, 18, 2018 by then. 18, but

Ashley Kehr:
Still.

Rick Albert:
Yeah. Because the agent was smart. I’ll give him credit. He purposely priced it low to –

Ashley Kehr:
Smart or annoying? That’s happening in my market right now. Fair enough. Everyone is raising so low. And just list

Rick Albert:
All properties for a dollar and just let the market decide, right? Why do we go do this dance?

Ashley Kehr:
There was a guy that did that in my area. It was a national news he made or whatever. He listed it for a dollar. A dollar, yeah. There was

Rick Albert:
One in Oklahoma

Ashley Kehr:
That did it too. I

Rick Albert:
Have a flip. But sellers are doing that now. I heard of someone who was a developer. He couldn’t get his property sold. He dropped it to a million, which is cheap for new construction. He ended up getting close to 1.4.

Tony Robinson:
I literally have a flip right now. We talked about this in the podcast. My listing agreement just expired yesterday, so I don’t even have an agent. I got to find an agent right now. But we’ve been sitting on it. It’ll be two years this fall. It’s in mountain town in Idlewild. Who knows? Maybe I’ll list it for a dollar and just see at this point what else can’t get any worse. You

Rick Albert:
Don’t have to accept it.That’s the part that I think people don’t get is you don’t have to accept the offer that comes in. But yeah, so in this case, he didn’t list it for a dollar, but he still listed it low. My wife liked the property. I was like, “Sure.” And so we did an escalation clause, which basically said we’re going to pay, I think, $2,000 over any bonafide offer. Most people put caps on it. I did not. I think caps are kind of silly because just like a seller doesn’t have to accept, a buyer doesn’t have to accept.

Tony Robinson:
So actually I didn’t know that. So if you add an escalation clause, it’s not an automatic acceptance. You still have to come back and sign that final –

Rick Albert:
Yeah, because they get to tell you what the number is.

Tony Robinson:
I never thought about that.

Rick Albert:
So our thought was, my wife’s like, “Well, should we put a cap on it?” I’m like, “No.” Because if it gets way too high, we don’t have to buy it.
And so it went really high and I’m like, “There’s no way this is going to appraise. The buyer did this intentionally because they know it’s not going to appraise. I want that benefit.” So I said, “We’re going to accept it.” So it was listed for 499. We were in escrow at 567. The guy was selling because his wife had passed away, so he was just selling it to move on, get it accepted. I’m on my way out, flying out to Peru. My broker who was representing me at the time called me, he said. Or no, I was in the office and he’s cracking up. He’s like, “The listing agent got a call from a lady saying, Why are you selling my house? She was not dead.

Ashley Kehr:
Oh my God.

Rick Albert:
And so I called my fiance and I’m cracking up. She’s like, “This isn’t funny.” I’m like, “Well, it’s better than the alternative.” So I’m like, “This is fantastic.” She’s like, “What do we do?” I’m like, “Nothing. We’re going to go to Peru. We’re going to go to the jungle with no reception.” I lined up all the inspections, let them figure it out. And once we had a reception, they figured it out. We entered escrow and then we renegotiated the price down to 525.

Tony Robinson:
So did it not appraise?

Rick Albert:
No, that wasn’t the issue. So what we did, there was actually two reasons why we did price reductions. The first one was from inspections. So everybody negotiates differently. What I do, and I’ll say it on the podcast. So basically what we do is we do personal letters with the request for repairs, because the problem is you don’t know what’s being communicated between brokers.

Ashley Kehr:
Oh, it’s like playing telephone. It’s

Rick Albert:
Awful. Exactly. So what we do is we have the request for repairs form and it says, “See letter attached.” Therefore, the seller has to read the letter to determine what the request is. And that way there’s no confusion. We’re not being jerks. So we did that. That’s how we got the first price reduction.

Tony Robinson:
Let’s pause there though because I’ve never done that before. We almost always ask for some sort of concession when we do inspections, but I’ve never attached a letter to that. So is this an emotional appeal or a logical thing?What are you writing in these letters?

Rick Albert:
Both. So because it’s a house hack, it’s still primary residence. It’s still about my home and my wife and I, we’re going to start a family. It’s so sweet. We’re so excited. But the sewer line’s shot and the fireplace doesn’t work. And there’s all this work that needs to be done. And also, by the way, it’s California, so any disclosure, any reports you have, you have to pass on to the next buyer. So you kind of have to play ball. So we negotiated that. And then the second round was there was an addition done that was clearly. It was done without permits, which we knew. It was done pretty poorly, but I knew I couldn’t necessarily ask for both because that would’ve been too big of a bite for them. And I was like, “Maybe we can make the numbers work.” Well, we realized we couldn’t make the numbers work with the loan because the cost to tear it down to be built.
So then we had to go back and say, “We need another like 20 grand because we got to tear this thing down.” And they’re like, “Well, we already gave you based on your due diligence.” I’m like, “This isn’t due diligence. This is the lender requiring me because it’s the FHA 203K loan. The lender, they’re the bad guys in this, not me. The lenders are requiring me to tear this down and rebuild. And the only way to make the numbers work is if you give me another price reduction.”

Tony Robinson:
We talk about this on the podcast a lot too, where it’s sometimes the. And obviously you were the beneficiary here, but a lot of times the highest price isn’t necessarily the best offer because had someone come with a non two or 3K loan, because you had what, a 2K escalation clause? Yeah. Had they just accepted the offer that was 2K cheaper, they might have saved the 20 grand from the lender requirements, right? So just as on both sides, just be aware of that for the rookies that are listening because you can use that to your benefit or I guess to your disadvantage maybe. I had a deal like

Ashley Kehr:
That too where I was the buyer and I offered them, I will take it as is. Leave everything you want in there. I will get rid of it, whatever. It was like
Quarter house or whatever, not too bad, but bad. And they said, “No, no, we need this money and we need X amount.” And I said, “Okay, fine. But I want to do an inspection. I want the whole house cleared out, broom swept, and I will pay the full amount.” After the inspection, after the repairs that needed to be done, after the FHA inspection, after all of those things, and then it delayed closing because we were doing the FHA loan, we did the inspection, they had to make the repairs, get that all done. On closing day, the basement flooded and then we got a 20K closing credit for the HVAC and the hot water tank. But if they would’ve accepted original offer back and then, because literally we spent months negotiating, but they would’ve been better off accepting that first offer of just a quick close, taking that price reduction than what ended up happening over time.
I see

Rick Albert:
That a lot.

Ashley Kehr:
Yeah.

Rick Albert:
Yeah. Yeah. Oh yeah. I was a happy camper.

Tony Robinson:
So just so I make sure I understand the sequence here. So for the two or 3K loan, is there any additional qualifications that you need as a borrower as opposed to a traditional FHA loan or is it –

Rick Albert:
Good question. No, they still look at your credit, your debt, your income.

Tony Robinson:
Not like construction background or you don’t have to do anything.

Ashley Kehr:
You have to have a licensed contractor though approved by them and stuff?

Rick Albert:
Correct. So the process, my understanding was fairly easy. I worked with a contractor I’ve used on the development side. So obviously he has it. So they look at I think their reserves, their license, all of that. And then once they’re in the system, in theory, they could be an FHA 2-3 contractor for whoever else they want. But yes, it does need to be a licensed contractor. There are little nuances to that where they might make some exceptions, but generally speaking for most people, they have to have a licensed contractor.

Tony Robinson:
So you have to submit both the contractor and the bids during your due diligence period to make sure that they approve both of those.

Rick Albert:
Correct. And that’s usually the biggest delay is getting the bid in time. So what I did, and I’ve even done one of my clients did the same loan, is we just kind of created the bid upfront and then sent it in immediately. Because really for the contractor, a lot of them, not all, all they care about is really that bottom number. What’s the total? So they don’t really care how it’s broken down as long as they get paid. And so that helped in getting the process moved a little bit faster.

Ashley Kehr:
So you actually built out the scope of work and then assigned the dollar amounts.

Rick Albert:
Exactly.

Ashley Kehr:
Then you

Rick Albert:
Broke it all up. And then the lenders want, oh, split it between materials and labor, which no contractor will do. And I’m like, this is ridiculous. So I’m like, whatever. Because again, you just kind of figure it out. And again, as long as the contractor’s cool with it, then it’s

Ashley Kehr:
Fine. You do the work for them and they say, “Yeah, that’s okay. Hand it in.”

Rick Albert:
Exactly.

Tony Robinson:
So what was your closing period? Were you still able to like a 30 day escrow? About

Rick Albert:
45.

Tony Robinson:
Okay. So not that much longer, right? No.

Rick Albert:
Typically they’re 45 to 60 days.

Tony Robinson:
Okay. I just want to talk a little bit. So once you close, how is it actually getting the money from FHA to pay the contractors? Do you get a big lump sum at the beginning or are they doing draws or there’s inspections? What is that process?

Rick Albert:
Real good question because it’s super annoying. Not the question, the process. So you have what’s called a HUD consultant and the HUD consultant, you can kind of pick your own, but typically they just assign one and their role is to basically represent the lender. So they’ll come out, do an inspection, see what work’s been done and then cut a check accordingly. That process takes a while. And that was one of the issues we had was it was taking, in the beginning it would take, I think one check took three weeks and then one took six weeks. I had to start threatening the lender to get on it. And so eventually they’re supposed to typically do it within 14 days. Was

Ashley Kehr:
This a small lender or – No, this was a

Rick Albert:
Nationwide lender. I was livid, livid.

Ashley Kehr:
Which I guess kind of makes sense. Smaller banks would probably be better about paying

Tony Robinson:
It.But did you have to come out of pocket at all for anything on the renovation or did they cover all of those costs or were you floating anything in the meantime?

Rick Albert:
Yeah. So we ended up floating some money in the meantime because just like how I told my fiance that we were the guinea pigs on the garage conversion, I also told her we were the guinea pigs on the FJ 203K loan. Yeah. Fun fact, we’re still married.

Tony Robinson:
It worked out. Yeah.

Rick Albert:
She hasn’t killed me yet. So we learned a lot in that process because they were taking so long, my contractor’s like, “I got to get paid.” And then it got to the point where I was like, “Hey, good news. I got a check coming your way for like 12 grand.” He’s like, “Rick, you owe me like 60.” I’m like crap. So we had a conversation. I was like, “Look, the lender won’t let me not finish this project. They’re not going to not let me. They check in all the time, which means you’re guaranteed to get paid. It’s just a matter of when. So what I’m going to do is I have some money saved up for our wedding. I’m going to front that to kind of float you along.” And then he was willing to work with us on that and that was extremely helpful.

Ashley Kehr:
Was there anything that was signed between the lender and the contractor agreeing on timelines or a draw schedule or anything like that?

Rick Albert:
Yeah. And most contractors will just sign off on it. Yeah. And

Ashley Kehr:
Not realize that.

Rick Albert:
Realize how long it’s really going to take. So yeah, there are certain agreements between the contractor and the lender to get all that squared away. And then sometimes the HUD consultant will participate in that process. You do pay the HUD consultant to come out usually as part of your bid. It probably depends on the scope of work, to be honest. I think ours, we had five visits. So then what we started doing is we actually paid extra for him to come out more often to cut out smaller checks. So I’d rather spend, at the time it was like 350. I’d rather spend extra a couple thousand bucks to come out more often to get smaller checks going to prevent the contract because it’s also not fair to the contractor to be fair. I get it. They have a business to run to and being a contractor is tough.
They’re fronting a lot of money.

Ashley Kehr:
That’s still quite a bit of money to have them come out and do their inspection.

Rick Albert:
I know.

Tony Robinson:
I know. So I mean, aside from the payment delays, how long did you initially project this renovation to take and how long did it actually end up taking?

Rick Albert:
Yeah. So part of the problem was the inspector for our area, he had fallen off a roof, not ours, a different property and broke his back. So then the city and all their glory was short staffed. So it was taking, every time we called the city for inspections, it would take 10 days for them to come out. So what was supposed to be a four month project took a year. Yeah, it was rough.

Tony Robinson:
Were you guys living there during that timeframe? So what happens to the loan? Because I’m thinking about a traditional hard money loan or a renovation loan, there’s a cap. And if you go beyond that timeframe, the debt gets more expensive, there’s penalties and fees. Does that same thing exist on the two or 3K loan?

Rick Albert:
Yes and no. So it depends on how you have it set up. In our case, we were making monthly payments over the course of 30 years, so they didn’t really care in that sense. They did care that they wanted the project done because in theory, if I foreclose, now they have a half built property. So in that sense, they didn’t care.

Tony Robinson:
So your mortgage payments started on day one, your full mortgage payments.

Rick Albert:
What you can do, we didn’t have it in the budget, but what you can do if you have the money in the budget is you can finance some of those payments. So I think it’s up to 12 months. So you can not have payments for up to 12 months if you finance it.

Tony Robinson:
But only if your ARV after the fact is hig enough, right? And you guys just didn’t have that budget to –

Rick Albert:
Exactly. We maxed it out. Yeah, exactly.

Tony Robinson:
Interesting. So you guys carried the mortgage for a year?

Rick Albert:
Yeah, we carried the mortgage for a year. And then as I mentioned earlier, we were the guinea pig, so we actually under budgeted for the garage conversion. And part of that was also like building codes change. So it needs its own sewer line. We knew that. We’re like, okay, we budgeted when I called the sewer company like 3,000 to go from the back house to the main house and just connect. Nope, we closed. Building codes change. They wanted us to run a line all the way down the driveway and then connect. So I was like, well, that sucks. So that was around 7,000 at the time. What we did do to get creative was we actually had them cut the driveway in the middle of the driveway and instead of pouring new concrete, I just had to put a gravel. So it looked aesthetic and people are like, “This is so pretty.” I’m like, “Thank you.
I saved $1,000.” So you get creative very fast, very, very fast. So we did that and then a year later, it was actually right after our wedding, the house was basically done.

Tony Robinson:
If you were starting this renovation project over today, now in everything that you know, having gone through this process the first time, what things would you do differently? On day one starting, what are the differences you would change?

Rick Albert:
So I’m assuming I was in the same financial position, which was no money, then I would’ve paid extra for the draws. I would’ve been like, “Look, contractor, you may still be behind, but I’m going to pay extra. That’s my contribution to have them come out faster on a regular schedule. I’ll pay the extra few thousand dollars if it means you get paid on a more regular basis.” And that would’ve helped because there were times when I went by the property and he either didn’t have guys there or he’d have two guys there and they’re barely working, which to be fair happens regardless if you’re not checking in on it. But I also understood because we weren’t paying him fast enough, he had to work other jobs that we’re paying. So that’s probably the biggest thing. If I actually had money saved up, I would’ve fronted the money and then just get reimbursed.
There are some other nuances. At the time you could buy actually materials and get half the money. So let’s say you buy the flooring ahead of time, you get half that money back and then you’d pay the difference once the flooring’s installed. So that’s another way to kind of speed things up as well because at least the materials are there and then you just don’t reimburse yourself. You give the money all to the contractor to keep them ahead.

Ashley Kehr:
Now once that was finished after the year, you rented it out. So what did the numbers look like?

Rick Albert:
Yeah. So the payments all in were about 4,600 and we had no money because the project took a year. We also slightly under budgeted for the garage conversion. So I told my then wife, I said, “Hey, I’ve been doing research. There’s something called the streamline FHA refinance, which is basically if you have an FHA loan, you can just do a refinance into a new FHA loan, but it doesn’t require appraisals because I knew there were no ADU comps and the FHA 203K loan naturally is a higher interest rate because they’re taking on more risk.” So she’s like, “Oh, that’s fantastic.” I said, “Ha ha, but to do that, we got to move into the studio ADU.” And she just took a second. I’m like, “This is the only way it’s going to work.” So she’s like, “Cool, let’s do it.”

Tony Robinson:
Why was that the restriction there? Why couldn’t you stay in the main house?

Rick Albert:
We couldn’t afford it. So I was like, “Look, if we move into the ADU and rent out the main house, that’s a bigger chunk of our mortgage paid and it’s still considered to be owner occupied.” The lender doesn’t care where I’m living. I just had to pay movers to move a couch with the receipt that showed the main address, which the movers looked at me like, “Why did we just pay to move a couch?” I’m like, “Not your problem, that’s mine. Just take my money.” And so yeah, we actually moved into the studio ADU and rented out the main house at the time.

Ashley Kehr:
And what did you get for

Rick Albert:
Rent for that? Just under 3,299, which was actually about $400 more a month than what the comps are showing. But I looked at it and said, “Well, the house isn’t quite finished yet, so we technically have time.” And two, we originally designed it for ourselves. So we knew that it was a slightly higher level of floor plan and things that you wouldn’t typically see in a rental. Funny enough, we only got one application and they were the ones that got it. Oh, perfect. Yeah. Yeah. Things happen for a reason. And then they came from Facebook Marketplace is how we ended up finding them. And then we didn’t know if we were going to move into the ADU or not until I learned all that stuff. And then we ended up moving back there. And we actually designed the garage conversion to have its own washer dryer.
And because it was detached in the back, it had its own backyard. We fenced off the front, so it had its own front yard and there was no windows pairing into the yard. So it was actually very private because we did two glass French doors on the back and then the front door had a built-in window. So we still got natural light without having to see anyone. It was as close to a little casita as you can get.

Ashley Kehr:
And what would you have gotten for rent for the ADU?

Rick Albert:
At the time? Yeah, do you think you would’ve? Probably 1400.

Ashley Kehr:
So a big difference from what you could get for the main house. Exactly.

Rick Albert:
Yeah. It was definitely worth it. And then so we did the refinance and then later on when rates really dropped below 3%, then we did the big refinance. And then at that point we were living there for about 600 bucks a month was our portion before eventually moving into the main house. So we lived back there through quarantine and through all that for about two years.

Tony Robinson:
I don’t know if we’ve had anyone who’s leveraged the two or 3K loan. Maybe we have, or maybe it’s been a while, but definitely haven’t gone to that detail because I learned a lot about the 203K loan. Do you recommend it to people? Because you work as an agent in a very expensive market. Do you recommend that as a loan product that makes sense?

Rick Albert:
Yeah, it’s tough. You have to really navigate through it. And I tell people that. I’m like, look, it’s annoying, but it works. And to be fair, if it’s the only way you’re going to get the job done, then it’s the only way you’re going to get the job done. Things are a little bit trickier now, right? ADUs for a long time haven’t really appraised out. Back then it cost us, we thought it was going to be closer to like 40 to 50,000. It ended up costing about 75,000 to do the garage conversion. Now it’s about 150, but appraisers aren’t giving it 150,000 in value. So we just have to kind of navigate that a little bit more. One of my clients, she did do it, but what we had found, which was great, was it was an illegal conversion and it was already two bedrooms.
So really she used the FHA 203K loan to convert it to a legal unit. So it cost her about 100,000, but it would’ve cost her 200,000 to actually do it. So I actually would probably encourage people to consider that loan for unpermitted work. That way you’re not going through that whole. It’s still a headache, but it’s –

Ashley Kehr:
Not as much.

Rick Albert:
Exactly. The kitchen’s there, the plumbing’s there, that sort of deal.

Tony Robinson:
Can you, because we have friends who invest in Seattle, like Dave, the Thatch Wind does this a lot too, but they’re doing the same process, but then they’re actually separating it out as a new parcel. That way they have to appraise it separately because it’s its own now home.

Rick Albert:
They talked about doing that here in California, right? I think the first one finally sold in San Jose or something. It sold over 500,000. I haven’t really seen it here. I mean, on a practical basis, it’s a little awkward just because how do you access it? But also, and I’d be curious, maybe you guys could do the research, how much value does that hurt the main house? Because now you don’t have a garage.

Tony Robinson:
Well, more so for the detached areas. For the detached? Yeah.

Rick Albert:
I mean, I just haven’t really seen it much yet.

Tony Robinson:
I feel like that almost solves it, right? Because for your specific example, you already fenced everything out and if you can just get an imaginary line drawn on the map, now it becomes its own thing.

Rick Albert:
Yeah. So then yeah, then he’s like, “Well, if a condo would sell for a few hundred, why wouldn’t this?” Yeah, it might be.

Ashley Kehr:
Would you have to get two different mortgages then because they’re two separate parcels? Would

Rick Albert:
You piss off the lender? That’s a good question.

Ashley Kehr:
Because I’ve parceled off pieces of property and when you survey it and divide it, the lender that’s on the current property has to sign off that you’re releasing that property from the mortgage. Or if you do a portfolio loan where you have two or three properties under it, you still need to get the lender’s permission if you’re selling one of them. So if you already had the loan in place – What does that look like? Yeah, how does that look like to separate?

Tony Robinson:
If you have these answers, let us know. Yeah, seriously. I want to know. I

Ashley Kehr:
Mean, the only thing I could think of is you’re going to go and get a new loan for that new parcel, but then it’s like you’re buying it again. And

Rick Albert:
Also then wouldn’t you be technically underwater on the main house then? Yeah. Because it was purchased with the expectation of an ADU and now you’re a hundred grand short. So yeah, it’d be interesting to look at.

Ashley Kehr:
Well, let us know if you’re watching on YouTube, but let us know in the comments.

Tony Robinson:
So how did living in the ADU for you and your wife, you said you were there for how many years?

Rick Albert:
Two years.

Tony Robinson:
Two years. How did that change, if at all, the way that you guys think about design, living, renting, managing your tenants being so close? What did it change for just you as an investor in general?

Rick Albert:
Yeah. So there’s a lot of things because a lot of people build out these ADUs and never live in them, and so they’re designed horribly. So there’s three things that I’ve noticed with a bonus four. So with ADUs, privacy is super important. Oftentimes I see investors, they’ll pop a window that goes into the yard. Nobody wants to see each other. That’s the whole point. The fact that ours was very private was a big deal. We couldn’t see them. They couldn’t see us. Washer/dryer is a big deal. You’re already doing the plumbing. So we actually had it set up to where you could put a stackable, but we ended up putting it all in one unit. I guess you kind of see them in Europe. They’re expensive. They’re

Ashley Kehr:
Becoming very popular now. Yeah,

Rick Albert:
But they’re really high maintenance.

Ashley Kehr:
Really?

Rick Albert:
We ended up swapping our first one out after. We lived there for about two years. Then with the next tenant that ended up moving in three years because it cost, I don’t know, 500 bucks to get it fixed. So for 2000 bucks, after so many times you’re

Tony Robinson:
Better

Rick Albert:
Off just swapping it. But we did do it to where it was, and I should probably preface, the entire ADU was all electric. We did do that, so we only had to separate electric. We didn’t have to worry about separating gas. So yeah, it was one 10 volt, plugged it in because it was in the bathroom, you could just turn on the exhaust fan there so we
Didn’t have to vent out. So that made it a little bit easier. But yeah, privacy, washer, dryer hookups. If you can have off-street parking, great. If not, that didn’t seem to be a big deal. But yeah, living there, even little things. We had a light and we ended up swapping it out with a ceiling fan because we realized that, oh yeah, it gets kind of warm in here. You don’t always want to run the mini split. And then also some sort of yard space was huge for us and it helped us get it rented out much faster than the competition because people might have pets or they just wanted to be. I mean, Southern California, right? We kind of pay this premium to not have to deal with some of the other stuff. No offense. So to be able to hang out in the backyard is a big plus.
So there’s a couple of things. And you can do that for pretty much any property if you convert the garage. Even if the garage is attached, you could do it in the setback kind of credit yard space. You can do something.

Tony Robinson:
Interesting. Yeah. I feel like we should spend more time, especially for the high cost of living areas, just talking about the ADU as a strategy because we don’t a lot. How

Ashley Kehr:
To navigate it.

Tony Robinson:
Yeah. Yeah. Well, let’s go back to the condo because you end up selling it.

Rick Albert:
Yes.

Tony Robinson:
Walk us through. I mean, it was the golden goose that helps you get into the next deal. Why’d you decide

Rick Albert:
To sell it? Yeah. So I had the same tenant there for four years because he was another friend of mine reached out through my network and I was like, “Look, I’m going to cut your deposit in half because we all know they’re going to trash the place anyways, but I’ll give you a two year lease.” That made me feel more comfortable going into the second house hack. And then we had COVID that hit. So anyway, they were there for four years, they moved out. So we had to make a decision. We’re like, “Do we continue to rent it? Do we sell it?” There were a lot of factors. It did have some good equity in it. So it was like, “Okay, is there a better source of equity?” Unfortunately, the ultimate decision was in 2022, LA still had the eviction moratorium in place because of the COVID.
And so we could put in the most perfect tenant and literally the next day they could stop paying and there’d be nothing we could do about it. So my wife, God bless her, she puts up with a lot. So when she says something, I listen and she’s like, “Is it really worth the risk?” I said, “Probably not.” I mean, it’s still a condo, right? So there’s still HOAs to deal with, which have its pros and cons. So we just decided to sell at that point. And it took about three weeks and then all of a sudden we got three offers over asking and got it sold. Yeah. It was a little lull, but we got it done. Yeah, we sold it for 453,000.

Ashley Kehr:
And you had bought it for 225,000.

Tony Robinson:
Wow. But now you’ve got a $200,000 problem of what are you going to do with that capital that you just made, right? So what’s the next move once you sell the condo?

Rick Albert:
So the next move was we wanted to try out of state. He’s actually my brother-in-law. We talked about him earlier. I moved in with him, worked with his dad. He’s also one of my biggest clients, and he started investing out of state. So he was like, “Hey, do you want to go fifty fifty because now we have our properties?” I had my house, he had his house, so we did the HELOC, home equity and the credit. At the time we found a credit union, they were willing to do up to 90% loan to value, fixed rate for five years at 4.75% interest only payments. I’m like, “This is a no-brainer.” So we “bought that property cash.”
So we ended up going fifty fifty on a fourplex in Nashville and bought that. So that was part of the exchange. And then on our own, because it was my first time investing out of state, so I try to be more risk averse if I can. So I was like, “Okay, I’m reducing risk by having a joint partnership with someone.” So we’re both sharing in that risk. The next one is like, “Okay, what are some of these lower cost markets that still have a decent population, different job opportunities?” And so that’s where Alabama came up, very landlord friendly. There was a triplex. It was listed for 180,000. It didn’t have hot water heaters in it, so it couldn’t be financed. And he got full price offers, but he wasn’t taking them. I’m like, “I’ll buy it.”
So I paid cash because I had the sale of the condo. We ended up negotiating it down to 90,000. Yeah. My wife now has this expectation that I can get any property for half off. It’s really tough. Even my realtor, who’s great, he was even surprised. I’m like, “He didn’t want to.” So yeah, we end up buying it for like 90,000, put the hot water heaters in. We ended up spending around 55,000 or so. And that was my first introduction to the Burr method and did that. We put out of our own cash about 55,000 and we were able to do a cash out of about 120,000.

Ashley Kehr:
And then are you just going to keep rolling that capital into more burrs?

Rick Albert:
That’s kind of the idea. Right now we’re taking a little bit of a break. I don’t know what you guys experienced. I’d love to get your feedback, but we’ve been experiencing really high vacancy rates lately. Things are taking longer to rent and that’s happening across multiple markets. And so this year has been much slower in terms of getting stuff rented. We’re almost there and having 100% occupancy again. Once that’s done, then I’ll start buying more. I really want to explore the five to 10 unit apartment space. I think the economies of scale are becoming more and more important with the rising cost of construction and things like that.

Ashley Kehr:
Yeah. In my market, I’m seeing the opposite, but I’m also very small rural areas. I’ve listed three units in the last 45 days and one just got listed yesterday. The other two rented within three days. We had over, I think, 70 leads for each of them. We had to take the showings and do an open house because we had so many people requesting, but they rented so quickly and I think this third one will, but I just think that’s that very specific small market. I can’t say for a nationwide scale, but Tony’s about to find out pretty soon what this market is. You can

Rick Albert:
Tell

Ashley Kehr:
Us

Rick Albert:
How it

Tony Robinson:
Is. Ask me in three weeks and I’ll let you know. We got a rental coming up.

Rick Albert:
I mean, I’m noticing it more. We are noticing in LA, we’re actually at a four year low for rents. Part of that’s because a lot of the new construction that started years ago are finally getting finished. But yeah, markets like Texas, Florida, Tennessee, because it’s easier to build and all that, all those projects are coming online. We almost wrote an offer on a place just outside Austin, and right before we signed off on the offer, we took one less look at comps and we’re like, “There’s a new construction apartment complex.” We can’t compete except on price, which means I’d have to offer so low to be offensive.

Ashley Kehr:
Yeah. See, I don’t have any of that in my market. There’s no new construction rentals. There’s probably been one in the last 10 years. I would say one in their patio homes. So we have the garage, everything, so they’re still not even comparable to a smaller apartment unit. That’s

Rick Albert:
Fair. No, I will say here in LA, I rented out my ADU twice. The first time took about two weeks. The second one took about three days. It’s pretty fast here because inventory in general is low when it is super expensive to build. When you do have rent control and all those things, it actually keeps inventory low. So things typically rent faster, so it just kind of depends.

Tony Robinson:
I mean, you’ve got a really unique perspective, Rick, because you’re an investor, house hacker, agent also. So for all of the Rickies that are listening who live in a high cost of living area and they maybe want a house hack, if you were to kind of button up the best practices of Rick’s story, what would that be to the person that’s listening right now?

Rick Albert:
One, look just outside desirable areas, because the desirable areas are super expensive. As people get priced out, they have to go somewhere. My condo, part of the reason why I appreciate it so well is I was surrounded by more expensive markets. So I’m like, “Hi, I’m your only option.” You all of a sudden become the prettiest girl in the room. So there’s that. Don’t be necessarily afraid of townhouses and condos if that’s all your budget can allow. You just have to really look at the HOA docs because a lot of HOAs are getting hit hard right now. But I’ve had clients do it and what we’ve been looking at is actually three plus bedrooms because it becomes a house alternative later on as a rental. So if a family can’t afford a house, but they need the bedroom count, that’s where you kind of come in.
So we are looking at those in terms of high cost of living. And with house hacking, you get all the benefits of being an expensive market. So a 3% appreciation on a $100,000 home is three grand. Do that on a million dollar home, you just made 30 grand in appreciation. So you’re actually developing wealth arguably faster in these higher cost markets than you might elsewhere. So it just depends on what your goals are.

Ashley Kehr:
Okay. So before we wrap up here, I’ve got to ask, is there one thing during your investing journey or maybe your career as an agent that you think was maybe unique or different than what most other investors do that you could share with us?

Rick Albert:
Yeah. Tony, when you asked me earlier about the closing costs for the condo and I hesitated, it’s because I actually forgot. And the reason being is most people know about buying points. So you pay the lender money to lower your interest rate. What you can do is the opposite. You can actually raise your interest rate and then the lender gives you a credit. So the reason why I hesitated on that question is because I remember raising my interest rate and the lender gave me the money to cover part of the closing

Ashley Kehr:
Cost. Okay. So let’s use numbers for this example because I didn’t even know this was a scenario that happened. I just did it

Rick Albert:
Last year.

Ashley Kehr:
He’s a lender saying it’s $1,000 and we’ll lower your interest rate by half a percent. If you pay that, we will lower it. You’re saying instead they’ll raise your interest rate half a percent and pay you a thousand dollars.

Rick Albert:
Correct.

Ashley Kehr:
Interesting.

Rick Albert:
So because I knew it was a fixer, so I already knew I was going to refinance and get the PMI taken off and do all that. So I was like, “Fine, I’ll temporarily have a higher interest rate.”

Ashley Kehr:
So that money was almost like you think of it as a seller credit

Rick Albert:
Where

Ashley Kehr:
It just goes onto your closing statement and decreases your closing costs.

Rick Albert:
Exactly. But it came from the lender.

Tony Robinson:
I’ve never heard of that. Do most lenders offer that or is that – All

Rick Albert:
Of them do.

Tony Robinson:
Interesting.

Ashley Kehr:
You just got to know to ask.

Rick Albert:
It’s because people don’t think about it because they’re like, “Well, I don’t want my payments higher.” But if you know you’re going to refinance, I’m in the middle of refinancing my current house because I raised my interest rate to have some of my closing costs covered because I knew it was a fixer. So once we refinance, if all goes as planned, knock on wood, we’ll be saving like 900 bucks a month because it happens to be a higher price point. But yeah, you can raise the interest rate. And to be fair, it barely moves the dial. I had a client do it once because it didn’t appraise, which we actually knew going into it wasn’t going to appraise, but we’re like, “Hey, let’s use a negotiation.” Interest rates were already ticking up, so she raised her interest rate to match what the rates It would’ve been anyways had we canceled and the lender not only gave her enough to cover the $5,000 difference in the appraisal, but an extra 1,500 bucks in her pocket.
And her payments went up like 70 bucks a month. She’s like, “I’ll live.”

Ashley Kehr:
Well, Rick, thank you so much for joining us today. I appreciate the opportunity. The drive out here. Where can people reach out to you and find out more

Rick Albert:
Information? Yeah, so I try to be active on Instagram and on YouTube at @RickBalbert. I have started a podcast myself. You’re both welcome to come on as guests. I would appreciate it called The Key to the City of Angels, where we do explore all things real estate. And then we try to tie it to Southern California because it’s such a unique market.

Ashley Kehr:
I can talk about my experience in the airport today.

Rick Albert:
There you go. Hey yeah, the building codes are probably just about the same, long and rough. I could imagine.

Ashley Kehr:
Well, thank you guys so much for joining us on this episode of Real Estate Rookie. I’m Ashley He’s Tony and we’ll see you guys on the next episode.