Ashley:
Every week we see the same thing happen in the forums. New investors are motivated, they’re consuming all the content, but they’re stuck because they’re afraid of making the wrong first move.

Tony:
So today we’re answering three real questions from beginners. We’re talking about how much money you actually need to start investing, whether you should invest locally or out of state, and how to get over the fear of pulling the trigger on your first deal.

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

Tony:
And I’m Tony J. Robinson. And with that, let’s get into today’s first question. So our first question comes from the BiggerPockets Forums, and it says, “I’ve spent the last few years doing light research on house hacking on flipping properties and the Burr strategy, but I’ve never mustered the courage to enter the market. After all of this time, I realized that I just can’t wait anymore. I’ve graduated from college and wants to try to do something with my first year out of it. I don’t want to live a life of mediocrity, any advice for potential ways to get started now.” Well, first, kudos to you for realizing that you can’t just keep waiting. I think that’s probably the first big step is realizing that at a certain point we have to move out of the information gathering stage and move into the action taking stage. Because if we don’t do that, then yeah, days turn to weeks, weeks turn to months, months turns to years and years turns into never doing it at all.
So I think that’s the first step is just realizing that it is important to finally take action. But I think the advice that I would start with, and we echo this thought a lot, but my first thing is understanding what your motivation is for investing in real estate. Sounds like you’re early in your career, you said you just graduated from college. So for you, it’s understanding what’s important to you right now as someone who’s a new working professional. Are you doing this because you want to reduce your living expenses? Okay, then house hacking maybe makes a ton of sense. Are you doing this because you want to quickly supplement the income you’re making from your day job? Then maybe something more active like flipping makes more sense. Do you want the long-term appreciation than maybe just some buy and hold properties where you’re plopping down 20% once every three to five years?
So I think first just understanding what your motivation is and why you want to invest in real estate is where I would start.

Ashley:
This would be my plan. I would house hack, first of all, but I would actually incorporate house hacking, flipping, and burring into this strategy. If you are just starting out and you’re maybe renting and you have the opportunity to house hack, this is what I would do. I would purchase a property and I would do a single family home with extra bedrooms and bathrooms and rent out by the room. And then I’m going to live in this property for two years, renting out the other rooms. At the end of two years, I’m going to move out and purchase another property, and then I’m going to continue to rent the house out for three more years. I’m going to fill my bedroom, rent it out. At the end of five years, or before the five-year mark, I’m going to sell the property. So this will satisfy the property has been your primary residence for two of the last five years, and you’ll be able to sell it for tax-free gain and not pay any taxes on the profit of this property.
And how I would incorporate kind of the Burr strategy into this is I would buy a property that needs to be rehabbed. And I would slowly do work on it over the course of the two years that I’m living there. Maybe you don’t have a roommate right away or someone else living in the bedrooms because you’re renovating part of the room, but I would do that strategy and by renovating it, you’re adding value to the property. Over those five years, those tenants are going to pay down your mortgage. You’re going to have, hopefully, you’re buying in an area that sees some appreciation over five years, and then I would go ahead and cash out. But at the same time, you’re already another three years into your next property. So I would just keep recycling this method property to property. So for five years, you’re getting rental income on these properties, two of the five years you’re getting a house to live in, and then you’re getting a big gain tax-free.
So that’s what I would do. If I was starting over and no kids, no family, just me, and I was renting and buying my first property, that is the plan that I would do for even 10 years, do it for all your 20s and buy your 30s, you could rack up quite a bit of money that way.

Tony:
I love that approach, Ash. You gave something super tactical. I think the only thing that I would change if I were to implement a plan similar to that is that I don’t think I’d sell all of them. I feel like I would try and maybe sell one, keep one, sell one, keep one. That way at the end of that decade, not only do you have these big chunks of cash you’ve been able to make, but at least you’ve got some that you’ve kept for the cash flow. And we’ve interviewed quite a few people who have used this strategy, but Matt Krueger was the most recent. And I think he did every year for like two years. Every two years for like a decade he did this and ended up with, what is it, seven properties or so that were cashflowing really well, all with these really low debts and really low out of pocket expenses.
So I think I would probably make that one small tweak so that way I’d still get some of the upside in the portfolio that I’m building. But couldn’t agree with you more that if I were in my early 20s with no kids, no wife, no responsibilities aside for myself, I would probably choose to make my life as uncomfortable as possible during that timeframe. So that way my 30s could be significantly more comfortable.

Ashley:
And I’m not talking about sleeping on the couch. I’m still having a bedroom and an en suite.

Tony:
And we laugh, but Craig Kurlop, who we interviewed, I can’t remember the episode number, but his first house hack, that’s exactly what he did. He slept on the couch and he rented out all of the other rooms in his house. So if you want to get that uncomfortable, you can. And Craig’s obviously going to be a really successful real estate investor, so it’s worked out for him. But to Ashley’s point, you can still have a little bit of comfort if you choose

Ashley:
To. Before we jump into the next question, let’s take a quick break. Getting started as hard enough and having the right tools in place early can save you from a lot of rookie mistakes, especially when it comes to staying organized from day one. We’ll be right back. Okay. Welcome back. We have our second question from the BiggerPockets Forums. This one says, “Hello, everyone. I live in LA and I have been saving aggressively to try and buy a house for myself. I’ve recently decided to start looking into investing in rentals out of state instead. I have $100,000 in cash and as of now, thinking of trying to buy a single family rental in cash if possible, looking for some advice, tips on which markets I should be researching, and if it’s a good idea to buy my first investment property in cash, or should I consider financing something that would be more turnkey?” Thanks in advance for all the help and words of encouragement.
Finding this community has really got me excited and motivated. Well, first of all, we love to hear that and welcome to the BiggerPockets community. So $100,000 in cash, a great chunk of money to be able to get started in real estate. So advice or tips on markets to research in. You definitely could buy a property in cash in Buffalo, New York, Syracuse, New York.
I won’t be the best property, but you could definitely get a decent property and then do some rehab and add some value to the property. But those are at least two markets I know of. But I think your first step should really be using the BiggerPockets Market Finder. And you basically go through the steps of looking through markets that kind of fit your criteria. It’s a really great tool that you can find biggerpockets.com right at the top there is the Market Finder.

Tony:
I think my first question though is why the feeling that buying in cash is necessary for that first deal? Is it because you just don’t want maybe the risk associated with getting debt on your first property? Or they mentioned at the end here, or would buying something turnkey make more sense? Maybe the person asking this question is assuming that they’re buying a really rough rehab and that’s why they want to buy in cash. So I think just answering that question first would be important because mathematically you’re going to get a better return on your investment if you include leverage in the purchase. Because if you’ve got $100,000, you could spend $100,000 to buy that property, or you could spend maybe $25,000 to get that same property. And obviously your cash flow will be a little bit less, but your return on that property would be significantly more.
So you could go get four properties at $25,000 down each or one property in cash at 100K. And in theory, those four properties at 25K down each would generate more than the one property paid off. So I think just asking yourself or trying to get an understanding of why are you focused on the cash perspective. I think for me, if I were paying cash for a property, it would only work for me if it was a value add opportunity, meaning I could buy something, invest the money to renovate it, and then refinance that property and hopefully recoup some of that cash that I put into that deal. And that’s what the Bur strategy is. So 100K in cash can get you into a lot of markets across the country. Like Ash said, it’s going to be maybe smaller markets, but it is an entry point in a lot of places.
So I think that’s where I would start is if you do want to go cash, look for a value add opportunity where then you can buy it, renovate it, refinance it, rent it, repeat it all over again.

Ashley:
And another option too, especially being out of state, it can be more difficult, not impossible and definitely doable to build your own team and have your maintenance guy and your property manager and all the vendors that you need and your boots on the ground, your agent, things like that. But another option, if you don’t have a team and you’re looking at a market is looking at a brand new build. We’re seeing so many builder incentives like buying down your interest rates, giving you seller credits, upgrading your home appliances, different things like that where that may be a great option when investing out of state, if you don’t have a team built. A lot of the properties I buy, they’re older properties and sometimes we’re not doing a full complete gut renovation on them and you’re going to have older plumbing, you’re going to have older exteriors, different things where you need to have a boots on the ground handyman that’s going to go in and make those repairs and stuff like that.
So maybe looking at a new build in an out- of-state market is also an option for you. Obviously it’s going to have to be if you do decide to get financing because I don’t know of any new builds unless you’re buying maybe a tiny home that’s 200 square feet, get a new build for 100,000.

Tony:
Yeah. The builder incentives, they’ve been pretty crazy I think these past couple of years as builders have fought with climbing interest rates and squeezed budgets of buyers to make sure they can keep moving inventory. So yeah, definitely a unique thing to try and take advantage of given where we’re at right now in the cycle of the market. All right. We’re going to take a quick break before our last question, but while we’re gone, be sure that you are subscribed to the Real Estate Rookie YouTube channel. You can find us @realestaterookie if you haven’t subscribed yet, and we’ll be back with more right after this. All right, welcome back. Our final question for the day also comes from the BiggerPockets Forums, and it says, “I’m a 28-year-old beginning investor and I’ve been more than ready intellectually, financially, et cetera, for almost a year now to buy my first property.
I’m going to be the one finding and managing the deal and my parents will help with half of the purchase or potentially even more.” The problem is, I’m looking at such a low price point in my area that when I actually get up and close to the house and meet the tenants, I get freaked out. How am I going to deal with these people, especially some of the Section eight people I meet? Even if I outsource the property management, who knows what repairs and are the surprises are in store for me in some of these places? Does anyone have experience with this? Would you say you have to approach some like investments as a semi-slumlord just because that’s the reality? So great question.
I think the first thing that I’ll say is there’s definitely truth in the idea that we talk about class neighborhoods when it comes to real estate investing that some of the lower class neighborhoods, your C class, your D class have tenant pools that are a little bit difficult, a little bit more difficult to manage. It doesn’t mean though that investing in the quote unquote D class neighborhoods is always going to be a bad investment. I think about our friend Steve Rosenberg, and he shared the story on stage a few times that I’ve heard him speak, but he had this portfolio of single family homes in a D class neighborhood, and Steve had a lot of experience in property management at that point, and it was the worst part of his portfolio. And he just said, “Hey, I’m going to bundle these all up and I’m going to try and see if I can sell them off to someone else.” And he sold them to a buyer who bought all of those problem properties that he had.
And then he ended up seeing that person a few years later at a conference. He’s like, “Man, hey, how’s that portfolio doing?” And the guy who bought them was like, “Man, these are my best performing properties.” So same exact homes, same exact neighborhood, same exact tenant pool, but two slightly different approaches in how they manage it. And for one person, it was their worst performing portfolio, for the other person it was the best part of their portfolio. So I think a lot of it does come down to you as an individual operator and how you manage those tenants. So that’s the first piece. The second thing that I’ll say is, is that if you’re worried about things like additional expenses around repairs or evictions or whatever those surprise costs might be, work those into your underwriting. So maybe you account for the fact that on day one, not only do you want to account for your down payment, your closing costs, whatever repairs you need to do, but you’re also accounting for on day one, maybe six months of reserves.
So if you have a fully funded six month reserve account on day one, that’ll give you some flexibility for whatever issues may or may not arise and allow you to sleep a little bit easier at night. So even if you had to evict someone on day one, you’ve got enough money set aside for that specific property to not have to lose sleep. So I think those are the first two big things that come to mind for me, Ash.

Ashley:
Yeah, those are all great points. And I think first of all, if you’re already freaked out that you’re just going to get more and more stressed if you actually go and purchase a deal like this. But I think one thing is to, if you do outsource to a property manager, ask their experience handling with different classes of tenants, like do they have properties that are already in a C class area or B class area? So getting their understanding of, and then asking how they deal with different things that could happen and how they handle if a lot of repairs come in or other surprises. So I guess I’m more curious as to what you are freaked out about. Is it just how they kept the apartment, that it wasn’t kept clean, that is what it kept nice. I’ve had quite a few Section eight tenants and all of them have taken very good care of the property because they don’t want to lose their housing voucher.
I think like in Buffalo, it’s like an eight-year waiting period to get a housing voucher. So if they don’t want to be kicked out because they don’t want to lose their housing voucher and they also have an inspection every single year where the inspection is more for you as the landlord to make sure the apartment is in compliance. So make sure when you’re touring these properties and they have Section eight tenants, make sure that they will pass the Section eight inspection because that could be the motivation for somebody selling is like, “You know what? There’s like too much that Section eight wants me to repair. I’m just going to sell the property and be done with it. ” So if you just contact the local housing authority that actually gives out the Section eight vouchers, they’ll be able to tell you what they look at in an inspection.
And none of it is crazy. These things should be done in the property anyways. Any outlet is grounded by, has a GFI outlet by any water source and things like that. But the thing that I will say here is that if you are going to approach this property and you said approach some like investments as a semi-slumlord, I would say no. I would say that this is not the right mindset to have going into the property. I think that you can do things to change the value of that property. So for example, we have a tenant that constantly doesn’t pay, or she pays, but she’s late. The place is just packed with stuff. She doesn’t take great care of the property, things like that. But we’ve done a couple things and it really has changed how she is treated and taking care of the property.
So we actually got her a dumpster. We paid for it, got her dumpster and she actually filled up the dumpster. Whenever the landscaper would come, he would help her clean up the yard so he could actually mow the grass. And she actually started to feel bad and she’d run out there when she saw him full of hit and come and clean up the yard and stuff. So I think if you have the semi-slumlord mentality, it’s just going to keep your tenants in that mindset that you don’t care why should they care. So I think kind of shifting that mindset can actually go a long way. And I think this is something that’s a huge debate. So let me know in the comments, do you think like you should do these extra things for tenants that are living in the property to try and help them out, even though you are running a business and your bottom line is your bottom line and you want to be profitable and you want to make as much cashflow as you can.
So let me know in the comments below how you see it and what would you do in situations like this?

Tony:
Well, Ash, kudos to you. I think it is somewhat counterintuitive for a lot of investors to reinvest into a property that they feel isn’t being treated well by the tenant, but I think it goes to show that people are still people and if you can kind of touch them in their hearts or kind of speak to what motivates them, that maybe you can have their behavior change in a way that’s beneficial for both of you. But I couldn’t agree more that no one should go into real estate investing with the intention of being even a semi-slumlord. The goal for us should be to provide safe, clean, relatively affordable housing for the people that live in our properties. And if you go into it with a different mindset, then I think you do have to question whether or not real estate investing is the right path for you.
But at the end of the day, we’re providing people with housing, which is, for many people, their biggest expense in life. So we want to make sure that we’re doing it in the best way possible.

Ashley:
Yeah. And I think some of these little expenses you do to help the tenant actually help you out in the long run that your property is being taken care of and you don’t have this huge turnover expense when you need to renovate it to get somebody else into it. And I will say, as nice as I sound, I did try to evict her, but she paid rent literally at the courthouse and they dismissed the eviction. So I still am very business minded, but I was like, “Okay, I need to find a different way to solve this problem and a different solution.” And in New York State, it’s very hard to evict someone unless it’s for nonpayment. And she ended up getting caught up and it’s just the attorney fees start racking up when you keep sending notices and start the eviction process and then they end up paying before … I think we’ve tried to do it three times with her and she always does pay.
It’s just, it’s late and late and late, but I think we found a better workaround as to what can we do to kind of make it the situation more bearable for both of us. And it definitely has been working.

Tony:
Ash, let me ask one last follow-up question on that. Is there anything in New York law that states if someone has been served an eviction like X number of times, that at some point you can maybe skip the line and just go to the eviction or can it be this kind of game of cat and mouse forever?

Ashley:
If anybody knows of that loophole, please tell me because I do not know of it or how to do it because all I know is you got to start the process all over again. I mean, you can’t even deny someone in New York State because they have a previous eviction anymore.

Tony:
But could you non-renew their lease for that reason?

Ashley:
Yep, you could. You could do a non-lease renewal, but then if they don’t move out, then you’re going through the whole eviction process to get them out for non-renewal, which you can do. It’s just you’re starting the process over again. And I’ve tried to do it a couple times and the judge always wants the attorneys to work through it like, “What can we do to make this situation?” Literally, it seems like the last thing they want to do is kick somebody out, which I understand that. But my God, every time my attorney comes back and says, “Okay, so we worked out a payment agreement and we’re going to do this payment plan.” And he’s like, “They just won’t evict.” And it’s mostly right in the city of Buffalo where this happens, where the smaller towns are way easier and more lenient. But in the city of Buffalo, they constantly want to see something worked out.
And at first, it was never like that 10 years ago when I first started investing, but now it’s like you’re going to court multiple times for this. So

Tony:
Then it’s just like, is it even worth a headache? It’s a headache either way.

Ashley:
Literally at one point, my attorney called me, I think it was his fourth time in court with this one person we were evicting and he’s just like, “I’m done. Sell your properties in Buffalo. Why would anyone invest here?” And I was like, “Okay, I’m mad about this, but you are definitely way more mad at me. ” It was funny. I mean, not funny because it was an awful process, but- Yeah.

Tony:
But we can look back and laugh on it now.

Ashley:
Yeah. Yeah. Well, thank you guys so much for listening today. I’m Ashley. He’s Tony and we’ll see you guys on the next real estate rookie episode.