This Matters More Than Cash Flow (Most Rookies Ignore It) (Rookie Reply)

0:00If you ever wondered if you really need a realtor to buy an investment property or have you ever thought about putting 40 % down and self-managing making it a smarter than a realtor. I'm Ashley Kare. And I'm Tony J. Robinson. And before we jump into the first question, let's just give Ashley a big shout out for being so hip that she knows what 6 '7 is. And if you don't have a kid between the ages of probably, I don't know, 8 and 18, you might not know what that is, but look it up. Give yourself a good laugh of going down the wormhole, trying to figure out what it means. Because we don't even know what it means.

0:49We just know that we should be saying it. We don't. But also, Tony brought up too, because before I said I want to say the episode number for this, he said, you do realize this release is in January and it's probably an old trend right now. So everybody is probably rolling their eyes and every kid that's sitting in the back of your car right now, listening to this is like, probably like, that's so yesterday. That is so yesterday. We're such millennials. So my son's almost 18 and he called me Unk the other day. So I'm like officially my Unk phase. Well, let's get into the first question for today.

1:26Today's first question comes from Macaulay in the BiggerPockets forums. And Macaulay says, I'm looking for guidance on whether or not I am required to use a realtor to buy my second property or not. I hear all of these success stories from so many people about buying rental properties, but no one has ever mentioned if they use a realtor or not. I assume some state laws require you to have a real estate agent in order to close on a house slash investment property. My question is, do I need a realtor to buy on slash off market deals? And if so, what are some good questions to ask to make sure their expertise aligns with my investment strategy?

2:01It's a great question. And it's the perfect kind of beginner question that I think can be put to rest some of the misconceptions that exist out there. As far as I'm aware, and obviously I haven't purchased in all 50 states. I don't know of any states that require you to use an agent to transact on real estate. Now, I know there are some states, Ash, like where you're at in New York, where you have to use an attorney for closing, but attorneys are not agents. So I'm not personally aware of any states that require you to use an agent to transact on real estate. Do you know of any, Ash? No, the only thing I would think is like kind of an iffy area is if like the seller has an agent and then you go to buy the property.

2:42Do you – how would that work? Like, cause anytime I've done that, it's been like a dual agent and they get the 6 % commission or whatever. So like, but you like sign a form saying they're representing both of you. So I've, I've never experienced or heard of anyone that like has went and bought a deal off the MLS and not used an agent, whether it's the seller's agent and you're using that person to represent both of you. or if you've gone and gotten your own agent to represent you. So that's actually a piece I don't know the answer to. I don't know either. I've purchased quite a few where I've gone directly to the listing agent, but I just always offer it to them like, hey, I don't have an agent.

3:28You can double in the deal if you want to. I don't need you to, but you can if you want to. So, yeah, I don't know if maybe there is a law or a rule around that. So if you're watching on YouTube and you have the answer to that question, drop it in the comments and cite your source so we can all go back and double check that. And don't site chat GPT. Yeah. My good friend chat said. Even though it probably does have the answer. Yeah, it probably does. But I think maybe the main point of this question is just like, is there value? So I think the first part, no. Generally speaking, it is not required to work with an agent.

4:02Now, I do think for a lot of new investors, honestly, that there's value in working with an agent. I think about the first deal that I bought and my agent was an amazing resource, both in terms of getting a better understanding of that area because I was investing long distance, having a connection to other vendors in that market that I was going to need, namely my general contractor that I ended up hiring. So my agent as a first-time investor was incredibly valuable, not so much for, I don't know, like the transactional side, but just their overall knowledge of the market and their connections to other people.

4:44So, yeah, I would maybe even just encourage you, McCall, if you're investing in a market where you're not super familiar, there is value maybe in having an agent working with you. And I think to like really sit down and understand what you're not confident in. So you can look for an agent who knows that well. So like when I go to like a new neighborhood or a new area, I rely on my agent a lot to like tell me about the comms, to tell me about the area, what's up and coming, what's, you know, the bad parts of here, what streets should I stick to, things like that. And I think that has tremendous value.

5:17If you need help, like actually analyzing the deal, make sure you're working with an investor-friendly agent. Because, you know, I work with an agent that does a lot of selling primary homes and not a ton of investment property. And I think I don't really rely on her at all to actually analyze the deal. I go and do that myself, and I feel very confident in that. But I do rely on her. I rely on her for showings and for a lot of the market analysis. this if it's like a different area of town that I don't have rentals in I really really appreciate the information that she has and she provides for me and I also rely on her for negotiation as in what's what are people negotiating in the current market like if I add in a contingency that they need to have the whole house cleaned out broom swept and leave the appliances is that going to cut me out as a contender because everybody else is saying leave all your junk we'll take care of it.

6:16So I also rely on her for a lot of the negotiation piece. And as issues come up, even the inspection, I will rely on her as a part of what's going on in the current market. Are buyers going to take care of this or the sellers take care of this? So I think there is a lot of value in using an agent, but you have to know going into it, what do you need help on? because you could get an agent that has no idea what the rental comps are and you needed help on that. And then it's not going to be as valuable to you as you thought using an agent once. Yeah. Great point, Ash. Like that, that nuanced information they have about the market is really important.

7:03I met an agent once who sold property in Florida and she told me to not buy homes in her city that were built in the 90s. And she's like, any other decade, you're fine. But the ones in the 90s, she's like, I bought and sold a lot of houses in this market. Those ones always suck when it comes to getting flood insurance. She's like, I don't know why, but insurance companies hate the homes from the 90s. You only get that kind of knowledge if you've done a lot of deals in a market and agents sometimes have that expertise. And then like on the other side that I mentioned of just like their network and their contract or their contacts, I went out to Oklahoma City.

7:41I've talked about it a few times in the podcast over the summer. And I met with an agent who I found through the BiggerPockets agent finder. And she gave me the lay of the land, but then she introduced me to, hey, here's an insurance agent for this market. Here's a contractor. Here's a handyman. Here's some property management companies. Literally gave me like an entire Rolodex of people that I could then go out and network with to build my team of people to be able to do this remotely. So the right agent, I think, can make your first deal exponentially easier because of their knowledge and their Rolodex folks they can introduce you to.

8:15And then, Ashley, the last part of that question was, what questions as a rookie investor should I ask an agent? First, find your agent from the BiggerPockets agent finder, because those are typically folks who know and understand what it means to work with an investor and not general retail buyers who are looking to buy their dream home or their starter home. So first, just make sure you're going to the right place. But second, ask them, hey, how many transactions did you do last year? Did you do five or did you do five a month? Right. And of those 60 that you did last year, what percentage of those were sold to real estate investors or were you working with a real estate investor?

8:57And if it was one out of those 60, okay, that's kind of telling. If it was 49 out of those 60, then maybe that's a different story. So I think just getting a sense of what percentage of their current client base is an actual investor will give you a better sense of if they're the right person for you to work with as well. Okay. We have to take a short break, but when we come back, we're going to go over running the numbers and deciding how much to put down on a property. We'll be right back. Okay, we're going to shift gears for a minute to cover something important, especially for new landlords.

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12:07Does anyone else run into this situation? I think this is a great example of not comparing apples to oranges. So when we talk about down payments and we talk about generating cash flow, Tony can say, I have this property and I generate$1 ,000 in cash flow. And I can say, I have the exact same property, but I generate$500 in cash flow. And then I think, oh, Tony's doing better than me. Tony's got a better deal, blah, blah, blah. But you have to know the insides of the deal as to, well, Tony paid cash. He doesn't have a mortgage payment. That's why he is cash flowing$1 ,000. I have a mortgage payment, so I'm paying the mortgage.

12:48That's why my cash flow is less. So you have to look at other factors to actually determine how these deals are comparable. And one of those things to look at when you're deciding on putting a larger down payment is your cash on cash return or any down payment in general as to will the deal still make sense not only to generate more cash flow because Tony could be generating more cash flow, but he could have way less return on his money and could have done better investing that money somewhere else instead of dumping it into this property. You know, if he bought a$500 ,000 property in cash and he's only generating$1 ,000 per month, that's actually not that great of a deal in my opinion.

13:33So I would say look at the cash on cash return and not just look at the cash flow that the property is generating. And if you are going to self-manage, I would still look at the numbers if you outsource it. If there is some kind of change in your life that requires you to outsource it or you get burned out or you just don't like it, bake it into your numbers so you know going into it you can still generate some cash flow and keep the property afloat if you were going to hire out the management piece. Ash, let me ask you because I think that there's always nuance to this, but I mean for Abdul to say very matter-of-factly that it's better to put down 40 % and self-manage, it's a very case by case basis on, on how we can actually respond and answer to, to that question.

14:33A lot of it comes down to the market that you're buying in. A lot of it comes down to the, the buy box that you're going after. The strategy that you're going to employ with that property. But, you know, I think to say that as a rule, 40 % of self-managing is always the best option is, is, is a hard thing to state. If in your market, Abdul, and for the specific type of property buy box strategy that you're going after, you find that to be true, then maybe the solution is not necessarily putting down 40%. Maybe it's putting down 20%, but going to a different market. If you're in an area where only 40 % down works, well, then go find one of the other 20 ,000 cities that do allow you to put down 20 % and still get meaningful cash flow with having a property manager.

15:22Maybe try a slightly different strategy where instead of buying a single family home, maybe you're buying a small multifamily. And maybe instead of doing a traditional long-term rental, maybe you're doing rent by the room or midterm rental to short-term rental. So I think if what you want is less down payment and to have a property manager, don't box yourself into looking at the same place you've been looking at because it's not working there. It doesn't necessarily mean that it won't work in a different market somewhere else. I think the last thing too is the emotional piece to it. Like if you're going to put 40 % down, is this like wiping out every dollar you have in your life savings and all of your money is going to be tied up into this property?

16:04Are there other opportunities that you can use some of this money that may be a better opportunity? Also, would you actually sleep better at night if you had more equity in the property and did put that 40 % down? Would you feel better not having so much debt and so much leverage on the property. So I think there's definitely an emotional piece. And also, would you actually want to self-manage the properties? And do you have the time to do it? Do you have the skill set? Do you have the tools and resources to actually self-manage? It is 100 % doable, whether you are a stay-at-home mom or you have a demanding W-2 job if you put the right systems and processes in place.

16:46We actually have a really great book on bigger pockets It's called The Self-Managing Landlord, and you can find that in the BiggerPockets bookstore by going to biggerpockets.com slash bookstore. Okay, we're going to take our last break, and we'll be right back. The rise of the tech-savvy investor is here. You don't need a huge team or tons of overhead to manage rental properties, just the right tools. So I want to tell you about how I use RentReady to get ahead. For landlords who treat their time like capital and recognize the cost of sweat equity, this tool gives you everything you need to scale.

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20:47You travel, your house works, everyone's happy. Your home might be worth more than you think. Find out how much at airbnb.com slash host. Okay, let's jump back in to our last question here. This question comes from Craig in the BP forums. So I sold a property to someone and I carried the loan as in they did seller financing. This person stopped making payments and I foreclosed on him. The property is now in my name, but he walked away and left everything from furniture to clothing and everything else. It's like he never left, though according to neighbors, he hasn't been seen on the property for a good six months about the time I started the foreclosure proceedings.

21:29This is all new stuff too, not junk. I'm in Northern California and will be getting legal advice, just getting educated before I dig deeper into this. The man I'm dealing with has a history of frivolous litigation and dishonesty, which is why I haven't contacted him yet. What could he be up to and what are my responsibilities? Tony, once again, your backyard causing problems for landlords because they're so worried about what you could legally do. Yeah. It's funny. We had a somewhat similar issue with our hotel in Utah where, in addition to the hotel, it actually also came with 13 storage units.

22:14And we've had such a hard time tracking down who owned the things that were in these units because we weren't getting paid for about half of them. And the previous owners didn't know. They just kind of didn't even worry about it. They're like, hey, you know, it's been there for years. We'll just leave it there. But obviously we want to be able to maximize that revenue. So we actually reached out to an attorney in Utah and explained the situation and got guidance from them on what steps do we need to take to do this. Now, obviously, this is a self-storage unit, which is different from a single-family home where you had a lease and they didn't pay.

22:47But basically we had to go through this process where we put like a public notice in a newspaper. We had to get them a certain amount of time to reach out to us and contact us. And if they didn't, we had a date that we'd be auctioning off their things or selling their things or disposing of their things. But there was like a very clear legal set of steps we had to take to dispose of their items without breaking the law. So, Craig, I don't know what that process is in California, but I would assume there's probably some sort of path you can take, given that you've already foreclosed and this property now belongs to you, of what you can do with those items.

23:20It could be as simple as like, hey, you own the property, you own everything that's inside of it as well. That could be the simple answer. Or it could be, hey, maybe the previous person still has some claim to it. But I would probably just reach out to a good attorney, explain the situation, and let them give you their best advice. My guess is that you're going to have to do an eviction proceeding. Because in New York, I know if you bought a property that was foreclosed on from the bank, you buy it from the bank. If there are people occupying that property, you have to actually evict them. even whether they own the property or they had a lease or not like you have to do an eviction on the property you can't just kick them out and throw their stuff out and with this person being completely dishonest and this is one thing we always make sure to do is like even if like another tenant tells us like oh that person moved out they've been gone blah blah they left if they have like stuff in there and it's not like super evident that they have left or they haven't like given us like communication that they left the property we like go through the foreclosure process of like having them served and like obviously if they're not there we have it slapped to their door the we always use a third party to serve the affidavit you know and then they sign an affidavit like saying that they tried three times a person didn't answer so they put it onto their door and then you know when it's still you know no communication nothing whatever then we go through and start the eviction proceedings.

24:49So I'm assuming California probably has like a long eviction period, just like New York does. But that is probably, I would guess what the recommendation is going to be is to start that eviction proceeding that you want them out of there. And obviously, it wouldn't be for non-payment. It would just be like you're giving them notice that you're no longer renting to them. And like, I know like some parts, I don't know if it's all California or some parts, but there's like something about like, you know, if you, you can't like not renew their lease. So like there has to be something where this person doesn't even have a lease that like you can go ahead and evict them from the property.

25:27So, but I'm going to guess that's what your first step is going to be is actually going through the eviction process. But I would say it wouldn't hurt to reach out to the person and to ask like, did you vacate the property? Did you move out? and if you can get them like I would put this into an email and have them respond in an email I wouldn't like do this over the phone but if you could get something in writing or like better yet send them something to e-sign or like have them you know sign something that's notarized saying they have vacated the property so like you say okay they vacated the property next step you're getting dumpsters you're throwing out all their stuff they left it behind they have moved out But if they and then you have something that's notarized, that's stating that they, you know, moved out of the property, they're gone, whatever.

26:15If they do try and come back after you for throwing in all their stuff, you can you have like some kind of notice. But again, talk to, you know, your attorney. But I would guess that's kind of where you're going to be at is starting the eviction process. So let me ask, because obviously, you know, landlord tenant laws far better than I do. in this case he sold the property to that person so there doesn't seem that there was a lease in place so you're saying even though there wasn't a lease the simple fact they had tenancy there would still force you to evict them even if the foreclosure had already closed that's interesting i wouldn't have thought that yeah like like think about squatters you could have not owned the property you could have not had a lease and you could literally go into the property and just say hey, I live here now.

27:00And still the person would have to, you know, the owner would have to go and evict you. So yeah, especially in California, I would say that like, that's probably even more lenient of like, being able to that person have a claim to the property. So yeah, some things just seem backwards, right? Like it doesn't seem right that, you know, someone could not pay me money, completely, you know, not fulfill their obligations. And then I've got to brunt the cost of getting them out of my property that they already weren't paying for. So I don't know, we've got to find a better solution for that. Well, thank you guys so much for joining us today on Ricky Reply.