Two Rentals, $3,000 Each: The Guide to Closing with Close-to-Nothing

19:32Tony Robinson:I love that you were cognizant enough to recognize that because I feel like a lot of newer investors, they'll just kind of like, oh, man, my agent sucks, but what am I supposed to do? But the truth is you can go find a new agent, right? Which is exactly what you did. But I also just want to highlight because I think you had something super important for all the rookies that are listening. It's that we tend to focus on markets where we have familiarity or proximity like that. That's where most rookie investors start. And we do that because there's this level of comfort that we know things about that market.

20:03Tony Robinson:But we can bridge that gap in a new market by simply connecting with someone who already has all of that knowledge, oftentimes at a level that's deeper than what you could ever accumulate yourself. And what I mean by that is if you just go get a really good agent in a market, they can be that conduit to connect you to all the right places and know all those right things. I've talked before about on the podcast about us looking in Oklahoma City to do flips. So when we first had that idea, I reached out to a bunch of agents through the BiggerPockets agent finder, got a bunch of people that replied back to me.

20:34Tony Robinson:And like immediately I had a list of like, hey, here's some contractors. Here's some handymen. Here's someone that does roofing. Here's a lender that works locally. So when you tap into an agent who knows that space, it makes a world of a difference. I guess the question that I'm getting at here, though, is like as you had that first experience with agent number one, when you went to go find the replacement agent, were there questions that you didn't ask the first time that you found were good to ask the second time around? Yeah, absolutely. That investor question was probably the biggest question.

21:08Do you have experience working with investors and do you have experience working with out-of-state investors specifically? And so that was the number one question on my list when I was finding a new agent.

21:21Ashley Kehr:Now let's talk about the actual property that you ended up purchasing and tell us about how you found it. What was your offer? Did it get accepted right away? And let's start with that piece of it. Yeah. So the first one that we got accepted, or I guess the first one we closed because we did have another accepted offer that we didn't move forward with, but it was a single family home in Cleveland, Ohio, which again, I had never been to. We closed at$63 ,000. I went with a conventional loan, 20 % down. And we structured it utilizing a seller concession. So that was one thing I really appreciated about my agent is that she was very knowledgeable and suggested things that I wouldn't have known.

22:10So I would tell her my goal is to bring as little money of my own to the closing table as possible. So I would tell her that and then she would take that and run with it and see, okay, how can we get creative so that we can make that happen? And so she recommended that we ask for some seller concessions instead of just lowering the purchase price outright. And so I ended up coming to the closing table with maybe like three grand where when I was expected to come to the closing table with like 12 grand. So it was a significant difference. And those numbers might be a little rough, but I was very happy with the amount of money that I ended up coming to the closing table with.

22:49And that was just based off of her recommendation and her knowing what my ultimate goal was with closing that property.

22:55Tony Robinson:Can you educate our rookie audience? Why was it better to ask for a seller concession as opposed to reducing the price? Yeah. So with a seller concession, what you could do if the sellers want a specific price. So in this case, the sellers wanted 63, they wanted to walk away with $63 ,000. So we offered higher than the$63 ,000. And then we asked for the difference in a seller concession so that we could use that money at closing to buy down the interest rate. So I ended up buying down the interest rate to like 6%. And then I still had a little bit of money left over that was just mine or could go to like closing costs and fees and stuff.

23:34So that those fees that would normally come out of my pocket ended up just coming from the difference in what the buyers were walking away with versus what we offered.

23:46Tony Robinson:Absolutely. And I love that strategy. We've used it to great success in the past as well, where if the appraised value is higher than the contract value. You can go back and increase the contract value to match the appraised value. Instead of just giving that money back to the seller, the seller agrees to give that money back to you to either buy down your interest rate or help with your closing costs or things of that sort. We've interviewed folks on the podcast before who've gotten money back at closing because of the way they've been able to structure some of these deals. So you get into it 20 % down, you're closed.

24:24Tony Robinson:Amazing. Just out of curiosity from, from the time that you had lunch with that, the friend who was a model to actually closing on the property in Cleveland, how much time it passed? That's a good question. Maybe about five months. Oh, wow. That was fast. Yeah. Yeah. You were, you were not playing about trying to move quickly. I love that. Yeah, I was ready. I just needed someone to push me off the cliff and Yama, my mentor, she pushed me. So that's what I need. Five months. I love that. Okay. So five months later now, now you're the proud owner of your first rental property. Now walk us through it because you're, you're in New York, the properties in Cleveland.

25:05Tony Robinson:I'm geographically challenged, but I'm, I don't think those are like close enough for you to get too quickly or something were to happen. So how, how are you managing this remotely from New York city? So as a first time landlord, a lot of people recommended that I try my hand at self-managing so that I can know how to manage. And once I employ another property manager, I would know whether or not they're doing it correctly. So I'm like, okay, I'm going to try to self-manage. I've never been to Cleveland before. I've never owned a property before, but we're going to try it because why not? I went in guns blazing and this is probably the biggest regret of my real estate investing career.

25:45It's not something that I'm proud of, but you guys don't judge me. I've never done it before. I went in guns blazing. I bought the property. It already had a tenant in there. The tenant was paying. And according to my real estate agent, the tenant kept the property in great condition. So it was, they were a great tenant, so to speak, but the rent was severely under market. And so I'm like, okay, I'm going to raise the rent immediately. No questions asked, not even a conversation. I did maybe like a small intro email to the tenant to let them know, hey, I'm the new owner. And then after that, I was like, hey, I'm raising the rent this much.

26:25Now, I didn't raise it to market rates. I just raised it a little bit. But it was still substantial enough to impact, you know, her expenses. And so immediately she was like, no, I don't want to pay the higher rent. So I was like, okay, well, we're not going to renew you. Bye. And And this whole time I thought I was doing the right thing. So we ended up not renewing with that tenant. And from that, I did not like that experience at all. I lost sleep over that experience. I am a super empathetic person, social worker, like experience. And I just felt really guilty by the way that I handled that.

27:05And I immediately thought, okay, self managing is not for me. So I went to researching property management companies in the area, found the one that was rated the highest or the one that people were using most often, and I employed them immediately. They had already had a tenant that was looking to move in pretty quickly, and they had already had them approved and everything. So once my tenant moved out, this new tenant moved in, they were utilizing Section 8. So this would have been my first experience with a tenant utilizing Section 8.

27:35Tony Robinson:Thomasine, I appreciate you walking us through just kind of like your own thought process behind that. But I guess my question is, do you think that that experience meant that you were ill-suited to self-manage or simply that you were still learning? Like, what was the trigger to make you say, hey, let me just stop trying to self-manage altogether as opposed to like, hey, this is a lesson that this may be going to help me self-manage better moving forward? Great question. I don't think it signified my lack of ability to self-manage, but it was very emotionally daunting for me. And I'm a Pisces.

28:11I don't know if anybody's into like signs, but I felt that experience was very, very heavy because I, again, I was not proud of how I did that to that tenant. And because it was so emotionally daunting and I was also dealing with my modeling work and just like lifestyle stuff, I was like, I don't have the emotional capacity to self-manage at this time. So it was more so a mental health decision as opposed to a capability decision.

28:36Ashley Kehr:Now, when you were self-managing, were you using any softwares or tools or apps or anything? At the time that I was self-managing that first property, I had not even implemented any softwares, any tools. I didn't, yeah, because I hadn't even started the search of finding a new tenant. I just kicked a tenant out and was like, okay, nevermind. I don't want to self-manage anymore. Now let's talk about the cashflow on the property. When you switched to property management, did you originally run your numbers with property management in place or did it really affect your cashflow once you did hire the property manager?

29:10Ashley Kehr:What did they charge? Was it a percentage? Great question. So the property management company at that time charged 10 % of the monthly rent. And I had run my numbers using property management and without property management. And there was such a large gap that it was like a drop in the bucket to pay that property management company on that property, utilizing the property management company with the property at market rates. I was cash flowing about$900 a month. Wow, that's great. And you would put 20 % down on the property and you had bought it for 63 ,000 and you're cash flowing$800 or$900 or$800.

29:48Ashley Kehr:or 800 800 so tony i know you just did the math in your head what's the cash on cash return on

29:53Tony Robinson:that well it's even better because i think you said after seller credits you only came to the closing table with like three grand isn't that what you said exactly yeah yeah yeah 800 yeah i mean that's like a crazy good return so did that cash flow hold up thomasina like like as you look back and and you yeah talk it through because sometimes we we model something on paper and then like real life comes and shows us what to actually expect. So what actually was the kind of net net and what was that gap between? Yeah. So on paper, this was like a slam dunk deal. Like I was rolling in the dough at this point.

30:26It's my first property. Like I'm super excited. However, that cashflow, most of it, I ended up dumping back into the property because the new tenant that the property management company placed did a lot of wear and tear on the property, a lot of expensive wear and tear. So we had to make repairs on that property on two separate occasions. And so, yeah, all that cash flow, I would say about 80 % of the cash flow had to go back into the property, unfortunately.

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36:08Tony Robinson:Do you still own the property today, Tomasina? I wish, but no, after two years, I made the hard decision to sell it because I joined a new mentorship program and they talked a lot about rent to own and lease options. And so I realized that I did not want to renew the lease on the tenant who was utilizing Section 8. And so my thought process was, okay, once that tenant moves out, I'll offer this house with a lease to own, which if you guys are not familiar, it gives a tenant the opportunity to lease the property until they are ready to buy. With the only caveat is that they give you a upfront quote unquote down payment or deposit on the property and that would go towards the purchase price.

36:59So because I was in that mentorship program and I was learning about that with lease to own options, the tenant is responsible for all the maintenance and repairs. So I'm like, OK, if I'm getting market rent and the tenant is also responsible for all of the repairs, then I'm just sitting back and recouping my cash flow. So I posted it on all of the websites, Zillow, all the aggregate websites, and I was getting a lot of interest, a lot of traction. However, people could not come to the table with the deposit that I was looking for. And then I also had, you know, a few tire kickers who would just come see the property and then never follow up with me.

37:40So after about a month of showing the house, mind you, I had had it completely renovated as well. So it was in good condition by this point. so after about a month I was like you know what um oh and I had been to Cleveland by this point so I had visited the neighborhood in person and I think the the driving factor of choosing to sell was that when I got to Cleveland I realized it wasn't a neighborhood that me as a young woman would feel comfortable walking through at night I'll just say that and so um because I was doing managing this myself and doing all the showings myself, I'm like, I don't know if I feel as comfortable investing in this area anymore.

38:20So I think I'm just going to sell it. I didn't get really any bites from the lease to own advertising. And so again, I went back to Zillow, found the agent. I chose not to use the agent that I had done two other deals or another deal with because I felt like there wasn't as much investor experience that I needed. And so I found someone on Zillow who was doing a ton of deals in that area, reached out to him, reached out to several people. And I went with the agent who thought that they could sell the house at the highest price point. And we ended up doing that. So we sold it for, I bought it for$63 ,000.

39:00We sold it for$110 ,000 two years later.

39:04Ashley Kehr:And how much do you think you put into the property over that time with those two renovations? About$24 ,000 maybe. But you had said that was pretty much your cash flow that was paying for that. So it wasn't even like you had to bring money to the table for it? Correct. Correct. All the cash flow that I had saved up, I just put it back into. So really not a bad gain over two years. Yeah. I was very happy with the gain that I got from selling that property. I just wish I had given myself a little bit more time. I think I could have kept the property, but hindsight is 20-20. What do you think the property would be worth today if you sold it?

39:42Ashley Kehr:Did it appreciate a lot more, you think? Or did the market kind of has been stagnant in some areas? Do you think it kind of would have held steady at that price? I think I could have gotten more had I held it. I get the alerts for that property still for some reason. And I think they had it at like 145. So yeah, I think I could have lucked out had I kept it a little longer. But you could have also had a bad tenant that destroyed it. And now you got a $50 ,000 renovation. So like you said, it all depends on the scenario.

40:14Tony Robinson:Tomasina, what did you do with the proceeds? So once you sold, this is your only rental property at the time still. What did you pivot into next? That's a great question. So the proceeds, I bought a duplex before selling that single family home. So the proceeds did not contribute to the duplex at all. I still have the proceeds and I plan on using that towards buying a small business. So that is my next venture. So that's what the proceeds will be used towards. So talk to us about this duplex. So you go through your initial kind of learning curve on the single family in Cleveland. What, I guess a few questions.

40:50Tony Robinson:One, like why a duplex next instead of a traditional single family? And how did you vet the area for the second deal to make sure you didn't feel that same emotion that you felt about the first property? Yeah, great question. So I was kind of following the strategy of the small but mighty investor. You know, you start with a single family, then you double and then you double from there. And I knew that I wanted to do a house hack situation for this second property. I had never been to Cleveland and I felt like, you know, maybe it could be because I wanted to really scale in Cleveland. I was like, maybe it could be beneficial for me to actually be there and visit.

41:29So I signed with a modeling agency that was local and found this duplex. And in terms of the area, I asked more specific questions to my agent to kind of get a better sense of the area, the school system, what's going on. Is there anything like in development? Is there anything up and coming in the area? And we fell upon like Shaker Heights, Cleveland Heights area. So I really ended up loving that area. Just all the traction. There are so many universities like around that specific area. So a very big young adult and student population.

42:06Tony Robinson:So the property being a duplex and potentially a better part of town, I'm assuming maybe also more expensive. So just walk us quickly through the numbers on the duplex. Yes. So I closed on the duplex for$3.25, which was a big price jump, but I used a different loan product for this duplex. I used an FHA loan, so I came to the table with 3.5 % down, which I had in savings. So I was fine with that. Um, and I believe we use seller concessions on this cell as well. Um, so I came to the closing table with maybe like$3 ,000. Man, 3 ,000 is like the magic number for you. I love that. Yeah. Now you said, I just want to go back, right?

42:57Tony Robinson:Cause you, you mentioned that maybe house hacking, this was going to be the strategy for you, but given that you, you from, from a lifestyle perspective, didn't enjoy self managing the first time. Now it being a house hack, what was your plan for the management with the duplex? I was going to try self-managing again, because again, I wasn't afraid of my ability to do it. I just needed to emotionally recover from the first experience. So with this duplex, it's five bedrooms on each side, so 10 bedrooms total. So it is a massive, 4 ,800 square massive jump in property and square footage. So my plan was to self-manage the entire thing.

43:36I wanted to rent out a few of the bedrooms on one side and then rent out the entire unit on the other side. So the half that I was occupying, I furnished it within like a week. My friend flew into town and helped me furnish it and like build things. And that was amazing. Very big blessing. My parents flew into town and helped me like paint some of the rooms. And so I really am so happy that I have like the kind of tribe and community that would support me in that way. But we got that one side up and running. I listed it. I listed the bedrooms on places like roomies.com, Facebook Marketplace, Zillow.

44:15I would say my biggest return was definitely between Facebook Marketplace and Roomies. But I had those rooms filled probably within the first three weeks of having it furnished. So there was never a time where I paid the full mortgage on my own since closing on the property, which I thought was a really big deal. I was very proud of that. Now, the other half of the duplex, I was still attempting to self-manage. And it took me, mind you, I closed in September. So we were creeping into the winter months of Cleveland, which is very, very harsh. And people don't really like to move in the winter. And so it took me about three months of trying or maybe two months of trying to fill the other side before I threw in the towel.

45:06And I said, OK, I'm going to implement a property management company to just manage the one half of the duplex. So I hired a property management company, fired them a week later, and then hired a new property management company. And you may ask, why did I fire that property management company? I fired them because the communication was terrible. And I saw the so once they listed my property for rent, they were charging absorbent amount of fees to tenants and applicants. And I just thought that that was outrageous and unnecessary. And it was going to deter people from wanting to stay at my property because nobody wants to pay all of those unnecessary fees.

45:47And so I realized that I also saw how they were marketing my property, didn't really like it. And when I tried to get them on the phone to kind of walk through these things, it was very hard to communicate with someone. So I ended that contract after a week and then found my dream property management company who I'm still using to this day. I recommend them to everyone who is in Cleveland. They have been amazing and they've been amazing because their communication is top tier. Their turnaround time for repairs and such once it's been submitted, top tier, very transparent, very honest. And one thing that I appreciated is that as an owner, if something on the home needed to be repaired, they gave me the option to have it repaired myself to outsource it or have them do it and they didn't charge me any additional fee if I chose to outsource it which I thought I really appreciated because a lot of property management companies will charge you extra if you choose to outsource that so it took this new property management company maybe three weeks before they found the tenant and that tenant has been there for two years they've been great property management company has been great.

46:56The other side that is rented by the room has also been operating great. And knock on wood, the property is still standing and cash flowing and doing a really good job. It's that saying as to fire fast and hire slow.

47:11Ashley Kehr:And I think that's exactly what you did there is you fired them fast. I feel like you were actually very fortunate that you had the ability to make that decision that quickly because or else it could have dragged out even longer. And unfortunately, I was one of those people that didn't make the decision that quick. I waited three long years with the property management before I actually cut ties with them. And there was just so much money lost, so many mistakes made along the way. So that's amazing that you were able to take charge in that relationship and find someone else who has been amazing for you.

47:49Ashley Kehr:Now, last question here before we wrap up is what do you cash flow on this property today? So I cash flow about$800 a month on the duplex.

47:59Tony Robinson:And just quickly talk to me about the economics on the room rental side. So you've got now five bedrooms. Are you still house hacking? Have you since moved out? Oh yeah, I moved out after the first year. Got it. Okay. So you've got all five bedrooms rented. How does that management workload or just that strategy compare to the traditional long-term rental on the other side? And which one do you like more moving forward? So I don't rent out all five bedrooms. I don't want to get any kind of legal trouble. But the way that the duplex is split, the top floor has two bedrooms and a private bath. So I rent that out as a whole.

48:40So I get a little bit more money on that. But in terms of the economics, just for numbers, for the rent by the room side, I get$2 ,905 total. And then for the other side, I get$2 ,100. So there's a big difference in how much you can get when you rent by the room versus just a standard rental. So that was something that really stood out to me. And I'll just say through renting by the room, I still self-manage that side. I really found my niche and I found what kind of fueled me in the real estate industry. And now I know that I want to take the rent by the room strategy and run with it. I will tell you guys that I've had some turnover in the rent by the room, but I've had young adults who come in, they're able to save money on housing, and then they go buy a car.

49:31Are they able to save money on housing, and then they go buy their own house? And so I've been able to see my tenants go through those experiences, and it makes me so proud as an owner and as a landlord, but also as a young adult myself, especially living in New York City, one of the most expensive cities in the States. And so I'm really passionate about renting by the room and just affordable housing in general. And I'm glad that I worked up the courage to attempt to self-manage again because it has been very fruitful.

50:01Ashley Kehr:Well, Tomasina, thank you so much for joining us today on the Real Estate Rookie Podcast. Where can people reach out to you and find out more information about your journey? Thank you for having me. People can connect with me on Instagram and YouTube at Tomasina Myrisa. and you can also connect with me on the BiggerPockets forums at Thomasina Pierce. I'm very responsive. Feel free to send me a message. If you have any questions, happy to help. Well, thank you so much for taking the time to share your story, your lessons learned, and also congratulations on your success so far as an investor. It's rookie stories like yours that help all of our rookie listeners get started or get their next deal.

50:42Ashley Kehr:If you're not already subscribed, make sure you check out our YouTube channel at Real Estate Rookie, and you can follow

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