Lucrative Lot Splits & Lowering Your Liability as a Landlord

David:
This is the BiggerPockets Podcast Show 615. If you’ve got two different duplexes that are sitting on their own lot, you’ve added value to the property, you’ve actually literally created equity out of nothing, and value out of nothing. You can now refinance them, you can now sell one of them if you want. You won’t increase your cashflow, so to speak, but you will increase the value of the property, and that gives you options. Like I said, you could sell one of them and reinvest into something else, you could refinance one of them to get the money and put into something else. I would be a bigger proponent of this.
What’s going on, my people? This is David Greene, your host of the BiggerPockets Real Estate Podcast, coming to you live. Well, it’s actually recorded but it’s live when I’m saying this. With another Seeing Greene episode of the BiggerPockets Real Estate Podcast. In these Seeing Greene episodes we take your questions directly from the BiggerPockets community, submit them here for everybody to hear and then I do my best job of answering them. The goal of this podcast is to help you see what goes on behind the scenes and get a deeper dive into different questions that people have so that you can learn from the experiences of myself, as well as others, and those that are asking the questions.
In today’s show we get into some really good stuff. We talk about how a Special Use Permit can affect property value, particularly if you want to sell it. We talk about how an agent can get started in a new market and crush it if they don’t know anybody, and we talk about when to subdivide a lot, when to leave it alone and how to approach it if you’re going to subdivide it. We get Into a lot more stuff regarding different markets you can invest in, as well as different strategies, so please listen all the way to the end.
Also, if you’ve been wondering why the Quick Tip sounds different, if you make it to the comment section you will see, in this episode, me addressing that very question. And I want to know, do you guys like the deeper Batman-style Quick Tip voice or do like Brandon man voice, which is a little bit higher pitched.
Moving on to today’s Quick Tip. If you like something you heard me say, if it triggered more questions after you’ve heard me give an answer and you want to dive deeper into it, or if I totally botched an answer and you didn’t get your question answered, consider going to the BiggerPockets website and checking out the forum. At the BiggerPockets Forums there’s tons of questions being asked all day, every single day, and a lot of answers being given. You can search the entire website for different questions on different topics. And if you like something that came up here and you want more, go get it there.
Also, check out our new podcast page. If you go to iggerpockets.com/podcast, you can see a whole library of different podcast that we are offering you at BiggerPockets, and find more stuff to listen to when you’re waiting the next show of Seeing Greene, or the Real Estate Podcast to come out. So, getting more involved in the community, go check out th website, get everything that BiggerPockets has to offer and keep listening to these shows here. All right, let’s get into our first question.

Chris:
Hey, David. My name is Chris Jube, my wife and I run a glamping operation down here in Monument, Colorado. In fact, and one of Rob Abasolo’s students in his glamp camp. So, Rob, if you’re watching this, how you doing, brother? It’s good to see you. We’re doing a great job here in Monument and we’re entering into our fourth year, and getting ready for it. My question has to do with financing, because this year we’re applying for a Special Use Permit, chances are very good that it’s going to go through and it’s going to help legitimize our business and make it even better. But I’m anticipating justifying financing to duplicate this, so either later this summer, this fall or maybe next year, to keep running glamping opperations.
How would a Special Use Permit change the valuation of my property? Because it’s kind of like a little commercial property now< when you think about it, even though it’s a single family residential property and it’s not a large piece of acreage. Now I have a Special Use to put this business on it and the Special Use goes with the and not the person, so I could actually sell it or approach a bank. See where I’m going here? Approach a bank to justify financing for another property and another operation, maybe two or three, or four, something like that. So, that’s my question, how does a Special Use change the value of a property and how would a bank value that? So, your answer much coveted. Thank you for all you do, David, you’re crushing it with BiggerPockets. And same with you, Rob, it’s need to see… Actually, Rob turned me onto BiggerPockets, so thank you for everything you do, and I look forward o your answer.

David:
Hi, Chris. Well, first off, congratulations on your whole enterprise over there as well as your Special Use Permit, and any friend of Rob’s is a friend of mine. All right, let’s talk about will this Special Use Permit increase the value of your enterprise. First thing to consider is you’ve got properties that are improvement, then you’ve got land, then you’ve got a business that uses those land and those properties to generate money, and all of those are going to be evaluated differently. So, if you were to sell the land with that Special Use Permit, theoretically that would make it worth more. If you’re going to sell the properties on that land individually, somehow, with that Special Use Permit. Yes, theoretically that could make them worth more, but that’s mostly because the properties you have, these glamping, I don’t know if they’re tents or if they’re actual structures. If they’re not structures, if it’s just a tent then I wouldn’t actually call that a property and I would take that back. But if it was it wouldn’t be valued based on comparable sales because you’re not selling a typical property that has comparable sales.
Then you’ve got the business that you’re going to be running, and this permit would help that too. Here’s the best advice I can give you for how to look at this. The permit allows you to get an income stream that more legitimized, makes it harder for someone to shut you down, it’s making what you’re doing safer. So, when you go sell this to someone else, the value f that permit is they’re getting safety and a protection of the income stream. The permit itself does not necessarily make everything else worth more, because if you’re going to a bank and you’re saying, “Hey, my property’s worth this much.” All they’re going to look at is how much income is it generating. The bank is concerned with the income that it’s generating because they want to know that you can cover the debt service on any loan that they would give you. So, I hope you see what I’m getting at here.
Having the permit does not automatically make your business worth more money necessarily, but it does give you the ability to increase your revenue and the increased revenue will make your business worth more, both to a bank or to a business, if you’re going to go sell it. So, this is a step in the direction you’re trying to go, but until you get all the way there, which is actually creating more revenue, you’re probably not going to see an actual increase in the valuation of your business, but that doesn’t mean that this isn’t important. There’s many steps along the journey, this is a big one for you, keep going. And when they’re all in place you should have a business that generates more revenue and, therefore, is worth more money.
All right, our next question comes from Peter in Sacramento, my hood. “I’m single, in my 30s and was fortunate enough to have bought a home before the pandemic at three-and-a-half percent down. After only a few months it was obvious the house was more of a fixer upper than I expected, and even without those costs I was house poor with just the mortgage and utility so moved out and turned it into a rental. As of today I have $120,000 in equity. I would like to buy a duplex or a quadplex in the next two to three years. The current property is in a great up and coming neighborhood that would make a nice retirement home for me in 30 years’ time. At the same time, if I were to sell it I could buy a duplex as 100% rental and move in on one ide. Do I hold onto the house ad take the money out of it that way, or do I sell it for the cash and walk away?”
All right, so this is a question of do I keep and refinance or do I sell, or do I do nothing and just save up money and buy more homes? Well, here’s the first thing, Peter, I don’t think looking at this and saying, “Hey, this house is in a great up and coming neighborhood so should I hold it and move into it in 30 years?” There is no way you can know in 30 years if this is the house you’re going to want to live in. There’s a bit of a scarcity mentality gong on there, there’s a lot of houses, you have 30 years to make money, save money, buy real estate moving around, and who knows if you’re even going to want to be in California in 30 years. So, let’s just throw that out completely, it does not matter if this house is where you’re going to live in 30 years.
What matters is, will you have enough money to buy the house you want in 30 years and how can this house help you get to that point? So, that’s where I’m going to give you advice. It’s in an up and coming neighborhood so the question I’d be asking is, “Is it going to continue to grow in value faster than something else that I buy?” If you sell a house in an up and coming neighborhood to buy a home in an established neighborhood that’s not growing in value, you’re losing out on future equity over the years. However, you’re probably going to gain in cashflow if you get a quadplex or a duplex, so you have to weigh out, “Am I going to get more in equity or am I going to get more in cashflow over the long-term?”
If you have $120,000 in equity, here’s what I’d like to see you do. Sell that home, buy another home with another three-and-a-half percent down payment to replace that home that you’re going to house hack. Use the rest of the money that wasn’t in the three-and-a-half percent down payment and buy an investment property. Now what you’ve done is trade in this one house that was a fixer upper for two homes, one an investment property, one a house hack. Keep your own living expenses low by hacking out the house hack and get some cashflow from the investment property. Let those home appreciate, once they’ve gone up in value evaluate if you should do the dame thing or if you should hold on to them.
Focus on growing your equity and growing the amount of money you have n the bank, to on buying a house right now that you might want to live in in 30 years. Having money gives you flexability and then you can make choices in life that make you happier. But hands-off to you for doing a great job on your first property, let me know if there’s anything I can do to help with this.
Peter also says, “In response to a comment you made on the April 10th YouTube clip, I appreciate your direct style so please don’t stop. For those learning about something as expensive and complex as real estate, the truth needs to be told. Thank you.” Well, thank you for that, Peter.

Siri:
Hi, David. My name is Siri, I’m from San Diego. And my question pertains to how to hold ownership of property, short-term rental properties is what I’m into. My business partner and I have just purchased our first one, we’re in the middle of rehabbing it and our intention is, once it’s done and renting we’re going to BRRRR it and buy more. We’ve heard several things, we currently own ours as an LLC and we’ve heard that you should own each property separately in a separate LLC, for liability reasons. So, I was wondering if you know if that’s correct. And also we’ve heard that if each property is owned in a separate corporate structure, or not corporate if it’s an LLC but that you can sell the business to just sell the property when you sell it. True, not true?
Once you get many, many properties, because we have a 10 year plan that has some pretty expansive growth, what is the best structure for holding a short-term rental piece of property, or multiple properties? We were thinking maybe [inaudible 00:11:13] would save us money in bookkeeping if we’re not having every single one in a separate entity, but just wondering because I haven’t been able to find what best practices are in the industry and I though, probably, you would know. So, thanks for your help.

David:
All right, thank you for that, Siri. My question to you, I’ve got to know. You’re surrounded by people that have to be saying, “Hey, Siri,” to have get your attention. How often are iPhones just pinging all over the place everywhere you go that you just hear Siri’s voice responding to everybody saying, “Hey, Siri.” I think that would be hilarious that everywhere you go phones are just going off, you’re the first Siri that I’ve ever met in real life.
Now, as far as your question to me, it’s a good one. So, here’s what I think I hear you saying, “I’m going to be buying a lot of properties, do I need to have an individual legal entity,” think that’s what you meant when you said corporation, I understand, “… for each property or can I put them all into the same one?” Then you also asked if you have a business can you sell the business but keep the property. Let me answer that one first because I think I can do it quickly.
From what I’m understanding of your question, you own a business that would be a legal entity, which is incredibly easy to do. So, first off, everybody out there, when you hear someone say, “I’m a business owner.” That could mean nothing. It’s kind of like saying, “I have a podcast.” It’s pretty easy to make a podcast, you can have three followers and say you have a podcast these days, same as self-authoring a book. Being a business owner doesn’t mean anything, a business entity is just a way that you take title to a business and you run your cashflows through. Well, if you have no cashflow you have no business.
If you’re buying a business and putting a property inside of it, if that property is the only thing generating cashflows you would have to sell the property with the business or else nobody would be buying it. Let’s say that you owned a assisted living facility and you had a property that you ran this through, in that case you could technically keep title to the property but sell the actually labor of the business, sell the business and the income streams that people pay to rent out your place, and you could run your opperations in the house and have whoever bought the business pay rent to your house.
So, there’s some situations like that where the real estate is independent of the business and that might be what you’re thinking about when it comes to this Airbnb situation. So, I guess, technically you could sell the business which would be the right to list the house on Airbnb and manage it, and have someone buy it with an arbitrage model where they just pay you rent to use the house, but I wouldn’t think that would happen very often because most people are going to want to use the 30 year fixed rate loan to buy the house and inherit the business with it. So< I don’t know, for your situation I don’t think it’s good to think about business and how separately they’re going to be too tied together.
As far as how you should keep title to these properties, the reason you would do this is if you had one accident happen in one of your properties and you’re sued. The person suing you would theoretically only be able to get access to the equity of whatever is in that LLC. So, if you have one property in that LLC they’d only get access to the equity that is in that LLC, if they were to win a judgment. The problem is, if you put a new LLC together, or a new legal entity together, every single time you buy a new property you end up with a lot of them and it’s very difficult to manage. So, most people try to find some happy medium. They keep several properties in one LLC.
Now, I want to highlight, my understanding of this from the people that we’ve interviewed on the podcast that do legal protection, is it doesn’t matter how many properties you have there it matters how many equity you have there because that’s what someone is going after. So, having one million dollar property completely paid off has $1 Million of equity, whereas having five million dollar properties that have a loan of 900,000 on them, there’s only $500,000 of equity. So, even though there’s five properties there’s less for somebody to get after.
That’s what I’d be looking at. There’s no problem to keep all your properties in the same legal structure, and then as the equity grows consider moving an individual property into its own legal structure at that time and leaving the other ones in there. Just remember, it’s not how many properties are there it’s how much equity is inside of that individual entity. Thank you very much for asking this question, and please go on YouTube and let me know how often you hear, “Hey, Siri,” and hear phones going off.
All right, thank you everyone for submitting the questions that we have so far. If you would like to submit a question, please go to biggerpockets.com/David, where you can submit your video or your written question there and hopefully we get to answer it on the show. In this segment of the show we go over the comments that other people left on YouTube after watching these videos. Please consider going to YouTube and leaving me a comment yourself, I’d like to know what you think about the show, what you’d like to see different and what you don’t like a all.
All right, our first comment from Rena [inaudible 00:16:02], “David, you and your analogy is like a man in the Biblical times speaking in pericles, lol.” That’s not me saying lol, she said lol. “One of my predictions has been that people are going to start saying lol in real life because we do it in text so often. I love it, I love the content and all BP continue to share.” Well, thank you Rena, that’s very sweet of you to say. I appreciate that.
From Kevin Katao, “Seeing Greene is the best BP show right now. Thank you David.” Well, that’s pretty cool, thank you for that. Next show question, “Many in this community believe that landlords provide an important service by providing housing to others. How do you refute someone who is anti-landlord that states landlords are taking away homes that owner occupants could buy, particularly in single family residents? If landlords buys homes they aren’t taking away opportunity and raising market prices for non-investors looking to live in the dream of home ownership.”
Yeah, there is a pretty big debate going on in that space, so here’s basically how I see it playing out. When home prices go up people say, “Why are so many people buying homes?” And often will all these greedy investors get brought up. And the idea is, because investors pay more than somebody would for a normal home, they’re driving the price high and making homes unaffordable for someone that wants to just live in it. So, the argument would be, if landlords were not allowed to rent out homes, they would not buy them, then there would be less competition and home prices would be lower, and somebody could buy a house to live in themselves.
And to be fair, that’s probably true. If you took investors out of the housing market then it would make homes more affordable in most cases, and easier for someone to buy. But here’s the thing, not everybody actually buys homes. In fact, a lot of the time the reason that landlords are renting them out is they’re renting to people that don’t want to buy or can’t buy. So, I don’t know that there’s as many home owners out there that are really trying to buy and they just can’t, as what people think.
And here’s the flip side, if we did that you have all these tenants that now can’t live in a home, where are they going to go? Well, they’re going to have to go into an apartment, which means we’re going to build more apartments, which means we’re probably going to have more public housing to support all these people that need a place to live. Public housing is usually not the best housing, think about your experience with anything public like the DMV. It’s usually not great.
So, if we did what these people are saying we would just have a different problem. We’d have a bunch of people that are living in apartments that are complaining that it’s not fair to them, because don’t they deserve to have a yard, don’t they deserve to be able to rent a house in an area where they want to put their kids to school, why are they being discriminated against just because they don’t want to own real estate or they don’t want to buy a house. Maybe they have bad credit and so they’re going to claim that it’s not fair that they’re unable to buy a house, and they’re regulated into cheap public housing or project housing that the government has made to house these people.
Even if they go in the private sector they’re still stuck in a small apartment complex, they don’t get a bigger home, it’s harder to have pets, it’s harder to get outside, you don’t have a yard, you can’t have a garden. There’s a lot of things that would suck, then we would just have people complaining about that. So, when it comes to refuting someone like that, the best advice I can give is if you’re going to engage with them, paint a picture for what it would look like if they got their way.
It’s very easy to complain about something and only look at the first step, but if you allow wisdom to run its course and actually think about how things would look if that person won, the end result is often worse than what we have right now. Hope that that helps.
All right, these next couple of comments come from my changing up of the BiggerPockets Quick Tip because I don’t love the super high pitched Brandon Turner Quick Tip that he made me do for years. Coming from Primetime21, “I love the analogies, David, and the Batman Quick Tip.” So, that’s something that I brought to the podcast so I was a little different than Brandon. I use analogies and I like to say, “Quick Tip.” Jimmy, “Fr the Quick Tip new sound, put in a clip of Brandon’s voice. We all love Brandon and it keeps it OG.” Not a bad idea, so there could be times where I’m saying, “Here’s today’s Quick Tip,” or we could have Brandon singing his very high pitched melodic, angelic version of the Quick Tip.
Hammer Radiology, that’s kind of a cool name, says, “Definitely the high pitched Quick Tip, it makes me chuckle too,” which is I think why Brandon did it because he likes to make people laugh. Batman vs Brandon, I’m glad we’re getting into this debate. Do you guys want Batman or do you want Brandon man? Your call.
All right, are these questions and comments resonating with you? Do you enjoy hearing what other people on BiggerPockets are saying? Look, you are a part of a community if you’re listening to this podcast, get more involved in that community. Get in the YouTube and leave comments, say something funny, say something positive, say what you’d like to see more on the show. Ask the question that’s never getting asked on the show, that you wish was, so that we could get into it. As long as you’re keeping it classy, we want to hear more from you.
So, please, if you’re listening to this on iTunes, on Stitcher, on Spotify, on SoundCloud, wherever you listen to the podcast, just check us out on YouTube and go there, leave a comment and let us know what you think of the show.

Oladimeji:
Hello, my name is [inaudible 00:21:11]. I am from Brooklyn, New York, and my question is about ethical wholesaling. Now, in your BRRRR book, David, you seem to place an emphasis on the buy and you tell us that the way to build equity is in the buy itself. Now, correct me if I’m wrong, that kind of comes across as you telling us that we should figure out how to pay less than market value for a property. So that way once the purchase is completed, we have equity built in that property already, before even doing a rehab, et cetera.
Now, in your Ethical Wholesaling episode with Jamil you seemed to place more of an emphasis on paying market value for a property and figuring out how to add value to that property, as opposed to focusing on how to pay less than market value for the property. Hope this isn’t confusing, but those two messages seem to be at odds to me, they seem like they’re conflicting. Please clarify, my apologies for the long-winded voice note. If I haven’t mentioned this already, I am [inaudible 00:22:16] from Brooklyn and looking forward to hearing from you. Thank you.

David:
Hey, Oladimeji, my man, thank you very much for asking this question. It doesn’t bother me at all. I actually appreciate that you’re asking this because it means it’s on the minds of other BiggerPockets community members, and gives me a chance to address it, and there is a really good answer. So, when I wrote the BRRRR book we were in a different market than were in today. At the time I wrote it I was just ripping through BRRRRs because nobody wanted fixer upper homes. Real estate investing was not as hot as it is right now, and so when someone looked at a fixer upper home what they saw was a problem they didn’t want to deal with. And the way that I was solving the problem that no one wanted to deal with was through a rehab.
So, I would give the advice on how I was finding deals, at the time I was looking for properties that had been sitting on the market for a long time, stuff that some other flipper had started to undergo and then ran our of money and couldn’t finish. I was looking for things that wouldn’t qualify for conventional financing because they were in such bad shape, so I could go in there and buy it cash at the discounted rate that I described to you, put money into fixing it up and then when the house was in better shape and would qualify for financing, I would go refinance it.
The strategy was working and I was buying two to three houses a month, at a certain point. It was amazing. Well, I wrote that book and then I also wrote Long Distance Investing, and then BiggerPockets published them, and then everybody in the world was able to see what I and other investors were doing. And what do you think happened? Everybody rushed in and did the same thing. At the same time that was happening the Fed was putting ridiculous amounts of money that was just inflating the economy by a lot, and they were holding interest rates super low so that people that didn’t want to invest in real estate were forced to because they couldn’t keep their money in the bank, and the values of real estate was going up ridiculously fast because interest rates were low. It was a perfect storm that caused everyone to flood into the market.
Well, what happened is those fixer upper properties were now problems other people were also looking to solve, it wasn’t just me and investors like me. And that’s why my advice changed, because the market evolves and so does my advice within it. This is not uncommon for anything else in life. You look at how people played football in the 1930s, it’s a lot different than how they play it right now. The advice that somebody would be giving to somebody in the NBA in the Bob Cousy days is a whole lot different than what they would be giving to someone in the Shaquille O’Neal days, and now in the Steph Curry days.
We have to evolve our strategy, now I totally understand why this would be confusing for you because you’re getting into this space and you’re seeing all of this information that’s being presented at one time. Your not understanding the timeline of how it was evolved. So, I believe when you were referring to the latest advice I gave I was saying, “It’s okay to buy a property at market value if the area is continuing to go up in value.” I’m giving that advice because if it’s market value r nothing, market value is better. Previously, in a different market, if it was market value or less, less was better.
Now, I’m not turning down opportunities to buy deals below market value, I find them occasionally. I just got one in Moraga, California that I got way below market value. Before that I got one in Pleasant Hill, California where it was the same thing. But then there’s other properties that I bought, like with Rob, were only slightly below market value, and other properties that I buy at market value. You don’t always know how it’s going to come in, but what I’m doing, and I can only share how I’m investing, is I switch from saying, “Here’s market value, I want to buy a house below it, to the area being below market value.” I’m looking for undervalued locations. Okay, so where I used to say, “All right, Jacksonville, Florida, the property is worth 150, I’m trying to buy it at 120.”
I’m now saying, “All right, I can’t put a number to it but where are people moving to? Which areas are appreciating in both rents and values and demand, faster than others?” And I want to go buy in the area that I think is undervalued, meaning the properties in that area are likely to have rents that go up faster than properties that are around those. Now, this is a harder way to do business, I totally recognize it because you can’t put this information into an Excel Spreadsheet and let the numbers do the work for you. But that’s where the advice that I’m giving comes from.
If you’re able to buy a property that cashflows 2% in Miami, Florida, it’s probably going to crush it five years later because Miami is going to appreciate a whole lot more that Gary, Indiana. It’s just a different way of approaching it and, to be honest, I don’t love it, I don’t like that this is the way that I have to play the game right now. I wish that I could go back to just fining properties that were under market value and only buying those. Here’s the problem, if I only buy the very best deals in my situation I’m going to lose a lot of money from buying solid deals, just getting base hits and getting on base, and letting the market carry it.
Now, not everybody is in that situation, if you don’t have a lot of reserves, if you don’t have a ton of money, if you got to get it right, you’re going to have to work harder to get that deal under market value like what you’re saying. But if you’ve done well, if you’re in a strong financial position, if you’ve saved money, if things are going well for you, don’t hit home runs every time. You can’t always get a home run, sometimes you just got to get on base and then let somebody else bring you in. For me, that’s the market, I get on base and I’m letting the market bring me in. Thank you very much for asking that question, I appreciate you giving me the opportunity to clarify it. I’m really hoping that put off a lot of light bulbs over the heads in the BiggerPockets community members, as a whole.
Let me know in the comments below, what are market that you guys like, what are your concerns with trying to buy in a market versus buying a property, and are there strategies that you’re seeing that are working that I’m missing on the show, that you’d like to share?
All right next question comes from Britt in Placerville, California, which is also not too far away from me in Northern California. “Hi, David. I have two duplexes on a large lot that can be split into two lots, both units are lined up along the street.” That is helpful information, by the way, because if they’re both lined up on the street horizontally, you can have two addresses. If they’re lined up vertically you’d have a house behind the house on the street, very difficult to build it out. “I believe there’s a lot of potential benefit to splitting up the lot and eventually selling them down the road, if I choose. But is there any benefits of splitting it up a lot sooner rather than later, if so are there any downsides to insurance or taxes?”
Okay, Britt, this is a great question and you’re in my hood. So, side note, anybody who’s in California, please reach out to me, DM me, message me on BiggerPockets, let me know. I want to get you in my database because I do run meetups out here I’d love to invite you to. I’ve got a real estate team in Southern California as well as a team in Northern California, so we are pretty well situated.
Now, your question about splitting up your lot, the first thing is you’re going to have to ask the city if they’re even going to allow you to do this, they may say no. If they say no you’re going to keep checking back every six to 12 months to see if they’ve changed their mind and they’re going to let you do it. As far as having higher insurance and taxes, yes that is true, If you do this you may end up having slightly higher taxes and insurance because you’ve now take two duplexes on lot and turned it into one duplex on two lots, and you just have two of them. So, that’s okay, but my guess would be the overall value is going to be much better than the increase expenses, and here’s why. If you’ve got two different duplexes that are sitting on their own lot, you’ve added value to the property, you’ve actually literally created equity out of nothing and value out of nothing.
You can now refinance them, you can now sell one of them if you want. You won’t increase your cashflow, so to speak, but you will increase the value of the property, and that gives you options. Like I said, you could sell one of them and reinvest into something else. You could refinance one of them to get the money and put it into something else, I would be a bigger proponent of this. Now on the downside, let’s say you don’t do it and say, “Hey, I’m just going to do it later.” You don’t know what changes are going to happen in zoning, you don’t know who’s going to get onto the city council that doesn’t like landlords. If you’re in a favorable position now it could get worse if you wait. So, I don’t think that the increased expenses are going to be worse than the increased value, I think you’re better off to do this sooner rather than later. And if they tell you o, I would keep checking until it’s a yes.
All right, now let’s consider a hypothetical situation here where you have a property on a big lot, and that lot could be divided into two pieces. So, if that was the case you’d have one lot that has the property on it and another lot that you’ve now created that is unimproved or doesn’t have a property on it. I’m going to answer that same question as if someone asked it in that format.
As far as the downsides to insurance or taxes, I don’t believe you’re going to have any insurance on a lot without an improvement, you typically only get insurance if you have an improvement on a lot. I’ve never owned vacant land so, please, if this is wrong don’t everybody jump down my throat, I’m just sharing my understanding of it. There’s no fire insurance if you have a building that can catch on fire.
Taxes could go up, so what you need to ask the city is if you split it into two lots, how are they each going to be valued because you’re probably going to end up paying property taxes that are a little bit higher if you do it earlier, because you may have a lot that’s valued at 300,000 and once you split them into two they’re each valued at $200,000 which is an extra 100,000 you could be taxed on. However, land is typically not valued nearly as much when nothing’s built on it so the taxes are a lot lower than most people would actually realize. I would be looking at doing it sooner rather than later.
You never know when opportunity’s going to come around, this is something I’ve learned a ton. A lot of times we wait until an opportunity comes and we scramble to try to get ready and it passes us up. If you’re ready before opportunity comes, if somebody wants to buy that lot or you meet a builder and you want to build on it, whatever it is that happens you’re ready to go and you don’t miss the opportunity. So, if it was me I would jump on it sooner rather than later.

Ryan:
Hey, David. Ryan here from Pittsburgh, Pennsylvania. I am a real estate agent and investor, I started buying properties last year and I have eight doors in Cleveland, and then I also have a short-term rental in the Smokey Mountains. My question to you, though, is more geared towards the real estate agent side of things. I got my license back in 2019 but I was only part time for the past three years, I went full time this past March because help from the rentals, and everything, I was able to get out of my nine to five.
My question to you as far as the real estate side of things of being an agent is, if you had to move into a new market, for whatever reason, a market where you didn’t know anybody or you didn’t know very many people, what would you focus on to generate leads and basically dominate that market? I just started doing videos because heard obviously that that’s a big part of it, but I wanted to get your insight on it and I have your first book, I have the second one pre-ordered and everything so I’m waiting for that to come out. But just would like to get a gauge from you, and answer from you on what you would do in a new market like that, if you were presented one, and how you would go about it to generate leads and everything, and get noticed in that market.
So, that’s it, that’s my question, and appreciate everything you guys are doing at BiggerPockets. You truly are changing lives, and you’ve changed my family’s trajectory for sure in the past year just alone, with eight doors and the rentals that we’ve gotten. So, I appreciate it and looking forward to hearing your answer. Thank you.

David:
All right, thank you for that, Ryan. And thank you for mentioning the books that I wrote, they’re not as well known in the agent series. So, everyone knows I wrote the BRRR book, people know that I wrote Long Distance Real Estate Investing, but not everybody knows that I wrote books for agents. Sold is the first one and the second one, Skill, is coming out in a couple of weeks, if you go to biggerpockets.com/skill you could pre-order that book.
Personally I think Skill is twice as good as Sold and Sold is doing really well. The premise of Skill is, this is how you become a top producing agent, this is how you be someone who does a lot of business and makes a lot of money that different than just a person who can have a career where they make some money in real estate, which is where people start off and that’s what Sold was written for.
All right, here’s what every realtor needs to know if they really want to do well. Instead of starting where you are and saying, “What’s my first step? All right, I should make videos, I’m told that. What’s my next step, I should cold call. Okay I’m going to do that. What’s my next step, I should go knock on doors. Okay, I’m going to do that.” What happens is you end up taking all of these steps and then seven of them don’t work, you finally get the eighth one that does and then you start over and you take another eight steps and only one of those is going to work. It’s very time intensive and it’s not very conducive to being successful.
What you want to do is go actually to the end and say, “How do I want to look when I’ve done a good job? So, people come to me to have me sell their house or help them buy a house because they trust me that I know a lot about real estate. If you’re listening to this and you have a house to sell, I want you to come out to me and let me know because I’m into real estate, that’s what I’m doing.” And that’s really what we’re all looking for, you guys are listening to BiggerPockets because you trust that the people that are giving you advice are good at what they do. We all want to work with someone that we believe already knows how to do the thing better than us, I hired a mechanic for my car because I believe they know way more about cars than I do and they’ve done it a lot.
When I’m looking for an agent I’m looking for someone that owns the type of real estate that I want to buy. Their advice is much more valuable to me. I’m not looking for someone that answers their phone every single time I call, I’m not looking for someone that is super friendly and makes me feel happy, I’m looking for someone with experience. And if they’re quirky, they’re a little bit weird, I have to work around their schedule, that’s okay because I value experience that much more.
You’ve mentioned something that gives you a huge advantage, you have eight rental properties. You’ve done this, you understand what it’s like to own real estate not just to be a sales person. I always give this example of someone who goes into a car lot. I don’t want a salesman who’s really nice being the person to sell me a car, I want to talk to a mechanic who understands that car or a person that owns that car themselves, who can tell me what it’s like to drive a Ferrari versus a Lamborghini. And I use those luxury car example because to most people buying a home, the purchase is so big and scary it’s the same as I would feel if I had to go buy a Ferrari or a Lamborghini.
I don’t understand, I don’t know what all my expenses are going to be, what if I choose the wrong one, which one’s going to go up in value more, which one’s going to lose value? I have all these questions, it’s a scary thing. That’s what owning a home is like for people that haven’t bought it, and you’re somebody who owns eight exotic cars. You can tell them which cars they should buy, what cars work best for which purpose, and what to expect when they buy that car. This is a huge advantage.
So, if you were to go into a new market where you don’t know anybody, the first thing you should do is set up educational meetings. You should be doing meetups, you should be making videos that specifically talk about home ownership and what people should expect. You should drop what I call hooks, and in my book series I talk about these hooks, they’re little lines that you can mention at a open house or in a meeting, that tells people something they would not have know if you didn’t say it and makes them wonder what else do you know.
So, for instance, many people don’t know that property taxes are different in different parts of the city. There are special assessments that are put in place, there’s things that are called [inaudible 00:37:34] in certain areas, which are extra taxes to pay for schools or fire departments, or land improvements, or whatever it is the city’s doing and they’re making the people who buy a house in that area subsidize those decisions. If you can tell clients that certain areas have cheaper property taxes than others it makes them wonder, “Well, what else do you know? I want that to be my agent.”
And that’s what you should be doing, you should be talking about real estate, the benefits of home ownership, the risk that you can help them navigate and you should be doing this to as many people as you possibly can, and then just work backwards from there until you get to where you are right now. Thank you very much for asking this question, Ryan, and remember you have a huge advantage over other agents, you need to take advantage of that.
“Hello, all, I have a question about NOI. I have seen it the way you get net operating income is your gross income minus expenses. It is taught on BiggerPockets to put away for vacancy, CapX, et cetera. Would all those fall as an expense reducing my NOI when it came to looking at my cap rate to round out the value of a property?” Okay, I see your question here, Daniel, and I think I can also see why you’re confused. This is also coming from Daniel in Northern Arizona.
NOI is a metric that we use most often with multi-family properties, okay. When we talk about BiggerPockets, when I say we I’m referring to our calculators and how we’re telling people to analyze a property, we’re letting them know you’re going to have expenses like vacancy, capital expenditures, maintenance, stuff like that. You’re kind of conflating those two worlds, so different people are going to come up with their income minus their expenses differently. NOI as a bank is going to use it, it’s going to be different than how we’re telling the individual investor who’s buying a house, “This is what you should look for.” So, don’t make the mistake of mixing up multi-family with residential property.
Now, it wasn’t in the notes I read but my understanding is you’re looking to buy a six unit property which is technically a multi-family property, and it’s going to be evaluated like that. Here’s the best way to move forward, talk to the lender who’s going to be funding the deal and ask them the question you’re asking right here, “Hey, when we’re coming up with the NOI that we’re going to use to determine the value of the property, are you going to look at these things and if not what things are going to be included?”
There you have it, another episode of Seeing Greene BiggerPockets. Appreciate you guys hanging out with me, and I really appreciate those who submitted questions, we can’t have the show without questions. So, if you like these shows please go to biggerpockets.com/David and ask your question. It doesn’t matter what it is, it could be about getting a deal, it could be about how to better manage a deal you already have, it could be a philosophical question about real estate or it could be a tactical question about real estate. I want to know all of them because what’s important is that you all figure out a way to buy the right kinds of properties to give you the life that you really want. If you got some time please consider checking out another one of our videos and make sure you follow me on social media, I am DaviGreene24.