Establishing Your “Beachhead” to Work Less and Invest MUCH More | Q&A w/Craig Curelop

David Green:
This is the Bigger podcast show 561.

Craig:
Where do you want to be in the next year? Where do you want to see each one of your businesses and conquer one thing at a time, right? I’ve heard of this. You heard of, it’s called the beachhead strategy and it is all about when we storm Normandy and France and world war II. The way we won that, right? Was conquered one beach head at a time.

David Green:
What’s going on everyone? This is David Green, your host of the BiggerPockets Real Estate podcast. The show where we teach you how to achieve financial freedom through the love of our lives real estate. We do that by bringing on different guests who have achieved it for themselves, found different measures of success or made big mistakes so that you don’t have to follow in those footsteps. And on today’s show, we are actually interviewing live callers with practical questions about how to do just that. Here with me today is my co-host of the day, the house hacking author for BiggerPockets Craig Curelop. Craig, how’s it going?

Craig:
David, couldn’t be much better only if my voice is almost healed. We’ve had three episodes now and I’ve just keeps the cigarettes coming in. So how is everything with you?

David Green:
Yeah, it’s… You and I are both in some pain today, so hopefully that doesn’t show up too much on the show. The show must go on. So we went through it. I think we ended up with a really good show in spite of that. This is our third and final episode together. So I think you did a great job. I appreciate all the efforts you made and I think our listeners do too. You gave some really good insight. What were your favorite parts of today’s episode?

Craig:
Actually I really liked the first gentleman’s question. I think his name was Charlie, right? He is 21, clearly motivated as all hell to achieve some serious wealth, and he’s got those three businesses, right? That he’s truly trying to grow, and if you chase two rabbits, you catch none, right? As the Chinese proverb says. And so I think just helping him get reeled back in and say, Hey, let’s just conquer one thing at a time, set it up, set the systems in place, so that way you can go ahead and move on. We know we talked about the beachhead a lot, conquer your one beachhead and you move on to the next one and that’s how businesses are built, right? You build one at a time, so I really like that one and I just loved some of the younger guys that are artists taking action, getting ready and making sure that they’re fully prepared.

David Green:
Yes. I think you gave some fantastic advice about just that. How do you handle these emotions that come with, I have all these things I want to do, and I don’t want to say no to any of them, but I also know I can’t chase all the rabbits. So make sure that you listen through because Craig gives some really good practical advice. And then I also think we gave some pretty good insight into what goes on behind the scenes. Like if you’re buying your first house hack, what’s the process going to look like? What’s the order that happens if you’re getting a loan, what should you expect from your loan officer? What are some good questions to ask, to find out if you’re getting a good one and what happens behind the scenes? So there’s a lot of practical educational component to today’s show as we break things down, I love these shows.

David Green:
We want to know if you like them too. So after you listen to today’s show, please go on YouTube and go to the comment section and tell us what you liked, what you didn’t like, what you wish you could got more of, and then keep an eye out. You can ask your [email protected] slash live questions. So usually I go live on my Instagram and so is Craig whenever we’re going to do one of these shows, if you’re following us on Instagram, you can be a part of it and that’s what we want. We want more audience participation. You can also go to biggerpockets.com/david and leave a question there and we will answer it. And now a quick word for our quiz tip. Today’s quick is you want to find an expert and BiggerPockets has and reach out to me, reach out to Craig, we’re doing this for a reason.

David Green:
This is what we do for a living, right? We are constantly talking to people who need help with representation in real estate and so is BiggerPockets. If you can’t get ahold of one of us, get on the forums and ask a lot of the questions that you hear people asking. Now you would be shocked how many people are just offering genuine help giving you answers to questions that you might have providing a free education, helping you on this path. Don’t let the fear of not knowing what’s coming, stop you from moving forward. All right, Craig, anything you want to add before we bring in our first caller?

Craig:
No, nothing. I think this is just a great episode. These live Q& A’s are so fun and it’s great to just see and relate to people that are in the same position as most of you may be in, so let’s bring on the first guest.

David Green:
All right.

Charlie :
I have 11 rental units, a triplex and two fourplexes and then also just started my being a realtor six months ago. And I have about eight closings with that and I also started a construction business, just rehabs for out-of-state investors here in Columbus. So I just quit my W2 in November and me and a partner have the construction business going pretty good right now, we have a few projects going on, but I’m more wondering whether right now in this market, I should be trying to buy as more real estate or if I should be trying to get the construction business bigger or the realtor, or do all three or put all my money in one spot.

Craig:
Yeah, for sure. So Charlie, my question back to you would be, what do you think you’re the best at?

Charlie :
I’m 21 and I’ve got 11 units in the past two years. So I like buying real estate the most, just because of the long term game. But I’m also, I’ve been an electrician the past two years and I enjoy running jobs and being a general contractor as well. But I like being a realtor too, but I like the other two better, I’d say.

Craig:
Okay. So you like being a realtor, you like all three. My thing is always, what is your highest dollar per hour task, right? It sounds like you’ve got a partner in the construction business. Is he capable? He or she capable of running that business without you? So can you train like, is there a way that you can still own part of that construction business and then maybe you start your real realtor business, right? A transaction is really good in the first six months, 100%. You’re probably in top percentage of that, but can you scale your real estate business start having agents underneath you. Create a team there, you build the leader of the construction team, the realtor team, and you can focus on scaling your portfolio, which sounds like you’re most interested in this time. Does that sound about right?

Charlie :
Yeah. For sure, I think the construction business, we can definitely get that so I’m not really doing any day to day stuff. I’m more working on it than in it as far as the realtor thing, I don’t think I’m too skilled at it. I just know a lot of investors and that’s more of how I got those, but I need to learn a lot more to lead a team and get leads for them, but all that would take time and money too. So…

Craig:
I think what you need is just a little bit of clarity as to where you see you being in the next year, like don’t try to forecast out five, 10 years it’s too far. Like where do you want to be in the next year? Where do you want to see each one of your businesses and conquer one thing at a time, right? You heard of the… It’s called the beachhead strategy in it, is all about when we storm Normandy in France, in world war II, the way we won that right? Was conquered one beachhead at a time. And so conquer one business at a time.

Craig:
And so if you’re focused, if the heaviest business for you right now is your construction business, figure out how you can have a sustainable construction business that it schemes to see itself without you there. And then maybe you move over to your realtor business and maybe you don’t want to create a realtor business, right? If you’re just working with investors and you’re just looking for like that now, that side money that’s going to help your buddies out or whatever, help your investor friends out, then make a business that will adhere to the lifestyle that you want to live.

Charlie :
Awesome. Thank you.

Craig:
David. Do you have anything to add on that?

David Green:
Well, are you asking this question because you want three different businesses and you really enjoy the fact of growing them all and you’re young? So at 21 years old, you have plenty of time to learn how to do that. Or is the question more about, I don’t know which of these three options is going to make me the most money and you’re trying to pick one out of the three.

Charlie :
Oh, in the future I see myself building businesses and then trying to get them to run by themselves just like you guys are doing.

David Green:
Okay.

Charlie :
So yeah, I’d say building all three is what I want to do, but I want to know in the long run, what would be best obviously, but I think building the systems out and getting somebody to lead those would be the best is what you guys are saying.

David Green:
Well you’re right in that understanding and Craig is a 1000% right as well. The way that you, if you want to have three, you have to set up a beachhead, which is just basically like you push you fight, you solve all the problems. That’s how it works in business versus war, is fighting, is solving problems. And then you’ve got an established ecosystem that will work and then once that is stabilized, you can grow on it. So if you want to do all three, that is the road you’re going to have to take. I just wanted to make sure that you want to do all three, because I’m doing this because I like it. I want to have different businesses. I really like creating an ecosystem where investors can get a loan product that will help them get the deal, an agent they can help them find the deal.

David Green:
Eventually a construction company like that’s fun for me. So the work that goes into it, I’m not resentful of, I don’t mind, but if you’re the type of person who’s listening to this thinking, yeah. I don’t want to have a bunch of businesses. I just don’t want to work my job. If I could just get five grand a month, 10 grand a month and passive income, I’d be good. Then you wouldn’t want to take the path, Charlie staking. So Charlie, we’re on the same path that what you’re looking for is a way that you can do all these things together. Is that correct?

Charlie :
Yeah. So what would you say if I just wanted the five to 10 in paths of income in a long gain?

David Green:
I would say you should pick one of these businesses that you think you enjoy the most, that you have the most talent for. That is the most fun, and you should just work on building that up and then hiring people to do the stuff and then stop growing. Just let it be contained so you’re going to put effort into a business or a portfolio, but there’s two different ways to do it. There’s and I’m writing about this in the third book in my series for real estate agents right now called Scale. Once you create systems, they enable you to expand as big as you want to go, because you just control C and control V the same system in different places. But you can also put energy into, instead of making more money or acquiring more, actually getting your time back.

David Green:
So you can put energy creating a wall around this business that work never makes its way through the wall and comes to you. So that’s one of the first questions you got to figure out is, do you want this five to 10 grand and passive income and not work? Or do you want to build an empire where you’re always going to be working all the time? If you try to do both, you will find yourself frustrated, constantly. This is the investor who’s like, I wanted to just get four or five triplexes and call it a day. But now I want to be a syndicate and a house flipper. And they do all the work of building these businesses, but they don’t actually enjoy what they’re doing because they never wanted the work. So you have to get some clarity yourself on how much you want to be doing this for the rest of your life.

David Green:
And at 21 that might not be coming right away. So here’s the advice that I’ll give to you. If you enjoy being a real estate agent, continue doing that and slowly start working in other agents to leverage stuff off your plate. You showing assistance, learn how to hire admin, don’t expect to get it right on the very first try. It’s going to take a couple, do that and to the point where you’re basically just putting the client in contract and lead generating. So you find clients, you meet them and you put them in contract and other people are doing the rest of the job. Once you get to there and that beachhead is established, then you can decide, do I want to go start a construction company? Do I want to be a full-time investor? Because if you are bringing in money from selling houses, like Craig said, you’re near the top.

David Green:
You have enough income coming in. You’ll be able to buy investment property. You can do those two things very similarly, starting a construction company is going to be incredibly time consuming and difficult, I wouldn’t try to do that at the same time I’m building the real estate business. You like Craig said, you want to get a beachhead for one of them and once you’re like, Hey, this thing is running itself. The enemy attacks us, we shoot them down, we’re good. We can hold this ground fairly easy. That’s when you look at starting the next beachhead.

Charlie :
Awesome. Thank you guys for all the advice.

David Green:
Craig, anything you want to add?

Craig:
One thing I just want to caution you that as you’re building your business, real and at your construction business, your realtor business, no one is going to be as good as you doing or most people at least at first, right? And so part of training somebody is you’re going to lose a client, right? You’re going to lose potential revenue and just get ready to put on your suit armor, take that blow because that’s their learning, right? That’s their 90 day ramp up period, and eventually they’re going to free you up of your time. So just want to prepare you for that as you start to scale and start replacing…

Charlie :
Yeah.

Craig:
Yourself with other people.

Charlie :
Yeah. So initial investment into them. Awesome. Thank you guys.

David Green:
Yeah, that’s a great question. Keep us in up to date with what you got going on. This is exciting stuff to be 21 and have visions that big. I was not thinking that big when I was 21.

Craig:
Just the next bar.

Charlie :
Yeah. Thank you guys.

Dave :
All right. So as I mentioned, I’m here in Houston and I’m applying, employing a rent by room strategy. All right, now I’m buying homes and usually they’re four or five bedrooms when I buy them and I’m removing the common area, right? Getting rid of the living room, the dining for an office, turning into more bedrooms to maximize a usable space. The challenge is I am putting in fantastic finishes. I gut the kitchens I’m putting in new counters, granite new bathrooms. I’m spending a lot of money on these properties to get them to from a five bedroom or a four bedroom to an eight bedroom, but with the bragable. So I want my clients to think they can brag about where they’re living. Sure. It’s not my own home, but I’m in the kitchen and it’s a gorgeous kitchen and everything else, right?

Dave :
But the challenge is when I try to, if I try to go and refinance to pull some of that out now I’ve got an eight bedroom home that may not appraise as well as a four or five bedroom that had the common area. So is there something I’m missing here? Some logical step or a lender that may either look at because I’m getting a lot more money than I would renting this out to like a single family if I do it right by room, but I can’t find a DCR lender that’ll look at this based on the actual rents and they want to look at comparable properties, but there are no eight bedroom homes without a living room to compare against. Is there a way to say, listen, can you appraise this as a five bedroom minus the $3,000, it would take me to knock down this wall and make it back into a living room. Is that possible? Is there anything that can be done to try to retap back into this equity because I know I’m putting more value into it by redoing the kitchen, the flooring, the bathrooms.

Craig:
I can go ahead David and shoot my shot here. So Dave, right now you’re trying to do two strategies, right? You’re employing a crazy supercharged house heck and you’re trying to bur it at the same time. I personally, Dave, I think you’re a little bit more knowledgeable in the lending space. I don’t know of a lender that will lend on a single family home based on like the rent or like a cap rate or anything like that. One thing I may suggest in the future is keep it as a five bedroom, make all of your adjustments to your rehab to your bathroom and your kitchen and make it pretty that will for sure. Increase the value. Then go ahead, get the… Refinance it before you add your bedrooms and then after you refinance it, you go ahead and add your bedrooms.

Dave :
Yeah. That’s exactly what I’m in the process of doing. I was hoping there was some way to [crosstalk 00:16:00]

Craig:
Some backtrack.

Dave :
Adds a whole another month to the timeframe before I get people in there.

Craig:
Yeah.

David Green:
Yeah.

Craig:
You’re trying to get the best of two very different worlds. And I would say you’re going to make I’m not sure about the Houston price is, but in Denver eight bedrooms, it’ll probably get you close to $6,000 in rent and in your mortgage payment is probably two or three grand, right? So you’ll be making three or $4,000 of cash a month. That’s awesome.

Dave :
That’s exactly what we’re sayings. Its Fantastic.

Craig:
Yeah. That amazing. And so you’re trying to squeeze more juice out of it by doing a bur, which I think you may be asking for a little bit too much unless so your penalty in the downside is that yeah, you make your finishes, you wait till the finishes are done, you pay a payment, you get five rooms filled. I’m sure that still covers your mortgage you pay.

Dave :
Right. But you don’t want to be doing rehab while you have five people there is the thing. So I would have to almost leave it empty while I go.

Craig:
Yeah, sure too. I’ve done rehabs people there. Sometimes they don’t care honestly, you have to just, yeah. But definitely a safer bit to just go in and do that and you have more holding costs, but if you think, if you zoom out, right? Zoom out and look at the two year picture three, five year picture, you’re going to, after this is all said and done, you’re going to have a eight bedroom house, you’re going to have pulled money out and the thing’s going to be cash in you. I don’t know, three, $4,000 a month, right? So I would say think bigger picture and I think you’d be doing good. David, do you have anything to add there?

David Green:
Well, what’s your thoughts Dave after hearing that, because I have some really good advice in there.

Dave :
I think what Craig about is exactly the strategy that I’m currently employing. I am looking at putting in making it from a four bedroom, a five bedroom, but then leaving the office and the living room as is for now going through the process of trying to refinance as a five bedroom seven, a four bedroom, which was when I bought it, maybe get a little bit more. I was just trying to figure out how can I compress that, right? Because as sooner I get the people, the sooner I’m making that $3,000 a month cash flow and it’s free up some of the pressures I made the mistake with my most recent round of doing two at once, so I’ve got a lot going on right next to each other and lock cash out.

David Green:
Can you see, this is an element of your personality that you like to do things incredibly fast, incredibly efficient.

Dave :
Yes.

David Green:
You’d rather just take it all on and figure it out as you go, right?

Dave :
Yeah.

David Green:
So that like Craig was saying, you’re trying to get the best of both worlds and unfortunately there isn’t a way to make that work. You just have to ask yourself if I have to lose in something, what’s the cheapest thing to lose in. So…

Dave :
Right.

David Green:
The question you’re asking, if can I find a lender that would look at it based on the income it brings in as residential property? Yeah you can. My company does that. I’ve done it before. Sometimes it’s got a higher loan balance than you think. So you might need a couple of these houses. If you get three or four of them, you can find a lender that would look at them all on the income that they bring in and you could refinance them according to that, however, you then run into the problem of having a higher interest rate than what you’re probably expecting.

David Green:
And you’re not going to get a 30 year fixed rate like you do on residential loans. You lose out on that side. Versus if you go the residential side, you get the better rate the 30 year fixed, but they don’t care what the income is. So like Craig was trying to tell you have to pick which direction you want to go in and go in that direction as fast as possible, establish a beachhead, which is funny, because that’s becoming the theme of this podcast as Craig said, so you rush forward on the rehab, you get it fixed up, you get it appraised, you get your money back out. Then once that’s done, you go and add the living room and the dining room and make them bedrooms and increase your cash flow. And now you’ve got that beachhead established and now that property is stabilized. You move on to the next one.

Dave :
All right, fantastic guys.

David Green:
But what you’re trying to do is incredibly impressive, right? So you’re just be okay with the fact that it’s going to take you longer than what you want to do because you’re just milking so many things out of the same house.

Dave :
All right. Nice guys.

Craig:
Thank you.

David Green:
Awesome Dave, good luck to you. Evan white, I’m David Green. It’s nice to meet you together we make…

Evan White :
Hey how’s it going David, nice to meet you man.

David Green:
Together our last name’s make peppermint.

Evan White :
Thanks for all the insight you guys provide.

David Green:
Absolutely. What can we do for you today?

Evan White :
So, my main question is I’m looking to fund my down payments and I’m really trying to research a lot of places to try to see where I could get some private lenders. And I understand I could reach out to a lot of, I have a lot of potential irons in the fire right now, but I don’t really know where to start as far when it comes to terms, I’ve been trying to see anywhere I’ve heard anywhere from 8%, I’m looking for about 150,000 for each property I’m looking for. So I’m really just looking for some insight into terms for my private lenders to fund down payments.

David Green:
So Evan, that’s a really good question because I do the same thing. I borrow money from people and I pay them a interest rate on that money. That’s independent of how the property performs. So people that want to earn a better rate than they’re getting on the bank, can email me I borrow their money, I use it as the down payment of properties or sometimes I just buy them cash. And I use that money for the initial bur and then I keep the money for a year, pay it back later.

David Green:
So I do think that’s a good strategy. Now I would say the first thing you have to figure out when you’re asking me about the terms, is do you want to give away equity or do you want to give away debt like pay interest on the money? The upside of equity is there’s less risk for you. There’s more risk on the lender and the downside of equities you’re giving up the future appreciation and it’s opposite with when you give away debt, it’s more risky for you, but there’s a higher upside of those two options, which is more appealing.

Evan White :
To me personally. Yeah, I would prefer the appreciation personally. I think the big money’s in you long term.

David Green:
So you don’t want to give away equity. You’d rather just pay interest on the money, right?

Evan White :
That’s correct. Yes, sir.

David Green:
Are you a safe bet to pay that money back if the property doesn’t perform well?

Evan White :
Yes sir, 110%. I’m actually going to apply the section eight strategy that Joe has.

David Green:
No, let’s say the property for six months brings in zero income. Okay, there’s like bed bugs and you have to fumigate it, so the worst case scenario happens. Can you still pay back your investors if that happens?

Evan White :
Yes, sir.

David Green:
That’s what I’m getting at, right? So if that’s the case, I would encourage you to start marketing for people and paying them debt instead of the equity. Now it’s easier to find investors that want the upside. Everybody does, right? So the problem with human beings is like Craig said earlier, you always want the best of both worlds. You want all the upside and none of the risk. And that’s often why nobody takes action, because they don’t like their W2 job, but they don’t want to leave it because they don’t want the risk that’s associated with it. So you’re going to have to work a little harder to find investors that are willing to take the interest rate.

David Green:
So the question here probably should be instead of what terms should I offer is what terms do you have to offer to get someone, to let you borrow their money? I would just start off lower. I’d say, Hey, if I gave you a 6% return on your money, would you let me borrow 150,000? Here’s how I’d use it. Here’s how your investment would be safe. And if they said no, you’d say, okay, totally understand, appreciate your honesty. What number would make sense for you? And let’s say they throw 12% say, okay, cool. I’ll let if I can do that. And then I go to the next person and I would just keep asking people and offering whatever the number is I started with until I found the number that reasonable person would be happy with, right?

David Green:
So I typically start off paying 8% for people’s money when interest rates are super low, it’s a little bit easier to do it, but I also have a ton of experience investing. So there’s a lot of trust in me, right? Like if you’re getting, if you’re starting, you might have to pay a higher rate than what you’d like until you get that track record and then you can afford to pay less. What’s your thoughts on that so far?

Evan White :
Yeah. I definitely agree. I’m totally open to paying a higher percent. I totally understand, I’m more risky to somebody right now. I totally understand that so I’m willing to pay more. But the one thing I would say is if as far as okay, the interest rate’s 8%, but how about term wise? Is that a five year with a balloon on the end or how’s that work typically?

David Green:
It depends what they want. So I would always start off by wanting their money for longer and…

Evan White :
Right.

David Green:
And that’s what I’d offer, but some of them, like what I’ve done on mine is I’ve said a minimum of one year. And then at the end of the year, they can choose to keep rolling it over and keep getting interest or sometimes I paid it back because I just have a deal to put it into. So I didn’t want to keep the money. In fact, I’d say most of the time I’ve paid it back rather than borrowing it, but it’s going to come down to the individual person. You’re better off to ask them, like what are you going to use your money for? Well, I don’t really know. All right, well then what five years work? Oh, what if I find so something within five years?

David Green:
Well, how about if we go for three years and you have the option to roll it over if you want, because maybe rates will go up and I’ll pay you a higher rate after three years than right now. Giving them that flexibility while also giving yourself the flexibility that you can get out of. Maybe you might not want the money for the full three years. You may want to pay it back, right? You may be able to refinance it and get a lower rate and then not have any use for it. So there isn’t Hey, what’s the right way to do it. A lot of people look at that. It’s going to be tailored to the person who’s money you’re borrowing. In my opinion, you’re better off to get good at having a conversation with them where you figure out what their goals are, what they want, the money for, what they’re concerns are and then constructing terms around what they’re comfortable with. What do you think Craig?

Craig:
Yeah, no, David, I think that was a fantastic answer. Just like he said, right? I suspect you’re probably a newer investor. If that’s the case, you got to start probably with a higher interest rate because you’re inherently more risky, right? I would probably start maybe asking friends and family, right? They obviously trust you more. They know you’re a good dude. They know you’re going to pay them back and so, right?

Craig:
You might get, have a better odds of getting a lower interest rate, asking people that are in your circles. I took a loan out with a friend and she gave me a decent rate and it’s because I know her and she knows me and she knows I’m very good for the money, but yeah, like David said, right? I would suspect just being ready to accept a higher interest rate at first and then when you get more and more experience you’re able to lower that down. I’m trying to think if there’s anything else, but I think that’s about it. I think you covered most of it.

David Green:
Here’s something to think about. Most people are comfortable moving forward with whatever they think is like fair market rate. That’s why the entire idea of comparable sales came into residential real estate. It’s a silly way of evaluating property. It doesn’t make any sense, like a better one would be, what would it cost to rebuild it? What’s the value of how it could be used as an investment property but it doesn’t matter. The reason that we use a comp is that the general public who’s uneducated in real estate. That’s the majority of people buying houses, ask the question, well, what do they pay for it? And that’s we make our assumptions of. So understanding that about human behavior, your brain is going to go to, well, what is everybody else paying? That’s why you’re asking this question. Like, what’s a good number to ask for?

David Green:
Well, they’re doing the same thing. The people you’re going to borrow the money from are asking, well, what is everybody else getting? Okay. So if you get someone like Craig said, he has a friend that let him borrow money, say at 6%, now the person that you’re going to be borrowing it from feels good about 6% or six and a half percent because that’s better than what somebody else is paying. If you can get an initial beat, head established again, there it is. And set like an anchor of what’s normal. When you offer that to other people, they will feel good about it. If you don’t have a track record or any number that you can hand anybody, they’re going to of course say, well, if I invest in Brandon’s fund, I can get an 18% return. Why would I let you borrow money at 6%? And they don’t understand that’s because they’re taking some risk when they invest with a syndicator that’s not the same as if they do a deal with you.

Evan White :
Right. Awesome. Thank you guys so much.

David Green:
All right, Evan. Thanks for the call.

Evan White :
Come down to Florida sometime.

David Green:
I’m in Hawaii right now. I got to say that Florida’s a little less, doesn’t have the same [crosstalk 00:27:34] when you’re here.

Evan White :
Thanks guys.

David Green:
Yeah. I haven’t mentioned that I’m live in the sea shed.

Craig:
And I’m in the mountain cabin. So we are.

David Green:
Yeah, you are.

Craig:
[inaudible 00:27:44] of two cities right now,

David Green:
But you got that mustache. So your upper lip has got to be kept nice and warm.

Craig:
It’s warm baby, it’s warm.

Andy :
All right. Well thank you guys for bringing me on. Hello, David and Craig. So this is more of a beginning question. So I apologize if it’s pretty bland, but so my wife and I are in the process of moving from San Diego to North Carolina out there in Raleigh. And we’ve been studying and looking at BiggerPockets for the last two years and it’s just time to put everything into action. So we’re a bit nervous, we’re in the process actually right now, I’m waiting on my soon to be employer to get back to me. I pass my background test and drug test. So they’re going to give me offer letter with no contingencies, which will then allow me to have a lender that I can talk to. I’m already talking to a couple, but I don’t want to have any contingencies that might default us and it be our fault.

Andy :
So my question to you is we want a house hack, so we recently got married. We’re going to buy a single family home because that’s what we’re looking at out there and what we can afford right now. So we plan on renting it to a student or two or whoever we can rent it to. So I guess my question is we’re in this process, what should we expect in this process from talking to a lender and getting approved to the closing date? And then should we be worrying about what it takes to be a landlord and bringing a tenant in to start this house hacking process and the resources where we could find these things, because obviously we’d have to screen them, which would be ideal and putting a contract together and doing all that so that everything’s in paper.

David Green:
Craig, how about if we do this, I’ll let you take it from the perspective of what he can expect buying the house with an agent representing him, the contingencies, the contract, and then I’ll answer it from the perspective of what to expect from the lending aspect.

Craig:
I love it. You want going to kick it off or you want me to kick it off?

David Green:
Nah, you go ahead.

Craig:
All right. So Andy, first off, congratulations on getting married in a big move. That’s a big chapter Turner of life. So..

Andy :
Thank you.

Craig:
Yeah. So I would say when you’re looking for a house, obviously you want to make sure that you are engaged with an investor friendly agent in North Carolina, and if you need help with that we can definitely help you out. Just hand me up on Instagram or whatever. And that investor friendly agent will basically guide you to the correct areas that it’s rentable. If you want to rent it out to a student or a nurse or whatever, they’ll help guide you to the areas that would cater best to that. You want to talk to somebody that knows, okay, is rent by the room better over here, or is buying a duplex better?

Craig:
Look at the price points. Look, it can run the numbers for you. Once you start getting a better idea of what you’re actually looking for, you’re going to employ that realtor to your wife and the realtor are going to go and look at houses, right? It’s going to be, and there’s going to be lots and lots of nos. Don’t be afraid to say no, and there’s going to be a decent amount of yeses to, there’s going to probably a lot of them are going to work. It’s going to be a matter of which one is going to work best for you, right? And there’s no such thing as perfect house. There’s no such thing as a perfect house hack. If you’re buying a $300,000 house, it’s just not going to be perfect. It’s better. You’re better off taking action and getting a place immediately, right? Because that house hack clock starts when you close after the first one and the power of house hacking is buying one this year, the second, exactly 12 months.

Craig:
And the third exactly 24 months or whatever, after the first one, if you keep waiting and waiting for the best deal, you’re going to delay passive income. You’re going to delay appreciation. And so I would say you want to move in on those house hacks as soon as possible when it comes to screening tenants and all that, right? There’s a whole big process for that. I mentioned a lot of this in my book too, the house hacking strategy, but one of the big things, right? Is you want, you’ve got to do a background check. You’ve got to do a credit check and you’ve got to stick to your criteria. I have never met a bad tenant with a good credit score. Never, right? And so the credit score I would say is the number one thing and it’s the easiest thing so for people to say, oh, it happened like three years ago and I didn’t make my payment or, oh, I got this drug charge three years ago, whatever.

Craig:
Right? Like be strict, right? You’re running a business, be strict on that stuff. And don’t be afraid to make the phone calls, right? Do the diligence call prior landlords call two prior landlords, call the employer, ask for pay stubs, do your diligence because the only thing worse than a bad tenant or no tenant, is a bad tenant, right?

Andy :
Yeah.

Craig:
So I think that is pretty much my [inaudible 00:32:10] here on the process of getting the loan and all that, but, or not getting the loan, but getting the house and getting the tenants in. Do you have any questions on that regard before we go over to David?

Andy :
No, I guess my only follow up question to that and thanks again, Craig is I know you’re saying yeah, no, it’s not. It’s better to just getting nailed than waiting for the perfect one, which is what we are doing right now. So we’re just waiting for this process to get pre approved and then start putting offers in, like you said, it’s probably very competitive right now. So we might get a lot of offers that get rejected, which is understandable. And that’s part of this process.

Andy :
But my question in regards to that follow up question for house hacking is if there are certain, obviously I recently bought your book. Is there a certain resource or website where I could or maybe it’s just going on the internet where you find these contracts when you become a landlord and you’re going to be renting to a student or something, is there certain contracts that you need and need to go through the state? Or is this just simply getting something from Google and translating into your company or your own document?

Craig:
So I know BiggerPockets, I actually worked with in BiggerPockets. They have landlord forms for every single state. Now they won’t be rent by the room, but those landlord forms, the BiggerPocket sells and they’re free with the program membership. They’ll get you 95% of the way there so what I would recommend is you take one of those leases, you buy it, or if you have a prime membership, you just download it, send it to a lawyer in North Carolina, you might pay a few hundred bucks, but then you’ve got a lease forever. That works, right? And so, and then you just use that least over and over again. One more tip I’m going to give you that I did with my house hacks in Denver is that once I got passed, so when you’re under contract with the house, the two biggest things that are going to get in the way of you closing, are going to be the inspection and the appraisal.

Craig:
And so once the appraisal passes, I would say 95% of the deals close, at least in my experience at that point is when I put the listing up that I may even go in there and shoot a video and try to get that thing rented. But don’t actually sign, tell them, Hey, I’m not closing until January 31st. So I can’t sign the lease right now but if you give me the security deposit or whatever that is fully refundable, if we don’t close you can try to get people locked in right on your closing date, on my house tax I’ve had people totally… I’ve had places totally occupied on day one doing that. So that’s a little tip for you.

Andy :
Awesome. Well, thank you Greg. Appreciate that.

Craig:
And then David, do you have anything to add on the lending side?

David Green:
It’s going to be much simpler on the lending side than on the real estate side. That’s why I know your question was lending based, but I wanted you to get information about the actual process of getting the house because that’s going to be a much more complicated and challenging. The lending process is very simple. You’re going to submit a loan application that’s uniform that pretty much everyone does if they’re going to get a government sponsored loan like Fannie Mae, Fred Mac, I’m sure that’s what you’re going to do. Because you’re looking for a 30 year fixed rate, low down payment, primary residents loan. So you’re going to fill that out and then the lender is going to request some documentation from you for the preapproval process. So they’re going to ask for two years of pay stubs, they’re going to ask for two months or sorry, two months of pay stubs.

David Green:
This is likely what they’re going to ask for, bank statements, two years of taxes, and they’re going to run your credit and they’re not just looking for your credit score. When we run credit, we’re actually looking to see, in addition to your score, what do you owe money on? Because that’s how we figure out your debts income ratio. We say, what has Andy already borrowed money that he’s responsible to pay back car payments, other housing payments, anything like if you bought a motorcycle that you’re responsible for and they’re going to use your pay stubs to see what income you’re getting.

David Green:
Now, if you’re taking a new job that could complicate this, if you’re, let’s say you worked as a salesperson in a certain industry, and now you’re getting into law enforcement. They may not approve you for the loan as you’re going into a completely new career until you’ve gotten a paycheck from that career or you’re out of probation that could screw things up, because you could go put a house under contract and then put a down payment into it and wave your contingencies and then find out the loan doesn’t qualify because you have a different job than what you told the lender.

David Green:
So it’s one thing you want to be very careful of. A lot of people associate getting a loan to buy a new house with a life change like a change in circumstances. That’s dangerous. In general, if you’re going to be getting a loan, you want everything to be as steady and consistent as possible. So I’m giving you this advice because I don’t like this is the case, but this is why I started a mortgage company. Almost every lender that I come across will always tell you yes, we can do it and then later say, oh it turns out we couldn’t. And the reason they do that is it’s no skin off their back. They’re worried about losing you to competition. They don’t want you to go to another lender and use that person instead, because they gave you a slightly better rate or they sold you on something.

David Green:
So they end up trying to lock you in with them. And then once you’re invested in this, you have some skin in the game. They come back later and say, oh, we thought we could do the loan because you used to be a salesperson. Now you got a new job, you got to wait six months, sorry buddy and you’re left screwed. And that puts a bad taste in people’s mouth for real estate. So when you’re choosing the loan officer, you really want to feel like this is an honest person that shoots straight with you. It’s just like when I go for a property manager, I don’t trust him if they don’t tell me no, I want a property manager that will say David, I don’t want to manage that property and here’s why, that’s going to be a massive headache. I like that. I want an agent that will say no, you don’t want to buy that house.

David Green:
There’s a reason it’s still for sale. If they never tell me no, then I tend to not trust them as much. And so you want to make sure your loan officer is being very upfront with you. It’s one of the things that I pound with our guys is tell everybody the worst case scenario first, let them know the risk that’s associated and let them know what we would need in order to approve the loan. So once you submit all the paperwork that I described, they will use that to look at everything and say, okay, if nothing is different than what you’ve shown me, we’ll be able to do your loan. You’ll then go look for a house, you’ll put it in contract. You’ll contact the lender and you’ll say, Hey, we put it in contract. They will submit your file to their underwriting process. Now I won’t get into the weeds of the different types of lenders.

David Green:
There are basically, some of them lend out money for an institution they work for. So you go to Wells Fargo or something like that. They lend Wells Fargo, money. Others like us are called brokers and we go look for all the different banks that are out there. And we say this one has the best rate and the best underwriting and the fastest turnaround times. That’s the lender we are going to use for this client. But no matter which direction you go, there is some underwriter that is going to look deeper into Andy’s files. They’re going to call the place you say you work and make sure you still work there. They’re going to ask if you’re on probation for anything, they’re going to look at the type of income that you make and say, are we allowed to you use that income? So for me as real estate agent and for Craig, our income goes up and down a lot, because it’s commission based.

David Green:
They won’t just say, well you made this much money. That’s how much you can borrow because they know that it fluctuates. Some jobs have bonuses or commission structures on top of salary. So they may come back to you and say, Hey, your new job doesn’t get the same income as you got before. You’re not going to get the house that once you submit the loan to the lender, when you’re in contract, that’s all the stuff that they’re looking at to guarantee that the underwriter of that lender says, yes, we can let Andy borrow this money. And you’ll typically have a loan contingency in your contract that allows you to back out if something goes wrong in this stage, when you’re basically I’ve been pre-approved now I’m looking a final approval. It’s just like what you’re going for the job you’re you’re getting into.

David Green:
It sounds like if you’re doing a drug test and a background check, it’s similar to a career that I’ve come from, they start looking at everything broad. Do you have any felonies? Do you have any drug addictions? Do you owe any money to someone that could compromise you in the new job you’re going to be getting? And if the answer is no, then start digging into the details where they’ll start digging into like, have you had a history of domestic violence, right? Do you have issues in your character that we want to know about? The lending process is very similar to that. And that’s why it’s so important that you don’t just say, well, who’s got the cheapest rate? I’m just going to go with that loan officer, because they’re not all the same. Many of them are going to tell you anything that they can to get you to start the process.

David Green:
And then later, if they had done a better job, they could have told you ahead of time, this isn’t going to work and you find out the hard way. So the best advice I can give to everybody is if you are worried that something about your file, isn’t going to work like you getting a new job that should concern you. You need to bring that to them right away and say, I’m going to buy a house, but I’m going to be switching careers. Is that going to affect me getting the loan and let them know about it ahead of time before you start the process.

Andy :
Got you. Okay. That makes sense.

David Green:
Did that bring any clarity or did that just like muddy things up even worse?

Andy :
No. That brought lots of clarity and questions that I do want to follow up with a current lender that I’m talking to and like you mentioned, I’m not just going to go with one I am in a shop around and I got some lenders from the real estate agent I’m using now. And I have a lender I’m thinking, I’ll take your guys advice on this is so my real estate agent gave me some recommendations for some lenders. I also figured maybe it doesn’t hurt to contact some credit unions out there to see if they have some good mortgage rates as well, and then is there any recommendation from you guys, whether it’s lenders in a different state that do work in North Carolina that I can possibly shop around with, but yes, David your answer definitely cleared a lot of things up and some follow up questions I will now have for some lenders.

David Green:
Yeah. If we do loans in North Carolina, right? So there’s lots of people that do them. Here’s what I want to make sure I’m crystal clear with you about don’t just look for rate. A lot of the time, the lenders that have the best rates have the lowest rates because they have less infrastructure they’re paying for. So what you need to be worried about is if they’re giving you a two rate because they don’t have employees that are in place to actually get this done quickly and you lose a house in a very hot market like North Carolina, because your lender took too long to get the loan done. This happens all the time. So when I’m selling houses in California and someone wants to buy one of my listings, if I call the lender and I know this is a bank that takes forever, or this is the cheapest lender, they’re not the most professional.

David Green:
Our clients just won’t take that offer. They don’t want to have to get into a 40, 50 day escrow because the buyer wanted the cheapest rate they could. And then you run into the problem where you don’t get anything at all. So a big question to ask is how fast can you do this? And you want to feel comfortable that they’re an honest person, because they always tell you yes, right? So only use a loan officer that’s willing to shoot straight with you and give you the bad news too. Don’t hear, oh, this person gave me bad news, I better go find someone else that tells me what I want to hear.

Andy :
Okay. Awesome. Now well, appreciate that, David. Thank you Craig, thank you David and I will be sure to do that.

David Green:
Good luck to you.

Craig:
Good luck, man. Good luck on your move.

Andy :
Thank you.

Tony :
Hey David, how’s it going?

David Green:
It’s going on, Tony? What you got for us?

Tony :
Got a few questions, but got sidetracked with Andy on here. Andy’s right where I was maybe four or five months ago and I can see why you guys do it now. I had maybe a little sneak peek into your guys’ life. Andy, keep going at it, it’ll happen and great questions that you had on there I took some notes myself of like, oh wow. Yeah. Good point bringing that up. One thing I could shut out about the banks I went through exactly what Craig was saying on there is one more thing is keep clean baking records.

Tony :
I thought all the same don’t change job fields, doing all that. The one surprise I heard that nobody else told me about was transferring money. I used to rent with my wife and we would just pay rent half year and she’d give me half back. And then when I went to go to loan, all of a sudden, a week before closing, they flagged me. They said, what are all these chancellors of money and cash in and out? You have to prove it, so that was just one thing I wanted to put out there too.

David Green:
Yep. That’s a great point. A lot of people because loan officers don’t tell you this, when they’ve first meet you, nobody expects that’s a thing. But the reason that they have to show where money came in and out from, a lot of it has to do with during the terrorist attacks that happen around nine, 11 the Patriot act put in place certain rules that said we don’t want terrorists to be able to launder money through the United States in a very easy way to do that was through real estate. So they could send money to some lone Wolf that wanted to go blow up a building and they would send it through a real estate transaction.

David Green:
So now banks have to show, if you have money that’s coming in your account, it can’t come in last minute. It has to be what they call season for a certain period of time. So there’s always frustrating people always, I was the same way, because no one explained to me why I just ticked that they have to track all this income but when you understand that’s actually a federal guideline, a lot of the time that restricts banks from being legally allowed to give you a loan, unless they track that money then it makes the process easier to deal with.

Tony :
And that goes back to, I put it in the comments before about what you were saying is don’t get upset when they say no. A lender that’s saying no, because sometimes if they’re saying no it’s because they had know how to do their job and they’re making sure they run a good business. I hated it. He told me no this, no that, but at the end of the day, I got my house. Everything went through in time, and it’s just showed how professional they were are.

David Green:
Awesome. That’s…

Tony :
And that’s why I also want to say thank you so much for this format. This is a second time on here and I just, I don’t know if you guys are looking for certain type of questions, but I feel for like new investors, like Andy to actually hear other people come on here and know that they are going through the same things and things are happening. Must be huge. I was in one of those getting close to the end, getting renters in and now I’m like, oh, what do I do now?

Tony :
But just getting back on alive is really giving me that fire to keep going. My questions were a couple things. Andy asked a few of them, but Greg, I know you mentioned about house hacking. I came onto this late, I didn’t really hear what you had to say but as a house, hacker yourself, putting together a lease agreement. I know you mentioned that these forms put about 90% of the way what’s something in your actual lease that helps it, help you feel more at home in the place that you’re living. Because it is me and my wife and we want to feel like we are living in a home, but at the same time, want to make sure we have available to other tenants to be able to get people in there.

Craig:
Yeah, for sure. I would say the biggest difference between a rent by the room and a traditional lease is just, there’s going to be a clause in there that is house rules and you get to make those rules up, right? Are there quiet hours? Can you smoke in the house? Can you, all of the different things and you also need to abide by those rules. So if you say quiet hours are between 7:00 AM and 10:00 PM and you’re throwing a banger that goes into a midnight, you can’t do that. You have to be the example for all of your tenants. And there’s also like a dynamic that happens. That really goes beyond the lease that 95% on time when you’re living in a house hack, these people aren’t really your tenant. They’re your roommates, right?

Craig:
You’re going to treat them. You might watch football with them on Sundays. You’re going to treat them like friends, but I would just be careful not to get too close and when you need to talk business. But I just use like the cap analogy, right? I was friends with one of the women in my house hack and she was having trouble as another tenant and she wanted to move out and I said, look, I know I’m your friend, 95% of the time, but right now I’m your landlord. And you can get out of this lease if you find someone to fill your spot or you can break the lease and it’s two months, right? Or whatever and I treated her like a tenant, right? And so make sure when you go into those conversations both you and the other party know what you’re acting as at that time, whether roommates or a landlord. Does that help answer your question?

Tony :
That does absolutely. I agree if I expect somebody to be quiet at 10 o’clock, then they should be expecting me to be quiet at 10 o’clock. Now we do have a dog and one of my things is, this is my first property and I really, we don’t want cats. If we have a dog that’s outside, we would like to avoid two dogs at a fence. Do you think putting that and saying just we have one and we expect everybody it’s not to have one turn away a majority of your applicants or do you think I know it’s dependent on markets, but do you think it’s still something I could put in there and I’d still probably get the amount of people to sift through.

Craig:
So I don’t think you need that on your lease. I think you can just have that in your listing, right? Hey, no dogs allowed and then if you do ever allow dogs or cats, you would just have, what’s called a pet addendum. And that would describe, Hey, that pet rent is this, the security deposit is this and outlines some rules. And it is at the end of the day, your house, your rules. And so if you have your one dog, you just say, Hey, my dog doesn’t really get along with other dogs or definitely doesn’t get along with cats out of the protection of your animal and my animal. I think it’s best that we don’t have any pets. So 100% can absolutely pets are not a protected class, unless of course it is a service animal service. In which case you have to trip carefully there.

Tony :
I heard you guys speak into Andy. He ask a lot of the questions I wanted to ask and that’s another thing I’ll get at too. I’m going to be closing in a couple weeks, not closing, but finishing up my rehab. I haven’t posted the apartment. I haven’t, I’ve put it out there to see what people are asking, but I really didn’t. I know in a couple weeks I’m going to be coming up and I should be able to get a tenant in the there, where should my time be mainly focused. I know I still need to get a full lease drafted and I know I need to post.

Tony :
It is now the time, just clean my house, have it almost staged since this stuff in already, I can stage it, post it like that, get it ready to get somebody in there, and then also I live in Connecticut, it’s snow. I’ve heard a lot about you get bad tenants in the winter who, if it was a good tenant, they would just wait till the spring. Do you think it’s effective to maybe wait it out a couple months so I’m not stuck in a six months to a year lease or get somebody in now just do my due diligence on a background check and go from there?

Craig:
For sure Tony. So on your question about what you should be doing right now. So you mentioned you didn’t, are you under contractor right now, right? You haven’t actually closed?

Tony :
No, I am closed. I’m living in one unit. We’re finishing up the renovation couple weeks we should be good and then move in to the renovated side and then I need to get a tenant in the other side to start making up for the lost rent.

Craig:
Yeah. So I would say you probably should get your listing up, take the pictures, right? I would say don’t take pictures of anything that’s under rehab at the moment, so if your bathroom is in shambles, just be Hey, as you’re walking through the house the bathroom is going to be newly redone. That is going to be a sell.

Tony :
The unit to rent is the one I’m in right now. It’s currently all set. I’m actually moving to the side that was destroyed, I was like, let me fix it I’ll move into there. And then rent out this side, made sure this one’s all good to go everything’s working. I test trialed it made sure everything works for everybody and get somebody in there.

Craig:
Yeah. So I would say you’re your number one focus right now should be to get that place filled, right? Because that’s costing you. How much can you rent that place out for?

Tony :
Between 14 to 17? I’m going to poster in between there depending.

Craig:
Okay. So let’s just say 1500 a month that is costing you right now. That is what like $200 a day or my mental math made up be that good, but like it’s significant and every single day is in the hundreds of dollars. And so you want to get that rented ASAP.

Tony :
And then again about the winter months, do you think, ignore that, just get them in there?

Craig:
Yeah. We’re in Denver, the winters here, it’s not as bad as Connecticut. I would say, you want to just make sure you do your due diligence there’re these theories oh, all of the, and that’s BS, right? People move in the winter all the time. So I would just look to see, make sure credit check, background check, maybe tie a little more scrutiny on your screening, and I would recommend, honestly, just putting them on a six or 18 month lease, so that way the lease expires in June or July. That way when you’re going to renew, you are on that summer cycle because it is without doubt easier. And you can get a little bit more in rent in the summer in most cases.

Tony :
Awesome. I think that was it. I’m sure I’m missing some stuff on there. I know there’s some other people that want to get in on here, but I’ll be sure to look out for the next live and try to get on here. Any specific…

David Green:
Here we go.

Tony :
Questions you guys are trying to shy away from or looking for. I don’t want to beat the dead horse, but I do want to get some questions answered. So is this going to be a podcast? I’m not sure but if it is, anybody that’s listening, please look for these lives. I can’t tell you how much it is to be able to not know something and you can listen all the podcasts you want, but maybe that one little thing that you’re not quite sure of, you get to come on here and you get to ask it and it fuels your fire to just keep going.

Craig:
I love that. Thanks Tony.

David Green:
All right, and that was our show today. This was also Craig’s third and final show co-hosting with me, Craig, how was your experience?

Craig:
Yeah, it’s been amazing being on here with you, David. I really a dream come true. It’s super fun just chatting with you. Super fun getting to know our guests and yeah, I just think everyone that comes on the show is a wealth of knowledge and I can learn so much from anybody and this is why it’s the number one real estate show in all podcasts so without a doubt.

David Green:
We are very blessed that we get to spend our days talking about something that we’re passionate about and knowing it’s also helping people. That’s one of the coolest things about real estate is the person, the agent or the loan officer or the property manager, whoever you have, that’s helping you. They make their living by helping make you money and you make money and build wealth by putting food on their table. It’s this awesome symbiotic thing when done right where everybody wins, there is no loser in the transaction and that’s why we’re so passionate about it so I agree this is really fun. If people want to reach out for help from you in the Colorado area with house hacking or getting real estate advice, how can they find you on social media?

Craig:
So you can follow me on Instagram or TikTok. I’m at the fi guy, the fi like financial independence guy. And if you’re in Denver and you want to use our team, it’s the fiteam.com. So would love to help anybody out.

David Green:
Awesome. And I’m David Green, 24. If you want to follow me, I’ve got David Green teams in a couple different places, both Craig and I can put you in touch with agents somewhere and I can help with financing that anybody has. And then if you, for some reason, need an agent somewhere that you don’t think that we could help. BiggerPockets has an agent finder.

David Green:
If you just click on tools on the website, you can go through all the people that are actually associated with BiggerPockets have memberships there and they are real estate agents or loan officers or property managers or contractors that you can start the vetting process. I think one of the best parts of today’s show was the advice to look for someone to help you that tells you no, you want straight shooters that are honest. Don’t look for someone that just says yes all the time, that’ll get you into trouble. That’s all I had Craig, did you want to say anything before we get out of here?

Craig:
No, totally agree. From the real estate agent side, I know that when we look at houses, you want to have an agent that goes in and just almost tells you everything that’s wrong with the place, right? Hey, this door hinge is loose. That paint is chip. Even if it’s the small stuff, the more they point out, the more they’re just being honest with you. And so David, that was great advice look for or someone that’s going to say no, don’t look for someone that’s trying to sell you. Look for someone that’s trying to help you, coach you guide you, mentor you. That’s who you want on your team. That’s who you want as a partner.

David Green:
Awesome. Well, thanks for your help today, Craig, I really enjoyed tag teaming this with you. I’m going to get us out of here. This is David Green for Craig beachhead curl lap signing off.