Seeing Greene: Signs of a Great Agent, When to Refi, and How to Scale

David:
This is the BiggerPockets Podcast, show 570. Look at your equity like a tree that you planted, and if you chop down that one tree, you can plant three more. As long as the location where you plant the tree is similar to where your current tree is or better, and you believe that the quality of the trees that you can plant with it, it’s definitely better to take down one tree to plant three more. You’re just going to grow three times faster. And then continuing to do that over the next 10 to 20 years will actually build you an orchard.

David:
What’s going on, everyone? It is David Greene, your host of the BiggerPockets Podcast here with a Seeing Greene episode. Now, on these shows, we take questions directly from the BiggerPockets community and that means you. And I answer them for everyone to hear. Never do I know what it’s going to be thrown at me, and it’s always something different. This is a lot of fun. And it’s designed to give you pure, practical education that you can take and go apply to building your own business, as well as give you a behind this scenes look at what makes things go down. The why behind the advice that you’ve been giving.

David:
I want to hear from more of you. Please go to biggerpockets.com/david where you can submit a video or a written question and you can make your appearance on the podcast.

David:
Now, today’s show is phenomenal. We get some very practical advice about how to scale a portfolio, if a market correction is coming, if a property should be refinanced and the capital redeployed. And if so, the right way to go do it. And how to scale something that’s working. One of our listeners got a great deal under contract in St. Petersburg, and they know they got a good deal. And now they’re trying to figure out what’s the best way to move forward with this deal. There’s a lot of information they get shared. I had a really good time doing it. I think that there’s some fun involved here. So I’m excited for you to see it.

David:
Today’s quick tip is going to be to go to biggerpockets.com/david and submit a question so we can make more of these as well as follow me on social media @davidgreene24 and follow BiggerPockets on social media. Here’s why. Every once in a while you do a show where we bring in callers live and we let them go back and forth asking questions and getting advice on how to scale their portfolio. If you’re not following BiggerPockets on social media, or you’re not following me, you’re not going to know when it happens.

David:
So you’ll see that I go live. And then when I go live and BiggerPockets goes live, you have the opportunity to go to webpage and sign up and then be brought onto the show. These are a blast. We’re trying to do more of them, but I can’t do it unless I get more people like you coming on to ask your questions. All right. Before we get to today’s show, let’s get a quick word from today’s show sponsors.

David:
Thanks to our show sponsors as always. Last thing, before we get into it today, make sure you stay all the way to the end of this show. I’m giving you an update when we get to the end about what the direction the podcast is going in, what you can expect more of, what type of guests we’re going to be having. And frankly, how much valuable content you are going to be getting that you don’t have to pay for. Okay. I will see you at the end of the show. Without any further ado, let’s get into it.

Matthew Tortoriello:
Hey, David. Matthew Tortoriello here. I am the Flippin Landlord Ninja and I am from Springfield, Massachusetts. We have 500 rental units and over 400 flips currently. So my question to you guys is we are looking to scale with the market correcting and everything changing. We feel there’s going to be opportunity coming in the coming months. We’re looking to figure out how best to scale to 5,000 units. And I was wondering what you guys at BiggerPockets are doing and systems that you’re putting in place to make sure that you scale efficiently and profitably. Thanks a lot guys.

David:
Well, Matthew, thank you very much for asking. A self-proclaimed landlord ninja is probably doing really good. And I’m wondering if that shaved head of yours is actually allowing you to move faster like a ninja. I know the same has happened for me. Also, I can’t help, but notice you’re wearing a tank top with what it looks like the BRRRR method on it. But I don’t see my BRRRR book behind you in that bookshelf where I see a lot of other books. So might be something that we need to adjust there for the future, buddy.

David:
Okay. As far as your question, what I hear you saying is you’re doing a lot of business. You’re flipping a lot of houses. You’re trying to figure out how your business model should change for the future. Now, personally, Matthew, I’d love it if you would actually be on one of the live shows we do. So I could interact with you back and forth and get a little more clarity on what you’re saying because I don’t want to assume wrong and then answer the question wrong.

David:
My assumption going forward is there’s a market correction coming. How are you scaling and managing your portfolio to account for that? You’re also asking for the opinion of BiggerPockets. I can’t speak for everyone at BiggerPockets. This is an educational platform. I’m going to educate you on my perspective, but I by no means know what’s actually going to happen.

David:
All I can tell you about is what I’m doing myself. And I really hope as you’re listening to this that as a listener, you understand none of us know. We don’t have a crystal ball. It’s really scary to be in this position trying to give advice to people and we don’t know what’s happening.

David:
So I only try to speak about what I’m doing, not just what I think is going to happen and not to sell you anything. I think we are not in for a market correction. I think we are actually in for more price increases.

David:
Now, I’ve talked ad nauseam on other shows about why that is. So if you want a more in depth discussion of that, check out previous Seeing Greene episodes. The short answer is the government is printing a ridiculous amount of money. Interest rates are being kept very low, which means people are thirsty for yield and they need to go find a way to get it, and that’s going to happen through real estate. There are still tax advantages that help wealthy people grow their wealth best through real estate. That’s why we have a platform like this, so you can become one of those wealthy people.

David:
Technology has continually improved. And this doesn’t get talked about enough, so that real estate investing is easier than ever. It’s always been profitable, but it just used to be harder. There weren’t software and tools, and education platforms. It used to be, there was one person in town that was the real estate investor and everyone else just didn’t want to deal with it, because it was scary and they didn’t know how to go about it.

David:
Well, now it’s not that scary. There’s a lot more information out there for people to learn. So you shouldn’t be surprised that more people are getting into it. And as more people get into it, competition increases. These are all things that I see leading to a rise in prices. The last point I will say is even though the price of the house is going up, it doesn’t mean it’s becoming more expensive because as money is losing its value, if the price goes from 500 to 600,000, that 600,000 is the new 500,000.

David:
Real estate didn’t actually become more expensive. Inflation eroded the value of money. I want you to share my background where I’m coming from when I say this is why I don’t think we’re headed for a correction. I’m actually doing the opposite. I am preparing for it to get even worse. Now, let me give you a small sample size of what is happening in my world which is the Bay Area in California.

David:
I was looking for new primary residents for myself in 2021. Started right around like June, July or so. I was looking at properties in the $2 million range because… Or maybe one and a half to 2 million. I thought that was expensive enough that I was going to avoid the masses that were all trying to buy homes. It’s not conventional lending. You have to get into jumbo loans. There’s less people that are getting them.

David:
I looked at a lot of homes. The one I really, really wanted, I was trying to get for 1.8 and I got countered at 2 million and I didn’t think it would appraise that high. So I let it go. Somebody else paid a little over 2 million to get that property. Now, I don’t even like talking about it, man. This is like the one that got away. You ever dated somebody and you’re like, “I was such an idiot. Why?” This was that house. It had a vineyard. It had a huge lot. It was at the end of a cul-de-sac behind a gate so you couldn’t see what was happening behind it. It was 5,000 square feet. It was set up with a perfect floor plan to create four individual units.

David:
Plus it had a really big studio already made and it had a cottage up the hill. It would’ve been six units. It had tons of parking. It has everything that you need for the deals that I like in one of the best cities in the entire Bay Area, Orinda, and I didn’t buy it. Now, I’m looking at homes again and there’s nothing even close to the 2 million I could have got that for. Okay? Properties that are inferior to that one are listed between 2.4 and 2.8. And that happened in less than 12 months. There’s not many of them out there to be pursuing.

David:
Now, I’m seeing this all over the country in the places I want to invest, the locations I like that I believe are going to see rent growth and job growth and population growth, wage growth, and value, growth, all the things that healthy investors look for, they’re getting snapped up fast, because there’s not enough of them. So I’m sure if you’re buying in a market where there’s not a lot of demand, you’re not competing with other people, there might be a bit of a correction, but if you’re trying to buy in areas like you are, if you’re flipping homes and you need them to be appreciating while you own them.

David:
I’m not anticipating market correction, I’m going the opposite. I’m going aggressive, trying to buy. It is always easier from someone in this position to say, “Guys, wait. There’s a crash coming. There’s been people calling for a crash for five or six years.” There’s people that criticize me for saying this and say, “You’re just an agent. You’re just telling us to buy homes. They were saying that seven years ago.”

David:
I also am looking at it from the perspective of someone that has a mortgage company. I’m seeing that the loans that are being given out are still based on debts income ratios. They’re not like crappy subprime products that are set to expire. All of the fundamentals of real estate are strong. It’s just these prices are going up so fast that it doesn’t feel right. It feels scary.

David:
So I feel your pain, but I would say no, I don’t think we’re in for a market correction. If by market correction, you mean a drop in prices. I would also say this is being recorded in late January. Spring is coming and I anticipate to have an incredibly hot housing market. Anything that I buy right now is going to go up by hundreds of thousands of dollars just across spring and summer. And that’s because there’s not enough product. There’s a lot of buyers. Fundamentals are still strong. Rents are going up. Job wages are going up in this area. People can afford to pay more for that real estate and there’s not enough of it.

David:
So if you’re asking me what I think you should do, I would say find the better areas, go after deals that if you can’t sell it for whatever reason, you can hold it as a rental. That’s one of the ways you protect yourself when you get into massive flipping. Probably do less of a rehab than you normally would. You don’t have to make it sparkle and shine like you would in a market where that property has to stand out. When there’s limited inventory, people are going to buy it because there’s nothing else to buy.

David:
So don’t make a mistake a lot of people make of going overboard on the rehab or in a market where it’s just going to sell because somebody needs a house. If your days on market is less than 20 days or 30 days, you don’t need to have that house looking perfect, it just needs to be clean. And then start paying for inspections on any of the houses that you are flipping yourself and handing that inspection to any perspective buyers, along with a list of improvements that have been made and phone numbers that they can call to verify that that work was done, and look for people that will be willing to waive their inspection contingency because you’ve already handled all of those things.

David:
If you want to challenge me on this, you are more than welcome to. I appreciate that. Get on one of our live calls and share with me why you think that the market might drop. Maybe you’re seeing something that I’m not seeing, but those discussions often lead to us taking a surface level question like is a correction coming, and following the roots all the way down to the base of what makes corrections actually happen. Then that’s where everyone can get educated.

David:
Now, as far as the second part of your question, “What am I doing to scale?” I’ll tell you exactly what I’m doing to scale and I want the people listening to keep in mind, I’m not telling all of you that you should do the same as me. You’re probably in a different financial position than me. You’re likely have different goals than me. Maybe you have a family. Don’t think just because I’m doing it that means you should be doing it. Just listen to the logic behind why I’m doing it and the principles in how I’m doing it.

David:
You could probably find ways that would apply to yourself in a way that makes more sense. First thing is I’m looking to increase volume and I don’t want to do that by buying 500 smaller homes. So you talked about when you get to a certain unit count, right? I don’t focus as much on unit count. And really for everyone listening to this, some people do own 1,000 units or 2,000 units. There’s a handful of them out there. The vast majority of people that are talking that way do not own 2,000 units. They are a partner in a company that owns 2,000 units and they have a very small piece of that.

David:
So this is often one of those things where it’s like the airbrush model. When you’re at the supermarket, you feel bad about yourself, even though you’re in the best shape of your life. Don’t fall for that unit count thing. What I buy is individual properties and I look at equity cash flow and what I call the headache factor. So ease of ownership. I’ve just simplified it to three things that matter to me when I’m buying.

David:
So I look for areas and properties that I think will appreciate. Properties themselves that have built in equity, if I can. I obviously look for cash flow, make sure I can pay off the debt and make some money in the meantime. I look for, most importantly, ease of ownership. I, at this stage in my career am willing to sacrifice on equity and cash flow, if I know the property’s not going to cause me a ton of time or headache, it’s just going to kind of run smoothly, which means I need the right tenants and the right business plan. That’s the first thing that I would say.

David:
Now, based on those principles, there’s a few things I’m doing to scale. The first is I have my mortgage company, The One Brokerage. I’ve got loan officers that have my information stored on file and I can go to them and I can say, “Here’s the deal. I want to buy.” Look into it. Go talk to the lender or the underwriter that we want the loan from and you come back and tell me if this can happen.”

David:
So there’s a property I’m looking at right now with a partner in Arizona that’s on five acres. Oftentimes, anything more than two acres won’t work for certain conventional lenders. So I have them looking into, “Hey, can we buy this property?” Before I get super deep into the negotiations of it. That’s one way, I’m scaling is just by efficiency and time. I have other people on my team that are working to handle the funding and getting the questions answered.

David:
I also have a property manager that I formed a relationship with that can manage properties all over the country. And that is a person that when a deal comes my way, I can kick it to them and say, “Run the analysis for me. They’re very experienced at what they do. They’re very good at what they do, and they can come back and give me the yes or the no. In my book, Long-Distance Real Estate Investing, I talk about systems to scale. That’s part of it is I want a bunch of people who know what my standards are and I don’t want to analyze it. I want to kick it to them. And they have even more experience analyzing that specific asset class than me and they come back and tell me yes or no.

David:
Then the third thing that I’m doing is looking to partner up with people that I’ve experienced in that asset class. So if I was going to want to flip more homes, I’d go to the landlord ninja, house flipper like you Matthew, and I’d say, “Hey, I’ve got X amount of capital. If I let you borrow it, what do you think you can turn it into flipping homes? Or how do you think we could set this up?” And I would try to put you in a position to succeed. I would try to solve your business problems. Do you have enough contractors or is the financing working? Are you spending too much money on upgrades or not enough? Are you running comps well?”

David:
One of the ways that I bring a lot of value to my partners, like on this Arizona property, for example, we wrote an offer that was below asking price. They’re asking around three and a half million and we offered a lower offer and they said, “No.” And because I’m an agent, I went to our agent and said, “Here is specifically how I want you to handle negotiations.” I don’t want you to say, “My clients really want the house.” I want you to say, “This is the ride house for my clients. I can get them to buy it. I need you to give me something I can use to sell to them.”

David:
It’s a trick I learned as an agent that I can then go tell the agent who is representing me, how I want them to handle the situation. And I’m not sure, but I just got a text message before I started recording that sounded like that is working and the sellers are already starting to come down. So looking for partners that are going to help me scale and then using my knowledge, expertise, and resources and experience to help them do better is another area.

David:
Then the last thing is raising money. I’m now raising capital to go put work for people that want to invest in real estate, but don’t know how, or they don’t want a lot of the risk associated with learning the hard way. So I started the website, investwithdavidgreene.com. People can go there and say, if they want to invest with me. There’s a little survey that they can fill out and then we get in touch with them to find out if what opportunities that I’m looking for would match for whatever their goals are.

David:
So what you event actually have is me creating a system where I’m bringing in the capital. I function as a choke point that makes the decision of where to disperse that capital. I’ve got all these different asset classes that I look into and say, “I think this is the best way to use it.” Then I’ve got operators in those specific asset classes that are working those deals with a lot of experience, and then I’m supercharging their ability to help me with my knowledge experience, resources like I mentioned earlier.

David:
It’s really that simple. That’s my process for how I am intending to scale. I’m putting my foot on the gas really hard, because I’m seeing that real estate is becoming scarce in a lot of areas that if you want to buy the best properties in the best places, it’s going to become more and more expensive as more institutional capital starts to compete.

David:
So I don’t know enough about your business to give you more specific advice, but again, you should get on one of our biggerpockets.com podcasts that are live. Ask your question and I can give you some more specific advice about your business. But I hope that my lengthy answer gave you guys some insight into how I’m seeing the market, how I’m adjusting and what systems I’m putting in place to be able to do that.

David:
All right. Our second question of the day comes from Sam Young, who I believe is a country music artist, or at least has the same name as one. “I’m getting to the point where I need to start scaling and outsourcing some of the tasks that feel heavy to me. I’m considering starting to use some virtual assistance. How have you or others you know, leverage VAs early in your career?”

David:
Well, Sam, first off as I did not leverage VAs early in my career. So I can’t tell you that, but I can tell you how I leverage people and how I am the leveraging VAs now at this time in my career. First thing is you made a very good point. You want to leverage things that feel heavy. That’s one of the things that Brandon Turner and I talk about pretty frequently. Does this feel light? Does this feel heavy? People make the mistake of assuming the only resource that they’re putting towards things is time.

David:
We talk about trading time for money and BiggerPockets is a great place where we explain how you can stop trading time for money. But that doesn’t mean that you don’t trade anything. You’re still going to trade some energy. Time is not the only resource that you use. And oftentimes when we say the phrase, “I don’t have time for that,” it’s a lie. The answer is I don’t value this enough to make time for that.

David:
Now, there are certain things that I will put time towards that I love doing like educating. I love sharing the things that I learn, the hard way with all of you so that you can avoid making those same mistakes. This feels light. I love when people throw questions at me that I don’t know, what’s coming. A lot of speakers hate that. They want to be prepared for everything that happens. That feels light. That might feel heavy to other people.

David:
Other things feel very heavy to me and you’re right, that those are the things you should leverage, because you’re protecting your energy in addition to protecting your time. Virtual assistance in general should only be used if it is a repeatable process that doesn’t change very often, that very seldomly requires a judgment call to be made and that you are willing to walk them through the process over and over and over until they show competency in it.

David:
I have a theory that I talk about in my book, Sold and it’s kind of repeated through that entire series of skill and scale, that talks about there’s two types of jobs. There’s busy work and there’s skill work. Busy work, I define as something anyone can do. It does not mean it is unimportant. It does not mean that people who do it are unimportant. It just means it is easier to leverage like following a series of tasks.

David:
Skill work is something only a specific person can do. So if you look at the real estate agent business, skill work is putting someone in contract negotiating with the other agent, having consultation with a client to explain to them what they can expect. Busy work would be showing the home, requesting disclosures from the other agent, reviewing the inspection report and sending it to the client.

David:
That’s the stuff you want to leverage first is you leverage your busy work, not your skill work. And coincidentally, that’s also stuff that should be easily repeated. And that’s the stuff you want to give to your VA. So I don’t know exactly what type of stuff your business is, because you didn’t mention Sam what you’re up to, but the things that feel heavy might be skill work. That’s not the thing to leverage to a VA.

David:
You don’t leverage it just because it’s heavy. That needs to be leveraged to a non-VA who you trust their skill in getting that done. So it still needs to be leveraged. It shouldn’t be leveraged to a virtual assistant and I’ll just sum it up with this. If it feels heavy, yes, you should leverage it. If it’s busy work, leverage it to a VA. If it’s skill work, leverage it to a partner or a highly paid assistant that has a higher skillset, so the work is still being done well. Hope that helps. Feel free to go to biggerpockets.com/david and submit a backup question if you want any more detail on that.

David:
All right. Next question comes from Rick H. “I’m from south Texas in between Houston and Galveston.” Thank you. I like knowing where you are. I don’t know what cities are there though. “We have done one live and flip and had one rental that we sold after two years and now we are looking at our option on our current home. Should we sell our current home that has a significant amount of equity?”

David:
Well, Rick, in order to answer that question accurately, I need to know what your goals are. I’m going to have to make some assumptions here, because you didn’t share those that you’re trying to build wealth and you’re trying to build cash flow. And I’m doing that because you mentioned you did a live and flip, which is something where you live in a house, you fix it up and then you sell it later. And if you stay there at least two out of a five year period as your primary residence you get to avoid capital gains taxes.

David:
That is high on the inconvenience side and high on the profit side. It’s also a way to reduce risk of doing a flip. So I’m assuming if you’re willing to experience that much inconvenience, that means you want to build wealth pretty bad. And then you had a rental that you sold after two years. So you’ve owned a rental property before and you made some money off of it. That tells me that you’re most likely looking to build wealth.

David:
“Should we sell our current home that has a significant amount of equity?” I would say, yes, if you’re going to reinvest that equity. Now, when interest rates are low like this and we are in an environment where it’s not guaranteed, but it’s likely that prices are going to keep rising, you’re better off to take one home that let’s say that you have the house that you owe, let’s say you owe 200,000 on it and it’s worth 500,000. So you have around $300,000 in equity.

David:
If you sell that home and you buy three more properties with that 300,000, you put $100,000 down on each one of them. Let’s see. That would be, if you put $100,000 down, you could buy a house that was about 450, $500,000, right? You could end up with three homes that are right around the same value as the one you have. You would be taking on more debt, but it would be at a cheap rate and you would have three homes appreciating versus one home that would build your wealth faster.

David:
It would be a little bit more work. You want to avoid that in a market where things are going down. If prices are dropping, you don’t want to sell your house and buy three more because now you’re going to spiral downward three times faster. In this case, all indications of we’re seeing that prices are going to rise. And so having three homes will cause your three loans to be paid down and three homes to gain equity, and three homes to increase in rent.

David:
The caveat is make sure you can afford this because there is some risk in doing this if the market does go down. You want to make sure that the homes are in an area that’s highly desirable, that they’re going to cash flow when you buy them or that you have enough in reserves that if they didn’t cash flow for a period of time, you could be okay. And that the rents are going to continue to grow. Let’s say that we have another run up of three to five years and then have a market correction.

David:
Well, if you’ve had three to five years of rent increases and the market goes down your cash flow went pretty strong at that point, rents typically don’t go down during recessions. You’d be okay. So look at your equity like a tree that you planted. And if you chop down that one tree, you can plant three more. As long as the location where you plant the tree is similar to where your current tree is or better, and you believe that the quality of the trees that you can plant with it, it’s definitely better to take down one tree to plant three more. You’re just going to grow three times faster. And then continuing to do that over the next 10 to 20 years will actually build you an orchard.

David:
So thank you very much for asking. I like that question. Okay. We’ve had some great questions so far and I can’t really take credit for it. It’s you that sent them in. So I just want to thank you all for sending in these questions and being proactive about getting them answered. If you would like to have your question answered on the podcast, please go to biggerpockets.com/david, where you can submit a video question or a written question.

David:
I’d also like if you’re not already subscribed to BiggerPockets on YouTube to go there right now and you can watch me live making facial expressions and moving my hands around a whole lot and maybe even making a reaction face at some point. It’s a little more entertaining and I think it’s easier to follow along if you’re able to watch on YouTube. If this is during your commute, please don’t do it that way. Just keep listening to the podcast if you’re driving.

David:
I’ve got a couple comments that other people have shared about previous episodes. And in this segment of the show, I like to share those and let you hear what other listeners are thinking. The first one comes from Curmudgeon, which is hilarious. “Great format. I love hearing creative answers to current issues that newer investors are having. The gold nugget of advice was to figure out exactly why the problem exists, and it will become easier to come up with potential solutions. I haven’t heard many people talk about root cause analysis in real estate investing, but it makes perfect sense. It reminds me of the five whys approach.”

David:
Well, thanks Curmudgeon. I’m not familiar with the five whys approach, but I am a fan of avoiding the temptation in general in life to come up with the quickest solution possible. Experts will for frequently tell you this. Most of the time, if someone’s looking for the fast answer, they don’t value the education and they probably went and got themselves in a jam.

David:
So when you go to your CPA at tax time and you’re like, “What do I do to save in taxes?” It’s usually too late. If you’re asking, “Where’s the best place to buy a house and which one should I buy?” You’re just showing that you don’t really understand that there’s commitment to being successful.

David:
It’s the same as the people that say, “What weight loss pill can I take to lose 50 pounds this month?” There’s no way to do that that’s healthy or smart and you’re just going to put it back on later because you didn’t develop good habits. So immerse yourself in understanding the why behind what makes things happen. And I promise once you see the why, you start to feel like Neo in The Matrix. You can see the code. It’s not confusing anymore. It’s not scary anymore. You actually understand what’s going on, and the answer just make themselves appear right in front of you.

David:
Next comment comes from Veronica Solomon. “I literally just had a closing today where I had the experience you mentioned trying to go for the cheap rates of a mortgage broker three days before the end paying almost 3,800 in points that were unexpected.” Ugh, god, that one just… “This was my first purchase of a duplex. I typically do single families. The process with underwriting was also grueling. Much more difficult than a single family I had bought just five months earlier with a different lender. I thought I would be in ‘saving money’. I like your analogy of it’s like going with the cheapest contractor.”

David:
Well, first off Veronica, props to you for having the guts to share that you made a decision that wasn’t good so everyone else can benefit. Everybody likes to share their wins. Nobody likes to share the L’s. I have a lot more respect for the fact that you’re sharing this. Second, that is the point I was making and I’m sorry, I couldn’t get that in front of you fast enough. Many lenders will tell you, “Yes, we can do it for this price.” Especially online ones, those are the ones I’m most careful of because they want to advertise what we call a teaser rate to get you to click on something. It’s just like click bait in an article.

David:
And what they’re telling you is under the most ideal circumstances ever, if you pay a bazillion dollars in points, you too can have this amazing rate. And their hope is if they can get you hooked, you’ll just say, “Screw it and you’ll move forward with it.” And then you find out I’m not the most ideal person ever. I don’t want to spend all that much money in points. I actually could have got… If I could have taken that same amount of money that I spent in points somewhere else, the rate would’ve been even better and I would’ve got better service and they would’ve saved me time.

David:
So when, Veronica, you’re sharing the process was grueling, I can read into what happened here. The underwriting process is different for multifamily properties than single family properties when using conventional lending, which I’m sure that was the case here. You can use conventional lending. So when we say things like, “Hey, you can put less down. You don’t have to put down 20%. And you can get a Fannie Mae, Freddie Mac loan.” That is accurate. They don’t have the same underwriting standards.

David:
Many times, the down payments are higher. Many times the loan limits are different. Many times it varies by the area that you’re in. And here’s the ugly truth. A lot of loan officers don’t know those guidelines. What they’re doing is collecting all your information, telling you what you want to hear, giving it to an underwriter and that underwriter is coming back and telling them, “Well, here’s what I need.” That’s how they learn is they learn from the experience of you wasting your money and blowing your deal.

David:
And the underwriter says, “Oh, it’s a duplex. You have to put more money down or your rate’s going to be worse. You have to have more points associated with that.” And they didn’t tell you that in the first place. So this is why we say using a better loan officer will usually end up saving you money. So don’t punish people for telling you the truth. If they tell you that your rate is going to be a little bit higher or they’re honest with you, don’t go run and try to find a person that says what you want to hear.

David:
I really appreciate you. If you would like to send me a message on Instagram or Facebook, I would like to do something nice for you because you shared this. So I’m @davidgreene24. Send me a DM. And hopefully I see it. I’d like to do something for you for sharing your comment. Thank you, Veronica.

David:
All right. Are these questions and replies resonating with you, the listener? Are you hearing this and thinking, “Man, I never would’ve thought about that or I could have made the same mistake.” Well, that’s why we at BiggerPockets are here for you. We want to save you from making these mistakes. We want to try to smooth out this journey as much as we possibly can.

David:
If you have a situation that is similar, tell me in the comments. Another reason I want you to go to YouTube. What are your tips or tricks that have helped you in situations like this? Leave a comment below and let me know what you think about lending, about how to scale a portfolio, about if a market correction is coming. I’d love to hear your thoughts and to get some more information to share with the rest of the listeners. And don’t forget to subscribe to the BiggerPockets YouTube channel.

Kevin:
Hey, David. Kevin from Colorado. My wife and I recently purchased a town home in Northern Colorado and we found a real estate agent that we really enjoy, friendly, held our hand through the whole process. Just seems like an all-around standup person. What kind of questions should I be asking them to find out if they would be the right realtor for our progress moving forward into real estate investment? Thanks.

David:
All right. Thank you for that, Kevin. That was very well articulated and I have all the information that I need to answer your question. So great job there. My understanding is that you bought a house as a regular primary residence. You really liked your realtor. You want to use them again, but you want to make sure that they’re suited to help you with investment property.

David:
The answer to that question is going to depend on how much knowledge or resources you need from your agent. So I basically break agents into two categories and it’s obviously oversimplified, but just hear me out. There are agents that I like communicating with, that I enjoy as people that make me feel comfortable. They make me feel good. They take care of details. They are emotionally intelligent.

David:
They see angles and they provide solutions that make me feel good using them. Then there are agents that have resources that I need. They know contractors. They know the area. They know the rents. They have a pretty good understanding of this part of town versus that part of town. They’ve done what I’m doing before.

David:
Now, obviously, some agents might have both. It’s just very rare. In general, personalities work out like that. You’ve got the practical type of human being that’s kind of boring and you’ve got the fun type of human being that often isn’t as practical. I don’t mean to overgeneralize, but when it comes to agents, it usually sifts into these two camps. If it’s an area that I don’t need much support from my agent, I will go with the one that you described.

David:
I trust them. I trust their words. They give great service. They’re going to make it a good experience for me. They’re doing to save me hassle and headache. I use them. If it’s an area where I need resources more, I don’t know this area. I don’t have a contractor that can work there. I’m really unfamiliar with the asset class. It’s one of my first times buying it. Maybe I’m buying it with a partner. And my partner is telling me, “Hey, this is the way this works.”

David:
But I just haven’t done it before, and I really want that second opinion or third opinion from my agent. In that case, I would find a different realtor that was a skillset specific to what you’re trying to do. So if you’re looking to buy investment property and know what you’re looking for, you have a firm grasp on what to expect as far as analyzing the deal. You have a strong support system when it comes to a property manager that you’re going to use, a person to fix it up, the lending team that you need to use. Use the realtor that you’ve got.

David:
If you know, “Man, this is a really nice person, but I just need somebody who’s a little more of a shark,” then look for a realtor that has done more what you’re trying to do themselves, or has helped other people to do it.

David:
Side note, if anyone else is in this position and they know in their gut, they need to find a different realtor, but they just feel bad about cheating on the one they have, that means you’re a good person. Here’s the solution. Send them a lot of referrals of other people. I will never be mad if someone says, “Hey, David, I would love to use your team to help me buy this house. But in this specific case, it is such a complicated, nuanced deal. I need to use a specialist over here on this deal. But I’m going to send you three people that want to sell their house.” God love you. I would never, ever, ever be upset about that.

David:
You can absolutely keep that relationship happy and have realtor continue to serve you in the future if you just bring value to them by sending them more referral. So if you do have your conscience that’s bothering you, that’s an easy solution. You can solve it right there. All right. Moving along to the next question.

Gerald:
Hello, David. My name is Gerald. Thank you for taking the time to answer my question here on the podcast. With your financial background, I think you’d be the perfect one to fill this. So currently, I own a majority of my properties under my LLCs name. For that, I went through commercial lending. So every five years I jumped one point in my loan interest rate. I’d like to refinance these into a lower rate, longer term, which I believe I would have to do in my personal name.

Gerald:
Now, the tenants are all currently signed under my LLC. So would I have to resign my tenants when the deed gets transferred into my personal name, or can I maintain them as being managed under my LLC?

David:
All right, Gerald. This is a very practical question. First thing, I’ll say is that I am not entirely sure legally what has to happen, so I don’t want to speak as a lawyer. But I don’t anticipate this being something that would become a practical problem. So when it comes to refinancing, reach out to a lender and find out if you can refinance it in your name or if it needs to be refinanced into an LLC.

David:
So if you were to come to one of us and I’ve done this many, many times, some lenders that we broker the loan to will say, “We can only do this in the name of a business.” Others will say, “No, we can do it in your personal name.” So that’s the first step you want to take before you get too deep into telling your tenants about what’s going on and freak them out about a thing that’s a non-issue.

David:
Once you’ve decided on the loan terms, that you’re going to be good with, that’s when I would just talk to my property manager and explain to them, if you don’t have one, it sounds like you’re doing it yourself, my advice would be to send out another form that just says your current lease is going to be switched from this person to this person. There’s a new owner. All the terms will be the same. The property manager will be the same. You’ll be going to the same person for any questions. This is just a legal thing.

David:
If I’m missing something there, this is not legal advice. I just can’t see an angle where that would be a problem. And I have property managers that I usually say, “Hey, here’s my problem. You guys figure out how to go about it.” But it’s probably as simple as just sending a new lease. So if they’ve got six month left on their lease, send them another one that just has a different name on it and reassure them that, “Hey, nothing’s changing at all. There’s just a refinance that’s going on and this is going to be the new title of the property.” Thank you for asking that. It means that you care. You’re trying to do the right thing and I have no doubt going to be successful.

David:
Next question comes from Ryan Finnegan. “David, I am an associate advisor at a commercial real estate brokerage and assist in our company’s property management division. I would love to hear more from you about the advising side of your business on the show or another show. Best practices, tips for agents where you see role of an agent going.” Wow, this is deep. This is really good.

David:
So this has to do with the real estate agent business, the fiduciary side, but it probably has some practical implications for those who are interested in real estate as far as what to expect from your agent. Let’s give a little bit of a history of what real estate agents used to do. So for long time, we didn’t have a multiple listing service. This sounds crazy because we didn’t exist under that time.

David:
But when you listed your house with a broker, let’s say it was Coldwell Banker, Coldwell Banker was the only person that could sell that house. And if you wanted to see it, you had to go through Coldwell Banker. The listing agreement is spelled out. This is the broker that has the right to sell the house. Agents don’t actually have the right to sell houses. Only brokers do, but brokers assign and delegate the responsibilities of them to agents. They sort of deputize agents.

David:
So often, we’ll say, “My agents sold my house. That’s fine for practical terms, but it’s not true.” Agent didn’t sell the house. The broker is what sold the house. So what you would do is you would go find an agent that worked for Coldwell Banker and they would show you all the Coldwell Banker listings. If you wanted to see a listing from someone else, you would have to go to that brokerage and look through their list.

David:
And this was before computers. So they would keep it in a book. Funny little tip here, if you’ve ever wondered why we call a pocket listing a home that is not on the MLS yet, but there is a listing agreement signed, it’s because if an agent had a pocket listing, they would take the paper out of the folder that everyone can see and keep it in their pocket. So they were basically saying, “Hey, if you want to see this house, you have to come directly to me.”

David:
Little history lesson for you there. Now, at a certain point, brokers realized everybody wants to see everybody else’s houses. So this isn’t working as we just all kind of only worry about ourselves. So they made a joint venture where they said, “We’re going to create a multiple listing service where all the listings will be kept together and everyone that wants to buy a house can see every broker’s deals,” which was great for the consumer.

David:
That eventually made it to the internet, which eventually turned into the MLS where agents would send you all the brokers deals to your email or maybe print off the page and hand it to you. Well, along comes companies like Zillow or Realtor.com, that type of stuff. They made a deal with individual MLSs where they paid to get access so that you didn’t have to go through your agent.

David:
Instead, you could just see the property online yourself. You could see all the same pictures and much of the same information that was there. Now, that was crucial in the way that real estate developed from the sales side, because it used to work where you went to your agent. You told them what you wanted. They got to know your needs. They went to the MLS and brought you the properties they thought would work.

David:
So they really needed to have a good feel for what you wanted. This is why buyers’ agents were kind of like psychologists is they were skilled in, “Can I find you a house that has what you want?” And people would say things like, “I want one that has hardwood flooring and I need light to come in from the east window in the morning.” And agents had to remember all that and go find it. The process changed when we got online listing portals like Zillow and other companies.

David:
Now, what people do is they go online, they look for the house they want and they go to the agent and say, “That’s what I want or tell me more about it.” Here’s why this is relevant. The role of the agent became a lot more difficult to be successful during that switch. Hear me out. If you came to me and said, “David, I want to buy a house in this city, that’s this big in this neighborhood, and this is how much money I have,” I could tell you if that would work or not and I could adjust your expectations accordingly during that consultation.

David:
And that’s what I would do. I’d say, “Look, you’re not going to get into that neighborhood, but you can get into this one and maybe we can step up later. Or if you’re going to get into that neighborhood, the house is going to look like this one, and it wouldn’t look that great.” Or maybe the opposite. “Yep, we can absolutely do that. You’re going to have your pick of the litter. Let me go find the best ones and I’ll bring it to you.”

David:
When people go look at the house first, it becomes a situation like they’re telling their waiter what they want to order from the menu, “I want the prime rib. Go make it happen.” The problem is in real estate sales, especially in a hot market, there’s only so many prime ribs and everybody else in the restaurant is looking at the same ones that you are and your agent is actually trying to figure out, “Can I get you that prime rib?” And it might cost more than it showed on the menu.

David:
And many people listening to this have had this same experience when they’re trying to buy in real estate. You go after deals, you go after deals, you go after deals. You just get your heart broken. You finally either give up and say, “Fine, I’m just not going to eat.” Or you adjust your expectations. You pay more than you thought you had to. But the experience becomes emotionally painful because the only way that you had your expectations reset was being beat down until you finally resigned yourself.

David:
To make matters worse, agents don’t want to tell you the truth, because they’re afraid to lose your business. The online model turned this into like, “Oh, this really competitive speed dating system where you’re seeing several people at a time and agents have to tell you what you want to hear. They’re afraid you’re going to use someone else. And there’s no commitment between the two parties and there’s no partnership.”

David:
So they’re running around showing you houses hoping they get paid and you’re not really sure if they’re the right one. And they don’t want to set your expectations where they should be, which to the consumer makes them feel like they’re in control. Right? I can see multiple people at a time. But the problem is you don’t get that commitment. You don’t get that service and you don’t get the truth. So I think that the way that real estate has trended is convenient for the consumer, but it’s not healthy unless you’re really good at real estate.

David:
So someone like me, that’s bought a lot of houses when I’m looking at them and I’m talking to my agent. I know what to look for. I know if that house has been on the market for four days, I’m not getting it at asking price. I know that the asking price doesn’t even matter. That’s not even going to come up, right? If you’ve never bought a house and your agent doesn’t sell a lot of homes and you don’t have an existing relationship with them, you’re probably not going to be getting that same kind of information.

David:
So I don’t like it because agents aren’t willing to tell the truth because they found you online and they don’t know you. You don’t know enough about real estate to make these decisions on your own. And what happens is the people like me that swoop in and get that deal, leave 12 other people heartbroken and they’re not able to get one at all. Okay. Now, that I’ve given you a history of how I see the role of the real estate agent changing, your question was about best practices, tips for agents and where you see the role of an agent going.

David:
Here is what I believe agents will become. Things like showing you homes like taking you to go look at it, it used to be that you would go to that brokerage, you’d get in that agent’s car, and they would drive you to look at homes. And that’s why agents wanted to have fancy cars, because you were going to be spending a lot of time in it with them. It used to be that you would tell them what you wanted and they would go look at it for you.

David:
So you’d have to have this consultation to get to know the person. When we moved into this speed dating model, it’s typically, I want to go see that home. Just let me see it. I’ll figure it out myself. And you don’t sit down to have the expectation talk until you’re already in love with the house, which is the worst time to be trying to figure it out because you’re emotional. You don’t trust the people you’re dealing with. You don’t trust the information you’re getting. It’s why the experience is so miserable and many of you are listening, going, “Yes, that’s exactly what it’s like. Why does it have to be this bad?”

David:
It’s because we’re doing it wrong. The best model, I think for the future moving forward is to choose an agent who you trust and who has a knowledge base that you can rely on. They should know the market. They should know real estate itself. They should know your values. And you’re looking at it like a partnership. That agent is actually investing money, time, and energy into you, that there’s not a guarantee they’re getting paid. Just like there’s not a guarantee for you that you’re going to end up with the house that you want.

David:
What we do on my team is every buyer we’re going to work with, sits through a free consultation where we give them a presentation and we walk them through everything that goes into buying a house. We cover what an inspection contingency is. When they can back out and when they can’t, how the earnest money works, what the contract looks like, what the areas of the contract that are going to be filled out are.

David:
We go over what comps of other houses are. We show them the inventory that’s in that market. We talk about how we read an inspection report. All of the stuff that you’re just walking through the escrow saying, “My God, I don’t understand what’s happening. I hope this works out.” We cover that first. I think personally, that’s what sets good agents apart from the speed daters. Your agent should sit down and walk you through what you should expect and what you can actually get and what the plan is going to be. You should feel comfortable with them and then they should also feel a commitment from you.

David:
The role of advisor, what I’m getting to you here is much more important than the person that just drives you to open the door or drives to your house and explains the contract to you. Those were all things that agents used to do. Holding open houses used to be really important, because that was the only way that people could see the house if they weren’t in your brokerage.

David:
Well, holding open houses isn’t as important anymore because there’s cameras that basically give you a walk through of the house before you even go to it. You can put a house in contract and go walk in after it’s in contract and you can back out. Open houses aren’t nearly as important. Well, those used to be the things that agents would give to show their value. “I’m going to hold an open house. I’m going to send this in front of a bunch of people so they all see it.”

David:
Well, everyone sees everything now. All of the homes are available for everyone to see. So to wrap this up, what I think agents need to become are advisors that facilitate it. That’s the role I’ve taken. I’m trying to provide all of the things that a buyer would need in one place. So you come to us, you get a consultation, you get our expertise. We shoot straight with you about the market. We put you in touch with the lender. We make sure that the loan is going to be good and you know that you’re being treated honestly and fairly, and we’re giving you the best product that we can.

David:
We provide insurance for you when we answer your questions about how that insurance works. Eventually, I want to have an in-house home inspector and an in-house appraiser that can tell you, “This is what we think the house would appraise for and we can get an inspection for you done fast. So if we just have a two-day inspection contingency, someone can go. Then eventually I’d like to have a contracting company so that we can give you a rehab estimate.”

David:
I’m trying to figure out a way to bring everything in house. To me, that gives my clients the best chance of winning. So your question of the advising side of the business and what agents should do, you got to get… The speed dating model doesn’t work. Stop being that agent. Stop paying for leads on the internet of people that you don’t know.

David:
Now, BiggerPockets has an awesome system with their agent finder where you can get connected with an agent that is also a BiggerPockets member and you can get to know them. You can look at their profile. You can see deals they did with other people. You can start messaging back and forth and quickly get a feel for, “Is this person, actually someone that knows a lot about real estate?” It’s a great feature that BiggerPockets did is they’re like a dating service.

David:
They’re trying to connect you with people that would be a good fit for you. It’s much better than just finding a person on online portal and saying, “Meet me at the house. I want to see it.” And then trying to figure it out from there. So if you’re hearing this and you’re looking for the right agent, I would highly recommend that you find an agent you could have a relationship with. And if you’re the agent, I would highly recommend that you get away from the speed dating model. You focus on your own expertise in consulting and you stand apart from other agents by your knowledge and what you can do to help the client achieve their goal.

David:
All right, Nick Kowalczyk writes, “Extremely new to try this process. My fiance and I just bought our first property in St. Petersburg, Florida, and are in the renovation stage. We financed the home and put three and a half percent down. Our mortgage payments are only $1500 and I think comps in the area show a profit of about 700 to 1,000 a month. The appraisal came in 30,000 over what we bought the home for.” Sounds pretty good so far.

David:
“We are living basically rent-free at my fiance parents’ home decided this would be a good opportunity to attempt our first rental. We will probably need to be out of the house we are in by next year, and I’m looking for advice on the next step. We’d love to do this process again as we enjoy the renovation process and think there’s a ton of money to be made in this area, but we’ll also need a home for ourselves. Would you recommend refinancing the rental and buying a multifamily that needs work then live in one half and rent out the other?” We don’t have any cash as we are paying for the renovation ourselves and don’t want to stop at just one rental property. Please advise.”

David:
Okay. So Nick, here’s the first thing I want to say. It’s great you’re thinking this far ahead. Make peace with the fact that whatever plan you come up with right now is probably not going to be the one that you actually execute, but it doesn’t need to be. You just have to get started in that direction. Everything in life that I ever did, I sat down and I plotted out how I wanted to work. I got about two, maybe three steps in, and I immediately recognized I got to change course. And that’s okay because everything works that way.

David:
When you have a kid, I’ve never had a kid, but I know that people that have kids have an idea of how they think it’s going to look and then it goes different. When you get married, same thing happens. When you start a job, you have an idea of how that job’s going to look and then you get there and you realize it’s actually going to be different.

David:
This is the same. So the first thing I would say is with this first property you got, it sounds like you got a screaming deal. How do you maximize that deal? Can you rehab the house while you’re living with your in-laws so that you can do it faster? Once it’s rehabbed, you’re going to have to move into it because you bought it as an FHA loan with three and a half percent down.

David:
Can you refinance it and pull money out that you can start to prepare to buy the next property? Then the question becomes, do I want to put 20% down on a rental property or do I want to wait year and put five to 10% down on a house to live in myself and take the one that I’m living in now and rent it out?

David:
What I always look to create in business are options. My theory is that options create wealth. The less options you have, the less ways you can make money and the less ways you can yourself from losing money. So what can you do with the resources that you have, which is a house that has built in equity. St. Petersburg is a great area. It’s going to continue to go up. You got it for very little down. You’re going to make it worth even more than equity it has with these rehabs that you’re doing.

David:
That gives you equity, which is options. You can take that equity out. Now, you’ve got options. At that point, evaluate, do I want to buy another rental or do I want to wait a year and put that money towards another primary residence? And if I buy another primary residence, how much… You said this one might be renting for 700 to a thousand dollars a month. That looks pretty good. The next house should be a house hack. Can I buy a house that I can live in part and rent out the rest?

David:
And if you just buy a new house hack like that every year for 10 years, and you’re buying it in St. Petersburg, Florida, which is likely to continue appreciating, you’ll become a millionaire buying one house a year. You don’t have to become a massively extensive investor that’s just looking at deals constantly. Just buy a house hack a year and move out and then rent it out and live in then the next one is the easiest, simplest model that everyone should be following. And a bird deal or a long-distance investing deal or any of the stuff I talk about should only be done after you buy one house hack a year. Okay. We have time for one more video. Let’s take a look.

Vince:
Hey, David. My name is Vince. I live in the Phoenix area here. I’ve got one investment property, one rental, and I’m currently trying to purchase another one. I owe 216 on the… which is a single family house, and it’s worth about 470 right now. My primary I own, I only owe 363 and it’s currently worth 700. I’m trying to figure out if I need to do or I should do a HELOC on my primary or if I should do a cash-out refi on the rental property? The rental property is already on a 15-year and I’m cashflowing about 300 bucks a month on it. I could take out about 120 on it, still cash flow about 300, but then I’m just refinancing to a 30. I’d love any insight you got for me. I’d really appreciate it. Thanks, bye.”

David:
All right. Thank you for that, Vince. Let me see if I can recap what we just heard. Basically, you’ve got two rental properties… Or sorry, two properties. One is a rental property with 250,000 in equity, cash flows around 300 a month. The other is a primary residence that would cash flow around $300 a month. And that one has 300,000 in equity. So you’re looking at a total of 550,000 in equity, but cash flow is pretty low.

David:
So if I look at, let’s say that both of them would cash flow 300 a month, that ends up being… I’m going to show you guys how I calculate return on equity. That $600 a month times 12 months in a year is 7,200. If I divide that by the approximately 550,000 that you have in equity, that means you’re earning about a 1.3% return on that equity, which is very low. So a few options. And let me give you some caveats first, as people are listening. Don’t do anything, if you’re going to refinance that would put you in a financially strapped situation.

David:
So if you don’t have a lot of money in reserves, if you don’t save a lot of money, if you’re not in a strong financial position, be much more conservative with the advice I’m going to give you. I’m assuming that you’re in a strong financial position and that’s why you have these properties and this equity and we’re talking about growing it. So everyone listening, just understand, I wouldn’t give the same advice to somebody who live paycheck to paycheck.

David:
This is assuming that Vince here is in a strong financial position and can delay gratification. Your properties are not performing well. And I don’t mean that in a negative way because they’ve gone up a ton. They’re not performing well from a cash flow perspective. Either your rent is not high enough or they’re not good rental properties. Usually when I see this, what this means is someone bought a tract house in a great area that a family would love to own, but it’s a poor rental property. Rent and prices both go up, but there hits a point prices go up much more and rents can’t keep up.

David:
When you hit that point, you’re usually better to sell and move that wealth into something that is a better cash flow option for you. The way I look at it is if I had $250,000 to invest, what kind of a return on investment could I get? Let’s say you could buy another property that would give yourself an 8% return? Then I compare that to return on equity, while you’re getting 1.3%.

David:
So that becomes a pretty easy answer. If you want to increase your cash flow, you sell the house and you 1031 into a couple other properties or at least one more property that’s going to have a more cash flow. I mean, if you turn that 1% to 8% that’s almost a seven to eight times difference, multiply 300 by seven to eight. You’re looking at 21 to $2,400 a month instead of $300 a month that will continue to grow.

David:
If you do this right, and you buy a more expensive property in a better area, then you take on debt that’s healthy, you’re also going to be getting more loan paid out, more appreciation. All the benefits of real estate will be amplified.

David:
Now, there are circumstances where I don’t sell in 1031 myself and I don’t advise my clients to do that. And that’s when it’s in an area that I think there’s so much more room to run that even though I could increase my cash flow by selling, I would lose out on all the appreciation. So if all things are equal and I’m going to sell a property in one city for another couple in the same city, in the same neighborhood and it’s all the same quality, yeah, I sell and I 1031 into something better.

David:
If you’re not going to find cash flow, because that’s often the case is cash flow comes at the expense of appreciation. That’s the reality of this. So if you’re going to buy these big, beautiful tract homes that I’m thinking that you’re describing and then go buy like an eightplex in another part of town that might not go up as much, I will often tell people if you want to keep the property, because you think it’s going to keep going up, refinance it instead of sell. And even though many people will say, “Well, if you refinance, he’s going to lose the $300 that he’s making.”

David:
That may be true, but you’re not keeping that property for the cash flow. You’re keeping it for the long term equity. And the money you take at as you go invest it, will earn you that 8% return. So even though that property stops cash flowing as much, whatever you go by instead should cash flow way, way, way more. So you’re taking the property if you keep it and saying, “I’m only keeping it, because it’s going to go up in value and eventually will cash flow stronger over time and I’m taking out the equity to go invest as a cash flow play.”

David:
So you’re diversified. You’ve got a cash flow play and equity play. If you don’t think you have a strong equity play, then you sell it and you transfer it into cash flow. You just try to make sure that whatever you put that money into is going to appreciate at the same or a better result than what you had before.

David:
Now, as far as the HELOC versus the cash-out refi, it depends on how many opportunities you have and what you’re looking to do. So if there’s opportunities all over the place, which I’m looking at a lot of property in Arizona, I think that’s a great place to be investing, I’m heavily involved there, I would say the cash-out refi might be a better option because you can lock in your rate. Rates are ticking up at the time that we talk about this, that the fed is trying to raise them.

David:
HELOC is adjustable. So as rates go up, you become more exposed to higher rates and they’re already higher than the cash-out refi. HELOCs are best if you don’t plan on a long-term use of that money. They’re better for short-term things like flipping or maybe a BRRRR where you’re going to put money in the deal, fix it up and then refinance and pay off the HELOC.

David:
So HELOC are cheaper at first, but they’re more expensive over a long period of time. Cash-out refis are more expensive at first because your closing costs are higher, but they are cheaper for a long period of time in general. So I can only speak for my own experience if I was in your situation and my financial position. I would sell those homes. I would buy investment property with as much of that cash as I could and I would only save just enough to put a down payment on a new primary residence for myself.

David:
So I try to put three and a half five if I had to go 10% down on a primary. All the rest of the capital, I would put in some more real estate while making sure I set aside enough in reserves that I could weather any storms that came. That’s about as practical advices I can give you. I thank you for asking that question and I hope the listeners got something out of that.

David:
All right, everyone. Thanks again for taking the time to send me your questions. We have had a great response from our audience and I encourage you to ask more of these questions. Frankly, I love doing this. These are some of my favorite shows because I get to dig into the why behind how things work. Please, please submit at biggerpockets.com/david. I look forward to hearing from you and please share this show with anyone you know who is asking you similar questions or who tells you that real estate investing is risky.

David:
It’s very easy to just kind of poo-poo real estate investing until you hear about the why and you get educated. So if you’ve got anybody in your life that’s sort of pushing back on you, that doesn’t believe in your dreams, maybe they just need to hear the same things that you’re hearing. Share this show with them and let them get involved too.

David:
And of course, if you enjoyed this show, please like and subscribe on our YouTube channel. All right. So on this show we had several really good questions. We had someone that asked me, “What am I doing to scale my portfolio?” which is actually pretty cool. I don’t get asked that about myself. Personally, I usually get asked about other people’s things. So I was able to give some insight into that. I was able to share my perspective on what I see the market doing and how I’m making adjustments, which is actually I’m being more aggressive, I’m raising capital, and I’m deploying it in the areas that I think are going to continue to appreciate in both rent and in property value.

David:
We had a question about the HELOC versus the cash-out refi, which is a age, old great question to get into. I was able to give some scenarios about how to use your equity. So everybody here, who’s listening, if you own property, it’s probably gone up in value. This is one of the best times to be able to increase your wealth because that equity gives you options. So what I talk about along is investing is that you should say the ROI that you think you can get on that money if you invest it. And then the return on equity, the ROE, that you’re currently making.

David:
And if all things are equal, as far as where you expect the values to continue to rise, move your equity that’s not working hard into houses where it is working hard or properties where it is working hard and increase your cash flow. It is shocking how many people don’t even think about this. I get emails from people that live in California and they say just like what Vince said, “Hey, I got my house. What’s it worth?”

David:
I tell them, and they’ve got $400,000 in equity, $200,000 in equity and they’re still making a four or $5,000 payment every month that’s keeping them house poor. It’s very simple to work out a solution where we sell that house, we buy one where they can house hack. Their $5,000 payment drops down to $1,100. They’re no longer house poor, but they bought better real estate in a better area that every single year is going to actually increase the rent that they’re able to charge the tenants and become less expensive for them.

David:
And eventually they’re living for free in a better area with a more expensive house that’s being paid on and appreciating more. Don’t take for granted that if you’ve got equity, you need to put it to play. You would never let an employee that you paid every single day, not work for you. Your equity, the resources you have in the bank right now are just like that. If you read The Richest Man in Babylon, it talks about putting your money to work. I’m a huge, huge advocate of it.

David:
Contact me, contact someone that you trust, contact someone else. Go to the BiggerPockets forums and see what other people are having these questions, but do something to be more efficient with that equity, especially when we’re in a market like this where real estate is becoming are more valuable. Rents are going up in a lot of areas and wealth is moving around the country in a lot of different ways.

David:
Now, if you’re just tuning in, and you haven’t listened for a while, you may notice that the bearded wonder himself, my best friend, Brandon, isn’t here with me. Now, we’ve made some changes since Brandon stepped away from the show, and one of them is that we want to go deeper and give more practical advice. So if you haven’t listened to a while, you want to check out the last episode we just did with Robert Kiyosaki’s CPA, Tom Wheelwright.

David:
Tom and I get into very, very practical, applicable detail oriented information about how you can save money in taxes and actually set your business up to not have to pay taxes anymore if you’re making it through real estate. And the next episode is going to be killer. I’m going to bring on my very good friend and multifamily partner, Andrew Cushman.

David:
Andrew is the person that I buy multifamily properties with and we’re now raising money to buy more of them and help other people get involved. Andrew and I go over the very specific system we have of how to analyze properties from a high level. And then in a subsequent show, we’re going to get into a more detailed process, basically phase one and phase two.

David:
So if you’ve ever wondered what goes on in the multifamily space, how do you analyze properties? What should I be looking for? You’re going to love this one. If you’re already doing this, you’re also going to love it because you’re going to get to look behind the curtain and see what Andrew and I do when we buy deals. He’s also a brilliant guy and very practical. So please keep an ear and an eye out for future episodes. We are doing as much as we can to bring you so much value. It feels like you paid for a course without having to actually pay for one.

David:
Last thing is we’re bringing back Joe Asamoah who is sort of the Section 8 wizard. And he’s going to give an in depth step by step approach of how he analyzes properties and run Section 8 rentals to be incredibly popular. He was a very, very popular guest you guys asked to see more of and we’ve got him back. If you have questions about anything I said, and you didn’t get it answered here, follow me on social media @davidgreene24. I got to catch up to Brandon. The dude has got way more followers than me and it’s just not acceptable. And then submit a DM and let me know what your thoughts are.

David:
You can also message me through BiggerPockets email system. So if you just log into the website, you can find me on there and you can send me a question. And if you don’t want to ask me myself, well, ask it in the forums. There’s tons of people that are cruising through those forums that would love to help share their expertise. This is one of the coolest things about real estate investors is we don’t keep anything secret. We love talking about what works. So you found the best community that you could possibly be involved in. Take advantage of it.

David:
All right. Thank you very much. I hope you guys listened to some more episodes. Let me know in the comments what you thought about this one, as well as what you thought about the ones with Andrew, the one with Tom and the upcoming episode with Joe Asamoah. This is David Greene signing off.