Ashley:
Hey everyone, Ashley and Tony here. Happy Labor Day. To celebrate, we are going to share an episode of BiggerPockets Real Estate with you that we think you will love. We’ll be back on Wednesday with a brand new episode on how to maximize the income from your rental properties. But until then, we’ll let Henry Washington take it from here.

Henry Washington:
Hey everyone. I am Henry Washington here, co-host of the BiggerPockets Podcast. And today we’re bringing you an investor story with Joe Crocker from Houston, Texas, who just started investing but is already well on his way to replacing his income with real estate. Let’s bring him on. Mr. Joe Crocker, welcome to the show. Hey, thank you.

Joe:
Well, Mr. Joe,

Henry Washington:
Why don’t we start off and tell us a little bit about your background and what got you into real estate in

Joe:
The first place? Sure. So my background is long. I’m not a young man, but I’ll give you the highlights. I have a W-2 job that keeps me on the road a lot. Due to that, I had to relocate recently end of last year. Came down to the Houston, Texas area and started researching real estate. I started studying the Burr method particularly was kind of what I honed in on. And I work with my mom and my wife both help me out because I’m on the road a lot. And so mom came down, we went and looked at some property, said, “Hey, let’s do it.” And so we closed our first transaction in December of last year. Why don’t

Henry Washington:
You tell us what traveling a lot means to you because I think it’s important to your story.

Joe:
Okay. Yeah, it is. So traveling a lot for me means I’m on the road about 300 nights a year.

Henry Washington:
That’s wild.

Joe:
And I work six 12 hour days.

Henry Washington:
You work six twelves and you travel 300 days a year?

Joe:
Correct. Yeah.

Henry Washington:
There’s a lot of people that are listening that want to get into real estate and they think they don’t have the time to fit this into their schedule.

Joe:
Well, my mom helps me a lot, so you need a good mother.

Henry Washington:
Yes, yes. Everybody does it with some sort of help. That is very true. For

Joe:
Sure.

Henry Washington:
So you said you moved to Houston and you started researching real estate, but why? What made you look into real estate at all? Why was that even on your mind?

Joe:
It’s been on my mind prior to being in my current career. I worked in commercial construction. So I’ve been around real estate a lot throughout my life and have done well on personal properties. And so part of it also is with that lifestyle I just described, I’m getting older, I don’t want to do that forever. So I kind of a backup plan, I guess you would say, is trying to plan my exit. And so I had to come here for work and I saw some opportunities and decided to jump in with both feet, so to speak.

Henry Washington:
Did you have a goal getting started or did you just want to jump in?

Joe:
Well, yes to both of those things. I would look on Zillow and for about two months probably I would go every night and I would just go drive properties that I saw and just check out the areas, see what I liked and just kind of get familiar. And then I think it got to a point where we just went, “Hey, you know what? You got to pull the trigger.” And so we made offers on several properties and ended up with actually buying two at the same time. And so yeah, so we definitely jumped in with

Henry Washington:
Both feet. It’s one thing to say making offers, but it’s another thing to be making the right offers. So you have to know how to analyze the deals and what makes a good deal in the first place. So was all that new to you or were you studying and analyzing prior to just

Joe:
Making offers? Definitely studying and analyzing prior to making offers. I spent a couple months probably of actually driving every day and looking at things. I listened to your podcast and some other things, so it was familiar to me, but I really got serious about it. I would say I spent about two months of almost daily looking at properties, doing my own analysis, watching them, MLS properties, but you could see them. The ones I think are good deals, they all sell right away. Then that makes you go, okay, maybe that was a decent one. And so I spent about two months, I would say, before making offers.

Henry Washington:
Well, why don’t you tell us about that first one? How did you find it and what was the goal with it?

Joe:
The first one was on the MLS. It was a listing that had been up for a long time. One observation I made is that sometimes when things are listed for a long time, nobody looks at them anymore. The price goes down and the seller gets super motivated. So this was, I think, one of those situations. And what it was was an estate sale where the guy was mid-flip and passed away. So what was attractive to me about it is number one, it was two homes. It was a house and an ADU on the same property. So my goal was to hold it as a rental. So what attracted me to it is it was pretty easy. The cabinets were in, but there was no countertops, needed some trim work. The bathrooms were tiled but not grouted. As it turned out, I had to totally rip that all out.
But anyhow, it was a fairly light one. And so that was my thought on it was, hey, for the first one, I don’t want to go huge. I want to try and go as easy as I can. But anyways, we bought it for 134,000.

Henry Washington:
134,000. When did you buy this property?

Joe:
End of December of 25.

Henry Washington:
So this isn’t some five-year-old deal. You paid 130 some odd thousand dollars for a house in Houston, Texas.

Joe:
Yeah, and a guest house.

Henry Washington:
And a guest house, and you found it on the MLS. Correct.

Joe:
There’s

Henry Washington:
Probably tons of people in Houston right now talking about, “I can’t find a deal. There’s no deals to be found. There’s too many investors here. You can’t do anything here.” So it can be done is what you’re telling me.

Joe:
It definitely can be done. So we’ve done three this year. I bought two of them were MLS deals, and I have one that we’re closing next week that’s also an MLS deal. So they’re there. So

Henry Washington:
Tell us the rest of the numbers. You paid $134,000. How much work did it need, if any?

Joe:
Total budget was about 44,000 and I actually came in a little bit under that. So I think we spent about 40.

Henry Washington:
So you’re all in at 175 and I’m assuming this was a rental because you said you honed in on the Burr strategy. So were you able to refinance this one already?

Joe:
We did. So we refinanced it right at 90 days. I did the refi. 161,200 is what our new loan was. So that was a successful Burr. It’s rented for 2,350 between the two units.

Henry Washington:
Not a perfect Burr, but that’s okay. I don’t think you need to pull off a perfect Burr. It looks like you pulled out about $13,000 and you were able to rent this for $2,300 on a loan of $161,000. That sounds like a pretty decent cash flowing deal that you found on the MLS basically in 2026. So I don’t want to hear anybody saying you can’t do this or you can’t do it in cities that are very investor heavy. Houston’s one of the most investor heavy markets in the country. It is. And you walked in the door, found something sitting on the MLS. I love everything about this. I love how you found it. I love how you took it down. I love that you did everything people say you can’t do right now in 2026 all in one deal. Perfect. But you also said you bought two at the same time.
So I’m very curious what the second deal in this two deal package looked like.

Joe:
Well, get ready for this one. So I said I bought two, but they both had two separate units. The

Henry Washington:
Second one had an ADU too?

Joe:
It had two full homes. Oh

Henry Washington:
Wow.

Joe:
Yeah. So I bid off a lot, let’s put it that way. But that one was an MLS deal too. And I’ll tell you that the way that I found that one, and I’ll go through the numbers with you, but that one was one that was tenant occupied, so it was impossible to see. There was no sign in front. It showed terribly. I couldn’t even hardly get ahold of the realtor. And then the square footage was wrong on the MLS. And the big thing on that one is the tax assessment. I paid 295 for it and it was tax assessed at 780.

Henry Washington:
So

Joe:
The taxes in Texas are huge. So the taxes were 13,000 a year.

Henry Washington:
Geez.

Joe:
Yeah, it was crazy. So especially for an investor that’s buying rental properties, that kills your cash flow.

Henry Washington:
See, everybody’s like, “Come to Texas. There’s no state tax,” but the property tax is crazy. But

Joe:
Here’s the opportunity there. Since then, I appealed those taxes and I got them lowered to 5,000.

Henry Washington:
Whoa.

Joe:
Yeah. That was a big cash flow pickup.

Henry Washington:
Before we get there, I got to know the numbers on this deal.

Joe:
So

Henry Washington:
Tell me about it.

Joe:
There’s two homes. So the front home is about 1,500 square feet. It’s a three bedroom, two bath. And then the rear home at the time was a two bedroom, one bath. The front home was vacant, the rear home was occupied, and I paid 295 for the whole package. And the rear house at the time was occupied. He was paying 1,200 a month for the rear house, and the front house had been rented for 2,000 for quite a while. And so I was kind of looking like 1%-ish and it seemed to work. So we ended up converting the garage in the rear house, so that’s now a three bedroom.

Henry Washington:
Nice. And

Joe:
Then we redid the front house completely. It’s two blocks from the beach, so we’re going to end up doing it as an Airbnb and doing the short-term rental. You

Henry Washington:
Said two blocks from the beach, so I assume this is Galveston. Yeah,

Joe:
Down in Galveston. Yep.

Henry Washington:
Man, that sounds like a screaming deal. What kind of condition were these properties in? I mean, people were living in one of them, so I assume that it was okay condition.

Joe:
Well, so it was decent condition. I mean, we ended up spending, partly because we’re doing a short-term rental, we ended up spending about a hundred fixing it up. We ended up just doing a DSCR loan out of the gate. We just put 20% down and got no prepay and just paid cash for all the improvements. So we’re in it right now, probably about 395, rough number, and it should be worth somewhere between six and seven.

Henry Washington:
Whoa. So you got somewhere between 100 and $200,000 of equity

Joe:
On a

Henry Washington:
Deal you found on the MLS in 2026. That’s incredible, man. Congratulations. Congratulations. And so one of them’s a short-term rental, you’re keeping the back unit as a long-term rental?

Joe:
So I think our plan right now is to short-term rent both of them. I’ll tell you, my analysis you asked about that is I wanted to have multiple exits. So number one, could I sell it if things didn’t go my way, can I sell it? Yeah. Two is, can I long-term rent it? Because the short-term, I mean, you said it were down here in Galveston, 4,500 short-term rental permits. It’s pretty competitive. So my plan was I’ll try to short-term rent it. If that doesn’t work, then I’ll just put in long-term tenants. And if that doesn’t work, I’ll sell it. That

Henry Washington:
Is a huge tip for anybody that’s listening, especially if you’re going to do short-term rentals. I don’t mind short-term rentals. I have, I think, four short-term rentals, but every single one of my short-term rentals, with the exception of one that I sold recently, could be a long-term rental. And the one that could not be a long-term rental, I had so much equity in it, I could sell it because short-term rentals aren’t like it was before where you could throw furniture in anything, stick it on the market, somebody was going to rent it, it was going to make money. It’s not like that now. Most of the people who don’t know how to operate short-term rentals have exited the market or are actively exiting the market. So who does that leave in the short-term rental space? Professional operators, people who are very good at this, people who know exactly what their customers need, exactly where their customers want to be, provide them the exact experience their customers are looking for.
So if you’re going to compete with that, you have to be good too. And if you’re new, you may not be able to be as good, but you may not find that out until you get to start operating and it doesn’t produce the results that you’re looking for. And so if it doesn’t produce the results that you’re looking for, what do you do? Well, if you bought it and the only exit strategy you have is to keep it as a short-term rental, well, you’re in a world of hurt. If you can’t sell it and make money or break even, and if you can’t long-term rent it and make money or break even, then you’re going to lose money. It’s just a matter of when and how much. And so I always say buy with two exit strategies for every deal. If you’ve got two exits for every deal, you’re better protected.
It doesn’t guarantee you that you won’t lose money, but it makes it harder. And so you kind of already mentioned that you’ve already bought a third deal that you are short-term renting. So did you go specifically looking for one that you would do as a short-term rental now that you had found the other two?

Joe:
I’ll tell you what happened. I was on Facebook one day in the investor group or whatever, and I see somebody had posted the wholesaler that had posted a condo for sale at this place. So I was in Michigan at the time, so I call my mom. I go, “Hey, can you go check out this condo?” So she goes over there, she goes, “Yeah, it’s good.” So the guy’s on the phone with me, he was asking, he started at 99,000 and it needed some work. So I said, “Hey, I’d be a buyer, but not at that number. I can’t make it work. There’s no way.” I treat it like a flip, right? So I’m kind of old school, 70% minus repairs is the most that I’m going to pay. Dude, me too. I still do

Henry Washington:
That. I still analyze everything as a flip, even if I’m going to keep it as a rental because I buy it cheaper that way.

Joe:
Maybe I learned that from you. I don’t know, but that’s definitely what I do. So as time ticks, he’s going, “Well, what will you do?” So I paid 73,000 for it. Did

Henry Washington:
You pay cash or did you get a loan?

Joe:
I just paid cash for it. Here you go. Here’s 73,000. And that was beginning of June, end of May. So since then, I’ve already rehabbed the whole place, furnished it. It’s been rented for 22 days in the month of July we have on the books.

Henry Washington:
Are you going to refi out of this thing?

Joe:
I already did. So we already got all our money back out of that one and it appraised at 143.

Henry Washington:
Nice. That was higher than you expected.

Joe:
Yeah, it was good. So I ended up being in it all in, including furniture and everything, about 90-ish, and it appraised at 143. So we ended up refinancing it at 60%. So we got most of our cash back. I think we had 83,000 was our loan. So that’s good. And the kicker on a condo is that dues are 611 a month. And so you combine that with a couple hundred bucks in taxes and then your electricity because you’re paying for that. Everything else is included, but you pay for electric. And then your debt service, the payment principal and interest is about 600. So it seems like it’s going to be pretty good, but time will tell. Color

Henry Washington:
Me impressed, man. Three pretty amazing deals in 2026, no less, in Houston, Texas, no less. And now you said, I heard you earlier, you said you had one under contract right now, so I’m assuming that’s your fourth deal. So come on, give it to me. Tell me about this

Joe:
One. So the fourth deal, I haven’t done the whole thing yet, but we’re going to close the next couple days. So again, two houses because that seems to be my thing. So it’s got a five bedroom house in the front and then a two unit in the back. And it’s section eight rented. So two of the three units are occupied. So I got under contract at 355. The front unit currently brings in 2,800 a month and then the rear units are 1,400 a piece. Well, it gets better though. So

Henry Washington:
You’re bringing in 2,800 in the front, 2,800 in the back.

Joe:
5,600.

Henry Washington:
$5,600 gross rents and you paid 350.

Joe:
355.

Henry Washington:
My brain can’t even hold onto the numbers.

Joe:
So my plan with that one, we paid 355. We got about 75 in our construction budget to just bring everything up to nicer finishes. We’re going to put in. Even though it’s section eight, it’s going to be a nice place for people to live. And then actually the rents, when we do that, we can increase the rents. The section eight limits are higher, so we’ll be able to go up to 3,300 on the front unit. And then the rear units will go, one of them will be 1,730 and the other one will be 2,328. So we should be at about 7,300 a month cashflow. So

Henry Washington:
For the people listening, first and foremost, if you have a stigma in your head about section eight, get it out of your head. There are good tenants and bad tenants in every price class. I don’t care if it’s top tier $3,000 a month rent or if it’s bottom of the barrel under a thousand dollars a month rent. There are good tenants and bad tenants everywhere. Our job as investors is to be great at tenant selection regardless of the class of unit that we have. And so section eight can be very cash flow positive. And not only is it very cashflow positive in some markets, but obviously you get the guaranteed rents or a good chunk of that rent is guaranteed through the government. So in larger cities, places like Houston, typically Section eight will pay higher than market value rents. In other words, you can get more rent out of a Section eight rented house than you could if you took that house off Section eight and just rented it traditionally.
And the amount of rent the government is willing to pay per house goes up based on the number of bedrooms. So if you can add bedrooms, you get more rent. So it sounds like the one you’re getting 3,300 on, that’s probably the, was it a five bedroom? Five

Joe:
Bedroom, yeah.

Henry Washington:
That’s fantastic. So if you’re in a larger city and you’ve already got rentals, you may want to call down to the housing authority and see what they pay for rents and see if it’s higher than what you’re currently getting, man. I love that. So 3,300, 1,730, 2,328. And what’s your debt service on that? What are you paying for mortgage taxes and insurance? So

Joe:
I haven’t purchased it yet, so I couldn’t even tell you exactly what the payment will be, but probably about four grand a month, I’m going to guess. I

Henry Washington:
Mean, that’s probably about right. Somewhere between 38, 42. But you’re bringing in after you fix it up, 73. Wow. That’s cashflow, folks. That is cash flow. Was this an MLS deal too? It

Joe:
Was. Geez,

Henry Washington:
Man. Geez. Man, oh man. I don’t even got to do the math to know that that’s a screaming deal. Man, that’s awesome. And you’ve done it by using some of your own cash, but pulling it back out. I mean, these are just traditional things that people talk about, but I love hearing how people take these methods that we talk about and they implement them in their business, man. Fantastic deal. Why don’t you give us a summary? How many deals and/or units do you have and what’s that putting in your pocket every month? So

Joe:
We have currently five, about to be eight once we get this next one closed. And I think that should cash flow us at about 6,000 a month net after all expenses. I’ll

Henry Washington:
Take that all day long, my man. That’s incredible. And like I said, you were using some of your money, but it looks like you’ve been able to pull the majority of your cash back out.

Joe:
I would say by the time we finish up this round, I’m going to call it, we should have all of our cash back and probably then some.

Henry Washington:
So all your cash back in your pocket, plus you’re getting $6,000 a month in net cash flow, and sounds like we’re just getting started. I would like for you to share with our audience maybe some lessons that you’ve learned over the past 12 months because you’ve done a lot. It’s not just that you bought these eight units, it’s that you’ve renovated them and you have refinanced them and you are operating them. And so what was maybe something that was a lesson on a deal that you weren’t expecting or maybe something that did not go to plan? So

Joe:
Lots of things didn’t go to plan, so I don’t want to give the impression that this is easy. It’s definitely not. The hardest challenge for me has been the financing piece because I’m ready to move really quick and I haven’t had the right lending relationship is how I’m going to say that. And I’ve tried a few different ones. So I’m still trying to work that out. That’s probably the biggest piece I would say. And then the other thing is sooner or later you just have to do it and that’s going to be your lesson. So for me, the first one, it was only $135,000 purchase. So I figured what’s the worst thing that’s going to happen? It’s not going to be worth zero. So my risk is fairly limited and it worked out good, but I think just my best piece of advice would be if you’re ready, just do it.
You got to do one. And it may not go perfect, but that’s how you’re going to learn. If

Henry Washington:
You’re starting with a single family home, I mean, as long as you’ve done enough analysis to at least have a general understanding of what kind of discount you need to be buying properties at, just buy it. Real estate, very rarely is it ever going to go to zero. You’re right. So your risk isn’t that you’re going to lose all your money. Your risk is that you might lose some money, right? You might have to deal with some headaches, but you’re going to learn something in exchange for that. And if a single family home not going well is going to put you in the poor house, then I’d say you’re probably not financially ready to invest yet. You need to save up some more cash before you jump in. That’s why it’s important that you take your bumps and bruises on a deal where your risk is limited.
So just be careful, protect yourself. I love that. Any other lessons or things that you wish you would’ve done different?

Joe:
I think the short-term rental, one thing I will say there, that looks really good at first glance, but there’s a lot to it. You hit it right on the head. You can’t just give people a bed. Nowadays you got to have this house you end up putting in a hot tub and a fire pit and all this kind of stuff. And we do little, you’ll appreciate this. We do little gift baskets where we give them customized gear and a Bluetooth speaker and try and make it really an experience. But the Airbnb side, the other thing I didn’t fully anticipate is how much it costs to furnish a complete house. And people think it’s not very much. And I’m like, when you do three or four bedrooms and I’m talking, you got to do everything, three sets of bedding, the bed, the mattress, the TVs, all that stuff, you can spend 30 grand in the blink of an eye furnishing a house, especially if you want it to be nice.
So that was one thing I kind of under anticipated a little bit. All

Henry Washington:
Right. Before we get out of here, I wanted to revisit something. You said that your second deal, which was the two SDRs on one lot, had $13,000 in annual taxes and you were able to get that reduced to $5,000. How did you do that?

Joe:
So I anticipated that. That was one of the things. Just to give you a flavor of MLS, I called the realtor and I go, “Geez, the taxes are 13,000. Is that right?” And she goes, “Yeah, if that’s what it says, that must be what it is.”

Henry Washington:
Thanks, lady.

Joe:
Instead of saying like, “Yeah, hey, but you could appeal that and get it way knocked down.” So to me, I went, “That doesn’t make sense. I wonder if I get that knocked down.” So I did some research and you can do it here. It’s once a year and you get a pretty tight window. So I anticipated that as part of my buy was that I’m going to get them knocked down. So what surprised me, Henry, is how easy it was. It’s

Henry Washington:
So easy. People do not realize this. It’s so easy. Listen,

Joe:
Here’s how easy it is for everybody listening, at least where I am. I filled out the form and then I went down to the place in person. So I sit down in the lobby for 10 minutes and the girl goes, “Yeah, come on back.” And she goes, “Tell me what’s going on.” I go, “Well, hey, I just bought this property for 295 and it’s tax assessed at 780 and that seems bananas.” And she goes, “Oh, okay. How’s your day?” “Oh, good. “He’s typing away. And then she goes,” Okay, are you good if we just drop it to 295? “And I go,” Yeah, I guess. “And she goes,” Yeah, your tax will be like 5,000. “I go,” Okay. “So that’s how easy it was. So it’s shocking. So I don’t know why you wouldn’t do that. I’m lessen to myself every time I’m going to go down there.

Henry Washington:
Every year, folks, find out what your window is. In some cities, it’s a longer window. In some cities, you can do it whenever you want. You just need to figure out when you can do this. But yeah, you can challenge your property taxes. So a lot of times what happens with investors, guys, is you buy something and then you renovate it and then you refi it. And then maybe a year down the road, six months, depending on whenever they do their inspections and assessments, you’ll get a letter in the mail that says, Hey, your property taxes are now why? And what most people do is they just say, man, that sucks. Okay, I guess there goes my cash flow. But you don’t have to do that. You can challenge them. Some people, you have to provide comps to show that, hey, this property is similar and its taxes are lower.
And sometimes you just go down there and say, hey, I don’t think this is fair. And then they just look on their computer and go, okay, how’s this sound? And then your taxes are lower, but it’s very easy process. There are companies that will do this for you, but you don’t need to do that. You can literally negotiate these things yourself. And most of the time they will reduce your tax bill. Not always, but most of the time you can get a reduction, which is going to save you money and put more cash flow in your pocket. This is something everybody should be doing every year, but most people don’t do it at all.

Joe:
I agree. All right,

Henry Washington:
Joe, thank you so much for coming on the BiggerPockets Podcast. I love that you’ve had so much success really in a seemingly short period of time. I’m curious though, have you had more or less or as much success as you thought you would in your first year of real estate investing? No,

Joe:
I’ve had a lot of road bumps along the way getting all these projects done, but at the end of the day, I think it’s gone really good. So I think that probably now, if I look at it as going, here’s the portfolio and here’s what’s in there, I go, geez, yeah, we’re killing it. That’s great. So

Henry Washington:
What’s the goals moving forward? Are you going to continue to buy more? Are you going to just focus on paying off what you’ve got? Where are you headed? Oh

Joe:
No, I’m definitely not going to sit still. So my first goal is to get to 10 and trying to figure out our lending relationships, I think that’s the one thing that’s holding me back right now is you only have so much cash. And so working that piece out, that’s over the next year. And I think once I get over 10 projects completed, that door will really open up. So no, I want to keep grinding. I think 30 is where I need to be just in my head to maybe shift away from my W-2 employment and into doing this full time. But if it keeps going like this, yeah, I’ll keep rocking it. It’s fun. How

Henry Washington:
Much longer do you think it’s going to take you to get to where you want to be in terms of being able to not travel 300 days a year and work six 12s? I

Joe:
Think somewhere between one and two years from when I started, I’ll be at a point where I will have replaced my income. Hey,

Henry Washington:
That’s pretty incredible, especially for starting in literally the last month of 2025 and getting this far now. Congratulations, man. Thank

Joe:
You. We

Henry Washington:
Talked a lot about these amazing deals, and I think it almost gets lost that you’ve done all this while traveling 300 days a year and working six twelves. So if you are listening to this and you have been hesitating jumping in to investing in real estate because you don’t think you have enough time or you don’t think you have the resources or you don’t think you can find a deal, I hope you find some inspiration in this story because none of those things are true. You can absolutely do this. You just got to do it. And I know that sounds cliche, but just talk to Joe. You just heard him for the last hour telling you he just did it. This is not an easy business. It is challenging and scary and uncomfortable, but it’s a simple business. Buy something that you can add some value to, add the value, monetize it at its new higher price, rinse and repeat.
If you do that, you’ll look up in 10 to 15 years and realize you’re pretty wealthy, and that’s super stinking cool. Thanks for sharing, Joe.

Joe:
Welcome. Thanks for having me. All right

Henry Washington:
Guys, thank you so much for listening to this episode of the BiggerPockets Podcast. And if you, like Joe, have a pretty amazing real estate investment story and you’d love to come on the podcast and share it with us, then go to biggerpockets.com/guest and fill out the form. Maybe we’ll get to interview you on the show and you can share your story with our audience. Thank you so much for listening to this episode. We’ll see you on the next one.

 

Henry Washington:
You can analyze a property on paper, but let me tell you, I’ve bought over a hundred homes and these five things will make or break your next investment. Every property I buy, I check the big five. It’s a simple list of the systems in a house that will cause you the most pain if you have to fix or replace them later. If all five checkout, you could make thousands more over the life of a property. But if even one of these systems has a problem, it’s time to ask for a serious discount or walk away. I’m going to show you which are red flags to run from, what you can fix, and how much it could cost. Also, I’ll show you the hidden signs that a system is about to go probably right after you bought the property. You can even do this if you’re investing thousands of miles away.
I’m just trying to save you tens of thousands of dollars in this episode, but it’s up to you to learn from my mistakes or make a costly one of your own.
What’s going on, everybody? I’m Henry Washington. I’m the co-host of the BiggerPockets Podcast. And in today’s episode, we’re doing part one of a two-part series about how to estimate rehab costs when you’re purchasing a property. This is one of the most important calculations you make as an investor, and there are definitely some tricks to the trade that I’ve learned rehabbing more than a hundred homes myself. Today, we’re talking about the big five, and that is plumbing, electrical, roofs, foundations, and HVAC. These are parts of a house that can cost the most to repair or replace. On our next episode, we’ll be talking about how to fix up kitchens, bathrooms, and other value add opportunities. So as I mentioned in the intro, the big five are the roof, the foundation, the electrical systems, the plumbing systems, and the heating and cooling systems of the home. These are big ticket items that will cost you the most to repair or replace.
So you need to have a good understanding before you purchase the home of where these items are in their lifespan. What you’re trying to do is to understand, is this expense coming up in the near future or in the distant future? Because the expense is coming no matter what. These things don’t last forever. And if these expenses are coming up sooner than later, I want you to not be scared of the project, but be able to adjust what you’re offering for the home to cover that expense so that you’re not covering it out of your pocket down the road. So the first item on the big five that we’re going to cover is the roof. Roofs are pretty standard. There’s a few different types of roofs. Mostly what you’re going to find in a roof in a home in America is a shingled roof, and that shingled roof is either going to be a three tab shingled roof, which is just the shingle looks like a brick shape and the shingles are laid in a brick pattern.
They are not overlapping, they’re individually laid. This is an older style. Not a lot of people install new three tab roofs. Most people install what’s called an architectural shingle. That’s what you’re going to see most of in the United States. It is the same material as a three tab roof. It’s just structured a little differently. It’s a smaller square. They’re laid overlapping, creating layers, like a layering effect on the roof. And that is the standard. Most homes are going to have an architectural shingle, or when you put a new roof on the house, you’re probably going to install an architectural shingle. Those are the main two styles. The third most popular style is a metal roof, and those are obviously more expensive because you’re putting metal on, but they’re a lot more durable. The shelf life of a metal roof is substantially longer than the shelf life of an architectural tab or a three tab.
The major differences in these styles of roofs come in two parts. The first part being the cost, three tab being the least expensive architectural shingle in the middle and metal roofs on the high end. But what you’re paying for is lifespan. The three tab shingle, the roof should last you anywhere between 15 to 20 years versus an architectural shingle can last you anywhere between 25 to 30 years and a metal roof can go from 40 to 70 years. So what you’re paying for is longer lifespan, better protection before you have to make the investment to put a new roof on the property again. So how can you tell if a roof is bad? When you look at these shingles, it’s almost like there’s a sandy asphalt gritty sandpaper texture to the shingles. And the older they are and the more wear they have on them, that grittiness starts to wear away and it looks a little smoother.
So if you’re looking up at the roof and the texture of the roof seems like it’s smoothed out in a lot of places, that means that that roof is probably older or has had a lot of wear and tear. Another thing I’m looking for is, is the roof line a line or is it wavy? I have looked at roofs sometimes that really look like there’s got a lot of waviness and up and down in there. That lets me know that there’s probably moisture issues and that the decking under the layer of shingles is probably warped and that warped decking is causing the roof to look warped and that should let you know that you need to replace that roof and replace the decking, which can be more expensive. And then the third thing I’m looking for is can I spot missing shingles? This is the dead giveaway.
You’ve all driven by a house and you probably will now that I’ve pointed it out and looked at roofs and you can see shingles completely missing where it looks like there’s bare spots on the roof. That’s typically because of wind damage through storms that have blown shingles away or the roof has worn down over time and then a windstorm has blown shingles away. If you’ve got several missing shingles, that is a clear sign that there needs to be a new roof in the very near future. And it’s also a sign that when you go inside of that house, you need to start looking for spots inside the house where water may be leaking from the outside into the house because it doesn’t have shingle protection on the entire coverage of the roof. So when should you look at repairing a roof versus replacing a roof?
And this is a tough question because it’s really going to be based on what your plan is for that house. And so when I purchase a house to flip, I do not automatically replace the roof. Even if that roof is 10 to 15 years old, my general theory is if the roof is roofing, we going to let it roof. If the outside’s staying outside and the inside staying inside, it may not look pretty, but the roof is doing its job and I’m not going to automatically replace it just because it may be an older roof. Now, if that roof is missing shingles and there’s spots inside the home that might indicate water is leaking, then yes, I am going to go ahead and replace that roof. I have clear signs that the roof is not roofing anymore. If this property is going to be a rental, which means you are going to be the one that has to replace that roof at some point, my general rule of thumb is if it looks like it needs to be replaced in the next five years, well then I’m going to account for that in my offer and get a discount on the property so that I can afford to replace the roof when I need to.
I still may not replace it right away, but I know I have the budget to replace it because I offered low enough to cover that expense. In terms of what a roof is going to cost you to replace, here’s how I estimate that. A three tab roof, which I don’t recommend you put on, I always recommend you do architectural or better. People see three tab even if it’s brand new, if they have any type of home experience, they probably don’t like it. So I wouldn’t recommend it, but a three tab roof will run you anywhere from five to 10 or $12,000 depending on the size of the roof. An architectural shingle roof is going to run you anywhere from, I say on average, 10 grand, but anywhere from eight grand to 16, $17,000 depending on the size of the roof. Whereas a metal roof, the most expensive option is probably going to run you anywhere from 12 to 25 or $30,000 depending on the size of the roof and the kind of metal roof that you get.
All right, before we move on to the second item, I’m going to give you a number 1.5 because it is on the exterior of a home and you should evaluate it when you’re evaluating the roof. And that item is windows. Windows are very expensive. And what I’ve learned as a house flipper over the last several years is that when you flip a house, people usually expect there to be updated windows. It’s funny, they may not expect the roof to be brand new, but most people want new windows. And so eight times out of 10, I’m going to replace the windows if they’re older single pane aluminum windows. Any single pane window, I’m going to replace it and I’m going to replace it with a dual paned vinyl window. That is what most people expect. That is what most people see on homes. So the quick and dirty way to determine if your property needs new windows is just to go through and look at the window themselves.
If the casing of the window is metal or aluminum, that’s probably an older window. Windows are costly. The general rule of thumb that I use is somewhere between 300 and $400 per window installed. I would estimate more on the high side, somewhere closer to $400 per window installed. And keep in mind that I’m just assuming a standard shaped window here. All right, that covers roofs and an extra bonus for you on windows. I can’t wait to jump into foundations, but before we do that, we’re going to take a quick break.
All right, we are back on the BiggerPockets podcast and we are discussing how to evaluate the big five. These are the big ticket items that you need to make sure that you are budgeting for when making offers or purchasing new properties. We covered roofs in the first section and we covered windows, and now we’re going to talk about the dreaded foundations. There is a lot of stigma around buying houses with foundation problems, and trust me, it is well earned. Foundation problems can be a nightmare and they can be crazy expensive, by far the most expensive item within the big five. So it is not something to be taken lightly, but do remember that it’s just a number. It’s just a dollar amount typically to fix the problem. There are some foundations that are beyond repair and that essentially renders the house to tear down. But for the most part, there’s work that can be done to repair, stabilize, or even replace a foundation.
So how do you know if there’s foundation problems? That’s your first job as an investor is to walk the house and try to determine is there even a foundation problem? And so here are some of the things that I look for or that I’m on the lookout for when I’m walking a house and I’m trying to evaluate if there’s a foundation issue. And first and foremost is what do you feel under your feet? Does it feel like you’re walking up an incline when you’re just in a flat room? Does it feel like you’re walking down a hill when you’re in a flat room? Does it feel like you’re going over bumps in the flooring? Bumps in the flooring may be just because of the flooring, but it could be a sign that there’s foundation issues. But if the house is sloping up or down, that is a big red flag to help you understand that you’ve got some foundation problems that you need to have evaluated.
The next thing I’m looking for is, are there large cracks in the wall? Drywall is drywall. It’s going to crack because houses move. Houses are just like anything else. They expand and they contract. When it’s hot, it expands. When it cools, it contracts and that can cause some cracks in drywall, but typically those are small cracks. Foundation cracks, however, tend to be much bigger. Think of something that you can fit your finger into. If you have large cracks that you can put a finger in, maybe a big coin can go in there, now we’re talking about something that’s caused by more than just your normal house breathing, expanding and contracting. That’s a sign that the foundation of the home is shifting, causing that drywall to crack substantially. So you’re looking for the thickness of the crack. You’re also looking for the length of the crack.
If it is a long crack spanning from the floor to the ceiling and across the ceiling to the other wall, that’s a massive crack. That doesn’t just happen from expanding or contracting, that is actual house slippage or movement that’s causing such a big long crack. So if you’re seeing wide cracks or long cracks, that’s something to make a mental note of that you want to get a foundation specialist in there to take a look at that property. The next thing I’m looking for is if I see some of the signs of cracks or I see some of the signs of flooring being sloped, the next thing I’m doing is I’m opening and closing all the doors because if the house is unlevel and it has shifted, sometimes the doors won’t open all the way because maybe the floor is lifted up a little bit and the door doesn’t have the clearance it would normally have.
So if you’re opening doors and they’re sticking to the floor and you’re having to pull on them and then drag them across the floor to get them to open, that could be a sign that there’s a foundation issue. Same thing if they’re sticking in the doorframe, meaning that the frame of the house has maybe tilted or adjusted because the foundation is off, but the door hasn’t shifted with it, then it can get jammed inside of the doorframe and it seems like maybe the door’s just sticky. It may not just be sticky. It may be that it’s not fitting properly and the foundation’s causing it not to fit. So I open and close all the doors to see how smoothly it opens and closes. Is it dragging on the floor? Is it sticking in the frame? And then the next thing, I wish I didn’t tell you to look out for this, but I’ve seen it with my own two wives in more than one house, is when you’re opening and closing those doors, check the tops and the bottoms of the doors.
I have literally seen where people have sawed off the top of the door because the foundation problems were so bad they couldn’t get the doors to open and close, so they self-modified the doors. So just check the doors and make sure they haven’t been handyman specialed and the owners of the property haven’t cut off the tops or bottoms of the doors to make it seem like the foundation isn’t a problem. So these are enough visual cues for you to be able to have a good idea if there’s foundation issues. And so now I want to talk about how do you assess how much it’s going to cost you? And here’s my secret to assessing foundation issues. Secret number one is I don’t. Foundations are hard to estimate. I have tried and I have failed almost every time. When I thought it’s only going to cost me 5,000 to fix a foundation, it’s cost me 25,000.
And when I though it was going to cost me 25,000, it’s cost me 5,000. I do not estimate this anymore. It is not my area of expertise. I don’t understand it like an expert does. So when I’m walking a property to evaluate if it has foundation issues, I am going to bring in a foundation specialist. So really what you’re looking for is am I seeing cues of foundation problems? If I am, great. Let me bring in a foundation specialist to evaluate that property and give me a quote to fix that property. That is what you should trust. Do not try to estimate this on your own unless you’re a contractor with experience in working with foundations. And to get more than one quote. The work involved with fixing foundations can be very specialized. Some people have better tools and skill sets than others. And so I’ve had multiple bids where I’ve gotten a bid for $15,000 to fix a foundation and then I’ve gotten a bid from another contractor for twice as much.
So get multiple bids for the foundation repairs and then ask each contractor to explain the bid to you, A, so you are learning what’s happening and learning how they’re fixing the problem. And so B, so that you can get better at understanding what’s involved with fixing foundations so that you can be more educated on the next property that you see. But I cannot stress enough, don’t estimate yourself, get a professional to estimate it, get multiple bids, ask lots of questions. The next big ticket item, in my opinion, is one of the hardest ones to evaluate to be able to tell if you need to replace this and what it’s going to cost, mostly because it’s plumbing and all the plumbing lines are buried, so you can’t see them with the naked eye. But if you look past this item and it comes back to bite you in the butt later, it can cost you thousands to tens of thousands of dollars depending on the age of the home and depending on the kind of plumbing that was used for that property.
So here’s what to look for when you’re walking a property and trying to make sure that there aren’t major plumbing issues. When you’re inside of the house, turn on the water, see what color the water is. Is it gross? Is it brown? If it’s gross and brown, that means there’s probably some sort of rust or sediment inside of the pipes that’s causing the water to change colors. And trust me, that’s going to show up on an inspection. People are going to notice they’re not going to want to buy the house. So you’re going to want to make sure that you’re budgeting to get that repaired or replaced. Check the water pressure. If the water pressure seems super low and you’ve gone to the hot water heater and checked on the pressure and it looks like it should be higher than that, then that is a sign that there’s something either blocking the water from coming through the pipes and typically that’s some sort of corrosion or some sort of mineral buildup.
So if you’ve got old copper and cast iron pipes over time, just from daily use, from years and years, there’s just corrosion and things that start to build up and shrink the thickness of that pipe. And so the water stream that’s coming through those pipes is so constricted that the pressure is no bueno. So check the water pressure when you turn the faucet on. The next thing you’re looking for, look under the sinks. When you’re looking under the sinks, what you’re hoping to see is PVC, and that’s the white plastic pipes. That’s newer plumbing connections and that PVC is what’s on the inside of the house, but that PVC connects to the actual plumbing of the house that’s underground. And so you can start to see where the plumbing from under the ground comes up into the sink area and then where the plumbing that’s in the house connects to that.
So if you’re checking that and you see all PVC and it looks clean and clear, that’s a good sign that plumbing’s been updated. If you’re looking at that and you can see that the plumbing coming from the under the ground into the home looks like an older galvanized pipe, but the PVC connecting to it isn’t, that’s a sign that the plumbing inside the home’s been replaced, but the plumbing under the home may be very old. So check on that. I always look for those things. And then under the sinks, I’m also looking for, does it stink under the sink? If it stinks under the sink, that could be a sign that there’s leaking coming from the plumbing. It could also be a sign that that old plumbing pipe coming into the house is just old and gross and corroded with junk that’s been put down the drain for years.
I’m also looking at the decking under the sink. Are the boards wet? If they’re not wet and they’re dry, are they wavy? Are they showing signs that they have been wet before? Because then I’m going to ask the question, was there a leak that was fixed? Is it just an old dried up leak? But you’re looking for signs that water was leaking from pipes and sitting on that decking boards under the sink. And then I’m also looking for signs of mildew or mold. If there’s mildew or mold, that’s a clear sign that there’s an active leak or there is water pooling somewhere. Mold or mildew doesn’t live without moisture, and if there’s moisture, then you probably have yourself a leak. So I’m looking for signs of water under the sinks. I’m also looking for drains. So when you are testing the water pressure, close the drain so that the sink fills up and then open the drain and see if it drains in a normal time span.
If it’s a slow drain and it’s just sitting there and nothing’s draining as fast as you think it is, that could be a sign that you’ve got some buildup or something going on inside of the pipes, a sign you need to replace that plumbing. You don’t just need to check inside the house for plumbing issues. You also need to check outside of the home for plumbing issues. This is a whole lot harder to spot. The more you look at this, the better your eye’s going to get. I’m still not great at this. These are things that are hard to see. But what you’re looking for when you’re outside of the home is you’re feeling around for wet spots. So if you’re walking around the outside of the home and it’s not raining outside and you walk through a spot that seems damp or like it’s been recently watered, that could be a sign that there’s a pipe under the ground there that has a leak and it’s saturating the ground.
Another way to tell that there might be a leaking pipe outside of the house is, is the grass super green in one patch in the backyard, right? Maybe it’s greener than everywhere else or maybe the grass is all dry, but there’s a green spot. That’s a sign that there may be water coming from a pipe under the ground there and that spot is getting saturated and is doing well from a fertilizer standpoint, but probably not doing well from a plumbing standpoint. And then other things like sinkholes, if there’s a spot in the backyard or in the front yard that seems like it’s dropped down, like it’s sunken down a little bit, that could be a sign that there’s a pipe causing a problem, maybe a pipe with a crack in it or something saturating the ground causing the ground to sink. And then the last thing is look for cracks in the foundation or pooling water around the edges of the home.
I recently had this at a property that I was selling and we had a hose bib that was on the side of the house and the hose bib, part of the hose bib that was under the house was leaking. And so we had really damp ground in one section and one corner of the house by the foundation. That was a clear sign to the inspector that there was a problem with the plumbing. Sure enough, we get a plumber out there and the hose bib was leaking. So if you’re walking a property and you start to notice one, two, three, or several of these things that are going on with the property, what does that mean in terms of cost? Well, I’ve got good news with plumbing is that it’s typically a capped cost. It’s not like foundations where it could go up to $50,000 to fix a foundation.
This is plumbing. It’s to re-plumb an entire house, a standard three bed, two bath, 1500 square foot house, you’re probably looking at anywhere between seven grand to $15,000. Now there’s probably some variations on the higher side and there may be some variations on the lower side, but you’re pretty much capped somewhere in that ballpark. So it’s not the end of the world if you have to re-plumb a house, you just want to be able to budget for it on the front side. It’s same thing as like if you were budgeting for a roof of the same cost. And so what I would recommend is if you start to see some of these issues, just get a plumber out there and have them give you an evaluation of what’s going on and what they could do to potentially fix the problem and then have them give you a quote to completely re-plumb the house as well and then make the best choice for your budget and the deal that you’re working on.
All right, we are back on the BiggerPockets podcast talking about the big five plumbing, roof, foundation, electrical and HVAC, how to evaluate a home to see if one of the big five have an issue, what it’s going to cost you to fix it and what you should do about it. All right, next on the list of the big five is the electrical systems. This one, in my opinion, is a little easier to look for because there are lots of signs that you can look for in the house to let you know if you’ve got to work on the electrical, have it repaired or have it replaced. So when evaluating the electrical system, the first thing I’m looking for in the house is the electrical panel. I need to locate the panel, I want to open the panel, and then I want to see what it looks like on the inside.
What I am looking for is I am hoping to find a breaker panel. Breakers are the modern electrical systems that newer homes uses. And so if you open it and you see breaker switches, that is a good sign that you’ve got some updated electrical, you probably won’t have to do much of any work as long as the service or the amp service coming into the house is high enough to support what you want to do in that house. But if you open that panel up and you see fuses, they look like little light bulbs that are screwed in backwards, you pull them out and you can see old fuses, that is a sign that that is an older electrical system in that home and that may need to be updated. So if I am flipping a house and it has a fuse panel, I would say 80% of the time I’m probably going to replace that fuse panel with a new updated breaker box because people are usually expecting that.
Some other signs, if you can’t locate the electrical panel or you just aren’t quite sure what’s going on, some other things to look for or to go around and look at the actual outlets in the home. Are they three-prong outlets? If they’re three-prong outlets, it’s very likely that the electrical system has been updated at some point. Now, they can be three-prong outlets, and a lot of the times if they haven’t been updated, that third prong may just be a dummy. And so just because it has three prongs doesn’t mean that it’s been updated, but it is a sign that it might have been. But if you are seeing all two-prong outlets, that’s a sign that it’s got older electrical and that you may need to update it. Doesn’t mean you have to, it just means it’s older and it might be causing a problem. Other things you can look for are if you’re turning on and off light switches, are the lights flickering?
Does it look like there’s struggle to have lights on? Is there struggle to carry electrical load in that house? Also, touch the electrical switches, touch the outside of the outlet switches. Are they warm? If they’re warm to the touch, that could be a sign that something is wrong, that they may need to be just an outlet rewired or maybe that whole home needs to be rewired. There are some more advanced things you can look for. I am not an electrician, so I don’t try to look for these things, but some of you may have experience with electrical work or maybe you have family members that do. And so one of the things you can look for when you’re looking into a fuse box or electrical panel, you want to look for double-tapped wires. So these are where multiple wires are tapped into a single circuit breaker.
Not always easy to identify if you don’t have a trained eye, but most people who have seen what a single tap looks like would be able to identify a double tap super quickly. Also, look for rust or corrosion inside of the service panel. That could be a sign that there’s something going on with the wiring, maybe that it’s not wired correctly, or that there’s some sort of problem causing corrosion or buildup. All right, so if you’re walking home and you’re seeing some of these red flags, potential electrical issues, do not fret. This isn’t another one of those situations that’s going to put you in the poor house completely, but it can get up there. A typical rewire on a home, if you’ve got to redo it all, can range anywhere from four grand to about $15,000. That’s generally what it costs in my neck of the woods.
If you live in a more expensive market, it could cost more. If you live somewhere in the Midwest, maybe it could cost less, but have an electrician come out and give you a quote for what needs to be done, very similar to plumbing. There is things that can be done to modify or fix a situation rather than to completely rewire, but remember that electrical, unlike plumbing, can be very life, health, or safety related. You don’t want to have a fire hazard and risk a fire because you’re trying to save a few hundred dollars. So make sure that you get bids to fix whatever the problems are, that you ask your electrician, what are the risks if I don’t completely replace it versus just doing this fix? Oftentimes I err on the side of just replacing the electrical when it makes sense because it’s life, health, and safety, but make sure you get a licensed electrician in there to evaluate the problems that you’ve seen, to let you know if they’re truly a problem or not, and to let you know if you can fix it and if that fix will be safe.
Last on our list is the HVAC system. This is the heating and cooling system of a home. It can be expensive to repair and to replace so You want to evaluate it when you’re walking the home, here’s what I look for. There are typically two main elements you want to look for in your HVAC system, that is your condenser unit, which is usually located outside, and your furnace, which is usually located inside of the home. Now, depending on the area of the country, we’ll determine where on the outside of the home the condenser is. In my neck of the woods, they’re typically just outside ground level on the backyard of the home in most cases, or on the side of the home in most cases. But if you’re on the West Coast, like Arizona or California, oftentimes these things are placed on the roof. So you might have to get up on the roof or send somebody up on that roof to look at that unit to determine what kind of shape it’s in.
You’ll know an old bust down looking one when you see one, and you’ll know a one that’s in pretty good shape. So what I like to do is I go to the outside unit and I take a picture. There’s usually an information sheet or panel on that unit, and I can upload that to AI and ask it to tell me how old the unit is. And that can help you understand where in its shelf life that unit is. That’s pretty much it, guys. I’m just eyeballing that thing. If it looks old, then I’m probably going to be like, “Yeah, I got to replace this sometime in the next five years.” If it looks new, I’m thinking, “Ah, it’s probably fine.” It’s more of an art than a science. I’m just being honest with you about what I look at. Next, I’ll go to the inside unit.
Typically, it’s in a closet somewhere. Very rarely it’s in the attic, but sometimes it is in the attic. But I’m looking at the furnace, the inside unit, and I’m doing the same thing. Does it look old and gross? Does it look functional or not functional? Turn it on, turn it off, see if it kicks on or kicks off like it’s supposed to. These are just very basic things that you can do to determine if that unit is working properly. You’re also going to come across properties that have or should have central heat and air that don’t. Maybe they took it out because it wasn’t working and they couldn’t replace it. Maybe it stopped working years ago and it’s just never been working. So some things to consider because they can change the price drastically. When you’re looking at a home to evaluate the heating and cooling system, the first thing I want to know is does it currently have duct work?
Does it have a working heating and air system or has it had a working heating and air system before? If it has, there’s typically going to be duct work, meaning there’s going to be air ducts either under the house, if it’s a crawl space or up in the attic. If it’s on a concrete foundation and you can see the vents and there should be a vent in each room, that lets me know that it’s either had heating and cooling before or it has heating and cooling. Because if it has duct work and you have to replace the HVAC system, your cost to replace that system is reduced substantially because you don’t have to run new duct work, which gets very expensive. If you are in a house that has never had central heating and air before, and you’re in an area of the country where people need and expect central heat and air, then you need to plan on installing it and that price can be far more substantial.
So here is what it typically costs or what I typically budget for heating and cooling. If I am installing an HVAC system in a home that’s had HVAC before, so I’m either replacing a current system or the system’s been removed, but the duct work is still there and I’m putting in a new system, it’s typically going to cost me anywhere between seven and $10,000. It used to cost around five, but costs have gone up substantially. So seven to 10 grand new HVAC system, pretty standard for this part of the country. Now, if that house has never had HVAC before and you have to run new duct work, then you need to get a professional licensed HVAC company out there to give you a quote because the duct work will be expensive and you don’t know how much duct work you need for that house because you’re not quite sure where that duct work can even go.
If it’s a concrete foundation, it’s probably got to go up in the attic somewhere. Do you have enough space in the attic for all this stuff? If it’s a crawl space house, maybe it can go under the house. Do you have enough space under the house? So don’t try to estimate if you’ve got to do an entire new system. There’s a ballpark range you can be at. I’ve had to do it a few times, but it’s typically run me anywhere from $15,000 to 20 or $25,000 depending on what kind of unit I want to put in and what kind of lifespan I want that unit to have and how I want that unit to operate. Is it going to be a gas unit? Is it going to be an electrical unit? There’s lots of variables. So please get multiple bids if it is a house that has never had HVAC before because the cost can go up and there are tons of different options for your system.
You need to pick the best option for the house that you’re putting heating and cooling in and for your budget and the deal you’re trying to do. All right folks, there you have it. That is the big five. We covered plumbing, electrical, HVAC, foundations and roofs. We covered what it’s going to cost you to replace or repair any of these issues and specifically what to look for when evaluating these things. Remember to keep in mind that every problem you find can typically be remedied with some sort of dollar amount so you don’t have to run away from a deal if these red flags start to pop up, but you darn sure better be prepared to make the appropriate offer. If you need to come off of that price to cover some of the expenses, please do so or you could find yourself in a world of hurt having to come out of your pocket to fix these big ticket items.
If you’ve watched this and you’re still a little unsure about what to do, you can always pay for a home inspection. Home inspectors will look at all five of these areas as part of their inspection and give you an analysis and whether they think you need to bring in a specialist or if it needs to be repaired or replaced, that is part of what you get when you do a home inspection. And I am not saying that me teaching you how to look at these things should be a reason for you not to pay for a home inspection. If you are not confident estimating rehab costs or determining what it’s going to cost you to repair or replace any of these things, get the home inspection anyway. Spending a few hundred dollars could save you tens of thousands down the road. All right folks, so that’s the big five item list that you need to evaluate when you’re planning your next repair budget on a new property, but these aren’t the only renovations you need to make.
So on our next episode, we’re talking about the classic value add opportunities, updated kitchens and bathrooms, floors, moving walls and more. I’ll talk about all of that on our very next episode in just a couple of days. Thank you so much for listening to this episode of the BiggerPockets Podcast. We’ll see you in part two.

 

Tony Robinson:
Want to make more passive income? Look, investors get into real estate for financial freedom, not to be attached to their rentals at the hip. If you’re constantly answering the phone, coordinating repairs, chasing rents, putting out fires, you don’t really have control over your time. You just have another job.

Ashley Kehr:
Thankfully, there are ways to make your rentals significantly more hands-off. While no rental property is 100% passive, you can get pretty close with the right tools, systems, and processes, giving you more time, flexibility, and freedom to do the things that you actually want to do.

Tony Robinson:
Today, we’re breaking down through eight different strategies, how to make your rental portfolio work for you instead of the other way around, because the goal isn’t just to have more rentals, it’s to build a portfolio that helps you live life on your own terms.

Ashley Kehr:
This is the Real Estate Rookie Podcast. I’m Ashley Kerr.

Tony Robinson:
And I’m Tony J. Robinson. With that, let’s get into strategy number one, which is honestly one of the easiest ways to make your rental more passive, and it’s to hire a property manager. Now, I’m sure most of you understand what a property manager does, but for those that aren’t aware, there’s a few things they handle. They handle what happens before the tenant gets into your property, and they handle what happens after the tenant gets into your property. So before, they’re going to post a listing and market your place for people to actually find it. They’re going to screen all of the potential applicants to weed out the people who maybe aren’t going to be great fits based on income, criminal backgrounds, whatever it may be. They’re going to show the unit to the people that are potential good candidates. They’re going to create your leases and make sure that you’re compliant with local and state regulations.
They’re going to execute the lease and deliver it and hand over the keys and do the initial walkthrough. So everything that’s required to actually get someone into the unit, a good property manager will take care of. And then once the person’s actually inside, they take care of everything else, collecting the rent, an important one, dealing with maintenance issues, helping you understand maybe some things you should focus on from a preventative side, working with vendors to make sure that in between tenants, that someone’s taking care of the turnover that needs to happen. So really every element of working with a property manager means less work for you and you’re really just there to give approvals on the things that you need to give approvals for. But that is the lowest hanging fruit to make a rental more passive.

Ashley Kehr:
And I think too, Tony, your last statement there that you just said is kind of oversee things and give approvals on things. So some property management companies have it set where anything under $500, they can go ahead and do that maintenance item or make the repair, but anything over and needs your approval. So I think my biggest point is even though the property manager can do a lot of that day-to-day stuff for you, you still need to do asset management. You still need to oversee your property and you also need to oversee their operation that it’s working effectively and efficiently and your property is still performing well. So as we go through a lot of these tips, a lot of these aren’t going to be your solution to 100% passive that you never have to pay attention to it again today. These are just ways to get more passive than if you did everything yourself.
Tony, I think too, we should also highlight that some of these don’t even just apply to long-term rentals. A short-term rental, you can hire a co-host to actually manage your property like you would a property management company for your long-term rental. Yeah,

Tony Robinson:
100%. And really any strategy really. We have some investors that we’ve interviewed on the show that do assisted living, but they don’t actually manage the assisted living facilities themselves. They have people who manage it for them and they’re just like the NC that owns the real estate and they built the right structure, but someone else is actually running the business. So really across a lot of different strategies it can apply. But Ash, you brought up a good point that I just want to highlight quickly about property management versus asset management. And I’ll give a few examples so Ricky can see the difference. A property manager is going to take the maintenance request for the leaky faucet. The asset manager is going to say, “Well guys, this is the third time in the last 90 days we’ve had someone report the same leaky faucet. What do we need to do to actually repair this to make sure that doesn’t happen again?” The property manager is going to maybe make sure that the insurance is paid.
A good asset manager is going to say, “Well, hey, when have we last kind of shopped to get the best rates for insurance to make sure that it’s working correctly?” So the property manager is really there to focus on execution. As the asset manager, it’s all about strategy and reduction of costs and how do we make sure that we’re running efficiently and both of those things work together. And oftentimes property managers are really, really good at property management. They’re really good at quickly knocking out maintenance requests. They’re really good at making sure that things get solved. They’re less so focused on if we zoom out 30,000 foot view, are we actually solving the root cause of these issues and bringing the overall operational cost of the rental down? So you as the owner still have to make sure you’re wearing that hat. And me, I was a terrible client for my property managers because they would ask me questions and I wouldn’t get back to them fast enough.
So you still have to make sure that you’re involved to give them the resources and the guidance to take care of things the right way.

Ashley Kehr:
Now number two is purchasing a property that is turnkey or brand new. So we’ve done a couple episodes recently on new construction homes, and this would apply to that too, where you’re not going to be expecting a lot of maintenance to happen in the home because it’s freshly remodeled or it is a brand new property where things should be working correctly. So less maintenance calls is definitely less work for you when the property is more passive. Plus if you’re buying turnkey, usually you’re purchasing the property with a tenant that is in place that has already been screened, their credit check, background check, and they should qualify, have the good debt to income and be able to afford the property. So I think that having that all set up for you already, as much as we talk sometimes about inheriting tenants, sometimes it can be good, sometimes it can be bad.
I’ve definitely had both. Usually when you’re purchasing from a turnkey company, they have gone through the proper vetting process, or at least you hope so, and you can verify that with them as to what is your process to screen a tenant before actually signing a lease with them and moving them in to actually see if there’s anything that they are actually missing from that process is kind of a red flag. But if you’re just buying a property from some guy off the street that’s selling it on the MLS, you can also ask what their screening process was. You can ask for copy of the lease agreement. You can ask for if they’re current on rent, which in New York State at least, you put that onto the rent rider. When you sell a property, you’re putting on if they are current with their rent or not for the tenant.
But obviously people could not disclose that, could lie about that, things like that. So I would say turnkey, vet their process, but more likely you’re going to get a tenant that they’ve already got in for you. And that’s also one less thing you have to do as the landlord is do showings, take in applications, take the time to find someone to actually get the unit rented out. When you actually close on the property, it’s already somebody in place

Tony Robinson:
For you. Ash, do you have any in your portfolio brand new construction rentals?

Ashley Kehr:
No, I don’t. I

Tony Robinson:
Do, and I love them. I love them so much more than the properties that we purchased and we renovated because even the ones where we did renovations, none of them were truly down to the studs. So there’s still always some level of things that we have to go back and fix. And Sarah, my wife and I, we talked about this before. It’s like, man, if we could just have nothing but new construction, on the management side of things, things would be so much easier because there’s just less that happens in new construction. There’s just generally less things that break or go wrong with new construction. It’s our older properties where we tend to have that. So if you are someone who is looking for the passiveness, you can definitely increase that by simply buying something that’s new or building something and building to rent instead.
Number three is to invest in good tools and software. And again, this translates not just to long-term rentals, but across almost every asset class at this point, whether you’re doing short-term rentals, mid-term rentals, self-storage, even flipping for that matter. Almost all of the asset classes now have some level of software if you’re wholesaling, some level of software that’s going to help make you more efficient. And I think it’s the real estate investors who are still relying on, God forbid, pen and paper, but even just Excel spreadsheets and Google Docs, there’s so much software out there that can streamline and make more efficient a lot of the things that aren’t really exciting as a short-term rental or as a long-term rental, as a medium-term rental owner. I’ll give some examples on the short-term rental side. Ash, I’ll let you give some examples on the long-term rental side.
For short-term rentals, a super simple example is getting people into the property. Long, long, long ago, like 2018, a lot of short-term rentals, you still had to use a physical key to get inside. So when you booked the place, the host would say, “Hey, there’s a lockbox on the side of the house. You got to jiggle it this certain way to get it open and don’t forget to put the key back before you leave or else we’ll have to charge you.” Now, when someone books one of our properties, they immediately get sent a four-digit code and that four-digit code matches the last four digits of their own phone number, and they also get a backup code. So if their main code doesn’t work, they get a backup code, and that code is set to automatically activate on the day and time that they’re supposed to check in to their property, and it deactivates on the day and time they’re supposed to check out of their property.
And all of that happens with zero intervention or action on my part, but it’s because we set up the right systems, tools, and processes to make sure that those things happen automatically. What about on the long-term rental side? What’s a super low-hanging fruit that would take a lot of time that’s automated for you now?

Ashley Kehr:
I would say the easiest thing is maintenance request. Instead of getting maintenance requests texted to you or your tenant calling you and then you’re in the middle of doing something, you’re busy, that how easy to forget that he texted you and needs something repaired or taken care of at the property. Where a maintenance request, if you use a software, like I use TurboTenant, if you’re a BiggerPockets Pro member, you get rent ready for free. You can have it all the time just in your dashboard whenever they submit a maintenance request, the status of it. So if you’ve sent it to somebody, to a vendor to take care of, if it’s in progress or if you finished it. The thing I like the best about this is if issues happen later on down the road, it is so easy to go back and look at the history of this property to see what’s already been done or has this been fixed before.
So instead of scrolling back through text messages with a tenant that moved out a year ago to see what the problem was with this or how it was fixed last time, something like that, you have it all in one place. Like TurboTenant, they also have a maintenance AI now where when somebody submits a maintenance request, the AI will actually ask it more additional questions such as, or can you include photos? Where is it leaking? Is it an active leak? Different things like that because I’ve definitely got tenants that text me faucet leaking. Is it the kitchen? Is it bathroom? Is it gushing water? Is this a small drip? What is actually happening? Instead of me trying to take the time to troubleshoot all this and figure it out, the AI response. So I’d say maintenance requests, low hanging fruit, along with rent collection. You shouldn’t have to get the mail.
You shouldn’t have to get paper cuts opening the mail.You shouldn’t have to put deposit only on the back of your check. Yu shouldn’t have to enter it into any bookkeeping. You shouldn’t have to take it to the bank to deposit it. Of my 40 tenants, I think I have four that still mail me a check and that’s because they don’t have wifi, they don’t have smartphones, they just have no way of actually using a tenant portal. So I still get theirs every month. But other than that, rent is just paid. I don’t have to do anything to get it. Even if they don’t pay their rent, late notices are automated and sent to them that they’re past due. Late fees are automatically added. These are all things I used to do manually. I would have to send everyone an invoice that didn’t pay rent. When I manage a 40 unit apartment complex, print out the invoice, you’re late, here’s your late fee that’s due.
And it was so much work. So definitely getting some kind of software really helps automate and make your rentals a lot more passive.

Tony Robinson:
Ash, I love that you’re such a real estate mogul that you’re getting paper cuts from opening up all the rent checks coming in.

Ashley Kehr:
Oh God, I shouldn’t still probably have scars on my fingertips.

Tony Robinson:
All right, let’s talk about strategy number four and that’s to emphasize preventative maintenance. So I think we all understand Ash’s point, a maintenance request comes in and we go fix that thing. Preventative maintenance is the other side where can we service these things before something goes wrong to extend the life of what they look like? And Ash, you actually have, I believe, a proactive maintenance checklist that you created at some point, right?

Ashley Kehr:
Yeah. So basically here’s the things that need to be done. There’s really not anything monthly, but quarterly, bi-yearly, yearly, every couple years. One thing that I really want to get on my preventative maintenance schedule is power washing. Recently had a couple properties done for that and I cannot believe the difference that it made the property look. So I just want to keep up on that and then it’ll just be cheaper each time that I do it because I’m not waiting 10 years before I ever power wash it again. So that was just one new thing. But I think just having these things like if you have an air filter for your furnace, you have a furnace, making sure that it’s staying replaced because it’s just going to make the life of your furnace last even longer and less maintenance that you’ll have to do, hopefully will last longer before you have to replace it.
All of these little things can really add up the gutters, making sure the gutters are cleaned out so they’re not getting full and kicked in and then water is just running down the side of your house because the gutters are overflowing and then it’s going into your foundation and into your basement and just causing more issues. For setting these preventative maintenance, you’re probably thinking, well, actually this seems like I have to do more work. I have to do all of these things. But if you’re setting this stuff up in the long run, it’s actually going to be more beneficial for you and be less work you’re going to have to do because you already have these tasks kind of set up and organized instead of being reactive and like, oh my God, scrambling, I have to get someone in to do this or that. And then it becomes a bigger issue, trust me, will be way more at work for you.
So even if you’re not the person doing these things, can you set these ahead of time like calling an HVAC company and say, “Hey, every year I want just a tuneup on my hot water tank and my furnace, what would that cost to do it in this property? I have five properties, would you give me a discount if I do it on all five properties?” And you can just go ahead and set those up as recurring things that happen yearly where maybe they send you a reminder and just say, “Hey, just so you know, we’re headed out to the property and this time we’ve contacted your tenant, let them know and blah, blah, and moved on with your day.” So there’s a lot of things like that that you can do. What about on the short-term rental side? I would assume that you’re probably doing a lot of the same preventative maintenance, but it’s probably harder working around guest bookings that are coming in because at least a tenant I can say it’s one tenant I’m contacting and can say and not having to figure out who’s the actual guest at the property or waiting until there’s an opening.

Tony Robinson:
We do quarterly maintenance inspections across all of our properties and it’s at that time and they’re just scheduled. It’s like our maintenance team knows how to do them. We have virtual assistants that help schedule it so that they know when to schedule it. But to your point, that’s when we go through and we try and identify issues before they become a guest facing issue. So we’re retesting every single outlet. We’re checking all the appliances to make sure that they work. We’re doing the basic things like the aerial filters and we have mini split some of ours and there’s things we need to do there. We have tankless water heaters that need certain things done on a maintenance side. So we’re checking all the big things, but then we’re also double and triple checking all of the elements that a guest might interact with to see if there’s anything that’s broken there.
So just getting into that rhythm helps us identify things before they become a bigger issue. And to your point, Ash, proactivity is typically less time consuming than reactivity because if we can identify and fix it quickly, it’s a short thing. But if a guest calls it, now it’s impacting their stay, it becomes a bigger issue for us.

Ashley Kehr:
I also have a proactive maintenance recurring checklist. I don’t remember officially what it’s called, but you can go over to biggerpockets.com/resources and I’ll just give you a starting point of some of the things that I do at my properties. And I’ve even added more things that don’t even apply to my properties just in case you’re in another region or something where maybe there’s something you have on your property that I don’t have, but you can go ahead and use that as a template and kind of make it your own and add things on there and use that. The last thing that I kind of want to add here is, and this may be more, I guess it applies to both long-term and short-term rentals, but your amenities. So for me, I like properties that don’t really have common areas because as much as I’d love to say all the tenants that live there, you guys are responsible for keeping the common areas clean.
I don’t want disputes because someone says, “Oh, he came in with muddy boots and now I have to clean it because he didn’t clean it.” And I don’t like shared responsibility. I like either one person’s doing it or they’re not. And so I don’t like to have common areas. In one property, I do have a common area. I pay a cleaner to go in and clean the common area, but that’s an additional expense. Lawn care, unless it’s a single family home, I don’t want a big yard. I wanted a small yard. So either if I’m paying a tenant to mow the lawn or giving them a rent credit or I’m hiring someone, I want it small, manageable. I don’t want extravagant landscaping. It’s a single family home. I just have them take care of everything. So it’s a bigger yard that’s when they rent the place, they know that they have to maintain it.
So a lot of those things. But in short-term rentals, like Tony, you have hot tubs. What is the recurring maintenance? Do you think that there are some things that are better that can make your property more passive or even these things that require a lot of maintenance, are there ways to make them more passive, like cleaning of the hot tub and stuff?

Tony Robinson:
Yeah, to an extent. I mean, a lot of it comes down to people and systems. You create a system, you train people in the system and you hold them accountable to following the system or to the process. So for us, our system is that for the hot tubs, for example, every single one of our Airbnbs has a hot tub. And our process is that as part of the cleaner’s cleaning checklist, they have to take a photo of the hot tub and they have to put a testing strip in the hot tub water to show that it’s balanced the right way. So we get the visual to make sure that it’s clean and clear, and then we get the safety portion of like, “Hey, is it balanced correctly?” And if any of those fail, if the water’s cloudy or the test comes back as a fail, then our VAs know to then go reach out to our hot tub tech and try and get them out there that day.
And then if they can get it done before the guest checks in, awesome. If we feel like it might impact or happen after the guest checks in, we just notify the guest who’s coming in. Say like, “Hey, unfortunately, the last guest didn’t take the best care of the hot tub. Our tech’s going to be there. It’ll be shortly after you arrive. So just know for maybe the first hour or so you might not have access to the hot tub, but just know we’re working on getting them prepared for you.” So for us, it’s like, I don’t know if it’s necessarily more, it’s not necessarily preventing the issue because sometimes it’s unavoidable, but it’s if we have a very repeatable process in place, everyone is trained on that process and we hold all those folks accountable to that process. It makes it less of an issue when it does happen.
And I’m generally not even alerted now if those things do happen because the team just handles it.

Ashley Kehr:
Now number six is finding and screening tenants. So this can be a lot of work, not only just doing the showings, but going through each application, processing each application, figuring out what the screening and background report even mean. Are their documents actually legitimate or are they giving you fake pay stubs that they created through AI and handing those in? So I think if you have these proper systems and processes in place, it can be very streamlined and a lot smoother. First of all, if you have a property manager in place, they’re going to go ahead and take care of a lot of that for you. You could also hire a local real estate agent. In most states, you need to be a licensed real estate agent to actually lease an apartment. So there’s a lot of agents near me that charge a fee. I know I have used one that charged one month’s rent.
I’ve used another that charges a $500 flat fee, but also you want to make sure you understand what you are actually getting from them. Are they doing the screening themselves? What kind of screening are they doing? Is it a background check, a credit check? What does their application look like? Or are you providing that and they’re just doing the showings? When are they available for showings? How do they set up the showings? Is it just people calling them and saying, “I’d like to do a showing,” and they schedule it. Is there some kind of software they’re using where they put their availability and then they could show? So there’s a lot of ways to make this easy. I use TurboTenant for this also. RentReady also has this. Baseline has this. A lot of different companies have the screening software built right into them for property management software.
Baseline is a banking platform for real estate investors. So the screening, it walks you through. So the tenant will submit their application. A lot of these softwares have the application so you can change them. So you can put in your own questions and not just use their boilerplate template, but it’ll give you that. And then also walking through the screening. So once they fill out the application, it gives them the option to do the screening. You’ll get the reports from that, you’ll get their application, then you get their documents. You can see it all on your phone, on your computer. I think one of the hardest parts about being the actual person that’s doing the tenant screening, actually there’s two. One, making yourself available for showings and having to drive to your property, meet people there. You’ll be surprised the amount of people that don’t actually show up.
So sometimes I’ll do open houses where I’ll block it. If you want to come see the property, you can come from Saturday 10:00 AM to 11:00 AM, or you can come Sunday from 5:00 PM to 6:00 PM or something. And I do a couple of those open houses, people can show up or block it in 15 minute intervals and I try and do as many in a longer period window as I can in case people don’t show up, there’s other people that are hopefully coming. But besides making yourself available and giving up time to doing the showings, there’s also following the laws and regulations of actually putting in tenants in place. So making sure you’re following your state laws, you’re following fair housing laws to actually get somebody in place. There are so many scammers out there and I don’t know if scammers are like.
I’ve heard, and I don’t know that this is true, that there’s actually organizations that will pay people to message you about the unit you have for rent and to say, “Do you accept section eight and in New York State?” So making sure you are following all the rules and regulations in your area when you are doing those processes. All

Tony Robinson:
Right. Number seven is to automate. And we touched on this a little bit, but just if we separate the automation from the software itself, automation is just making sure that there’s triggers in place to make sure the things that should happen are actually happening. So as an example, in my short-term rental portfolio, I never have to text my cleaner on the days and times that she needs to be at a property to clean it because the way that we have our business set up is that as soon as a reservation is created, our cleaner gets notified, text and email. 24 hours before the checkout happens, they get a reminder, text and an email. She also has access to a calendar that shows all of the reservations that she’s assigned to. So she never has to question when or if she needs to be at a property.
It’s all handled automatically. Another example is we have noise monitoring devices inside of our properties, and if the noise is above a certain level for a certain period of time, our noise monitoring device automatically sends a message to our guests letting them know about the noise complaint. So anytime you can institute a trigger that happens automatically for these routine things, that’s how you reduce your own time involvement and make things more passive for yourselves.

Ashley Kehr:
And our last one, number eight, you hire a virtual assistant. So this tends to usually be cheaper than hiring someone that’s looking for a full-time job or at least part-time hours. A lot of times a virtual assistant is overseas where their wages are less than what you would pay for somebody in the US to actually be your assistant or perform a task. But a lot of virtual assistants, I mean, you could hire them and only use them one hour a week or on an as needed basis to fulfill some of these automations because you could say, “I only have two properties. I don’t have enough work to actually pay someone.” And that’s why the benefit of these virtual assistants that work for a bunch of different people have that availability to actually do your task. Now, Tony has virtual assistants that work for him a lot more than a couple hours a week.
I’ve had virtual assistants that worked over 40 hours a week for me. So it all depends on what you need or what you want. But a couple websites that you could go to is VPM is one, Virtual Property Management, I think it’s called, but it’s like vpm.com maybe. It’s virtual assistants specific to real estate investing. There is Upwork. What’s the other one, Tony?

Tony Robinson:
We use onlinejobs.ph quite a bit. Guys, I love virtual assistants and I think they’ve been one of the biggest unlocks in our own business who handle a lot of the important, but yet sometimes time-consuming tasks that come along with building a business. And our virtual assistants handle so much for us, so, so, so, so much for us. So it really is a win-win where we can give them great pay, remote work. We get much more affordable support, and both parties tend to win in that situation. And there’s a lot of questions that are like, “Well, how do you trust them? How do you train them?” And that’s a topic for an entirely different episode. But just know, you can get to a point where just like any other employee, just like any other team member, you give them an expectation, see if they meet that expectation, give them more responsibility, give them another expectation, see if they meet it, then give them more responsibility.
So we didn’t on day one give them the entire keys to the kingdom, but some of my VAs I’ve been working with for probably five years now, and over the course of those five years, we built trust and confidence in their ability to operate and now they handle so much. And it’s a beautiful thing guys, because now in a lot of situations, something breaks or something happens, and I don’t even hear about it until after it’s done. It’s been solved. My VA’s just like, “Hey Tony, here’s what happened. Here’s what I did. Just wanted to lip you in. Everything’s all good, but just though you should know.” And that is the ideal insight to be able to get to.

Ashley Kehr:
Well, thank you guys so much for joining us for this episode of Real Estate Rookie. I’m Ashley. He’s Tony, and we’ll see you guys on the next episode.