Ashley:
Most rookie investors are not choosing between a perfect deal and a bad deal. They’re choosing between imperfect options, limited capital, and the fear of making the wrong first move.

Tony:
Today’s questions all come from the BiggerPockets Forums, and we’re going to talk about whether to flip or house hack first, how to think through a first out-of-state investment in 2026, and how to decide if a cash flowing rental with major repairs is still worth keeping.

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

Tony:
And I’m Tony J. Robinson. With that, let’s get into today’s first question, which comes from Ivo in the BiggerPockets Forum. So Ivo says, “My wife and I are looking to make our first real estate investment and we’re trying to decide the best way to start. We’re currently debating between doing a house hack or going for a fix and flip that wouldn’t require a major rehab, something more cosmetic. I’m personally leaning more so towards starting with a fix and flip so we can build some capital first. Then the plan would be to move into a house hack, likely a multifamily property, live there for a while, and potentially do another fix and flip while we’re there. After that, we move out and keep the multifamily as a rental. Do you have any advice on the best way to approach this strategy, especially as a first investment?” Great question.
Honestly, I feel like you could. I don’t want to overwhelm you, but it almost feels like this isn’t necessarily an either or an or thing. Depending on how much capital you have, maybe there’s an opportunity that you can do both because they’re serving slightly different purposes. Now, for rookies that are listening that aren’t familiar with the phrase house hack, a house hack is basically when you buy a property and you live in it in addition to renting out some additional space to generate rental income. So to Ivo’s point, it’s like maybe you buy a triplex and you live in one unit and you rent out theother two. Maybe you buy a duplex and you live in one side, you rent out the other. Maybe you buy a five bedroom house and you sleep in one bedroom and you rent out the other four. You can house hack in a lot of different ways, but the essential idea is that you’re renting out the extra space that you’re not using.
If you have enough capital to cover a three and a half to a 5% down payment, sometimes these loans, I talk about NACA a lot on the podcast, maybe you can even get into a loan with 0% down. But the goal is that if you’ve got enough capital to cover a 0% down to a 3.5% down to a 5% down payment, well, maybe you can go and get your house hack done immediately. And while you’re doing that, take whatever additional capital you have left over and go tackle the house flip. So again, all this depends on how much capital you have. So if you don’t have a ton, then we do have to choose. But I think my first kind of gut reaction is that maybe these aren’t mutually exclusive and maybe there’s a path to do both of those. You do the house hack while also continuing to look for the flip.

Ashley:
I also think that you can basically accomplish this with one property. I don’t know if that’s what you were trying to say, Tony, but you can do the live and flip.

Tony:
No, that’s great. I was actually saying two separate properties, but yeah, you’re right. You could combine them into one as well.

Ashley:
So if you buy a property, you have to live in there for a year for your loan that you would get. But if you live in it for two years, you won’t have to pay taxes when you sell the property because it’s been your primary residence for two years. So over the course of two years, yes, it’s not technically house hacking unless you’re going to rent out the rooms or you’re going to get a property with another unit in it, still your primary residence. So let’s say you’re going to go after a duplex. You live in one, you fix up that side, you have a tenant in the other side, and then after two years you sell it and hopefully it has a lot more value because you renovated it and rehabbed it. One thing that I have seen people do, and I think this is even maximizing it, is when they move into the property, they fix up one unit and then they end up switching units and then they go and fix up the other unit.
I’ve seen people do this whether they’re house hacking or not, but basically when they purchase a property, one unit is vacant, they say to the tenant next door, “Hey, we’re going to renovate this. We’re going to let you have first dibs at this. This is what the rent will be and then you can move into there or whatever.” And hopefully the tenant says yes and they move into that new one and then you can go to work on that other one and renovate that one the second year while you’re living in it. Then at the end of those two years, go and sell the property, hopefully make a huge profit and you won’t pay any taxes on it. So when you’re doing just a regular fix and flip and it’s not your primary, you’re going to be paying a boatload of taxes on that property.
So I think if you like the house hacking idea and you want to do some renovation work and do a live and flip, this might be a good compromise for you where even if you don’t make as much and if you had two separate properties, maybe you could maximize more, but with this, you’re going to save so much money in taxes by doing it this route too.

Tony:
I think the last thing I’d add to that too, Ash, is that, and I say this a lot in the podcast, is that oftentimes it also does come down to personal preference. Between the idea of house hacking and between the idea of flipping, which one do you just generally feel like you would enjoy more? Which one aligns better with who you are as an investor? Which one. My wife would hate the idea of us house hacking. For her, it’s like there’s no amount of money we can make from a rental that would make her enjoy the idea of sharing walls with our tenants.That’s just not something that would excite her. Short-term rentals on the other hand, she was very excited about that and she can see herself doing that. So I think you’ve got to ask yourself just of those strategies, which ones align better with who you are as a person and which one ultimately gets you closer to the goal that you’ve got?
If the goal right now is just a big chunk of cash, Flippington give you that. If the goal is, hey, can we reduce our monthly living expenses and can we start building some long-term wealth? Then house hacking makes more sense. So part of it is personal preference. Both strategies work. You can be successful with either one. So I don’t think you can necessarily go wrong with either route.

Ashley:
Coming up, a New York investor is planning his first out-of-state rental for 2026. We’ll talk about how to keep deal one simple when your long-term goals are much bigger. We’ll be right back. Ivo’s question was about which strategy should come first. Our next question is from Jose in Manhattan who is planning his first investment property in 2026 and already has a bigger long-term portfolio vision. Hi all. I am a 29-year-old male based in Manhattan looking to purchase my first investment property in 2026. I am currently eyeballing either the Orlando or Atlanta market to make my first investment with my wife. Generally speaking, this first investment will serve as strong foundation for becoming familiar with the real estate investing process and for establishing a portfolio we plan to grow. All subsequent deals will be similar up until we have enough property and equity that will allow us to pivot into larger commercial deals 10 years or out.
Considering the above, we plan to take the slow burr approach where we will be looking for an opportunity that will allow for some forced equity in the midterm time horizon. With that, we’re looking for homes that only need small cosmetic lifts right now, but may allow for some ADU accessory dwelling units, opportunities or other enhancements further down the line. We currently have about $50,000 ready to deploy for a down payment for our first investment, and we’ll be contacting different lenders to see what our purchasing power is and what different debt products may be offered. My wife and I have a combined net worth of over 320,000 between cash, IRA, 401 and standard brokerage accounts, and we earn over 325K annually with expectations for the income to grow so we feel like we have a strong financial base to allow us to go out and take calculated risk.
As an additional note, we have family friends in both Orlando and Atlanta, so that largely plays a big factor in narrowing down to those two markets as that will allow us trusted boots on the ground as a long distance investor. Some additional pros for each city. We used to live in Atlanta for a couple years, so the market is not completely foreign to us. My cousins are actively participating in a rehab in Orlando, so they already have a great team to work with there that I can likely tap into. I will still do my own due diligence. Any thoughts, tips, or even just introductions would be very much appreciated. Okay, so that’s awesome, Jose, that you are in a position financially and also mentally and you’re ready to go, you’re ready to take action and implement some real estate investing on your first deal. So it looks like really what your dilemma here is is to which market you should pick.
And I love it that you chose markets where you know that you have advantages already. You have one with boots on the ground, you have one where there’s already a team in place. So the next question I would ask is, have you narrowed it down to specific neighborhoods within those cities and how does your budget fall? How far does that, what was it, 50K I think to invest? How far does that 50K get you in each of those markets? So I don’t know really what the median home price is in either of those markets off the top of my head, but is one going to get you a property in a rundown area, high crime, not a great school district? And one, is it going to get you maybe a B class property where better schools, less crime, things like that. So I would start there with, have you gone and looked at any specific neighborhoods in those cities above and beyond just what your advantages and opportunities already are there?

Tony:
Ash, there’s one thing that I just want to call out in the question here because it’s a bit of a, to me like a contradiction, but Jose mentions wanting to use the Burr strategy, but then also wanting to focus on properties that “only need small cosmetic lifts.” And I think those two are somewhat opposed. Sometimes you get lucky and you find just a really well-priced property that really does truly just seem like a small cosmetic lift. But generally when we talk about the Burr strategy, we’re trying to find properties in distress. So it generally means physical distress. Again, sometimes it can be a seller in distress and they’re willing to take a big haircut on the price because they themselves are in some form of distress. But oftentimes it’s the property that’s in distress. So you say slow burr, but the time of the Burr doesn’t really matter.
It’s like how cheap are we. At what discount are we buying that property in relation to what the after repair value is going to be? And the only way that we get that gap big enough is if we buy a property in distress. So I just flag that because Jose, I don’t want you to go into this with these unrealistic expectations. You’re going to find these properties that’ll need small cosmetic fixes and that you’re able to do any sort of truly successful Burr where you’re able to increase the value. Now, you did mention earlier in the question that you guys are more so focused on appreciation. So if by slow Burr, you mean small cosmetic fixes, understanding that today it’s not necessarily going to increase the value, but in 10 years from now we’ll hopefully have built some equity, it’s a different story, but I wouldn’t necessarily call that a Burr.
We’re just buying a property and we’re banking on appreciation. A burr is, hey, we’re going to force appreciation rapidly in the next three, four, five, six months, and we’re doing that by buying a distressed asset. So just a distinction I feel is important for Ricky’s understand. All right guys, we’re going to take a quick break, but when we’re back, a Ricky landlord has a cash flowing rental with major foundation and water issues. So should he fix it? Should he keep it, sell it, move on? We’ll cover that right after a quick break. All right guys, so our last question is from Joe in Cleveland and he already has his first rental, but now the property needs major repairs and he’s trying to decide whether this is a keeper or a lesson he should cash out of. So Joe says, “I own a single family home that I rent long-term and it’s cash flow positive.
There are foundation issues, water leaks into the unfinished basement when it rains, and the basement is used for laundry, so tenants have to go down there. It’s at a point that the entire interior needs to get repainted. The first floor hardwood could use refinishing. The small deck out back needs to be repaired, probably even torn down and rebuilt, and the main door needs to be replaced. This is to name the majority of the bigger cost repairs. I bought the home for $145,000 five years ago, and it’s probably worth 200K today with a good foundation. I’ve been wanting to own rental properties and continue to expand my portfolio, and I was planning on taking the equity I have in this home and using it to fund the purchase of additional properties. But now that so much has to be done to this home, should I sell it and take the profits or should I spend all this money on fixing it and keeping it?
I worry because it is a 100-year-old home and I feel the problems might never end, but it is a nice home for a rental. And in the five years that I’ve had it, I’ve never had a problem finding renters. Seeing this is my first rental, I don’t have experience in this world and I’m learning as I go. I really appreciate any guidance.” It’s a great question. How do you decide when to keep versus when to sell? I think there’s a few though process here that I would look at. Number one is how much equity have you actually built and what is your return, not just on your cash flow, but what is the return you’re currently getting on your equity? Sometimes when we do that calculation, we realize that if I actually go redeploy this capital, all this equity that I built up into another deal, I can actually get a better return.
If we just look at the cash on cash we put into the deal, that’s one number. But if we look at the actual equity that’s sitting in that property and we measure our cash flow against that, we get a slightly different picture and that helps us decide if we should stay or if we should pivot. So that’s one kind of calculation to go run because if you’re like, “Man, I’ve got…” Actually, I don’t think you will in this situation because you bought it for 145, you said it’s worth 200, so maybe there’s not a ton in there. You didn’t say what your loan balance is, but let’s say that maybe you only owe 120 or 105, something like that. So you’ve got maybe 95K in equity. And if you’re barely breaking even on that $95,000 in equity, well, then there’s a good argument to be made if you go redeploy that somewhere else, you can potentially get a better return.
So that’s the first thing that I would focus on.

Ashley:
But he also says that it’s. Or Tony, real quick, he says it’s only worth the 200,000 with a good foundation. So that means he has to go in and add in all those repairs too before it’s worth the 200,000. Yeah,

Tony:
That’s a good point. So maybe there’s even less equity in there than what it is. And this is the other element that I was going to hit on too, is that I also think that there’s just maybe a peace of mind component of real estate investing that we can sometimes consider as well. And if a property, even if it performs well, if it does nothing but cause you headaches and that there’s a time component that’s incredibly draining, sometimes that in and of itself is a potential reason to move on from a deal. It’s like, yeah, the property does great, does all these things, but man, I spend so much time thinking about it and worrying about it and doing all these things, and I’ve got these other rentals maybe make a little bit less, but I don’t have to think about them. I would take more of the not thinking about it rentals and make a little bit less than the one that does a little bit more, but eats up more of my time.
And that’s a trade I would make almost every single time. So there’s the calculations that we can run, but then there’s also just the bandwidth calculations we can look at to see if it actually makes sense for us.

Ashley:
I think the first thing that needs to be done is you need to get actual estimates on what these repairs will actually cost. I had a house where you would go upstairs of the house and you would put anything on the floor and it would literally roll down the slope of the house. I though this was going to be so expensive, but we wanted to sell the property. It ended up being $7,000, which yes, $7,000 is a lot of money, but the value of the property from if I had showings and someone walked into it and they’re literally walking downhill to get to the next bedroom, even though it’s on the same floor, compared to paying that 7,000 where the house is now level and even, it was so worth that putting in that 7,000. And I thought it would be more like $20,000, $30,000.
I just had this kind of stigma that foundation work and stuff like that costs way more money than what it actually did. Then again, I got another property quoted and that one was $20,000. So it can vary, but I think it’s worth going in. Even the deck repairs, maybe a handyman can kind of patch it together for you or get it to where it’s going to last a couple more years or something like that. So you could at least go and sell the property with a functional deck. So that I would recommend as your first step is to going and getting those estimates and not actually just assuming they will be expensive because it could really go either way. It could be cheaper than you think or it could be even more expensive than what you think. But I think having those estimates will really help you make the decision if it’s worth putting the money into this property to either keep it or to sell it.
And then also, as Tony said, with the debt, how much you own the property, if you’ll be recouping some of your costs, your down payment, maybe it is better just to exit the property if you don’t have the funds to put into it to fix all of these things and make it better.

Tony:
Ash, last thing I’ll add is that’s also the reason we want to make sure that we’re setting money aside every single month for things like reserves, CapEx, because although all of these repairs, it kind of sucks when they happen, they are somewhat expected. We know that a certain point we’re going to have to repaint. We know that at a certain point we’re going to have to swap out HVAC systems. We know that a certain point appliances need to get repaired. We know that a certain point the water heater’s going to give out. All these things have a shelf life. So setting money aside on a monthly basis is part of our job as real estate investors and even more so as part of our job during the analysis phase to make sure that, hey, if we are setting money aside from the revenue that’s coming in, do we still have enough meaningful cash flow left over?
So just a business discipline that we need to make sure rookies are developing as well.

Ashley:
Well, thank you guys so much for joining us on this episode of Real Estate Rookie. If you’re not already, make sure you are subscribed to our YouTube channel at RealEstateRookie. If you have a question that you would like answered, head over to biggerpockets.com and check out the forums and we may pull your question to be featured on the show. I’m Ashley, he’s Tony, and we’ll see you guys next time.

 

Ashley:
Thomasina Myresa spent years doing what she thought financially responsible people were supposed to do, work hard, avoid debt, and save. But when the pandemic stopped her modeling income almost overnight, she realized a savings account alone could not give her the security she wanted.

Toni:
That realization eventually led Thomasina from a New York City apartment to a $63,000 rental in a city she had never visited. Buying remotely was only the beginning because her first attempt at managing an inherited tenant forced her to rethink what responsible landlording actually looks like. And a later 10 bedroom duplex helped her discover the investing strategy she actually wants to build.

Ashley:
Welcome to the Real Estate Rookie Podcast. I’m Ashley Kehr.

Toni:
And I’m Tony J. Robinson. And with that, let’s give a big warm welcome to Thomasina. Thank you so much for joining us on The Rookie Podcast today.

Thomasina:
Thank you guys for having me. I’m so excited. I’ve been a long-term listener, so this is kind of like a full circle moment for me.

Ashley:
Now let’s start with before real estate even entered the picture. You were modeling and working as a social worker. What did those two jobs kind of teach you about earning, saving and personal finance in general?

Thomasina:
Well, I would say my personal finance journey started when I was even younger than that. My parents instilled in me to just save, save, save, but I never knew what I was saving for. I had my first job at 14, and so by the time I graduated from university, I had saved up a substantial amount. So I moved to New York City and like you mentioned, I was working as a social worker at night and then modeling during the day. And I was exhausted to say the least, but it allowed me to save money because a few months later after moving to New York City, the pandemic hit and all of my money or a big chunk of my money was paused.

Toni:
When the pandemic shut down your modeling work, Thomasina, what changed in the way you thought about financial security and the money that you had saved up?

Thomasina:
Yeah, I think the pandemic and having the modeling industry pretty much halt made me realize that putting money in a savings account, because I hadn’t even had a high yield savings account at that point. So I just knew that I needed to find another way to make money and also build wealth because the modeling industry is so volatile and it’s always been that way, but I had never experienced it halting completely. So that was definitely like a smack in the face and just made me realize I needed to find another way to make money.

Ashley:
Now, during COVID, you probably did not have a lot of modeling jobs come up. I would assume that they were kind of shut down during COVID. What kind of impact did that have on you? You had said you had learned to save, save, save. Did you find that you had financial security with just saving as your plan or what else did you learn along the way?

Thomasina:
Yeah, so I did have a pretty. I felt secure in terms of finances because I had so much saved up. So it wasn’t like I was desperate when the modeling industry shut down, but I knew that I had to think about the future. And because the modeling industry had paused, I had a lot of idle time on my hands. And so I started reading a lot and I came across Rich Dad Poor Dad, which was kind of pivotal in my financial and real estate journey. And it made me realize this seems easier. Building wealth seems easier than what I though. And investing was not something that I was exposed to early on. So after reading all those books, I went into a research rabbit hole and that’s how I found BiggerPockets.

Ashley:
Okay. Well, we always love to have somebody on that has found BiggerPockets and it became an integral part of their journey to start real estate investing. But I also learned that you actually got a mentor too. So I’m really interested in that aspect of it is how did you, a rookie investor who’s never done a deal, didn’t have any experience, didn’t really have anything to bring to the table to a mentor, how did you actually land one?

Thomasina:
So that is a funny story. I reached out to someone on Instagram completely unrelated to real estate. I just though that she was pretty and we had the same vibe and I was like, “Oh, I want to be friends with this person.” So I reached out to her and we ended up setting a time for lunch. And through our conversation and meeting, I realized that she was a real estate investor and I’m like, “No way. I just learned about this thing.” And so we get to talking and she tells me that she’s investing in Cleveland because obviously New York City is very expensive. And although I attempted to buy my first property in New York at the start, I was coming to the conclusion that it may be outside of my price point. So meeting her was kind of amazing timing because I knew that she was investing in Cleveland because it was much cheaper.
Anywho, she had a friend who was also investing in Cleveland and that friend was Yamu who actually has been interviewed on BiggerPocket several times now. She has an amazing story, but she was also investing in Cleveland at the time and offering mentorship. And so that is how I found my first mentor through a mutual friend. I

Toni:
Think it’s so interesting. It’s like you just reached out to this other person on a whim and it’s like that one conversation led to another conversation, which led to another conversation. That’s how it happens so often. Sometimes you’re lucky like Ashley where just everywhere you go, there’s just people who are like real estate investors want to hand you deals. I think Ashley’s gotten deals at football practice in the deli aisle at the grocery store and picking up her mail at the post office. So you never know where you might find the person who’s going to change your life.

Thomasina:
Just got to talk to

Toni:
People. You just got to talk to people, right? Now I think it’s a good question, Thomas, because I wanted to get on this a little bit, but for rookies who are considering mentorship, because there are a lot of different options out there and there are some that probably fall into the old camp of just being very gury where they’re peddling something that isn’t all that great. And there’s others who are really, really great options to help folks who are kind of on the sidelines. How did you vet or make that determination on who you wanted to actually?

Thomasina:
That’s a good question. And I’ll be honest, my number one factor was the price point. How much is this girl going to charge me for mentorship? Because that was one of the main reasons why I was afraid to make that first purchase because this is the biggest purchase that I would have made during that time in my life. I mean, I think I was 22, 23. So the price point was a big factor for me. So I wanted to know how much she was charging. And then the rapport, because this mentor came from someone that I knew and liked and trusted, I felt more comfortable at least opening that conversation. And so when picking mentors, because I’ve had several mentors after Yamu, but I always try to see if I know anyone in my network or in my circle who has already worked with that person and kind of what they have to say.
So that rapport is very important to me as well. I would also say to the rookies, do some research into their experience. How many deals have they done to what scale are they doing what you want to be doing? Because if you are just looking to buy your first property, seeking mentorship for someone who is niche down in Airbnb may not be the right mentor for you if it’s super, super niche. So kind of do some background on what their experience actually is to see if it aligns with what you want to do. I would also say how patient are they? From my experience with mentors, there’s often an introductory call before you actually execute on the mentorship. And obviously as a first timer who hadn’t purchased a property, I had a lot of questions, but Yamu, we had maybe a 30, 35 minute phone call.
And of course you want to be respectful of their time, but she was just very patient with me and was kind of empathetic to the fears that I had with making such a big purchase. And so that was something that went a long way with me as well. It wasn’t like a salesy call. She wasn’t trying to pitch anything to me. She was just very patient in fielding all of my questions.

Ashley:
And Tony, you actually got started by going to a seminar with a mentor, right, that I was putting on?

Toni:
Yeah, that was my first real estate event. And this was before we had transitioned to short-term. We were just doing long-term at the time, but I wanted to get into apartment syndication.That was my initial goal as a rookie investor was to do these big apartment complexes. And I’d done a few single family homes and long-term rental space. There was this guy I’ve been following who had this event in Los Angeles, and me and my partner went down there and we spent three days. The event itself, I don’t know, it was like a thousand bucks or something for the ticket. And then we ended up joining their mentorship program, which was like, I don’t know, a five figure investment. But the best part from all of that wasn’t even the mentorship. It wasn’t even what I learned at that seminar, but it was the other people that I met while I was there.
And there was a guy who I had bumped into at a meetup several months prior who just happened to also be at that event. And we just kind of started chopping up like, oh yeah, I remember you from the event. And we exchanged numbers and all those things. And that same guy was the guy who introduced me or encouraged me to buy my first short-term rental. So it’s like you never know kind of connecting the dots when you start investing in yourself where those things can lead. But I do think there’s time and place for it. So I’m glad it worked out well for you. But going back now to the actual deal itself, because one of the biggest challenges, Thomasina, I think that people face when they do want to get into investing is the financing side. Now, obviously you had very steady income with the social work, but as a model whose work was maybe somewhat impacted by COVID, which I’m assuming was 1099 where you were a contract role, how did you prepare yourself from a personal finance perspective to actually get qualified to go get the debt for your first investment?

Thomasina:
That’s a great question. So I utilized BiggerPockets to research lenders that people were recommending. And to kind of backtrack a little bit, when I was first looking to purchase a property, I was attempting to go through the NACA program, which you guys have talked about on the podcast a lot. And so through going through the beginning stages of the NAHCA program, I realized what kind of documentation are they going to be looking for to make sure that I can afford this purchase? And so that really helped prepare the materials that I would then take to a lender once I realized the NACA program wasn’t going to work out for me and the timeline that I was working with. So I had all those documentations prepared and I talked to several different lenders and the 1099 income was a little difficult. So it was nice that I had the social work W2 job at that time.
And I also had a substantial amount of savings because again, I had been saving since I was 14 years old, so that helped me as well. But just understanding what kind of documentation the lenders are going to be looking for, I think really helped me out. And some lenders who have experience working with 1099ers, because I sought that out as well, kind of knew how to legally play the system or to make you a more, I guess, reputable buyer.

Toni:
I love that point, Thomasine, that you said of trying to find a lender who had experience working with 1099 type borrowers because we say this all the time in the rookie podcast, but not all lenders are created equally. And there are some lenders who specialize in one type of loan and there are other lenders who specialize in different types of loans. And there are some lenders who will tell you something is impossible and there are other people who tell you we do this all day. I’ll give you guys a real life example. I was just talking to an investor yesterday. She was working on closing on her first short-term rental. And for whatever reason, the lender she was initially working with was like, “Hey, we actually can’t qualify you for this. You need to go talk to another lender.” And she already paid for an appraisal and she went to two different lenders.
And the first lender she said, “Hey, I already paid for this appraisal. Can you use this appraisal?” They said, “Oh, absolutely not. We have to do our own appraisal.” She went to a second lender. They’re like, “Oh yeah, we take new appraisals all day. Just fill out this form.” So it’s like had she just stopped at that first person, she would’ve hit a brick wall, but because she didn’t have to wait for the appraisal, she was allowed to move more quickly to actually still close on time. So I just love that you did that because it’s a step that a lot of people miss and they just go with the first lender they talk to and assume that that’s the only option for them in the entire world.

Ashley:
Now, after you figured out what your funding was going to be, you decided to look into Cleveland, and I’m assuming this is partly because you knew investors that were already investing there, but did you do any other kind of vetting or verification on the Cleveland market?

Thomasina:
Yes, I did. Probably not as much as I should have in terms of different neighborhoods and such. But again, going back to the BiggerPockets Forum, those were my Bibles when I was looking to buy my first property because people had already been investing in Cleveland for so many years and they had that experience. But I was really looking at crime rates, appreciation rates, which I didn’t really know much about, but I was trying to dip my toe in that field. And price point. Price was a big factor for me. And then rents, how much could I rent these properties for if I were to buy within this price point? So that was the research that I did at the time. I was just learning as I was going and really leaning on my mentor as well. And my mentor was more of the frame of mind of just get it done, like messy, massive action.
And so the reason why I implemented the mentor in the first place is because I found myself getting into analysis paralysis. And so I knew the more that I researched, the more I was going to scare myself from making this first purchase. So Ashley, to your point, could there have been more research? Yes, but I did what I could with the knowledge that I had at the time.

Ashley:
Now, since you had never been to Cleveland even, how did you build your team there and who did you need as an actual team to actually help you find your property and then to run it once you purchased it?

Thomasina:
Great question. So first things first, I need an agent. So I did utilize BiggerPockets like agent search to see who was doing the most business in that area, who came highly recommended. So I reached out to a couple of people on BiggerPockets, but I also just went on Zillow and kind of searched through recently sold homes and looked at the agent who was listed to see who was the most active in the area. So I ended up finding one agent and I did submit a couple of offers with her, but it just didn’t feel like the right fit. So then I found another agent and that was my girl. I ended up closing another deal with her as well, but she was the first member of my team and she had been an agent in the Cleveland market for years and longer than I had been alive at that time.
And so she had a very extensive list of referrals and recommendations for contractors, inspectors, lenders, et cetera. So I leaned on her for the rest of the team that I was building out there, but I found her from Zillow.

Ashley:
Now, Thomasina, you said that you just didn’t feel like it was a right fit. We have a lot of agents that are also investors and listen to this podcast. What would be some advice you would give them as to why maybe you didn’t feel like it was a great fit for you?

Thomasina:
Yeah. I mean, as the saying goes, time kills deals and her communication was just very, very delayed. I would be trying to submit offers and then she would respond two days later and I’m like, “That’s not going to work for me.” I also don’t think she was as knowledgeable. I think one of the main questions that I did not ask her, and I learned this later on in my journey, but I didn’t ask if she had experience working with out-of-state investors. And I think that’s a big question to ask agents when you’re interviewing to see who’s the right fit for you. And it became very clear after our time working together that she maybe wasn’t as experienced in that department. And I don’t think she had as much experience working with real estate investors in general, even locally. So a lot of the questions that I was asking and when we were running the numbers, it just wasn’t as thorough as what I needed, especially as someone who’s buying for the first time.
So that’s why that relationship didn’t work out.

Toni:
I love that you were cognizant enough to recognize that because I feel like a lot of newer investors, they’re just kind of like, “Oh man, my agent sucks, but what am I supposed to do?” But the truth is you can go find a new agent, which is exactly what you did. But I also just want to highlight, because I think you hit something super important for all the rookies that are listening. It’s that we tend to focus on markets where we have familiarity or proximity like that. That’s where most rookie investors start. And we do that because there’s this level of comfort that we know things about that market, but we can bridge that gap in a new market by simply connecting with someone who already has all of that knowledge, oftentimes at a level that’s deeper than what you could ever accumulate yourself. And what I mean by that is if you just go get a really good agent in a market, they can be that conduit to connect you to all the right places and know all those right things.
I’ve talked before about on the podcast about us looking in Oklahoma City to do flips. When we first had that idea, I reached out to a bunch of agents through the BiggerPockets Agent Finder, got a bunch of people that replied back to me and immediately I had a list of like, “Hey, here’s some contractors, here’s some handymen, here’s someone that does roofing, here’s a lender that works locally.” So when you tap into an agent who knows that space, it makes a world of a difference. I guess the question that I’m getting at here though is as you had that first experience with agent number one, when you went to go find the replacement agent, were there questions that you didn’t ask the first time that you found were good to ask the second time around?

Thomasina:
Yeah, absolutely. That investor question was probably the biggest question. Do you have experience working with investors and do you have experience working with out-of-state investors specifically? And so that was number one question on my list when I was finding a new agent.

Ashley:
Now let’s talk about the actual property that you ended up purchasing. Tell us about how you found it. What was your offer? Did it get accepted right away? And let’s start with that piece of it.

Thomasina:
Yeah. So the first one that we got accepted, or I guess the first one we closed because we did have another accepted offer that we didn’t move forward with, but it was a single family home in Cleveland, Ohio, which again, I had never been to. We closed at $63,000. I went with a conventional loan, 20% down, and we structured it utilizing a seller concession. So that was one thing I really appreciated about my agent is that she was very knowledgeable and suggested things that I wouldn’t have known. So I would tell her my goal is to bring as little money of my own to the closing table as possible. So I would tell her that and then she would take that and run with it and see, okay, how can we get creative so that we can make that happen? And so she recommended that we ask for some seller concessions instead of just lowering the purchase price outright.
And so I ended up coming to the closing table with maybe three grand when I was expected to come to the closing table with 12 grand. So it was a significant difference and those numbers might be a little rough, but I was very happy with the amount of money that I ended up coming to the closing table with. And that was just based off of her recommendation and her knowing what my ultimate goal was with closing that property.

Toni:
Can you educate our rookie audience? Why was it better to ask for a seller concession as opposed to reducing the price?

Thomasina:
Yeah. So with a seller concession, what you could do, if the sellers want a specific price, so in this case, the sellers wanted to walk away with $63,000. So we offered higher than the $63,000, and then we asked for the difference in a seller concession so that we could use that money at closing to buy down the interest rate. So I ended up buying down the interest rate to 6%, and then I still had a little bit of money left over that was just mine or it could go to closing costs and fees and stuff. So those fees that would normally come out of my pocket ended up just coming from the difference in what the buyers were walking away with versus what we offered.

Toni:
Absolutely. And I love that strategy. We’ve used it to great success in the past as well, where if the appraised value is higher than the contract value, you can go back and increase the contract value to match the appraised value. But instead of just giving that money back to the seller, the seller agrees to give that money back to you to either buy down your interest rate or help with your closing costs or things of that sort. We’ve interviewed folks on the podcast before who’ve gotten money back at closing because of the way they’ve been able to structure some of these deals. So you get into it 20% down, you’re closed, amazing. Just out of curiosity, from the time that you had lunch with the friend who was a model to actually closing on the property in Cleveland, how much time had passed?

Thomasina:
That’s a good question. Maybe about five months.

Toni:
Oh, wow. That long at all. That was fast. Yeah. Yeah. You were not playing about trying to move quickly. I love that.

Thomasina:
Yeah, I was ready. I just needed someone to push me off the cliff and Yamu, my mentor, she pushed me. So that’s what I

Toni:
Needed. Five months. I love that. Okay. So five months later, now you’re the proud owner of your first rental property. Now walk us through because you’re in New York, the property’s in Cleveland. I’m geographically challenged, but I don’t think those are close enough for you to get too quickly if something were to happen. So how are you managing this remotely from New York City?

Thomasina:
So as a first time landlord, a lot of people recommended that I try my hand at self-managing so that I can know how to manage. And once I employ another property manager, I would know whether or not they’re doing it correctly. So I’m like, okay, I’m going to try to self-manage. I’ve never been to Cleveland before. I’ve never owned a property before, but we’re going to try it because why not? I went in guns blazing, and this is probably the biggest regret of my real estate investing career. It’s not something that I’m proud of, but you guys don’t judge me. I’ve never done it before. I went in guns blazing. I bought the property. It already had a tenant in there. The tenant was paying, and according to my real estate agent, the tenant kept the property in great condition. So they were a great tenant, so to speak, but the rent was severely under market.
And so I’m like, “Okay, I’m going to raise the rent immediately.” No questions asked, not even a conversation. I did maybe a small intro email to the tenant to let them know, “Hey, I’m the new owner.” And then after that I was like, “Hey, I’m raising the rent this much.” Now, I didn’t raise it to market rates. I just raised it a little bit, but it was still substantial enough to impact her expenses. And so immediately she was like, “No, I don’t want to pay the higher rent.” So I was like, “Okay, well, we’re not going to renew you. Bye.” And this whole time I thought I was doing the right thing. So we ended up not renewing with that tenant. And from that, I did not like that experience at all. I lost sleep over that experience. I am a super empathetic person, social worker experience, and I just felt really guilty by the way that I handled that.
And I immediately thought, “Okay, self-managing is not for me.” So I went to researching property management companies in the area, found the one that was rated the highest, so the one that people were using most often, and I employed them immediately. They had already had a tenant that was looking to move in pretty quickly, and they had already had them approved and everything. So once my tenant moved out, this new tenant moved in, they were utilizing Section eight. So this would’ve been my first experience with a tenant utilizing Section eight.

Toni:
Thomasina, I appreciate you walking us through just your own thought process behind that. But I guess my question is, do you think that that experience meant that you were ill-suited to self-manage or something that you were still learning? What was the trigger to make you say, “Hey, let me just stop trying to self-manage all together,” as opposed to, “Hey, this is a lesson that’s going to help me self-manage better moving forward”?

Thomasina:
Great question. I don’t think it signified my lack of ability to self-manage, but it was very emotionally daunting for me. And I’m a Pisces. I don’t know if anybody’s into signs, but I felt that experience was very, very heavy because again, I was not proud of how I did that to that tenant. And because it was so emotionally daunting and I was also dealing with my modeling work and just lifestyle stuff, I was like, “I don’t have the emotional capacity to self-manage at this time.” So it was more so a mental health decision as opposed to a capability decision.

Ashley:
Now, when you were self-managing, were you using any softwares or tools or apps or anything?

Thomasina:
At the time that I was self-managing that first property, I had not even implemented any softwares, any tools. Yeah, because I hadn’t even started the search of finding a new tenant. I just kicked a tenant out and was like, “Okay, nevermind. I don’t want to self-manage anymore.”

Ashley:
Now let’s talk about the cash flow on the property. When you switched to property management, did you originally run your numbers with property management in place or did it really affect your cash flow once you did hire the property manager? And what did they charge? Was it a percentage?

Thomasina:
Great question. So the property management company at that time charged 10% of the monthly rent, and I had run my numbers using property management and without property management. And there was such a large gap that it was a drop in the bucket to pay that property management company. On that property, utilizing the property management company with the property at market rates, I was cash flowing about $900 a month.

Ashley:
Wow, that’s great. And you had put 20% down on the property and you had bought it for 63,000 and your cash flowing 900 or 800? 800,

Thomasina:
800.

Ashley:
So Tony, I know you just did the math in your head. What’s the cash and cash return on that?

Toni:
Well, it’s even better because I think you said after seller credits, you only came to the closing table with like three grand. Isn’t that what you said?

Thomasina:
Exactly.

Ashley:
Yes.

Toni:
Yeah. 800. Yeah. I mean, that’s a crazy good return. So did that cash flow hold up, Thomasina, as you look back and you. Yeah, talk it through because sometimes we model something on paper and then real life comes and shows us what to actually expect. So what actually was the kind of net net and what was that gap between?

Thomasina:
Yeah. So on paper, this was a slam dunk deal. I was rolling in the dough at this point. It’s my first property. I’m super excited. However, that cash flow, most of it I ended up dumping back into the property because the new tenant that the property management company placed did a lot of wear and tear on the property, a lot of expensive wear and tear. So we had to make repairs on that property on two separate occasions. And so yeah, all that cash flow, I would say about 80% of the cash flow had to go back into the property, unfortunately.

Toni:
Do you still own the property today, Thomasina?

Thomasina:
I wish, but no, after two years, I made the hard decision to sell it because I joined a new mentorship program and they talked a lot about rent to own and lease options. And so I realized that I did not want to renew the lease on the tenant who was utilizing Section eight. And so my thought process was, okay, once that tenant moves out, I’ll offer this house with a lease to own, which if you guys are not familiar, it gives a tenant the opportunity to lease the property until they are ready to buy, but the only caveat is that they give you a upfront down payment or deposit on the property, and that would go towards the purchase price. So because I was in that mentorship program and I was learning about that, with lease to own options, the tenant is responsible for all the maintenance and repairs.
So I’m like, okay, if I’m getting market rent and the tenant is also responsible for all of the repairs, then I’m just sitting back and recouping my cash flow. So I posted it on all of the websites, Zillow, all the aggregate websites, and I was getting a lot of interest, a lot of traction. However, people could not come to the table with the deposit that I was looking for. And then I also had a few tire kickers who would just come see the property and then never follow up with me. So after about a month of showing the house, mind you, I had it completely renovated as well, so it was in good condition by this point. So after about a month, I was like, “You know what?” Oh, and I had been to Cleveland. So I had visited the neighborhood in person, and I think the driving factor of choosing to sell was that when I got to Cleveland, I realized it wasn’t a neighborhood that me as a young woman would feel comfortable walking through at night.
I’ll just say that. And so because I was managing this myself and doing all the showings myself, I’m like, “I don’t know if I feel as comfortable investing in this area anymore, so I think I’m just going to sell it.” I didn’t get really any bites from the lease to own advertising. And so again, I went back to Zillow, found the agent. I chose not to use the agent that I had done two other deals or another deal with because I felt like there wasn’t as much investor experience that I needed. And so I found someone on Zillow who was doing a ton of deals in that area, reached out to him, reached out to several people, and I went with the agent who though that they could sell the house at the highest price point. And we ended up doing that. So we sold it for.
I bought it for 63,000. We sold it for 110,000 two years later.

Ashley:
And how much do you think you put into the property over that time with those two renovations?

Thomasina:
About 24,000 maybe.

Ashley:
But you had said that was pretty much your cash flow that was paying for that. So it wasn’t even like you had to bring money to the table for it?

Thomasina:
Correct. Correct. All the cash flow that I had saved up, I just put it back into.

Ashley:
So really not a bad gain over two years.

Thomasina:
Yeah. I was very happy with the gain that I got from selling that property. I just wish I had given myself a little bit more time. I think I could have kept the property, but hindsight is 2020. What

Ashley:
Do you think the property would be worth today if you sold it? Did it appreciate a lot more, you think, or the market kind of has been stagnant in some areas. Do you think it would’ve held steady at that price?

Thomasina:
I think I could have gotten more had I held it. I get the alerts for that property still for some reason, and I think they had it at 145. So yeah, I think I could have lucked out had I kept it a little longer.

Ashley:
But you could have also had a bad tenant that destroyed it and now you got a $50,000 renovation. So like you said, it all depends on the scenario.

Toni:
Thomasina, what did you do with the proceeds? So once you sold, this is your only rental property at the time still, what did you pivot into next?

Thomasina:
That’s a great question. So the proceeds, I bought a duplex before selling that single family home. So the proceeds did not contribute to the duplex at all. I still have the proceeds and I plan on using that towards buying a small business. So that is my next venture. So that’s what the proceeds will be used towards.

Toni:
So talk to us about this duplex. So you go through your initial kind of learning curve on the single family in Cleveland. I guess a few questions. One, why a duplex next instead of a traditional single family? And how did you vet the area for the second deal to make sure you didn’t feel that same emotion that you felt about the first property?

Thomasina:
Yeah, great question. So I was kind of following the strategy of the small but mighty investor. You start with the single family, then you double and then you double from there. And I knew that I wanted to do a house hack situation for this second property. I had never been to Cleveland and I felt like maybe it could be, because I wanted to really scale in Cleveland, I was like, maybe it could be beneficial for me to actually be there and visit. So I signed with a modeling agency that was local and found this duplex. And in terms of the area, I asked more specific questions to my agent to get a better sense of the area, the school system, what’s going on? Is there anything in development? Is there anything up and coming in the area? And we fell upon Shaker Heights, Cleveland Heights area.
So I really ended up loving that area, just all the traction. There are so many universities around that specific area. So a very big young adult and student population.

Toni:
So the property being a duplex and potentially a better part of town, I’m assuming maybe also more expensive. So just walk us quickly through the numbers on the duplex.

Thomasina:
Yes. So I closed on the duplex for 325, which was a big price jump, but I used a different loan product for this duplex. I used an FHA loan, so I came to the table with 3.5% down, which I had in savings. So I was fine with that. And I believe we used seller concessions on this sell as well. So I came to the closing table with maybe like $3,000.

Toni:
Man, 3,000 is the magic number for you. I love that. I just want to go back because you mentioned that maybe house hacking, this was going to be the strategy for you, but given that you, from a lifestyle perspective, didn’t enjoy self-managing the first time, now it being a house hack, what was your plan for the management with the duplex?

Thomasina:
I was going to try self-managing again because again, I wasn’t afraid of my ability to do it. I just needed to emotionally recover from the first experience. So with this duplex, it’s five bedrooms on each side, so 10 bedrooms total. So it is a massive 4,800 square foot, massive jump in property and square footage. So my plan was to self-manage the entire thing. I wanted to rent out a few of the bedrooms on one side and then rent out the entire unit on the other side. So the half that I was occupying, I furnished it within a week. My friend flew into town and helped me furnish it and build things. And that was amazing, very big blessing. My parents flew into town and helped me paint some of the rooms. And so I really am so happy that I have the kind of tribe and community that would support me in that way.
But we got that one side up and running. I listed the bedrooms on places like roomies.com, Facebook Marketplace, Zillow. I would say my biggest return was definitely between Facebook Marketplace and Roomies, but I had those rooms filled probably within the first three weeks of having it furnished. So there was never a time where I paid the full mortgage on my own since closing on the property, which I thought was a really big deal. I was very proud of that. Now, the other half of the duplex, I was still attempting to self-manage and it took me. Mind you, I closed in September, so we were creeping into the winter months of Cleveland, which is very, very harsh and people don’t really like to move in the winter. And so it took me about three months of trying to, or maybe two months of trying to fill the other side before I threw in the towel and I said, “Okay, I’m going to implement a property management company to just manage the one half of the duplex.” So I hired a property management company, fired them a week later, and then hired a new property management company.
And you may ask why did I fire that property management company? I fired them because the communication was terrible.
So once they listed my property for rent, they were charging exorbitant amount of fees to tenants and applicants. And I just thought that that was outrageous and unnecessary and it was going to deter people from wanting to stay at my property because nobody wants to pay all of those unnecessary fees. And so I realized that I also saw how they were marketing my property, didn’t really like it. And when I tried to get them on the phone to kind of walk through these things, it was very hard to communicate with someone. So I ended that contract after a week and then found my dream property management company who I’m still using to this day. I recommend them to everyone who is in Cleveland. They have been amazing and they’ve been amazing because their communication is top tier. Their turnaround time for repairs and such once it’s been submitted, top tier, very transparent, very honest.
And one thing that I appreciated is that as an owner, if something on the home needed to be repaired, they gave me the option to have it repaired myself to outsource it or have them do it. And they didn’t charge me any additional fee if I chose to outsource it, which I thought I really appreciated because a lot of property management companies will charge you extra if you choose to outsource that. So it took this new property management company maybe three weeks before they found the tenant and that tenant has been there for two years. They’ve been great. The property management company has been great. The other side that is rented by the room has also been operating great. And knock on wood, the property is still standing and cash flowing and doing a really good job.

Ashley:
It’s that saying is to fire fast and hire slow. And I think that’s exactly what you did there is you fired them fast. I feel like you were actually very fortunate that you had the ability to make that decision that quickly or else it could have dragged out even longer. And unfortunately, I was one of those people that didn’t make the decision that quick. I waited three long years with the property management before I actually cut ties with them. And there was just so much money lost, so many mistakes made along the way. So that’s amazing that you were able to take charge and that relationship and find someone else who has been amazing for you. Now, last question here before we wrap up is what do you cash flow on this property today?

Thomasina:
So I cash flow about $800 a month on the duplex.

Toni:
And just quickly talk to me about the economics on the room rental side. So you’ve got now five bedrooms. Are you still househiking or have you since moved out?

Thomasina:
Oh yeah, I moved out after the first year.

Toni:
Got it. Okay. So you’ve got all five bedrooms rented. How does that management workload or just that strategy compare to the traditional long-term rental on the other side and which one do you like more moving forward?

Thomasina:
So I don’t rent out all five bedrooms. I don’t want to get any kind of legal trouble, but the way that the duplex is split, the top floor has two bedrooms and a private bath. So I rent that out as a whole. So I get a little bit more money on that. But in terms of the economics, just for numbers, for the rent by the room side, I get 2,905 total. And then for the other side, I get 2,100. So there’s a big difference in how much you can get when you rent by the room versus just the standard rental. So that was something that really stood out to me. And I’ll just say through renting by the room, I still self-manage that side. I really found my niche and I found what kind of fueled me in the real estate industry. And now I know that I want to take the rent by the room strategy and run with it.
I will tell you guys that I’ve had some turnover in the rent by the room, but I’ve had young adults who come in, they’re able to save money on housing and then they go buy a car. Are they able to save money on housing and then they go buy their own house. And so I’ve been able to see my tenants go through those experiences and it makes me so proud as an owner and as a landlord, but also as a young adult myself, especially living in New York City, one of the most expensive cities in the states. And so I’m really passionate about renting by the room and just affordable housing in general. And I’m glad that I worked up the courage to attempt to self-manage again because it has been very fruitful.

Ashley:
Well, Thomasina, thank you so much for joining us today on the Real Estate Rookie podcast. Where can people reach out to you and find out more information about your journey?

Thomasina:
Thank you for having me. People can connect with me on Instagram and YouTube at Tomasinamyresa, and you can also connect with me on the BiggerPockets forums at ThomasinaPierce. I’m very responsive. Feel free to send me a message if you have any questions. Happy to help.

Ashley:
Well, thank you so much for taking the time to share your story, your lessons learned, and also congratulations on your success so far as an investor. It’s rookie stories like yours that help all of our rookie listeners get started or get their next deal. If you’re not already subscribed, make sure you check out our YouTube channel at RealEstateRookie, and you can follow us on Instagram at

 

Henry:
Kent Long bought his first rental property at 46 years old, just two years ago in 2024. By the time he’s 50, he’ll have a real estate portfolio that will retire him early. He did all this while working a nine to five, on the road three to four days per week, and without a ton of his own savings. Kent began looking for passive income streams, but all the internet gurus and guides turned out to be selling a fantasy. After hitting a breaking point, Kent saw a house on the market with enough square footage to convert it into two units. This would turn into the beginning of an investing career Kent never imagined. With just $14,000 down, Kent turned one down payment into four properties, making him $5,500 a month in cash flow. And he did it all in just two years. Now he’s close to fully replacing his salary with rentals, allowing him to retire from his job at age 50, 15 years before traditional retirement age.
He did it all starting in 2024. So if you think you are late to real estate, this is your sign to get in the game. What’s going on everybody? I am Henry Washington, co-host of the BiggerPockets Podcast, and today we’re bringing you an investor story with Kent Long from Altoona, Pennsylvania. Let’s bring him on. Kent Long, welcome to the BiggerPockets Podcast.

Kent:
Henry, I’m honored to be here. Honestly, BiggerPockets has been a huge part of my real estate journey.

Henry:
Well, why don’t you start there? Tell us a little bit about your background and how you got into real estate in the first place.

Kent:
Starting off, I was always looking for passive income. So unfortunately, just life costs so much money. So to live normally, you have to have extra income coming in. So my initial thought process was I read Tim Ferriss, four-hour work week, and I started an Amazon business. So I made two products on Amazon and I had two different manufacturers in China that would send stuff directly to Amazon. So ideally it makes sense, then that’s totally passive. You watch all the YouTubers and they say how easy it is and you can make extra thousand bucks per unit that you’re selling. The kicker is it costs so much money to advertise on Amazon that you don’t make any money. So then after that, I stumbled on BiggerPockets and started listening to just real estate. I’ve always been like Mr. Fix It at home and can fix things. And my dad’s a union carpenter, so I’ve always had a background of building and fixing things.
And then about two years ago when I was going through a bad divorce, I had an option and I could either rent because my wife was keeping the house, or I could look at either flipping a house, live in flip, or buy a property that I could fix up and then pull some equity out. So that’s my initial dive into it.

Henry:
About when did you start researching real estate? And then about when was it when you bought your first real estate deal?

Kent:
My job, my nine to five, I travel a lot. So I’m in the car between two and four hours, three to four days a week. So it would just be podcast after podcast, whether it was entrepreneurship, and then eventually about three years ago to two and a half years ago, really just diving into BiggerPockets and just constantly listening to it in the car. So in July of 2024, I was looking at my first property. My real estate agent at the time had a property that used to be a duplex and it was converted to a single family, but all I literally had to do was put a door on it. So you walk in, the first floor would’ve been one apartment and then there was another door that went upstairs for the second apartment. So literally just putting a door on it would make it a duplex.

Henry:
What city was this?

Kent:
In Altoona, PA.

Henry:
Altoona, Pennsylvania. And how much did you pay for this large single family home that was a duplex, turned into a single that you wanted to turn back into a duplex?

Kent:
But I actually turned it into a try.

Henry:
We’ll

Kent:
Get to that. So purchase price is $70,000.

Henry:
70 grand? Was it just sticks? Was it livable?

Kent:
All new LVP in the first and second floor and the third floor, all LVP already done. And everything was freshly painted.

Henry:
Is this just prices in this market? How’d you find this deal? Was it on the market? Was it off-market deal?

Kent:
It was on the market for a while. So that house fell through a couple times. They sold it twice maybe, and the loan didn’t go through right or something happened. So then the seller just needed it kind of off his plate. But at most, it was on the market for 80 or 90.

Henry:
Wow. I just didn’t realize the price points were that low.

Kent:
Well, the price points will get better and you’re going to be. So that’s in the high end of what I paid.

Henry:
Okay. All right. All right. So you paid 70. It was a single that used to be a duplex. You ended up converting it back to a multifamily. How much did it cost you to renovate this property to get it turned into, I guess you said, a triplex now?

Kent:
$10,000.

Henry:
Okay. Did it cost 10 grand because you have the skills to do all the work yourself or did it cost 10 grand just because it was in pristine condition and you didn’t have to do much?

Kent:
So I didn’t have to do a lot, but I do all of the work. So the idea is I have a background of redoing kitchens and redoing bathrooms and I can do flooring and painting and everything else, but that’s all that I had to put into it to convert it into a try. I had a little bit of cabinets I had to add into the kitchen, and then there were some cabinets up on that second floor that I used in the third unit, which was in the back.

Henry:
Can you estimate what you think the renovation would’ve cost had you had to hire a contractor?

Kent:
I mean, I always double it. So it’s 20 to 30, 20 to 30 grand. That’s

Henry:
Fair. That’s fair. Okay, cool. That paints a good picture of about the level of work that needed to be involved with this property. And so then you converted it to a triplex. I know I’m probably getting ahead of myself, but I’m so curious because of that price point. What are the rents for the individual units?

Kent:
So they basically added a business off the back side of this house. That unit, I furnished it, and then there’s a makeshift kitchen back there too, and I get 850 for that little unit, and it’s as big as a whatever, hotel room.

Henry:
Okay. So you’re cash flowing off one unit. Allright, what else you got?

Kent:
Right. So then on the first floor, one bedroom, I get right around 900 a month for that.

Henry:
And the third unit?

Kent:
1250.

Henry:
What?

Kent:
Because it’s three bedroom, and this is off of a $70,000 home. Holy

Henry:
Crap. $70,000 single family, $10,000 renovation, which includes sweat equity, which is fine. And you’re able to bring in 850, 900, and 1250 for a total of $3,000 a month in rent on an $80,000 all-in purchase? Right. That’s a good stinking deal. Wow. Congratulations on that. That’s impressive.

Kent:
Thank you. Thank you. We always want to hit that home run in the first one.

Henry:
All right. So how did you structure the financing for this? Did you pay out of your pocket? Is it a conventional loan?

Kent:
It was a 30-year conventional loan.

Henry:
So you put down 20%, 25%? Yeah,

Kent:
14 to $20,000.

Henry:
What’s your debt service? So what are you paying the mortgage on that property? It’s

Kent:
So

Henry:
Low, he doesn’t even know, guys. He was like, “I don’t know. 50 bucks eyes.”

Kent:
All of my loans are between four and $600.

Henry:
$600 a month mortgage, bringing in $3,000 a month. Even you put $14,000 down after a few months, you got your money back.

Kent:
Oh, yeah.

Henry:
What a deal. What a deal. Now, I’m very curious now as to what the numbers look like on this second deal, and we’re going to dive into that after this quick break. All right, we are back on the BiggerPockets podcast. I am speaking with investor Kent Long, who has just shared his very first real estate deal with us, and it was a banger. So Kent, tell me about this next one.

Kent:
So first property, fix it up, basically added two units because it was a single family, turned it into a try. Because I turned it in a try, I got to be able to pull, I mean, it’s 80% of the appraised value, so then I was able to pull out a $78,000 HELOC.

Henry:
Well, I want to caveat one thing though, because I just want to make sure that we’re clear on the terms. I love this strategy, by the way. So you essentially did a burr, except I call it a modified BRRR. It’s a BRR. Instead of a refinance at the end, it’s a HELOC at the end. And so you actually didn’t pull money out, you just got access to a line of credit. I like this strategy more than the BRRR. And the reason I do is because when you refinance, you’re getting a new loan at a higher amount, which then lessens your cash flow. But because you just pulled a line of credit, you gave yourself access to the equity, but you didn’t get a new loan at a higher amount. Your loan stays the same and you only pay more when you borrow the money against the HELOC.
So he was saying he pulled money out. He didn’t necessarily pull it out. He got access to it. I think it’s a fantastic strategy. I’m glad you went that route. So you’ve now got access to this $70,000 line of credit, and so that gives you buying power, right? So what did you do with that?

Kent:
I bought another single family right around 1700 square feet, and I was going to turn it into a duplex, but I bought it for $30,000. So

Henry:
You paid cash from your line of credit. So you pulled out 35,000. Again, why I like this strategy? Because he didn’t refinance, he didn’t get a new loan. He was able to use $35,000 of the 70,000 he had access to. So you’re actually only paying interest only payments on 35,000 versus having, if you did on a refinance, you’re essentially paying for all the money at once. So you pull out 35,000, you pay cash for a house that you want to convert from a single to a multi. Now, were you specifically targeting single families that had the potential to be multis or was this just coincidence?

Kent:
Ideally, I wanted duplexes or tries. They’re the easiest to renovate. I mean, the whole BRR process is easier for. The whole idea of duplexes and tries is I like one renter to pay the mortgage and one renter to pay me. So when you look at multifamilies, it’s just a cash flow and that ideally has always been my goal.

Henry:
So 35,000, how much did it cost you to renovate this one?

Kent:
20,000 all in.

Henry:
What are you getting in rents on those units?

Kent:
A thousand for the two bedroom on the upstairs and then 900 for the one bedroom.

Henry:
So $30,000 purchase, $20,000 rehab, all in for 50, bringing in $1,900 a month. Again, that is a fantastic cash flowing deal. Did you finance this one the same way or did you do it a little different?

Kent:
So when I went to get that refinanced, that’s when I went the commercial loan route, which I really, I love it. It’s just so much simpler, so much quicker. So then it got reappraised at 110. So I pulled an $85,000 loan out on that and was able to pay off $20,000 of credit card debt and pay down that $30,000 that I initial investment.

Henry:
Okay, because you paid cash and you probably funded the renovation out of your own pocket. So you’re all in 50, but it’s 50 cash. So then you went and you got a loan on the property itself for 80. That gives you some cash in your pocket to pay off your debts. And an $80,000 loan bringing in $1,900 a month is still phenomenal cash flow. Plus you were able to pay off credit card debt, which essentially increases cash flow too, because now you’re not paying those credit card bills. That’s awesome, man. And I know a lot of people are listening and they’re thinking, “Man, well, I can’t buy $30,000 houses.” Well, A, you can because you can invest out of state if you want to. And B, there’s markets like this all over the country. So don’t just believe the lie of if you’re paying less than $100,000 that you’re getting some piece of crap that is going to cost you more to fix it up than it is to sell it.
There are plenty of markets where the price points are lower. There’s obviously risk to those things. Usually markets with lower price points like this don’t have a ton of appreciation. So I’m curious, is that what it’s like in your market? Do these properties appreciate with the national average or do they kind of just sit flat? It

Kent:
Would sit flat. I mean, when it comes to risk, I like to think of it as lower risk than anything else because – It is low risk. The money that I’m putting into it, the amount of money that I would invest into a $30,000 house compared to a $300,000 house, I’m just mitigating risk just in the initial price point.

Henry:
It’s a sliding scale, right? It’s a seesaw. Typically, if you’re in a market where you’re getting tons of appreciation, cash flow is none, negative, hard to find. Inversely, when you’re in a market where you can get phenomenal cash flow, I mean, we’re talking a debt service of 600 bucks, bringing in $3,000. That is phenomenal cash flow, but you’re not going to get a ton of appreciation. That’s just how real estate tends to work. So you need to figure out, if you’re listening to the show, to figure out what your strategy is, you have to set your own goals and then buy properties in a market that allow you to meet those goals, right? There’s going to be ups and there’s going to be downs, there’s going to be risks, and you want to be rewarded for the risk. I think that this is a decent strategy if you’re trying to build up cashflow, heavy cashflow market.
Before we move on to this next deal, Kent mentioned that he used a HELOC on his first house to fund his second property. And if you’re a BiggerPockets Pro member, we have a new perk with our HELOC partner, Avan, that can get you a $400 statement credit. So go and check that out if you’re a BiggerPockets Pro member. All right, Kent, I love these deals. I think this is a good strategy in what seems to be a very highly cashflow heavy market. You’re from the market, you live in the market, so you understand that market. I think that that’s a smart investment plan. Paint us a picture here in terms of time. The first deal was 2024 in July. How long was it between that one and this deal?

Kent:
I got this deal done in February of 2025.

Henry:
So about seven months later you did this next deal. Okay. That’s a reasonable timeframe. You did one deal, you learned some lessons, you go and do another deal. That’s great. Okay. And how long did it take you from deal two to deal three?

Kent:
It took a little bit longer because that’s when I got my son involved into this real estate journey. First one was a home run. The second one was going really well, and I knew that it was going to work out because I already had the cash. And another duplex while I was working on my second property, another duplex came up for $44,000.

Henry:
Okay. This was on the market listed?

Kent:
This is on the market listed for 44,000. All

Henry:
Right.

Kent:
I had to get there immediately because I knew when duplexes come up in Altoona, they go quickly.

Henry:
How old was your son at the time?

Kent:
19.

Henry:
Okay. Okay. Awesome.

Kent:
So he’s a 19-year-old. He was in college, but over the summer, he was going to fix a duplex up, basically do the same thing, pull equity out of it, and then do one property a year for the next four years while he was in college. So I got the house for $44,000. So I put 15, $16,000 down on it.

Henry:
Okay. Did you use the HELOC to put the money down or did you?

Kent:
Yeah.

Henry:
Yeah, at a boy.

Kent:
I did a commercial loan on this as well because I’m working with a local bank. So again, I think it’s benefits to be working with your local banks because they know the area. They know how to make things work.

Henry:
So typical structure of a loan for a local community bank, if you’re doing a fix and flip or some sort of construction loan, it’s 85% of purchase, 100% of rehab. So you got to put 15% down. So that was your 15% down payment you were talking about. You borrowed that from your line of credit on deal one. How much did the renovation of this duplex cost

Kent:
You? I think we took a $15,000 renovation loan with this commercial loan. So as you’re doing the work, they’ll pay you back, but we really needed about 25,000. So it was, again, a big property and the flooring is what we didn’t figure it out right. And then the caveat to all this, we’re lucky as in my dad as a union carpenter and would come down two to three days a week and help him fix this property up.

Henry:
So you got the whole family involved, grandpa, dad and son all working on this property. That’s super cool. So total budget was about $25,000, it sounds like, on the renovation of this duplex. You paid 44, you’ve got 25 in it, so you’re all in for just under $70,000. And what are you renting those units for?

Kent:
1,200 and 1,200.

Henry:
That is awesome.

Kent:
Yeah, it was fantastic. And then we refinanced this and he was able to pull out $72,000 out of his first property.

Henry:
As a 19-year-old.

Kent:
Yeah. Wow. Wow. He turned 20 till he refinanced it. But at 20 years old, we went to a lawyer and they wrote him a check for $72,000.

Henry:
How scared did that make you?

Kent:
No, he’s the most frugal kid you’ll ever meet. I knew he won’t spend a dime of it.

Henry:
Oh, I can’t imagine getting a $70,000 check at 19. I

Kent:
Was

Henry:
Not that responsible.

Kent:
No, he does great with his money. So he did pay me back. So I put the initial investment in and had to fund some of the flooring and some of the kitchen renovation. So he was able to pay me back $18,000. But then he’s still sitting in the bank with over $50,000.

Henry:
So what made you want to pull your son into this deal? What brought that about?

Kent:
Just financial security. It’s financial future. It’s making, one, giving him the opportunity to be successful later in life. I mean, he’s going to have this property for the next 30 years, just cash flowing 1,500 to $2,000. He can pay it down. He could sell it.You’ve always talked about having multiple exit strategies, and that’s what you have when you buy these properties. As long as you think about different ways of, do you want the cash flow? Do you want the HELOC? Do you need more cash? Are you going to do another deal? So we kind of talked through all that, but because I was so fortunate on my first two deals and because the price points are so low, we’re kind of mitigazing that risk, which is great.

Henry:
What was it like working on this property with your dad and your son, seeing something go from what it was when you purchased it to this investment property that’s producing income?

Kent:
It’s fantastic. I mean, it’s nice word of my son and then my dad comes out and helps out. I mean, we just have a good time. My nephews would come down and do some painting. So almost have a party and just hang out and then we just feed everybody and get free labor. It’s fantastic.

Henry:
All right, Kent, thanks for sharing that story. That’s super cool, getting your family involved and still pulling off another amazingly well cash flowing deal. I’m assuming there’s some more and we’ll dive into those deals right after the break. All right, we are back on the BiggerPockets Podcast. I’m speaking with investor Kent Long, who has pulled off some pretty amazing cash flowing deals. Now we’re onto what looks like deal four-ish, if you want to count deal three. It was your son’s deal technically, but you helped him with that. So deal three and a half. So what’d you do with deal three and a half?

Kent:
Found a duplex, I believe it was on the market for 65 and I got it for 55 in pretty good shape. The kicker was there was tenants on the first floor already, so ideally I’m going to keep them. And then I actually, you’re not going to love this, I paid a contractor to do the work.

Henry:
No, I love that. I think you should absolutely do that.

Kent:
So I got a $25,000 renovation loan with my commercial loan. The $25,000 paid for the second floor renovation, so painting, putting in a kitchen and flooring.

Henry:
Did you leave the tenants on the first floor at market rents or did you have to raise rents?

Kent:
So their rent was $450 a month.

Henry:
Okay.

Kent:
So I came in and was like, again, I took this from one of your previous podcasts is not just jump them up to market rate. So I just slow rolled them, I’ll increase you a hundred bucks a month for multiple months and I need you to eventually get to 750. 750 is still a little below market, but they’re paying all utilities. And while that renovation was going on, they were covering the mortgage

Henry:
Because

Kent:
It’s a $55 loan.

Henry:
Tenants aren’t stupid. They understand that you have a mortgage and taxes and insurance. Now they may not want to pay more rent, but they understand. And I have always found that if I just sit down and am honest with people, share the plan and give them a say in how we get there, they’re so much happier. Market rents are X. That’s the first thing, right? It’s to show them. If you move, you’re going to be paying 850 a month for the same property, or I can let you stay here for 750. That’s where I got to get you to. Can you help me come up with a plan to get you there? If I’ve got to tweak your rent every month, how much can we afford to go up every month? And when I give them a say in it, they don’t feel like I just did something to them.
They feel like they got to work with me to keep them in their home, which is always a better strategy. So purchase price, 55. Renovation, 25. So you’re all in for $80,000 and you got the one tenant on the first floor up to 750 a month in rent. And what were you able to get in the second floor?

Kent:
$1,000 for the second floor, two bedroom.

Henry:
All right. So 1750 gross rents on $80,000 of debt. This is a recent deal that you found in an affordable market that produces a ton of cash flow. There are markets like this all over the country. I love that you’re using strategies like lines of credit and community banks to grow your business. That is exactly how I grew my business. And I like the pace at which you’re doing these deals because it seems like you’re doing about a deal every six months or so. Is this your only job or are you working some other job at the same time?

Kent:
So my nine to five as a regional manager, as an occupational therapist, I oversee 18 skilled nursing facility therapy departments.

Henry:
So you’re doing this part-time with a full-time gig where you’re traveling a ton. How much time you’re putting in on a weekly or monthly basis into your real estate business?

Kent:
I wouldn’t even say an hour or two a week. If I do three or four a month maybe.

Henry:
Yeah. I like this. I like the story because most real estate investors are mom and pop folks just like you and just like me to some level where you do a few deals here and there, you get them stabilized, and then you move on to the next one. You do it in your spare time. It’s not something that you’re taking all of your focus and you’re able to still produce good income and cash flow when things are done the right way. I love that you’re leveraging the community banks. I love that you’re leveraging HELOCs and lines of credit, but this is just basic real estate investment strategy. This isn’t new. This is literally things that have been around for decades. Anyone can do this kind of strategy. So your goal getting into this was to buy assets, produce passive income. Where do you feel like you are on that roadmap?
Because you’re still self-managing, so there’s some work involved there. You’re doing some of the renovations here and there, so there’s some work involved there, but you’re also producing a good amount of income. So how many more deals do you think you need to do before you can really start to remove yourself from some of those things?

Kent:
My initial goal was to do 10 in five years, and I think I’m going to get eight done in probably maybe three and a half years.

Henry:
Before we get out of here, let’s kind of give everybody a recap of your portfolio. So how many deals have you done? How many doors do you have? How much cash flow is it producing?

Kent:
I have four properties, two duplexes, two triplexes, and then they’re cash flowing $5,500 a month currently right now. And that’s in a two-year timeframe.

Henry:
That’s pretty cool. And that includes your fourth deal, which looks like you bought a duplex for around 90 grand and you turned that one into a triplex?

Kent:
Correct. That one was the biggest renovation and then the biggest workload for me for sure. The duplex was already done. There was new floors, some carpeting. Both of those rentals were ready to go when I bought the property. I put two renters in there immediately, and then I’m getting 950 each for both of those. And then the first floor was an old corner store and it was a disaster. It was dirty. There was an old deli fridge still sitting in there that I had to use a sledgehammer to get out of there because it was so big. And then I took about two dumpster fulls of garbage to even get that first floor cleaned up, and I converted into a three bedroom, one bath on that downstairs unit.

Henry:
And what was the budget for that renovation?

Kent:
About $30,000 I put into

Henry:
This. So you’re all in for 120 and you rented that back unit for how much?

Kent:
1200.

Henry:
So that puts you at total gross rents of about $3,100. $3,100 on $120,000 of debt is phenomenal cash flow. And so this one was an on the market duplex again as well.

Kent:
Correct. Yep. I just got it refinanced and I’m able to pull 83,000 out of it, and then I’m paying my HELOC down to zero with that. Oh boy.

Henry:
Yeah.

Kent:
And you start all over again.

Henry:
So after all of these deals, what’s the goal going forward? Are you going to try to get to 10 in your timeframe or are you going to evaluate yourself after this eight?

Kent:
Ideally, I would love to get four more in the next year and a half.

Henry:
Okay.

Kent:
And when I turn 50, a year and a half from now, just kind of be done and then retire my nine to five

Henry:
Job. All right, Kent, thank you so much for sharing this story. This is such a cool story. What amazing deals. I love that you’ve done this in a recent timeframe. I love that you’re buying the properties on the market and I love that they’re producing cash flow that is getting you to your goals, seems like ahead of time to where you can actually leave your nine to five. I love that you were able to bring in your son and your dad and have everybody work together to build wealth because that’s truly the dream. Those bonds and those memories last forever, and it’s pretty cool to be able to share that with your family. So thank you for sharing that story.

Kent:
Yeah, I appreciate the time. Thank you so much, Henry.

Henry:
Thank you very much. And thank you guys for listening to this episode of the BiggerPockets Podcast. Again, if you have a story you would like to share on the podcast, then you can go to biggerpockets.com/guest and you can apply to share your story with us right here on the BiggerPockets Podcast. As always, thank you for listening and we’ll see you on the next episode.

 

In This Article

I spent eight years touring as a producer, with platinum records on the wall and almost nothing in the bank, which sounds like the setup to a country song but was mostly bad math on my part. People stole from me, sure, but the bigger problem was that I measured everything by what came in and never thought about what I got to keep.

I own 18 short-term rental units now across two Texas markets, and the largest jump in what I actually took home had nothing to do with occupancy or nightly rate. It came off during the once-dreaded tax season that I now quite enjoy.

Here’s the kind of thing I mean. You’re single, making $400,000 at a job you have no intention of quitting, and in September you buy a $500,000 cabin and put it on Airbnb. Between the down payment, furnishings, and closing costs, you’re about $164,000 into the deal. Do it correctly, and if your facts meet the requirements, your federal tax bill that year could come down by roughly $50,000.

That isn’t a credit, dream, or some kind of aggressive shelter that makes an accountant shift around in their chair. It’s a question of how the property gets classified, and the rule it hangs on was written in 1988 with hotels in mind.

One thing upfront, because the rest of this article is useless without it: This strategy is fact-dependent. A short-term rental is nonpassive under §469 only if the activity meets an exception to the rental-activity definition and you materially participate. A cost segregation study and bonus depreciation don’t, on their own, make a loss deductible against your wages. They just make the loss bigger once you’ve earned the right to use it.

The Rule Was Written for Hotels

People call this the STR loophole, and I’ll keep using the phrase because that’s what people type into Google. It’s better understood as a published rule with specific requirements, sitting in plain sight for almost 40 years.

Congress wrote the passive activity rules in 1986 to stop doctors and dentists from buying paper losses. Treasury then had to define what a “rental activity” was and carve out businesses renting to customers for very short stretches, on the grounds that a property turning over every few days functions more like a hotel than a lease.

Clearing the hotel-style definition only takes you out of one bucket. You still have to materially participate before the losses count toward your salary. There are two separate tests, and people constantly forget the second one.

The rule was drawing a line between ordinary rental activity and customer-facing, short-stay operations. Decades later, that same line runs straight through a cabin outside Broken Bow.

Why You Normally Can’t Do This

Under IRC §469, rental income is passive by default, and passive losses only offset passive income. So if you’re a surgeon pulling $600,000 and your rental throws off a $50,000 paper loss, that loss doesn’t go near your salary. It sits suspended until you generate passive income elsewhere or sell.

There’s a narrow exception in §469(i) allowing up to $25,000 of rental losses against ordinary income, but it phases out between $100,000 and $150,000 of modified AGI, which makes it essentially useless to everyone it would otherwise benefit.

For a high-earning W-2 investor, two routes matter here. The first is Real Estate Professional Status, which requires 750 hours in real property trades or businesses, plus more than half of all your personal service work for the year. If you’re working a conventional full-time job, that’s a hard door to get through, because the more-than-half test is measured against everything you do. Most people who’ve been told they qualify were told so by someone selling something.

The second is to establish that your property was never a rental activity in the first place, which is what this article is about. You aren’t finding a way around the passive rules; you’re showing they never applied to you.

Test 1: The Seven-Day Average

Treasury Regulation §1.469-1T(e)(3)(ii)(A) says an activity isn’t a rental activity if the average period of customer use comes in at seven days or less.

Total nights rented ÷ total number of separate stays

That’s simpler than people expect and also not the calculation most people run. If you booked 340 nights across 74 separate stays, your average is 4.6, and you’re fine, while those same 340 nights spread across 42 stays give you 8.1, and you’ve failed the test with an occupancy report that looks fantastic.

The two mistakes I see constantly are dividing by calendar days rather than by stays and assuming you can clean this up later. It isn’t fixable after the fact. If your annual average lands at 7.3, you don’t qualify for the seven-day exception for that tax year, and unless another exception applies, the activity is treated as a rental activity under §469. Nothing you do in April changes it.

There’s a second exception that applies when your average stay is more than seven days but 30 days or less. It requires significant personal services provided in connection with guest use. Think hotel-style service, not property upkeep. 

Cleaning between stays, restocking supplies, repairs, and Wi-Fi are the ordinary work of running a rental and generally don’t get you there. Most owners can’t meet this one and shouldn’t build a plan around it.

Test 2: Material Participation

Clearing seven days only gets you out of the rental bucket. You still have to show you’re running a business, and Reg. §1.469-5T sets out seven tests, passing any one of which is sufficient. Three matter for most people: 

• More than 500 hours on the activity
• Doing substantially all the work yourself
• Putting in more than 100 hours while nobody else involved puts in more than you do

Most people with one property live on that third test, since 100 hours is roughly two hours a week, which is manageable alongside a job. It also contains the trap that catches more people than anything else in this article.

Your cleaner counts as somebody else. If she turns your cabin 70 times over the course of a year and each turn takes three hours, she has 210 hours in the property, and you need to beat that number, not the 100 you had in your head. 

The regulation does permit a tie: You have to participate at least as much as any other individual, not more. But a razor-thin tie is bad audit posture, especially when the other person’s hours are an estimate you reconstructed later.

I track my cleaners’ hours in the same spreadsheet where I track my own. It took 20 minutes to set up. It was the cheapest insurance in this whole strategy. If you don’t want to build one from scratch, we put together a set of short-term rental tax worksheets that cover the stay average, the hour log, and the rest of the paperwork.

One thing works clearly in your favor: Spousal hours combine under §469(h)(5) even when only one of you is on the deed. Multiple properties can sometimes be grouped into a single activity for material-participation testing, but the grouping election and the appropriate economic unit rules are genuinely technical. 

Don’t assume short-term and long-term rentals can be grouped, and don’t assume they can’t. That’s a CPA question. Against you, the Audit Techniques Guide excludes investor activities such as reviewing financials, studying markets, and arranging financing, so every hour you spent on Zillow before you bought is worth nothing.

Travel time is fact-specific, and I’d treat it as a risk rather than an asset. In Lucero v. Commissioner (T.C. Memo. 2020-136), the court rejected claimed travel hours for a couple running a rental at Sea Ranch, hours from their home in Sacramento, in the context of a participation record it didn’t find reliable, which included two hours logged for a Bed Bath & Beyond run to buy coffee filters. 

A taxpayer did get travel time counted in Leyh, but that was a summary opinion; it carries no precedential weight and addressed real estate professional status rather than STR material participation. 

Don’t build your hours on drive time. Log enough operational work that it never has to come up.

Where the Deduction Actually Comes From

Qualifying doesn’t create a deduction on its own. You need a loss to deduct; it comes from depreciation, and depreciation gets large because of two things working together.

Cost segregation

A building is hundreds of assets with very different useful lives, and the code already has schedules for each. An engineer inventories the property and assigns components to shorter recovery periods where the facts support it; things like appliances, furnishings, certain finishes, and specialty electrical often land in five- or seven-year property, while site work like paving, fencing, and landscaping frequently falls into 15-year land improvements.

I’m hedging on purpose there. Classification is asset-specific. Two cabins that look identical from the road can be segregated differently depending on how they were built and what the invoices say, which is exactly why the study has to be defensible rather than assumed.

The remaining building basis sits on a much longer recovery period. Whether that’s 27.5 years or 39 depends on the property’s classification and how it’s actually used, so confirm it with whoever is preparing the return rather than assuming.

Cost segregation providers often cite reclassification ranges of 20% to 35% of the depreciable basis, and furnished cabins with real site work can land higher, since rural properties carry land improvements that nobody thinks about. 

But that’s a range other people quote, not a promise about your building. The result depends on the property, invoices, and asset mix.

A study on a property this size runs several thousand dollars. Whether that’s worth paying depends on how much gets reclassified, whether you can actually use the loss this year, and how well the study is built, not on the size of the deduction alone. A $143,000 deduction is not $143,000 in your pocket, which is a distinction I’ll come back to. 

If you already own something and have never had one done, a look-back study can often catch up the missed depreciation through an accounting method change rather than amended returns. Confirm the procedure with your CPA. Don’t build your own in a spreadsheet, since an estimated percentage doesn’t tie components to the actual cost basis and won’t survive a challenge.

100% bonus depreciation, now permanent

Qualified property with a recovery period of 20 years or less is generally eligible for 100% bonus depreciation, subject to acquisition, placed-in-service, original-use or used-property requirements, and the other rules in §168(k). That covers most of what a cost segregation study pulls out of a building, and “most” is doing real work in that sentence. 

Bonus depreciation was on a death march until recently, scheduled to drop to 40% in 2025, 20% in 2026, and zero after that, until the One Big Beautiful Bill Act, signed July 4, 2025, deleted the schedule. Section 70301 permanently restored the rate to 100% for property acquired after Jan. 19, 2025, and struck the old rule requiring property to be in service before 2027 to receive any bonus at all. The IRS confirmed the mechanics in Notice 2026-11.

That permanence is about the rate, not about your calendar, and the difference matters. Most articles you’ll read get the urgency backward. The pitch is usually some version of “buy before the law changes,” except the law isn’t changing anymore. What’s time-sensitive is the tax year.

To claim this on a 2026 return, the property generally has to be placed in service by Dec. 31, ready and available for its intended rental use. Closing isn’t the test. If furnishing, repairs, permits, or a certificate of occupancy are still standing between you and a bookable listing, you haven’t placed it in service, and I’ve watched people lose a full year to a countertop.

One narrow exception applies to property under a written binding contract entered into before Jan. 20, 2025, which may fall under the prior phase-down rather than the new 100% rate. Whether it does depends on when the contract actually became enforceable and whether contingencies or cancellation rights were still hanging over it. If that might be you, have your CPA read the contract rather than assuming the new rate applies.

The math

Single filer, $400,000 W-2 income, buying a cabin in September.

What this illustration assumes: 2026 tax year, single filer, standard deduction, no other income or itemized deductions, and a taxpayer who clears both the seven-day test and material participation. It’s federal income tax only. It ignores payroll taxes, net investment income tax, AMT, QBI, state income tax, capital gains, and any passive-loss carryforwards. Change any of those, and the number moves. 

Run your own facts through a CPA or tax software before you count on anything.

Purchase price	$500,000
Land allocation (20%, not depreciable)	?$100,000
Depreciable building basis	$400,000
Cost seg reclassifies 27%	$108,000
Furniture, appliances, setup	$35,000
Eligible for 100% bonus	$143,000
Remaining $292,000 on 39-year line, ~3.5 months	$2,184
Total year-one depreciation	$145,184

From September through December, the cabin brings in $18,000 and spends $16,000 on operating costs and mortgage interest, resulting in a real profit of $2,000. After depreciation is subtracted, it reports a $143,184 loss. 

The property produced positive cash flow before depreciation. The return shows a loss because depreciation is a noncash deduction.

Taxable income before	$383,900
Federal tax before	$103,134
Taxable income after	$240,716
Federal tax after	$53,485
Federal tax reduction	$49,649

Set that against what was left in the bank account: $110,000 down at 22%, $35,000 in furnishings, $12,500 in closing costs, and $6,000 for the study, for about $163,500 all in. You put in $164,000 and got $50,000 back, a 30% return on cash before the cabin earns a dollar of profit.

One correction to that math

You’ll see this presented as simple multiplication where you’re in the 35% bracket, so a $143,184 loss saves you $50,114. That isn’t how deductions work, because a deduction doesn’t come off at your top rate; it walks down through the brackets, peeling off 35% and then 32%, which puts our filer’s real blended benefit at 34.7%. The difference here is $465, but it grows, and in the direction nobody selling cost seg studies is eager to mention. 

Run the same filer with a $290,000 loss and top-rate math claims $101,500. Under these assumptions, the actual federal reduction is about $87,764, a gap of roughly $13,736. When somebody quotes you a savings figure, ask whether they walked the brackets or just multiplied.

Where People Blow It

The most common failure is a reconstructed time log. Courts may reject a log that’s vague, built after the fact, or unsupported by contemporaneous records, and the tells are obvious from the other side of the desk: round numbers, no description of what was done, the whole thing typed up in one sitting after the letter arrived. Log it the day it happens with a date, a task, and a duration.

Close behind is not tracking contractors, since you can’t prove you did more than anyone else if you never counted anyone else. A full-service property manager creates the same problem at a larger scale. If someone else handles your listing, pricing, guest communication, and turns, their hours can make the more-than-100-hours test very hard to clear, and an examiner will want to see exactly what the manager did versus what you did yourself.

Personal use will also get you. If personal use exceeds the greater of 14 days or 10% of the days rented at fair rental value, the place may be treated as a residence under the vacation-home rules, which limits what you can deduct.

Land allocation can move the deduction more than people expect. Land isn’t depreciable, so on a $1 million property, a 40% land allocation leaves you $600,000 of depreciable basis, while a 15% allocation leaves $850,000, the same property and the same price, with a quarter-million-dollar swing in what you can depreciate. Get that number supported by your study or an appraisal rather than accepting whatever the county assessor wrote down.

Three Things to Settle Before You File

The strategy is well-established. These are the parts that get looked at.

1. Schedule E or Schedule C

This is a separate question from §469, and conflating the two is a mistake I see constantly. Clearing the seven-day test doesn’t automatically move you to Schedule C. 

The reporting question turns on the services you provide to guests. Ordinary rental services, cleaning between guests, repairs, trash removal, and maintenance generally support Schedule E. Hotel-like services such as meals, daily cleaning during a stay, concierge, or transportation can support Schedule C, which carries a 15.3% self-employment tax. 

It’s a fact-specific filing position. Settle it with your CPA before you file, not after.

2. Whether spouses can combine hours

Some examiners have pushed back on this, claiming that each spouse must independently clear the threshold. The statute reads the other way: §469(h)(5) says a spouse’s participation is taken into account without qualification. The independent 750-hour requirement belongs to real estate professional status, and the two get conflated.

3. Documentation

The one you fully control, and usually the one that shapes how an exam goes. A large loss against a large W-2 income stands out on a return. That’s an argument for records good enough that a question becomes a paperwork exercise rather than a fight.

What Happens When You Sell

Accelerated depreciation is a timing benefit, and some of it comes back on the way out.

You’ll read in many places that recapture caps at 25%. That’s half-true in a way that favors whoever’s selling you something. Real property generally results in unrecaptured §1250 gain at a maximum rate of 25%. 

But short-life personal property (the appliances, furnishings, and fixtures a study pulls out) is generally §1245 property, recaptured at ordinary income rates. Which components land where depends on the assets and the facts, so don’t assume every dollar a study reclassified gets the same treatment at sale.

The part worth internalizing is that those short-life components often drive most of your first-year deduction. On sale, §1245 recapture on them is generally taxed at ordinary income rates, which can run as high as your marginal rate in the year you sell. And note the asymmetry: The deduction walked down through your brackets on the way in, while the recapture stacks on top of whatever else you earn on the way out.

That doesn’t make it a bad strategy. Deferral has real value, and a properly structured 1031 exchange may push the gain further out. Neither one removes the need to plan for recapture. Anyone describing this as free money hasn’t read past the fun part.

Before You Go, Do This

This works if you have significant active income, you’ll own the guest experience rather than outsourcing it, and you’re buying something you’d want regardless of the tax treatment. It doesn’t work for arbitrage or co-hosting, since the benefit comes from depreciating an owned building.

That last condition is the one people skip and the one I’d underline: A bad property with a great tax outcome is still a bad property. You get the depreciation once while you own the asset for years.

I built my first geodome in 2021 for $85,000, and it did $95,000 in revenue in its first year. The tax treatment was excellent, and I’d have built it anyway because the business worked, which is the order I’d keep things in.

If you’re moving on this, do three things this week:

• Run your average stay from last year’s booking export.
• Start a time log today rather than in January.
• Find a CPA who works with short-term rentals instead of one willing to learn on your return. Ask how many STR clients they have, and if there’s a pause, keep looking.

The first two are worksheets in our short-term rental tax pack, along with a pre-buy checklist and a list of questions to bring to your CPA.

The rules here are longstanding, and you can go read them yourself. What varies is the facts and the documentation. That’s what decides whether it holds. The people who get burned aren’t the ones using the strategy; they’re the ones who used it and couldn’t prove any of it 18 months later when somebody asked.

Garrett is the Short-Term Rental Expert at BiggerPockets and owns 18 short-term rental units across Texas. This article is educational and is not tax advice. Tax outcomes depend entirely on your specific facts. Talk to a qualified CPA before acting on any of it.

Henry Washington:
Spend $20,000 on a kitchen and your house is worth 50,000 more. This is the whole game of real estate investing, and I’ve done it more than a hundred times. You buy an undervalued house, you renovate the right things, and the value goes up far more than you spent. The hard part is knowing which fixes actually matter to home appraisers, home buyers, and home renters. So today I’m going to show you which renovations pay you back the most and how to estimate the cost of each one before you buy the house. We’ll cover kitchens, bathrooms, and even a few of my favorite hacks that really boost your value for a lot cheaper than you think. I’m trying to make you tens of thousands of dollars in this episode, and all you need to do is watch.
Welcome everybody. This is part two of our series on how to estimate rehab costs. Check out part one if you missed it. That’s where we covered the very important big five, plumbing, electrical, HVAC, foundation, and roof. Those are your big ticket items. We want to make sure that you are accounting for those prior to buying the home so that you can get the home at the right price. But today we’re covering the things that you can actually do that put the dollars in your pocket. We are talking value add investing. This is my bread and butter. This is what I love to do. And this applies to flipping, but it also applies to rental properties. You can add value pretty easily in single family and small multifamily homes if you know what to look for, what it’s going to cost, and you know that it’s actually going to give you a return because there is a lot of renovations and value add that you can do that don’t really add a lot of value.
It may look pretty, but it won’t always put money in your pocket. So today I’m going to cover where in the home you should focus on adding value, how much it’s going to cost you to add said value, and whether it’s going to be worth it or not for you to even take on the risk of doing it based on the returns that you could get. All right, since everybody knows that kitchens and bathrooms sell home, let’s start with the kitchen. When I am looking at adding value to a kitchen, first and foremost, I am looking to see is the layout of the kitchen as it sits desirable? Remember, just updating that kitchen is going to add value, but if it’s got a decent enough layout, spending the money to rearrange the kitchen completely is not going to bring you much more value than you just renovating in place.
So I would not recommend completely changing the layout of a kitchen unless the current layout is very undesirable for the house that you have. So let’s go through each one of these individual factors of a kitchen and talk about what it might cost. Starting with the flooring, I typically don’t budget flooring in a kitchen separately than flooring for the whole house. When I’m planning a renovation, the flooring that goes in the kitchen gets bundled into my flooring costs for the entire house. But on average, I’m going to put tile in wet spaces. And in kitchens, I’m typically trying to use larger tiles to save money. So think the 12 by 24 inch brick style tiles, or I’ll do a 12 by 12 inch square tile and I’ll mix up the colors to make it a little more modern. But think of a tile floor, probably going to spend anywhere from $1.50 to $3 per square foot for tile.
So if you want to understand how much it’s going to cost you to put flooring in your kitchen, you just need to measure the square footage of the floor and then multiply that by the cost of your tile and then the cost of the labor. Labor’s going to cost anywhere in my neck of the woods between $1.50 and $2.50 per square foot. So if I’m paying 2.50 for tile and I’m paying somebody 2.50 for labor, that’s $5 a square foot. If I have a 250 square foot kitchen, 250 times five is about $1,250 for flooring. Next, let’s talk about countertops. I am typically only renovating a single family, three bed, two bath, maybe smaller, maybe a little bigger home. And on average, in that size home, the average square footage of kitchen countertop space is usually anywhere between 35 to 40 square feet all the way up to about 70 square feet.
If you’re renovating massive homes, you’re going to need to be on the higher side square footage side. If you’re renovating smaller homes, you might have a galley kitchen that’s a little smaller, maybe you’re at 25 to 35 square feet. A typical price point for countertops, depending on what you get, maybe solid surface, maybe granite, maybe quartz, you can expect to spend anywhere between $25 a square foot all the way up to $40 a square foot. So if you’re pricing this, call a countertop company and ask them what do they charge per square foot for an average quartz or what do they charge per square foot for an average granite? If they’re charging $30 a square foot and you are installing about 40 square foot of countertop space, well, that’s just a quick math problem of 30 times 40, that’s going to give you about $1,200 for countertops.
And typically that’s what I’m spending. I rarely spend more than $2,000 on countertops. I rarely spend less than $1,000 on countertops in this space. So I can quickly do math when I’m in a house and look at a kitchen and say, oh, this is going to cost me about 1,500 bucks. The next item to think about, and I would encourage you all to consider this one because it is very low cost but can have a big impact, maybe not on the value, but on the desirability of the kitchen, is to install kitchen back splashes. I love doing fancy, more expensive tiles and kitchen back splashes. A typical kitchen backsplash may be anywhere between 15 to 25 square feet on up to 35 to 50 square feet, depending on where the kitchen is laid out or how it’s laid out, but it’s not a lot of space.
So you can spend more money on a nicer, fancier, cooler looking tile and really make your kitchen pop. Now, having a kitchen backsplash versus not having a kitchen backsplash isn’t going to make your house more or less valuable, but as I said before, it will absolutely make your house more desirable. The more desirable it is, the more people want that house, the more people want that house, the more offers you get, the faster you sell your home. Materials-wise, you’re not talking a lot of money. You can buy a five, six, seven, eight, nine, $10 per square foot tile. If you’re only installing it on 35 to 45 square feet of space, you’re still talking about less than a thousand dollars worth of materials and then the labor to install the tile is not very expensive either. So for right around a thousand dollars, you can get a very nice kitchen backsplash that I think is well worth the investment.
All right, next on the list is going to be kitchen cabinets. Now this is where you’re going to spend the majority of your money on your kitchen renovation. Cabinets are not cheap. You have several options when you’re doing cabinets. You’ve got your generic big box store cabinets where you can go and select the different pieces to fit the layout of your kitchen. You’ve also got much more higher end options, which you can get from custom cabinet makers. Those are typically going to be real wood cabinets. They’re going to be much more pricey. Or you could go with something shipped in from overseas like China to bring in cabinets that are nicer looking maybe and maybe less expensive, but the lead time on getting them can be very long. But cabinets are where you’re going to spend a lot of money. And I would encourage you, if you’re going to go ahead and spend the money on cabinets, don’t cheap out and get the cheapest cabinets possible because cheap cabinets look like cheap cabinets and people will see your renovated kitchen and see the cheap cabinets and think if they cheaped out here, where else did they cheap out on this renovation in the rest of the house?
So if you’re going to spend the money, make sure that you spend the money on a decent cabinet. I’m not saying everything has to be real solid wood all the way through, but don’t get the particle board cabinets that have a laminate paper cover over them to make them look like they’re not particle board cabinets. Those people spot them from a mile away. If you’re just going to ballpark it, I would say between eight and 10 grand is probably where you should ballpark this number for a typical 1500 square foot three bed, two bath home. But that’s not your only option for kitchens. Remember, I said I only put in new cabinets in kitchens if I’m trying to change the layout. If I like the existing layout and the current cabinets are okay, what I prefer to do is not to get new cabinets, but to get new cabinet doors.
I can take the doors off of the current kitchen cabinet boxes. If the boxes are in good shape, that’s great. Oftentimes you can get in there, you can just clean those boxes. And a lot of the times, if you’re renovating a home built in the 60s, 70s, a lot of those cabinets are solid wood cabinet boxes. If you were to replace them, you might not get the same quality. So they’re good quality a lot of the times. And so I like to keep them. I will have them professionally cleaned. I will have the inside of them all painted, and then I will get new cabinet doors and I will get soft closed hinges. And so to the naked eye, people just think it looks like brand new cabinets. That is a much more cost-effective option if you’re not going to change the layout. The typical cost for new cabinet doors on a standard three bed, two bath, 1,500 square foot house is usually run me anywhere between $1,100 and $2,200.
That’s going to depend on the size of the cabinet doors, whether they’re a standard size or something that’s custom and what style cabinet door that you have them build. The more intricate the design on the front of the cabinet door, the more it’s going to cost you. I typically just do a shaker style, which means it’s usually just a couple pieces of trim and it’s a whole lot cheaper. But I would much rather spend two grand to get a brand new kitchen look and feel versus spending five to $8,000 for brand new cabinets that look exactly the same and function the same as the ones that were there previously. All right, next on the list is paint. Again, this is pretty easy. I usually include my paint of my kitchen cabinets. In other words, if I’m keeping the existing cabinets and I’m just painting the boxes and the insides, that’s included in the paint quote for the entire house.
So just add the square footage of your kitchen into the paint quote and then that will cover painting the cabinets as well. But if you’re going to paint them separately or get a separate quote for painting the cabinets, I’ve spent anywhere between 500 bucks on up to $1,500 to paint cabinets. It’s going to depend on what kind of paint you’re using and how big your kitchen is, but it shouldn’t be too expensive. And last on the list for kitchen is appliances. Yes, appliances are expensive, but you don’t always have to put high-end appliances in your kitchen to get more value. So this is where things can get a little tricky because if you are flipping the house, you need to pay attention to your comps and what appliances are being sold with properties that are similar to yours because you don’t want to be delivering somebody a house that is missing appliances that they get with other competition that you have.
In my market, it is very rare that when someone flips a house or when someone buys a new house, that it comes with a refrigerator or a new refrigerator. Most renovated properties include appliances that are the dishwasher, and it’s usually a new one, a stove, oven or a cooktop, and it’s usually a new one. Very rarely are there microwaves, so we’re not including those, but we are including vent hoods. But this is very specific to my market. There are some markets where people fully expect a decked out kitchen. They want the fridge, they want the range, they want top of the line. You have to study your comps to know what you’re going to spend, but I don’t need to lecture to you guys about what appliances cost. You’ve all probably bought appliances before. On average, I’m spending about five to $700 on a range.
I’m spending about three to $400 on a dishwasher, and I’m not buying refrigerators and I’m not buying microwaves, but I am putting vent hoods in where it’s over the stove, so you’ve got a vent hood that will duct any smoke out from cooking. Those typically run me about 50 to $80. If you’ve been doing the math, we spent about $1,200 on floors, $1,200 on countertops, about $1,000 on a backsplash, $1,500 on cabinet doors, about $1,000 on paint, and about $1,000 on appliances. That puts us just shy of $7,000 for a standard cosmetic kitchen renovation, and that’s a pretty typical cost. When I’m estimating a rehab or I’m just ballparking a house as I’m walking through it, I’m usually estimating a kitchen renovation at about $10,000. So when you actually put pen to paper, I’m coming in a little under that, but I like to be very conservative on my estimates.
All right, that is a standard kitchen renovation. Next on the list is what’s it going to cost you to renovate or update a bathroom? And we’re going to get to that right after the break. What if your rentals could practically run themselves and give you a chance to win $10,000? That’s exactly why I’m excited about Baseline’s 10K giveaway. When I first started investing 10 years ago, everything was manual. Rent came into one account, bills went out from another, every transaction had to be tracked. I was constantly moving money between bank accounts and I could never fully switch off. What changed for me was switching to Baseline. It’s BiggerPocket’s official banking platform and with integrated bookkeeping, my rental finances are fully automated. Rent and payouts are deposited into dedicated property accounts. Transactions are automatically categorized and every property’s finances stay organized in one place. The biggest difference isn’t just the automation, it’s the peace of mind.
I spend a lot less time managing my rental finances and a lot more time focusing on growing my portfolio and enjoying the life I’m building. That’s what banking that runs your rentals looks like. And right now, there’s an extra reason to make the switch. Enter the 10K giveaway, just deposit qualifying rental income into Baseline for a chance to win $10,000. Sign up now at baseline.com/bp.
All right, we are back on the BiggerPockets podcast. We are on our second episode of our series on how to estimate rehab costs. We covered the big five in the last episode, but in this episode we’re covering value add, what actually puts money in your pocket. We just covered renovating kitchens, what it costs and what you should or shouldn’t do, and now we’re jumping into updating or renovating bathrooms. So what is this going to cost you? We already talked about flooring and how you estimate the flooring in a kitchen. You do the same thing in the bathrooms. In bathrooms, I use tile in the wet spaces. We talked about how much that costs before. It’s the same cost here. Typically, an average bathroom in a typical three bed, two bath home is going to be anywhere between 40 square feet to 60 square feet. So call it 50 square feet and we’re spending about $5 on tile for labor and materials.
Five times 50 is going to give you about $250, maybe add a little more if it’s a little bigger, but just for flooring in a bathroom, three to 500 bucks is probably pretty normal unless you have a massive bathroom. Next item I want to cover is the bathroom vanities. Now, when you’re thinking about bathroom vanities, there’s a couple of things I’ve done both of these options. You can either keep the existing bathroom vanity and you can just update the top, but 90% of the time I would say that I’m putting a brand new vanity in. And the reason I’m doing that is because you can get vanities pretty inexpensively and there’s a lot of cool looking, more modern, updated bathroom vanities that you can get that doesn’t cost you much more than if you just put a top on the existing vanity. I’m typically spending anywhere between 300 and $1,000 on a bathroom vanity.
I rarely spend more than $1,000 on a bathroom vanity. There are tons of options for you to get decent looking bathroom vanities for under a thousand dollars. You can find them at big box stores, you can find them on online shops, tons of options, shop around, know what size you need, and don’t overspend. You just want it to look good and you want it to fit in that space and look like it belongs there. Next on your list is going to be your bathing area. Now, there’s a few options for bathrooms. Some bathrooms are going to have a tub shower combo. Some bathrooms are going to have a standalone tub and a standalone shower, and some bathrooms are only going to have a standing shower. So when I’m doing a bathroom, I almost always do floor to ceiling tiles. So if it’s a bathroom with a tub, I’m tiling from the base of the tub all the way to the floor.
If I’m tiling a shower, I’m tiling from floor to ceiling, but I am always pricing tile. I am never pricing putting in a plastic insert. Plastic inserts, in my opinion, just look cheap. It makes the property look cheaper and more builder grade, and it is not a ton of money to buy the tile and to pay the labor to have it installed. So I found for value add, it’s just a much better option to always go with tile. If you’re doing a tub shower combo, then you want to price the tub and the tile differently. A typical price for a tub is going to run you anywhere between 500 to $800. And then if you’re getting that installed with installation, it shouldn’t run you more than anywhere between 1,500 to $2,500, depending on if you’ve got to move plumbing from one side to the other because tubs drain in different areas.
There’s some things you have to consider, but for the most part, just like for like, it shouldn’t cost you more than $2,000 for a tub to be replaced. All right, so when you’re estimating tile for a bathroom, whether a tub surround or a shower, you have to measure the square footage. Average square footage for this space is going to be around 75 square feet. If it’s a bigger shower, you need to go up, but just a typical tub surround if you’re tiling from tub to ceiling, consider it about 75 square feet. Materials for that could run you anywhere between $500 to $1,000 depending on the cost of the tile that you want to use. So just take the cost per square foot of the tile, multiply that by 75 square feet, add a little bit extra for the other materials you’ll need like grout, and then you have to consider the labor.
So labor for installing tile for tub and shower surrounds, it’s a little more expensive than installing tile for floors, especially because floor tiles are usually bigger, whereas shower tiles are probably smaller, especially if you’re doing a shower pan with a much smaller penny tile. So the cost for installing tile for a tub or shower may run you anywhere between 10 to $15 per square foot, all the way up to 20 to $30 per square foot. So if you’re getting bids, make sure you ask them what their cost per square foot is on the install. Don’t just look at their out the door price and not understand how that number breaks down. So for the sake of this exercise, let’s say we’re spending about $800 on materials for a 7,500 square foot shower and then $20 for labor for 75 square feet. $20 per square foot times 75 is 1,500 plus 800 for the tiles, puts you at about $2,300 to tile a tub surround or similarly to tile a shower.
It’s not going to be that much more expensive. You don’t have the cost of the tub, but you do have added cost of more tile because now you have to tile all the way to the floor and you have to put a shower drain pan in. All right, next on the list is paint. I think we covered paint when we talked about how to estimate kitchens. It’ll be done very similarly here. Just add a cost per square foot for that particular room and add that to your total. And the very last thing is going to be all your accessories. That’s going to be light fixtures, cabinet fixtures, plumbing fixtures for the tub of the shower. Here’s how I essentially estimate those. If you bought a new vanity, it should already come with cabinet fixtures, so you’re not having to buy those if you bought a new vanity.
But if you kept the existing vanity, you may be replacing the old handles with new handles. It’s probably going to run you anywhere between a hundred bucks and 300 bucks depending on how fancy you want to get with those cabinet pulls. I always pull the old mirror off the wall and I order a new modern framed mirror. You can get a mirror on a big box store or you can get a mirror on an online store for anywhere between 50 to 150 bucks and then light fixtures. Light fixtures are typically going to run you about a hundred bucks per light fixture. So for five, 600 bucks, you can get all the accessories you need, even the plumbing fixtures. I get my plumbing fixtures from an online retailer. For a sink fixture, I’m spending anywhere between 20 and 50 bucks, and for a shower fixture, I’m spending anywhere between 50 and 100 bucks.
So putting all the numbers together, you’re spending about three to 500 bucks on floors, about a thousand bucks on a vanity, about 2,800 bucks to 3,000 bucks on a shower or tub, and then about another thousand dollars on lights and fixtures. That brings your total to around $5,000, which is right around where I estimate a bathroom renovation when I’m walking a house. This is a typical cost broken down for you. Now, a couple other things to consider when you’re estimating these is we talked about floors and paint for a lot of these renovations, and I told you when I do this, I actually estimate the paint and the flooring for the house as a whole and not in these individual rooms because there’s only going to be one vendor, typically two vendors who are doing all of the paint and maybe all of the flooring.
So when I’m estimating paint for the whole house, I’m taking the total square footage of the house and I am multiplying that by what it costs per square foot to do that work. In terms of paint, what I am typically estimating for painting the entire house is somewhere between $3.50 a square foot on up to $5.50 a square foot. So that’s going to depend on the kind of paint you’re going to use and it’s going to depend on whether that’s going to include the kitchen cabinets and the bathroom cabinets or not. If you’re going to do cabinets, then you’re going to want to go a little higher than 350, maybe you’re somewhere around $5 per square foot. And if you’re going to do no cabinets and you’re just talking walls, trim, ceilings, doors, then you can stay on the lower end of that cost per square foot.
So typical 1,500 square foot house at $5 a square foot is going to cost you around $7,500 for interior paint. In terms of flooring, it can get a little trickier. I am still going to take the entire square footage of the house because I want to consider all of it in one number, but I may be using different flooring in different rooms. I told you I like to use tile in the wet rooms, so I typically put tile in the kitchens, tile in the laundry rooms, tile in the bathrooms. I do LVP in the common areas, so hallways, living rooms typically get some sort of luxury vinyl plank. And on a flip, I do carpet in the bedrooms. All of these floorings are all going to be a different cost per square foot, and the labor’s even going to be a little different cost per square foot, but I typically blend all that together and use one number to estimate.
So my blended cost per square foot for flooring for a flip typically is going to be anywhere around 550 a square foot all the way up to eight to $10 a square foot, depending on the level of materials. If I’m doing a higher end flip, it’s going to cost more. If I’m doing a lower end flip, it’ll cost less. And then I just take the blended cost per square foot and I multiply that by the square footage. So for the sake of this exercise, we’ll consider $6.50 a square foot for the total flooring. For a 1,500 square foot house, it’s going to run me about $10,000 for flooring. So that’s how you estimate the entire home, that way you’re not having to break that out for each individual room when you’re estimating because now you’ve got one total quote, makes it a whole lot easier to estimate, allows you to be quicker when you’re estimating, and allows you to spot check what you’re getting from contractors when you get beds.
Okay, so those are your moneymakers, kitchens and bathrooms. Now you know what to renovate in the kitchens and bathrooms and how much it’s going to cost. I want to move on and talk about how to find opportunities within the current roof structure of a home to add value, and I’m going to do that right after the break.
We are back on the BiggerPockets Podcast and we are talking about how to estimate rehabs and specifically on this episode, which is part two of a series on how to estimate rehabs, we are talking about adding value. We’ve covered bathrooms, we’ve covered kitchens, and now I want to cover one of my favorite topics, which is how to spot opportunities to add value within the current home under its current roof structure without spending a ton of money. One of the first things I look for when I am renovating a house is, does the house that I’m renovating have space under the current roof structure that is not currently heated and cooled? And if I add heating and cooling to that room, A, can I do it easily and B, does it increase the desirability of the home or will it decrease the desirability of the home?
Is there maybe a sunroom that is under the current roof structure that is not heated and cooled? There is a lot of homes that are built in the 50s, 60s, 70s, and 80s that have sunrooms. Some of those sunrooms are just screened in. Some of those sunrooms are complete actual rooms with drywall and windows, but the spaces are not heated and cooled. It is very inexpensive to heat and cool those spaces if you can just add a run off of the current HVAC system to that room. So sometimes all you have to do is add a little bit of duct work and a vent, and now that room is heated and cooled, and now you can add the square footage of that room to the heated and cooled square footage of the home. And we all know homes are valued based on a cost per square foot.
So let’s say your home is valued at $225 a square foot. If you add 200 square feet, well now you’ve added $45,000 in value to your home by just adding some duct work. Now, there’s probably some more you may have to do. You may have to obviously do paint and floors in that room. Maybe you have to insulate the walls because they weren’t properly insulated as a sunroom, but for less than $5,000, you can typically add heating and cooling, add any other ancillary parts that you need to that room, and you can now add that heated and cooled square footage. So I love looking for those opportunities. Another opportunity to look for in a similar vein is, can you convert garage space to living space? When I am looking to add value to a rental property, if it has a single car garage, I typically convert it to living space.
Why do I do that? Because the more bedrooms I have, the more rent I can charge. And so if it costs me anywhere between 2,500 and $5,000 to convert a garage to living space, but I get an additional $250 a month of rent, well, then that renovation pays for itself after about a year and some change, and then all of that additional new cash flow just goes into my pocket every month. So maybe I didn’t add value from the traditional sense of cost per square foot of the home, but I absolutely added money to my pocket because I’m getting increased rent and that renovation pays for itself because I now am able to rent that property for two to $300 a month more. All right, so when you were considering converting a garage, here is what to think about and what it may cost you.
First and foremost, you need to understand, is your home on a crawl space or is it on a concrete foundation? The easiest conversions for garage space are homes that are on a crawl space, but the garage itself is on a concrete foundation. This is a very common or popular style. Oftentimes the house will sit up a little higher and then when you walk into the garage, you have to come down a couple of steps because the house is up on a crawl space, but the garage is down on concrete foundation. So what I like to do in that sense is you build up the floor, so you have your contractor build a base and a subfloor, and then you can make the current garage level to where the current house is. And then it all feels seamless to walk from garage space into house space.
That is the easiest way to do that. You’re paying for some subfloors, and then it’s just paying for the cost of the flooring, the cost for any build out. So maybe you’re not just raw converting the garage to a big open room, but maybe you’re adding a hallway and making part of that garage, maybe a laundry room or a primary bathroom. Then you’re going to have to add some plumbing, but you’ve got now plenty of space to add plumbing because you built up from a concrete foundation up to the same level as the house. And now you’ve got all this crawl space area under that garage, makes it very inexpensive to add plumbing. So I love doing that. Converting a garage space can run you anywhere from $3,000 all the way up to maybe $10,000, depending on how fancy you’re trying to get. If you’re adding a bathroom, that cost goes up.
Remember we said it’s about $5,000 to renovate a bathroom. So you might want to consider you’re going to spend about five to $7,000 for a bathroom, plus you’re going to spend what it’s going to cost you to convert the garage space. So now you’re talking somewhere between seven and $10,000 for that renovation. But on average, just think five to 10 grand if I want to convert this space more if you’re doing a bigger space, less if you’re doing a smaller space. All right, I’ve got one more value add option for you to think about. This is going to be a pretty unique situation because it depends on the age of the home or the layout of the home that you are renovating. But a lot of homes that were built in the 80s and older have outdated layouts. And when I say outdated layouts, I mean they have things like formal living rooms and regular living rooms and formal dining rooms and eat-in kitchen dining rooms.
To me, that is opportunity to add a bedroom. Now, again, that heated and cooled square footage is already existing in the home. So by converting these spaces, you’re not necessarily making the home worth a ton more, but you are absolutely increasing the desirability because you’re modernizing the layout of the home. So I, 90% of the time, will convert formal living rooms and formal dining rooms to bedrooms or offices. So what all is entailed with doing this? All bedrooms must have a door, a window, and a closet. So if I’m converting a formal living room or a formal dining room, typically I don’t have to add a window because most formal dining rooms and formal living rooms have an exterior facing wall and should already have a window. But you do oftentimes have to find a space to add a closet. You can just add a closet along one wall of the room or you can build out maybe like a small corner closet if the room is smaller, but that’s just going to be some two by fours, some drywall and some paint in order to build that out.
It’s very inexpensive. If you are going to convert a room and you do not need to add a window, we’re talking less than $3,000 typically to convert that room. And you can now get increased rent as a rental or you can increase the saleability or desirability of that home. And I think it’s money well spent. Now, in the rare situation where you’ve got to convert one of these rooms and you have to add a window, the cost can go up substantially depending on what type of house it is. But without adding the window, very, very inexpensive and absolutely something you should consider. All right, there you have it. Now you’ve got all kinds of numbers, the ones that I specifically use for my projects, make sure you do your own research. Labor and materials cost more or less in different parts of the country. So don’t just take what I told you and use that blanket and hope it works for you.
Do a little bit of the legwork, use some AI, use some contractor bids, dial in your numbers, build your own spreadsheets, and you’ll be analyzing renovations in a snap just like that. Thank you for tuning into this episode of the BiggerPockets Podcast. I appreciate you watching. Hopefully this is valuable for you and we’ll see everyone on the next episode.

 

In This Article

My three long-term rentals sit in Conroe, Texas. New construction, boring on purpose, and they mostly leave me alone so I can go handle whatever broke at a glamping site two hours east.

That’s my entire long-term portfolio. So when Ed Barone opened an answer with the phrase “a landlord with three units,” I sat up.

Ed co-founded RentRedi in 2016 with his son Ryan and now runs marketing there. Close to 200,000 landlords and renters use the platform, so they watch rent move at a scale I never will. I see three doors. They see the pattern behind them.

I sent six questions. A few answers confirmed what I already believed. One sent me back to a spreadsheet, and one I’d argue with.

Your Late Rent Problem Might Be a ZIP Code Problem

Late-payment rates on the platform swing by as much as 4x from state to state, at around 5% in places like Utah and Hawaii and up to 20% in states like Mississippi.

Ed’s read: A landlord with a handful of units treats every late payment as a verdict on somebody. Either the tenant is a problem, or you’re too soft. Sometimes it’s neither, and some of that gap tracks to where the property sits.

I don’t take that as a permission slip. Late rent is still late rent, and it still wrecks your cash flow in month four. But it changes the fix. If one payment in five runs late in your market, you’re operating normally; what you need is a system, not a lecture.

The system is boring:

• Autopay is set as the default at the lease signing.
• Reminders that go off before the due date, not after. 
• A late fee that appears in the written lease and is charged the same amount every single month. 

Small landlords lose on that last one, because the ones who get burned aren’t charging the fee; they’re charging it sometimes.

While you’re in the lease, go read your state’s rules, since most of us wrote that clause once and never looked at it again. Texas is my example because it’s where I operate. 

Under Property Code 92.019, you can’t collect a late fee at all unless it’s spelled out in writing and rent has gone unpaid two full days past the due date, and the fee is only presumed reasonable up to 12% of monthly rent in a building with four units or fewer, 10% in anything larger. Go past that, and the tenant can come after you for $100, three times whatever you wrongly collected, plus their attorney’s fees.

Then count your own 12-month late rate. Count it; don’t estimate it. Compare it to your state instead of to the guy on the podcast in Utah.

What Not Raising Rent on a Good Tenant Actually Costs

RentRedi’s rent-charge data shows the average unit climbing about 46% over roughly 6.8 years. On a $1,500 unit held flat for five years, Ed put the forgone rent around $6,000. Call it $18,000 across three doors like mine.

Then I ran it myself. I think $6,000 is low.

The arithmetic is simple enough to do on your own rent instead of mine. Each year, take market rent minus your frozen rent, multiply by 12, and stack five years of those gaps. At 3% annual growth on a $1,500 unit, you’re out about $8,400. At 4%, about $11,400. And 46% over 6.8 years works out to roughly 5.7% a year compounded, putting the five-year number closer to $16,600.

I’m not dunking on the man’s math. The direction is the point, and the size is bigger than most people assume, so get your own number before you decide the conversation isn’t worth having.

The better half of his answer wasn’t the number anyway. Ed said raising rent isn’t automatically right, because a tenant who pays on time and takes care of the place carries value that never shows up on a rent roll, and one move-out can hand you enough vacancy, cleaning, re-listing, and screening cost to eat a year or two of the increase you just won.

His line, which I’ve thought about more than the $6,000: “A high rent with a bad tenant can cost a landlord far more than a fair rent with a good one.”

So the question isn’t, Should I raise rent? It’s two questions, in order:

1. Is my rent meaningfully below market, not a little below but meaningfully? 
2. And is this specific tenant worth keeping for a discount?

Answer the first one with comps instead of feelings. Pull three or four actively listed units within a mile that match your bed and bath count, sanity-check them against BP Rental Estimator or RentCast, and write the number down with the date on it so next year you’re comparing against something real. 

Within a few percent of market, leave it alone. Fifteen percent under, and you’re not being generous; you’re subsidizing somebody. And when you do move it, small annual bumps beat one giant correction that ends with a vacant unit and a turnover bill.

The Cost of Doing Your Books in April

Most small landlords do their books the week before taxes are due. I’ve been that guy. I don’t recommend the genre.

The annual scramble costs you twice, Ed says. First come the deductions you can’t reconstruct nine months later—the March run to Home Depot or the mileage out to the property—and across a few doors, that can plausibly add up to hundreds or low thousands in overpaid taxes.

The second cost is the one nobody counts. A tenant who’s been five days late for eight straight months is a footnote when you spot it in January. In month two, it’s still a conversation you can have, a payment plan you can offer, and a problem with the room left in it.

Twenty minutes on the first of the month gets you both. Categorize the transactions, photograph any receipts still floating around, log the mileage, and check the dates rent hit the account. The same door’s rent drifting later every month? You just found it in month two.

The Feature List Isn’t the Product

I expected a graveyard of dead features when I asked what landlords request and then never touch. Ed gave me something better.

Ten years in, his position is that there’s no such thing as a typical landlord. Every feature came from somebody’s real request. Some get used by thousands of people and some by a much smaller group, and they ship them either way.

That’s an argument against the way most of us shop for software. You don’t need the longest feature list. You need the three things you touch every month, and for almost everybody, that’s rent collection, screening, and maintenance requests. Every demo is built to impress you, so check it against what you did last month.

Property Management Fees: The Math Changed, but Not at 300 Units

Old rule: Cross some magic door count, hire a manager, and pay 8% to 10% for the privilege.

Ed pushed on that hard. A 300-unit portfolio at $1,500 rent pays over $400,000 a year in management fees at 8%. That’s $450,000 of rent a month, $5.4 million a year, times 8%, landing at $432,000. I ran it because the number sounds fake until you do.

Almost nobody reading this owns 300 units, so run the version you live in. 

Ten doors at $1,500 is $1,200 a month in fees. Software runs $20 to $40. A part-time person at 10 hours a week and $25 an hour is roughly $1,000 a month, and they work for you instead of being split across another 400 units. Right around there is where self-managing stops being a hobby and turns into a decision with a number attached.

Here’s the nuance Ed didn’t add: Self-managing isn’t free. You’re trading a fee for your own hours, and if those are the hours you’d otherwise spend finding the next deal, the manager might be the cheaper option. 

Paying 8% doesn’t guarantee better work either. I’ve watched managers earn every dollar, and I’ve watched managers operate as an expensive answering machine. The test is whether yours produces something you can’t produce with software and one good part-time person.

Where AI Earns Its Keep

Every rental platform is bolting AI onto something right now.

Ed’s framing is that it’s an assistant, not a replacement. Take the busywork off the landlord’s plate, surface the right information at the right moment, and leave the decision with the person who owns the asset.

Use that as your filter the next time you’re sitting in a demo. A tool that drafts the maintenance follow-up, summarizes six months of payment history, or flags the unit drifting later every month is handing you time back. A tool that wants to decide who gets approved or where your rent lands while you nod along is a vendor making calls on property they don’t own, and that’s a strange thing to pay for.

What I’m Doing This Month

Three things were added to my calendar after this conversation:

1. I’m counting the 12-month-late rate on all three doors and comparing it to Texas, instead of to my mood.
2. I’m running comps on each unit and writing down, in a document I’ll reread next year, whether that tenant is worth a discount to keep. 
3. And the books got a recurring 20-minute invite on the first of every month, because a promise to myself has a much worse track record than a calendar alert.

None of it is exciting. It’s an afternoon of work I’ve been putting off since roughly March.

James:
National housing data can tell us where listings, price cuts, and sales are moving, but it can’t tell us what a market is actually feeling like street by street. Right now, the national picture is giving investors mixed signals. Inventory is growing in some metros, buyers have more negotiating powers, and price cuts are common, but other markets remain tight and competitive. Today, we’re going past the averages with three brokers and investors working in very different parts of the country. Micah Mortag is covering Georgia, Florida, and the Southeast. Justin Hroch is out of Austin, and he’s going to be covering Texas and the South. Will O’Donnell joins us from Long Island with a Northeast perspective. We’ll compare supply, buyer demand, pricing, concessions, rehab and exit risk, and where each one of them sees opportunity. I’m James Dainard. This is On the Market. Let’s get into it.
I think one of the biggest things for real estate investors is making sure that we know what’s happening outside of the stats. And the best way to do that is boots on the ground, what is going on in the daily grind of everyone’s market. Per realtors.com, August housing report, active listings were up 3.6% and 20.4% of listings had price reductions. And what we’re seeing is certain markets are moving faster, certain things are getting absorbed, and some are getting worse and worse by the month. So we’re going to dig into all these regions and find out what’s going on. I’m going to kind of kick this off with the West Coast and the Northwest, because I can tell you right now, if you’re a seller, it’s not that enjoyable. We’re seeing a lot more inventory. I personally have now 14 homes that just hit market, and typically I sell out about 60% at a time I’ll keep pending.
And right now I have about 15% pending. We’re not seeing a lot of bodies come through where the bodies were coming through for the last six months, but it has slowly, slowly been dropping. And the numbers are kind of speaking for themselves right now. Seattle’s inventory is up 27.3% and price cuts are averaging around 4.6%. So we’re seeing a big shift in what’s going on, especially if you’re a flipper because what that’s saying is we’re coming about 5% off what we though our performing numbers were working and it’s taking a lot longer to sell with all this active inventory coming in. And so part of this whole game is there’s seasons and different timing going on, but we’re definitely seeing inventory increase as houses are coming on and buying demand has dropped. And so I want to dig in really quickly to what’s going on in your market and then what you guys are doing to pivot around this because I know in Seattle we have to stay in front of it because if you sit there and you wait for the price, you’re going to wait for way too long, the debt’s going to eat up your deal and you have to shift down and just cut price and move it on.
On the upside though, we’re buying deals at least 15% cheaper than we were buying them nine months ago. And so if I was paying $500,000 for a house, we’re finding these in the low 400s now and there’s been a big shift in what we can buy. And so even though we have the most homes for sale, the most money out right now, we’re buying more homes than we were even four to five months ago because I think the name of the game is you got to get rid of your bad inventory and load up with good inventory and get things moving. But it’s not that easy because price cuts aren’t solving the problem here. We’ll do a price cut and we don’t see any more bodies come through. And so it’s really about getting to the right price point and getting things moving to get the activity and then really working the sales on the phone.
I have gone from really focusing on investing to I’m a broker on the phone, working phones, dragging in offers, working deals, and that seems to get it pending. And so we want to know what’s going on in each region. They’re all a little bit different. Seattle, Portland, Spokane County, all getting toast on the Northwest. But then we see little pockets like San Francisco, we’ve seen the highest sale to list ratio and it’s had a massive rebound over the last 12 months. It is at 108% of lists. So the homes are selling for 8% over list price right now. So I want to know how it’s going on each one of your markets, what you’re seeing, what you’re feeling and what you’re buying. And as brokers, what’s your advice to get things sold? And Justin, I kind of want to jump in with you first because Austin, Seattle, they’re very similar.
We go through the same struggles right now, and I know Austin’s been putting along the last two years.

Justin:
Yeah. I mean, Austin has had a whirlwind of the real estate market in the last five years. COVID era, we got hot, hot. I mean, just insane numbers, low inventory, and it felt like every house was moving before it even hit the market. And so it’s been quite a shock, I think, to most people who are looking to sell their home now because overall our market is relatively flat and prices have just compressed. I think I was reading the other day on Realtor that prices have compressed over 27% in the Austin market and sellers just have crazy misplaced expectations from what was to what is now. And that’s probably the biggest challenge that we’re facing as a brokerage is just really helping people reset expectations to one, what is a healthy real estate market and two, what is their home actually worth? And Texas in general, I think is filling a lot of that.
There’s some great policies that make our state great because there’s a lot of builders who can build here. There’s a lot of ways that we can create inventory within cities like Dallas and Austin. And so where we are now, really strong buyer’s market. In some sense as a broker, it’s been good to be able to slow down just in the sense of you’re not rushing to take your clients to go see a home. You’re actually giving them time to look through, make sure it’s the right fit for them and make a reasonable competitive offer with the sellers.

James:
So what are you seeing as far as when you take things to market, what’s the inventory that’s trading? Even though Seattle’s market’s not doing well throughout the whole Northwest and the West Coast, there’s the affordability bubble, things at the top end aren’t selling, but people are opting for more dated homes that are cheaper that they can put their sweat equity in. Those numbers are a lot different than the stats I just read off at 27% more inventory. It’s fast, less inventory is moving. What’s moving in that Texas South market right now?

Justin:
I would say that it is the homes that are affordable, but they’re not necessarily the ones that are dated. Expectations that we set with our clients when they’re going to list a home is that the things that are done well, the things that are done nice, those are the ones that tend to move. Because right now, I think in Austin, we have 116% of sellers to buyers. And so literally every buyer who’s looking for a home can have at least two to three options versus a seller who’s looking for a buyer. And so the buyers have time to go and look and peruse and find the homes that they want. And what we’re seeing is they’re selecting the ones that are not dated, either slightly remodeled and/or just don’t have a lot of deferred maintenance to them because they have the option to choose of the different homes and so they’re going to go for what’s better.

James:
So because you flipped a lot, good story about Justin is we met at BP Con in San Diego. I think you bought me for a weekend.

Justin:
I did. Well, I bought you for an hour session on Zoom and I was like, nah man, I paid too much for that. I need to come visit you.

James:
Yeah, they flew up and hung out.

Justin:
Yeah.

James:
But I know you’re doing a lot of flips. So as an investor, you’re a broker so you can kind of feel what’s happening in your market. What does that tell you as an investor that you’re focused on, on your strategy and what you want to buy?

Justin:
Yeah, so I mean right now I’m not doing a lot. So in the past we did a lot of ground up construction, newer homes, tried to hit the top end of the market, really expensive neighborhoods trying to sell for a million and a half, two million. Right now we’ve pivoted to trying to pick up in some of the tertiary areas outside of Austin, like Round Rock, Georgetown, Leander, where these homes, their prices have compressed quite a bit, but if they need to be cosmetically updated, we can go in there and spend 25, $30,000 and usually make probably a 40 to $60,000 spread. And so where we were kind of trying to play on the top end of the market when things were moving and interest rates were low and we’d see spreads of 100 to 200,000 a pop, we’re kind of trying to stay in that lane right now where we’re hitting singles and making 40 to $50,000 of every flip that we do.

James:
Well, it’s quicker and faster and gets you in and out of the deal.

Justin:
Yeah. And that’s the thing, the cost of capital right now with rates where they are, it can really eat into a

James:
Deal.Because when you sit there and you start drowning and you’re on market and you’re just racking days on market, especially if you’re in that price point that you were in, million to $2 million, it’s a four to $500 a day bill and that will erode the profit so quickly. And when you’re in a slow market, you got to make sure that you can have velocity and move.

Justin:
Yeah. And that’s the target of what we’re aiming for is when we buy a home, we’ll sometimes go in there. We picked up one yesterday. We went in there and it was a beater. We ripped out all the carpet, got it cleaned up, did some light drywall patch and put a new HVAC in. And we’re turning around putting it on the market as is, hoping to make 30K on it just because we bought it at such a good price. And so we’ll sell it, hotel it to someone who will pay us slightly more, but because we only have it for maybe six weeks, it’s worth it to us rather than spending four months trying to do a full rehab on it to make an extra 20K.

James:
Yeah, just pivoting that plan because if you look at the Southwest in general, like Utah, Colorado, Arizona, they have some of the worst performance going on. The Northwest and the Southwest is just not doing well. Denver has the highest price cuts in America at 31.4% and Salt Lake City is third at 30.3%. And so this rush South that we saw during the pandemic has slowed down. For

Justin:
Sure.

James:
And it’s causing a lot more price cuts and people just aren’t pricing right out the gate. And so if you’re in that South market, you want to just be careful about where you’re going through. We’re taking a quick break. When we return, more from our panel of expert brokers. Welcome back to On the Market. Let’s get back into the broker panel. But that only really tells one part of the story of the South because then there’s the Southeast where Micah is, and that’s a little bit different out there. There’s goods and bads going on. I mean, what are you seeing in the Southeast right now?

Micah:
So we’re definitely experiencing the same economic conditions. Obviously we have higher inventory, definitely lower demand, but we’re still transacting. We’re having closings every week. It’s very hyper local, especially in Atlanta. It’s a big city, so it’s really by neighborhood by neighborhood. I analyze every single month 120 zip codes and I pull data from RPR and I use this data when we’re working with investors because we’re very, very, very intentional now on where we buy what strategies, especially with flipping. So we’re looking at price trends because we don’t want to buy a flip in an area where the prices are potentially going to go down or inventory is going up. But overall, when I look at these 122 zip codes, it still says that Atlanta is technically a seller’s market, which means our inventory is less than six months in every single zip code except one on RPR right now.
There’s one zip code that’s at 6.5 in Atlanta in our sub area. So inventory is going up. We definitely have a lot more leverage when you’re a buyer. It’s actually amazing. There’s a lot more opportunities, but we’re still transacting. So from a seller’s standpoint, they still always want to try, right? So we’re listing properties, they’re taking a little bit longer to sell. We are inevitably going to be doing one or two price drops. We’re never just going to get to the point and put it on the market for what it’s worth. They’re like, “Well, let’s try.” But eventually once we get it into the right price, they are selling and we are closing. It’s just taking a little while.

Justin:
Well, yeah, I’m finding that a lot too. A lot of our sellers have overpaid for their home two or three years ago and life changed, something happened, divorce or whatever. They’re coming to us and they’re trying to recoup. And what we’re finding is they’re just having to take a loss on these houses. It’s like either, hey, you can rent it out or you’re going to have to take a haircut of 50, 60 grand just to get your house sold.

Micah:
That’s 100% what we’re experiencing in Florida. Florida’s hypersensitive to what’s going on in the world. So when it’s good, it’s good. When it’s bad, it’s bad. I feel like that’s kind of like your Austin market too, that the shifts are extremely dramatic. So the listings that we’re putting up in Florida, unlike Atlanta, I mean we’re putting up, they’re not getting showings, we’re doing price drops, we’re doing every bit of marketing, we’re doing open houses, we’re doing everything we can and they’re not selling. We have unlisted and re-listed several houses in my North Florida market, which is Santa Rosa Beach, 30A, Destin. Miramar Beach has more inventory than I’ve ever seen right now. If you go into RPR, Miramar Beach inventory is 17 months inventory. It’s flooded. It’s a small area and the demand is just not there, which also means that there’s a lot of opportunity there to scoop up some deals.
South Florida, same thing. They’re upside down and it’s sad. It hurts. I had a property listed in Sarasota, which isn’t necessarily my market, but it was one of my investors I sold a property to a couple years ago. He needed to sell it and he’s upside down. He’s going to lose a hundred grand. So we had to take it off the market and now he’s looking at STR options, he’s looking at rental options. And so that’s definitely what’s going on in Florida. Atlanta, again, we’re still moving them. We’re just doing price cuts. We’re still getting showings. It’s just slower. So Atlanta’s consistent. That’s one reason why I love to focus my investors into the Atlanta market. The numbers are better, the products are better. I think Atlanta is the number one flipping market in the country, isn’t it? Or Georgia?

James:
Atlanta’s doing, I mean the Southeast, it’s one of the strongest ones. It’s one of the rare markets that had a rising list price at 1.2%. Instead of people cutting, the listing prices are going up and new listings are down 10%. So there’s less inventory and pricing still staying stable. Whereas in Florida, it’s struggling. Tampa’s down 6%, price per square foot’s down 5.6%, price cuts at 25.5. But then other parts of Florida, like Jacksonville, are doing really well. Inventory’s down 16.9% and days on market are down 10. And so there’s all these little pockets inside of each state that are moving or then there’s pockets that you want to stay away from. Michael, what do you see on the buy side? Because you do a lot of acquisitions because I just saw your face glow and you’re like, “Oh, the buy side is the deal.” What are you buying and where’s the opportunity?
Because when the market gets tough, there’s a lot more opportunities to buy.

Micah:
Yeah, no, it’s super exciting for me. I love the market we’re in and I’m weird. I’m always opposite of everybody else’s like, “We’re struggling. We hate it.” And I am beyond excited because there are a lot of investors in the Atlanta market and they’re still interested, but we just have to be extremely, extremely intentional with where we’re buying what. So if somebody says, “Hey, my strategy is flipping or my strategy is bur or rentals,” we first look at the data. I don’t even ask them where they want to buy. We look at the data and the numbers and then we go look for inventory options in those areas. And this is something that I learned from James. You can’t wait for the perfect deal and dig for the perfect deal. You have to create the perfect deal. So a lot of these homes are sitting on there.
The price doesn’t make sense for what we’re trying to do, but what we do is we find the areas that we want to buy in and we run our numbers and we write offers on all of them. And where we used to do that and we’d get declined or ignored, now we’re getting people. I did five offers two days ago and two of the initial offers that we low balled got accepted and I’m like, “Oh no.” Now I’m like, “Okay, we’re actually under contract for two.” We didn’t ask for enough.
Yeah. I was like, “We’re expecting counter offers.” I’m like, “Well, I guess we should go look at them now because we’re not even running around Atlanta at a hundred degrees looking at all these properties.” So yeah, there’s a lot of hidden opportunity. Again, something I learned from James, you got to look for different opportunities as far as where you can subdivide a lot, and we’re seeing a lot of that too. So if you look deeper, there’s a lot of opportunity in Atlanta, which makes me super excited. I’m closing on one next week where it was a rehab and the numbers worked for this house to be a rehab on this lot. And then we realized that it actually was sold with the lot next door. So we’re getting two lots and one house for the price that made the numbers work for just one house.
So the reason that they’re selling the lot next door is because there was an encroachment when they started to renovate this house, they stopped and it encroached on the other one. And instead of fixing it and demoing it, they just said, “Oh, we’re just going to sell both.” So we’re closing on this one next week and we ran all of our different plays. We’re going to demo the encroachment. I’m going to make this house look less scary. We’re going to go in there, clean it out because there’s water, fire, everything’s living in there. It looks like one of James’s scary projects. Zombie. We’re going to clean it out and sell the project for exactly the same amount that she’s buying both lots for. So basically she’s going to have this other lot over here that we’re going to build a house on for free. The new construction in that area is going for like 500,000.
So definitely really cool place. You would think initially that we would just renovate that house, but I’m like, no, the renovation on that house is going to be 150,000. Her margins are going to be better to just sell that and stay into the lot, which isn’t normally what we do, but it makes sense. So yeah, a lot of different opportunities.

Justin:
Oh, well, it’s also her risk, right? It’s like you invest 150K into that project, substantially higher risk than just trading the property, taking the win. And I think that’s what we’re trying to do as an investment group right now is just how do we stack small wins instead of trying to hit these home runs that we were able to hit a couple years ago because the market was so active and money was so cheap. And you could hold a project for three or four months longer two or three years ago, and it would still perform because the market was just going up and up and up. And so even though you were having more carrying costs, I mean, it was just appreciating every month that you let it ride.

Micah:
Exactly.

Justin:
Right now that’s gone. It’s almost like it’s compressing every month that you hold a project. And so these smaller wins that we can trade just real quickly have been a real sweet spot for us to where we can pop off 30 to $50,000 every flip that we’re doing.

Micah:
You’re 100% right. So the play on that one, while it made sense, is if I put a reno project in Atlanta under 200, it’ll sell in a minute. And I just put one on the market. I didn’t flip it myself because I don’t like this area. It’s got a lot of inventory, a lot of days on market. It’s not a nice area. And so I didn’t want to sell it to one of my own investors. So I put it on the market at 195,000 in the first week. We have three offers, full price. I’m putting it under contract today. So that was the play with this double lot. I’m like, okay, she’s buying it for 165,000. If we renovate this, it’s $150,000 project. It’s going to take months and there’s going to be risk. There’s going to be hold costs. It’s not worth it. We can just sell this project for 165,000, make it look less scary after we demo and fix the encroachment, and she’s into this one for free.
So yeah, that’s the play. And she’s actually going to bur the other one. We’re not even going to flip it, so she’s just going to build it and keep it. But it’s exciting. It’s definitely good in the Atlanta world if you’re an investor or an REI broker.

James:
And that’s the important thing is you have to switch the strategy with whatever’s going on in your specific region, right? The Southeast, the South, the Northwest aren’t doing great, and especially in that expensive market. So how can you transact and switch up the strategy to work inside that? And that’s about where the velocity is, what is selling more affordable because it’s just too expensive for people. And it’s really important to talk to your broker about what is selling, what’s the absorption rate in certain price points and zip codes, target those zip codes because I hear Seattle’s bad, but there’s certain price points and zip codes that are moving like crazy. And you can still get multiple offers even though a big chunk of it is not doing well. And so you got to switch the strategy with whatever’s going on in your region and really dig in, not just on a nationwide, because Will, you’re up in the Northeast and the Northeast has been doing actually fairly well compared to the rest of the regions.
What are you seeing up there as far as inventory, what’s selling, what’s not selling? Because I know it’s definitely been one of the stronger markets last 12 months.

William:
It sure has. Fun fact, out of the top 10 markets in the US, eight of them in terms of appreciation are here in the Northeast. My particular MLS, one key MLS, we basically cover New York City, Suffolk County, Nassau County, and the Hudson Valley. Right now, days on market are actually dropping. We’re seeing appreciation. Our year-over-year appreciation is at about 8%. My days on market for my counties are 22 days and we’re still in a very strong market. I think a lot of it has to do with the fact that we have no land here. There’s no way to add supply and things are so restricted here in terms of politics and zoning that it is difficult to add supply. So that creates stable demand, therefore continuing to push prices up.

James:
Well, in those zip codes, what’s the median home price? Is it an affordable area? Are they more expensive? Because what we’re seeing, I know, I think the same for Seattle, these metro markets, we’re seeing the economy’s getting a little shaky, companies are hiring, the tech companies are kind of locking up a little bit, they’re laying off. And so we’re seeing the top end. I know for me, if you’re on the top end of the spectrum, the median home affordability is just going down and that’s where we’re seeing that big shift. I mean, what’s the price points that you’re talking?

William:
Yeah, so I do business in two counties, Nassau and Suffolk County. Nassau borders up with New York City, so Queens, Brooklyn. And then after Nassau, you have Suffolk County. So Nassau County average price is 881,000.

James:
That’s expensive.

William:
Yeah. Yeah. Which by the way, that’s kind of like your 750, 800 is your entry level home, a median price point. And then Suffolk County is 735, which also kind of buys you a starter home in a decent area that needs work. So that technically is affordable housing here. I am aware that I am in a more expensive market. If I’m not mistaken, I believe the US national medium price point is around 450, 440-ish. We’re about double that here. So for you to have a $5,000 a month mortgage is pretty affordable here on Long Island.

James:
What’s going on in the upper price points? Medium home price around 800,000, what’s going on at the 1.5, 1.6 range? Is that slowing down or is everything just getting eaten up?

William:
Interestingly enough, those are the homes that are moving the fastest. So it’s like if you are in one million, 1.5, 1.6, not only do you have nicer product, but you’re in these areas that have more demand. They’re more affluent communities, more doctors, lawyers, bankers, salespeople, et cetera. These homes are getting eaten up. There’s one specific neighborhood that I could think of off the top of my head. We just had two properties in that neighborhood. One of them was listed at one million, the other one was listed at 1.2. They both went within one weekend and 200 grand over asking is not a surprise. Another home we just had, one six, flew off the market. It’s like location is everything here and it makes sense because in that price point, you’re making four, five, 600 grand a year, you have more stability, you have more assets, you have a stock portfolio, which by the way, the market’s been up.
So a lot of these people, they’re pulling lines of credit out of their portfolio. A lot of them are paying cash. That’s what we’re seeing here.

James:
Okay. So you’re seeing things are moving in that specific region now, because when I look at the Northeast in general, it is doing fairly strong, but then you do have certain cities you got to be a little careful in. The steepest regional decline, inventory is up 9.1% in Boston, 15% in Providence, and 16.1% Providence has some of the worst trajectory. So there’s little pockets.What do you see in upstate New York where it’s a little bit more rural? Is that still moving well?

William:
Yeah, I could only speak to Long Island, which is where I only do business on Long Island. I have no idea what’s going on upstate or outside of Long Island and the boroughs here, but what I can speak to is within my market, there are some areas that are more entry level, borderline ghetto. This is where you have the cookie cutter homes, you have properties that are five, 550. Those properties are sitting longer. And if you don’t have something unique, like if you’re not at the end of the block or you have a larger lot or you have an ADU or a basement apartment, something to offset that higher mortgage, you’re probably going to be sitting on the market a little longer.

James:
Okay. So the actual kind of below that medium price, that lower end is actually what’s sitting

William:
Because

James:
Interest rates are probably affecting that buyer a lot more.

William:
100%. We see the wealth gap increasing for sure where those who hold assets are just becoming wealthier and spending more. Those who don’t, which typically you’re buying a house for five, 600 grand here on the island, you’re, I don’t want to say broke, but you’re not in a position to do work to the property or spend the way those people at one million plus are spending because you don’t have assets. You don’t come from a wealthy family either.

James:
Yeah. When you’re looking at, like I was looking at Buffalo, Buffalo, it’s very affordable. You have your median home price is 273,700, which is actually down 4% year over year. Inventory’s up 30% and price cuts are at 11.1. So the price cuts aren’t as drastic. So what I’m hearing everyone say is every market’s got its own little sweet spot, right?

Micah:
That’s

James:
Right. And where Will’s at, he’s actually looking at the more expensive stuff where Justin, myself and Mike, we’re actually looking for the more affordable stuff because that’s where the velocity is. And so there’s no strategy that works across all regions. You got to look at each area, each zip code, and really talk to your real estate professionals about what is moving and run those reports. We’ll be right back after the break. More from our panel, stay with us. Welcome back to On the Market. Let’s get into our final thoughts from our panel. So for all three of you, you’re all brokers, what are the top three things that you run for a client? If someone comes to you and goes, “Hey, I want to flip a house this year,” what’s the three data points that you look at to help that client get into a good deal?

Justin:
The main thing that we are looking at with our investor type clients is first and foremost, how are they choosing to finance the deal? Are they bringing cash? Are they having to go through hard money? Some combination of the both? Because that is going to set the trajectory on how we underwrite the deal and what they can actually afford. So I’d say the biggest thing is I want to know how are you trying to finance this deal? So for us, we use hard money, we pay about 9%, 5% down, and then we usually will borrow some gap money from a private investor. And so our borrowing cost on some of these projects usually runs around 20 to 25K when it’s all said and done and we include title and closing fees in there. And so we already know that whatever our price point is, we have to get it 25K lower to make sure that we’re making the deal work and pencil for us.
And so that’s the biggest thing is how are you going to purchase this and what’s your financing plan? Because that’s going to just determine how we’re underwriting it and what kind of holding costs you’re going to have over the course of the project.

James:
Okay. So you’re looking at more debt, how long they’re going to keep it for, and the average days on market and the absorption rate’s going to be really important on that. Yeah. Micah, what are the things when you’re looking at with a client, if you had to go, “Hey, this is what you’re going to flip today in Atlanta, what price point are you looking for?”

Micah:
Yeah, definitely certain stats that I look at when I’m looking for flip investors. Of course, we look at months inventory. I look at the trends to see if that particular area has a rise in inventory, which might indicate that prices are going to go down because it’s going to be harder to predict a future ARV if the price is going down. It’s not that we won’t buy in those areas, but we just are a lot more conservative with our numbers if we do, but Atlanta has more opportunities in other areas, so we’d rather just go into the safe areas instead. The other thing I look at is I look at average home sale in the area, and I compare that to my ARV. So if we’re buying a property with an ARV of 450, and I’m talking Atlanta, so I don’t want to buy in an area where the median home price is 300, because I’m not trying to way overshoot that neighborhood.
If the average price point is 300, you might not be able to sell right now somebody that could afford a $450,000 house in that neighborhood. So I really try to buy in areas where the median home price is at or a little higher than what our ARV projection is, so we can be in the middle or not trying to break the neighborhood record. And the other thing I do look at is list price to sold price and days on market. I’m a real estate broker. I’m promising to sell this. I want it to be profitable for my investors. So if I say we’re going to sell it for this amount, I want to be very confident in that. So days on market will affect our whole costs and list price to sold price. If they’re doing a lot of big price drops in that area, it’s definitely a red flag.
So yeah, those are the three main things that I look at when we’re looking for flip strategy specifically.

James:
Okay. Yeah. What’s the velocity? Where’s the affordability? I mean, that’s right up what we’re looking into, digging into every zip code. Well, out in the Hamptons, Long Island, what are you looking. If I’m coming to you to flip a project out there, I mean, what’s your advice for clients to get in and out of a deal? What would you be targeting?

William:
One of the first things I would make sure that I truly understand is what does the consumer want? What kind of product are they looking for? In what location? What does the average buyer look for in wherever you’re trying to flip? So for example, in my area, a lot of people want an accessory unit. They want to rent out a part of the house. We do a lot of basement apartments here or garage conversions. Maybe in a different market, it might be an open concept kitchen with a specific countertop and specific amenities. So truly understanding in your market what the buyer wants. Number two, I would say is nailing the price. A lot of sellers are stuck in 2021, 2022. I think pricing ahead of the market is very important. What I mean by that is if everybody’s asking for 650, list for 599. We just had a client that he wanted to list at 650.
That’s what the cops were saying. We advised 599 and because we listed at 650 based off of what the seller wanted, we ended up selling for 599. I guarantee you if we would’ve listed at 599, we would’ve sold for more. So understanding your pricing strategy is very, very important. Understanding what’s on the market around the property you’re trying to flip. I call the brokers, “Hey, what’s going on at this listing two blocks away from this property I’m trying to buy? Hey, I’m closing on this property. How have things been going at your listing over there? We have similar properties in similar locations. What feedback have you gotten from buyers? What offers have you seen come in at this particular price point?” And then I want to get ahead, take that feedback, use it to my advantage and position my property in a place that’s going to cause it to sell by pricing it more attractively and catering to the buyer depending on what the feedback given to those other surrounding brokers was.
So those are some of the things that I’m doing to position my inventory ahead to cause them to sell quicker and for more.

James:
We got to find that sweet spot as the brokerage. As we all hear, I mean the news is out, rates are high, inventory’s going up, there’s more sellers than buyers, month supplies is on the rise. And so as you get into the investment world, those are what we got to look at. It’s like, okay, this isn’t COVID anymore. Not everything’s going up, but there’s certain pockets, price points that have a lot of activity in it. And if you can target and work with the right brokers to find you those right deals, that’s where you want to be because especially the deals are getting better and we just have to find where the velocity is. So we’ll leave it there today. Micah, Justin, and Will, thanks for giving us your views from your markets. And for those listening, follow On the Market wherever you get your podcasts and subscribe to our YouTube channel for more real estate news analysis and investor strategy.
I’m James Dainard. Thanks for joining us and we’ll see you next time on On the Market.

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.