Start Now, or Wait This Thing Out? Live Audience Q&A

Ashley:
This is Real Estate Rookie Show number four.

Felipe:
I do three to four months’ reserve for each property, and then I would look at new potential deals, as long as they match the numbers. My mentor told me, basically Felipe, all that’s really happening right now is that your numbers are going to be easier to hit, because prices are going to be going down. He said your numbers are going to be easier to hit, as long as you’re not out on the street eating bologna, right? I mean, make sure that, for you, your numbers are in place and the deals are going to make sense, then go for it.

Ashley:
I’m Ashley Kehr and I’m here with my co-host, Felipe Mejia, and his parrot.

Felipe:
Oh my gosh, why did you have to bring it up right away? You couldn’t wait to say that could you?

Ashley:
The whole recording, chirp, chirp. I thought it was a smoke detector.

Felipe:
This is terrible. Okay guys, I’m in Florida. I’m supposed to be headed back to Nashville soon. I’m at my in-laws’ house and they have a parrot, right? And you can hear it in the background during the whole show, and no one decided to tell me. I’ve been here for a while, so it’s just background noise. I can’t even tell. And it’s just chirping away the whole time during this conversation, but anyways.

Ashley:
Well, I had a good laugh over it.

Felipe:
No, it was great. It was great. Today, we actually have a different type of show. We’re actually going to be doing live calls. The video [inaudible 00:01:24] were asking us question regarding what we’re doing during this Corona time, during the virus, and how we’re investing, how we’re using what we know to further our real estate. Are we sitting back? There’s some great questions on there from wholesaling to Airbnb, and everything in between.

Ashley:
I love this show. This was one of my favorites, especially having people call in live and talking with us. That was really cool. I got excited about someone who is starting wholesaling, and it was just really inspirational how it didn’t work out, but they’re still going and doing it. Then we touch about how people are handling tenants who can’t afford to pay right now. So I like going over all that stuff. And with people asking these questions, it always makes me think too about am I doing it the way that I want to do it? I’m always learning too from everyone. So thank you to everyone that called in today.

Felipe:
Absolutely. I think there’s so much knowledge in today’s show, because it was live and people were asking questions based on what’s going on today. It’s changing every 12 hours. Ashley, how are you doing up north? How’s everything with you and your family and everything like that?

Ashley:
Yeah, New York State started a pause order, where it’s not mandatory to shelter in place, but everything that’s non-essential has shutdown. So I’ve basically been home, in the barn, or at my rehab, which there’s no one there. But, luckily, the hardware stores are still open, but we did try to stock up on stuff so that we don’t have to go out as much.

Felipe:
Yeah, definitely.

Ashley:
What about in Florida? How long are you going to be quarantined down there?

Felipe:
We’re quarantined down here for a little bit. We have five acres and two homes. I know that’s just a backyard for you. You have 100 or 200 acres, but we’re just out here. Luckily, we do have the beach and a pool, but we’re staying away from that, right now, as there’s still tons of people there, but we’re good. My son loves it out here. He’s got five acres to run around, get his feet dirty, and just be a boy. So he’s digging it being away from the city. He thinks we’re on a long vacation, so no problems there. As long as my family is happy, I am good.

Felipe:
But let’s start the show here. Let’s get ready to start answering some questions.

Felipe:
Hey [Andres 00:03:36], what do you got brother? What’s going on?

Andres:
My question is, if my goal is to generate cashflow, with the uncertainty of the Coronavirus, what do you guys think I should be doing, because maybe I get a property and the tenants might not pay, or I might not get any tenants.

Ashley:
Sure. I think that, right now, they’re definitely is an uncertainty if tenants are able to pay their rent. What I would do is if you’re looking for a property, right now, maybe look for properties that have tenants in place that are able to pay. Maybe they have their nurses, doctors, and healthcare, or they work at a grocery store, they’re part of the essential service. So going in, buying that deal, you know you have tenants in place. Maybe they have six months left on their lease, and these are essential workers that will be able to pay their rent. I would also look into… Hopefully, this does not last forever.

Ashley:
In New York State, they’re doing a 90 day hold on evictions, so maybe you go into the property saying, “Okay, I have the cash reserves to cover the expenses for three, two months. And then I will go and I will find a longterm tenant, thinking that this will be over.” That would be my strategy, if you want to buy right now, is to try and look what kind of tenant you’re going to get in there, or who is already in there. And then, make sure you have those cash reserves to pay for a couple months if your tenant is unable to.

Felipe:
Perfect. Yeah Andres, one of the things that I would tell you, man, is just do a little more due diligence when screening tenants. I mean, definitely do the things that I feel like a lot of times as [inaudible 00:05:07] landlords we forget to do, like actually call their references. On their job, you’re allowed to call and see what their standing is like and stuff. So you can definitely figure those things out. Doing some due diligence, I think, is going to save you a lot of headaches in this situation. I think a lot of people are going to be looking for places to rent, cheaper rent then they were paying. So I think, right now, one of the more crucial things that I’m doing is making sure that I’m screening my tenants properly to make sure that they do still have a job, they are able to pay a rent, and that they’re in good standing. And definitely be calling their last landlord to see how they treated them. That’s really important. Those are things that you are allowed to ask.

Felipe:
That’s what I would be doing, right now, man.

Andres:
Great. Thank you guys so much. I appreciate it.

Felipe:
Absolutely. Thanks, Andres, see you buddy.

Andres:
Bye.

Felipe:
That’s a big uncertainty right now, Ashley, where people are wondering if their tenants are going to be able to pay, or if they have a vacancy, bringing new tenants in. And I’m just telling everyone that I know, “Man, just do your due diligence as best as possible, or you’re going to fail to the systems that you have in place. So just create great systems for finding great tenants.”

Ashley:
Right. And I think buy and hold has always been a safe strategy compared to flipping in a recession, but this whole thing, right here, is showing that it’s not always a safe bet when a state puts this 90 day hold on evictions. I feel like, some ways, the media is broadcasting that. It comes across as, “You don’t have to pay rent for 90 days or whatever.” It is for your state.

Felipe:
Right.

Ashley:
And I think that property managers need to do a really good job explaining to their resident that doesn’t mean you just don’t pay, and then you’re back on pace after 90 days. You will have to make that up. I’ve talked to a lot of investors who are working with their tenants to structure something with the residents. My property management company is doing a tiered program, and owners can opt in or opt out. If you pay $600 or less a month, you’re getting $100 off your rent for the next three months, if you pay on time. It’s a little incentive based to have people pay instead of letting that bill build up until the end of the 90 days. I like seeing all the different ways that people are handling this, and there’s no right or wrong way, at all.

Felipe:
Yeah. No, I got you. All right. Let’s bring in here Anna. I think she’s got a couple good questions. Anna, how are you doing?

Ashley:
Hi, Anna.

Anna:
My question, which Ashley just went into it right away is, and Felipe, for you, how are you dealing with if people cannot pay rent? Are you giving them some help? I know that in my real estate Facebook group that I have here in Wisconsin, people are giving 15% off. People are being really nice.

Felipe:
Sure.

Anna:
How are you dealing with that?

Felipe:
Sure. One of the things that I’m doing, and I’m stealing this from Brandon Turner and some other people that I follow, is I’m giving them options to opt into, once they call with concerns. I’m not calling them and saying, “Hey, I need this, this, this, this and this.” But what I don’t want to do is make a decision emotionally when they call and not be prepared for the call, and I’m talking about my tenants. Once my tenant calls, I give them one or two options. One option that I have is I have a couple of websites from the city in Nashville, where I live, where they can go and find resources, so that’s one option that I have. Another option that I have is I tell them, “Why don’t we defer one payment over the course of the next amount of your lease?” Let’s say I have seven months left on their lease, and let’s say their mortgage is $1000, so we divide that money into the seven months and we add that for the rest of the months, and that alleviates one month.

Felipe:
We’re all human. I’m not going to try to kick someone out during this time, so we have to work together to try to give options. That’s the second option. Another option that I give to them is there is resources from the government, like loan payments, or things like that they can get, or even at their own bank, maybe, they can apply for a loan to pay their mortgage at a really low interest, if not zero. There’s a ton of things that are being offered, right now, for this stuff. Like I said, we’re all in this together, but those are some of the options that I’m giving my tenants to make sure that they’re not late on rent. But, again, the main answer to that is be prepared, because those phone calls may or may not be coming, but you want to make sure that you’re not answering them with emotion, but you’re answering them with an operating procedure that you’ve created prior to the issue coming to you.

Ashley:
Yeah, I agree with Felipe on that. There seems to be 50/50 whether people are reaching out now, or waiting for their tenants to reach out. But the important thing is that either way you have a procedure in place as to how you’re going to handle it, instead of waiting for them to call and then be like, “I don’t know.” I think it comes off a lot better, and you know that it will work for you. You want to have a procedure in place so you can still make your rent. You can still earn your mortgage. You can still pay your property tax. You can still pay your insurance. But I do see a lot of landlords and property managers, like my own, doing the credit. And then there are some people who I have, at least, that are on Section VIII and pretty much most of their rent is going to be paid for anyways. But I do like the tips you gave, Felipe.

Anna:
Awesome. Thanks guys. Be proactive, I guess, that’s pretty much what you guys are saying?

Ashley:
Yeah.

Felipe:
That’s right.

Anna:
I’m make sure to rely that. Awesome.

Felipe:
Awesome. Thanks, Anna.

Ashley:
Thanks, Anna.

Felipe:
All right, Ashley, you want to bring in our next guest?

Ashley:
Yeah. Let’s bring on Conner.

Conner:
Yeah, Ashley and Felipe. I currently live in Michigan, but I have a rental property in Denver. My question is with a tenant moving out, or supposed to be moving out on March 31st, and new tenants supposed to be moving in April 15th. I’m worried that with all the things going on with the Coronavirus, and shutting down of cities, that they may not be able to move out and move in, leaving me with vacancy. So should I wait to, basically, get rid of all my savings and buy my next house hack, or should I take action on any deal that I think is a good fit that I find here in the next couple months? I want to continue to invest, but I don’t want to be stuck with two mortgage payments on my own.

Ashley:
Okay. Have you reached out to the tenants moving out and the ones moving in to make sure, as of right now, they’re both on track to do that?

Conner:
I have reached out to the tenant that is supposed to be moving out. He isn’t the greatest communicator, so I haven’t heard if he plans to, or not. And then the tenants that are supposed to be moving in, my property manager, she was the one that found those tenants, and I haven’t heard one way or another if we are on track or not, but I can find that out in the next day or so.

Ashley:
Yeah. And then, if they haven’t already, make sure they get a hold deposit. But I’m sure being a property management company they probably did, so that can help a little bit, if they do back out. But I was talking about this with a friend this morning, actually, and he has someone that’s already delayed two weeks their moving in, because of everything that’s going on. So if they don’t move in, worse case scenario, three months, do you think it would be vacant two months? I would say three months, just to be safe. I don’t think that, but make sure you have those reserves. And then, if you still have extra money, I would go and buy another property. I’m not as actively looking as I was, but if I get a property emailed to me, I’m still looking for that deal. And if it makes sense, but right now it’s a very important time to make sure you have reserves for all of your properties.

Conner:
Yeah, awesome. Thank you.

Ashley:
Felipe, did you want to add?

Felipe:
Yeah. I’ll just a little bit there, Conner. I think Ashley was spot on. Geez, that was great. One of the things that I would tell you is… I heard a little bit about should I keep looking. I would. If your numbers still make sense, take emotions out of it. And in that numbers, I mean you need to make sure that you have your reserves for every single one of your properties, three to four months is typical. Some people do six months and that’s cool too. I do three to four months reserve for each property. And then I would look at new potential deals, as long as they match the numbers.

Felipe:
My mentor told be, basically, “Felipe, all that’s really happening, right now, is that your numbers are going to be easier to hit, because prices are going to be going down.” He said nothing about emotion. He said, “Your numbers are going to be easier to hit, as long as you’re not out on the street eating bologna, right?” I mean, make sure that, for you, your numbers are in place and the deals are going to make sense, then go for it. As investors, we all talk about I can’t wait until the next downturn to continue to be investing in cheaper properties. And then it happens, and people are freaking out, which I get, but this is where I think a lot of the wealth is going to be distributed. There are people that took action versus people that didn’t take action.

Ashley:
Yeah.

Conner:
Great.

Ashley:
Thank you, Conner.

Felipe:
Thanks, Conner. Appreciate it.

Ashley:
Okay, let’s bring in Dimitry.

Dimitry:
I want to get your opinion on something. I have an opportunity to purchase my neighbor’s home. It’s a three family, so I would have to fill three vacancies, and that concerns me. I have reserves that will hold me down for a couple of months, but, again, given the current state, I don’t know how long this would last. Although I could ride it out for a couple of months, at some point it’ll start eating into me where I won’t be able to do it. So I just wanted to get your take on filling three vacancies in today’s market.

Ashley:
How long will it take you to close on the property? When would you actually need to start doing it?

Dimitry:
That’s another… I’m getting appraisers, inspectors out right now. That’s another issue. They’re not in a rush to sell. And, again, because it’s off market, I can work with them.

Ashley:
Yeah.

Dimitry:
Because they do understand the current circumstances.

Felipe:
I don’t think this is bad for you. I think you should use this to your advantage, in that, they’re not in a rush to sell.

Ashley:
Right.

Felipe:
But I would definitely it under contract. Do about a 45 day, 50 day close, whatever they want, the longer the better. Once you have that property under contract, I would start putting it on Realtor, Zillow, Craig’s List, Facebook all across the board looking for tenants. I would, personally, go about 50 bucks under market value for rent, and just start hitting it every 10 days, dropping it just a little bit, and start weeding out the bad tenants. While you’re under contract, I start looking for tenants. So you can start looking at this potential tenancy. And if they’re not in a rush, that’s actually a good thing, because that’s giving you more time to screen tenants and look for potential good ones versus 30 day close, have to get people in there immediately. So it gives you a little bit more leverage. 45, 50 days is great, man. I think that’s perfect. I think that’s the best case scenario honestly.

Ashley:
Yeah. I think that’s better than you have a two week, a 30 day closing, because of everything that’s going on right now, this will delay that out for you.

Felipe:
Did that answer your question there, Dimitry?

Dimitry:
Yeah, it did.

Ashley:
Yeah. I think you go for it and start the process.

Felipe:
Okay, awesome. Well, hey man, thanks for coming on.

Dimitry:
Okay. Thanks, guys.

Ashley:
Yeah. Thank you.

Felipe:
No worries. It looks like we have Travis here.

Travis:
It’s interesting to see what’s going on and what challenges the longterm rental wars are having versus the short term, just because travel is so much stopped. In the day that we live in everybody’s trying to stay in quarantine as much as they possibly can. I had some thoughts, but you all’s thoughts on… I know, Felipe, you do rent by the room. I’m also doing rent by the room trying to fill a couple rooms and dropping the rates significantly to just try to push people through. But other creative thoughts might and ideas of how to go about listing your properties to be able to get longterm lease.

Felipe:
One of the things that I’ve asked my mentors with as STR, short term rental, is what’s the best thing to do, right now? And a lot of them are saying are not to necessarily switch your whole strategy, but just maybe pivot a little bit. One of the best advice that I’ve gotten, so far, has been if you’re in the STR market, maybe go to a LTR, a longterm rental, but more like a six month lease, if it will allow it. Because you don’t want to be stuck in a one year lease, when you can go right… Let’s say that you’re in Orlando, and you’re next to Disney World, and you want to be able to open back up once Disney opens back up. You don’t want to be stuck in a one year lease missing out on all the Airbnb action.

Felipe:
That’s one of the things that I would do, bro. I would probably go for a medium size lease. Is that a new word? A medium instead of a short or a long? A six month lease would be good, if somebody’s willing to take it. And then be about 50 to 100 bucks under market, I think, is bread and butter. I don’t think right now is the time to be hoarding, or trying to get money from all your tenants. Right now is the time to come together as a team and let’s just ride it out. The end of day, the two most important things are cashflow and paying your mortgage.

Ashley:
I think too that people are going to start getting antsy quarantining in their house. And I think that there are going to be some people that travel, even if it’s an hour car ride, and stay in an Airbnb for a week or whatever, where they can control the cleanliness, unlike a hotel, and quarantine themselves in there. I have one short term rental and we got pretty lucky. We have a family staying in there for the next month and a half, because they’re doing a major rehab in their house. So they are still coming, because they’re local and live right in the town. But I have to agree with Felipe, if you switch to longterm. My unit is in an apartment complex, so everything else is a longterm unit there. But that will take some time, because, from one of the previous callers, they’re worried about finding a longterm tenant too. Nobody is looking to move right now.

Ashley:
So it will be interesting to see how many people actually do move into new apartments. And if this quarantine does last long, people’s whose leases are up are probably going to want to get to bigger apartments. They’re going to be stuck inside of them, so maybe they will move. What were your thoughts on it, Travis?

Travis:
I mean, I’ve been doing a lot of different things, and doing a lot of research. But slashing prices on my Airbnbs have been something that has started getting a lot more use. Exactly what you’re saying, Ashley, there’s a lot of people out there that can only handle being confined in a home with their family members for so long and need to get out and whatnot. I’m going to market my properties in a unique way. One of them has a private pool, so you’ve got everything that you need, Netflix, Prime Video, Disney Plus. So trying to really show that favors. Yes, this will allow you to get out, but slashing the prices to try to attract more people and be able to show this is a whole experience that you’re still going to be able to have, even though the parks are closed down right now. You’ll still be able to have a good time with the family at the pool and the resort and everything.

Travis:
Where my rentals are still open, as well. Just continuing to try to find unique ways to try to get some people, if they want to get out of the house a little getaway.

Felipe:
You can say something about like, “Recently deep cleaned or something.” I mean, that’s what I’d be looking for at an Airbnb. When was it recently deep cleaned by bleach? No, I’m kidding.

Travis:
Yeah, absolutely.

Felipe:
Thanks, Travis. We appreciate it, brother.

Ashley:
Well, thank you, Travis.

Felipe:
That’s interesting about the Airbnb, how quickly people that were in that market are getting hammered and stuff. I’ve heard a lot of people, but what’s crazy is, I was actually texting Travis the other day, and he said that he recently got a really big booking from people that are still traveling. I was like, “Man, that’s a little scary,” but, I guess, I’m waiting to see what they were traveling for if that is, because it’s not just Disney World. I mean, people travel for other stuff, so I guess we’ll find out.

Felipe:
All right. Let’s bring in Diego here. What’s up, man? How are you doing?

Diego:
My question for you guys, how are you guys shifting your investment strategies as we go into the downturn here in 2020? Are you guys holding off to cash, or would you guys be actively investing, right now?

Felipe:
Good question, Diego.

Ashley:
Yeah.

Felipe:
Go for it, Ashley.

Ashley:
I’ll go first.

Felipe:
Take it.

Ashley:
I am hoarding cash, but I usually do that anyways. But it’s a little extra just because I sleep so much better at night knowing that I have reserves, and that I can cover all my bills for an extended amount of time. But I still am actively looking, because there are still good deals out there. And I’m hoping that this does not last very long, at least the quarantine period, and people out of their jobs. I hope that once in New York State, where I had a two week pause period, so I’m hoping once that is over and everyone can go back to work, most people, that we’ll be able to get caught up, and there will be people moving, and wanting to get into units. It takes about 90 days, if you’re lucky, or 45 days to close on a property in New York State. So, even if I looked now, it would be a long time before I could actually close, so I still am actively looking.

Felipe:
That’s awesome.

Ashley:
Okay. We have a Facebook question.

Felipe:
Yeah. Donny says, “Were do you see this going in three months? I have a chance to buy a distressed home that would take three months for a rehab. Deal is 30K and flip would be 120,000, 20 to 30K in rehab.” Good question, Donny. Personally, right now, I wouldn’t be doing a flip to sell. If I was going to do a property and the numbers make sense, it would be more of a rental play for me with the outcome of selling it. So let me explain, and then I’ll let Ashley chime in.

Felipe:
Me and Ashley did a podcast that’s the last one, episode three, is that right, Ashley? Because we only have four.

Ashley:
Yeah.

Felipe:
And basically what we were told was every deal you buy during this time has to make sense for two ways. For this, it could be a good exit strategy to sell, since you’ve flipped it, but it has to hold market rent right now. I wouldn’t do this to sell it, personally. I would buy this, if the numbers make sense. I mean, they have to really make sense, not like you’re trying to finesse the numbers, but they really got to make sense on paper, take the emotion out of it. Then rent it for six months to, maybe, a year depending. And then flip it on the other side, if that’s your game play. If your game play is to flip it, then it has to make sense as a rental, and it has to make sense as a flip. That’s what I would do with this. What about you, Ashley?

Ashley:
Yeah. I wouldn’t do a flip right now. Well, I’ve never done a flip, but I was actually listening to Jay Scott talk on the Bigger Pockets episode last week, and about how he has, I think, three, maybe, flips going on right now, or a bunch of them. But he said he’s not actively looking to do anymore and I wouldn’t either. I don’t think that a lot of people are buying right now, because of what’s going on. Nobody’s moving. They’re hoarding their cash, like we just talked about with Diego. And if we are going into a recession, I wouldn’t want to be a flipper, especially high end. A lot of people say that, maybe, mobile home parks are the way to go right now. You want affordable housing to provide, so I agree with, maybe, borrowing it, turning it into a rental property. And then, once you get that tax advantage of owning it as an investment property, and then selling it as a flip later on down the road.

Felipe:
But definitely having an exit strategy. Yeah, I think that’s a really good answer. All right, Donny, thanks for the question, man. Love it. Let’s go to Sonny, who has a question here. What’s going on, brother?

Ashley:
Hi, Sonny.

Sonny:
Hey, how’s it going guys? Hey, congratulations on the new podcast. I’ve been a huge fan of Bigger Pockets for so long. First of all, to have something, people that are beginning, that is awesome. So shout out to you guys for that. My question to you guys is more revolving around for people that are starting out. I’m a person that is looking to save some money. Not having the adequate time to run through the numbers, I did come across companies, like Roofstock and Home Union. Just wanted to get some of your own personal feedback on companies like that. The numbers aren’t like 12% return, or anything like that, but they’re decent. For someone who’s starting out, what is your thought process on working with companies like that?

Felipe:
Is this a turnkey property?

Sonny:
Yes, they are.

Ashley:
Yeah. I have not used any company like that. I think it can be an advantage for people who don’t have the time. But my advice would be to find a partner instead. If what you’re lacking is time, find someone who done deal analysis and has the time to find you a deal and partner that way. I like to have a lot more control over my properties then if I went and bought from a big entity like this. I feel like it’s not as personable as me and a partner digging into that property and picking our own managers and stuff like that. I have bought a couple properties that were pretty much turnkey, but I bought them way below value and it would be a lot more to purchase them from an actual turnkey company. Like you said, you’re not getting that big return.

Ashley:
But my advice would be to look at, if you can find a partner first, if not, just do your research on these companies.

Sonny:
Got it. That answers my question. Thank you guys.

Ashley:
Yes.

Felipe:
Thanks, Sonny. I was going to sound like a broken record and be like, “Hey, make sure you’re running your numbers. Make sure that you’re-”

Ashley:
The due diligence.

Felipe:
Yeah. Do your due diligence, man. I don’t care if it’s coming from the best gurus in the world, we all see what’s happening with everything going on YouTube with some of these huge big players in the game. I don’t care who it’s coming from, I’m running my own numbers. I’m running my own due diligence. I’m making sure that the rent is going to hold. And I’m running my numbers more conservatively than before, making sure that I’m not running my numbers like, “This is the most I can get for rent.” But I’m running my numbers more as this is the least that I’m going to get for rent, and I got to go based on that, not like-

Ashley:
Right, be conservative.

Felipe:
Exactly. Not where I was, “I can get $1000 a month on this one.” No. The minimum that I can probably get is probably 750 to survive, so I’m going to run my numbers based on that, and anything past that is just icing on the cake.

Ashley:
Yeah, I agree.

Felipe:
Is that what you’re telling, Ashley?

Ashley:
And then overinflate. Yeah. Overinflate my expenses, like property taxes. Whatever they are now, I always inflate because they can be reassessed in five years, and I don’t want that to affect my cashflow.

Felipe:
No, exactly. All right. Let’s bring in Louis.

Louis:
My question is more about wholesale. This weekend I was sending out letters like was posted. I’ve never done wholesaling. I took a whole course and then read it, and did what they said, and it actually started working. I got my first call back.

Ashley:
Wow.

Louis:
Yeah. It’s really crazy. When you hear about what it is, it doesn’t make sense. But when you do it like, “I get it now.” It feels different. And I went into a place and the place was definitely… He didn’t need me. He had a $900,000 house he wanted to sell on the water, which he thought was beautiful. And I was like, “Well, it needs some work,” and I gave him Vanessa’s number. He came back, “Well, that’s low.” I’m like, “Yeah, I totally understand.” It was a great experience, I must say. I learned more about wholesaling just trying it then actually doing it. It’s also so terrifying because they don’t tell you, wholesaling is pretty simple, once you get there. But it’s that… Why is there such a mystery about wholesaling? That’s my thing. Why is there such a… Everybody tells you, but you don’t believe them. And then when you do it, you’re like, “It’s exactly like that. It is so much like that.”

Ashley:
I think it’s because you have to take the action. You have to actually talk to people. You have to actually call them. You have to actually go to their house. And I think that’s what stops a lot of people from doing those things is because you have to actually do something. Where if you’re looking to buy a rental property, you can just sit back on your computer and look at rentals, and do deal analysis. But for wholesaling, you have to… You did direct mail?

Louis:
Yeah, I did direct mail. I sent only 80 letters and I got one response. I’m like, “Oh.”

Ashley:
Yeah. And I think a lot of people get caught up too on what should I put in my letter? You can Google a million different samples, and there’s no right or wrong way, but just write something and send it out. You have to take action on it.

Felipe:
One of the things that you could, or I think the mystery behind like Ashley said, is people don’t take action. And maybe people are so used to being paid, I don’t know, $15 an hour working a year to get 1550, or you could do one wholesale deal and make 10 grand. And they’re like, “That’s just not possible. No, that can’t happen to me. I’m an average person.” And I used to think that way. I’m born in the South. I’m a Hispanic kid. I’m 5-6. I never would have expected to have 40-plus tenants. That just doesn’t happen to me. But then I switched my vision to why not me, and that’s when it happened. And I think that’s what you’re doing now. It’s like, “Well, why not me? Everyone else can do this. There’s plenty to go around. Why not me?”

Felipe:
We need to get out of that mentality of, “Well, I deserve a 50 cent raise after a year.” It’s like, “No, you deserve a wholesale deal now. Let’s make that work.” They just think… I feel like a lot of people maybe just think that it’s out of the realm for them, and that that’s for the other people and not for them. I would challenge you to say, “No, this is for you. You can do this.” I don’t care if you’re a woman, a minority, big, little, short, tall this is for you and you can do this.

Louis:
I know when I first got into real estate I kept saying, “I don’t want to wholesale.” That just sounds like, “I don’t get that. Who would wan to do that?” And now, after one deal, I’m like, “This is the greatest thing next to sliced bread. I need more of them.”

Ashley:
How did that deal turn out?

Louis:
It didn’t turn out the way I wanted. He rejected my offer, but it was one of those things, though, even in the rejection, he was very, very polite. I got a lot of experience knowing what to look for. I mean, I took a class on wholesaling for $45 and it was more than worth the money. This is…

Ashley:
Yeah. And what happened? Okay, he rejected your offer, but that was so horrible.

Felipe:
That’s it.

Ashley:
Why did you even try? Like you said, it’s the learning experience, and you can…

Louis:
And the whole process took, I mean, really three days.

Ashley:
Yeah.

Louis:
I mean, okay, great. It didn’t work out. Okay, bye. On to the next one.

Felipe:
Yep. Worse case scenario, you got to see a really nice house. He said no. Best case scenario, you would have made a bunch of money. I think that’s awesome, dude. Keep crushing it.

Ashley:
Yeah.

Louis:
This is how bad it is, I’ve already got my letters ready.

Ashley:
Good. Awesome. Keep it up.

Felipe:
Let’s go. Let’s go.

Ashley:
Keep it up. Yeah, cool. Thank you for calling in.

Felipe:
You got to come back in the Facebook group on the Rookie Real Estate Facebook group and come in and post once you get your first one. Okay?

Louis:
I will. Thank you. Thank you so much.

Ashley:
Yeah.

Felipe:
All right, brother. He was really excited. I liked him.

Ashley:
I know. I’m excited for him. Okay, let’s bring on Glen.

Felipe:
Glen Santos, what’s up, man?

Glen Santos:
I have two questions for you guys. Well, one’s for both of you, and one’s for Ashley. The first one I’ll ask is for both. Being that I’ve chose a perfect time to go look for my first deal, with this whole Coronavirus going on, what extra precautions or things to look out for would you give advice in going for my first deal?

Ashley:
I would wear a hazmat suit, a face mask, and gloves.

Felipe:
I hear you. I would get covered up to the teeth. I would get covered up.

Ashley:
Is this going to be for a rental property?

Glen Santos:
Yeah, rental.

Ashley:
Okay. I would look the-

Felipe:
I just run my numbers conservatively.

Ashley:
And look at who your potential tenants are too, and make sure that you’re able to find tenants. I have one town, right now, that we posted a listing, I think, Sunday night, and already we have four people interested in the property. It doesn’t mean that people aren’t looking. You just got to know which markets people are looking for, so definitely do your research and maybe be conservative on what you can get for rent. I have another unit that has had no activity on it, and we actually did half off April’s rent if you want to move in, just to try to get someone interested in moving there. But, like Felipe said, be conservative.

Felipe:
I’m not getting a lot of less interest or anything. I’m getting the same, if not more, amount of interest of tenants. I think it’s hitting every city differently. Like we’ve said a couple times on here, make sure that you’re looking at your numbers conservatively, making sure that you’re not looking at the top of the market, like we used to, like, “I can get this much in rent.” Look at what’s the least that you can get and run your numbers based on that. And then make offers based on that, as well. But what was your second question, Glen?

Glen Santos:
Ashley, we spoke a little bit on Instagram Messenger, I think, a couple weeks ago, about a month and a half ago, after I heard your episode saying that you encourage my wife to be a property manager for my property.

Ashley:
Yeah, yeah.

Glen Santos:
Now, I wanted to ask you, what advice would you give her in terms of studying and learning for becoming a property manager.

Felipe:
Good question.

Ashley:
Well, first of all, is definitely Brandon Turner’s book on rental property investing. Has she read that? Do you know? It’s a Bigger Package book.

Glen Santos:
She’s on the first one, the rental property book, but not the managing one, yet.

Ashley:
Yeah, yeah. Have her do the managing one too, both of those are really great. But, also, have her stick to the lease. Think about as many possible things as you can to put into the lease for scenarios that might come up, because it’s going to be hard to be the bad guy when issues come up. And, this way, you can blame everything on the lease. I’m sorry that this happened, but in the lease it says this is how we take care of that situation. You signed the lease. I signed the lease. I can’t go against the lease, we both signed it. That’s my advice I would give. Felipe, you can probably give good advice. You manage your own properties too for a new property manager.

Felipe:
Yeah. I always use the excuse I got to talk to my partner, when I don’t like the answer. But that gives me 24 hours to touch base on a certain situation. Use those little things to your advantage. Don’t ever give an answer based on emotion. I think that is the biggest, biggest thing.

Ashley:
Yeah.

Felipe:
I think people over promise when they’re happy, and then under deliver when they’re sad. Don’t give an answer within 24 hours unless it’s an emergency, and fall to your operating procedures. You should never give an answer, period. The answer should always be searchable, and that’s going to get you away from being sued. The answer needs to be on paper, on your website somewhere. I think that’s going to be my biggest advice is don’t give an answer based on emotion. And then, second, don’t give an answer at all, make sure it’s on paper somewhere, where you can tell them, “Hey, you can actually find that answer on our website.” And if it’s a new question, answer it strategically within 24 hours, and then create an SOP for that question, because I guarantee you, someone else is going to have that.

Ashley:
Yeah. Even when I first started out I wrote a rules list, and it just was like 1, 2, 3, 4, 5, and it just had if there’s a lockout, that’s a $20 fee. It was a whole list of different scenarios and rules of what you could and couldn’t do, and what would happen if you did it.

Felipe:
Man Ashley, if I had to sign a lease with you, God, I feel like I wouldn’t read it. I’d be like, “Oh my gosh, it’s so much stuff.” You probably have the best tenants though. That’s awesome. All right, Glen thanks buddy. Appreciate it, man.

Ashley:
Thank you. Yeah. Tell your wife good luck and we’re rooting for her.

Felipe:
Thanks, brother. All right.

Ashley:
Okay. Next we have Sarah.

Sarah:
I know everyone’s freaking out about the economy and things right now. Have you thought about the classes of property you do have? I don’t know if Ashley had a very good talk about this, because we have B and C class. And so, I think it would be fun to discuss the thing about your own properties and how you feel if they’re going to be recession proof or not. Because I know some people with A class properties are really worried about that, right now. I want to pick your brains about how you’re feeling about your portfolio.

Ashley:
Yeah. That’s a great question. A lot of mine are Cs and Bs too. I have several that are a higher B, almost an A, low, low A. But those-

Felipe:
Low, low A.

Ashley:
Those are in a great location, so I’m not really worried about them. I would be worried if I had a luxury apartments. I used to manage patio homes, brand new patio homes, and I do have a little concern for those. It is the highest rent in the whole town. I mean, they’re beautiful, but they are a lot of… Almost every unit is filled by a retired person. With the stock market going down, I mean, I’m assuming that most of their retirement accounts have gone down. It depends what their retirement is, their financial position, but I do have that fear that some of them won’t be able to make those high rent payments anymore because their retirement has dropped so much that they might not want to renew another year paying that much out of pocket. How about you, Felipe?

Felipe:
Yeah. Great question. For me, I love where I stand. I’ve always known that I was never going to buy a rental property. That was class A type style, because I knew that was the top of the market. But I also wasn’t going to buy your Ds, like way down there.

Ashley:
Yeah.

Felipe:
When I was mentored during this, a lot of people know my story from episode 329, on the Bigger Pockets episode. I always decided to rent to construction workers, food service people, very middle class struggling to stay in the middle class tenants, because, for me, I’ve always felt those have been the best tenants. I didn’t want nagging tenants way up top, and I didn’t want people that weren’t going to be paying their rent. I wanted people that were going to appreciate the property. The only thing that’s really happening to me is, now, I’m getting B-plus tenants that want to pay cheaper prices coming to ask for me. If that makes sense?

Ashley:
Yeah.

Felipe:
I’m getting better tenants, because they want the cheaper rent versus a losing… And then my tenants are really wanting to stick around, because they don’t want to drop to the lower class tenants, not lower class, but lower individualized. They want to make sure that the properties are where they want. People don’t want to live… They want to keep their source, or the way that they’re living now. So for me, personally, I’ve always just stuck to the middle. My mentor told me always, Felipe, shoot for the target money, and target, as in the store. You want people that are the managers of Target renting from you. You don’t want the C-suite people at Target, you want the managers. The guys that are making 50, $60,000 a year. Who, if they had to, they could drop down to an hourly rate, but still be able to afford your rent.

Felipe:
When I was told, “Hey…” For example, right now, also, if I’m going to buy a property, it has to match two things, a flip. It has to be able to sell and rent. It has to meet two criteria, but I say the same thing with my tenants. I would want tenants that meet two criteria. Either they can be A and B class tenants, but definitely not the super low rents neither. I try to make sure that my tenants would be able to afford both if I could. And dropping my rents, just a little bit, isn’t going to hurt, so that’s going to help my tenants as a whole.

Ashley:
I think right now too what’s going on with Coronavirus and people having to stay quarantined and be at home. It’s a lot easier for white collar workers to work remotely. And if you go on any kind of social media, that’s what you see, all the great memes and everything of all these white collar workers that can work remotely. But then it’s all the lower middle class that is getting laid off, because they can’t do their waitress job remotely, or the luckily retail for grocery stores is still available, but if you worked at a clothing store, you’re laid off right now. So I think it’s very different, because when I think of the 2008 recession, and I don’t know a lot about it. I watch my favorite movie, The Big Short, but I think of corporate America getting people laid off from there. It would be interesting to see if a recession does play out or not. But, right now, in our area, at least, we’re only seeing those people who can’t work remotely that are getting laid off, and that’s the restaurant workers, retail, or anyone that can’t do their job, like a theater, I guess.

Felipe:
Hope that answered your question, Sarah. All right. I think we’re bringing in Cass next. Let’s see what question he has.

Cass:
I’ve been house hunting for the past five years, had no idea what it was called. Since I started listening to Bigger Pockets earlier this year, when my wife and I we wanted to take control of our future, basically, and starting seeking knowledge on investing and things like that. And so, with some of the information that I have, it was more of an acquisition question. Do you guys think this is a great time, or maybe in the near future to do more creative financing? Prices might drop, or people are scared of their homes losing value and stuff. And so, let’s say, using lease option to lock in the price now with certain contingencies in there saying, “Well, if it drops more than $50,000, then I get to walk,” a certain exit clause. Just your opinion on using creative financing in a time like this, of course, still having the right reserves. What are your thoughts on that?

Felipe:
I think creative financing is really smart right now, because you are able to set the terms more in your place. Whereas, in even just two months ago, they were putting out double digit interest rates and things like that. I think, right now, creative financing, hard money, finding money outside of the banks is going to be really important. And if you can get the right terms, like you said, if the value drop a certain amount I want out. I think a lot of… You’ve got to remember, these people make money by letting you borrow money, so use that to your advantage. And I, personally, would use it, but I would be very specific on my exit clause, maybe even have a shotgun clause of like, “20% drop, I’m out, no questions asked.”

Felipe:
So just have those criteria in place, and then-

Ashley:
And how you’re going to measure that.

Felipe:
Exactly. Yeah, exactly.

Ashley:
How are you going to measure that? Is it going to have an appraisal done or what?

Felipe:
Yeah. You have to definitely define every single thing that you’re going to be doing, almost like an outline. Have the clause and this is how it’s going to all play out. And if it plays out like this, I can get out no questions asked.

Ashley:
The only thing I would add to that is I would be worried about doing a balloon payment anytime within the next year. That’s something I would stay away from. I want to do interest only payments or something for six months, and then the total balance due. So balloon payment, maybe even like the next year and a half is something I wouldn’t want to do with creative financing.

Cass:
Got you. Cool.

Ashley:
Yeah. Well, thank you for calling in.

Felipe:
Thanks, Cass.

Ashley:
When he was talking about house hacking, it made me think that I’ve been… Just what’s happening with renters not being able to pay rent. People not wanting to flip houses.

Felipe:
Right.

Ashley:
Now might be the time to get into that house hacking. If you can pay the mortgage on your own without having tenants live by the room, or in the other unit. And then, if you do have them, it’s just the cherry on top, if you do have them. But I would say… I mean, do you agree that house hacking might be a safe strategy for a new investor? I mean, it’s always been my favorite to get started, but during what’s going on right now, do you think that right now would be good to house hack, if you have your reserves, you could afford the mortgage payment on your own? But why not try and get tenants in place, if you can?

Felipe:
Yeah, I would agree. I think that’s the only option that I would be doing right now. I wouldn’t be doing Airbnb. I wouldn’t be doing flipping. I wouldn’t be doing any high end of stuff. I wouldn’t be doing any creative stuff, even, right now. Because the market is too up and down, and wishy washy. Right now, I would be doing rent by the room, house hacking my way through. I can still buy properties, but they would be a strategic play on… My first option would be, can I rent this by the room? Will it hold the mortgage and can I make cashflow off of it? That’s definitely what I would be doing right now, as well as making sure that my tenants are really digging into their lease and how they answered the questions, and calling the people that they wrote down as references. Calling their jobs to make sure everything is good.

Ashley:
Yeah.

Felipe:
I would actually be doing those things. I know a lot of landlords have those options, but I don’t know if they actually do it sometimes or not. Yeah. I think, personally, I would be really digging into the tenants and making sure the cashflow works based on rent by the room.

Ashley:
Yeah, good. Okay. Well, I’m glad you agree with me for once.

Felipe:
I always agree with you. Well, no, not always. That’s a lie.

Ashley:
Okay. Well, thank you everyone for joining us. We had so much fun taking callers.

Felipe:
We did.

Ashley:
We’ll have to do another one soon. I got really excited with the guy who was wholesaling, so maybe we’ll have to do one with people who are just getting in and doing their first deal.

Felipe:
Yeah, his was great. I really hope that he posts in the Facebook group, the Rookie Real Estate Facebook group. If you haven’t joined, go ahead and follow us there. We’ll have a link up to it on the Real Estate Show here on Bigger Pockets, as well. So just make sure that you come in, leave your questions, your comments. We’re a network of just rookies that just want to make sure that we can help each other out. And especially the question about wholesaling, I thought that was pretty sweet.

Ashley:
Yeah.

Felipe:
Yeah.

Ashley:
Yeah. And you can find our show notes at biggerpockets.com/rookieforum, and thank you for joining us.

Felipe:
Thanks, everyone. We’ll see you guys later.