5 Frequently Asked Questions When Starting Out With Felipe and Ashley

Ashley:
This is Real Estate Rookie Show number 21.

Felipe:
I tell a lot of newbies, I say, “Look, don’t under estimate your knowledge and your time. More than not, people that have money, don’t have the time.”

Ashley:
My name is Ashley Kehr, and I am here with my cohost Felipe Mejia, and he has really exciting news to share. What did you do for the first time ever?

Felipe:
All right, so no, it wasn’t a Tesla, but it will be soon, but no, it wasn’t the Tesla. This time, no joke, I went camping for the first time ever. So I always wanted to do that when I was younger. Everyone in my school, like friends and family and all that always did, but we just did as a family. We were worried about other things. And I finally bought a camper and took my family camping. It was great. It was awesome.

Ashley:
Please share with them what you took camping with you.

Felipe:
So I know you think it’s funny, but I took our flat screen and I hooked it up to the wall of the camper. I actually had left it there. We’re just going to get another one. But yeah, I was super excited. But on to other things, Ashley you look like you’ve actually been working. You’re tan. What is going on? Are you outside? Did your husband put you outside?

Ashley:
Yeah, during my rehab we did all the landscaping yesterday for the outside because we’re waiting for the electrician to finish inside, so we figure we might as well start with the curb appeal while we’re waiting for him to finish and then we can move on to drywall. But I have to add something to your camping, because it’s like funny to listen to you talk about the flat screen stuff, because when I grew up camping was we got into a canoe, packed for a week, and we canoed to our campsite, and stayed in tents and stuff like that. But eventually we did start glamping with a camper and everything like that.

Felipe:
I guess that’s what it’s called. We had AC. We had all that.

Ashley:
Yeah. So when you come visit sometime I’ll take you guys out real camping in a tent and sleeping bags, stuff like that.

Felipe:
That’s hilarious. Well today’s show is actually just me and Ashley, and we’re going to be answering some of the top real estate rookie questions that we got on the Facebook group. And we’re going to talk about some of the questions that come up the most, and we want to answer them based on our experience, Ashley and I. So we’re going to be doing that today.

Ashley:
And if you guys aren’t part of the Facebook group, just search Real Estate Rookie on Facebook, and you’ll be able to find us and join. And make sure this, this is Felipe’s pet peeve, make sure you answer all of the questions when you ask to join.

Felipe:
People will… I’m serious. We have like 20 requests of people that don’t follow all the questions and hit yes to that they’re going to abide by the rules, and then we just have to say no because they’re not going to adhere by the rules. So anyways, yeah, make sure that you go through all of the questions and type in yes, that you’re going to adhere to the rules.

Ashley:
Yes. So let’s get started with our first question. Let’s jump right in. So we kind of picked questions that are very common, that we asked a lot and a lot of investors get asked by rookies. So the first one is…

Tanner:
Hi, my name in Tanner and I am located in western New York. I am wondering, what is the best way to get started funding your first deal? Good credit and looking to either BRRRR or flip.

Felipe:
Yeah, absolutely. I think if you’re having trouble with finding the finances for the deal, honestly my first initial gut response is maybe you haven’t done enough research, because if you have a great deal, then anybody and anyone that has the finances is going to fund it because we’re all looking for ways to get better returns on our investment. One of the things that I would tell you is go out and analyze 30 deals, 40 deals. Go out and talk to 20, 30 banks. Go out and just maximize every single position that you think you should be in and get those 100 nos out of the way, because if it really is a great deal anybody is going to fund it. It sounds like you have a really good credit score, above 700, and you’re looking to BRRRR or flip the property. It sounds like it should be a no-brainer if you truly have a good deal.
Now, if you’re out there looking for money and someone looks at this and says, “Yeah, I’m not going to fund it,” maybe it’s not as great a deal as you think and maybe you just need to run back to the numbers Tanner. That would be one of the first things that I look at. If I look at a piece of property that I’m going to invest and the numbers make sense, the money has never fallen short. Ashley, what’s been your kind of history with this?

Ashley:
Well my recommendation would be to find small local banks. Banks with maybe seven or less branches or small credit unions, and go to them and ask what they can offer you. So I once had a bank tell me that they would get… I asked them just like, “I want to buy this house. Here is my BiggerPockets calculator report. Here are pictures. Here’s what I think I can do with it. Here’s what I’d get in rent.” And they offered me a 90 day unsecured loan for the full purchase price. Then after closing I just had to go and refinance long term with them, and I paid off that 90 day loan with them, and then I had my 20 year fixed financing. So I think that is like a great place to start, is just talking to banks sense that’s what they’re in the business to do is lending.

Felipe:
Yeah. I think I’ve told this to quite a few people that I’ve helped through real estate and it’s that some banks are better for credit cards and then some banks are better for car loans and then some banks are better for single family homes and then some are better for investment properties. It’s your job to go find what bank is their niche, right? They’re not going to have a big old sign on their front door that says, “We do real estate. We do credit cards.” But if you can just maybe google that you will get some answers. For example, I know that Wells Fargo has far more mortgages on their books than any other bank in the country, right? So go start with small banks and work your way up. Figure out what each bank likes to do. Like I said, some small banks love car loans. Some small banks like credit cards and some like real estate. It’s your job to go find the money wherever it’s at, because no one is going to hold a sign outside. I’m thinking as I’m saying that, you know those guys that are like flipping the signs out on the street?

Ashley:
Yeah.

Felipe:
I think that’s really cool, but there’s not going to be a bank that does that. You have to go out and make those calls. So Tanner if you told me this question, what is the best way to get started funding your first deal? I would come back to you with a question and say, “Well how many banks have you called? How many hard money lenders have you called? How many nos have you gotten? Or are you looking for your first yes on your first call?”

Ashley:
My first deal ever was actually with a partner who put up the money for the whole purchase price and I didn’t have to put any money into the deal. And the way I approached it was I just started talking to him about real estate investing. I didn’t say, “Hey, do you want to partner with me?” Or, “Hey, I need money. Are you interested?” I just started talking to him about real estate investing. If there are a couple of people you have in mind that you think might be interested in investing with you, just plant the seed. Put a little bug in their ear about real estate investing. Or maybe they’re already doing it and just talk to them about it. Then once you have a property in mind, bring it to them and then kind of approach it as an opportunity for them. Not that you need them. Don’t beg them to invest with you. But show them how you are going to make this a great investment for them. Have pictures. Have the BiggerPockets calculator report. Have the numbers all spelled out for them.

Felipe:
Yeah, I couldn’t agree more with that. My first real real estate deal where I had to find funding, the bank gave me something like what they said with you where you had 90 but I had a five year adjustable rate mortgage so I had five years to figure it out. And when I first got that everyone was telling me, “No Felipe, in five years that might adjust into a $10,000 a month mortgage. Like you never know. They can do whatever they want.” Which also isn’t true. But what I quickly realized after the first year was whoa, I just cash flowed for a full year. Not just that, I have a whole other four years to figure out what I’m going to do with this property to get out of this bad interest rate, but even with a bad interest rate I’m still cash flowing. Right? Most people want to hit a home run with their first deal but they don’t realize, look, it’s okay to just get to first or second or third base. Like you don’t have to hit a $100,000 win the very first time.
So Tanner, to kind of get off of your question but to answer it, what is the best way to get started in funding your first for a flip or BRRR, whatever the case may be? Man, call a bunch of local banks. Call a bunch of hard money lenders. Run your numbers. Learn the verbiage, ARV, ROI, learn all of that. It’s great on BiggerPockets to be able to do all of that. Then present those documents to that bank to that hard money lender, and I guarantee you you’ll be able to find the money if the numbers make sense.

Ashley:
Yeah Tanner, here is your action item for this week. I want you to put together that portfolio, that folder, that binder of all of that information. Even include your personal financial information and show that you have that great credit score that you have. You can manage your own money too. Put that together this week and then after that, every day I want you to reach out to three different lenders, whether that’s a bank, it’s someone you know that you think would lend to you, or that’s a hard money lender. And just start there and do that every day. Complete that task and I think you’ll find that you might even end up with more people interested or more options available to you.

Felipe:
Yeah, I couldn’t agree more with that. And then you can always jump on BiggerPockets, the rookie Facebook group that we have and post it there. Some people will give you some positive feedback on there as well. And you can always run your numbers on the calculator on bigger pockets. So let’s move on to the next question Ashley. Here, I’ll read it off to us.
How do I find a deal? So this one comes from Chris. It says, “How have y’all been finding your deals? I’m closing on a $100,000 HELOC and looking to buy my first rental.” That’s really funny he says that because Chris and Tanner could partner together. Because he’s got the money and Tanner has the deal.

Ashley:
Yeah.

Felipe:
But look, there you go. There’s the money. Anyways, “I’m closing on $100,000 HELOC and looking to buy my first rental. However, being the HELOC is financing the down payment I need a property where I can do a BRRR, so that I can get some or all of my money out of it. I don’t really want to be stuck making that HELOC payment forever. Now, I have a few realtors in different areas looking and it seems pretty difficult to find stuff on the MLS that makes sense. What are you all doing to have success? I hesitate to get into direct mail because it is a little overwhelming to me.” That’s a really good question. What do you think Ashley?

Ashley:
That is, and I find like a lot of people get stuck right there too so it’s not uncommon. My first advice would be is to tell everyone and anyone that you want to purchase a property. Tell that I’m looking for a duplex, I’m looking for a single family home. Tell people what you’re looking for. Probably about 50% of my deals I’ve gotten from word of mouth because people know that I buy properties. So that is like the number one thing. I would start there. I saw this on Instagram probably like a year ago and then I did it myself, was I saw someone on the back of their business cards wrote, “I buy multi-family.” And they left them everywhere. They handed them out to people. So do anything you can like that to just show that you are buying property and there will be people that approach.
Now, you shouldn’t just rely on that waiting for the deal flow to come in, but I almost every single morning I’m looking on Realtor, Zillow. I go on Facebook Marketplace. I go on Craigslist. I go on LandWatch. I go on all these different websites, Hubzu, Auction.com.

Felipe:
You’re giving away all the secrets Ashley. You’re giving it all away. The secret sauce. No, I’m just kidding.

Ashley:
And I just look at them every single morning and see if there’s anything on there that I’m interested in. And it takes some time going through all these and eventually I figured I’d just bookmark all these so I just click on each one every morning and I have my search area saved into them, but those are two of my biggest recommendations. And any off market deals I have found to be better. So like Facebook Marketplace or Craigslist, looking in those kinds of sites too.

Felipe:
Yeah, I agree. And you know Chris is asking about direct mail because he says it is a little overwhelming to him and I understand it. But I tell you what, if he goes back and listens to show 19 and show 13 with Ryan Dossey and Drew Wired where they talk about direct mail and how important that is, I think that he’s going to get a little more comfortable, right? Because I remember Drew was saying that he’s got a full-time job and he’s doing this and he’s doing that, and he’s still doing what Ryan Dossey is teaching him to do by direct mail and finding those properties. So I don’t think that direct mail marketing is anything that you should get scared about. If anything find Ryan Dossey and Instagram and go back and listen to our show, show 19 and show 13, and you’ll be a lot more comfortable with that.
Now, that other thing that I would tell him is that he is looking at how are we finding our deals. It is kind of like Ashley said, because we’re out there looking daily. Chris, I would challenge you to look at what you did last week. How many hours did you spend looking for that deal? One, two, maybe three? Versus how many hours did you spend, I don’t know, on Netflix or listening to the radio or, I don’t know, doing other things? Because I’m literally on the phone from where I get from one job site to the next or if I’m on the way home I’m networking trying to find more deals, right?
So I’ll kind of tell you this story Chris. My son is two and a half and he takes up a lot of my time. Like a lot, right? My son is super, super hyper. I’m being a little vulnerable here. Anybody can go google this, but my son basically has what’s called SPD, sensory processing disorder. Basically he is very hyper all the time and he doesn’t do well with loud noises. He doesn’t do well with a lot of crowds. It’s a very, very light form of autism but in that my son always wants to be with me. He always wants to hang out with me. He’s like very attached to me because that’s what he does, he attaches. So I had to learn to be a very, very fast, what I call it, entrepreneur. Meaning on the home from job sites or I didn’t have more time to waste. Like that 30 minute ride home where you relax, I don’t have that. I’m calling two or three realtors to see what they have on the table. I’m bothering Ashley to see if we can invest together where she’s at, right?
So Chris I would just challenge you if you’re really looking for that deal, how many people did you tell this week that you’re looking for a deal? How much time did you spend searching for that deal? And I guarantee you if you’re running your numbers, if you’re looking for rentals or if you’re looking for a BRRR, BiggerPockets is a great place where you can find this information as well. Go to the forums. There’s always tons of things about this like where even the question that we answered before you where somebody has got a deal but doesn’t have money. Maybe you have money. So maybe go partner with somebody. That would be a great idea. I always tell people, half of a great deal is better than no deal, right? Me and Ashley both do a lot of partnerships. We find a lot of great value in that.

Ashley:
Yeah. One of the things I can kind of add onto that is driving for dollars too. I mean, that takes work but that’s why you have kids and you train them to look at the meters, and how many meters are on a house when you’re searching for a duplex. And I see in your picture here that you have a significant other, ask them. Say, “Hey, if you’re driving around, if you see any houses with tall long grass or papers in the windows… ” I mean, that might be a bank owned property or a vacant property that someone is looking to dump. When a bank owned property they’ll put notice in the window, like this has been winterized, do not trespass, stuff like that. So those are things that I look for or the tall grass and just like properties that are vacant or for sale by owner signs. You would not believe how many for sale by owner signs I see by the road but you can not find them anywhere listed online. So that is like great value.
Just tell people you know to keep their eyes open. Tell your parents. Tell your siblings. Tell your friends. Say, “Hey, if you see any of these things, a for sale by owner sign, a property that looks like it’s vacant, just if you get a chance send me the address or let me know about it.” I think you can find a lot of value in that. Then you had mentioned just the MLS, how the deals don’t make sense. Low ball offers, okay? You got to used to them because you have to do them. And I still struggle with it. Like I still feel bad. I don’t want to insult people. But you know what? It’s worked. I’d had people say yes. There was a property that I wanted two years ago that was listed for $90,000. I was patient. I waited. They came back to me and said, “We’ll sell it for 60.” I ended up getting it for $20,000. Okay, that amount of savings was worth hurting their feelings a little, if I insulted them and me feeling bad, but they accepted the offer. It is worth taking that chance.
So don’t say the MLS doesn’t make sense until you’re submitting those low ball offers that make sense to you, because it will happen. There will be someone that just wants to get rid of their property and will accept that offer.

Felipe:
Yeah, absolutely. My wife is a realtor here in Nashville, Tennessee, and we actually put in an offer for one of the guys that I’m helping with real estate. And he put in a $20,000 under market value offer and got it.

Ashley:
Wow, awesome.

Felipe:
In Nashville.

Ashley:
Yeah.

Felipe:
We’re a hot market. And he put in 20,000 under. We’ve put in four offers, they’ve all gotten rejected. He put in $20,000 offer and we didn’t ask why they accepted it but they did. We’re going through inspection. As long as everything goes well we’re going to close and it’s going to be a great deal for him. Another is when, this is the last secret and then I’ll let you read the last question, but Chris I would challenge you and this is one that I’ve got a great deal on. Actually, one of my top producing properties was from a yard sale. I’m not kidding. We pulled up to the yard. Or I’m sorry, my mom was at the yard sale talking to the person that was selling the items outside and she goes, “Hey, my buys houses. Are you selling by any chance?” He goes, “Yeah, that’s exactly why we’re doing the yard sale because we’re selling the house.” Have you listed it yet? Nope. So my mom called me immediately and before he went to market I offered him 5,000 under market value and he took it. It was great.

Ashley:
Wow. Yeah.

Felipe:
Off a yard sale.

Ashley:
That’s awesome. Yeah, I think a lot of the great deals, you can find good deals on the MLS with those low ball offers, but I think it’s even more exciting when it’s an unexpected deal, like you’re not even going after it and someone brings it to you.

Felipe:
So exciting.

Ashley:
Yeah.

Felipe:
But that goes back to letting everyone know that that’s what you do.

Ashley:
Yeah.

Felipe:
Because like if my mom didn’t know that I bought houses that would be pretty weird, but if anybody they have to know that you-

Ashley:
She would have taken that deal for herself.

Felipe:
Exactly. You know it’s funny, I partnered with my mom on that deal.

Ashley:
Oh, you did? Good.

Felipe:
Yep.

Ashley:
Yeah.

Felipe:
Me and my mom are partners on that deal. Yeah.

Ashley:
Yeah. That’s good stuff.

Felipe:
I write her like an $800 check every month.

Ashley:
Yeah. Okay, let’s move on to the next question and it’s do I need to get my real estate license? So Cairn actually asked this in the Real Estate Rookie Facebook group. And he said, “Should I get a real estate license before I jump to the rental property business?” And I am excited for this question because I don’t know if we will have like the same answer because your wife just got licensed, so I’m really excited to kind of, maybe we’ll have a little debate here on this. What do you think?

Felipe:
You know that’s a good question. Do I need to get my real estate license? Should I get my license before I jump into rental property investment? So if we just directly answered the question should I, it really goes back to how you feel comfortable. I would you say you don’t have to have it to get started in real estate. I have my whole portfolio and my wife now got her license, right? So we went through the process of buying nine rental properties before my wife got her license. Now that we have it I see it as an asset, but it’s still work. So like no one is just going to trust you to sell their home or buy their home. The only extra thing that I have now because my life has her license is we have access to the MLS. But aside from that it doesn’t really add a ton of value to my real estate investing because it’s still a cost that we have to pay monthly for her to have her license so she has to always be selling, buying, or just having a referral.
You know what’s funny is, my wife has now made more money with referrals than actually selling or buying houses, but we just refer agents that we know around the country to if someone is like in Michigan and they’re like, “Hey Felipe, do you know a good real estate agent in Michigan?” And my wife gets a referral on that because we do know real estate agents around the country. So if you need a real estate agent around the country, my wife can give you a great referral.

Ashley:
I don’t think we’re allowed to make those kinds of plugs on here. But also, I’m a licensed insurance agent and I do referrals too. No, I’m just kidding.

Felipe:
We’re so going to get in trouble. No, but I mean to answer his question and if we’re just being honest here, I do think you need a license to be a great investor. I think it’s just maybe an extra tool in your tool belt, right?

Ashley:
Yeah. So I’ve tried to get my real estate license maybe two or three times. I’ve paid for the course and started it online. So that was my biggest thing, like I did it online. That was my first mistake. I’d have to actually make myself sit down and watch it and learn. And I never completed it, so then like you have a year or however long to do it in New York State so then the time lapsed and I’d buy it again for the $99 and try to take the course again. Then as the years went on and I started buying more properties I was like, “Why would I ever want to do what my realtor is doing for me?” Because I’m a buy and hold, so Cairn’s specific question was rental property business. So I’m assuming here that he will want to hold for the long term, that these are buy and hold properties. So I don’t really sell anything. I am buying and I am not paying that commission, so wouldn’t I want a realtor to do all the paperwork for me, schedule the inspection?
With multi-family, with duplexes, triplexes, coordinating these showings and inspections with tenants, I would never want to have to deal with that. And I find great value in having a realtor do all that for me, because I just don’t like that and I have been somewhat successful without a licensed realtor myself.

Felipe:
Yeah, no, I mean obviously you’re success is amazing Ashley. I think the reason that we ended up getting our license is because we had so many people reaching out and saying, “Hey Felipe, we want to buy property in Nashville.” And I would just point them in the right direction to another realtor, and by the end of it we were like, “Well, my wife can just get her license and we can kind of help people buy in Nashville if they want to.” But honestly, I don’t think that you have to have a license to start your rental property business. I think if you have the availability to and you have a significant other or yourself that wants to do it and save three or four percent then go for it, but I think it’s like you said. I think there’s bigger fish to fry and you need to be doing something else. That’s just another hat that you’re going to want to wear, but like you said, if you’re buying for the long term, like he said with rental property buying for the long term, then you’re not paying anything because you’re the one buying, not the one selling.

Ashley:
Right. And yes, maybe you could get money back in your pocket if you were representing yourself and you get money off the purchase price, stuff like that for your commission. But for me, I think of it as just something that’s very easy to outsource and that’s something that I’ve been working on with my mentor is what are things that I can get rid of? In February I got rid of property management and that just feels great. I’m waiting for you to feel that same feeling Felipe.

Felipe:
Eventually, I will.

Ashley:
I know.

Felipe:
I need to find one. I’m actually working on it. I’m working it.

Ashley:
Good.

Felipe:
I actually have a team of two family members that have been helping me the past two months to do it, and you’re right it’s a great relief.

Ashley:
Yeah, good.

Felipe:
And I’m planning on passing it on. We still haven’t figured out the payment part of it yet, because I don’t know. I’ve never had a property manager.

Ashley:
Yeah.

Felipe:
So I don’t know what it’s worth. I’ve asked them to tell me what they wanted to make, but that’s just a conversation for another time.

Ashley:
Yeah. Well, to kind of wrap up the real estate license, I would say that is a great way to get into real estate if you’re going to be a realtor as your full-time job. If you are going to do it part-time and add this extra work on to you and it’s going to effect you actually finding deals because you’re too busy learning how to be a realtor or helping other people in real estate and it’s not your main focus, you definitely don’t need to be a licensed realtor to be successful in your rental property business. In New York State for example, we have to have attorneys to close on a property, so an attorney in New York State will do the contract, will do everything for you basically that a realtor does. So yeah, my answer would be no.

Felipe:
I agree.

Ashley:
Yeah.

Felipe:
I agree. You don’t have to or unless it’s going to be your full-time it’s not a necessity.

Ashley:
Yeah.

Felipe:
Well let’s go to the next question and this one’s super hot topic. Everyone is on one or the other side of the fence on this one on BiggerPockets. Definitely go to the forums, google it and you will see it everywhere. Dun, dun, dun.

Ashley:
And I feel bad because this is it depends answer.

Felipe:
It is.

Ashley:
And I hate giving that answer to someone but that’s what we’re going to have to say today. Yeah, so this one is from Alison and it says, “Good morning, has anyone purchased a property through their investment LLC company? I’ve purchased a property in my own name but I want the next property to be purchased through my LLC. Thanks.”

Felipe:
Awesome. Okay Alison, I’m going to do my best here and I’m going to start by saying we are not attorneys, we are not lawyers. Let’s not get sued. This is just like things that we’ve seen or things that I’ve seen in my city in Nashville and Ashley will talk about what she’s doing up in Ashley New York. Ashley what city?

Ashley:
Buffalo.

Felipe:
Buffalo, okay. In Buffalo, sorry. But is it are you in Buffalo? You’re not in Buffalo right?

Ashley:
No, I’m probably like 15 minutes from the city. Yeah.

Felipe:
Yeah. But you say Buffalo so people can kind of get an idea of where exactly it is?

Ashley:
People would never ever know what the name of my town is. Yeah.

Felipe:
All right. It’s like you own your town, right? Because you live on like 200,000 acres or something insane. No, I’m just kidding. Okay, so Alison had a great question regarding LLCs. So one of the things that I would tell Alison is to find out first, because let me give you a perfect example. I have properties in my name, right? And I do want to transfer them to the LLC, but my bank will call my loan if I just directly transfer a property into the LLC if the LLC is not showing cashflow or some type of history. So what I’m doing Alison is running all my cashflow from my rental properties through my LLCs to show history in that LLC. So she’s saying that she wants to buy her next property through her LLC. Well Alison, first I would go find out from the bank if they are okay with that. Some banks will. Some banks don’t. My bank wants to see two years of my LLC having from cashflow from my rentals running through it before I can start making purchases out of the LLC.
Now, if I quick deeded the property into the LLC without having prior history, the bank has the option to call my loan and that’s scary. So at the end of the day Alison, is go talk to your bank, go talk to whoever is going to fund the deal, and make sure that that’s okay. Now the only way I’ve seen it go around this is if you do hard money with the LLC, but it’s the same thing. You got to talk to the hard money lender and find out if they will lend to the LLC. Ashley, what experience do you have?

Ashley:
So I think there are two things you need to consider. The first one is bank financing. What kind of financing are you looking for. Are you looking for fixed 30 year? Are you looking for five year fixed amortized over 15 years? What do you want out of your bank financing? Are you going residential or commercial side? Because that will affect whether you should go into a LLC or not. The second thing to consider is liability. A LLC will definitely give you some kind of liability protection but you could also get umbrella insurance. So let’s start with the bank financing. A lot, but not all banks will only loan to you on the residential side and you can get that low interest rate 30 year fixed if the property is in your personal name, so that’s why I have done that, is put a property in my person name and gotten that 30 year fixed because that’s the only way the bank would do it for me. So I don’t have that LLC for protection and instead I got an umbrella policy on top of that and that provides a protection for me on that property.
If you don’t care if you get a 30 year fixed and you would do five year amortized over 15, I actually just did a commercial side that’s 10 year fixed amortized over 15 years, so there’s different options on the commercial side, but that would be if you have the property in a LLC you can get that commercial lending. Usually not great, like the terms aren’t as great as doing it on the residential side. So that would be something to consider, whether you want to put it in a LLC or not. There’s one bank by me that will actually lend to you on the residential side if it’s in a LLC, but the interest rate is awful. I did it two years ago and the interest rate was 7.35% for 20 year fixed and then it was residential side with a LLC.
Then with the liability. A LLC will provide you protection on whatever assets you have in that LLC to keep you from getting sued personally. But you can also get an umbrella policy that would cover you for that property in case you were sued. So those are the two things I consider looking at when I’m going to put a property in my own name or a LLC. Now that I’m kind of grown, I’ve been kind of kicked out of the residential side and I don’t even get invited to submit an application on a residential side. But I know there’s also some controversy as to, okay, should you go and get bank financing and put it in your personal name and then once you have your loan switch it to a LLC, which Felipe you touched on your bank will not allow that. And I see that a lot in the BiggerPockets’ forums whether you should risk doing that or not. I have no opinion on that at all because I’ve never done it and I’ve never even asked any of the banks that I work with.

Felipe:
Yeah, I asked my bank that because I was like, “You know what? I’m not going to look at all these forums… ” People have different banks and every single bank is different so you have to talk to your bank. So what I did, to answer that question, is I went to my bank and said, “Hey, if I want to transfer a property into a LLC, will you call the loan?” Her response, my banker she’s great, she said, “It all depends on your history. Have you been paying your mortgage for the last two years on time?” “Yeah.” “Well then we’re probably not going to call your loan because we’re here for the interest. We’re not here for anything else.” She said, “But, we’re going to look back for two years. Why not just create the LLC, run the cashflow through the LLC for two years, and then you don’t have any risk?” And I was like, “Well, that makes perfect sense.” So that gave me my answer, right? I can do it after two years.
So Alison, I would tell you go talk to your bank that you’re going to want to use and tell them your plan. Don’t try to hide anything. Just lay it out on the table and if you get a green light, go for it. If you don’t get a green light, go to the next bank and the next bank. Not all banks are created equally.

Ashley:
And I wanted to add something that you had said too about how the bank wanted you to have two years of income and expenses and cashflow showing in your LLC before they would lend to that LLC. I want people to know that that’s not always the case but I think it was for you because you don’t have W-2 income. You are a full-time real estate investor.

Felipe:
Correct.

Ashley:
But if you do have W-2 income, you should not have a problem creating a LLC, purchasing that property, and putting the mortgage on that property right away even though it’s brand new LLC.

Felipe:
Every situation is different.

Ashley:
Yeah.

Felipe:
Every situation is different which is why I say definitely take people’s advice, read all the forums on BiggerPockets, but just go down to the bank and ask. The worst that you’re going to get is the answer that you’re looking for, a yes, a no, and a how to do it, right? So that’s the worst thing that’s going to happen.

Ashley:
You can also consult your attorney about the LLC. And I feel bad that we don’t have a definite answer for you, but it really depends on what you’re looking for in liability and what you’re looking for in bank financing. And if you are going to be worried about being sued and that is like a huge concern and you’re going to lose sleep over it, give up that 30 year mortgage and find a property where the numbers work with that commercial five year fixed 15 year term, and get that LLC so you can sleep better at night, because to me that is like a huge thing is I’m not worried about being sued because I have all of these things put in place to take care of that if that happens.

Felipe:
I’m going to go rent from you Ashley and I’m going to test it. I’m going to stub my toe on your property and see what happens.

Ashley:
Yeah right.

Felipe:
All right, let’s move on to the next question.

Ashley:
You just threw that stub the toe in there. I have to mention this now because Felipe his one camping story he told me was that he stubbed his toe.

Felipe:
I did. I have like a broken toe right now. I don’t know what the heck is going on. It’s all purple. Anyways, we’re not talking about my toe. Let’s get to the next question.

Eric:
Hi, my name is Eric. I live in New Jersey which is an expensive area for the most part. I know that rising markets are out in the Midwest and some other parts far from New Jersey, so my question is, what advice would you have about turnkey investing or out of state investing as a beginner and is it a good idea to invest far from where you live to start out? Thank you.

Felipe:
Great question Eric. Fantastic, because everyone has this same question when starting out. Yes or no to turnkey? Should I invest out of state or in state investing? And Eric, I would answer this question like this, what’s your goal? Are you buy and hold? Are you flipping? What is the reason that you’re investing in real estate? I’m going to assume safely, that you want to buy and hold a property for the long run. I would call 20, 30, as many turnkey companies that you have availability to in where you want to invest, where the numbers make sense and just interview them. See if it’s something that works for you. Not just that, get referrals. Ask them for a referral. Who have you sold to that I would love to talk to? Call the people in the city. Find out someone that’s bought a property from this turnkey and find out if they’ve got a good rapport.
Another thing is, do they have a website? Eric, this is a way that you can avoid a ton of turnkey pop ups up there. Google them before you call them and see if they have a nice website. How long has the website been up? Do they have history? Are they on Google Reviews? Do they have a long list of reviews, right? If you have a turnkey property that’s got five reviews and one that’s got 400, well there’s one that you can toss out the window. And just follow that formula all the way down until you get about 10 and then start calling them, interviewing them. Hey, what would you do during an eviction? What’s your process look like? Can you send me your standard operating procedures for this, that, and the other? Really drill them because at the end of the day you’re marrying this company for a year, two or three years. And a turnkey property can make or break your first year in investing if they sell you a dumpy property or a good property.
Ask if they have property managers on their team as well. What do their turnover rates look like? Ask everything Eric and then that’s going to really hone in on is it a good or is a bad turnkey property for yourself, right? Ashley, what do you think?

Ashley:
I honestly really don’t know that much about turnkey properties. I just know that they’re a good investment if you don’t have a lot of time to invest in analyzing a deal, finding a deal yourself, in putting rehab into that deal. Your return on investment is not going to be as great as if you went and did all of that work yourself, but sometimes that is your only option to look for these turnkey places. And prove me wrong, there probably are some out there that you can get a great deal on and get those great returns on them. And I really don’t know that much and I’ve never interviewed an actual turnkey company myself, but I definitely agree with Felipe as take the time to interview as many as you can. And we are actually really excited, because in the near future we’re actually going to be doing a whole episode on turnkey, so I’m really excited to learn about that.
But we have a clip actually. Since Felipe and I have never done turnkey ourself, we actually reached out to Whitney Hutton. She was a guest on BiggerPockets Real Estate Podcast episode number 340. And she interviewed over 40 turnkey companies before she decided who she was going to invest with. SO let’s hear what Whitney has to say.

Whitney Hutton:
First and foremost, when you’re investing with a turnkey provider you need to understand their business model. Is their model vertically integrated, meaning that they will provide all services you need under one roof, such as deal sourcing, construction, and property management? Or are they horizontally integrated, meaning they coordinate different business providers to provide you the finished product? For example, one person may source the deal. Then they contract with a construction company to complete the rehab. And then source a property management company in town to place the tenant and manage the deal. While you’re still getting a turnkey property, essentially you want to know who is doing what work and where their responsibility ends and another entity’s begins.
Here are some lesser known questions to ask in your interview. First, what class of property do they like to purchase? Most turnkey providers play in the C minus to B space. Where some investors get taken is that they love the B class finishes they see on the turnkey property, however the neighborhood is in a solid C minus area. Make sure to do your own market due diligence. How are they sourcing deals? You’ll want to understand their main deal sources. Perhaps they find deals from a mold remediation company or a foundation crew. If so, you’ll want to triple check all of their work in these areas to make sure they have resolved any issues.
Next, what is their standard scope of work? Are they upgrading all big ticket items, known as cap bags, or are they saying anything with five to seven years of life left on the property is good to go? This could be code for they don’t want to repair it and you will have to complete this upgrade prior to your sale. Next, you will also want to find out what type of construction warranties and tenant placement warranties they have in place, and if you choose your own property management company, how will this move impact your warranties? Make sure you also ask who will be your point of contact once you have closed a deal with them. And call this person up and confirm all details that you have noted. Also, ask to speak directly with three to five referrals of investors who have purchased multiple properties with them.
Again, these are just a few tips and tricks for what to look for when sourcing a turnkey provider. Happy investing.

Ashley:
Those are some really great tips that she puts in there. Just that little bit of information she provided like great value as to what you should ask them when you’re interviewing them. I’m really excited for doing an upcoming episode on that.

Felipe:
Yeah, I couldn’t agree more. It’s going to be really cool to do a whole episode on turnkey, so I’m excited to do that as well. So those are some of the questions that we’ve answered from the Facebook group for Real Estate Rookie. Ashley I’m going to ask you, what is one of the questions that you get asked the most as a real estate investor?

Ashley:
Honestly, I would have to say how to structure a partnership or how to find a partner? Yeah, I would definitely have to say that. What about you?

Felipe:
I get the same one about partnerships because I think a lot of people know that I partner a lot. And they’re like, “How do you find a good partner? Felipe, you’re not always the money. Sometimes it’s them that’s the money. What kind of value do you add?” But I get that question a lot and I always answer it the same way. I’m like, “Look, if you want to find a good partner my question to you is are you a good partner worth finding? Have you educated yourself in the space that you want to? What are your strengths and are you strengthening your strengths? Don’t worry about your weaknesses because your partner should compliment that. You should be able to continue to strengthen your strength.”
So I think personally that’s what I would say that that’s the question I get the most, how to structure my partnerships. And all that is really relevant and it’s super important, but I think more than how to structure it, how to do all that, is are you a great partner and do you mesh with the partner that you’re going to have?

Ashley:
Yeah, the first time you and I ever talked about this I said that one thing I thought was really important at first was to make this an opportunity for your partner. And that was like the biggest thing to me was not like saying you need them or anything like that. Like show them how you’re going to make them money. Show them how you are going to build them up. Show them those things and make it an opportunity for them. But when we talked you had said that to me, how show what value you can bring as an investor too and what you have to bring to the table. So that really resonated with me and I really like those two things combined as to figure out first what you’re going to bring to the table, and then how you can make this an opportunity for your partner. What are some of the ways that… Let’s give examples of how we’ve structured our partnerships.

Felipe:
Yeah, sure.

Ashley:
Because there really is no right or wrong way to do that.

Felipe:
Yeah. My partnerships… Hey, maybe we should write a book on partnerships for newbies.

Ashley:
Yeah.

Felipe:
No, but honestly I think that for me the biggest way that I’ve done it, and like you said there’s no right, there’s no wrong, this is just what’s worked for us, is I do a 70/30 split until tenants come in and then it goes 50/50. So my partner brings in 70% of the financing, 70% of everything, and I bring in 30% of everything. So even through rehab and getting the property rent ready, 70/30 split. The moment we get that first lease signed everything goes back to 50/50. So you might be asking, well that’s not fair Felipe. You’re only bringing in 30% of the money up front. And with all honesty, that might not up front look fair, but my business partners love it because I’m finding the deal, I’m boots on the ground, I’m getting all the rents, I’m getting all the tenants, I’m saving us money everywhere by having this model that we already have and just bringing it to the table. And all they got to do is bring money. I tell a lot of newbies, I say, “Look, don’t underestimate your knowledge and your time. More than not people that have money, don’t have the time.”

Ashley:
Yeah, so I have four partnerships right now and they’re all in LLCs. So back to the LLC question, I would if you’re doing a partnership I would definitely recommend a LLC. So one partnership is with my sister where we actually did her first house hack and I gave her the down payment and she went and got a FHA mortgage and we’re 50/50 on the deed of that property. We just have the duplex together. And then another property is with my brother, where we do a siblings Christmas exchange and I gifted him 25% ownership of a property. And you can say, “Wow, that is generous.” But it was a $20,000 house, so not that exciting. So he’s 25% owner. He is completely passive and we actually don’t take any money out of the LLC. There’s very little cashflow on this property and it will need some repairs coming up, so we’ve just been keeping all the money in there and we don’t even take anything out.
Then I have my first ever partner where he was putting all the money. We are 50/50 percent equity of the LLC and we actually did a no payable back to him for any money he put into the LLC. So he was getting 50% of the cashflow, plus he was getting 5.5% interest on the money he had lent the LLC. So I think that was a very good deal for him, but I also couldn’t had gotten started without having that first partner to trust me and to want to work with me and believe in what I could do. And he is also 100% passive. Then my second partner that’s not a sibling, we have 50/50 everything. So before we outsourced our property management I was doing the leasing, collecting the rent, the bookkeeping, and he was doing maintenance, stuff like that. Then any money that was put into the deal we did 50% of that. So those are just some examples of how I’ve structured my deals.
So like my partner that we’re 50/50 everything and he does the maintenance, the reason we did that is because he’s super handy and good at that stuff and I’m good at bookkeeping. So we first looked at what we could bring to the table and that’s why we set that up. And my other partner he’s not handy at all. He doesn’t want to do any bookkeeping. He doesn’t want to do anything like that, but he had the money, so that’s why we set up that partnership. And my sister she needed her first ever house and that’s why we set up that. So I think you got to first look… Before you decide how you want to structure a partnership you have to first decide on the partner and look at your strengths and weaknesses, and then build your structure from there.
So really those are like five of the biggest rookie questions. I mean, I can’t think of anything else that is really more commonly asked than those five questions. Can you?

Felipe:
No, I think those were great questions. Great starter rookie questions and I think those are some of the ones that we get the most. If you have more questions like that, you’re more than welcome to post them on the Facebook group to Rookie Real Estate. And every now and then me and Ashley hop on there and we’ll answer some questions. Then you never know if it might get on the show or not. So thanks for definitely doing that. We loved answering those questions. Hopefully we can do more of these later going forward.

Ashley:
And I want to make sure that you guys call in to the rookie request line too, so that’s 1-888-5rookie, and leave us some voicemails because we love to listen to those and our guests love to answer those questions too. So please leave us some voicemails. And let’s wrap it up from here.
So Felipe that was kind of fun just doing it me and you. I mean, I love to have a guest and to learn all this stuff but I feel like every day I’m still learning stuff from you, so it was fun to do.

Felipe:
Absolutely, I love answering those questions because it kind of brings me back to the beginning and that’s always really good to kind of go back to the basics and make sure that you still have those tools sharpened because they are still in your tool belt. So like Ashley said guys, thank you so much for putting in your questions. We’d love to answer them. You can always post more on the Facebook group. We’ll definitely get to those as much as we can. So today’s been a great show, episode 21. And we look forward to seeing you next time.

Ashley:
You can find me Ashley Kehr at Wealth from Rentals. And you can Felipe Mejia at Felipe Mejia REI. Thank you guys and we’ll see you next Wednesday.