Rookie to Real Estate Investor: Seller Financing, STR Markets, & Lowball Offers

Ashley:
This is Real Estate Rookie Episode 257.

Tony :
Something else to think about, Lawrence, as you’re submitting some of these offers is to give the sellers different options. For example, we’re trying to buy a hotel over the summer and we gave them different options on the seller finance deal that we were putting together. One had a higher price point with slightly higher interest, but a lower down payment. Another option had a higher down payment, but then the other terms were a little bit more favorable for us. I think if you want to get to where you’re putting down no more than you said 15% or 7% based on what Pace said, offer that as another option. And maybe even if it’s a slightly higher purchase price, it still works out better for you because the down payment’s going to be smaller.

Ashley:
My name is Ashley Kehr and I’m here with my co-host, Tony Robinson.

Tony :
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we’re bringing you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today I want to shout out a very special person from the Rookie audience. This person goes by the username, The Handyman 317, and Handyman left us a five-star review on Apple Podcasts that says, “Thank you!” With the big exclamation mark. “Definitely one of my favorite weekly podcasts. I’m a contractor and I set a goal to start investing in 2023 for myself after listening to your podcast. Well, listening to your podcast weekly, I gained my confidence and already finished a flip and bought a duplex to hold on all in 2022. I appreciate the service you guys provide, and thank you so much for helping me reach my goals. So much free knowledge on this show.”
Handyman 317, kudos to you for listening and taking advice and taking action, man. That’s the biggest piece. So, if you guys haven’t yet left us an honest rating or review, please do. The more views we get, the more people we can help. The more people we can help, the more stories we get like Handyman 317. Ashley Kehr, what’s up? How are you?

Ashley:
Good. I got two closings today that I’m excited about. I’m selling a property.

Tony :
Busy day.

Ashley:
And then I’m actually using the proceeds to pay off another property.

Tony :
Isn’t that how it goes?

Ashley:
Yeah, I like to keep a couple free and clear, so just transferring some money over. And then I’m actually closing on a refinance for the A-frame property I remodeled.

Tony :
Let’s talk about that just really quickly. You got the refi, right? Refis have dried up tremendously, almost no one’s doing a refi right now. Can you share what’s the reason behind this refinance and why you have to do it right now?

Ashley:
Yeah, and actually the process has been so fast, I can’t believe it compared to trying to refinance the last two years-

Tony :
Last year, yeah.

Ashley:
… when lenders had to bend over lots of people wanting to refinance. But yeah, so I had purchased the property with hard money and my hard money isn’t due for, I think two more months, maybe. I rehabbed it, I used cash to actually rehab the property and now I want to pull my cash back out and we’re going to pay off the hard money lender today. We’re going to refinance with a small local bank. Then we’re just going to have our fixed trade. It’s going to be over 20 years amortized and fixed rate for five years.

Tony :
Yeah, that’s awesome.

Ashley:
And it’s at a 7.4% interest rate.

Tony :
That was my next question, which isn’t terrible, right?

Ashley:
No, no.

Tony :
I’ve seen definitely worse than that. Cool. I’m excited. A-frame’s almost done. That’s like the last step for everything, right?

Ashley:
It’s done. It’s done. Yeah.

Tony :
Yeah, that’s everything.

Ashley:
Yeah, it’s done. Yeah.

Tony :
Cool. Well, there you go. Well, we got a good show for you today. We got our mentees coming back on, so you guys get to hear a quick update from Brandon, Lawrence and Melanie and each one of them is kind of in a different phase and we dig into what each person is struggling with. Brandon, I think, and we talk about this a little bit, the biggest thing holding him back is just fear. And he kind of led into that by just saying he’s fearful of what could happen if he does keep moving forward with this. You get to hear us break that piece down. Lawrence was a man on a mission the last couple of weeks. He did a whole bunch of stuff, so we get to hear what Lawrence was up to you. But Lawrence was a little stuck on how to structure some of these offers that he’s putting out to folks, so we kind of walked through that. And then Melanie, she had a bit of a panic attack with her investing situation, so we break through-

Ashley:
She’s very relatable to me.

Tony :
Yeah, totally, right? And she talks through how she had a freakout moment and how she walked herself off the ledge and how she’s now moving forward with some confidence, and Ash and I give some advice on what we feel she should be doing as well. Each person kind of in a different situation, but hopefully each one of these stories helps our Rookie listeners know that there are other people going through the same things that they’re going through as well.

Ashley:
And if you guys haven’t already, please hype up our mentees in the Real Estate Rookie Facebook group because they’re out here sharing it all with you guys. And sometimes that’s hard to do, especially as a new investor, very unsure is admitting what you don’t know and how you’re feeling about investing. Make sure you guys are hying them up and give them tons of encouragement as we go along for the next 90 days. Brandon, welcome back to the Real Estate Rookie Podcast. How have you been?

Brandon:
Good. Good to be back while braving the cold up here.

Ashley:
Why don’t you tell us a little bit about what you’ve been up to since you were last on.

Brandon:
Since last time, I’ve definitely gotten more narrowed down on the buy box and analyzing properties. Went and walked through a lot more houses, just adding more consistency and just seeing what’s out there for the price points I’ve been looking and just getting more of a feel for what’s been out there, looking at everything that’s new to market.

Ashley:
Did you put together an offer on any of those properties you analyzed or looked at?

Brandon:
No written offers yet. Been working on one that I walked through and just wasn’t really interested at the price point and condition of the property. But they’ve actually been emailing back just wanting us to offer anything or whatever we’re thinking, because it sounds like it’s sitting still and put feedback’s been about the same as mine was.

Tony :
One call out Brandon. You said that not interested at the price point and the condition, but what that lets us understand is that there probably is a price point at that condition where that property makes sense for you. And I think that the challenge from Ashley and I is figure out what that price point is and regardless of what they’re asking, just submit the offer at that price point.
There was a property that I actually just got under contract less than 24 hours ago. I had initially submitted my offer and it was significantly below asking, and the buyers didn’t even counter, they just flat out said no. Then they came back to me last week and said, “Hey, Tony, will you meet us in the middle?” And I said, “No.” Then they came back to me less than 24 hours ago and said, “Okay, fine, we’ll accept your offer.”
So that’s kind of where we’re at in the cycle right now is that as the buyer, even if you’re asking prices significantly lower than what they’re asking for, and obviously this is going to vary by the market, but a lot of times if there’s not enough interest, especially if the condition of the property is not super turnkey, it gives you more leverage as the buyer. So I would say submit that offer, whatever price makes sense for you. Even if they say no today, there’s a chance that that property’s still on the market 14, 30, 45 days from now, now they’re going to come back to you and say, “Hey, Brandon, your offer looks a whole lot better now.”

Brandon:
Nailed it.

Ashley:
What are some other things that you think are holding you back from getting the next deal?

Brandon:
I guess biggest thing is just I haven’t been writing offers on stuff. I need to sit down and work backwards from what it needs and find that purchase price to offer on, even if it’s well off what they’re asking and not be worried about just ticking them off, I guess.

Tony :
Ashley, let me ask you a question, Ash. Have you ever submitted an offer that was so low that the seller said, “I don’t care what your next offer is, I don’t ever want to hear from you again?”

Ashley:
No, I’ve never had that bad. It was more of just no response, that you didn’t say, “My seller isn’t going to even acknowledge that offer.”

Tony :
But had you come back with a different offer, they probably would’ve acknowledged it, right?

Ashley:
Yeah. Oh yeah.

Tony :
Yeah. Maybe it’s happened somewhere, but I’ve never personally met an investor who said, “You know what, Tony, my first offer was so low and I offended the seller so much, they refused to listen to any other offer that I had after that first one.” I think a lot of new investors have this fear around pissing off the seller and them being offended and all these other things, but at the end of the day, if you give them a number that makes sense, they’re going to look at it. Don’t try and make that decision for the seller. I think the bigger thing for you, Brandon, is to do the numbers, figure out what works for you, and then put the onus on the seller to decide if they should be offended or not from there.

Ashley:
There’s so many times people make those lowball offers where they work, the seller accepts it and it’s like, oh my gosh, I didn’t expect that, but yay, they accepted my offer. You never know the reason for somebody selling and money may not be a reason at all, or maybe they don’t understand what the value of their house is or it’s just convenience to sell it to the first person that puts an offer in. Keep putting together offers and submitting them. And then if you’re putting in an inspection period, it’s giving you that second chance to go through the property and make sure your number’s correct too.

Tony :
Yeah, I think one last piece of advice, and this is, again, something that’s happened with me on a deal that we’re working on right now. We’re trying to buy some land to build our primary residence. We want land. Land is super limited where I live in California, super, super rare. And I’ve been talking with the agent who listed the land and same as you, he was like, “Oh, the seller doesn’t want to entertain that offer.” But I kind of got the feeling that the agent wasn’t even presenting my offer to the actual owner.
So what I did is I looked up the land, I traced owner’s contact information. I called them myself last week and said, “Hey, my name’s Tony. I’ve submitted a couple offers. Has your agent even shared my name with you?” The seller was like, “I don’t know. It doesn’t sound super familiar.” So what I’m gathering is that my offer was so low it didn’t quite fit with the agent’s needs, but I talked to the actual owner of the property and now he and I have a very open dialogue and he’s actually open to the offer that I presented. So, if you do feel that you’re getting a little bit of that, sometimes you might have to circumvent the agent to talk right to the owner.

Ashley:
And then, Brandon, when you’re looking at a property too, think about other ways that that property could generate income where maybe you can increase your offer a little bit. If it has a garage unit, can you charge an additional amount of rent for the garage? Maybe if there’s a huge parking lot, can you charge somebody to park their RV or their boat there over the winter? Things like that. Try and find different ways to increase the income or maybe if you’re looking at a property that’s going to have multiple residents in it is having a coin-operated washer and dryer in the basement or somewhere on the property, too, and make some income off of that too. Try and think of different ways to generate income off the property.

Brandon:
Okay.

Tony :
Brandon, one last question for you, man. When you think about submitting those offers, is it more so fear around what the seller’s response might be like? Is it that you’re analyzing a bunch of deals, but you’re just afraid to submit the offers because you don’t want to upset the seller? Or is it that you feel like you’re not analyzing enough deals to begin with? Which one of those issues do you think is a big one for you right now?

Brandon:
I do think it is out of fear of rejection, like you had said, or it getting accepted and then wondering what it didn’t account for type of thing. Or even having multiple offers that aren’t high probabilities and having both of those accepted.

Tony :
All right. Let’s break down both of those. Let’s break down both of those. Your first one was, what happens if they accept my offer, but there are things that it didn’t account for? Just walk through, what do you think you would actually do in that situation? Say that someone accepts one of your offers and now you’re in escrow, you’re during your due diligence period. What steps can you take to make sure that those unknowns get accounted for somehow?

Brandon:
I guess biggest things would be roofing inspectors and contractors to look over things and make sure the numbers I was estimating or planning for are at least close.

Ashley:
One thing you can do is put in a longer due diligence period, so a longer inspection period and ask for multiple times to have access to the property. Instead of having one inspector come in, if you want actual contractors to come in and bid it out, if you don’t think you’re going to be able to get them all right there at the property, same day, same time, then extend out in your contract, in your initial offer, put in a longer period of time and ask to have access as needed to the property, maybe with 24 hours notice if there’s tenants in place, or even the homeowner living there.
That way you can schedule out, okay, over the next two weeks, have the roofing guy coming this way to give me an estimate. I have these other contractors coming in to give me estimates on Thursday and go through a process like that. Then you’re going to get those hardball estimates. And just before you bring the contractors in, when you’re scheduling them, ask them, too, what their turnaround time is on an estimate to make sure that they’re going to get you the information back, too, before that due diligence period is up too. And you probably have a lot of contacts from your business too, from your work.

Brandon:
Yeah, like-

Ashley:
You probably run into a lot of other vendors.

Brandon:
Yeah, that’s numbers that I’m 100% sure, because I did them.

Ashley:
But even, too, do you run into other contractors on jobs or things like that or even your employer, he probably knows other people in different specialty skills, too, that he could connect you with.

Brandon:
Yeah, I’ve made decent friends in basically all the big trades.

Ashley:
That’s a huge advantage.

Brandon:
But not so much cabinets or a contractor overall.

Tony :
Yeah. And then, Brandon, the second thing you mentioned was what happens if you get two properties, two offers accepted? And it’s a reasonable concern to have because I think when you haven’t done your first deal, the idea of getting two at one time is like, oh my god, what am I going to do with that? But just say you were in that situation, what options do you think you’d have?

Brandon:
Trying to come up with the money a different way, see if seller financing is an option for them at all. Because the summer when I did a couple offers, but I would always wait to hear and then with how last summer was the other properties I was interested in were already gone before I heard back on the first one.

Tony :
So if you’re ever in a situation where you have two properties under contract or two offers accepted, first thing is that I would try and do whatever I can to close on both of those deals. I would try and look for a partner. Your idea of the creative finance is another great solution. But say for whatever reason you realize you can’t take both deals down, all you have to do is look at which one of those two deals you like more and then walk away from the other one. If you have a property that’s under contract or that you submitted an offer on a property and it comes back, as long as you’re not submitting your EMD and kind of kicking off the escrow and title process, you can still walk away from that deal. So, don’t feel like you’re automatically obligated to closing that deal. Most sellers, I think would understand like, “Hey, sorry, I had another offer that came in that was accepted.” And I think they would understand that is a legitimate reason to not move forward with that purchase. Don’t be too concerned about that piece.

Brandon:
Okay.

Ashley:
Tony, what do you think that Brandon’s next step should be? Do you think we should have him write some more offers, kind of get over that hurdle?

Tony :
Yeah, I want to see one lowball offer submitted by Brandon between today and the next time we speak.

Ashley:
Okay. And work in that inspection period, if that’s going to make you feel more comfortable. But I think that there’s some kind of fear holding you back and I mean, it’s completely legitimate like, what if I don’t run the numbers correctly or what if I don’t account for something? But that’s why you’re going to have your due diligence period to really break down everything and make sure that that’s the right number for you. And, of course, you can’t protect against everything, so make sure that you have whatever you’re offering on, it’s still going to leave you some reserves even after going in and doing some rehab if necessary too.

Brandon:
Okay.

Ashley:
Think you can handle that, Brandon?

Brandon:
Absolutely.

Ashley:
Okay. Well, thanks so much and we’ll see you in a couple weeks.

Brandon:
Yeah, appreciate it again.

Ashley:
Lawrence, welcome back to the show. Can you tell us what you’ve been up to the last couple weeks?

Lawrence:
Yeah, of course. I was able to do my homework, which consisted of watching those two amazing episodes with Pace Morby. I was able to get a good introduction to creative financing with subject two in seller financing. I’m more of leaning towards seller financing, because right now sellers still have a good amount of equity in their properties, especially in this area. Pace associated seller financing with gain, what does the seller want to gain since he or she may already have the equity in the property?
My biggest hurdle is not falling into analysis paralysis just because I do like to research different concepts. I have started to go onto the MLS listings for rentals and what I’ve started to do is that any rental that has been listed for over 30 days, I am trying to find the owners of those properties. I feel as though two things are happening in that situation. It’s either a landlord who is tired of being a landlord or they are not local to the area and they’ve handed over their property to a property management company that’s either not doing what they’re supposed to be doing or they may be overpricing a property.
I was playing Inspector Gadget and I was able to find one seller because there are a few right now that’s on market. It’s not a ton of aging rental properties on the market and I had to dig, because it was listed with a realty company and so I had to go to the county’s website and find the seller. Anyway, I got the seller’s phone number and email. I reached out to him and he said that he’s on vacation, so to try to get back to him in the middle of January. So I’m like, okay, well, at least I was able to contact him, and then he also lets me know that he’s on vacation and he has a property that’s listed for over 30 days. He may be inclined to selling the property because he’s not worrying about it cash flowing right then and there.
Another thing that I did was I reached out to a previous owner of a property that’s down the street from one of my rentals. He is about to rehab a property and he usually will either turn that rehab into a rental or he will sell it to a retail buyer. I reached out to him and say, “Hey, I’m interested in getting another property with doing seller financing. Would it be something you’re interested in doing?” He said that he would give back to me. So I’m like, okay, I’m tired of the, “I’ll get back to you right now,” that’s promising. I went back to the MLS.
I did find a new listing that hit the market that’s listed for seller financing. I contacted the realtor. However, I’m not too keen about the terms. Right now that particular property, they want 10% interest, 20% down payment, a minimum hold of three years, and a payment penalty that has not been decided. Because I normally buy single family homes, not owner occupied, I usually put down about 15% and then when you add in the closing cost, it kind of goes up to 20%. So I am going to revisit to see if I can maybe do an alternative offer. I’d rather not put 20% down on that particular property. If it still cash flows with the 10% interest, I don’t mind, and I don’t mind the three-year hold because I am into the long term.
But from my homework with Pace, he prefers not to put down more than 7% on properties that are seller finance. And one of his biggest things that he’s keen on would be to always cash flow. That has been what I’ve been up to. Again, I’m doing my research, but I want to continue to take action. My biggest next step, my biggest means would be to have a living document, a Google Document where I have a sheet for aging rentals that are over 30 days. There, I listed a sheet for properties that are on the MLS listed for sale for over 30 days. And I am just going to have to put the work in to contact those sellers and see what I can make happen.

Ashley:
Lawrence, you’ve been busy. This is great. The first thing I want to say is those terms on the seller financing, I mean, a bank’s terms right now are going to be better than that. You’ll give less than 10%.

Lawrence:
Exactly. And it just hit the market. And I mean, it is turnkey ready. What I understand from their property is that it was a flip that won’t sell right now. Because the very first thing that the realtor said was, “Hey, we have different terms for a retail buyer and an investor.” And so I was like, “Okay, well, what’s the terms for the investor?” And those were the terms, and I just was like, mhm.

Ashley:
I think maybe what they’re going after is probably somebody who has bad credit potentially and can’t go to get the bank financing. Because that’s actually my one business partner. When he bought his first house probably eight years ago, maybe 10 years ago, I don’t even know, he bought it from an investor who basically bought houses and seller financed them to people who had bad credit and would charge them… He paid a 10% interest rate and then when he built his credit back up, he went and refinanced out of that loan.

Lawrence:
Exactly. Now that’s why I probably will have another conversation. Right now I’ve worked hard where I’m not in that situation, I’m not going to mention my lender’s information because this is not sponsored, but I can easily be underwritten by almost any lender. All of my properties cash flow, I have a low debt to income ratio, I have great credit, so I want something that’s going to beat bank terms. I’m not going to put down more than 15% if I can go to a lender and do that with about a 8% loan. I definitely would have to get something very competitive if it’s going to be sellar financing.

Ashley:
Yeah, I think you even said it yourself is to go back and put in an offer with different terms. It’s not going to hurt anything, especially if they tried to sell it already, it hasn’t sold. I would put in lower than what the bank would be able to offer you. Even go with Pace’s advice and just do 7% down. I mean, they’re going to hold onto your offer. So if they don’t get anybody else, I mean, you may be their only option.

Tony :
But I think one of the reassuring things, Lawrence, is that you’ve already found a seller who is at least open to that idea. So there’s some proof of concept there that this path you’re going down could end up working for you. It’s just, okay, now how do we get the right terms? You said you’ve been looking at the rentals that have been aging. Have you looked at all at properties that were listed for sell, but that didn’t sell? So like on PropStream there’s like a failed listing filter that you can look at. Have you explored those at all?

Lawrence:
That’s my next list that I’m building, per se, that I’m going to be looking at. I started with the rentals first, but yes. So like I said, I’m going to have that living Google Drive Document or something of that nature where I have one sheet that lists all of the aging rentals and then another sheet that will list all of the aging properties for sale. And I do have another realtor that I’ve reached out to, and I’ve pretty much told that realtor if she’s able to bring me a seller finance deal that I would pay her commission on it.

Tony :
Because I think that bucket of owners, they might be even more open to the idea of seller financing because they just tried to sell the property and they potentially did it unsuccessfully, so they might have a little bit more motivation to go out and do that. Second question for you, Lawrence, are you looking just in the same market that you’ve been investing in or are you open to maybe more remote markets as well?

Lawrence:
Right now, I would say that my risk tolerance is more of where I’m local to, especially because I am a self-managing landlord, so my properties right now are within a mile of each other. That definitely cuts down on maintenance where I can have one local roofer and one local plumber to be able to get there and then me towards prospects and lease them out. As of right now, I want to do at least probably five to seven deals where it’s really local. This would be my fourth deal, hopefully, by the end of this mentorship program. Right now I’m wanting to stay local to my area, kind of dominate and monopolize this area.

Tony :
I love that approach. Yeah. I think maybe just looking at some of those fail listings through PropStream or you can go on Zillow or wherever and manually pull that, but that would probably open you up to a few more owners that might be open to seller financing.

Ashley:
There’s also the website landwatch.com. Have you heard of that, Lawrence? Pace uses it a lot too, and there is over 12,000 listings right now that already say that they’ll do seller financing on LandWatch.

Lawrence:
Wow. Awesome.

Ashley:
So, that’s a great resource starting point too.

Lawrence:
Great, thank you.

Ashley:
Okay, so what do you think is the next step for you?

Lawrence:
The next step would be, like I said, I will reach out to that realtor to see if they would be inclined to a different offer. And if I have to do a mailing campaign-

Ashley:
I think don’t even ask. I think just put it together.

Lawrence:
Just put it together.

Ashley:
Just put it together.

Lawrence:
Okay.

Ashley:
Because the agent can say, “Oh, no, I don’t think they’ll go for that.” But once you’re given the offer, the agent is ethically responsible to, even though Tony had told us a little situation where he didn’t think his offer is getting to the seller, but most agents have a moral responsibility to submit your offer to the seller. So, I think if you ask beforehand if they’re open for an offer, you’re asking the agent what they think and they’re giving the response, not all the time, but this way your offer is getting right in front of the sellers and they’re making the decision.

Lawrence:
Great. So I will submit an offer to them and then I build my list and, like I said, if have to do a… I like to try to find their phone number or email and call them, but if I have to do a mailer campaign, I will. And I will also follow up with those two other landlords who said that they possibly may be interested in selling one of their properties.

Ashley:
One thing just to remember, too, is that even if they say no or you get no response now, months down the road, they could come back to you. I sent mailers out a year ago and I just got a call in… So it was December, I think everybody got them December 23rd of 2021. And this past October, I got a phone call again from somebody who said he got the mailer in December, he was ready to sell now. It just goes to show that people will hold onto your mailers too.

Lawrence:
I definitely like that concept because I’m a huge advocate of networking. Just because it’s a, “not right now,” it doesn’t mean it’s going to be a never end because this area has been monopolized by just a handful of landlords. I’ve started to build a really good name where I’ve worked with two different sellers where I’ve put together off-market deals myself. And so now these local title companies and inspection people are like, “Lawrence, that kid knows what he’s doing. If he says he going to do it, it’s not a matter of if, but when.”

Tony :
I love that. And just something else to think about, Lawrence, as you’re submitting some of these offers, and this is something Ashley talks about a lot as well, is to give the sellers different options. For example, we’re trying to buy a hotel over the summer and we gave them different options on the seller finance deal that we were putting together. One had a higher price point with slightly higher interest, but a lower down payment. Another option had a higher down payment, but then the other terms were a little bit more favorable for us. I think if you want to get to where you’re putting down no more than you said 15% or 7% based on what Pace said, offer that as another option. And maybe even if it’s a slightly higher purchase price, it still works out better for you because the down payment’s going to be smaller. So just play around with different options. Don’t feel like you only have to give them one when you do submit those offers.

Lawrence:
Awesome. I greatly appreciate the feedback.

Ashley:
Well, Lawrence, thanks so much for coming back on with us. We always love having you on and just your energy and it motivates us to keep going and keeps us excited. So, we appreciate that.

Lawrence:
Thank you. I can’t stop. Won’t stop.

Tony :
There you go.

Ashley:
Yeah, awesome. We love to hear that. We’ll check back in with you in a couple weeks.

Lawrence:
Awesome.

Ashley:
Melanie, welcome back to the show. Thank you for coming on again. Can you let everybody know what you’ve been up to the last couple weeks?

Melanie:
Sure. Yeah, thanks so much for having me back. Good to see you guys. It’s definitely been an eventful couple of weeks I would say since we last chatted. I was really looking a lot at Florida and deep diving into just a very specific area and really had my heart set on that. But following our discussion, my homework was to look at some other areas, do some exploration of other locations, and then also to submit some offers. I would say that I jumped into looking at other locations pretty immediately. I thought just like, okay, what else am I somewhat familiar with? What do I know about, to Tony’s earlier recommendation, some of the tourism draws or some of the reasons people would come to an area?
And so I started looking in St. Louis and Kansas City because I felt like those might be areas that might be not the first location you would think of, but also had some potential. Pretty much right off the bat I could see that there were places in my price range, but I was getting a little bit more freaked out about occupancy, just seeing that almost 90% of the Airbnbs I was looking at had zero bookings for anywhere from two to three upwards of six months out. And so I was just kind of doing a little questioning of, okay, is this the market? Is this the particular area? Is it that the draw to these areas is just slower right now?
So I started to get a little bit of cold feet and I started to think, okay, I’m exploring a couple areas, I can definitely look into a few more, but am I really going the right route here right now with an STR? And randomly I had this opportunity pop up in Denver and it was like a multi-family that just had all of these shiny things about it that I was so excited about. I kind of went down that rabbit hole a little bit and I won’t get too sidetracked, but ultimately I wanted to refocus and recenter myself. And so I went back to looking at some other locations and on the forums actually I found a realtor that was talking about some unincorporated areas in Savannah and it just looked really appealing to me.
And so I started poking around a lot and found some things about Savannah I really liked and some beautiful properties and a really great price point. I’ve chased that a little bit more. I’m working with an agent, he’s sending me some listings. I got pre-approved for hopefully a 10% down, but 10, 15 or 20% down payment. Basically I feel really excited about Savannah. I feel like there’s a lot of opportunity. I started making a spreadsheet just with all of these locations and really starting to run analyses on all of these different properties that were popping up. I feel like there have been some viable options in Savannah and now my challenge is to make that offer, make that first offer, which was your recommendation, Ashley. My only hesitancy has been making sure I’m prude, making sure I have a lender, and just getting a little more comfortable with that analysis.
But in general, I had this full panic of, okay, I’m going in the wrong direction, and I kind of just slowed down and reevaluated a little bit and I feel like I’m back on track and have a good feeling about this particular area.

Ashley:
Melanie, that’s great. I’m glad that you have refocused yourself and you’ve even narrowed down a market now that you really want to focus on. I actually have two questions for Tony that were kind of brought up with what you were talking about. And I’m curious as to, Tony, what have you seen for lead times as far as bookings on properties? Because I know I’ve seen on Instagram people post that they’re still getting bookings, but they’re not booking three months out. They’re maybe booking three weeks out or things like that. So, Tony, I’m interested to hear that. Then also, Tony, what’s your take on the Savannah market? Do you know anything about it as a short-term rental?

Tony :
Yeah, two really good questions, Ash. Yes, booking lead times for us across the portfolio have been significantly lower than they were in 2021. This time last year in 2021, we got Christmas booked out by the end of September. This time, Christmas was booking out a few weeks ago. I think the habits of travelers have shifted between last year and this year. Across the board you are seeing more last-minute bookings. I don’t think I would be super concerned if I’m looking at a calendar for a market and I see that 30, 60 days out, there’s still a bunch of gaps in the calendar.
What I would look for is data to show, okay, how are those listings pacing over the last 365 days? What does their pricing look like over the next 365 days? And use that data to help me determine whether or not it’s a viable option. What does their occupancy look like over the last 30 days? Because looking back 30 days might give you a better understanding than if you look forward 30 days. Things to consider.
To answer your second question, Ashley, about Savannah, I actually don’t know anything about Savannah. The only market I’ve really looked at in Georgia was Blue Ridge, and we did that not even as a super deep dive. But, Melanie, it sounds like you found some things there that you feel will draw folks in and that the price points make sense for you. Is that what I’m hearing?

Melanie:
Yeah, that was a major factor, for sure.

Ashley:
Let’s go through some of those items. What are the things that you looked at in the market that you think are big draws that will bring people in?

Melanie:
I mean, obviously it’s by the coast. There’s a lot of people that are drawn to those islands like Tybee Island and a few others. There’s also an Air Force base. There’s a small college that’s, I guess small, it’s got 13,000 students, but well known in the area. I believe it’s a school of art and technology. I want to say the initials are S-C-A-D or something. SCAD or SCAT. And then also the historic district is a huge draw.
I will say that in looking at some of that data, there are properties that are still like 50% or 39% occupancy. I don’t think it’s necessarily 84 or 90% occupancy, which, of course, the higher the occupancy, the better. But they were still, at least the data I was looking at with Rabbu, they were still generating, for example, $3,300 in revenue on a $1,900 month mortgage or something. And I’m trying to be exceptionally conservative with my numbers and factor in property management because I will be out of state and that lower occupancy. I hope that answered your question.

Tony :
Yeah, it does. And I think that’s all good data to look at. I would also use a website like either PriceLabs or AirDNA. I think they give you a little bit more granular data than a Rabbu does. I haven’t spent much time on Rabbu, but I know AirDNA and PriceLabs are super catered towards the short-term rental industry and you get a ton of data when you look at those things. It sounds like you’re happy with that market. Have you looked into the policies of Savannah? Is it easy to get a short-term rental permit? Do you even have to get a permit? What does that whole process look like?

Melanie:
Yeah, so in Savannah proper, there’s a lot more restrictions, but in the unincorporated Chatham County, which is kind of just on the perimeter, it’s much easier. And a lot of the property management companies help you go through that process. They are tightening some restrictions, but there’s still a lot of opportunity. There’s still permits available.

Tony :
And I ask that question because the fact that there are tight restrictions, isn’t necessarily a bad thing. If anything, it almost protects the people that are willing to jump through those hoops and get those permits because not everyone’s going to be willing to do that. So if you are one of those hosts who have one of those harder to get permits, it almost helps because it keeps in, not a hard cap, but almost like a soft cap or an artificial cap on the supply of short-term rentals, which again, if you’re one of those that are operating it, it actually helps you. Have you submitted any offers yet in Savannah?

Melanie:
I haven’t, no. I’ve just been trying to analyze four to five properties over the last couple of days. I did explore some opportunities to do seller financing. It was kind of similar to Lawrence’s terms that he mentioned where the seller was offering a 7% interest rate and 20% down. I was kind of thinking I’d rather just get a loan from a bank. So, no, that’s definitely my next action item is to submit a couple of offers and I’m willing and ready to submit those lowball offers. I think I just wanted to make sure the analysis fit. I sent over a couple examples of my analysis to my agent who’s closed about 30 STRs this year, just to see like, these are my numbers. Do these look like your numbers? Should I be more conservative? Do you have any recommendations? I feel like I’m at that point where I’m ready to start making a couple of offers.

Ashley:
Melanie, you had put a question for us, too, in our group Slack channel about seller financing. Did you want to talk a little bit about that?

Melanie:
Yeah, thanks for mentioning that.

Ashley:
Yeah. One was about how the payments work. Okay, you got the deal under contract, it closed on it. Your attorney has put together an agreement and to kind of start from there is that your attorney will do your closing documents that you would usually have, but will also do a promissory note that goes along with the contract. And that’s where it’ll state that you owe the seller of the property X amount of dollars, and then the terms of the agreement, like what’s the interest rate, what’s the amortization schedule, what’s your monthly payment, things like that and how the repayment period works. What were some of the questions you had about that?

Melanie:
Yeah. I’ve never had a promissory note, and so I think I just was wondering what that actually looks like in practice. Do you have buyers who slowly stop paying? How is that managed and monitored? It seems so unofficial in some ways. And I just wondered… For my long-term rental, they just send me a check once a month. And so I assume it’s as simple as that. But I feel like without that formal entity of a bank or a lender, it just seems a little less easy to monitor. So kind of curious in your experiences, what that actually did look like month over month and if there were ever any issues with it.

Ashley:
I’ve done it both ways. I’ve done it where I was doing the seller financing and somebody was paying me, and then I’ve also paid somebody for seller financing. In both times it was a check sent out. I had it set up as autopay, so my check would go out on the first of the month to them. And then the same with the person that was paying me, they had it on autopay where it was just set up to go. Just like you would pay a mortgage payment, you’re just sending them a check, you’re maybe doing an ACH directly into their bank account. And that’s when I do seller financing offers. I do add that piece in there that’ll be direct deposited into their bank account on this date every single month. It’s just kind of hopefully something a little extra that they’ll appreciate to accept my offer.
But then say they don’t pay, and then that’s where it’s your responsibility to contact your attorney, most likely the one that drew up the promissory note. And that’s where you would go through the foreclosure process just as a bank would. The bank would use their attorney to go through that same formal process. The actual process of that depends on each state. Like New York State, you could pretty much pay for two years before they actually kick you out of your house for a foreclosure. Texas, I think it’s a way shorter time period where it’s so much easier to get people out. And that’s why a lot of investors do offer seller financing or do land leases and things like that because it’s so much easier to get people out, take the house back, and then go ahead and do seller financing again.

Melanie:
And have you ever had to go through that foreclosure process yourself?

Ashley:
No, I haven’t. I haven’t had to, which is a good thing.

Tony :
Yeah. Fingers crossed it stays that way.

Ashley:
Yeah. Any other questions about that, Melanie?

Melanie:
Actually, I guess, yes, one other thing. In a lot of seller financing deals, I feel like the biggest appeal is probably a lower down payment. And so when you see still a 20% down payment, if the interest rate is dramatically lower than what banks are lending at currently, then it’s green lights all the way. But I think I’m curious if there’s other things about a seller finance deal that I’m not considering that may get more appealing and more interesting.

Ashley:
One thing that I think of offhand is convenience. Just like having to go through a bank, it may be more of a, it’s a longer process. You have to put more paperwork in, you have to fill out more forms, all these things. So there’s the convenience method of it that doing seller financing, you really don’t have to do any of that. The formal application, things like that, doing seller financing. Another thing, too, is like you said, the down payment, but also the interest rate. If the person’s just going to have that money sitting in their bank account, well, instead of having the money from the sale sit in their bank account and make 1% interest off of it, instead they’re going to charge you 4% interest, which is still way better than the 7% interest you could get at the bank today is paying that 4% interest, but you’re both making out. In that example, you’re both making more than what you would if you went to the bank and they just put that money into their bank account. So, that’s another thing to consider too.
Then a big advantage for the seller is the tax advantages. The fact that instead of them taking a lump sum when they sell the property, now they’re taxable income is being spread out over the course of the loan. Instead of getting… Say, they sell property for $100,000, well, their tax bracket just increased because now they’re have a higher income based off of selling that investment property. Where they do seller financing, they’ve only made so much off of you in year one out of 20 years, the loan is amortized. It keeps them into that lower tax bracket and they’ll owe less taxes. So that’s a big advantage as to why a lot of people do the seller financing. One thing I always do is hint to ask sellers that they’re willing to do seller financing. They say no right away, I just say, “Oh, okay. I just didn’t know if your EPA had mentioned the tax benefits of it.” Then that kind of puts a little buzz in their ear.

Tony :
Yeah, and I think the other big thing, too, is that you can really create an offer that speaks to what’s important to that seller. For example, maybe the seller is just most concerned with getting the absolute highest purchase price, but maybe the property won’t appraise for the price that they’re looking for. But if you’re doing a seller financing position, they’re the ones that are on the hook for the property. So if they want to sell it for more than what it’s worth, that’s only working out in their favor. Whereas if you’re going with a traditional bank, if the seller wanted half a million bucks, but the property’s only worth 300,000, it’s not going to fly that way. So I think there’s more flexibility to listen to what is important to that seller and then give them an offer that really speaks to what’s motivating them.

Melanie:
Okay. The last thing I was going to say was it seems like if cash is the thing that the seller wants more than anything, that becomes like a seller financing deal killer because they want to cash out and walk away. And ultimately you’re only going to pay your down payment and then a payment over time with interest. That was kind of a learning with the multi-family I looked at this last couple weeks. But thank you so much for talking a little bit about that. That’s really helpful for me.

Ashley:
Yeah. And thank you so much for coming on again with us this week, and we look forward to talking to you again in a couple weeks.

Melanie:
Thank you.
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