Stuck at ONE Rental Property? The Secrets to Scaling Your Portfolio

Ashley:
Let’s get your questions answered. I am Ashley Kehr,

Tony:
And I’m Tony j Robinson and welcome to the Real Estate Rookie Podcast where every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey.

Ashley:
We are about to get into some questions from the BiggerPockets forums that other rookies like you have asked. Also, go check out the forums if you haven’t already. They are honestly the best place for you to quickly get all your real estate investing questions answered by the many different experts in there.

Tony:
So here are a few of the things we’re going to discuss on today’s episodes. First, we’ll talk about scaling in this current market, especially when your family is going down to one W2 income stream. We’ll also talk about a refinancing strategy for maybe some untraditional type properties.

Ashley:
And then we’re going to end the show with a couple of property management questions and how to handle unusual or expensive tenant maintenance request. Okay, let’s get into the show.

Tony:
Alright, so our first question says, my wife and I recently bought our first home in the Colorado Springs area, close to the Garden of the Gods and other attractions in the area. Our interest rate is a whopping 7.1%. The main house has four bedrooms, two baths, and our mortgage is just over $4,000 per month. The property that we bought has an A DU on the side of it, completely independent from the main unit that we live in. We’re currently renting it out for a two year tenant, long-term for 1545 per month. It’s a one bedroom, one bath. So here’s a question. What are some ways to scale, especially in this current market, or what are ways to reduce our expenses on the mortgage? Every month? We both make about $105,000 each year, but with us planning to have kids in the future, my wife may stop working. Any advice is appreciated. Alright, so we got a lot to unpack there. 7.1%, just up 4,000 bucks per month on the mortgage. Got a long-term rental in the A DU at 1545, so reducing expenses or ways to scale. So what do you hear whatcha are you picking up upon in that question? Actually,

Ashley:
I honestly thought when they started it off with that they were near attractions and they had an A DU and it was a long-term rental. The question was going to be, should I turn this into a short-term rental? So Tony, where they live, if it is allowed, what are the steps that they would take to actually find out what their daily rate would be and if this would be a good investment for them and they could make more cashflow than they would as a long-term rental?

Tony:
Yeah, I think first, yeah, make sure that it’s allowed in your area. So check the local regulations to ensure that you can rent that property out. But yeah, I mean if you can, the first thing that I would do is, and you can do it for free, but honestly there are tools out there that will allow you to do it better. One of the tools that I like to recommend for market research in the initial deal analysis is Air N a’s aird NA and Aird NA allows you to look at other comparable Airbnbs in your market and track the revenue that those listings generated. Now, air DA says their data is over 90% accurate. So I guess you can have some confidence in the way that they’re tracking, but that’s one of the first things I would do is check other comparable Airbnbs in your market and see what kind of annual revenue they’re producing.

Tony:
Now they said they’re doing 1545 per month in revenue on this property. So 1545 over 12 months gives us just over 18,000, 18,500 in revenue for the year. So you just need to ask yourself, could I potentially generate more than 18,500 as a short-term rental? And if the answer is yes, okay, cool, then maybe you’ve got a viable path forward if you can get to 25,000, maybe there’s a case before, but those would be my steps. Ashley is I want to understand the actual revenue potential and then compare that to what I’m getting from the long-term rental.

Ashley:
I just did a quick Google search and it does say the city of Colorado Springs does allow short-term rentals, but you have to apply for a rental permit, special circumstances for residentially zoned single family homes. But if you are a owner occupant and your name is on the deed, then it’s fine. So I’d look more into those regulations. So I think some other things that you could do in this, is there a way to section off the main house? So four bed, two bath, it’s just two of you right now. I think it said wanting to start a family as to renting out a couple of those rooms. Even one of those rooms. Even better if you can separate a bed and a bathroom for somebody else and have a separate entrance, maybe one of the bedrooms and bathrooms in the basement or something like that. I don’t know if there’s a feasible way to actually do that, but you could always just rent out a bedroom and they share the common areas with you.

Tony:
I mean, yeah, four bedrooms, two baths, two people do the math. We talk about our good friend Craig Kerala of the show who house hacked. I think his first property was that like a five bedroom and he slept on the couch. So can you make a little bit of sacrifice over the next couple of years to give yourself a better shot here? So the other part of this question was what are some ways to reduce expenses on the mortgage every month? There’s not a ton of ways that I can think of to reduce your principal interest, taxes and insurance payments. You can shop around for maybe some other potential insurance providers and see if you can get a potentially better quote. Maybe if you feel like the tax assessment is not fair, you can ask for a reassessment. We’re actually doing that on one of our properties right now where we filed an appeal because we didn’t agree with the tax assessment. There are things you can do in that way, but your principal and interest aside from refinancing is going to be pretty fixed, but the taxes in the insurance part of your payment is where you have maybe a little bit of room depending on what the current numbers are.

Ashley:
Yeah, there’s actually a company I just saw it’s called Own Well and they actually will do that dispute your property taxes for you on your behalf. So I have no experience using that company. I had just heard of them and looked into it a little bit as to what they do, but that’s help you if you don’t want to go and do that on your own. There’s a grievance period where you have to object to your property taxes within a period of time, at least in New York State. So that’s something that that company could probably help you with. Insurance going to your agent, your broker, asking them to quote it out, see if there’s any discounts going through your actual policy. Do you know what you’re paying for, what your coverage is as maybe you have something in your house that actually gives you a discount. There are some little random things that give you discounts. Did you tell your person that you have fire extinguishers and maybe that will give you a discount on your insurance. So going through that, asking for a list of what are things that are discounts on your actual policy because you have these in place like an escape ladder for the second floor. Different things like that can come into play. So that’s kind of where I’d start the property taxes and then the insurance, getting that re-quoted too.

Tony:
The other question here that I think is maybe one of the more pressing things is the interest rate at 7.1%. First I’ll say that, I mean that’s not terrible. We’ve definitely heard and seen rates especially the last 24 months that are higher than that, but there probably is a point as hopefully rates start to dip in the coming year, 12, 18 months or so where it maybe makes sense to do that. But actually what do you think is, how do you know when to refinance? Because if rates drop to 6.99, maybe it doesn’t make a ton of sense in your mind, what is the best way to gauge of going through the refinance and those costs is actually worth it or not?

Ashley:
Well, I think it’s pretty easy to get an accurate estimate of what your interest rate would be. So especially if you go to the lender who has your current loan, email them and say, especially if you’re working with a small local bank, email them and say, I am interested in refinancing to lower my interest rate. What are interest rates at today? So they can tell you exactly what interest rates are if you close today. So it’ll kind of give you an idea, but you can rate lock. So say like, okay, yep, this is actually, I want this interest rate. Let’s rate lock. And you may have to do, they may run another credit report, different things like that before they actually rate lock you, but it’s usually not a really long in depth costly process for you to find out what your interest rate would be. You can usually find that out before spending any money. They’d give you your disclosure as to your closing disclosure as to what you’d be paying and closing costs, things like that pretty upfront so you can see if it’d be worth it for you to pay those closing costs again to reduce your interest rate. And you can just kind of do the math as to what’s the difference you’re going to be saving and how long does it take you to actually save that amount that you’re paying in the closing cost for that property.

Tony:
We refinanced our primary residence when rates dropped and we were actually able to roll the cost of the refinance into the loan. So not only did we shave off I think like a point and a half, maybe almost two points from our interest rate, but we also had literally zero cash out of pocket because we rolled those costs in. So it was like a no-brainer for us because rates had dropped a lot in, we didn’t have any out of pocket expenses. But as you’re going through your refinance, maybe it is a question worth asking. It’s like, Hey, if I roll those costs into the new loan, how much am I actually saving on a monthly basis and is it worth it?

Ashley:
Yeah, and just keep in mind that is increasing the balance owed, so you should still know how much that is because if you closing costs are going to be $20,000, that’s $20,000 added to the balance of your loan. So make sure you’re still actually seeing what that dollar amount is, even if it is being rolled into your loan amount too. Rookies. Before we jump into our second question, we have exciting news to share. We now have an Instagram and Facebook page. This is separate from our Facebook group where rookie investors can connect with each other and learn even more directly from Tony and I. So follow us at BiggerPockets rookie on Instagram and BiggerPockets real Estate rookie podcast on Facebook and get all the extra tips and insider advice to help you succeed this year on your real estate journey. Both are linked in the show notes for you guys, so I hope to see you guys in there.

Ashley:
Okay, welcome back. We have our second question today. It is, I have an eight acre parcel and dripping springs, Texas outside of Austin that has two small short-term rentals built on it. Both units are approximately 400 square feet. They are YT style cabins with large decks. We have two full years of revenue history grossing just over 100 K in 2024 after some investments in amenities, primarily hot tubs. Our last three months have averaged 12 K per month. This property is owned outright due to the size of the property, the small square footage of the units and the lack of comps in the area. We have found it difficult to lock down any financing. We have spent approximately 500,000 in improvements on the land in the structures and the infrastructure. We also have infrastructure in place at a build site for a third unit on the property with it being a difficult property for an investor to find traditional financing for. How would I go about assigning a realistic valuation for the property if we were to entertain a sale? From what I’ve been reading, cap rate is not a reliable metric for short-term rentals. Any insight is greatly appreciated. Wait, I get this person on the show to talk about their glamping site.

Tony:
It also, it kind of sounds similar to Garrett who’s one of the short-term mental experts from BiggerPockets. He is been on the podcast a couple of times as well. He and I did a podcast on the Ricky Show here recently together, and he had a similar issue where he bought property in Texas, built domes his weren’t yurts, but also had a little bit of difficulty around the refinancing piece. I think the first, I’ve mentioned this before, but I think the first thing is that I would say, how many lenders have you spoken with and who are you speaking with? Because if you’re only talking to Bank of America and Chase, your options are probably going to be very severely limited. So I would put a really strong focus on local regional banks, on credit unions, on mortgage brokers who know the space a little bit better because the more people you can get in front of, the more options you’ll have presented to you and someone somewhere out there probably has a loan product that might make sense for this type of deal.

Ashley:
Yeah, I think definitely the small banks in that market that are close to that property that have an idea of the area and can definitely give you more options and basically tailor things to what you need than a larger bank where they have more say in what they can do on the branch level, I guess. Did Garrett have any solutions? Do you know what he ended up doing for his property?

Tony:
Ooh, don’t quote me on that, but I believe he’s still in the process of trying to sort out that refinance. I believe he eventually found a bank, but yeah, I think he’s still kind of sorting that piece out.

Ashley:
But that kind of goes along with what you said as to how many banks have you talked to and continuously reaching out to different, there’s got to be by now, I feel like a bank that is specializing in this. I mean now there’s banks that specialize in short-term rentals for investors for a long time. I feel like that was hard to get unless you had two years of rental income on your short-term rental and now there’s more financing options on that side of things too. The one thing I would look at is doing an SBA loan. So this is what a lot of people do have campgrounds is looking at SBA loans. You’re getting more of a business loan than actually a mortgage on the property. So that could be an option too.

Tony:
One of the other parts at the end of the question here is from what I’ve been reading, cap rate is not a reliable metric for short-term rental. So true statement cap rate is basically taken your net operating income. So it’s basically all of your income minus all of your expenses except for your debt service. Like any taxes that you would pay, that’s your net operating income and you divide that by the value of that property. And typical commercial real estate, the cap rate is used pretty heavily as people are buying and selling properties, right? Like, oh, it’s an eight cap, it’s a four cap, it’s 10 cap, it’s whatever cap that is not yet prevalent in the short-term rental industry. Most short-term rentals do sell based on appraised value. So just for our Ricks that are, listen, that’s kind of what that part of the question was about.

Tony:
But yeah, I think to Ashley’s point, it’s just you got to talk to more people, you got to talk to more banks, you got to get more options in front of you to try and find the right partner to refinance with. I think the only other thing that I might consider, because you talked about the SBA loan, but it’s also maybe looking at a commercial loan. Don’t just look at single family residential type lenders, but you’ve got, I think you said eight partials, two small short-term rentals built on it. You’ve done half a million dollars in improvements, which is insane, right? That’s a lot of money that you’ve dumped into the improvements already in space. Add a third, it’s like if you go talk to a commercial bank, maybe they’re willing to lend on this because they look at it more as like a hotel than a yurt or whatever it may be. Because I’ve seen glamping resorts in different parts of the country that have commercial debt on them. So it’s like what does that process look like? Rookies,

Ashley:
We want to thank you so much for being here and listening to the podcast. As you may know, we air every episode of this podcast on YouTube as well as original content like my new series rookie resource. We also want to hit 100,000 subscribers and we need your help. If you aren’t already, please head over to our YouTube channel and subscribe at realestate Rookie. We have to take one final ad break, but we’ll be back with more after this. All right, let’s jump back in. This next section is all about property management. Our tenants informed us a night before about swarming bees around the apartment. We went to assess it and in the morning we texted them that we are calling for an exterminator. We used this exterminator before on our other homes. Two hours later, I received a text message from the tenant stating that he hired someone paid $430 already and they’re coming before 6:00 PM This happened around 2:00 PM At this point, we had not made an appointment with our exterminator because they had not called us back yet.

Ashley:
How fast were we supposed to act on this? Side note, the bees never made it into the home, but they were trying to get in their home. According to him, we don’t want to pay for this very expensive service. We did not authorize, he knew we were hiring someone, but he did not wait, want to wait for our exterminator because it was an emergency. These tenants have lived in their apartment two months only, and we have had several issues, similar ones. They’re two young professionals with money and they have extremely high demands. So I think this is an example of it doesn’t matter how well you screen someone that it does not mean they will be the perfect tenants word of caution.

Tony:
You got to add that question to the tenant application, right? Say that there’s a swarm of bees trying to get into your house. What would you do

Ashley:
From now on that is going to be added to every pre-application as to go through these situations and let me know how you would handle each of these scenarios.

Tony:
I think that’s a great thing. We do disc profiling for employees. We should be doing something similar for tenants as we did the episode recently on long-term rental management and in that episode you talked about the importance of having a good lease. So let me ask you, how would you address something like this? I want to get into what he should do in the situation, but I think maybe even preventing something like this from happening, you can probably head that off with a good lease, with a good onboarding experience for your tenants. So is there anything in your leases that would speak to a situation like this?

Ashley:
Well, I learned a lot of this from Ashley Wilson and we’ve had her on the show before and she’s just an expert at asset management. And one thing that we’ve had a long conversation about is expectations with you as a landlord and your tenants. So one thing that they do at all their properties is they let the tenant know At leasing, this is the timeframe of when you can expect maintenance repairs to be made. For example, if your closet falls off the door tracks or something, it’s one of the sliding ones. You can expect it to be completed in three days. If it is a plumbing issue, you can expect it to be completed in 24 hours, whatever it may be. She has this whole list and it tells you exactly how long you should be expected. She said they always over exaggerate or overinflate this number so that when they can do it quicker tenants are a lot more happy.

Ashley:
It’s like, oh, we thought this would be done in three days and they did it in two days. Like, yay, they’re the best, they’re awesome. We love this maintenance team. So that is one thing that you can do is kind of write out the expectations for when they can receive service. The second thing is documenting the communication. So when this tenant, the way I would like it handled is they submit an online request. So the request is timestamped what the problem is, then sending a message to follow up that you’ve received it and you’ve placed a call to the exterminator and you’re waiting for a callback or whatever it may be. Okay? So you have that on record that you have already started to take action on that. There is no expectation that you can have somebody at a property immediately super quick. And I think that where you’re going to get yourself into trouble in this situation where it gets sticky is that this person is probably going to withhold rent saying, you didn’t reimburse me for the $430.

Ashley:
I paid that. And then now you are short rent and you either have to go and evict them or try to collect the rent in some other way, which really is a no no-win situation for either person to get into that kind of situation. So I think that if you really wanted to, you could go ahead, start the eviction process and when it comes to court show that you have documentation that you had called the exterminators that you were handling it, I don’t think any judge would give any expectation that you should have had someone there immediately. So add, we have something about exterminating. I don’t know offhand exactly what it is, but any extermination, we have a company that services that, but here are the exceptions where it’s your responsibility to actually do the extermination. If you’re not cleaning your home and there’s ants or bugs that are only in your apartment, that is your responsibility.

Ashley:
We are not going to take care of that for you. Fruit flies, for example, that is your responsibility. So we do have those little things that are put into our lease as to how extermination is handled. And also you could put in some kind of nature aspect as to critters, things like that, that we are not responsible for them. And this could be bees swarming. This could be a deer standing on your door, I dunno, a raccoon getting into your garbage. There’s some element of being a landlord of nature extremes. There has to be some give and take, but I definitely feel for this person that they’re put into this sticky situation. Now,

Tony:
Just really quickly, you mentioned Ashley Wilson’s episode, but we interviewed her back on episode 443, so episode four 40 threes. If you want to check out everything that Ashley Wilson had to say about asset management, that’s a good episode to go back and check. I think maybe one other layer here too, Ashley, is how much would their exterminator maybe have cost? And if it was like $75, then yeah, maybe it’s really worth making a fuss. But if your exterminator was going to be $350, is it really worth kind of the headache and the bad juju between you and the tenant over 80 bucks? But I think what’s kind of more concerning is that right at the end of this question, this person says, these tenants have lived in this apartment for only two months and we’ve already had several similar issues. I feel like what may be a good tactic here, assuming that you do have a decent lease set up with these tenants, it’s maybe sit down and re-review the lease with them. Say, Hey guys, look, we’re happy to cover the $430 payment that you sent to this exterminator, but hey, let’s also use this as an opportunity to re-review the lease so we’re all on the same page about how to handle these things moving forward. That way there’s clarity for both of you guys and what that actually looks like. And Ashley, let me ask you, in New York at least, are you able to, as long as both parties agree, make addendums to a lease during the lease term.

Ashley:
So we’ve done addendums before, but it’s more because they want to add a garage onto their lease agreement or something like that. I can’t think of anything that’s specific. I think maybe who’s taking care of the lawn maintenance. We had a guy that was taking care of it, we’d give him decreased rent and then we stopped that. So we made an addendum that he was no longer getting that discount or things like that. But not very often does that,

Tony:
Is it necessary? But maybe in this situation it is. That’s the way that you can prevent future issues with this tenant.

Ashley:
Well, I think two, one very important thing to have in your lease is that they cannot hire anyone to do maintenance on your property. That you are in charge of doing that. And they can’t have any unlicensed contractors. Anybody that they want to hire has to come and show proof of insurance and that you have to agree beforehand to cover that cost or it’s on them for that contractor. But in all of our leases, it says that you cannot hire your own contractor to make repairs. It has to go through us. Okay, so moving on to our final question. This one says, I inherited a Section eight tenant who pays way below market, had an issue with the leaky toilet for years, which damaged the floor and cost me money to fix. She now says her heat is not working good at all. A contractor was there the day to fix the floor and said there was no problem with the heat.

Ashley:
She denies and keeps texting me every day to fix the furnace. With the now being a weekend and going on to a holiday week, what would you suggest I do? I had a plumber inspect the furnace a couple of months ago and said it was in good shape. Thank you for your wisdom. So this kind of goes along with that other question too, as to what’s an emergency and how is it treated? So this person, they add the leaky toilet damaged the floor. So that’s a big thing as a landlord either doing inspections or doing checkups with your tenants, sending out a notice every six months, like, Hey, just want to check in if you needed any maintenance, done how things are going or whatever. Because as much as you don’t want to pay to do maintenance, it’s better to protect your properties and make sure that the maintenance is done or else it could ruin your property more, such as damaging the floor from the toilet leaking and them never reporting it. So this one is specific to the heat and saying to fix the furnace. So Tony, what do you think as a short-term rental expert and no longer having to deal with tenants, what if you had a short-term rental guest that texted you their whole stay, that the heat was not working and you had sent someone out? They said it was, and

Tony:
Yeah, I mean the first thing is I would just try and get some clarity from the tenant and say, Hey, we’ve had multiple licensed professionals inside the unit and they’ve all stated that the furnace is working properly. So help me understand where the issue is here. Is it user error potentially or is it only working when they’re there? Help me understand

Ashley:
That the gas gets shut off. You didn’t pay,

Tony:
Is your gas bill paid? So I think that’s the first thing. Anytime an issue comes to us from a guest store, from one of our cleaners, our first thing, and that’s what we train our VAs on as well, is that we have to ask all of the questions to make sure we have all the right information to actually solve the problem. So, okay, the furnace isn’t working, have we troubleshooted how you’re starting it and what does that look like? So I think just deep diving it first to get clarity on what the actual root cause of the problem is. Maybe you just sent someone out there but she just doesn’t know how to use the furnace the right way, whatever it may be.

Ashley:
Yeah, I think this kind of goes back to documentation. So having the documentation that the furnace is working per two different contractors that you’ve had go in there, the dates that they were in there seeing the furnace is working, and then because she is on section eight in New York State, at least Section eight does get yearly inspections where a housing specialist they call them, comes in, inspects the unit and makes sure that everything’s in working condition. It’s habitable and there’s not anything that needs to be repaired. So there’s not a ton to worry about With these inspections. They’re fairly light because everything they’re inspecting should be done. So it’s more of a concern when the tenant doesn’t actually report the maintenance to you. So then you’re notified by the housing specialist that these repairs need to be made. So if this really is an issue and it continues on, maybe you can contact her housing specialist.

Ashley:
So if they’re on section eight, you should have a caseworker and maybe contacting them and trying to work out some resolution between you and the tenant through the housing specialist, because they’re the person that placed ’em, they’re their point of contact for any concerns about you really too. So I would try to get ahead of it before they get involved saying that you are not completing maintenance and talking to them and see if they can help you guide in a resolution with the resident. Because one thing is too, with section eight, the waiting list is so long and so many markets to actually get a voucher for section eight. So this person probably does not want to lose their housing and maybe it is operator air, or maybe they just don’t think it’s warming up enough because the house isn’t insulated enough, whatever it may be.

Ashley:
I would start there with the housing specialist, but in any scenario where I just don’t want to deal with it anymore and there’s nothing more that I can do and I’ve done everything to try to fix this issue, whatever is, I will give them the option to get out of their lease. I will say, if this isn’t a good fit for you, I am fine with ending your lease agreement. There’ll be no fee, no expense, and you can go ahead and move out. So that’s always, as much as you don’t want to have a vacancy and into turnover an apartment, that’s also kind of an option for them to give them an ultimatum. You know what, I will let you out of your lease. You’ve done everything that you can do. You have the documentation showing you that you have had contractors at the property, and it’s not like you’re neglecting it or not doing anything about the issue. Okay. Well, thank you guys so much for joining us for this episode of Rookie Reply. If you want to get involved in the community like all these other realestate investors, go to biggerpockets.com/forums. Make sure you follow us on Instagram at realestate rookie and check out our new Facebook page, BiggerPockets Real Estate Rookie podcast. I’m Ashley. And he’s Tony. And we’ll see you guys on the next episode of Real Estate Rookie.