All Forum Posts by: Stephen Dispensa

I'm a broker and OF COURSE everything in life is a negotiation. 

And frankly, I'm not a fan of agents who just push paperwork but if you're questioning your agents worth you're obviously not getting the value you deserve from your agent. 

HOWEVER, I would NEVER drop my commission straight out of the gate. You know why? Because sometimes things happen in a deal. Sometimes there's a problem and after a hard fought negotiation the buyer and the seller are apart by just a couple of thousand dollars. Or the seller is refusing to make a repair that turns out to be necessary on a 4 point inspection and won't budge on giving a concession because I already beat him up too much on price when making the original contract. And guess what? It's at that point that I have to say "OK, I'll reduce my commission to get this over the line." If I gave you a discount at the beginning, it gives me less leverage to get you out of trouble later on. And it has absolutely happened in deals that I've done. 

Furthermore, as a buyers agent, we get screwed like nobody else. Listing agents in my market are almost always paying themselves more commission. If they're offering a buyers agent 2.5%, most likely they got a full 6%  commission and are keeping 3.5% for themselves. Then on top of that, they bill out all their transaction and admin fees that their broker charges out to the buyers agent. Sometimes this is as little as $150 but some can be as much as $800 on every deal. 

I had a deal I worked my tail off on last year for a beach condo in a crazy market in Indian Rocks Beach. Everything that went on the market had multiple offers, all cash, selling well above list price. I made offers on literally 20 units, made 40 trips from Tampa out to Indian Rocks (which is over an hour each way for me). When I finally got the deal in contract, the listing agent was only paying out 2.25%. Plus they were charging me a $750 transaction fee. So let's look at gross commission on this $600,000 deal.  $15,000 in gross commission - 750 = $14,250 which doesn't seem too bad. BUT it gets worse from there. At the time I was with my old Brokerage which let me keep 85% of my commission, which is $12,112.50. So you're thinking, 12 grand, not bad huh? Gets worse. My broker had instituted a minimum transaction fee of $500 per year. Since this was my first deal of the year, they took an additional $500 out of the deal, now we're down to $11,600. Because I had known about this transaction fee and decided I didn't want to be with my brokerage anymore and also wanted to focus on property management, I had recently got my brokers license and filed to start my own brokerage. Now it takes time for that paperwork to go through and this deal should have long been done by the time my new company opened, but of course closing got delayed two weeks. And two days before closing, my brokers license transferred over to my new company. Any my old broker decided he was due $3,000 for "closing out my deal" even though all paperwork had been finished already INCLUDING commission disbursements. So on this particular deal I walked away with $8,600 after spending easily 2 months of full time work on this one deal. 

Now that is an EXTREME example. There have been other deals of course where someone called me out of the blue and I sold them a house the same day and everything went smoothly. But I've also had a deal (you can search for my post where I tell the story) where it took me 6 years to close a listing due to estate issues and executors dying, short sale scams, etc. I made $6,000 on that deal. How would you like to spend 6 years on a project and make 6 grand. 

The point isn't to complain about any of this, the point is that there is far more work to this job (especially when done correctly) than what you see on a closing statement. IF you don't feel you're getting the value you want out of your realtor, find a new realtor. And if you want your agent to cut commission straight out the gate, make sure you negotiate that BEFORE making your offer through them. Just know that if an agent let's you talk them out of their money that quickly, they probably aren't going to do a very good job fighting for you when the time comes.

Realistically, the only criteria you should be reviewing your tenant on is Credit Score, Income to Rent Ratio, and Criminal Background check. The key here is to have solid metrics by which this decision gets made and stick to it. 

Now, do situations arise where we can't go strictly on this? Yes absolutely. For example, I have a unit in a triplex that a client of mine purchased which was empty when they bought the building. We spent nearly 3 months on market trying to find a tenant. Now, perhaps we priced slightly high but it is a well maintained unit and is a very LARGE 2 bedroom which are rare in this area (1,200+ sq ft). 

We lowered the price but still weren't getting much traction. We finally had a group of applicants apply. 3 roommates, young people in their 20s that all worked together at the local Walmart. Their income met the requirements but their credit scores were all just SLIGHTLY below our minimum score requirement. In a case like this, I check the reason for the score. In their cases, not one of them had a late payment, it was just simply that they were young and didn't have much credit history. I provided this information to my client, and suggested we waive the requirement considering: They had no negative credit marks, they were close to the required score anyway, and they had the necessary income. My client agreed, and they have been in their for months as excellent tenants. 

I believe there are situations where an owner should be giving their approval on the tenant selection process, but this should be limited to extreme situations like the one listed above, where a suitable candidate can't be found that matches the agreed upon screening criteria.

@Jeffrey Bollo Welcome! As many others have said here House Hacking is a great way to get started. If you've got stable income and good credit, buying a small multifamily with an FHA loan to live in while renting out some of the other units is a smart move. It's the kind of thing I wish I had done in my early 20s.

Some good podcasts to listen to: Biggerpockets Podcast (obviously), CRE Project (focuses more on commercial development and real estate but they have ALOT of really smart guests and this a good space to look into as you start to scale), How to Scale Commercial Real Estate (for the same reasons as CRE Project, but this show has shorter episodes, like 20 minutes a piece and PACKED with info).

But the biggest thing that's going to help your learning process? Just dive in! You will learn way more from every project you take on than you will from forum posts, coaches, podcasts, books, etc. By telling people what you're doing, by putting your money at risk, you create an unstoppable train of momentum and it leads you to think differently to solve the problems that come up.

Best of luck, and this forum is always here any questions you have!

What kind of loan product are you looking to use on the refi? If you're going to go DSCR, I'd recommend placing the house in an LLC. You can either structure a promissory note with the family member for the purchase, OR if they want the protection of actual ownership till repaid, just make them a partner in the LLC and have a structured buyout factored into the operating agreement allowing you to purchase their shares once financing is secured. Keep them as a limited partner though so you don't need their financials for the refi.

Quote from @Jared Trindade:

Quote from @Stephen Dispensa:

Quote from @Danny Polanski:

Absolutely love this response, and I appreciate your story that you connected, that's a great life lesson to learn at 15 and respect to your previous employer for recognizing your value. Props to you for making him see it as well. 

Great sales people exist, but there is so many bad apples and such a negative stigma that most people won't even give the right person for the role the chance. I'd love to get your feedback on my response to that same comment. 

Jared,

Loved your initial response. I especially relate to the part where you stated:
"A good sales person is an expert in their specific category, which means that when they don't know something they will admit that, and find the answer. That's a lot different than "I think so" or "I recommend you do your own research" or them simply avoiding and redirecting questions."

This is LITERALLY what the service is. I can't even begin to tell you the things I've learned and figured out for clients that go WAY outside of my area of expertise. I have challenged building departments and written variance requests that I got signed off on by state engineers in NY to get a bathroom legalized on a property that was built prior to certificate of occupancy. I've gotten liens cleared off of houses by corrupt sub-contractors to ensure clean title. I've hunted down distant family members in an estate sale where an executor died prior to closing and left no heirs. 

Do you think I knew how to do literally ANY of those things when I started on those deals? Not a chance, but all of these activities would have cost TENS of Thousands of dollars had a client had to go and hire someone outside the deal to go and do it. But because as their agent, I had a vested interest in the deal, I went and provided these services to get the deal across the line because it was in my clients interest. 

Hi Elton,

AirBNB is an interesting strategy but not without its pitfalls. If you have a great home in a great location, you can achieve incredible returns through AirBNB. However, if you have an average unit in an average location, you may find the headache simply isn't worth it. 

I have a property I am managing for a client. Initially they were receiving $950 per month from a long term tenant when they first purchased the building. The owner decided not to renew the lease and renovated the unit. Then they furnished it and started leasing it in 90 day intervals to travel nurses. They were pulling in $2,500 per month at this point. The owner then decided they could make even more money on AirBNB with the potential for $3,500 to $3,700 per month. 

Frankly, it never worked out. The unit often sat vacant on AirBNB because the location wasn't particularly close to any vacation or business destinations. We dealt with multiple con artists trying to scam us (AirBNB is full of transient people using the service to try to con hosts). Also many headaches from guests. You really become the front desk at a hotel in trying to run and AirBNB. In the end, we went back to travel nurses and eventually long term rentals with the property. 

So to answer your question fully: it depends. If you've got a killer condo on the beach and can rent it to family's, you may be able to do really well. If you've got a 2 bedroom apartment in a residential neighborhood, it may be more worthwhile to look into other options.

Quote from @Danny Polanski:

Ive worked with so many agents and each one has lied. 

They are sales people, and typically dont bring anything to the table.

People that rely on selling things to others for their livelihood, will lie.

i wish we didnt need agents in this day and age. Just like car salesman very outdated middle men for no reason. 

I'm a broker, and I honestly have to say I agree with you. Most agents in this business are completely worthless. Far too many people see real estate as a path to easy money, take a 2 week course or an online class, pass a state license exam and are out there messing up deals. 

Let me tell you a quick story, and it's something that has informed my entire career. When I was 15 years old, I held an after school job working for a local stationary company. They had a storefront where they sold office supplies, a mail order office supply business, a warehouse, and they had a Xerox sales/leasing dealership all under one roof. I started as a stockboy sweeping the floors. One day, I noticed they had an advertisement that they needed someone to run their computer network. They were looking for a part time college student with some IT capabilities. I knew computers really well, and asked my boss Mr. Garcia if he would consider me as an applicant. 

He laughed, thinking I was too young for the job, but told me after they hired someone that if I got all my work done by 5:00 PM every day, I could train alongside the new IT guy (once they hired one) every day from 5:00 - 5:30 when they closed. A few weeks went by and they hadn't hired anyone yet. The company also had recently changed over from an old timecard punch stamp system to a digital ADP payroll swipe system to track employees hours. I arrived at work on a Friday afternoon after school and there was a paper delivery truck outside. When a paper delivery came it meant all hands on deck to unload the truck. Usually this work was finished by the time I got out of school but the truck was late. So I immediately jumped in to help.

However, in my haste to be of assistance, I had forgotten to swipe in to work. Thus, at 5:30 when I went to punch out, I actually punched IN to the payroll system. Now all the hours got clocked from 5:30 Friday, until 3:00 pm the following Monday when I punched "in" to work. When my paycheck came the following week, what was normally a check for $82 was a check for nearly $1,500. I immediately realized what happened. I went over to the ADP swipecard machine, and the manual for the software was right there. I took a brief read of the manual, found a solution that would automatically punch everyone out at 11:00pm each night. I then went to my boss and handed him back my check. I told him what had happened, why it went wrong, and what the solution was. 

To my surprise, he looked at me and handed me back the check for $1,500. He said, "That's yours." I told him "No, it was a mistake I didn't earn it." But he laughed and said, "This is a lesson, your honesty is worth way more than the $1,500. Plus, you didn't bring me a problem, you brought me a solution. I'm giving you the IT job, consider this a signing bonus."

That lesson has stuck with me to this day. As an agent, I could ABSOLUTELY lie about the condition of a property and put investors into deals that aren't that great and I would earn a commission. However, the only deal that matters is the NEXT DEAL. By being truthful with my clients, and protecting their best interests, I have had far more success than any short term commissions would bring. 

Most importantly (as someone who works almost exclusively with out of state investors) is that I know for a fact I'm bringing knowledge and insight to a deal that most investors NEED. Anyone can analyze a deal, but you need someone who has been through these kinds of deals before. I can look at any house in my region and tell you roughly when it was built and what the likely problems were. I can give you a decent idea of rents in the area before I run a single comp. I can tell you what it's going to cost for your repairs before calling a single contactor, because I supervise these EXACT repairs day in and day out. 

When someone buys with me, I'm not just interested in closing the deal. I want to property manage for you as well. I want to do the active work in raising your rents, either through lease renewals to bring the property to market rent, or through managing a value add renovation program after closing. 

Your agent shouldn't be a middle man. Your agent should be a PARTNER in the entire process. 

Frankly if you're managing STR's you should be licensed as a broker in the state where they reside as property management is considered licensed activity. (You CAN manage doors as a salesperson however most broker's don't sign off on property management by their agents.)

So assuming you will need to acquire and maintain a broker's license in those states, you will likely need to file llc or s-corps in all of those states because corporate licensure generally requires a home corporation. And in states with state income taxes, those llc's or s-corps will need to file a return.

Yup, definitely steering. You'll learn all about the advertising rules in your real estate course and learn even more in  your post-licensing course. A rule of thumb is that you really shouldn't be giving your opinion. HOWEVER, you can state facts. You can't say "This area is a nice part of town." You CAN say, "Average home values in this area have appreciated 20% year over year for the last three years."

Kristian,

I know it's tempting when you first get started to want to do this type of paperwork yourself to save costs. However, considering the sums of money involved in real estate transactions, it really is prudent to utilize outside counsel for this kind of work. 

I flipped 26 houses between 2018 and 2020, mainly with investors that were part of one of the real estate "guru" networks. They all use "unlimited" memberships with Anderson Advisors (https://andersonadvisors.com/) Basically since they often were setting up several LLC's per year, Anderson had the attorneys and tax people to help set up the LLC's, create the operating agreements, and help structure their organization for both asset and tax protection. Another advantage if you are going to be working on a lot of deals in using a service like this, is that they have LLC's waiting on file. (If you try to file a new LLC in most states you are waiting weeks to months for it to get processed, which isn't helpful if you need to close on a house next week).

I'd recommend finding a service like this if you're going to be doing a lot of deals.