Stop Buying Rentals (You Have Enough) and Do THIS Instead (Rookie Reply)

Ashley:
A lot of real estate content out there tells us just buy, buy, buy. But when do you have enough and how do you figure the best plan to expand your cashflow?

Tony:
We’re going to discuss some kind of the box strategies on how to use your assets to increase your passive income and how to find the best blueprint to fit your real estate goals.

Ashley:
Welcome to the Real Estate Rookie podcast. I am Ashley Kehr.

Tony:
And I’m Tony j Robinson. And today we’re answering your questions from the BiggerPockets Forum.

Ashley:
Okay, so here’s our first question. Today I want to put an offer on a property that’s been owned since 1987, which me means owned equity and thus potential for owner financing. But of course I have no idea yet if the owner is up for it. I’m wondering if anyone ever put two offers in a house simultaneously, one conventional financing at a lower price and the other owner financing at list price or closer to list price. What do you think of this strategy? In my head, it shows the buyer that you’re serious and it forces them to really consider the owner financing because they’ll get a better price plus the interest money. What other ways have you approached owner financing for a house that’s on the market with a real estate agent, but it’s been sitting for a bit and already had a price cut? Tony, let’s address the first thing here and it says, I want to put an offer on a property that’s been owned since 1987, which to me means owned equity.
So what this person is saying that they think because the person has owned the property since 1987, they’ve paid off their original mortgage and they have a ton of equity in the property. The first thing I think to state is this is not always true. Not everybody pays off their mortgage. Some people could go and refinance, put a line of credit on the property and pull that off, use a home equity loan on the property, do a reverse mortgage where they actually take payments and the mortgage balance starts to add up as you take payments out. This is available to, a lot of seniors will do this to actually give themselves monthly income without taking a full mortgage out on their property. And then when they sell their house or the estate sells their house, then that reverse mortgage is paid back. So the first tool that I would recommend using is stream.
So you can go to prop stream.com and on prop stream they actually have a tool where they will look and see if there are any liens or judgements against the property. Also, what an estimated value of that mortgage balance is based on the payments that have been made since the loan origination. You can also go to the court county clerk court records, which are online and in there you can put in the owner’s name and look and see what kind of liens are against them, and if any of those liens or are for the property that’s a line of credit, mortgage or whatever, to know for sure if they do have any debt that’s still on the property. So that would be the first step for seller financing.

Tony:
Yeah, great, great breakdown, Ashley. And a very valid point that just because they’ve had it for a while doesn’t necessarily mean they own it outright. The other part, or maybe the next part of this question is wondering if you can put two offers on a house simultaneously. And it’s almost as if someone like listen to a bunch of our Ricky replies and say like, Hey, lemme give you guys the perfect question to answer. So you absolutely can put more than one offer in on a house, and Ash and I both actually encourage you to do exactly that. We most recently did it with our hotel purchase where we gave them a conventional offer and then we also gave them a seller financed offer and they went with the seller financed offer because it kind of better suited what they were looking for at the time they get the interest.

Ashley:
Tony, real quick, what you mean by conventional offer is that with bank financing,

Tony:
With traditional bank debt, so I have to go out to the local credit union, get a traditional loan, we have to put down 20, 25%, I think it was 25%, maybe 30% even. And much like what the person who asked the question said, we tried to make the conventional financing offer less attractive. So what that meant was it was a lower purchase price. We said, Hey look, if we can do seller financed, we’ll give you the 20%, but here’s the other terms that we need to make this work, but if we have to go to the bank, here’s what that’s going to look like. So you can put as many offers on a house as you want. If you want to give them 10 offers. I do think it’s a great way to try and steer the seller tour at the offer that you feel is most advantageous for yourself.

Ashley:
Tony, I’m selling a property and I did have, I’m using a real estate agent and I had a seller approach my agent and say that would I be interested in seller financing? I said yes. And so they said, okay, we would pay 125,000 for the property or do 25,000 down and then the seller financing a hundred thousand. And I said, okay, what are the terms? And the potential buyer came back and said, we don’t know. What do you think is fair and left it on me to come up with the terms. So I think it’s usually the reverse. I’ve always presented the terms because I want to show them at least where I’m at if it’s even worth negotiating. So I thought this was really interesting that the buyer asked me as the seller to actually set the terms and I set the terms and I have not heard anything back. So I dunno if that’s a bad side or what. So we’ve had more showings the property, so I don’t know if my agent is using that as a negotiation tactic, but I thought that was funny.

Tony:
I think maybe one thing to call out too ash is just what are the different things that you can negotiate when you’re offering seller financing so that the things that we kind of focused on are the actual purchase price. So what price are we agreeing to the interest rate, if any, that you’re paying the amortization period of that loan, how long are we amortizing this specific debt? And then if there is a balloon payment due and when that balloon payment would be due. And then did I say down payment? Down payment would be the last one. So those are kind of the big ones that you can leverage or kind of tweak and adjust as you’re going through your seller financing negotiations. And maybe for you as the buyer, offering them a slightly higher purchase price makes more sense if you can get a slightly lower down payment and a slightly lower interest rate. Because if for them the most important thing is just getting to their number, say, Hey, look, I can give you your number, but I’m just going to need some support on these other kind of levers or variables that we can influence.

Ashley:
Okay. So then the last thing here is what are some of the other ways you have approached owner financing for a house that’s on a market with a real estate agent, but it’s been sitting for a while and had a price cut? So I think what this person already said was submitting two offers was going to the agent and say, I’d like to make two offers, or if you have your own agent, have your agent present the two offers. You could just do a verbal offer where your agent is just saying, Hey, here’s the two things they’re willing to do. If this is something they’re even interested in, I’ll draw up the contract instead of wasting time drawing up contracts for both offers and then submitting them. You could also do a letter of intent. So I do this when it’s kind of a tricky situation and I don’t have confidence that the agents are going to play telephone correctly and tell the seller exactly what I’m trying to offer them and I’ll do a letter of intent where it states the property information and seller’s information, my information, what I’m going to purchase it for, and then what the terms of the purchase are.
And then it just has a little bit of disclosure like this is contingent on attorney approval and a full contract and things like that in it. But you could also do that and if you just Google letter of intent, you can get a ton of examples of this too. And that is something you could do to give your offer directly to the seller without having to kind of play middleman two, but without having to do a full blown contract and have your agent write that up because if you’re going to use this strategy on multiple deals for multiple properties, your agent is going to get exhausted and tired of working with you. You are constantly having them drop to offers for every single property and you don’t end up getting any of them, especially if you’re doing low ball offers like I do. So drawing up the letter of intent is a little way to fast track things.

Tony:
I think the other thing too is that sometimes you’re going to find some resistance from the listing agent to want to submit seller financing offers. And Ashley, you can check me if I’m wrong here, but agents are by law required to show any formal offer to their client. That’s correct. Right, but is that also true for an LOI

Ashley:
That I don’t know. I don’t know. I would think that no matter the form of the offer, I would think even if it’s a verbal offer, I feel like they would have to have an ethical obligation.

Tony:
I just feel like there’s just a lot of agents out there who don’t want to deal with federal financing because their biggest concern is, okay, well how am I going to get paid in this transaction? And they just don’t have the education around what seller financing looks like. So sometimes there is a need, if you’re kind of filling some weirdness with the agent, then I would just really submit a formal offer. That way you do make sure that it gets in front of the seller. And then what I’ve heard other people do as well is this might also piss off the listing agent, but you got to do what you got to do, but just go directly to the owner themselves and don’t try and cut the agent out, but just say, Hey look, I submitted this offer to your agent, I just want to make sure you get a copy as well.
And then sometimes the sellers are like, well, what the heck? I never even saw this before. So if you’re getting some kind of weirdness and maybe try and go direct to the seller. And then the last piece of advice is that if you see the listing go expire, the listing fails, that’s a great time to then just directly reach out to the seller and say, Hey look, I saw this. You just have this property listed for 120 days. It didn’t sell listing’s gone. Hey, I’m still a super motivated buyer. Let’s talk because when is their motivation going to potentially be the highest once they’ve just failed at trying to sell that property the more traditional way?

Ashley:
We have to take a short ad break, but we’ll be back after this. Okay, welcome back Tony. What’s our second question today?

Tony:
Alright, so our next question says I’m 35 and I’ve been investing in real estate for the last three years. I want to scale and buy a lot more real estate and lately I’ve been considering switching to multifamily. I currently own seven houses and have a net worth of about $700,000. Congratulations, by the way, most of my properties have an LTV of 65 to 70% and my rentals mostly breakeven or barely cashflow because the rates in my properties range anywhere from seven and half to eight point a 5%. I’m hoping to refi down the road after my three year prepayment penalties expire. Here’s your breakdown of my assets cash, $165,000 self-directed IRA 81,000 real estate, 1.45 million, crypto 10,000. My goal is to make anywhere between 40 to $50,000 in passive income. I realize this might be a bit ambitious given my current portfolio. Now here’s a question.
Do you have any suggestions on how I can scale my portfolio? Should I transition into multifamily? What are some of the things that you did to accumulate wealth and grow your portfolio through the years? Alright, so kind of a lot to unpack here. I think the first thing is that it feels like the person asking this question is in a pretty good spot from an asset perspective, 165,000 bucks in cash. They got in self-directed IRA with another 81,000 bucks, another 10 K in crypto. So they’ve got a good amount of just liquid or close to liquid funds, 175,000, another 80,000 they can use to deploy elsewhere. I’m the goal here is getting to 40 or $50,000 a year in passive income. So we know that that’s kind of the backdrop here. I know that we’ll get into the real estate side, but just one thing that kind of pops out to me, Ashley, I’m curious what your thoughts are, but they have this self-directed IRA and for our rookies that are unfamiliar with that term, a self-directed IRA is a retirement account that you get to kind of choose how and where to deploy those funds.
Now there are some limitations on how you can legally use those funds. So you got to make sure you’re working with a reputable self-directed IRA company. However, you got 81,000 bucks sitting S-D-I-R-A, I might go try and lend that money out and if you can get 10% every year and your 81,000, you’re getting 8,000 bucks just from that $81,000 that’s sitting in that self-directed IRA right now. And I would imagine there are probably a lot of people in the real estate community, the BP community who would love to have access to $81,000 of capital and pay you a 10, 11, 12% every time you loan them those funds. So that’s one thing to me actually that just kind of jumps at us some maybe low hanging fruit to start quickly generating some cash.

Ashley:
Yeah, I’m actually paying 12% right now to a private money lender. I’m actually also doing my first self-directed IRA too. So I have this 401k from an old W2 job that’s kind of just been sitting in index funds and I’m going to roll it over into a self-directed IRA. I’m using equity trust to do that and so I’m going to be using that to invest. So it’s my first time ever doing one and I have to be honest, I did not know all the details of a self-directed IRA for a long time. I thought it was too complex for me or something that I couldn’t do. And it’s actually pretty simple. You basically just fill out paperwork and then you have equity trust is giving me a counselor that’s kind of guiding me through the actual process and what I cannot do with the funds and making it really easy.
So if you do have the money that’s sitting in an old 401k, or maybe you already have it in just a traditional IRA, you can go ahead and put it into the self-directed IRAs. You’re not limited to investing just into the stock market. So I’m trying to diversify my portfolio and so setting up this self-directed IRA is something new and exciting to me. The first time I ever heard of a self-directed IRAI was at a meetup and there was this guy and he was walking around basically waving his checkbook at everyone. Yep, I got money here, my self-directed IRA, so if you got a good deal, I’m here to lend and blah blah. Literally going around showing off his checkbook and it was very intimidating. But now looking back on it like, geez, I’d never want to take his money.

Tony:
That’s like every Ricky investors dreamed walking to a meetup and someone’s just walking around with their checkbook, right? By the way, that’s a very rare occurrence for all of our rookies that are listening. So don’t expect to go to meetups and probably see that. But yeah, some low hanging fruit there to maybe start generating some of the income itself. But now going back to the main question here, this person is asking any suggestions on how to scale should I transition into multifamily? So what are your thoughts, Ashley? Do you feel that there’s value for this person? Seven properties, not a ton of cashflow right now, kind of high interest rates? Does multifamily make sense?

Ashley:
I think the first thing you really have to think about is why do you want to scale and do you really want to scale? So right now the seven properties are breaking even or a little bit of cashflow in there. So do you want to keep accumulating properties that are doing that or do you want to try and find a new strategy that gives you more cashflow but maybe isn’t as passive? Tony? And I think the hot new strategy in 2025 is going to be co-living where you rent to buy the room, you build out a community, but that’s also not as passive as just having a traditional long-term rental. You have one or maybe two tenants, but you have one tenant per a unit where co-living could come up with tons of other situations of a bunch of people living within the same house.
So really think about what you want to be involved in and what you don’t want to be involved in if you are deciding to pivot and change into a new strategy to generate more cashflow from your properties. I really like Tony’s idea of this self-directed IRA into money lending because that can be very, very passive for you just to vet the deal, vet the operator who’s actually purchasing the property and running the deal and then collecting your money every single month your interest or at the end of the deal. And then the worst case scenario is yes, if the person doesn’t pay you having to go after them to get their funds. And I recommend setting up a plan in place as to what should I do to protect myself as a private money lender, what should I do if somebody doesn’t pay? What are the steps I need to take action on right away if that does happen and kind of set up your game plan.
But I think private money lending is a very, very passive way to generate income if you do have the funds to do that. The next thing is thinking about those seven properties you do have now the equity that you’re going to build over the next 10 years in them. Do you want to sell one of those properties starting at year 10 and then sell another one year 11 and then another one year 12 kind of looking at what those could appreciate to and instead of building up cashflow for a month, can you wait another five years till you’re 40 and then start selling them off and taking the equity from that, maybe putting it into more private money lending. And then, because that’s the one thing that I’ve learned over the years is that I’ve accumulated, accumulated, accumulated. But then as time went on 10 years, it was like, wow, there’s a ton of equity built up into these properties that if I sell one every once in a while, that’s way more cashflow than I would ever get just from buying one single family property or two single family properties in that year generating.
So think about what is really important to you as far as how much you want to be hands-on, how much you want to be involved in, how much you want to invest into real estate right now as far as the money, the capital, but also as to your time and energy too.

Tony:
And you bring up a really good point, Ashley, too, about maybe switching the strategy. They didn’t state in their question if these are just traditional long-term rentals. But that’s the assumption here. And I think you made the call of like, Hey, can you switch to another strategy because you already own seven houses, you did a lot of work to go out there and build this portfolio. So can you get more out of what you already have? So co-living one option, can you do midterm rentals? Can you do long-term rentals, sober living facilities? We’ve interviewed people that do that. There’s other maybe uses for the properties that you have that might allow you to get a better return for whatever down payment you’re going to put on this multifamily property. Could you use that to build an A DU on your seven properties and maybe get more revenue that way?
So I think exploring all of the other revenue potential generating activities with your existing portfolio, I might go down that path first even before exploring multifamily. But I guess we still haven’t necessarily fully answered the question, should they or should they not go after multifamily? I think a lot of it really does come down to, and as you hit on this a little bit as well, it’s like what is the actual goal here and what are the resources like if you go out and buy your first multifamily, so you go out and buy a six unit apartment complex, are you going to be in the same situation as you are with your seven single family homes where they’re barely breaking even or maybe a little bit of cashflow, but now you’re just doing it double the size, right? So if you can maybe find that in the multifamily asset class that there are better opportunities so you can actually start making reasonable progress towards your goal of 40 or $50,000 per month, then yeah, absolutely. Right? Just because you started in single family doesn’t mean you need to stay there. But I think changing for the sake of changing, that’s how you just get yourself into more work and not a whole heck of a lot of progress to show for it.

Ashley:
Rookies, we want to thank you so much for being here and listening to the podcast. We want to hit 100,000 subscribers and we need your help. If you aren’t already, please head over to our YouTube channel, youtube.com/at realestate rookie and subscribe to our channel. We’re going to take a quick break and we’ll be back for more after this. Alright, let’s jump back in. So for our last question today we have Hi all. I’ve been house hacking a duplex since 2021 and due to some life changes, we will be relocating out of state since I only own one property, a duplex, I’ve been the property manager. I use rent ready software to manage my tenants. So everything is done electronically. I’ll specifically need help showing the property and getting keys to tenants. I’ve considered a property management company, but the cost just doesn’t seem worth it, although it would be convenient.
I’ve also considered just flying back to town and showing it myself as it would be roughly the same cost to do that versus a property management company. But that’s obviously a very inconvenient option. Has anyone had any experience with this and happened to know a better way to show the apartment and get keys to tenants when you’re out of state or if you’re not going to do it yourself? Is a property management company? The only way, in my opinion, using a real estate agent offer to pay them a flat rate. Sometimes people will pay one month’s rent. For my rentals, I pay the real estate agent $500 per rental. So it’s just a flat rate no matter what the unit is or what the rental price is. And this is the real estate agent’s responsibility is to actually list the apartment. So go and take the photos of the apartment, list it for rent, and then do all the showings, coordinate when they’re available directly with the potential applicants and then send them the application review the application.
And that’s kind of where I step into is doing the screening process once an application has been submitted and then I do the final approval and then after that the move-in date is set and the agent schedules that as to when she’s going to actually meet them to hand them the keys to do the move-in inspection. And then the inspection is sent to me and I set up on the backend there. Well actually my VA does their on the backend, sets up all of their online portal and things like that too. So in my opinion, that would be kind of the best way is to find a real estate agent that you trust and use them to actually show, but make sure you are a part of the screening and vetting process so that you do have some quality control over who is actually being the person renting your unit. And it’s not just an agent who is willing to rent to anybody to get their paycheck. So thank you guys so much for joining us for this episode of Real Estate Rookie Reply. If you have a question, please head over to the BiggerPockets forums and become involved in the BiggerPockets community. You can also join the Real Estate Rookie Facebook group. I’m Ashley. And he’s Tony. Thank you guys for joining us and we’ll see you next time.