Get Your FILL
Get Your FILL
E35 Denny does BRRRR!

*Intro and outro music are from an original piece by

Carl Zukroff of The Blue Hotel

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You have stumbled on to another episode of Get Your FILL, Financial Independence and Long Life, where we search for ways to achieve those two goals.
Today, I’m very happy to be interviewing Denny, a gentleman who’s in the middle, literally half way through his BRRRR strategy. So Denny, will you explain exactly what the BRRRR strategy is supposed to be and then, and then your whole situation. So Denny, tell us how you got started, how you got interested and anything else you think we need to hear?
D: Sure, thanks Christine, thanks for having me on. I’m definitely new to this. The first time going through the BRRRR process, like Christine was saying. I’m right in the middle of it.
How I learned about it. Oh man, I think it was probably last year the first time I stumbled on it. It was all because I was listening to podcasts. So Bigger Pockets podcast is one of those that talks a lot about this and I think it’s one of the gentlemen that’s on it that really came up with it, Brandon Turner.
So I started listening to that and it kinda intrigued me a little bit because I was always already interested in investing in real estate and it was kind of eye opening. Okay, so now that makes so much more sense than when they walk through the BRRRR process. You’re buying it first, then you’re fixing it up or to rehab it, the first R, and then you rent it out and then you refinance it and you repeat. So just listening to podcasts got me interested and then I did some more research online, then started listening to or watching YouTube videos too.
So usually what I would do is when I’m driving home from work, when I used to go to the office, it’s probably about a 45-minute drive home. During the commute, I would just listen to these podcasts going there and going back and that just kinda really helped build a foundation for me to understand what the BRRRR strategy is all about.
C: The one thing I think that people might not necessarily realize is that for a true BRRRR, you’re buying the first property with cash, you’re not starting off with a mortgage. So, how did you go about that? Did you just save up a whole bunch of money?
D: Yeah, I should talk about that. So I was kinda doing it out of order. The money that I used for this BRRRR was actually a cash-out refi of another investment property that I used to live in and turned into rental, basically. Over time, I saved up. It was actually my first house in Boston, and I think at the time, I wasn’t investing too heavily into the market, so almost all my savings was actually going to pay down my mortgage and I was able to pay down the principal quite a bit. The property also appreciated, given how much Boston property has appreciated just in the last few years, and that combination that really helped me jump-start the process so that when I was able to do this full BRRRR strategy, I was able to do a cash-out from that property. With that money, I was able to go and buy a new property earlier this year and of course the timing couldn’t be worse. I guess you could argue that it was the best, given that literally we closed right before this whole pandemic thing happened. So that actually has been keeping me pretty busy on the weekends for the last couple of months.
C: Talk about that aspect: had you done a lot of renovating before?
D: So no, I haven’t done any renovating at all. The first rental that I was talking about that I used to live in, and then converted to rental, luckily, it was already finished. There was no work that was needed for me to do to get it ready for rental – not even a coat of paint. Honestly, I haven’t even painted a house or room up to that point. The only thing that I have painted in that practice was my garage in Minnesota when I used to live there and basically that was my experience with painting and working on houses.
But, so this time around I mean, thanks to Christine, you helped a lot during the buying process. I know we went through a lot of properties and you actually told me to not to buy some of them, like this is gonna be way too much work for the first one.
And I think that really helped. Looking back, I was like, “Oh my goodness, ’cause this one that we ended up with, it didn’t seem that much but it has definitely turned out to be a lot of work. Once you start doing things, you start to notice other things that you didn’t notice before and that just kind of spirals out of control sometimes.
To this point, before I bought this property, before this winter, I hadn’t worked on any houses, haven’t renovated anything. So completely new going into this. Bought the property back in February. And then, at first it was actually just kinda scary walking through, I was like, “Oh my gosh,” I started to notice things, it kinda hit me after we closed: Wow, there’s so much more stuff that I didn’t notice during the walk-through.
Walking through it again. Wow, there’s the ceiling here that needs to be fixed. That wasn’t originally in the plan ’cause I thought all the ceilings weren’t that bad, maybe we’ll just paint real quick. There was actually holes in the ceiling of the closet, so that I ended up like Oh, so that was a headache for me, but I was actually pretty lucky ’cause my dad is retired and basically, he was willing to come over to help me ‘because he knew that this is the first place that bought.
He’s pretty handy. He’s done a lot of stuff around the houses, but this is kind of the first time, and initially I thought: I don’t know if I wanna do this, I don’t wanna drag my dad into this, but then, as we started talking, I guess, it turned into more like, “Oh this is going to be kind of fun. It will be kind of like our little project. We can bond. We can work on this together and that’s kinda what it ended up turning into. If you kinda ignore what was happening with this whole coronavirus thing.
It actually kept us busy. He actually came to visit right before all the stuff hit the fan and when he got here, that’s when we started noticing: oh my goodness. You can’t go back now til we’re done.
So we started out, I think when we walked through the property, we were realizing the main things I need to do right away: a fresh coat of paint, new floors. We were probably gonna redo some of the bathroom stuff, like replacing a toilet, and we wanted to update the kitchen a little bit.
So that was kind of our mindset when we went into it thinking: Okay, that’s not too bad. There’s only four five things.
C: Well, let’s just clarify though, that it’s a condo, so you don’t have any exterior stuff really to do right?
D: Correct, yeah, so right now, I think a lot of people have different feelings about condos for investment. For me, it’s making sense right now because just ’cause I’m starting out, it’s one less thing to worry about… Like you said, there’s not a need to worry about the exterior.
I actually had a pretty bad experience when I was younger, where my parents don’t wanna hire anybody to repaint the exterior of the house and we had to do it all ourselves. I didn’t do the painting, but I had to help with scraping the old paint off the house, so that was not fun when I was younger. So very good point. So being a condo, I figured it’s not too bad. I only had to worry about the inside of the house.
So when we got into it, I think even the order of it mattered. It took a while to even realize: Okay what’s the order we need to do things? Cause these are the details, right? You don’t really hear when you go online to watch these YouTube or listen to podcasts about the BRRRR process, it sounds so easy. Apparently you can hire people to do it.
C: But then there goes all your profit though.
D: Yeah, there goes, your profit and one you can’t find anybody right now. Before there was so much new construction going on, I figured you probably had a hard time getting a contractor and I actually did try to hire a contractor I used to work with ’cause we had a water-leak issue and he actually helped me out and fixed up my old condo, but I called him. No response. He was so busy that he just never even got back to me.
I actually helped us realize: Okay, there’s nobody else to help you. You have to do the work now. So understanding the order of operation was really important and it was worth the time to plan it out.
So I think we realized that we need to do the painting first and then we would do the floors last and then fit all the other stuff in between like before the floor’s done, putting in the toilet. So kind, fitting that in, now it seems pretty simple. At the time, it was like: Where do I start? It was just so many things that you can work on, it was important to just plan that out a little bit.
C: Start at the top.
D: Yup, start at the top. And then the other thing was, buying supplies. That took way longer than I expected. I think it took us over a week just to buy supplies. I can’t believe this. I thought: Hey, I’m gonna have a list. This will be easy. Oh, you get to a store, you realize you forgot this, forgot that. I made a list at the time but then there were things that you never even put on the list that should have been on it. And then, of course, we went to Home Depot and then I was trying to take advantage of the promotion. They had $100 off if you spent $1000, so trying to also make it all work in one transaction was tough to hit that threshold, to get the discount.
So getting the supplies was kind of a pain and then we had to go to different stores to get the floors.
By the time we got everything, two weeks had passed already, so we’re already almost two, three weeks after the closing. Okay, I gotta get going.
And then even the painting took a while because there was actually a lot of prep work before the painting, as I was learning. There’s a lot of work to prep the room, prep the walls, sand everything down. ‘Cause what happened with this place is the previous owner decided to paint one color across everything, that’s including the trim, the walls, the doors. It was all one color.
C: And a dark color.
D: Yes, a dark color. So that was a pain trying to turn that back to a white color to make it a little less dated, basically, trying to bring it back to the new century.
So yeah, that was a lot of fun, doing a lot of that prep work ahead of time before we could even paint and because, like you said, it was a dark color, it actually required us to do multiple layers. We even bought the more expensive paint, I think, from Home Depot that supposedly was saying that any color it was guaranteed to cover in one coat. It did not cover in one coat.
C: And so then, Okay, bring us up to now, the renovations are done right?
D: Yeah, it’s like 95% of the way done. We definitely got through all of the five things that we wanted to do, the floors and all that stuff. But now, everything looks so nice but the bathroom floor is pretty old and I’m looking at it and scratching my head, ’cause it’s got these tiles in there, and right now I’m like: Oh, do I wanna start this whole new project. This wasn’t in the scope originally. This wasn’t budgeted for ’cause it looked okay before. It kind of blended in with everything but now that the walls are so nice, ’cause there used to be a brown color in the bathroom. We painted it so it’s a nice light blue color now and now you look at the floor and it’s kind of yellow.
C: It doesn’t go.
D: Yeah, it doesn’t really go. Now, I’m kinda on the fence thinking about that. And then there are still a lot of just kinda clean up work, just small things here and there, putting back all the light switches, and stuff like that. We’re getting close, but I don’t think you’ll ever be finished. I think that’s maybe one thing I learned is you kinda have to go with a budget, go with a plan and just stick with it and try not to deviate too much.
It’s impossible to not deviate. You’re gonna find new things and you’re gonna have to do things, but it’s trying to stick with it as much as can.
C: There’s always a little bit of scope creep. Before we started the recording, I was telling Denny that I have scope creep, I’m going on in this project that I’m doing in my own house where the whole bathroom was finished, and then at the last minute I decided – I didn’t even decide, I agreed with the contractor when he suggested that I should replace the tub, and now I’m basically end up practically redoing the bathroom again.
I went in there today, after being away for two days, and I look in where the bathtub used to be, and I can see, right down into the basement.
D: But yeah, and that’s the one thing I didn’t even mention too is the bathtub in this place. It’s one of those old plastic bathtubs. And before, again, it looked fine, because you had this really ugly brown wall, but now that the wall is this nice light blue color, like you mentioned it doesn’t go. The top doesn’t look at anymore ’cause it’s this yellowish tub that’s really dated. So, I’m finally convinced myself. I can always do this the next time around just kind of wait it out. Get it rented if I can and then we go from there.
C: So now your next step is to rent. How is that going?
D: Hasn’t really started yet. That’s really the next step. I wanna finish up these last few things, and I think that’s kind of the next tip is kinda get this place to rent.
C: So how long, so far, has the process taken?
D: Let’s see, we closed, I think around February, first week of February, so it’s been three months.
C: Is that what you had originally expected it to take?
D: No, definitely not. I originally thought I’d be done in one month.
C: You weren’t even done with the shopping in one month.
D: Yeah, also in my head that it was like: Oh yeah, we can do this in a month, no problem. I think to be fair, the challenge is, my wife and I still have full-time jobs, so we’re working Monday through Friday. And it doesn’t make sense to work on it after work either. It’s like 20 minutes or a half-hour drive from my house so just going back and forth, that’s almost an hour. So we decide that we need a little sanity in our life so it’s just gonna be a project for the weekend. So we only worked on it on the weekend, which I think looking at was probably the right thing to do rather than rushing to get it rented. I think right now, especially what’s happening with the coronavirus, I think that would have worked very well for us. So, it’s fine right now we’re just going through the process and trying to finish everything up. We’re definitely, I’m still okay but I think my wife is finally getting this process. She’s like: I just want one weekend to myself, not working.
C: You can’t go out now anyway.
D: That’s what I try to tell her but he’s been awesome in this whole process. I definitely can’t do without her. She’s been very helpful, she got in there and she helped paint, she helped put the floors in. It was actually fun once you got to the floor part. She even admitted that putting the floor in was fun. But then, of course, that’s because I give her all the easy stuff. You’re just putting the floors in. When you get to a corner or you have to fit it under the trim, she’ll leave it for me to do. And one of those pieces could take half an hour to an hour, which is crazy. That’s the one thing that I didn’t expect: cutting the vinyl floor to make it fit under the trim. That was pretty tricky.
C: Now, a couple things from when you originally started looking: when you first started looking for a property, you were looking pretty far away from your house, right?
D: Wow, those good old days, with Christine, we’d drive out to Worcester. Oh man, I can’t imagine if we had gotten someplace in Worcester. This would probably take us a year.
C: Worcester from your house is like what, about an hour?
D: Oh yeah, it’s close to an hour. The deals were good. I think that’s for sure, relative to here, but it was just being a lot of uncertainty given it’s a whole different market than Boston and I’m just not as comfortable in that market. I think after all those trips, I started to realize. A lot of those were a lot of work too, I think, ’cause most of the ones that we looked at out there were all triple-deckers or at least duplexes, and I think that would have been a little too much.
C: Yeah, so let’s stay on the buy and renovate side for just a minute. What kind of advice would you give to people for those two aspects of it – for people who have never done anything like this before, but are really considering they’d like to do a BRRRR.
D: Yeah, so I think one of the big things is definitely find a place that, definitely talk to your agent and make sure and talk to people who’s got advice-like who’s done this and really ask them the amount of work that’s gonna be involve ’cause everything seems easy when you look, when you just do the walk-through. Oh yeah, I can do this. Oh, this isn’t too bad. And all of that adds up, and so definitely take your time to buy a good, solid property that you know you’re gonna get a good deal for. Buying for below market value, that’s the key with all this. Make sure you find a property that is below market value and needs work.
So that’s probably the best thing on the buy side. And buy what’s comfortable for you. I don’t bite off more than you can chew. So I think, I think finally, after all these trips out to Worcester, I realized: Okay, maybe we should just start small with a condo, this time around. It’s much simpler. So that’s what I would say about the buying process. And then the rehab, I think I mentioned earlier, it’s the same thing: make sure you take the time to come up with a plan, have a budget, and just stick with it as much as you can.
C: Yeah, and then even though it’s a little bit out of order, I think you’ve already sort of been talking with some banks about the refinance piece of it.
D: Yeah, so I think the reason I can talk about the refi is because I had to do the refi even do the BRRRR this time around. So I did a cash-out refi on the previous property. So definitely don’t think: Oh no, I’ve been through the whole process. I just did it in a different order.
So the refinance part: it was actually, really my first time doing a refinance on the first property that I used to live in and I didn’t even know there’s a thing called cash-out refi until last year. So I’ve bought a few properties up to this point, I’ve sold, I moved in, bought a new place and I didn’t even know that he was a thing called cash-out refi.
It was, again, because I was listening to these podcasts and watching these YouTubers, these ideas started to pop into my head. So that’s how this works. And then I did a little more research on my own to really understand how cash-out refi really works. ‘Cause that’s the intention behind the whole BRRRR strategy: what you’re doing is, you’re buying a good property and then you’re putting the work in and building equity by putting in that sweat equity and the refinance the cash-out refi enables you to kinda pull that cash out, so it’s not stuck in the property and you’re not investing in another property. So, with me, obviously, with the first property, I luckily didn’t have to put any work in it. I just got lucky: bought in Boston, definitely overpaid, the market was insane. But the value did go up so I essentially was able to pull out a lot of that appreciation from the property by doing a cash-out refi.
C: I don’t wanna put words in your mouth but the fact that you paid cash for this new property, even though your renovation took three months, you weren’t shelling out-of-pocket for your mortgage every month.
D: You’re right. Mentally, it’s a huge factor.
It took me a while to get over because as you probably remember, when we were looking for a place to buy, but I had already pulled this cash out from the refinance and it was sitting in a high-yield savings account.
And Christine and I would joke. She would say to me: Wow, it must be burning a hole in your pocket ’cause I would complain to her. Oh my gosh, I’ve got to find something because every day I’m paying for the mortgage on this money that I’ve taken out. I think I worked on the math, how much it was per day. It was some stress that I didn’t really need to put on myself, but Christine was kind of joking. It was good. She was kind of walking through that. This time around since I’ve bought the place, I do try to take a step back and look at it from a different perspective. I think it’s all about perspective and this has really helped me at least mentally be okay with this.

Not renting it out or doing anything with it because I’m looking at it: Okay well I just made this big investment into this asset and it’s appreciating. While it’s sitting there, it’s appreciating and while I’m working on it, it’s appreciating. I’m not getting the advantage of the leverage appreciation that you would normally get with an investment in real estate, but I’m okay with that in the short term. Because part of me is also saying well what else was I gonna do with this money?
C: Aren’t you glad now that it wasn’t sitting in the market.
D: Yeah, exactly, so kind of looking at those different perspectives has really helped. So I feel okay. There’s no rush to kind of jump into that.
C: And the other thing I think that it’s important to note about the refi piece is that before you ever go to a bank for this property, you’re making it as valuable as possible. You’re not going and buying it one month for $200,000 and then going to the bank and saying: Oh I think it now it’s worth $300,000 so I want that money. I think that makes banks a little bit more uncomfortable whereas now you’re gonna say: Tell me what it’s worth, how much can I get when you do your refi, right?
D: Yeah, what I’m learning, ’cause I did start to do some research to learn about this refi the second time around ’cause the first time it didn’t really matter because I owned that property for a long time. This time around I’m learning that you actually need to hold a property for six months before you can even do a cash-out refi. So that’s a rule that I didn’t even know about. So that’s very important, especially first-time somebody buying it thinking: Hey I can quickly turn this around in a month or two and then go and pull the money out. You really can’t, you need to at least have the property for at least six months.
And I’m kinda guessing but I’m guessing things are even getting more strict, given what’s happening with forbearance and all that stuff. So, I feel lenders now are being shy and I think they’re tightening up requirements. I don’t know if it’s six months now, or if they increased that, but one thing for sure from what I’m seeing: it’s much harder to pull out as much cash, too. I think there’s different tiers. There’s a 60% tier, a 70% and 75% tier. It depends on what kind of property it is. I think for a condo, those are the three thresholds. Every one of those has a jump in an interest rate based on how much you’re pulling out of the value of the property.
C: Obviously you don’t know exactly what’s gonna happen with everything, but how much of your initial investment do you think you’re gonna be able to take out to go on to property number two, and try to do this again?
Actually, I should first ask, “Do you wanna do this again?
D: Yeah, that’s definitely still a big question. I think I am but I don’t know if my wife is at this point. We might need to take a little break, which is fine. I think I’m kind of ready to go back into the market slowly so that’s probably not a bad idea. I think I would. If a good opportunity comes along, I still would but it’s hard to say because it all comes on how much you’re able to appraise the place for.
So I’m hoping I can still get 70% of the value back out. Generally, the goal is to get 90+. I think a home with the BRRRR strategy is 90+% or even 100% of your initial investment, you wanna pull that out? That’s a huge home run, if the only equity left in a house is actually basically your sweat equity. And I think from what I’ve heard too, there’s even limitations. They don’t let you do a cash–out refi for more than what you bought the property for.
C: I don’t think that it’s true because I did that the place I have a New Hampshire, I took out quite a bit more than what I paid for it.
D: So I think that might have been the case but now with all this tightening up that we it out with the latest because lenders now are really shy and that’s what I’m seeing online, ’cause I’ve been asking around a little bit. And what they’re saying is they’re not really that excited about giving you more than what you paid for it at this time. I’m sure it was fine a few years ago but with forbearance, I think it’s making a lot of lenders very nervous.
C: So what are your plans as far as the rental piece of it?
D: I’m still kind of working through that right now. I think we’re toying around with the idea even – so now this is a whole different realm – we’re thinking maybe we could even move there for at least a year or so to get a better interest rate so we’re still thinking about all these different options. We’re able to given that right now we don’t have any kids and it’s close to the house, so it makes a lot of sense maybe just to move there for at least a year and get a better interest rate. So those are all options I think at this point to be considered. But yeah, we’re still trying to figure that piece out.
C: Interesting, I didn’t know you were thinking about that. So you’d rent out the condo that you’re living in now?
D: Yeah, that’s just a recent thing we started considering just because we’re seeing a big difference in the interest rates and stuff.
C: And you did such a beautiful job fixing it up.
Interesting, okay, what other things have you learned? What other surprises or what kind of things are there that when you look back, you think: Wow, I just had no idea that this was gonna happen, or that this is what it was like?
D: So let’s see, I think the floor was definitely interesting. So this place is kind of unique, I think you remember, they had this linoleum layer down, but what happened, when we started to work through it, we saw that there was a section of it that actually had tiles underneath the linoleum.
So they put tiles and then they put linoleum on top of it because I guess they were too lazy to chip out the tile. So that posed a problem for us, we’ve got uneven floors. This again, is in the living room.
So it wasn’t like we could put a transition piece in the middle of the room.
And if we didn’t do anything, we put down vinyl floors, you’re gonna get different levels. Yeah, so that was kind of a big challenge and a problem that came up during this process. And we’re sitting there and like: Oh, what we do? ‘Cause I was on the fence. I didn’t wanna go through removing the tiles and I’ll tell you what: removing tiles is no fun.
We ultimately decided that we didn’t have a choice if we wanted to have the floor to be done right. We really need to remove the tile. It actually stretched from the kitchen out into part of the living room. So to do that, we literally took a chisel and a hammer and spent a whole day just chipping away this tile that’s been glued to the floor.
C: It was like vinyl tile, right, like a peel-and-stick vinyl tile?
D: It was vinyl tile but not peel-and-stick. They used this chemical plaster to glue it down. I actually ended up buying some of those peel-and-stick tiles for a different part of the house. So those didn’t stick down as hard as these did. These actually had like a yellow glue that they used to put the tile down. So we initially tried with a heat gun, thinking that that was gonna be better, but it just made things worse. It activated the smell, it made the glue more sticky and it didn’t speed up the process any ’cause it still required you to manually scrape it off the floor.
So we finally abandoned all that and spent literally a whole Saturday, just sitting there on our knees and our butts just chipping with the hammer to remove the tiles. So that was definitely not in the plans. I’m so glad we did it because now the floor worked out a lot better. We put it down, it’s level, and the worst thing that happens after you finish the floors and you walk around and you notice there’s like a spot on the floor where when you step on it, it just sinks in.
C: So do you think you’ll need your dad to come up next time to help you with the next property?
D: I hope not. I think I’ve learned a lot for sure. This time with my dad there, I made it clear like: Hey thanks for coming, I still wanna do most of the work myself. I really wanted to let this be a learning experience for me, but he definitely helped a lot but I think he definitely knew what I was trying to do, so there were some things when he said: Okay, you should come try to do this, this would be good for you. So, for example, I had to do the plumbing. We decided that we didn’t want to hire plumbers and my dad actually had experience in fixing drain pipes and hooking up supply lines. He was able to show me how to do some of this, so he kinda showed how he did it in the kitchen after we put in the granite counter tops, putting the new sink. He showed me how to do it, and then I was able to repeat and do that in the bathroom. Just doing that actually, give me just a lot of confidence. Now, if something breaks at home, I’m like: Oh that’s no problem. I know how to do it now.
C: Good, yeah, that’s key. Excellent. What other lessons or what other wisdom would you wanna share with a new person just doing a BRRRR for the first time?
D: Let’s see, I think with the BRRRR process, just definitely go in with an open mind and a willingness to learn ’cause there’s gonna be so many unexpected things that pop up. I’ve only listed some of the big ones. There’s so many other smaller unexpected things that popped up that I think your mindset has to be in the right place. You have to kind of be patient like: Hey, this is the first time. I’m not gonna do everything right. Just be patient and learn as you go. Just accept that there’s gonna be times you’re like: Oh how did I not do this? Now I gotta make another trip to Home Depot, ’cause I forgot this little thing. But every time I did that I felt stupid, but I was like: You know what, hey, this is good. I’m learning how this works so next time around, this won’t happen ’cause I know this.
C: Right, exactly, exactly. Now, for the buying process, did you call on some experts? What did you need to know that you didn’t know in order to buy the right property?
D: I don’t know, let’s see ’cause I don’t know if I did. It’s hard to say if you bought the right property, honestly, ’cause for me, in this particular property, it gave me confidence that somebody was trying to do a 1031-exchange on it. For whatever reason it fell apart and I think it wasn’t because of the property, I think it was because of the timing of everything. There’s other factors at play so that gave me a little more reassurance like: Oh this maybe is a good property. but yeah, ’cause even doing a walk-through, that’s not enough. If you get a home inspection, it’s still not enough ’cause they’re just gonna tell you some of the stuff that might be wrong, but once you start to take things apart. You’re gonna see different things.
I think that’s always a risk ’cause you don’t know for sure. The one thing you definitely do is to make sure you’re buying a property at a good value. Make sure you know the comps compared to other properties. If it’s in a condo, look at properties with the same kind of layouts. I think that’s really important to know. Okay, here’s how much these sold for and then what pictures you could see how much they sold for if they got renovated. There were units in this condominium complex that were just sold recently that were renovated. Seeing how much those sold for gave me confidence. Oh, wow. There’s definitely value here that I can extract by putting in some work.
C: Yeah, yeah, and that’s another advantage, actually, that a condo has over a single-family home because you’re looking at – even for the rental comps – at potentially the exact same property. You’re saying: This is what this property – that looks exactly like mine – rented for. This is what a property that looks exactly like mine sold for. It’s very hard to do that with a single-family home, ’cause most of them are just so different from each other. You can have a much higher degree of confidence.
And you had said before that even, I’ve heard people say that you don’t wanna buy a property to renovate that’s more than a half hour from your home, and you’re saying, even like 25 minutes was too far, felt like too far.
D: Yeah, that’s definitely one thing to keep in mind. It doesn’t seem far, the first couple of trips you go and see a place, you think: Hey yeah, this is not bad. But trust me, going there every weekend, 20 minutes becomes too far.
C: But also, I mean the market is actually quite different in that neighborhood as well.
It’s a quick drive. But did you feel like you had a learning curve as well, for understanding sort of the neighborhood and the whole… What’s where and all that piece of it…
D: Yeah, so once we started doing the renovation, I think, unfortunately we weren’t able to do this lately, but when we first got there before all this pandemic hit, we were able to go around, walk the neighborhood, see what kind of shops are nearby, check out the transportation options. ’cause I think they put that in the MLS listing but really it’s different when you actually go and walk in and understand. Oh, this is the path I take to get to the bus station. Here’s where the restaurants are at. And one really important thing that I would recommend is to make friends with your neighbors. Especially for me, as soon as I moved in I ran across my neighbor and I said: Hey, hi, my name is Denny. And just introduce yourself, and basically get to know them and try to exchange contact information ’cause you never know. There might be instances where you need them to help you out if you’re not at the property when you’re still in the renovation phase.
And I actually have experience with this, I wish I did this now, in hindsight, because we ended up getting some stuff shipped from Home Depot that was getting there and because the Home Depot people came very late on a Saturday or Sunday, and I think that was the plan. I timed it for a Saturday delivery because we were gonna be there. Well, they decided to not deliver until 10:00 at night. We had already gone home.
So now, what do we do? So we ended up having to wait until the next morning or what happened is actually they didn’t deliver it. It actually happened twice. One time they left it outside. So, next morning, thank God nobody took our stuff. The second time, they just didn’t leave it, they left a sticker saying: We’ll try again on Monday, or Tuesday. Well great, we’re not gonna be there. And what was worse, it was gonna be rainy that day, so I had to leave my house just to drive over to bring the stuff into the house and come right back home.
So had I met my neighbor earlier, it would have been nice, I could have maybe texted him and be like: Hey could you do me a huge favor? Can you just take this stuff inside? Small stuff like that.
C: Yeah, yeah interesting, yeah. Those are the kind of things you don’t necessarily think about making friends with the neighbors and stuff, but I think it’s really important. Even a few streets over could be totally different. So to walk the neighborhood, I’m really a big fan of going places at night and just sitting there in your car at night and seeing: Do I feel scared? Am I afraid to get out of my car right now? How do I feel? Are there like creepy people kind of walking around or whatever? You just have to feel? I feel like maybe it has to do with being a woman, but I feel like I need to feel good about this neighborhood. I don’t wanna own a home, a property in a place where I don’t wanna go after dark.
D: Yeah, that’s a really good point. Yeah, going at night is definitely, you get a different perspective for sure.
And I think you actually had given me this great advice to actually call the police station just to see: Hey, how is this neighborhood? How is a particular unit? Have you had any issues with calls from this condominium? Have there been issues that you’ve run across? Those people are very happy to share with you and it’s a little unconventional but it’s a really helpful way to get a better insight into a neighborhood where you’re buying.
C: Yeah, that’s a good point, because there are things that the real estate agents can’t say. There are things that a neighbor may not be comfortable saying but the police, I like to call the police department and say: Would you let your daughter buy a home and live alone in this neighborhood? And if they laugh, and say: No way, then you know. Okay well, I may not wanna buy in this neighborhood. And it’s all about your tolerance. But I think, especially for new investors you don’t wanna be creeped out by your own house.
D: Yeah, that’s a really good point.
C: Any other things I should have asked you that I didn’t think to ask you? Anything else that is important[m1] ?
D: I think it may be good to talk about screening tenants maybe. Yeah, I’d love to hear some advice from you as well. Honestly, I’ve done one. I’ve learned some points like checking credit scores, and whatnot but being that Massachusetts is very unique and a very pro-renter. And there’s a lot of things to watch out for, I guess when you’re screening tenants.
C: Yeah, Massachusetts is one of the most tenant-friendly states and it’s extremely hard, once you rent an apartment to somebody, it is very difficult to get them out. Even if you can prove that they’re not paying and you take them to court, the court is most likely gonna say: Oh why don’t you give them a break and give them a year to find another place or whatever, and then all this time, you’re like, losing your property because it’s just not really fair to the landlord. And for that reason as well, there’s a lot of fair housing aspects that you wanna take into consideration.
So my biggest piece of advice first of all, would be to make sure that you treat every applicant the same. Sometimes you might have a tendency to say: Oh my friend at work told me about this person, so I’m not gonna bother to run their credit ’cause I’m sure they’re great or that this person seems really friendly and nice, so I’m not gonna bother to go through the same procedure.
I would have a questionnaire for checking references so that you’re always asking their references the same questions, and also have a questionnaire, like the same application for everybody and the same criteria. So if you’re gonna make a rule that the credit has to be above this amount, everybody you ever rent to should have credit above that amount and I would recommend documenting, like this is the criteria. They have to have a certain credit score, they have to have references to this amount, they have to make more than three times the rent, things like that, and then everybody just has to comply with all those same rules.
There always is a certain temptation to go with gut instinct. You think: Oh, I can trust my gut on this. And this person seems really clean, and they seem really nice and they’re very friendly and they smile a lot. Well, that might not be the best. Try to just do everything on paper, try to look how they look on paper. I’m going through this now with John. He is trying to rent his house in New Hampshire and he has this person, and he really liked the person because of the job that they had, and felt like that job was a dependable job, in blah-blah-blah. But then we pull the credit, and I’m saying there are four credit cards, they’re all within 95% of their upper limit plus a car payment plus student loan debt and then the price of this apartment was $400 more than what she was already paying for rent. And I said: This is making alarm bells go off all over the place, because if she can’t even pay off any of these student loan debts or credit cards, or anything else, how is she gonna be able to pay $400 more a month in rent? And just even though there might be a lot of things about the person or the situation that you like, you have to be very hard core. I like it if all the bills are less than half of what the person brings home in a month so that there’s some wiggle room, you know?
D: Yeah, I think, isn’t that the rule of thumb? Even just personal finance or lenders don’t want your housing expense to be more than a third of your income is what I heard. That’s the most ideal obviously.
C: But yeah, that would be a requirement, when I did rentals, that you have to make at least three times the rent. Your income, your take-home pay has to be at least three times the rent. That’s another whole piece. But then if you have people who have vouchers or housing assistance, like you’re gonna rent to someone on Section8 or some other type of a housing program, a lot of people say it’s not fair to look at people’s credit when they’re in that situation, but a lot of landlords who I know who deal a lot with Section 8, say that they look at credit and they really check the references very carefully. So that would be a big piece for me.
Maybe if they don’t have the credit, or if you’re in a situation where they’re only paying 20% of the rent or whatever the rest is coming from some kind of a voucher you still want them to keep the apartment really clean, you still wanna make sure that you’re not chasing them for that 20% whatever. So, checking references and asking questions in a way that allows them to give you information without violating. There’s certain things you can’t say as a landlord, you can’t say bad things about people, but you can answer certain questions, they can answer certain factual questions even like: Would you rent to them again? And that might not be the landlord where they’re living now, you might not get that answer from them but the one before. If this person wanted to come back and live with you again, would you hesitate? But that’s actually one thing you can Google is to look at good questions to ask when screening tenants, good questions to ask the references. Any parting thoughts?
D: No, I think we kind of went through it. Obviously, I’m still learning, so I’m still going through it. I’m sure my perspective is gonna be a little bit different in a few months.
C: We’ll have you on again in a few months to hear the next step, okay, we’re completely done with the BRRRR and now we’re thinking about repeating or we’re at the repeat phase.
Well Denny thank you so much for joining us today and thank you, Listener, for listening and be sure to join us next week. We’re gonna have Lynne Bagby join us. And she’s an expert in doing 1031 exchanges, which you might wanna do some day, Denny. Where it’s a way to legally not pay any taxes, any capital gains when you sell one piece of property and buy a similar one. So be sure to be here next week and in the meantime, have a good one.