Real Estate

How to Analyze Deals Like a PRO (Use THESE Numbers & Tools)


You could spend HOURS breaking down deals for cash flow, cash-on-cash return, return on investment, price-to-rent ratio, and countless other metrics. What do these terms mean, and which one is most important when analyzing rental properties? Today, we’ll show you how to streamline this process so you can check out MORE deals!

In this Rookie Reply, you’ll learn how to analyze deals the right way, find off-market properties without spending a dime, and make offers on properties you haven’t seen. We also get into house hacking and why covering your mortgage payment isn’t necessary for a great deal. Finally, stick around until the end for the inside scoop on our hosts’ most recent ventures. Tony spills the beans on his first commercial property, while Ashley shares about the “pocket listing” she landed in the city!

Ashley:
This is Real Estate Rookie episode 365. Today we are doing a Rookie Reply. We’re going to be talking about house hacking. And if you have to pay some of your mortgage when you’re house hacking, does that make it a big deal? We are going to answer that question. We’re also going to talk about all those formulas that you’ve seen thrown at you to analyze a deal and what’s important and what matters and what those formulas actually are. And then we’re going to be talking about driving for dollars and making that phone call to actually call a seller. What do you say and how do you actually tell them a price without seeing the property? I’m Ashley Kehr and I am joined by my cohost Tony J. Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And we’re going to jump right into this first question because it is a great one and it is all about Ashley’s biggest fear, which is talking directly to sellers. So let’s jump into this first question.
All right, so today’s first question comes from Steven C. Steven says, “What’s up everyone? I’m in Dallas, Texas. I’ve been out driving for dollars and I have a list of about 40 houses. I’ve already looked up owners and numbers on the county websites for the owners. When I call the owners, how will I know how much I should offer them? I don’t even know the bedrooms, the square feet of each property or what needs to be repaired. How can I run comps to come up with an ARV so that I know the number to offer when I don’t have all of this info?”
Steven, first, kudos to you for getting out there and building a list of 40 homes. That’s a major first step and you should really, I think, be proud of yourself for taking that action because a lot of people won’t do that. And again, kudos to you for looking up the owner’s information on the county website so you know who to reach out to. You honestly did the majority of the hard work, right? That’s some of the harder stuff to do. Now, the stuff about the property information, there’s a couple of different places you can go to get that info. So Ash, when you want to pull up property details, what are your kind of go-to sources?

Ashley:
Yeah, my first thing is I love the free stuff. So Googling your county with GIS mapping. Most counties have a map online that you can click on the parcel, you can search by owner, you can search by address or SPL number for their tax, but you can pull up the parcel and it’ll usually give you the owner’s name, a mailing address, what the county taxes are on the property and some information like that.
My second go-to is onX Hunt. It’s an app and it’s actually for hunters when they’re hunting, tracking a deer, they can see whose property the deer may have gone on and they got to ask that owner permission to go on their property. And you can also trace your steps. But especially when I’m at a property and I’m looking at it, I pulled that up or I’m stopping by a property or I’m on the go and somebody tells me about a property, I use onX Hunt to just look it up really fast. And then that also, I like that too because it gives you an aerial view and you can see, especially if you’re into buying land, you can see how much is field, how much is forest, and it gives you a breakdown like how much of it, what percentage of it has buildings on it, things like that too I find very helpful in that app.
And then I primarily use PropStream. And there’s a lot of different companies out there like PropStream where you pay a subscription usually and you can go and find data on an address and this is where you’re going to find the most data all in one place is for these paid subscriptions.

Tony:
Yeah, I think some other options from a software perspective for you Steven, there’s Invelo which if you are a BiggerPockets pro member, you actually get some cool perks and discounts with that software. Like Ash mentioned, there’s PropStream. Privy is another one that’s new and kind of hot and sexy right now and a lot of people are using that one. And there’s also LandGlide, which is I think kind of similar to onX Hunt, but it’s like you open up the app and you can kind of see where you’re at on property lines and things like that. So all those are really good sources, Steven. And like Ash said, I mean I’ve definitely just typed in the parcel number on my county’s website and you can usually find some good information there as well.
To answer your second question, Steven, about, “Well, how should I know how much to offer them?” It is a bit of a tricky thing, and honestly I’ve seen it go two ways. I talked to some wholesalers where they almost never want to give numbers on the phone and they always want to redirect back to an in-person appointment. So they’re going to say, when the seller says like, “Hey, how much can I offer you?” They’re going to say, “Hey, I really want to make sure I don’t offend you with the wrong offer. And the only way I can give you an accurate number is if I see the property in person. So when’s a good time for me to stop by?” I know some wholesalers who do it that way.
Then there’s the other camp of people, especially all the folks who virtually wholesale, they’re never going to see the property in person. What they’ll do is… And I’ve seen Brent Daniels, if you guys look at Brent Daniels, he’s got an amazing just kind of framework around talking to people on the phone when it comes to wholesaling. And Brent talks about these four pillars of wholesaling that you want to get when you’re talking to folks and it’s time, motivation, condition and price is the last one. So time is like, how soon does this person want to sell this property? If they say, “Man, I need to sell this yesterday,” now you’ve got someone that’s probably in a bit of a pinch and you can kind of use that to your favor. Someone who wants to sell quickly versus slowly is probably going to give you a better price.
Next is motivation. Why are they selling? Are they selling because maybe they’re going through a divorce and they need to sell this home before they can move into their next property? Did they inherit this from an aunt or an uncle or a grandparent or someone else? Was it a rental property that’s been driving them crazy? What’s the motivation for selling?
And then third is condition. If you talk to enough people, like sellers, and you ask them the condition of their property, it’s always perfect. No one ever says their properties need work. So one of the questions I’ve learned to ask that I found to be helpful was instead of saying like, “Hey, is your property in good condition?” Of course you’re going to say yes. A better question to ask is, “When was the last time you fully renovated the kitchen?” And if the house was built in the ’50s and they say, “Oh, we’ve never really renovated it,” okay, now you got a sense of what the actual condition of that property is. But if they say, “Hey, we did a full remodel of the kitchen two years ago,” now you’ve got a kind better sense of what that property looks like and then finalist price.
And the goal is that as you move through these different categories, time, motivation, condition, you start to get a sense of, “Okay, if I know it’s a three-bedroom, two bath, single-family, single-story ranch home, I know what usually homes sell for in this area. I know what margin I need.” Then you can at least ballpark a number for that seller, but make it contingent upon you actually seeing the property in person or getting photos or having your contractor walk you through whatever. But that’s how you can kind of back into it, Steven, is using those four motivations.

Ashley:
And to your first point as to making it clear you want to be able to make them a fair offer if you could see it first as to your first example of what wholesalers do, is you can use kind of the second example as kind of a reason for them to show it to you and say, “I don’t want to give you an offer and then go in and the property be different than what I need and I have to actually discount my offer. I want to be up front and give you the price that I’m going to pay to be able to look at it.”
And Nate Robbins, who we had on the show and we even talked about on the last Rookie Reply, so nobody tell him we’re bringing him up this much, but he had taught us too is that his primary motivation is to get them to say yes, they’re open to an offer. That’s all he wants to know. That’s the only question he wants answered. And that first initial phone call is, “Are you open for an offer?” If they say no, then okay, maybe he will follow up in a couple of months or something like that and ask them to keep his information. But if they say yes, that’s where he continues to try and set up an appointment or anything like that. And that’s where he continues to that follow up, that follow up.
So just not being too worried about making an offer right there on the first phone call. First of all, everybody knows if you’ve listened to the last several episodes, we’ve made it very clear, I do not cold call anyone. Someone else does that. Darrell will do that if we even do that. But most of our deals don’t come from cold calling at all. But I don’t like that confrontation of talking to people. But when I am walking with a seller, and maybe these are warm leads let’s say, I already know they want to sell the property, they already have a reason to sell, some of the questions that I am asking them are, I’m trying to find out their motivation. That definitely is really important into working out your pricing.
I’m also always asking if they’re open to seller financing. And then if they say no, I follow that question up with, “Oh, I didn’t know if maybe you had talked to your CPA about the tax advantages of doing that.” And that kind of puts a little ring in their ears. So for me when walking a property or even just talking to a seller on the phone after I already know they’re motivated, I’m trying to figure out how I can structure the best terms. And it’s not even about purchase price at that point. It’s more about what terms are going to be beneficial to me and what they want and what I can give them and then kind of structuring my price based off of the terms of the deal and the contract.

Tony:
So there’s a lot of good ways to kind of go about this, Steven. I think the biggest thing like Ashley said is just maybe picking which strategy you feel most comfortable with. You could go the Nate route where you’re just going to say like, “Hey, I just want to make sure you’re open to an offer” and then doing everything else in person. Or go the Brett Daniels route where you’re asking them for their price and that way you’ve got a better sense of what it is that they’re looking for. All good things there.
But Steven, just one last thing I want to call out to this question, really it’s more so talking to the rookies here, but what Steven did here cost him $0 aside from gas and time to go out there, drive for dollars. And he created a list of 40 houses, 40 houses that are unique to Steven that may or may not show up on some other wholesalers or investors list. So if you’re struggling to find good deals, pick one day a week. Every Sunday morning you’re going to go out for a drive and you’re going to drive a different neighborhood every Sunday. Do that every weekend for all of 2024. As long as you follow up with those leads, there’s a very high possibility that you end up with a deal by the end of the year just by doing that one thing. So use Steven as an example to give yourself some motivation.

Ashley:
Okay, so we’re going to take a short break here, but when we get back, we are going to be talking about what are the main formulas that investors use when they’re analyzing their deals. So you may see COC, ROI. What do all these letters mean? And so we’re going to break down some of the common ones and tell you what we actually prioritize when we are analyzing a deal. We’ll be right back.

Tony:
All right. So we are back from that break. We just talked about the benefits of driving for dollars. How do you negotiate with those sellers? What are the things you should save? But now we’re ready for our next question from Richard D. And Richard says, “When you’re analyzing properties, what is the main criteria you take into consideration? Is it COC, ROI, cap rate, cash flow, et cetera?”
Richard, it’s a really, really good question. I think before we maybe answer this, Ash, let’s just really define what some of these phrases are that Richard talked about. Sometimes you become a new real estate investor, you can feel like you’re walking into the matrix where you see all these different letters and numbers and none of it makes sense. It’s all gibberish. So Ash and I want to make sure we’re taking some time to break those things down.
So COC stands for cash on cash return, okay? It is probably one of the most widely used metrics in real estate investing because it’s simple, easy to understand, and relatively easy to calculate. To calculate your cash on cash return, you take your profitability for the year, however much money you profited for that year, and you divide it by your total cash investment into that property. So just for super simple numbers sake, let’s say I invested $10 into a property and at the end of that year I got back $2. I had $2 in profit on a $10 investment, which means my cash on cash return is 20%. ROI, which is return on investment, is really just another phrase for cash on cash return, right? You can kind of use them interchangeably, but you’re really just trying to understand what is the rate of return that I’m getting on my initial investment.

Ashley:
Yeah, sure. And I did want to mention, this is probably my favorite page ever on BiggerPockets is their glossary. So if you go to biggerpockets.com/glossary, these will have every single real estate term you can think of including these different calculations. They have them lined out and explain exactly what they are. And also if you’re using the BiggerPockets calculator reports, they also will show you, they’ll have little question boxes next to these formulas and tell you exactly how they’re calculated, how they can be used for your analyzing, how you need to interpret these numbers.
So the next one is cash flow. So we’re talking about how much money is actually left at the end for you. And I want to make clear, this is very different than your actual profit. So your net income, when you do your taxes, you have your income and you have your expenses. So what’s not included in that profit, that net income, is any mortgage, principle or loan principle that is paid out. Also, what’s included on your tax return for that net income is your depreciation too. So there’s very different things. So I want to make this clear that just because someone says, “Oh, I made a profit or net income, or on my taxes it shows I made $5,000 off of this property,” that doesn’t actually mean that was the actual cash that they could put into their pocket. So with cashflow, what you’re looking at is you’re taking your income minus every dollar that is taken out. So it’s dollars in and dollars out and what’s left at the end of the month.
And then to go a little bit even further are your cash reserves. So every month, are you saving 15% for vacancy capital expenditures? So replacing the roof, siding. Down the road, are you saving for that? And then also repairs and maintenance that may occur that you’re saving for if they haven’t already happened that month.
And it is very hard to say, “My cashflow on this duplex is $300 per month” because one month you may not have somebody pay rent, one month you may have way more repairs, one month you may not have any repairs. So when you hear someone say, “I know clear cut and dry that I have this much cashflow,” and then you buy your first property and it’s like we rollercoaster ride each month, take that into account that it’s not usually [inaudible 00:15:12] determined unless you’re buying a brand new property that doesn’t have any repairs and maintenance needed maybe. But yeah, so take that into account.
And then also I think something to touch on with cashflow too is don’t get discouraged by what people are saying their cashflow is because you do not know how much cash they put into the deal and how they actually purchase the deal. Because Tony and I could buy the same exact property and get the same exact financing on it. So we’re paying the same mortgage payment every month. Or no, not the same mortgage payment every month. We’re paying the same expenses, we’re getting the same income. But maybe I put 50% down as my down payment and he only put 20% down, so that means his mortgage payment is going to be higher. So he is not going to cashflow as much as me, but he has less cash, so his cash on cash return is going to be better. So when you’re looking at these different ratios, I don’t want you to take one higher than the other. They all have to play into account with each other on these.
Another one that I want to throw into here too is the rent-to-price ratio as to how much a property the purchase price is and then how much you are charging rent for that property. It is a very good rule of thumb. And the rule of thumb is you want to have 1%. And in some markets you can get 2%. But having that, so if you bought $100,000 house, you wanted to rent it for $1,000, which does not work in every single market. But if you know what the going rate percentage in your market is, you can use that as a rule of thumb.
And then the next thing to compare with it is to say, “Okay, expenses should be 50% of the rental income.” Okay, that does not happen in my market. I’ve gotten 3% price-to-rent in ratio on some properties, but I can never hit the 50% or it’s very hard to because we have such high property taxes in our area. But I know what percentage is good in my area. So knowing what ratio works in your market can be a huge advantage and can help you quickly analyze deals and so you’re not wasting as much time and you can move forward and analyze more deals continuously. But start tracking some of these ratios in your market. And you don’t even have to purchase these properties to know the ratios. You can literally go onto Zillow, look at sold homes and keep an eye on multifamily and look for when they come up listed for rent or show what the rental amount is that these people, once they bought it, what they’re going to rent it for. And you can kind of gauge or ask other investors, go to meetups and things like that.

Tony:
Yeah. Ash, so many good points. A lot of these figures, a lot of these metrics are very much market dependent as well, right? In a lot of Midwest states, maybe you can go out and hit that 2% rule, but California, New York, it’s a little bit more difficult dependent on where you’re at as well.
One thing I want to make sure that we hit on here, Richard, is the metrics that you use are really going to depend on what your goals are, what your motivations are when it comes to investing. I feel like I say this all the time, but really there’s only a few motivations for investing in real estate. You have cash flow, you have appreciation, you have tax benefits. And then somewhat if you’re in the short-term rental space, you got vacations as well, like buying vacation homes in different places. Each one of those motivations is going to prioritize those metrics differently.
Obviously, if cash flow is your biggest concern, then yeah, you’re going to be looking at your monthly cash flow and potentially your cash on cash return is your main metrics. If long-term appreciation is what’s most important to you, then you’re probably looking at a different set of metrics. You’re looking at, “What’s my average year-over-year appreciation on this property? What’s my return on equity?” There’s different metrics you are looking at to make sure that you’re getting that long-term appreciation. If tax benefits are what’s most important to you, obviously the bigger, more expensive the property, bonus appreciation, things like that, you want more expensive property. So you’re looking at, “What’s my purchase price and then what’s going to be my cost seg on this property? What’s going to be my tax benefit on this property when I buy it?” So depending on what your motivations are, your motivations will dictate what metrics are most important to you.
Ash, for you right now where you’re at in your investing career, what metrics do you kind of focus on the most?

Ashley:
Cash on cash return is the biggest for me because I want to see infinite. I don’t want any cash left in the deal. And that doesn’t always happen. We’re finishing up a rehab right now on a single-family property that we’re going to refinance and we actually might leave some money into the deal. We might leave 20,000 to 30,000 into the deal because that was actually just extra cash that our LLC had and we don’t really have anywhere to deposit it. And then this will just increase our cash flow because our mortgage payment will be less because we’re leaving more cash into the deal.
And I kind of like that idea because I don’t want to over-leverage myself if we’re to max it out. And what we can rent the property for if we do max out and take all of our money back out of it, I feel like it will be a very insignificant… Well, I know it’ll be an insignificant amount of cash flow for us where it’s just too tight of a margin for me. I’d rather have more significant of a band. So there’s not for that point of, “Oh ash, we need to put some money into the deal because it’s been vacant for two months and we don’t have enough reserves” or whatever it may be because the cashflow is so little or there’s a huge expense. So definitely I look at the cash on cash return.
And then also cashflow. I never ever want to be in a negative cashflow property and I really don’t even like to break even. So those are the two main things. But I’m also looking at appreciation as my third, so that’s the third most important to me. I’ve had properties in areas that have no appreciation and they’ve cash flowed great. But also I’ve noticed that there’s a different quality of living in those areas that don’t see significant appreciation, and I’m starting to want to chase that higher quality resident that’s going to want to live in areas of appreciation because the schools are getting better. There’s more restaurants, coffee shops, boutique little retail stores coming in, things like that.
So I have noticed a correlation in my area where the areas that are kind of stagnant as far as appreciation, that they have a lower quality of a tenant and also there’s a lower quality of housing available, I would say that it’s not worth it at all because when you’re going into these neighborhoods, there’s a max, somebody will pay. And even if you go and you put in new cabinets, granite countertop, or even if just putting in vinyl plank versus carpet, you’re not even going to be able to increase your rent because you’re adding that value because no one will just pay over a certain amount. So that would be my third most important thing, is the appreciation.

Tony:
Yeah. And I feel like mine align pretty much exactly with what you said as well, right? Like cash from cash return, cashflow, and then I’m trying to start to focus a little bit more on appreciation as well. And especially as we move into the commercial side of things, I’m starting to realize that a lot of people who play, especially like large multifamily, they’re not necessarily making a ton of money off of the cashflow every single month. Some people are, some people aren’t. But a lot of the bigger syndicators aren’t necessarily making a ton of cashflow today, but when they go to refinance or when they go to sell, they’re getting big chunks of cash on top of the cashflow that they’re getting. So you kind of get that long-term appreciation and that’s where it really starts to pay off for you down the road.

Ashley:
Yeah, because you see it very common where the goal over the first couple of years of those multifamily syndicators is just to add value to increase the rents. And increasing the rents is going to increase their cap rate. And so I think that that is very common, and that’s something you could do with a single-family property, is if you’re buying it in an area that is going to see appreciation as to looking at what are some of the value adds. And you could slowly do those upgrades over time. So at each lease renewal, you could say, “Okay, I’m going to actually update the bathroom. We’re going to put in a tile shower or tile floor, but your rent is going to increase by this much.” And then that’s where you get the tenant to say, “Yes, go ahead and do that. I will pay the new rent.” Or if you decide you can still keep the resident and not do any upgrades, or you can go ahead and say, “We’re not going to renew your lease, we’re going to go ahead and renovate it and then list it for the new rent.”
But we have done renovations when residents are in place and it’s not always the most convenient, easiest thing to do, but it definitely can work out if you don’t have to get a new tenant and you can go ahead and increase the rent immediately once the value add is in and you’re still getting paid rent while the renovation is being done. So that could be for, if you’re not a syndicator and you’re just buying small multifamily or single family and you have one or two properties and you do want to sell or you do want to refinance in a couple years, that could be how you kind of play that game of just not taking your cashflow and just reinvesting it back into your property to add value and then wait those several years for that big payout.

Tony:
All right. So lots of good information there. And hopefully, Richard, you got some clarity there and Ash and I didn’t overwhelm you with too much information, but there’s a lot of things that go into in these different metrics.
So we’re going to jump to a quick ad. And when we get back, we’re going to be talking about house hacking and when it does make sense versus when it doesn’t make sense and what really makes a house hack successful. So we’ll be right back after this break.
Derek says, “I’m trying to find my first deal. If I purchase a multifamily two unit, so duplex, and house hack by moving into one of the units, how do I know if it’s a good deal? Even if the other unit rents high, I’ll still have to pay the other part of the loan and I won’t have any cashflow. How do I know if it’s a good deal with no cashflow?”
Great question, Derek. And obviously, since this is a duplex, you’re only going to be able to rent out one other unit potentially. Let me just pause here for a second, Derek, because we interviewed Craig Curelop who wrote the book for house hacking for BiggerPockets. He shared a story with us during that interview, he said when he got his first property, he was sleeping on the couch. And not only was he renting out the other units, he was renting out all of the other bedrooms in the unit that he slept in.
So if you really wanted to supercharge from this property, Derek, you could do what Craig did. And maybe you’re not sleeping on the couch, but say the duplex is like a three, two on both sides. Maybe you’re renting out one additional side, and then within the three, two that you’re in, you’re renting out those two other bedrooms. So now you’re getting revenue from the unit you’re in and you’re getting revenue from that other unit.
But before we even get into solving all that, I think the first thing we need to ask ourselves is, what is the goal for house hacking? When I think about house hacking, cashflow is just the kind of icing on top, but the bigger goal is to reduce your biggest expense, which for most people is their mortgage or their rent. So if you are in a position Derek where say you’re paying, I don’t know, 2,000 bucks a month for rent right now, and through this house hack, you’re able to get your monthly expenses for living all the way down to whatever, even 300. Now you’re saving $1,500 per month by having this person live in your other unit. And although it’s not cashflow, it’s still money in your pocket at the end of every month. That’s $18,000 a year in cashflow that you’re getting, but not spending that money on rent. So I think it’s a slightly different calculation when you’re house hacking than it is when you’re doing a traditional investment property. What do you feel about that piece, Ash?

Ashley:
Yeah. So I think there’s this common misconception, which there’s so many in real estate investing, that to have a good deal, house hacking means you pay $0 to live there. And I agree, that’s not the case as to you should be looking at, okay, in what you’re living in, so if you buy a multifamily and you’re living in a 800 square foot, two bed, one bath, if you had to pay rent to live there, how much would that rent be? Okay, so let’s say it would be $1,000 in your market and say you’re going to be paying $500, half of your mortgage, so your mortgage payments is $1,000 or whatever, and you’re going to be paying 500 of it. The person downstairs is in a one bed, one bath, and you can only rent it for 500. They’re paying their own utilities.
Then you have to pay your utilities, things like that and say it ends up adding up to $800. You’re saving $200 a month, plus that person’s paying down $500 a month of your mortgage. So you’re getting that little bit of debt pay down too, and that’s building up equity in your property that somebody else is paying. So right there, you’re already seeing value.
So I would look at if whatever you’re purchasing, if it is cheaper to you or less expensive than if you were to rent something comparable or to go and buy a single family two bed, one bath house and the mortgage payment would be more than what you’re paying, compare it to those two situations and you’re going to be making out if it’s going to be cheaper than what it would be if you ran the numbers for those two other situations in your market.
But if you’re going to be paying more than if you went to go and buy a single family home that’s a two bed, one bath, then maybe it isn’t the best deal for you because you’re not decreasing your living expenses at all. So just compare those scenarios with it. And then also look at… We just talked about this on our previous Rookie Reply, and it was how to add value to the property to increase income. So maybe you add a shed in the back, maybe you say that you will provide, it’s whatever market you’re in, snow removal services for an extra $50. If not, they’re in charge of snow removals. There’s different kinds of things that you could do to add value to the property or increase the rent by a little bit that’s diminishing the rent that you have or the part of your mortgage that you have to pay.

Tony:
I think one thing that we probably should have Derek consider Ash is, what will cash flow be once you move out? Because ideally, you’d want to be cash flow positive, Derek, once you move out. But say you run the numbers on this thing and say you were renting out both units and it’s still not cash flowing, then it’s probably a deal I might want to reconsider. Again, unless your motivation is not cash flow, maybe it’s just you want the tax benefits and the appreciation. But if you’re focused on cash flow, analyze the deal as if you weren’t a tenant or you had a real tenant in there. And if both units are rented out in cash flowing positively, then you’ve got a good deal there as well.

Ashley:
And then lastly, just looking at the appreciation of the property too as to down the road when you do decide to move out, if it isn’t going to be cash flowing, but you expect some appreciation in the property over the course of the next five years until you’re going to move out and maybe you just decide to sell the property and you’re going to get your down payment back, the amount of mortgage principle that you’ve paid down, the tenant has paid down, and then whatever profit you’re making on the property too, and then you can use those funds to go buy your next property because those would be tax-free because you’ve lived in the property at least two of the five last years also. So selling could always be an option instead of renting it out too. But me and Tony, we love the buy and hold keeping those properties.

Tony:
And Ash, you bring up a good point, is that there’s so many different ways. And we probably should have brought this up on the question when we were talking about metrics, but there’s so many different ways to understand if a deal is a good deal. There’s a book Real Estate by The Numbers, I highly encourage you guys to go read that book, but it breaks down a lot of the different ways that you can, I guess, kind of gauge the return on a property outside of just traditional cash on cash return. And it was written by two of the smartest people I know, Jay Scott and Dave Meyer. So again, Real Estate by The Numbers. Go pick it up at the BiggerPockets bookstore. I think it’ll give you a little bit more confidence, Derek, moving into this house act.

Ashley:
Okay, so let’s move on to our last question, and this question is from Ashley K. “Tony, I really miss Boring Banter with you. Do you think you could catch us up with what’s going on in your life?”

Tony:
This is probably my favorite question that I’ve gotten. [inaudible 00:32:45]. Ashley, it has been a while since we’ve doing a little bit of boring and banter. So yeah, I mean we’ve had a lot of things shaking and moving on our side. So I set a goal back in, I think spring. I’m sorry, fall, winter of 2021. So just over two years ago to buy a commercial property. I think at that point we had 15 or 16 Airbnbs and I really wanted to scale up. We made a couple of attempts and failed between then and just recently. And then on, I think it was December 28th, that last Friday of 2023, we closed on our first commercial property, which is a 13 unit motel. So we’re super, super excited about that. And yeah, work has already started. Rehab’s underway and we’re hoping to get this thing launched here since I’m in the spring.

Ashley:
Tony, I think you… First of all, congratulations. And I’ve been so excited for you and to even talk about this more. I think we need to do a whole episode. But one thing is you need to change your mindset. They weren’t failures. They were opportunity costs because it got you to this deal and they were lessons learned.

Tony:
That is true, but they were very expensive lessons because-

Ashley:
College education.

Tony:
I’m telling you, the first hotel that we tried to buy, it was here in California. There were some costs you can get back. We were able to get back our EMD, that was 50K. So I was happy to get that back. But we had, I don’t know, $30,000 in legal fees. We had another, I don’t know, it was like $20,000 in due diligence costs from the inspection, the-

Ashley:
Think about your time too, not even just the cost of doing that.

Tony:
Our time.

Ashley:
Yeah.

Tony:
Yeah. So I’m just like, you know… I’m probably going to look at my attorney now as like a charity. I’ve just given so much money to him over the last couple of years without actually needing it. But no, yeah, they’re not failures, but they’re definitely lessons that we learned that I think put us in position to finally close in this property. So I’m super excited, Ash, and I’m looking forward to an episode where we can really break that one down.

Ashley:
Yeah, can you tell us maybe one kind of goal of this property? What’s something you’re trying to accomplish with it?

Tony:
Yeah, so it’s a property that’s centrally located between three different national parks, which is great. We love the location. It’s been decently taken care of, but just needs a little bit of love to be brought up to 2024 standards. So we’re doing a pretty extensive, mostly aesthetic rehab right now to bring it up to what the rest of our hospitality projects look like. And then the goal, we’ll see how well this works out. The goal is to allow guests to self-check in, so there’ll be no front desk. It’ll be kind of a mix between traditional Airbnb’s and hotels because we’re still going to have on site staff, but the goal is that there’s no keys. Everyone’s going to have their own keypad, key codes and things like that. So we’ll see. We’re trying to blend traditional hotel stays with everything we know about short-term rentals, and we’re hoping folks resonate well with that.

Ashley:
So this will be, you could completely skip the front desk altogether. You just go, you enter your code, you can leave. You never have to talk to anyone, but somebody is there if you do. So will it be, how far will the amenities go if you need extra towels or things like that?

Tony:
Yeah, we’ll still give you those things, right? So if you need towels, if you need fresh sheets, whatever it may be, we’ll still offer those things to you. But instead of you walking over to the front desk, you’re just going to send a message to the app. And we’re hoping that the people can resonate with that. It could end up being that we’re totally missing the mark here. And if that’s the case, it’s cool because we already have the folks there that know the property. But that’s the plan for us right now.

Ashley:
I love this idea because in Marriott they have definitely not super similar to this, but they have an option for a mobile key. It doesn’t work at all of their resorts, but some of them you can say you’re checking in at this time and they’ll send you the mobile key. And it is the best feeling ever, walking in, there’s the line of people waiting and there you are with your suitcase, you just got out of your Uber and you’re like, “Oh, I’m just going up to my room and off the way [inaudible 00:36:41].” And then you just go up to your room and you have your mobile key. And then if you actually need a key card, I’ll go down the next day or whatever. But yeah, I definitely like that idea.

Tony:
They’re doing that in Vegas too.

Ashley:
Oh, really?

Tony:
Yeah, they’re doing that in Vegas here. A lot of the Vegas hotels now, you can check in and get your mobile key, and then you never have to go to the front desk. So it’s the way that travel’s changing, and we’re hoping that we can ride that wave. There’s a lot of millennials and Gen Z and folks that are in those age groups that are accustomed to not having to talk to people when they go travel. So we’re hoping we can play on that kind of change and travel and use it to make our properties a little bit better.

Ashley:
Yeah. And I think just having the convenience of amenities too and having someone available to you. And that is the missing piece that I notice in a short-term rental. Like if you do run out of towels, you have to wash them yourself.

Tony:
Wash them yourself.

Ashley:
Or if just like you need anything, just having somebody on site. Even at our A-frame, we had the pipes freeze there the other day. We had a bunch of little mini A-frames, and you had somebody on site that could take care of it, but it would be so much more convenient. But yeah, there’s little things that you realize you need during your stay that having somebody there to just take care of. Or we went to a ski resort a couple… It was New Year’s Eve actually, and our keypad wasn’t working. The person was very good about like, “Here’s the lockbox instructions or whatever to get that out and things like that,” but I think I told you in another episode, there was literally two pillows and that was it for the whole place in there. So it was just be able to request an extra pillow or something.

Tony:
So we’re looking forward to it. I set a goal last year of getting to a billion dollars worth of real estate in the next decade. We knew that we weren’t going to make that happen with just single-family homes so the commercial stuff’s going to be a big part of that. So we’re hoping as we start to grow Robinson Capital and we get this go to first base hit, that we can then start replicating this model in different parts of the country. So that’s my Boring Banter, Ash.
I want to know what’s going on your side, but I know I threw a phrase out earlier that’s EMD. I just want to define what that is for folks. But EMD stands for earnest money deposits. And especially when you’re looking at commercial properties, EMD becomes pretty important. And at a certain point it goes hard just like it does for single-family homes. But yeah, we put up a $50,000 EMD on that very first commercial property. Luckily, the owners were kind enough to give it back to us even though our due diligence period had ended. But yeah, a lot of times you put up that money. And once that period ends, it’s gone for good.

Ashley:
We had not a failure, but an opportunity cost where we didn’t get a commercial property either. It was EMD of 100,000. And luckily we had made our decision to not go forward during the due diligence period because that was so stressful as to like, “Well, I know for sure if I’m moving forward or not, but when the time is due to be able to get that back.” And I think it was literally the day before we had all the information we needed to not move forward with it. But yeah, that was scary.

Tony:
It’s scary. We were able to negotiate. We’d honestly built a pretty good relationship with the sellers. What we did was we gave the new buyers all of our due diligence. So they didn’t have to spend any money on inspections, on environmental, on any of that stuff because we’d already spent the $20,000 on it. So we said, “Hey sellers, we’ll give the new buyers our due diligence, just give us back our EMD” and they’re happy with that. So a little bit of negotiation.
Our producer shot me a note on my $1 billion goal and said, “Tony, you only need 2,500 single-family homes to get to 1 billion given the current median home price,” which is a big reason why we’re not just going to be doing single family, because I don’t know if I can do it 2,500 times.
Ashley, tell me, Boring Banters. What’s going on in your neck of the woods?

Ashley:
Yeah. So I’m finishing up a rehab right now. It’s my first city property, I guess, but it’s getting the kitchen cabinets installed and then it just needs countertops and a sink, and it’s all ready to be rented out. So this was a pocket listing where the agent toward the property, my agent toward the property with an agent from her office and was like, “I have somebody that will buy this” and the owner of the property said, “Yes, if she’ll pay what we want for it, we won’t actually list the property.” So it never actually went on the market and we were able to purchase it. And that was my first time experience doing a pocket listing and forever grateful of the relationships I’ve built with this agent to be able to have her say like, “I know that you could get this property.”
And we got it for a great price. We actually got it reduced a little bit after doing an inspection because of some needed repairs, but it was from an estate that we purchased it. And also my first time purchasing a property from an estate. But the seller was the sister of the person that passed away and she actually wrote us this really sweet handwritten note and left some flowers on closing day and just said, “I don’t know what your plans are for the property, but I know my brother really had something special that he wanted to do with it and just never finished. So we’d love to come see it when you’re all done.” So I can’t wait to invite them back to come in and do a walkthrough and maybe they’ll love it or they’ll hate it.

Tony:
I was going to mention, they’ll hate it. They’re like, “What did you do? What is going on here?”

Ashley:
But you know what? We left this funky wallpaper in the bathroom and stuff, and we tried to leave a lot of the character with it. We did consider flipping it because of how we were leaving. We weren’t making it our plain Jane rental as we usually do. We were leaving a lot of the character and charm that he had put into the property. So it’ll be interesting to see how it turns out being a rental that we’ve left these extra things because it’ll either be somebody loves it or they hate it and they won’t want to rent it, so we’ll see.

Tony:
And you said it was your first one in the city?

Ashley:
Yeah. Everything else has been in rural areas or the suburbs. So it’s my first one in the city, yeah.

Tony:
So is it in Buffalo?

Ashley:
Yeah. Yeah, it’s in Buffalo.

Tony:
Oh, cool, man. All right.

Ashley:
So I have a couple that are South Buffalo, but it’s not like city city, I would say.

Tony:
I forgot, Ash. You were 40 minutes away from Buffalo?

Ashley:
A little bit longer. Yeah, maybe like 50 minutes.

Tony:
And then how often do you find yourself having to go to that project since it’s [inaudible 00:43:11] ?

Ashley:
I’ve never had to go to it. I have gone because I wanted to see the progress, but I haven’t been there since we had all the wood floors refinished. Instead of putting new floors in, we refinish them all. I haven’t seen those at all. I’ve only seen it half painted. I haven’t seen it all the way painted. But really there’s been no reason at all for me to go there. I’ve just been curious a couple times and stop.

Tony:
Yeah, that’s the goal. I love it.

Ashley:
Definitely having a great contractor to run the property helps, like somebody you trust and I get updates and things like that too.

Tony:
Yeah, good contractor. Sorry, just one last note. You mentioned good contractors. We were so relieved for this Utah Motel because our California crew that did all of our other rehabs, it’s like a six and a half hour drive from California up to Utah. Work had been a little slow for them, so they agreed to take this project for us. So they’re staying at the motel pretty much Sunday through Friday and then going back home on the weekends. They’re living at the hotel to do the rehab for us. And these guys are so freaking fast, it’s crazy. So we’re super excited to have a crew that we trust that’s working this project for us.

Ashley:
So how did you negotiate that as far as like, okay, they’re traveling? Did you pay them extra? Or was it like, “You guys get to stay here’? Or did they just kind of put it into their bed?

Tony:
Yeah, we’re giving them a free stay. And then what we’re doing in this project, we’ve never done this before, and I definitely wouldn’t recommend this if this isn’t a crew that you already know, like, and trust and you know them. But we’re giving them a free stay at the property, and then we’re paying them a weekly salary.

Ashley:
Oh, okay, yeah.

Tony:
And that weekly salary is kind of covering their travel expenses every time they have to go back and all that good stuff. So that’s how we worked it out with them. He told us eight weeks he could be done. We’re projecting it’ll probably take about 12 or 13 is what we kind of put into the budget here just to give us a little bit of wiggle room. But yeah, that’s where we’re at.

Ashley:
Well, I can’t wait to do a full episode on this where we can talk about the acquisition of it all, I’m sure, could be a whole episode itself, but also-

Tony:
Oh, sure. We got some really good seller financing.

Ashley:
Yeah, how the rehab goes, and then when you get it ready for rent. So congratulations again, Tony.

Tony:
Thank you, Ash. I’m glad we got to catch up. It’s been too long since we did some Boring Banter. So we need to keep the rookies abreast of what’s going on in our boring lives.

Ashley:
Well, now that we lost everybody listening because they don’t want to listen to the Boring Banter and it’s just been us talking for two minutes, no one else listening, but the few of you that lingered to hear the Boring Banter, thank you so much for joining us. For this week’s Real Estate Rookie episode, I’m Ashley and he’s Tony. You can find us on Instagram at the link below. We’ll link it in the show descriptions. And don’t forget to check us out on YouTube at Real Estate Rookie on YouTube and join our Facebook group, Real Estate Rookie. We’ll see you guys next time.

 

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