Ask Us Anything #8: Funds Needed, State Specific Tax Differences, Loans For Remote Investments and After 10, COVID Related Tenant Issues
In this ask us anything we cover questions from a recent webinar on funds needed to get started, different tax treatments from state to state, loan specifics comparing local to national lending and the topic of getting a loan after you have 10 open, and finally COVID related tenant issues. Submit Questions here: https://linktr.ee/remoterealestateinvestor --- Transcript Tom: Greetings, and welcome to The Remote Real Estate Investor. On this episode, we're doing another ama. We recently did a webinar with roofstock and got a ton of great questions that we weren't able to get all of them. So we're gonna do it right now. All right, let's do it. Gentlemen, co hosts What's going on? Who do I have on the line with me now, Michael: Michael Albaum, Emil: and Emil shore, Tom: Before we get into the AMA, what's what's going on, guys? Is everything going? Michael: Everything's good. I got my six unit that I've been trying to sell for well under contract out in the Midwest. Finally, that's super exciting. And then I'm just about to list a Southern California condo for sale as well on the MLS. So that'll be very exciting as well. And the list price that we're going out on is pretty strong. So I'm, I'm excited about all of those things, and then trying to get the I also got on the Portugal property, we're getting 3d renderings done to show furniture as opposed to just buying and spending a ton of cash to buy furniture or rent furniture. So hopefully, the renderings are going to work because nobody can travel anyhow. So fingers crossed, that gets listed and sold quickly as well. Tom: Very cool. So they superimpose the furniture on the property when they're marketing Michael: exactly as let's just do like a 3d rendering. So people can do like a 3d walkthrough and see furniture and then those will be the list photos will look stage. But that'll be not real furniture. It'll be CGI, so they can do like Jar Jar Binks sitting in the living room. Tom: It’s like, it's like Farmville. Emil: Congrats on the six unit. That's that one's been a long time coming. Michael: Yeah, it's been a long time coming. So it's been cash flowing this whole time, which has been helpful, but excited to get that under contract. And on to the next endeavor. Emil: Yeah, good luck, man. Michael: Thanks, appreciate, I'll keep I'll keep you all posted. It's a 60. Day close. So a lot can happen in between now and then. But I'm hopefully optimistic. Tom: So that seems like a little bit of a longer closer, I guess, is that common? Michael: It is a little bit common. I was pushing for 45 days, but the buyer is seeking this up with another purchase. And so they're getting financing for both simultaneously. So that's why Tom: I got it. Awesome. And yourself Emil? Emil: I am the only activity for me right now I am actually in the process of changing property management companies in St. Louis company I started out with on that three unit I bought, was not very happy with their service. And they were charging me all these weird fees. And I'm about jumping ship. So identified someone new in St. Louis, that I'm much more hopeful on and will transition the three units to them at the end of this month. So working with them to make sure that goes smoothly. And then my property in Indianapolis, I am also looking to change property management companies there so that while we're not doing Oh, we're looking for acquisitions, just doing some housekeeping stuff with property management companies that I haven't been super happy with for a while. So using the downtime to make those moves. Tom: Also good podcast episode fodder. So we're, we're talking before we started recording meals, like I got, I got an episode idea changing property managers Michael: How to fire your property manager. Emil: Yeah, I mean, we talk a lot about how do you find one but like, you know, it doesn't always work out. So yeah. What does that look like? I think all of us have done it for one reason or another. So I think it'd be cool to go over. Why were we unhappy? What were the things we saw that we didn't like, and how do we go about finding a new property management? MIcheal: I love that idea. Let's totally do that. Another episode. Emil: Let's do it. What about Tom? What's going on? Tom: Oh, what's going on with me? Not a ton. I Oh, I just had a fairly short vacancies, like roughly 30 days, I'm one of the properties and the rent came back. And it's like $200, higher, they went from like $100 to 14 something. So honestly, one of the best things as an investor, having your basis stay flat, and your yield jump up by like a pretty significant margin. So Yippie! Still working on my reinsurance, I guess from a while ago, but I have my insurance in flight of updating those. So I've just to hold myself accountable. will want to talk about next week that I have confirmed my new property insurance. Michael: Oh, good. That's exciting. Tom, you tell us what the turn costs on that unit was? Tom: Oh, I think it was like the property was in reasonably good shape. So I think it was 20 $500 maybe $3,000. I don't have this specific number off the top of my head. But I start kind of like ticking my head up and making note of it. Like when it starts heading north of five for the turn cost just in budgeting roughly 500 bucks a month, and my dog, Bodie. He heard that high number so he’s getting fired up! Michael: It's like, get out of here. Tom: Get out of here. No. So But no, the term cost was I think fairly expected fairly proforma Michael: Okay, cool. Emil: Did you guys make improvements to the property to get $200 more in rent, or was it just a property that you had a tenant for a while didn't raise rent on them and now that it's vacant, you're bringing it up to market? Tom: You know, I think there was a weird bump. I didn't have a tenant They're for that long, you know, two years. But I mean, I guess there's been a lot of rental appreciation over the past two years, but something about just a lovely little pop and it was in eastern Atlanta kind of in the woods, that stone Stone Mountain area. Yep. And just had just a man north of 10% bump in rent. So anyways, fired up about that. Emil: That is awesome. Michael: Way to be. Tom: Way to be alright guys, let's jump into the AMA part of the episode The meat of it. So, as I mentioned, we had a webinar a little bit ago, a lot of great questions, and we're gonna try to tackle the ones that we didn't get a lot of these questions, I'll put in a couple of categories. One is more starting out, some are lending related, some are strategy related. And then we've got a couple on Roofstock Academy that we'll touch on at the end. So the first one, I'm going to send this to a meal, what's the average initial investment for a first time investor? Emil: Oh, that is probably a… Michael: 1 million dollars! Emil: That is a it depends question. Are you investing in the Midwest, the southeast, if you're investing on the coasts, it's obviously going to be, you know, making your first investment in Los Angeles is going to be way different of a cost than if you're investing in the Midwest. So I don't have a good answer. I don't have like a 50,000 bucks. I mean, if you look at a lot of people on roof stock, and the properties on roof stock, most people's initial investment with down payment closing costs, all that is probably 25 to $30,000 is where people are starting. Michael: Could you do it with less? Emil: The thing is like once you start getting into properties that are like let's say 60 or $70,000 or less, there aren't many banks, where you know, where your downpayment would be, what's what's 20% of that 15 k ish 1215 K and then closing costs are like 20 K or less 1520 k all in to start and a lot of banks aren't going to even lend on a on a loan that small, right? If it's a $70,000 property, your downpayment 14 K. So like a $56,000 loan. Actually, I bought a $63,000 property, and I found a bank that would loan on it, but you just have to call around. Not all banks will do it. But yes, you can. You can buy homes for maybe like 20, k all and 1520 k all in as your down payment and closing costs. Michael: Awesome. Tom: I like it. Michael: I love how you have a personal experience that immediately contradicted yourself. Emil: Yeah, exactly. That's the fun thing about doing these live right. Like, Oh, wait, I'm actually sorry. Michael: Keeps you on your toes. Emil: Actually, what am I saying? He has a property we sold. So it's not really in my like, front of mine? Yeah, exactly. I don't think about it too much anymore. But yeah, good question. Tom: Yeah, I'd say the same for a lot of investors that you know, 20%, down on a 100 or 150, or an $80,000 property, or you can buy all cash and make it a lot more. Go ahead, Michael, I hear you're wiggling around. Michael: Oh, just something else to think about is I know a lot of first time investors house hack. So they'll buy owner occupant primary residence and then rent out the other rooms. And there's all kinds of programs out there to help limit the amount of downpayment you need FHA is one of those programs where I think it's three and a half percent down, you have to put so if you're buying $100,000 house, you could be in at 3500, which is pretty amazing. So all kinds of things to look into, based on what type of investing you're doing and geographically where you're located as well. Tom: And I know that we have some military listeners of VA loans. I mean, I think you can go 0% so with a house hack, like whoa, yeah. Michael: Pretty amazing stuff. Alright, so Tom: The next question, I'll pass this over to Michael, this is related to taxes. How do we find out if the state charges higher property taxes for non residents, so not getting that owner occupied? tax benefit? Michael: Yeah, this is a great question. And something I talked about with a lot of students in the academy, whenever we're talking about property taxes, is call the county assessor. Call the county assessor call the county assessor call the county assessor for whatever county you're interested in investing in because property taxes are levied. at the county level, not at the state level, the state might set a minimum threshold like California, for instance, minimum 1% of the sale price, and then counties can have an excess above that. So you just want to look to understand how it works in your specific County. And if there is an owner occupant exemption, or what you know how property taxes are calculated, so call the county assessor and ask them how you calculate your after sale property taxes as an investor, because there's often a big distinguishment. Between owner occupant versus investor. Great question. Tom: I think for most of them…. Michael: No no no, I think Emil has something to say. Tom: Okay, go ahead. I'll get the back of the line. EmiL: No, I was just like me raising my hand, like to call on me. There's another thing I'm finding after years of ownership also very important to ask how often is your property tax reassessed. There's some places where whatever you buy it at, okay, here's your new property tax level in California. I'm pretty sure it stays at that level until you sell right a new person takes over Michael: Yeah, there's like minor increases incrementally. Emil: Exactly. But Indianapolis I believe does every year they reassess Okay, what is the property value now and what does that mean for property tax? St. Louis, where I invest, I think they do it every other year. So if property value goes up, they're charging you more in property tax. This is something you probably don't think about when you're first getting started. And it's, you know, it's another variable to consider and would probably stop, a lot of people are just, I don't know, make it more confusing and harder to predict. But something to know as well with property taxes. So ask the county assessor how often they reassess property value and change the property tax on there as well. It's good to know. Michael: Great point. Tom: Excellent, I'd say the most of the properties that I own would have a homeowner's exemption. If I was a homeowner, you know, I'd say most areas do offer some sort of like, owner occupied discount. So when you're looking at last year's taxes, that can definitely be confusing. If there is like a, you know, an owner, discount owner occupied discount. Okay, now on to the next one. So this is a lending question. I'm going to circle this back to Emil. When applying for a loan out of state property, a remote investor, are lenders weary of out of state property owners? Can we use local lenders to buy properties in other states? Emil, why don't you take the first job of this one? Emil: It's a good question. I am sure there are some lenders who don't want to lend to out of state if they're local. I've never had it be an issue personally. I talked to them. And they're like, oh, you're out of state, sorry, as long as the property is in that state where they lend. It's okay, if you live in another state, right. So it's like, if you talk to St. Louis, a bank that will lend in Missouri, they won't lend in Indiana, but they don't really care where you are. So that's the only thing I've run into. See, they're like national local lender, Michael wagging your finger. Michael: Haha. Yeah. See, I have had that unfortunate run in where they said, Oh, where's the property? locally? Where are you California? No, thank you. So those tend to be smaller, more community banks, credit union type of institutions Emil: Was that conventional or commercial? Michael: Conventional, I think I don't really remember that specific instance. But I wasn't gonna say I did just run into this with a commercial loan as well. There was an out of state buyer looking to buy my six unit, and they reached out to actually a national bank. But because they didn't have a footprint in this local market, the bank wasn't willing to lend to them. And I think that they've become more stringent with their lending practices and criteria because of COVID. And so I think that could be a big part of it. But I was quite surprised that for a commercial property with a national lender, that they wouldn't lend to this person, because they were not local, there didn't have a local footprint. So it's hit and miss. So just ask the question. And the fact that there are banks and lenders that exist, that will lend to you even out of state just means you have to go find them. So if it's not the first one, or the second one, a third one, just keep calling around and ask for recommendations from either, you know, your local network or from other investors. Tom: There's a lot of lenders out there. Yeah. I mean, there's local, there's national, and I think that's an important part of the process is on turning those rocks and having those questions to ask, and being transparent, and all that good stuff. So yeah, hit and miss. All right, Michael, I got the next lending related question for you. You have some experience with this. Can you explain how commercial loans work a bit more? Do all have balloon payments? Michael: No. To the first part, I can't explain. Yeah, of course. So there's all kinds of different products out there, there's probably I would gather that there's more types of variables with commercial loans than there are with traditional residential loans, traditional, you know, being fixed debt, over 15 or 30 years commercial, you can have all kinds of different stuff. So I've got commercial loans. I'll give you an example. I have one that's fixed for 10 years on a 25 year amortization. And there's a balloon payment at the end of that 10 year period. I also have another commercial loan, that's a 20 year amortization, fixed for five years, and then resets every five years with a minimum floor. And so those are two different types, the balloon payment loan, I'll obviously have to refinance, because that loan is essentially due in full at the end of 10 years. And so unless I have the cash sitting and want to pay that off, I'll need to refinance that at some point in between now, and then, versus my other loan that's not fully due, there's no balloon payment, that'll just readjust. And assuming that the interest rate that that current lender gives me at the end of that five year period is still reasonable, no reason to move or jump ship, but something I just did recently, actually was I was looking at refinancing a portfolio loan I have that sits across two properties. And the rate was, I think, four and three quarters. And so I reached out to a commercial lender and I said, Hey, this is what I've got what you do. And so they were going to give me a seven one arm, amortized over 25 years, which means it's fixed for seven years, then it'll adjust every year after that at four and a quarter. And then there was all these fees and points associated with doing that. And it was going to be a whole thing. And so I took that back to my current lender, I said, Hey, I got this quote, can you beat it? And they said, Yeah, we'll just drop the rate to four and a quarter for like 2000 bucks for a one time fee. I was like, sweet, that's like a six month payback based on that loan size. And now that's fixed for this. next five years. And so that'll adjust again at the end of that five year period, but there's no balloon payment on that. So that was a super long rant. I know. Hopefully that answers the question. The short story long is that no, not all commercial loans have balloon payments? Some of them do some of them, don't, you just need to understand the terms and intricacies of your specific product that you're either have or investigating. Tom: That's great. And, yeah, definitely a more advanced topic where it's not necessary. If you're kind of earlier in your days of building your portfolio. Speaking of building your portfolio, Emil next question for you. So within the webinar that we receive these questions, it was about building a passive income flow of $100,000. And in that process, you're going to go well over 10 properties. And the question is, how do you get so many loans when you get above that magic number 10, which is limited by Fannie if you're just getting standard loans, go ahead Emil. Michael: Before you jump in, I will just say, Tom, that we just had Chad Carson on the podcast recently, and we were talking about going lean and small as opposed to big and deep in your portfolio. And I think that you can absolutely structure a portfolio with paid off properties and only need 10 to hit your $100,000 passive income. So I think a lot of people get disgruntled or disheartened when they see the amount of leveraged properties that they need to purchase or having their portfolio to hit their income goals. But I would encourage people to look at the unleveraged amount of cash flow is the number one concern, and you're less concerned about the return metric itself, it can totally be done. So I would say look to structure what makes the most sense for you as an individual investor. Tom: Great point. Shout out Chad. Yeah, front of the pod. Go ahead Emil. Michael: Friend of the pod sorry Emil, all you man. Emil: That was a great episode, good shout out. So one thing you can do is if you are married, your spouse can start taking on loans, right. So like, what I've been doing is, you know, is buying properties even before we were married. But now even though we're married, I still get these loans in my personal name. So it doesn't go my wife's name at all. The reason for that was, we can get more loans together if each loan goes on one person's name than if every loan goes on both of our names. So my plan was to load up on loans in my personal name. And then once that, once banks are like, Nope, sorry, we won't give you any more conventional, start putting them in my wife's name. So that's, that's one way people get around it. The other one is you just start going into different loan products. I was listening to a BiggerPockets episode recently. And they were talking about this how everyone asks this question, what do I do when I get to 10. And once you get to 10, everyone realizes it's not as hard as you think, to go out and just you go get a commercial loan, you talk to private banks, you just get a different loan type, you're not going to get the amazing terms. But it's not hard to go out and get loans on cash flowing properties. Tom: We've had a couple of episodes interviewing private lenders, and that industry has come such a long ways of like a meal said, where it's not that daunting to get these private loans. So yeah, check out some of the I think I've been our two episodes ago, or actually might actually be coming out this previous episode. I'm sorry, I'm in a time warp right now thinking about when we're recording goes out. Michael: Back to the Future. Tom: All right. So my next question I have is COVID related. So we had a couple of questions. Are you guys having tenant rent payment issues during COVID? tenants are protected from eviction in many areas? Michael's turned to take the first stab at this question. Michael: Yeah, sure. So I've been very fortunate knock on wood, that I really haven't experienced the mass lack of payments that I think everybody was anticipating in March and April, I have had one tenant stop paying in a Southern California property that I own, which is a higher end rental, and so they lost their job. So actually, two rentals in Southern California, one stop paying almost entirely close of job, another Ask for rent reduction, just kind of indefinitely, which I was happy to accommodate both of those things. Thankfully, there was some rental assistance programs that my property manager helped the tenant who stopped paying qualify for it. And so we've been able to recoup some of those. And then I think there was just some new legislation passed recently, that is also going to allow some rental assistance funds to be made available. And so we'll likely be able to take advantage of though well, but by and large, I just haven't seen people stop paying you do here every now and again of people trying to take advantage of the system because they understand or they're professional tenants. That's more so in my experience been the one off by no means is that the vast majority. So I consider myself very lucky. But I think we've been proactive with working with our tenants and trying to stay ahead of the eight ball as opposed to trying to be reactive finding out Oh, by the way, I'm not paying. Yeah just for whatever that's worth just haven't seen that come to fruition. Thankfully. What about you, Tom, have you? Tom: I haven’t, you know, of the bigger companies that manage a lot of properties I've heard there's like, maybe been like a little bit of a downtick in vacancy. I guess that would be an uptick of more vacant homes, but it hasn't hit quite as hard and I think single family rentals is has been a little bit insulated. from some of the challenges as well, this is just my personal opinions and talking to people. But I haven't been hit. As I mentioned, I did have a tenant move out, but it wasn't necessarily COVID related, and I have a new one coming in. So at least so far knock on wood, like you said, it's been kind of business as normal, haven't been impacted by it or really much at all. Go ahead Emil. Emil: Same, I think I had one tenant who they were always on time with payments. And now they're a little bit behind here and there, but they're always catching up and making payments. Michael, it's funny that you mentioned California because I watch Michaels Zuber’s, YouTube channel a lot. And he's mentioned, a lot of hit, you know, a section of his point of I don't know what it was, like 510 percent of his portfolio has like stopped paying, and his whole portfolio is in California, too. So I don't know if it's more a California thing. And maybe in the Midwest where, you know, rents and everything aren't as high. It's not being impacted as much. But that was interesting that you mentioned that your California stuff is what's been impacted the most. Tom: Okay, so who's up? Now? I think a meal is up. This is a acquisition underwriting question. Do you advise on buying properties when the existing tenants are behind on rent? Emil: That's a good question I have bought. Tom: And as always, these are all just our personal kind of opinion, this is not investing advice. Go ahead. Emil: I have bought properties where the existing tenant was late or like, you know, you can see the rent ledger, and they were consistently late, like if they haven't paid for two months, okay, now, now, that's something but if it's like, they're consistently late, but they always end up paying, that doesn't determine too much, especially if it's a property where I'm like, oh, man, look at market rent is way higher than it is with the current tenant. And they're three months away from renewal. So like, you know, maybe we'll just get a new tenant in here once that's time, so doesn't usually deter me. How about you guys? Tom: Michael, I thought… Michael: Kind of was interesting to note, it depends how habitual The problem is. I had a tenant that was late every single month, and so paid me an extra $100 a month, that's an extra 1200 bucks, cash flow on that property. So that was like, Alright, and once I learned that, that he was gonna make rent, he just stopped worrying about it his Yep, it's gonna be late this month. Okay. If someone hasn't paid at all, that's probably a bit more of an indication that there's a bigger issue going on. And so buying a property with that tenant in place would be a bit cause for concern. In that instance, I might ask the seller for some concessions, like, hey, pay me three months rent in advance, or put it in an escrow account. And you know, guaranteed me that this renter is going to make rent. And if you put your money where your mouth is, if they pay rent, great, you don't lose anything. But if they don't, now you've got me covered. So I'll only buy the property under that circumstance. So the kind of things like that you can be a little bit creative with hedging your bets a little bit. Emil: It's a little bit harder to do that right now, just given how crazy the market is an unlimited supply is. Michael: Things are flying off the shelf. So contingencies tend to steer sellers away from going towards those offers. Absolutely. I mean, it's all one of those things, you got to be as aggressive as whatever makes you comfortable, but fully understand the market conditions and where you're operating in. You might be a bit unrealistic for your current market, given the situation we're in. Tom: Yeah, I’ll add in a couple of comments on that on tenants being late to as a meal was alluding to like looking at the kind of history one thing that's cool with Roofstock, at least you can see that ledger. And when the ledgers are ran, sometimes there can be a delay of when payments are processed. So the process so I'm looking at a ledger that was pulled on the fifth of the month, but the payment hasn't been processed yet, it could be kind of misleading. So like knowing that. And looking into the history, there's this term and tax called Sally same as last year, I think I said that right, you can kind of think of when you look back at month after month after month, you can kind of infer some similar things. So if there's a history of late payment, or inconsistent, or what they call not secured NSF funding, like that's a bit of a red flag. But if someone is oftentimes a little bit late, and perhaps they're incurring a late payment fee, and another potential upside in that, if that's what you're about. So I would say, I look at the payment history. Also, how long have they been living there could be telling if they've only been there for a little bit, and they're already having some late payments issues, that could be a major issue, because what I think about is a big risk costs outside of property condition is kind of going through an eviction. So doing what I can to avoid going through that legal costs and all that rigmarole. So at a high level, like a lot of these questions, it really depends and looking at the context of the situation. Excellent. So we just got a few minutes left in today's episode, so I'm gonna hit real quick, some of these Roofstock Academy questions just talk about those. So someone had asked is that is Roofstock Academy at one time fears that a subscription model is a one time fee that is backed by a lifetime full refund guarantee, so have a risk free. It's not a hotel ballroom where they bring you in and keep upselling you new things. It's your pay once in your in. And somebody also asked is the cost of Roofstock Academy tax deductible? I'm not a tax advisor, you should talk to tax advisor we did an episode with a tax advisor who mentioned that, you know, there's ways that he has put these type of costs either as business develop Men are startup costs. So again, I'm not giving you tax advice with this, but we have heard from a tax advisor Michael: They said yes! Tom: But yeah. Talk to your tax advisor, talk to your tax advisor. So another question for roofs Academy Can I buy now and take the course in a few months? I'm going through a bunch of stuff right now. But I want to like kind of lock this in at the current pricing? And the answer is yes, you can sign up and almost all of the aspects of it, you get lifetime access to it, lifetime access to all the lectures, all the group coaching Slack channel, the one thing we do limit is the one on one coaching and what's for a year, and we start that when you do your first coaching session, so you can sign up, you're in awesome access to everything. But if you you know, want to get started in like a month or two months or three months, whatever, you can start the clock on the coaching when you do that very first session. So yes, other questions is do you get access to the Roofstock Excel export so this is one of the cool little hidden features about resect Academy where our members can export the full listings on the retail side on rootstock into evaluate an Excel which me I like working in Excel, you can evaluate a ton of properties and whittle down a list to a more manageable ones to go in and, and dig into the specific listings. Alright, guys, I think we I wanted to get to those ones real quick. But I think we got a good episode. There's still actually quite a few questions. So we'll have another ama for us soon. Any final thoughts? Emil, Michael? Michael: No these are all great questions. So keep them coming, please. And leave us a rating review comment. If you have additional questions as well. It's a great way to get in touch with us for the podcast specific. Emil: Yeah and an even easier way. We have a link tree link in the show notes where you can click on that it'll take you to a couple different places, but one of the links will be where you can submit questions if you want to stack on a future episode. So that's another easy way to send us questions. Tom: Awesome. Thanks for listening. Happy investing. Emil: Happy investing. Michael: Happy investing!