11 Doors and Returning to Real Estate After an 8-Year Hiatus

Ashley:
This is Real Estate Rookie, Episode 185.

Alicia:
I could spend $300,000 to go to school, or I can work your exit strategy today from a beach. Let me decide. I think it was then when I fully committed to initially it was going to be some passive income to help while I was in dental school, but then it just became my exit strategy in general. What I did was I took that exit strategy and just moved it to be my primary focus instead.

Ashley:
My name is Ashley Kehr and I’m here with my co-host, Tony Robinson.

Tony:
Welcome to the Real Estate Rookie Podcast, where every week, twice a week, we give you the inspiration, information, and education you need to get started as a real estate investor. Ashley Kehr, what is going on? What’s new?

Ashley:
Well, I have two exciting things to share with you, as I’m sure you know, from BiggerPockets, but before we get into that, it is snowing outside. Today is what? April 19th, and it is a snow storm outside right now, so if you wanted to go ahead and recap how beautiful the weather is in sunny California, now is your chance.

Tony:
But what’s funny, Ashley, is I’m actually going to be in your neck of the woods in four days, so I guess I get to-

Ashley:
I know-

Tony:
… experience this terrible New York weather firsthand.

Ashley:
Yeah. I actually found out my new car has made it to Buffalo, hasn’t made it to the dealership yet, but I’m hoping that it makes it here in time to come visit you so I can road trip with it-

Tony:
You can road trip with it-

Ashley:
… for a couple of hours-

Tony:
There you go.

Ashley:
… to come see you when you go to New York.

Tony:
Yeah, that’d be perfect, and you can drive me around.

Ashley:
Yeah. Then if not, I’ll just have one of my personal chauffeurs that have been driving for the last month take me.

Tony:
Take you where you need to go.

Ashley:
Yeah. Though, there’s two call outs I want to do real quick on BiggerPockets is first, the new podcast that has come out. It is called On the Market. It’s one my great friends and my recent joint venture partner, On a Flip James Dainard as one of the hosts, Dave Meyers, who we had on a couple episodes. I highly recommend you guys to go check it out. They also have a YouTube channel too, where they’re posting the podcast episodes and also extra YouTube videos for you guys with what’s going on in the economy, what’s going on with the market.
I was just watching a video this morning about some of the top housing markets, what their picks were for housing markets across the country too. Then the second thing that I want to point out is a BiggerPocket’s money episode I want you guys to listen to. If you are looking to get lending from a loan officer and what it takes to get a pre-approval, or if you need help preparing to get pre-approved, you want to check out episode 303 of the BiggerPockets Money podcast. They have a former mortgage lender that comes on and talks about how to check your credit score, how to build your credit. You’re not just quite hitting what you need for pre-approval, some tips and advice you can take away from this episode to actually get pre-approved for a loan.

Tony:
Yeah. So if you guys haven’t yet, make sure you go check out both of those, again, On the Market, great, great, great new podcast. I think when it launched, it was number three on the podcast charts for business, so there was a lot of, lot, a lot of good response so far, so you’re missing out if you haven’t checked it out yet. Can I share just some good news, Ashley? I’m excited because this is something I’ve been working on for a while, but I’ve talked in the podcast that we’ve been wanting to buy a resort. That was the space that I wanted to move into was to pick up a resort or a boutique motel or hotel. Well, we finally, finally, finally have one under contract. It’s a 23-unit cabin resort in Big Bear Lake, California. We’re looking to close, I think at the end of June, but I’m super excited for this project to finally take hold.

Ashley:
Tony, I am so happy for you. I know how hard you’ve been working on this deal. I’m so excited to do a Rookie Reply to actually break down how you made this deal happen, because I know you went back and forth with the seller multiple times. So you guys watch out for that Rookie Reply that will come out probably July. We’ll do it once you close on the property and work through the numbers. Yeah.

Tony:
Yeah, but it’ll be fun. It’ll be my first time syndicating a big deal like that, so there’s some lessons to be learned there. We’re going to be turning it into a really cool wedding space, so we’ll have some wedding revenue in addition to the short-term rental stays, so just a really tremendous amount of upside with this project. I’ll be excited to share the journey with you guys.

Ashley:
You know how many women are going to be pushing to get engaged now, Tony, just so they can get married at Tony Robinson’s-

Tony:
At Tony Robinson’s-

Ashley:
… venue?

Tony:
Yeah. Maybe, maybe, we’ll see. Maybe it’ll be the other way, all the men watching want to get married because it’s …

Ashley:
Yeah. They want to go and get a glimpse at Tony Robinson and maybe get some real estate advice. Yeah.

Tony:
Advice on their wedding day.

Ashley:
Okay. Today, we actually have a BiggerPockets employee on the show, so this is so exciting to me. I’ve always been a BiggerPockets groupie, still am, a diehard, bigger packets fan. I love all of the people at BiggerPockets that put everything in place, including this podcast episode. Tony and I show up here, we don’t do any of the behind-the-scenes stuff, and so we’re very fortunate to have a great team at BiggerPockets. Today, we get to highlight and bring on the community manager at BiggerPockets and talk about her investing and what she’s done so far. The first thing that she points out is I failed the first time. It didn’t go great. It didn’t go how she expected, but she started over again and she took more time to research what failed last time and learn what she needed to do to make it different, and she is succeeding.

Tony:
She also shares some really amazing tips on how to build relationships with both private money lenders and how she went about finding contractors in a new market. So if you’re struggling with either of those two things, make sure you listen to the end of the episode.

Ashley:
Alicia, welcome to the show. Thank you so much for joining us today. Can you start off with telling everyone a little bit about yourself and how you got started in real estate?

Alicia:
Sure. Thank you so much for having me. I got started in real estate first by being an accidental landlord in about 2011. That didn’t go so well. I ended up selling the property. I came back and started doing it intentionally in late 2019. I started with a multi-family property in Detroit, which I know a lot of people are scared of, but I lived in Detroit previously and started with that one and then expanded to Texas. Right now, I’ve got five doors, one live-and-flip that may be a failed live-and-flip and about six more under contract.

Ashley:
Wow, so you’re busy. You got a lot going on-

Alicia:
Just a little bit. I’m also the community manager for BiggerPockets, so I get to interact with [inaudible 00:07:05]

Ashley:
You have an insider here.

Alicia:
You have an insider today.

Ashley:
Yeah.

Tony:
Alicia, for folks that maybe don’t know what that means, just quick rundown, what is it that you do at BiggerPockets? What does it mean to be the community manager?

Alicia:
I joke that for those of you who like Dr. Seuss, I’m the Lorax of BiggerPockets. I speak for the people, and so if there are projects or products, things that need to be shared with the community, then that becomes my job to find out what they need and get it back to our product team, and also to hear what they’re missing or what the product team has in development and how or why it would benefit our members. I get to talk with people, understand their real estate journey. By me being an investor myself, it’s a huge help, because I’ve been in their shoes. I’ve dealt with the same struggles, and I can also see where there’s some gaps that maybe someone who isn’t an investor might not realize so that we can deliver the best products and experience possible.

Ashley:
That’s why BiggerPockets is so great. It’s not only the greatest software platform forums out there, but it’s also very investor friendly. We preach all the time, find an investor-friendly agent. Well, here we have Alicia, an investor-friendly community relations person. Alicia, let’s go back to the investing, though. The first thing you mentioned was that you failed in 2011, so how was that and how were you an accidental landlord with that property and how did that property fail?

Alicia:
It didn’t necessarily fail, it just was in Indianapolis, and it was the time coming out of the 2008 crisis where Indianapolis hadn’t quite recovered as some of the other ones and my ex-husband had a job transfer. W we were trying to sell it, had to drop the price, weren’t really comfortable with the price we wanted to drop it to. A friend of ours was a property manager and she said, “Hey, I usually do large multi-family, but if you want to rent it out,” she said, “I’ll give you a great deal and we can go ahead and do it that way.” Unfortunately, I didn’t have a great experience. It was a remarriage with five kids that very quickly dissolved in a matter of a few months; pets, that weren’t supposed to be there, drama, drama, drama. So thankfully, we relisted it after she moved out and were able to sell it, but trying to do that out-of-state, not choosing to do that and not really having a partner that supported that journey was especially stressful.

Ashley:
What made you decide that, “Okay, that didn’t go well?” What made you decide to try again, because I think a lot of people where they have something like that happen, just be like, “Okay, that’s not for me. I’m going to invest in something else?”

Alicia:
That experience, I actually learned a lot from it. It was something that I see people around me that were having some success with. Like I said, I didn’t have a partner that was supportive of that, and so when I no longer had that constraint, I started looking at ways to be able to leverage what I had because my divorce left me with half of what I was expecting or far less, but it didn’t change my goals and it didn’t change my outcome that I wanted for my future. So I had to start looking at more creative solutions to be able to get to the point that I wanted to be without being able to have the large income.

Tony:
Alicia, can we just talk really quickly? You touched on it a little bit, but what are some of the lessons that you learned from that accidental landlording experience?

Alicia:
Number one, if your heart isn’t in it, you should probably just step away and decide to do something else. There are a lot better ways to just accept the loss and move on if it’s going to be too stressful. I also learned that staying in communication with your property manager and having a property manager who is definitely solution focused and keeps you informed is a game-changer, especially if you’re doing long distance, because you don’t know what’s going on. I did have the advantage of still being friends with my neighbors, so they filled me in, “Hey, the police are at your house.” Oh, yay, things like that. But it was really important to make sure that we stayed in connection so that we knew the right steps to take. I had to lean a lot on that property manager, because I had no education; whereas this time around, I had used BiggerPockets before gaining my first rental.

Ashley:
Alicia, based on those lessons learned, and you said that you went to BiggerPockets to learn how to research it, do it better the next time around, what’s some advice you can give to our rookie listeners about looking for those solutions to certain problems you ran into?

Alicia:
I would say number one is, you’re always going to need more money than you think. I run across this when they’re like, “I have X number of dollars to get started,” or, “I have this much for a down payment.” I usually tell them, Great. Did you consider closing costs? Did you know that right now it’s really hard to find things in stock? My flip is going to cost more than I projected even when I started a month-and-a-half ago,” so making sure that they understand they need a bigger cushion than they expect. They need to have multiple exit strategies ahead of even starting a project or deciding to get it under contract, because things don’t always work out.
So I think that’s really important, especially if you’re a newbie, you don’t have a lot of money to make mistakes with, so not being afraid, but definitely taking those fears and creating solutions around it before you even start. I’d say also, getting a partner or someone that you can mentor with is huge because they can help you foresee some of those challenges, but overall, just making sure that you have your exit and you reverse engineer to get to, “How much should I offer? What should I have for my bid? What contractors should I look for? When is DIY D I don’t?” All of those different things that can help you be successful, so you want to do it again, and you really get excited about that check at the end, or the monthly income you have.

Ashley:
Alicia, can you give us an example of one of your properties where you purchase the property and you’re like, “Okay, here are my different exit strategies,” and go through how you plan those out?

Alicia:
Sure. We just started a project. It’s My First Flip. I typically try to do buy-and-hold, because I want the long-term gains and I like the monthly income coming in, but I need cash to be able to move on to the next project. I partnered with someone that I happen to meet on BiggerPockets. He’s a fantastic partner, and we decided to do this flip of a two-bedroom, two-bath, 850-square foot pretty simple project. What we did there was looking at the numbers, first, is there room to actually rehab at the way it should be because it’s an older home, and there’s lots of things that can come up in those? We needed to also look at what’s our sale price? Does it make sense to step in, and if it can’t sell or if we choose not to sell, will it still cash flow as a rental in case something happens with the market?
I know that my partner, this is his first foray into investing and he was nervous about the climate that we’re in. He’s like, “What if 2008 happens again?” I just spelled it out. I said, “2008, in the worst markets, were dipping about 25%. We could dip 20% and still make profit off of this. We can still cash flow.” So even taking those most catastrophic kinds of things that we may have experienced already and putting them in perspective to make sure that we can move forward with the deal and it still be a good deal was really important.

Tony:
I love the way you break down all those excellent strategies and think in the worst-case scenario. Ashley, and I talk about that as a way to beat the fears. If you can deal with the worst-case scenario, then there’s no reason not to move forward. Alicia, I want to talk a little bit, because I’m really glad you brought this up, but you said that you found your partner through BiggerPockets. If we can, let’s go down that rabbit hole a little bit more. How did you find this person exactly? How did you vet that the partnership would be a good one?

Alicia:
That’s a great question. So I started out in some conversations and noticed we were following certain threads on the forums. He happens to live locally, but also is from Indiana and in the same area, and we’re both looking at investing in both places as a long-term strategy. So we got to talking and I told him, “Please come out and check out what I’m working on right now,” that way he could see, just get a feel for if it was something that he wanted to do or not. He came out to a project that was completely gutted, and now he’s seen that we just finished it a few weeks ago and seen the transformation. We said, “Let’s keep each other in mind if something comes up.” I happen to find this property that was undervalued on the MLS that hit a nice sweet spot, that honestly we could lose everything and it wouldn’t break us.
I messaged him and said, “Hey, are you interested in moving forward, because this is a great property.” We started working together and we decided to intentionally make it a flip. I joke that we are on a very strong third date, so we’re deciding, “Should we move together and move forward, or should we just flip the sell, go our separate ways and remain friends? I think that’s a great exit strategy for people who are just getting started is to have a very clear end game, not something where you’re tied to “We bought a package of 15 houses, and now we are stuck for the next five, 10 years,” so we have a chance to feel each other out. We also made sure that our strengths and our weaknesses were counterbalanced of one another. You don’t need a duplicate of yourself, you need someone who can step in and fill those places where you’re not as strong or to hold you accountable on those places to keep you moving.

Tony:
Alicia, I know the next question from our rookie audience is going to be, how did you structure the partnership? What are the roles and responsibilities? How are you guys splitting the equity, the profits? So walk us through that piece.

Alicia:
For our partnership, we decided to do a joint venture agreement rather than going through all of the expense and everything of opening up a separate LLC between us. We also were looking a lot at risk mitigation between us joining in a partnership. This is my first partnership to do aside from having a private lender, which I’ve done previously, but we decided to do a joint venture between our LLCs and just drew up a document, had it notarized, and we are good to go.

Tony:
That’s awesome. Now, in terms of how you guys are splitting duties and responsibilities, what does that look like?

Alicia:
I already have a crew working in the area, and so his contribution is some of it is research of things I don’t have time to research. He’s working on finding a few of the subcontractors that we need to be able to get things done on time. I’m managing the crew and then we’re each bringing 50/50 on the expenses.

Ashley:
Alicia, one thing that, myself included, and Tony, I’m sure you do too, is finding contractors. How did you find your subs and how is your partner going to go and find out some subs too? Do you have any advice for that?

Alicia:
I found my contractor from a tenant. I had a partner that was supposed to be going through on a project that I purchased that didn’t work out, and I suddenly found myself with this mortgage on a hard money loan and plans to get this thing rehabbed, because this duplex had not been updated, no joke, since 1967 to ’68, and then the person who was going to help and contribute the labor backed out. So I’m like, “Great. What do I do?” I had a tenant who said, “Hey, I have a guy who can come over and bid everything,” so I tested him out. We needed the exterior painted, so I said, “Let’s start with that. I want to see your quality of work. I want to see how we work together. If you deliver on what you say you will,” and he did all of those.
Now, we have what I joke is my rag tag crew, so we’re rough around the edges, but we get the job done and they show up for work. They have never worked for a woman before, which has been interesting, so we’re just moving along from project to project. I will say for those of you who do have contractors that you’re using regularly, respect what they know. Respect that they have experience that you don’t have, but also know that there is a line where you, as the paying person, needs to make the decision to say yes or no, but treat them with respect. Pay them on time, and treat them as a professional, just as you’re a professional investor and you’ll have a great relationship going forward.

Ashley:
Alicia, how are you managing the contractors? Do you have any software or anything that you’re using? Are you using Excel? What does that look like?

Alicia:
Managing my contractors, I’m typically running through texts, so I have a general contractor and we have three guys that are on that crew that help out. I don’t have to check with the crew very often unless they’re working on a separate property or they have a question. Other than that, I’m communicating with the general contractor regularly. I’m going down there once a week. The property’s about 40 minutes south of me, so I check on everything, check progress. I get regular text updates. Because we’re a small crew, and because I don’t have the financial capacity at this point, we’re doing one project at a time, so it’s really pretty easy for me to manage and get started, especially because BiggerPockets is my full-time job. So my evenings, weekends, lunch breaks are spent managing this project, as I’m sure everybody here has probably been in at one point. So communication with them, it has to happen when we can.

Tony:
Alicia, you made a really good point. I want to make sure that we don’t gloss over that, and what you said that when you hired this contractor for the first time, instead of giving them an entire rehab to do, you gave them one small job, and that was to paint the house. Through that small job, you were able to see, “Okay, do we work well together? Do I like this contractor’s work?” Is there a good fit here?” You did the same thing with your partnership with the other investor as well, where instead of saying, “Hey, let’s go out and buy multiple single-family houses or this big apartment complex, we’re just going to do one flip together, and that flip has a really clear and easy exit strategy.” That process you’ve developed, whether intentionally or unintentionally of starting small with your partnerships, I think is a really important lesson for all of our rookies to follow as well.

Alicia:
I definitely agree. Some people are the kind that jump into the deep end of the pool, cannonball, ready to go. Then, there’s some of us who step in, test the water a little bit so that we can decide, “Are we going in or are we getting out?” Everybody is different, but I think giving some caution can help mitigate some of those potential issues that you might come up with or really sour your feelings towards investing.

Tony:
Alicia, we’ve talked a lot about the flipping, but I want to go back just a little bit, because I think there’s an important piece to your story that we’re missing here. You had this initial start as the accidental landlord in 2011 and you picked back up, you said, in 2019. In those eight years, that’s a decent amount of time to wait, what was it that made you say, “Okay, I think I’m finally ready to go?” The reason I’m asking this question is because there are so many rookies that are listening that I think are on the fence about getting that first deal done, but for whatever reason, they’re not pulling the trigger. What was it in your mind, what was going on that made you say, “Okay, I’m finally ready to make this happen?”

Alicia:
For me, going through a divorce or a major life change, there’s a lot of stepping back, reanalyzing, reassessing what you want, what your goals are, and I took several years to just get my financial footing again. Initially, I was working in the dental space and I was working with a lot of dentist entrepreneurs. I thought, “Maybe, I want to go to dental school,” and I started working towards that goal, but talking with all of these dentists, I learned a lot of them wanted to get out and what was their exit strategy? So many of them had real estate as an exit strategy, and they’re like, “I want to retire off my investments and things.”
So I’m thinking, “I could spend $300,000 to go to school or I can work your exit strategy today from a beach. Let me decide.” I think it was then when I fully committed to initially, it was going to be some passive income to help while I was in dental school, but then it just became my exit strategy in general. What I did was, I took that exit strategy and just moved it to being my primary focus instead. I think a lot of it was having to get up self confidence after having big life changes and also making sure that I had good financial footing that I could go forward, because I had kids at home that relied on me.

Ashley:
Alicia, you bring up such a great point about that dentist, or the ones you worked with, how they wanted to get out of being a dentist and were trying to find those other financial goals to get them there. When I graduated college, I worked at a CPA firm and I was going to be a CPA. That was what I went to school for. That’s what I was working for. The day that I quit, where I couldn’t take it anymore, couldn’t sit at a desk, I couldn’t do the same things over and over again just for different companies, I told the manager there that I was putting in my two weeks notice. She said to me, “I don’t even make the money that I want to make here. You should be happy with the money you’re making,” because that was part of it was I expected to be making a lot more money than I actually was and she said, “This is just the way it is. I wish I was making more money too. You just don’t here.”
I have always thought about that, and that really triggered me. Well, how is that going to convince me to stay, is you telling me that you’ve been here so long, you’re a managing partner of the business and you’re already complaining that you don’t make enough.” For me, I was like, “This just confirmed that I’m making the right decision by leaving,” I think that’s very powerful that especially anyone that’s young listening to this, if you are going to college to be something, to get into a career, talk to people that are in that career and see what it’s actually really like. Yes, you could be making tons of money, but do they have huge student loans? Are they having to dump a lot of stuff into their practice or their business? I think it’s really important to talk to these people that could be mentors to you as to see what it’s really like being in that field or that career position.

Alicia:
I was going to say too, for the rookies, there’s a great BiggerPockets Money episode. I’m not sure on the number, but I’m sure we can put it in the show notes about the value versus your major, specific to schools for college education. That was huge because as my kids are in high school, now they’re looking for their careers and making decisions. Does that $60,000 a year school really get you ahead versus the 25,000 a year school, and is that career what you really want? How can you transition out of it? Because I started out as a performer and in acting in theater and things, and I’m not doing that today as much, but that doesn’t mean that you can’t take those experiences and move it into a different career path. But sometimes you get those golden handcuffs, if you go for the money or the ultimate goal of the title where you may not like it and you’re stuck. I think real estate investing is a great way to get unstuck. It just takes time and patience.

Tony:
Yeah. I think what I love most about real estate investing, this goes back to what you said, Ashley, your boss, the one that you mentioned at the CPA firm, she was unhappy with the amount of money she was making. It’s because she wasn’t in control of what that number was. That CPA firm got to dictate what her value was in the marketplace, and that’s true for anyone that has a regular W2 job. Your employer is going to dictate how much value they feel you bring, even if you’re in a sales position. No salesperson is getting 100% of the commission.
The company’s going to take something, so there’s always some level of the company dictating what value you bring. But when you become an entrepreneur and you go to business for yourself, you go to work for yourself, you get to prove to the marketplace how valuable you are. As a real estate investor, the more units you can accumulate, the better rental product you can provide, that’s what dictates the value that you have in the marketplace. I think that’s what gets me so excited about being a real estate investor is that, ultimately, I’m in control of what that number is.

Ashley:
Tony, you hit another point there too is a lot of time, it’s the value of your time, so working at that accounting firm, you had to clock your time, what client’s project you were working on, and then you were paid based off the hours that you put in. If you wanted to make more, you had to work more. You had to put more time, where with real estate investing, there’s so many different ways to build passive income or make money other ways without giving up as much time as these other careers force you to do. Alicia, that episode that you’re talking about, I know every single BiggerPockets Money episode out there, and that was Episode 251. Then, upcoming is Episode 293. That will be focus more towards getting your master’s degree, and first one was for undergrad. Alicia, let’s go into a deal and break it down. Did you have a deal in mind that you wanted to share with us today?

Alicia:
Sure. We can talk about the rehab that I just finished.

Ashley:
Okay. Yeah. Great. I’m just going to ask you a couple of questions about it real quick and we’ll go into rapid fire and then you can go ahead and go into the story of how the deal happened. What was the purchase price?

Alicia:
Purchase price was 95,000. I know some people are going to say, “I wish.”

Ashley:
How did you find the deal?

Alicia:
I actually found this deal because it was a block up from a duplex that I was currently working on. I happened to see it and it was from a wholesaler that didn’t get the contract completed, so I asked once that fell out of contract, “Hey, would it be stepping on your toes if I contact the seller directly,” and said no. I walked down there and I put my card on the door, never heard anything. Skipped traced, wrote a nice little handwritten note. Didn’t hear anything. Saw a guy mowing whenever I was down there checking on my other project and flagged him down like the crazy woman that I could probably appear. He said, “Oh, I’m cutting the yard, but here’s the owner, and here’s his number.” I called the owner and finally got ahold of him and went to take a look at the property.
Everything looked good. He had just done some HVAC. He was starting to work on it, but really was looking for a place to move his money, and so he wasn’t sure about me. This is a pretty small town, so it works a lot by who you know. “He said,” I don’t know you from Adam.” I said, “I totally understand that. Let me have my contractor pop down here. We’re working the next block up.” This is where having a good local crew is a great thing, because they sold it for me.
They were the ones who helped me close that deal because they walk up and they all had known each other basically all of their lives. He said, “Hey, is she going to do what she said?” “Absolutely.” They said, “How is it working for her?” I remember my contractor said, “Well, she’s a great boss lady.” I took that with a lot of pride, but they helped close the deal. Now, they’re even helping me find leads because they want to keep working. They don’t want to have to drive the 30 minutes to get into the next larger city to be able to keep working. So they said, Oh well, so-and-so is getting ready to sell their house,” or, “So-and-so just inherited a house,” or they’ll be driving around, “Oh, this neighborhood has some overgrown hedges,” things like that. Having a great, consistent team can even help you find deals.

Ashley:
Okay. The next one is, how did you fund this deal?

Alicia:
I found my private lender through going to a meetup and meetups, networking, whether it’s on BiggerPockets, whether it’s in-person, meetups it’s so important to being able to build that team of people you can call on. I happened to meet this woman at a Hard Money Lender meetup, and she and I work well together, and so I found this and I took it to her. She ended up funding the deal for me, but she’s also mentored me through this project, so that’s been a double blessing.

Tony:
Alicia, again, I know the question from the audience is going to be, “How do I get myself one of these?” Everyone wants a private money lender. So walk us through, because obviously people go to meetups all the time, but how did you start building that relationship to the point where this private money lender knew you, liked you, and trusted you enough to actually give you the funds that you needed for the project?

Alicia:
I would say absolutely first and foremost, be a person who’s trustworthy, say what you’re going to do, do what you say. It’s really pretty simple, and I also think that building genuine relationships with people is a huge difference. People can spot a fake. People can spot people who are trying to network for the wrong reasons. You have to understand that you are bringing them an opportunity just like they’re going to bring you an opportunity, and being able to respect that and feeling like you can work together, that you have the same goal in mind and making sure that expectations line up. That’s true with any team member that you have. Does your expectation line up with what their expectation is, and if not, you need to get on the same page or go separate ways. I found that that’s a huge difference in being able to make sure that we can continue to have a good working relationship is because if I say I’m going to do something I’m going to deliver, and that builds trust in her that she wants to invest with me again.

Ashley:
Alicia, what were the rehab costs for this property and did your private money lender pay for that too, or did that come out of your own pocket?

Alicia:
My ARV initially, was 185. Thanks to this great market we’re doing even better. That left me a max of 70% LTV for the deal, so I was able to get the rehab set in. One thing that I really liked with this lender, and this would be great for rookies to know is a lot of the commercial hard money lenders will lump it all together in one big loan.that means that your closing costs are going to go very high because they’re basically putting all of your rehab into escrow, so you have to be able to front that money. Most people don’t have it. This private lender was able to set it up as two separate loans.
One is the purchase price, and one is the price for the rehab portion. That meant that my overall closing costs were about $9,000 less than what they would’ve been had. I used a commercial lender who was going to lump it all and escrow out the money that I basically already paid. She gave a max of 70% LTV. That worked out to be about $30,000. I’m going to go about 38, so that section I have to do. Of course, now because the market is doing well. My ARV is closer to 200 to 215, so I’ll be able to pull all of my cash out. I’ve been really fortunate that I make smart deals. I don’t make a lot of deals, so I have had infinite returns on every single purchase I’ve made to date.

Ashley:
Congratulations. I like that last little line that you said, “I don’t make a ton of deals, but I make smart deals.” I think that’s where a lot of people get caught up is, “I need to grow on scale. I need to buy, buy, buy, do all these deals,” but you can be just as successful doing a smaller amount of deals by just making smart deals and being picky and choosy, and just spending your time. I have a friend, Laka, out of Seattle where I think last year she did four flips and she made a crazy amount of money.
It was because she focuses on those and she puts time and effort, and does the little details in each flip that she does, where a flipper who’s doing several a month doesn’t have that time to put in the little touches and the details that she does, and they probably end up making about the same return, so I think that’s really smart. That’s one way that rookies should look at doing deals too, is writing out your criteria and really going after great deals instead of worrying about getting all these deals that probably add up to one nice, big, smart deal.

Tony:
Alicia, it sounds like this deal overall worked out pretty well for you, so give us the final numbers. Where is this thing going to land? And sorry, the exit strategy, are you flipping this? Is it going to be a rental? Let us know how you plan to finish this thing off.

Alicia:
This is going to be a rental. I did a value add, which really helped what people didn’t realize on the wholesale deal was that there was another room connected to one of the bedrooms. It had been an old converted bathroom, and so I was able to give a new opening, close up that wall and turn it into a three bedroom, one bath to give me additional value. I’m going to go ahead and rent that out. It’ll rent for approximately 1,400 a month is our goal. I’m planning to refinance it once my seizing period is up, which should be around July.

Tony:
That’s awesome. Then, what do you plan your net profits to be on that $1,400?

Alicia:
That’ll depend with interest rates and everything coming up, but I’m hoping to cash flow about 250 a door, and that’s with having a property manager in place. Originally, I was going to try to manage everything myself, but the property I just refinanced with, because I’ve been doing this for less than two years, they did make a requirement that I have a professional management company. Because they’re only a block apart, it makes a lot more sense for me to just pay it instead of saving the drive and the trouble.

Tony:
Okay. Awesome. Well, congratulations, Alicia. Everything from finding the deal, you hustled really hard on that one, to getting your private money set up. You’re just proof that when you build the right network and you connect with the right people, your ability to succeed as a real estate investor really, really goes up, so kudos to you for knocking it out the park. Let’s move on to our next segment, which is the rookie request line. For all of you that are listening, if you guys would like to get your questions featured on the show, just give us a call at 888-5-ROOKIE, and if your question is good, we’ll put it on the show. Alicia, are you ready for today’s question?

Alicia:
I’ll do my best.

Ken:
Hello. My name is Ken Holly. I live in Portsmouth, Virginia, and I recently sold one of my rental properties and I made 66,000, and I immediately used that money to invest in another property. At the time, I didn’t know about the 1031 forms and stuff you should fill out. I was wondering how do y’all guys go about capital gains tax? I don’t hear that mentioned too much, but I’d like to how we go about dealing with the capital gains tax. I’ve had some of my landlord friends that just say whatever it is, they just pay it, and I said, “That’s fine too,” but I’d just like how do you reduce the load?” All right. Thank you.

Alicia:
First, I’m sorry that you didn’t think about that exit strategy, lesson learned, and I know that you’ll go forward and know how to do those in the future. There are some great places on BiggerPockets that do 1031 exchanges that I would say for sure check there. We also have a lot of really great accountants and tax professionals in our forums that can answer questions like that. For me personally, I do sinking funds every month, so a portion of the rent that comes out goes towards my CapEx expenditures, my taxes, anything that could be overages.
In that case, I would say set some money aside. You don’t want to necessarily leverage it, because especially putting it into the markets with some volatility and things, you don’t want to possibly lose that or make a ton and then have an even bigger tax event happen for you. I would say definitely setting that money aside, keeping it safe and secure, talking with a tax professional as to approximately how much you may owe and what those steps are that you can prevent it, or maybe some potential ways that you can leverage some other properties that you have, or other investments to be able to bring that overall amount down and to keep more money in your pocket.

Ashley:
Yeah. One thing to add onto that one way to reduce your tax burden is to purchase something else, such as equipment, or a vehicle or something that you can write off on your taxes. Just as Alicia said, consult a tech professional and make sure that it’s something that legitimately can be attacked right off to you. Okay. So on to our rookie exam. Alicia, here’s our first question. What is one actionable thing a rookie should do after listening to this episode?

Alicia:
Network, network, network. Get on the forum, start talking to people, build relationships. If you’re not in a meetup, go join one. If you’re already in a meetup, go join another one. Start talking to people, tell people what you’re doing and have something to offer when you come to meet them. It’s not all about take. It is a give and take relationship with people, so making sure that you’ve done the hard work to answer the most basic of questions so that when you get to that more experienced professional, you’re leveraging their time well, and they’re going to see that you actually put in some effort to do your own work and you weren’t waiting to be spoon fed the information.

Tony:
Amazing answer, Alicia. Let’s move on to the second question, which is, what is one tool, software app or system that you use in your business?

Alicia:
I tend to do my layout for my rehabs and everything on Asana, and Asana works really well for me because I can move columns around. I can put links in there, and it’s really easy for me to share with my partner or with my contractor. I can upload links to say, “Okay, here’s our joint agreement, and I can import that from DocuSign.” It keeps everything there ready for me. And we can also set due dates and things, so we’re all on the same page for what happens and get those reminders.

Ashley:
Lastly, where do you plan on being in five years?

Alicia:
In five years, I will be an empty nester, which is both sad and exciting, so I’m not sure where my journey is going to take me as far as real estate investing. I see that I will have a lot more flexibility in my time so that I can leverage that for bigger deals, because I don’t have the responsibility of motherhood anymore in that immediate day-to-day sense, I think that I would like to look into doing more in the syndication space and scaling that way. I’ve met a lot of great people who are willing to take me in as mentorship in those syndication spaces and starting to learn a little bit more about that so that I can leverage my time a little more efficiently than those single-family and small multi-family deals that I’ve been doing.

Tony:
All right, Alicia. Well, I am no professor, but I would say you aced that exam. Thank you for sharing all that good information with us and the listeners today, so let’s keep rolling. We’re going to go into our Rookie to Rock Star. If you want to be highlighted as a Rock Star, get active in the Real Estate Rookie Facebook group, we’re on the BiggerPockets forums and that’s where we pull these kind of stories from, but today’s Rookie Rock Star is Beth James. Here’s what Beth had to say, “There’s proof that you can still find BRRRRs if you keep at it. My husband, Tyler and I bought this house out of an estate for $115,000.” They put another 24,000 into it and an appraised for $200,000. They were able to pull out all of the cash they invested and still cash flow at $360 per month, so with that huge success, Best says that they’re on the hunt for door number three. So congrats, Beth, to both you and Tyler.

Ashley:
Well, Alicia, thank you so much for joining us today. Can you tell everyone where they can reach out to you and find out some more information about you?

Alicia:
Sure. You can find me on BiggerPockets forums. I’m always in there as well as the Facebook groups. I do help to run those groups as well. You can also reach me at [email protected], or my Instagram, which is plan_deviation. I’m not on Instagram as often, but follow along if you want to see great pictures of my dog.

Ashley:
Well, makes you guys check out the Real Estate Rookie Facebook group, if you’d like to interact with Alicia or a ton of other rookie investors. I think we’re at what, 40,000 people in the group and continuously growing. Well, Alicia, thank you so much. I’m Ashley @Wealthfromrentals. He’s Tony @TonyJRobinson on Instagram. We’ll be back on Saturday with a Rookie Reply.
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