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Can you still find great deals in today’s cutthroat housing market? Of course! But you may need to go off the beaten path. Rookie investor Karl Denton looks beyond the MLS (multiple listings service), focuses on undervalued and distressed properties, and even does his own home renovations to create value. If he can do it, YOU can, too!Welcome back to the Real Estate Rookie podcast! Karl has a superpower—finding hidden gems that other investors overlook. And he’s not doing anything that you can’t. Even as a full-time firefighter, he still finds time to attend meetups, go to foreclosure auctions, build his own lists, and contact homeowners about their properties. So far, this strategy has allowed him to find, buy, and fix three properties in three years!Want to replicate his success? Tune in as Karl walks you through each step of the BRRRR method (buy, rehab, rent, refinance, repeat). Along the way, you’ll learn where to find undervalued properties, how to manage out-of-state renovations, and when to do a cash-out refinance. You’ll also hear about Karl’s big pivot from long-term rentals to short-term rentals and the huge cash flow boost that came with it!
Ashley:Today’s guest is proving that the bur strategy by rehab, rent, refinance, and repeat still works even in today’s challenging market with a knack for finding value in unexpected places and the determination to keep growing despite rising rates. They’re scaling their portfolio one property at a time, ready to find out how they’re pulling it off. This is the Real Estate Rookie podcast. I’m Ashley Kehr, and I’m here with Tony J Robinson.
Tony:And welcome to the podcast where every week, three times a week, we’re bringing you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. So today we’re going to discuss first finding a real estate strategy that works for you. Number two, building slowly to hit financial independence, and finally, how to pivot your portfolio based on the market you’re in. So today I’d love to welcome Karl Denton to the podcast. Karl, what’s up brother? How are you doing, man?
Karl:Good, good. How’s it going, Tony?
Tony:What’s it I guess that initially drew you into real estate? What even kind of piqued that initial interest to say, Hey, this is what I want to do with my extra time, money, and energy.
Karl:So initially when I got into real estate, I was a firefighter at the time working locally in the area here, and I got into stock market first and I got into stocks and we got into it with a group of guys at work and we started trading some options and we really got into it for about a year. And then my tax accountant was like, this is a lot of work for not a lot of money. And I was like, yeah, no. I’m like, I’ll sit in front of the computer when the bell rings and then it rings again, and I’m like, I’ve been in front of the computer all day trading stocks.
Ashley:Wow. So your CPA really called you out there?
Karl:Yeah. So I was like, alright, I need to find something else to do to build some wealth here. The stocks were fun while it lasted, and I have some long-term stocks, which are great, but I started getting involved in real estate. I heard some people talking about it. My father still owned his initial duplex from when we were kids and grew up in, so I knew there was money to be made and people were doing it, but I just didn’t know how and it was kind of scary. I only had only ever bought my personal property, so I just started getting involved online. I started watching videos just so I learned about the stock market. I found BiggerPockets online, I started joining. I went through the forms. I was able to ask questions and learn. Then I joined and became a pro member because I saw the calculator functions and a couple of the other added features that I was like, oh, this is really good to be able to analyze deals and see it virtually. So that was really nice.
Ashley:Karl, I’m interested as to what initially drove you to choose the BR strategy over any other investment strategy.
Karl:Sure. So it kind fell into me by accident basically. So on my first deal I had found just by asking, and we had found a family member who was sitting on a property through my wife’s side who basically didn’t want to take care of it anymore, but he wanted to remain in the garage space that he occupied. He was just getting an old tired landlord syndrome pretty much. And so that’s kind of how we fell into our first property, got an under market deal, and the BR strategy accidentally happened because we basically renovated it because that’s how I wanted to make it. We wanted it high quality and we renovated one of the units and we upgraded the furnace system. And then just as rates were starting to creep up, I had met with a local investor As I was learning, this is the beginning of my journey, I didn’t really know a lot, but I had studied BiggerPockets and things that I learned and he told me, you should cash out refi and pull the cash that you sunk into the deal and get it back out. And I was like, oh, I should, okay. So I cashed out refied at 4.5% just as the rates were creeping back up. I wish I did it sooner, but I was able to pull most of all the cash a little more out of that deal that we required to put down using an investment loan, which was like 20% at the time before I knew any creative financing or anything like that.
Ashley:Do you want to tell us a little bit about what the B strategy is as exactly if someone else was going to follow the same strategy?
Karl:With the burrs strategy, it’s basically you want to figure out what kind of property you’re going to buy, you want to buy that property, and then you want to rehab the property. So this property was older and had good bones, but it was older. So we had rehabbed the property to increase the value. So then by increasing the value, we were able to refinance the property. And then the last step, I believe is to repeat and just continue doing that, but you need to find those distressed properties of course, to be able to get that value add to be able to rehab them and then refinance them and be able to pull the cash out and hopefully and then some more by adding that value to them.
Ashley:So that was definitely a surprise entry into real estate for you. I am assuming after that deal happened, you were addicted to the B strategy?
Karl:Yeah, I was just addicted to real estate in general. I just started learning more and seeing the cashflow come in was nice, and then you start managing all the finances and the expenses and then I had inherited those tenants, so it was like knowing I got cashflow coming into the deal, which was great, but then it was managing those tenants, putting them under leases, realizing that I didn’t take as much information in the beginning as I should have. But yeah, from then I just continued that process and then it took me a little while to analyze a couple other deals and to find some value in the market that we’re in because it was creeping up at that time after Covid prices were going crazy. This was back in 2021, so I got a little more creative. And a couple of the deals I ended up finding after were from tax lien lists and other places, I find that could add value just even on MLS too. But you got to really stay focused on looking.
Ashley:What was your end goal of real estate investing? Did you have an exit strategy in mind? What did you want to get out of it?
Karl:Sure, yes. I think for my exit strategy in real estate, I didn’t really know what I had in mind, but in the beginning, taking on the long-term tenants, I think my exit strategy was just long-term rentals. Everyone else was being landlords and doing it, and it seems simple. You get ’em on one year leases, you don’t have to worry about ’em. So they said, and I just was like, wow, this seems so simple. But then I soon realized that work came involved with it and lots of it, of course, that’s why if it was so easy, everyone would be doing it right. But that’s where I slowly ended up rotating from the long-term rental to the short-term rental and with midterm rental in between.
Tony:So there’s a few steps of the burr process and you, you’re kind of getting into the management side, which is the later part of that burr equation. But I want to go back to that first part, the buying Karl, because again, like I said, there’s a lot of folks who understand the value in the Burr strategy, but in order to make the burr work, you actually have to buy a really, really good deal. So you briefly mentioned some of the different strategies that you’ve used, but I guess what’s working today to find good deals that still work with the bur strategy
Karl:After this deal, this was kind of got the ball rolling and got the addiction started. And so the next deal I ended up finding happened to be on MLS. And that didn’t happen for a while. It took probably three years of just looking and trying to figure out different strategies. And during those three years, there was a couple other partnership deals and I was an LP and a syndication, but as far as getting my own deal, I was still looking for that. And while I was doing that, I was diversifying and I was also doubling down on the property that I had and stabilizing it, creating more cashflow out of it. And I think that’s what a lot of people forget to do is while you’re looking for deals, focus on what you have currently. If you have one deal or maybe you have a home with an empty room in it, focus on maybe making an empty room, renting it out or having an Airbnb or something and really stabilizing or double downing on what you have currently instead of chasing what you’re looking for and then wasting all that time.
Karl:So while I did that, I was stabilizing and creating more cashflow, and then I was also using Redfin on MLS and really just looking at the markets that I wanted in the areas and setting kind of my buy box of small multifamily single homes, even single families under this price. And so I’d get emails every morning and I would check them and I would see houses that started to sit certain ones, and you wonder why. So then you go walk those houses and I see what they needed and some needed extensive renovation that I didn’t know how I was going to take down. So those, I put in low offers, but I still took action. I was always putting in offers even if they were low because you don’t know if you don’t ask. And that my whole career has taught me that with doing sales earlier on and even real estate.
Karl:So if you don’t know or if you don’t ask, you don’t know. And when I saw this one property in MLS, it started out at like two 50 or two 40 I think. And so from there it had a price drop and then I saw a drop under 200. And that’s kind of when it really alerted me. I was like, that area under 200, there’s not a lot that has been on MLS sold under 200, let me go walk the property immediately. So we went, we walked it, and it needed rehab and it probably needed more than I saw, but I was like, I can take this down. I’ll figure it out. I’ll make this work. And so we put an offer at asking, it was at 180 5 at the time, and I was just worried that someone was going to scoop it up because normally that’s what’s happened.
Karl:Someone else has been able to scoop the deal before me. So this was an area closer to me, a little farther from the central area. So I think what helped me really with this deal was it was off the beaten path per se. I wasn’t investing where everyone else was investing, I was looking at other markets that were in my area, but I think the focus was taken from them because they weren’t in the heavily populated areas. So we walked it and we ended up getting under contract for 180 5. We just came in at asking for that one. And just by taking action consistently, I guess what ended up leading to that next deal.
Ashley:Yeah, Karl, I think that’s a great point as to how you’re finding the deals is taking that consistent action. But you mentioned making low ball offers, not being afraid to actually make those offers on properties. And also continuously looking at the MLS, you’re constantly looking for deals, but also where that value add is, could you add a third bedroom? What can you make of it? I just saw a property today on the MLS, and as soon as you were talking about this, I thought of it, it’s a two bedroom, one bath, but it’s 1200 square feet and there’s got to be room for a third bedroom in there somewhere. Maybe you’re taking one huge bedroom and cutting in it to two, maybe there’s actually two living rooms in there, you can make another first floor bedroom. So I think that’s great advice as to how you’re making or how you’re finding those deals is by looking for properties that have added value, making those low ball offers, but consistently taking action and actually looking at deals altogether and taking the time to go through them. Rookies, we want to hit 100 K subscribers on YouTube and we need your help while we take a quick ad break. You can go over to youtube.com/at realestate rookie and make sure you’re subscribed to the channel. Stay tuned after a break for more from Karl.
Tony:Alright guys, welcome back to the show where we’re joined by Karl.
Ashley:Before we go any further, Karl, what is your portfolio right now? How many deals have you done? What does it look like?
Karl:I have a three family and it has five bay garages on it as well. So we actually rent those out for storage or anything in between really. They just can’t run a business out of them. And then after that, I ended up getting into a syndication as an lp. So currently I’m still an LP and that’s syndication and that’s out in Indiana in Evansville.
Ashley:Can you just explain real quick what an LP is and a syndication just super brief overview.
Karl:It’s a limited partner. So basically there’s GPS and LPs. GPS are the general partners which basically run the deal. And the LPs are more of the passive side. We’re just the investors. We just come with a amount of money into the deal. So there’s multiple of us. It’s probably 30 or 40 of LPs involved in that deal. And that allows the gps who are running it to take down these large deals, but then all the LPs get a huge benefit for being an investor. It’s almost like buying a share in a stock is kind what I like telling people.
Ashley:And then the rest of your portfolio
Karl:There was the three family, the syndication, and then as of this year, we finally ended up getting a single family under contract, which we’re currently renovating and we’re going to make another Airbnb. We’re also going to do some insurance housing out of it. And then we also recently just after that one, I signed the documents Friday before I flew to Cancun for bp. We closed on a single family that’s going to be a fix and flip. And that one was a partnership deal. We made that come together in two weeks and that was actually on a attack that was from a tax lien.
Ashley:Oh, awesome. Congratulations.
Tony:Yeah, you’ve been busy, man.
Karl:Yeah, yeah. All of a sudden it went from zero to busy.
Tony:Now one thing I do want to call out though is that you found a deal on the mls and there’s a lot of influencers, just people in this space who just kind of poo on the mls, but I think there’s still opportunity there. You just got to know where to look and actually made a really great comment of like, Hey, what if there’s a two bedroom that’s way oversized? And we interviewed, I was trying to find the episode number, but we interviewed Ingrid, so if you guys look up her name, Ingrid, last name is D-U-Q-U-E. So you’ll find her in the BiggerPockets archives, but she had an entire strategy where she was looking for oversized smaller property, so she was an engineer, so she had some sort of algorithm that was scraping Zillow and finding any two bedroom that was 30% larger than all. So you don’t have to get that complicated, but just the process of saying, Hey, is there some hidden value here that maybe other investors are overlooking?
Tony:We had the nasims on the podcast recently and they talked about how they looked for properties that they could convert into larger properties where they could then rent out different parts of the room. So there’s so many different ways to find good deals on the MLS. You just have to get a little bit more creative with the strategy that you’re using to make those numbers work. Now Karl, you mentioned tax liens and I think that’s something that we haven’t talked about much at all on the Ricky podcast. So if you can first maybe define what a tax lien is and then what is the process for actually purchasing one of those deals?
Karl:A tax lien is when the owner hasn’t paid their taxes that they owe to the local municipality, and then it ends up going so long that the municipality puts a lien on their house. And if it’s not paid by a certain amount of time, that tax lien then goes to auction. And then once it goes to auction, there’s usually about a six month period of time when the tax lien gets sold to, they have six months to basically figure out an exit strategy if they’re going to be able to pay this tax lien now with a heavy interest rate. And if by the end of the six months they don’t, then they’re going to get a notice to quit and they’re going to be basically evicted from their house that they could own outright and they might only owe 20, 30, 40, 50,000 on, but they own a 250,000 house. So you got to wonder what happened there.
Tony:And then what’s the actual process for being the investor that can purchase these? Is there just a big website that you’re going to, are you going up to the county steps? What is the process for finding these, tackling liens and then buying them?
Karl:Yeah, so we’ve done a lot with finding the tax liens and we finally found one that worked, that came in actually as a lead to us from someone we knew. And so basically we’ve gone to the auctions and you got to go with a certified check. So you got to have some funds to be able to go to the auction and every auction’s different and you can bid there for them. You also can go to the municipalities and you can request the list of tax liens from them. Usually they don’t want to give them to you, but most of them will. We found most municipalities just want us to print for the pages that they’re printing out, which is perfectly fine. It’s like 10 cents a page, perfect investment, and then we can comb through those and we can call them, we can direct mail them, which we’ve done both.
Karl:We’ve called and direct mail and we’ve built out a list of people from tax liens that most people are just like, call me back later or keep in touch. And I think that the consistency with that is what ends up locking up these deals eventually. And the one we had got was basically from a lead that was given to me from someone I knew who said, Hey, this lady needs some help. She has a tax lien on her house. I told her you’d be the one to be able to help her because you’re really creative and you have a good network of people to take the deal down. And I said, yeah, I can always find a way. If there’s a will, I’ll figure it out. So I talked to the lady and that was just after the taxing auction had sold. Now most people think when the tax auctions get sold and they get auctioned off that they’re gone forever, but they’re not.
Karl:You can rectify that. You just have to structure it with your lawyer so that basically the tax lien gets paid first and then the sale happens right after because that’s what needs to happen once the tax auctions are sold, it has to get paid with the interest and then you can purchase that property. And that’s exactly what we ended up doing with this last property we got from the tax lie list. But it took months. We had talked to her I think five months before the end date that she had. Then she sat on it and we went back and forth and I kept in touch here and there, and then she reached out pretty much two weeks before she had to be out of there before it was up. And that’s not a lot of time. Most people, you need 45 days to close and sometimes it gets extended. So two weeks I was like, this will be my first one. I brought in a partner who was a little more seasoned than I was for sure, and he was able to bring the cash to close and have the lawyer that was able to throw it together in two weeks and get the deal done. And we both have a 50 50 split, so something’s better than nothing. That absolutely.
Tony:So Karla, it sounds like it. Thank you for walking us through that. I think you just educated a lot of us, myself included, but it sounds like there are multiple points along the tax lien journey where you as the potential buyer can actually step in. So one point is, like you said, direct mailing, these homeowners who have gotten this notice about the tax lien and then trying to work with them directly before that property goes to auctions, that’s one opportunity. The other opportunity is just going to the auction yourself and just being the buyer there at the courthouse steps. And then the third option is kind of what you talked through where it sounds like it had actually, the auction had already happened, but there was still a little bit of time after that auction to rectify and you were able to go in and get it there. So I didn’t realize that that third option even existed. I thought it was really just the first or the second. So I guess from your perspective, if a rookie is starting out, which one of those do you think makes the most sense to start on? Is it going to the courthouse steps or do you think it’s trying to catch the seller before it gets to the auction or doing what you did?
Karl:Yeah, so I would say the two things is go to the auctions. Even if you’re not there as a bidder, you can just sit there and watch the auction. And that’s exactly what I did when I first got started. We just went to the auction with no check. I brought a guy from work that was interested in real estate with me. We both went there and we just watched to see and learn what the prices went for, how high these guys were bidding, did everything sell on the list to kind of gauge is there a lot of interest at these tax liens? And the room wasn’t full. There was rooms to bid, but you could tell there were a couple of people on certain properties, they were there to win it no matter what the deal was. And you get anyone there from the investor to the homeowner that really wants it and they’re just bidding with sheer emotion.
Karl:So I think that’s a good strategy. Get in the auction, get in the action, maybe take a certified check if you have the funds, but then go to your municipalities, go locally to these municipalities and just build your list off, Hey, what are water liens you can ask for? Go ask for the water liens because before they go to tax lien, they usually get their water turned off. So get the water lien list. If you can get the tax lien lists, and even if you’re interested in a certain property, you can go pull the property card online and you can even go to the municipality and pull the file to check out the permits, see what renovations has been done, see what open permits there are. I may tell you a little bit more about that property too. So you might have the upper hand when you go to that auction. You may know more on the property that you’re interested in.
Ashley:Well, Karl, thank you for that in depth detail of how a tax lien auction actually works. I’ve only gone one or two times, I think to a large county one, I bid on a property for somebody else, not for myself, but we didn’t get it. But I remember having to go and get the cashier’s check or the certified funds and thinking, how does this work? I don’t know how much money to get and what do I do with the checks if I don’t buy anything and learned, you take them back to the bank and they’ll put the money back into your account. But yeah, it was definitely a learning process for me as to how that worked.
Tony:Alright, guys, we got to take our final outbreak, but we’ll be right back after this.
Ashley:Okay, let’s jump back in. Now, Karla, you’ve done a couple of rehabs with your properties and I’m sure with this flip there’s going to be a rehab that’s going into that too. How confident were you going into doing a rehab? Do you have any experience and how did you estimate your rehab costs
Karl:With rehabs? My experience is I’ve always been a DIY, right? Do it yourself. My father growing up was never the guy to pay the guy to come fix the house. It was I can do it better and I can do it myself for cheaper. So that’s my greatest weakness and my greatest strength because I am starting to learn how to get away from doing everything myself because I can’t manage and do all these properties on myself and still have a family and a life. So I think that the first property we got, I ended up doing the renovations myself, and then when we renovated one of the other units on that same property, I tried to step back and at least do less than 50% of it myself. And on this new single family that we’re renovating fully, I would say I’m probably going to do 25% of the work. So I’m slowly dialing back from doing the renovations, learning how to manage contractors, find contractors, find guys to work for me that can get these renovations done while I’m out doing other things or finding deals.
Ashley:I just did an interview with my contractor and we had two flips going on at the same time. One flip he was doing for me and then he was the contractor on his own flip too. And we did this little interview comparing our flips, and they were very different type houses, different price points, things like that. But we talked about his margins compared to mine with me completely outsourcing everything and the edge that he had because he was able to do some of the work and he could put in a higher offer on the property to purchase it because he was doing some of the work himself where other investors, and that gave him kind of that competitive edge when trying to find deals. And his flip turned out phenomenal for him. So I think there’s kind of the, oh, a really great ambassador doesn’t do any of the work. They outsource everything. You have to get yourself in that position, which yes, that’s really nice, but also when you’re growing and scaling, that kind of gives you that edge that you can put in that sweat equity, and that’s okay. That doesn’t mean that you are not the greatest investor because you don’t have somebody else doing it for you. I think that’s awesome.
Karl:No, that’s a great point because that really dials back to how you can do the burr in this modern investment world now or this modern market. And that is exactly what we did with the single family home that we bought, and that’s probably how I got it is because I knew that I’d be able to put in some sweat equity and that I could take action on the renovation hands-on where other people won’t, and it just didn’t work for their numbers. So I think that’s how I definitely got that deal, and I know that I’m going to be leaving some money in the deal. And I think that’s where, when I talk about the modern burr, that’s kind of going to be it. You got to figure out if you can leave money in the deal and how much, because for me, if I’m buying and holding that deal, I don’t mind leaving some money in that deal because it allowed me to be able to get that deal and still be able to flow some money out of it.
Karl:And so with my strategy going towards a short-term rental game now from the long-term, leaving money in the deal was perfectly fine with me. So when I ran my numbers, I knew that I was going to have some money in the deal on a perfect burr. I don’t think those are very hard to do in this market where you get 100% of the money back and even then some. I think that the modern burrs, you just have to know you’re going to leave some money in the deal. So how much money are you going to be comfortable leaving in that deal?
Tony:Karl, now we’re talking a little bit about the rehab portion. Kudos to you for having the DIY skillset to help, like Ashley said, pat some more margin into these deals. But let’s say that we drop you into, I don’t know, a city clear across the country, a city you’d never been to before, but you find a deal, the numbers seem like they work. How would you go about building the rehab crew in that new market thousands of miles away?
Karl:So I think you got to think creatively to figure out who to find in that market because when you go to Facebook now and you just say, Hey, who’s a contractor? Everyone in their grandmother is a contractor and you just don’t know where the good ones are. So some creative strategies for that.
Ashley:Everyone’s grandson is also a contractor having their grandmother’s name.
Karl:They show up and then they’re 14 years old and you’re like, yeah. So I think that what people don’t know is you can go to the municipalities and you can call them and you can ask, Hey, who’s been filing a lot of permits recently for roofs? Or who’s a good roofing company? And you’re asking a person who may not know contractors at all, but if there’s a certain individual that’s doing 20, 30, 40 roofs in that municipality, chances are town hall knows their name and they know who they are because they do a lot of business and submit a lot of permits. And so first of all, if they’re doing permits, they’re doing it correctly and the building inspector probably knows them. So you can even call the building inspector and ask them, Hey, who’s a good building in the area that does a lot of buildings?
Karl:I’m looking for a rehab or I’m looking for a new construction. And that’s what exactly what I would do. And I would try to find a construction crew doing that and then go look at referrals, ask what their last three jobs were and call those people. I mean, you’re like vetting contractors, like tenants almost where you need to see how they operate. And then you need to ask, do they require a deposit? How much deposit do they take credit card? Do they take cash, right? Because those could be red flags. I would like to put a deposit on a credit card if I’m investing out of state because if something goes wrong, I have that credit card company to back me to dispute the charge. If I send some guy, I don’t know a check, he could be in Mexico at BP, Cancun, and before I find them,
Tony:I love those approaches, Karl. And just to add to that, so actually I don’t even think I shared this with you, Ashley, but after we did an episode recently where Ashley, myself and Dave Meyer talked about like, Hey, what market, where we want to go invest into if we were starting Overton? And I picked Oklahoma City and I liked so much what I saw in Oklahoma City that I literally reached out to agents in Oklahoma City to potentially start flipping out there. But I found an agent through the BiggerPockets Agent Finder and a bunch of agents replied, but she sent a really detailed email and in that email said, here are the property inspectors that we worked with that we know and that we like. Here are the title companies that we typically work with. Here are some handymen that we typically work with. Here are general. So she literally had a Rolodex of everyone in that city who I might need to go contact. So if you are a rookie and you’re looking to maybe break out into a new market, like Karl said, leaning on some of those referrals is a great way to build some confidence, and especially the BiggerPockets agent founder, because these are investors who work with investors like me, like Karl, like Ashley. So I love the idea of going down that path as well.
Karl:I actually did something similar to that, exactly that, and I dialed back and invested back in my home state. But we looked at Indiana and we used BiggerPockets, the agent finder, we found a good agent that was really good on there. He emailed me and we had an hour long conversation while I was driving one day, and I called him and I kind of knew he was a good fit because of that, and he dedicated that amount of time. And from there he had had those same connections and the Rolodex of different people to use in that area, and he would go look at homes and send us videos and stuff, and then we kind of dialed back. That was the exploring phase after this property, figuring out what direction I wanted to go in having that shiny object syndrome out of state investing in state investing, where do I want to do long term short term?
Karl:So then I was kind of reeled back into, why don’t I just figure out some solid foundations back in my home state before going out of state investing because I’m not in a state where it’s impossible to invest, right? I’m not in California. It’s a lot harder out there. So they were just like, you can do it here. You can find good deals here. It takes a little time, but you can build the foundation here and then if you decide to go to Indiana, you kind of have the experience and the foundation and everything kind of set up. So yeah, that’s a good, great point though.
Ashley:So Karl, now that you have, let’s say you’re going through your bur process, you finished the rehab, when do you decide to refinance? Are you looking at what the market is doing, what interest rates are, what your comps are for the appraisal? Or is it as soon as you get that tenant in place, give us an overview of when it’s time for you to actually refinance a property?
Karl:Refinance can be scary. You want to make sure every detail is done and you want to get as many dollars as you can out of the deal to be able to refinance, get the highest appraisal value. So I think leading up to the refinance, you want to know what adds value for the refinance, right? They’re not going to care what kind of handles you have on the cabinet drawers, they’re looking at the big CapEx expenses, the roof, the furnace, the foundation, how’s the house, the exterior. So they look at a lot of the big ticket items. So we want to make sure that those at least look good and if not are updated and are newer and replaced so that the appraisal value definitely comes out higher. The other thing to do is before you get the appraisal, look at your own comps in that area, and you can even give them those comps to the appraiser.
Karl:But really with the refinance process, how we know we’re ready is right at the end when everything’s pretty much almost a hundred percent together is we’re starting the refinance period or the refinance process usually a little bit earlier. It takes about a month or so to be able to figure out who’s got the best rates you’re going to go with for a lender. So start early so that when you’re ready for the appraisal, that’s pretty much when you’re wrapping the job up and you have it all cleaned up and ready for a walkthrough with an appraiser.
Tony:Karl, when you’re doing your refinance, because there are some banks, the first I did two burrs to start my investing career, and I was able to get the kind of construction loan and the long-term debt with the same place. Ashley, I think you’ve done maybe a couple bur like that before as well. But Karl, I guess, are you kind of teeing up the refinance on the backend, so you already maybe have an idea or are you just saying, Hey, let me separate those two things, just focus on the acquisition debt and then just focus on the refinance debt?
Karl:Yeah, I think it’s a little bit of both. So I think the first deal we ended up doing, we just got it under contract and got it with whatever bank we found quickly. That was the initial. Then when we did the refinance, I was referred to a local bank, and it’s a small local bank that is in only in our state, and they had better terms and better rates. So I went to that local bank for the one coming up, we’re using hard money for the single family home. That’s how we were able to purchase it. And then they do offer a long-term debt, I believe, through that lender. We haven’t talked about the terms yet, but it is something I’m doing to explore. So I’m going to ask that lender to see what they have, and they may offer me better terms because I did the hard money with them, but I will go to the small local bank and also talk to them, their department and see what they have for the refinance terms. So I think exploring multiple options is what I’m getting at basically.
Ashley:Yeah, I did that before when I did a line of credit with a hard money lender. So I’d use the line of credit to go out and purchase the properties, and then they would want me to refinance with them. And I have to admit, I did not ask enough questions when going into this hard money lender, and it ended up being an awful experience, but an option they had was to refinance with them once the property was rehabbed, rented, ready to go. But what I didn’t know and wasn’t clear to me at the beginning was that you had to have three properties ready to go. So I had to have three of my burrs completed and ready to refinance, and they would do it as a portfolio. Well, I’m only buying three to four maybe five deals a year at max. So I ended up just refinancing with somebody else and didn’t actually use that hard money lender to do the long-term. But Karl, I’m curious as to, you did your burrs, you did the long-term rental, but it seems to me that you’ve now adjusted a little bit or a pivoted to doing a short-term rental, and was this a cashflow play? What was kind of the reasoning behind that?
Karl:So this was another kind of fell into it by accident. So we inherited the long-term rentals. Like I told you before, in that three family, we had one older gentleman leave. We rehabbed that unit, and that was going to be my first experience on finding a tenant to place in that unit. When I had started looking for a tenant, this was 2021. Now after Covid, there was for some reason just an influx of the tenant pool that you had of people that just would throw an application. So when I had put it on apartments.com, my phone was blowing up. We had our inbox full applications coming in left, but not anyone that was overly qualified or even qualified for the income to what the rental rates were. They all got pushed after covid just because everything went up, pricing, insurance, everything. So from that, I was almost overwhelmed of how do I find a tenant to place in this?
Karl:And I had just started to hear about the travel nurses and they’re looking for housing and they stay for three month contracts. And my local network over here had a meetup, and that’s exactly what they were going to talk about that Thursday. And so I was going to go to that meetup, and on Wednesday I received a phone call from a guy out of Houston, Texas, and he was a travel nurse, and he said, Hey, I found your listing in apartments.com. I’m looking if I can rent it for a three month contract, I’m willing to pay a little bit more. I know it’s a short-term contract. You’re looking for a one year lease. And I’m like, okay. And you got to wonder, is this a scam? And I’m seem like a nice guy. So I was like, yeah, I mean, I think we could do 1500 a month for short-term rental kind of thinking.
Karl:The sales tactic in my mind, like 1200 is a long term, but the short term’s 1500. And he is like, yeah. And I was like, that was really quick. I should have said 2000. No. So I was like, okay. So then I’m like, well, I’ll include all the utilities on top of that for an extra 300. And he is like, alright, cool. I can pay in full. And I’m just like, this has got to be a scam. This is not real. So I was like, listen, let’s not this not speed this. Let’s figure this out. I’m going to meet up tomorrow to literally learn about this. Lemme go learn about this and then we’ll figure out how we’re going to do this tomorrow. He’s like, yeah, give me a call. I actually vetted him as a regular tenant. I did a credit check background. I didn’t know what I was doing.
Karl:I was set up for learning how to vet regular tenants for long term. Then I was like, listen, we talked the following week, we got everything all figured out. The lease was signed. He sent the money on Apple Pay. So I was like, oh my God, this is crazy. So I got a chunk of money, he’s not even there yet. I’m thinking to myself, where are you going to stay at this place? It’s empty. You know that. And he’s like, yeah, I’ll just use an air mattress. I’m just coming to workout, get overtime and go to the gym. So I’ll just be there to sleep. And I’m like, I mean, yeah, okay, sounds nuts, but let’s do it. I’m all about crazy. So I picked him up from the airport, learned a lot about him, and learned what the travel nurses were, what is important to them, having good wifi or having a comfortable place to rest their head.
Karl:They weren’t really concerned about the high amenities as a short-term rental. They were concerned, I just want to safe comfy place to chillax after work. I’m like, okay. So actually while he was there, we ended up furnishing the place, and that’s a whole funny story. We started buying furnishings on Facebook marketplace. Now I’m getting into something Ive never done before. I’m like, well, now we got to furnish it. I’m like, I felt bad. He’s, I have an air mattress from my mother’s house. I let him borrow. So I’m like, that’s how Airbnb started, I guess, on air mattresses. So I start furnishing it and I go on Facebook marketplace and I drive to the local college, which is five minutes down the street from me, and I pull in and it’s the end of the semester, and that’s why the Facebook marketplace is flooded with furniture.
Karl:And I would see all these dumpsters as I’m driving in and I’m like, oh yeah, everyone’s moving out. Oh, okay, cool. They’re all selling their stuff. And then as I’m driving out, after I bought an entertainment set in a carpet or something, I think for the living room, I just pause and I’m like, look at my buddy who came to give me a hand. I was like, dude, these dumpsters I think are just full of good furniture. I hate to go dumpster diving, but I feel like we need to recycle this. So we went dumpster diving and we pulled out pots and pan set, brand new furniture, lamps, everything you could think of because these college kids were moving out and their parents probably just said, ah, we don’t want that. Don’t bring that stuff home. Just throw it out. And so some of the good stuff was left outside, and some of it we hooked out of the dumpster and we basically furnished a one bedroom rental for just under $600.
Karl:And we bought things like the bed, the mattress, the important stuff, the microwave, the things that we needed. But aside from that, all the rest of the furnishings we cleaned up and even the travel nurse helped me wipe everything down, clean it up, and kind of refurbish it to use in the rental. And that’s kind of what we got our jumpstart in. We did midterm from probably the beginning of the year all the way up until November, and it was going great. We listed on Furnish Finder, which was a platform that we could use to find leads from travel nurses and other traveling professionals, and everything was going great. And then November came and it dried up, or at least that’s what it seemed. And I was like, man, do people not travel for the holidays? This is our first winter. I now have a heating bill I have to pay for.
Karl:I’m like, maybe people don’t travel for Thanksgiving and Christmas. Maybe it starts back up in January. So I was like, now I feel like I’m at a point where I need to pivot again. What do I do? I have a whole place that’s furnished now. So then I’m like, I guess we’ll go on Airbnb. I’m like, that’s a vacation rental app. I don’t know. I am not in a vacation market. I’m just in an old urban town. So I went on Airbnb, took some pictures, made the listing, and our first booking came in and I was like, alright, sweet. We got a little income for that month. Perfect, that’ll hold us over to the next month. Then more bookings came in and I’m like, wow, this is cool. And then more came in, and then before I knew it, we were filling this place up, and then I got long-term bookings on it because I didn’t have high rates and I had some monthly discounts and just the rest is history. Then we didn’t even have a space that we could go back to furnish Finder, unfortunately. And we went over from long term going to midterm and then just fell into short term to fill a gap. And I’ve really never looked back. We are still doing midterm stays, but we’re only doing them through the Airbnb and the VRBO app, which are both transient housing apps for short-term, long-term, midterm, however long they want to stay, they pay basically. So
Tony:Karla, it sounds like each, I guess problem led you to another solution which kind of forced you to pivot a little bit. And I love how each time you’re like, Hey, let me just see what happens. And each time it seems like some good things happen, and dude, kudos to you. You got to be like in the short-term, midterm rental hall of fame for having your guest help refurbish your furniture. I don’t think I’ve ever heard anyone say that before. That is an amazing accomplishment.
Karl:And he had bought stuff of his own for the unit that he needed, and he was like, just donated it. He’s like, you can just keep it. I’m not bringing it back with me to Texas. So yeah,
Tony:That has to the perfect first guest for you. That’s amazing, man.
Ashley:But also, you have to remember, Karl went and picked him up from the airport too. How many Airbnb hosts are going to pick you up from the airport?
Tony:That’s true. So Karl, from a cashflow perspective, right? So I know you said, Hey, long-term, 1200 bucks a month, dude, I’m going to charge you 1500. What do you think you’re doing now from a revenue perspective on that unit as a short-term slash midterm?
Karl:Sure. Yeah. So it’s substantially more, and that was incredible, just seeing that because when I initially got this place, because I got such a good deal, we found it from a family member that was tired of managing it. I was already satisfied with the cashflow, but now it’s funding my real estate journey with the short-term rental income. So the regular long-term income was 1200. We went up to that 1500 for that midterm, and I think at max during the midterm rental, we were at 1650, and I was like, wow, that is awesome. And then from Airbnb starting out, and we did upgrade the furnishings and we did hired some designers, did it right, figured out how to really double down and manage a good performing STR are. We started pulling in over 2000, and then certain months we’ve pulled in anywhere from 2,500 to 3,500 just on that one bedroom unit, which mind you, in my area, it’s 550 square feet for that one bedroom unit. So it’s a bedroom, a living room, a kitchen, and a small bathroom. There’s no dining room. So you eat in the living room or you stand and eat in the kitchen. There’s not even a room for a table. Yeah. So yeah, it’s like you just eat on the couch or in bed I guess, or you go outside. But yeah, so it was pretty interesting. So we’re pretty much, I would say, consistently doubling the rent and then on the high months tripling, if not going over that.
Ashley:Okay. So to kind of wrap it up here, I am wondering what would be your best advice for a rookie investor that’s looking to follow your footsteps to do their first bur strategy?
Karl:I think consistency and taking action are probably the two biggest key takeaways, right? Don’t get discouraged because you haven’t had a deal. My first deal fell into my lap because of a family member. But that also, when you think about it only happened because I asked if I didn’t ask, he might have not come to us. It was a family member that we didn’t see all the time. It wasn’t like my parents or anything. And so just by asking created, taking action, because I would just, once I got started in the real estate investing journey, just tell everyone that you’re now a real estate investor. You don’t have to own anything. You’re looking into invest in real estate. You’re a real estate investor. So I think by doing that and basically taking the action to ask and say, Hey, if you’re ever interested in selling, let me know.
Karl:Sparks the thought in certain people’s minds to be like, oh, you want to buy this? You want to buy this. And then you figure out how do you buy this? Whether it’s creative financing, seller financing, start learning about all the strategies. So really that just education is huge. Learn as much as you can. There’s so much free stuff online. Don’t pay for anything people get discouraged by. They have to have a lot of money to pay for courses and stuff. I think there’s so much free stuff online between the BiggerPockets forums, questions, you can ask seasoned investors on there. People respond to those questions that even have their own course, and they’re giving you an answer to your question you ask. So I think that’s great. But yeah, consistency. Look at the MLS, try to find a realtor, try to low ball a bunch of deals, put in offers. It’s free to put in offers. It doesn’t cost you anything. Your real estate agent may hate you, but find a good one. Take some action. Be open with your real estate agent of what you’re doing so that you set the expectation of, Hey, I am beginning real estate investing. I’m going to put in a lot of low offers, like are you with me or not? And they can decide if they’re a good fit for you.
Ashley:And also make sure you’re able to close too.
Karl:Yeah, figure out your strategy. Use the education to figure out how you’re going to close that, how you’re going to close the deal. If you have no money, you may have to go find a network, go to these meetups. That’s how I met all these partners. I would be like three or four deals less today if I didn’t go to these meetups. And that’s this last deal that we just closed happened because I was able to network and I knew someone that could bring the cash to close. And I made a phone call at midnight and I said, meet me in the morning. We’re going to sign this document with the individual at Dunking Donuts. And that’s where the deal went down.
Tony:And guys, I do just want to call out, BP does have a meetup section on the website. So if you’re looking for a local meetup, obviously check your local Facebook group check meetup.com. But BP also has a meetup section as well. So if you’re looking for an event somewhere to go check there as well.
Ashley:So Karl, overall looking at your portfolio, what is your average monthly cashflow from all of your units that you’re bringing in?
Karl:We have two that are being renovated, so those are negative. But I would say on the three family, we now have one long-term renter and two short-term rentals out of that. And those two short-term rentals actually create three listings because they can of course occupy each unit individually. But there’s a third listing we made to tie both of those listings together because they’re in the same building. If they have a bigger family, we can appeal to the market of three to four people versus just two people for the single bedroom. So we actually have a booking that just came in this morning for a family that’s coming for Christmas, and so they’re booking up both of those units. And so with that, our cashflow, I would say we probably 3,500 all the way up to 6,500. It depends what month the Airbnb is not like the long-term rental income where you’re guaranteed that same amount every month, and even then you’re not guaranteed because they cannot pay Airbnb. It fluctuates on who’s coming, when they’re coming, what dates gets booked, how long and the different seasons. There’s always, in different markets, there’s stronger seasons than others, so you just got to figure out where that is. But yeah, I would say that’s our cashflow currently monthly is probably around three to 6,500 variable.
Ashley:Yeah. Awesome. Congratulations.
Karl:Thanks. Yeah.
Ashley:Well, Karl, thank you so much for joining us on today’s episode. We appreciate you taking the time to come on to the show today. We’re going to link your information into the show notes, or if you’re watching on YouTube, you can find it in the YouTube description. If you like today’s episode, make sure to leave us a rating and review on your favorite podcast platform or watching on YouTube. Make sure to like and subscribe. If you have any questions for Karl, you can also put them into the YouTube video questions and comments down below. Thank you guys so much for joining us. I’m Ashley. And he’s Tony. And we’ll see you guys next time on the next episode of Real Estate Rookie.
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