Unpermitted Renovations, House Hack Profits, and Frozen Pipes

Ashley:
This is Real Estate Rookie Episode 266.

Tony:
Most people, when they’re going into a house hack, their goal isn’t necessarily to make $500 a month in cash flow. Their goal is to subsidize their cost of living. So if you can cover the majority or sometimes all of your mortgage by renting out these additional units, then you are probably doing a pretty good job, because now you’re able to save that money you would typically be spending on your rent or your mortgage, say whatever, it’s 2,000 bucks a month, and now you can put that aside to start saving towards your next property. So for a lot of people, when they’re house hacking, not necessarily the cash flow, per say, that they’re looking for. It’s how much of my mortgage can I offset by renting out these units?

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

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And I want to start today’s episode by shouting out a really cool review that came in. This person loves us, a five-star review on Apple Podcasts. They go by the username TTWray, and the title of this review says, “Rookie Vitamins.” And TT goes on to say, “This podcast has given me the confidence to make moves. I was sitting on my mother’s home for about a year before committing to gutting and renovating it. But listening to Ashley and Tony every morning was like taking my morning vitamins. My real estate immune system got stronger, and I completed the renovation project, found a tenant, and now, it’s cash-flowing. I listen every morning as a part of my morning routine. I love how they break concepts down into nuggets that are actionable. No other podcast compares! Great job guys!”
That’s one of the coolest reviews I’ve read in a while.

Ashley:
Yeah, it is.

Tony:
So, TTWray, we appreciate you. And for all of our rookies that are listening, if you have left us a review, we appreciate you. If you have not yet, please take the two to three minutes out of your day to leave us an honest rating and review. More reviews we get, more folks we can help, and helping folks is what we like to do. So, Ash, what’s up? How you doing?

Ashley:
Well, you know what? I feel like I haven’t done this in a while since we recorded, but I feel like I really need to tell you guys more about my book that I just published.

Tony:
Yeah. [inaudible 00:02:20].

Ashley:
I feel like I haven’t talked at all, but here it is, right here, sitting here, the Real Estate Rookie: 90 Days to Your First Investment. There’s lots of mentions of Tony in here. But yeah, so if you guys haven’t checked it out, I would appreciate it if you look into it and see if it’s a good fit for you.

Tony:
How’s it feel, Ash, to be a published author? What’s that feeling?

Ashley:
Well, I sent my mom like 20 bucks, and she got the package in the mail and was telling me, “Oh, I’m so excited. Somebody sent me something, and then I just, ugh, just saw it was your… It was just books.” [inaudible 00:02:51]. I’m like, “Thanks a lot, Mom. Thanks.” But, yeah, so it launched on January 10th, and did a nice little dinner out to celebrate. And so now, I got to get a list together to publishing of all my friends to send copies to, and yeah. But it’s been pretty cool. Everyone should be getting their books now that did the pre-order pretty soon, and it’ll be exciting to hear what people think about it.

Tony:
Yeah, I love it. Well, I’m super happy for you. I know you put a lot of time and effort and energy into that book. And it’s so cool, because we already see what the Rookie Podcast is doing for folks. So the fact that you get to replicate that with this book, it’s so cool. So, I’m excited to see where it goes for you.

Ashley:
And Tony and I are working on a little secret something too, so you guys stay tuned for that too, because Tony may be an author soon too.

Tony:
Fingers crossed. We’ll see.

Ashley:
So, Tony, any exciting stories to tell us or any boring banter before we get into today’s episode?

Tony:
Let’s see. What’s the most boring thing I can think about that we can talk about today?

Ashley:
What did you eat this morning for…?

Tony:
You know, that’s [inaudible 00:04:05]-

Ashley:
You have the save meal every single day.

Tony:
Actually, so I’m gearing up my training for another competition. So I was initially planning to do a show at the end of April, but I think I might push it back to May probably, just to give myself a little bit more time. But I actually didn’t have breakfast this morning. I woke up, and I was doing stuff on the computer. Before I knew it, we had to jump in to start recording. So I had a protein shake for breakfast this morning. That was about it. But most days, my breakfast is 10 egg whites, two regular eggs, and then a little bit of oatmeal.

Ashley:
So, I don’t know what made me think of this, but like something that’s boring, I guess, in a sense. So, we’ve been implementing these Monday afternoon meetings. We were doing Tuesday mornings, but Tuesdays are when you and I record, and it’s just like, I have another call I do every Tuesday morning. So it was just like, too many calls in that day to actually sit down and focus on a meeting. So we moved them to Monday afternoons. And so we have an agenda built out. And so, it’s just me and my one business partner, Daryl. And, basically, we go through what each person did last week, what were our wins, what do we want to accomplish going forward, what are the things we need to prioritize, and then, what are the things we want to talk about next week? And then we just take the agenda, roll it over to each week.
And even if this is something you do with your spouse, your significant other, or your business partner, if you guys aren’t implementing this, I highly recommend it. It doesn’t take that much time. But with ours, we also have a section for travel, because we do a lot of travel together. So, last week, on our travels, we’re going to Tony’s short-term rental summit. And the one night, we’re actually going to Disney Springs for dinner, okay.
So we’re going through our agenda, everything, and one of the things was, pick the restaurant to book reservations for Disney Springs. 20 minutes later, we are in YouTube videos of the best and worst places to eat at Disney Springs. And it was just like, “How is this happening right now?” We could just fly through everything. Then we get sucked into watching YouTube videos on where we’re going to eat dinner one night. But it just goes to show that leaving those little things in, that adding things like that into your agenda that excite you or motivate you, because then it’s like, “Okay, we got to get all this work done now so that we can go and enjoy ourselves and not actually have to be like…” We want to use a lot of time for, obviously, enjoying your conference and things like that and not having to be like all these other things we got to do in the back of our mind.

Tony:
Yeah. And it’s an interesting point, because one of the things I’m really trying to focus on in this new year is less time doing and more time deciding and delegating. I feel like my time is best spent in my business at this point, not… If there is a meeting, almost no action item should be assigned to Tony. There is enough people that I work with now where I should be able to delegate that task to someone else. And really, the only thing I’m doing is deciding, I’m making a decision saying, “Okay, yes, this thing. Okay, not that thing. Yes, this thing,” and then handing it off to someone else, because there were moments where I was like, “Why am I doing this still?”
For example, we were on vacation earlier this year, or late last year, and we had a YouTube video coming out for the Real Estate Robinsons channel, and I was like, “Oh crap, we don’t have a thumbnail.” I was still doing the thumbnails. So I’m on vacation making a thumbnail. I’m like, “Why am I doing this? Why am I doing this?” And as soon as I got back, I found a graphic designer on Upwork. Now he does all of our thumbnails, and he does it way better than I ever could. Anyway, just as I’m thinking about next year, and for a lot of our rookies that are listening as well, as your business starts to scale, think about what are the things you should no longer be doing, and then delegate those off to someone else.

Ashley:
And also, making sure that it’s just the high-level decisions too, and that’s something I had heard Ryan Pineda talk about when I interviewed him in, I think it was Austin, Texas, maybe, at a conference there is he talked about how… Don’t even ask him the question. He’s high-level decisions only. There’s other decision-makers in place, and he only has to really think about those high levels that will actually make a huge impact on his business, where anything mediocre, there’s somebody else that’s making that decision too. So, he’s not overwhelmed with things, because he has everything’s set into place and his whole org chart set out as to like, “These are the things that actually need to come to me, and don’t bother me with anything else,” which I think is pretty interesting and, obviously, a great system to have set up. The hard part is actually getting yourself set up so that you are in that position.

Tony:
Yeah, and finding the right people and all those good things. So that’s always a challenge. And obviously, for our rookies, most of you are at the beginning phase of your investing journey, so don’t feel like you need to set this up on day one. But it is an important concept for you to understand so that as your business starts to scale, you know that the right decision is to start plugging people into these different roles so you can focus on the bigger picture tasks.
Like Ash, for me and you, the majority of our time should be spent in front of the microphone recording this podcast, in front of our computers writing our books, and doing other things that are super important.
All right, so today’s first question comes from Nadeem Chaudhry, and Nadeem’s question is, “Hi all. Learning more about doing property analysis and wondering, if I’m planning on a house hack on a multi-unit with an FHA loan, should you only worry if it’s cash-flowing once you hit 20% and get rid of your PMI in a high cost of living area? Otherwise, it seems as if no properties will be able to satisfy traditional rules around what a property should cash flow or make over the first year.” And just to clarify, I think when Nadeem says once you hit 20%, what she’s talking about is the loan balance in comparison to the property’s value, once you’re at 80% or less on your loan balance and your PMI goes away.
So, a couple things to break down here, Nadeem. I think the first question you have to ask yourself is what is your goal with this house hack? Most people, when they’re going into a house hack, their goal isn’t necessarily to make $500 a month in cash flow. Their goal is to subsidize their cost of living. So if you can cover the majority or sometimes all of your mortgage by renting out these additional units, then you are probably doing a pretty good job, because now you’re able to save that money you would typically be spending on your rent through your mortgage. Say whatever, it’s 2,000 bucks a month, and now you can put that aside to start saving towards your next property. So for a lot of people when they’re house hacking, it’s not necessarily the cash flow per se that they’re looking for. It’s how much of my mortgage can I offset by renting out these units? What are your thoughts on that, Ash?

Ashley:
Yeah, so, Nadeem, what you should do is remove yourself from the property and put somebody else in the unit or the room that you’re going to house hack in and see, okay, what would you be able to charge for rent on that? Does the property cash flow after you receive now that additional rent from the property? So I think using that as kind of a basis in looking at it that way, it will make you realize more as to like, okay, this is not a cash-flowing property. It’s more of like, yes, you are actually making money off of this, because you’re building equity, and you’re not having to pay any living expenses.
So, look at if for some reason, you had to move out of the property, would it still cash flow if you put somebody into your unit, or at least broke even on the property? But I love to cash flow, so if you can make it cash flow if you were to move out of the property, yes, great, but also, take into consideration if you were to go and rent a comparable unit, what would you pay and rent to live in that property too? And then kind of say, “Okay, that’s $1,500 I’m actually saving a month.” So definitely look into that. And then if you can live there and make money off of it and cash flow too, awesome, even way better, yeah, especially when you get down to that getting rid of your PMI, that definitely helps.
My sister, when she bought her house hack, she was paying, I think it was $45 a month to live there on that property, which, for her unit, probably had rented for like eight 850, $900 a month, and she was living there for $45 a month. So we consider that a huge win, even though she’s not getting any cash flow off of that property, which I think she is now, because she’s raised rent for the lower unit, and she’s maybe making $100 off of it or something, not paying anything now, but that was still a huge win to only pay $45 a month to live in that property.

Tony:
And Nadeem mentions that they’re in a high cost of living area. And I think it’s even more difficult to find deals that just create a ton of cash flow as a house hack in those kinds of areas as well. The only other thing you might want to consider, Nadeem, is, if you’ve got a multi-unit property, maybe instead of renting each unit out, can you rent out each room, right?
Say that you’ve got, I don’t know, like a triplex, and you’re going to live in one unit, and you’ve got two other units. Instead of renting out that entire unit, maybe it’s a 2/2 and another 2/2. Now you’ve got four rooms you can rent out, and what does that look like? And there’s ton of guests that have come on the podcast that have talked about the rent by the room strategy, but typically, you can maximize or increase your revenue per each unit if you rent out the rooms as opposed to renting out each unit. And we even had a guest, and I wish I could remember which guest this was, we had a guest that was doing that, but they also rented out the rooms in their own unit. Do you remember this, Ash?

Ashley:
Yeah. Yeah.

Tony:
He was sleeping on the couch in the living room just so he could rent out the other rooms in the unit. So there’s so many ways to maximize the revenue on a house hack.

Ashley:
Yeah, and you can incorporate different strategies too. So if you get a four-unit, if you’re in an area that demands it, turning one of those units into a short-term rental, then having the other two long-term rentals, or even doing one as a medium-term rental and renting it out for 30-plus days to traveling nurses or whatever, sometimes that can actually maximize your cash flow too, instead of just doing a long-term rental.

Tony:
Yeah, that’s a great part of having those multiple units, like you said, is you can throw a bunch of different strategies into each unit. So if you’re in one, say it’s a two-bed, you live in one bedroom, rent out the other bedroom, you’ve got one you’re doing as a medium-term rental, another one you’re doing as a long-term or a short-term rental, and now you’ve got income coming in a bunch of different ways. So that’s cool.

Ashley:
Yeah, Craig Curelop, who wrote the book, The House Hacking Strategy, you can find it in the BiggerPockets Bookstore, he would buy properties. He lived in Denver, Colorado, and he would rent by the room. He would have one of the rooms, rent out the other ones, and then, in the basement, he would make a basement unit, furnish it, and have the basement as the short-term rental. And that’s what he did with several of his house hacks. And then, after he had lived there for a year, he would go and purchase another one and do the same thing, and he built up his rental portfolio that way.

Tony:
I think it might’ve been Craig who said it was his first house hack where he was sleeping on the couch.

Ashley:
Yeah, you know what, that definitely sounds like something he would do [inaudible 00:15:24].

Tony:
All right. Anything else on this house, or should we roll to the next question?

Ashley:
Yeah, let’s go to the next one.

Tony:
All right. So question number two comes from Jason Lamb. Jason says, “Just curious, what issues have you all run into with unpermitted renovations? Obviously, you should always do things the right way, but I’m just trying to understand what kind of issues come up and when. For example, do buyers normally look for permits, or is it just their lenders, et cetera?” So have you ever had any issues, Ashley, with unpermitted renovations? And, if so, how did you handle those?

Ashley:
No, but we did just have on Episode 265, so this past Wednesday, you guys should go back and listen, we had Devana and Reid on, and they talked about a property they purchased that they knew had an unpermitted addition to the back of it, and they knew it was not permitted, but they didn’t need it permitted, they thought. So they went and pulled permits to do some electrical work, plumbing work, and other renovations through the property. And when they did that, the inspector came and said, “Well actually, this is not permitted,” so you have to take it down. And they had to rip off the back of the house where this addition was, and they said it was just an eyesore as to how it was set up, and they actually had to build back onto that same space, that same pad, build a new addition back onto the property. So that was definitely something they did not expect and made them go way over budget, I guess, on the property.

Tony:
I feel like it definitely varies by the city or county that you’re operating in. Some cities and counties are going to be more strict about those things. Others will be less strict. I think Devana and Reid’s situation is probably the absolute worst situation that could happen. We had a rehab that we did recently where we missed a permit in the bathroom, but we’d already completed the entire bathroom. And we were nervous they were going to come through and make us demo the entire bathroom, do it all over again. But the folks in the city were super understanding, and they said, “Hey, we’re just going to test a couple of things, that it looks good.”
But we have a separate property where we purchased this property and it already had one of those big swim-up spas, so it’s much bigger than a hot tub, but definitely not as big as a pool, like 15-feet long or something like that. And it came with the property. But when we went to go pull the permit for the short-term rental, they did the inspection and said, “Hey, a permit was never pooled to do the electrical for the spa. So now, before we can issue your permit, you guys have to go back and get this electrical thing sorted out.”
So, depending on what you’re looking to use the property for, depending on what the inspection process looks like for that city, depending on if the county or city needs to get back into that property to do an inspection for something else, there’s a lot of different variables that could happen. So I would say there are some risks that come along with buying units that include properties that are not permitted correctly.

Ashley:
And when I did my flip with James Dainard in Seattle, Washington, it was really the first time I dealt with heavy permits and an understanding of them. I mean, where I live, it’s just you go and talk to the code enforcement officer, and you get your building permit. You’re on your way. So, with him, what he actually does too is when he’s purchasing a property, he pulls the permits on the city’s website. And, for me, none of these little towns have permits online that you can actually go and look them up. You have to actually physically go there and ask for them. But he pulls the permits on the property.
But also, he’ll keep note of who the contractors were that did the work on those properties. So if he is going and doing a rehab and be like, “Okay, this was the last person to do electrical work. Maybe since they know the property, they’ll be able to do the work more efficient, and maybe even I’ll get it cheaper because they already know so much that’s going on. They don’t have to take the time to figure out the electrical of that property or things like that.
So I thought that was just a great little flip tip, as he called [inaudible 00:19:30]. When you pull the permits, look at who the actual contractor was on the property that you are using too. Or if the work is really bad at it, that’s why you’re rehabbing it, because the plumbing is all messed up, you know not to use that contractor.

Tony:
Who not to call, yeah, who not to call. Yeah, I mean, James is obviously like an encyclopedia of all things rehab and flipping, so anything he does, we should all try and emulate. Last thing I’ll say is that we actually bought a property that’s listed right now as one of our turnkey short-term rentals. And the property itself on paper was a three-bedroom, but when you walked in, the previous owner had knocked down the walls between all the bedrooms and just had one massive bedroom. I guess it was a single lady living by herself, and she’s like, “I don’t need three bedrooms. I just want one massive master suite.” So we were able to essentially just put those three bedrooms back in place, because she had knocked down the walls unpermitted, so we were able to just, without having a really repermitting thing, just put it back to the original floor plan. So there’s some nuances there for sure. All right, anything else on that one, Ashley?

Ashley:
No. Let’s go on to our next one. I feel like this is really going to hit home for you, and you’re going to have some mixed personal experience answering the question.

Tony:
Yeah. But hopefully you can give us some more insight, because we were so lost when this happens. But anyway, next question comes from Juan Alvarez, and Juan says, “One of our vacant units has frozen water lines due to the bad weather in DFW in Texas. Do you recommend I turn the supply valve off so it doesn’t flood the home if it breaks the pipe or starts to thaw the pipes out? What do you suggest I do?”
So we had our first experience with frozen pipes this past Christmas. We actually had to cancel a few reservations, because pipes weren’t working, and water was frozen, and water’s a kind of important thing to have at a short-term rental. So the pipes weren’t working. People can’t stay. And we actually posted on Instagram about the issue, and we had so many people talk about different things that they do to help prevent lines from freezing in the first place and some other remediation things they do to help solve those issues.
So, yeah, thawing the lines is one thing. And we had our crew out there kind of thawing the lines. One limitation to thawing the lines out is that they can only thaw the lines they have access to. So if the lines are frozen underground, maybe where your main water supply line is, you can’t thaw that out, because you can’t get to that line. And that was the issue we were having in our property. We could thaw the lines that were in the house and visible, but the stuff that was underground, we had no way of getting to it.
So one of the tips that we got was that when it gets cold, you should always leave a slow drip going at your property, because that little flow of water will help prevent the lines from thawing out. Another thing that was told to us is that you should almost never put your… even though it looks really nice, if you’re in a place that’s prone to freezing pipes, never put your kitchen sink in front of a window, because, for whatever reason, because there’s less insulation, those pipes tend to freeze pretty quickly as well. So there’s a lot of little things we learned around how to prevent this from happening. But Ashley, you live in Buffalo, New York, which had probably one of the worst freezes on record not too long ago. So you probably have some more insight on this end than I do.

Ashley:
Yeah, this is something I’m always very proactive about, is freezing pipes, especially if we’re rehabbing a property, or, if we have a property under contract and I know that it’s a vacant, going into the winter, I make sure, we call it, “Is the property winterized?” Okay? So you’ll see this a lot with foreclosure property.

Tony:
I just want to say, winterizing is not a thing in California. If someone said, “Did you…?” What does that even mean? In winter, we’re like, we’re in shorts and stuff. So if you’re like me, where you live in a state that isn’t prone to getting froze, listen to what Ashley’s about to say, because you’re going to save yourself a world in trouble if you do that. So, anyway.

Ashley:
Yeah. So this is common with people who have seasonal properties, so maybe you have a lake house, or you have a cabin where maybe there’s not even any heat in the property because it’s a lake house, and you’re just there in the summer, and you don’t have heat through it. Or the biggest part of it’s maybe you do have heat, but your pipes aren’t insulated. So maybe there’s just a crawl space under the house. So what people do is they winterize the house, where you actually go and drain all the water lines and you turn the water off to the property.
So if you go to a property that is owned by the bank, maybe it was foreclosed on, there’s usually a maintenance company that’s taking care of the property, and they’ll have tape over the toilet. They’ll have tape over the faucet. Like, “This property’s winterized. Don’t flush the toilet. Don’t turn on any of the valves. There’s no water to the property.” So winterizing a property is like if you’re going under contract in a cold area and the property is vacant, make sure that the seller has winterized the property and that there is no water throughing.
So, basically, why you don’t want your pipes to freeze is because, let’s go back to basic science, when water turns to ice, it expands. Think of like water in a water bottle, when it freezes. So what it does is it can cause your pipes to crack because of all of that pressure from the ice. So then, when the water melts, the ice melts back into water, it shoots out of wherever those cracks were. So that’s where the issues come in. The actual freezing causes the cracks, and then the water shoots out of it.
So me, as anal as I am, I have one rehab right now where when the deep freeze was coming, I was like, “We don’t have any water going through this. I just want to make sure. I’m pretty sure. I’m looking at it. We don’t have water to the property yet.” Everyone, “Yes, yes. It’s fine. It’s good, blah, blah, blah.” There was about three inches of the main water line coming into the property that was into the property. Somehow, someone had switched off the breaker, so the furnace shut off in the property. Well, just in those little three inches sticking out of the ground where we have a spigot on there right now, because the water lines aren’t hooked up, completely cracked the pipe. Water was shooting out all over. So, luckily, that same day, somebody was there and saw this happening. We were able to plug it up, fix it that night and take care of it. But also, the furnace got ice buildup in it, because the furnace froze. And so we actually had to have the plumber come out and dethaw the furnace and to get it going again.
So, as much as I would like to say I’m very experienced and knowledgeable about pipes freezing, it still happened to me, because I listened to my contractors, and I didn’t actually go to the property, because I would’ve seen that little pipe sticking up, and I would’ve known. But yeah. So, I think the biggest piece of… Have your property winterized if you’re not going to be living there, the rehab’s going to be going on and you want to make sure that doesn’t happen, the pipes don’t freeze. Winterize it if you’re doing the rehab, or you can actually go and make sure there’s constantly water dripping through the pipes too.

Tony:
Ash, who do you go to? So winterize the property, is that something that plumbers typically handle for you? Is there someone else? If you want to winterize, who are you calling?

Ashley:
Yeah, the plumber can definitely do that, but it’s something that you can just YouTube real quickly and do it yourself. A lot of the people that own lake houses around here, they set up a day that they go, and if it’s not seasonal where their pipes are exposed, then they’ll just usually go and do it themselves, and that’s part of their yearly routine. And in the spring, they’ll come and turn the water back on and check everything, yeah.

Tony:
Have you ever had one of your main water lines break?

Ashley:
I don’t think so. I’ve had the main sewer line get cracks in it and stuff, but never the main water line.

Tony:
I’ve never had any main major plumbing issues either. Just really quick, on the main sewer line, that actually happened to my aunt. She bought a house, and it wasn’t an investment. It was like their primary residence, and the main sewer line that connected into the city sewer cracked, and they made her replace it, even though the crack was coming from the city. And she had to dig up all of the sidewalk and do all these other crazy things, and it turned into this big ordeal. So, anyway.

Ashley:
Yeah, we had to do that in front of a duplex too, is like, get a mini-excavator there, dig it all up, and, yeah, it was a pain.

Tony:
Yeah, the only reason I bring that up is if one of those main lines that tie into any kind of public utility end up breaking, it’s super expensive to get those repaired.

Ashley:
Do the sewer scope inspection. That’s another thing I learned from James Dainard, is always do the sewer scope. Maybe if you decide to skip the home inspection when you’re buying it, but do that sewer line scope.

Tony:
Well, lots of frozen pipes. And actually, if you guys go to the BiggerPockets Instagram, my wife Sara made that Reel that I was talking about, but BiggerPockets was a collaborator. So it’s on there. And there were literally, I think at this point, over 100 comments of people dropping tips on how they prevent their lines from freezing. So maybe the producers can find that and add it in the show notes. But there’s a lot of really good information on that post.
All right, so next question here comes from Kyle Campbell. And Kyle says, “My wife and I own two duplexes. We’re ready to make an offer on a third. However, this third property is a FSBO, which means four sale by owner, and this would be a first for us. What steps do you go through when buying FSBO? We’ve read a lot and listened to thousands of podcasts, but still looking for any and all advice. Thanks.”
So Ash, I know you’ve bought FSBO. I have as well. But from your perspective, what are some of the differences that a rookie should look out for regarding FSBO?

Ashley:
Yeah, so the first thing is, you’re most likely not using an agent. Oftentimes, you still can. You could go to them and say, “I’m going to pay the agent directly, and I want to use an agent to facilitate that deal,” whether it’s to do the paperwork or to help you negotiate or anything like that. So the biggest thing for me, the difference is, you’re not going to have a real estate agent fill out the real estate contract for you. So that’s either… I use an attorney for that. But you also have to use an attorney in New York State, where I will tell my attorney what the terms are, and then she’ll plug it into her real estate contract, and then I take it to the seller.
One thing you can do is a letter of intent. If you just Google that, there’s tons of samples out there. If you’re in the Rookie Bootcamp, it’s included in there. You get a copy of it. And it just basically gives the initial terms of your offer without going through a full-blown contract and then just says like, “This contract is based on attorney approval. These terms are based on that.” So it kind of gives you some leeway. But I usually write one of those up myself without even having to talk with my attorney. Then that’s where I negotiate with the seller. And then, once we agree on terms and we have a signed letter of intent, that’s where I pass those terms off to my real estate attorney, where she draws up a contract as to what those terms are. Then I have the seller sign that.
One thing with doing dealing directly with the seller is I think you have a huge advantage with negotiating. That’s not always the case, but getting face-to-face with the seller and really figuring out why they’re selling. And also, if you’re going to be doing some kind of creative financing, like pitching to them the benefits of seller financing, things like that, it is so much easier to sell the creative financing option to the seller than having it go from you to your real estate agent to their real estate agent, then back to them, like playing telephone. So that’s why I love for sale by owner, is because you get to deal directly with the seller for negotiating.

Tony:
Yeah, that’s a fantastic breakdown, Ashley. And we’ve purchased a few directly from the owners as well. And our process, it’s fairly similar. We still do use title and escrow to facilitate the transaction. So even if you’re going FSBO, still make sure that there’s some third party in there to make sure that all of the paperwork with the county gets filed correctly. You’re still getting things like title insurance to make sure that there’s no issues with the title, and that party, escrow or title company’s there to manage all the funds to make sure people get paid out appropriately. But outside of that, it’s honestly pretty much the same process. And, to your point, Ashley, it’s honestly a little bit easier, because there’s less back and forth between you and your agent, their agent, that seller. So I think the ease of the transaction is definitely there.
But if it is your first time doing it, Kyle, I would just try and find an… I don’t know what state you’re in, but for me, I always go to my escrow company first, and I say, “Hey, I’m looking to buy this property. I’m looking to sell this property.” And then my escrow company’s the one that draws up all the documents and makes sure that everyone’s DocuSigned on everything. So the escrow company almost works as the transaction coordinator when I’m doing FSBO here in California. So, if you’re in a state that uses escrow companies in addition to title, I would just try and find a really good escrow officer, let them know that you’re a new investor and you plan to do more deals with them. But if you build that relationship, they can really help facilitate any FSBO deal that you do moving forward.
All right. Well, let’s move on to the next question here. This one comes from Daniel Budihardjo. Hopefully I said your last name right, Daniel. So Daniel’s question is, “Hello Rooks. What do you think about installing electronic keypad door locks? It sounds awesome for multi properties, as you can maintain a master code for the landlord and reset codes for your tenants. If your house has multi exterior doors, say front and back, do you install one at each door? The best seller on Amazon is only 40 bucks. It’s a great price, but not sure it has everything that we need. Thanks in advance.”
I love the idea of electronic keypads on properties, both for, I think… Obviously, we don’t really have any long-term anymore, but if I did, I would probably do that. It is just, I think, a nice feature to include, because as a tenant, having that kind of smart home functionality is a really cool way to make your property stand out from other ones. Like for example, when I bought my home, it didn’t come with any smart home technology. We had to go back, and we added our keyless entry pad, added all of our smart light switches and stuff. But I bought earlier in the phase.
Now the new home, the newer versions of my home, they’re selling with all that stuff built in. So even for new construction, it’s something that builders are starting to add, because they recognize that it is, I think, something that people want in their homes. If you’re doing a short-term rental, 1,000,000,000% you should have smart keypads. Nothing is more annoying to me as an Airbnb guest than having to fumble with physical keys and open up a lockbox, then having to go back and put the key back into the lockbox. So if you can do electric keypads for your doors, I think it’s definitely the way to go. Just, last thing, like which one you should purchase, we use the Schlage Encode, or Schlage Encode.

Ashley:
Tony, stop telling people. They’re so hard to [inaudible 00:35:14].

Tony:
That was my point. They’re so incredibly difficult to find these days, it’s almost like there’s a black market for these. But that’s the one that we like the most. There’s some other cool ones out there as well, like Remote by August Lock. They have one. Every smart company has some kind of electric keypad, so there’s a lot of good options out there.

Ashley:
Yeah, I’ve used a Yale one before. I don’t know specifically what it was, but we switched to the Encode one because of Sara’s recommendation. I really like them. But, yeah, they’re definitely difficult to get ahold of. So we use them just for our short-term rentals. The issue that I run into with long-term rentals is especially at the small multi-family. In the apartment complex, it would be fine, because there’s a general Wi-Fi in the building. But when you have your duplex… So the tenant usually gets the Wi-Fi in their name, so you would have to request access to have the lock connected to the Wi-Fi if you’re going to be changing the code or doing things like that.
So, for me, I think the advantage of doing it for long-term is like if a maintenance guy is coming in and they’re not going to be home, you can set a code so that it’s just active during the hour they’re going to be there, whatever, and they don’t have to have a key, anything like that, and maintenance can be done when the tenant’s not home.
The second thing is when they move out of the property, they’re most likely canceling their Wi-Fi. So to go ahead and change the code, you won’t be able to just do it so easily from your app, because it’s not connected to the Wi-Fi because they disconnected the Wi-Fi. So you would have to manually go onto the keypad and… There’s some way you can do it through the keypad without having to be connected to Wi-Fi. But just the convenience of having the app on your phone and being able to create new codes, change new codes, you can’t do that without the Wi-Fi enabled. So that’s where I’ve run into is it actually that big of an advantage? Because turning over an apartment, not having to install a new lock in there, that, yeah, having to send someone out that takes time to do that and just be able to remote do that would be awesome. But I haven’t figured out that piece of it yet as to how to do that.

Tony:
Yeah, you’re right. That definitely is a limitation. You can use the app even if Wi-Fi isn’t set up, but you do have to be within range of the lock. So you wouldn’t be able to do it from sitting at your house to the property. But if someone was near the door, they could still go in. And I don’t know what kind of… I don’t know if it’s Bluetooth or some other kind of local connection, but you are, so even if there is no Wi-Fi, able to set the app up and have the lock communicate.

Ashley:
And you can still change the code and everything and lock [inaudible 00:38:07], yeah.

Tony:
Still add codes and stuff like that, yeah.

Ashley:
Okay. That’s cool. Well, I mean, that’s better still than having to go in and change the lock. Okay.

Tony:
Yeah.

Ashley:
So, I’m also going to continue to hijack Daniel’s question here, because I had a situation that came up. This actually happened Friday night, 9:30 at night, get a call from the property management company that a dog is barking in the unit that we actually use as a short-term rental. So they don’t have the contact information for who is the current guest in there. So what happened was, somebody, we think it was one of the neighbors, because one of the other units ended up calling the police because of the dog barking. But we looked in the app, and it showed that the lock was actually disabled because somebody tried the wrong code too many times, and it said the lock is disabled.
So, when the tenant actually got home, or the resident, the guests of the Airbnb, when they went to put in their code, it wasn’t working. So we had to go to the property, and we somehow ended up resetting it through the app, like having the phone there and doing it through the app, and we were able to get into the unit. But have you ever had that happen before, where it’s saying that the lock is disabled and you’re not able to get into the unit, and is there a timeframe on that or…? What should I have done better next time to prevent that?

Tony:
Yeah, usually, it is like a time duration that is disabled, but I’ve never seen it where it’s just like permanently disabled, you have to go in and reset the lock. But what we do have, we still have physical keys at every short-term rentals. That way, if, for whatever reason, the keypad isn’t working, the guests can just go to the lockbox and grab a physical key from there and then use that until we’re able to troubleshoot it on our end. So that’s typically our process.

Ashley:
That’s it. That’s a great idea to have that key extra there. Okay.

Tony:
And we put that in our digital guidebook that says, “Hey, if, for whatever reason, you can’t access with the keypad…” And we have a video where we walk… “Here’s the lockbox. Here’s how you open it, grab the key, and stick it in there.” So, usually, folks are pretty good about reading directions most of the time.

Ashley:
It has a key, though, the Encode lockbox?

Tony:
It does, yeah. So it comes with a key, and then, we usually just take that key, and we put it in there. If we wanted to get really elaborate, we should probably make duplicates of that key. Because right now, there’s only one key and it’s at-

Ashley:
That one, yeah, yeah.

Tony:
Yeah. But yeah, it does come with a key.

Ashley:
Obviously, you can tell I’m not in charge of installing those in the property, so I don’t even know that.

Tony:
There was another one called August Lock… or RemoteLock by August, and that one was a little bit different, because it’s like an attachment that goes on top of your existing lock. So you would just use your original keypad, and you just add this on there, and it unlocks it for you. But that one, the battery life was kind of not the greatest, and the integrations weren’t quite there, but yeah. Anyway, the Schlage comes with a key.

Ashley:
We actually started using RemoteLock. The person that’s been kind of managing our short-term rentals, she recommended it, and we set that up as to… Which, the customer service, I have to say, has not been that great with RemoteLock. But once we got it up and going, it’s been beneficial, yeah. I actually had to use my social media power to message them and say like, “What is going on?”

Tony:
What’s up? Yeah.

Ashley:
Yeah. And the person who runs their social media responded to me right away, got somebody to email the person that was sending it up for me, and that person was great. But oh my gosh, it was a headache to actually set up that process. But now that it’s operating, everything is going good with that.
And I had one more question. For the batteries on that, do you have some kind of quarterly maintenance schedule where you’re going in and having the handyman replace the batteries? Or is it just when you get an alert the battery is low, you’re adding as a maintenance task? How are you handling that?

Tony:
Yeah, that’s a great question. It’s the latter. So whenever the alert comes through in the app that the batteries are running low, our VAs create a maintenance task, usually for the cleaner, because we just keep extra batteries at the property. And then when the cleaners… yeah, the next time, they’ll just make sure they swap the batteries out for the unit.

Ashley:
Well, thanks for letting me ask a lot of questions. [inaudible 00:42:24] that will be good.

Tony:
We got one last question. I think we can hit this one pretty quickly. This one comes from Sara Lucas. And Sara’s question is, “Aside from the owner, who in this case, has no idea, how do you find out who is the lender for a property?” So I’m going to share the one way that I know how to look this up. There are probably other ways to do this as well, but if you use a website like PropStream, PropStream usually keeps track of any mortgages that are recorded against a property, and you can see the name of the company that is holding that note. So literally, you type in any address, and it’ll show that information as well. And then similarly, you can go to your county and say, “Hey, what deed of trust or mortgage security document or promissory note do you guys have filed against a specific property?” And hopefully, somewhere in those documents, you can figure out who the lender is for that home.

Ashley:
Yeah, you should… If the city of Buffalo has it, I’m sure most cities have it, but you can actually go online to the city records for the county, and you’ll be able to just search for it. If you know that person’s name, search for their name, and you’ll be able to come up as to what the mortgage is that they have in their name.

Tony:
Cool. Well, that was an easy one.

Ashley:
Yeah, yeah. All great questions, we really appreciate it when you guys throw your questions at us, mentally stimulates us. And also, some of the times, there’s questions where we’re not sure, so we actually take the time and go and research it, and we learn some things too. And obviously, I learned a ton about locks in this episode, just from Tony. So, thank you Daniel for asking that question, because I had some burning questions I needed to figure out too. So, thank you guys. And you can leave us a voicemail at 1-888-5-ROOKIE, or you can send us a DM @wealthfromrentals or @tonyjrobinson. Thank you guys so much for joining us. I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson, and we will be back on Wednesday with a guest.