07 May Ep. 66 House Hacking with REALTOR® Alicia Sierra

TRANSCRIPTION

Welcome everybody to the st. Louis realtor podcast live from the home offices and the office of the Hermann London real estate group I’m her co-host Adam Kruse and with you today is my other co-host Shannon st. Pierre realtor extraordinaire and we are super excited today because we’re going to talk about house hacking and who better to interview and Alcia Sierra realtor extraordinaire stand up agent Twitter and influencer yeah expert Alicia Sierra thank you for being here with us today at least yeah well thank you for having me Adam and Shannon it’s so interesting but at least you don’t mind start us off by just telling us what is house hacking well how hacking I really love to know who came up with this term term but it’s basically when an owner-occupant takes a property buy the property and lives lives in it obviously as an occupant and hacks it up to rent to other paying tenants whether it be a single-family and they rent the rooms or up to a four unit where they rent other apartments at least initially if they’re going to use a traditional residential loan but we’ll get into that so it’s an excellent way to start as opposed to just buying a house which would be for most of us a liability when you hack a house it becomes an asset because it either should sue the very least greatly subsidize if not cover you’re not in an ideal world a house hacker was actually a cash-flow okay I’m glad you mentioned that it can be a single-family house with roommates or you think or it can be a multi-family where you’re just renting out the other units mm-hm and the main goal is to cover your mortgage interest in taxes and then hopefully maintenance do they maintenance – yeah but the ultimate house hack is to actually put money in your pocket after expenses so you’re getting paid to live so you’re getting paid to live I love that so there’s you know there that’s a very simple concept in and of itself but after having represented a number of high tech buyers and sold a lot of investment property I think that I think there’s a next-level way of doing house of hackery if you will some hackery Oh Zachary yeah I like it a curry hackery as opposed to you know what are you how pakery because if when I talk to prospective clients I started taking this weather weather you know they’re out-of-state client obviously they’re not going to live in the property or a house hacker I’ve started to get into a conversation about a big picture plan so yes you have a short-term plan but what you do big picture gets a either a better start or not as an ideal start if you’ve already thought a little bit of ahead okay in terms of the strategy where you’re building with things so okay so if we start the beginning and an ideally a first-time homebuyer will be a house hacker so the first time you buy a house when you’re a house fighting virgin if you will all there’s a lot of grant programs as you guys know money is to be had that you will never have a crack at again as a first-time buyer I’m there a lot of people have the misconception that those programs special programs or or money actual physical you know granted money are only income-driven but there are a lot of programs and opportunities that are available to any heart first-time homebuyer right so I think for a house hacker to both purchase for a house hack and take advantage of first-time buyer loan program and/or money grant program is that’s just even next level if they can line up all of those things to to work at once I think that that’s a great idea I don’t know that I’ve had any clients combine them I you know I’ve had clients buy like a duplex to live in half of it rent out the other half I’ve had clients use the first time homebuyer state programs or there’s several different kind of programs out there but I don’t know that I’ve ever had anyway combine them I think that’s actually really super smart way of doing some things but like you said back to your hackery yeah it’s also got to be a long term plan you’ve got to kind of think through that because those loan programs you have to be in that house for a minimum of five years other way is some of them yeah okay and that might not be the best way to go yeah some of them or they only forgive 20% per year hurry we might be yes grandpa correct so you okay with a paying back a portion of it right but I think that also five years goes by so fast I think some people think oh my gosh five years I have to stay here I’m like that’s a blink of an eye well it might not um it might not be the best thing to not buy another house hack within the five years but there’s also first-time home program homebuyer programs for example have any of your clients used a credit union a hundred percent financing yes so that you know now the credit union may not let you use it on a two or four unit you might have to only use it on a house single family but you could find a single family that’s better suited for a roommate situation example it might have a finished walkout basement and it may have a floor plan where there’s a allowance for more privacy so that’s great for a young house hacker it’s ideal because I’m surprised I still talk to people I was talking to someone yesterday who still thinks that you have to put down 20 I have to put down 20 percent to buy a property you know so there’s a lot of kind of misinformation out there is a lot of misinformation I get a lot of interaction on Twitter when I talk about the fine and saying because um I’m constantly amazed as if they should have a home buying course in high school you know and how little people know about buying a home in general but they they know even less about mortgages and what tools are out there and about credit so you know I’m starting with my 18 year old now building credit so that when he leaves college he will have any number of choices because of credit credit depth will have been established but I mean that’s a whole other podcast but it’s all we have a part of the house hacker hacker II strategy so the main things I think the main starting points at the beginning of the conversation are what financial tools are available to you the buyer if you’re going to start you know how hacking so the best program may be a hundred percent financing program but they may limit you might tie your hands or FHA loan program might have a lower interest rate mortgage insurance that you can buy up to a four unit building I’ve had a house hacker who who bought a single-family and in her case she had two roommates already lined up like she already had how much they were going to pay and who they were and they were personal friends and this is a person who was like in their first year as a professional so it’s kind of his ideal you know that she didn’t want strangers she didn’t want to share apartment you know she wanted to find a house that would work with the two people that shared evening it’s a great way to go and she knew the likelihood that they’ll live with her a couple of years at least because they’re all just starting they’re you know they’re all very early twenty uh and she’s a hundred percent financing program with a local bank so it was like win-win-win so I think that there’s a lot of cart before the horse horse before the cart you know kind of tension they’re like going into it really knowing what you’re not only with the financing tool you have at your disposal is what it may or may not limit you as far as you know if you buy one two or four units but also what your living situation tolerance is going to be that’s something to keep in mind like as a landlord’s so recently I just closed recent like a month ago someone owner buying a for unit and you know I suggested that maybe because he’s going to have to give notice which is something else we’ll talk about you know you have so many days to move into the property as a four unit so there are months a month he’s gonna have to give notice so I suggested maybe you want to distance yourself and not have everybody note that you’re the big bad landlord kicking people out raising rents and that kind of thing so I think it that’s to think about all of these issues ahead of time upfront before you invest a lot of time and money and effort and you know as opposed to framing the perfect for family and then start thinking I think I’m a little uncomfortable with this landlord thing or I’m gonna feel a my able to enforce rules or am i a softie you know all of that has to be considered before the first purchase yeah so let me ask you a question there was a situation I found myself in when I bought my first house and I think other people probably find themselves in this situation I have to consider this or I’d like to get your perspective I bought my first house and I had friends move in as you know there are my tenants were roommates whatever but the kind of the assumption that some people seem to have is that they you know they should have paid there was two of them and one of me and I think the assumption was they were supposed to pay a third of whatever my mortgage was as their rent person is yeah versus us coming up it’s like market rate for their rent that still might be more than the 30-year mortgage yeah and so I was thinking like it’s not fair for you just to pay a third of my mortgage necessarily because if I put down 20% my mortgage would be less what does that have to do with you you know so how do you kind of coach people through the idea of charging like a market rate for that room versus you know you’re my friend you should just pay I don’t know if it’s my role to coach them as so much as to raise the issues that they should address how they enter into the situation but you know that they’ve established is especially if you’re gonna owe to occupy a house because you probably aren’t going to want to lease that room to a stranger right your friends don’t need to know what your mortgage payment is necessarily or they just have to agree to whatever they’re going to pay monthly well I I think that should just be agreed upon maybe but I think where our role could come in is telling them what market rate is for renting rooms so I think that that’s it’s not necessarily coaching it’s not necessarily rule of thumb but here at market rate and go from there I did what you Adam I had a friend I bought my first house had a friend move in and it was the same it is interesting gives us this exact same philosophy it was like oh I should be paying the X amount of the mortgage and as I I was naive I was 25 I was like oh yeah that makes sense I look back and I’m like are they gonna pay an exact amount of repairing yeah yeah like if the air conditioning broke where they Reese you know putting that bill on the counter top with a little / – on it you know right yeah so that is the thing so whatever it is you it should be established and it should be clear and in writing just because it’s your friend doesn’t mean you don’t need a lease agreement because you know lord knows if marriages can go south the roommate situation and they often do I mean actually I’m so grateful we’re still friends to this day and even after you know what I mean so because I think there is a time limit even when you buy your own house and I think that goes into your point Alysia is your time frame and thinking ahead is a sometimes and what I find is that people that I’ve even had people do the house hacking and they go I’m ready for my own space so you know like thinking out like what happens now right because if you get an FHA loan you have to live very year so minimum it yet I’ve never had anyone like come to be in a year but I don’t know but I mean maybe someone out of time that you’re that you’re living there I mean if if it’s not a year it should probably be at least somewhere close I mean you can’t move the next month and Edwin if I is that anyway if you’re planning on moving I would say let’s write something else a different man um in terms of the financing you know I always if someone’s looking buy how pack s because they’re wanting to become an investor and it is the best entree into it I call them my time machine talks because like if I could go back and talk to pick up for me this is what I would tell me and this is what I was going to tell my my kids you know so um if you know because I didn’t know the first thing I bought I had no idea I did they ask me for a piece of paper I gave it to him I didn’t really understand and I did never real to really explain that to me if you know what the financing is in a big picture then you can be super strategic for example um if you know that you are as an individual you can only get ten total Fannie Mae or Freddie Mac loans and these loans have the best terms as an owner-occupant more so than a than an investor and then you can put a trajectory to have now maybe you have like a 10-year goal for you would like your cash flow be in ten years and then life happens and stuff so all we can do is is plan it based on what we know now then you can plant out a trajectory really fast tracks cash flowing in a way that doesn’t happen when you’re not house acting at for example you can only have one FHA loan at a time so unless you plan on selling the first place that you use FHA with to have the small down payment you’re not going to be able to use that small down payment well it again however it doesn’t mean that you know maybe you can’t use a construction loan that would convert and put yourself in a position to refi the second one at least recoup your cash back you can plan on banking all the cash flow from the first for you that you bought to help see for your down payment on this on the second one so the second one you have to use a Freddie Mac Pro a product for example you might be if your if your product qualifies you might be able to do as little as 5% down or 10% down so let’s back to what you were saying Adam there’s a myth that you need 20% and it doesn’t even mean you need 20% on the second one I think that there’s a lot of analysis and some math and planning involved but it’s really powerful if somebody you know can also get a good enough deal in the first one to refinance out so that they can use an FHA product and perhaps they could use a 203k loan somewhere along the process you know and be building equity and in half slow as they use this so if someone’s young and they have strong credit you know they’re in a good lending position and they have got the tolerance for moving a number of times every year to or two years you know through most of their 20s for example it can really really put you in a position of wealth building and no other way you know I just can’t imagine it I mean it’s it’s really an amazing move but it can get really screwed up if you don’t really understand I think that the financial tools at your disposal you can kind of limit yourself in a way not unknowingly does that make sense you can move in place with low or no down payment you can essentially live for free or as close to free or maybe even make money to live there and then if you if you wanted to then you could move and buy the next one is what you’re saying and like keep house hacking and try to build a portfolio of properties that you own and keep having to being able to put down these small down payments because you’re going to move into it right right you can even you can finagle it with a number of well least I mean small being zero to you know ten percent should be very very doable and if you put yourself in a position where at least you have a chance at having an equity position in the not-too-distant future you can refinance out and get that mortgage insurance taken off because you you’re always going to have that expense as you know when you put less than 20% down so what would you say is some of the like what is holding people back from doing this you know you talk to people and they today not want to have roommates do they not understand it they just do they not like to think about their their home like like an investment or what’s kind of holding people back from doing this I don’t know they’re held back so much as I think it’s just there’s just two kinds of people you know there’s people who you don’t and I write about this a lot just generally speaking buying a house in general doesn’t make sense for everyone you know some people want more flexibility they want they want to be on thethe ‘red you know this is they just or repelled by the concept of the responsibility well really the only reason to buy in general if you’re not going to as a liability is because you simply cannot rent the space that you want you don’t even necessarily need it you just up you just want the space and location of the house that you want is not affordable as a rental on the open market that you know so you’re going to buy so there’s a lot of people who just cannot do not going to conceive but like you said they’re not going to conceive of real estate where they live having anything to do with property management but like that I think that’s one of the reasons that we have so many so much demand for turn-key properties now because those buyers don’t I really don’t want maintenance and also I think you probably agree we we get buyers that are buying a lot less house and they could actually afford on paper I don’t I don’t see people nearly maxing out it’s more freedom they’re pre-approvals because they you know I think it’s that generation that lived through the crash I was kids and saw the stress on their parents they saw the burden that the house became and and so they just don’t want you know they don’t want that but some of them react by just buying a small minimalist turnkey house and then other people’s reaction to that I think is if I’m buying property I want it to be generating income for me you know so you know then the third thing is just to reject comes that the owning property altogether you know that you’re the guy the house hacker is leading to you know you’re that girl or that guy I can understand both perspectives and because for there was like a six month period where I did I rented an apartment you know it just made sense for me at the time and I never forget in the dining room there was like these huge cracks in the ceiling and the place was obviously settling or something like that and the feeling of not having to care about that you know let’s say interesting you know because if that was my house I’d be looking at it I’d be calling a professional I’d be worried about it and I’d be thinking about the solution but if it’s a retro it’s like who cares not my problem you know landlord right you know there’s it’s not always the best financial decision I think that’s a mess you know it’s not always the right thing for you at the right time makes sense but if somebody really looks at real estate as a cash flow and a wealth building tool I think that doing as being a serial house hacker is definitely the smartest you know absolutely the hardest move but you can’t you can’t um be unrealistic in your Performa that’s probably gonna be one of the I think the biggest mistakes that are made and I think it also further I think over optimistically projecting what the cash flow is going to be I think and not being conservative enough even when I present cash flow properties to clients I probably have one of the more conservative cash flow analysis receipts because you know you you have to play it out to a worst case scenario and if it plays out somewhere in the middle it’s probably where it’s gonna play out if it plays out the best case great but it can definitely just like home regular home ownership it can turn into a burden if you don’t have comfortable reserves and you’re not you mitigate your risk but you are realistic about risk being part you know I’m proud to hear you say that you do take especially when you’re helping clients you take that kind of the conservative approaches on your spreadsheets and your formulas and stuff like that because that’s you know that’s exactly what I think I think is the best thing to do to them the best approach for your clients yeah because I mean I can’t yeah I’m not I’m responsible for the information I present I’m not responsible for the outcome because I don’t control over the ultimate outcome but you know you just you just have to play it out to the worst-case scenario I mean I see it happen now with some of the some of the clients on this little sort of segue into this portion of it you know some of the clients with a with the vacation rentals I mean I think it will bounce back but that’s definitely forcing a pivot you know specifically Airbnb and oh yeah your turn furnished rentals yeah yeah yeah you know they’re definitely having to pivot and you have to be prepared for that when you know when you go into that so a house hacker for example a lot of people will print the walkout basements as vacation rentals you know and it’s awesome cuz you’re you know you’re going to get three times the traditional lease was zero of the you know roommate drama I’m going with drama and it’s an easy to self-manage is easy because you know you’re right there because attached to anybody so that’s great but don’t count on that you know because that it might not work out and you might have to pivot back and and find you know more of a long-term situation so that you know that’s an example but yeah I mean you can you add all the more reason the house fact when you add the short term furnish rental into the mix you can even you know accelerate the whole process and increase your your income not even have to always ask yourself what if what what if I what if the house is damaged and I have no income you know what if you’re renting your basement in your basement something happens in your basement a fire whatever and that income is gone that’s you have to play those things out and that’s a big part of it you know if I was going to start and I wanted to house HACC and I was going to take the single family approach and have my college buddies move in with me or whatever you you think that it’s important then I buy a house that I could afford without any roommates or do you think well the lenders even let me buy a house that I couldn’t afford without them roommates well in my experience the lenders of this year unless you’re a seasoned investor they don’t count the rental income and it’s part of the debt ratio population and for anybody doesn’t know what that is the will take your debt that you service / your credit report and / your gross income and there’s a ratio that you have to meet but they’re not going to take projected rent unless you’ve been a landlord for I think it’s at least two years even if you’re buying an owner-occupied multi that had races in place they’ll review the leases but they’re not going to count the least income so that’s kind of a safety net that I won’t even be able to buy a house that I couldn’t afford without my roommates exactly you doing the single-family house thing right and they’re going to want a certain amount in reserves and I get that anybody can get the bank what they want to see and then turn around and spend it but I would definitely recommend keeping at least six months reserve and cover your living expenses just in case you have an income interruption because you know you the rental income should be a bonus and it should be in a catapult financially but not something that you have to rely on so is there kind of a criteria do you think that that’s it’s doesn’t matter like is it best in a 3-bedroom house or a four-bedroom house if I can more bedrooms the better or have you found kind of a sweet spot there I don’t know I think it just depends on all the factors how much is the house cost what’s the condition it’s a turnkey or not too many are you’re not spending any of your available cash what’s the layout and I think that house hacker really has to honestly answer all of those questions you don’t there’s no point in setting yourself up for total and utter misery you know I mean you have a house are excusing a job have you know bonuses and other opportunities that can earn you money I don’t think necessarily you know dedicating your time to being a property manager you know you might keep stepping over a dollar to pick up a time it’s other questions that you should ask yourself the client that I just sold to he’s in sales he’s he’s very orderly person and I think he’s going to be able to detach himself but I ask those questions I was like are you sure you’re not going to be a softy you’re gonna be tough are you sure it’s gonna be worth your time you know like he’s doing everything right if you’re going to self-managed definitely have an attorney prepare all the documents and make sure that you know don’t go to Office Depot and get a lease boilerplate lease he’s doing all of those things right but some people don’t have the emotional stamina to slack from somebody who lives where they live you know who is their neighbor so those kinds of things are important and also the time factor is that time per hour less than what you could make otherwise and your whatever your job is you know however you earn your living I think those are questions to ask but that sergeant ideal setup you know it’s just going to be property to property yeah so it’s going to be financial question and also lifestyle questions like you’re not going to want to keep a roommate if you you don’t want to figure out after the fact that it makes you you don’t have enough private space to yourself in the property that you chose well what do you mean by time so if I buy a house I got my two college buddies moving with me what kind of time do you think I’ll be spending today and I wouldn’t be spending for example if I list a roommate well like maintenance and repairs so that depends on should you really buy a totally turnkey property or you know one of my clients bought a house great price there’s definitely equity and there’s definitely projects I mean it was fine you know it’s livable pass inspections etc but there’s absolutely some cosmetic projects there inside and out so that’s going to cost time and resources you know then you’re also talked about kind of like the personality and the ability to just sort of be tough or whatever I usually get in arguments with my roommates about what we were allowed to put down the garbage disposal because I was raised to never put anything down the garbage disposal and they were just throwing stuff down there yeah I mean it I think that that’s where this the duplex really comes in because I had the same as yeah funny enough with the garbage disposal IRA maybe would take the whole coffee filter and just stuff the whole thing down in there and like it’s not a paper shredder it’s what oh that’s a hot mess no I please don’t do that but yeah but I think that that’s where the single-family if people talk about like I don’t know if I want the roommate or they they’re used to roommate success leaves are coming out of college but then they might be right but I thought you thought with singles that do you like traveling nurses a short-term furnace rentals in the basement and stuff yes I think it’s really attractive but I also I think one of the most attractive is the whole duplex is so you you have your own space but you’re able to kind of house HACC and ideally maybe buy something in a brace point where the the rat covers at least a majority of the rent or a mortgage well I’ll give you an example now oh my god one under contract it’s in the cheese and birdies and the upstairs apartment has three beds and the downstairs apartment is too bad so he’s going to rent out the second floor and occupy the first floor with no roommate with no Burbank nothing is awesome yup there’s rent in that neighborhood should be about sixteen hundred so it should cover at least the piti yeah and then if he gets a girlfriend or somebody like that to move in you can charge them rent Adam Holly got girlfriends the biggest challenge is like when I try to talk to younger individuals they love the idea but where it kind of is trying to rent out their like I don’t even know where to start to rent it out how do you go doing Alysse how do you you know and I’m like oh goodness you know like you know an agent can still walk you through that entire process like you had mentioned just a few minutes ago that you know to get an attorney to kind of drop at least don’t go to Office Depot necessarily get an attorney because I know that that’s a huge like seem a big barrier something a big hurdle or you know someone that’s young attorney to just figure all this out you can also use an agent to rent out your limit yeah you can’t please point and then you can self manage from there or I do have a friend I think is really interesting they just rented a house it’s not here in this city but they rented a house and right next door is the owner he lives in the house next door and and he goes she said specifically that they have a property manager that they deal with the property manager said that the owner does not want to have any kind of communication with the ranch blood he lives next door not have some kind that I think that’s really smart so Mike my client and not he’s going to hire manager yes yes takes it it takes out the personal acts aspect and if you’re yeah can’t really be tough then you know it’s a great way to go yeah it’s a great way to go because I think and I think that would be with if you’re going to have people in your actual single family especially I think it’s good to talk to an attorney and because there’s going to be things and issues may be there that attorney will think of that a leasing agent is it going to no so even if you hire leasing I think it’s good to talk to an attorney just about your specific situation if especially if you’re living in the house you know I mean I must agree with you Carol isn’t get people out even house yeah you’re always encouraged able to talk to an attorney yeah yeah that’s a great scenario that you should talk to interned it because I think that that’s a you know your own personal have no like lying laws and stuff I mean there’s Sarah right work like it is unlikely situation yes but again you should work these things out to worst case crazy severe because you know I mean this is we’re talking about like the time machine it’s like you I’ve I’ve been in some really you know not so ideal situation you just raw can’t even you don’t even think about that I think especially when were young you know we just don’t think about those kinds of problems as issues and the other thing the other thing is just a habit building again if you are how packing and it’s because you’re thinking long term whilst building through real estate I think you’re developing habits so I’m like you should operate now like you’re going to be operating you know this is my my two cents they can take a leave like higher the shanell to hire the property management company now because you’re going to move and you’re going to get the next one you know unless you’re you know you’re trying to make self-managing a full-time thing but that stress point in between you know can be more than what people anticipate yes we’re saying why have the costly mistakes and then hire the attorney or the property man yeah you can hire them up front if you just you think oh I don’t know why should I pay them 10% a month or whatever well I I think you shouldn’t pay just any property manager I think you should interview property managers do your due diligence get very details about what that service includes what the extra costs are etcetera but you know really do a good self-assessment because if you’re you know a grown professional person developing your career at the same time this can really hold you back in ways that you don’t even you know not mental stress inevitable and our the powers nevermind the hours yeah yeah everything you don’t really figure these things out I think until you’re you know not to get too you know philosophical about it or whatever but you don’t really figure these things out until you’re let’s just say older oh let’s not talk numbers when it comes to Aryan experience I mean because you know your life progresses before you know it you have you know a sub whatever might be you have had a significant other or child whatever and now you’re backtracking and I just think it’s better to set it up for the like you’re building rather than the life you have because if they can also impede that because everything just takes a minute you know right I do think everything it’s a lot of minutes and they add up pretty fast yeah and I do it I do tell people I was like I agree with you like you know with age does come with them for sure but what I know now which is easy for you and I to say oh you know I wish I would have done differently if I were your age I wish that I would have done it I wish I would have but what we know now is that when we come against those challenges whatever they are I mean there’s a whole string of them we somehow just figure things out so you’re not gonna have all the answers it’s it to your point to kind of think through some of the some scenarios that we can possibly think of whatever you know said of my Fez much I’d rather have the habit in place or have done the due diligence higher manager I had you figure it out I always think people I’m like you know what are you that stuff in place I’m Hannah code though that’s why I’m like at least know who you would turn to if you decided to turn to that professional because if something happens in your life it could be anything it could by a career opportunity you know it could be the loved one that gets ill you have to take care of and now you can’t handle this it’s better to have done that due diligence at the very least I think and then half then you can just make that call you know now you’re not backtracking now you’re not interviewing managers you know reviewing management agreements and stuff you haven’t ready to pull the trigger so you know this is um anybody who could buy a house can have a hack a house but to be a really into hacker II agree it takes definitely due diligence and it’s a preparation and it’s it you know I think that’s where professionals like ourselves come into play because we either have our own good or bad experiences or you know we’ve seen it work out really well or not as well for clients and it’s just things that only the streets can teach like I like to say you know so if you do all ask yourself all these questions and do all this preparation like it can be good and case but I can be really really great I mean like just incredibly powerful tool you know to happen to be a serial hop hacker is how hakery I think it to do it well as smoothly as possible I think because I don’t think that I am I don’t think I get it I think it’s an awesome that you work with these clients or I’m sure it’s few and far between that have that really that long-term plan to work on that next level hackery going I’m gonna move every other year I’m not gonna buy real furniture I’m just gonna buy some blow-up furniture are gonna play and we’re gonna move on like every uh you know it’s really kind of build it and it within like a matter of six years you can you know and even less weight less technically but he’s totally set yourself up completely set yourself up and then you know there’s yeah specially if you’re willing to do with you know like I said if you want a 3k well I think it’s a cool product people kind of like the idea but I have almost no one ever uses it give us a quick review of that Alicia further for the listeners well okay so a construction loan means that you don’t borrow money from the bank obviously for construction and then typically has to be refinance which is you know even refinance he costs money obviously anybody know that the advantage to taking on a renovation in general is that you’re going to have equity otherwise if you don’t put yourself in a position to where you’re going to have equity so in other words if the same property would have cost you three hundred thousand you’re all in for you know maybe two hundred twenty two or twenty five so you have comfortable equity position and at home a 203k loan is FHA sort of version of a construction loan and what’s nice about it is you convert to a permanent interest rate so higher-risk while under construction the bank will charge higher interest rate but instead of having to refinance reclose it converts to a rate at the end of it you can’t it’s not a sweat equity thing that’s something we can come back to in a minute but how sweat equity can work where you put your own skills and you know back into it which there are house hackers who are weekend warriors and enjoy that but because you have to hire an approved contractor and it’s all you know up and on the up and up but it you get an equity position it saves expenses on refinance it’s still low down payment so that’s what’s so great about it it’s a great way to start if somebody has a stomach fart if not that’s what I mean about understanding the financial tools you can only have one epic a loan at a time so what you think by the six at one you’re going to need a 203k loan that means you should use a conventional loan program for your first house act so that you’re enabled to use the 203k loan for your second this is why a good relationships with the right realtor and the right loan officer or so important a banker who will take the time to strategize with you and collaborate with your realtor and enable your goals and help you determine what they are by asking you questions like help you articulate them and map them out um sweat equity is another option but all that means is you know you’re buying a property that’s a livable but it has a lot of opportunities to add value so we call it added value opportunity for example the perfect place to put the second bathroom of a basement that could be finished kitchen that could be upgraded as a project this is the situation with the gel many young man that I just sold a four-unit to it it was the perfect scenario for added value it’s a mid-century building if you’re in a market where the housing staff is old like we are and st. Louis mid-century building is a grapevine because there’s a poured basement if you guys know that the stone baseness there’s a lot more you can do with the basement and a lot less a lot fewer problems potentially with a poured basement with moisture etc so in any case I had the same landlord since the 80s and we’re all okay boomer let’s not raise arrest same rats one of the tenants have been there since 1993 for goodness sake so he’s going to move into the worst looking unit which is the smart way to go one of them had a small fire and was redone and the other three were various stages of outdated miss or havoc not on us none in the system’s way but in a cosmetically original kitchen that kind of thing he said oh you’re going to move into the worst-looking unit and improve it as he lives there and once it’s improved rent it at a higher rate and then move to the next nice yeah that’s the way to do it so he’s not borrowing money to improve the property per se um he’s going to put you know it is on a back into it but he has he had to move in in 60 days it was fully occupied so people you know they think when they shop they cannot buy a fully occupied building you can but at least one of the leases has to be on a month a month so he had to surely after purchasing give 30-day notice so that was the extent of the requirement you’re kicking out because how do I choose the worst unit was also the slowest the slow payer so the guy pays but he’s too slow payer so it was kind of like a double whammy about he’s giving yeah but it was no Perriman he pays late he always he consistently pays late she pays but he pays like consistently yeah and so again Italy see it’s so you come against cuz that’s the one of those things to where you come and you find a building that’s been up system-wise maybe not cosmetically which to me I’m like that’s your dream my pleasure and so but it’s fully occupied and in this case four units yeah yeah one so we pick the slope err what do you do with the other thing the other tenants that have been there forever and pay $200 and write you know oh well I mean why great is you know 800 or something well I don’t think he’s gonna want man yeah I would I don’t think he’s gonna want to mass exodus I think I what he’s gonna do is once he’s improve the unit he lives in then he’s gonna get notice to the next and rinse and repeat you know in his case okay yeah so do you ever tell them that they need to give them the option like here’s your market right here’s market rate sorry you know it’s a $600 difference but it’s that or yeah I mean I do think that he will give them an option to up there why not yeah current condition I mean he can’t be sold for like a full market rate and we’re talking about their 50 cents on the dollar for what it would be after being modernized but he could definitely justify some kind of increase you know some kind of prorated increase yeah I mean it’s tough that’s why I thought you should hire a manager I think it’s gonna be very uncomfortable you know awkward area for that property manager though you know hire the bad guy near like yeah yeah that but you know yeah I checked it with them and he said I was going well I I don’t have to fool the pool skinny yet but yeah I said it was going well I think that we the other piece of this is just because you’re doing your cereal house hacker doesn’t mean you can’t also buy investment property at the same time so you know when I talk to an investor whether they’re how teching or not besides having them understand what conventional lending options are in terms of Fannie Mae Freddie Mac what that means it means 30-year fixed it means lower rate you know etc I also want them to understand what that what commercial lending is that means lending to an LLC and I want them to understand that what portfolio lending is that means a local financial institution of loan programs that they hold in-house the selling to Fannie or Freddie and they’re but they’re typically two three five seven year fixed rates and they’re on adjustable rate mortgages or and or balloon terms so you have to know you have to know that you’re either going to sell that property be able to refinance that property in that time frame so at the same time especially when people start really young we talk about all the different tools and the tracks that they can get on so I’m like just because you’re onner active behind doesn’t mean you shouldn’t create an LLC create a bank yeah a Capital LLC start to build credit in the ein for the LLC so you can develop a fourth option which is a business line of credit because now you’re going to have way more opportunities and options for example you could buy a for unit that needs added value and you could use that business line of credit to learn to yourself the improvements needed for that for the added value projects get the equity refinance it with a Fannie or Freddie product you know and then move forward it just gives you all the options because you know especially once you if you’re really into it and you get that bug and now you’re learning your market you’ve chosen a realtor not unlike the three that you see here who know was a market rose your market really well can give you intelligent estimates before and after can advise you on what improvements will give you the most bang for your buck etc even you’re going to probably be recognizing other opportunities and want to be in a position to take advantage of them regardless of the fact of it you’re not going to be cocky so it makes a lot of sense that’s you know from the beginning if you start setting yourself up for all the different lending options to be at your disposal well then you know this if you want to which is a whole other conversation is you know some whole life policies where you can lend to yourself off of a policy that you funded which is going to be super way more cheap and lots of more options when you start your twenty you know that when you’re with a woman of a certain age oh you’re going to have a lot of those options at your disposal if you start early it doesn’t it doesn’t have to be it’s a long game you know just because you used to talk now it could be three years before you’re eligible for that hundred thousand dollar line of credit but you can’t you’re gonna look back trust me you’re going to look back and go dang it why why didn’t I start thinking about that you know so once you get that house hack and you move in in your shuttles I’d start building those Bank relationships and building that business credit and looking into that whole life policy because it could be to track you can use your ten loans or any not any number of them as an owner-occupant might not be all ten you know you could be a confirmed bachelor today and a married guy with a kid if you don’t know a thing when we’re all there we know that you don’t know you know at all I’m very guy whose wife doesn’t want to move them exactly I doubt your house every game has been curtailed what’s that do you have anyone that uses like I mean we I have my 401k like blown out I have um number how packing I have a client who’s actually taking advantage of The Cove a 401k loan ah oh really already yeah yeah he just I don’t know that in a start portfolio building so instead of taking a penalty withdrawing his 401k he has taken advantage of the covet law that has better terms better tax terms but I’m not a you know an accountant right but um I think that does that’s a good that’s a good way to end to introduce the whole COVID topic I mean have we would be you know the viral elephant in the room people um that you know there’s obviously a lot of talk about market opportunities right now just in general but that is a tool I don’t know how long it’s going to be at the disposal of 401k account holders but it’s definitely seems like it’s worth asking your technical competence or financial planner about it you know about using those those funds to help you advance your investing goals and on the lending side the FHA blending in general is tightened so you know those come to commercial lenders have come to a screeching halt as their we are not lending at all or they went from will do 90% of your rehab or 80% of your eternity purchase to will do 60% o family yeah oh that’s really I’m sure it’ll come back but that’s kind of like on hold but again it doesn’t mean you shouldn’t talk to a commercial broker lending broker yeah find out what needs to be in place so you’re ready when it does open back up and then on the FHA front we we know that it had opened up to as low with other criteria in place as low as a 580 score and now I know they won’t go under 620 so you know if these people get limited and I’m sure probably if you’re in a 2 or 4 unit there might be even more you know guideline so you have to follow but information is power so it’s better to even if you’re just thinking about it and it feels like a pipe dream it’s better to to know what’s up break this door and start moving down that step path and start educating yourself but as much as well you know without getting yourself into a you know analysis paralysis state as great as YouTube is and blogs are again there’s things that where the streets can teach so I would definitely cert if someone’s thinking house hacking you know I want to get into house hackery I think that it’s good to start reaching out that having conversations you’re professionals and building that team because I have anybody who is a real professional you know career realtor loan officer banker will be willing to give you even though a consultation call Curtis will be willing to correspond with you and answer your question on that note do you mind telling the people how they can get a hold of you sure I mean we were kind enough to put my Twitter handle at stand-up agent that’s a good way to reach me my email is really long thanks to you so we’ll go with my my phone number 3 1 4 3 2 5 9 5 6 5 and you can text me or DM me and you can find me on Facebook just my name Facebook um the catfish photo the black and white catfish like is that her yeah it’s me anyway you can see em and I’ll respond send you send me email and stuff like that or if you want to get on of the list the list here let me give me how do I get on the list yes it’s on my profile on Twitter to text cash flow 2 3 1 4 3 1 0 41 99 that’s 3 1 4 3 1 0 41 99 the words cash flow and will get you on the list so I can run but I can’t hide I love it now do you mind if I ask you the five questions we like to ask all of our guests oh geez I wasn’t warned ok ok so it’s a chance for people to get to know you the real you know the personal use side of you or whatever who lives under your roof I have a husband and three teenagers and and two dogs two dots I have two dogs yes the og the Chihuahua the new where are you your best where any where am I located when I’m at my best you can answer to everyone where are you your best like what aspect your life or whatever um I think I would say as a mom because I call my mother a mentor a combination not too much to some other read but I definitely noticed even involved and I like to have a mentoring approach to raising my teenagers just a side comment about that following you on Twitter you do sometimes make posters are gonna Facebook if you make post about kind of mom related stuff and you know knowing your kids especially knowing I guess your oldest one I have to say that you’ve done an amazing job as a mentor that’s really interesting to see the kind of things that you’re teaching your kids and the the different perspectives that you take on the world you know I’m not trying to change who they are I’m just trying to help them be the best really interesting stuff version with space to house their mother in a couple decades decades or walkout basement just saying what is your favorite blog or podcast my favorite blog or pod it’s kind of like where do you like to get your information basically well nan why do I forget this guy’s name none Tom do you nan real estate-related thumb do you bill you bi l ye you okay yeah it’s an amazing podcast I I’m low tax so I’m on YouTube with these okay two more questions Alicia and then we’ll let you go I know you got some hackery to handle today what is your guilty pleasure Oh reality shows I’m bad it was um because if I’ve having a really bad day and I feel like I don’t have my together then I can watch 90 day fiancé or if I haven’t done the greatest as a mom I’m like or summer house I’ll be like my child would never behave like this do you want summer house I can’t believe it I like summer house a couple of the Real Housewives and this is my insomnia work in Vanderpump rules talk about you know wat’ry lastly who is your mentor and how have you thank to them so is my mentor you know it’s what you should say that because I don’t know that well I really had a mentor in the in probably the sense that you mean and I think it’s so important to have one and that’s one of the things not been especially oh my oldest is going to school I’m like we need to find your mentor the person who’s where you want to be but um I would say I’ve learned the most from my dad may rest in peace as far as like really setting an example for generosity work ethic curiosity if there’s importance of education and being a reliable family man and a real rock for the people around him did you have a chance to thank him I did actually yes I did um especially in the last couple of days of his life yeah I was yeah I did he did good and I let him know he did good well thank you for sharing that any last minute questions Shannon you want to ask Alicia or at least you anything you want to say before we wrap it up no and thank you so much for your time this is an awesome subject Thanks and I can’t just realize that I cussed on your I’m glad you’re not subject to that’s alright I didn’t catch that hid keyword so yeah that’s my normal everyday I know I mean yeah this investor world is not for the faint of heart all right everybody I appreciate you guys very much thanks for watching thanks for having me and we’ll see you all in the next podcast