Exiting Bad Deals, Going Over Budget & the BEST First Rental

David:

This is the BiggerPockets Podcast show 9, 7 7. What’s up everybody? Welcome to Seeing Green. I will be your host, David Greene, and I’m joined by my good bunny in real estate. Rob Abasolo, and if you’re listening to this podcast, you are part of the ever-growing and thriving BiggerPockets community. In today’s show, we get to connect with community members like you directly by answering listener questions that everyone can learn from. I’m David and I brought backup for the show. What’s going on Rob?

Rob:

Hello sir, how you doing? I’m coming to you six hours ahead of you. Actually, no, I’m coming to you I think nine hours ahead of you. Yeah,

David:

Where are

Rob:

You? I’m in Copenhagen, Denmark.

David:

That’s right, you are. And Rob, what were some of your favorite parts of today’s show? So

Rob:

We kind of alluded to it here in the intro. We’re talking about how to get out of a bad deal. We had interesting MTR fiasco if you will. We helped talk someone through some of the possible exit strategies that they might have.

David:

Yeah, there were a lot of horror stories in today’s show. We had the MTR, we have somebody who went way over budget on a rehab and we talked to him alive about how to get out of some debt.

Rob:

Yeah, and I actually felt like he had a little bit of clarity too, walking out of it. He’s like, wow.

David:

And that’s proof that not everybody knows everything. In today’s show, we’re going to be getting into a medium term rental that did not turn out as planned. A rehab that went way over budget and got somebody deep in debt and more.

Rob:

I’m excited to provide a little bit of clarity from across the world. So let’s get into it.

Parker:

This is Parker Hobson from Las Cruces, New Mexico. I’m planning on having around 40 to $50,000 saved within the next two to three years for my first rental unit. I’m looking at getting started and just wanted to know what you guys recommended as far as what to invest in. I was looking at buying maybe a duplex and paying a pretty good size down payment for the initial part of it and then using the rental income from that unit to be able to start paying it off and then eventually move into one of the units. I just want to know your guys’ thoughts on that and whether or not that was something good I should do or what you guys think I should be starting out on.

Rob:

Alright. I’m not going to beat a dead horse on this one. Give a long drawn out answer. Some philosophical thing. I love it. It’s great. I think a duplex is an awesome first investment for many reasons. One of them being what he alluded to at the end, which he said, Hey, I might move into it and then basically rent the other half. What I like about duplexes is that it gives you seasonality. You can make two incomes on the same property, which is what he’s going to start out with, and then he’ll move in and effectively house hack, subsidize his own mortgage by having the other person pay for it. Maybe he lives mortgage free, he has a duplex, he gets into a property. In theory, if he wanted to house hack first, he could get into this property for three, three and a half percent. Although he says he wants to do a sizable down payment, but regardless, he’s got a lot of options in the duplex world. Big fan.

David:

Well, he can only get into the duplex with three, 3.5% if he moves into it when he buys it. So I didn’t love the idea of putting a big down payment and then moving into it. You’re sort of getting the worst of both world.

Rob:

He’s doing it backwards.

David:

The better way is to buy it, to move into and then move out of it because then you can get the lower down payment. I’m guessing the reason he wants to put 40 to $50,000 down is he thinks that’ll make it cashflow. I’m not a huge fan of putting extra money down just to force something to cashflow unless you feel it’s in an area that’s going to appreciate more over the long-term. You’re sort of cutting corners on finding a good deal when you’re like, well, I’ll just dump a ton of money into it and eventually it’ll cashflow and that slows down how quickly you can buy additional rental properties and build your portfolio. So if this isn’t an area Parker, where you think that thing’s going to be appreciating a lot, then I’m okay. If you dump more of your capital into it, you’re going to get it back out through future equity growth. But if it’s kind of a stagnant market, you’re somewhere in the Midwest and you got to put $50,000 down to make $125,000 duplex cashflow, you’re slowing down the growth of your future portfolio by a lot to get into it.

Rob:

But he didn’t say that he was going to put down a bigger down payment so that it could cashflow. I think he just said that he was putting down a bigger down payment just because he wants to put down a big down payment.

David:

I interpret it like I’m going to put the money. Yeah, he did say, I’m going to put a big down payment, and then he said maybe move into it and use the cashflow to pay it off. So I’m assuming the only reason someone would put more money down is to make it cashflow, because if it would cashflow without that, don’t put more money down than you have to. I’d rather you keep that money in reserves than throw it into the equity of a property.

Rob:

Okay, got it. So I interpreted that as, hey, I’m going to put down a, I don’t know what big down payment meant is. I mean, he said 40, 50,000, I assume that’s 2020 5%. I assume that when he said he’s going to put the extra cashflow, he might make 500 or a thousand dollars a month in cashflow every month owning this as a long-term rental and instead of pocket pocketing that and saving it up, he’s just going to apply it to principal. If that’s the case, I’m okay with that. I know it does slow things down, but knocking out principal early on in your career, never going to be a bad thing in my mind

David:

Unless you can’t buy more real estate. So if the goal is to buy more, that’s not a great strategy. If the goal is just to get something and make a good financial decision, put yourself in a solid bet while you focus on making money, starting a career, finishing up school, something else. I do think it’s a great idea and I’d rather see you, and I think Rob would agree with this, buy a duplex or a triplex or a fourplex over just a single family house for the first one.

Rob:

Yeah, I like it. Two incomes on one property, three or four. I mean it really just starts to, it starts to work out pretty nicely in the future I think as rents go up.

David:

There you go. So well done, Parker. Glad that you’re a fan of the show. Thank you for submitting your question and best of to you on getting this property. Remember, if you would like to be featured on an episode of Seeing Green, we want to have you just head over to biggerpockets.com/david where you can submit your question just like Parker did and have Rob and I answer it on a future episode.

Rob:

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David:

And welcome back. Rob and I have been holding our breaths this entire time and I am grateful to say you made it before we passed out. Alright, our next question comes from Daniella Davis who says, hi David. My name is Daniella Davis from Denver. First, I want to express my deep gratitude for the time and effort that you dedicate to helping others get into real estate investing. Thank you for sharing your knowledge and helping us make informed decisions. Last year, I bought my first real estate investment house located in Sarasota, Florida, 10 minutes away from the Siesta Keys. The house is a B level property in a B level neighborhood, and I purchased the property for 690,000, then invested an additional 20,000 in remodeling. Fortunately, I did not verify the information provided by my agent regarding HOA restrictions and home insurance costs. I trusted the agent because she was recommended to me by one of the MTR gurus.

As a high professional investor friendly agent, I had planned to implement a medium term rental strategy, but I cannot do so due to the HOA restrictions and the high insurance costs. The HOA restrictions limit me to renting the house only twice per year, and the insurance costs for rentals shorter than six months is significantly higher, 12 to 14,000 compared to normal rentals, which are only 4,000. I learned about these restrictions after I could no longer return my earnest money. I’ve been trying to sell the house for six months, initially listing for seven 10, but I haven’t received any offers. Dropping the price further would result in a loss of at $42,000 due to agent fees. Given my current situation, would you recommend selling the property including an offer of seller financing or keep it as a long-term rental for a few years and then consider selling it after? What key factors should influence my decision? Really good information there. Well worded. Not a great situation to be in though. What are you thinking, Rob?

Rob:

Well, first and foremost, she’s talking about doing the midterm rental strategy. I don’t think, would she need short-term rental insurance for that? Would that not count as long-term rental insurance since the stays are 30 days or more?

David:

I don’t think insurance has that 30 day or more thing. That tends to be a requirement that city municipalities will put into place. But for insurance, I don’t think that the 30 day number matters. I think it’s more strangers are going to be in your house, not you.

Rob:

Yeah. Well, we don’t have to unpack this now. I guess she’s probably done her due diligence. My first question is if she can just long-term rent this and break even. I think that’s the play. I think she rides this one out until she doesn’t have to lose $42,000 at the closing table. If that’s an option, if she brought it up, my guess is it’s an option to break even. Yeah,

David:

If that’s possible. Heck yeah, for sure. Done answering the question, rent it out. Even if you’re losing a little bit every month, that’s better than losing $42,000 upfront. Definitely. And if you think the area’s going to continue growing, that’s good. Now, what if it’s not an option? What would you recommend there?

Rob:

Well, she said that should she include offering seller financing, but I don’t know how she would do that if she’s got debt on the property. I guess she could do a mirror wrap where she’s effectively, I don’t know. Yeah. Is that even an option if she doesn’t own it outright?

David:

Well, I think what she’s referring to is giving the loan away a wrap when she sells the property.

Rob:

Honestly, thinking through it, the rent to own situation might still be good. She might find someone that’s willing to give her an option, let’s say like a 10 or $20,000 option and then rent it from her. And then in a year or two or three years, when that option is over, they have the option to buy it from her at whatever sales price that they negotiated. If they walk away, now she’s got this 10, 20, $30,000 option that she can keep and maybe then sell the house and then it wouldn’t be as bad of a haircut. That could actually kind of work.

David:

Do you think that she’d have a hard time finding someone that would want to do that when she’s having a hard time selling it now?

Rob:

Not necessarily because the renter might be really interested in buying it eventually, but just not right now. So they get to come and rent from her as a trial period and if they end up really liking the property, they can pull the trigger on it once the lease or the option is over.

David:

Yeah, rent to own is an option. If you’re having a hard time selling, renting it out to a straight tenant as an option. If it would cashflow, my guess. I mean, I’m just thinking she paid six 90. The rent would have to be so high to be able to make that thing. They’d have to be paying 5,500 a month or something, $6,000 a month maybe. Unless her interest rate’s like 2.8% or something. I’m guessing that’s why this wasn’t an option that she liked is she’s probably going to be losing money. And I would only recommend losing money as a long-term rental if you felt very confident it was going to appreciate. So when it comes to the key factors that should influence your decision, Ms. Daniela, I’d say can you lose that much money every month and be okay financially if you have to rent it out? You don’t want to lose the 42,000. That’s one thing. Can you get your former real estate agent to sell it at no commission? Because they didn’t give you the information that you needed when you bought it. They didn’t research the HOA and you didn’t realize that you couldn’t do what you’re wanting to do. This comes up so much with these HOAs, man, they really just screw up stuff so bad and the packets are so long you got to read through in general, it just isn’t always wise for investors to buy in HOAs,

Rob:

It’s so funny. Pace recently had a situation come up where the HOA wouldn’t allow any rentals in it. You had to be an owner to live in the property. And so to his renters that would rent the property, he basically wrote up a contract where he gave the tenant like 0.001% ownership of the property so they could rent it. I wonder if you could pull any of that magic. I doubt it, but I thought that was pretty funny.

David:

So Daniela, that’s one thing to consider. Can you take a loss? I’d ask the agent if they’d sell it for no commission to minimize the loss. If you had to sell it, you’re probably going to have to drop the price If the property isn’t selling, this sucks. However, you’re in a situation where it’s going to suck a lot or it’s going to suck a little or it’s going to suck a medium amount. There is no way to get out of this sucking. So if you’re in a strong financial position, you can rent it out to a tenant, weather the storm, get appreciation. That’s going to be your best case scenario.

Rob:

And just to math it out really fast, so you’re saying it’s going to take a $42,000 loss, you’re going to lose that $42,000 in the worst case scenario, if you rent it as a long-term rental, and let’s say that you lose $300 a month, well that’s only $3,000 a year. It would take you, I don’t know, 15 years.

David:

And that’s assuming rents don’t go up, rents might go up.

Rob:

Yeah. Yeah. So it would take you 15 years or so before that same $42,000 loss actually hit. So if you can, like David said, if you can afford to basically have a hole in the canoe for a while to ride it out, I think that’s probably going to be better than taking the $42,000 loss now if you can’t afford it.

David:

And then just to spice things up a little, I do like Rob’s idea. If you can find a tenant that wants to buy the property, you could say, Hey, let’s do a rent to own situation where you give me money for an option to buy it at a certain price in a couple years. And if they decide not to exercise it, you still collected your rent and they probably took better care of the house they normally would have because it might be their house and if they decide to exercise it, well you can get out of it without losing money. So I think that’s probably your best bet. And thank you also, Danielle, for sharing this with us and our audience so that everyone else hears they’re not crazy. This does happen to a lot of people. There’s a lot of things that can go wrong in real estate investing and we want to share that just as much as we share the wins.

Alright, moving into the next part of the show. This is where Rob and I go over comments from previous episodes that people left on YouTube or sometimes we read reviews that people left on different podcast apps or questions from the BiggerPockets forums. Our first comment comes from episode 9 65 from Black London Music who says the details shared in this episode, especially regarding how both David and Rob approach bank accounts were most enlightening. Seriously, these are the details that get glossed over throughout most of the episodes. I completely understand that you’re trying to teach the masses, but these are the details we want and need. Please open up more about these approaches. Rob mentioned the profit first method. It would’ve been great to go deeper into that and compare why each of you use the system you use and how profit first differs, et cetera. Perhaps another episode, this side conversation alone made the episode gold.

Rob:

Nice. Okay. Yeah, I’m always scared to talk about that stuff. Always like, I don’t know, don’t do what I do. I’m probably doing it wrong, but I could definitely see those are the answers I always wanted when I was getting started too. So yeah, maybe we should do an episode on this

David:

And for sure people will say we’re doing it wrong in the YouTube comments. We just don’t read those ones on the show. We

Rob:

Always read the most engaging comments like this one from Brady underscore Morgan always have separate bank accounts for your investments so that you do not commingle funds, which could cause a lot of headaches if you ever get sued or audited. Yeah, that’s right. You don’t want to pierce the corporate veil as they call it.

David:

Yeah, I don’t know if that’s the case. I don’t know if it’s commingling. If you’re putting your own money into your own bank account, we’d probably need a CPA to break this down. The phrase commingle comes when you mix your money with a fiduciary’s funds. So I put a client’s deposited my bank account. I don’t think it applies if you have two short-term rentals and you put the money in the same account.

Rob:

No, it’s more just like if you, well, in this particular case, no, but basically if you have one LLC and you’re using that LLCs credit card to pay for other LLC expenses if

David:

They’re owned indifferent, yes, I can see that. If you have title

Rob:

Then and then that’s what they call piercing the corporate veil, where basically someone says, oh, well see this LLC is attached to this one. So now we can see that we can come after all of it, I think. Go talk to a lawyer.

David:

Yeah, that’s a situation. I think you’d be right in that case. All right, next comes Rachel Schreur. Thanks for the great info. I always love listening in reference to not having to tell anyone with a sneaky FHA rental. We bought a duplex with an FHA and my husband’s job took us out of the state a year later. The one thing I would have to disagree with is this. You will have to tell your insurance company and that can hike your insurance premiums. You may also have to inform the township city as we were notified as we had to, which took away some of the tax benefits that we were receiving on our loan, such as the homestead credit. This jumped our monthly mortgage, $600 in two years. So just be aware that there may be some sneaky hidden issues depending on location. This home was in Michigan.

Rob:

Totally. Yeah. Makes sense. So basically if you have primary insurance, it’s going to be cheaper than landlord insurance and if you turn it into an investment property, you need landlord insurance. So yeah, that makes sense. We probably should have clarified that. Yeah, that is how that would work. And losing your home set exemption too.

David:

So this was in reference to if you buy a house with a primary residence loan, do you have to tell your lender if you rent out the property? And we said, no. You do not have to tell your lender, but you do still have to tell your insurance company and you’re going to have to tell the federal government when you do your taxes. And those were some of the things that made the house more expensive for Rachel here. All right, coming up next, we have Mario joining us live with $64,000 in credit card debt from going over his rehab budget. Stick around to see Mario’s dilemma and how Robin, I advise him to tackle that sucker and knock it down. Mario, welcome to Seeing Green and BiggerPockets. I understand that you’re a big fan. Thanks for being here with us today.

Mario:

Thank you for having, I’m so excited to be on.

David:

Yes, yes. First question, are you often confused with Miles Morales with the name Mario Morales?

Mario:

I never heard that actually.

Rob:

Do I? Did you say Mario Bros?

David:

No, no. Yeah, Spider-Man, but he’s Mario Morales like Miles Morales.

Rob:

Oh,

David:

I see. Anyways, well, thank you for joining us today. Mario, what’s on your mind?

Mario:

Well, I currently have three properties, and the last one was a great deal, but I went over budget and I had to take on about a hundred thousand in credit card debts to get to the finish line, and I’ve paid off about 40,000 so far using my side gig, a consulting gig that I have, and I’ve got about 64,000 left. So my question is if I should take property number one and take out money to pay off the debt or keep doing my side gig, my only concern about taking money out out of my first property is that I also have a HELOC on it. So altogether the debt on the property is 167,000 or so plus $130,000 heloc. It would still allow me to take out some money to pay this off, but I’m thinking if I should just do my side gig and just pay it off so that I can use that money in the future to either rehab a commercial unit that I have that’s going to need it by next year or on my third property. I have a garden unit which needs to be rehabbed as well for about $50,000, and that will generate 1500 in cash flow. So I’m thinking, should I just do a cash out refi, which I’m kind of concerned that I’ll lose some great rates that I have. Should I just pay it off? Not sure. I think I know what to do, but I am feeling like I might be missing something.

David:

Okay. Before we get into it, I want to ask you why do you think your rehab went a hundred K over?

Mario:

Well, because it was a gut rehab and plumbing, electrical labor, I knew it was going to go over, but I thought to myself, well, maybe this is just a sacrifice that I have to make because it’ll pay off in a few years and the property is valued at 600,000 now, and my mortgage is 3 34 plus the debt.

David:

The debt, you said it valued at 3 34 plus the debt? The debt is 174.

Mario:

The debt is let’s say 64,000 in credit card debt because the HELOC for 130,000, some of it went to this, but I used some of it for my other property that I bought, so it didn’t go completely there.

David:

Okay, so you want to pay off $64,000 in credit card and you have a mortgage for 3 74 on a house valued at 650,000.

Mario:

Yes.

David:

So we have 350 in mortgage, one 30 in a HELOC and 64 in a credit card. Correct?

Mario:

Yes.

David:

All right. Rob, what are you thinking? So

Rob:

Lots of things. So I guess first let’s start off with, you have a lot of debt stacked on this house. You basically have three forms of debt. You have your mortgage, you have your heloc, you have your credit card. My first question is if you were to cash out refi, how much of this debt could you consolidate into one bundle, if you will?

Mario:

I would be able to pay off the HELOC and the credit card debt and maybe have $40,000 left over and it would bring me a cashflow of an extra thousand dollars a month on all three properties, but I’ll lose all my rates.

Rob:

I don’t think I want to hear much more. Honestly, dude, I think having a triple debt, triple debt stacked on a property like that, if you’re on a credit card, you’re never going to get out of that debt paying those minimum payments if you’re on a heloc. The point of a HELOC is to use it to accelerate your real estate to the next thing, and if you’re just stuck in this HELOC forever, you’re not ever going to be able to use that HELOC to do anything else again. So I would rather you just consolidate and move on to the next property versus paying three different notes and just paying mostly interest on all three of those notes. What do you think, David?

David:

I think Mario, when I hear your rationale, you’re saying you don’t want to lose that first position mortgage because the rate’s good, but then you also got to think you have two adjustable rate mortgages on HELOC and credit card debt that are both high rates. So if what’s getting in the way is this blockage, you’ve got like I don’t want to lose my one good rate. You’re losing one good rate to get a medium rate that’s going to pay off two bad rates. So I wouldn’t be looking at it. I don’t want to refinance because I’ll lose my rate. You’re also getting rid of two rates that could go up. You don’t have as much control over the asset when you’ve got credit card debt and a HELOC that’s on it. So I know it’s cashing right now, but if rates go up again in the future, which I think they probably will, I think that’s the government’s preferred way to try to fight inflation. I don’t think inflation’s going away. So while we’re all hoping rates go down, I would plan, they’re probably going to creep up. That would be making me a little bit nervous. Have you thought about that

Mario:

A little? Just based on my limited experience, I thought that maybe if I can pay off this 64,000 in credit card debt within a year using my consulting gig, maybe I could suck it up. Even if freights go up and just worry about the heloc, because right now my cashflow and all the rentals is gross is 4,000 a month, but 3000 of that goes towards the HELOC and the credit card debt, which leaves me with a thousand.

David:

Right? So if you consolidate it, you’re still at a thousand dollars anyways,

Mario:

Right? If I consolidate, I think I’ll be at 2000.

David:

So why are we not consolidating? Right?

Mario:

That’s the question that I’ve had, but rhetorically not.

David:

Do you have another way to pay off that 130,000 plus 64,000 other than a refi?

Mario:

Just my side gig.

David:

And how much does that pay a month?

Mario:

My side gig will can pay off about a thousand a month and I’ve been using the thousand leftover from the rental income on top of that to pay off the debt. So I paid off 40,000 already in one year. So I was thinking maybe if I could pay off the credit card debt and then wait for the heloc. Well rates come down to six or five. I don’t know.

David:

I mean, is the city of New York paying you good money to fight crime? I know I don’t want to put your secret identity out there for everybody to hear, but if you had some way, Mario, that you’re telling me that you could save a lot of money and you could pay that thing off in a couple years just because you were raking it in with a business, I might say, Hey, keep that lower rate, but we don’t really have anything on the horizon. I mean at the numbers, you’re talking about 2000 a month between your side hustle and the cashflow comes out to 24,000 a year. So that’s like to pay this thing off would be like what, six years, seven years? Yeah. That’s a long time to hope rates don’t go up and to not really be able to buy any of the real estate. If you refinance it quickly, you get yourself into a position where you’ve paid off your debt and you have a fixed rate, you can start thinking about buying more real estate for the future. You know what you’re going to expect on this one.

Mario:

Yeah, I think the mistake I’ve been making is I’ve just been focusing on thinking that just getting rid of the credit card debt is good, but you’re putting both together and you’re saying that I got to get rid of the HELOC and the credit card debt.

David:

Yeah. Are adjustable. They go, what? And that can get you hurt.

Rob:

Yeah. You have a very limited timeline on that. What’s your interest rate on the credit card?

Mario:

Well, it’s an average of 22%. It’s a few credit cards.

Rob:

Yeah. So I mean, going back to David’s point, you’re worried about losing the interest rate. What’s your blended interest rate? When you think about your mortgage, your credit card and your heloc, your blended interest rate is probably like 12 or 13%. That’s kind of what you’re paying when you sp ’em all together, get out of it, consolidate, as long as it’s not going to make you upside down or else the bank wouldn’t do it, right? So consolidate, take a thousand dollars a month, stack that with your side gig of a thousand dollars a month, $2,000 a month, 24 grand a year. Now you’re not trying to pay down these individual debts and now the $2,000 extra every month and now a positive thing, you’re now making an extra $2,000 a month, 24 KA year. That goes a long way. You can buy a primary house hack that sneaky rental strategy. But for me, I just don’t really like you having so many debts over your head on just one property.

David:

The other option we didn’t talk about would be if you just sold it and put the equity into another burr and didn’t take on as big of a project like you did on this last one that got out of hand. What are your thoughts on that?

Mario:

I didn’t think about that at all. But my first property that would probably solve all of this, I would like to upgrade and get into a class B neighborhood, which is the last property I have, which is a great tenant. Everything’s just great about that except that I went over budget.

David:

So if you sold this one, I’m guessing you’d be left with about $150,000 minus closing costs. Is that about right? If you paid off all the debt

Mario:

With my first one where I have the heloc, well, no. If I sold the one where I got into debt, yeah, I’d probably have about 150.

David:

So if you had 150, you could go buy something for like 200, 2 50 that needs $50,000 worth of work. You could use a bridge loan, put 10 to 15% down on the purchase and the rehab. So you wouldn’t need a lot of money and you could just make sure you buy a cosmetic one. Don’t get into anything that you got to tear down to the studs. Don’t get into anything that the city’s going to have to get involved in, where you have to coordinate between different subcontractors. You go in there, you tear out the kitchen or you upgrade the kitchen, you put new floor paint, you fix the bathrooms, maybe something, maybe a roof, but none of the complicated stuff you got into and then you refinance out of that and go buy your next property. I think you just took a huge bite and then choked on it and you’re finally like, okay, I can breathe again. As opposed to just taking a bunch of nibbles in a row.

Mario:

Yeah, exactly. That’s exactly how I feel like I can breathe again.

David:

Yeah, and it sucks when that happens. When you come up for air, there’s nothing that says that you can’t just throw this thing up and get out from underneath it and you made some money and get into the next one and you learned a lesson not to go big on a new deal. Let those tear down to the studs, leave those for the contractors. That’s a contractor special. Let those people that do this every day handle that you stick with something a little more cosmetic that you can add value to.

Rob:

I will agree with that in the sense of you went a little over budget on this first one by a hundred K now to minuscule amount, but I would say that on your next one, you’re probably not going to make the same mistakes or even close to them. I’m sure you’re going to be a lot more careful. I’m sure you’re going to be a lot more dialed in. So I think you’d have probably more success with this next one if that’s the route that you want to go to. So I don’t mind that advice either. But regardless, I think this whole a thousand dollars a month cashflow thing, if that’s where you end up after a cash out refi, that’s amazing cashflow for a single property. So it’s either like, do you coast on that a thousand dollars a month and live life happily, or is your goal to go out and do bigger things in the world of real estate? And if the answer is yes, then maybe consider David’s option and say, Hey, I want more properties. Go do another bigger burr. Try to get that a thousand dollars to maybe 1500 or $2,000 a month on your next property.

Mario:

No, and I’m sorry. What I meant was that if I do the cash out refund and pay off all the debt, all three properties will go from cash fund a thousand to 2000, which is still good and better than what I’m at.

David:

So if you do that, you win because you get more cashflow. If you sell it, you win because you can go buy more properties and add equity to every property. So it’s really just about do you want the upside of a bunch of more wins where you sell it and you start burning and adding cashflow and adding equity to your portfolio a little bit at a time? Or do you want to just say, I’m done. I’m taking a break, I’m going to refinance, get to $2,000 a month and I’m just going to enjoy that and save up money to buy the next house.

Mario:

I definitely want to keep growing. So based on what we talked about, I think cashing out refi and taking care of all this debt, the way to go and then settle in with my 2000 and let that settle and then go from there.

Rob:

Yeah. Plus a thousand dollars from your side gig, that’s $36,000 a year, man, that’s a lot of money to save, to start nicking away at building the portfolio. I think.

Mario:

Yeah, I think this is definitely the way to go, Anne, I just need to hear the other part that I was missing, and I think I got all of it. And you’re right. I just didn’t put that simple thing in perspective. Why carry on that weight and just making a thousand when you don’t? It’s so dumb when I say it out loud,

Rob:

It’s stressful, man. When you have those credit card debts and HELOC debts, the difference between having it consolidated into one mortgage and making a thousand dollars, you’re like, woo-hoo, a thousand dollars. The other scenario that you’re in, you’re like, oh, I’m only making a thousand after all my bills. One of those is significantly better than the other one. Do that one. But in this case, you’re going to go from a thousand to 2000, so you’re going to go, woo-hoo, 2000 versus, oh, I only have 1000 leftover after all these bills. There’s just not comparable in my mind.

Mario:

Oh, for sure. No, I know what I have to do now.

David:

Well, we’re glad you joined us today. This is really fun. Everybody gets to hear it and don’t feel bad when you’re in the middle of the crap like you’re in right now, it obfuscates your options. You just don’t see those angles because you’re stressed and you’re worried and you had a plan and you’re trying to work out that same plan better as opposed to thinking, oh, there could be another plan. So thanks for coming on and letting us talk with you about it.

Mario:

No, thank you so much.

David:

And lemme just say, David, I am flattered that you have been using my word of the day calendar that I bought you for your birthday off skates. Yes, absolutely. The first thing you ever bought me, that was actually useful. Thank you for that. Well thanks man. We’re glad you’re here. Let us know how it goes as you’re progressing forward. Go forward the prosper, man.

Mario:

Take care, David. Take care, Rob.

David:

Alright, and that was our show for today. Thank you everybody for joining us. Remember, we want you on a future episode of Seeing Green. Simply head over to biggerpockets.com/david where you can submit your questions to be answered on this show today, we covered the 8% return selling owner finance versus just selling all at once, a medium term rental fiasco that we’re trying to get out of putting more money down on a property to save for a future down payment versus scaling quicker and who you need to notify when you move out of a primary residence and get into a rental property. If you want to know more information about Rob and I, we’re friendly, I promise, reach out. You can find our information in the show notes. Tell us what you thought. If you’re listening to this on YouTube, please leave a comment. And if you’re listening to this on a podcast app, please take a second to leave us a review. They help a ton. If you’ve got a minute, check out another episode of the BiggerPockets podcast and if not, we will see you next week. This is David Green for Rob. I finally gave him a compliment of solo signing off.