David:
This is the BiggerPockets Podcast Show 733.

Rob:
I’m looking forward to the spring market. It’s already heating up. We’ve been helping a lot of first time home buyers house hack and that’s been big for us in this market. I think there was a lot of fear towards the end of last year and that fear is now broken and we’re seeing a lot of those buyers coming to us, so we know it’s going to be a good time for first time home buyers that are interested in house hacking to take that step forward.

David:
What’s going on everyone? This is David Greene your host of the BiggerPockets Real Estate Podcast, joined by my co-host today, Dave Meyer, as we get into a special episode for you all. In today’s show, me and two other real estate agents that you can find through the BiggerPockets’ Agent Finder system are sharing deals that we helped clients buy, getting into the nitty-gritty, the details, how we found them, what we’re doing, and why these strategies worked today’s market. Mr. Dave Meyer, welcome to the show.

Dave:
Thank you. I’m excited to be here. This was a fun show.

David:
Yeah, this was a really fun show. So if you’re trying to figure out, “How do I work with an agent, how do I find a really good agent to work with me and what strategies are actually working in this complicated crazy market we’re in today?”, this is a show for you. Dave, what were some of your favorite parts of today’s show?

Dave:
I think the most important takeaway for me is that there’s good opportunities right now. Our guests show that if you’re patient and have a good understanding of your local market, there’s great stuff to buy. I know, David, you talk about this, I talk about this, that there are opportunities, but sometimes it just sort of seems theoretical. And today we really sort of put the numbers behind it and show how people are finding deals, what kinds of deals are working in today’s market. I think I was pretty inspired by it and I think our listeners will be as well.

David:
That’s exactly right. The goal of today’s show is to show you practical steps that you can take to get a great deal under contract and then turn it into an even better one. So before we get into that, today’s quick tip is brought to you by Dave Meyer himself.

Dave:
Thank you. Well, our quick tip today is to use the BiggerPockets Agent Finder. If you want to meet investor friendly agents like my friend here, David Greene, who is the friendliest of all real estate agents… Look at that smile right now. If you can’t see right now, he is cheesing it up right now. But if you want to meet people like David who are experts in their field, experts in their local markets, and know how to work with investors, BiggerPockets has a completely free tool that you can use to match with investor-friendly agents. You can find it by going to biggerpockets.com/agentfinder. It’s completely free, it’s easy, and it’s biggerpockets.com/agent so go check that out.

David:
And then check out our show while I work on continuing to improve my smile. My goal for 2023 is to give the girl from the Orbit’s gum commercials a run for her money.

Dave:
You’re going to have that little like ding when it goes up? Well next week… So everyone listening to this, next week we’re going to be in Denver doing a little podcast host retreat. I think we have a photo shoot that we need to do. So I’m ready to see you smiling and doing the professional head shots over there.

David:
I’ll be hitting the arm curls as well as the lip curls.

Dave:
Oh, okay. Nice. I’m really looking forward too. I don’t know if they make you do this too, the really stupid YouTube faces, like how everyone’s YouTube thumbnails are now hands on the face or shock. So that’s what David and I are going to be doing next week.

David:
All right. Let’s get to our first agent.

Dave:
Okay. Well, Dahlia Khalaf, David Greene, and Rob Chavez, welcome back to the BiggerPockets Real Estate Show.

Rob:
Thanks for having us, Dave.

Dahlia:
Thanks for having us.

Dave:
All right. If you all didn’t listen to episode 697 where we had this group of three real estate agents on to talk about their different markets, we compared and contrast them, if you weren’t here, just so you know, Dahlia is in Tulsa, Oklahoma, David is all over the California region, but we were specifically talking about the San Diego market, and Rob is in the DC area. We had a great show. It was a really popular show where we talked about the different benefits to each type of market, what pros and cons there were, and so we wanted to follow up on that episode and actually talk about the specific deals that are happening in each of these markets right now. So we’re going to go through each of the markets and our guests are going to share with us deals that they are working on right now with their clients.
Dahlia, we’re going to start with you. So can you tell us a little bit about a deal that you’re doing right now in Tulsa?

Dahlia:
Absolutely. So it’s actually not a deal that I’m currently doing. It’s a deal that closed on last month.

Dave:
Great. Congratulations.

Dahlia:
Thanks. I would say this was kind of a double dip in terms of the numbers being great on both ends of it. It was what I would consider a wholetail. The buyer approached me about a property in his neighborhood that had been sitting for a long time, owned by an older couple that was moving on and wanted something that was easy, had been sitting, not a whole lot of traffic just because the property was really needing too much work for someone who wanted to own or occupy the property, but too expensive for an investor. So it was in that spot where properties don’t move when they fit into that spot.

Dave:
What was the list price?

Dahlia:
The list price when we offered on it was 295,000. I’m sure it had been more than that at some point. It had been dropped but still was too hot. It’s just too much work for an owner occupant to… It was super dated, needed a lot of work. So my buyer approached me and said, “Hey, this property happened to be in his neighborhood,” so he was keeping an eye on it, seeing that there was no activity, been sitting forever and wanted to try to make a significantly lower offer on it. So we went in at 210,000 with cash offer, can close as fast as titles ready and as fast as they’re ready to close and no inspections. So that really helped it. They accepted, so we closed at 210,00. This was actually back in October.
He wasn’t sure exactly what he wanted to do with the property yet. He thought, “Maybe I’ll flip it. Maybe I will make it a rental. Maybe I’ll tear down and build new construction” because it’s happening a lot over in that area. Then he told me, “I’m seeing there’s not much inventory in my area. What is coming up is moving pretty well. What if we just clean it up and put it back on the market and see what happens?” So that’s what we did. We put it back on the market, got under contract within a couple weeks. We ended up closing at 297,00 on that one actually back in January. So within a couple months I think he spent maybe 10K just taking out some trees, cleaning up the yard. That was it. Nothing was done to the interior. And so made a nice little chunk of change there in a couple month period. I’m not going to lie. I was jealous.

Dave:
Yeah, I am too. There’s a bunch of stuff in there I want to jump into. So you said that when you first offered on it, list price was 295,000. You got it for 210,000, which is nearly 30% below less price, which is remarkable. How did you do that?

Dahlia:
This doesn’t happen all the time, but sometimes you get into a unique situation where you have a seller that just needs to get out and they want something quick and easy and that’s what this was for them. Especially when you remove your inspection contingency, and I’m not recommending that people always do that, but this was a situation where the numbers made sense where he could do that and felt comfortable with it. So this fit all those elements that the sellers were looking for. We did negotiate back and forth a little bit before we leaned it on the 210,000 and that being our final number we closed with.

Dave:
Wow. And how, as a real estate agent, did you advise your client in this situation? Did you come up with the 210,000 number? Where did that come from?

Dahlia:
Well, we took into consideration what comms were and what we estimated rehab would be if he was going to flip, and that was how we came up with that number. And then obviously you’re just always trying to get the best price possible. So that’s where we landed at based on those things.

Dave:
Great. And so it sounds like he thought about flipping was… What went into the decision then to do a minor cosmetic repair, which you called the wholesale? So maybe actually can you just… Or wholetail, excuse me. Can you explain to the audience what a wholetail is and why your client decided to go with that strategy?

Dahlia:
Well, wholetail is when you basically get something under market price and you basically don’t do anything, barely anything to it and then put it back on the market. I don’t think he initially had that plan, but because of the lack of inventory and what was coming up moving well, he thought, “Why not try?” And obviously it’s a lot nicer to be able to do no rehab and make money versus the time and effort and expense of doing a full-blown rehab.

Dave:
Yeah, well it sounds like he netted, I’m just trying to do this math in my head here for a second, netted something like $87,000 off of it must have been probably 50K investment for a very short hold period. So that’s an excellent ROI there. Is this a common strategy used in Tulsa?

Dahlia:
Not necessarily. I think it just depends on if everything makes sense to do it. If you have enough equity play there in the deal and if you feel like… Especially when you have low inventory, it just opens up the options for a lot of things. But it’s not necessarily super common, but it’s great when it happens.

Dave:
Yeah, absolutely. Do you think there are other opportunities like this? You said it was sort of an older couple they had been, it had been sitting on the market for a little while. But you’re also saying that in Tulsa, generally speaking, there’s not a lot of inventory. So do you think other people are finding deals like this?

Dahlia:
I mean, it’s still possible. The big thing is focusing on those properties that have been sitting on the market for a while and a lot of times overpriced. That can be a hidden gem. People will overlook a property because it’s priced too high. Well, it’s been sitting on the market for two months, try giving them a significantly lower offer and see what happens. The worst people can do is tell you no.

Dave:
Yeah, absolutely. And so then you re-listed the property and you said it went quickly. How fast were you able to move it once you listed it?

Dahlia:
Yeah, just within a couple weeks. I think the thing that worked to our advantage too is at that point the property was vacant so it could be shown as much as possible versus before that they had really limited the showings, they didn’t want a lot of people coming in, so that helped us as well.

Dave:
Wow, that’s great. Can you just tell us a little bit, since we last talked, I guess that was maybe November, how has the Tulsa market changed at all? Are you still seeing good deals, low inventory? Or how would you describe it right now?

Dahlia:
We’re still low inventory. The good thing is we can negotiate more versus we couldn’t do that before. So we have more negotiation room so you can make deals happen, especially for properties that have been sitting. It’s not multiple offers and bidding wars every deal like it was before. The biggest thing is just battling the interest rate, but what I like everyone to know is you can refinance, you can’t change your purchase price. So be patient, get the deal. And then down the road when the rates are better, you can refinance.

Dave:
Yeah. You said something about being patient and I really agree with that. When you’re looking at a market like the one we’re in now where prices are falling in certain markets, are you advising your clients to continue to buy at list price? Are you offering under list typically?

Dahlia:
Yeah, I’m always offering under list. If there’s no other offers, I’m offering under list. Now, it’s one thing if the property just came on the market. Then you know you don’t have that strong negotiation tool. But if it’s been sitting, I’m offering under list. Absolutely.

Dave:
And has there been a uptick in the success rate of offering under list price?

Dahlia:
Absolutely. Yeah, there has. Especially properties I’d say in that over 200,000 price point, those properties have definitely began to sit more. So 230,000 and up, we have a lot of negotiation room and there’s just a lot more inventory in that price point.

Dave:
Awesome.

David:
That’s a good point to notice that different markets have sort of an equilibrium price point where properties below that number tend to sell quicker, properties above that number tend to sell over more time, right? I break it up into three categories. I say every market has starter homes, step up homes, and luxury homes. Luxury doesn’t mean extravagance, it just means a price point that is so high, a smaller percentage of buyers can afford to get into that. Step up homes tend to be something you had to sell a starter home to get enough money to buy it. You’re not going to save up the down payment for that on your own. Starter homes will always be the first ones to sell. So when that isn’t explained, people use some of the strategies that work on luxury homes and they try to apply it to a starter home that has a lot of competition. Or they assume luxury homes you have to pay over asking price just like you had to on a starter home. And that’s not the case.
So I love your point there that 230,000 is your breakeven level, right? And beneath that, certain strategies work. And above that, different strategies work.

Dave:
Yeah, I’m sure Rob and David would both love their breakeven point to be $230,000, but… Well, it sounds like a real home run, Dahlia. It’s an awesome deal. Thank you for sharing that. Let’s move over to Washington, DC. Rob, thanks for coming back. Can you tell us about what deals you’ve been working on?

Rob:
Yeah, the DC metro area, which is where I’m at, it’s a huge market, Dave. There’s so many different pockets. One of the areas that we’ve been focused on a lot for our investors is kind of like this Airbnb game. One of the things that we’ve been doing recently because there’s not a lot of inventory on the market is marketing for off-market properties, to identify off-market properties.
And so we started these postcard campaigns looking for properties and we had somebody raise their hand that was behind on their mortgage payment. So their first and their second were both behind. Believe it or not, their second had not been paid on in five years, right? Five years. Don’t ask me why the bank had not foreclosed, but they hadn’t, right? It was originally a $30,000 lien and it now had ballooned up to 75,000, right?
And so this seller was at a point where she just wanted the problem solved. This had been an investment property with her and a business partner. The business partner had passed away and she wasn’t able to manage it from afar. I think maybe her business partner had been local. So I entered it with my buyer. My buyer, we looked at the asset itself, we said, “There’s a lot of work that needs to be done to this thing. There had been a lot of deferred maintenance.” With that second note that was on there, it was still a decent deal with that second note that was on there. So I’ll give you the numbers. The fixed up, it’s worth about 350,000 with the first and the second totaled about 170,000. Somewhere around there, 170,000, 175,000. But that second lien, he now made it… He still had to put another 50,000 to 60,000 to extract the value, right? It kind of made it difficult to make it just a complete home run deal.
So back in the day, Dave, I had done a ton of short sales and I said, “Well, there might be an opportunity for us to short the second position note. And it doesn’t hurt just like it doesn’t hurt to try.” And so what we did was we talked to the seller, we negotiated a price on that property. The price essentially was making all the back payments up on the first and gave a little bit of equity on the front end to that seller because she was mentally already gone. This thing was going to go to foreclosure in 25 days. We then proceeded to take that contract to the bank and we were able to get that $75,000 lien to $7,500, right? So think about that. We offered it just one time, right? We thought that they might go back and forth, they accepted. They knew that the bank was going to foreclose on the first, and so they were like, “Hey, we haven’t been paid on this thing for five years. We’re going to get somebody $500.”

Dave:
Rob, can you just explain that for a second for everyone listening who’s not familiar with the difference between a first and second position lien and what you did basically to convince the second position lien to short sell?

Rob:
First position lien was the original mortgage that they took out on that house. Somewhere along the way, they had gotten an equity line on that property because there had been some equity in that property. So they’d gotten an equity line against that property and had tapped it for $30,000. So now it was in a second position under the first position note that they had originally gotten the first loan that they’d gotten. And for whatever reason, they stopped paying on the second, long time back. Now there was motivation for that second position loan to take something less than what had originally been taken out on, because the first position was now foreclosing. So five years later, she had also fallen behind on the first position note. So that prompted the second position to say, “You know what? We need to do something.”

Dave:
Just so people know, the difference between first position is like, the way it works is first position gets first access to the benefits of a sale. So basically what happens if there is a foreclosure with the first position loan, then the person who has a second position loan is at risk of not getting any money out of the deal, right Rob? So that’s why they’re motivated because they’re all of a sudden thinking, “They’re going to sell this house. First position’s going to foreclose and I’m going to be left with nothing.”

Rob:
I’m left with nothing, right? Or very low. Thank you, Dave.

Dave:
No, of course. That’s what I’m here for.

Rob:
And so the second was highly motivated to do something. They knew that they were going to get stuck with it if they didn’t. So hence the reason why they took what was owed, the $75,000 total owed to them, why they only took $7,500, right? Which you’re like, “Why would they do that?” Well, because like you said, Dave, if it went to auction, they may not have done better. Maybe they would’ve done better, but maybe not, right? And so this way they knew exactly where they stood. They wanted it, the debt, off their books. More than likely, Dave, that second position note had been sold to a creditor for pennies on the dollar and that creditor might have made money on that, right? That’s a whole different thing we won’t get into. But more than likely, that’s kind of what happened. And so it took a good deal and made it a great deal, right?
Now there was another element to it. The other element to it was we realized that the first position note had a 2% interest rate. 2%, right? That’s value in itself. And so I just happened to mention to my buyer, I said, “Listen, there’s this tactical subject to. You essentially get the deed subject to the existing first loan that’s there.” I worked through the mechanics with him, wrapped his mind around how that looked. We were able to purchase that property subject to the existing note that was there. There’s always a risk that I warned him of the risk, that loan could get called, that could get called because there is a due on sale clause. Now it was only $90,000, right? So we were like, “Okay, well if it does happen, we had the ability to get them access to the money in order to get that covered.” But we said, “Well, let’s try it” because again, it doesn’t hurt to try.
We essentially shorted the second, took over the first, made all the back payments for the first loan, settled on that property, in it completely for about 120,000 after all cost. The way it sat, just like David and I had talked about this, we bought the equity because when we shorted that second, well it was now probably worth about 170,000 sitting the way it was. And now we’ve got it for 120,000. So we got that 50,000 in equity. We created that, right? Now we’re going to put in 50,000, which he’s in the process of doing. It’s going to be worth… We might be into it for 60,000, 65,000, but it’s now going to be worth 325,000, 350,000. He’s going to Airbnb it. The payments, he’ll probably collect somewhere around $3,500 a month, maybe as much as $4,000 a month. It just is a great little deal, right?
Like Dahlia had said, these don’t happen all the time. There was just a lot of different circumstances, but because we understood the different moving pieces that we could put together in this puzzle, we were able to help structure this deal for our buyer in a way that was just a complete home run for him, right? And so the points that I want to bring on it, it was an off market deal and it took some creative thinking on how to structure it. And then we also helped him raise the capital to help renovate the property, which is one of the benefits that an agent investor brings to the. It’s just our contacts, our resources in order to put these things together to help our buyers build wealth in that process.

Dave:
That’s awesome. I mean, it sounds like an incredible, incredible deal and sounds like you added a tremendous amount of value to your buyer. I do want to just say to everyone listening that not every agent has off market deals and sub 2, and that does take a good deal of effort to find and they’re not all like that. But that’s a remarkable deal. Sounds like a great one. Is this a buyer that you’ve worked with before?

Rob:
It is. It is. We work a lot together, and so we understand the market that we’re going after. I know exactly what he wants. We have a great relationship. That’s actually one of the benefits, is these clients become our friends. They become sometimes our business partners. We have the ability to understand what they want, so I could pick up the phone and say, “Hey, this thing just came across my desk. I think it’s great for you.”

Dave:
Yeah, it definitely makes a huge difference. I’m going to crash at my real estate agent’s house for three nights next weekend, so it’s true. Rob, can you just give us a little update on the DC market too? And as you said, it’s huge. But just generally speaking, is this representative of deals that you’re seeing, like a lot of distress in the market? Or how would you characterize the majority of the deals you’re seeing right now?

Rob:
It’s interesting because I was so wrong about like, there was a lot of doom and gloom last September, October, November. The beginning of the year literally it opened back up in our market and we started seeing multiple offers in our market again. I was shocked, to be honest with you, Dave. It just goes to show you the resilience of the market that we’re in. Yeah, so there’s still low inventory. Number one, inventory’s low. Buyers don’t seem to be deterred. They’re out there and they’re actively looking. I think people wrap their mind around the new reality, “Hey, these are the interest rates. I may have to shift my expectation of what I’m able to buy, but I think that that’s now occurring.” And the beginning of the year was a good time for our market for sure.

Dave:
I’ve been hearing that across the board. I mean, not everywhere, not Phoenix, but a lot of markets were hearing people saying that beginning in the year it corresponded with low a bit lower interest rates and not that much lower, but it shows, like you said, the real resilience. I think it peaked at 7.4% for the average 30-year fixed rate mortgage. It dropped down to low 6s, still double where it was the previous year and people were still just jumping back into the market. So super interesting to see that. Now, they’re going back up again. So we’ll see how it goes, but glad to see that there’s a little bit of thawing in the market. From just the deals you and Dahlia have shared so far, it shows that if people are committed and patient and willing to think creatively, that there are absolutely still good deals in this market. So thank you for sharing that.

Dahlia:
I have a question for Rob. So in your market, are you seeing people able to cash flow right now? Because that’s the biggest thing. The biggest question I get asked all the time is, “Can I buy and cash flow?” And I tell people it’s possible, but it’s tight. So I would love to hear how it is in DC right now in your area if you’re seeing that.

Rob:
Yeah. Our area is not a cash flow market unless you’re going to a house hack or you’re going to do something in some of the outer areas of the DMV area when it comes to vacation rentals, right? So otherwise the answer is absolutely no.

Dahlia:
So people are just banking on appreciation?

Rob:
Well, they’re either house hacking and they’re playing that game, or they’re buying vacation rentals, which you can absolutely cash flow on. So you just got those two. But if you’re looking to cash flow in a single family house or a townhouse in the DMV area, that is really tough at today’s prices in today’s interest rates.

Dahlia:
Okay. I was just curious.

Rob:
I’m sure it’s like that for David.

Dahlia:
Oh, I’m sure it is.

David:
Yeah, I think part of the cash flow versus appreciation debate that always goes on, we’re always having to deconstruct that and then re-understand it under different concepts. Appreciation used to be like speculation. You are just speculating that the price will go up and you’re losing money every month. With as much as inflation as we’ve seen, it’s just kind of wrecked havoc in the markets markets and we’re all trying to understand how do we make sense of the new rules that have been created.
One of them is that appreciation actually affects cash flow just as much as it affects the value of the asset. So you’re seeing that you bought a property, like for me I bought a property five years ago, six years ago, and it rented for $1,400 a month and now it rents for $2,200 a month. So it’s not cash flow or appreciation. It’s appreciation within cash flow, if that makes any sense. You sort of have to think a little more… It’s like, now we got to play chess when real estate used to be checkers. I missed those days. I liked it much more when it was like, run your numbers, see the ROI, put your money towards that, buy the house, you’re done.
Now we’re sort of having to think several steps ahead and use more complicated strategies, which is why podcasts this become more important because it’s not as simple as, “Oh, I read a book, the book on buying rental property by Brandon Turner and I bought a house and I’m done.” Now we’re constantly evaluating this stuff and trying to figure out what markets is the demand going to be flooding into, where’s the money going to be going, where are the job going, what can I expect my cashflow to look like in five years and do I have enough to get me to that point.

Rob:
That’s what makes it so much fun, right? That’s what I love about it.

David:
Yeah, if you love it, that’s right. But it’s not for the faint of heart. This isn’t like the people that buy stocks, they just put money in their 401(k) and they let it sit and they look back 20 years and “Oh, I have a bunch of money.” The market fluctuates so much more. You really have to pay attention to your investments. It’s becoming something that takes more attention than just the pure passive income that it was when we first started talking about this even six or seven years ago.

Dave:
But it offers better returns than the stock market. Just throwing it out there.

David:
That’s the thing. It offers better returns than everything. It can offer better returns than your job, right? It just isn’t passive returns. Like Rob’s point that cash flow will come from a vacation rental, yeah, but vacation rentals are more work. It’s not the same as just set it and forget it, right? So that’s what I mean by we have to reanalyze what we’re getting into. You have to count the cost going into this to know “Do I want to do this? And what is it going to require of?”

Dave:
Being an entrepreneur, it’s not just sitting back and doing nothing. All right, well David, I’ve hogged the microphone on your show long enough. Tell us about your deal in San Diego.

David:
So our deal came in the San Diego market, which is one of those markets that is very hard to get into. You are all but guaranteed to make money over the long term. It appreciates quickly. Rents go up, values go up. There’s a limited supply in that market, so it’s constricted. And so you’re likely to see increasing demand there. If you’ve ever been to San Diego, if anyone went to BPCON, you see why. It’s just gorgeous. Every time I go, I’m like, you talk about San Diego as being nice, but it’s underrated how nice it is when you actually go. It’s like I call it the Bermuda Triangle. You never want to leave. You just go there and you’re like, “I’m never leaving this place ever.”
But it is a notoriously hard market to invest in because you’re competing with primary home buyers. Everyone wants to live there. The people that are moving there have good money because it’s an expensive place to live. So as an investor who’s on a budget, you’re trying to make a dollar out of 15 cents, you’re competing against people that have a dollar and they’re fine to get only 15 cents in return as long as they can live in San Diego.
So what we did was we’re targeting short-term rentals because obviously the cash flow is bigger there. You’re going to need that to make sense in this market for our clients. But there’s a tier system in San Diego where they only issue so many permits to do short-term rentals because all the investors flooded in there and started doing it. So then people who live there go put pressure on the local politicians who say, “We’re going to limit how often this happens. Now we got to be creative to figure out how to make it work.”
Well, one loophole that we found on the David Greene team, specifically representing clients in San Diego, is if you own the property as your primary residence, you jump to the top of that permit system. You don’t have to go to the bottom and wait. So what we’re doing is we’re looking for properties that either have or we can develop a small ADU for this young married couple to go live in and then they rent out the main house, right? So it’s almost no different than if you were an investor and bought the main house to then go use as a short-term rental, but you’re getting to live in part of it and you’re also putting less money down. You can get in for 3.5%, 5% down and you have to put the 20 or 25% down your competition does. Or in this case, no money down.
So we’re actually working with the VA buyer, which to be honest with you, there was a time maybe just a year ago, trying to be a VA buyer in San Diego, don’t even try. Which is funny because it’s military town, but you don’t have a chance to use a military loan to get in.

Dave:
Because the sellers just didn’t want it, right? They were just looking for cash? Yeah.

David:
No, the sellers had 12 other offers and they could be cash. The minute they see VA, it’s just, “No, thank you.” It gets thrown out. But in this market, we’re seeing some opportunity. And so we found a property that was listed at 925,000, but they really listed it too low. Now, this is usually the job of a good listing agent. This is like a smart agent who didn’t price their home too high and then have to chase the market coming back down. But what happened is they were expecting a bidding war that didn’t come because everyone’s sort of hesitant right now, like, “I don’t know.” So we were able to get in there early and no other offers came. So now VA doesn’t look bad, it looks good. They’re comparing us to nothing as opposed to comparing us to 12 other buyers.
It’s not a situation where we have tons of competition. There’s a couple other buyers sniffing around. They didn’t want to go take our asking price offer. So what we did is we negotiated a higher asking price, 940,000, but we have the sellers paying for 100% of the closing costs as well as buying down our client’s rate. So they’re getting a lower rate and they’re saving a bunch of money they would pay in closing costs. And for almost a million dollar property, those closing costs get pretty high. We’re not talking about some change here. We’re just borrowing the extra money from the lender because my borrower doesn’t have to put any down payment. So they’re getting to borrow 100% of the money from the lender. They’re giving that to the seller to lock this thing up at what really it could have been at the peak, it could have been listed at 1,000,050. If they really wanted to go hard, that’s where they would’ve listed it. They were much more conservative.
So we’re still getting a deal that’s going to appraise for less than what we’re buying even though we went over asking price. The benefit here is our clients are getting to save more capital to put in towards improvement of the property rather than throwing it at closing costs that you get no ROI on. So even though we’re paying over list price, the property’s going to appraise for more than the price that we’re putting in under contract for.
So the plan here is to take a two-car garage and convert that into an ADU using about… It’s going to be around 80 grand we think, and so probably 1/3 of that money is going to come from closing costs that the seller is contributing that we don’t have to. It’s budgeted for something else. And then they’re going to put the rest of the money into that garage, which they don’t have to put a down payment on the property. S.
O even though they’re spending money on the rehab, they’re still coming out of pocket for less than they would have if they had to come in with a down payment because they’re getting to use this VA loan. They’re going to convert that two-car garage into an ADU. They’re going to live in it, which makes it a primary residence. And then they’re going to rent out the main house. They’re just going to do some upgrades in there. Things like making the bathroom nicer, adding some new countertops, adding some new cabinets, stuff that isn’t super expensive, but that’s why the property was available at that 925,000 price when it could have been listed for more, because it’s outdated and it’s kind of not at the top of the other buyers who were looking for homes list.
San Diego is going to let them jump to the front of the line to get short-term rental permits because they’re going to be living in the house. So this is sort of like… What’s that Disney line fast pass thing that you can get where you don’t have to wait on the lines? It ticks off everybody else who doesn’t have it, but it’s nice when you do. The money that they think that they’re going to get out of the short-term rental is going to cover about 85% of what their mortgage is going to be when they start off. So they’re going to be living in one of the most expensive markets in the country where wages are very high and they’re going to be paying about 15% of their mortgage in year one, which I mean a lot of people mess up house hacking because they expect to cash flow and live for free. I just think that’s unrealistic expectations unless you’re in a very cheap market.

Dave:
Saving money is the same thing as making money. Keep more of it.

David:
It’s even better because you don’t get taxed on money that you save. When you make money, you still got to pay taxes, right?

Rob:
I love the whole ADU game that you guys are playing. I’m actually in Anaheim for our Keller Williams National Conference and I’m staying in an ADU right now. It’s awesome, right? Found her on Airbnb and they’re making some extra cash doing it. It’s just phenomenal.

David:
That’s what we say you can’t find a good deal in today’s market or it’s much harder to, but you can make a good deal. It’s learning to look at these properties and seeing what they could be. Kind of that cheesy, highest and best use stuff that you hear about in the appraisal game that everyone used to make fun of, but it now actually makes sense, like, “What is the highest and best use for this property? Why do they have that huge detached two-car garage when no one even puts their car in it anymore?” It should be converted into something that could be useful. And we can do that because we’re not putting a down payment on the… So they saved all this money for their down payment. They don’t even have to use it. They get to immediately improve the property, add square footage to this 1,100 square foot house, which is going to make it worth a whole lot more. At some point, they could refinance if they wanted.
There’s so many benefits here. Part of the reason that we were able to get this property is we move faster than everyone else did. When it came on the market, we saw this could be listed for much higher. We know what they’re normally worth. You never see something at 925,000 that’s in this neighborhood in north San Diego. Jumped on it right away and then we made rapport with the seller. So when our agent was walking the house with the client, they noticed that the seller had a lot of University of Wisconsin memorabilia hanging around, and our buyer had moved from Wisconsin. So when we set up the next showing we had them wear Green Bay Packers Gear and the seller was at the house, it’s like, “Oh, what do you know? We’re also Wisconsinites” and that’s a game that, as the agents on this thing know, we play that game for everything that it’s worth however we can. And then we played up the whole… This is a military family and it was an older lady who owns the house, so she was excited about the fact it’s military.

Dave:
That’s awesome. I love that trick. I’m going to just start researching everyone and wearing their team colors. But I did want to ask you something, David. With these permitting systems in San Diego and they’re popping up a lot all over the place, it seems to me that it’s daunting, but if you get one of those permits, it’s actually kind of like the best case scenario, right? Because are you seeing average daily rates and revenue potential for the people who do have permits hold steady, go up, or are they performing pretty well?

David:
This is something important to notice across the country. I recently stepped into a big pile of doo-doo when I bought my 18 properties over 60 days. A lot of them were short-term rentals and I got into the short-term… I only bought in two previous to this. They were both in Hawaii. They were both pretty simple. I didn’t realize how incredibly complicated and slow the permit process had become specifically with short-term rentals. And then when you amplify that by adding in construction permits, it’s been hell for me with these properties just sitting there in the city. I almost think the city is purposely taking a long time out of spite because all they get is complaints from the Karens, the neighbors, the NIMBYs that call in to yell, and so they start to hate investors too. And if they have an opportunity to push your file off for a long time, I think that’s happening sometimes.
I didn’t realize how bad it was. So to your point, Dave, if you can get a permit, there’s actually value in that permit itself because what’s hurting the short-term rental market is how much inventory is flooding in a lot of these places where they’re popular. You have investor inventory flooding there and you have people who live in these homes instead of selling them. They just turn it into a short-term rental, let a property manager take it over and then they just move. They don’t even sell their house and then go move somewhere and they end up making more on that short-term rental than two of their mortgages on the house they move into. It makes more sense to do that than it is to sell their house and put the money into a lower mortgage, just a better use of capital.
So you’re seeing a flood of inventory in these short-term rental markets where you analyze the deal, it makes sense, you go off the numbers you have, you buy it and then a year or two years later, you’re dropping your price every month because there’s so many other people that are competing. So in the cities where they make it hell for you to get the permit, it is like you mentioned, Dave, an upside because it restricts how many other people can come, and that buried entry actually protects your investment.

Dave:
Yeah, I know someone who has a short-term rental in this kind of rural town and has no intention to buy more. It’s like sort of a use it for personal use, rent it out sometimes. They’re trying to stop all new permits for short-term rentals, but he would be grandfathered in and he’s kind of like up in arms. He’s like, “Oh my God, they’re trying to come after our business.” I was like, “That’s kind of the best possible thing for you. It’s like they’re just going to stop all of your competition and you still keep getting to do it.” So I’m just saying I know the regulations are a little bit daunting, but if there are ways like David is suggesting to sort of get in when there’s going to be limited supply, it could be really powerful.
So unfortunately, we do need to get out of here, but I would love to just part with one question, or two questions actually, I’m going to pose to each of you. One is what’s something that you’re looking forward to in the housing market or your specific market in 2023? And then where can people listening to this connect with you? Dahlia, let’s start with you.

Dahlia:
I would say the biggest thing that I’m looking forward to is just being able to continue to get more and more deals. That would probably be the biggest thing. As the rates come down, I’m sure we’re going to start seeing a spike in buyers again as long as this inventory stays on the low side. So hopefully in the meantime, just continue to get more and more deals and we’ll see how 2023 goes. I feel like it’s been hard to predict these last couple years, but excited to see what happens.

Dave:
I like the sound of more deals. Where can people connect with you if they want to?

Dahlia:
Yeah, absolutely. My website is asnrealty.com. They can find me on Facebook at ASN Realty, and then of course on BiggerPockets.

Dave:
Great. All right, Rob, what are you looking forward to?

Dahlia:
I’m looking forward to the spring market. It’s already heating up. We’ve been helping a lot of first time home buyers house hack and that’s been big for us in this market. I think there was a lot of fear towards the end of last year and that fear is now broken and we’re seeing a lot of those buyers coming to us. So we know it’s going to be a good time for first time home buyers that are interested in house hacking to take that step forward. The market feels good. So I’m feeling good about it. I’m feeling good about it.

Dave:
Great. And if people are also feeling good and want a house hack in DC, where should they connect with you?

Rob:
They can find me on Agent Finder, right? They can find me on Agent Finder or @robchavez on Instagram.

Dave:
Yeah. If you want to find what Rob is talking about and identify a investor friendly agent in your area, you can do that completely for free at biggerpockets.com/agentfinder. It will match you with investor-friendly agents completely free. It’s a no-brainer if you’re looking to get into the market right now. David, take us away. What are you excited about?

David:
I think this spring we’re going to see, like I mentioned, the three tiers of how most markets are broken up. I think luxury markets are still going to stay a little bit slower. I think some of that money is, they don’t have to buy a house, they wait. They time it right and they’re going to be a little scared. And the higher priced homes, the higher interest rates affect them asymmetrically more than lower priced homes. So I think starter homes, you’re going to see a lot of turnover, a bit of a frenzy like you normally see in the spring to get them. The step-up homes, less. And the luxury homes probably aren’t going to look much different than what they look like right now.
If people want to find out more about me, they can listen to this podcast. By the way, you guys are doing a great job of that right now. Or they could go to my new website, davidgreene24.com. I’m pretty much @davidgreene24 on every social media, whatever your favorite is. But check out the new website. See some of the stuff that I have going on. I’m putting retreats together now. We do Friday night YouTube lives as well.
So the market’s changing really quick. Here at BiggerPockets, we’re putting out as much information as we possibly can for you guys. Now is the time to be consuming more real estate information than ever. This is not our grandpa’s real estate where you could buy a house, forget about it for 20 years and then hand it to your grandkids.

Dave:
All right. Well, thank you all so much for being here. This is super fun. I really like doing these kinds of deal analysis. Hopefully everyone listening to this is inspired by the types of deals that all three of these agents have brought to us and seeing that even though that this is a different and challenging market, as David just said, there are still great opportunities out there. Thank you all again for being here.
Everyone should visit the Agent Finder at biggerpockets.com/agentfinder to connect with David and our guests on today’s show, Dahlia and Rob, as well as other investor-friendly agents who can help you take the right steps to close your next deal. It is fast, it is completely free, and it’s super easy to use. You can search for a market like San Diego, DC, Tulsa, or any other market that you’re interested in. You enter your investment criteria and then you just connect with the agents that you want to connect with. So check it out biggerpockets.com/agentfinder where you can match with experts in their market just like Dahlia, Rob, and David, or an expert in your local area.
All right, well thanks again everyone for listening, for Rob Dahlia and David, the friendliest of all investor-friendly agents, Greene. We will see you next time on the BiggerPockets Real Estate Podcast.