Investing in 100-Year-Old Homes Straight Out of College and the “PRR” Method

Ashley:
This is Real Estate Rookie episode 235.

Amy:
I think we strategically try and price our rentals a little bit higher. This isn’t just like a super cheap rental you can move into and mess it up. We’re also extremely transparent when people are toying the houses. Like, “Look, we actively live here right now. We’ve spent an entire year, every single night, every weekend renovating this house. This is our baby. We want to find people who are going to treat it the exact same that we will.” I think the tenants that we have in our houses are exactly that. They’re extremely kind, nice people who really value what the historic aspect of the homes.

Ashley:
My name is Ashley Kehr and I’m here with my cohost Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, information and stories you need to hear to kickstart your investing journey.
I want to start this episode by shouting out someone who recently left us review on Apple Podcasts. The username is Jen Detour. Hopefully I’m saying that the right way, but I love this review because it’s got some good stuff. So this review says, “Ashley and Tony, thank you so much for always bringing great guests to the show, bringing so much knowledge and expertise. Please keep sharing info about your projects and struggles every week. It’s so extremely valuable. Also, Ashley, your life is great and contagious. I find myself sometimes laughing like you and then I tell myself, ‘Ha ha ha, I’m laughing like Ashley. I listen to the show all the time and the knowledge from your show and the other BP podcast have allowed me to own now a rental and I’m currently house hacking. Thank you forever.”
So if you guys haven’t yet, please you leave us a honest rating review on Apple Podcasts, whatever platform it is you’re listening to. So Ash, how do you feel? You got fans out there that are-

Ashley:
For my laugh.

Tony:
… contagious. Yeah, your laugh is contagious.

Ashley:
I mean, I can’t help it. I can’t stop it. Even the other day I was with some friends having a fire and whoever built up the fire like, “Oh we would love to have you on Survivor, whatever.” We were joking about Survivor and he started pretending like he was being interviewed, like on Survivors one of the contestants talking about the other players and talking about how our other friend wasn’t good at this or whatever and he needed to step up his game. Then to me he is like, “Yeah, all she does is sit around and laugh all the time. This annoying laugh.” And I started laughing of course. And I was like, “I couldn’t even help it. It just came out.

Tony:
There you go. There you go. Yeah. Well what else is new? What’s going on?

Ashley:
Well, we haven’t recorded in a couple weeks because you are on that [inaudible 00:02:29]-

Tony:
I know. In Mexico.

Ashley:
I mean, the video is amazing. I looked. It’s so beautiful.

Tony:
Yeah. So we’ve gone to this resort now three times, it’s the third time going back. Every time we just fall more and more in love with the place. So it’s always good to rest and recharge a little bit. We’re always moving a thousand miles an hour. And as soon as we got back that very next day, we had a day filled with meetings. So it’s always good to get away. But I’m feeling ready now to take on the last quarter of the year. I have my fill of tacos and margaritas and tequila. So I’m back to the real world now.

Ashley:
Doesn’t it also almost make you even more eager to get back to work? After not working for a little while, being on that vacation, on that plane ride home, I always get like, “Oh my gosh, I can’t wait to do this. I want to do this. I want to dive into that.”

Tony:
Usually yes, but it was really weird. I think we’ve just been moving so fast for the last two years. We’re honestly having discussions around like, “Okay, how do we start to slow down a little bit?” Because a big goal of us building this business was for not just financial independence but time freedom. And I feel like our time freedom has suffered a bit because we do have so many different things that we’re working on right now. So I think a big realization coming out of this last vacation was that we needed a little bit more time back in our lives and how do we start to either delegate or delete some of the things that we’re doing so we can’t get that time freedom back.

Ashley:
And you know what? I’ve heard from a lot of investors, very successful large investors who scaled and grew so big and then they actually cut back, they cut employees. They’re like, “This is not actually what I wanted. This is way more work. I don’t have any time. I’m trying to oversee this. I’m managing all these people” and they cut it down. So it’s finding that boundary, that line. Where’s that gray area between scaling enough and not going too far where you’re even more overwhelmed and more busy than having that time freedom? It’s finding that perfect spot, which of course is hard to do.

Tony:
You know what might be a cool episode is if we got a business coach on here. Those are the kind of conversations you should be having like a business coach. It might be cool to get someone who’s talked to a lot of different investors and what those kind of ups and downs are and how to navigate those. So yeah, maybe we should do that. That might be a cool episode.

Ashley:
Once again, Tony and I using the podcast for our own personal gain. Well, today we brought on some amazing investors, which did add a ton of value to us and we’re super cool to listen to and talk to. So we have Amy and Mitch out of Philadelphia on. They are renovating how homes that are over 100 years old. The first house that I ever lived in, this old farmhouse that was my husband’s grandma’s house, that was I think 120 years old as of right now. That’s how old it is. Half of it was built in. I can’t even imagine going in and renovating this thing. I wouldn’t even know where to start. The floors are so uneven, just bad. So I give them tons of credit for going after these older homes and renovating them. So they talk about how they purchase the property as their primary. They live in it for a year, renovate it, and then they turn it into a rental property.
And before we did this interview, Tony and I were kind of stumped. Is there actually a coined phrase for this? It’s not a live-in BRRRR because they didn’t refinance the property, they kept their original financing on. So we need you guys to DM us or comment on the YouTube video and let us know what that term should be for, you’re going to buy something as your primary residence, live in it, renovate it, and then turn it into a rental.

Tony:
Maybe we can call it a PRR, so like P-R-R. So Primary Rehab Rent.

Ashley:
Sure.

Tony:
I’ll keep working on it.

Ashley:
Time to pitch that to BiggerPockets’ publishing.

Tony:
To the publishing team.

Ashley:
You better coin that coin that book.

Tony:
The PRR. Yeah. But no, Amy and Mitch, they were great. I think they shared a lot of insights around how they’re working together as a couple and what that dynamic looks like. They talk a lot about how they educated themselves. Neither one of them had any rehab construction experience prior to this and they’ve done three properties. They’re on their hunt for the fourth right now. So there’s a lot of insights. But I think what I enjoyed most out of Mitch and Amy’s story was the level of dedication and commitments that they have to their business and to not making excuses around why they can or can’t do something. There’s a story that Amy shares near the end about two flashlights and a pizza. I think that story is just really, it shows just who they are as investors and as people.

Ashley:
Well, before we bring Mitch and Amy onto the show, make sure you guys listen to the very beginning very carefully. And if you’re watching on YouTube, even more enjoyable as Tony makes it super uncomfortable for all of us during this interview. So if you want to see Tony make it real awkward real fast, I mean, take a look it at YouTube when you’re watching this podcast episode.

Tony:
Amy and Mitch, we were super excited to have you on the Real Estate Rookie podcast. We are obviously going to get into the nitty gritty of your real estate business. But before we do that, give us a quick backstory. Who are you guys? How’d you get started in real estate investing? Amy, we can start with you and then Mitch, you can lead in afterwards.

Amy:
Sure. Well thank you guys for having us. My name’s Amy and…

Mitch:
I’m Mitch.

Amy:
We actually grew up in the same small town together in South Jersey. We went to high school together and now we live in Philly. We’ve been living here for a little over… I’ve been here for four years.

Mitch:
Yeah, I’ve probably been here for about six or so in different boroughs of Philly.

Amy:
Yeah. And in terms of our real estate portfolio, we were lucky enough to become under contract with our first property right before COVID, right in February of 2020. And even before we closed on that property, we kind of had a goal in mind of getting one property per year to build our investment portfolio. And so we’re three years in and we have three properties and we’re currently looking for our fourth.

Tony:
Congratulations, guys. Now you said you guys met in high school. So are you guys in a relationship? Are you guys just business partners? What’s…

Mitch:
Yeah, we’re in a relationship right now and business partners.

Amy:
Yeah, a little bit of both.

Mitch:
A little bit of both.

Tony:
I love that.

Ashley:
Geez, Tony, way to make it awkward. [inaudible 00:09:17] figuring it out. Way to put pressure on him.

Mitch:
No. No. No. We’ve been together for almost four years now, but we’ve known each other growing up. Yep.

Tony:
I love that. So are you guys high school sweethearts? Is it that kind of deal?

Mitch:
Sort of.

Amy:
Yeah. I’ve known him since high school.

Mitch:
We found each other after college, you know?

Tony:
There you go. Okay. Now my wife and I, we’ve been dating since we were seniors in high school. So I always love when I hear stories that had the genesis early in life. And now we’re also business partners as well, so that’s a good time.

Mitch:
It’s awesome.

Tony:
Well, kudos you guys for having that goal of getting one property per year and sticking to that. Are all of those properties located in and around the Philly area?

Amy:
Yes, all three of them are in Philly. Two of them are in one neighborhood and then the third is about 20 minutes away but still within city limits.

Tony:
Got it. So you guys got one in February. Just give us a quick timeline for the other two. February 2020 was the first one. What was the timing for the other ones there?

Amy:
The second one we closed March 2021 and then the third one, February 2022.

Ashley:
What made you guys, and maybe Mitch you can take this question, what made you want to start investing in real estate? Who was the one that kind of brought up the idea of it?

Mitch:
Yeah, so for us, I mean for me actually, it was probably Amy and she could probably talk a little bit more about this, but her mom was a big mentor for us and has experience doing this kind of stuff. So she was a big reason why we got into it.

Amy:
Yeah, Mitch and I were renting an apartment together and we were spending $1,500 a month for a really, really tiny 400 square foot apartment. We were living on top of each other and my mom urged me to consider looking to buying. At first it was like, “How can we afford to buy?” But then really looked into it and saw that mortgage monthly payments were a lot cheaper than what we were paying in rent. So that really what catapulted us into looking in the first place. And here we are three years later. Of course we were obsessed with it.

Mitch:
Yeah.

Ashley:
With your first property, did you guys house hack or was it multifamily? What kind of made that first deal turn into an investment property?

Amy:
So going into it, since like Mitch said, my mom owns a couple of rental properties herself, I knew in the long term I would want to turn it into a rental one day. So before we were looking, our criteria for homes had to be conducive for tenants in the future. So we were just looking at single family homes within the neighborhood that we were living in at the time. The house that we ended up closing on was only a couple blocks away from our apartment. It was three bedroom and one bath so we knew it had rental potential since we ourselves were running in the city at the time. But that’s how we really settled on that first property, just a long term rental potential.

Tony:
So just to get some clarity around what your guys’ strategy looks like. So you set the goal to buy one per year. Are you guys moving into each one of these properties and then getting it stabilized to be a rental Then moving out to the next one? Give us the kind of 30,000 foot view of what your game plan looks like.

Mitch:
Yeah, so high level, we’re really kind of doing the live and flip. We’ll find a place that needs some work, move into it, take our time a little bit in terms of doing the renovations, it gives us a little bit of breathing room not having to hold two mortgages or rent in a mortgage. We live in it and then fix it up. And then by the end of that year or 12 months look to rent it out typically.

Amy:
When we first started I was fresh out of college, I had just turned 22 and we had no money so we really couldn’t buy an investment property with 20% down. We knew our only option was to buy a primary home to get those low percent down loans. So that’s how we settled on using an FHA loan first. We got a large amount of sellers assist so we only had to come to the closing table with just shy of $7,000. And then moving forward from there, we were able to put all of our renovations on a credit card throughout the 12 months and paying it off actively every single month. So that was a big priority for us since we really didn’t have that much cash to work with.

Ashley:
Amy, with the FHA loan, can you talk about some of the benefits as to why maybe somebody else would want to go that route for purchasing their first investment property or their first primary, I guess, to become investment?

Tony:
And Amy, if you can also just define what FHA is for the folks that aren’t familiar with that.

Amy:
Sure. So it’s a first time home buyer loan. I think the biggest benefit for us was the low money down. So we did three and a half percent down. And with an FHA loan you’re able to get a large amount of sellers assists as well. So when the seller pays money towards our closing costs, so that’s how we’re able to put so little down. I think another big benefit is they’re really, really strict. They have their own inspections so the sellers were forced to make a lot of fixes themselves before we even moved in since it had to be habitable for us to live there. So I think those are the two big benefits.

Ashley:
So how did you find a property that had value add and needed rehab? Were you looking more cosmetic since you still needed to meet those FHA requirements that it couldn’t be this huge fixer-upper that you had to do?

Amy:
Yes. We’ve looked at a lot of properties that were complete dumps and that we kind of knew we weren’t going to be able to get an FHA loan for. So we had to narrow it down to mostly cosmetic fixes. And for our first property, we thought it was just going to be cosmetic. And then we had the inspector go in and he found a lot more issues, some of which were handled by the seller such as the roof. Once we got in there we found even more issues because you can’t really see everything during an inspection.

Ashley:
What were some of those things? And looking back, could there have been red flags that maybe you could have found those things out just so maybe if somebody else is going through the same situation, things they should watch out for that might not come up in an inspection?

Mitch:
Yeah, for sure. I mean now looking back on it, we were renovating our kitchen for example. We started tearing up the floors and then tearing up… It ended up being seven layers of floors or whatever, something crazy because it’s super old home from the 1800s and it’s just been through years and years of rehab. We pulled up so many floors that we actually found out that there was a two inch gap between the kitchen and the living room and there was some structural damage under that last floor and that part of the house was actually sinking. So then that started spiraling. It quickly became not just cosmetic fixes.

Tony:
So I want to dig into that a little bit. These are really big rehab issues. So Mitch or Amy, did either of you have construction experience before this first property?

Mitch:
No, I mean going into that first property, honestly it took me a day to change the locks and figure out how to do that, let alone flip a kitchen to be honest.

Amy:
We could not do anything. Kind of a silver lining in a weird way was that COVID hit right after we closed. So even if we wanted to hire a contractor, we couldn’t because there was a stop work order on everything. So we were just forced to figure it out ourselves by watching YouTube and reaching out to Mitch’s family who’s really handy and just kind of figure it out as we go.

Mitch:
Yeah, my dad’s always been super handy fixing stuff. He doesn’t sit down. Every weekend he has a project fixing something in the house. So I was able to pick his brain, use some of his tools. I mean, he was super helpful throughout the whole process.

Tony:
So did you guys self perform all of the rehab for that first project? Was there anything you guys subbed out or was it literally all Mitch and Amy?

Mitch:
So I mean it was a good mix. I mean, I think now our goals trying to do 70 to 80% of the work ourselves. Nothing huge like plumbing or electrical. One of my best friend is electrician so that was super helpful when we were renovating the kitchen. He was able to rewire a lot of stuff. But yeah, I think a majority of the time we try and stick to us doing it.

Amy:
Yeah. Things that are best left to the professionals like window replacements, electrical, we subbed out, but everything else we did ourselves.

Tony:
So I just want to ask, sounds like you guys had some good people in your corner, maybe some parents in-laws, friends, but where did you guys go to build that foundation of knowledge to even start doing these things? Was it YouTube University? Was it trial and error? Just kind of walk us through that initial educational phase of building that confidence even get started.

Amy:
I think for a full year before we even started looking at houses, I was really invested in just kind of educating myself on real estate and investing in home ownership. I listened to million podcasts, watch a ton of YouTube videos, read a lot of books. So kind of going into it, I felt comfortable with the business aspect. And I know Mitch was learning a lot from his dad, kind of shadowing him in some of his work and watching YouTube videos on the renovations. So we had a little bit of knowledge. We just hadn’t actually performed it or put it to use.

Mitch:
Yeah. When we first started looking at houses, we kind of saw some trends in terms of like, “For our price range what’s the kitchens are looking like?” Like for example, what goes into installing new cabinets? So when we were looking at houses, in the back end I’d go home and I’d be like, “What really goes into putting new cabinets up or renovating a kitchen?” So just trying to build as much knowledge before we dove in as possible.

Ashley:
Now you guys are investing in Philadelphia, the northeast. So this typically tends to be an area with older homes. Are you guys going after older homes or are these newer builds that you’re going in then doing these cosmetic updates?

Amy:
All of the homes, all three of them are really old. The oldest built in 1870 and I think the newest in 1890. So they’re all extremely old. We could definitely look at one of the new builds because there’s so many in the area. But I personally love the history that Philadelphia has to offer. We kind of consider ourselves not really house flippers but restorers. We want to bring back the historic value that all these houses have because I think there’s such character that just flipping houses it just rips out. So I really pushed us to just look at these really, really old homes because there’s so many fun stories and things that you can learn while you’re renovating these houses just the fact that they’re almost 150 years old.

Tony:
Amy, I so love that you brought up that point of restoring houses versus flipping them. So for you, when step into this house that was built in 1870, what’s your thought process between deciding what to kind of keep, what to make new, what to just refurbish? How do you go through that process of still keeping the history of the house but making it functional for 2022?

Amy:
Yeah, there’s definitely an easy way to go of just laying carpet over the original hardwood floors or laying laminate flooring. But we wanted to invest the money and ripping up the carpet that was there and restoring all the original hardwoods just build a lot of character into the homes and just kind of figuring out what would be best without taking out that historic value that we found. Obviously I think when these homes were built, I don’t even know if there was indoor plumbing, but we had to take the bathrooms and the kitchens and just bring more life into them while keeping all of the charm that they have.

Mitch:
Yeah, we found houses… Our first house is a cold closet in the basement for when they used to have to heat the home that way. It’s crazy.

Amy:
It’s so cool.

Ashley:
Well along that note, you’re turning these properties into rentals. Do you ever have any fear that these hardwood floors are just going to get ruined? Because that was the first thing I thought of is that. Or do you have such a tenant base of great tenants that look for these homes that are more attractive than going and finding a modern day plain Jane apartment or something like that?

Amy:
Yeah, I think you’re spot on. I think we strategically try and price our rentals a little bit higher. This isn’t just a super cheap rental you can move into and mess it up. And we’re also extremely transparent when people are touring the houses. Like, “Look, we actively live here right now. We’ve spent an entire year every single night, every weekend renovating this house. This is our baby. We want to find people who are going to treat it the exact same that we will.” And I think the tenants that we have in our houses are exactly that. They’re extremely kind, nice people who really value what the historic aspect of the homes.

Tony:
So I want to talk a little bit about how you guys are splitting up those responsibilities because there’s a lot, I would assume, that goes into restoring a 100 year old house. So Mitch, I’ll ask you, is there a certain aspect of the rehab that you like to focus on and then you kind of pass the rest to Amy? Or how do you guys handle those responsibilities?

Mitch:
Yeah, I mean think there’s a good split. I feel like I probably take a brunt of the heavier lifts, but she’s always there for moral sports. She’s diving in where she can in terms of helping restore, whether it’s painting, putting on a new trim. I mean, you’ve helped a lot of stuff. I mean, I feel like I probably do take on most of that renovation responsibilities, but we help each other out.

Amy:
Yeah. And then I think I’m more so, I guess, the business aspect. I love running the numbers, touring houses and bringing them to Mitch and seeing what touch he can put on them to make them our vision come true.

Mitch:
Yeah. I don’t think there’s necessarily a weakness in terms of me with numbers or her with the renovations. I mean, I’ll be doing a project and she’ll be like, “Why don’t you do it this way?” I’m like, “Why aren’t I doing it that way?” There’s a good mix.

Tony:
Do you guys ever find yourselves maybe at odds with what you should be doing with any specific project?

Amy:
I would say absolutely, especially because we live there while we’re fixing it. So I have a tendency to want to over fix things and make them nicer than they need to be. Our long term goal is to rent them out and kind of build a real estate portfolio so we don’t need to renovate these to the nines. And Mitch really brings me back down to earth and he’s like, “What’s the point of getting this quartz countertop?”

Mitch:
Yeah. I mean, if we can make it as functional as possible and bring back some life to it with obviously doing the best supplies and materials we can use and putting our touch on it, but not over renovating because it’s not a forever home we’re looking for.

Ashley:
For your guys’ partnership, do you guys have an LLC or a company together? Are you taking turns as to whose house it goes into? What does the actual structure look like? And would you change anything about that for maybe somebody who is dating someone, they’re going to become business partners, what advice can you give them as to ways that they can protect themselves and what’s best for both of you?

Amy:
So we started out… I just bought the first property with an FHA loan. And then for the second property, Mitch and I went 50/50 with a conventional 5% down. And then the third property, back to myself, 5% conventional. And then the fourth property, Mitch will buy that just to split up our debt to income ratio there. And in terms of in LLC, we do not have one yet, but with our fourth property we’re really hoping to have that established before we close on that.

Ashley:
The next question I have about your guys’ partnership is the management piece of it. Are you guys self managing? Do you have a property management company? And if you’re self-managing, how are those roles kind of split up between the two of you?

Mitch:
So we don’t have a property management company. I think one benefit of the live and flip and doing a lot of the stuff ourselves is when we do have an issue come up at one of our properties that the tenants are in, I probably am already thinking about a fix because I had to fix it at one point or I know all the ins and outs of the houses. So if they have a leak, I know we’re had to shut off the water. Every spot I can direct them, I can run over there. That’s one other benefit of them all being in the same area. So we haven’t really looked into a management company yet. We haven’t had any issues. It’s just us.

Amy:
We have our tenants text me, no calls, just texting, so we can talk about it and kind of evaluate a plan before we either send Mitch in to do the fix or hire out someone to do it. But that’s how we’re going right now. But I think moving forward with our fourth property, it maybe a little bit much to handle. So we are thinking about property management and somewhere to put all of our maintenance requests into one place to make it a little bit more organized. But so far just the two of us has worked pretty well.

Ashley:
Yeah. Even if you guys kept doing what you’re doing, if it’s working and just putting in some property management software in place, are you using any of that?

Amy:
We’re actually in the process of signing up for Rent Ready. We we’re using-

Ashley:
Oh, awesome. We love Rent Ready.

Amy:
Yes, I heard about it from you guys. We were using the Zillow Rental Manager, but it’s a little disorganized. When you have three separate properties, you have to have three separate kind of profiles. We wanted some that we can put everything in one since we own them all ourselves. So we want everything in one cohesive place, so Rent Ready seemed perfect for that.

Tony:
Can we lead into how you guys are actually screening these tenants? You said you walk them through the property, you let them know that you put your blood, sweat and tears into this place. How are you making sure that you’re not going to get someone that’s going to go in there and just trash the place and not take care of it? What does your screening process look like?

Amy:
So everyone applies… Well, currently through the Zillow Rental Manager that we were using, which includes a background check, credit check, employment verification. We ask for previous landlord information and we’re calling for a referral. And then after that, for all the people that actually applied, we had everyone come over and we set up a 30 minute time period for everyone. We kind of held it like an open house on a Sunday but gave everyone their own time slot to also kind of follow COVID protocols. After we showed everyone the house, we sat down with them and just asked them, “Why are you looking to move?” anything we can get to know about these people and really interview them basically.

Mitch:
Yeah. And it’s not always like a formal sit down. Like, as we’re walking around the house, it will be a little bit of an interview like, “What are you guys looking for? Why are you moving into the area?” Things like that. So we can see what they’re looking for and I guess see how they’ll gel with us as landlords and them as tenants really.

Ashley:
Before you guys started doing your showing for your first property, how did you educate yourself on different landlord laws, like what are the questions you can and cannot ask and different things like that and even putting together your lease agreement? What are some steps you took to get that education and do that research?

Amy:
I think that goes back to my mom being such a great mentor for us. She has a couple of rental properties so she was able to help me with her real estate lawyer who helped us put together a lease and kind of briefed us on landlord tenant laws that are specific to Pennsylvania. There were a lot of things that we needed to know that kind of just flying by the state of our pants we had no idea about. But having people in our kind of network to lean on really gave us those things that we could educate ourselves on.

Ashley:
Amy, do you remember how much it cost for the attorney to put that together for you?

Amy:
I think we had an initial console and it was $250 for the hour.

Ashley:
I mean, well worth it. Or at least you can use over and over again. I think there’s often time this big fear of like, “Oh my gosh I have to hire an attorney to do this. It’s going to cost me so much money.” But oftentimes not really. Well worth $250 to make sure that you have that airtight lease agreement.
And BiggerPockets, if you’re a pro member you can get access to landlords leases too that are state specific for your state too. So if anyone’s a pro member, you can download those and then you just fill in the information. But going the other route and hiring attorney to create it directly to your property and to add in the things that you want in the lease too… You probably have in your lease or an addendum or some kind of rule that states like tax only and the different ways they have to pay you and things like that, which will vary depending on each landlord as to how they want that process done. But yeah, 250, I think well worth it to have a lease agreement. And you’ve been able to use it for your other properties, you just changed the information in it, correct?

Amy:
Yeah, exactly. I think the best thing that we put in was anything under $100 it’s responsibility of the tenant to fix themselves. So we’ve gotten quite a few calls of, “Hey, can you guys come out and we’ll ask some more details.” We’ll be like, “Sorry. The lease, it’s under $100. That’s an easy fix. You guys can do it yourselves.” And I do feel really bad saying that, but it makes the most a lot easier.

Mitch:
Yeah, you hear stories of people calling their landlords to change a light bulb. I mean, especially when we’re doing the property manager, like property management responsibilities, we don’t want to drive an hour to change a light bulb, you know?

Tony:
I think so many new investors, and this kind of tax on to what you were saying Ashley, they’re willing to go out and spend several hundred thousand dollars to purchase a property, maybe even more, tens of thousands of dollars to rehab this property but then they are appalled at the idea of spending another $200 to get this lease agreement created and think about, A, how much money you’ve saved by not having to goal change light bulbs and unclog toilets because it’s in your lease agreement but there’s also the protection side of it because now you guys have a binding agreement between you and that tenant. So if there’s ever an issue, you have this document you can fall back on.
And the value of that, you’re getting paid back 10 times over. If it can just save you one trip to replace a light bulb that’s paid for itself. And the fact that you can use that same agreement over and over and over and over and over again, it just drives me crazy when people aren’t willing to spend that extra little bit of money to really drive home all that money they’ve already invested into the property.

Ashley:
To add on to that too, when you said like, “$100, you have to cover it,” I’m sure there are some people listening that are taking them back, “Wait, what? You can’t do that. You’re the landlord. You have to take care of the maintenance.” You can put a lot of things into the lease. They are signing that lease. Obviously you want to disclose it to them and not try to bury it in the lease agreement that that’s the thing. But if they know upfront that, “If you want to rent this property, this is one of the conditions of it” and they sign the lease agreement, nobody should feel bad that you have to tell them, “Oh it’s under $100, it’s for you to cover it.” They signed that lease agreement for a while.
So starting out, I’d always had appliances include. And then just the repairs and maintenance on them I just didn’t want to handle anymore. So what we did was going forward, any new units didn’t have appliances supplied. But any ones that still had the appliance in them, we put into the lease agreement that these appliances are included. But any repairs or maintenance or if they completely break is on the tenant to repair or replace them. They were just provided as a courtesy because they were still in the unit from when we did supply the appliances. So really there’s tons of ways that you can put different things into a lease agreement.

Tony:
Yeah, as long as you’re not breaking the law, you can put whatever you want to. If you want to tell your tenants that every year for Christmas they have to put up a big Santa Claus, you could do that, right? It’s whatever you want it to be.

Ashley:
Actually, that might be discrimination if they don’t believe in Santa Claus.

Tony:
Yeah, Santa Clause, that’s true. Maybe that was a bad example but you get my point, right? As long as you’re not breaking any of the landlord tenant law, you can do whatever you want. So I think it’s really instructional for you guys to have that in there.

Mitch:
And Ashley, I really like that idea with appliances too, because in our experience I feel like when we have had some appliance issues, those are some of the things we can’t fix ourselves. I mean you need to be a specific repairman to fix those things and we would have to hire out somebody to fix the dishwasher or just buy a new dishwasher. So putting that on the tenants, I like that idea.

Ashley:
Yeah. Another one that we started doing too recently, and my business partner actually is the one started doing it in his own unit before I implemented it, was that the drains are all free and clear when you rent it. So if there is a drain that is clogged, it is from your hair, your grease, your whatever that went down the drains. Because that really has actually saved a lot of money. And a lot of time too is unclogging drains and you snake them and you pull out this big clump of hair. Well, obviously that’s not my fault or the apartment’s fault that that is stuck in there. So that’s another one that we’ve been using too.

Tony:
It’ll be a really weird conversation if it was your hair, Ashley that’s stuck. Ashley’s like sneaking in the middle of the night showering in their [inaudible 00:34:20].

Amy:
That’s just scary.

Mitch:
They want a DNA test on the hair.

Tony:
Yeah.

Ashley:
Yeah.

Tony:
So Amy, Mitch, you guys have obviously learned a lot as you’ve gone through these three different properties. How has your maybe buying criteria shifted from property one as you now look for property number four?

Amy:
I think we started out a little naive saying we were just going to look for cosmetic fixes. We were really awaken once we started ripping out walls that cosmetic fixes are always possible. We thought we were just going to be able to rip off cabinets and put up new ones. But we found a slew of issues. So we were really looking deeper like, “Is this truly cosmetic?” We went through three different inspectors and we think we found the perfect one who can actually really help us identify a lot of issues. But we’ve also kind of created a do not buy box, this is what we’ve been calling it, that we’re looking for with our fourth property that we’ve learned from our previous three. One of the big ones is foundation issues. Anything with the foundation issues we’re staying away from, that’s not something we can DIY and fix ourselves. And it costs a lot of money to get an engineer, a specialist to come out and fix that.
The second one, and it sounds kind of silly, is a house without central air. That is on our do not buy list. A house must have central air. And the reason being is our first two properties did not have central air and we thought, “Oh we can easily add that throughout the years.” But we’ve gotten quotes and it’s upwards of $20,000 to add in central air because the homes don’t even have duct work. So it’s a huge renovation, but it’s kind of expected for tenants in this area. They all really want central air. And we found that the ROI in spending that money to put in central air, we don’t return. It’s not a return.

Mitch:
Part of that tenant criteria we were talking about earlier too, where we’re trying to price it a little bit higher than I guess people that would come in and potentially ruin it, those kind of tenants expect to have central air versus a window unit.

Tony:
I love, as you do more of these projects, you start to identify the things that you are okay with and the things that you aren’t okay with. And when you’re first starting out, you don’t know what you don’t know. So that kind of naturally happens with all new investors. But there’s something that you mentioned, Amy, that I want to circle back on. You said that you’ve gone through three or four inspectors, but now you feel like you finally found one that you want to stick with. What was unique about that inspector that the other previous three didn’t have?

Amy:
I think this inspector really valued us as kind of DIY renovators. The past inspectors didn’t really take us seriously. We wanted to follow the inspector around the house and learn as much as we could. And they kind of wanted to just get in and out, inspect the property, write up the report and email it to us. And the inspector we’ve most recently worked with, I think he was here for maybe three or four hours and walked us through every single piece of the house and we were taking detailed notes and he was saying, “I would recommend you use this to fix this” or, “This isn’t even worth your money to put your energy into.”

Mitch:
And he was a guy that really respected the old homes too. There is some really old doors in our house and he was like, “I have a hundred skeleton keys at my house. I can bring it over and we can try it out, see if it works.” He was a really cool guy. He liked the older homes that we were looking at. So it was a cool perspective in having him along the journey with us.

Tony:
How did you guys find that inspector?

Amy:
Through our amazing real estate agent. We’ve gone through a lot of inspectors and lenders. Our real estate agent has been our main constant and she knows exactly what we’re looking for and what we need in terms of our team. So she’s the one who recommended him based on what we are looking for.

Ashley:
Do you guys have a deal in mind that you’d want to take us through and we can talk about your real estate agent helping you find it and go through the whole process with the inspection and everything?

Amy:
Yeah, we can talk about our second deal.

Mitch:
I think so.

Ashley:
Yeah, I’ll just ask you a couple rapid fire questions just to kind of get a basis of it and then you can kind of go into the story of it. So where is this property located?

Amy:
It’s in Philadelphia

Ashley:
And single family?

Amy:
Yes, it’s a town home, but it’s single family.

Ashley:
Okay. And what was the purchase price?

Amy:
300,000.

Ashley:
Okay. And how did you find it?

Amy:
We found it on the MLS. Our real estate agent set us up there and we found that it was coming soon to market.

Ashley:
Do you want to lead us into maybe when you saw the property up until when you closed on it and then into renovations?

Amy:
Sure. So we saw that it was coming soon to market. It wasn’t going to hit the market for a week. So we texted our real estate agent and we were able to view it the very next day. We knew this was going to be a home run. I think I had a really strong gut feeling about it. It was the perfect location, perfect size for rental property. So we put in an offer at full price right before it even hit the market. But we weren’t exactly strong offer because we were conventional 5% down. We also wanted a little bit of seller’s assist. So we had to go back and forth, but we ended up being under contact at $300,000 with 3% sellers assist prior to the home even being on the market. So that kind of gave us more money in our pocket thanks to the sellers assist before closing day.

Ashley:
Okay. So you’ve made your offer, you’d negotiated on the property, you had an inspection done on the property. Did anything come up during the inspection and did you have the sellers remediate any of that?

Amy:
Yes. So the home was listed as is, which was a little scary for us since our first property wasn’t. But once the inspection happened, we saw that there was knob-and-tube electrical. We were kind of panicking because we knew that our mortgage company wasn’t going to grant us a mortgage because we weren’t going to be able to get insurance with knob-and-tube. So our real estate agent went back and said, “My clients have to walk away unless the knob-and-tube is remediated.” And I guess we just got extremely lucky and they didn’t want to list it again. So they agreed to update the knob-and-tube, which was something that saved us almost $10,000.

Mitch:
Yeah, that’s awesome.

Tony:
Wow. So the seller paid $10,000 to remediate the knob-and-tube and in addition to that, they also gave you the 3% seller assist?

Amy:
Exactly.

Mitch:
Yep.

Amy:
It was a home run. And like we mentioned, it was early on in 2020 and the market was extremely hot. I think we just got extremely lucky and thanks to our real estate agent who’s just a rockstar.

Tony:
So how did you guys negotiate that seller assist for this deal specifically? Because like you said, you feel like you didn’t have a necessarily strong offer because of the lower down payment, the seller care that you guys were asking for. What do you think you guys did to still be able to get this deal closed? How was that negotiation process?

Amy:
I think we leveraged the fact that it was as is originally. And kind of walking through the home, you can tell it needed a lot of work. So we told our real estate agent to say that they need 3% sellers assist to have a little bit more cash in their pockets at closing because there’s obviously a lot of work that needs to be done. The sellers just agreed like, “Look, we don’t want to pay for any of these fixes, so we’ll give you guys a little bit of money back so you guys can do it on your own.” And then of course we found knob-and-tube after they agreed to that so we just got extremely lucky.

Tony:
I think that goes to show that each seller is motivated by something different. It sounds like what your seller was most concerned with was convenience to sell, right? Some sellers are just most concerned with, “How much money am I getting at the end of the day?” Some sellers are concerned with speed, but it sounds like what was important to your seller is that they didn’t want to have to do anything to sell this property. They didn’t want to have to fix anything. They didn’t want to have to invest a single ounce of energy to get this property sold. And if you as the buyer could make it easy for them to sell without doing any work, then they would be more willing to negotiate and give you the kind of terms you were looking for.
So I think it’s a really good example for all of our rookies that are listening that the better you understand your seller and what their motivations are, the easier chance you have at making it a win-win situation for both of you. Because I’m sure that seller walked away happy because they sold their property without doing any work. You two were obviously happy because you got an amazing deal, right? You got this scary back, you got the knob-and-tube remediated. So it was a win-win for everybody, but it only happened because you guys took the time to really understand what that seller wanted from the situation.

Amy:
Yeah, exactly. I think we are very fortunate because we had an agent who spent a lot of time calling the seller’s agent and kind of learning more about them and then educating us on our options because we didn’t know too much about sellers assist. We used it with an FHA loan, but it’s a little bit different with a conventional loan. So she was able to help us maximize our offer.

Ashley:
And then when you guys did the renovations, you had mentioned briefly before that you had use credit cards before to pay for the renovations. What was the cost of the renovations for this property and how did you cover them?

Mitch:
This one was 10,000. Around 10,000, 15,000.

Amy:
It was just shy of 15,000.

Mitch:
Okay.

Amy:
But that was in just in pure materials since we did all the labor ourselves. So we spread the 15,000 over 12 months. So it’s really not a heavy lift. We were able to pay our credit cards off in full every month, not carry any debt, but thankfully we saved a ton of money by not really hiring out too much work.

Ashley:
And then after the renovation is done, you probably didn’t have an appraisal since you haven’t gotten in refinanced, correct? But what do you think the ARV is after you have done those repairs?

Amy:
So we’ve had our agent run a market analysis against the comps in the area. So we bought it for 300,000 and she thinks it’s worth around 425,000 to 435,000. So added about $130,000, which is crazy to say.

Ashley:
Yeah, that’s amazing. And then how much does it currently rent for and what is your expenses on it? How much does it cash flow?

Amy:
So our current payments for principal taxes and interests are 1,600 a month and it rents for 2,750 a month. So we have a profit of 1,150 every month.

Ashley:
Congrats guys. That’s so awesome.

Tony:
Yeah, it’s amazing.

Ashley:
Yeah. Well thank you so much for sharing that deal for us and giving us the numbers and the breakdown of it.

Tony:
Yeah. But before we go into the next segment, I just want to comment. I think every rookie, when they hear that $1,100 in cash flow, their ears are going to perk up. But we also can’t get lost in the fact that you guys lived in this property, rehabbed it yourselves, did all the work, educated, YouTube University, talking to people. You guys, grinded it out for a while to make this deal happen. And so often we can look at Amy and Mitch and say, “You guys are overnight successes” when really there was so much that went in to be being able to get to that point. So I feel like it’s important to remind our Ricky listeners of all the hard work that went into it before you guys started cashing that check.

Mitch:
Yeah, and just to piggyback off that, I mean, the first one, anybody can look into it right on their first one, but being able to do it twice and getting a cash flow like that on the second one, I mean, it kind of just shows the hard work paid off and we didn’t really just luck into it. We’re doing it.

Amy:
It was a lot of sleepless nights and not seeing friends and families on the weekends and kind of dragging ourselves to renovate. It was a long two years, but we made it worked.

Tony:
But it’s worth it. Awesome guys. Well, I want to take us into our next segment, which is the Rookie Request Line. So for our rookies that are listening, if you guys want to get your question featured on the show, give us a call at 888-5-ROOKIE and we just might pick your question for the show. So Amy, Mitch, are you guys ready for today’s question?

Amy:
Yes.

Mitch:
Yep.

Tony:
All right. So today’s question comes from Ethan. Ethan says, “I’m 18 years old and I’m interested in getting into real estate. I really don’t want to go to school, meaning I don’t want to go to college. I figured I have about $20,000 saved up and I want to invest in real estate. My initial thought was to purchase a rental property, but as I said, I’m 18, I have no credit built up. I’m wondering what is the first step for me. How do I navigate getting started at a young age? Love the podcasting so much.” So what would your guys’ advice be for Ethan at 18 years old trying to break into this real estate game?

Amy:
I would say first things first, get a credit card and start building your credit responsibly, paying off everything in full and then maybe asking someone to team up with them. Maybe it’s one of their parents or friends who already has established credit and can go in on the house together. He clearly has a lot of liquid assets he can use, so it’d be a great option to ask maybe their mom or dad or another family member to go on the loan with him and kind of split it with him. And that’s going to be another great way to build credit. And then from there, the possibilities are endless. You could house hack and kind of get a roommate and reduce your expenses that way too.

Ashley:
Yeah, I think another great option would be, we actually have this episode coming up this Saturday in the Rookie Reply with Pace Morby. He’s talking about ways to do creative financing, like seller financing or sub two deals. So maybe even looking into something like that where you’re not even going to a bank where they’re going to run your credit and check your credit can definitely be an option too and you have that amount to put some or all of that as a down payment too.

Tony:
Yeah, I love that advice, Ashley. The one thing I think I’d add to that is if I were, I were 18 and I was trying to decide if I were going to college or not going to college and I decided that I didn’t want to go to college and go full time in real estate with limited capital, limited credit, I feel like I would put the majority of my energy into getting really good at finding deals. I’m going to be the world’s best door knocker. I’m going to be cold calling. I’m going to try maybe direct mail. Direct mail’s a little bit more expensive, but do door knocking, driving for dollars and cold calling or things you can do with your car and your smartphone. And Ethan, if you can get really, really good at finding deals at 18, 19 years old, that will give you the foundation of pretty much branch out into every other type of real estate investing that exists. So my advice to you, Ethan.

Mitch:
Yeah, just to also piggyback off that too, we’ve done a little bit of that ourselves too. Like, just driving around our neighborhoods, houses that we love that we think aren’t getting enough love. We’ve sent letters to the owners before, looked at their addresses and said, “Hey, we’d love to purchase your property.” We’ve actually heard back and they’ve said, “Just not at this time, but when we will, we’ll keep your number in email if something comes up.” So I mean, yeah, reaching out as much as possible and becoming a better deal maker for sure.

Ashley:
Well, Amy and Mitch, it is time for the Rookie Exam. So we have three questions for this exam and we’ll direct each question to one of you. So Mitch, you can take the first question. What is one actionable thing a rookie should do after listening to this episode?

Mitch:
I think trying to find a good mentor or partner if you’re interested in getting into it. Whether that is somebody that you can talk numbers with, somebody that you can talk renovations with, just somebody that you can bounce ideas off of and learn. I mean, there’s plenty of forums out there, there’s YouTube channels if you aren’t able to find somebody specifically. But I mean there’s Facebook groups and everything. So I try and find a mentor or start to build a support system.

Tony:
Love that advice, Mitch. Most definitely. All right. Question number two. Amy, this one’s for you. What is one tool, software app or system that you use in your business?

Amy:
Well, I already mentioned we were currently using the Zillow Rental Manager, but we’re kind of pivoting into Rent Ready to make it a little bit more easy for us and keep everything in one space where all of our tenants can put in their maintenance requests, they can pay through Rent Ready. And also it reports to the credit bureaus too, so that we can help our tenants build their credit, which we know is really important. A lot of our tenants want to buy their own houses one day too.

Ashley:
And then Mitch and Amy, this one is kind of for both of you. Where do you plan on being in five years?

Amy:
I hope we-

Ashley:
The same place or different?

Amy:
We will definitely not be living in the same place. We’re going to keep moving. We were kind of on a path, currently one house every year. Hopefully we can start to make that a little bit faster and kind of scale our business a lot faster now. We’re kind of at the point where our rental income profit allows us to buy one home a year. So as we keep growing and growing and get more and more profit from our rentals, hopefully we’ll be able to buy a couple every year.

Mitch:
Yeah. And we both have W2 jobs too, so maybe in five years one of us could maybe leave that and focus 100% of the time on real estate. Whether that’s property managing or looking for deals, that’d be awesome.

Ashley:
You know, we didn’t touch on that at all, your guys’ W2 jobs. What do you guys do and how much time does that take up where you’re still able to renovate these homes and have a W2 job?

Mitch:
So I am in marketing in the pharmaceutical industry, like 40 hours a week, 9:00 to 5:00, Monday through Friday. But I mean it’s like we were saying earlier, it’s a lot of those sleepless nights. Luckily we had a lot of downtime in COVID with the first one. We were able to do some of the renovations. But yeah, I mean just finding time. Lunch breaks, after work, before work. Whenever you get a chance.

Amy:
And I’m in pharmaceutical sales. Same thing. 40 hours a week. Don’t really get time away from the field. So every single night and weekend we renovate. And that’s kind of one of the good and bad parts about living in a renovation. We are just living in a complete dust zone, so we’re forced to renovate. It’s not like we can really relax, so we have to get it done.

Mitch:
Yeah. Exactly.

Tony:
Love that. Just random question just for my own knowledge. So when you guys are demoing the kitchen, how are you guys eating? Are you just Post-mating and Ubering every night or like Uber Eats?

Amy:
A lot of takeout. At one point, both of our kitchens at our past two houses, you didn’t even want to walk in there it felt like unless you were in a hazmat suit, I wouldn’t even want to heat up a meal in there. So a lot of Uber Eats, pizza.

Mitch:
Yeah. There’s that time where it was like buy a gift card from your restaurant to help them during COVID. We did a lot of that.

Tony:
I love that.

Amy:
Yeah, there was this funny time I remember. When the knob-and-tube was getting updated, the house did not have any electricity at all, but we still had to go and renovate because we were on a time crunch. So we were going there every night in the dark with our flashlights. I vividly remember one night we were sitting in the living room in the pitch black with two flashlights and a pizza. And we’re just sitting on the ground eating and we’re like, “How did we get here? How is our life like this?”

Tony:
I love those stories. I absolutely love those stories because it’s those things that will lead to your guys’ future success. And I’m sure it’ll help you guys get to those goals you’re thinking of because you’re willing to do those things. There are so many people who are listening to this podcast that have the desire, have the dreams of maybe one day doing this full time, but they’re not willing to sit in the living room with two flashlights and a box of pizza while they renovate the house. So I’m glad to see you guys doing that.
So before we wrap up here, I want to give a quick shout out to this week’s Rookie Rockstar. And today we like to shout out Melissa Yee. And Melissa says, “We closed on our second live-in flip a week ago, and we can’t wait to get started.” Their plan is to turn this into a modern mid-century house. Melissa purchased a property for $430,000, got $10,000 in seller credits, and they’re expecting to do about $45,000 in renovation costs with them doing about 95% of the work themselves. And they’re looking for an ARV of about 55,000 bucks and they’re expecting to profit about 85,000. So Melissa, congrats to you on getting that second live-in flip and we cannot wait to see what it looks like once it’s all done.

Amy:
That’s awesome. Congrats.

Ashley:
Well, Amy and Mitchell, thank you so much for joining us today. It was really awesome to have you guys share your story and some knowledge on how to get started in investing. Can you tell everyone where they can reach out to you guys and find out some more information?

Amy:
Yeah, I think our best place is on Instagram. Our handle is @phillyfixerupper, kind of a nod to the legends, Chip and Joanna. But yeah, that’s the best place to reach out to us.

Ashley:
Well you guys, thank you so much for joining us. We really appreciate it. I’m Ashley, @wealthfromrentals. He is Tony, @tonyjrobinson. And we will be back on Saturday with a Rookie Reply. And this Rookie Reply is special because we will have an expert on creative financing, breaking it down for you rookie listeners as to how you can do it too. We’ll see you guys on Saturday.