Mortgage Points, Seasoning Periods, and Cash-Out Refinancing 101

Ashley:
This is Real Estate Rookie episode 314. Recently we’ve seen a lot of banks lower your interest rate if you pay points. So it’s almost like a buydown for your interest rate. So if you pay two points or three points, your interest rate has lowered and is now this. And this is where you have to go and actually do the math and long-term for the life of your loan, what is actually the better deal? My name is Ashley Kehr and I’m here with my co-host Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And we’re back here in the Real Estate Robinson Studio with Ashley Kehr here in SoCal. So Ashley down from the northern parts of Canada, wherever she’s at to come hang out with us in Southern California. Her first time really doing LA. So we’re going to be in LA all day tomorrow at the Spotify studios. So we got to plan some cool things for you to do. I wish you would come during basketball season because I 100% would’ve taken you to a Laker game.

Ashley:
Oh my gosh, I’ll definitely come back to go to that.

Tony:
Have you ever been to-

Ashley:
I’ve never been to an NBA game. I’ve done college March Madness before, but never to an NBA game.

Tony:
LA Laker games are a different breed of basketball. Next time we got to plan it out so you come during basketball.

Ashley:
I’m going to make sure our producers need me back out here.

Tony:
Anytime between October and May.

Ashley:
Okay. Yeah, I’ve been to Newport Beach twice and that is my closest to LA, really.

Tony:
And technically, we’re in the suburbs. I’m like 45 minutes outside of LA, but we’ll be in the heart of it tomorrow.

Ashley:
And him joking that I’m close to Canada or in Canada, wherever I am from, the town that he lives in or the airport is literally the name of a place in Canada.

Tony:
So my hometown is Ontario, California and was actually founded by these two guys. I think they were brothers from Ontario, Canada. So yeah, we do have Canadian ties here.

Ashley:
I remember the first time me and Tony were coming to meet and we both sent our flight information to our producer, and I was like, Tony’s coming from Canada because it says Ontario, CA.

Tony:
CA. Yeah, it can go a little bit confusing. Cool. But we’re here to talk Rookie Replies again today. We got a slate of amazing questions as always, we talk a little bit about-

Ashley:
Paying points. What are points when doing a mortgage. Also, we talk a little bit about digital locks as to the benefits of doing them for a long-term rental and also the cons. And we kind of actually walk ourselves through an actual system or process as to the locks of how they could be done if you want to be as remote as possible for your long-term rental as far as changing the locks and having to put new handles on every time somebody moves in and out of your apartment.

Tony:
We talk cash out refinances on this episode too where we have two different questions about cash out refinances, what they are and how they work. And a few more questions that I think you guys are going to love. But before we get into today’s questions, I just want to share a recent review that we got for the Real Estate Rookie podcast. I think you guys are going to absolutely love this one. This is from someone by the username of Listener with about 12 Rs. The title says, “Get to the point,” and the review itself just says, “Please cut the fats.” And it is a glowing one star review. Well listener, jokes on you because Ash and I actually have been focused on cutting the fat. So you guys know I’ve competed in a few fitness competitions and Ashley actually now is turned a new leaf. We want to tell them what’s going on with you?

Ashley:
Yeah. So I hired a health and wellness coach, so I’m on week two so I can no longer eat past 7:00 PM and since I’m in California time, that deadline ended at 4:00 PM so I cannot have dinner with Tony tonight, but thank you for that review. It’s just giving me and Tony even more and more motivation to cut the fat.

Tony:
Cut the fat.

Ashley:
Gain some muscle.

Tony:
Yeah. I’m going to put that on a shirt. It’s just going to say cut the fat. Every episode is going to be like. It’s so funny, I don’t do this often, but I was looking at one of our YouTube videos. It was actually Olivia Tate’s episode. Olivia, she’s one of my students. So I was just really happy to see what their response was and inside of the comments someone commented and they were like, “Lol, does he ever change clothes?” And I replied, and I said, “Actually, no I don’t.” So if you guys are watching this on YouTube, the black teaser are all that I do, but I’m happy to because I’m rubbing off on Ashley with the black tank here today.

Ashley:
Yeah, I actually had a white shirt on that was a body suit, but I realized as the day went on that it actually looked like a white beater. I was like, I probably shouldn’t wear that.

Tony:
But here’s why I wear the black shirts. Have I told you this?

Ashley:
I think so.

Tony:
So okay, if you watch a lot of famous people, highly successful business people, you’ll notice that a lot of them wear the same exact outfits. Presidents have done this, Steve Jobs, Mark Zuckerberg, a lot of these people, and they credit it because it helps with decision fatigue. So for them, if you’re the president of the free world, you probably don’t want to spend too much time in the morning thinking about what are you going to wear. So you’ll see presidents kind of cycle through the same suit just with different ties every day. Zuckerberg was known for wearing just like a basic plain like bluish tee. Steve Jobs with the black turtleneck. And the reason they did that was because it was one less decision they had to make throughout the day. So for me, when I wake up in the morning, I go into my closet and there’s just nothing but black t-shirts. I just grab whichever one I see first, throw it on, and I go on with my day. So I literally waste zero mental energy about what I’m going to wear for the day. So that’s why I do it.

Ashley:
Talk about cutting the fat and here we are, Tony talking about his emotional choices. But I did think that I saw a video and I had to be an Instagram reel or something similar where someone was saying that I think it was Zuckerberg who talked about that actually was just joking. And then it turned into this trend that he wasn’t actually serious about the decision fatigue thing.

Tony:
So decision fatigue is real though.

Ashley:
Right, exactly. Yeah,

Tony:
There’s multiple books. I’ve read a few books on willpower, but one of them is called Willpower Instinct. One is called Willpower. And in that book, they talk about how if you can decrease the number of decisions that you make in a day, when it comes time to do the hard things throughout your day, you have more energy reserves to do that. So I try and cut down on as many decisions. I eat the same food every single day. I don’t think about what to pack for my lunch, I wear the same clothes, and I really just try and save my mental bandwidth for the stuff that’s most important.

Ashley:
I 100% agree because I don’t want to be the one to make the decision where we’re going to dinner. Just little things like that, just plan it for me. I 100% agree that it’s real. I was just saying I saw this video that Zuckerberg in that instant had just-

Tony:
Says he was like-

Ashley:
Yeah, and he was just joking, but then it became this big thing.

Tony:
Inspire the whole generation

Ashley:
When I was packing here, it took me forever to pack because I was like, I am only here for what, 24 hours? I don’t know what to wear. And our producers probably just cut that whole thing anyways. But I do want to give an Instagram shout out. This one is to Emma Kioko and her Instagram is Emma K-I-O-K-O. And Emma is talking about the Burr strategy and she also posts about property number two and posts pictures of it and is sharing her journey. So if you want to follow along with Emma’s journey, make sure you give her a follow at Emma Kioko, K-I-O-K-O.

Tony:
Last thing, real estate partnerships book. Ashley Kehr and I have co-authored one of the latest BiggerPockets titles. So if you want to get an advanced copy or get on the pre-order wait list, whatever it’s called, head over to biggerpockets.com/partnerships and you can get on the early release list. We’re going to pick one lucky winner who buys this book on pre-order or I think that you get a week or two afterwards. But if you’re one of the first people to buy this book, you get entered into a chance to be a guest on this podcast, on the Real Estate Rookie podcast. We’re picking one lucky winner to come sit here on this couch with me and Ashley to record this podcast with us. So again, biggerpodcasts.com/partnerships. And if you want to learn about how Ashley and I have used partnerships to scale our businesses, make sure you pick up the book.

Ashley:
And you’ll have to commit to come here sometime during basketball season so I can go into-

Tony:
So you can come to a Laker game.

Ashley:
Okay, our first question today on Rookie Reply is from Kevin Chu. I’m looking to purchase a rental property all cash and then doing a cash out refinance on that property to have funds to purchase more. In this scenario, would you have to wait the six month period to do the cash out refinance? So let’s talk about first that six month period. That waiting period is called a seasoning period. And this is where a bank will require you to wait before they will actually do a refinance on your property. And this is very common on the residential side of investing, especially if it’s your primary residence where a bank will look at the property and say, “There’s no way you could have added a $ 100,000 in equity on your property in six months,” but they make you wait that period of time before actually going and refinancing. And it does depend on different banks. There are banks that don’t have that waiting period, but typical is six to 12 months that you’ll have to wait from the date you purchase the property until you go ahead and refinance the property.

Tony:
And just a caveat to that, it is just if you’re doing a cash out refinance. You can do a rate and term and maybe we should even explain the differences. So there’s two types of refinances that you can do, like the two most common types. You can do a cash out refinance or you can do what’s called a rate and term refinance. With a rate and term refinance, you’re basically just taking whatever your current loan balance is and then you’re getting a new loan for that exact same amount and you’re just stretching it out like you’re basically amortizing that loan and possibly changing the interest rate. That’s why it’s called a rate in term refinance.
So say that I owe $100,000 on 123 Main Street and I want to do a rate in term refinance. And say, I don’t know, I have 20 years left of my mortgage and I’m currently at a 6% interest rate. So $100,000, 20 years left, 6% interest rate. I can do a rate and term refinance where I take that $100,000, convert it into a new mortgage, and now I get another 30 year term and I can say interest rates came down. Now I’m at like a 3%. So even though the loan balance is the same, if I’m taking that $100,000, I’m re-spreading it out over 30 years and I’m pulling down my interest rate, even though the amounts in question is the same, my payment should technically go down because of the interest rate and the term being expanded. So that’s the rate and term.
And then a cash out refinance is when you’re able to tap into the equity that you have in your property and the bank actually writes you a check for that equity. So say that you have $30,000 in equity when you refinance, you can get a check back for some or all of that $30,000. So that’s the difference cash out refi versus rate and term.

Ashley:
So one of the reasons someone might do this is because they went and rehabbed their property, fixed it up, and they want to pull their money back out that they invested into the property. So that’s why the question is most likely being asked because somebody is doing that. Says here they’re looking to purchase a rental property all cash, so they’re putting all of their money into it and then they want to go and pull all of their money back out. And you may say, why wouldn’t they just go get the loan ahead of time? Because sometimes it is a huge advantage to actually do a cash offer where the seller is more likely to accept your offer if it is all cash instead of getting that financing upfront. And also if you are buying below market value.
So if you’re going and buying that property for a $100,000 cash, but it’s actually worth $120,000, when you go and refinance, you can actually pull out the money you did and maybe even a little more depending on what it actually appraises for. Where if you went and just bought the property, you would have to put that 20% or even more down payment down on the property and then you don’t get that back unless you actually go and refinance again. And in that situation, you’re paying closing costs twice.

Tony:
Well, let me ask, sorry, just really quick. Because you’ve done a lot of commercial debt also, have you noticed it’s different on the commercial side? Are they more lenient on the six month seasoning or do you find that it’s the same on the commercial side also?

Ashley:
I don’t know if I’ve done a refinance on a commercial property within six months of purchasing it. I don’t think that I have. My big commercial property that I did a refinance on that one was the rehab took six months, so it was already over the time period. So I don’t think I’ve done one even within that time period, but I don’t think that there is really that seasoning period at all. But I’m not sure on that.

Tony:
Yeah. And honestly, I’m not sure what the purpose of the seasoning period is. We should maybe get a lender in here to answer that question for us. I don’t know if it’s like a Fannie Mae Freddie Mac thing where it’s like their requirement or if it’s just like why else would all of these banks adopt this same strategy? I would think there’s some kind of regulation or something. And when we say Fannie Mae and Freddie Mac, the majority of mortgages that are originated in America, a good portion of them are resold to Fannie and Freddie. And these are like quasi-government entities that dictate, hey, if we’re going to buy a loan from you as the originator, there are certain boxes that you need to check. And I’m saying I would assume that that’s probably where the six month seasoning comes from, but I don’t know, we might need to get a lender in here to answer it.

Ashley:
Yeah, I tried to google it real quick and it was just saying, what is a cash out refinance. It doesn’t actually say-

Tony:
Give the answer.

Ashley:
… why. I remember a real estate agent telling me before, and this wasn’t a lender, it was an agent saying that the lending authorities, the lending law wanted to put in there, there’s no way that your property could appreciate so much that you just bought it. That’s why there’s that waiting period, which is doesn’t really make sense but I don’t even know if that’s true. That was just somebody’s opinion.
Okay, our next question is from Austin Pesi. What’s up everyone. As of now, I’m a real newbie with getting into real estate investing. I do think I know a lot about real estate now, at least how some of the processes and numbers work. I love numbers, I’m an engineer. However, I’m curious about how a cash out refinance works. When you take the cash out refinance, are you paying a mortgage on the amount you took out or the entire ARV, the after repair value of the house? I appreciate this group. So let’s kind of go back there and break it down. Almost similar to our last question, a cash out refinance question. He’s wondering, when you take out the cash refinance, are you paying the mortgage on the amount you took out or the entire ARV of the house?
So the answer is the amount of the mortgage that you took out is the cash out refinance. So whatever your cash is that you’re taking out, plus any other debt maybe you had on the property that you’re paying off and rolling into this new cash out refinance, that is the amount of your loan. So say your property is worth a $100,000, you got it appraised and the bank is going to lend you $80,000 and that is the cash they’re going to give you is 80,000. Even though your ARV is 100,000, the after repair value, you’re only having to pay mortgage payments on that 80,000 because that is the cash that they are giving you.

Tony:
Yeah. And just like a caveat to that, so just continuing on with your example. You can choose when you’re doing a cash out refinance, if you have the spread how much cash you actually want to take out as long as you don’t exceed that 80% in this example. So again, going back to what Ashley said, say that you have a house and appraised for $100,000. The bank said, “Hey, we’ll give you a loan up to 80,000,” but say that you purchased the property and you rehabbed it and you only spent $50,000, so your all in cost is now $50,000. You have $30,000 in equity that you could potentially pull out. 80 minus 30 is 50. If you wanted to pull out all 30 and bring your loan balance up to 80, you could. If you wanted to say, “Hey, I only want five grand, so I’m going to get a loan for $55,000, now you pay off your $50,000 of your initial debt plus the 5K that you put in your pocket.
So it’s really up to you, even with the cash out refinance in terms of how much you want to pull out, don’t feel like you have to take it all. And you do see sometimes that investors that are either maybe more conservative or don’t want to increase their payment too much by getting a bigger loan, they won’t take it all out and they sometimes they’ll leave some equity in the deal as well. So instead of going up to that 80,000, they’ll keep it somewhere between 60 or 70.

Ashley:
Yeah, especially if the cashflow won’t cover that mortgage payment if you do take the full 80% out. Okay, the next question is from Miranda Weber. And just a reminder guys, if you want to submit a question, you can go to biggerpockets.com/reply and leave a question for us to answer on the show. So Miranda’s question is, do you guys pay for points when doing a mortgage? The only time I have paid for points is when using a hard money lender. So let’s talk about first what points are. I remember going into the bank when I was younger with my mom and they’d have a whiteboard and it would be like two points and they’d have things drawn and I was like, what does that even mean? So two points is almost like think of it as in a percentage. So if your loan is $100,000 and you’re paying two points on it, you’re paying 2% on it.
And depending on how the debt is structured, this could be something you pay when you sign up for the loan. So when you close on your property and you get the loan or you’re refinancing or whatever, when you take the debt on. If this is a hard money lender, this could be something you are paying when you exit the loan. So when you pay it off, a private money lender could spread out the points that you’re paying or the life of the loan. So you’re paying your interest payments every month, plus you’re paying an additional payment that is paying off those points. So it can be paid out different ways, but typically when you’re doing financing through a bank, it’ll be paid upfront those points. And what the points do commonly is there’s some kind of other benefit you’re getting to and then in return you’re paying those points upfront.
So recently we’ve seen a lot of banks lower your interest rate if you pay points. So it’s almost like a buydown for your interest rate. So if you pay two points or three points, your interest rate has lowered and is now this. And this is where you have to go and actually do the math and long-term for the life of your loan, what is actually the better deal? Also, banks have the no closing cost loans too, and that’s kind of the opposite. You’re not paying anything upfront, but you’re going to notice your interest rate is jacked up on that one. So they make their money somehow.
So as far as going through a bank and conventional lending, I’ve never paid any points. With my hard money lender, there were points paid upfront. It was one and a half percent. I actually got a hard money line of credit and it was one and a half percent I had to pay upfront. And then there was an exit fee. So if I ended up refinancing and didn’t refinance with the hard money lender that had long-term options, I had to pay I think 1% to actually exit their program. So it was on the front and the back end that I had to pay those points.

Tony:
Even if we just break down why the points are there, and if you’re a hard money lender and this information is incorrect, please reach out to me, correct me. But I’ve met a few hard money lenders and the way that their business works oftentimes is it’s not usually just them just sitting on mountains of cash. Usually they’ve gone out and they’ve raised capital from other investors. And say they go out and they raise whatever, $50 million, they’re going to loan that money out to flippers, real estate investors, whoever at a predetermined interest rate. But the hard money lender then has to give a return back to those investors. So in order to increase the spread between what they’re lending out and what they’re getting back, they charge the points as a way to generate additional revenue.
The points are also beneficial because a lot of times it’s not like a 30-year fixed mortgage where they’re getting interest payments forever, for three decades, they might be into a hard money loan for six to 12 months. So imagine if you lend money at 10% and you get that money back in six months instead of a year where you technically didn’t get your whole 10%, you got five. So the points are there as a way to add additional profitability to these hard money lenders. So just insights on why it’s there and why you typically don’t see those same points when you’re going to Bank of America to get a 30-year fixed mortgage.

Ashley:
And something else you may see that’s on the commercial side of lending is a commitment fee, and this is something else that’s paid upfront even before you actually get to the closing table too. So if you’re doing commercial lending, you’ll get a commitment letter from the bank saying, “Yes, we are going to lend on the property and these are the terms.” This is the approximate interest rate or these are the basis points that we’ll be factoring your interest rate on depending when your closing is and the life of the loan, if there’s a balloon payment, things like that. And then also the terms of the loan such as you need to provide us with financials every year. You need to provide us with your tax return, your LLC tax return, things like that. If there is a prepayment penalty, if you pay off your loan early, you’re going to be paying extra fees for that, an extra percentage.
But there is the commitment fee. So when you actually sign the letter that, yep, I agree to these terms, I want to continue with the loan, then you’re going to have to send in a check. It can definitely range. I don’t know what the average percentage on, but the last one I did, I think it was for another investor, I was helping him with it and he did the loan for 350,000 and I think the commitment fee was around $1,000 or $1,500. That adds up for each little loan. It’s not considered a point, but it’s that commitment fee that you have to pay in order for them to even continue to underwrite your deal.
The next question is from Kelly Gudall. Short-term rental versus long-term rental. And this is where me and Tony put on [inaudible]. How do you decide between the two? I just closed on a property that I’d planned to rent out long-term. It’s in a great short-term market and people keep saying we should really consider it. I ran the numbers and they look good. What percentage over your long-term rental income doesn’t make sense to go this route? It obviously would be more involved and costly upfront. I even really liked the idea of interacting with guests. After expenses, I’m looking at about 25% more profit year one and 40 to 50% more profit year two.
So the first thing I think of is looking at, and I think that Kelly already did this, as far as looking at what are the different expenses. And that she at least acknowledges that she would like to interact with guests because I think the operations of short-term rentals, sometimes people get into it and don’t realize what it actually is. So realizing that you might actually enjoy that is definitely a huge benefit into deciding. But also look at what your time commitment is going to be. So even if you enjoy doing that kind of break down, okay, you’re going to be making 25% more profit, but how much more of your time is going to be involved managing the short-term rental versus the long-term rental? And then kind of break that down to an hourly rate even.

Tony:
It’s a loaded question because there’s so much that goes into this. And Kelly, I think a lot of it does come down to personal preference. And like Ashley said, the fact you’ve already kind of thought through do you actually want to manage it, I think is important. A couple of things that I think to consider. First is can you legally short-term rent in your market? What is the sentiment for short-term rentals in that area? I don’t know st. Augustine as a city, I’m not even sure where it’s at on the map honestly, but the first thing I would do is-

Ashley:
It’s in Florida.

Tony:
I know it’s in Florida. Where’s Florida actually? No, but I think I would check with the city, understand the ordinances like, “Hey, if I want to legally operate a short-term rental in this city, what boxes do I need to check?” There are some cities where it’s like block by block like on this block you can on this block you can’t so need this kind of zoning versus this kind of zoning, you can’t. So really understand I think the policies first to help because you might look and realize you can’t even operate it as a short-term rental, and that would make this a moot conversation. The second thing I think I would look at is what is your ultimate goal when it comes to investing in real estate? When you get into the long-term rental space, the amount of time needed to manage that property. If you do it the traditional route where you rent out your entire home, and even if you get a property manager, you can dramatically reduce the amount of time it takes managing that property.
Short-term rentals, on the other hand, require much more active management. I can tell you a lot of our properties, they turn on average every two days easily, some of them less than that. So we might have 15 people stay at our property in one month. So do you have the desire to manage people at volume like that I think is a big question. And then ultimately it’s just like, I think the profitability is a big piece. If your goal is to try and really maximize cashflow in the short-term, in most situations, you’re going to do better with short-term rentals. If your goal is to maybe just maximize long-term appreciation, the tax benefit, and just kind of let it do its thing without it taking up two months of your time, then long-term rentals will be the better play. So a lot of it I think comes down to what your unique goals are. What is it that you’re trying to get out of investing in real estate?

Ashley:
Okay. Our next question is from Jaspreet Singh. What are some pros, cons of installing digital locks on your long-term rentals? Currently, every time a tenant moves out, we have to arrange for the locks to be changed or re-keyed and then be there to hand over the keys. I’m thinking to install just digital locks next time a tenant moves out so it’s easier to just change the code. What are some cons that I might be overlooking? The reason I haven’t done this yet is because none of my properties have wifi, my long-term rentals, except for one larger building. But other than that, it’s all up to the tenant to purchase their own wifi. So when somebody moves out, they’re shutting down that wifi and then while it’s vacant or being turned over, there is no wifi there. And then when the person moves in, they set up their own wifi. So that has been the reason that I haven’t done it. But Tony, I think you have solutions to that, I’m sure.

Tony:
Yeah. But even just thinking to Jaspreet’s question, it sounds like maybe Jas your thinking of not even giving a physical key. So there would be a key because even with the digital locks, you still have an actual keyhole, but you’re saying not even give the keys to the tenants and just let them use the codes. I mean, yeah, it is definitely a possibility. Even for us in our short-term rentals, we have the keyless entry pads at every single property, but we still have a physical key as a backup because sometimes those things don’t always work. The codes don’t work and something might happen or battery’s die and you need to get in. So I think you might potentially put yourself in a situation where if the batteries die or something happens, now your tenant is reaching out to you saying, “Hey, I can’t access the property.”
But to your point now she about the wifi, depending on which model you get, a lot of these keyless entry pads work without wifi. The keypad will always work whether or not it’s connected to the internet. So even if I’m at the property and there’s no internet at all, as long as I punch in the right key code, it’s still going to open. Remotely accessing it, you still need wifi to do that, but some of these, even if you’re close enough with your phone, I’m not sure how the technology works, but even if there’s no wifi, I don’t know if it’s Bluetooth or something, you can still access locks that way. So it’s possible I’d say, but I’d probably still want to have a backup physical key somewhere, Jaspreet, just in case things go off.
But to your point, I’m thinking about for you too, what we do for our guests when they check in is we send them a video of how to use the keyless entry pad. So even for you, say that you have a turnover and you don’t want to be there to reset it for them, just send them a video that says, “Hey, we’ve already master reset the lock. Here’s how you go in and set your own code and get it all set up.” And now you’re totally hands off on even the access piece. So there’s something to think about.

Ashley:
Yeah. Because that’s what I was thinking is it looks like they’re trying to not go to the property at all to do any of this. So I guess I’ll kind of give you what we do for our thing and it’s not completely remote. But it’s so when somebody moves out, the maintenance tech goes and meets them, and we actually use landlordlocks.com. And so we’ve been purchasing their locks and every turnover now we’ve been getting them onto a master lock system, but I know they sell the type of locks at Lowe’s too, where it’s just the core insert. So you have a master control key that will take the core insert out, and then you just replace it with another one. So you’re not changing the whole door handle, you just take out the core of the deadbolt and the lock and then you’re putting in the new one.
So they’re labeled like 003 core. We’re going to put the matching deadbolt key in there and that’s that key. The person moves out, we take it out with the master control lock and we’re going to put in 008 now or whatever. And you have all the keys and you got to stay very organized, make sure you have the keys to your locks and everything, but that way you’re not changing handles every single time. And with the previous property management company, it was like they were changing the door handle every single time, and it was what a waste of money.

Tony:
Money, yeah.

Ashley:
They’re very expensive. It is a lot cheaper just to buy the cores. But also if you get to the point where you have so many units, you can kind of reuse cores here and there and have those couple extra that bounce around. You can order a core insert that’s a different color. So I think we use all, I think it’s the chrome color or whatever, nickel, the nickel. And then also we have a brass insert, which is for maintenance and vendors. So while there is a turnover, we put that one in there. So you look at the door, you know that it’s being turned over, but also then that vendor isn’t getting a copy of a key for the future tenants apartment. And we’ve also changed the locks from the previous person moving out.

Tony:
And that’s from landlordlocks.com?

Ashley:
.com, yeah.

Tony:
Interesting.

Ashley:
So then we do that and turn that over. And then for example, we do like to do a move-in inspection with every single person. But what you also could do if you’re not going to be able to meet the person, maybe you already did the move in inspection, but you’re not giving them the keys or something. You can put one of those handle lockboxes on there that have a key code and you can put the set of keys in there and then just tell them what the code is for that lockbox. They can get the keys out themselves whenever they get there. Then you can take the lockbox off at any time and you can even attach it to the deck railing or something. And you can even have an extra set of keys in there in case they lock themselves out or something like that too.

Tony:
Yeah, I love the lockbox idea. I feel like every property should have a lockbox somewhere because you never know what’s going to happen.

Ashley:
Yeah. Yeah. Okay. Our last question today is from Julie Glazer. Is there a way to find out what a property sold for other than asking a realtor? Zillow and the assessor’s site doesn’t seem to be accurate. For example, I purchased a property in September and it’s not updated on Zillow for the price I paid. The assessor’s site had it appraised at 74,000, which is way over what it was actually worth given its condition. I called our recorder of deeds and they do have an online record search, but it’s $20 a day or $250 a month.
First, let’s talk about an assessor. When you go to the assessor’s website or you look on your tax bill and it says, “This property is assessed at,” this is just this person almost like an appraiser giving their opinion on what the property value is, which I’ve always seen, is less than what they actually list the market value of the property. So the sole reason of this is to calculate your property taxes. I’ve never seen any other use of your assessed homes value for other than property taxes. This is not something you want to look at to actually value a property. This is something you do want to look at when you are purchasing a property though, to see like, okay, they are saying the market value of the home is 100,000. They’re saying the assessed value is 72,000, but I just bought this property for $300,000.
So if the town decides to reassess in two years, my property taxes are actually going to go up because of that new purchase price, and it will probably bring up the market value, but I doubt the assessed value will go up to that exact 300,000. You also want to look at that if that value is higher than what you actually paid for it or what you actually think the appraised value of the property is or what it could sell for. Because you want to go to your assessor and go to what they have as grievance day to actually get your property taxes reduced and lowered. So going to the assessor site to find out what a property sold for, you’re not really going to find much information by asking what the assessed value is or what they have determined as the market value. And then as far as Zillow, I think a lot of us have looked and seen that Zillow is not accurate as far as their estimate or even their transaction history that they show. I bought a house for 54,000 and it said that the house sold for 540,000.
So the first place I would go that it’s free is to Google your county with GIS mapping system. So for example, where I live Erie County GIS of mapping system. So it pulls up a map and it shows all the little towns and you can put in your address, you can put in an owner’s name. You can kind of just zoom in and find a house, find a property, but it’ll show you the parcel lines and we’ll outline the parcels and usually tell you the street or the house number in that parcel. You go ahead and click on it and the information that you usually see is who the owner is, their mailing address, the property taxes. And then you may see the sales transaction history, which would give you your most recent sales price. It’s not always listed on there, but that’s one way to find it. And then also BiggerPockets has some software that you can use that we are so excited to be partnering with Invelo.

Tony:
Yeah. Invelo is a software data aggregator. So basically those records, Julie, you were talking about pulling for 20 bucks a day or $250 per month, Invelo has access to a lot of that same information. So you can use something like Invelo, PropStream is another option. But basically you go to these websites and you type in the address. And oftentimes it’ll show you the transaction history based on actual county records, not necessarily what Zillow thinks happened based on the MLS listings. It’s based on the actual county records typically. And that will show you what that property actually sold for. So I do a lot of research on websites like Invelo and PropStream, and I’ve been able to find pretty much all the information that you would need on someone. It’s kind of scary how much information you can find there.

Ashley:
In Buffalo, New York too, they also have a website called Buffalo Oars, O-A-R-S. And so other cities may have something similar where it also has data compiled from clerk records. And it also actually does a really good job of showing comparables too of houses that have sold and it’s all free to use. And if the property has any pictures that maybe an assessor took when they were appraising the property, exterior views, those I’ve seen to be found on there. They’re oftentimes better than doing the Google street view and kind of walking the streets with the little orange yellow guy.

Tony:
I got to check to see if we have something like that out here locally. One thing I do want to add though, and we haven’t seen this in every market that we invest in, but in some of our markets here in California, in addition, so you said earlier like, “Hey, if I buy this property for 500,000, last time it was assessed was 300, next time that they assess it’s going to go up.” They do that immediately here, at least in the part of California where I live, where as soon as a property changes hands, they’re looking for what that new purchase price was. They use that to determine their new assessed value, and they send you what’s called a supplemental tax bill. So I don’t know how they come up with this number. I’ve asked and haven’t really gotten a straight answer, but basically I think you’re paying the difference on what it was assessed for before, what it’s assessed for now that you own it and you have a year to pay that supplemental tax bill.
So when we first started investing out here in California, we kept getting these bills. We weren’t accounting for those initially, and they were big bills. I don’t know, $2,000 something that you had to pay, which can eat into your cashflow. So just something to be mindful of if you’re buying in a new city or a new county, also ask them like, “Hey, are there any fees or taxes that I would have to pay based on the property just changing hands?” And you might be surprised what they come back with.

Ashley:
Thank you guys so much for listening to this week’s Rookie Reply. I’m Ashley at Wealth from Rentals, and he’s Tony at Tony J. Robinson, and we will be back on Wednesday with the guest. Thank you so much for listening, and we’ll see you guys next time.