Should I Move (and Quit My Job!) to Invest in Real Estate?

Ashley (00:00):
This is Real Estate Rookie episode 392. Quit Your Job or Move to Invest. Tenant Subleasing without permission. Is Vinyl Plank installed above or under the carpet? My name is Ashley Kehr and I’m here with Tony j Robinson

Tony (00:17):
And welcome to the Real Estate Rookie Podcast. For every week, three times a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today we got a lot of good real estate rookie questions for you. We’re going to talk about a physical altercation over a sublet property that led to maybe a potential eviction. We’re going to talk about inheriting tenants. How do you handle that? Do you need to sign a new lease? Do you inherit the existing lease? What do you do? We’ll talk about how to find good tenants, maybe if the traditional methods aren’t working. But first we’re going to get into a question about moving to support your real estate investing portfolio. Alright, so our first question up today comes from an investor in San Francisco. This question says, Hey there, I need your thoughts.

Tony (00:59):
Here’s my situation. I’m an RN in the Bay Area, RN is registered nurse. I’m an RN in the Bay Area and I’ve earned more than $180,000 last year without any overtime. It’s a good W2 drop, but it’s really hard to buy a house here and I don’t want to sacrifice my sanity by getting a second job. So I can afford to buy a house here in California. I’m thinking of moving to upstate New York where I already have a rental property and living in that area. I can use an FHA loan or conventional 5% to buy another rental property. I’m single and it’s easier for me to relocate. What’s holding me back here is that my W2 job pays so well. So if you are in my shoes, are you willing to let go of your good paying job and move to a place where I can scale my real estate portfolio? I know some would say it depends on my priorities and long-term plans, but I just want to hear your thoughts. Thanks so much. Tricky situation. Ash, what are your thoughts hearing that? Are you leaving a almost $200,000 a year? W2 job?

Ashley (01:56):
I mean I’ve never lived in San Francisco, but I would say yeah, 100% upstate New York over San Francisco. I’ve only heard things, I dunno, I’ve never been there, but

Ashley (02:06):
Okay, all you have to do is run the numbers on it. Okay, so you take your $180,000 salary, what was your cost of living in San Francisco? Okay, and what’s kind of that ratio there? And then what would you make living in upstate New York and what would your cost of living be and what does that ratio look like? So what’s the percentage difference? And maybe even though you’re making less money in New York, your living expenses will be so much lower, especially with doing an FHA, doing the house hack that you’re actually going to be able to save more of that money. So just because it’s just like looking at your revenue. If your revenue is X amount, Tony could have revenue of X amount, but if my expenses are more, I’m going to have less profit than Tony would have. Or he could be making less and still have less expenses, but he’s making more profit.

Ashley (03:02):
There’s just that bigger gap. So that’s what I would do is run the numbers as to what is actually going to, what’s the money in your pocket at the end of the day? And also California taxes and New York taxes. Make sure you’re looking at those as far as New York has state income tax, I’m not sure about California taxes, but also look at are there any tax advantages where your taxes be worse? So really factor in all of those implications and see at the end of the day, what’s the dollar amount you are actually left with in your pocket? And it could actually be more, even though you’re making less.

Tony (03:37):
The taxes piece I think is a really important thing to call out. When I was working one of my W2 jobs, I had a friend who relocated from Kansas, he got a promotion to come work in California long without promotion. He got a raise and even though he got a raise, his net take home at the end of the day was still less because of the difference in the taxes between where he was in Kansas and him coming to California. So definitely something to consider. I think the other piece here to this as well is a really solid understanding of what your goals are and what your personal objectives and timeline look like. Because if your goal is maybe, hey, I actually really do like being a nurse and I don’t plan on leaving this profession anytime soon, I’m fine doing this until I retire, then maybe the bigger focus for you is buying properties that appreciate well over time.

Tony (04:29):
So maybe it’s not moving to upstate New York and maybe it’s buying a house hack in the Bay area and that where you can still be out. I dunno if you have friends or family there, but you can still be in your hometown but still continue to build your portfolio as well. And it’s like every year just moving to another house hack. So I think a lot of it comes down to obviously the math equation, Nash, you talked about what do the numbers actually say, but you’ve got to factor in what is the actual reason that you’re investing in real estate? Is it because you want as much cashflow as possible and you’re trying to quit your job today? Is it that you want maybe some sort of tax benefits to offset this $180,000 W2 income? Is it the long-term appreciation? What is it that’s driving you? And let that influence the decision as well.

Ashley (05:12):
Yeah, and I guess I’d be interested along those lines as to what the strategy would be if you didn’t move to New York. Would that instead be buying another investment property where you’re putting 20% down so it’s taking you longer to actually purchase property as far as the scaling piece and then you’re staying, and I know it was mentioned that would have to get a second job to be able to afford to even buy a house there in California. So it also goes along with a little bit of your lifestyle. Would you rather keep renting? Do you like renting? You can change to a new apartment every couple of years. Would you prefer to own your home and have that equity in the property? Get that appreciation as it build in creates that equity for you. So all great points, Tony. Yeah,

Tony (05:59):
So sorry investor from San Francisco. I know you were looking for a black or white yes or no, but there’s a lot of things to consider here, so hopefully we can use that to at least point you in the right direction. Alright, so our next question of today comes from Juan Alvarez. So Juan says, our tenant reached out confessing to subleasing a room, which is a clear violation of our lease agreement. She also mentioned being in a physical altercation, I’m assuming with this person who she was subleasing to due to non-payment and sought advice from the authorities who suggested contacting us to evict the individuals that she subleased to as our lease involves both our tenant and her boyfriend in Texas. How should we proceed? Ash? I’m super excited to get into this one. You’re right, we got to get Juan on the podcast, but we’re going to take a quick break, hear a word from our show sponsors and then we’ll get into Juan’s subleasing physical altercation, non-paying tenant issue. Alright, we’re back and we just heard a question from Juan who said that he basically has a tenant who subleased a room in his rental property without his permission and now this tenant won’t leave, the sublease tenant won’t leave. So Ash, what do you feel? What would you do if this happened in one of your rentals?

Ashley (07:07):
First one, you need to come on the episode and the podcast and we need to do a horror story therapy session with you, so please contact me. But this is crazy. I’d never even thought of this happening as to what would happen and would it become my responsibility as to getting this person out when you sublease. So all of our leases we say that you can’t sublease anyways. So first I would go back to your lease agreement and he said there it says a clear violation of the agreement. So that would be the starting point. I would go to an attorney and say, this is the lease agreement I had with this person. And what I would probably actually do is because this person got into a physical altercation with them, I’m assuming that it’s not a good situation for anybody that’s living there and I would probably start the process of doing an eviction for lease violation or give them a notice to cure the lease violation by ending the subleasing, but then obviously the person’s not moving out.

Ashley (08:15):
And then that’s where I would have my attorney take it forward with doing an actual eviction of the current tenants that are living there along with and any others, or there’s some way they phrase it, any additional occupants. So you’re naming the people that are actually on the lease and any other additional occupants for the eviction. And I would actually proceed probably with an eviction for all of them. I would hope that if the people that you did actually lease to have done a great job of paying rent and they’re actually not that bad that they will go through some kind of attorney or process themselves to get the person out so that they’re not evicted. But I would do something to kind of protect yourself by giving them the notice of saying they violated the lease and starting some kind of process almost to scare them as to you’re going to be evicted because you violated the lease.

Ashley (09:08):
If you don’t cure the lease and the cure is getting the person out and maybe they will be able to come to some kind of solution to get the person they subleased out to that. But as far as legally how that works as to, I would think that I as the owner of the property could evict that person even though I don’t have a lease agreement with them. But I would think that this person that did the sublease, they would actually be the one that should hire the attorney and pay for that person to be evicted. But I’ve never dealt with this or seen this, but that really could be a quite common issue actually, when you sublease,

Tony (09:47):
I feel like we need a real estate attorney or something to kind of walk us through this. And I’m curious on what state you’re in because obviously it’ll vary a little bit from state to state. So we sublease on our, I’m sorry, our arbitrage units. We have three of them in Dallas and we had an issue one day where a guest was supposed to check out, they didn’t check out. We literally had to call the cops to knock on the door and say, Hey, you guys got to go. And the cops didn’t give us any pushback even though we were subleasing. We said, Hey, this is our unit, this is arbitrage whatever. We walked ’em through and they showed up, they’re like, Hey, as long as there’s an adult present, that’s your representation. We’ll escort them out of the unit and they literally showed up knocking the door and the people left. So I’m curious where you’re at and what those rules might be. But Ash, I agree with you. I might just call and say, Hey, I have some, because the sublease should be like null and void, right? At least I would think if you signed a sublease when your lease explicitly didn’t allow for subleasing, that sublease shouldn’t even be valid. But

Ashley (10:45):
Then are you also going to say, I’m the person that did the sublease. Am I going to get in trouble because I actually wrote a fake lease to someone and then the person that’s not paying you rent can actually come and sue you now because they got kicked out by the cops and you actually did a fake lease with them and you’re not the owner of the property and you had no right per your original lease agreement.

Tony (11:10):
Yeah, I feel like if I’m Juan, I dunno, maybe just call the cops and see if they’ll escort them out without having to go through the actual eviction process. But again, I’m not an attorney so I think you need to talk to an attorney, Juan to figure out what the best kind of course of action here is for sure. Alright, so our next question here comes from Thomas O’Donnell and Thomas is actually a repeat asker. So shout out to you, Thomas, for staying active in the rookie community. But Thomas says, say you’re doing a fix and flip and you partner with someone who brings a down payment and covers the rehab costs and say that you plan to pay them back with interest after it’s finished. The question is, who is responsible for paying the loan on the property while it’s being rehabbed? Is that something you negotiate?

Tony (11:50):
Is it something that the managing partner who found the deal should be paying for will love some input on how things like this are handled? Thanks. So Thomas, I think first Ash, and I say this all the time, there is no right or wrong way to structure a partnership. If you have a partner who’s agreeing to cover the down payment and the rehab costs, you could do it either way. You could say, Hey partner, since you brought the down payment and the rehab, I’ll cover the monthly interest payments or whatever it is on the hard money loan while we’re going through this project. Or you could say, Hey partner, you’re going to cover everything, both the initial capital and the ongoing expenses, the holding costs, and then you’ll get paid back with interest at the end. So I don’t think there is a right or wrong way to lay that out. Ash, have you ever partnered with someone on a flip in that way?

Ashley (12:43):
Yeah, and the first thing I would say is before you even partnered with them, this has been something you should have added into your numbers. So I am right now just doing a flip with it, James Dard, we’re doing a joint venture agreement and there’s three of us in this deal and he sends us all of the numbers and at the bottom line it shows total cash needed for this deal and that includes the down payment, that includes the holding costs such as the utilities, the insurance, the interest payment for the hard money loan. So besides just the interest paying that while you’re doing the rehab, you got to think of those other holding costs, the insurance on the property, the utilities, property taxes too. So he has that all baked into his numbers as this is cash we’ll need throughout the project to pay that.

Ashley (13:32):
And then he has the closing costs. Once we sell the flip, do we need anything there? Everything. And then the bottom line is this is what the hard money loan is going to cover and this is what we need to cover out of pocket and it might be part of the rehab part of the purchase, things like that. And every dollar that needs to be spent is accounted for in there. So everybody knows upfront what is needed and usually does it a little extra as to adds a little contingency on their ads an extra month and better case scenario, we finish early and we don’t even spend that much money, but everybody wires in their percentage of that capital that they’re bringing to the table. So you know that you’re giving your money upfront. The only reason that any investor, including James who brought the deal or me who’s just investing capital would need to put money into the deal, is if all of a sudden there’s a big changeover that’s over our contingency where, okay, you know what?

Ashley (14:35):
Things have changed in the market. And actually the last property James and I bought, we had to do this where we needed to actually change the carport into a garage that wasn’t part of our initial numbers and that was where we actually had to infuse more money into the deal after the fact. But that’s stated in the joint venture agreement that if the operator, whoever’s operating the deal decides that something like this needs to be done, that’s where there’ll be a capital call to infuse more money into the deal. So that is all things you need to be clear about, but your partner can say, no, this is all I’m giving into the deal. So if there is a change order or reason, that falls on you as an operator to actually put that money into the deal. So it’s however you structure it, just make sure you have it written in your operating agreements, your joint venture, or however you’re structuring it that it’s all clearly laid out.

Tony (15:28):
Yeah, so well put Ash, and I couldn’t agree with you more. I think the only other thing I’d add to that, Thomas, is for me, whenever I’m doing a flip, I prefer to not bring on equity partners if it’s a flip and I really just like to raise it as private debt. So for me, say that I have a flip and maybe the total project cost is for round number sake, let’s just say a hundred thousand dollars, I’m buying it for maybe 50, I need another 50 for the rehab, whatever. So I’m all in for a hundred thousand. I’ll just raise the whole 100 and then pay them back with interest at the end of the flip. That way I’m not making payments throughout the life of the rehab and they just get one big lump sum at the end of the flip with their principal and their recruited interest.

Tony (16:12):
Now say that you maybe can’t raise the entire money you need for the project. Thomas, I’ve met a lot of folks who will use private money to handle the 80% of the project costs. I’m sorry, they’ll use hard money to handle 80% of the project costs and they’re bringing a private money lender to handle that last 20%. Some hard money learners are okay with it, some aren’t. You got to talk to ’em, make sure that they’re aware of where that other 20% is coming from. But in that scenario it’s the same thing. You’re raising all the capital that you need and then you’re just paying everyone back at the end once the rehab project is completed. So that’s my preferred method for flips just to give a fixed return and then kind of let myself take the upside. Now obviously the downside to that is that you got all the downside yourself as well.

Tony (16:51):
So if things don’t go according to plan, you got to cut a check, but there’s the upside there as well. Alright, jumping into our next question here. This one comes from upcoming landlord. This person says, when inheriting tenants, do you make them sign a new lease or if everything checks out with the original lease that they sign, is there a way to somehow transfer it to me if there’s an episode I can listen to or somebody already out there to help me learn about how to make this process smoother for us and the current tenants, please point me in the right direction. So Ash, what is a resource that you’ve seen that kind of helps a lot of our rookie investors answer questions just like

Ashley (17:26):
This? Not only seen Tony but created real estate bootcamp for landlords. So it’s on biggerpockets.com/bootcamps and it’s self-paced course you can go through that takes you step by step as to how to set up your own little self-managing landlord systems processes. And I actually, BiggerPockets is partnered with Rent Ready, which is a property management software. So if you are a pro member, you get a big discount on using rent ready. So I used a lot of their software to actually show as examples. So if you use Rent ready or want to sign up for them, the Landlord Bootcamp goes through the exact process of how to implement and how to use their software along with what it takes to actually be a new landlord. So as far as other resources, BiggerPockets also has all of the lease agreements that you need plus any accompanying addendum or amendment that you could think of for each individual state too.

Ashley (18:30):
So if you’re a pro member, you can get the copies of that too. So inheriting tenants, the number one thing that you need for inheriting tenants is an estoppel agreement. Okay? Estoppel agreement is where you’re going to give this to the tenants before you actually close on the property to get information about the tenants, the landlord and the property. So when you’re purchasing the property, the landlord is giving you information. The estoppel agreement is basically to verify what the landlord is saying is correct. So things that I like to put on the lease agreement is whose name is on the lease, who are the occupants, if there’s kids on there, husband, wife, roommates, whatever. Then I ask, what is your monthly rent that you pay? When was the last time you paid rent? Do you have any back rent that’s due? Do you own the appliances or does the landlord own the appliances?

Ashley (19:24):
What utilities do you pay for? What does the landlord pay for? Are there any repairs that you know of in the property that need to be done? That’s always a really helpful one. So there’s a bunch of questions you can go through and if you just Google stoppel agreement, it’s available in the landlord bootcamp. But if you just Google, there’s tons of different examples out there and just pull questions that you like and create your own and then you just have to ask the seller permission to contact the tenants to give them the estoppel agreement. It’s pretty industry standard. I would say that it shouldn’t be a big deal to actually send this out to the tenants, but they also give you their contact information too so you have it all, you can start setting up their tenant profiles, get their email, stuff like that so that you have all of your systems and processes ready to go on the day that you close. So that is the first thing that you need to do. And then as far as their lease agreements,

Tony (20:22):
Lemme just ask one question before we move off of that first piece because this is what always pops in my mind. What if there’s a disagreement between what the tenant says on the estoppel and what the landlord says and the actual or what the landlord has communicated to you in terms of what they thought the lease agreement was? How do you handle that discrepancy?

Ashley (20:41):
So if there is a lease agreement, I go by what the lease agreement says and if there’s a discrepancy in, say the landlord is saying they owe rent and then they’re saying they don’t owe any rent or whatever, vice versa, because the landlord could definitely be trying to sell the property and say, oh, everybody pays everybody’s great. Get these tenants away from me, take this property in them. And that’s where you can ask for bank statements or if they use a property management company, you can ask for verification of the rents actually being paid. Where that kind of gets hard is when it’s cash dealing. So you ask the tenant if they actually have receipts or anything like that. If they did pay in cash, what I would do, if there is a discrepancy and there is no record, there’s no way to verify it.

Ashley (21:28):
The tenant paid in cash, they don’t get receipts, anything like that. If there is some kind of discrepancy and it’s not like thousands of dollars, I would side on the side of the tenant and say, okay, the landlord’s saying you owe $300, you’re saying you don’t. I am going to just set you at zero and we’re going to start fresh. And I would go ahead and do that to build our rapport with the tenant and kind of see how it goes. And you know what, maybe it will start out great, maybe I’ll end up evicting them in three months, but either way I’m stuck with them day one and I’m going to try and get on the right foot instead of chasing them for $300 and not have any proof that they actually owe $300. But what you also can do is have your attorney, you’re starting fresh with that person too.

Ashley (22:19):
So make sure, and this happened to me before that when I did a closing on a property, the tenants owed the landlord money and he took it out of their security deposits and his attorney did it on the closing statement. I did not know any better that this was happening. And I was a young investor, I was just starting out. And so their security deposits diminished to the one had I think $65 locked when I took over as far as her security deposit. And then it’s like if she trashes the place, who cares? Because yeah, I have to do a judgment and all this stuff too. So make sure if they owe money, they owe back rent, that rent is owed to the other landlord and you’re not taking on that debt by having to recollect their security deposit or on your closing statement, giving the seller a $300 credit and then you being responsible for collecting that.

Ashley (23:20):
So just watch out for that too. But I wanted to touch on the actual question as far as the original lease, if they signed it, because there’s, if everything checks out, is there a way to transfer it to you so you can change a lease agreement? If both parties mutually agree, so you can ask them to sign a new lease agreement at any time. If they agree and they want to sign it, that’s fine, even if the old one didn’t expire. But if they refuse to, you have to keep the other one. But since the title has transferred to you, the property has transferred to you, that’s now a lease with you. But I do like to send out new lease agreements. It has to be the same terms or they have to agree to the new terms of the lease agreement. But usually I try to at least get them to sign where it’s my entity name, but if not, I wait until their renewal and then I give them a whole new lease agreement with my rules and my stipulations and most likely a rent increase.

Tony (24:21):
Alright guys, our next question coming up is about how to market your rental to make it stand out to attract those good clients if maybe some of the more tried and true methods aren’t working out for you. But first we’re going to take a quick word to hear from our show sponsors. Alright guys, we are back and coming up to our last couple of questions here. So this one is about marketing your rental. So this question says, where are y’all advertising rentals with lots of success and visibility? Marketplace? And I’m assuming they’re referring to Facebook marketplace doesn’t work well in my market as it’s always someone with lots of baggage that I can’t get approved and we are quite flexible or is working with the pm a good option? Good question to ask how they market as well.

Ashley (25:01):
So I used to use Facebook marketplace and you just get everybody that’s clicking, I’m interested and then they never respond or when is this available? Never respond. So I use AppFolio as my property management software and they actually have websites they’re affiliated with that will actually send out your listing. So signing up for basically any type of property management software has this feature where they will push your listing. So the best thing is you create your listing once and then they send it out to the websites and it’s all reformatted for each of the different websites like apartment.com and things like that, or rents.com, whatever they may be, Zillow, things like that. So I would definitely try using a property management software to push out your listings, but I think Zillow is a great one to look at. Lately we do a lot of business just off of our website of setting up our CEO so that if somebody Googles apartments in this town that we’re trying to be in one of the top websites that you actually go to and you can view our listing on there, submit your application right through there, create a portal profile, all this stuff.

Ashley (26:18):
So that’s also included with a lot of property management software too, is making a standard template where you just plug and play different information about your properties into the templates. Fairly reasonable. But yeah, Facebook marketplace is hard because of all of the people who aren’t really interested, all of the scams, things like that. But if that is the route that you end up having to go is, I would recommend doing a pre-leasing form where you’re verifying that they’re qualified for the apartment or that it suits their needs. So this isn’t housing discrimination, so you’re making sure you’re asking the right questions and you’re not violating any housing code, but you’re going to ask things like, do you have a pet? And if they say, yes, I have a pit bull, but your listing specifically states no pets, then obviously this isn’t a good fit for them. You shouldn’t waste any more time. And so you send them an automated response email, that template you’ve set up that just says, I’m sorry, but we don’t allow pets. Thank you for your interest in the property, blah, blah, blah. But if somebody fills it out and they do meet it, then that’s where you go ahead and take the next step. So it kind of helps filter out people instead of wasting your time doing all these showings, things like that on the property

Tony (27:42):
Too. Ash, what are you using to build out your own website? Is it through AppFolio or is it another software that you’re using?

Ashley (27:49):
Yeah, through AppFolio. They give you a template. There’s upgrade features where I worked with their design team to actually design the template and I want to say it was maybe $2,500 to actually create the website, how I wanted it and different features, things like that. And then I think it’s like a hundred dollars a month to actually maintain it. There’s definitely way cheaper options out there. I mean, $2,500 and you just have one or two properties probably doesn’t make sense, but there’s definitely a lot of cheaper options out there to build a website or for other property management softwares to use. Buildium has one that’s pretty inexpensive too to use.

Tony (28:31):
Yeah, super cool. I love that it’s kind of built in to the same platform you’re using to actually manage your properties as well. So we’re doing that with our short term also. And it’s good. It’s so nice to have that integration between your booking website or your marketing website and your back of house management,

Ashley (28:47):
Like doing one listing and then push to website, push to other sources or I don’t even remember what it’s called, but yeah, and then it goes out to the other listings.

Tony (28:55):
Well Ashley, you ready for the last question of the day?

Ashley (28:57):
Yes. Yes I

Tony (28:58):
Am. I think this might be the most important question that we answer out of maybe any episode we’ve ever done, but here’s a question, right? This came from another investing community group, but I still think it’s a good one for the Ricky podcast. It says, how bad would it be to put vinyl flooring over the carpet? Seems like it might provide some extra insulation. It’s a very padded carpet. So Ash, have you ever done that before? You ever just slap the vinyl down right over the carpet?

Ashley (29:26):
No, but I mean you saying it’s like the extra insulation, you do put a padding down before you put vinyl plank down, so maybe you are actually saving money there if it’s a really thin carpet. But I just texted Daryl because he actually did vinyl plank in one of our units the other day and I just texted him and I said, can you put vinyl plank over carpet? Could you actually do it if you wanted? But he didn’t respond in time, so I didn’t get his answer, but I was curious as to what he would say to that.

Tony (29:57):
I’m sure determined person probably could, right? You got enough determination, you could probably figure it out.

Ashley (30:02):
Thank you guys so much for listening. My name’s Ashley and he is Tony. If you haven’t already, make sure you’ve joined us in the Realestate Ricky Facebook group. You can also submit your own question and you can go to biggerpockets.com/reply if you want to be featured on this episode. And if you have a contracting question such as vinyl plank over carpet or something similar, Tony and I will be happy to text our contractors to find out the correct answer in that situation. Thank you guys so much for listening and we’ll talk to you guys soon.