Real Estate

A Win for Tenants and Landlords


What if you could own rental properties without the responsibility of landlording? Not only that, what if you were paid a hefty, non-refundable deposit for your home, minimizing your risk? Would you start investing under these circumstances?

If you like the sound of that, you’ll love the rent-to-own strategy, or as Today’s guest Jessica likes to call her framework, the BRRTOR (Buy, Rehab, Rent-to-Own, Repeat). Most landlords won’t offer rent-to-own to their tenants, not because they don’t want to, but because they don’t know it’s a possibility. This type of seller financing is what Jessica’s entire portfolio is built off of, and it has some major benefits for not only the landlord but the tenant.

Jessica also gives some great advice in our mindset segment, specifically relaying that a big part of real estate is making mistakes. Jessica has had some great deals in her real estate investing career, but not every one of them has turned out to be a superstar. The big takeaway for investors should be to start, make mistakes, learn from them, and do better!

Ashley:
This is Real Estate Rookie episode 115.

Jessica:
We’ve had such high demand after we started marketing this. We had so many people interested in this that we actually are trying to acquire properties a little bit more quickly because we have so many people that want to do this.

Ashley:
I’m Ashley and I am here with Tony, your host today, of the BiggerPockets Real Estate Rookie podcast. Tony, what is new? I feel like it’s been a while since we recorded.

Tony:
I know, right? It’s always like, kind of getting back onto the bike after being off for a while. But what’s new? We had an LOI out on a nine unit hotel here in SoCal in a little lake community. It was rejected.

Ashley:
Was it even in a counter or just rejected?

Tony:
No, they countered, but they were just asking for way too much. It was kind of a seller finance deal. They wanted a certain number down for down payment. It just didn’t work at that number. We told them what our max was. So the deal kind of fell apart. But as a consolation prize, we just got three more houses under contract in Joshua Tree from the same builder that we bought a lot of our other houses from. So we’re working on getting that closed, hopefully in the next eight to 10 ish weeks.

Ashley:
I thought there was this conversation where Sarah said that you promised her you were going to buy houses or something.

Tony:
I was in place for maybe four weeks, and then it’s just like, things just kept kind of going. Now we’ve got four houses under contract in Joshua Tree. Three of them will be short-term rentals, one will be a flip. And then we’ve got four cabins under contract. We’re just waiting on the bills to be done with those as well. So it’s going to be a busy next six months for us as all these properties start to get finished up.

Ashley:
But Tony that’s so exciting. Congratulations. How long does it take you to close on a property in California?

Tony:
I mean, if you’re lending, if you’re doing traditional lending, 30 days. If you’re paying cash, you could do it in 10, maybe less.

Ashley:
Because you don’t have to have attorneys. Right? You do just title.

Tony:
Yeah, title and escrow. The only thing that kind of takes a long time right now is getting your preliminary title report to come back. I guess just they’re kind of backed up, but once that’s done, you can close pretty fast.

Ashley:
Well, congratulations. That’s really cool.

Tony:
Thank you.

Ashley:
I still have three properties under contract and just slow moving. My one, it’s a mobile home park and it’s a off market deal that someone brought to me. And the seller and his wife, I just love them. They’re so nice. And I’ll go over there and be there for five hours, but they are having a hard time finding an attorney that they want to use and just all these little things. They’re just the sweetest though, and they constantly are calling me and texting me. “Don’t worry, we’re still selling it to you, blah, blah, blah.” And just so I’m just waiting on that. I mean, I’m in no rush. I haven’t put any money down on the table yet or anything.
And then I got my self storage facility under contract and I just got the environmental phase one study back. So I need to go over that today when we’re done recording and see what that looks like, but hopefully pushing forward on that and that’s going to be seller financing. So I can hopefully close on that pretty quickly.
Then my husband’s farm has been under contract a year and a half-

Tony:
For like a year, right?

Ashley:
Yeah, a year and a half, trying to do a subject to deal on that. So he’s trying to acquire a neighboring farm. So that’s been a process, but he has at least gotten to an agreement where he’s at least working the fields this year on the property while we’re waiting to close. So that’s good that he’s at least being able to take advantage of the property.

Tony:
New York is only the only state I know where it takes two years to close on a property.

Ashley:
But I also feel like all things come up for me too, which takes so much longer. Like even with the self storage facility, the environmental study, we had a set date it was going to be done. Well, the lady went to go do it and she couldn’t get into one of the buildings. So then we had to extend it because it wasn’t our fault that she couldn’t get in. It was kind of the seller’s responsibility to let her in. And so then we had to extend that out. And so just all these little things, but I feel like it’s going to be like you, you’re going to close all of them at once. And it’s just going to be a madhouse and chaos.

Tony:
All at once and it’s super… Been there, done that. Been there, done that.

Ashley:
But today, if you guys have shiny object syndrome, probably don’t listen to this episode because we learned about rent-to-own and how to do this as a real estate investor. And Jessica does a great job of just laying it out and she actually calls it a BRRTORR as to what they’re doing. So buy, rehab, rent, and then do buy to own on it.

Tony:
It’s crazy because doing a rent-to-own as a landlord, it’s different than seller financing. It’s different than subject to. They’re all very similar, but there’s nuances that make the rent-to-own kind of really appealing as the property owner, because you’re kind of combining the BRR strategy with flipping, with, I don’t know, kind of house hacking even almost. It’s crazy because you’re putting together all these different strategies, but they’ve found a way to make it really, really, both financially impactful and positive for themselves, but they’re also having a really positive impact on the folks that they’re working with. And I think that’s what Jessica, our guest today, was really most excited and most proud of.

Ashley:
Let’s bring Jessica onto the show. Jessica, welcome to the show. Thank you so much for joining us. Can you start off just telling us a little bit about yourself and how you got started in real estate?

Jessica:
Thank you for having me. So I am actually a full-time dental hygienist as well. So real estate just started when we were living in Boston, back before my husband and I were married. We’ve been married about 20 years now. So we owned a property up there in Boston, a small condo there, and that was our first real intro to real estate because we relocated down to Northern Virginia and we decided, “Well, why don’t we just rent that property and see how that goes?” So that was kind of our first step into real estate.

Ashley:
So what made you even want to decide to get started in real estate and taking that first step? Was it you, was it your husband and how did you guys both agree that you wanted to do that?

Jessica:
So I think it just kind of fell that way because when we moved, we just decided, “Let’s rent that place.” And as the years go by, like I said, we’ve been married 20 years now. So a couple years go by, we said, “Eh, let’s maybe buy another property around here,” things like that.
So we did save and we did traditional financing and we bought a couple more properties, but I think really if you want to ask what jump started this big push for us to do more real estate, it was COVID. When COVID happened, I’m sure a lot of people like us were forced to kind of rethink things. Specifically for me, as a hygienist, I was out of work for three months. So we were kind of like, “What are we going to do?” And it really made us think, “Okay, what can we do more to secure our future a little bit more?” And real estate was something that was working for us. We had positive cashflow coming from our rental properties. And so that was kind of the push that really pushed us to say, “Let’s do more for real estate.”

Tony:
What you’re saying, Jessica, about the impact that COVID had on you is something that we’ve heard from a lot of other people. Right? I think that there’s always kind of this fear associated with getting into real estate because it’s risky and you could lose your money and this and this and that. But I think what COVID showed a lot of people is that not having some kind of supplemental income outside of your W-2 job, that’s what’s risky, right? Having all of your financial security coming from your paycheck is risky because who knows what could happen that could impact your paycheck?
Now, hopefully it’s not always be something as severe or as crazy as COVID, but it could be a downturn in the economy. It could be that the company you work for gets bought by somebody else. It could be that your position becomes redundant, right? Or there’s technology that comes in and makes your job no longer viable. So there’s so many different reasons why you might end up losing your W-2 income. So having that passive income, that side hustle, that business, that real estate portfolio as a safety cushion is great. I love that.

Jessica:
And I think even to add on to that is not even just your W-2 income, but just having one income stream, no matter what that is. I learned that from COVID because I always thought my husband has the dairy farm and I had a W-2, and I want to do real estate so that if something happened with the farm and milk prices dropped and we had to sell our cows, things like that, that real estate was our safety net. And actually when COVID happened, it was a complete 180. It was like, “Oh my gosh, our tenants might not pay rent. And the farm is staying exactly the same. Nothing has changed with the farm.” And the farm is actually our safety net now, that the farm would pay our mortgages on our rental properties. So that was a big growth for me is to have those multiple income streams coming in, definitely.

Ashley:
So Jessica, before we dive more into your real estate journey, can you give everyone just a little recap, overview of what your portfolio looks like today?

Jessica:
Sure. Yeah. So, like I said before, we had a property in Boston, and I’ll probably touch on that a little bit because we sold that to acquire more private properties. So we currently have three properties in our Northern Virginia area and we have three properties in Pennsylvania and a fourth one in the works.

Ashley:
That’s awesome. Congratulations.

Jessica:
Thank you.

Ashley:
So are these buy and hold long-term rentals, short-term rentals? What do they look like, as far as that?

Jessica:
So they’re buy and holds right now, but with kind of the new model that we really are trying to take our business, it’s going to be going more that rent-to-own strategy. So it is buy and hold for now with kind of a exit a strategy of our tenant buyers cashing out at the end.

Ashley:
Let’s talk about that. Because Tony, I don’t think we’ve had a guest that has come on yet to talk about rent-to-own. So if you want to maybe go into why you guys are making that pivot in your business and then explain what is rent-to-own.

Jessica:
Yep. So like I said, when COVID happened, we were kind of reevaluating everything that we wanted to do. We started listening to more podcasts. We started doing mastermind classes and really just kind of diving deep to find out what was going to be best for us. And we had so much equity in our property in Boston. We thought, “Okay, let’s sell that and use that to diversify. And how are we going to diversify?” So we thought maybe multi-families, eight-plex, something like that. Larger buildings might be something better for us. So in the meantime, we’re listening to the podcast, we’re hearing more from mastermind classes.
And it was during one of those classes that we heard, at least I heard, some people talking about more creative finance type of deals, rent-to-own type programs. And it really hit me because as a mom, as a woman, as just a real estate investor, I wanted to do more than just be a landlord. So I wanted to find ways that I could help people more, serve people more, provide more for people. And so those things really stood out at me. And we actually reached out to some of the people that we met on some of those mastermind classes, and we wound up entering into a mentorship program with them. And that has been great for us because they’ve really helped us narrow our focus and really get on the path to this rent-to-own or even creative finance options as well. So that’s kind of how we are where we are.

Tony:
So what are the benefits to you, Jessica, as the property owner, to offer your tenants rent-to-own as opposed to just doing a traditional long-term lease?

Jessica:
So a couple things with that is, one, we’re putting more ownership, so we’re getting people to become homeowners, right? So that’s a benefit. Also, it’s taking away our kind of responsibility as a landlord. We don’t have to really take care of the properties. Our tenant buyers are going in knowing that we’re viewing them as a homeowner and anything they want to do, they can kind of do and take care of on their own. So no leaky toilet phone calls coming in and things like that. So I think those are some of the best ones I can think of right now.

Tony:
So can we talk a little bit more about the structure, right? When you have a traditional tenant, they come in, they sign a lease for 12, 18 months, whatever it is. And then the rent goes up possibly at the end of that lease term when they renew. Is there a lease in place for rent-to-own? And if there is, do you work in any rent increases? Just what does the paperwork side of this look like?

Jessica:
Okay. So we have a really good system in place. So we have steps that we follow. So the first thing we would do is, if we start with a property, we have a property. We’re going to now list that property as a rent-to-own. So for example, with our recent property, we put signs in the window, maybe Facebook, a lot of free re sources out there, Facebook, Craigslist, whatever. So we would market that. We make use of virtual assistants to help us process all those phone calls that we get. We’re also active on our Facebook page, on Instagram, so people reach out to us there if they have heard about our property. And then once we do that, we have qualifications that the people need.
So a lot of people do call. They think it’s just a rental. They might not know exactly, but we screen them pretty heavily. So we’re looking for people that have a larger down payment. Typically, we look for something closer to 10% of the purchase price of the home. And we’re looking for people that want to be homeowners. They may have credit issues. Maybe they went through a divorce and got to go get a home on their own that they can’t quite qualify before. Or they are self-employed, so they don’t have that rapport that the traditional mortgage loan would be looking for. So once we get that, we would find somebody that would qualify, meeting all of our requirements. And then we have another kind of team in place that we use for screening them. So they will go through and do background checks. They’ll check their job history, things like that. And they will actually give us a report that will show how long it would take them to become mortgage ready. So typically, that’s maybe two to three years.
And they, our tenant buyers, would then kind of enroll in that program that they work together with our screening team and they come up with a nice detailed plan, get them from not mortgage ready to mortgage ready. Get that credit score up. What do they need to do? And then pretty much once we have that in place, we’ve got our attorney lined up and they’ll sign with the attorney, all the paperwork. So they’d be coming to the table with their larger deposit, non-refundable option deposit. Okay? But they’ll come with their first month rent and the attorney fees, whatever that might be. And once all that’s done, they’re pretty much ready to rock and roll and they’re moving in.

Tony:
This is my first time kind of deep diving into this whole rent-to-own space, so I just want to make sure I understand the process for you as a property owner. So you list your property as a rent-to-own. You screen tenants, you select them. But once that person is selected, they’re not putting down a normal deposit that’s like first and last. You said they’re putting down 10% of what the purchase price is on that property. That’s great. So if I’m thinking out loud right now, you could go out, you could find a property. You could buy it, rehab it, put it as a rent-to-own. And then you get a 10% down payment on the new value of the property. It’s almost like a BRR, right? Where you’re kind of recapturing all of your money from that down payment by the tenant. Am I explaining it the right way?

Jessica:
Yeah, you hit it right on there. And we actually feel like we coined a new term. So everybody knows BRR, but we did BRRTORR. So buy, rehab, rent-to-own, refinance and repeat. So yeah, you got it.

Tony:
That’s awesome. So what’s some of the documentation that’s required? Are you creating a promissory note, where you’re the note holder and then this tenant is coming in and signing this note? What is the legal paperwork? What documents are you guys signing?

Jessica:
We definitely have, everything’s very legal documents. It’s a pretty much standard lease. And then we do the lease purchase option as well. So they’re signing that as well with the attorney.

Tony:
And sorry, just following up here. Right? So when they sign the initial documents, are they agreeing to the purchase price at the time of the initial signing? Like say that I signed a lease with you today, but my lease option isn’t for another three years or whatever it is. Am I already locking in that price three years from now? Or do you renegotiate at the end of that lease term to say, “Here’s what the purchase price will be”?

Jessica:
So the way that we actually price our homes are a couple different things that we take into consideration is what is the price around the area for homes like that? What is the condition of the home, so does it need a little bit of work? Are the tenants going to be responsible for that? Because we don’t always rehab every property. And then we kind of put a little bit of a upsell on our services that we’re providing for these people. And then what would the price of the home be two to three years from now? So that’s when they would actually be buying the home. So we price it at that point.

Ashley:
And then the payments that they’re making during this time, before they actually purchase the home, how are you factoring that? Are you doing that as what a mortgage payment would be based off principle and what is the current interest rate, or are you doing it off of market rent?

Jessica:
So not quite. So when they sign with us, like I said, they’re renting first, so they’re paying their rent. So whatever the market rent is, is what we price their rent at. And then we also have a separate [en ride 00:18:37] assistance program. So anything that they think that they would like to pay over their rent, we will welcome that, and that would be applied to the purchase price of their home. So like with our property now, we can talk a little bit more about numbers if you want, but they’re going to pay about $300 more over the rent that we’re charging. So that will go towards the purchase price of their home down the line.

Ashley:
Let’s go into the numbers on a property. Tony, unless you had something else to add onto that.

Tony:
No, I mean, we can go there. I wanted to talk about deal finding, but we can kind of hit both of those at the same time. But yeah, let’s go into the numbers.

Ashley:
If you want to give us the numbers on what one of these rent-to-own deals look like, we’d love to hear that.

Jessica:
Yeah, sure. So I’ll just give kind of an example of the property we have now going into the rent-to-own program. We purchased that property kind of when the market was real iffy with COVID, we bought it for about $72,000. We knew that it needed some work, so we actually are doing some renovations work on that now. We’ve put about 40,000 of work into that. And we listed the property for 169,900. Okay? So that’s kind of the numbers of this particular house that we’re doing. And then they’re coming in with about 10%. And the reason that we ask for such a higher deposit is because we want people to be committed to the home, and down the line, that’s what banks are going to want. Right? They need that larger deposit. So they need to see that that has been made and met. So that’s part of the reason for that larger deposit as well.

Ashley:
So you guys actually hold onto that deposit and then they use that when they go to the bank? Or how do you show the bank that they’ve already put in that 10 grand, I guess, or that’s just part of the rent-to-own, the lease purchase agreement? It states it in there.

Jessica:
So everything we have is documented. So when it comes down to that point, we have copies of everything. We have their rental payment history. They see they’ve been paying their rent every month on time, the deposit that they made, everything that was signed with the attorney saying they’re giving X amount now, the purchase price amount.

Ashley:
Okay. I see. But you don’t have to keep it. So when a tenant comes in and they give their security deposit, you don’t have to keep it in like an interest bearing account. Do you have to hold on to that 10% until they purchase it? Show that those funds are still there? Or can you just take that money and..

Jessica:
No, we don’t need to do that. Nope. No. We just keep records of that. So essentially what we can do later, because we can use that deposit actually to buy a new home. Right?

Ashley:
Yes.

Jessica:
So that’s kind of somehow it works, but no, we don’t need to keep it in any type of interest, anything like that. They are making that deposit. That’s being recorded and that’ll be shown to the bank. We have a loan officer as part of our team as well. So they are familiar with these creative finance and rent-to-own type strategies. So they know exactly how this process is going to work and they can facilitate things, make it go real quick at the end.

Tony:
So one follow up question for me. So using the same property as an example, right? So the purchase price was 169,900. So 10% down payment is somewhere around $17,000. Right? If I’m the tenant, I come to Jessica. I give you $7,000 down. And then the term for the rent-to-own is what, like three years, 36 months, somewhere around there?

Jessica:
It depends on their credit history, but I would say between two and three years is ideal. But we’re flexible. If they need to go longer, obviously for us, cash returns works out well too.

Tony:
So say it’s three years, right? 36 months. At the end of that 36 months, are they now just refinancing to get a new mortgage? Or I guess, when they get to the end of that 36 months, what does the process look like from the tenant to actually get a real mortgage in place?

Jessica:
So they’d be working with our loan officer, right? And then we have record of everything they’ve paid up to that point. So their en ride, anything they paid over their monthly rent, and then they would just be getting the loan for the remainder. So the bank would give them the loan for the remainder and that would cash us out.

Ashley:
And Tony, I think what you were thinking is like, as of refinancing, they don’t actually own the property until that three year mark. Is that kind of what you’re wondering-

Tony:
Yeah.

Ashley:
… like to do a refinance? Yes. So they’re going, and they’re saying to the bank, “We’re going to purchase this property now.” So it’s like doing a new purchase agreement, and then Jessica comes and shows them that they’ve already put this money towards the deal. And the bank accepts that as their down payment and money into the purchase already.

Tony:
Got it. That was my last question. I just wanted to confirm that at the end of that 36 month, they do not have to put a second down payment because they’re showing that they’ve already put a down payment on this property. Sorry, I’m a little slow sometimes, but I just want to make sure I’m getting it because it sounds like a win-win for both of you guys, right? It’s a win for the tenant because they’re getting into this home that they probably wouldn’t have been able to get into otherwise. It’s a win for you because you’re getting this really big down payment up front that most landlords aren’t going to get, but then you’re also getting the cashflow month over month, over month. And then you’ve got the ability to go out and just kind of repeat this process over and over again. So I love the approach.

Ashley:
The rental amounts, the monthly payments that they are making each month, those are not included into the purchase. Right? They’re not going to that. That is pure rental income that’s coming to you. Correct? Unless they pay that amount that’s above that. But as far as those set monthly rental income, that’s not taken off the purchase price, correct?

Jessica:
Yeah, you got that. The rent is the rent. So anything that you pay over that or anything they choose to pay over that would be applied even more towards their down payment on the purchase price of the home. We’ve had such high demand after we started marketing this, we have so many people interested in this that we actually are trying to acquire properties a little bit more quickly because we have so many people that want to do this.

Tony:
Well, let’s talk a little bit more about how you guys are acquiring your properties. So what strategies, tactics are you guys using to keep your deal flow healthy? How are you guys finding your deals?

Jessica:
So traditional financing was obviously the method we’ve used in the past. And we have used that the past couple properties, as well. As you know, the banks kind of start to give you the side eye as you get so many doors, so we know there’s a couple other things that we need to figure out. So we’re looking at creative finance options as well and hard money as well. So the next home that we’ve got in the market, we’re using hard money because it’s just going to be way quicker to acquire the property. Even though we may have a higher interest rate on that, you know the numbers that I’ve shared with you already. So it will still be a great deal for everybody with the hard money as well.

Tony:
How are you guys finding your properties? Are you looking on the MLS? Are you guys working with wholesalers? Where are you finding these properties?

Jessica:
We do look on online. We do Zillow. We look Craigslist. We’ve got a great realtor that is kind of on board with us. Off market would be great as well. Seller finance is something that we’re really trying to push and try to work deals that way, especially with those off market deals. A lot of people are trying to do for sale by owner, things like that. So that’s kind of where we’re looking.

Tony:
And I love that it’s nothing super crazy, right? These are strategies that use that any rookie investor can use. I think sometimes as a new investor, you overcomplicate things where you want to start off right away by sending a thousand mailers or cold calling a bunch of people or doing all these crazy things. But it’s like, if you just kind of be patient, take your time, there’s still deals to be found in the MLS. You just got to be patient.

Jessica:
Yeah. And I would say, one of the things that did for us was that we looked out of our area. So we’re in Northern Virginia, so it’s pretty pricey here. And so when we were trying to diversify and really try to reinvest our money, we thought, “Let’s just look out outside of our area, outside of our state.” And it just kind of happened to go into Pennsylvania. That’s where I grew up, and that’s kind of where we landed now.
I would probably say a mentor, actually, because you’re going to get so much experience with them, and just the knowledge that they can give you and just kind of giving you that push that you need. A lot of people are too, like, “I don’t know if I can buy a property. I don’t know how to buy a property.” So really finding somebody that will kind of take you under their wing, I think, is great.

Tony:
And also just kind of surrounding yourself with community. I know that’s helped me a lot as well, right? Is just being able to be in a group with other folks that are going through the journey as you. And with that in mind, if you guys are not part of the Real Estate Rookie Facebook group, we are one of the most active and engaged Facebook groups that are out there in real estate investing, 30 plus thousand members strong. But I love that advice, Jessica.
I want to talk a little bit more about your mindset, so let’s get into the mindset segment. What often holds rookie investors back, it isn’t a lack of technical knowledge or kind of knowing what to do. It’s the mental barriers that they haven’t broken through yet. So what were some misconceptions you had about real estate investing that turned out to not be true? Right? Some fears, some reservations you had in your mind before you got started, that once you actually did it, you realized it just wasn’t really that bad.

Jessica:
Obviously, everybody says this, but it’s probably that fear of not knowing, right? You don’t know what you’re getting into. You’re not an expert at it. You haven’t practiced it. I think that’s a big thing. But if you kind of push past that a little bit, and again, with mentors kind of guiding you. And setting up spreadsheets, like Excel is super helpful in lining up your deals, right? Put in the numbers. How will a deal work for you? How much money do you have to put down? And just make it work there, so you know that you can pull the trigger. If it doesn’t work there, if you’re not making money, if it’s not cash flowing, move on to something else. The first one is not always a home run.

Tony:
The first one is definitely not always a home run. Yeah. And speaking of not home runs, I got to talk about my property in Shreveport one more time. So we realized that part of the reason why the property wasn’t selling was because the tenants just didn’t do a good job taking care of it. Right? So now we’ve got a bill for, I think, almost $8,000 to get some repairs done on the property. So we’re putting new flooring in in the kitchen and the bathrooms. We’re replacing some things that got broken, new windows in some certain spots.
My point of bringing that up is that sometimes you are going to have deals that they don’t turn out the way you want them to. But that doesn’t mean that the world of real estate investing is a hoax or it’s a sham, right? It just means that deal didn’t work out. And the hope is that you don’t waste that learning lesson, right? That you still use it as an opportunity to get better. One of the things I tell my son all the time, it’s like, “Hey, it’s okay for you to make a mistake, but just don’t waste the mistake.” And the way that you waste the mistake is by not learning from the lesson. So as long as you’re learning, as long as you’re getting better, as long as it didn’t result in financial ruin, then you’re okay. Right? Keep moving onto the next deal, and you’ll get better with the next one.

Jessica:
Yeah, yeah. I would agree with that. Yeah, definitely. Failure is always a learning lesson. So we even had a property, we’ve done a couple flips and that was a complete flip. So we put a whole new story on it as well, and lots of issues with just contractors. And this was again during COVID. So it didn’t quite give us profit there, but it was definitely a lesson learned and that’s how we take it and we move on to the next.

Ashley:
Okay, Jessica, I’m going to take us to the Rookie Request line. Rookie listeners, this is where you guys can leave us a voicemail at 1 (888) 5ROOKIE and ask us a real estate question, and we will have a guest on the show answer your question. So Jessica, are you ready for today’s question?

Jessica:
I’m ready.

Alina Levallier:
Hey, guys. My name’s Alina [Levallier 00:31:09]. I’m from New Hampshire and I have questions regarding hard money lenders. I’m just curious as to what should I look for? Or what questions should I ask them when interviewing them? Quite a few have reached out to me via Facebook, but just wanting to know what I should know before I get involved. Thanks so much for your help. Bye.

Jessica:
All right. So I guess reaching out to hard money is definitely interviewing a couple different people, asking questions about their interest rate, their terms. So you want to ask for upfront fees, what are their fees? What are their points? How many points they charge? What is their turnaround time? How quickly can you get the money? I think that pretty much is everything that I can think of as far as hard money. It’s definitely beneficial if you find somebody that… You definitely want to make sure that they have a track record as well. Make sure that they’ve done deals with other people, that they’re not just some person just trying to scam you out of money too. So that’s definitely something you want to be aware of.

Ashley:
Yeah. I think that last part is really important because you want to make sure that when you go and you make an offer and you’re ready to purchase a deal, that they’re going to come through and you’re going to be able to close with their money and they’re not going to back out last second. So asking for referrals and then reaching out to the investor network in that area and see if anybody else has used them before and really do your due diligence on that lender. So thank you, Jessica, great advice.

Tony:
Let me add one thing onto the hard money before we keep rolling, because this is something I realized recently. You also want to ask how the rehabs are funded because some hard money lenders will fund the entire rehab to you upfront. Others will make you pay for the rehab out of pocket and then reimburse you. So if you’re going into a deal and you’re working with one of the hard money lenders that works on a reimbursement basis, and you didn’t calculate that into your costs when you were looking at that deal, then you could be in kind of a world of hurt once that deal actually closes because you don’t have enough cash to get the rehab done. So just make sure you’re asking that question. How did they fund the rehab?

Jessica:
Yeah. And also, I would also say, ask if there’s a prepayment penalty. That’s important too, because with a deal like ours, rent-to-own, if we get a term for 30 years on a loan, but we want to cash out in five years because that’s what our tenant is going to do, then we want to be able to have that flexibility too.

Tony:
All good questions to ask. I love it. I love it. Should we go into our Rookie Rockstar, Ashley? Anything else you want to hit before that?

Ashley:
Yeah. Today’s Rookie Rockstar is Federico [Marsico 00:33:46], and he is excited to share about a deal that he received for his first investment property. So it is a duplex and a single family home on the same lot in Cleveland, Ohio. He actually got the deal from a wholesaler. His purchase price 27,000, total cash into a deal with closing costs, 28,800. The estimated rehab is 15 to 20,000 and the ARV is 90,000. He was able to fund the deal with his own money, some partnerships and a personal loan. And he’s going to do a BRRRR on this property, which is buy, rehab, rent, refinance, and repeat. So that is awesome. And make sure you post back in the Facebook group so we can see how the deal made out once you have it rented and did that refinance.
Well, Jessica, thank you so much for joining us today. Can you tell everybody where they can reach out to you and find out some more information about rent-to-own?

Jessica:
Yeah, pretty much, we’ve got our Facebook page, which is Jess4Homes, J-E-S-S, the number four and homes. And also on Instagram is jess_4_homes as well. Jess underscore, the number four underscore, homes. That’s pretty much the biggest way to get ahold of us, for sure.

Ashley:
Well, thank you so much for being on today. We have loved learning about rent-to-own. It’s got the shiny object syndrome going thinking of new strategies.

Jessica:
And the BRRTORR. We’ve got the BRRTORR strategy now.

Ashley:
Yeah, exactly. So thank you so much. Everybody, make sure you join the Real Estate Rookie Facebook group. And we can’t wait to meet you guys at the BiggerPockets conference coming up very, very soon. I’m Ashley @wealthfromrentals and he’s Tony @tonyjrobinson on Instagram. And make you join us for a Rookie Reply on this coming Saturday.

 



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