Insurance and Taxes Killed My Cash Flow, Should I Sell?

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate podcast here today with a Seen Green episode. In today’s show, we take questioners from you, our listener base, with very specific, intense and insightful questions about what to do in your dilemma. And my co-host, Rob and I do our very best to help you get through it so everybody can learn. Rob, how are you today?

Rob:
Howdy coming to you from Los Angeles in my first ever short-term rental. It’s nostalgic, it’s decommissioned, A little musty, but hey, we’re here. It feels good to be back.

David:
Is it safe to say that you were going, going back back to Cali. Cali,

Rob:
It’s safe to say that I’m seeing green, if you know what I mean.

David:
I do know what you mean. And that rhymed and guess what else rhymes. Nothing else in today’s episode. That was the only time we’re going to rhyme the entire time lying. I just did it right there. But other than that, there will be no more rhyming. We’re actually going to cover a lot of real estate stuff. We’re going to talk about cheap houses versus bad houses and how to get started when you don’t have a lot of money, rent by the room, tenant selection issues. What to do when you have a picky tenant that doesn’t want to move in unless you meet their demands. How to get a second house hack and a third house hack and a fourth house hack, as well as what loans are available to first time homeowners, short-term rental debacle and dilemmas when you have somebody renting your house and they’re not taking good care of it. What you could do to prevent this and more in today’s episode up First we’re going to talk about taxes, insurance, and a loss of cashflow and if you should hold them or you should fold

Rob:
Them, and most importantly, if you want a chance to ask your question, head on over to biggerpockets.com/david. The link is down into description below. Pause this, send us your question and let’s jump in in life. Pro tip, even if we don’t answer your question, you can always head on over to biggerpockets.com, head on over to our forums, get a whole community there, tens of thousands of people that are happy to support you and answer your questions. So go join that if you’re not already part of it.

Zack:
Hello David. My name’s Zach Palmer, Cape Coral, Florida. I have a question about what to do with my long-term rental. It was cash flowing nicely this year. The taxes and insurance went up, so now I’m at a loss of about $67 a month. First option we’re thinking about is just keeping it. We’re trying to play the long-term appreciation game. It’s in an A neighborhood, a three two. We think it’s going to appreciate heavily in the next 10 to 20 years. Our second option, just sell it. We have about 80,000 equity can redo the bathrooms kitchen, some other minor things to get more money out of it. Our third option we’re considering is turning into a midterm rental. We’re about one mile away from downtown and one block away from the local hospital. Either way, we have a lot of options, but with all this info, what would you do?

David:
All right, Zach, we’ve got the age old question. I am no longer cash flowing. Should I immediately abandon ship? A few things? I thought it was very funny that you said it’s negative about $67. Did you roughly

Rob:
$67 and 53 cents. Was

David:
It that he left off the 53 cents and that’s why he didn’t go with the exactly 67? Zach? I think it’s okay because if you just step back a little bit here, you’re negative 67. Let’s say you were positive 167, right? What we’re really talking about is you’re losing a hundred dollars a month that you weren’t or maybe a couple hundred dollars a month. Whether that crosses this imaginary threshold of positive to negative cashflow is all in our heads that we determine what it’s worth. You did mention you think it’s going to continue appreciating a lot over time. That’s going to dwarf whatever cashflow you would’ve got, and I imagine that most people can probably cut back and save $67 a month if they really need to. Maybe you get the family plan at the Chinese restaurant instead of ordering the individual entrees or something, but that’s not too hard to recover 67 bucks. So if it’s long-term going to keep going up, I like that. The other option that he had there was the medium term rental. My thoughts on that were how much are you going to have to spend in furniture to try to get a little bit more every month? So

Rob:
2030 grand. Yeah, 20, 30 grand. That’d

David:
Be good if it’s only 20, 30 grand,

Rob:
Right? And that’s just to figure out if it’s going to work as a midterm rental. It might, but this is a misconception I really dislike about midterm rentals is that it’s not actually easy if you want to do it. The Jesse Vasquez way, he’s got an amazing empire. He’s so good at contacting hospitals and construction companies and tech companies and building relationships and having a book of business that will basically book his places for a month at a time. That takes a full on team to do that type of thing. But one simply does not say, I think I’m going to turn into a midterm rental. Let the 30 day bookings begin. It doesn’t really work that way, unfortunately. So I would say make sure, see, analyze it, run your comps. But 67 bucks a month, obviously I hate losing money, but that’s nothing. That’s really nothing. He said it’s an a plus neighborhood. That’s one really important piece here. I imagine it’s going to appreciate more than $700 a year by a lot. So he’s actually not in the negative here, really, just more so from a cashflow perspective, but certainly not from a net worth perspective. So I’d say keep it

David:
Zoom out. That’s the key. Zoom out, right? You’re looking at it every month. It’s losing 67. Zoom out to what it’s going to make in a year. Alright, so you’re losing 700, 800 bucks. There’s properties that lose more than that in a year because one thing broke. You had one leak that caused your property to lose a thousand dollars in the year, right? But even if it was cashflow positively so you felt good about it, zoom out even more. This is one year in the future, rent should be going up, right? You’re going to be glad that you bought it, so you made a good financial decision, investing your money into real estate instead of spending it on stupid things. Just feel good about the fact that you did it. It’s a long-term investment. We like real estate to cashflow. We try to make it cashflow. If it doesn’t cashflow, that does not mean that you failed at this. When 30 years when that’s a paid off property and rents are eight, nine times whatever they are right now, you’re going to feel really smart. So hang in there, my man. One other

Rob:
Thing that he said was that he has about $80,000 in equity. Well, if he sells it, realtor fees, commissions, all that stuff, he’s going to walk away with what? A 60, $65,000 check. I’m not really confident he’s going to be able to move that money into a property that’s going to be that significantly different if he’s talking about leaving an a plus neighborhood or a neighborhood in his area. Yeah, I would say just stick with what you got. One rent increase of three to 5% year over year is going to fix that for ’em pretty quickly. I’d

David:
Say, and this is a unique problem that we’re experiencing right now, especially in places like Florida. It’s the insurance and the taxes are going up faster than the rents can keep up. With my whole career investing in real estate, I’ve never seen it where your expenses go up faster than your income are, but the insurance problem and all the inflation that we’ve created has created this problem. But you know what? If you’ve been listening to this podcast, you’ve been warned about it for years, so you’ve got healthy reserves built up, you’ve been making financially responsible decisions, and you will weather this storm, no pun intended, because you’re in Florida. Thanks, Zach.

Rob:
Is the pun that there’s a lot of storms in Florida? Yeah. Nice.

David:
I don’t feel so nice about it if you have to ask.

Rob:
It was good, man. I’m the best

David:
One should. I said, if you could weather this hurricane, would that have been better?

Rob:
Ah, there it is. I get it now.

David:
Thanks for the pity laugh, man. I ain’t too proud to beg. It was real. All right, we’re going to be getting into a rent by the room tenant question and what to do after my first house hack question directly from the BiggerPockets forums right after this quick break and welcome back everybody. We’re getting into it with Nicholas Sanchez from Tejas who wrote in the forums on biggerpockets.com. Hey David, I’m in the Dallas-Fort Worth metroplex, and I’m curious if you could go over some of the strategies for buying the second house hack in the 2024 market. Would I have to refinance the first property after year because it would no longer be my primary and along with the first, the second property and future, would it be good practice to have separate checking and savings accounts per property? Thanks in advance, Nikki San.

Rob:
Alright, so let me break this down because we do talk about this strategy a lot. I believe you’ve coined it the sneaky rental strategy, if I’m not mistaken. So what Nick wants to know is, hey, if I’m ready to execute this sneaky rental strategy, is there some kind of technical process, some kind of paperwork that he has to file in order to basically turn his primary residence into an investment loan?

David:
There is not, and that’s why I keep telling people, this is it. This is what everyone should be doing every year before you even look at brrrr or long distance investing or anything, buy a dang house hack. You get the best loan possible, the best rate and the best down payment. And it’s not only better, it’s not like, well, you could 20% down for investment property, but 17% down for a primary residence, you could get one for 3% down about one seventh. You could buy seven of these things for the same down payment it would take to get one investment property. And you do not have to do anything when you move out as long as you win 10 to live in it as your primary residence when you buy it, there is no rule for how long you have to live in it. They can’t force you to do something if your mom gets sick, if your job wants you to relocate, if your barber is no longer able to get your cof the way you want it and you’re forced to move somewhere else to get safe happens. Quality service. If you found the perfect house to move into with a better in-home movie theater so that you can watch Interstellar in Surround Sound, 5.1, Dolby, all of these are legit reasons. You can leave your primary residence and get another one and you don’t have to. Do you have tell the bank you’re doing it? It does not matter. That is not a part of the loan. So sorry,

Rob:
Did you say you have to tell the bank or you don’t have to tell the

David:
You do not. You do not have to tell anybody at all. The only situation you will get yourself in trouble is when you buy it saying you intend to occupy it as your primary residence. And that is a lie. You cannot mow a posure one if the lender says this determined it was a lie, you could get in trouble there if they could prove you never intended to move into it. And so that’s what we avoid.

Rob:
I shut that. I always hate crushing dreams because I have a lot of people that are like, all right Rob, yeah, I’m buying this house. What do you think? And I’m like, yeah, how much is it to get into it? And they’re like, oh, I only need $10,000. I’m like, what loan program is that? They’re like, oh, FHA. And I’m like, that’s what we call mortgage fraud. You’re going to have to save up a little bit more. I hate being the bearer of bad news, but yeah, you can’t buy an FHA property with the intention to rent it out.

David:
That’s exactly right. That will get you in trouble. So we’re very clear, don’t do it. But if you buy it with the intention to move into it, which a great way to prove that you intended to move into it is to move into it and then when you’ve moved into it, the best way, honestly, yeah, I can’t recommend a better way, then when you change your mind about that house, you move out of it. As long as there’s no evidence that you intended to do that the entire time and you keep making your mortgage payment, you’re going to be fine. Even if you don’t keep making your mortgage payment, they can’t prove fraud if it wasn’t fraud. So typically the reason we say live in it for a year is not because the lender requires you live in it for a year, and that’s where the problem comes from. It’s because you can’t get the next loan until you’ve waited 12 months in most cases. So if I tell you, Rob, hey, buy a house to house hack and you do, and six months later you want to move out, nothing stops you from moving out, but you might have to wait a full 12 months before you can get another primary residence loan to buy the next house. They’re two separate things that often get mishmashed into one, and so that’s why people think this.

Rob:
Oh, so you, you’re kept out at one FHA loan, for example, per year.

David:
You can only have one FHA loan at a time. You cannot get another FHA loan. You can get another primary residence loan. That’s not FHA. You can get a loan. See, this is another misconception. Thank you,

Rob:
Rob. Oh, man. Yeah, you’re blowing my mind here.

David:
People think FHA, they think the FH stands for first time homeowner. That’s not true. It stands for the Federal Housing Administration. FHA. Loans are government loans meant for people with lower credit scores and lower debt to income ratios. And so they let you get by with a three and a half percent down payment, but you could get a conventional loan at 3% down, wait,

Rob:
Lower or higher debt to income ratios.

David:
It’s for people that have worse debt to income ratios. Got

Rob:
It. Okay. Okay, got it. Yeah,

David:
But you can get a conventional loan with a slightly higher credit score than FHA and a slightly better debt to income ratio for 3% down or 5% down. Okay. FHA loans are not the only loan you get to start. In fact, they’re usually not even the best one. At the one brokerage, we try to put people into conventional loans because the mortgage insurance goes away on a conventional loan. It does not go away on a FHA loan.

Rob:
Wow, interesting. So you can only have one FHA, so you put that three and a half percent down one year later. You don’t have to go and notify the bank. You can just go put 3% down on another conventional loan that’s also intended to be a primary residence loan living it for a year. And that’s what you mean when you say keep doing it year after year. Nice. That’s good clarification.

David:
That’s it. You’re seeing green ban and we appreciate it.

Rob:
I’ve come to the green side.

David:
All right, everybody, there you go. The second part of this question was along with the first, the second property and the future ones. Would it be good practice to have separate checking and savings accounts per property? What’s your thoughts on that, Rob?

Rob:
It’s good practice because if you’re actually talking about, I mean, it depends on what type of method you employ, if you do the profit first or anything like that, but I would say it’s good practice just for the purpose of tracking expenses and everything. Mostly it’s not going to be that big of a deal on probably two, but if you’re talking about being a real estate investor and buying 4, 5, 6, 7, 8, 9, 10 properties, you will have to have some type of system that you figure out at that point. So if you start early, it’s not super hard to convert. But for what it’s worth, I have different bank accounts for every single property that I own.

David:
Whoa. Every one of them has their own bank account.

Rob:
Oh, sorry. Every LLC, but yeah, pretty

David:
Much. So do you just name every account the property address, so that’s how you track?

Rob:
Yeah, or the nickname like Pink Pickle or Tree House

David:
Or So Pink Pickle has the mortgage come out from that account? It has the taxes, the insurance, the utilities. Everything comes out of the same account. Yeah.

Rob:
Yeah. It’s just so that I can, because my books aren’t always super up to date, so it’s my way of saying like, oh, hey, we’re trending up here and I can makes it easier. Keep tabs on my properties. Yeah, I don’t know. Now you make me sound like I’m crazy. Is that not how you do it? Oh

David:
God, no. That’s so many different checking accounts. I don’t know how I would keep up with that whatsoever. I just use one account for all the different properties, but I have a full-time bookkeeper who keeps track of everything.

Rob:
Okay, so what would you tell Nick?

David:
I think your way’s better if you can handle it. That just seems like so much work, and it’d be so confusing, but I think your way’s cleaner. Yeah,

Rob:
It’s not that bad. I mean, I just sync up because also you can create virtual debit cards for every single one, and so I just put every single expense when I’m, it’s easier now that I’m doing it. It took me a little bit to convert to this, but basically I have a virtual debit card that goes to every single utility, every single vendor, everything like that. That way it truly is kind of like in real time, I can gauge the health of all my rentals, but maybe I’m crazy.

David:
You’re crazy busy. You’re crazy complicated, but your books are going to be a lot cleaner.

Rob:
Yeah. Yeah. I guess I could just trust my bookkeepers more, but hey, here we

David:
Are. There we go. All right, moving on. Our next questions come directly from previous episodes of Seeing Green on YouTube, where we grab comments out of the comments section. I love this part of the show. You get to see what people are saying about the show. We get to interact with our audience. It’s the comment section, if you will. Sometimes we grab stuff out of the BiggerPockets forums, but we keep our finger on the pulse of what’s going on in the real estate community. Remember, we want you to be featured on an episode of Seeing Green. So go to biggerpockets.com/david to submit your question or leave us a comment on YouTube as you’re watching and let us know what you think of our advice. Rob, I’m going to let you take the first question from Matt here.

Rob:
Okay. Matt says, I’ve been a long time fan and avid watcher of your content. As a blue collar worker myself, I want to offer a word of advice. Many of us who likely make up a large portion of your audience are blue collar workers who love what we do and are committed to our careers due to pensions, medical coverage, and the need to support our families, unlike those who might’ve started investing when interest rates were low or are single and don’t have mouths to feed. For many of us buying a quote cheap home is the only option to enter the investing world. Even if that means working extra hours and spending time away from our families just to save enough for the down payment, instead of constantly pointing out the drawbacks of these investments, could you use your experience to help us make the most of them? We appreciate your continued information and hope it can be tailored to help us succeed with the resources we have. Thank you. Well, too bad, Matt. No, I’m just kidding. I actually saw this on YouTube whenever he posted it. I completely agree. I was thinking the same thing. I feel for him, we kind of don’t talk super positively about cheap old houses. We always say cheap houses are the most expensive ones, which isn’t untrue, but we all got to start somewhere. And so with that, I appreciate the feedback, Matt. Yeah, duly noted. I’m changed.

David:
I don’t know that I’m against cheap houses because cheap has to do with the price point. Of course, I’m going to prefer a lower price point over a higher one. The concern is the location, because cheap houses are typically in the worst areas, and the location of the home is the only thing you can’t change. That’s what makes me nervous because where he was mentioning here, if that’s our only way in the game, tell me how to do it. Our concern is that you can’t get out of the game. You buy a house that becomes a money pit and you’re saying, I had to work really hard to get this down payment. I buy the house now I’m working all the time to dump more money into a property, and there’s no way out. You’ve just consigned yourself to a lifetime of overtime to keep a property afloat. That’s what our concerns are. It’s not the price point, it’s the safety and the desirability of the area and the tenant pool that you have to pick from. So if you have a way to buy cheap houses in good areas, that’s what you want. That’s what we’re

Rob:
All best case scenario. Right.

David:
Do you think, Rob, that we’re just not doing a good job of differentiating between bad location and cheap price point?

Rob:
Yeah, I don’t know. I can see what he’s saying because we do, I mean, there are times where we’re not super friendly to the concept because we’re just like, don’t do that. Why would you do that? But what he’s basically saying is, well, I have no choice. This is literally the only way I can do it. Now, on the flip side of this, I think that the solution that we offer, which isn’t for everyone, but it is the solution, is the sneaky rental strategy where you say, Hey, if you can’t afford to go out and buy a rental property in a good neighborhood house hack and build your wealth from there, and I think that doesn’t really help half the people who are very, I would never do that, which unfortunately we can’t make them want to house hack. Right? And truthfully, I don’t have an answer. It is probably case by case, but I think what he’s basically saying is can we develop a start from the ground up strategy? And if I’m reading between the lines, that’s maybe not house hacking, but I just don’t know if that necessarily exists. I think even Scott Trench, everybody on the network would just say, save up your money until you can get into that first property.

David:
And let’s talk about just the amount of money that it takes to get into a house. Okay, let’s say you’re doing an investment property. You got a house at 200,000, 400,000 or 600,000, we’re going to call that cheap, medium or expensive. If you’re putting 20% down, that’s going to be 40 grand on the cheap house, that’s going to be 80 grand on the medium house, that’s going to be 120,000 on the expensive house, 40, 81, 20. That’s a lot of money. Even the cheap house at $200,000 is still $40,000 down payment plus closing costs. It’s a lot. Now let’s look at house hacking on those same houses. The cheap house would require $6,000. The medium house would require $12,000, and the expensive house would require $18,000. Very big difference.

Rob:
Yes. That logic is all sound. It makes complete sense. I’m with you there. I think what Matt is saying is whenever we poo poo the idea of buying a $50,000 house in the suburbs of, I don’t know, some random little town type of thing, I think that’s more the scenario. Not necessarily that $200,000 house, but it’s like, Hey, all I can afford is this little $45,000 fixer type of

David:
Thing. Yeah, maybe we could try to do a better job with it. Those are difficult though because you often can’t find a loan for a house that’s priced below 75,000 bucks. And so it just becomes now you almost need cash to be able play in these cheap house area, which means you have to be wealthier. And we get right back into the same scenario. So I will do a better job of trying to think about for the people that are investing in cheap houses, but let us know in the comments if you think there are strategies that we are neglecting here that people can use to get their foot in the door to start building equity when it comes to real estate.

Rob:
But it’s hard though. It is. I mean, thinking through even a $75,000 house, if you’re truly trying to fix it, an AC could be like seven grand. So it’s like, yeah,

David:
It’s literally 10% of the value of your entire house. A roof could be 25% of the value of the whole house. That’s why we say cheap houses sometimes are the most expensive ones. It’s just hard to make investing work when you’re playing at that price point.

Rob:
And I see where you’re coming from on that oftentimes, because what you were saying at the beginning of this was just like what we’re trying to do is if you’re already got a little bit of savings and you’re just trying to get into your first house, we don’t want that house to be a money pit that you basically regret buying. Alright, we’re going to do better. We’re going to try to attack questions from every angle moving forward and not PPO anything because everyone, anyone can make anything work. It’s happened many times in history. So we will do better

David:
Spoken a true politician way to go. Rob,

Rob:
We may or may not do better, but we may or may not try our best,

David:
But we will not do the same unless that’s what you want us to do, in which case we will do the same, but we will do it with a different pink color. So it does indeed look different.

Rob:
Our people will get with your

David:
People. All right. Our next question comes from Sunny Body 95 67. Who says, what do you look for in a good property inspection or how do you find a good property inspector and how do you do your own due diligence? Rob and I are going to tackle this often neglected question right after a quick break. Alright, welcome back everybody. Rob and I have been holding our breath the entire time and his face is blue. My face is green because it’s always green and we’re going to answer the next question. Rob, I don’t imagine that you spend a whole lot of time looking at home inspections. I’m guessing you probably have people on your team do it yet. What do you think? Do you meticulously pour over these things? Is there anything that jumps out at you? I do. Okay. What’s your advice?

Rob:
Well, this is selfish, but it’s like property inspections are so long sometimes and it’s really hard to figure out what’s actually wrong and what’s not wrong. I guess ultimately, I do really like a good report that puts the bullet points of everything and then it gives you the actual report at the back end. That’s what I’m always looking for because at this point I know enough about homes construction to see what’s good or what’s bad. So I like to see the bullet points for what needs to be addressed, but then read the full report. For me, I guess I’m typically looking, I kind of want an inspection report that’s a little bit more doomsday for a couple reasons. I like to just have everything in front of me so I can see it. So the more thorough an inspector, the better. It doesn’t happen often, but sometimes I get an inspection report that’s a little like, oh, that’s not that bad.

Rob:
Those are the ones that worry me. I feel like a good inspector is really good at pointing out things that can be catastrophes for you down the road, but then when you actually talk to them in person, I’ve met with most of my inspectors in person, they can usually level with you and say, Hey, yeah, I have to put this here. This is definitely something that can be wrong, but between you and me, this is not something you have to worry about quite yet. So I like an inspector that can kind of give me both sides of it, not just the doom and gloom, but like, Hey, here’s when you actually have to worry about it.

David:
All right. Let’s start with what is due diligence. Most of your due diligence will be the home inspection report. You’re basically inspecting the home itself, the area around the home and the greater overall area. So the majority of people don’t even go put an offer on a house until they’ve already picked the city and they like the location. So there’s not a whole lot of due diligence for your average buyer regarding the area, but it might be like, is there any trains going by? Are there airplanes that fly directly overhead? Do I have a neighbor that’s going to go make my life hell? I know some of our clients have gone literally knocking on doors and introducing themselves to get a feel for what the neighborhood’s like if they’re going to be living there. But still the majority of it’s going to be the home inspection.

David:
You want to look for things. They’re going to find so many things wrong. Every house has so much stuff wrong with it. What you’re looking for is what has to be fixed now and how expensive is it going to be? So hinges that are loose, a lot of the times they’ll talk about exposed wiring and it’s still just, it’s not like it’s actually a fire hazard that it doesn’t have the right sleeve around it. So my advice is you talk to the home inspector. One of the things that I’ll ask them, sometimes I’ll have my client on the phone is I’ll say, how does this house compare to the other house you inspect? Like, oh, this one was great. They’re like, what? There were 77 things that were wrong with this house and they’re freaking out and they’re like, oh, this isn’t even that bad.

David:
This is in better shape than a lot of other houses were worth. So I like to get context from the inspector themselves. And then I say, if you were buying this house, what in this report would concern you? Because remember, you’re asking a person that does this every single day for a living. Well, that foundation was very scary. I’ve never seen one that bad. Well, the report just listed. There’s a problem with the foundation that’s different than them saying objectively, I feel like this is a very scary thing. I wouldn’t want my kid living in that. Or No, all foundations look like that. That just over time, that’s what they do.

Rob:
Yeah, that’s really good. The actual frame of reference for that house in that time period relative to other houses in that same time period. Correct. The house from the 1950s, they have to say, Hey, the foundation is crumbling, whatever. And then they’re like, but by the way, all houses from the 1950s are exactly like this.

David:
Yes. And then a lot of the time they’ll point things out because they’re trying to not get sued. They don’t want to miss anything. But the house might go another 55 years with that same issue and it’s been there for 55 years. It doesn’t mean that everything in the report has to be fixed. In general, I lump about five things together as the things I worry about. And those are going to be foundation. They’re going to be water leaks, they’re going to be electrical hazards. This is an unsafe electrical condition. They’re going to be roofing issues that lead to the useful life of the roof not being able to last. So there’s always going to be broken tiles. There’s going to be issues with the roof, but when they’re like, this roof is about to need to be completely replaced, that’s something that I look into that’s really big.

David:
And then the last thing would be the major appliances, like you’re talking about the air conditioning unit, the water heaters, you’re basically trying to figure out do they have 10 years of life left? Do they have six months of life left? Because those are all issues that you have a very good chance of getting the seller to give you a credit to fix in the home when it’s cosmetic. I guess I didn’t mention dry rot. That’s not on a home inspection. That’s on a pest inspection. That’s why I didn’t mention it. But that’s another issue. Every house has some kind of dry rot, but if it’s really significant, you’re going to have to fix it before the wood gets eaten up by the fungus. How’s that Rob?

Rob:
Yeah, very good. Very good. Very thorough. I think. Yeah, you have to, I mean, is it not common to always speak with your inspector? I feel like I speak with whether it’s in person or on the phone so that you can actually run me through like, Hey, yeah, by the way, let me distill this for you a little bit so that you don’t freak out when you read it in the report.

David:
No, I think people would rather spend four hours looking at the report and freaking out than picking up the phone to talk to the person and ask enough.

Rob:
Yeah, I mean, I always say this, 99% of problems in real estate could be solved with a simple phone call. And yeah, I bet you a lot of deals have fallen through because they didn’t actually have a conversation with the inspector about it.

David:
Yeah. Remember when you’re dealing with the title company, the escrow company, the loan officer, the home inspector, the appraiser, everyone, their first priority is always going to be to not get sued. They don’t want to miss something or not disclose something because that gets them in their license in big trouble. But if you want to interpret what has been disclosed to you, pick up the phone and call ’em and ask them, how concerned are you and how do we fix this problem? Alright, our last question comes from my cousin Shannon Green. Just kidding. Shannon doesn’t have the E at the end of her name, but it is green. This comes from the biggerpockets.com forums in the short-term rental and vacation rental subsection asking for IDs for all renters per stay. Is this good or bad? We have an STR beach home in South Padre Island.

David:
We recently had a large group larger than what was allowed stay at our home and their behavior was unacceptable. We found out that one of the kids’ mothers rented the house was never on site. It was a bunch of young underage kids doing dangerous things. Question for everyone. We use VRBO. How do you handle preventing this? We have changed our language to state the person renting must be at least 25 and must be present during the entire stay. We would like to request IDs before renting for everyone staying just a thought. Is anyone doing this? We have a local manager that can check out ease upon arrival. What are your thoughts? Any advice would be appreciated.

Rob:
That’s a hard one. I mean, you’re never going to be mad that you were overly secure, but you might be mad that you were so secure that you lost out on booking info, right? Or on bookings. So there are actually services that you can use that will do this for you. I think it might be a little hard if you’re saying, Hey, I need everyone in your party to send me this random person on the internet your id, but I use a service. What they super hog. Basically I say, Hey everybody, we’ll need to get verified through this service. They’re going to require everyone to upload their IDs, do a background screening, all this good stuff. Here’s the link. And basically that service is the intermediary. Every time I’ve ever asked people to do that, I’ve had no issues whatsoever. Most people are like, oh, okay. It is a little bit of friction, but a lot less friction than asking people to send me eight photos of IDs. So I’d probably try to find some kind of intermediary service that will do that versus asking for it yourself, which some people do, but I dunno, it kind of feels weird. Someone asked me for my id. I’m always just like, why?

David:
Yeah, it’s a supply demand thing. I tend to say, be as restrictive as you can get away with. Yeah, there you go. So if you have an amazing house, tons of demand for it. It’s renting all the time. And you can turn somebody down who says no, and just fill it with somebody else. Have more rules. If Biggers can’t be choosers and you’re having a hard time getting it filled, this may stop the situation you had from happening, but now you have another problem and that’s renting your house and you’re losing money every month, which is worse to have a problem with more people at your house than you should doing dumb stuff or to have a vacant property. We can’t give you an answer exactly what to do, but this is the way that I think you need to weigh the decision that you have. Another thing would be to figure out some way to just make your property undesirable for young kids doing dumb stuff. If you bought a property that has a pool and then an overhanging roof right over it, and it’s an easy access to the roof, you’re going to have people that want to jump off the roof into the pool. So can you put something on the roof to make it very difficult to do that? Yeah.

Rob:
Like the pigeon spikes at restaurants so that the pigeons can’t sit on there.

David:
Yes, pigeon spikes at restaurants. A big fence or something up there, a whole bunch of signage that says, if you do this, you will be charged a godawful amount of money or something like that. Having a manager that greets everybody when they check in, even if they don’t give IDs. Well, I’ve done that before. We’ve rented luxury short-term rentals to host retreats at, and the person who owns the property had somebody that met us when we got there. So if you show up with a bunch of underage kids, 40 people, deep party, there’s someone who sees it right away and it deters them from wanting to do that. I do think that that’s a happy medium if you can’t go all the way to getting people to give IDs that there is someone that goes onsite when they check in to says, Hey, I’m just here to see if you guys need anything, but makes it very clear we see you.

Rob:
That’s hard though. That’s not really an option for, I would say most operators, unless they have property managers, I would say there’s a couple of things I do. I have very stringent house rules that are over the top ridiculous. I mean, I don’t really think this is best practice, but honestly it’s worked for me. And I’ll say, absolutely no parties. If I find out there’s a party, I’ll charge you $500. I’ll have you escorted off the property. We have ring cameras that show how many people, I very much lay into the rules, and then I get so many inquiries every single week that’s like, Hey, does everyone in the party have to be 25 and blah, blah, blah. And we’re able to weed people out because they read my rules. They never even think about booking to begin with. So I feel like you can go a little extra with your rules to kind of deter that. And most people read my rules. If they’re normal people, they’re going to say, oh man, a lot of rules, but that’s not me. And it won’t really bother the general population. So I’ve actually had pretty good luck doing that so far. No one’s really ever called me on it, except some people will say like, Hey, I’m booking your place. It’s for my daughter’s fourth birthday party. I know you said no parties. Is that okay? And I’m always like, the rules weren’t written for you. It’s okay. You can have your 4-year-old birthday party. Yeah,

David:
There you go. So the answer is subtlety and nuance to set a tone that would discourage people if you can’t get away with getting an entire id. Good question though. Thank you, Shannon, for sending this. And remember, we want to hear your questions too. So head to biggerpockets.com/david, submit your question, be featured on Seeing Green and learn how you can make more wealth in real estate with Rob and i. Rob, any parting thoughts before we let these good people get on with their lives?

Rob:
No, man. I am happy to be here. I’m in la. I’m actually in, I’m bigger pock. I’m using the influence of BiggerPockets to change what I might be doing with the room that I’m sitting in. This is the first rental I ever had that I decommissioned because there’s a lot of reasons, but I’m thinking about renovating it and making an extra 1800 bucks a month pure cashflow. So thank you for all the influence you’ve had on me, bud.

David:
All right, awesome. Rob, thanks for being here with me today. I really appreciate it. It’s always fun to do Seeing Green when you’re here, good luck with your renovation. Make sure you keep me in the loop with how that goes. I will. I know that you’re probably ready to start swinging that hammer and using that sauce, so I will let you get out of here. Alright, this is David Green for Rob. Seeing Verde, Abba Solo signing off.