Everything a New Investor Should Know BEFORE Closing on a Property

David:
This is the BiggerPockets Podcast show 709.

Ashley:
So what I did was took my experience, everything that I have learned since starting in real estate in 2013 is when I started and putting that all into a plan. So steps. So each chapter is basically a step as to it’s organizing what you can do. You can find all this information somewhere else and what I’ve tried to do is build it all together, take the important pieces and show you how to get your first year next property.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast. Here today with a special episode. I’ll be joined by fellow real estate investor and BiggerPockets Podcast host Ashley Kehr. Ashley is the co-host of the Real Estate Rookie Podcast, which she does with Tony Robinson where they help rookies to buy real estate. And today, Ashley’s going to be talking about the new book she has coming out through BiggerPockets, Real Estate Rookie: 90 Days to Your First Investment. So if you are a real estate investor or aspiring real estate investor that wants some help on getting your next property and contract, this book might be a great move for you.
In today’s show, Ash and I get into a lot of good stuff, including the steps from when you put a property and contract to the closing table and specifically what you should be looking for during due diligence, the rehab, the insurance provider, the closing table, and more. We give you some really good tips and you want to make sure you catch them all because a lot of these will save you some time and some money even if you’re an experienced investor.
Before we get to Ashley, today’s quick tip is see what is possible in 90 days as you overcome analysis paralysis and set a goal to start making progress on your first or your next deal. Just consider getting Ashley’s book. Even if you’re someone who already owns some real estate, this book can help you be better at doing it and the value you get compared to the price of a book is probably the best ROI you can get in the entire space. Designed to guide every rookie from goal setting to goal realization in record time, this step-by-step guide will skyrocket you from real estate rookie to real estate rockstar within three months. You can find the book biggerpockets.com/podrookie. All right, let’s get to Ashley.
Ashley Kehr, welcome back to the BiggerPockets Real Estate Podcast. How are you today?

Ashley:
Good. Thank you so much for having me back on. It’s been about a year, I think.

David:
Yeah. Now before we get into why you’re here, I do want to say I just got done recording a Seeing Greene episode, and I wanted to pull you in and give you a question Seeing Greene style. Here’s my question and I’m going to pretend like I am the BP listener and you get to be me here.
As a buyer, why does the closing date on a deal matter to me? I never understood the significance. Obviously, I’d want to close on a property generally sooner rather than later, unless we’re nearing the end of December and may as well start the next tax year more cleanly. But is there a strategy element here that I am missing that would help my deal look even more attractive to sellers?

Ashley:
Well, I think the first thing is, is that it can change. It’s variable and it depends on what the seller’s motivation is. So here in Buffalo in the winter, it snows. Nobody wants to move in the winter. So sometimes even offering a delayed closing can be seen as an advantage if you are putting in an offer because sellers don’t want to move and they’re thankful. Like our house is sold, we’re under contract, but we can stay here three more months until the weather is warm and then we’re going to close on the property. Or these people could already have a house in mind, they want to get into their new property. So putting in a quick closing, and I see that a lot more common is that people want to close quickly, they want to be done with the property they’re selling and they want to move on to the next thing in their life.
And when you go with a cash offer, you’re most oftentimes able to close quicker than if you’re doing conventional financing or even an FHA loan. You can close quicker if you’re using hard money. So a lot of times the closing date will actually tie into how you’re purchasing the property too.

David:
Yeah, this question came from Brit in Oregon and it was a little confusing because she says, “Obviously, I’d rather close on a deal sooner rather than later, but most buyers are in the opposite camp. They want more time. You need time to get your loan together, time to get all the organizations of moving together. In general, buyers would like a longer escrow period because they have more time for due diligence, more time to prepare and sellers want to close sooner.” So like you said, Ashley, in general, a shorter timeline is usually more advantageous for the seller, but you also made a good point that you shouldn’t assume that. You got to ask, well, what do the sellers want? Because if they can sell quicker, they’re less likely to have to make another mortgage payment or they’ll get the money faster for the next thing they want.
But sometimes they don’t want to sell quicker because they don’t have anywhere to go. Or like you said, they don’t want to be moving in the middle of winter. And that’s the thing the agents can do, they can make deals work, is they can find out logistics of each party and then put the deal together in a way that works for both people.

Ashley:
Yeah, I’ve even done before that the closing date can be determined by the seller. That I’m not putting into my offer that I want it to close in 30 days, especially on the commercial side when I’m doing a letter of intent and it’s a lot more flexible than sticking to a residential real estate contract that the seller can choose the closing date that there’s no firm and hard time that I need to close by.

David:
Yeah, that’s smart because that takes a lot of anxiety off the sellers because you never know oftentimes what they’re thinking. Good advice there.
So we haven’t talked to you for about a year. I know you’ve been hosting the Real Estate Rookie Podcast there with Tony and that’s been going fantastic. I’ve bumped into you two a couple of times, but tell me what else have you been up to in the last year of your life?

Ashley:
Some of the big things are buying cabins on land and kind of updating these cabins and turning them more into a modern, glamorous experience. I just recently completed an A-frame property that turned out beautiful. That’s kind of been my projects over the last year, doing four cabins and completely renovating them. Besides that, I’ve been hosting BiggerPockets bootcamps on landlording and just being a rookie investor. Once I started doing that, I decided to write a book. My book is coming out January 10th and it is called Real Estate Rookie: 90 Days to Your First Investment.

David:
This sounds pretty juicy. What can we expect to be inside this book?

Ashley:
Basically everything and anything you find in this book except for maybe my own personal experiences, you can find on the internet, you can find in other books, you can find on podcasts, you can find in newspapers, you can find talking to other investors. What I did was took my experience, everything that I have learned since starting in real estate in 2013 is when I started and putting that all into a plan. So steps. So each chapter is basically a step as to it’s organizing what you can do. You can find all this information somewhere else and what I tried to do is build it all together, take the important pieces, and show you how to get your first year next property.

David:
It’s kind of a blueprint, it sounds like. Just follow step one, step two, step three, and you’ll end up with a property.

Ashley:
Yes.

David:
Very cool.

Ashley:
And it’s happened. Doing the bootcamp is we basically did the same thing in the bootcamps. I co-host it with Tyler Madden and we have had so many people come and tell us that they have got their first property or maybe they were stuck after their first or second property and then they went on and took the bootcamp and they were able to get another property under contract. I was just in Phoenix at a BiggerPockets meetup. Tony and I did a live podcast there and two people just at that meetup had attended the bootcamp and came up to me and told me one had gotten one deal already and the other one had gotten two deals.

David:
Okay. So this works, right? Let’s dive deep into one part that new investors may not know about and this would be why a timeline’s important. So you recommend this 90-day timeline, this comes up in the bootcamps, it comes up in your book. What is it about the 90-day timeline that you think helps new investors make progress?

Ashley:
I think just setting a goal and setting a deadline for that goal. So if you want to get a short-term rental or you want a long-term rental or you want to purchase a property to flip, this gives you enough time to complete and go through all of the steps to actually get a property under contract. Depending on the state that you’re in, like New York, you’re most likely not going to close on a property because sometimes it takes 90 days just to close on the property even after you put it under contract. So depending where you live, by the time you actually close on the property, it may not be 90 days, but what we like to see is that you are making offers and you’re getting something under contract within 90 days.

David:
Okay, cool. So let’s dive deep into what’s actually going to be happening in this process and let’s start with when you actually get something in contract. So once the property’s in contract, a lot of people think the job’s done, “Yay! It’s in contract, I bought it.” No, you did it. This is a step and this is where the real work starts and one of the first things is the due diligence. So what do you recommend investors do when they start doing due diligence on the property that they just put in contract?

Ashley:
Before we even get into that, I just want to highlight how important it is to actually get the deal and it’s so exciting and can feel like such a relief, but what I found is that a lot of real estate contract is getting you to that point of finding the deal, how to source deals, analyzing deals, and then making offers. But a lot don’t highlight into what you do after you get the property under contract before you close. So this is where I took a lot of time in the book to explain and I have an acquisitions checklist that I put into the book and then dive deeper into each thing. So a very important part is your due diligence.
We’ve seen in the last couple years that a lot of people were waiving inspections on the property where they were just going in making offers and not really completing any due diligence, but there’s a lot of due diligence that can be done as far as a physical inspection of the property. There’s also due diligence that you can just do from behind a computer of finding out information and data. So some of those things are verifying property taxes, getting a quote on insurance, finding out what the premium would be on an insurance, what type of insurance you need on the property, and then you also have your title company doing the title work looking and seeing if there’s any liens or judgements in the past ownership on the property. Then there’s also going to the county clerk’s office or the town hall talking to the code enforcement officer, especially depending on the type of property.
So with me looking into property with land in rural areas where you’re running into having septics and wells on the property and it’s not hooked up to public utilities. So there’s actually some due diligence that goes into that is finding when was the last time the county inspected it? Does the county need to come out and do an inspection upon the sale? Do you need to replace it? How much is it going to cost?

David:
On the very first property I ever bought, nobody told me that the property taxes were higher than what they were estimated at. So it turned out it was an area, we call them Mello-Roos out here. I don’t know if you guys have that, but it’s extra taxes collected to pay for schools that have been created. Special assessments would probably be the technical term. And I thought the taxes would be $140 a month and they were like 450. It was over $300 a month on a house that I bought for 195,000. It wasn’t like a super expensive real estate where taxes were that high and it crushed the numbers and I didn’t even know that was a thing that could happen. I didn’t know you could have some houses with higher taxes than others. Is that one of the things that you’re talking about investors need to be aware of?

Ashley:
Yeah, and also ar In New York state they have the STAR savings program. It is your primary residence, you can get a tax credit on the property. If you are a farmer or you lease your land to a farmer for agricultural purposes, you can get a discount on your property taxes. The same too if you are a veteran. So if you go and pull the property taxes, you need to know who is actually living in the property now and how is the property held because you could be looking at that low property tax and not realize that that STAR savings amount that is taken off is actually because they live in the property and you’re going to use an investment property and then it’s going to increase.

David:
That’s exactly right. When I first started selling houses, one of the things I would do for my clients is I would pull the property up in the county tax assessor’s website. So you’d look for the assessor’s parcel number. That’s what APN means, if you’ve ever heard the phrase APN, or you could just put the address in and you could find the property and this is actually public information. You could see what your neighbors are paying for taxes, you can see what anybody’s paying. And it would show, okay, here’s what the actual amount that the county’s going to collect is going to be or the state. And then here’s all your special assessments, you’re going to get this, you’re going to get this, you’re going to get this and you see what the taxes are for the individual property and I’m assuming that’s where the STAR assessment would show up or the rebate in the case of it’s a primary residence homeowner.

Ashley:
Yeah, so that’s a great point of where you can actually go to find the property taxes. You can go to the county GIS mapping website. So just Google GIS mapping in your county, and it’s a free website that shows a map and then the parcels and you can actually just click on the parcels or search it. You can go to your town website and a lot of times they’ll have them on there. There are some rural towns that I invest in that don’t even have them on websites yet and you have to physically go to the assessor’s office to pull them. Then there’s other paid sites like PropStream too, which is $99 a month where you’re able to get the property taxes on there.
Just make sure that you’re verifying the property taxes, especially if you’re buying on the MLS or even if the seller is just telling you what the property taxes are, make sure you go and actually verify that data and that you’re getting up-to-date data on it too. So if the property taxes are from over a year ago, make sure you’re pulling the new ones too.

David:
Yeah, and many areas have taxes reassessed upon the sale. So in a handful of places I’ve seen, the tax assessor every 10 years or something comes in and says, “Here’s the value of the property.” They reset all the taxes based on that. But in most areas, when the property changes hands, they reassess it. So the purchase price right there. So another thing that happened on that first house is it had been sold in 2006 as new construction for 595,000. I bought it for 195. So even though I ended up paying more taxes than I expected based on the 195, they collected a buttload of taxes from me at closing through the escrow process because they assessed it at 5 95 still. Then when it was sold, the tax assessor came in and he said, “Okay, it’s worth 195.” It’s one third of the taxes. This guy’s going to pay than what the other people did.
But they had already collected more than that from me at the escrow, so they were supposed to refund it to me. It doesn’t happen commonly, but what they did was they sent it to the property instead of to me and my tenant actually forged the check, cashed it, and then paid me rent with my own money for three months in a row with that tax rebate. So no, when you’re buying the property, when you’re looking at what the taxes currently are, they are a percentage of the purchase price. You’re probably, in most cases, paying more for the house than what the seller paid when they bought it. So your taxes are going to be higher. You can’t look at the exact number and say that’s my taxes. You have to look at the percentage of the purchase price. Is that similar to how you’re teaching the rookies when you’re having them do this part?

Ashley:
Yeah, and I think another important piece to add on to the property taxes of pulling the information is your utilities too is verifying what they’re saying the water and sewer charge is, especially if you are going to be paying part of those as the landlord. And also finding out what kind of utilities are using. So around in here where I live and the areas I invest for the heat, it could be propane, it could be natural, gas or it could be electric, or I actually just bought a house that it was just three wood burning stoves in the property. So there’s very different ways of heating the house and different utilities, also different utility companies. So during that due diligence process, so not only verifying the property taxes but also verifying what types of utilities are on the property and then also the amounts for them too.
So if a property is not well insulated and heat is pumping out of the house and the gas bill is extremely high, even if you are not paying the gas bill, when you get a tenant into that property, they’re most likely going to ask you, “Do you know what the average utilities are for the property?” You can get this information by calling the utility company and asking for an average. They can’t give you exactly what somebody’s bill is, but they can give you an average over six months or a year. Make sure you take the full year, especially you live in an area with different seasons. Because if you’re calling in the fall and you get the last six months, it’s going to be summer. So you want the full year to see what that average bill is. But that’s definitely going to impact tenants coming into the house. You may be able to trick someone and lock them into a year lease, but if they have that super high utility bill because the property isn’t insulated well, then they’re most likely going to move out after that year to someplace more affordable.

David:
That’s a very good point. Now, what about after you’ve done some of that work and now you got to figure out is there a rehab happening. Does every house have a rehab? Do some properties have rehabs? How do you advise people in the book to go about doing your due diligence on the rehab portion of the deal?

Ashley:
Yeah, so the easiest part is, is that you can take your contractor through before you even offer on the property, but sometimes that is just not feasible. So that’s when during your due diligence period, before you close on the property is setting up everything so that the day you close, you’re ready to take action onto the property. So that could be if you have permission, and I always put this into my contracts. Even if I’m not getting bank financing, I do put a contingency in there that I can have access for a contractor and or appraisal. So that way if I end up going financing or hard money or something changes, I still have that opportunity to bring somebody into the property. So for an appraiser or for a contractor. And this usually is not a problem because most of the properties I’m buying are already vacant.
If there are tenants in place, it may be more difficult to get the sellers to agree to this or if maybe they live there as their primary. But it’s always worth asking and always worth a try so that you can take a contractor through to get a more thorough estimate than what you budgeted for. So when you’re doing your inspection or even your showing before you offer on it is take as many pictures as you can and then take a video of the whole house so that way you can go back through and you can really build your budget like okay, there’s 13 windows in the property, they’re all going to need to be replaced. This is what a window costs and how much the labor is to put into it. And you can go through room by room and really build out your estimate and build out that scope of work which you can then give to contractors.
So even if you can’t get them into the property, you can send them the videos, the footage, the scope of work and they can kind of give you at least a ballpark idea. And then right when you close, you’re going to be able to get them right into the property and hopefully have them lined up.

David:
That’s such good advice. It’s very common I’ll hear people get discouraged, “My contractor can’t walk the house during the seven days of due diligence that I have. I have to back out of it.” And I just think that’s crazy because most of the time they can’t give you a super detailed thing. But in Long-Distance Real Estate Investing, when I wrote that book, I talked about how I do this when I’m not even in the area. And I’ve done it recently. I bought a house in Blue Ridge, Georgia or a cabin that you mentioned. You’re buying those two.
And when we were there, I actually taught my agent how to do this when I’m not here. I’m not going to be there on all of these, so get your phone out, take a video, walk through the garage, go slow at these parts and say, “Here’s what he’s wondering. Can we put a bedroom here, a bedroom here? Where would we put the bathroom? We want to knock down this wall.” And he takes a video of the whole thing in case the contractor’s trying to figure out, could there be a load bearing issue in that situation? Then we walked up the stairs of the garage to where basically they had a living quarter set up and we showed this is what the finishings look like here, we want you to match it downstairs.
He gave me a super tight budget of what it would cost to do that just based off the video. Then I closed and then they went in and said, “Oh okay, here’s a few adjustments we have to make now that we’ve seen the property.” But I didn’t need them to walk the whole thing. And it’s much, much simpler than I think we think. And it doesn’t even occur to a lot of people to take a video and then send it to the people when they’re not there. Is that similar to the method that you have in place when you’re buying?

Ashley:
Yeah, definitely. And a common question, and you had said sometimes you can’t get your contractor out there, and I’m seeing this a lot with the rookies recently that they can’t get contractors to come out to the property, especially if they haven’t even closed on the property yet, or maybe they’re not even under contract yet, but they’re new investors, they just want to take every precaution as possible. So one thing that you can do is you can offer to pay a contractor to come through it. So if you are not sure if you’re going to use them or not and you’re having a hard time, you can get that. But also what I’ve been doing is I’ve been building my own scope of work.
So if you have some knowledge or you have somebody that has knowledge, maybe they’re not a contractor or can’t actually do the work for you, but they could walk the property for you and build out, here’s the things that you need to do, build that scope of work and then send it to the contractor. So you’re not asking a contractor for a detailed estimate on what they’ll do. You’re going to send them that scope of work and hand have them fill in the line items. Then if you are sending this to three different contractors, you have very comparable estimates then because you actually built it out. And then also you’re going to get feedback I’m sure, and they’re going to give you something you miss, things like that. But that will also show you who’s actually a great contractor that’s looking out for you too, that they’ll give their input.

David:
What are your thoughts on having your contractor and your home inspector go on the same day when you can line that up?

Ashley:
I don’t know. I’ve never thought about that actually. I’ve never done that. I mean, I don’t see a disadvantage to it.

David:
What would hopefully happen is the home inspector sees stuff and he’s like, “Hey, that needs to be fixed.” But the contractor might not have known that this outlet’s not working or hey… Oftentimes, you’ll find outlets are wired the wrong way or the actual electrical panel isn’t set up correctly or the plumbing is funky. They’re like, “Yeah, that’s weird. Why is it running through here instead of there?” Where they can have the contractor include that in the scope of work if something needs to be done. And conversely, the contractor can say, “This looks weird.” And he can maybe have the home inspector look into if the studs were placed in the right area or if it was wired incorrectly.
That was one of the tips that I learned when I was investing heavily in Jacksonville, Florida and buying a lot of houses at one time, is if I could get both of them at the same time to do their walkthrough, it was less coordinating for my agent to try to figure out how to get the sellers to agree to this and then they kind of played off each other and it just gave me more information to review through the due diligence period.

Ashley:
Yeah, that’s a great point because then you only have to get access to the property one time by having them come at once. And then if for some reason somebody can’t do that, you can send the inspection report to your contractor.

David:
Yes, that’s definitely… We would always do that too. We’d say, “Hey, look at this, tell me the things that you think you could do cheapest.” Because if they’re going to be like it’s $9,000 to fix a little problem, I’m probably not going to have them do it. But sometimes they’re opening up the wall or they’re moving stuff around anyways, they’re like, “Oh yeah, while we’re there, we’ll just fix that.” And you don’t even have to pay anything versus if you had to call a plumber out specifically for that problem, they might charge five grand because they got to cut into your sheet rock and move things. But if you’re demoing the bathroom anyways, you can fix the stuff that shows up in the report.

Ashley:
That’s great too if you are planning on asking the seller to reduce the price or to cover the cost of some of the things that come up in the inspection too. So with having your contractor right there, you’re able to get estimates pretty quickly to be able to renegotiate too with the seller.

David:
Much better than trying to get your contractor to go the same property three times to get an estimate for a new thing when you’re in the middle of negotiating, which is a great segue to the next part of the process with after you put something in contract, it’s negotiating. What is your advice for how you negotiate to get into contract and then what’s your advice for once you’re in contract, what you can do to save some money there too?

Ashley:
Yeah, the thing that I like best, so there’s really two different scenarios, you’re off market or you’re on market, I think it is so much easier to negotiate for an off market deal because you can be direct to the seller and there’s no middle person there. So in that scenario, I’m usually doing a letter of intent where I’m stating the basic terms of the contract, the purchase price, the property, the seller’s information, my information, and the terms of the agreement and any contingencies, I like to send it to them and meet them within 24 hours. So I set a meeting with them, I’ll send it the night before, and then I go and I sit down with them. And I have a copy for myself and I have a pen ready to scribble things out and to initial things to make changes. So I like to get face-to-face for the negotiation and just ask them, “What are the things that you’re hesitant about? What didn’t you like?” And you’ll find out so much information.
I’ve had a seller tell me that he didn’t want to do it and he was kind of like offstandish and he said, “You know, I just need $2,500 a month, that’s what I need.” So what did I do? I worked backwards. I did 25-year seller financing, amortization at 3.5%, and that hit his $2,500 that he needed. And that worked out great for me and it worked out for him, but I never would’ve known that without just having a conversation and listening. So I think there’s so many different reasons people are selling or things that are important to them. So if you can get face-to-face with them, I think it’s a lot easier to read them when you’re talking about something that’s in the letter of intent, what’s important to them and what isn’t important to them.
And then it also gives you kind of the option to put out… So I always do this during the showing. I always ask if they’re interested in doing seller financing. If the answer is dead flat no right away, then that’s when I go and say, “Oh, I didn’t know if you had told your accountant, your CPA you were selling and they had recommended the tax benefits of that. That right there just kind of perks them up a little bit. And then it’s like, you know, there’s always some kind of little thing.” Well, I don’t know, I guess I could talk to them and stuff.” And, “Oh yeah, you should.” It’s many tax benefits.

David:
Can you share that briefly? What are some of the benefits that people can tell a seller about with why they might want to use seller financing?

Ashley:
The first thing is that the taxable income is spread out over the life of the loan agreement that they’re paying. So they’re not going to get hit heavy on taxes of getting a lump sum of money upfront. That’s usually the biggest thing for people. But also if they’re older, their seniors is having that fixed steady income coming in too. I’ve seen a lot of older sellers like that instead of… Especially in campgrounds, I’ve been going after campgrounds and they’re so used to having this monthly income coming in and to them to get this lump sum and now they want to stay within that monthly income that they’re used to getting and that can be seen with long-term rentals. But the biggest tax advantage is that they’re not getting hit as hard with taxes in that first year and it’s spread out.

David:
Yeah, they’re not filling the gain all at one time.

Ashley:
Yeah, and I think a lot of sellers too that are trying to build generational wealth. They see the value too of when I die, these payments are just passed on to my kids, my grandkids, so on so forth.

David:
Very good point. All right. Now what if someone’s using a real estate agent to buy the house? What advice do you have for them with how they can negotiate through their agent?

Ashley:
I think it depends on how much you trust or value your agent’s opinion and how much your agent is going to be working for you. I’ve been in a situation where my own agent that I was using made me feel embarrassed about the things that I was asking for. So I think that it’s very easy for things to get muddled. They’re going from the buyer to their agent, to the seller’s agent to them. And then if you actually get it under contract, in New York state, we have to use attorneys, then you throw the attorneys in the middle of that too and then it’s almost like six people that it’s actually going through.
So I think it’s a lot more difficult to have that conversation and that’s why I always put everything on paper. I write it out how I want it to be. So if I am asking for seller financing in the offer, I am going to write out that amortization schedule. I am going to say, “This month, I want to purchase it for this much.” But over the course of five years, you’re going to be making X amount in interest. And I lay it out. I don’t rely on either agent to explain that as even a benefit of it and showing that they’re actually going to be making more money by accepting the seller financing.

David:
Yeah. You got me thinking about why it becomes so complicated when agents are involved because you’re exactly right. It’s a good point. And I realized there are certain things that become “industry standard” when you’re dealing with agents and some of those vary by region. For instance, in Northern California it’s common for the seller to pay the property transfer tax but the buyer to pay the title and escrow fees. But in some parts of Northern California, you split title and escrow fees evenly. It’s different when you’re in the Bay Area or the Central Valley or the South Bay. What happens is there is no right or wrong way to do it, but the listing agent who’s going to propose the information to their seller is going to color it like they’re asking for something that’s not normal, they’re being greedy. They want you to pay for this. Well customarily, they’re supposed to pay for that.
So now the seller who doesn’t know anything about real estate goes, “Oh, they’re ripping me off.” And now they put their foot down like, “No, we’re not going to do it.” The agent’s like, “Yeah, that’s right, I’m going to save you money.” And then they go to the buyer’s agent and they say they’re not going to do it. The buyer agent goes to you and you’re like, “Yeah, go negotiate it again. That’s ridiculous. They should make them change their mind. That’s your job, right?” Now, the buyer’s agent is like, “Ugh, if I push too hard, they’re going to back out. If I don’t push hard enough, my client’s going to be mad.” And then you, the buyer has no idea what conversations are being had between the listing agent and the seller. And then when you throw in the uncle that wants to help and the dad that wants to protect their kid and the lawyers that are involved and everyone has their own set of values that they think should be operated by, it becomes very hard to do any negotiating at all.
Then, when you’re going directly to the seller, there’s not all of this presupposed way of doing things that you’re trying to fight through. It’s, “Here’s what I’m offering you. Does that benefit you?” “Kind of, but this would benefit me more.” “Okay, let me see if I can structure that in a way that benefits me.” And it’s much cleaner. You don’t have all of the traditions that sort of get associated with how to offend someone.
I was thinking in certain Asian cultures, it’s very traditional to bring a small gift when you’re meeting a new person and I wouldn’t show up bringing a small gift. I’d never think about that. We don’t do that where I’m from. And so you could offend people very easily and that happens in real estate sales constantly. And then you throw in different brokers that have different ways of doing things and different MLSs have different things and different title and escrow companies set things up differently. There’s so many ways to upset people. And each side is only hearing how the other side didn’t agree, and then both sides get really angry. It’s like game of telephone where things can get messy. So is that one of the ways that you like going just directly to seller because you can avoid all that?

Ashley:
Yeah, but I do have to say there has been times when having an agent has definitely been an advantage because maybe they are friends with the other agent or they know them well. And even times as it may seem unethical, there are times where agents do drop a hint or give a fact about the sellers that maybe other people putting in offers don’t know or things like that. Or even if you’re both wanting different prices and whatever, the agents are representing the buyer or seller, the different representation, they both want to sell the property. They both have the end goal of closing on that property to get their commission. So sometimes it gets to a certain point where the agents are more working together just to get the deal done. And that can be a huge advantage because you have the buyer and the seller’s agent both doing whatever they can do to make this deal happen.
So I’ve seen that, especially if something like a negotiation has dragged on and on and on or things come up. I had a property that I had under contract and I was doing financing on it, I was getting an appraisal done. The appraiser would not come out to the property unless the driveway was plowed. Seller absolutely refused to plow the driveway. So the real estate agents offered to split the cost of having the snow plow driver come in because they both wanted to move the deal and get it done. The plow driver actually got stuck in the driveway. It was another $400 to get him towed out of the driveway and it turned into this big awful thing. But just like right there, if it was just me negotiating with the seller, I am so stubborn sometimes that I wouldn’t have forked over the money to pay the plow driver, eventually maybe, but I think that was like, that’s definitely an advantage of having agents is when they decide to actually work together for what’s best for the buyer and seller to get the deal done.

David:
I’ve seen things like that happen that make no objective sense. So let’s say the seller doesn’t want to pay 500 bucks to get the driveway plowed, but it took them 90 days to get in contract. They’re going to wait another 90 days to find another buyer. They’re going to spend $7,000 in mortgage payments or more to go that period of time rather than spend $500 to plow their own driveway so that an appraiser can come into the property. But they get in that just stubborn, I’m not budging, and the buyers can do it too. That’s exactly right. A lot of what you’re doing as an agent, as odd as this is to say, is you’re negotiating against the other side, but you’re often negotiating with your own client. You’re trying to get them to see the ridiculousness of their emotional decisions.
Like we were the seller, the buyer was willing to spend 1.2. That’s where I negotiated the price to. It appraised at a million, the buyer’s still going to buy it and the buyer just wants the seller to fix some wood rot, a $2,000 thing and they’re like, “I’m not giving them anything.” And you’re like, “You do realize they’re spending $200,000 more than it’s worth and there’s a very good chance the next appraiser doesn’t give you that. And you might win this battle and then sell your house for the million it appraised for. You want to risk 200,000 over two grand.” And they’re like, “Oh, okay. I didn’t think about it.” Because people don’t think about it. They’re very emotional and good agents absolutely can bring some light into the craziness.
I think someone who’s experienced buying real estate often becomes experienced with humans. People think learning real estate investing is getting the numbers down. Man, that’s like the basics. It’s like the super fundamentals. That’s just dribbling a basketball and shooting a bat. It doesn’t make you good at basketball. Human beings and psychology is where your money really gets made, especially when you’re dealing with people. What advice do you have for people that are trying to break into real estate investing and maybe they’re struggling with understanding how to communicate better or the right way to present information?

Ashley:
The first thing is to read the book, You’re Not Listening. I’ll have to have the producers put in the show notes because I don’t remember the author offhand, but that book right there I think is exactly what you just talked about, is to understanding how someone’s feeling, reading their emotion and actually listening to them and not just trying to be reactive by responding right away and trying to rationalize with them. A lot of times people just want to be understood, they just want to be heard. And if you’re actually listening, you can maybe see some underlying thing that will help you actually resolve and solve the issue instead of trying to rationalize with them or really see what’s going on.
The other book that I would recommend is Hug Your Haters by Jay Baer. It’s a customer service based book, but I think it is a great read for anyone. So whether someone is giving you constructive criticism or bad feedback or you’re dealing with a difficult seller or a difficult client, this just goes through the steps of how to handle that situation. It’s kind of an exaggeration of kill them with kindness. It just shows all these cases of when somebody is almost attacking you or arguing with you, especially when you’re in a negotiation as to how you can handle that situation to end up getting them to be thanking you.
Between those two books, I think those are really great reads, but communicating with people, that I have learned so much along the years. I have worked alongside this investor for almost eight years I think now, maybe even longer. We often laugh at how far I have come. I started out as a property manager and just dealing with tenants. I would just get so flustered, I would get overwhelmed. And now it’s just handling different situations, staying calm, cool, collected, actually really thinking about how to respond because you can learn how to read people and all those things, but you’re not going to be able to actually take notice of things if you’re not yourself listening to them and actually observing. And you have to be able to stop yourself from reacting right away and going back and defending yourself and getting defensive before you can actually see the big picture of what they’re trying to explain to you.

David:
That is a very good point. You want to understand where they’re coming from before you try to make them understand where you’re coming from and that takes some discipline. That’s not a natural response.

Ashley:
And you just said everything I said in one sentence. That could have been way shorter.

David:
Well, I had the benefit of thinking of my response as you were giving yours. Don’t be too hard on yourself there.

Ashley:
And that’s part of the book is don’t think of your response. It’s like most people don’t listen, they’re actually thinking of their response, which is so hard to do, so hard to do.

David:
Yeah. That’s like our baseline right off the market, right off the factory assembly line is to be defensive and to try to prove people that we’re right, which is so weird because it’s wildly arrogant to assume you’re right about everything all the time. We all know the value of learning, but for some reason when we’re in a conversation with somebody else, we don’t think about learning. We think about how we need to teach them. We need to get them to see things from our point of view. I always use the example of if you’re a boxer and you’re trying to knock out your opponent, it doesn’t work when their hands are up and they’re not tired, you’re just going to punch yourself out and get tired. What you want to do is let them punch themselves out. Don’t try to knock somebody out until they’re tired they don’t want to be fighting anymore, which you usually do by getting them to talk.
Once someone has said everything they need to say, they’ve got it all out of their chest and they told you how they feel, they are at their most vulnerable point as a human being ever, that’s when you want to deliver your information. That seed will hit the softest, most fertile soil versus when you’re trying to shove it in there before the person’s ready to hear it. It actually just saves you a lot of energy too. That’s a great point. Thank you for those two books. Now, moving on to insurance. What are some things that people should need to know when looking to buy their house about homeowner’s insurance?

Ashley:
The first thing is finding an agent that’s familiar with doing landlord policies or whatever your strategy is. If you’re flipping a house and it’s going to be vacant, your insurance policy is going to be very different from a property that actually has somebody living in it. If you have a long-term rental property, if you have a short-term rental property, your insurance is going to be different. The cost of a short-term rental is usually higher than say your primary residence, but the cost of a long-term rental can oftentimes be lower than your primary residence because you’re not covering any of the contents in the building. So aligning with an agent as to who has experience in these different realms or whatever your strategy is and having them actually sit down with you in going through the policy as to what’s covered, what’s not covered.
So like something that could not be covered on an insurance policy here in New York is in basements, there are sump pumps oftentimes, to pump out any water that comes into the basement of these old, old houses at these old foundations. That’s like an added coverage onto most policies and you have to ask to have that added so that if the sump pump doesn’t kick on or have a malfunction, your insurance policy will cover that. Also, you can get a discount for so many things. Like having a sump pump, you can get a discount for because it will pump out the water if there is flooding. So there’s different things and find out and ask what those discounts are because they can really add up.
The next thing is any specialty insurance that’s needed on the property. So Tony Robinson, my wonderful co-host, he bought a property in Louisiana and he had to get flood insurance on it and the flood insurance skyrocketed where the property became unaffordable to him. So that’s why it’s important to find out the information beforehand, and this was his first investment property and it’s been a learning experience for us and many listeners too to understand, but there is earthquake insurance. There’s all these different types of insurance policies that you can get and some of them are required, especially if you’re getting a mortgage on the property such as the flood insurance.

David:
Okay. Last question for you. Do you have a preference between paying a little bit more to have an insurance agent that you communicate with if there’s a claim or if there’s a question or do you recommend people go the cheapest route possible and find an online insurance agency where you have to deal through virtual assistance or AI?

Ashley:
I don’t know if there really is a cost difference because when you hire an agent, you’re going through… So actually first, I wouldn’t go with an agent. I would go with an insurance broker because they’re able to quote it out to multiple companies. So then you’re getting the quotes back and then you can go ahead and choose from there. That’s my biggest recommendation. As far as doing an online site, I don’t know this for sure, I’ve never used them before, they say that they’ll quote out your policies and give you the estimates back. As far as them offering it discounted, I don’t know because it’s actually the insurance company sending the offer and not the actual agency. I don’t know. That’s a good question.

David:
Yeah, the insurance company sending the offer will often make it cheaper if you do it through the online portal because they don’t have to pay a commission or a wage to the person who brought them the business.

Ashley:
Commission?

David:
Yes.

Ashley:
Interesting.

David:
The problem is when you make a claim through that, you get no help. You can’t email someone and say, “I have flooding, what do I do?” That’s what everybody wants. You’re forced to go through the phone tree and they’re like, “Well, the reason we gave you the discount is because we don’t pay anybody to service your claim.” And I’ve just seen people pull their hair out of their head going, getting bounced from person to person or dealing with bots or not getting a reply or talking to someone who doesn’t speak English that just gives them a case number and hangs up on them.
It’s very frustrating if you ever have to deal with the insurance company, and that’s why I bring this up because it often seems like an easy way for investors to save money, which is funny because your insurance is such a small piece of your whole real estate budget. It’s probably the worst way to try to make it more profitable is by saving $12 a month on your insurance program or something. But if you have an insurance broker, like you said, you have a human being that you can go to and say, “A tree fell on my roof, what do I do?” And they say, “We’ll take care of it, we got you.”

Ashley:
And not even that part of it too. I find the biggest reason I need to talk to my agent or broker is because I need a copy of my policy binder showing that if I’m getting a new mortgage on the property or some kind of new financing that the lender is actually added on as a loss payee and just having that done quickly or just being able to put insurance policy on a property. And this is why I went through and made this acquisition checklist, it was because several years ago my agent called me the day before closing, my real estate agent, “Okay, are you all set to close? You got the utilities switched in your name, you got your insurance.” And I panicked. It just slipped my mind. There was just so many things going on and I just forgot this one basic necessity. And having an agent where I could just call right away and send them the information and say, “I need insurance asap. I’m closing tomorrow.” And having that relationship where they will drop everything and take care of that for you.

David:
All right. Last question of our show. What can someone expect on closing day if they make it that far?

Ashley:
That varies by how you actually close on the property. So there are several different ways. In New York state, you have an attorney. You could either go to the county clerk’s office and sit at a closing table, and that’s quite common if you are using to purchase it with a mortgage where you’re going to meet the attorney for the bank, you’re going to sit down in actual closing table and then your attorney is going to take the documents and file them with the county clerk.
If you’re in a state that you don’t have to use attorneys and you can just go through title, you may have to go to the title office and sit there and sign the documents, or you can have a notary and you can go to your attorney’s office ahead of time, sign, they’ll notarize them, or the title company can send a notary to you. You see a lot of investors on Instagram posting how they’re signing closing documents from the beach or a restaurant on vacation. And so I think closing has started to change. Like my attorney’s office, pre COVID, I always had to physically go into the office the day of the closing, then the papers would be rushed to the other attorney’s office that same day, then it would go and actually be filed that same day and I would bring the check and the check would be brought along.
Now, I just went and signed yesterday for a property that’s closing. It’s not going to close until next week. The funds are being held in escrow until closing, and then they will be released when it’s actually filed with the clerk’s office. So the paperwork between the next five days, the paperwork went from me to the buyer and then it will go to the clerk’s office all within that timeframe. So there are so many different ways. The most exciting I think is when you’re actually sitting at a closing table, you get handed the keys after you sign and you give your check, but I really have not seen that happen. Oftentimes, I don’t even get keys to a property anymore it seems like.

David:
Yeah, that’s true. You rarely ever get handed keys. Like your agent figures out some way to coordinate those. That’s a good point. What are some things you recommend that on closing day, when people go sit down, assuming that they’ve gone through an escrow company and a real estate agent, they’re not working directly with seller, that they should be looking at in their closing paperwork to make sure that it’s accurate?

Ashley:
So even like the day before closing or maybe the morning of closing, you should be going to the property and doing a final inspection, a final walkthrough. Even if you’re buying a property that’s been vacant the whole time you’ve had it under contract, you want to go in there and make sure the pipes didn’t freeze and water burst all over, different things like that. You still want to go and make sure the property is in the same condition as when you put it under contract. So that’s the first thing you should do. Then on the actual closing days, looking at the closing statement. And if you are working with a great title company or attorney, they should send this to you ahead of time to actually review.
So if you’re purchasing a property that has tenants in place, you want to make sure that you’re being prorated for the actual rental income. So maybe the tenants pay on the first, but you’re closing on the 15th so that it’s prorated for the 15 days that you’re going to be taking over the property and they’re keeping the first 15 days that they own the property. Also, if there’s a security deposit, that you are getting the security deposit. So that’s usually seen as a credit on the statement. So it’s not like you’re actually getting a check for $600, they’re just taking $600 off of the total purchase price.
Then you want to make sure the property taxes are prorated, which will be figured out for you. The seller had paid any that still cover part of the tax year. And those are kind of the big things. And then also just be aware as to what kind of fees you are paying, filing fees, title fees, survey fees, if any, things like that. And just get familiar with what a closing statement looks like. You can Google one and just look at, get familiar as to different charges that are on them. And if you’re closing with a mortgage too, it’ll definitely be way more in depth than if you just have your attorney put it together for a cash deal.

David:
Those are great, great points. Another one I’ll add, this is something that’s in my checklist that I have my assistants whenever I’m closing a property that they do, because it happens so frequently, is the closing costs that we’re negotiated are often not included in the paperwork. And I always would just get so angry like someone’s screwing me over until I realize how it works is the agents fill out the addendum, they work it out. Sometimes there’s two or three of them going back and forth before you finally agree, or more, on what it’s going to be. Those are forwarded to the title company. If they’re not forwarded to the title company, the title company has no way of knowing, or I should say the escrow company, has no way of knowing if those should be included. Even if they are, often the closing statement was filled out before the negotiations were done.
So some employee at that place gets the email that says, “Here’s addendums.” And they don’t read all of them, or they don’t look at them closely and they just don’t see, oh, $7,500 credit is supposed to go to the buyer because when they were originally negotiating, that wasn’t in there. So you should know going in what your credits that you’re supposed to be getting and whether they’re lender credits, they’re credits from the seller, or if it’s the other way around, if something was adjusted, if the appraise price came in lower and you adjusted the purchase price down. Don’t assume that the closing paperwork is going to reflect that. As the buyer, you have to go in knowing. And it’s okay to delay closing if you say, “Hey, this needs to be fixed.”
So that’s one of the reasons that we always try to schedule these last like when you go to sign your paperwork early in the morning. Because if you do it at four o’clock in the afternoon because that’s when it’s convenient for you or whatever, you try to figure it out at your lunch break at 2:30, it’s too late in the day to get the new documents drawn up and get all the approvals and now the closing is delayed by a day and that can screw things up. So there are still human beings that are involved in putting this stuff together and human beings make mistakes.
All right, Ashley. Well, this has been fantastic. Thank you so much for sharing so much of your knowledge, wisdom, and time with us on specifically how to get a property for someone who hasn’t got one or hasn’t got many. Before we let you get out of here, where can people find this book?

Ashley:
You can go to the BiggerPockets bookstore. And if you order before January 10th, which is when it officially releases, you get some of the pre-order bonuses, a bunch of worksheets and just tons of forms and documents I’ve put together over the years. But also you could win a chance to actually be mentored by Tony and I, and it’ll actually be recorded and played live on the Real Estate Rookie Podcast. So you’ll get some help from us and you’ll actually get to be a guest on the podcast too.

David:
Awesome. So go check that out. Unless you’ve got a million properties, go get Ashley’s book and learn how you can get more. And if you already do have a couple properties, learn how you can do it better, right? There’s lots of ways, like we talked about on the show, where you can make pretty big mistakes. So if you heard anything on today’s episode and thought, “Ooh, I’m not doing that.” Go get the book and see what else you might not be doing.
Thank you very much for your time, Ashley. I know you’re a busy woman, so I’m going to let you get out of here. Guys, if you liked Ashley’s show, go check her out on the Real Estate Rookie Podcast. Ashley, where else can people find out more about you?

Ashley:
You can reach out to me on biggerpockets.com, my profile there, or on Instagram, @wealthfromrentals.

David:
And you can find me on Instagram or YouTube or anywhere else, @davidgreene24. All right, thanks Ashley. Good luck with your book sales and we’ll see you soon.