The Simple Formula to Estimate Renovation Costs (2025 Numbers)

Summary

BiggerPockets Real Estate Podcast Episode: The Simple Formula to Estimate Renovation Costs (2025 Numbers)
Release Date: June 18, 2025

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Introduction

In this episode of the BiggerPockets Real Estate Podcast, host Dave Meyer teams up with Henry Washington to address pressing questions from real estate investors. With a combined experience of 25 years in the field, Dave and Henry delve into topics ranging from estimating renovation costs to navigating property management and portfolio financing strategies. This episode is a treasure trove for both novice and seasoned investors aiming to optimize their real estate ventures.

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1. Estimating Renovation Costs

Listener Question:
Chris from the Upper Peninsula of Michigan asks, "I'm looking to get into the buying and renovate (BUR) game and trying to estimate how much renovations will cost for an average distressed two to three-bedroom home, 1200 square feet or less. Is $50k reasonable for a small single-family home?"
(Timestamp: [01:00])

Henry Washington's Insights:
Henry affirms that estimating renovation costs is indeed feasible, especially for those without prior experience. He introduces the cost-per-square-foot method as a reliable framework:

• Cosmetic Light Renovation:
  $10 to $25 per square foot
  Suitable for painting, flooring, and minor updates.

• Mid-Tier Renovation:
  $20 to $40 per square foot
  Involves more substantial work like remodeling kitchens and bathrooms or moving walls.

• High-End Renovation:
  $35 to $75 per square foot
  Comprehensive overhauls, including structural changes and luxury finishes.

Notable Quote:
"You can just take an average cost per square foot and multiply it by the size of the house to get a rough estimate of labor and materials costs." — Henry Washington ([01:55])

Dave concurs, highlighting that while this method is effective for mid-tier markets, prices may vary in high-cost areas like New York or San Francisco. For Chris's scenario, Henry calculates:

• Mid-Tier Estimate:
  $35 per square foot × 1200 sq. ft. = $42,000

Given this, a $50,000 budget is deemed reasonable, assuming the property is structurally sound without significant issues like foundation problems or roof repairs.

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2. Transitioning to Property Management Companies

Listener Question:
John from Nashville inquires, "To all self-managing landlords who switched to using a property management company, what caused you to make the switch? Was it to gain back time, improve efficiency, or better achieve your investment goals?"
(Timestamp: [06:44])

Henry Washington's Perspective:
Henry shares his personal journey of managing approximately 80 rentals before transitioning to a property management company. Initially, his wife handled day-to-day operations, but as the portfolio grew, it became evident that professional management could offer greater efficiency and expertise.

Key Benefits Highlighted:

• Terminology Matters:
  Instead of calling tenants "tenants," they are referred to as "residents," fostering a sense of community and respect.
  "Those little things make a difference in how a tenant or a resident will take care of your property." — Henry Washington ([08:00])

• Efficiency Over Passion:
  While Henry values personal care for his properties, he acknowledges that property managers bring efficiency that can enhance profitability.
  "Efficiency is arguably more important... more money that I'm making is basically the salary I was throwing out the window for me being my own bad property manager." — Henry Washington ([09:46])

• Cost-Benefit Analysis:
  Dave adds that hiring a competent property manager can save money by reducing vacancy periods and optimizing rent collection.
  "Money is very efficient for caring about property." — Dave Meyer ([10:50])

Notable Quote:
"Underwrite your deals as if you are going to have professional property management when you're making your offers." — Henry Washington ([14:49])

Henry emphasizes the importance of budgeting for property management from the outset, ensuring that even if investors switch to professional management down the line, their profitability remains intact.

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3. Evaluating a Potential Flip/Rental in Phoenix

Listener Question:
Stepan from Phoenix asks, "I found an off-market property in central Phoenix that could be a solid flip or rental. Purchase price: $285k. Rehab estimate: $115k. ARV: $500k. Does this seem too much hassle?"
(Timestamp: [17:08])

Henry Washington's Analysis:
Henry meticulously breaks down the numbers to assess the viability of Stepan's deal:

• Total Investment:
  Purchase Price ($285k) + Rehab ($115k) + Closing Costs ($15k) + Holding Costs ($12k) + Agent Fees ($30k) = $172k

• Projected Revenue:
  ARV ($500k) - Total Investment ($172k) = $328k

• Net Profit:
  $328k - $285k = $43k

Despite the seemingly attractive profit, Henry raises concerns about the thin margin relative to the high rehab costs. Unexpected expenses could significantly erode profits, making the deal too risky.

Dave Meyer's Input:
Dave concurs, stating that while $43k is substantial, the risk-reward profile isn't favorable given the high capital and effort required. He suggests looking for less intensive projects with better margins or exploring multi-unit properties to enhance cash flow.

Notable Quote:
"If I'm spending $115k on renovation and only making $43k, that's a little too thin for me." — Henry Washington ([19:26])

Conclusion:
Henry advises against proceeding with the deal at the current price point, recommending a price adjustment to around $240k to make it more profitable and less risky.

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4. Navigating Exclusive Agent Agreements

Listener Question:
A listener asks, "I want to do fix and flips. I connected with an investor-friendly real estate agent who now wants me to sign an exclusive buyer agency compensation agreement. Is it necessary to sign such agreements to work with multiple agents and access various deals?"
(Timestamp: [22:00])

Henry Washington's Response:
Henry clarifies that an exclusive agent agreement typically binds an investor to work solely with one agent, limiting access to deals from other sources. He outlines his approach to agent relationships:

• Property-Specific Agreements:
  Henry is open to signing exclusivity only for specific properties he acquires through an agent.
  "We have a gentleman's agreement... He gets exclusive access to list and sell all of my properties." — Henry Washington ([23:00])

• Avoiding Blanket Exclusivity:
  He steers clear of overarching exclusive agreements that restrict collaboration with multiple agents, as this can limit deal flow and flexibility.
  "There isn't one. And so in today's day and age, anything on market, any agent can sell you." — Dave Meyer ([26:46])

• Building Trust Without Contracts:
  Henry emphasizes establishing trust and mutual understanding with agents without the necessity of signing exclusive contracts. This fosters a more dynamic and open deal environment.

Notable Quote:
"If some other agent brings me a deal, I'll tell them if I'm interested or not. I'm going to use them." — Henry Washington ([25:00])

Dave Meyer's Insight:
Dave resonates with Henry's stance, highlighting that exclusive agreements can be restrictive and not always beneficial for investors seeking diverse opportunities. He encourages investors to work with agents who offer flexibility and value without demanding exclusivity.

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5. Refinancing Strategies for Portfolio Growth

Listener Question:
Dave from Chicago presents a scenario: "I have four cash-flow positive rentals but am running out of capital to buy more. Considering a cash-out refinance on a property with $400k in equity to take out $200k, which would result in a negative cash flow of $500/month. Is it acceptable for the portfolio to maintain overall positive cash flow?"
(Timestamp: [32:18])

Henry Washington's Advice:
Henry evaluates the strategy by examining both its feasibility and potential pitfalls:

• Pros:
  Utilizing excess equity to fund new acquisitions can accelerate portfolio growth, provided the additional investments yield higher returns that compensate for any negative cash flow.

• Cons:

  • Risk of Underestimation:
    High rehab costs or unforeseen expenses could drastically reduce or eliminate profits.
  • Loan Structure Concerns:
    Henry recommends opting for a line of credit over a cash-out refinance to maintain lower interest costs and greater financial flexibility.
    "A HELOC allows you to pay interest only on the amount you actually use." — Henry Washington ([34:52])

Dave Meyer's Follow-Up:
Dave explores alternative strategies like the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat) and emphasizes the importance of ensuring that any negative cash flow is temporary and manageable within the broader portfolio. He also considers the potential for increased vacancies and the impact on long-term profitability.

Notable Quote:
"If you're cash-flowing every month from your rentals, maybe you just enjoy that for a little while and then use the cash flow to buy your next deal." — Henry Washington ([35:43])

Alternative Recommendation:
Henry suggests considering the 1031 Exchange, allowing investors to sell a property and reinvest the proceeds into a larger multi-unit building. This strategy can enhance cash flow and provide more substantial returns with potentially lower management burdens per unit.

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Conclusion

Dave and Henry wrap up the episode by emphasizing the importance of:

• Accurate Budgeting:
  Always underwrite deals conservatively, factoring in potential expenses like property management to safeguard profitability.

• Strategic Planning:
  Evaluate the risk-reward ratio meticulously before committing to high-capital projects.

• Building Trust with Professionals:
  Establishing strong, flexible relationships with agents and property managers can streamline operations and enhance investment outcomes.

Final Thoughts:
Whether you're diving into home renovations, contemplating professional property management, or strategizing your portfolio's financial structure, this episode provides actionable insights and practical frameworks to make informed decisions and achieve financial freedom through real estate investing.

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Disclaimer: The content of this summary is for informational purposes only and does not constitute financial advice. Always consult with qualified professionals before making investment decisions.

Transcript

[Dave Meyer]

I know I can get rich if I just pull off this home renovation, but I just don't know how much it's going to cost. And that's a question you've been asking yourself. Today we have an answer for you. What's up, everyone? It's Dave here on the BiggerPockets podcast. And today we're diving back into the BiggerPockets forums to answer a whole bunch of questions that you all are asking about your own real estate investing. Henry Washington is here with me. So we have about 25 years of combined investing experience on this episode. We've got great questions about how to project renovation costs if you've never done one before, when it's time to hire a property manager, whether it's ever okay to create negative cash flow with a refinance and much more. Henry, how are you, man?

[Henry Washington]

I'm doing well, sir. How about you?

[Dave Meyer]

Good. It's been a while since we've done one of these, but these are some good questions. Are you, you ready to jump in?

[Henry Washington]

Yeah. Yeah, man. I love these episodes. Let's do it.

[Dave Meyer]

Same. All right, so our first question comes from Chris, who's an investor in the Upper Peninsula of Michigan. His question says, I'm looking to get into the bur game and trying to estimate how much renovations will cost for an average distressed two to three bedroom home. 1200 square feet or less. I keep hearing that costs of labor and supplies are rising, so I'm wondering if 50 grand is reasonable to get a small, smaller single family home looking like something you'd see on hgtv. I don't plan on doing any of the work myself. I'd rather stay out of the way and let professionals do their thing. We'll touch that HGT thing in just a minute. But let's start with the main question here about just estimating renovation costs. Is this even possible? Like, can you ballpark something as broad as a distressed two to three bedroom home? 1200 square feet?

[Henry Washington]

Well. Well, as you ask the question, the answer is yes. Can you ballpark something like renovation costs? Absolutely. Now, if you'd have said can you ballpark them accurately? Then we'd have to have to be a little more specific. But in all seriousness, there are several ways that you can ballpark a renovation when you don't have any experience. I had zero construction experience when I got started and I still don't know how to do anything. But I at least understand the order of operations now. And what looks like make sense and what doesn't. And the Answer to the question. Is 50 grand reasonable for a smaller single family home? Yeah, it is. I think that's a reasonable budget. I don't know, you know, what you define as like HGTV style finishes, but one of the things you can just do is just take an average cost per square foot, right? So if you take somewhere between 10 to 20 to $25 a square foot and call that in a cosmetic light renovation takes somewhere between 20 and 35, $40 a square foot and call that kind of like your mid level renovation. So maybe you're not doing down to the studs, but maybe you're moving a wall or two and completely remodeling a kitchen and a bathroom or something like that. That's a little more than just paint and floors. Call that your mid tier and then take something upwards of 35 to 55, 60, maybe even 75, depending on how much of a remodel you're trying to do. Is it luxury finishes, is it not? Right. And you set your, your high end, your. Maybe you're going from down to the studs, maybe you're moving a kitchen from one side of the house to the other. Those things tend to get a lot more expensive than just remodeling things in place. But you can just take those numbers, multiply them by the square footage of the house and that should give you a rough estimate of labor and materials cost. Now is that something that you want to use to make your final offer on the project and base all of your numbers on. No, I don't think that's what you should be doing with general estimates. These general estimates are just meant for you as you're analyzing a deal to see if the numbers are even in the realm of possibility for you. And then if they are, then once you make an offer, you can go see the house and, and get a whole lot more specific on that rehab budget and then adjust your offer if you need to. But just for the sake of analyzing a deal like this, yeah, just take a cost per square foot, low, medium and high and see if you're in that ballpark. So in this sense, you know, we can try it with this just before we go into.

[Dave Meyer]

That's just remarkably helpful framework. I just want to say, and I'm sure if you're in New York or San Francisco, it's probably going to be a little bit different. But for markets like Henry's and I'm sure most markets, mid tier markets in the US this makes sense. So what'd you say mid tier was 30 to 40 bucks a foot.

[Henry Washington]

Yeah, yeah. So if we did 35 a square foot times 1200, what's that? 42, 000? Yeah, 42,000. So yeah, he's probably pretty close.

[Dave Meyer]

All right, you're going to be on Love it or Listed or Flip or Flop or whatever show HGTV is after. Yeah, I think that's, that's really good. I think the one main thing here though that you're probably assuming that I want to call out is that you're buying a house without any structural issues. Right. This is a house that's probably mostly in decent shape. You don't have foundation issues, you probably don't have a roof caving in. You don't need to completely rebuild part of the house or something like that. You know, the bones are decent enough that you're going to be able to do a lot of your work without huge amounts of permitting, without any sort of like specialty tricks, trades or anything like that. But that, that seems pretty good. And I mean, I don't know what you're buying these things for in the Upper Peninsula, but to me, if you could burst off for under 50 grand and that property is in demand in your area, that's probably a good place to start. And you're probably going to find some decent deals there, I would imagine.

[Henry Washington]

Yeah, especially in that Upper Peninsula area, I think there's probably some decent deals. And spending 50k on a renovation, you probably put yourself in a pretty decent position with those low entry price points and pretty decent sized rents there. So.

[Dave Meyer]

All right, you nailed that one. You just taught people how to be an HGTV flipper in under six minutes. Henry, congratulations.

[Henry Washington]

Take that, Tarek.

[Dave Meyer]

Yeah, seriously. Going on to question two. This comes from John in Nashville. John asks to all self managing landlords that switch to using a property management company, what caused you to make the switch? Was there a situation that deterred you from self managing? Were you just looking to gain back your time or did you feel like using a property management company could help you better achieve your goals? You're laughing. What are you thinking about?

[Henry Washington]

I'm thinking about the story my now property manager told me when I was deciding whether or not I wanted to use him for reference for people. I probably had about 80 ish stores at the time that I turned my portfolio over to property management.

[Dave Meyer]

You were doing that by yourself? 80?

[Henry Washington]

Yeah, yeah, my wife was handling most of the day to day. My wife would handle everything up until she actually had to talk to a tenant because of some sort of Dispute then it was my job. And you know, I've always been a proponent of no one will take care of your properties as good as you will. And so, yes, it might be an inconvenience to you, but you'll care more than somebody else. And I wouldn't call myself a normal landlord. I put a whole lot more emphasis on people, meaning, like, I truly care about the tenants and I truly care to have a safe, comfortable place to live. And sometimes I'm willing to take a hit in the wallet to do what's right that I feel like what's right for my tenants. And not every landlord will do that. And property management companies definitely don't make money on a business model like that. And so I was hesitant to turn over my portfolio to someone who might not care as much as I do. And a couple of things that stood out when I chose to work with this property management company. First of all, they don't refer to their tenants as tenants. They call them residents.

[Dave Meyer]

Those things matter. I know it kind of sounds like woo, woo, like these little things about what you call things and how do you refer to people? But it does matter. And it, especially when you hire people, that stuff persists through your organization.

[Henry Washington]

I mean, there is a right, wrong or indifferent. I don't care how you feel. There is a stigma, you know, with the term tenant. You know, sometimes people see that as somebody who, you know, maybe they can't afford to buy a house or. Right. Like there's this. There's the stigma. That doesn't make any sense, but it's there, right? And so the fact that they're calling them residents and that helps the resident feel like they're more a part of this system lets them know that, like, hey, we care about you. We want you to have a good experience, right? And that those little things make a difference in how a tenant or a resident will take care of your property, pay their rent on time, like all those things matter. The second thing that stuck out to me when I was analyzing it, you know, I told him, he was like, man, I. I just don't think anyone's going to care about my properties as much as I do. And he said, you're absolutely right. We don't care about your properties as much as you do, but we are way more efficient at this process than you are. And caring is only one piece of the puzzle. Efficiency is arguably more important. He was like, how long does it take you to turn a unit? And I was like, I don't know, it depends on the unit. He was like, I can tell you exactly how long it takes me to turn a unit. It takes me 10 to 15 days to turn a unit, depending on where it is. Also, you have good contractor relationships. We have the same contractor relationship that you do. So it's not like you're going to lose money having us do a turn. So I'd argue that you're already paying for a property manager in the amount of money you're losing per month. In inefficiencies, you're just paying a bad one.

[Dave Meyer]

It's so true.

[Henry Washington]

And I was like, you're right. Right.

[Dave Meyer]

Yeah, Right.

[Henry Washington]

Like, the efficiencies I pick up is going to make me more money. And that more money that I'm making is basically the salary I was. I was throwing out the window for me being my own bad property manager.

[Dave Meyer]

Totally. Yeah. And the, like, the efficiency thing really matters because, like, I've at least noticed in my own investing since I switched to a property manager. And I'll explain why in just a minute. But, like, you do save some money on that, right? So just say you had a $2,000 unit. You're turning that thing. You have two weeks less vacancy. That's $1,000. That's a thousand dollars. And you could choose then to reinvest into the property. You could pocket that money. You could set it aside as a, you know, cash reserve. So if the tenant needs something, like, you can use that money to care about your property. Right. Like you can. Instead of using your attention to care about the property, you can use money to care about your property. And money is very efficient for caring about property.

[Henry Washington]

Money is great for caring about properties. Yes.

[Dave Meyer]

Yeah. And listen, there are pros and cons, and I do recommend people start.

[Henry Washington]

Yes, I agree.

[Dave Meyer]

I am very glad I did that. I did it for 10 years. I will now tell you that I just like real estate better now that I don't.

[Henry Washington]

So I also agree with that.

[Dave Meyer]

It's more fun for me because now I get to do the stuff I'm good at and the stuff I like and not be stressed out about the stuff that was bothering me. And I started when I was 23, so I had nothing to do. I could just go. It was very easy for me to just go take care of stuff all the time. We were cashing checks, we were picking them up in person. Those days, you know, that was fine, but, like, now I don't want to do it, and I just find it to be much more sustainable. John asks, why did you do it. The reason I made the changes because I moved out of Denver so I had to do it. I was moving to Europe. And that's been great because yeah, I now paid 10% of my revenue to a property manager to take care of it. And this property manager is good. It's not, he's not like they're not the best, to be honest, but it's good enough. They take care of the tenants, the tenants like them, which is what I care about.

[Henry Washington]

Right.

[Dave Meyer]

And they're communicative enough, they do a good enough job and allows me to focus on acquiring new properties or renovating properties or doing all the other stuff I do in real estate. And so to me, that is, that is well worth it. But I'm super glad that I self managed first because I can sort of critique them and coach them and manage them because yeah, I know what it's like to, to manage properties for a long time.

[Henry Washington]

Yeah, absolutely. I'm glad I did it first as well. Like just the, the knowledge you'll gain from doing this process, A, will help you understand what they're doing and if it's necessary and B, will help you be able to call the BS when the BS flag needs to be, you know, thrown because you have been through the process and understand how it.

[Dave Meyer]

Before we move on, I want to mention one thing because I think a lot of people say if you hire a property manager, you are going to make less money and all things being equal. Maybe. But I would only say that that is true if you're a good property manager. Suck at it. Like you're just not making as much money. I'm sorry. And there are points where, where I've been bad at it. Not because I don't know how to do it, because other parts of your life come up.

[Henry Washington]

Yeah.

[Dave Meyer]

And you wind up saying, you know, I could efficiently turn this property, but I have something going on in my personal life or my social life or I'm going on vacation and now it's going to take me six weeks to turn this unit instead of two weeks to earn this unit. And yeah, if I, I cared the most, but I just lost $2,000 because other things came up in my life and I'm just kind of acting too proud to hire someone to do it. So there's no right answer. I think both can work. But just think about it for yourself, like, are you actually making more money doing this yourself or would hiring a professional do better?

[Henry Washington]

I think the most important thing that we should mention is that regardless of how you feel about this debate on whether you need property managers or whether you're going to self manage. You need to underwrite your deals as if you are going to have professional property management when you're making your offers. Because you could be like me and think I'm nigga never going to hire property management because that is 100 how I felt. But things changed, right? Like things changed in my opinion changed. And because I underwrote my deals conservatively and included that expense even though I wasn't paying that expense then when I go to hire somebody I'm not losing money, right? It's not cutting into my profits because I never budgeted for it in the first place. Like you may feel passionately one way or the other, but I'm begging you, underwrite it as if you're going to pay for professional property management and you will never have to worry about that debate. You'll just make more money if you don't hire. If you're doing the job well, 100%.

[Dave Meyer]

That is great advice. We do have several more questions to get to, but first we have to take a quick break. We'll be right back.

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[Dave Meyer]

Welcome back to the Bigger Pockets podcast. I am here with Henry Washington answering your questions. Our next question comes from Stepan in Phoenix. He wants to know would you take on this flip or is it too much? Well, I'm already disqualified from answering this question. I'm sorry to you man. Stepan says, I found an off market property in central Phoenix that could be a solid flip or rental, but it definitely needs some work. Purchase price 285k. That's cheap for Phoenix. By my understanding, with a rehab estimate of about 115000 and an ARV of 500, 000, it's a 2:1 main house with an attached 1:1 unit. Oh, I like that. Roughly 1800 to 2, 000 square feet. This is not step and talking. Just as a reminder, that was 285. Purchase price 115 as the Rehab ARV of 500. Stepan then says the renovation list is pretty long. Roof, eight track windows, full interior updates, electrical, plumbing, landscaping, basically a full gut. But the location is great and the layout could work for a flip or a rental with multiple units. Would you take this on or does it seem like more hassle than it's worth? Curious to hear how you all would approach it. All right, Henry, I see you calculating and doing your flip robot thing over there. Tell us, tell us what you're writing down and what calculations you're doing over there.

[Henry Washington]

Yeah, I was, I was plugging in these numbers to see first and foremost if 285 is a reasonable price to pay.

[Dave Meyer]

Yeah.

[Henry Washington]

To do this deal. So you've got a ARV of 500,000. So if you take that ARV of 500,000. When you sell that property, you're going to have to pay 6% to an agent. So that's 30 grand. You're going to have to pay about 15 grand in closing, so you're at 45 grand. You're gonna pay maybe 12 grand in holding costs. So 57,000, and then another 115 for the renovation. So 57 plus 115 is 172,000. So you've got 500 grand minus 172, which gives you 328,000. They're saying they're paying 285.

[Dave Meyer]

Yep.

[Henry Washington]

So if you subtract 285 from that 328, that give you a net profit of $43,000. Now, I'm not saying $43,000 isn't good money. That's awesome money for me. If I'm risking 115 in the renovation and only making 43, that's a little too thin for me. Because $115,000 renovation says there's a whole lot of work to be done. What if I missed something that needs to be done? What if I under budgeted by 20, 30 grand? Well, now my profit goes from 40 down to like, like 10 to 15. That's just. And it's probably going to take you six to eight months to do this if you're going to be efficient. Even so, I don't, you know, this is. It's too thin at that price point. And my rule of thumb I've talked about before, I want to make what I put into a home. So if I'm spending 115, I wouldn't want to make anything less than like 90.

[Dave Meyer]

If you can uphold that principle that you have of making an 100% return, essentially, that's pretty darn good. It probably doesn't always work out that way, but if you target that, if you aim big and you miss a little bit, you're still going to do just fine. For me, the numbers here don't make sense to me. The. The risk reward profile is just not right.

[Henry Washington]

Absolutely.

[Dave Meyer]

Like you said, 43 grand is a ton of money. That's not the problem here. It's the amount of effort and the amount of capital that you have to put up and risk to make that 43 grand. I think there's just probably easier ways to make 43 grand, I guess, is another way of putting it. You can take on an easier project, a less intensive flip, a less risky thing than taking something down to the studs and make 43 grand. I would just keep looking. The only other thing that came to mind, I was curious if this would work as a bur. Because once that Stepan said that it was two units. It was a 2:1 main house, a 1:1 unit. Like, could you get this to close to 1% rule after? Probably not. I don't know what this area of Phoenix is. I think to make this work as a bur, you probably need to get 4,000. 4,500 bucks a month in rent. And I'm guessing in three total bedrooms. You're not getting.

[Henry Washington]

Yeah, they're all in it. Four. 400,000. So you need to be getting, you know, four grand a month. And I don't. Yeah, maybe you may get there, but. Yeah, but then, you know, you're refinancing at 75% of value. I don't think you'll be able to pull all your money out. You're gonna have to leave some in it.

[Dave Meyer]

Yeah, you definitely have to leave some in. For me, that would be okay. But to answer your question, Stepan, it seems like, yes, it's more hassle than it's worth.

[Henry Washington]

If you want to answer, I would not do this deal at that price.

[Dave Meyer]

It's not worth it.

[Henry Washington]

I would subtract 42,000. So I'd pay 240. 243 for this property.

[Dave Meyer]

Okay, well, there's another option. So, Stepan, if you can negotiate this thing down, get into that 240 range. 245 range. Maybe. Maybe it would be worth it. But sounds like at this price doesn't work. All right, well, let's move on to our fourth question, which is, I'm curious your thoughts on this one. This one is about exclusive agent agreements. The question reads, I want to do fix and flips. I connected with an investor friendly real estate agent. We had a good conversation, and now he wants me to sign an exclusive buyer agency compensation agreement. I plan to purchase a property within one month. So I hope to work with multiple agents and expose myself to as many deals as possible. Is it a rule that I have to sign the agreement if I work with agents to find the deals? So I'm curious, Henry, if you have one of these. But first, can you just tell everyone what an exclusive agent agreement is?

[Henry Washington]

Yeah. So in this sense of the question, exclusive agent agreement. This agent is asking the seller to sign something that says that they will only exclusively work with this real estate agent. And that protects the agent from you going out and finding another agent and doing deals with other agents. And I do not sign these. I don't sign these at all. And I work with the same real estate agent for almost every transaction. Now, when I do have a property that my agent either brings me to buy or that my agent is going to sell for me, I will sign an agency agreement for that specific property, of course. And that just means that I won't work with another agent on that specific property. Those I sign for every property that I'm going to work with that agent on. But it's property specific, so I'm okay signing it property specific. I'm not okay signing it not tied to a property. And the reason for that is, well, a couple of reasons. One is if you sign this and then your agent decides to not be as awesome, right? Well, now, now you're stuck working with this not so awesome agent. They don't have incentive to perform well. The other thing is, other agents may bring you deals that can make you money. And now for you to do those deals, you'll have to find a way to bring your agent in on them. And there may not be room for your agent to be brought in and paid on those deals. And so I think you can work exclusively with an agent. You just have to have some stipulations and there has to be some trust. And so what I do with my agent, I'll happily share with everybody. The agreement I have with the agent that I work with is any deal that I buy direct to seller, he is not involved in. But if I sell that deal, so if I buy something, renovate it, and then sell it it, he will list that property. He gets exclusive access to list and sell all of my properties. Now, I haven't signed the document saying that he gets that. That's just the agreement. He and I have a gentleman's agreement, right? So because what he does in exchange for that is when I'm buying properties off market, I still need to know what's the value of those properties. And so he will help me determine the values of properties that I'm buying, even though I'm not using him as my agent for on the purchased. And he's doing that because he knows when I go to sell them, he will get to be the agent that represents me on the sale. He also understands that part of our agreement is that if some other agent brings me a deal, that I will use that agent to buy that deal. And if that agent wants me to, I will use that agent to sell that deal. Because that agent brought me the deal. He brought me the thing that's going to compensate me. And so we agree that that's fair. And that's just the agreement that he and I have. We didn't, we don't, we didn't have to sign some exclusive agreement in order to have that agreement. So there's gonna have to be some trust. And maybe if your agent wants you to sign this agreement, it just means you guys haven't built up the trust in your relationship yet. Maybe you just need to work together some more until you get to a point where he trusts you and you trust him and you just, you know, you have that gentleman's agreement.

[Dave Meyer]

Yeah, I, I think what you have with your agent is entirely fair. And that's kind of like the perfect scenario. Right? Like you're giving your agent plenty of business, he's bringing you business. But it's not like you can't make money from other sources. That just doesn't really make sense. And I get it. I do understand from an agent's perspective that they don't want to waste their time and show people a bunch of properties and then have the, the buyer go and work with someone else. But at the same time, as an investor, I just don't really see what the benefit is to me to, to signing an exclusive agreement.

[Henry Washington]

There's not one.

[Dave Meyer]

There isn't one. And so in today's day and age, anything on market, any agent can sell you. Right. So I don't really see why I would sign an exclusive for that. Because if you're going to giving me good service, I'm going to work with you. Like I'm not going to go shop for other agents for something on market if you're providing me with a good service. But for every everything else, like if you're finding pocket listings or off market deals, like I would take those from anyone. Why would I limit myself for the amount of deals that I would be able to see? And it's not like I'm leading people on. When an agent sends me a pocket listing, I'll tell them if I'm interested or not. And if they sent me the pocket listing, I'm not going to take it to a different agent, I'm going to use them. But the commodity here is the deal. Right. And so I'm going to work with whoever can get me the best deal.

[Henry Washington]

That's the way it should be. And look, I know it's annoying to show houses and end up not getting a deal. I know it's annoying to put in effort and then not be compensated for it on the back end, unpopular opinion. That's the business you signed up for.

[Dave Meyer]

It's also every job.

[Henry Washington]

Like, that's every job that's part of the business. And yeah, there are some things that you can do to limit that, but that's gonna happen. It's like the cost of doing business for being an agent. Sometimes times those things are going to happen.

[Dave Meyer]

Yeah. How many times do you negotiate direct to seller with people and it doesn't work out?

[Henry Washington]

Pretty much almost all of them.

[Dave Meyer]

Yeah, exactly. It's a number.

[Henry Washington]

I just, I mean, I went. I spent an hour and a half at this guy's house today. Did he want my offer? No, he didn't want my offer. But it's part of the business.

[Dave Meyer]

That's just part of the business. Exactly. It's just part of being in a service industry is like part of what you're doing is sales and testing people out. And as an agent, you have a total. Right. Like, if you don't want to be with someone who you think is a tire kicker, don't work with them. You just. You don't need to.

[Henry Washington]

That's the other end of this.

[Dave Meyer]

As you become a, you know, a respected agent and you build out your portfolio, you might not need to work with as many people. And this agent may be at that point in his or her career where she's saying, like, you know what? You have to sign this because I have lots of great clients. I don't need you. Fine, that's great. Good for you. But like that. Not every agent is going to be able to sort of command that level of exclusivity and commitment with every type of investor. That's just. It's just not going to work out that way.

[Henry Washington]

That is a great point, and I'm glad you brought that up, because the other side of this coin is like, we as the investors have to be okay if they don't want to work with us because of that. Like, that is. It's not personal. Right. Like, it's your business. You run it how you want to. If you think you need this in order to run your business the way you want, that's perfectly fine. Then we probably just don't need to work together. There's no hard feelings there. Like, that's just how it is. Go find somebody that will work with you the way you want to be worked with. That's. That's normal. That's okay.

[Dave Meyer]

Yeah. Well, I'm glad. That's a very reconciliatory tone before we go to our break we'll be right back. BiggerPockets is hosting a really cool, fun New Deal Analysis Challenge this week only from June 16 to June 23. Here's the deal. If you analyze seven properties using BiggerPockets calculators during that time, you can be entered into a random drawing to win a BiggerPockets Pro membership, a free general admission ticket to BPCON 2025 in Las Vegas, and a $100 gift card to the BiggerPockets bookstore. Head to biggerpockets.com 7deals for all the.

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Contact.Com running out of gas? That's a problem that's avoidable Owning a rental property without proper landlord insurance? That's a problem that's equally avoidable. Steadily Landlord Insurance can help. Steadily offers fast quotes on property and liability coverages that are tailor made for the real estate investor community, and they can even compare pricing from multiple carriers for landlords looking to weigh their different options. You can rest easy knowing your investments are secure with Steadily. They're available online 247 and they can start coverage as fast as the next day. Visit biggerpockets.com landlordinsurance to secure your investments with Steadily Insurance. Steadily Insurance founded by Landlords for Landlords welcome Back to the BiggerPockets podcast. Henry and I are answering user questions. This one one comes from Dave in Chicago. Dave says, I have four rentals. All are cash flow positive, but I'm running out of capital to buy more. One option is to cash out refi one property that has $400,000 in equity. If I take out 200k, that property will have a negative cash flow of 500 bucks a month, but the overall portfolio will still be cash flow positive and I'll have capital for another purchase. My goal would be to bring burr a new property and recycle as much capital as possible. Any thoughts if an individual property can have negative cash flow to provide capital as long as the portfolio as a whole is still positive? I like this question and I like talking about portfolio level strategy because I feel like we talk a lot about deals, individual deals, but figuring out how to use your whole portfolio to grow something I love. But Henry, how would you approach this one?

[Henry Washington]

Well, first, to answer his question, is it is it okay to do that? I think it can be okay to do that as long as you know your numbers. In other words, you need to know or at least have a great idea of what your expected return is on the money you're going to go spend to buy more property. In other words, you need to know is that money making me more money staying put where it is, or is that money making me more money by me pulling it out? It's going to cost me a little bit in negative cash flow. But even if I calculate that negative cash flow and add that to the return I'm going to get from the assets, I'm going to Buy, is it going to make me more money? Like that's the math you need to do? Yeah. Nine times out of 10, if you're buying in a cash flow heavy market, yeah, that, that's going to be fine. And so I don't think there's anything wrong with doing that. Now. Is that the approach I would take? No, that's not the approach I would take. I wouldn't refinance the property. I would get a line of credit on the equity.

[Dave Meyer]

Yeah.

[Henry Washington]

So that way I'm not restructuring my loan at a higher price point. I'm keeping my mortgage payment essentially the same and then that way I will have an additional payment on the heloc. But that money is only interest, only on the money that I actually use and not paying interest on the entire amount from the second I pull it on a refinance. And so that way if you go get a line of credit and you get access to, you know, $350,000 on a line of credit, but you only need to use 50 to 75 of it to go buy your next property, well, you're only paying interest on that 50 to 75 because that's all you have out on that line of credit right now versus if you refinance it and you get a new loan at a higher amount, your interest is front loaded in the first five to seven years on that mortgage. And so you're paying a whole lot more for that money and a refinance. So I would just do a line of credit versus going to get a refinance.

[Dave Meyer]

That makes a lot of sense, especially if you're doing the BRRRR strategy where you're going to be coming out of pocket for a lot of renovation costs of a lot. Like you could probably pay for the acquisition and the renovation costs with your line of credit. I don't know what rates are at, but it's probably going to be a very competitive rate compared to a construction loan, if that's what you were going to get, or any sort of renovation style loan. So I think, I think what you're saying makes a lot of sense. My questions for Dave would be one, is the deal you're going to do great? Because it sounds like you have a pretty good portfolio. And if you're slowing down an acquisition, that just happens. That's just part of being a real estate investor. Like you run out of capital and there are some times where you should just wait and save up your money. And if you're cash flowing every month from your four rentals Maybe you just enjoy that for a little while and then use the cash flow to buy your next deal. But if you're seeing great deals out there. Yeah, like you could do this. I think Henry's point is really good. Doing a HELOC just seems like an easier way to accomplish the exact same end. But the other thing I would ask you is like, what is going to happen to that other deal if you refinance it? Because sure, I can envision scenarios myself where I would carry a property that is cash flow negative for a while, but not indefinitely. So that, that's the other thing I would ask is like, let's just call it property one. This is the one. You have 400k in equity and you want to take 200,000 out. You're going to refi it and then. And it's losing 500 bucks a month. How does that get back to cash flowing? How long does that take? Is that going to take years? Did you already do a burr there? Because if you've already done a burr there and already added value, then I'm wondering what that that property is doing for you in your portfolio. Right. It's not going to value add. You're not going to build that much equity. You're losing cash flow on it. Sell it. Sell it or HELOC it, but refine it seems like it might be the worst of the three options.

[Henry Washington]

Yeah, that's a, that's a great point too, because at some point, if you've tapped all that equity now you're stuck because you can't even sell it and get out of it.

[Dave Meyer]

Yeah.

[Henry Washington]

Another option could be you sell it and 1031 it into a, you know, duplex, triplex, quadplex apart, small apartment building. So that way you're taking that equity and then you're paying down a larger asset quite a bit. That's going to get you a ton of cash flow. If you go and put all that cash into a, you know, 4, 5, 6, 7, 8, 10 unit building and you're putting down a hefty down payment, that's going to get you a lot more cash flow as well.

[Dave Meyer]

Definitely. I was reading about the multifamily market in Chicago last night, and it is a good one. No one's building anything. There could be a good option for you. All right, well, those are our questions from today. Thank you, Henry, for joining us. Appreciate all your insights here, man.

[Henry Washington]

Thank you for having me. This is a good time.

[Dave Meyer]

And thank you all so much for listening. Before we go, as a reminder, all the questions that we talked about today came from the BiggerPockets forums. So if you have any questions that you want us to answer or you want just the wisdom of the BiggerPockets community to weigh in on, go to biggerpockets.com forums. Get that expert advice from thousands of BiggerPockets users. And of course, Henry and I might tackle them on our next Q and A episode. Thank you all so much for listening. We'll see you next time. Time thank you all for listening to the BiggerPockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify or any other podcast platform. Our new episodes come out Monday, Wednesday and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico, content and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. the content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose, and remember, past performance is not indicative of future results. Biggerpockets LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.