Real Estate Rookie Podcast — Episode Summary

Episode Title: Buying a “Cheap” Rental Property: What 99% of Rookies Miss (Rookie Reply)
Hosts: Ashley Kehr and Tony J Robinson
Date: December 19, 2025
Podcast: Real Estate Rookie by BiggerPockets

Overview

In this "Rookie Reply" episode, Ashley and Tony tackle three crucial questions facing beginner real estate investors:

1. Should you get umbrella insurance?
2. What are the downsides to using an FHA loan?
3. Neighborhood vs. numbers: Should you buy a cheap property in a rougher area if the deal looks great on paper?

With practical examples and a conversational, supportive tone, the hosts dissect each scenario, provide actionable advice, and share personal stories to help rookies avoid common pitfalls.

Key Discussion Points & Insights

1. Should You Get Umbrella Insurance?

(Segment starts: 01:05)

• Listener’s Situation: The listener, Taylor, has several rentals—some in LLCs, others not yet due to lender constraints—seeking advice on umbrella insurance and liability protection.
• Main Points:
  • LLCs & Asset Protection: LLCs don’t prevent lawsuits but can protect personal assets and sometimes deter frivolous suits through complex structures.
    • Tony: "The asset protection’s goal is to hopefully prevent a lawsuit from happening in the first place... Sometimes it just discourages people from even trying to sue you in the first place." (02:17)
    • Ashley: Clarifies LLCs mainly protect assets inside the LLC, not stop lawsuits entirely. (03:06)
  • Umbrella Insurance: Provides liability coverage above standard landlord insurance limits—useful if a claim exceeds your primary coverage.
    • Tony: "The umbrella policy is what will be that backdrop to give you additional liability protection to cover whatever that shortfall is from your landlord insurance." (04:36)
  • Partnerships & Unknowns: Umbrella insurance especially wise in partnerships where you can’t always control potential mishaps.
    • Ashley: “I do still do the umbrella policy because it helps me sleep at night... I highly, highly recommend that you get an umbrella policy for your personal assets.” (05:41)
  • Cost: Umbrella policies are inexpensive compared to the coverage they provide.
    • Tony: "$2 million of coverage... was like 500 bucks for the year." (08:09)
  • Tax Benefits: The LLC can pay for the policy; premiums may be a business write-off.

Memorable Quote:

"If you’re on the fence about it and you feel like you’ve got enough assets to protect, then yeah, I would just say spend the 60 bucks a month and get the umbrella policy." — Tony (08:09)

2. FHA Loan Downsides

(Segment starts: 10:55)

• Listener’s Question: Erica asks if having FHA financing makes offers less competitive and if sellers are wary due to FHA appraisals.
• Main Points:
  • FHA Inspection Hurdles: The real challenge is stricter FHA inspections (not the appraisal), which often result in required repairs before closing.
    • Ashley: Recounts a personal story where her uncle had to install stair railings to meet FHA inspection requirements before a sale could close. (11:17)
  • Seller Preference: Sellers may favor conventional loans over FHA/VA due to fewer hurdles.
    • Ashley: "Yes, it could be a deterrent." (12:20)
  • Alternative: Consider 5% down conventional loans; for a little more upfront cash, you can sidestep FHA limitations and be more competitive.
  • Offer Strengthening Strategies:
    • Raise purchase price.
    • Offer a larger earnest money deposit.
    • Offer to handle some required repairs yourself.
    • Understand seller motivations and tailor your offer accordingly.

Notable Quote:

"If I’m a seller...and one is FHA, one is VA, and one is conventional, yes, I’m going to be more towards wanting to take the conventional loan because there’s not as many hoops to jump through." — Ashley (12:16)

3. Neighborhood versus Numbers: The “Cheap” Rental Property Dilemma

(Segment starts: 17:28)

• Listener’s Situation: Anthony is eyeing a property with strong returns on paper in a high-crime, low-income neighborhood but feels uneasy about the location.
• Main Points:
  • The Temptation of Paper Returns: Properties with high cash-on-cash returns often lure rookies, but the neighborhood quality can make or break the investment.
    • Tony: "A lot of rookie investors get, you know, googly eyed when maybe they see the prices for some of these properties in areas of town where...they can make a ton of money in terms of cash flow on paper." (18:08)
  • Ashley’s Story: Bought $20,000 duplexes that “looked great” (even exceeding the 1% Rule)—but they became “one of my worst properties.” Key issues: high turnover, frequent repairs, low tenant quality.
    • Ashley: "It was one of my worst properties... const antly repairs that needed to be made, capital improvements... and then just the tenant turnover... So, you know, it just, it didn’t work out for me." (19:08)
  • Systems & Strategies Matter: Some investors succeed in tough neighborhoods because they have systems and processes built for those challenges.
    • Tony: Shares Steve Rosenberg’s story—a portfolio suffered under one owner, thrived under another with better systems. (22:49)
  • Section 8 Tenants: May offer more reliable rent and less turnover in challenging neighborhoods. Ashley notes long-term voucher holders are usually solid tenants and suggests learning how Section 8 works locally.
  • Government Risk: During government shutdowns (or emergencies like COVID), Section 8 payments can be delayed. Landlords need reserves and robust risk management.
    • Ashley: "Just a prime example of making sure to really beef up your reserves and to not be over leveraged..." (28:57)
  • Investor Mindset: "If I could go back and do it again, I would... buy quality properties and really take my time and grow slowly." — Ashley (21:51)

Notable Quotes & Memorable Moments

• On Umbrella Insurance:

  • “I do still do the umbrella policy because it helps me sleep at night, first of all. And it’s just giving me more money to be able to defend myself.” — Ashley (05:41)
  • "It is not a large expense...spend the 60 bucks a month and get the umbrella policy." — Tony (08:09)

• On FHA Loans:

  • "The FHA inspection... they're going to go through the property and look for things that they care about." — Ashley (11:09)
  • “If you have that extra little bit of money...you can just get the conventional loan and not even use the FHA loan.” — Ashley (12:56)

• On Buying in Rougher Neighborhoods:

  • “Everyone’s complaining they can’t even hit the 1% rule...I’m like, this is great. This is a home run deal. It was one of my worst properties.” — Ashley (19:08)
  • “If this is the only way that you’re going to get started, just prepare yourself that you are going to have more repairs and maintenance and vacancies than expect...” — Ashley (21:51)
  • "It does come down to the operator and how they work." — Tony (23:56)
  • "[Section 8] tenants would make their payments, their portion, because they did not want to lose that...there was like an eight year wait list to get a voucher." — Ashley (24:54)
  • “Just a prime example of making sure to really beef up your reserves and to not be over leveraged and to not put yourself at so much risk too as a rookie investor.” — Ashley (28:57)

Important Timestamps

• 01:05: First question, umbrella insurance pros/cons
• 05:41: Ashley’s advice on umbrella policies for partnerships & personal assets
• 08:09: Tony on the affordability of umbrella insurance
• 10:55: Next question—downsides of using an FHA loan as a buyer
• 11:09: Ashley elaborates on FHA inspection hurdles
• 12:16: Seller preferences and FHA vs conventional
• 17:28: Final question—numbers vs neighborhood for “cheap” properties
• 19:08: Ashley details her cautionary tale (“3% rule” property nightmare)
• 22:49: Tony: Property management systems matter, Steve Rosenberg story
• 24:54: Ashley: Section 8 tenant realities, risks, and government shutdowns

Takeaways for New Investors

• Umbrella insurance is a cost-effective, added layer of liability protection—especially wise as your portfolio grows or if you invest with partners.
• FHA loans offer low down payments, but stricter inspections and seller hesitancy can make your offers less attractive than conventional financing.
• Chasing high returns in rougher areas can backfire. Factor in turnovers, repairs, tenant quality, and your own risk tolerance. Investing in cheap properties isn’t always the fastest path to wealth; proceed with caution, solid systems, and sufficient reserves.

End Note:
This episode is a must-listen for rookies weighing protection strategies, funding options, and the realities of chasing “cheap” investment deals. Ashley and Tony’s candid stories and step-by-step breakdowns offer invaluable context and make intimidating topics feel much more approachable.