Build Wealth Faster with This Tax “Loophole” (1031 Exchange) (Rookie Reply)

Summary

Podcast Summary: Real Estate Rookie Episode 103 - "Build Wealth Faster with This Tax 'Loophole’ (1031 Exchange)"

Introduction

In Episode 103 of the Real Estate Rookie podcast, hosted by BiggerPockets' Ashley Kehr and Tony J. Robinson, the hosts delve into the intricacies of the 1031 Exchange—a powerful tax strategy for real estate investors. Released on December 13, 2024, this episode serves as a comprehensive guide for novice investors looking to optimize their wealth-building strategies through informed real estate decisions.

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1. Understanding the 1031 Exchange

The episode begins with Ashley introducing a listener's question about utilizing a 1031 Exchange to avoid capital gains tax when selling a second property.

Ashley Kehr [00:46]:

"Today we're going to discuss 1031 exchanges and how to properly utilize them, if you should sell or rent your property, and finally, how to decide if you should focus on rehabbing or growing your portfolio."

Tony J. Robinson provides a foundational definition of the 1031 Exchange:

Tony J. Robinson [02:21]:

"It's section 1031 of the tax code that allows real estate investors like us to defer paying taxes on the sale of a piece of real estate, assuming that you use the proceeds of that property to go out and buy another piece of real estate."

They emphasize the importance of adhering to the stringent timelines and procedures associated with the 1031 Exchange, including the necessity of employing a qualified intermediary to manage the transaction funds.

Ashley Kehr [04:04]:

"Like kind doesn't mean price point or the cost of the property or what you sold the property for. It's more of the type of property. For example, an investment property that is like if you have a commercial property purchasing another commercial property."

Key Points Discussed:

• Definition of Like-Kind Property: The exchange focuses on the type of property rather than its value. For instance, exchanging a single-family home for another single-family home qualifies as like-kind.

• Financial Specifications: Tony clarifies that there are limitations on the purchase price of the replacement property. Typically, investors can identify replacement properties up to 200% of the sale price of the original property and must ensure the new property's value is at least 95% of the sold property's value.

• Costs Involved: Hiring a qualified intermediary generally costs between $1,000 to $2,000, a worthwhile investment given the tax deferral benefits.

Ashley Kehr [06:33]:

"I didn't know that about the 95% of what the sale price was for doing the 1031 exchange at all."

Tony J. Robinson [10:34]:

"But 1031 is a great approach, right? And I think the thing that some people think is it just means that, like, it erases the tax liability. It doesn't do that. It just kind of transfers it into the next deal."

Insights:

• Deferral, Not Elimination: The 1031 Exchange defers tax liabilities rather than eliminating them. Investors can continue to defer taxes indefinitely by reinvesting in like-kind properties.

• Ownership Consistency: Maintaining the same ownership throughout the exchange process is crucial. Changes in partnership or ownership structures can complicate or invalidate the exchange.

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2. Sell vs. Rent: Evaluating Property Decisions

The second segment addresses a listener contemplating whether to sell or rent out a condo acquired for $120,000, now valued at approximately $180,000.

Listener's Scenario Highlights:

• Pros of Selling: Avoid capital gains tax, immediate liquidity, impending major repairs (HVAC replacement, deck restoration).
• Cons of Selling: Loss of potential rental income, tax implications if not utilizing a 1031 Exchange.

Ashley Kehr [14:56]:

"If you were to sell it, how much cash, how much capital would you bring in today from the sale of the property? Then looking at what could you, what would be the return that you could make on it if you deployed that cash to something else?"

Tony J. Robinson [16:43]:

"Is your goal with this condo to generate as much cash flow as humanly possible? Is your goal to maybe have an asset that's going to appreciate over time..."

Key Considerations:

• Financial Analysis: Assessing potential cash flow from renting versus immediate gains from selling. This includes factoring in rental income, ongoing expenses, and anticipated repairs.

• Long-Term Goals: Understanding whether the primary objective is cash flow, asset appreciation, or liquidity influences the decision to sell or rent.

• Market Validation: Verifying the current market value of the property is essential to make an informed decision. Overestimating or underestimating the property's value can skew the financial analysis.

Tony J. Robinson [19:55]:

"But based on the information that we have so far, I'm leaning towards keeping it as a rental as well."

Insights:

• Cash Flow Stability: Renting can provide a steady income stream, especially if the property is owned outright and yields a healthy return on investment.

• Tax Benefits of Renting: Holding onto the property may offer further tax advantages, including depreciation and potential capital gains exclusion if the property is held long enough.

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3. Adding Value vs. Expanding the Portfolio

The final discussion revolves around a listener's dilemma: investing $60,000 to renovate a quadplex versus using those funds to purchase additional single-family homes.

Listener's Scenario Highlights:

• Current Financials: Quadplex grosses $3,200/month with $1,200 monthly profit post-expenses. Outstanding mortgage of $95,000 at 6.5% interest.
• Proposed Investment: $60,000 for siding, window replacement, and front porch renovation, potentially reducing profit to $800/month.

Ashley Kehr [23:56]:

"It really depends if that would even make an impact on the rent because the inside of the house is still staying the same."

Tony J. Robinson [25:58]:

"I think the other question that, that I'd ask here is let's assume that you can get a lift in your, in your, and the rents that you charge..."

Key Considerations:

• Return on Investment (ROI): Evaluating whether the $60,000 renovation will lead to increased rental income or property value sufficient to offset the investment.

• Property Equity: Assessing how renovations might enhance the property's market value and equity, potentially facilitating better refinancing options.

• Opportunity Cost: Comparing the potential returns from renovating the existing property against the possible gains from acquiring additional properties.

Ashley Kehr [29:00]:

"...look at the equity of the property and the value of the property after you've done that repair."

Tony J. Robinson [29:13]:

"There's maybe you spend the 60 but it increases the home's value by 100."

Insights:

• Equity Enhancement: Strategic renovations can significantly boost property equity, providing greater financial leverage for future investments.

• Portfolio Diversification: Allocating funds to purchase additional properties can amplify income streams and diversify investment risk.

• Long-Term Maintenance: Addressing major repairs proactively can prevent larger expenses in the future, ensuring the property's longevity and profitability.

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Conclusions and Takeaways

Throughout the episode, Ashley and Tony emphasize the importance of informed decision-making in real estate investments. Whether leveraging the 1031 Exchange to defer taxes, deciding between selling or renting a property, or choosing between adding value to existing assets versus expanding the portfolio, the hosts advocate for:

1. Thorough Financial Analysis: Always run comprehensive numbers to understand the financial implications of each decision.

2. Aligning with Investment Goals: Ensure that each strategy aligns with your long-term financial objectives and personal circumstances.

3. Professional Consultation: Engage with qualified intermediaries, CPAs, and real estate professionals to navigate complex transactions and maximize benefits.

4. Market Validation: Continuously assess and verify property values and market conditions to make data-driven investment choices.

By addressing real-world scenarios and providing actionable insights, this episode equips novice investors with the knowledge to build and sustain a profitable real estate portfolio.

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Final Thoughts

Real Estate Rookie continues to serve as a valuable resource for budding real estate investors, offering practical advice and expert opinions tailored to those embarking on their investment journeys. Whether you're contemplating your first property purchase or strategizing your next portfolio move, the insights shared by Ashley Kehr and Tony J. Robinson provide a solid foundation for achieving financial freedom through real estate.

Transcript

[A]

Let's get your questions answered. I'm Ashley Kerr and I'm here with Tony J. Robinson.

[B]

And welcome to the Rookie podcast, where every week, three times a week, we bring you the inspiration, motivation and stories you need to hear to kickstart your investing journey. And today we're jumping back into the BiggerPockets forums to get all of your questions answered. Now, Ricky's the forum is the absolute best place for you to go to quickly get all of your real estate investing questions answered by experts like me, Ashley, and so many more. All right, so today we're going to discuss 1031 exchanges and how to properly utilize them, if you should sell or rent your property, and finally, how to decide if you should focus on rehabbing or growing your portfolio. So let's get into today's show.

[A]

Okay, let's start with our first question. It starts off with my mother lives in her primary residence in Florida and owns a second property there. She would like to sell that second property and is looking for ways to avoid paying capital gains tax on the sale. While researching, I discovered the 1031 exchange, which seems to offer a way to sell that property and avoid capital gains tax as long as she immediately, within 180 days, purchases an additional Like Kind investment property. I live in upstate New York and if this process works, she is considering purchasing that Like Kind property near me and possibly end up renting the property to me. I have a primary question about the like kind definition specifically and would be interested in any additional feedback anyone has about this potential plan. First, what are the exact specifications of a Like kind property? For example, if she clears $400,000 on the sale of the existing investment property, how close to that exact amount would the like kind property need to be? If, for instance, she finds a property that costs 550,000 and I would like to loan her the additional money needed to purchase the higher priced property, would that cause any issues with the like kind definition or issues with me being an additional investor in the new property? Okay, 1031 exchanges, we don't get to talk about these enough. Tony, do you want to kind of define real quick what a 1031 is?

[B]

Yeah. So basically it's section 1031 of the tax code that allows real estate investors like us to defer paying taxes on the sale of a piece of real estate, assuming that you use the proceeds of that property to go out and buy another piece of real estate. Now there, there's some, obviously some the plus to this that you get to defer the taxes. But as this person mentioned, that's also a bit of a time crunch. And you also have to make sure that you use a qualified intermediary to handle this transaction. So like we did, we've done one 1031 exchange in our business before. And the way that it works is you sell the property that you're looking to sell, and instead of those proceeds being sent to you, they actually get sent to this qualified intermediary. So there's a company that you have to hire who then accepts these funds on your behalf, and then you work with them to fulfill all of the steps of the 1031 exchange to help you purchase that subsequent property. So that's the path that we went down for our 1031 exchange. But at a 30,000 foot view, that's what the process looks like.

[A]

So the first question here is, what are the exact specifications of a like kind property? So does it need to be 400,000 because the sale of the existing property was 400,000. I think the first thing we need to clear up is that like, kind doesn't mean price point or the cost of the property or what you sold the property for. It's more of the type of property. For example, an investment property that is like if you have a commercial property purchasing another commercial property. So in that sense, like kind. So for Tony's example, you sold a single family home and purchased another single family home, correct?

[B]

That's correct, yeah.

[A]

So those properties are like, in that.

[B]

Similar way there are limitations, and I don't remember the exact limitations, but there are limitations on like, there are limitations on the purchase price of that next property, how much of that capital you can deploy. Um, I. I don't even remember what they are. Do you know what those limitations are, Ash?

[A]

I didn't think there were any that. So like the 400,000 that you can use all of that for the 1031 exchange, and then you're not paying capital gains or you can use a hundred thousand dollars of that and then you're paying capital gains on that 300,000. Because I worked for an investor before that did a 1031 exchange and he had like $50,000 he didn't actually use for the 1031 exchange, and he just ended up paying taxes instead of scrambling to find a $50,000 property.

[B]

I just did a quick search so someone can check me here if I'm wrong. So validate this information because I can't say that it's all correct, but. So there's two parts of the 1031 exchange the first phase is your identification period, and then the second phase is where you actually have to close in the property. So you have, I believe it's 45 days somewhere in that ballpark to identify a potential replacement property. So like for us, when we did our 10:31 exchange, we literally had to submit like a form to our intermediary that said, hey, here are the properties that we're currently considering purchasing. And then you have, I believe it's 180 days from the closing of that initial sale to actually close on the, on the replacement property. So there's kind of two phases there. And again, quick Google search. So you guys check me here if I'm wrong, validate this information for yourselves. But what it says here is that during your, kind of like that, that first phase of looking for your replacement properties, that you can only go up to 200% of the property that you sold. So if you sold a house for half a million, you can go up to a million bucks. And then there's a 95% rule. And again, check all this. But this one says that the value of the replacement property has to be at least 95% of the previous sale. So I do remember there being some, some specifications there around like how much we could buy and how much we couldn't buy for. I do know also though, that you don't have to use the entire amount. And then whatever you don't use, you can just pay taxes on, on that. So that's why talk to, talk to a qualified intermediary who can give you those exact rules. But I did believe there were some, some guidelines around the purchase price of that next property.

[A]

Yeah, I definitely didn't know that about the 95% of what the sale price was for doing the 1031 exchange at all. How much did it cost for you to hire your intermediary to do, give you all this information to do this transaction for you?

[B]

Very inexpensive, you know, I don't know, maybe a thousand bucks.

[A]

Yeah, it was 1200. But I mean, this was like 10 years ago. It was $1200. I remember.

[B]

Yeah, it couldn't have been more than a thousand, maybe 2,000 bucks. And when you talk about the tax savings, it's, it's, you know, it's far worth, you know, the, the cost. And I believe you have to use an intermediary. Like, I don't, I don't think you can do this by yourself.

[A]

Yeah, because they actually hold the funds for you too, when you sell the property and hold it for when you purchase the new property. So I think you kind of answered her second part of the question as if she finds a property that costs 550,000, can I loan her the additional money needed to purchase the higher priced property? So what you read was you could do up to 200% of whatever the sale price was. So if the sale price was 400,000, that 550,000 would definitely be in the realm of that. What is allowed the part here. And you could be, you could loan the money, you could be the private money lender on it. You could also. They could, somebody could go to a bank, get a bank loan for it. They could just use the sale proceeds for their down payment on the property. The part here that I think there's issues with is being an additional investor in the new property. So if you're loaning your mom the money, are you the lender or are you giving her capital to invest in the new property? If you're a lender, I don't see an issue. And you're being paid back whether it's a lump sum in 10 years or whatever, but you don't have equity in it. But if you want equity in that property, I do believe there are limitations as to the ownership of the property that is sold. Has to retain ownership in the new entity for at least two years.

[B]

I don't know the exact timeframe. So yeah, the two year sound sounds sob. Yeah, I do know that the ownership has to be the same as you go through that 1031 exchange process.

[A]

So anyone that's in a partnership, if you're thinking of selling a property, keep that in mind. If you're going to do a 1031 exchange that you would have to maintain that partnership with somebody for two years and that new property that you're purchasing. So if you're deciding to sell a property because you don't want to be partners anymore, a 1031 might not be the best thing for you.

[B]

But you, you can also though buy more than one property. Right? So say you sell this initial home and you gotten by two. Maybe that's how you guys kind of navigate that ending of the partnership where say we're, we're going to sell this property, use the proceeds through 1031 Exchange by two separate ones and then after this time, you know, requirement, we can then separate. You keep your property, I'll keep my property. That's how, that's how we kind of go about it. So that, that's always an option for you guys as well.

[A]

That's actually what one of the investors I worked for did too, is him and his brother did a 1031 exchange. They both bought separate things, but for two years they owned them under the Own Their LLC, but they kept track of, you know, each property separately, as you should. And then after they had a joint venture agreement almost, it was. It was some kind of contract that stated that within two years they would dissolve that LLC and they would each take whatever their properties were to.

[B]

But 1031 is a great approach, right? And I think the thing that some people think is it just means that, like, it erases the tax liability. It doesn't do that. It just kind of transfers it into the next deal. So at some point you're going to have to pay taxes. But a lot of people, you know, I've heard CPAs refer to it as swap till you drop, although they'll just never realize those gains. They just continue to 1031 until they, you know, until we all die. So just know it's not erasing the tax liability, it's just deferring it further and further down the road.

[A]

And then you put it into a trust for your kids so that when you do die, they're not paying taxes on it when you first purchase that 20 years ago. So, yeah, lots of, lots of loopholes. And that's why it's always great to check out Bigger Pockets real estate tax books by Amanda Hahn. You can find them in the Bigger Pockets bookstore. Just to give yourself kind of an idea of what the tax benefits are that are out there for real estate. And then you should obviously hire a qualified CPA in the real estate realm that can actually implement these strategies for you and guide you along. But I think these books are a great starting point as an investor to see the what is actually out there and the potential for you to save in taxes. Before we jump into our second question, rookies, we want to thank you so much for being here and listening to the podcast. As you may know, we air every episode of this podcast on YouTube as well as original content like my new series, Rookie Resource. We want to hit 100,000 subscribers and we need your help. If you aren't already, please head over to our YouTube channel, YouTube.com realestaterookie and subscribe to our channel.

[C]

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[D]

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[C]

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[A]

Okay, welcome back, Tony. What's our second question today?

[B]

All right, so our next question here says I'm considering whether or not to sell or rent a condo that I own. I lived in this condo for two and a half years and just recently moved into a single family home. My original plan was to rent it out once I moved out, but I'm having second thoughts. I bought it with cash at 120,000 bucks. I would say it's worth about $180,000 today. The main reasons I'm considering selling this property is one I can avoid capital gains if I sell now. Number two, H Vac will need replacing in the next three years, most likely. Number three, we will have an eighteen hundred dollar special assessment coming up and they are planning on making all residents replace their decks within a year which will be about 4 to 5,000 bucks. Rent would be about 18 to 1900 bucks per month. Taxes are about 2200 bucks per year and HOA is currently 200amonth. The condo is located in New Jersey. Just looking to get second opinions as I'm on the fence about what to do. My current home is in the same town as the condo, so management would be easy.

[A]

Okay, so with this property has option to sell it or to rent it out. So the first thing is to run the numbers on it. If you were to sell it, how much cash, how much capital would you bring in today from the sale of the property? Then looking at what could you go and do with that capital, Would you, what would be the return that you could make on it if you deployed that cash to something else? Then if you rent the condo out, first of all, you know, what's your mortgage payment, what can you rent it out for? So what's your cash flow every single month? How much of your mortgage is being paid down? So now he mentioned a couple things about, you know, the capital improvements that will need to be done, like the H Vac being replaced. Okay, so set yourself a time frame, five years. Okay, you sell the property, you have this capital. What can you do with that capital in the next five years? What does, what does that return on your investment look like? The next is running the numbers on if you rent the property out for the next five years. As to this is what your cash flow is for year one, year two, year three, this is what your mortgage pay down is for each of those, that equity buildup, any appreciation that you are projecting to get into that property. And then also like you mentioned, the H Vac, what would be the cost of that? So that's coming out of your, your cash flow, you know, and any other big repairs that you're thinking of that you're already not accounting for. And just like the, you know, 5 to 10% maintenance expenses, things like that. And I would look five years down the road as to what is your situation. If you were going to sell the Property, then in 5 years how much equity you know and appreciation have you built into that property and kind of compare the two and see which will give you the better Return.

[B]

Yeah, I definitely agree Ash. I think there's a lot of value in digging into the, the numbers here, but I think even, even before, like the very first step is you just need to decide on what your goals and what your priorities are. Is your goal with this condo to generate as much cash flow as humanly possible? Is your goal to maybe have an asset that's going to appreciate over time so that when you maybe retire from a day job in 20 years you've got a fully paid for, well you already paid for it in cash, maybe a kind of appreciated a ton. So like what are your motivations for doing this? And I feel like that'll help us decide. But let's assume that it's cash flow, that that's the reason that you're doing this is because that's maybe your primary motive. You said you can get up to about 1900 bucks a month in rent. You've got no mortgage expense because the property is paid for. You didn't mention insurance so maybe you're, maybe you're self insuring because it's fully paid for. Maybe you do have insurance. But you know, let's assume that you don't because I don't know, you figure something else out there. So 19 bucks a month in revenue, you're going to take off about 5% for capex, 5% for, for vacancy, maybe another 400 bucks a month for your HOA and your property taxes. That leaves you with about 1300 bucks a month in cash flow on this property, maybe even round it down to a little less. If you got some insurance in there, maybe we'll scot like 1200 bucks a month. Right? Do that times 12, that's 14,400 bucks a year on your $120,000 investment. That's a 12% cash on cash return. It's not a bad return, honestly. And I think the question is can you redeploy that capital somewhere else today and get better than a 12% cash on cash return? Possibly. Right. But then again it goes back. Like do you want to invest time, effort and energy to go out and find another deal? Do you want to invest the time, effort and energy to go and find a new market, to build a new team to do? All that comes along with buying another property? Or do you just want to be happy with 12% every single year on a property that you already own that's in the same neighborhood as you? So a part of it is definitely the numbers to help you make an informed decision. But I feel like A big part is going back to what you want out of it.

[A]

Yeah, that is a great point, Tony. As to starting there before you even run the numbers. And I think too in this example is since he owns it free and clear, you have the opportunity to put a line of credit, to get a home equity line of credit, especially before he moves out of it, go and get that home equity line of credit and then you have those funds to actually borrow from and deploy into another property if you want to do that too. So I like that opportunity there as well. And then also the tax advantages of holding on to the real estate, especially if you have a high W2 income, then the next thing is, is maybe you do hold it for another three years. And the, the rule for not paying capital gains taxes, if you've lived there for two out of the last five years, so you could rent it for three years and then sell it at that five year mark and not pay capital gains on it too. So I think I'm leaning towards renting it out. What about you, Tony?

[B]

I think so as well. I think the only, the only other caveat here that I might look into is that he says or he or she says that they think it's worth 180,000 bucks. I would just maybe validate that, right? Either, either talk to an agent, say, hey, I'm thinking about selling this, because what if you do that and it's really only worth 130? Or what if you do that and you see it's worth 230? Right. That kind of changes the calculus a little bit. So I would, I would validate that number first. But based on the information that we have so far, I'm leaning towards keeping it as a rental as well.

[A]

As you can tell, we love talking about real estate. We love answering questions like this with you all, and we'd love it if you'd hit the follow button on your favorite podcast app wherever you're listening. We have to take one final ad break, but we'll be back with more after this.

[C]

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[B]

All right, guys, welcome back. We've got our final question here. Ashley, what are we, what are we finishing today's episode with?

[A]

Yeah. So our last question is my first rental property is a quadplex. It grosses 3200 per a month. So that's without any expenses. And I end up with twelve hundred dollars in profit after expenses. I owe ninety five thousand on it and pay six and a half percent interest. I need to replace the siding of the house. It's pretty old. The house is 110 years old and replace the window beforehand. My friend quoted me 60,000 to do everything. It's a massive house. If I do a cash out refinance or a construction loan, I can do this plus replace the front porch. But my profit will go down from 1200 to 800 since I will have to refi once the construction is done. Here's my question. Do I focus on fixing up the property to perfection with that 60k and affect my cash flow, or do I take that money and possibly buy one to two more single family houses? I like this question because it talks about adding value or not even adding value to the property, I guess, as far as, you know, appraisals and appreciation. But this, would this actually replace the siding, actually increase the rent for the property? Because most times we talk about investing your money back into your property so that you can increase the monthly rent or the daily rate where in this situation, it really depends if that would even make an impact on the rent because the inside of the house is still staying the same. And it really, it probably depends on what market you're in. So I think this makes it a more difficult decision that you're putting this money into the property, but it may not increase your rent at all. Or you could leave it as is and go and deploy into one to two more single family houses. So I definitely have an opinion on this, Tony, but go ahead, you. You take the floor first.

[B]

Yeah, I think you hit on exactly what was in my mind as well. I mean, this person is assuming that this increase or this expense on the siding in the front deck is only an expense, but won't necessarily impact their ability to charge more for rents. But I would assume that, you know, some better curb appeal could potentially allow you to maybe charge more for those four units. So I I would question if your 1200 would really decrease all the way down to 800 or if it would stay a little bit higher. I think the other question that, that I'd ask here is let's assume that you can get a lift in your, in your, and the rents that you charge, very similar to the question that we asked or that we answered previously is can you redeploy that 60k somewhere else and potentially get a better return on those other one to two single family homes? Right. Like let's, you know, and actually you're obviously a much more of a long term rental expert than I am. But I don't know, let's say that you can get maybe a, whatever 200 increase per unit per month, something like that, right? Maybe you're under charging right now, but it's like can you get a relevance or an equal increase or return on your 60k by going and buying two more single family homes. So I feel like I would need to know that rental increase to really break this down to just a mathematical type question. But I, my gut here is telling me that that, that probably makes more sense. And then I think the only other thing that I'd add as well is that if the house is 110 years old, it's going to have to get replaced eventually. You know, like it's not, it's not a matter of if, but a matter of when. So it's something you know, you're going to have to budget for. So if you can take care of it today, it's one less problem that's worry about 10, 15, 20 years down the road.

[A]

And just like we talked about in the last question, there's that time and energy that will have to go into purchasing those one to two more single family houses. And so it says like do I take that money? So that would be in the situation if he does a cash out refinance with what the property is worth now. But also we don't know what the value of the property is right now as is without the siding in the new windows. And I'd like to see that comparison of what the property would be valued at after that 60,000 is put into the property. So if he's putting in 60,000, even though it may not increase the rents, does that increase the equity of the property by 100,000? That if you got an appraisal and went and did the, you know, the construction loan and then did a cash out refi, what would that appraisal end up? So not only looking at your cash flow. But look at the equity of the property and the value of the property after you've done that repair. And I would compare that also too. So if you're going to put in 60k and you're going to add $100,000 in equity to that property, I think that's a pretty good deal to be able to go and do that and then maybe you can go and, you know, refinance again and then go and buy those other one to two single family homes.

[B]

It's a great call out on the equity piece and it didn't even think to mention that. But yeah, obviously there, there's maybe you spend the 60 but it increases the home's value by 100. Right now you just built an additional 40k in equity as well. So things to be considered if you.

[A]

Want to get involved in the community like all these real estate investors, you can go to the biggerpockets [e-mail] forums to submit your questions or to answer some. Thank you so much for listening to this week's rookie reply. I'm Ashley and he's Tony and we'll see you guys next time on our next episode.