How to Buy Rental #2, #3, or #4 When You’re Out of Funds (Rookie Reply)

Summary

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Real Estate Rookie Podcast – “How to Buy Rental #2, #3, or #4 When You’re Out of Funds (Rookie Reply)”

Host: Ashley Kehr & Tony J. Robinson
Release Date: February 13, 2026
Podcast: Real Estate Rookie (BiggerPockets)

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Episode Overview

This episode is a “Rookie Reply” addressing three common obstacles that new real estate investors encounter as they look to progress from their first to subsequent rental properties. Hosts Ashley Kehr and Tony J. Robinson field specific questions from listeners, diving deep into topics like scaling without enough personal capital, unexpected expenses threatening deals, and navigating short-term rental (STR) investments for tax advantages amidst changing regulations. Their signature tone is practical, encouraging, and candid, making rookie investors feel supported and understood.

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Discussion Breakdown

1. Scaling When Out of Funds: How to Buy the Next Rental

(Start: 00:27)

• Listener Question: After closing in on deal #1, the listener wonders how to buy deals 2, 3, etc., when their funds are low.
• Tony’s Advice:
  • Traditional Approach:
    • Save up for each deal (slower but simpler, requires less creativity).
    • Quote: "It's slower, but it's significantly less work and requires less creativity." – Tony (01:28)
  • Recycling Capital (BRRRR):
    • Buy, renovate, rent, refinance, and repeat to use the same capital for multiple deals.
  • Partners:
    • Leverage experience on deal #1 to attract partners who can supply funding.
  • Creative Financing:
    • Consider seller financing, negotiating with property owners directly.
    • Quote: "If you can do like seller financing, where you're finding properties that are owned free and clear...you're negotiating directly with the seller to have them loan you the money." – Tony (02:21)
  • Ashley’s Perspective:
    • Save while simultaneously searching for creative deals (hard money, seller financing).
    • Use online resources (e.g., Landwatch) to find seller-financed properties.
    • Use the seller’s own CPA to explain the tax advantages of seller financing for higher credibility.
    • Quote: "Have you talked to your accountant or your CPA about the tax advantages of, of doing seller financing?" – Ashley (03:36)
• Mindset Reminder:
  • Don't fixate on deals 2–10 before completing deal #1. Secure the first deal, adjust, then scale.
  • Quote: "Oftentimes I see people get so caught up in, 'How do I scale?'...that they lose focus on the fact that they don't even have deal number one yet." – Tony (04:18)

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2. When a Deal’s Numbers No Longer Work Due to Unexpected Expenses

(07:27)

• Listener Question: A 22-year-old in Texas finds out underwriting reveals $6,000–8,000 annual insurance (plus flood insurance), ruining cash flow. They’re past their option fee. Should they back out (and is their earnest money lost)?
• Ashley’s Take:
  • Sometimes you must walk from a deal, even if it means losing earnest money ($2,000 example from her past).
  • Avoid being stuck in a negative cash flow situation year after year.
  • Quote: "I would have rather have lost that $2,000 than be stuck in a deal where I'm losing even more money." – Ashley (08:28)
• Tony’s Advice:
  • Compare earnest money loss to expensive insurance costs over time.
  • Don’t get emotionally attached—sometimes the smartest decision is to walk away.
  • Try to renegotiate with the seller; they may offer a concession.
  • Be honest with the seller about why you want to exit (e.g., uncontrollable insurance rates).
  • Quote: "It's easy to get emotionally attached to a deal...but sometimes the smartest thing to do is to walk away." – Tony (09:18)
• Empathy:
  • Both hosts praise the listener for taking bold steps at a young age.

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3. Short-Term Rentals: Taxes, Licenses & Regulations

(14:46)

• Listener Question: Wants to use STR “tax loophole” for W2 savings but fears being denied a license, especially near NYC. Asks for regulation-friendly markets within three to four hours of the city.
• Tony Explains STR Tax Rules:
  • Short-Term Rental Tax Loophole:
    • Losses (like depreciation) can offset W2 income if “material participation” is met—unlike long-term rentals which require “real estate professional status.”
    • Quote: "With short term rentals...there's something called material participation. And as long as you can show that you materially participate...that then unlocks your ability to take the passive losses...and apply them against your W2 income." – Tony (15:26)
  • Regulation Factors:
    • Research local STR ordinances (some place caps, usage limits, etc.).
    • Evaluate the city’s economic dependence on STR revenue.
      • Large cities like NYC can ban STRs without harming their economy; vacation-dependent towns are more likely to support STRs long-term.
    • Quote: "We want to look for cities that have that element of economic dependency and not so much the big cities that have a lot of things driving that economy." – Tony (17:55)
• Ashley’s Market Suggestions:
  • The Poconos (PA): Year-round vacation area; generally more STR friendly.
  • Lake George (NY): Clean, desirable, “great destination area” with some local restrictions.
  • Always verify local rules permit STRs in your chosen township.
• Tony’s Buyer Mindset Advice:
  • Examine motivation for three-to-four hour search radius: is it self-use or just comfort?
  • Distant investing is common and workable if you have robust systems and vendors.
  • Quote: "Whether the property is four hours away or, you know, eight hours away, you're probably not going to be the person cleaning the Airbnb...If that is a better deal for your specific situation, I wouldn't say that you should necessarily avoid that just because it's not as close as you want it to be." – Tony (20:55)
• STR Usage Rules:
  • If using STR for tax purposes, personal stays are limited (usually 7–14 days/year for IRS and lender compliance).
  • Average guest stay must be seven days or less to qualify for the tax benefit (“material participation”).
  • Quote: "From the IRS perspective, your average stay duration for the year has to be seven days or less...then you're still able to quantify this as a business." – Tony (22:31)
• Ashley’s Anecdote:
  • Bought an A-frame intending frequent family use but rarely visits it due to its success as an STR.
  • Practicality outweighs emotional intention for dual use.

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Notable Quotes & Memorable Moments

• "Don't get caught in that loop of thinking so far ahead that you forget to take that first step."
  — Tony Robinson (04:18)

• "Have you talked to your accountant or your CPA about the tax advantages of, of doing seller financing?"
  — Ashley Kehr (03:36)

• "Sometimes the smartest thing to do is to walk away."
  — Tony Robinson (09:18)

• "Your average guest stay, when you look at all your reservations is seven days or less, then you're, you're still able to quantify this as a business."
  — Tony Robinson (22:31)

• "I thought I would use my A-frame all the time ... We haven't stayed the night once."
  — Ashley Kehr (23:45)

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Timestamps for Key Segments

• 00:27 – Scaling past the first deal: funding options and strategies
• 02:49 – Simultaneous saving vs. creative deal finding
• 04:18 – Mindset: Focus on deal #1 before worrying about deal #10
• 07:27 – Navigating unexpected expenses: when to back out (insurance example)
• 14:46 – Short-term rental tax loophole explained
• 17:55 – How to evaluate STR regulatory risk
• 19:29 – STR-friendly markets near NYC: suggestions
• 20:32 – Should you insist on being within driving distance?
• 22:31 – Tax rules: personal use and average guest stay limits for STRs
• 23:45 – Reality of personal use in STRs

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Summary Takeaways

• Scaling up from your first rental is possible even when funds are tight: Recycle capital (BRRRR), seek partners, or use creative financing like seller deals.
• Unexpected expenses can and will happen: Don't be afraid to walk away if the numbers turn against you, even if earnest money is at stake.
• Short-term rentals offer unique tax benefits, but require careful attention to regulations: Research both the local laws and your personal motivations for location.
• Remote investing works if you put the right systems in place.
• Personal use of STRs is frequently overestimated by owners.

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This episode is an encouraging, reality-based guide to common rookie obstacles on the path to building a modest—yet powerful—real estate portfolio. Whether you're working on deal #1 or strategizing for #3, Ashley and Tony offer actionable insights and honest advice to move you forward.

Transcript

[A]

Today's rookie reply is a great one because it hits three different fears that rookie investors have when they're ready to move on from learning into execution.

[B]

Yeah, we've got someone worried about how to rinse and repeat after their first rental, another rookie panicking mid deal because insurance blew up their numbers, and a W2 investor trying to use short term rentals for tax savings without getting crushed by regulations.

[A]

This is the Real Estate Rookie podcast and I'm Ashley Kerr.

[B]

And I'm Tony J. Robins. And with that, let's get into today's first question. So this question comes from the Bigger Pockets forums and it says after spending four months reading and listening, I'm close to finally taking that first step. Enough talk time for execution. But I still find myself questioning what do I do after I purchase my first rental. I'm focused on long term rentals and cosmetic burrs, but I struggle with grasping creative ways to finance and rinse and repeat. While I'm fine dropping 40 70k as a down payment, I feel stuck in a holding pattern, wondering if I need to wait and save another 40, 70k to do the next deal. I'm excited about Cleveland, Cincinnati, Pittsburgh and Dayton. Any nuggets of wisdom would be appreciated. All right, so this question is really about how to scale your portfolio beyond the capital that you currently have access to. And I think there are maybe a few approaches that you can take. The first approach is to do, probably the simplest way is just to take the 40 70K that you have right now, put that down as a down payment on a deal, and then save up another 40, 70k and just repeat that process over and over again. It's slower, but it's significantly less work and requires less creativity. And it's, it's just a really kind of tried and true approach to build a portfolio. The second path is that you find a way to, quote, unquote, recycle that initial set of capital so you can do things like the burs that you mentioned where you're buying a property, you're renovating it, you're rehabbing it, then you're refinancing to get back some or potentially all of the capital that you put back into that deal. Right. So the brrr strategy is the second way and then another way is then partnering with other people to help fund your deals. So if you've taken down this first deal, you've got a bit of a track record, you've proven that you know how to find deals, execute and so on and so forth. Maybe Then you start leveraging partners and their capital to take down more deals. And then maybe like the. Probably the more complicated path is going after something like more creative financing. If you can do like seller financing, where you're finding properties that are, you know, owned free and clear and then you're negotiating directly with the seller to have them loan you the money, is another way to scale beyond your original capital. But in my mind, ashes are probably the four big buckets. But curious what your thoughts are.

[A]

Yeah, I think the last part of this question as to, should I wait and save up more money or should I go ahead and try and find another creative way to purchase a property without waiting and saving up money? But I think the answer is really to do this simultaneously start saving again, but also looking for deals where you can do some creative financing. So whether that's a burr where you're using hard money and then you're going to refinance out of it and pull your money back out, whether it's going to be, you know, finding a deal where the person will do seller financing. If you go to, I think it's called landwatch.com I think is what it is there you can like literally click a toggle or a filter. That is for seller finance deals that are available that people are already saying they'll do seller financing and you can submit offers and put the offer as seller financing. One thing that I've always done is when I get to go face to face with the seller or I try to have my real estate agent communicate this. If I'm going to submit an offer, that's seller financing. I always like to say, have you talked to your accountant or your CPA about the tax advantages of, of doing seller financing? And that usually piques a little bit of interest. And it sounds more reputable to somebody having it come from their own personal CPA rather than from somebody who's trying to buy their property. If I try and tell them, like, oh, here's all the advantages and the reasons why it's more likely they'll listen to their CPA than me, who's trying to haggle them for a deal.

[B]

I just. Last thing I'll say, Ash. I do think that there's value in thinking about deals number two, five and 10 before deal number one. But I think it's a bit of a fine line because oftentimes I see people get so caught up in, well, how do I scale and how do I get property number two and how do I get property number five that they lose focus on the fact that they don't even have deal number one yet. So I think the majority of your focus right now should be on how do I make deal number one work? And then from there you can start making pivots and adjustments to go on to deal number two. Number five, number 10. But you don't get caught in that loop of thinking so far ahead that you forget to take that first step.

[A]

That's totally a great point. So we're gonna take a quick break, but when we come back, we're gonna understand when you should walk away from a deal or stick it out. We'll be right back.

[C]

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[A]

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[C]

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[A]

BiggerPockets okay, welcome back. So this next question comes from the BiggerPockets forums and it says, hi, I am a new investor to real estate. I'm 22 and looking to do a house hack using an FHA loan with 3 1/2% down. I've got under contract on a property in Baytown, Texas. But during underwriting we found insurance costs were 6,000 to 8,000 per year plus flood insurance. The deal no longer cash flows even long term and I'm past my option fee. I feel stupid backing out, but don't know what to do. Is my earnest money gone? Please help. Ouch. That does hurt. And it doesn't say how much the earnest money was, but I will say, and then I've lost earnest money. There was a deal, it was a cabin and I found out some things, title issues and all this stuff after my due diligence period was over and I think it was $2,000. And I, they told the sellers, keep the money, I'm backing out of the deal. And looking back now, I would have rather have lost that $2,000 than be stuck in a deal where I'm losing even more money. And I think that would probably be the case in this situation if, I mean just 6 to 8,000 per year plus the flood insurance. I, I don't think I have a single property right now that is that much in insurance per year.

[B]

Yeah, that is, that is wild. You know, six to eight grand plus flood insurance and flood insurance is not cheap. You know, you have to go out and go out and get special flood. Flood insurance. Yeah, I agree with your point, Ashley. Whatever the EMD is, you have to weigh that cost against the ongoing cost of owning this property year after year after year after year to see if it, if it actually makes sense. To move forward with purchasing this property. I think a lot of this goes back to what Ash and I talk about a lot is that it's easy to get emotionally attached to a deal and feel like you've already put so much time, effort, and in this case money into a deal. But sometimes the smartest thing to do is to walk away. And if your deal does not work because of these new finances, then just go back to the seller and be honest. Say, look, I had, I had every intention of purchasing this property, but the flood insurance quotes that came back and the insurance quotes that came back are significantly higher than what I had originally anticipated. So I would ask that you release my EMD because this is not within my control. It's not me trying to back out of the deal. Like, here are the cold hard facts. Hey, look, if you have an insurance agent that can give me a better price, I would love to talk to them. But if not, like, please work with me to, to, to make sure that we can walk away amicably. So I'm with you, Ash. I think I'm walking away from this deal because it's not worth stepping into.

[A]

But 100% that should be the first step is trying to renegotiate with the seller. You might as well ask like, they probably don't want to have to start all over in the. The process of selling the property. So maybe they do have some wiggle room to continue to, to make it work. But that's where I would start.

[B]

And kudos to you for being 22 and locking down your first house hack. Right. And it's a great way to start. We're going to take a quick break, but while we're gone, if you haven't yet followed the podcast on Instagram @BiggerPockets Rookie, then you can follow Ashleyealth and rentals and me @tonyjrobinson and we'll be right back after a quick break.

[C]

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[D]

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[C]

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[E]

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[B]

Guys, we're back and we're here with our final question. This one's about short term rentals, taxes and regulations. So the question is I currently invest in long term rentals but cannot take advantage of real estate professional status due to my W2 job. Using the short term rental tax loophole to offset my W2 income would supercharge my investments. But I'm afraid of buying a property and getting denied and But I'm afraid of buying a property and getting denied a short term rental license. Can anyone recommend beginner friendly STR markets, preferably within three to four hours of nyc? All right, so a few things to unpack here. I think the first piece is that we need to break down what the short term rental tax loophole is and I'll try and do this in a way that's super clear for everyone to understand. Real estate investing offers the ability to take losses, whether those are real losses, like you actually lost money on that property, or paper losses, things like depreciation, which is not a real expense, but it's a paper loss you can take those losses and apply them against other forms of income that you collect. Now, in order to take those paper losses and apply them against your W2 income, you have to be what's called a real estate professional or qualify for what's called real estate professional status. For most people with a day job, it's virtually impossible because you have to show that you put more hours into your real estate business than you do into your day job. Most people can't prove that. But with short term rentals, because they are classified as a business in the eyes of the irs, not necessarily passive income like a long term rental, you don't have to qualify for real estate professional status. There's something called material participation. And as long as you can show that you materially participate in your short term rental, that then unlocks your ability to take the passive losses from your short term rental and apply them against your W2 income. So I know that's, that's a mouthful, but if you just look up short term rental tax people, you'll get some more insights there. So that's this person's motivation. And I know a lot, a lot of people who invest in short term rentals primarily for the tax benefits associated with it. And it truly does give you the ability to largely reduce or sometimes even eliminate your tax bill altogether. Okay, so that's the first piece. Now what this person is worried about is the regulatory landscape of the short term rental industry. And while it's true that the regulations across the country have changed, shifted, evolved, some have gotten significantly more strict, it doesn't mean that every single market is this huge regulatory risk when it comes to short term rentals. There are really a few core things I look at to gauge the regulatory risk in a market. The first thing I look at is what is the current ordinance in that market? Can I legally rent a short term rental? Is there a cap? Can I only do it in certain parts of town? Does it have to be a certain property? Is there a limit on occupancy? Is there a limit on usage? Just understanding what that current ordinance is to make sure that it allows me today to profitably run this property as a short term rental. Okay? Because there are some markets where you can rent it as a short term rental, but you're capped at only using it for 30 days out of the year. Who cares if I can use it in any way, shape or form if I only get one month from that property, it doesn't make sense as a short term rental. So just understanding the current ordinance and then the second element is understanding the risk of that ordinance changing in the future. And the core thing that I focus on when I think about answering that question, Ash, is how economically dependent is that city on the revenue generated by short term rentals? I'm going to pick on your home state of New York. And in New York City they effectively banned short term rentals a few years ago. But if you think about why NYC was able and willing to do that, it's because they didn't care about the money that short term rentals generated for that city. Right? Like NYC is one of the, if not the most populous city in the United States. It generates revenues from literally every single industry. Like it has no economic dependency on Ashley and Tony's little Airbnb. But if you think about true vacation destinations, places where people only go to vacation, those are cities that are truly dependent on the money generated by short term rentals in the form of transient occupancy taxes, in the form of property taxes, in the form of people coming in, saying a few nights and spending money in the local businesses where if those short term rentals were to shut down, that local economy would be severely impacted, maybe even collapse. So we want to look for four cities that have that element of economic dependency and not so much the big cities that have a lot of things driving that economy. So that is my brief master class on the short term tax loophole and regulations and how to avoid them. Ash, any questions or what do you have to add to that?

[A]

Any value that I can provide is I know the New York area and destination. So I can add two places that I think would be good short term rental areas to invest in. I did a quick Google search and tried to look real quickly like if they're short term rental friendly and it really like depends on the specific area but like within that three to four hours of New York City is the Poconos, tons of things. Skiing in the winter, lakes in the summer and then also Lake George. It's like one of the cleanest lakes across the U.S. i think and a great destination area. It's like close to, I think like Saratoga where they have like horse rag is seeing and different things like that. But yeah, so those would be the two markets I would look into and just searching real quick like there you have like, you have to get permits, things like that and the laws like vary depending on the specific area that you're in and things like that. But those would be the two places that I would go and stay in a short term rental.

[B]

And I think the, the other thing I'd add to that question, to your ash, and this is not true for short term rentals, but for, for all strategies, is ask yourself what your motivation is for staying within three to four hours of New York City. Is it because there's just this comfort factor of being able to go and check in on the property yourself and you know, in case something happens, you're there to kind of be present, or is it because maybe you want to use it yourself? If it's more so the personal use, that makes sense. But if you're leaning towards this tighter radius simply for comfort reasons, I would encourage you to understand that whether the property is four hours away or, you know, eight hours away, you're probably not going to be the person cleaning the Airbnb. You're probably not going, going to be the person fixing maintenance issues. You're not going to be the person restocking supplies. You're going to hire all of those things out anyway. So if you can find a deal in a property that's in, you know, Bozeman, Montana or Des Moines, Iowa, you know, or name the city, you know, in the random place on the west coast, if that is a better deal for your specific situation, I wouldn't, I wouldn't say that you should necessarily avoid that just because it's not as close as you want it to be. There are tons and tons of people every single day who are buying properties remotely and are successfully managing them as long as they have the right systems and processes in place. And luckily for you, you're already listening to this podcast and we share a lot of the different ways you can do that remotely.

[A]

And one thing I would add too is like, if you want to use it for yourself personally, like, make sure you're aware of like, what the rule is for that. Like, isn't it a pretty like, gray area though, Tony, as to like, how many days you can actually use it if you're writing it off as a short term rental?

[B]

Yeah, there's, there, there was a lot of like, discussion on this, but yeah, I mean, usually what most lenders say is that somewhere around seven to 14 days, like a good baseline of personal use. So there's actually two different things we're talking about here. One is like a lending requirement and then the other is how the IRS views it. So from the IRS perspective, your average stay duration for the year has to be seven days or less. So as long as your average guest stay, when you look at all your reservations is seven days or less, then you're, you're still able to quantify this as a business. Once you get over seven days, they start to treat it more like a traditional long term rental and you lose that ability to qualify for material participation. But if you're seven days or less, you get that ability. So like midterm rentals wouldn't qualify for material participation because most your sales are 30 days or more. On the lending side, the only real requirement is if you're using a second home loan to purchase the property. And if you're using the second home loan, there's a personal use carve out where you have to use a property yourself in order to qualify for that specific loan. And you know, I've heard different figures from different lenders, but seven to 14 days is like a usual good benchmark, but you just got to have the intention to use it yourself at some point during the year. So luckily those two things are not connected. So I can get whatever kind of debt I want. I can get hard money, private money, conventional debt, you know, not FHA because you got to live there. Right. But I can do any, any kind of debt that I want and as long as I'm seven days or less, I can still qualify for material participation.

[A]

Yeah, I think another point I wanted to make on that too is just like if their motivation is three to four hours is because they want to use it for personal use, like knowing that, that like they can't spend, you know, depending which way they go, they can't spend their whole summer staying there, you know, going every single week up there for the whole summer if they are going to use it for, you know, the short term rental tax loophole or whatever too. So like I, I thought I would use my A frame all the time. Like the day I was so sad to rent it out, the day I rented it, I was like, oh, don't worry, kids are going to come here all the time. We haven't stayed the night once. Maybe one time we went since we started booking it out, but it's like, yeah, so don't, don't make that like a huge deciding factor I would say as to, you know, deciding on a market if you don't know for sure if you'll actually use it or not. And anyways, thank you guys so much for listening to this episode of Real Estate Rookie. I'm Ashley, he's Tony, and we'll see you guys on the next episode.

[C]

Okay, we're going to shift gears for a minute to cover something important, especially for new landlords. The shows often talk about getting stuck doing everything ourselves and the cost of sweat equity. The key question is simple Is my time better spent elsewhere? I use a tool that cuts down on a lot of landlord hassles and the wild part is it's just $12 a month. It handles rental screenings, rent collection, maintenance requests and accounting all in platform via a mobile app or desktop. It saves me time in tenant communication and keeps me organized for tax season. It's called Rent Ready and you can sign up for a six month plan for just $1 with promo code BP2025. Pro users get it for free because we believe in it. Just sign in through your Pro account to get started. Rent Ready helps ensure on time rent with auto reminders, keeps communication professional, and lets you post listings to multiple sites. Check it [e-mail] BiggerPockets that's rent R E D I.com BiggerPockets hey rookies.

[B]

If you're watching this, we want you to apply to be a guest on the Real Estate Rookie Podcast. That's right. Ashley and I are looking for amazing stories just like yours to be a part of our Real Estate Rookie Podcast. Now look, you don't need to be an expert. You don't need to have done thousands of deals. Even if you've done one deal, your story could help inspire the next listener.

[A]

As a rookie investor. Especially if you just got your first deal. It is all fresh in your minds and you are the best person to tell your story. Give your experience on how you got it done to help someone else get their first deal.

[B]

So head over to biggerpockets.com guest if you want to be a part of our show again. That's biggerpockets.com guest and we'd love to have you on.