Real Estate Rookie Podcast Summary
Episode: Paying Off Rentals vs. Buying More and Low-Money-Down Loans (Rookie Reply)
Release Date: January 3, 2025
Hosts: Ashley Kehr and Tony J. Robinson

Introduction

In this episode of the Real Estate Rookie podcast, hosts Ashley Kehr and Tony J. Robinson delve into pressing questions from the BiggerPockets community. This installment focuses on three main topics: the strategic decision between paying off rental properties versus acquiring more assets, leveraging FHA loans to enter the multifamily property market, and effective strategies to minimize tenant no-shows for apartment tours.

1. Paying Off Rentals vs. Buying More

Listener's Inquiry: A listener shared their experience of owning three single-family homes with a combined annual income of $270k after taxes. They recently paid off one rental and plan to pay off the second within two years, aiming to retire with ten fully paid-off properties by age 60. They observed that many investors prefer not to pay off their mortgages and sought insights on this approach.

Discussion Highlights:

• Tony's Perspective:
  Tony expressed a preference for asset accumulation over paying off properties, emphasizing the benefits of leveraging.

  “None of my properties are paid off right now. They all have mortgages against them.” [02:08]

• Ashley’s Approach:
  Contrasting Tony, Ashley values a balanced portfolio with some properties paid off to reduce risk and avoid over-leverage. She highlighted the psychological comfort that comes with owning debt-free assets.

  “I like to have some properties leverage, but I also like to stay under leverage...I like to have several paid off.” [02:23]

• Strategic Considerations:

  • Pros of Paying Off Rentals: Reduced risk, no worry about property valuation drops, and elimination of the upside-down scenario.
  • Pros of Acquiring More Properties: Enhanced cash flow, portfolio growth, and potential for higher returns through leveraging.

• Key Insight:
  The decision hinges on personal financial goals and risk tolerance. Running detailed financial analyses to compare returns from paying off versus investing in additional properties is crucial.

  “...is investing into other properties and having more? I think that's definitely one thing to look at, is to actually sit down and run the numbers...” [04:48]

2. Using FHA Loans to Enter the Multifamily Market

Listener's Inquiry: A New York resident with approximately $7,000 in savings is considering an FHA loan to purchase a fourplex. They seek guidance on the process, the feasibility given their financial situation, and strategies to enhance their investment journey.

Discussion Highlights:

• Ashley’s Advice on Financial Preparation:
  Emphasized the importance of having sufficient reserves beyond the down payment to cover unexpected expenses.

  “If you're buying a four plex and you only have seven thousand bucks to your name, I would be a little concerned if there were some kind of major thing that happened...” [17:06]

• Understanding FHA Loan Requirements:
  Ashley outlined the financial obligations, including down payments (3.5% to 5%), property taxes, insurance, and closing costs, which can significantly impact the initial investment.

  “Most FHA loans are 3 and a half percent to 5%... property taxes are going to be higher most likely than a single family home.” [17:06]

• Challenges with FHA Loans:

  • Stringent Inspections: FHA mandates thorough property inspections, which can lead to unexpected repair requirements.

    “The FHA inspection can be very... tedious.” [20:53]

  • Seller Preferences: Sellers might favor conventional loans due to fewer contingencies, potentially making FHA-backed offers less attractive despite possibly lower purchase prices.

    “...security... if you hat a higher interest rate...” [21:35]

• Alternative Loan Options:

  • NACA Loans: No down payment, lower interest rates, and flexible terms, though the approval process is rigorous.

    “There’s 0% down loan product... I feel like what we're seeing elsewhere.” [23:27]

  • USDA Loans: Suitable for rural areas with benefits like lower interest rates and minimal down payments.

    “They have like a calculator and a property map...” [24:59]

• Key Insight:
  Prospective investors should meticulously assess their financial readiness and explore various loan products to determine the best fit for their investment strategy.

3. Reducing No-Shows for Apartment Tours

Listener's Inquiry: A landlord in upstate New York experiences a high rate of no-shows for scheduled apartment tours. They currently allow tour requests without prior applications and seek strategies to increase attendance.

Discussion Highlights:

• Current Process Overview:
  Ashley detailed their comprehensive approach using property management software to list properties across multiple platforms, schedule showings, and follow up with applicants.

  “...we list it to about 13 other website services that are included in our property management software.” [32:13]

• Strategies to Minimize No-Shows:

  • Pre-Application Requirement: Implementing a mandatory application before scheduling a tour can filter out less serious prospects.

    “We've had a lot of people that fill out the application beforehand.” [32:52]

  • Confirmation Protocols: Sending reminders and requiring confirmation before tours to ensure commitment.

    “They get a text reminder, and 24 hours before... they have to confirm.” [32:41]

  • Flexible Scheduling: Allowing multiple candidates to book overlapping time slots to compensate for potential cancellations.

    “We also do blocking windows, so we let multiple people come at the same time.” [32:52]

  • Using Dedicated Leasing Agents: Employing a flat-rate leasing agent to manage showings efficiently without incurring additional costs for no-shows.

    “We have a dedicated leasing agent who's paid a flat rate.” [32:52]

• Key Insight:
  Implementing a structured and technology-driven approach can significantly reduce the rate of no-shows. Pre-screening applicants and ensuring clear communication are critical components of an effective tour scheduling strategy.

Conclusion

Ashley Kehr and Tony J. Robinson provided valuable insights into balancing debt and asset growth in real estate investing, navigating low-down-payment loan options, and enhancing property management efficiency. Their discussions underscore the importance of aligning investment strategies with personal financial goals, thorough financial planning, and leveraging technology to optimize operations. Whether you're a novice investor or looking to refine your portfolio, this episode offers practical advice to navigate the complexities of real estate investing.

Notable Quotes:

• “I like to have some properties leverage, but I also like to stay under leverage...I like to have several paid off.” — Ashley Kehr [02:23]

• “The FHA inspection can be very... tedious.” — Tony J. Robinson [20:53]

• “We have a dedicated leasing agent who's paid a flat rate.” — Ashley Kehr [32:52]

For more insights and detailed discussions, listeners are encouraged to visit the BiggerPockets forums and subscribe to the Real Estate Rookie podcast on their preferred platforms.