Don’t Get a Real Estate “Mentor” Until You Try This (Rookie Reply)

Ashley:
How do you value extra bedrooms when comps just don’t match? Is finding a mentor really essential? And should you get your real estate license or is that just another distraction?

Tony:
Today we’re breaking down three key questions from rookie investors just like you.

Ashley:
This is the Real Estate Rookie podcast. I am Ashley Kehr,

Tony:
And I am Tony j Robinson. And with that, let’s get into today’s first question. So our first question today comes from Richard. Richard says, I’m looking to do a burr in a market that I’m not very familiar with, actually not familiar with this market at all. The person I’m doing it with brings a lot of value and they have resources in that market that will make this cool. Comps are an issue though because there are really no comps of similar properties. The property is a five bedroom, two bath, but it’s only 2300 square feet, whereas most of the five bedrooms in this area are 3,200 to 4,000 plus square feet. This is more so the size of a three two. So here’s the question. When evaluating after repair value, if we have a three bed and a five bed of similar size building condition, how much value do we give to the extra bedrooms for the five bedroom when the square footage is about the same as a three bed, I’ve seen articles with arbitrary numbers like 10 or 20 K.

Tony:
Does anyone have any ideas? Thanks. So I think before we dive into this, it is a very real question that I think a lot of investors struggle with is trying to make sure you nail down your comps to get your A RV. But let’s just describe first what a RV or after repair value is. So your after repair value or a RV is the value of the property after you’ve completed whatever renovations you plan to complete. So typically if you’re flipping a home or if you’re refinancing plans refinance, you buy a distressed property, right? A property that’s in disrepair, you invest money to fix it up. And in the process of fixing that property up, you take its value from this lower level up to some higher level. That higher level is your after repair value. And the reason the A RV is so important is because if you’re flipping, you need to know how much money you should spend because your A RV will dictate what you can sell it for. And if you spend too much, you might end up losing money on that flip. And if you’re doing some sort of refinance, you need to know what your backend refinance value is for the same reason to make sure you don’t overspend on your rehab. So that’s what the RV is, that’s how to project it. But Ash, I guess, what’s your take on this question? Small five bedroom, how would you approach trying to figure out the RV in this situation?

Ashley:
Yeah, the thing that I would recommend the most, and this is a little more difficult to do, but is to get a copy of an appraisal from that market. So get the appraisal and look at how much money they’re putting towards a bedroom. So it could depend on the appraiser, but you’ll at least get a ballpark idea that because this is a three bedroom and this one is a five bedroom, they’re saying the five bedrooms is worth $20,000 more in value, then it’s 10,000 more that they’re adding in weight to having the additional bedroom. And then there will be other factors though, if they’re the same square footage, but one is a five bed, one is a three bed, that is going to change the ARV a little bit too because it’s not going to give as much weight to other things. Like if there is this appraisal I just had done.

Ashley:
And one of the things they negated on the property was that there was no bathroom on one of the floors. So there was two bathrooms, but a basement, a main floor, and a second floor, and there was no bathroom on the first main floor, and they said that the layout was not ideal or something like that compared to other properties in the area, which technically is true. And so they negated money off of that too. So just make sure that you are looking at other things. So maybe if this property is five bedrooms, maybe it has a really, really small kitchen, small living room where they could also negate you for that too.

Tony:
That’s interesting. Ash, I’ve actually, I don’t think I’ve ever been dinged on an appraisal for layout concerns. So it’s interesting that that happens, but I think it illustrates the point that appraisers appraise properties differently. So I could send two appraisers to the same exact property and they could come back with two very different opinions of value. So it is kind of part art, part science, but ash, your advice to go out and get your hands on an appraisal, that’s exactly what we did when we spent time in OKC earlier this month as we were walking with this agent, I said, Hey, if you can give me some copies of some recent appraisals, she redacted all of the personal information from who ordered the appraisal, but I was able to see, oh, for bedroom variances, here’s what they’re adding or subtracting for square footage differences. Here’s what they’re adding or subtracting for lot size differences, here’s what they’re adding or subtracting.

Tony:
And I think she sent me five appraisals and looking across those five, I was able to get at least ballparks for, okay, if I’m plus or minus this on square footage, here’s the adjustment that I should make because I think it’s going to vary pretty dramatically from market to market in terms of how much you’re going to add or subtract. So I definitely would not use an arbitrary number like 10 K or 20 k because in a market like Iowa where maybe I can buy a property for $150,000, 10 K is a big percentage of the purchase price. If I’m buying where I live in Southern California and say I’m buying a house for 600 K, 10 K is a very small percentage of that appraised value. So I think getting your hands on actual appraisals from that market is probably the absolute best approach as well.

Ashley:
What a great idea to ask an agent or a lender because really how much information is really redacted on it? You can look up online, it’s public record who owns the property. So it’s like, it’s not like the social security number really any personal information on there. But yeah, I’ve never even thought of that. I’ve always just asked other investors or even just family friends or people that did a refinance or purchase a property for a copy of their appraisal to look at it for a market. But yeah, that’s a really good idea. I guess one other thing too is to widen your net. So widen your radius of how far you’re looking at comps, because the appraiser could also do that too, where if they’re not finding a similar property in that area, they could widen the net. So especially in a rural area, that radius gets pretty big as to how they could look for a property. I had one property that was on 30 acres and had two single family homes on it, and I think one of the comps was 10 miles away and was not even in the same town, but it was a similar property, so they had to go farther to find something that was more common to it.

Tony:
Ash, another great point because I think most appraisers will go further out as opposed to going further back in time.

Ashley:
Yes,

Tony:
I think that’s a mistake that a lot of Ricks tend to make is that like, oh man, this is a great same build right next door, but it sold 18 months ago and that is not a good comp anymore because markets shift so much. So I think a good rule of thumb is maybe going back 90 days and if you can’t find any good comps within, call it like a mile radius, then just start to mile and a half, two miles, two and a half miles, three miles until you can find something. But I would really caution all rookies from going too far back in the time machine to try and find good comps because most appraisers will not go that far back in time either.

Ashley:
Up next, our mentors really game changers in real estate investing and if so, how do you actually find one? We’ll dive into that after a quick word from today’s sponsors. Welcome back. Okay, we are here with our second question, and this question comes from Patrick in the BP forums, finding a mentor is mentioned in almost every single real estate book, and we do a lot on this podcast too, whether it be from an individual or a group receiving guidance from someone who has done what you are trying to do seems like a major step in getting started. I’m curious if people can attest to this and if so, how to go about finding this type of mentor slash guidance. I live in New York City, but would love to hear about anyone’s experiences. So yeah, Tony, like I said, we are very guilty of this, so saying how important a can be, but that doesn’t mean you need a mentor to get started. Yes, I 100% agree it will fast track you, but at least in your story when you got started, you didn’t have a mentor, right?

Tony:
Yeah, and I think that’s the point that I was going to make is that a mentor doesn’t have to be a single person who takes you under their wings and it’s like an old school apprenticeship. I think that’s what people always think about when they hear the word mentor. A mentor can mean multiple things today. It could be the books that you’re reading and the authors are serving as sort of a mentor. It could be going into the BiggerPockets forums where there is an unbelievable amount of real estate investing education and going into the forums and communicating with people and reading old threads could be your mentor. For me, there were certain Facebook groups that I was really active in early on, and it was those Facebook groups kind of served as my mentor. So there’s so many different places, opportunities to find people, and you don’t have to put all of the pressure on one person to be your mentor, but you can use a community of people to guide you along in your journey as well.

Ashley:
Yeah, when I first started, I worked for an investor, but he was very passive in the investing side and really didn’t know a lot about real estate, but I still felt like a sense of comfortability just knowing somebody else that was doing it, even though I didn’t really seek guidance or ask questions, I would say I did a lot of figuring that out on my own and then found BiggerPockets and the forums was gold to me. Being able to ask questions and to read other people’s questions and really discover questions I didn’t even know to ask. I think that was a really big pivotal moment for me. It was like, wow, that’s such a good idea. I wouldn’t even think to even come up with asking how to do that. So I would say more than getting a mentor is surrounding yourself with a community or an accountability group.

Ashley:
I honestly think that is more valuable than actually getting a mentor. And I agree. I think of mentor, it’s like the guy that’s been investing for 50 years and you hop in his truck and you drive to his properties and you’re helping to do stuff. I dunno, don’t survive. But there’s so many different forms that a mentor can take. Like Tony said, you’re reading a book, you guys listening to the podcast, maybe me and Tony can be your mentors and be under our wing, but I think even more so is surrounding yourself with a community. And I think that is easier to find than a mentor because that community, there are so many different voices, so many different opinions, so much different advice that people can come from and surrounding yourself with the community. There are paid communities, I’ll say just like there are paid mentors and free mentors, but with the community, just go on the real estate rookie Facebook group and just start engaging.

Ashley:
Even if you think you know nothing about real estate, when someone posts something like their post, congratulate them, ask a follow-up question so you can learn more. There’s this person, Lawrence Briggs, who we had on the podcast and he actually came on to learn from us and we were helping him get his next deal. The part of the really big reason he was on the podcast episode as someone we were learning is because me and Tony constantly saw him on Instagram. We did not know anything about him. We did not know him, but he liked every single post, every single story commented on all of our stuff, everything in the real estate, rookie Facebook group, every single day you would see him engaging. So when we saw his application compared to the tons of other people who wanted to come on for this spot thing we were doing, we recognized him just from social media and engaging with people. We’re like, you know what? We feel like we know him, we don’t know him, but you know what? Let’s have him on. He is really trying to get started here. And so yeah, you never know what opportunities will come about by putting yourself out there.

Tony:
Super valid point, Ashley. And I think that asking someone, will you be my mentor? Probably isn’t the right approach. Say that there is someone that you want to be your mentor. Just going to them and saying, will you mentor me? Is I think a difficult thing for most people to want to say yes to. I think a better approach is a, doing what Ashley said is getting yourself into the rooms where your potential mentor could be. And it could be the local meetup where Ashley said it is the old guy with gray hair with 50 rentals. It could be going to events like BiggerPockets and we talk about BP Con a bit, but it’s because I really do think that aside from all of the content that’s being shared on stage, it’s the relationships, it’s the connections that you make in between sessions, the after hours time at the bar, wherever else you guys may be, where those connections are really propel you to that next phase of your investing journey because you’re talking to people who are maybe one or two steps ahead of you who’ve already gone through the struggles that you’re currently facing.

Tony:
So getting into the same room as those people I think is one of the best ways to find your tribe of mentors. I think one thing though actually that I do want to comment on, and I might have a slightly contrarian view, but I do think there’s value, and I’ll put a big caveat on this, you got to find the right person. You got to find the right community. I do think there’s value in mentorship and coaching because you get someone who is now financially incentivized to make sure that you’re successful and you’ve got to make sure that whatever program it is that you’re joining is vetted that they’re on the up and up. There are a lot of folks out there who are doing it for the wrong reasons, who don’t really have effective processes for help when you get the results they’re talking about.

Tony:
But if you can find a community, if you can find a program that actually delivers on what it’s they’re promising you to do, I think a, you’re going to take it more seriously because you’ve voted with your wallet to say like, Hey, I’m not just going to buy a 9 99 book, but I’m going to invest however much, maybe three, four figures for this help. So now you’re committed to it. And then on the other side, they’re committed because you’ve invested into their community as well. So I think it is a way to shortcut, but you got to make sure you do the homework to find the right community. Alright, we’re going to take one last break before our last question, but while we’re gone, be sure to subscribe to the Real Estate Rookie YouTube channel. If you’re watching on YouTube, go ahead and hit subscribe.

Tony:
If you’re on Apple Podcast or Spotify or any other podcast player platform, look us up at realestate rookie on YouTube and we’ll be right back with more after this. Alright, let’s jump back in. Our last question today comes from Garrett. Garrett says, I have two questions for you. Number one, is it worth it to get your real estate license if your investing strategy is to flip houses? Number two, are there any drawbacks to getting your license that might hinder any part of your real estate? Investing from experience, what are the pros and cons of getting your license? Alright, so this question pops up every once in a while. I guess Ashley, I’ll ask you first, do you have your real estate license?

Ashley:
No. And as you know, I’ve paid to take the course probably five times, but I’ve actually never done it in probably four years ago. I gave up and I stopped paying for the course to actually get my license.

Tony:
And I think that’s a common story we hear from a lot of real estate investors. I think we will get into the pros and cons, but we had David Green on the podcast and he’s a high volume agent as well as being an investor. And I remember asking him this question and he gave very kind of straight to the point answer. He said, unless your goal is to become a high volume agent, I don’t think you should become an agent because it distracts you from your core job, your core focus of being an investor. And just at a high level, or fundamentally maybe an even better word, fundamentally, real estate investors and real estate agents are different people with different skill sets because there are a lot of agents who know absolutely nothing about investing in real estate. They can tell you all about the transaction of buying and selling, but what makes an actual great real estate investor, most agents don’t invest. And the same is true for being a real estate investor. There are a lot of amazing real estate investors who would make terrible agents. I’m one of them. I would be a terrible real estate agent. I’ll be a terrible agent. So I think the idea that the two are connected, they’re only connected so much and so that they’re both related to real estate. But in terms of the purpose, in terms of the skill sets, they are completely different things.

Ashley:
I think to a really important piece is actually understanding what a real estate agent does or what they should be doing for you. You see the agent take you through the properties, show you houses, how fun you get to go and see a bunch of houses and see what’s going on in your market. But also you need to be available all the time to do showings if you want to have clients, but also on the back end. So in New York state, you have to have an attorney to close. My agent does all the follow-up with the attorneys constantly messaging like, okay, we’ve got commitment. Okay, we’re good. Keeps it moving along. They do the contract, they do the paperwork. Anything that changes with the deal before we close on it, they’re negotiating that. The one property that I bought one time, this was probably my fourth property maybe, and it was the first time I was using a conventional loan.

Ashley:
The other time I’ve used private money or my partner’s money, so it was like cash, but this was the first time I was doing conventional loan and the people I was buying from were doing a double closing where they were closing on the sale of their house to buy their next house. So they literally was moving out the day we closed when I did my final walkthrough, and then they were waiting to close and then moving into their house later that day to their new house, they left like the fridge disgusting and the appliances were included, and I wanted them to pay a hundred dollars for a cleaner to come and clean because they left the kitchen disgusting. And I just remember my agent negotiating with the seller’s agent. Finally, the agents decided that they agreed on $50 cleaning fee or whatever. And to look back, now that just sounds so ridiculous, but a hundred dollars was a lot of money and I didn’t want to have to pay a cleaner.

Ashley:
And I definitely, I’m a germophobic. I did not want to have to clean it myself. So my agent was so patient with me sitting there at closing, I’m sitting literally the county clerk’s office where they have all the closing tables and I’m sitting there with the bank attorney signing and she’s over standing there and there’s the other family that’s selling you the house, they’re talking. Then the agents would come and meet in the middle and talk and then go back. But it’s like all of these little things. One time both agents agreed to pay for snow removal because the seller refused to plow the driveway and they actually did that out of their own expense just to keep the deal moving. So you have to order signs, you have to put your sign up, you have to make sure the inspection goes well, the inspection doesn’t go well, you are helping negotiate that. I had to have a sump pump inspection once to actually close on the property. My agent helped me through that whole thing. So I think really understand what an agent actually does besides write up the contract and do showings because in my opinion, a really good agent there is a lot more that is done behind the scenes.

Tony:
Yeah, I think a big piece too is just understanding why do you want to get your license? What is your motivation? Do you want it because you actually want to be a great agent for either primary home buyers or for investors? If so, if you just have a desire to be an agent, then yeah, by all means go do it. But if you’re doing it because you think that it’s going to give you some sort of unique advantage as a real estate investor, I think I might at least just double check that. I mean, there are some pros, right? The pros of getting your license, especially if you plan to flip, are that you could potentially save on commissions. And I say potentially because maybe you suck as an agent and you would actually make more money giving up 5% on every sale to agents than trying to list yourself.

Tony:
Maybe they’re just going to be able to market your property better and you’ll just get more in each flip. So I say potentially because not paying commissions doesn’t always mean making more money. The second pro I think, is you do get MLS access. So if you’re flipping in the market that you get your license in, MLS does have sometimes more data than what’s readily available on Zillow or Redfin. Sometimes you can get access to maybe expired listings more quickly. You don’t have to go through a site like Prop Stream or something to that effect. So the data availability might be a little bit stronger, but there’s cons as well. And obviously this is going to vary from state to state, but you’ve got to disclose that you are an agent. And sometimes maybe if you’re working off market deals, maybe that causes some friction in trying to get deals done. There’s the cost of maintaining your license and you’ve got to do continuing education to keep it active. And so there’s pros and cons. So I think it’s weighing both of those to understand is the value of getting your license worth the money, the time, the energy that goes into maintaining it.

Ashley:
But you definitely don’t need to have your license to be a real estate investor in some states, if you’re going to be a wholesaler, that’s a different case where you are starting to need your real estate license. So I mean, it also depends on what strategy you are doing too. Maybe if you are flipping homes and you’re doing a lot of buying and selling, maybe it makes more sense. But if you’re just buying one rental a year every two years and that’s all you’re doing, it might not be worth it at all to save that little bit on commission to do such low volume and probably cost you more anyways to maintain your license and to take the continuing education courses. I had my insurance license for a little while and those courses are not cheap. Well, thank you guys so much for joining us today for this episode of Rookie Reply.

Ashley:
If you have questions for us, feel free to submit them in the BiggerPockets forums. You can always send us a DM on Instagram at a BiggerPockets rookie, and we may just answer the question on the show. And we also pull questions from the Real Estate Ricky Facebook group. I’m Ashley. And he’s Tony. And we’ll see you guys in Las Vegas. Yep. I tricked you guys. You thought I was going to say the next episode, but make sure you guys get your ticket to BP Con because Tony and I will be there and we look forward to this moment every single year when we get to do the Rookie Meetup, the rookie networking event at BP Con. So make you guys get your ticket. If you guys need an extra discount to help you get there, send us a DM and you can message me at Wealth from rentals on Instagram or Tony. You can message him at Tony j Robinson. And now we’ll see you guys on the next episode.