Robert Leonard  04:12

When you decided to leave your accounting job, and go into property management, was that a strategic decision? Did you think it was going to help you become a real estate investor, and that’s why you wanted to do it? Or was it just an opportunity, and you didn’t necessarily know what else you wanted to do so you kind of just took it?

Ashley Kehr  04:26

It definitely was not planned at all. I was quitting my job to be a stay-at-home mom. My husband told me I could quit if I got pregnant, and I got pregnant. I put in my two weeks notice, and I was just going to be a stay-at-home mom, and then the investor talked to me. I actually grew up with his daughter, so I’d known him for a very long time. He said, “I know you’re not working right now, and I was just wondering if you could help me. I just need someone to help me get organized and to manage.”

At the time, he only had a 40-unit apartment complex. It offered the flexibility of working at home, getting health insurance paid, and then a little bit extra cash each week. That part-time didn’t last very long. It quickly grew to take up 50 to 60 hours a week. I definitely really enjoyed it, and have learned so much from it. It’s funny how opportunities affect you. At that moment, it was the health insurance that got me, but it has grown me into a completely different person, and definitely, a lot of different opportunities have come up because of it.

Robert Leonard  05:16

If someone is relatively new to investing, and they’re considering whether or not they want to self-manage or hire a property manager, what do you generally recommend for a new investor? Should they do it themselves? Or should they start with a regular property manager?

Ashley Kehr  05:45

I’ll be honest. I am so mixed on this because they’ll always say, “Do it yourself,” and “Know how to pick a great property manager.” Even if you are going to self-manage, put in the percent management fee, whatever the going rate is. If you ever want to give it to a property manager, your numbers still work. Last February, I gave up my property management role, and it has been great. I feel relief now that it’s off my shoulders. I definitely have learned over the years, but I didn’t realize how much of my time it took up just learning the rules and the laws. The New York State, in the past year, changed some rules, so I had to go to classes and learn so much about these changed rules.

A lot of people have told me that the reason they use property management is because of the liability, and fair housing laws. They don’t want to have that responsibility of having to know all of these rules and regulations that come with being a landlord. I think that’s a great point, but if you’re willing to learn and take the time to know these rules, regulations, how to properly put together a lease what you can and cannot put into a lease, and how to rent an apartment, it is worth it to do yourself, at first, to learn how to do it. It will make it a lot easier when you hire a property manager because you still have to oversee a property manager a little bit. You want to make sure that the money coming in is tracked each month, that you’re not being over-billed for expenses. It’s not a lot of work at all, but you want to make sure your property manager is doing things right.

Robert Leonard  07:21

Was there a point you hit where you realized, “This is snowballing, and now it’s a lot of work.” Maybe you reached five or ten units, and it wasn’t so bad; and then you hit a few more units, and you say, “Now, I need a property manager.”

Ashley Kehr  07:35

I was actually self-managing 80 units for this investor all by myself. At that time, I also had around 12 units myself. It drove me crazy. I was at about 92 units. I hired a leasing agent to help me, and a couple of part-timers have been helping me ever since then. That was about three years ago after I had gone two years without having any help. When I did those 92 units for two years, I self-managed them, but that was also my full-time job. I was working 50 to 60 hours a week managing those units and doing everything for them. If you want real estate investing to be a part-time job or be passive, instead of a full-time job. I would give it up after 15 units of your own if you don’t want it to take up a ton of your time. As I was working for this other investor, I was already doing property management every day, so it wasn’t a big deal to have my own properties included in that.

Robert Leonard  07:36

If someone’s going to manage it themselves, what items are often overlooked by new rental property owners that would have been caught by someone like yourself who has a bit more experience or just other more experienced property management companies?

Ashley Kehr  08:54

One big thing would have to be a checklist. You’ll want to have your application checklists of rough background checks and credit checks. You’ll want to have a good system in place. When I first started working for a property manager, I was just given boxes and files and told, “Key’s in your drawer.” I had to create all my own systems.

The leasing process can be one of the hardest things to do if you want to get a good tenant in place. Some people go as far as creating manuals for each home for how the home is supposed to be taken care of, and what you need to do to operate the home, with manuals for every appliance included in there if you ever needed to reference it. I learned a lot about the leasing process, and how to actually legally process applications and select a resident fairly without bias. I think the leasing process is where you can get into the most trouble is as a landlord, for sure.

Robert Leonard  10:06

What I do sounds like it might be like a hybrid model. I use an agent to help me with leasing. They do all the showings, they handle even procuring a lot of the tenant potential tenants, and then I get all the applications and I’ll look through them and make the decision. But my setup is long distance, so I’m not even at the property to even show it even if I wanted to. They have to do that for me. I have an agent who does that their their their shows the property for me, but then once that’s done and the tenant is in and they’ve gone through the move in and move out checklist with the agent, everything else all the other property management stuff is on me.

Ashley Kehr  10:42

Great solution. With real estate, there’s a lot of stuff that you can easily outsource. It’s a great way to do it because there’s so much software right now for you to easily property manage remotely.

Robert Leonard  10:56

Yeah, that’s exactly what I was going to mention, the software piece of it. It just makes my life so much easier. Basically, I just use Cozy for pretty much everything.

Ashley Kehr  11:04

I think that’s great that you can easily hire a leasing agent to do it. I have done that before. I found that you can’t just hire a realtor to do it. I had hired one for a commercial property, and she didn’t even run a credit check or background check. She just saw people who want it, they’re willing to pay, and there you go. “Where’s my commission?” But no, they need to go through a process. We just can’t tell them they have it because they want it. So, definitely, people have to be careful in their selection of who’s going to be leasing their unit.

Robert Leonard  11:37

Yeah, that’s where an investor-friendly agent would come in handy, which is what I look for, someone who has their own rentals. In this case, he helps me purchase the properties down there, and he’s also an investor himself so he knows what’s going on.

Going back to Cozy, he just gets me the applicants, and then once they go into Cozy and they actually apply, the platform runs their background checks and credit checks automatically for me. I don’t even have to worry about that.

Ashley Kehr  12:01

Yeah, that’s great.

Robert Leonard  12:03

If someone doesn’t want to do the self-managing route, and they’re going to hire a property manager, what do they need to look for? What are some of those characteristics or things that really make for a great property manager?

Ashley Kehr  12:14

I would say one that’s willing to work 24/7; someone who’s not going to just work nine to five, and will be available evenings and weekends.

That’s one thing that’s been hard for me in the transition — I was pretty much available anytime. I did set limitations on my voicemail that said when I’m available during the week, but I would always listen to my voicemail, and if there was something emerging or I was sent an email, even if it was on a Saturday morning, I would respond. But now that I actually have a property management company, there’s been a big change. If I send an email on Friday, it doesn’t get responded to until Monday at 8 a.m. It’s hard for me to get used to that because I was always just in property management mode, which is nice to not have to do that.

A great property manager is someone who is going to value your properties and knows what they’re doing, but also won’t give in to everything that you want. You want someone to be comfortable in giving you advice, and should be able to give you advice as to how to handle a situation, and not just say, “Whatever you want to do, we’ll do.” You’re hiring them to manage the property. You want them to be able to make decisions that will be best for you and the property because you don’t want to have to worry about it, and you don’t want to have to know what’s best. That’s why you paid them. So, look for someone who’s not going to be afraid to give you guidance and to tell you that you’re wrong.

Robert Leonard  13:54

How do you go about finding somebody that meets all of those different things that you just mentioned?

Ashley Kehr  13:58

I went through a lot of leasing agents because I’m so picky, until, finally, my boss’s daughter started working for me. Since they were her dad’s property, she cared about them so much. That’s why I was able to work well with her.

As for the property management company, I interviewed them for about four months before I actually hired them and pulled the trigger. I walked properties with them, got references from them, sat down in meetings with them, and just felt comfortable. One property manager was dating a friend of my husband’s, and I like that I kind of had like a personal connection there. I also know one of the maintenance coordinators, and she gave me very honest feedback about the place. That’s why I decided to go with them. I liked how they were very open on social media. They had a good social media following, which sounds weird, but it would be so easy for, if someone was unhappy with them, to just post feedback on all of their social media. I think that’s really important. It’s so easy these days for people to put reviews out there if people have social media, and they really don’t have any negative reviews at all.

Robert Leonard  15:25

Yeah, there are a lot of resources these days that you can use to get reviews, like Yelp and HomeAdvisor. That’s one of the things I had to do, not just for property managers, but for handymen, contractors, and things like that. I also don’t use ones that have just two or three posts. You need to have a good sample size to go from and get a general feel for what their quality of work is.

Ashley Kehr  15:49

I had this guy tell me once that if he saw a contractor’s sign or truck in someone’s yard or driveway, he would actually go and knock on the door and say, “I saw that a contractor is doing work right now. Do you mind giving me some feedback? I’m always looking for new contractors.” I don’t know if I’m that brave to just knock on someone’s door, but I thought that was a very interesting and good technique.

If the contractors were still working on the project and it wasn’t complete, he would give his name and phone number to the homeowner and ask if they wouldn’t mind calling him to let him know if they did a good job or not. If they did a great job, people don’t mind taking a couple of minutes to rave about how great it was. If they did a horrible job, they’d definitely want to get that off their shoulders. They’ll have no problem calling him to tell him it was a bad job, and if it was a mediocre job, then maybe he wouldn’t hear anything back. But to that, he said he’s looking for great people, and if they call and tell that they’re great, you know, he’ll definitely look into using them.

Robert Leonard  16:54

Yeah, I’ve actually heard that same advice from a couple of other people as well, and I haven’t used it myself. I don’t do a lot of stuff locally. It’s not easy for me just because even if I see something around here and I talk to them, it’s not going to be helpful for me. Like you, I don’t know if I’d be brave enough to go knock on the door and talk to someone that’s not necessarily in my personality type. But it definitely could be a really good strategy.

Not too long ago, you became a licensed insurance agent, as well. What was your thought process behind that? How has it impacted your real estate investing business?

Ashley Kehr  17:27

Well, that was actually with the investor that I work for. He wanted to start an insurance agency. He’s been licensed as an insurance broker for 25 years, and he just decided that he’d actually like to start one. We started an insurance agency, and he told me I needed to go get my license. I went and got my license after going to school for three weeks. I definitely felt a big change after not having been in school for a long time, then having to again sit from eight to five every day for three weeks. I got my property and casualty insurance and then also a home and auto, so I can pretty much write anything — life insurance, too, and health insurance.

So, we started this agency, and I held my license there. I write all of his commercial and residential properties, and then I do all my own, too. I’d do rental properties primarily for other investors in the area. I don’t really do any home or auto, but it definitely is very nice to get that commission check from writing my own policies and from writing for his units and for other investors too. I focus on that little niche since I’m not doing it a lot, but it’s been good.

I always tell people that if you don’t want to be a realtor or property manager, getting an insurance license is another way to introduce yourself to real estate investing because you’re learning about the property. Some things I’ve learned are: you don’t want the property to have a trampoline; you don’t want it to have a pool; and you don’t want it to have a wood stove. Those are three general things that your insurance company is going to frown upon, and either say, “No, we’re not going to give you coverage,” or “We’re going to increase your coverage.” It’s been very interesting to learn the different things about what goes into underwriting a policy, and if they’re going to write it or not. I like that part of it. It’s also fun to input all the information and see the premium’s going to be. 

I think it’s a good way to get to know more about properties, especially if you’re going to do rental properties. When people run their numbers, I feel like insurance is one of the hardest things to estimate because, you know, it’s not readily available for you because it really depends on who you are as the owner and what the property type is. Just because the previous owner was paying $800 doesn’t mean that you’re going to be paying $800 a month. They might have had that bundled into their primary residence, their auto, a boat where they’re getting a huge discount, whereas this is your first time getting insurance, maybe a car insurance, but as you can’t bundle it or whatever. It could be very different for you.

It’s very easy for me to quote buildings I’m looking at for myself. I just put it into the website and see what it would be, but I don’t submit it. I can use that to get an estimate on my insurance for that property.

Robert Leonard  20:44

You mentioned a couple of the different things that you’ve learned to look out for, being trampolines, fireplaces, and things like that. One of the common questions people have is about pets for tenants in rentals; how does that play into an insurance product if it’s going to be rented?

Ashley Kehr  21:01

That is a great question. For the company I work with, specifically, they require your tenants to have rental insurance if they have any kind of pet. They have breed restrictions, too. If it’s a Pitbull or Rottweiler, and I think there’s one more, they won’t even write the policy.

Robert Leonard  21:23

You also mentioned the commission, which I think is really interesting because that’s not a component that I had thought of myself. I hold my real estate agent license in the state where I live and I use that not because I practice. I don’t practice, by any means, but I use it to help my real estate investing, and I also am able to earn referral commissions by telling people to go with a certain agent. I get a commission that way, as well as everything that I purchase or sell myself, so that has been a nice component. I think a lot of people know of that, but not a lot of people know of the insurance side of things. Does it work similarly?

Ashley Kehr  21:56

Yes, except you’re getting renewal commission every single year. For a $1,000 policy, the agency, the brokerage will probably make $20,000. How it’s set up for me is so they get $200 when I first write that policy, and then they give me 60% of that. I make that the first year, then every year it renews, the company pays another 10% to my agency, and then I get around 10% of that. It’s not a huge amount of money, but still, it adds up. If you wrote a lot of policies for apartment complexes, and those are easily $14,000 policies, that’s a little more than $100 I’m getting each year. It can definitely add up. It’s just renewal income because you need insurance every single year.

For actual customers, I’ll glance over their policies, making sure that everything is still correct this year, if we need to change anything, if they’re eligible for a discount or we can get it a little cheaper, but it’s not a ton of work at all to keep getting that renewal commission.

Robert Leonard  23:13

For something like that, do you have to be an actual practicing insurance agent at a firm or brokerage? Or can you just be licensed and refer so and so, who’s going to get an insurance policy, to an agency, say State Farm or Progressive, and then get a commission? How exactly does that work?

Ashley Kehr  23:31

You can have that brokerage hold your license and then do a referral. In the brokerage that holds my license, there is another person that doesn’t do any writing or anything like that. Every person she refers she gets a 10% one-time commission but no renewal commission. It’s the same with me. If I refer someone for their auto or their primary residence, which I don’t really write, I get 10% that first year.

Robert Leonard  23:58

Yes, that sounds exactly like how it works with the real estate license side of things.

Ashley Kehr  24:02

It’s easy to do. 

Robert Leonard  24:03

Yeah, it’s super easy. It’s one of the things I like. I forget exactly how much it was to get my license; about a couple of hundred dollars, under $500, I believe. I think the numbers on the payouts for a referral are bigger on the real estate side because when I refer someone, I generally get between 20% and 30% of whatever that agent’s commission is. If the agent’s commission’s $10,000, you can get $2,000 to $3,000, give or take, for one referral, and you can continue to do that. If your license only costs you $500 or less to get, then that’s one deal; and you’d make five to six times your money back, which is great.

Ashley Kehr  24:38

It’s basically just connecting people.

Robert Leonard  24:40

Yeah, it’s just connecting people. It was as easy as I had a friend’s mom that was going to buy a property, and I said, “Here’s an agent that I know. I know him really well, and I trust him. If you want to use them, go ahead. If not, that’s fine.” She ended up using him, and then, of course, there was a commission and it made a very good return on that $500 investment. Now, the caveat to that is it’s hard to get someone to hold your license to do just that because most brokerages don’t want you to hold your license just to do that. Just like insurance, they have a lot of liability, so you kind of have to have an in on most to be able to do that, but it does work.

Ashley Kehr  25:13

That’s really interesting. I guess with my license, the investor paid for me to get it, so I didn’t have any upfront costs there. Since he paid for my license, he’s not going to want me to leave and have it held somewhere else.

Robert Leonard  25:27

Yeah, absolutely. I want to dive into more about your investing. Based on what I’ve read, about five years or so, you added 30 units to your own portfolio. We talked about it earlier, but I want to dive into your first deal a little bit more. How did you scale from there without much of your own money?

Ashley Kehr  25:47

I had my partner that put up the cash for the first property, and then he had some more cash, so we bought a second property. We refinanced and did a portfolio loan on both of them to buy our third property. After that, he opened a line of credit on his house, we purchased our fourth property, put up a mortgage on that third property, and paid off his line of credit again. We just basically did the BRRR strategy, but we really weren’t doing any rehab. Property two, three, and four needed no work done to them at all, and we had just done some cosmetic updates to that first unit. After that, I found BiggerPockets, and from there, it just accelerated.

At BiggerPockets, I was learning different ways to find deals and get money, and I just was also pumped up from learning about this community of other investors because before, even my partner who was 100% passive knew nothing. He still doesn’t really know anything about finding a property or talking the numbers on it and stuff, and he’s busy with his own passions and stuff, that he doesn’t really care as long as I’m making him money. But I just really was so motivated by finding this BiggerPockets community. 

Within a year and a half, I tripled my portfolio, so property five, I purchased on my own. It was the first property I’d purchased on my own. I did 20% downpayment, 30-year financing, and fixed rate. After that, I found another partner. Since then, we’ve bought a duplex, a triplex, and a four-unit together, and we have another single-family under contract. I purchased a bunch more on my own and some more with my first partner, but I got a lot more confident and a lot more excited. I started to really see the power of what that cash flow can do, and I started to use it to buy more properties.

Robert Leonard  27:54

When do you think someone is ready to bring on a money partner? Do they have to do a few deals successfully on their own first before they bring in private capital?

Ashley Kehr  28:04

I don’t think so. You just have to be able to prove yourself to that person and make them realize that this is an opportunity for them. I always like to suggest putting together a binder with all of your personal financial information. When I started real estate investing, my finances were not in order. Then I discovered Dave Ramsey, and now we’re debt-free besides our rental properties. I think it’s so important. My rental properties wouldn’t be as successful as they are now if I didn’t learn how to manage my own money first. Now, I manage the rental properties money very successfully.

I think it’s very important to have your own finances if you want your rental business to be successful and you want to build wealth. I think that’s a good foundation to start. I recommend putting together a binder portfolio, with a couple of years of your personal tax returns, your personal financial statement, and maybe a couple of bank statements. You’re going to be tying yourself to this person, and they’ll want to make sure they’re tying themself with someone, and giving their money to someone, who can manage their own money. Even a Credit Karma report showing that you paid your bills on time can be useful. You could also show them a couple of deals using BiggerPockets calculator reports, figures for purchasing this property, what rehabilitation work would cost, include pictures — just give them as much information as you can show that says, “Look, this is how I would pay you back. This is what the cash flow would be, and I have this amount of money in reserves. Even though I’m using your money, I still have you know, $10,000 in reserves that, if something were to happen, I can pull that money.”

Show them anything you have to show that you would be a reliable partner and exactly how their money would be safe. Give them as much information as you can. I don’t think that you have to have a couple of deals, but I think it makes it a lot easier to find the money partner once you do have a couple of deals. You can add that to your binder, showing them what you have already done, what you’re cash flowing now, and how you turn those into successful deals.

Robert Leonard  30:25

The personal finance component of that is really interesting. I’ve never heard someone recommend putting that information together and providing it to an investor, but I think it makes great sense and I think that is a great idea. Do you find that a lot of investors don’t necessarily care how much money you have, rather how you handle the money?

Ashley Kehr  30:44

I think that’s an important aspect, and I look at it like I’m a big fan of being debt-free. You could be spending $1.5 million a year, but you could be making $40,000 a year and only spending $20,000 a year because you’re living below your means and you know how to manage your money. Once someone starts getting cash flow in, you could be pretty much living off of passive income. If you’re not managing that income, it can be pretty easy to start spending that money, living out of your means, and not saving for reserves or that roof job that’s going to come up in a couple of years. You can easily get yourself in trouble once you start making more money but still have an asset that you have to manage, maintain, and take care of.

I think it’s very important to have your own finances in order because what if an emergency does come up and you need to spend beyond your cash reserves? For us, we’re in a position now that, if we needed to, we could pull $4,000 a month out of my husband’s farm income to put on a new roof or something like that if, for some reason, our cash reserves wasn’t enough. But I think the two go hand-in-hand — your personal finances and your business finances.

Robert Leonard  32:11

Yeah, I think a lot of people would hear that personal finance advice, and then just get self-conscious, and say, “Well, I don’t have a lot of money. I don’t want to show an investor that.” But you have to remember that that’s the point. They already know that you’re not going to have a lot of money, that’s why you’re going to them to be your money partner. They’re not gonna expect you to have $100,000 sitting in the bank. The other component of it applies the saying, “If you can’t manage your money when you make $25,000 a year, you’re not going to be able to manage your money when you have $100,000 a year $500,000 a year.” It’s the same thing as you were saying — if you can’t manage your own money, whether you’re making $50,000 or $100,000 a year, you’re not going to be able to manage an asset that’s making cash flow. You need to be able to have that money management piece under control.

Ashley Kehr  32:55

Right. That’s why it’s important to show as much as you can. It’s not about how much money you have, but about showing that you can manage what you do have. Showing your tax return will show how much you make; showing your credit report will show that you pay your bills on time; and showing your personal financial statement will show that you don’t have a ton of debt on a boat, car, or anything like that, and that you don’t live outside of your means.

Show that you have a small net worth that’s important to you. You want to build wealth. Also, you’re right that most people need a money partner because they don’t have a ton of money. I think a lot of people who are willing to invest their money know that. Also, someone who doesn’t have a lot of money might be a lot more eager to make money for both of you. If I’m going to be a passive investor, I would rather invest with someone who doesn’t have a lot of money as they’re more likely to make that money work hard so that they can make their own money. I would rather that than someone who already has a lot of money who might say something like, “Oh well. We lost $500 this month. I didn’t bid out contractors, but whatever. It’s just $500.” It could be advantageous to you to show investors that you’re eager to work hard to make money for both of you.

Robert Leonard  34:14

Yeah, that’s a really good point. How do you go about finding someone like this? If somebody’s listening today, they’re going to do everything that you’ve just mentioned about the personal finances. They’re going to put it in a binder, are willing to have that conversation. But now they’re thinking: How do I even get in front of these people? Who do I even give this binder to?

Ashley Kehr  34:30

My first partner is a lifelong friend. I just kept putting the bug in his ear, pointing at his dad, and saying we should do it too. If you know anyone whose parents have been successful from real estate, but maybe they don’t have the time, and their parents don’t have the time to teach them how to do it or something like that, you can try approaching someone like that.

As for my second partner, we were friends for two years. He had some rental properties. We decided to partner up, and we work really well together. I think it was really important that we built our friendship first, and that we each had experience with our own rentals. We have the same mindset, buy the same kind of properties, and we want to do the same things with our properties. I think the fact that we’ve watched each other from different, but similar, paths, has really helped us grow a strong foundation for the partnership that we have now.

I would also just talk to people whom I’m comfortable with. I’ve had another person that wanted to invest with me, but I wasn’t ready for another partner so we never did anything at the time. But my realtor had actually approached me, and said, “I have a friend who wants to get in real estate investing. He has money, but he doesn’t have time, and he doesn’t want to deal with property management.” I met him for coffee and gave him my binder with all the information in it. We went over it, and we went and looked at a couple of properties together. We almost put in an offer on one, but I wasn’t ready. But I think that, at any time, I could go back to him, and he would still be interested.

I think word of mouth referrals are really powerful. That’s how I found half of my properties. People came to me, and said, “Hey, I know this person that’s selling their building.” Or “I need to get rid of these properties. My sister and I are fighting over them, and we just need to be done with them.” I think that just telling people what you know, what you’re doing, and what you want to do will bring a lot of opportunities to you.

Try reaching out to people who you are comfortable with. Even to someone you think might be interested in doing it, but you just don’t want to ask them, say, “Hey, you know a lot of people. Do you know anyone that would be interested in investing money with me to buy a property? I’m looking for an investor. Do you know about anyone?” Maybe they’ll think of someone. “Hey, I heard someone talking about this the other day– that they want to get in real estate, but they don’t know how to, and they have the money.” Or they might say, “You know what? I would like to.” Or maybe a month later, they’ll call you and say, “Hey, so and so was just talking about real estate investing. I gave them your information. They should call you.”

Robert Leonard  37:13

When you do partner with someone, what does that look like? Are they bringing all the capital, and you’re bringing all the work? Are they bringing some of the capital, while you’re bringing some of the capital and doing most of the work? What does that split usually look like?

Ashley Kehr  37:31

Well, I have four partners right now. With my first partner, we have a 50/50 equity setup in our LLC. For any money he used to purchase the property, he’s paid back the mortgage payment each month, and the principal and interest payment. He’s 100% passive. He doesn’t do anything, except, if I want to buy a new property, I ask him for more money, and he writes a check.

My second partner is a friend for two years. We have a 50/50 setup for everything, including money. Up until recently, he did the maintenance and I did the property management, but now, we have the property management company take care of that.

We have a duplex and a triplex. We’re pretty much 100% passive. If the property management company needs anything, I take care of that, and then I just input the owner statement into our books. We did just buy a four-unit together that we’re completely rehabilitating. I purchased the building with cash, and he is pretty much putting in sweat equity. We’re both working on the rehabilitation, but he has a lot more knowledge and skill about construction and rehabilitating than I do, so that’s where he’s really adding value. We refinance all materials, then pay ourselves back. Then, using some of my cash in a line of credit, I have to pay those and put myself back, and the line of credit back.

My third partner is my brother. I gifted him 25% ownership of an LLC that owns a small duplex for Christmas one year. He’s 100% passive, has put no money in, but gets no money out. I just keep a little bit of cash flow in the LLC account for now, but eventually, whether I sell it or get some cash out of it, I’d like to purchase another property to put into that LLC, at some point.

Lastly, my fourth partner is my sister. When she graduated from college, she wanted to move out. That was the perfect opportunity to house hack. I never got to do that. We purchased a duplex. She got an FHA loan, so she only had to put 3.5% downpayment, and she got a super low-interest rate. I paid for the downpayment, the closing costs, and any prepaid expenses (i.e. insurance and property taxes) that came to like $14,000. I paid for that. The mortgage is just in her name, and we have a 50/50 setup on the deed. She currently lives upstairs, and the downstairs tenant pays pretty much all of her mortgages. She only pays $50 a month toward her mortgage.

It’s a long-term benefit to me that, when we sell the property, I’ll get 50% of the proceeds from that. If she moves out, I’ll get 50% of the cash flow from that property. I couldn’t have bought this property, really, if I didn’t have enough to pay cash for it and implement BRRR strategy. I didn’t have enough to put 20% down at the time to buy this property, so it really worked to my advantage that I could become 50% owner of this property for such a low dollar amount, with only a 3.5% downpayment. She just pays the utilities and only $50 a month, which is a huge benefit to her. The rent could probably go $750 to $800 a month.

Those are my four partnerships. Each one is very different, but we all have an operating agreement, and we have life insurance policies on each other so that if one were to pass away, the life insurance policy would be used to buy the person’s family out. That is so we wouldn’t be stuck being partners with each other’s family, and then we have LLCs together.

Robert Leonard  41:11

There are so many different pieces of that whole explanation that I want to talk about. Let’s start with the house hack as that’s a strategy that I’m actually looking to implement myself, and I think that’s a really good way for a lot of people that are beginning to get started. I really like that strategy. How did you go about financing? In my experience, it’s hard to get traditional financing on something like that when you’re not married.

Ashley Kehr  41:38

She applied on her own. We asked the mortgage company if it would be okay if I was on the deed, and they said, “Yes, no problem.” I didn’t have to sign a single document for the mortgage. Everything is in her name. When we closed on the property, we put both of our names on the deed. She didn’t make her payments as it would ding her credit, but not mine. If the property gets foreclosed on, it would be taken away from both of us, but there would be no harm on my credit or anything like that. I don’t foresee that happening at all, but that shows how it would work out.

Robert Leonard  42:23

How did the downpayment money work? I’m also interested to hear more about the deed because I’ve gone through that process; I tried to do the same thing, where I purchased the property and was the only one on the mortgage, but somebody else was on the deed, and our company wouldn’t allow it. That’s why I’m curious to hear more about that, as well.

Ashley Kehr  42:40

I did a gift letter. Since it was going to be her primary residence, she could receive a gift in the down payment, which she doesn’t have to pay back. I just had to sign a gift letter from the bank, saying that I was gifting her the $14,000 and she did not need to pay it back. That was all we had to do for those funds. I had to submit a bank account showing the $14,000, and give them a copy of the check. I wrote to her for the $14,000, and then, it being deposited into her bank account, she had to show a bank statement showing that. We just had to show the money trail of that gift. And then, as far as the deed is concerned, I’m not really sure why they let that happen. It just wasn’t an issue at all for them. We do also have attorneys here, and I don’t know if she handled that for us or what. 

Robert Leonard  43:31

What type of bank did you use? Was it a small credit union small portfolio lender? Or was it a larger, more reputable institution?

Ashley Kehr  43:38

The company was 1st Priority Mortgage. I’m pretty sure they’re nationwide because my brother’s leased on the East Coast, and we had our realtor refer us to a local loan officer. We’ve used him twice now.

Robert Leonard  43:57

You mentioned that you have an LLC with them all. When you’re composing the deed for that property, is it to an LLC? Is that how you handle it?

Ashley Kehr  44:04

I have to correct myself there. My sister and I do not have an LLC. I just have an LLC with the three other partners. It’s just in my name and my sister’s name, personally, and just have an umbrella policy for us to gather on for that property.

Robert Leonard  44:19

As for the other properties, did you have any financing on those, or were they all cash?

Ashley Kehr  44:26

I do have financing on some of those properties. I did find one really small local bank that would do a 20-year fix on an LLC property. I did that with one of my partners. But then, any other property we have in an LLC is commercial property. I did just hear of a bank that will do a line of credit on LLC-owned investment properties. Right now, I do have a line of credit on an investment property, but it’s in my personal name. That bank that I’ve heard of that will be the first I know that will actually do a line of credit on an LLC-own investment property.

Robert Leonard  45:05

You use lines of credit in the past to purchase properties. Were those unsecured lines of credit or were they secured with home equity from other properties?

Ashley Kehr  45:13

I’ve done both. I have one property now that’s free and clear that I have a line of credit on. I use it pretty much as my main funding source. With one of my partners, we were purchasing a property, and we went to the commercial loan officer I’d used before, established a relationship with, and had done a bunch of deals with him for my job, too. We just talked with him, and I gave him a BiggerPockets calculator report, and said, “I’m looking for a way to purchase this property. What do you have available?” And he said, “How about I give you an unsecured loan for 90 days? Purchase the property with that cash, and then come back and refinance with us with some long-term commercial financing, and pay off that 90-day unsecured loan?” We said, “Great! Let’s do it.” We had literally no cash out of pocket for ourselves. We used that unsecured loan to purchase it for $35,900, and paid $800, ourselves, to put it in a fridge. A week later, we had the appraisal, and it appraised for $55,000. We’re actually able to pull out like $41,000 from the property without really doing anything.

Robert Leonard  46:27

Why was that a commercial property?

Ashley Kehr  46:29

Because it was in an LLC. 

Robert Leonard  46:31

Okay, but was it a duplex? 

Ashley Kehr  46:34

It was a duplex.

Robert Leonard  46:36

And so, were you able to find a financial institution that was willing to lend on that small of a property using commercial financing?

Ashley Kehr  46:43

It’s cataloged as a county bank. They’re very small, so I don’t know if they’re of any value to anyone listening. It’s local. We took out the mortgage of $41,000, so it was more than the actual purchase price. Usually, a lot of banks won’t accept under $50,000.

Robert Leonard  47:00

Yeah, that, and I’ve also had trouble finding any banks that would be willing to do commercial financing on anything less than five units. The reason one looks for that is that commercial financing can be more flexible, usually. But, usually, what I find is that, aside from size, the number of units matter. They don’t want to do anything less than five units.

Ashley Kehr  47:21

So, this bank is also one that would do a 20-year loan. If you have an LLC, they would do it fixed on the residential side. But they kicked me out of the residential side, so I was only able to do that once. I probably had too many properties, so I needed to be on the commercial side. Maybe that’s why they weren’t taking me on the residential side anymore. But I did. I have had a couple of other people use them, but I don’t know if they were that low of a dollar amount.

Robert Leonard  47:54

I think the whole part of this conversation is interesting because there are so many banks and institutions that you can get a loan from. A lot are going to be similar, but a lot are different too, so call around. It’s a numbers game. If you continue to call enough, you’ll find someone that’s willing to do the type of deal that you’re looking to do, in most cases.

Ashley Kehr  48:16

Yeah, I definitely agree that there are so many options out there for different kinds of financing. I mean, especially that proposition to give us an unsecured loan with the deal to refinance with them. Who would have thought they would have given us this loan with no collateral? It worked out really well, and we built a good relationship with them. Maybe that’s what they look forward to –knowing that they’ll keep a relationship.

Robert Leonard  48:41

Yeah, I’m sure they have been able to secure your business going forward for at least some period of time. For newer investors listening to the show today who like a lot of the different strategies that we’ve talked about, what’s the first thing that they should do when they’re done listening to this episode to start building their real estate business? 

Ashley Kehr  48:59

I would say to get on the MLS, start running your numbers and practicing that. Even if you have ways to find deals off of the MLS, just use those properties on there to practice. Find out where you can get accurate property tax numbers from, call people you know that have rental properties in the area, get estimates of what their insurances on their properties are, or call an insurance agent and ask for a free quote. Practice running your numbers because, when I first started, I did not practice enough, and I forgot no plowing to add on when I run my numbers. When you live in Buffalo, like that’s a big expense to forget about, but overestimate your expenses, and underestimate what your rental income would be.

Listening to podcasts, reading books, going on the BiggerPockets forums –all of those are great resources, but also find a local meetup, even if it’s a virtual one. Just have people to inspire and motivate you. When I go to a meetup, or even when I do a podcast interview, afterward, I get so pumped up and energized just from talking real estate with someone who also loves real estate. It just is really motivating for you, and it’s nice to have that person to connect with and to run numbers with, or to ask questions or to get their feedback on something from.

Have those people even just on Instagram. I think I’m in four mastermind groups or threads on Instagram, just from people messaging me, saying, “Hey, do you want to just talk real estate at this time or in this message thread?” Or, “Hey, let’s do a Zoom call every six weeks. We’ll pick a topic and talk about real estate.” Usually, everyone says, “Yes, let’s do it!” And now, I’m in a real estate book club that meets every two weeks. So, just send out a couple of messages to some people you’ve already met online, and maybe there are people that you want to meet. Just talk to them and see if they’d be interested in doing a little mastermind group with you to help you get started. You could explain to them what your benefit would be to them, too.

For the book club, for example, the benefit to me is that I have someone holding me accountable to finishing my book because we’ve picked the book, Traction, and there’s a lot of work to do while you read that book to help you put these systems in place, and really go through your business. Without the book club, I would probably just read the book and not actually do this stuff. The book club holds me accountable for actually doing the action items in the book.

Robert Leonard  51:44

Yeah, Gino Wickman, who wrote Traction, is a great guy. I love his content. I love a lot of his books. I actually had him on my other podcast, Millennial Investing.

I love the advice about running the numbers because I think a lot of the confusion or just what holds a lot of people back is not being confident in what they’re buying. I feel like, if people were more confident in what they were buying, they’d be willing to do it. They’re committed. They understand that they want to buy real estate. They understand why they’re doing it. They understand it’s a good asset class to get into, but they’re just not confident in themselves that what they’re buying is good. And so, I think if you practice and run those numbers, and get really good at that, you start to become a lot more confident. Then, you’d be willing to actually just take action and buy the property.

For me, when I first started, I was analyzing about five deals a day straight off the MLS, every day, five days a week, just so I could get comfortable. I had no intention of buying any of those properties, but it didn’t matter. I was running the numbers, quickly learning what to do and what not to do, and learning how to go about that. I really do think that was great advice and a great thing for people listening to the show today to start as their first step.

Ashley Kehr  52:43

Yes, I think you can always practice running your numbers, and then if you feel comfortable enough, send it to an investor in your area. Email them your analysis, your report, and the link to the MLS listing, and just say, “Hey, could you take five minutes of your time to just look at this, and see if anything jumps out at you that’s wrong?” I have a couple of investors in my area who did that to me, and it takes me no time at all to look at something. If something might be off, I’d say, “I don’t know, but look at your property taxes. That just doesn’t seem right.” It takes me five minutes. I’m not actually verifying that they put in the right property taxes, but I give a second glance. Consulting with investors might help pull something out to help you do better at analyzing your deals.

Robert Leonard  53:33

Yeah, absolutely. I do the exact same thing.

Ashley, for those listening today that have really enjoyed this conversation and want to connect with you, where can they find you?

Ashley Kehr  53:41

The best place is on Instagram, @wealthfromrentals, and I’m also part of the Facebook group, Real Estate Rookie. I go on live there every other Thursday. You can also find me on The BiggerPockets forum, and send me a message there.

Robert Leonard  53:58

Awesome! I will be sure to put links to all those different resources in the show notes so that everyone listening today can go connect with you there. Ashley, thanks so much for joining me.

Ashley Kehr  54:08

Thank you! This was a lot of fun.

Robert Leonard  54:11

All right, guys. That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week!

Outro  54:17

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