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

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?

Today we're breaking down three key questions from rookie investors just like you.

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

And I'm 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 brrrr in a market that I'm not very familiar with. Actually not familiar with this market at all. The person I am 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 2,300 square feet with 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 3:2. 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 3 bed, I've seen articles with arbitrary numbers like 10 or 20k. Does anyone have any ideas?

Thanks.

So I think before we dive into this, it's a very like real question that I think a lot of investors struggle with is trying to make sure you nail down your comps to get your arv. But let's just describe first what ARV or after repair value is. So your after repair value or ARV is the value of the property after you've completed whatever renovations you plan to complete. So typically, you know, if you're flipping a home or if you're, 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 ARV is so important is because if you're flipping, you need to know how much money you should spend because your ARV 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 back end refinance value is for the same reason, to make sure you don't overspend on your rehab. So that's what the ARV is, that's how to project it. But Ash, I, I guess what's your take on, on this question? You know, small five bedroom. How, how would you approach trying to figure out the ARV in this situation?

Yeah, the, 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 you know, it's 10,000 more that they're adding in weight to having the additional bedroom. And then there will be other factors though, like 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 you're not, it's not going to give as much weight to other things. Like you know, if there, there is this appraisal I just had done and one of the things they negated on the property was that there was no bathroom on one of the floors. So there's two bathrooms, but a basement, a main floor and a second floor and there was no bathroom on like the, the first main floor. And they said that that was like 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, so just make sure that you're looking at other things. So like 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.

That's interesting, Ash. I've actually, I don't think I've ever been dinged on an appraisal for like 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 that 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 like, 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. 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 would definitely would not use an arbitrary number like 10k or 20k, because in a market like Iowa, where maybe I can buy a property for $150,000, 10K is a big percentage of the purchase price. If I'm buying where I live in Southern California and, you know, say I'm buying a house for 600k, 10k 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.

What a great idea to ask an agent or a lender, because really, like, how much information is really redacted on it. You can look up online. It's public record that who owns the property. So it's like there's not like the Social Security number, like really any personal information on there. But yeah, that's it. I've never even thought of that. I've always just asked other investors, you know, or even just family, friends or people, you know, that did a refinance or purchase 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. Um, so like, especially in your. You're in a rural area, that radius gets pretty big as to how they could look for a property. Like, I had one property that was on 30 acres and had two single family homes on it. And I think the one of the comps was like 10 miles away and was not even in the same town, but it was a, a similar property. So they had to go farther to find something that was more like common to it.

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

Yes.

And I think that's a mistake that a lot of rookies tend to make. Is that like, oh man, this is a great comp. You know, same build, you know, right next door, but it sold 18 months ago and that is not a good comp anymore because markets shift so much. So I, I think a good rule of thumb is maybe going back 90 days and if you can't find any good comps within, you know, call it like a mile radius, then just start to, you know, mile and a half, two miles, two and a half miles, three, 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.

Up next, are 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.

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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 saying how important a mentor can be. But it 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?

Yeah, and I think that's the point that I was going to make is a mentor doesn't have to be a single person who takes you under their wings and it's like an old school apprenticeship, you know. And I think that's what people always think about when they hear the word mentor. A mentor can 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 Bigger Pockets 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 that kind of served as my mentor. So there are 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.

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 bigger pockets. And the forums was like 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 like a really big, pivotal moment for me 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. I honestly think that is more valuable than actually getting a mentor. And I agree. Like, I think of mentor, it's like, you know, the guy that's been investing for 50 years and you hop in his truck and you drive to his properties and you know, you're helping to do stuff. I don't know, like goes to mind. But there's so many different forms that a mentor can take. Like Tony said, like 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 the I, I think even more so is surrounding yourself with a community. And I think that is easier, easier to find than a mentor because that community, there are so many different voices, so many different opinions, so like so much different advice that people can come from. And like 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, like just go on the real estate rookie Facebook group and just start engaging. Like, 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 is this person, Lawrence Briggs, who we had on the podcast and he actually came on to kind of like learn from us. And you know, we were helping him get his next deal. The part of the really big reason he was on the podcast episode as like 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, you know, 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. Like, he's really trying to get started here. And so, yeah, like, you never know what opportunities will come about by putting yourself out there.

Super valid point, Ashley. And I think that, you know, asking someone, will you be my mentor? Probably isn't the right approach. You know, say that there is someone that you want to be your mentor. Just going them, 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's the old guy with gray hair with 50 rentals. It could be going to events like BiggerPockets. And we talk about BPCON 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, you know, the after hours, you know, time at the bar or wherever else you guys may be, where those connections are, what 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 have already gone through the struggles that you're currently facing. 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, you know, I might have a slightly contrarian view, but I do think there's value. And I'll put a big caveat on this because you got to find the right person. You got to find the right community. I do think there's value in paid 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. You know that they're on the up and up because 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. But if you can find a community, if you can find a program that actually delivers on what it is they're promising you to do, I think a you're going to take it more seriously because you voted with your wallet to say, like, I'm not just going to buy, you know, a 999 book, but I'm going to invest however much, you know, maybe three, four figures for this, this help. So now you're committed to it. And then on the other side, they're committed because you've, you've invested into their community as well. So I think it is a way to shortcut, but you gotta make sure you do the homework to find the right community. All right, 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. If you're on Apple Podcasts or Spotify or any other podcast player platform, look us up ealestate rookie on YouTube and we'll be right back with more after this.

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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? All right, 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?

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

And I think that's like a common story we hear from a lot of real estate investors. I think we'll get into the pros and cons, but we had David Green on the podcast and you know, he's, he's a high volume agent as well as being an investor. And I remember asking him this question and he gave a 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 would 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.

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 like in New York state you have to have an attorney to close. My agent does like all the follow up with the attorneys, like constantly messaging like, okay, do you know we've got commitment? Okay, we're good. Like keeps, 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. 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 and 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 $100 for a cleaner to come and clean because they left that the, the kitchen disgusting. And I just remember like my agent negotiating with the seller's agent. Finally the agents decided that like they agreed on $50 cleaning fee or whatever. And like to look back now, like that just sounds so ridiculous. But I was like $100 was a lot of money and I didn't want to have to pay a cleaner. And I definitely, I'm a germaphobe. I did not want to have to clean it myself. So, like, but my agent was so patient with me, like, sitting there at closing, like, I'm sitting it literally the county clerk's office where they have all the closing tables. And I'm sitting there with like 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. Like, one time the 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, like, you have to order signs, you have to put your sign up, you have to make sure the inspection goes well. If the inspection doesn't go well, you're negotiating, helping negotiate that. Like, I had to have a sump pump inspection once to actually close on the property. Like, 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 I, I, in my opinion, a really good agent. There is a lot more that is done behind the scenes.

Yeah, I, I think a big piece too is just understanding, like, why do you want to get your license? Like, what is your motivation? Do you want it because you actually want to be a great agent for either, you know, primary home buyers or for investors? Because if so, like, if you just have a desire to be an agent, then, yeah, you know, 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, just like, double check that. I mean, there, there are some pros, right? Like, 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, you know, 5% on every sale to agents than trying to list it yourself. You know, 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, right? So if you're, 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, on like Zillow or Redfin. Sometimes you can get access to maybe expired listings more quickly. You don't have to go through a site like Propstream or something to that effect. So the data availability might be a little bit stronger. But there's cons as well, you know, and obviously this is gonna vary from state to state, but you've gotta disclose that you're 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 know, you've gotta 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.

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're doing too. Like 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, like 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 because 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 Rikki Reply. If you have questions for us, feel free to submit them in the Bigger Pockets forums. You can always send us a DM on Instagram @BiggerPockets Rookie. And we may just answer the question on the show. And we also pull questions from the real estate rookie 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 bpcon 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 bpcon. So make sure you guys get your ticket. If you guys need an extra discount to help you get there, send us a dm. 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.