How to Get a DEEP DISCOUNT on Properties with Back Taxes

Ashley:
This is Real Estate Rookie, Episode 272. I have purchased two properties before that had back taxes on them, but I had to negotiate with the owner. Part of the closing, the agreement was I was paying their back taxes for them, or it was taken out of the sale proceeds. So my recommendation would be going and finding the owner of that property because you actually might be able to put them in a better situation than if that property is put up for sale and they get nothing from the property if it’s put up for those back taxes. My name is Ashley Kehr, and I’m here with my co-host, Tony Robinson.

Tony:
Welcome to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kick start your investing journey. I want to start off today’s episode by shouting out someone by the username of Leo Zang. Leo says, “This is a goldmine for real estate investing, tons of valuable information and suggestions for real estate investors. You will find the roadmaps to success here.” Leo, we appreciate you for leaving that honest review. If you are part of the rookie audience and you have not yet left us an honest rating and review, please do us a huge favor, take the 90 seconds it takes to log into your phone and open up the app and leave that review. The more reviews we get, the more folks who can help, and that is always our goal here at the Real Estate Rookie podcast. All right, Ashley Kehr, what’s up? How you doing?

Ashley:
Good. I just got back from a girls’ trip in Las Vegas. I went with some other real estate investors. It was a nice little weekend getaway.

Tony:
Here’s the million dollar question. Was that trip better than the trip that you had with me and Sarah to Vegas? And there’s only one right answer to this.

Ashley:
When I went with you guys, that was my first time at a pool party. When I went this weekend, it was my first time at a Vegas club. I’ve probably been to Vegas almost 20 times now, but I just never had any interest in doing any of those, except with you and Sarah, I did the pool party. Then this weekend with my friends, I did the nightclub. I hated the nightclub. I hated it.
Sarah, first of all, gave us the advice to not buy a table and said that we need to get invited to a table, so that’s what we did. We didn’t buy a table. We get in, get on the guest list, whatever. We’re in there. It’s so crowded, like awful. People are elbowing you. Not enjoyable for me. My friend Serena, got to give it to her, girl, gets a guy to invite us up to the table. So there we go. We’re in the table. We’re not crowded and packed. That was somewhat better. But I still have the music just banging and vibrating through my body. What do they… like EMD music? I don’t know where it’s just like… But, yeah, definitely, pool party, way better, for sure. You got sunshine. There’s better drinks. So Sarah ordered the good white tequila with the juices, way better.

Tony:
I know that you’re a real estate investor because you call it the genre of music, which is called EDM, you call it EMD, which is short for earnest money deposit.

Ashley:
[inaudible 00:03:11].

Tony:
That’s like the most real estate investor thing. I love that EMD music. It just gets me going.

Ashley:
I feel like this episode is really aging me, too.

Tony:
Well, look, we’ve got a slate of awesome questions for you guys today. We’re going to talk about driving for dollars and finding properties with tax liens. We’re going to talk about being a real estate agent and if you can use your real estate agent license to help you with your down payment. We’ll talk about renovations and how we estimate project costs. We give a big shout out to James Dainard. Then we talk about taxes, which are always an important topic for real estate rookies. We finish off talking about some FHA loans and some permitting for renovations as well. So lots of really good questions. Hopefully, you guys get some [inaudible 00:03:56] from this as you always hopefully do from the Real Estate Rookie Reply episodes.

Ashley:
Our first question today is from Lucas Dominique. “After driving for dollars, I’ve come across a house that on county records says that the absentee owner has delinquent taxes on the property. The property is vacant as well. My question for anyone who can help is, is this considered a tax lien? If so, would I be better to address the courthouse about my interest or the owner? I would love to get a better understanding of this scenario with someone who has acquired property through this method. Thanks in advance.”
My personal experience with this is that if the property is delinquent on taxes, the county has no right or the courthouse has no right to sell the property until it is put up for auction. In Erie County where I live, they do an annual tax auction where the properties that have back taxes that fulfill the requirements of it’s been a certain amount of time that they haven’t been paid, they will go up for auction, and that is when the county can sell those properties.
I have purchased two properties before that had back taxes on them, but I had to negotiate with the owner. Part of the closing, the agreement was I was paying their back taxes for them, or it was taken out of the sale proceeds. So if I bought the house for $50,000, there’s $20,000 in back taxes, $20,000 went to pay those back taxes and then $30,000 went to the owner. So my recommendation would be going and finding the owner of that property because you actually might be able to put them in a better situation than if that property is put up for sale and they get nothing from the property if it’s put up for those back taxes where maybe they can walk away with a little bit of money if you are going to purchase it directly from them.

Tony:
Great advice, Ashley. When we talk about sellers who are sometimes motivated to sell below market value, someone being in a situation where there’s a tax lien against the property is one of those potential situations where the seller might be willing to sell to you at a price that’s lower than what they could sell in the market because they do know that there’s this tax situation happening in the background.
Lucas, if you use a software like PropStream, or there’s tons of other software tools out there, but punching the address, you can usually find the owner and just reach out to them. Maybe you can bring up the tax lien if you want. From a lot of the folks that I know that go direct to seller, they usually don’t mention the exact reason that they’re reaching out. Even if this person’s working a tax lien list, they won’t usually call the person up and say, “Hey, Ashley. I see you got a tax lien on your property. Can I buy it from you?” They’ll just say, “Hey, Ashley. I’m calling local owners in your area, and I came across your property. Would you be interested in having a conversation?” and see if you can, like Ashley said, solve that problem for them. Yeah, I think it’s a great idea. There are people that literally do nothing but tax liens, so it’s a great way to get some off market deal flow.

Ashley:
The next question is, “If I’m a real estate agent, when I buy my own properties, would I be able to apply my commission towards the down payment?” This question is from Amber Yanhart, and it is from the Real Estate Rookie Facebook group. Tony, what’s your take on that?

Tony:
Neither Ashley nor I are agents, but I do know that there are a lot of agents who represent themselves on deals for that exact purpose of being able to either collect that commission themselves or save the commission of paying it to someone else. Yeah, you should be able to take your commission and use that towards the down payment.

Ashley:
Can you use it towards the down payment, or is it just going to decrease the purchase price? I don’t actually know the answer to that. If you go to the bank and you’re buying the property and you’re buying it, say, for $100,000 and you’re getting your commission, I guess at the closing table you are getting that check for your commission of the property, if that can be applied as a credit to your down payment or if that’s just going to be money off of what you’re getting. I would think that you could put it towards your down payment as a credit.

Tony:
Here’s the only reason why I say that. Maybe it varies from state to state. We did a deal in the past where we essentially wholesaled the property to ourselves, and we were able to get that cash from the wholesale deal at closing as well. To your point, I think it would just be a line item on the settlement statement that says commission, and then instead of it going into your pocket, it’s just applied towards your cash to close at the end.

Ashley:
Tony, can you tell us a little bit about that wholesaling to yourself? How did that happen, and what does that look like?

Tony:
Wholesaling to yourself is a great way to pay yourself twice on any deal. For example, we had a deal that we were working on where we found it off-market. Usually, if you find a property off-market and you’re buying it from a wholesaler, when you go to close, there’s all of your regular closing costs, but then there’s an additional line item on your settlement statement that says wholesale fee or transaction fee, whatever it is, to the person that you’re buying it from. At closing, those funds get distributed to the wholesaler, and then you pay your funds out afterwards.
But if you wholesale the property to yourself, what happens is you get to essentially get paid at closing a small amount. Then if you go to flip that property, then you get paid again. Essentially, we close on a property, we got a check for 5,000 bucks when we closed because we wholesaled it to ourselves. Then when we flip that property on the back end, we got another bigger check for actually completing the rehab. You do take a little bit less money on the backend because you’re giving it to yourself upfront, so your private money loan, your hard money loan’s going to account for that fee, but it is a way to get some cash in the short run if you need that for whatever reason.

Ashley:
That’s awesome to know. Thank you for sharing that with us.

Tony:
I actually learned that from Derrick Acuff, who was a previous guest on the podcast. I can’t remember which episode number he was, but if you guys look up “flipping a house” on Instagram, Derrick’s a really smart guy. They do a lot of flipping in wholesaling out in Texas.

Ashley:
Our next question is from David Sargente. “What’s the best way for someone with no renovation experience to get a working understanding of the processes, cost, and basic construction knowledge before going into it? Can any of you recommend books or YouTube channels, etc.? For books, J Scott has a phenomenal book with BiggerPockets called Estimating Rehab Costs. Obviously, it’s not going to tell you that this is what you should be paying for the price per square footage, of laying down luxury vinyl planks, or how much it will cost to have somebody come in and install that vinyl plank for you. But it gives you an idea of what you need to get costs for and how to build your estimates and what goes into actually rehabbing a property. So I highly recommend checking out that book. It’s a easy read but a great reference to go back to.
The other thing I recommend doing is kind of practicing with figuring out how much a rehab cost, so find a YouTube video about how to install a toilet. Look at all the materials you need, go to Lowe’s, homedepot.com, and actually pull up each of the items that it tells you so you’re looking at what is the cost of a toilet, what is the cost of the wax seal, all the things that go into installing a toilet, looking at what those cost. You can even go further beyond and then start to build out an Excel spreadsheet with links to all of these different materials so that when you are going in and rehabbing a project, you have the cost of materials right there to really help you build some kind of estimate.
Then you’ll want to find out what labor costs are, so you can reach out to different contractors. Call a plumber and estimate… Just ask them, “What’s your average cost to have a toilet installed? How much does it if you’re…? I’m going to ask for water lines. Maybe they can give you a general idea, like per foot how much it costs to install a water line. There are definitely a few things that are going to be really hard to estimate without having somebody come out and look at your project. But there are things you can at least get an idea.
Like to install tile, “Do you charge per square footage of tile?” Obviously, it will vary on the type of tile you’re having installed, too. So call around and get ideas of what that is. Flooring is usually a very easy one, or even painting where you can get a general number of price per square foot of how much it costs to install those things. Even going to your local hardware store, you’ll see signs all the time: “Ask us about getting your flooring installed.” Ask them, “What is your price per square foot?” and you can use that to run your numbers off of. Tony, I took on a business partner to kind of learn rehabbing, but for you, you’ve outsourced a lot of your rehabs. How did you learn how to actually come up with these estimates?

Tony:
First I’ll say, David, we interviewed James Dainard back on Episode 165. Actually, it was a two-parter, 165 and either 166 or 167. Anyway, go back and listen to that episode because James Dainard gives a world-class breakdown of how he estimates his rehab costs. A lot of it aligns with what Ashley said. But if you want two hours of deep diving how someone that’s flipped, I don’t know, probably a thousand [inaudible 00:13:46] homes-

Ashley:
That’s because I was trained by James Dainard.

Tony:
James gives a really amazing breakdown in that episode. So David, I encouraged you to go back and listen to that. There’s a couple of things that we’ve done in the past when we were kind of dipping our toes into the world of rehabbing. When we first started our business back in 2019, we were buying long distance. This was my first time ever taking on a rehab project, my first time ever just doing a real estate deal in general. I had zero basis for something like that might cost. So what I did was I went onto Zillow and I found properties that were recently sold that were renovated to the level that I wanted to renovate this prop that I had under contract. I showed those photos to a couple different contractors and I said, “Look, here’s what the current photos of this property look like. Here’s the kind of vibe that I’m going for. Can you give me a ballpark, without you even going to the property, on what you think something like that might cost?” They can give you a very rough estimate of what that might cost.
The second thing you can do is ask the contractors for photos of their previous work and ask them what the actual project cost was on that, and now that number gets even a little bit more concrete. While the individual project costs might vary depending on what you’re doing, what you’re really trying to identify is the average cost per square foot for that type of rehab. You hear a lot of flippers say this, that there’s the light cosmetic, the medium, and then the full-on gut rehab. Every single one of those has a different price per square foot that they apply to that. Gosh, it’s been a while now, but I want to say for the houses we were doing in Louisiana, they were pretty heavy rehabs. We were at 30-something bucks a square foot back in 2019. I kind of backed into that number by talking with contractors and understanding what they were charging other clients for similar work.
The last thing you can do is just pay them to go walk the job. This is something else that we leveraged when we were doing these remote rehabs in Louisiana is I found a contractor, I found a couple, and I said, “Look, I’ll pay you take an hour or two, whatever, go walk the property and give me a more detailed bid on what it might be.” Honestly, a lot of them didn’t even take the money because they were just open to getting the work. So they say, “I’ll walk the job for free.” That, today, is maybe a little bit harder because a lot of the good contractors, I think, are still kind of busy. They’re probably starting to lighten up a little bit now just because things have slowed. Trying to do that a year ago to get a contractor to go walk a job for free probably wasn’t happening because they were all booked out for years. So depending on where we’re at in the market cycle, that’s a little bit easier said than done.

Ashley:
I think that the contractors, you’ve used them before, they’re more willing to go and walk those properties for free wanting to continue business with you. Even if contractors do have the time, for them to give you a detailed scope of work takes a lot of time, and then especially if you take that scope of work and you end up hiring someone else based off of that scope of work.
The property management company that I currently use, they actually sent out an email recently saying that they are no longer providing scope of works to owners for turnovers. They have found that too many owners are taking that scope of work and going and doing the project themselves or hiring other contractors or whatever it is. They’re having owners that aren’t even responding to accept or decline the bid on doing the estimate. Now they’re also charging. They did charge to have their maintenance guy come, whatever their hourly rate is, I think it was $45, I think it just increased to $55, but they were charging their hourly rate to have that scope built out. But now they’re also charging a $250 flat fee. That’s on top of their project management fee, too, because they felt like so much time was wasted going and doing these scope of work, so they’re only going to be doing it now if you pay that fee.

Tony:
It’s solely understandable. I feel like as a business owner, I can understand why they might feel that way. That’s why I think a lot of it comes down to relationship, Ashley. If you have a relationship with this contracting crew already, there’s some trust that’s built up there. I think it’s easier for them to go out and just walk a job for you. Our crew in Joshua Tree, they’ve never charged us for a bid, but it’s because they know that we’re pretty much going to use them for every single job that we do out there. So I think the more repetitions you get, the easier it becomes, I guess.
The last thing I’d say, David, is if you can find another rehabber/flipper in your market and walk one of their jobs, that’s one of the best ways to really get hands-on, tactical, tangible data on what a rehab might cost. That’s what Sarah and I did when we started rehabbing out in Joshua Tree. We found a buddy of ours, Brian Davila, who’s a flipper here in SoCal, and we spent the day with him just walking a few of his jobs and asking a bunch of different questions around pricing. “Hey, what does it cost to do this? How are you paying for this?” That gave us the confidence to go out there and start doing it ourselves at a higher level. If you can find someone, David, that is already doing it, walking their jobs is a great way to get that insight as well.

Ashley:
Where do you find people like that? You attend in-person meetups in your markets, or you go onto the BiggerPockets forums and ask if there are any investors in the area that are doing rehabs in your market. The best is when you can actually find an investor who is also a contractor. I love that because you’ll be able to get both sides of it. You’ll get the contractor side of him, but also the investor side as to these are the ways that you can save money as an investor because you don’t need to do this, you don’t need to do that. Where residential contractors that are just doing for people’s homes are going to have a different mindset going in.
James Dainard even talked about this on his podcast episode. He’ll only work with contractors that work with investors. He doesn’t want people that do residential remodels because there is a different end game. There’s a different result of those remodels. For residentials, for the people to enjoy their home, it’s not what’s the most cost-effective way to get my maximum return on my dollar by having renters in there or by flipping the property. I think go to a meetup, go into the BiggerPockets forums, go to the Real Estate Rookie Facebook page and connect with contractors or even investors that are contractors, too, and see what kind of guidance or information they can give you. Of course, think of a way that you can also provide some assistance to them or help them out in some way, some value to them, too.
Our next question is from Bill Seth, “Sorry for the newbie question.” Bill, please don’t apologize. We love these newbie questions. That is what we are here for. This question is, “Do flippers get taxed heavily when selling since most don’t own it for more than a year?” The answer is, yes, you are taxed at ordinary income. Almost just like you had a W2 job, but when you sell the property, that tax isn’t being withheld from you like most companies do. As a W2 employee, they’ll withhold some of that and pay some of your taxes throughout the year for you. You are also self-employed. When you work a W2 job, your company is paying part of your payroll taxes and now you have to pay, I think, it’s another 6% as self-employed since you don’t have a company you work for paying that on your behalf anymore. So it does end up being more taxes that you are paying for the property and definitely a lot more taxes than you’d pay if this was a long-term buying homes and you’d be paying a lower capital gains tax.

Tony:
We had Amanda Han back on Episode 255. One of the last questions that we asked Amanda in that episode was, if you had to rank all of the different real estate investment strategies by preferred tax treatment or best tax treatments or worse tax treatment, flipping and wholesaling were at the very bottom because those are considered active income, and things like long-term rentals and short-term rentals were at the top because those are more passive income, and there’s some other things you can do along with those. Yeah, you are definitely getting the absolute worst tax treatment when you are doing things like flipping homes.
One of the suggestions that I’ve been given, and again, I’m not a CPA, I’m not an attorney, but one of the suggestions that I’ve been given is that if you plan to both flip and hold rentals, ideally to set yourself up to get the best tax treatment, you should have one entity or LLC for your rentals and then a separate entity for all of your active income. So if you’re flipping and wholesaling, you do that in one business, and then if you have your rentals, you do that in a separate business. Doing so allows you to get some slightly preferred tax treatment as opposed to doing it all under one entity. Definitely not a bad question, Bill. There’s thousands and thousands of pages of the tax code, so I think Ash and I are always happy to give some more insight on what’s worked for us and what hasn’t.

Ashley:
I feel like we’ve been talking about this a lot more recently is the tax planning and talking to a tax specialist who can help you figure out all these things. It’s something that’s very easy to outsource is somebody who is knowledgeable in taxes and bookkeeping and accounting where it’s something you don’t need to take the time to learn the ins and outs. Yes, you should have some knowledge of how the tax system works, but working and paying for a specialist is highly worth it. Tony, you’ve been working, doing tax planning. I think it was you and Tyler Madden, who was also a guest on here, who recently told me that the cost of paying for that tax planning has far outweighed what you’re going to save in taxes going forward.

Tony:
Absolutely, right? One of the biggest mistakes I made was waiting too long to get great tax strategy help. We’d already built up… we had 10 or 14 properties before I even thought about hiring a tax strategist to help me with those things and even longer before we got a really good bookkeeper on hand. So for all of the rookies that are listening, I know it can seem daunting to invest money up front to get the right bookkeeper, to get a good tax strategist, get a good person doing your tax preparation. But if your goal is to make this a full-time business and to have a relatively large portfolio, you will literally save yourself money and make more money, keep more money at the end if you invest a little bit more upfront to set your business up the right way from a tax perspective when you have one property as opposed to trying to go back and do it when you have 30. Ashley, how big was your portfolio before you hired professional tax help?

Ashley:
I’ve always had a CPA. When I worked at the accounting firm, I did my taxes on my own just because I had access to nice tax software and everything and it was pretty easy. But our farm income has always been somewhat complicated, so I always had the guidance of an experienced CPA when I worked as an accountant to help me through the farm income and how to do depreciation and things like that. Then I quit. Then after that, we have always just used a CPA to do our taxes again. As far as the tax planning, that was just recently where we ended up signing up with Amanda Han, too.

Tony:
I can’t say it enough. All of our rookies that are listening, find a good tax strategist today, day one. Even if you have zero properties, just pay for a consultation and say, “Hey look, here’s what I’m planning to do in the next year. What is your recommendation?” Then as you start to get those properties under contract, then actually put that person on retainer and make sure you chat with them on a regular basis.

Ashley:
You know what? It’s going to be cheaper probably, too, going in with one property or two properties, instead of waiting until you have 10 properties and they need to go back and look at previous years and be like, “What did you do? How can we make it better?” Where if you only have those couple properties to start with, they’ll be like, “Let’s start here,” and then you add on a little more each year. It’s just easy to add those on because they already have you in their plans.

Tony:
We always talk about real estate investing as being about, how much cash flow are you getting on a monthly basis? What’s your cash-on-cash return? How much equity are you building? But one of the other amazing benefits of investing in real estate are the tax benefits. I have a friend who still works a W2 job. He’s a six-figure income earner, but he has a small portfolio of short-term rentals. He literally pays zero in taxes from his day job because he was able to take the passive losses from his short-term rental portfolio and apply that to his W2 income. So for the three years that he’s had his properties, he’s paid zero dollars in income taxes for his W2. Outside of all the big things, cash flow is sexy and appreciation, don’t forget, the tax benefits and depreciation are some of the biggest levers you can pull as a real estate investor.

Ashley:
Our next question is from Ryan Hoffman. “With FHA, how often is it possible to roll the closing costs into the loan? I’m ready to purchase my first multi-family house hack, but I would like to be sure that I will have enough reserves remaining after paying the down payment, if, say, I were to purchase a fourplex instead of a duplex.” With this question, I honestly don’t know the answer specifically to an FHA loan. I’ve never done an FHA loan, but I helped my sister get one. We bought a house together, but she got the FHA mortgage, and I actually gifted her the proceeds for the down payment and for the closing costs.
I do know that banks, especially small local banks, will offer no closing cost mortgages where you can actually wrap the closing costs into the loan. Sometimes you’ll have to pay a little bit higher interest rate than if you went ahead and paid those closing costs. So you have to kind of weigh that out. Is it better to pay more upfront and get that lower interest rate for 30 years, or is it better to… it’s going to take you a while to save that money, but you want to get into a property now to pay a little bit higher interest rate going forward?
There’s also programs where you can get assistance to help with your closing costs. I know banks will sometimes offer to first-time buyers where if you save so much money, they’ll match it, and then you go ahead and buy a property with them. It’s like a first-time home buyer loan. It’s completely separate and different from the FHA, but there’s more strict regulations and rules around it. For example, my friend, his girlfriend did it. She has to live in that property she bought for five years, so they’re kind of stuck there for five years because she did the loan that way. So just be cautious of the different rules that come with some of these assistance programs.

Tony:
Like Ashley, I’ve never closed on an FHA loan myself. We’ve used a lot of different types of debt, but never an FHA. But just like you, Ash, there are so many down payment assistance programs out there, especially if you’re doing something where you’re house hacking. When Sarah and I bought our primary residence back in 2018, there was a program called CalHFA in California that essentially covered all of our down payment. So we had our primary, our first mortgage with loanDepot, or whoever it was that we closed with, and then we had a small second that covered our down payment. Then a year later, we were able to refinance, pay off that small second, and then we have one long-term fixed debt.
There are so many good options out there. I’d say the more you can chat with different loan officers and mortgage companies, the better idea you get of what the options are. I think, Ryan, the mistake that a lot of new investors make is that they only talk to one person. They talk to one bank. They talk to one loan officer, one mortgage officer. Whatever that person tells them, they think that that is the absolute truth and there’s nothing else outside of that. I think the more exposure you can get to different lending institutions, credit unions, banks, mortgage officers, mortgage brokers, the more flexibility you’ll have and the better options you’ll have as you look to close on this deal.
For example, we bought a lot of our homes using 10% down second home loans, and a lot of lenders didn’t even know what that was. I would have people that were messaging me on Instagram and said, “Hey, I had up my mortgage person and they don’t even know what a second home loan or a vacation home loan is.” Just know that just because these people, it’s their profession, they don’t have all of the answers to every single question that pops up. So I think exposure to more people is how you tend to get better options when it comes to loans and mortgages.

Ashley:
Just like we always stress here, tell them what you want to do. Don’t ask for some specific loan product. Tell them how much reserves you have, tell them that you want to buy a fourplex, and see what they can offer to you as options that you have because you may be surprised what a bank can come up with.
We have one more question for you guys this week. This question comes from Rebecca Tillman. She has a question about renovation permits. “Does anybody actually check these when it’s time to sell your property?” James Dainard, when he purchases a property, since this episode is all about things we’ve learned from James Dainard, is that he will always pull permits when he purchases a property. Part of it, he wants to see what actually is legal in there.
I think one of the reasons he does this… We just had a couple on our show that talked about, they were purchasing a property that they knew there was not a permit for an addition. They didn’t think it was a big deal because they didn’t need to use it as a bedroom or whatever. When they went to actually go and get a permit for other things in the property, I think it was maybe the plumbing or something, the inspector came in and told them they would not issue the permits for the other things until the addition was taken off the back because it’s not permitted. So I don’t really hear of just a residential home buyer going in and asking for permits or pulling permits on a property. Tony, have you ever sold a house or know a family friend or anybody who just went and pulled the permits on a property? I only know of investors that do that. I think that’s something that people should do in their due diligence.

Tony:
Yeah. A lot of times, especially if it’s your primary residence, you’re like, “This is my home. I’m going to do what I want with it.” You’re not as concerned about the permits or things like that. It was Devana and Reid. I can’t recall what episode number they were. They had the sober living facilities. They ended up spending a ton of money trying to get that addition permitted, and it wasn’t even part of their initial budget. So that is a big risk that I think you run into where, if the property wasn’t permitted correctly, you can end up paying for that person’s mistakes out of pocket yourself.

Ashley:
I think especially if you’re going in and rehabbing the property, check and pull permits. I hope you’re not asking that question to see if you can get away without pulling permits because you definitely want to pull permits because it can cause way worse issues down the road. I think we had a couple guests on before that have talked about running into this where maybe they thought their contractor actually pulled the permit and got it issued when they didn’t. Then the building inspector comes in. They have to rip out all the new drywall so he can actually check out the electric inside the walls, and they have to go back and put the walls together. So you never want something like that to happen. You never want to take that risk.

Tony:
That’s why when you’re analyzing these deals as rehabs, it’s important to maybe give yourself a little bit more time. If you think you can finish a job in three months, maybe underwrite the deal so that it takes you eight months. That way you have some breathing room in there to pull permits for the first time and understand what that process looks like. If your county’s anything like the counties that we rehab in, permits that used to take 30 days are taking 90 days right now. Just make sure that you’re giving yourself that flexibility to account for things like pulling permits, that you’re not up against the gun and your budget gets blown because you didn’t account for those timelines.

Ashley:
Well, thank you guys so much for joining us for this week’s Rookie Reply. I’m Ashley @wealthfromrentals, and he’s Tony @TonyJRobinson on Instagram. We will be back on Wednesday with a guest. See you guys then. (singing)