Was Dave Ramsey Right About Rentals? (Don’t Use Debt)

You want to buy a rental property, so you put 20% down and get a mortgage to cover the rest. This is how most investors buy real estate, but some (Dave Ramsey) think you can do it without debt—or at least less of it. Can you actually build a real estate portfolio with cash? Will a shorter note kill your cash flow? Today, we’re putting these two investing philosophies to the test! We’re answering more questions from the BiggerPockets Forums—this time, with help from Deandra McDonald, the investor who went from $4,000 to financial freedom with rental properties. After a debate on using leverage in real estate, we’ll field questions from a couple of self-managing landlords who are struggling with tenant screening and turnovers. Should you approve a “questionable” tenant if they’re pre-paying the year’s rent? How do you keep contractors on schedule when doing repairs? If you’re trying to get into real estate investing with very little money, what should you do? We’ll discuss whether it’s better to raise capital from family and friends to invest today or hold off until you’ve saved up your own down payment. Finally, an investor wants to try their hand at hotel conversions. With this being right in Deandra’s wheelhouse, she shares the investing strategies that have (and haven’t) worked for her! Ask Your Question on the BiggerPockets Forums! In This Episode We Cover Whether Dave Ramsey is right (or wrong) about using leverage in real estate The easiest (and most difficult) aspects of rental turnovers Common red (and green) flags to watch out for when screening tenants How to come up with your first (or next) down payment from scratch What to know before tackling a hotel conversion project And So Much More! Check out more resources from this show on ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠BiggerPockets.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠h⁠⁠t⁠t⁠ps://www⁠.biggerpockets.com/blog/real-estate-1346. Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[email protected]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Henry Washington?

  Is Dave Ramsey actually right about rental properties? You want to buy a rental property, it's $300,000, so you save roughly $60,000 for a down payment and get a mortgage to cover the rest. Now you control an appreciating cash flowing asset and you bought it with only 20% down. This is how most investors buy rental properties. But if you were to ask Dave Ramsey, he'd probably tell you you're wrong. After all, debt is bad, right? Instead of paying hundreds of thousands in interest and taking on the extra risk, wait a little longer, work a little harder and own the same property free and clear. But does the Dave Ramsey way actually work? Can the average person build a rental portfolio, buying properties with only cash?

• 0:44Henry Washington?

  Or let's say you do use leverage, but you use Dave's preferred method of a 15 year note. Can you really find properties that will still cash flow with that kind of mortgage payment?

• 1:00Henry Washington?

  What's up everybody? I am Henry Washington, co-host of the BiggerPockets Podcast. And today I've got a guest co-host, Deandre McDonald. And we're going to be answering that exact Dave Ramsey question, plus more in today's BiggerPockets forums Q and A episode. So let's jump in with Deandre.

• 1:17Speaker 01

  Hello, hello, ladies and gentlemen. I'm glad to be back.

• 1:21Henry Washington?

  It's gonna be fun. You can hear Deandre's full investor story on episode 1105. That was back in April of 2025. But for anyone who missed it, can you tell them a little bit about who you are and what you do?

• 1:35Speaker 01

  My name is Deandre McDonald. I am a commercial real estate investor in central Virginia. I was introduced to you guys back in maybe 21, 22, when I was flipping motels into residential properties. I've grown since then and excited to answer y'all's questions.

• 1:52Henry Washington?

  Well, thank you for being here. I'm super excited. As you can tell, we do not lack for energy on this episode. So buckle up, folks. Buckle up, it's gonna be a ride. All right, our first question comes from Jimmy in Phoenix. And he asks, I love starting out with something like this.

• 2:14Henry Washington?

  He asks, what's your opinion on Dave Ramsey's method for success? He mentions it's best to buy real estate with cash, with no debt, or a 15 year mortgage as a last resort. But for most that are just getting started, it's almost impossible to have over a couple hundred thousand dollars to invest in real estate with cash. All right, if you are new, don't let the fact that you don't have a ton of cash stop you.

• 2:43Speaker 01

  Yeah.

• 2:43Henry Washington?

  All right, there are hundreds of thousands, if not millions of real estate investors who got into this business, built wealth and did it without paying cash for properties. Now, most people want to grow and scale. And to grow and scale, you have to do it with leverage, right? Unless you've just got mountains of cash. If you want to grow and scale a real estate business, you've got to do it with leverage. And Dave sees leverage as something that's bad, right? And to me, debt is a tool. And like any tool, if you use it properly, you can get a job done efficiently and effectively. And if used improperly, you can injure yourself, right?

• 3:26Henry Washington?

  Now, one thing I will say, Dave also says that you need to pay off all your debt before you start to invest. My general thoughts are you need to pay off high interest debt.

• 3:37Speaker 01

  Okay.

• 3:38Henry Washington?

  But smart investors don't pay off medium to low interest debt before investing. My thought has always been, if I can get a better return on my money through the real estate asset, and that return is higher than the interest that I'm paying on the debt, it makes more sense to buy the asset, use the asset to pay off the debt than it does to pay off all your debt and then invest. Because if you pay off every single ounce of debt you have and you've bought no assets along the way, then you are debt free in a shoebox. You don't have anything to show for it.

• 4:16Henry Washington?

  It's just my two cents.

• 4:18Speaker 01

  I agree on some points, I disagree on some. Something I tell the people I work with is Dave Ramsey is for addicts. And I think, I think you have to have that mindset, right? Cause he was talking to people who got pre-approved and bought an 18 bedroom home and a pool and a two acre lot and never, he was talking to people who had a quarter million dollars in undergrad student loans, somehow got qualified for $95,000 in credit cards. Those people do need to pay off their debt or handle it, I guess, because they are addicts. And so the way you racked up a hundred thousand dollars in credit card debt, you are going to go after pretty properties that don't necessarily profit.

• 5:01Speaker 01

  Now, if you are not an addict and/or you're doing, have a plan for your debt. So you have a lot of student loan debt, but you're on the PSLF and you, you plan to pay it off in these 10 years or these are the minimum payments, graduate doesn't happen for two or three years. You are not increasing your credit card debt on things that are not making you money. You are not spending 50 to 60% of your income on your personal home mortgage? Then yeah, I think it is totally reasonable to take out debt and to buy a property, for sure. But sometimes, one of the reasons you have no money and you have to take out the debt and you keep spending on other stuff. You don't have no capacity for it. And that's where I agree with Dave of like, part of being a real estate investor is having

• 5:45Speaker 01

  the capacity to flow. And so if it can only work this one way, because all your money is taken up somewhere else, you might have to pay down debt for a little bit. Get yourself together and then get into that world.

• 5:56Henry Washington?

  If you're bad with debt, if you're sitting on mountains of credit card debt right now and you're paying 20 something percent interest on those credit cards, yeah, you need to focus on paying those off before you go buy a rental property.

• 6:06Speaker 01

  And don't blame Dave Ramsey. Cause you spending up these credit cards and he's not giving you the out you want. Okay? Okay?

• 6:15Henry Washington?

  Oh man, all right. Good start, good start, Deandre. I like it.

• 6:21Henry Washington?

  All right, moving on to our next question, we have Mike in Washington DC. And he asks, for landlords who manage their own rental turnovers, what part usually creates the biggest delay? Getting access to the property, completing the inspection, building the scope, waiting for estimates, making repair decisions, contractor scheduling, change orders, or final quality control? In my experience, missing information between each stage is what stretches the timeline and creates additional vacancy. I would love to hear your perspective as somebody who is a professional landlord.

• 6:58Speaker 01

  Okay, I would say it's gonna vary between expected turnover and unexpected turnover. Expected turnover is I know the tenant is leaving, they're agreeing to leave, we're all aware of the date and the condition. That is an expected turnover. Someone has decided to not renew their lease or cash for keys or hey, we have a court date and it's coming whether you want it or not. Versus if I show up and the unit is abandoned? Question mark.

• 7:25Henry Washington?

  That's always a fun day.

• 7:28Speaker 01

  If I show up to an eviction and I can hear them breaking stuff inside. If I don't know that someone has been left, I hear a dog, but I don't see the person and I smell a cat, but they shouldn't have had one. That's when things extend. And so I would say with unexpected turnovers, the hardest has been getting the keys. How do I have legal access to this unit to remove the stuff, to turnover utilities, change the locks, lock the windows? Because I can think it's abandoned, but I have to go through the legal process to make sure it's abandoned. I can think the tenant is gone, but until the sheriff comes and gives me the all clear, I can't remove their stuff.

• 8:11Speaker 01

  I can't just decide it's time for me to enter. And because that stuff is usually still in there, I don't know the condition. So even trying to talk with a contractor, are we just doing paint? Are we doing drywall? Do we have to replace the floors? Are the appliances good? I don't have the answer to any of that until I have full access. But expected turnover, if there's just like cleaning, painting, delivery of new appliances, that's pretty easy to schedule. That's not difficult. But if it's, oh, I didn't know I had to redo the floors. Can I get on your schedule? It's the summertime and my contractor's like, no. You absolutely, it's the middle of May. No, I can't fit you in for like this, like 600 square foot job. So that would be the harder of like, it's not baseline things that I know how to do

• 8:54Speaker 01

  or I can have my team do, but I don't know if I can get on their schedule.

• 8:58Henry Washington?

  Yeah, that's a great point. For me, this is the same with rental properties and with flips. When I'm turning over a unit or when I'm renovating a property, it's not the full renovation that takes the longest. It is the last 5%, the last blue tape touch up, something wasn't done right and I gotta get the contractor back out there. Like that's the stuff that lingers and takes longer. Like I can schedule a renovation, I can walk into a place and say, oh yeah, paint floors, new appliances, call the guy, they do the bid, they go do the work, right? It's when they say, hey, we're all done. And then I go and they're not all done. So now we're fighting over this little thing and that little thing.

• 9:41Henry Washington?

  And I need you to come back out here and fix this, but they already started another job and they're lollygagging to get back out there. And so I've had to learn different tips, tricks, tactics to ensure that I get those people back out. And sometimes what even happens is you finish a renovation or you finish a turnover and you get in there and you're like, you know what? I should have replaced that flooring. I didn't think I needed to, but now that the place is all painted and turned over, I just don't like the way it looks, right? That last 5% kills you because now I gotta go find a guy to do this very small job, right? And I, and to do it quickly and I'm, and I'm calling him and I already need it done when I call him, right? Like I need it yesterday and I'm calling him today. And then there's a two week delay before he gets out there and then he does it and then you have to go and check on it.

• 10:26Henry Washington?

  So some of the things that we do, like I always withhold a final payment until we are all done. Everything is done, we're checked off, you fixed all the things, it's good to go. You know, a lot of contractors, the minute they put down the hammer or the paintbrush and walk out of that unit, they're hitting you up for a check, you can't pay them everything.

• 10:45Speaker 01

  That's right.

• 10:46Henry Washington?

  You gotta withhold like a thousand bucks at a minimum. So enough that they're going to want to come back and do the, and finish so they can get their money after you check it.

• 10:54Speaker 01

  I like the tips and tricks of how to minimize it because I forget that that has been happening. For example, for me, flooring was huge in between turnover. If they're scratching this laminate, then this is going to extend it. So I'm going to actually switch to tile. So now we don't have the scratch no more. We won't, I won't ever have this issue or I'll start walking the properties a month or two before they're out.

• 11:17Henry Washington?

  Yeah.

• 11:17Speaker 01

  That way, and pull up a rug, move a couch.

• 11:22Speaker 01

  So I can't get on his schedule four weeks in advance to minimize that. That's good.

• 11:26Henry Washington?

  All right. Well, it's good to know I'm not the only one that struggles with that misery loves company. Thank you, Deandra.

• 11:33Henry Washington?

  We've got more questions from the bigger pockets community and Deandra and I will be back after this break to answer those. Here's a strategy that most W two employees have never heard of. Normally, if you want to write off a rental property against your regular income, you need real estate professional status. That means tracking hundreds of hours a year. Rent to Retirement just launched a program that skips all of that. It's called the STR loophole tenant placement program. Here's how it works. You buy one of rent to retirement's class A new construction investment properties. You set up an Airbnb listing and self manage it for the remainder of the year. Rent to Retirement then rents the home as a short term rental to establish it as an STR for the year.

• 12:16Henry Washington?

  No furnishing required, making this the easy button to save five or six figures in taxes this year. And because you're the sole manager, there's no hourly minimum to meet. That lets you use a cost segregation study to accelerate the depreciation and potentially write off over $100,000 against your income, even on your first rental. Add in cash back up to 13% of the home price, which exceeds $60,000 on some properties. With this massive cash back incentives, investors are seeing total returns up to 126%. New construction, A class properties and inventory is limited. Learn more at biggerpockets.com/retirement or text REI to 33777.

• 13:01Henry Washington?

  Again, text REI to 33777.

• 13:05Dave Meyer?

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• 13:37Henry Washington?

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• 14:16Henry Washington?

  Get approved for the Aven card and you'll get a $400 statement credit after spending $400 on your Aven card. Enough to cover your entire annual pro membership. Head over to aven.com/biggerpockets to see if you qualify. Aven Financial, MLS number 2042345. Cards issued per 20 license from Visa USA, Inc. By Coastal Community Bank. MLS number 462289. Member FDIC, equal housing lender, subject to approval, terms apply. Visit aven.com for details.

• 14:41Speaker 03

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• 15:09Henry Washington?

  We are back on the bigger pockets podcast. Deandra and I are answering forum questions that you guys have submitted and it has already been a good time. So I hope you stayed buckled. We got a few more to go. Our next question comes from bigger pockets community member Miguel. And he asked us in the forums, I have a potential tenant who is willing to pay a full year of rent in advance. She told me ahead of time that she has bad credit and might have a domestic charge from a past relationship with her ex. She wants a year to get her credit better to buy a house. What do you think? Now, I have been paid a year in advance and it was lovely.

• 15:54Henry Washington?

  I loved everything about it and I would love for everyone to pay a year in advance. So if you have a good tenant or a prospective good tenant, because they may be new to you, you haven't had them yet, but everything checks out in terms of their application and everything that's been going well so far. And they want to pay you all your rent on day one. Give it to me. I'll take it. I will take it. Absolutely. I don't have a problem with that. The caveat to this question is she told me ahead of time that she doesn't have great credit and she might have a, a charge from a past relationship, but she wants to use the year to get her credit better to buy a house.

• 16:35Henry Washington?

  Right? So this, this leads me into the like red flags on tenant selection conversation. Because here's, here's the thing. I don't necessarily rule out a tenant because they have bad credit. There's a lot of things that cause bad credit that I don't hold against you. If anybody's ever been through a divorce, they can probably tell you that, that, that it destroys your credit. Now I've never been through one, but I've evaluated plenty of tenants who have been through divorces. Terrible, terrible credit, doesn't mean they're bad people, doesn't mean they're not going to pay their bills. Medical debt, medical debt's crazy in this country. Some people just literally cannot afford to pay it and it's hurting their credit score. So like I'd look past some of those things.

• 17:16Henry Washington?

  So my answer to Miguel would be based on like, how do you think she fares as a tenant? Based on your review process? And if you think she's a decent tenant and you would rent to her, whether she's paying monthly or whether she's paying yearly, then I would say, go for it. But if you've got some concerns with her as a tenant, regardless of what she's trying to pay you, then I would say, listen to your gut and don't, don't do it.

• 17:43Speaker 01

  I'm pretty much on the same page as Henry. I, nothing in her application would have said no to me. Right? If I run her credit, I'm not picky about credit. I income, depending on her job, but she's paying me all upfront. Now her background check is, might be concerning, right? And I, I'm glad you read it out loud. When I read that question, I thought she was running, not that she was the. And so we're, we're going to find out what this may be.

• 18:12Henry Washington?

  We're gonna find out.

• 18:13Speaker 01

  We are gonna, we will check this maybe, especially my multifamily properties. Because I don't know what's triggering you. I don't know what the cause of this, you're going to be living with a bunch of different people. Right? So we need to know what's going on. Now, depending on what comes back, right? That criminals are not a protected class. I can decide, hey, this is a good fit for this building or this single family, or like unfortunately, no, it's not a good fit. The one thing I would just warn people about is if it doesn't go according to plan, legally, do you know what you have to return? Because I don't want you to say, hey, the rent is $1,500. I got to check for 18 grand. You know what I did? Henry's telling, talking to me how to get to the closing table. I went and got me a flip, right?

• 18:59Speaker 01

  And then she decides to break her lease six months in and sue you for the rest of that money. And you can't produce it. So make sure that if something goes left, you either still have that money in a high yield savings account of some sort, or you know, if you have to give it back or not.

• 19:13Henry Washington?

  That's a great point. Hadn't even thought about that, but that's a fantastic point. And I love what you said about checking out their criminal history. Cause again, what we're really talking about here, folks is, is the most important job of a landlord. And that is being very good at tenant screening and tenant selection. Like that's our job, that's our responsibility. But I don't necessarily rule anybody out because they have a criminal background or a criminal conviction on their record. It depends on what it is for, right? My best tenant to this day, probably my longest standing tenant now to this day is a convicted felon who did 14 years for a nonviolent drug offense.

• 19:50Speaker 01

  Oh, wow.

• 19:51Henry Washington?

  And when I tell you this man was almost in tears when we agreed to rent to him because he had wasted so much money on applications and things and people just to turn him down just because he was a convicted felon. So there are, there are tons of good people who were actually rehabilitated or weren't even in that big of a trouble to begin with.

• 20:09Speaker 01

  Yes.

• 20:09Henry Washington?

  Based on, based on what they did and they need a place to live. So I don't, I don't rule them out. We got to be good at tenant selection. And, and I also love what you said, it's a multifamily that you might've been looking at, right? And so there's other people that live there. So it matters what they did, right? You don't want to put a, a sex offender into a multifamily where there's kids, right? Like you have to pay attention to these things as a landlord.

• 20:31Speaker 01

  One of my longest tenants has a DUI. Well, then DUIs from like 99, right? We're 25 years past that, but it's still on her record. It hasn't been expunged, it hasn't been removed and it gets dinged. And if you don't open to just see what the ding is, you will say, oh, this thing you haven't gotten in trouble for, for 25 years and you're 19, it's still causing you a problem. But yes, let me also say for everybody, the criminal charge matters. So number one, yes, sex offenders are also supposed to ask you as a landlord, if there's children in the building, because it's their responsibility to figure it out. But I had somebody who come and he had, he was, he was beating up black people. And I said, well, number one, this is not going to work, right?

• 21:12Henry Washington?

  I don't know if you are aware, but.

• 21:16Speaker 01

  But number two, I can't have you in this building yet. That charge was two years ago. No, if you have a hate crime on your record, unfortunately, you will not be in these buildings, not with me. Absolutely not. So check those criminal records. There are a lot that you can excuse, but there are a lot that you can't. And it's okay to say no.

• 21:34Henry Washington?

  That is right. All right. We've got another one. This one comes from Kyle in Dayton. Kyle's eighteen years old, very little credit history. I mean, that makes sense. He's only eighteen. Very little credit history and very little capital. He says, I'm eager to start, but can't get around the glaring issue of not having enough capital. So I was wondering if there are any methods you would use to raise capital, or is it just time to put my head down and put in long hours? I got thoughts, but I want to hear what you got, what you got to say, because young investors, hey, I love it. I love that you're even thinking about this at eighteen years old. I can tell you at eighteen years old, this wasn't nowhere on my radar. So.

• 22:16Speaker 01

  Not at all, not even.

• 22:17Henry Washington?

  Proud of you for even thinking about these things.

• 22:19Speaker 01

  Okay, there are two things that his message kind of flared up for me. One, he wanted to raise the down payment. My concern with a lot of people who just want to raise a down payment is you are now one hundred percent leveraged. And you don't know how to make money, right? So you are a hundred percent in with now two different groups of money, because if you have the down payment, you plan to loan or get a loan for the other seventy-five to eighty percent. You are a hundred percent all in and you don't have no money on your own. So if anything goes left, and it will babes, it's your first property. If anything goes left, you can't get out of it.

• 23:00Speaker 01

  I only do private money deals at this point, and I do a hundred percent financing on my private money deals at this point. But you know what? I have money. So if something goes left or not according to plan on that roof, I thought I had another eight years. I don't. I can pay for it if I needed to, or there's space in the deal for me to use the property to pay for itself. The second thing that came up was he said, or should I just work? And I said, oh, so you haven't been. Okay.

• 23:29Speaker 01

  Then, then why was the first job other people's money? And part of it is bigger pockets fault. It's our fault, right? Because we, we love OPM and I, I love it too. I use it exclusively at this point.

• 23:40Henry Washington?

  Do too.

• 23:41Speaker 01

  However, OPM at a hundred percent financing from individuals is not an intro level strategy. Because you don't know how to balance other people's money like that.

• 23:53Henry Washington?

  You've got no fallback if you got to pay back your lenders and your deal's not done yet.

• 23:57Speaker 01

  A hundred percent. And I've told my members, and I might get trouble, but that's okay, right? This is not my business. I don't mind if you lose the big bank's money, right? They have a whole foreclosure process. They know how to do all that. They're going to take your property, get your money back. Please don't lose your grandmothers. Please lose your friends. That's a whole different world, because they don't have the resources to take it back. They don't know if you've set it up right to take it back. So my two things are, hey, a hundred percent leverage feels wild for your first few properties if it's not your primary residence. And number two, if you are asking if you have to work, the answer is yes.

• 24:31Henry Washington?

  I agree. And I've said this before on many episodes, it is absolutely possible to buy real estate without using a ton of your own money. It is not possible to own real estate with none of your own money.

• 24:45Speaker 01

  Absolutely.

• 24:45Henry Washington?

  You cannot own an asset with no money. Because thirty days after you close on that house where you didn't have to put a down payment down, what do they want? They want your first mortgage payment. Where's that going to come from? You need to have some money. If something breaks in that first month, two months, three months, like me on my second or third rental property. Literally the first week after I put a tenant in there, the HVAC went out. Somebody had to come up with eight thousand dollars out of nowhere. Right? And did I budget for that? Yeah, I bought the property, right? I underwrote it and bought it at a discount so that I could afford to replace an HVAC.

• 25:22Henry Washington?

  But all that really means is I bought the property a little cheaper so that the property as it appreciates, it'll be, you know, it pays for itself over time. But I hadn't owned it long enough for it to produce enough cash flow for me to pay for an HVAC yet. So it had to come out of my pocket. So just because you can finance a deal a hundred percent, doesn't mean you should. All right. Got that on the table. Now I understand. Kyle, dude, you are eighteen and that is awesome. You are giving yourself such a head start. Raising private capital is fun, but it is also stressful. Because now you've got the burden of not messing up somebody else's money.

• 26:03Henry Washington?

  And if you are eighteen, it is going to be very challenging for you to raise private money from people who don't know, love, or like you. Now you can absolutely probably go raise private money from family, close friends, or maybe they don't know you, but they know your friends and your family or and where you come from. They might give you some money. But the smart ones, even in those circles, are going to be a little cautious because you don't have a track record yet. And you're going to make mistakes and screw up, right? And they don't want you learning lessons on their dime.

• 26:42Henry Washington?

  So it's probably going to be a little challenging to raise capital until you get some deals under your belt. I'm not saying you can't do it. You probably could get some money. Should you do it is another question. The last thing you said is, should I just put my head down and put in the long hours? I know I just sound like the old man who like, you just need to, you just need to pull yourself up by your bootstraps and work hard. But the one resource you have that a lot of us don't have as much of is time. And youth, which means you can work hard. If you don't have a wife and kids, it's just you.

• 27:24Henry Washington?

  You can work, you can work two and three jobs. We interviewed a guy on this podcast. His name was Neil Whitney. Neil was in his, I think it was late forties, early fifties. I can't quite remember. But he wanted to invest. His wife said, cool, you can do that if you don't touch our money. You gotta go make other money and invest with that. So Neil drove Uber to raise the money he needed to buy his first rental property. Okay? So Kyle, you're eighteen. Just work, save the money. First thing you should do is if you live at home, stay there. And then pay rent, but pay it to your savings account.

• 28:09Henry Washington?

  Because what a lot of people do when they don't have a living expense is they absorb that into their lifestyle. They get used to not having a living expense. And then when you have to move out, it's a shock to the system. So if you're living at home now, cool. What would it cost you to live in an apartment by yourself in that same city? Whatever that, that average amount is, that's what you need to be paying every month. Pay it to yourself in a savings account. That's how you start saving up number one. Then start working and doing extra jobs and saving and building up some of that money. Do your first deal with that money. Get a track record. Learn some lessons on your own dime and then go try to raise some money. And, and I'm not saying you can't have capital raising conversations with your friends and family in the meantime.

• 28:53Henry Washington?

  And it'll go a lot smoother if they see you working, saving, hustling, and having a plan for the money and putting it to use. It'll be so much easier for you to get the money from people. If they see you actually doing work, saving money, putting in the effort, but the fact that you're thinking about these things at eighteen and going to put a plan into place. You're going to give yourself such a head start in life. So, but use the resources you have at your disposal. Right now you've got time and youth. Go make some money, my friend.

• 29:22Speaker 01

  Can I also add, if you have no responsibilities, a way to double dip here is also for the work you about to do to be on your own property. So if you are able to, as a regular, I don't know, Starbucks, Chipotle, whatever employee, if you're able to qualify for a little handyman special. If your extra three hours a night are all learning how to replace this floor and learning how to put in a new, some, some crown molding and a replace the vanity and update some paint. In two years, when you go to sell that property, anything you have made is now tax free. Right? Because I, I'm, I'm now I'm guessing it's not going to be a hundred twenty-five thousand dollars of profit in this first property. But anything under that threshold now is just yours. And you would not have made that about

• 30:07Speaker 01

  working extra as a delivery driver at night past your job. So if you can qualify for a property, because you, and hopefully you have no debt, right? You have no due loan debt, you didn't go to cop, then buy yourself a good little starter property. Fix it up for two years and now you have that thirty or forty thousand you could use to the next deal.

• 30:27Henry Washington?

  Boom. Sounds like you got some good advice to get you started there, Kyle. I hope it goes well for you. I hope you turn into the most awesome real estate investor that you want to be in and provide you the life that you are dreaming of. All right. Our next question is right up Deondra's alley and I can't wait for her to chime in on it. But we're going to do that right after this break.

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• 32:05Henry Washington?

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• 33:05Dave Meyer?

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• 35:41Henry Washington?

  All right, we're back on the BiggerPockets Podcast. Investor Deondra and I are answering your questions in the BiggerPockets forums. And right now, I have got one. It's basically a slow, underhand pitch right down the fast lane for you to knock it out of the park. This question comes from Priyan Chu. He is a real estate agent in Columbus, Ohio, and he posted this question. "I've been watching the commercial space, and it feels like we're hitting a tipping point with distressed hospitality assets. I've been heavily focused on converting underperforming hotels into workforce housing or senior living communities. It's amazing how much the valuation

• 36:23Henry Washington?

  math changes when you re-underwrite the asset based on long-term residential cash flow. Is anyone in the commercial space looking at a hotel-to-housing conversions right now? If you've done one, what is the biggest hurdle you've run into? Was it zoning, heavy capex conversion, or something else entirely?"

• 36:41Speaker 01

  I do do this. So this is where I really expanded my portfolio, was focusing on rundown motels that were no longer performing and transitioning them into, not necessarily workforce housing, but just housing in general. And I am totally in it. I'm all about it. It is my favorite type of conversion. It is my favorite type of project. Now, those motels are not as distressed as they were during COVID.

• 37:07Henry Washington?

  Oh, you fixed them all. You fixed them all.

• 37:09Speaker 01

  That's right.

• 37:13Speaker 01

  But it is a great solution. There are some issues, like you brought up, Priyan Chu. The first, I would say, largest that I tend to stay away from is zoning. There are some motels that are just not zoned for 30-day stays. The city will not allow it. The county will not allow it because that is part of their five-year plan, their 10-year plan, to keep all the motels hospitality in one section, so it doesn't spill into the rest of the community. For some people, they want it to all be intertwined streets. Some are Airbnb, some are regular rentals, some are housing run by the government. But a lot of counties who have that strict zoning, I would say, don't get involved. It is not for you unless you want this long-term plan. Don't do it. It's not worth it. In terms of the

• 37:56Speaker 01

  capital to fix it, I would argue it's no different from a large multifamily property. I tried to go after motels and hotels that are more suite-style living, so that the setup is already kind of there. I'm not necessarily busting down walls.

• 38:10Henry Washington?

  So it already has like a living room, bedroom situation?

• 38:12Speaker 01

  Yes. Or if it's going to be a large studio, there's already a kitchen with a sink and a spot for a fridge.

• 38:19Henry Washington?

  That probably saves a ton.

• 38:21Speaker 01

  I cannot explain. Because now I'm just more upgrading everything for long-term living than I am building out a brand-new space.

• 38:28Henry Washington?

  For those who are listening, when you think about motel conversions, the part that gets expensive is they're usually on concrete slabs. So if you need to add plumbing, you're tearing up the foundation.

• 38:39Speaker 01

  Everything. Yeah.

• 38:40Henry Washington?

  And a lot of these have cinder block concrete walls. So it is extremely hard to add plumbing because you got to go through concrete on the floor and on the walls. And so your renovation bill just skyrockets.

• 38:57Speaker 01

  Now you're pulling permits because you have to replace this stuff. And the city's like, oh, well, what bodies are in these walls? You're like, oh, I, I'm so sorry. If you could not look over there, just like focus on the one thing that's coming out, just the pipe, that'd be great.

• 39:10Henry Washington?

  Please stay focused on the man over here.

• 39:15Speaker 01

  In terms of senior housing, I thought when I started buying these hotels, oh, this is going to be great, right? We have the silver wave coming. This is going to be a great thing for me to transition into. It's not. As an investor myself. So let me tell you, let me tell you, it's not. It's not, because I don't know what they need. If I'm going to go that route, I need to be working with a nursing home to give me much more specifics because my brain just doesn't know. I'm not in the care field like that. Even when I think about my elderly grandma, she might have mobility that they, they need more than that. Or she might have strength and they need more. Or there have to be a different sprinkler system or intercom system, all of these pieces.

• 39:58Henry Washington?

  Commercial kitchens.

• 40:00Speaker 01

  I, I just never, it never crossed my mind. The driveway, the wheelchair access, the cost of that is not just, oh, assistant living or workforce housing, like either or, which is what I naively thought when I first went into it. So if that is what you're going to do, great. I would work with a care facility already and be like, hey, I'm just going to be the landlord. But what do you need in order to run your business well?

• 40:23Henry Washington?

  I love the point about the city. You said, if it's not in their plan. Working with cities is challenging. It is very hard, very hard to get a city, county, municipality to change their mind on what they want. It is a whole lot easier for you to get approval to do what you want to do if it fits within what they are already doing or what they want to do. And then they can be the best assets and allies on your side. You're helping them accomplish their goals. The whole dynamic changes. But I think a lot of investors spend

• 41:06Henry Washington?

  a lot of time trying to convince the city on why their plan is what the city should do. And a lot of the times, they look at you like, like I do this every day. This is my job. I work here. I improve this city. This is my, and you're telling me what needs to happen in my city? That's just, there's just tension up front already. So do the research. Learn before you go buying an asset or even making an offer on an asset. Try to get some sense of like, what is that city or municipality wanting to do in that area of town?

• 41:38Speaker 01

  Absolutely. I had a visceral reaction when Henry said, you can't get what the city doesn't want. I remember sitting in a meeting, and the guy said respectfully, "We pay more consulting than you are about to buy this property. You're not budging us on this."

• 41:52Henry Washington?

  Right.

• 41:53Speaker 01

  Got it. My bad. I said, let me.

• 41:56Henry Washington?

  Let me see my way. Thank you.

• 41:58Speaker 01

  You're right. You're right. And I had to sit with, like, Deondra, I get that you're energetic. You want to do something big, and this is really cool. People like live here. You don't even live in this city. No, they care about their place. So take it as that too. Cause sometimes I take it as like, you guys don't want growth. Y'all actually care deeply about it. So what Deondra has done is Deondra has got on those boards. So the town meetings Henry's talking about, I'm on them now.

• 42:21Henry Washington?

  Yeah.

• 42:22Speaker 01

  So I can see in real time. I get to make the decision and also understand that these are real people. And when I'm alive, what they're trying to do, life is a lot better.

• 42:31Henry Washington?

  Absolutely. All right. Well, thank you so much, Deondra. That was fantastic information. I mean, we wouldn't expect anything less.

• 42:40Speaker 01

  Thank you for having me, Henry. This was great.

• 42:42Henry Washington?

  Absolutely. I've enjoyed this so much. Hopefully you guys have enjoyed this as well and gotten great information out of it. For the folks that are listening and they're like, man, Deondra's pretty awesome. Where can we learn more about her? How do they do that?

• 42:55Speaker 01

  Well, if you want to follow me on Instagram, you can follow me at Deondra McDonald. Or if you want to follow me on Tik Tok or YouTube, Simple Real Estate is my handle.

• 43:04Henry Washington?

  Awesome. All right, everybody. Thank you so much for listening to this episode of the BiggerPockets Podcast. And before we go, as a reminder, these questions are from the BiggerPockets forums. So if you have real estate questions of your own, you can go to biggerpockets.com/forums. You can get advice from over three million members of the community totally for free. And maybe one day in the future, we'll pick your question and answer it right here on the BiggerPockets Podcast. Thank you so much for listening to this episode. We'll see you on the next one.

• 43:36Speaker 01

  Bye.

• 43:39Speaker 04

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