Casey Franchini (02:33):
Luckily, I mean, I say this, that sounds bad, but the company closed down. The owner did some not so great things in his personal life. So it was a great opportunity for me to reevaluate what I want to do in my life. And do I really want to continue on this path of working 9:00 to 6:00 and not getting home until 7:30 at night? And I said, “No, I don’t think I want to do public relations anymore. I think I want to do what I always love, which was real estate. I’d love to be real estate agent.” And this was back then in 2007 when the bubble was bursting during the Great Recession. And I said, “Okay, well, I’m still going to do it anyway.”

Casey Franchini (03:08):
So, I became a real estate agent. It was terrible. It was a very terrible experience trying to list properties in Orange County, which is very effluent and expensive. And all of the people that own houses there had million dollar homes, and they didn’t want to list it with a girl who looked 12. I look young now. I really looked young then. So it was a challenge to get some decent listings. But so where I found my niche was finding flips for real estate investors because they’ll take anyone who wants to find them house. They’re like, “Sure, girl. You want to go drive to the desert and look at these houses and see if they’re any good? You go for that.” So I did, I was driving and using my gas all around California. So, Cal go into the desert, even beach areas for flips and downtown Los Angeles, deep Inland Empire.

Casey Franchini (03:55):
I was doing pretty good, and I was finding good flip investment properties for investors. And it was amazing, and I loved it. And I saw what real estate could do. My dad and I tried flipping a house and we didn’t get past the inspection period. And we said never mind, this is too risky. We didn’t know we were doing, really, and so we didn’t do it. But so then I got married and we moved to Memphis, Tennessee, and my eyes just were blown. I thought, “Oh, my gosh, this is a goldmine in Memphis. You can buy a house for $10,000. We’re going to be rich. I’m going to buy every house on the block. I’m going to own 100 houses in no time, cash flowing.”

Casey Franchini (04:31):
I knew that you made money because I did my analysis. But then when I went to go look at the houses or drive down the streets I was like, “Never mind.” I don’t think I really want to buy those $10,000 houses in those neighborhoods. So we thought a little more practical, and we thought, well, what do we really want to get out of rental properties? Well, what we really want is to make it easy. My husband still had his W2. I had three kids at home. Well, I guess, actually we only had two kids when we started, now I have three. We had two kids and I didn’t want to go to work. So I wanted to be able to do everything on my own. I wanted to manage properties myself. We like to do rehab, my husband’s just like my dad in that aspect. So we have every tool known to man. There’s no cars that fit in our garage. It’s all tools. And so, we started buying good rental properties in B and strong C class neighborhoods. And that’s how we got started, and we try and buy one or two a year.

Robert Leonard (05:20):
As you think back on how having your real estate license has impacted you as an investor, do you recommend new investors listening to this show today get their license? Do you think it will help them be more successful investors?

Casey Franchini (05:33):
No, I don’t think so. I mean, I learned a lot. I’ll tell you this, I learned a lot doing real estate selling houses and whatnot. But it’s different when you’re buying an investment property. It’s not the same. You don’t look at real estate the same. You don’t look at properties the same. And it’s a completely different process, in my opinion. Yeah, it helps you if you’re going to do a lot of flips, and you want to save on commission. That will definitely help you to have your real estate license. And I’m sure it helped me get the jump and feel confident in my decisions. But I still wasn’t super confident. I still had who I call my mentor, helped me through our first couple properties.

Casey Franchini (06:09):
When I was out looking for my first rental property, I said, “Well, I need someone to guide me in the right direction,” because real estate, buying a rental property, it is a risk. Yeah, real estate is safe overall. But you don’t want to buy the wrong property, you don’t want to buy in the wrong neighborhood. What if you’re not sure on what the rents really are? What if you’re not putting the right tenant in place, and you don’t do all the right things? It’s hard for people that have never done that before to make the right decision. So, I called up, actually, the house we bought in Memphis, our primary residence, it was the listing agent to my primary who I knew they owned rental properties.

Casey Franchini (06:41):
So, a few years later, I called her up and I said, “Hey, I don’t know if you remember me. But we kind of bought the house you listed a while back. I remember you guys said you own rental properties, and would you be interested in helping me get my first rental property?” And she’s like, “Oh, my husband does all that. I just sell residential to regular home buyers.” And so I talked to him and he was just the best guy ever.

Casey Franchini (07:02):
If I hadn’t had his guidance on my first couple of properties, I probably wouldn’t have pull the trigger and actually bought something because he was there to tell me… Even as a real estate agent, I mean, I knew the numbers. I knew my comps. I knew I wanted to do it, but just for someone to say, “Yes, this is a good investment. I invest in this neighborhood too, and I would buy it if I were you. I wouldn’t worry about these minor things you’re complaining about.” We probably would have bought one, but it might not have been as soon as we had. So, as far as having a real estate license, I had mine, and I still didn’t feel confident to make those decisions because it’s just not the same.

Robert Leonard (07:35):
Has having your license hurt you as an investor at all?

Casey Franchini (07:38):
I don’t think so. There’s, I mean, a lot of real estate agents have their licenses, a lot of them. A lot of real estate agents own rental properties, especially in these markets that I live in. Now, in California, when I was having a hard time finding rental properties when I was looking we had to go out far because I was in Orange County and there’s no good rentals there. That doesn’t make sense. I was looking out Fontana and deep Inland Empire and towards the desert and stuff back then when it made sense. Those properties now are 400,000 when they were 150 before which beating myself up that I didn’t buy those dang houses. But I don’t think that it really helps to have your license, and it doesn’t hurt it either.

Casey Franchini (08:14):
The only way it would really help is that you have access to the MLS and getting your own comps. But to me, that’s the number one advantage. You don’t have to wait for a real estate agent to let you in the house, you can go get your own house. I still have my broker license for California. So I can get referrals on my own properties, referral fees. So, if I go buy a house in Memphis, since I had my California broker license, not a real estate salesperson, but a broker license, I can get a referral fee on my own property that I buy. So, I do keep that active so I can get referral fees out of state. So it doesn’t really, I don’t know, behoove me to get my license out here. I just rather let some other agent do all the work and right in the offers.

Robert Leonard (08:51):
I’m not sure if it varies state to state, but I actually I’m licensed as well. I don’t use it. I don’t practice or sell any houses or help anybody buy houses but I use it for that exact same thing. I use a referral commission. I’m not a broker, I just have my salesperson license, but I am able to still earn referral commissions for other people, but also myself when I buy my rentals or even when I buy my own primary residence or sell my own residences as well. So I keep mine active for that same reason.

Casey Franchini (09:15):
So, do I. Mine’s been active since 2007. It’s not that hard to do some continuing education every five years and pay the small fee and it’s totally worth it.

Robert Leonard (09:23):
When you were a new young agent that was struggling to get those million dollar listings, you started to focus on helping investors with a couple of specific strategies and types of properties. I want to talk about those specifically and define them for everyone listening, in case they haven’t heard of them before or they just don’t know exactly what they are. The first one is short sales. What is a short sale, and why might an investor be interested in them?

Casey Franchini (09:49):
Well, a short sale is when the owner of the property they’re making payments, but their house isn’t worth the mortgage anymore. So, for example, like in 2007 these were really… In 2007, ’08, ’09, these were really popular when the property, let’s say they bought it for… Let’s just give even $100,000. But now it’s only worth $50,000, and they’re still making their mortgage payments. Why am I paying for this $100,000 loan when it’s only worth 50,000? So, the homeowner would ask the bank if they could sell to somebody else at a loss to the bank. And a lot of times the bank’s going to say, “Yeah, sure. Okay.”

Robert Leonard (10:29):
Why would the bank say that?

Casey Franchini (10:30):
That or you say, “Forget it, I’m not making this ridiculous payment because the property’s not worth it.” And so, it’s going to foreclose anyway. And then if your house forecloses, then it’s going to be in need of repairs, people don’t take care of that property, it’s worth less than it is now, and it’s less work for the bank. The banks, they don’t want to foreclose on you. They don’t want to own properties. They rather someone just pay something on it.

Robert Leonard (10:51):
So, why are those types of properties interesting for investors to buy?

Casey Franchini (10:55):
Because there’s always a motivation for somebody to get out of a property. You got to find out what their crutch [is]. What are they wanting to get out of it? And a lot of people, if the investor can wait… See, a lot of homeowners who are looking to move into properties for their own personal life, they usually have a timeframe. I’ve got to sell this house to move into this house, or I’m looking to move in by the summer before school starts or whatever. But investors, there’s not really a timeframe. So that’s a plus that they have on their side. They can be in a short sell for three or four or five months because those properties, short sales were taking a very long time back then. There aren’t a lot of short sales now.

Casey Franchini (11:28):
So from my experience, back then, short sales were a very long drawn out process. And you could be tied up as a buyer for one certain property for four or five months. And then what if it never goes through? The bank’s not going to tell you, they’re not going to promise you the short sale until you bring them an offer in the first place. And then it goes through the process. And then they approved the short sale, which could be months. So a potential buyer who’s looking to buy for their own family, for their own house could be on the hook waiting around for a property they may never get. So, they’re not very appealing to the regular homeowner who’s looking to buy a property. But for the investor, they don’t care. They can buy multiple properties at a time. So if it takes four or five months to get the deal through, they don’t care, it’s fine.

Robert Leonard (12:06):
Another type of strategy or property you helped investors with was expired listings. What’s an expired listing, and why are those good for investors?

Casey Franchini (12:16):
An expired listing is when a homeowner list their property for sale with a real estate agent, and the contract between them and real estate agent is usually six months, three, six months is the average time for a listing. And if the agent doesn’t sell their house in time, then the contract expires. And now the homeowner is free to go find another agent or just decide, never mind, I don’t want to sell my house. So, the listing has expired. And it goes in the MLS as an expired listing. It was someone who wanted to sell their house but for whatever reason it didn’t sell. So, investors and other people who are looking to pick up properties at a discount can contact those expired listings, contact the sellers and say, “Hey, I saw you tried to list your house last year, but it didn’t work out? Are you still interested in selling?”

Casey Franchini (13:02):
There could be a myriad of reasons why their house didn’t sell, or it didn’t work out for them. But it’s a great time for the investors to swoop in and get at even a lower price because most time sellers think my house wasn’t worth it. Nobody wants to buy my house, something’s wrong with it. Or maybe it costs too much. Maybe I really was asking too much money. And so, the investors can then come in, be in with no competition, and offer a lower price, and get the property under contract.

Robert Leonard (13:29):
How about an REO? Explain to us what an REO is and how investors benefit from those.

Casey Franchini (13:35):
So, REO listings are real estate owned. That means that a property has gone through foreclosure already, and it went on the auction steps and nobody bought it. So, nobody bought it, the bank gets it back. But the bank doesn’t want to own real estate. It doesn’t want to own houses. So, it hires these real estate agents to work under them. And basically, if you are a real estate agent, and you’re an REO agent, you’re basically set. Everybody wants to be an REO agent because the banks will just give chunks of like 10, 12, 15 listings to an agent at one time, and that’s money because you want the listing contract.

Casey Franchini (14:09):
So, the listing agent, a regular old real estate agent who works with the bank. The bank likes this girl or guy that’s a realtor. So they give them all their listings from the bank, then that real estate agent puts it on the MLS and it’s listed as an REO, which was an old foreclosure that no one scooped up at auction. So those properties likely have… They need a lot of work because they’ve been vacant, and people that are in foreclosure, they can’t afford their mortgage, which means they can’t afford to make repairs on the property. There’s a lot of deferred maintenance. The houses look really bad. They probably have had a really poor standard of living inside for a long time before the bank actually was able to foreclose also means there’s back taxes and all sorts of things that weren’t paid on the property.

Casey Franchini (14:50):
So, usually foreclosures and REOs are not in that great of shape. But nowadays, banks have gotten a little savvy I think as to the value that they can actually get out of these properties. So a lot of banks now they don’t just sell you a piece, a bad house now. Now, banks have their own contractor teams to fix up the house, make it looking pretty good. They’ll try and sell you as close to market value property as they can nowadays. So I don’t really think that investors have a real big leg up anymore buying REOs now that banks are fixing the houses up themselves and selling them near market value. It used to be that they would because banks would just relist those foreclosures right back with a real estate agent. And they would be in just as bad a condition as they were when they were in foreclosure, but that’s not really the case now. I mean, I’m sure some banks just don’t fix them up. But a lot of banks now are fixing up the houses so they can get more money back.

Robert Leonard (15:48):
A lot of people often reach out to me and say that they’re struggling to find a deal. For those people or really anyone that’s listening who is looking for new ways to acquire properties. You just mentioned that REOs might not be as popular as they once were. But there probably are still some banks that are just selling them as they are. So do you think these three strategies that we just walked through are still applicable to new investors, even in today’s market 13 years later after you were helping investors with them?

Casey Franchini (16:14):
I do. I think that a lot of strategies have changed. There’s not as many short sales right now. There aren’t as many foreclosures right now. So getting a short sale, getting an REO, they’re kind of few and far between. There’s not a lot right now out there. I feel like there’s a few other strategies that people have been using in today’s times that are a little more successful and with more opportunity.

Robert Leonard (16:38):
There’s a lot of speculation that banks aren’t foreclosing right now. So there’s a lot of speculation that there’s going to be some foreclosures coming once that is lifted, and banks can do foreclosures again. So is now possibly a good time for people to really study these three strategies of short sales, expired listings, and REOs to really understand them, so that when that does happen, maybe they could then take advantage of it?

Casey Franchini (17:01):
I do think so. I think that short sales are a really good option for the real estate investor because a lot of people that are buying, like I said, for their own home, they aren’t willing to wait four or five months for a short sale to go through. Short sales have gotten faster, but there’s still a lot of red tape. And they’re not as smooth as just buying a regular 20% down regular old house. When you’re buying a short sale or foreclosure, a lot of other stuff goes into it. You’re dealing with banks and issues. And so, I think that investors that are willing to be a little more flexible, but not be so picky about things and have the time and can have the offering on multiple houses at one time would be good for them.

Casey Franchini (17:40):
I also think that really important thing to do if you’re expecting foreclosures and things to start rolling in will be to be in really strong cash position. All these properties are going to be gobbled up by the highest and best offers by the best investors, everyone and their mother are waiting for foreclosures, and they are hoarding their cash because cash offers are king and cash wins. And you get a discount when you buy cash. Everybody wants to sell to an all cash investor. But not a lot of people have all cash.

Casey Franchini (18:08):
So if you’re one of those investors that don’t have just cash sitting in your bank account, I would recommend to get really familiar with private money lenders, hard money lenders, maybe get some. If you don’t have any experience at all, a lot of these lenders won’t lend to you a large percentage of what you’re wanting if you don’t have any experience or have nothing under your belt. So maybe, meanwhile, try and get your first rental property. Try and get some sort of investor experience so that when the time comes, you’ll be able to borrow large sums of money from private money and hard money lenders to be in that all cash position when the time comes.

Robert Leonard (18:43):
Back in 2013, when your household just had one income coming in, you were taking care of the kids, you didn’t have enough money to invest in your first rental. This is a common problem that a lot of people have, and that’s not having enough money to buy a deal. Rather than using that as an excuse you were resourceful and you found a way to make it happen. Walk us through what you did to earn the money for your first rental and how much you needed to save to make that deal happen.

Casey Franchini (19:10):
So, we’re really risk averse. We like to do things very safe. I feel like I’ll take more risk than my husband will, but he’s in charge of the 401(k)s and all of the stock stuff. So I’m the real estate girl. So when I said I wanted to buy real estate and rental properties, he was on board right away. There was no issue there with him getting on board but it was how are we going to buy it? We just moved across the country and bought our house that was a complete fixer. And so, we’ve been putting a lot… We’re still fixing it. It’s almost eight years and we’re finally going to do our kitchen. So, it’s been a lot of work throughout the years, but that being said, it’s a lot of money out of pocket. We don’t do credit card debt or anything like that. So we pay everything as we go.

Casey Franchini (19:46):
So, I wanted to buy rental house but I want a 20% down. I don’t even think that I even knew… I knew of BiggerPockets and books and stuff but I never read a thing. Listened to a thing. I never watched a YouTube video. Only the experience I had was my own experience helping other real estate investors and being a real estate agent. So, I said, “Okay, we’re going to do it the safe way, in my opinion, and we’re going to put 20% down.” So, I needed the money to do that. Like I said, I had a three week old when we moved here and a two year old, so I wasn’t going to go get a job. I didn’t have a babysitter. We had no family or friends here. So I thought, “Well, what can I do at home?” There must be something I can do that I’m good at. And I thought, “Well, I like to do crafts.” What girl doesn’t like crafts? Give me some glue sticks and some glitter and I’m in.

Casey Franchini (20:30):
So, I thought, all right, well, I’m not very… My stuff doesn’t look good when I do crafts. So what can I do if somebody wants to buy. So I bought one of those Cricut machines like a die cutter and some people have a Silhouette and I have a Cricut. And I started making… The first things I started making were these little stuffed bunnies for Easter. Now, Dollar Tree sells these little bunny rabbits, so five inches tall for a dollar, obviously, the Dollar Tree, and I got this glitter T-shirt vinyl, and I would personalize the bunnies with these little kids names and the year, and I was selling them for five and seven dollars on Etsy.

Casey Franchini (21:02):
I started an Etsy shop called Nameorography on Etsy, which is not open anymore. I mean, it’s there but I don’t sell anything. And also on local Facebook groups and resale site. People would do porch pickups and pick up 10 bunnies for their little friends. I started selling personally stuff. I went from T-shirts to bridesmaid gifts, wedding gifts. I just started… I looked around at what’s popular, and I try and replicate, and make it better. And by about a year and a half, I had saved $20,000. I opened my own checking account at Wells Fargo where we bank. All the money would go into there. All the expenses came out of there, all the money would go into there. And finally I was like, “Blake, we’ve got enough now for a down payment.”

Casey Franchini (21:43):
So we went and bought our first property with that, and it was really rewarding because I have a degree, and I want it to be worth something, too. So, for the fact that it wasn’t just my husband, Blake that was making all the money allowing us to buy rental properties, and live this great lifestyle. But actually, I could provide some value to the family, too, and buy our first property. That was just invaluable. So I was proud of myself. I still kind of am that I did that, fueled our desire for more houses.

Robert Leonard (22:11):
I am too because a lot of people would just say, “I don’t have enough money. I can’t invest in real estate,” and they would just use that as an excuse and they would stop there. You clearly didn’t do that. You were very resourceful, and it doesn’t really matter what it was that you were selling or what you did. It was this fact that you came up with something creative and made it happen and I have a two and a half year old son as well. So I know being a parent, it’s not easy to do anything while you have your kids so I can only imagine a big kudos to you as to what you’re doing in terms of trying to come up with the income to buy your first rental while also parenting your children. So I know that it’s definitely not easy.

Casey Franchini (22:48):
I was working upstairs in my craft room. Now my little real estate room. I’ve changed it around, but during nap times. I had a three week old, two year old, so one would take more naps than the other. One would take longer naps than the other so one would get to watch some Peppa Pig while I’m upstairs for two hours. I’m here to say it, but wasn’t all the time. Or after work when Blake got home or on weekends. And then it started off being one day a week and then it’s like, “Oh, I’ve got more business, two days a week.” And then it started being three days a week and my mother-in-law finally moved down here from California to be by us, and so she was helping me watch my kids one day a week for me or one and a half days or come over during nap time, so I could make my sales. I had sales on Etsy I had to complete so it was rewarding. I really liked it a lot and it gave me some money for my first property.

Robert Leonard (23:35):
You mentioned that you put about $20,000 into that first property. Doing some calculations in my head and backing into what that probably means you probably had to put 20, 25% down on the property so we’re probably looking at 80 to $100,000 property? Is that the type of property you bought?

Casey Franchini (23:51):
Yeah, we bought a house for 92, and we put 20% down. We had more money besides just my Etsy thing, but that was the bulk of it went towards that. So, we bought a property for 92,000. It was in East Memphis, B class neighborhood, great desirable schools. I was scared for the first one. I didn’t want to be in too dodgy of an area because this is my first house, and I didn’t want it to ruin my excitement for rental properties, and I wanted… I feel like the first one is the most important because if you mess up on the first one you’re going to be like, “Screw this. I don’t want to do this ever again.” But if you can get a successful first one then it’s like, “All right. Now all bets are off, unlimited. The game is on. What can I get next?”

Casey Franchini (24:32):
So, I feel like the first one is so important to get right. I wanted to make sure we were in a solid neighborhood. So we went into a B class neighborhood and we fixed it up ourselves, didn’t need a lot. We just scraped ceilings. I wouldn’t recommend doing that for rentals anymore. But that’s overkill, but we fixed it up a little bit, and we got on the market for rent, and it rents now for 1,150 a month, and that’s still under market. I know looking at comps now I could probably get 1400 for it. So when the tenant moves out, we’ll probably throw in a granite countertop and ask 14 to 1450. And I’m pretty sure now it’s probably worth probably 190 already. Gone up a lot in the past few years.

Robert Leonard (25:12):
I love what you mentioned first before you mentioned what the property was because I actually… I talk about that a lot here on the show. I always say that it’s kind of one of my guiding principles for real estate, and also when I help new investors who are newer than me is I tell them, you don’t need a huge deal for your first deal. You often hear on the internet all these gurus say, “Go as big as you can, as soon as you can. I wish I had started bigger sooner.” I understand that rationale. But for me, I actually think starting small is the best thing a new investor can do because exactly what you said is if it goes wrong, you have a much smaller hole or a much smaller loss if you’re just doing a small single family house that’s worth 75, 100,000. Rather than buying a 50 unit apartment building. If that goes south, you’re digging yourself a really, really big hole that you’re going to have to get out of, and you probably never will, and you probably will never actually become an investor.

Casey Franchini (26:02):
I agree. I totally agree with you on that. I tell everybody, I try and preach, get your first rental property, it’ll set you up for success. People come to me and they ask me all the time, “Should I do the BRRRR method? I want to scale to 10 properties in the first year.” I’m like, “All right, take it down a notch. All great ambitions, but let’s worry about your first one. Let’s get into a safe area. You don’t want to buy the cheapest house. You don’t want to buy a house that’s had electrical fire. You don’t want to buy a house that’s falling off a hill, just because you can do the BRRRR method on it. Hold up.”

Casey Franchini (26:31):
I’m very risk averse, and I feel like people should understand all the steps of the process, and know what’s coming so that when they do a big job like a BRRRR or something with big rehabs, all they need to focus on are repairs, rehab costs, timeline, and getting that down really well, and not have to worry about, “Oh, so what happens during the inspection period? When do I get paid out from my hard money lender?” It’s just like all those little things, you don’t realize how much you need to know to buy your first property and all that goes with it. So, I feel like the simplest way to go would be the safest and easiest way just to learn the process and the steps and then go crazy after that.

Robert Leonard (27:09):
Explain to us what the BRRRR method is for those listening that haven’t heard that before.

Casey Franchini (27:14):
The BRRRR method was popular coined by Brandon Turner at BiggerPockets. And it’s buy, rehab, rent, refinance, and repeat. So, everyone can look up what the BRRRR method is, but I’d like to say what exactly, how I feel the BRRRR method can be successful for those that have been seeing this unicorn way to just get rich in real estate, which it is, but you got to do it right. In my opinion, this is how you do it right.

Casey Franchini (27:38):
First of all, if you’re going to buy a BRRRR property, you need to buy one significantly undervalue. That currently in its current state, in its current messed up state significantly undervalued. Secondly, you have to buy one that needs so much work that it won’t qualify for conventional financing. Because otherwise, you’re going to be competing with way too many people. You don’t want to have a lot of competition. So you want one that’s really messed up, already under priced, and one that you can… That the ARV, your after repair value, the market value after it’s all fixed up and pretty and 100% rehabbed and complete is really well. It’s amazing in the neighborhood. So, you want to have a big spread in between of what it costs now. Let’s say you buy a house that’s $80,000. You need, I don’t know, 50 to fix it up or whatever. And then afterwards, it’ll be worth 250 or 275. That’s what you’re looking for, something really cheap.

Casey Franchini (28:30):
Secondly, or thirdly, or whatever number I’m on, you need to buy the property with all cash to get the deal. So you won’t be financing a BRRRR property. No one’s going to give you a loan on a house that’s been half burned down or missing an entire kitchen or all the copper has been pulled out and there’s no appliances, and it’s been vacant for six months. You won’t get a lender to finance you on that. So you’re going to have to pay all cash, which means if you don’t have all cash, then you have to get in touch with the hard money or private money lender to loan you the money. So you can be an all cash borrower, which means that you have to pay interest every month until your property has been rented. To pay interest to the person you’re borrowing from every month while you’re fixing it up, and you got to fix it up. And then you have to put a tenant in place once it’s all done for six to 12 months.

Casey Franchini (29:16):
So, you’re still paying your hard money lender. If you can’t pay him back that entire time because it will be six to 12 months before a regular bank will then do you a cash out refinance, which is different from a regular refinance. So, a cash out refinance is where you own a property free and clear, you have no loan. Let’s say you own it for $200,000 or 100,000. I like 100,000. It’s an easier number. I’m not a math wiz. $100,000 and you want it free and clear, and you want the money out. You want to now have a 30 year 80/20 loan. And so, an 80/20 loan means 20% in the property, 80% in your pocket. That means that they’re going to give you $80,000 check. They’re going to give you a suitcase basically with $80,000 in it and they’re going to say, “Here you go. Now you owe us money mortgage payment.” So, that’s the cash out refinance.

Casey Franchini (30:02):
So, the point of the BRRRR method is to buy something severely undervalued with hardly any money, whether it’s hardly any of your own money because you borrow from other people, or whatever the case is. The point is to get at a really cheap deal, fix it up really nice, have an amazing comps, and get an amazing after repair value and appraisal value so that you can do a cash out refinance for that big and final number. And then you get all your money back. And you can go do it all over again somewhere else. So basically, you’re reusing the same down payment over and over if done correctly.

Robert Leonard (30:32):
This is a strategy that I’ve known of for probably a year or two now. I hadn’t implemented it yet, but I’m actually doing my first BRRRR right now, and it’s interesting because I’m coupling what we talked about before in terms of starting small and getting an easy win with the BRRRR strategy. Rather than… I’ve never flipped a property. I’ve only done rentals and house hacks. So rather than buying one that’s fully, needs a full gut, I bought one with my business partner that just needs a little bit of work. Doesn’t need anything super crazy, and we’re not going to get all our money back. We know that because it’s not a full rehab. And typically for those listening, the more you do in terms of rehab, the more money you can get out. We knew that going in, we’re not doing a full gut, it’s just some minor thing.

Robert Leonard (31:12):
We’re probably going to leave about $5,000 in the deal, whereas if we just bought this as a move in ready, we probably would leave about 17 to 20,000. So, it’s still significantly better than it could have been. And for us, we’re just super excited about it because we’re going to be able to get that, and we’ll hopefully get that win and notch in our belt. And then the next one, maybe we’ll do a little bit more repairs. And the next one, we’ll do a little bit more repairs, maybe get all our money back. But even if we could continue to just do light rehabs with $5,000 in a deal. That’s great. I mean, $5,000 to buy rentals is great.

Casey Franchini (31:42):
I love it. That’s my jam. I do like ice when I get the messages people don’t know anything about real estate or own their own house. They’re like, “I’m going to do a full rehab.” I’m like, “Do you really know what that’s entailed? That’s just so much money in and risky for you and your investor who’s partnering with you if you have a partner.” But in the timeline, I mean, man, those fees sure add up. I’m curious too how it’s going for you because right now with the Rona, and all of that everyone is staying at home. Everyone and their mother are fixing up their homes.

Casey Franchini (32:11):
So contractors have had their best years ever. This is going to be their best year ever, last year was their best year ever as far as sales. So, we’re trying to get some stuff, work done at our house that we’re trying to finally have someone else do it besides us all the time. They told us it’d be four months before they can help us with our gazebo in the backyard bar pool. I’m like, “Four months? Come back to me with in four months? You’ve got to be kidding me.” And so, I’m curious, are you finding that as taken long lead times on things or anything?

Robert Leonard (32:40):
Yeah, not so much in terms of labor. But in terms of getting materials, yes. So, one of the things we’re doing with this property is fully putting all new windows throughout the whole property. And we wanted a specific line of windows and the contractor came back to us and said it was going to be about eight to 12 weeks before we get the windows, and I’m like, “That’s not going to work for a BRRRR. We need to get out of this hard money quick so that we can refinance and get it rented out.” And so, thankfully, it just happened to work out was they had a slightly lower quality set of windows. I take that back. It was actually a higher quality window. They actually had it in stock, and they’re going to be able to do it much, much sooner. So thankfully, it’s actually going to work out, but yeah, we did run into that. Everything else is relatively minor and doesn’t really need much materials. It’s maybe some fencing here and there, some landscaping, paint, that type of stuff that’s not really super material intensive. But yeah, we did run into that.

Casey Franchini (33:31):
We’re running into the exact problem with windows. So, not only do we have to fix our gazebo because it’s falling over. We’re also redoing our kitchen, like I said for the first time and that means we’re incorporating the Nook area into the kitchen as well. So we have to raise a window up and extend it out and that’s on the exterior wall. So we have to buy a special order window. So we ordered it from lumber… Not lumber liquids, window liquidators online, Jeld-Wen windows decent middle of the road, eight to 12 weeks, just like you said. So, we’re not going to get our windows until March or April.

Robert Leonard (34:02):
So I just sold a house recently, and I bought another one. And the one I bought it from he owned it as a rental, but he was a developer. Him and I were talking shop as we were going through the transaction. He was telling me as a developer, he can’t get anything. He tells all these people who want to build houses, and he’s like, “I’ll build you a house. It’s going to be twice as expensive this year as it would have been last year and it’s going to take twice as long because I can’t get materials.”

Casey Franchini (34:26):
Yeah, we’re trying to fix our gazebo like I said, and we want Cedar posts in the front and they’re nowhere to be found. So it’s like, “Okay, well, we’re going to have to use pressure treated or just wait.” So there’s materials are lacking. We had the electric company come take out a tree because they could do it for free, because it was so many feet. They mowed over our fence. So now we have to put in a new fence. I’m like, “Great, so we’ll be waiting for Lowe’s spring Black Friday to go buy some fence posts and hopefully they’ll be in stock.”

Robert Leonard (34:53):
Yeah, and going back to the BRRRR, one of the things that I really like about it is it just absolutely… Obviously, getting as much of your money back as you can, or being into deals for as little as possible is great. But what I like about it too, is that it really amplifies your return numbers. Because if you’re getting $500 a month, which is amazing cash flow, but just say you’re getting $500 a month, and if you put $20,000 down, that’s one return. Whereas, if you put $5,000 down, that’s a totally different turn. So that’s why I’m so excited about the BRRRRs because we’re getting into the deal with such a little capital down, but also because it’s just going to amplify our return numbers.

Casey Franchini (35:27):
Yeah, I do feel like last year, I wouldn’t say I would be comfortable recommending BRRRR because of the economy, who knew what was happening? But now you can anticipate at least for the next six months, so it’s a great time to BRRRR. It’s a great time to flip. Prices are still going up incredibly fast, and interest rates are still historically low. I mean, there really is no better time to take the risk and buy something and give it a shot.

Robert Leonard (35:49):
I was worried about the economy and the market, just like you mentioned. But the reason I was able to pull the trigger is because the property didn’t have to be BRRRRed. Somebody was living there when I bought it. It was a homeowner. They lived there. It was fine. If we really wanted to, we could move a renter in as it was. So, if we go to BRRRR this, and it didn’t work, or whatever the case may be, the market tanks, we could sell it as is, or we could even rent it as is. And so, we had multiple exit strategies.

Casey Franchini (36:16):
Having exit strategies is really important. I agree with you.

Robert Leonard (36:21):
So, we saw a massive upside, hey, we can BRRRR this ideally, or worst case, we just turn it into a regular traditional rental and deal with that later.

Casey Franchini (36:29):
It scares me when people say I’m going to go buy… Boise, Idaho has been booming. 30% increase year over year last year for housing prices. And people have asked me, “Oh, I want to go buy there for equity. I want to buy a house because it’s going to go up.” And I’m like, “No, if you won’t cashflow, putting a renter in there, please do not take a negative cash flow property just because you’re banking on appreciation.” That is so risky. The only exit strategy you have then is to sell it, and there’s a lot of issues with that as well. So always having multiple ways out of a real estate situation is good. Whether you can rent it out, sell it, or lease option, or whatever. There’s got to be more than one way that a property makes sense to buy it.

Robert Leonard (37:12):
Where did you go after your first deal?

Casey Franchini (37:15):
Well, we buy all of them in Memphis because why not? We live here, and it’s one of the best real estate markets in the country. So, no need to go anywhere else. It was in a C class neighborhood, and it was… Most of our houses had been under 100,000. We bought one that was 120, but now we’re looking at houses 170 to 180 because that’s just how it is. But with the low interest rates we’re still cash flowing the same. So, it’s okay. But the second property needed a lot of work. But we just cleaned it up and made it safe and rented it out. And we’re like, “You know what, when the first tenant moves out, we’ll do a full rehab then.” So she’s still there, and whenever she moves out, we’ll do a full rehab.

Casey Franchini (37:50):
Our last house that we did, we spent the most we’ve ever spent. We spent probably, I don’t know, I say 15,000. But I know I’m missing a few thousand dollars there in rehab costs, but we do all the work ourselves. So I can’t imagine if we would have hired that out. It probably would have been a 25 easily $30,000 job. But we remodeled the kitchen. It was a two bedroom house. We turned it into a three bedroom house. We added a deck on the back, and we put new toilets, and we did leave one of the vanities, one we had to replace in the bathroom. Ceiling fans, paint everything, new baseboards, and all of that. So it took a while. But it was definitely worth it. We bought that one end of 2019 for 120. And that one’s worth now at least 175. And I mean, just in a year or so. It’s been ridiculous. The market has just blown up.

Robert Leonard (38:39):
I owned a duplex, half of a duplex and I bought it for about 145, 150. And just year and a half two years later sold it for 235.

Casey Franchini (38:48):
Isn’t that crazy?

Robert Leonard (38:53):
It was crazy. We had 32 showings in two days. We received three offers in the first 12 hours of being listed. Two of them were over $20,000 over asking price, sight unseen, with no inspections. It’s a crazy market. So I want to dovetail that into a piece of advice for everybody listening. And the reason for this is because I get asked this question a lot is whether I should buy right now or not. And I think the answer is yes, but it has to be a good deal. And I think it’s always a good time to buy as long as the numbers make sense. So I think it might not be the perfect time. Maybe you can get a property a little bit cheaper if you wait, but timing the market is impossible. So if you can find a property that has good numbers that makes sense today, I would personally still buy it. I’m still buying. I’ve done three deals in the last month so I’m putting my money where my mouth is and still buying deals.

Casey Franchini (39:38):
I agree. Especially, if you think, okay, so if you’re going to wait, well, when are you going to wait? You’re going to wait till next year, the year after? When are you going to wait till before you finally say, “Oh, forget it. I’ll just buy something.” Because the opportunity costs right there is huge. If a tenant pays you $1,000 a month. So, okay, you overpaid 10,000 for a property. Well, in 10 months of rent payments, you’ve already got that back plus you’ve got an appreciation, plus your tenant is paying your loan down. Plus your tenant is paying your property taxes and all your repairs and all that. So, what if you overpay a little bit? In the long run it won’t really be overpaying and the opportunity cost of you waiting for some market crash when you won’t be able to compete anyway if you’re not going to be an all cash investor or have your ducks in a row and be ready to pounce and not be afraid.

Casey Franchini (40:17):
It’s just waiting, stop sitting on your thumbs and just do it. If you look at the housing market over a period of time from the 1930s, to the 40s, to the 50s, all the way up till now, housing prices ever gone down and stay down. It’s like no. Housing prices always increase over time. And so, if you’re in it for buy and hold, and you’re making positive cash flow every month, it’s okay. My opinion is you overpay a little bit because it’s going to be a moot point in a few years anyway.

Robert Leonard (40:41):
I think the positive cash flow is the important part, if you’re a rental investor.

Casey Franchini (40:47):
That is the point. That is the number one factor.

Robert Leonard (40:51):
You can essentially pay anything as long as it’s cash flowing. In my opinion, as long as the cash flow return numbers are good you can pay anything. That can open a can of worms for so many things. People often ask me, “Are you mad that you’re paying PMI or this or that?” Because there’s some properties that I’ve gotten into through a house hack that I didn’t put 20% downside PMI. And I’m like, “Yeah, it does suck to have to write a check for 200, $250 every month for PMI. But you know what, I’m still cash flowing $1,000 a month on this property, and I only need to put three and a half percent down plus appreciation. So, no, it’s not great to pay PMI. But the numbers still make sense, so I’m going to do it.”

Robert Leonard (41:22):
That’s how I feel about the market today. And you mentioned opportunity cost. Years ago, 2016, 2015, 2017, I was trying to time the market. I thought I could. I was like, “I got to wait. We’re eight to 10 years past this last crash. It’s coming, so I’m going to wait. Then I waited, and I waited, and I waited, and the time never came. I was talking to Brandon Turner and some other people at BiggerPockets, and he gave me the advice of if you’re not going to buy today, you’re not going to buy when the market crashes because then you’re going to be nervous then that everything’s going on. And if you’re not willing to buy now, you’re not going to be willing to buy when everything… There’s blood in the streets. And that really just changed my mind in how I approach things, and I hope that everybody listening to the show will take that same advice.

Casey Franchini (42:05):
I agree. I mean, that’s exactly the thing I just said. Don’t sit on your thumbs and just do it. If you can’t do it now you won’t be doing it later either.

Robert Leonard (42:12):
What does your portfolio look like today? You did those first two deals. Where are you at today? How many houses, units, cashflow? What does that all look like?

Casey Franchini (42:21):
We’re not one of those people that have a million units. We’re really particular in the houses we buy because my point is that I want less risk and less issues, and I want more cash flow. So, all of our properties cash flow four to 500 or more, and we manage them ourselves each month. And so, we have six houses, five are rentals. We didn’t buy any last year because, again, I was worried about Coronavirus and the election and where the market was headed. So, I wanted me to be sure of my strategy and how I would buy properties or where I’d buy them. And so, we’ve got some catching up to do this year. So we’ve got our cash. We’ve got our HELOC, too. So hopefully we can get a couple this year because I was upset we didn’t get two last year.

Robert Leonard (43:02):
I would say I agree with you. I often think that… I don’t ask the unit numbers to say that you have to have 1000 or five. Either one, it depends on the person. Everything’s going to be right for somebody. I think the number of units is often a vanity metric because there’s people that own thousands and thousands of units, but they only own 0.1% of those thousand units. So their cash flow is different than you who owns 100% of these deals, potentially, and your cash flow could be higher.

Robert Leonard (43:29):
So, I actually take a very similar approach to you is I want to scale but I also want to have high cash flow. And my business partner said, “Why don’t we buy this one? This one’s super high cash flow.” And I said, “No, look at the area.” I said, “I don’t want to buy in that area.” We have a great portfolio of single family houses. We have great tenant base, strong cash flow, and a lot of people poopoo buying single family, and I get it, but then again apartments, you get a different clientele, a different tenant base. Whereas, with a single family, we’re getting super high quality tenants. We’re not having any issues with paying knock on wood. And for me, it’s just a super high cash flow, low stress, low risk thing that I love.

Casey Franchini (44:05):
You are speaking my language. Oh, my gosh, we are the same. Exactly. I don’t want to do any work. After I have my tenant in place I want to feel so safe and secure in my investment and my tenant and I don’t want to have to worry that they’re going to make payment or they’re going to try and get one over on me. I invest in B class highers, and C class neighborhoods. We do the safe way 20% down and I know with the BRRRR method you can leave the 20% in there as well, but we love fixing up houses. But I don’t want to get burnt out doing it either. I want to continually love it. Like when I did my craft thing on Etsy I don’t really like doing crafts as much anymore because it was so much work. So, it took away a lot of joy.

Casey Franchini (44:44):
So, for real estate I know that if I try and get sucked into this new BRRRR method thing that’s going to be a lot of work for me. My husband after work, on the weekends, him coming home late because he goes to the house. We’ve been there and it’s like, “I don’t know if I want to…” It’s alluring, but I like ones that are more cosmetic and don’t need a ton of work. I want to buy it. I want to fix up quickly if it needs fixing, put a tenant in and just stop thinking about it. I want an easy street. I want to play with my kids on the weekends and not have to worry about tenant issues and stuff like that.

Robert Leonard (45:18):
Has this always been your philosophy, or has it kind of changed over time?

Casey Franchini (45:20):
It’s always been my philosophy.

Robert Leonard (45:23):
So, that’s interesting to me because for me it’s changed. When I first got into real estate, I was I’m going to own 1,000 units. That’s what I want to do. I want to buy these big apartment buildings, and I want to own 1,000, 2,000, 5,000 units. And then I did my first deal, and I’m like, “Maybe that’s not what I want. Maybe I want a little bit more time with higher cash flow per unit and per house and less stress.” I don’t spend any time on the rentals, less than two hours a month, I’d say on average, if that. How does it get better than that? It’s a little bit slower, but we’ll scale, and we’ll maybe own 10, 20, 30 of these eventually high cash flow, low time intensive, and low risk, and also get the appreciation of single family houses.

Casey Franchini (46:02):
The great part is since your tenants are paying everything for you, it’s going to be so much faster to pay off the properties. I mean, I’ve got into let’s leverage everything we have until the day I die. We’ll probably never refinance any of our rentals ever. We’ll just the more properties you have, the more cash you’re able to save quicker, especially with your regular job and normal saving habits. And so, theoretically, we could buy a property every five to six months if we wanted to with 20% down plus having extra rehab costs, and the more properties you have, the quicker you’re able to re-save for your down payment. And when you realize that, wow, after so many years.

Casey Franchini (46:37):
As a matter of fact, I just checked the balance on one of my properties the other day. It’s like, “Oh, I only owe $40,000 on this house.” So, if I just pay this off, I get an extra 400 a month because I’m not paying the bank principal and interest. You mean, I don’t need to put any more money down, but I can make an extra 400 a month. I just got to pay off my loan. It’s tempting to do that. So, it’s like, “Okay, well, sooner than later, you’re going to have more money than you know what to do with.

Casey Franchini (47:02):
You’ll be able to pay off your properties, have 100% of all your cash flow minus interest… I mean, minus insurance and taxes, all of that you get to keep.” And to me, then you’re like, “Yes, look at all this.” If my rents $1,000, and I’m paying, let’s say 60 on insurance, and I’m paying, I don’t know what property tax, maybe 100 bucks a month towards property tax, you’re going to get to keep seven or 800 a month of that tenant’s rent in your pocket. And that’s the goal, you just need to have 10 to 15 fully paid off properties, you’ll make over 100,000 a year in passive income, and you can do it by just one property at a time.

Robert Leonard (47:38):
Yeah, and start slowly, but it starts to spiral. And that was what my business partner and I realized recently. We looked back… We haven’t taken a dollar out of the rentals yet. We’ve kept every single dollar in the business. He works a corporate job. I was working a corporate job. I actually just quit. But before that we hadn’t touched any of it, and we were going to buy another property, and we look back at our bank account for our rentals. And we’re like, “We don’t even need to take anything out of our pocket, we could just take it out of the cash flow that all of the other rentals have already created, and we can just continue to buy this.” Next year, we could probably do it again, and again, and again. And before we know that… Because we’re starting to think, do we need to bring in investors to really scale? It’s looking like we might not even need… We might bring in a couple here and there just to accelerate it. We’re both young, but we don’t need to if we don’t want to.

Casey Franchini (48:21):
That’s so cool. People think you got to… It’s a unicorn ideal to have all this money or it takes so much work. Or you have to have all these extra investors and use hard money, this and that. But it’s like, really just start off with one, then get the next one. And before you know it, you’re being able to save at such a rapid rate that you can buy the properties yourself and you don’t have to worry about depending upon other people to help you for financing. I mean, besides the bank. You want a 30 year loan for sure.

Robert Leonard (48:48):
Yeah, absolutely. When you think back on your life, it could be personal, business, real estate, whatever it may be, what’s a piece of advice that you’ve received that still impacts you to this day that you could give to people listening to the show?

Casey Franchini (49:02):
It’s actually something that my husband has drilled into me. Well, he’s been trying to drill it into me for my whole life. I’ve known him forever. And he says, “Get out of your own way.” You’re the only one holding you back. You, just you, you’re your own problem. Nobody else is holding you back. It’s you. And he has said that forever. When I was struggling in real estate in 2007, he was saying that to me, “Get out of your own way. You’re better than you think you are. Stop holding yourself back.” And I say that now with my new coaching business and getting out there on Instagram, which has been a challenge for me because I’m 38 years old, and I was not really a social media person. That’s not my thing. So to be out there was getting out of my comfort zone. So, it’s just like I’m the only one holding me back from any type of success, me, not anybody else. It’s no one else’s fault.

Casey Franchini (49:49):
So my advice is for those of you out there who are wanting to do anything in your life, whether it’s you want a completely different job, or you want to get out of a relationship, or you want to buy your first rental property, or whatever. You’re the only one holding you back. Nobody else. So just believe in yourself, realize that you only have one life to live. Just go do it. Who cares? Just do it.

Robert Leonard (50:10):
Casey, thank you so much for joining me on the show. For everyone listening that wants to connect with you and chat more about real estate, where’s the best place for them to go?

Casey Franchini (50:20):
Absolutely. I would love to chat with anyone. I am on Instagram daily, Brick by Brick Wealth. And also they can find me on my website brickbybrickwealth.com

Robert Leonard (50:30):
The username is very applicable to the slow and steady house by house strategy that we just talked about. I’ll put a link to all your resources in the show notes below, so anybody interested can go ahead and check those out there. Casey, thanks so much.

Casey Franchini (50:44):
Thank you so much. I had a great time.

Robert Leonard (50:46):
All right, guys. That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro (50:52):
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