5 Questions: Windfalls, Real Estate and Building Credit

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Five questions windfalls
Table of Contents  
  1. Question One
  2. Question Two
  3. Question Three
  4. Question Four
  5. Question Five

This week the guys tackle 5 questions from the audience on windfalls, real estate, and building credit.

Question One

First off, let me start by saying I’m loving the Investment Property series you guys are doing. I totally want to get into this, just need to figure out how to save for that first down payment…

My question is this…you guys talked about saving 15% a month for the reserve account to cover vacancy and break fixes…Let’s say you own a great property, and you don’t have to dip into the reserve account much for a long time. Is there a point where you cap it and stop contributing to the reserve account?

Aaron via Email

You won’t want to keep all of the property earnings in your reserve account because in the unlikely case you do get sued – say goodbye to that money. Part of our strategy is to choose insurance policies with high deductibles so for fixes and updates that are not major will pay out of pocket. By not making small claims, our monthly premium low.e are keeping the reserve account up to our deductible. We don’t want to use the insurance unless we have to to keep our monthly payments low going forward.

What we are keeping in our reserve account is the amount of our deductible. So, if let’s say our deductible is $10,000, we want to be able to cover anything below that, therefore, we keep $10,000 in our reserve account. There will be big fixes eventually if you hold the property for many years to plan for significant expenses. If you know, you have to replace the AC unit or roof in the next year, plan for that by putting extra money aside in the reserve account the months leading up to it.

Question Two

Could you walk me through your decision to go with Roofstock as opposed to Memphis Invest or some other traditional turn-key company? My wife and I have spoken with Memphis Invest, and it seems like they run a tight ship and have an excellent reputation in the REI community. Were you simply looking for higher returns than their markets offered? I’m drawn to the fact that the properties are completely rehabbed before being rented, and they seemingly do an excellent job of reducing risk within their property management (minimum of 2-year leases, very in-depth vetting, etc.)

Joseph via Email

Memphis Invest is an extremely high-quality operation and great company. For us, the properties Roofstock offered were more what were-were looking for as a beginner investor. The homes were cheaper with Roofstock so we were able to try it out without investing a significant amount of money.

As new investors, homes with Memphis Invest were just more than we wanted to spend on a property. We also wanted to spread around the risk by investing in multiple properties rather than putting all our eggs in one basket. This strategy has worked well for us making our average returns are higher with the less expensive properties.

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Question Three

Is there anything I can do credit-wise/savings-wise/career-wise to increase my likelihood of getting approved for a mortgage loan?

Nyequita Smith via Email

Getting approved for a mortgage is all about your attractiveness to creditors. To improve that you’ll need to increase your creditworthiness. Try for more on-time payments. If you only have one credit card and then you only have one on time payment a month regardless if it $3,000 or $30. Get more credit cards and put really small things on them like Netflix, Hulu, coffee, etc. Pay each of them off every month. This is a simple way to increase your number of time payments and credit score.

Increase credit utilization. Call your card companies and request to increase your limit. When you have more available, your percentage utilize is lower. If you are maxing out your cards everything it doesn’t look good to creditors. If you increase your limit and only using a small amount of available credit this can also help your credit.

Here are some more articles that will be helpful.

The Highest Credit Score: What It Is and Easy Ways to Increase It Today

The Highest Credit Score: What It Is and Easy Ways to Increase It Today

5 Questions: Windfalls, Real Estate and Building Credit

5 Questions: Windfalls, Real Estate and Building Credit

The Robo-Advisor: What They Are and How Investing Got Easier

The Robo-Advisor: What They Are and How Investing Got Easier

Question Four

Once you put an eye on a property, how were you able to assess if the purchase price of the house was fair.? Did you use Redfin or Zillow to look at comps around the area of interest to see if the number from Roofstock passed the sniff test?

Juan via the Community

There is a very back to the envelope rule of thumb that we follow called The 1% Rule. The rule states that the gross monthly rent should be at least one percent of its final price. How does it work? Let’s use one of our properties as an example.

It’s pretty simple math. Take one months rent which for us is $799 and divided by the purchase price of the home $56,500 giving you 1.41%.  If this number is greater than one percent, it’s mathematically a good investment. Remember though there are so many other factors when evaluating a property. This one percent rule is only really used to see if a property is even worth investigating. Check out our Real Estate Investment Tool to dig a little deeper.

Question Five

I was wondering if you guys have a show on windfalls, particularly in regards to mineral and oil payments.


The guys didn’t know much about oil or minerals, but they do talk about what they would do if they somehow ended up with a ton of money.

Laura Fiebert - Head of Operations
Laura is a huge part of what keeps LMM going. She edits the podcasts, books the guests, writes, manages social media (except twitter, she hates it) and a million other things that keep the wheels turning. Most importantly makes sure everything gets done.

She's an avid knitter, wine drinker, and thrifter. A passion of Laura's is second-hand shopping and refashioning vintage clothing. She now has a side business reselling thrift store finds using Poshmark. You can check out her closet here https://poshmark.com/closet/laurafieb. Very soon she'll be launching a site documenting how she runs her Poshmark business so she can teach others how to make money thrift flipping.
She loves cheap champagne, traveling and crappy reality TV.

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