Lisa Phillips is a real estate investor who helps first-time investors build rental portfolios by buying foreclosures and other low-priced homes in working-class neighborhoods. A former electrical engineer, she turned to real estate after a layoff, and she invests in cities across the country.
In this interview with host Deidre Woollard, she explains why she buys bank-owned foreclosures but avoids short sales, how she invests in markets far from home, what makes her walk away from a house, and how she screens property managers and tenants. She also talks about improving a neighborhood without pushing its residents out.
How a layoff and a $35,000 condo got her started
Q: Can you share a bit of your story and how you discovered real estate?
My story starts with a layoff. I had just bought a condo, and I thought, what am I going to do now? But the condo cost about $35,000.
I grew up on the West Coast, in Las Vegas, where you’re just not used to inexpensive homes. Prices keep climbing and you rarely see a downward slump. When I moved to the Midwest for a job, I found a whole world where home prices ranged from $30,000 to a million. Many of the lower-priced neighborhoods were decent and nice, much like the low-income, working-class neighborhood I grew up in.
I had to fix the condo up, but it taught me something in my 20s that I felt in my bones: if you own property, even property that doesn’t cost much, you’re protected from a lot of what the economy throws at you. If it doesn’t cost a lot, you’re doubly protected, because the mortgage is easy to afford. This was 2009, when we saw a huge number of foreclosures.
Those neighborhoods aren’t always desirable to white-collar workers who want a certain standard of living, but they are affordable for people in that income bracket, and investors can provide a service there. I’m very much against gentrifying. We’re not going into these neighborhoods to push people out. The people who follow my system think about not displacing lower-income and working-class families to make a profit. Because we look at community and not only the numbers, we build a richer business and richer portfolios.
Q: Median home prices are rising, and many neighborhoods are becoming unaffordable for renters and investors. How are you still finding good deals?
It’s a process. You want to look where no one else is looking. Find the major transportation routes running out of the big city hubs. Then work systematically outward along them to find places outside the main cities that offer decent rents but low property prices.
Q: How did you find your first mentor?
Again, I had been laid off. By then I was already helping people one-on-one with their houses, people who reached out to me through BiggerPockets or after reading a blog post. My first mentor was a business coach, and he was amazing. He helped me restructure everything so I could reach more people in a more polished way. The more polished it was, the more people could trust it and the better the structure worked for them.
He was the first but not the last. I always have a mentor, for business or for spiritual purposes, someone who is better at their craft than I am. That was 2015, when I started building an online platform to help people buy their first rental properties.
Why she buys REO foreclosures and avoids short sales
Q: How do you walk clients through what buying a foreclosure is like?
I love foreclosures. I do not like short sales, so we need to separate the two. I’ve worked with investors all over the country for 10 years, and I have not seen one short sale go through for an investor. Not once. They get caught up at the last minute, the bank refuses, or they take nine months to close. So I exclude them from what we look for.
Stick with real estate owned (REO) property. Once a property has gone through the entire foreclosure process, the bank has cleared the liens: second mortgages, mechanic’s liens, financing liens. You aren’t responsible for any of them. These houses are usually empty and ready to be sold below market.
I love it when a listing says REO or foreclosed. Just make sure it does not say pre-foreclosure or short sale. Once you understand that difference, you find prime houses sitting there undervalued, priced for a quick sale.
Woollard agreed that short sales are oddly named, since they are always so long and complicated, and especially hard for beginning investors.
Improving a neighborhood without gentrifying it
Q: When a neighborhood has a lot of foreclosures, outside buyers can rush in and change it. Why is it important to develop a neighborhood respectfully, and how do you keep improvement from becoming gentrification?
There’s a why and there’s a how. The why is a bigger conversation that people in the financial community aren’t always comfortable having. When you combine profit and income with service to the community, not at your own expense, and bring stable, affordable housing to these neighborhoods, you’re tapping into a higher perspective. You know you’re making a difference.
When you can be profitable and also do more for people than anyone else has done, giving them long-term, secure housing in decent shape because you’re not a slumlord, that pays for itself. It shows in the people you affect and in the mark you leave on a neighborhood. I have 11,000 people in my Facebook group, and we’ve seen positive changes in the neighborhoods we invested in because we care about that, not at the expense of profit but alongside it. The energy you put in is the energy you get out.
The how is a very economic discussion. In our group we talk about not raising rents on our tenants. I call tenants clients, because they pay me and I want to serve them. Keeping rents below market slows gentrification, at least for that one family or property, and it has real benefits for the owner.
If you keep rents below market instead of raising them every year, you tend to keep tenants for the long term. In this demographic that can mean 10, 20 or 30 years with the same tenant. A tenant who keeps your place immaculate and tells you what’s going on in the neighborhood is valuable. Turnover costs eat into your profits that year, guaranteed, and every new tenant brings the risk of a bad one instead of a known quantity who pays on time.
Even during the pandemic, our good tenants stayed. They know they’re getting a great deal and that the rent will rise if they leave. So the property stays profitable, and they get stability too. A good business, and this is the culture I spread, is a win for both sides.
Q: That level of care is something individual investors can offer that institutional investors often don’t. Why does that connection matter?
If you are a faceless machine, that’s what you get back. My tenants haven’t even met me, but they know that if they ask for something to be fixed, it gets fixed. They notice when they walk in. It might be a modest neighborhood, but I took the time to put contact paper on the countertops, a very low-cost way to upgrade the look. They see luxury vinyl tile instead of cheap, boring office-style flooring. You get back what you put in. Small touches show how much connection matters.
Lending, appraisals and Black home ownership
Q: You work with a lot of Black investors, and the Black home ownership rate has been lower than other groups’. Can that change? What needs to happen?
That is a big question. There are institutional reasons the rate is lower. In my Facebook group, members share stories of homes being appraised lower when family pictures show that a Black family lives there, compared with when those pictures are taken down. So part of what we do is stay in the know: take down any pictures that show you’re Black. We have to work around a system that is set up to keep us at a certain economic level.
What helps is being around other investors. In my group, the same five to 10 banks across the country get nearly all of our business. Those banks make a lot of money from that concentrated economic power. But it also shows how few lenders will consistently give us a loan when we have the right credit. You can be a Black borrower with good credit and still be denied. Studies have compared a white couple and a Black couple with the same credit profile, and one gets the mortgage while the other doesn’t.
Will it change? It will change with us, with people educating each other: not every bank is for us, but these few are. Those few benefit from the business the others turn away. The system is so large that I’m not going to change the big banks on my own. What we do is find the lenders we can work with and spread the word about them.
Q: Supporting minority-owned lenders matters too. The bigger banks are missing out on a lot of economic power.
It’s remarkable when you think about it. My group includes people of all races, but I do target Black Americans, because of the neighborhoods we tend to invest in and our history with them. If lenders are sleeping on the economic power of the Black community, that’s on them. The person who can see a little further gets the business, and that’s how it should be.
Investing remotely in markets you don’t live in
Q: Some people worry about investing remotely, in a place they don’t really know. How do you help them get comfortable with that?
Once you get past that fear, it opens everything up. Most of the people I work with live in New York, D.C., Florida, Atlanta, Texas and California. They earn a good living there, but they can’t afford to buy rental property there at a price that’s comfortable for a first-time investor.
So we’re strategic. My California clients focus on the Midwest. If you’re in the Northeast, you can focus on the Northeast; in the South, the South. With Californians, I ask right away: Are you okay with travel? Do you have two or three days off? This isn’t “I bought a cabin in Idaho and we have to go fix it up every weekend.” Done systematically, you don’t have to visit often.
We look at the closest places you can fly into. We look for markets with houses in your price range that don’t need much work, and we look at multifamily properties too. Here’s one trick: if you fly out of Jacksonville, Florida, where do the direct flights on low-cost carriers go? Low-cost carriers tend to fly to low-cost markets. Put enough of those small things together and it gets much easier to find an affordable market you can reach, with the houses you want, and to set up a system between contractors and property managers that keeps you informed without being there every week.
If you set this up properly, you don’t need to visit much, because you were diligent up front: the market can sustain the investment, it already has good contractors, and it has more than one property manager. If you’re an investor, you know the first one might not work out. If you work with me, I say the market needs at least four. I’m on my third property manager for my Ohio property in nine years, and that can happen.
If someone finds a cute $40,000 house in a rural area but there’s no one to manage it, I tell them we have to keep looking, unless they want to manage it themselves. Being firm and disciplined about those details makes remote investing much smoother than people expect.
Modest-priced rentals and the houses to avoid
Why workforce housing fits most new investors
Q: You don’t ladder people up into more and more expensive properties, which many investors do. Why do you think investors should stick with workforce housing and more reasonably priced properties?
To understand this, you have to see that the people who traditionally gave real estate investing advice came from a different socioeconomic class. For them, putting $50,000 down on a $100,000 property and waiting 30 years for it to be paid off was doable. They weren’t looking to live off the income, and many weren’t comfortable going into lower-income or working-class neighborhoods. That’s why “buy the expensive property and hold it” became the standard advice.
But that fits maybe 20% of any audience. The other 80% are working-class people like me. Why would I put that much money down for a $1,400 mortgage, then wait 30 years to own a house that might be worth $400,000 or $500,000? Yes, there’s a lot of equity in that, but unless you’re flush with cash, holding something like that for 30 years doesn’t make economic sense.
I’m from these neighborhoods, and the people I work with are comfortable in them. Since I started on YouTube in 2013, some people have said they will never set foot in the neighborhoods I promote, and that’s okay. If you’re not comfortable there, tenants will sense it. Stay with the expensive property if that’s what you’re comfortable with and can afford.
Many of us don’t have generational wealth. Whatever wealth I have, I created over the last 10 years by working very hard. There were no loans from Mom or Dad. So acknowledge what socioeconomic class you’re in, and follow the advice that fits your goals and your comfort level. In these neighborhoods you can start with $10,000, $20,000 or $30,000, which is far more doable for first-generation college graduates and white-collar workers. I’m all about buy low, sell high.
Q: There’s also a benefit to steady, consistent income over time. You don’t have to swing for the fences every time.
It’s been amazing. These small properties added up over the years. Then I sold one and realized that, for the first time, I had real money in the bank. If a bigger deal came along, I could put $50,000 down. You sell one that has appreciated, and suddenly you’re a bigger player because of all those small, diligent plays.
Deal breakers on low-priced homes
Q: When you look at lower-priced homes, is anything a deal breaker? Plumbing, electrical? Do you mostly look for homes that need only a little work?
My non-negotiable is foundation problems. We don’t do those. They’re too expensive, with too many unknowns and variables.
Crime is the other thing you have to consider in these locations. There are some really cute houses in these price ranges, but if there are shootings in front of the house, it’s not worth it. You can’t just chase a low price.
A gut rehab is worth it sometimes. Say a $40 million development is going up across the street. Then putting $50,000 or $60,000 into a shell can pay off, because that development will push your home’s value up. Without that kind of extreme appreciation, I don’t recommend a full gut rehab. We’re not flipping. We need the rent to justify whatever we put into the house and still leave cash flow, so we have to be very discerning.
Choosing property managers and screening tenants
Q: How do you find a great property manager? What do you look for?
Here’s what I tell clients first: every property manager says they’re the best. Everyone says they’ll treat your property like their own. The reality is that it’s a mom-and-pop, character-based business. Someone may do everything right and still be a terrible communicator, or be unable to scale. I’ve had managers who started out great, then I recommended them on my platform and suddenly they weren’t so great, because they had more business than they could handle.
It’s like hiring: every candidate says they’re the best. You won’t know how a manager performs until you start working together. So you need backup. If you chose a market knowing it had four, five or six other property managers, finding out six months in that yours isn’t good hurts less, because you’re not stuck.
Maybe they aren’t collecting rent, aren’t answering calls, aren’t doing the work, or charge too much. I let one go because they charged too much for everything. Each time, I closed out the contract, if there was one, and had the next property manager pick up the keys from the old one, and the business carried on.
We all want certainty, but that’s not how real estate investing works, with property managers or with contractors. What we can do is reduce risk, give ourselves options and avoid being overextended. If we find out early that a manager or contractor isn’t right, we have an exit strategy to switch.
Q: When you’re looking for a tenant, does the property manager do the screening or do you? Are there red flags people may not know about?
It depends on the property manager. One of mine is amazing, and she told me, “I’m deciding, because I have to deal with them.” She has strict standards, and she found a great tenant who has been there about six years. Other managers compile the information, maybe give you their thoughts, and you make the final decision after seeing the credit report and full application.
In this price range, in working-class neighborhoods where money is tight, you’ll often see a blemish or two on a credit report. That’s normal at every income level. But one thing I’ve noticed correlates directly with not paying rent: charge-offs. A charge-off means the person didn’t pay and the creditor wrote the debt off. If an applicant has multiple charge-offs, they are not going to pay your rent. They’re comfortable leaving debts unpaid. I learned that the hard way, so other people don’t have to.
The other big rule: applicants should earn two and a half to three times the rent. People like my properties because of the small touches, and sometimes an applicant really wants the place, but they just don’t earn enough. You can feel that they want it, but taking them puts you both in a bad position. When money gets tight, other expenses will come first. As the landlord, you should know better than to put them in that spot, and you don’t need the anxiety either. Charge-offs and the income rule have been the most consistent way to get good, stable tenants.
Woollard noted that a credit score can reflect one or two mistakes, the kind many people make when they’re young, while charge-offs show someone is comfortable with what happens when they don’t pay. That person may not care about the property and may walk away from it in any condition. Phillips agreed: they’re a little too comfortable not paying people.
Advice first-time investors tend to ignore
Q: What is one piece of advice first-time investors tend to ignore?
There are a couple. First, stop fixating on random cheap houses. Someone tells me, “I found a $50,000 house on Zillow.” I ask: What market is it in? What’s happening in that market? What’s the economy like? What’s the neighborhood like? They’re looking at cheap houses everywhere without being discerning. Don’t focus on a cheap house. Look for the right market, one that has the kind of houses your budget can buy.
Some clients think they know better, and a couple of weeks later they come back and say, “Let me go back to finding the right market, because I’m all over the place and getting nowhere.” The right market has already been vetted for properties in your price range.
Second, energy. The energy you bring is the energy you get back. If you think you can’t, you can’t. The optimistic people in my group, the ones who think “Why not? This could happen for me,” do much better than the ones who start out disappointed. I might have three people on a coaching call looking in the same city. The one who was discouraged from the beginning finds nothing. The other two have 10 properties we’re analyzing together. When someone shows up convinced it can’t happen, I sometimes suggest they take time to think before they start.
Q: You talked about small touches and the care tenants can feel. Many investors want to build wealth and also give back to a community. Why does that matter in rental investing?
That conversation wasn’t being had out loud until recently, but now it’s time, especially in the current climate. There are governments talking about not letting landlords evict anyone even if they don’t pay for a year. The tide is turning toward less regard for landlords and more for tenants.
If caring about those little things means your tenant stays with you and communicates with you during a downturn, because they know what they have compared with other places, that’s what lets you weather the storm. During the 2020 pandemic, I asked my group of 11,000 how it was going. Some had one tenant who was already trouble and had to be let go. But most said 75% to 80% or even 100% of their portfolio was fine. When things go wrong, all the work and care you put in pays for itself. It isn’t immediate, so not everyone sees it, but it really helps in the bad times.
