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With countless investment options available today, choosing the right path to achieve your financial goals can feel overwhelming. Real estate remains one of the most reliable ways to build long-term wealth, but restricting yourself to your local market may slow your progress. The most successful investors focus on numbers and opportunities rather than geographic familiarity.

As you begin analyzing markets, you may quickly realize that expanding your search is essential. The areas closest to you might not align with your financial goals or long-term investment strategy. 

Instead of forcing a local investment that doesn’t make sense, consider the key factors that could guide your decision:

  • Are you prioritizing cash flow to generate steady passive income?
  • Do you want to minimize risk from environmental factors like hurricanes or wildfires?
  • Are you looking for a high-appreciation market to maximize equity growth over time?
  • Do you have limited time and want to avoid the headaches of rehabbing older properties?

By considering these questions, you can identify markets aligning with your strategy, ensuring your investment decisions are profitable and sustainable. Expanding beyond your local market opens up a world of opportunity, allowing you to invest in locations where the numbers work in your favor.

Investing in multiple markets across the U.S. can accelerate your wealth-building journey in ways that simply aren’t possible when focusing solely on your backyard. Luckily, our partners at Rent To Retirement are experts in turnkey new construction in multiple markets. Here’s why investing out of state is a game changer.

Better Numbers, Better Returns

Many local markets are overpriced, highly competitive, or don’t offer the cash flow needed for long-term success. Investing in places with only high appreciation rates can leave any investor without bottomless pockets struggling to have enough proceeds to maintain expenses. 

Expanding your search nationwide allows you to find properties where the rental income, appreciation potential, and costs align with your goals. Finding a slam dunk on all three at once will always be challenging, but finding the perfect balance between them and your goals is the key to building a portfolio that works for you.

Diversification Reduces Risk

Market cycles vary from state to state. By owning properties in multiple markets, you protect yourself from localized economic downturns and create a more stable, resilient portfolio. 

Building a solid portfolio in one particular market has benefits, such as expertise in neighborhoods, vendors, city regulations, and what renters are looking for in properties. However:

  • What if that market has a major employer for the area leave?
  • What if that market becomes a victim of an environmental disaster?
  • What if local officials change rules to cap how much you can increase your rent to balance an increase in costs?

Having a diverse portfolio in multiple markets that experienced professionals you can trust have vetted will help spread the risk and cast a wider net for potential market booms where you can build traction.

Escape High-Cost, Low-Return Markets

If your local market is seeing sky-high property prices with low rent-to-value ratios, investing out of state may be your best option. Many major metropolitan areas, such as New York, San Francisco, and Los Angeles, have prohibitively high property prices, making it challenging to generate strong cash flow. In contrast, emerging and secondary markets often provide better rent-to-value ratios, lower property taxes, and landlord-friendly regulations.

By targeting markets with affordable property prices and strong rental demand, investors can achieve higher returns, reduce financial risk, and scale their portfolios more effectively. For example, investing in Midwest and Southern states such as Ohio, Tennessee, or Alabama allows investors to acquire multiple properties for the price of a single home in high-cost states. This diversification enhances cash flow and mitigates the risk of economic downturns impacting a single investment.

Additionally, specific out-of-state markets offer unique incentives, such as tax abatements, opportunity zones, or new-build investment properties with lower down payment requirements. Partnering with Rent to Retirement (RTR) allows investors to access these high-yield opportunities with professional management and financing options, making out-of-state investing more accessible and profitable.

Avoid Oversaturation and Intense Competition 

Many investors struggle to break into their local markets due to high demand, limited inventory, and bidding wars that drive prices above market value. This is especially true in major metropolitan areas where large institutional investors, house flippers, and long-term homeowners create a highly competitive environment. Expanding your options to less competitive areas gives you access to better deals, fewer bidding wars, and a greater ability to negotiate favorable terms.

By investing in emerging or secondary markets, investors can secure properties at or below market value, take advantage of higher cash flow opportunities, and avoid the frustration of constantly losing out on deals to multiple competing buyers. In addition, these markets often have lower barriers to entry, such as fewer restrictive zoning laws and a friendlier regulatory environment for landlords.

Out-of-state markets still in the early stages of development can offer strong appreciation potential as they grow, creating a win-win scenario for investors looking to build long-term wealth. Rent to Retirement (RTR) helps investors identify and enter these strategic markets where competition is lower, properties are more affordable, and cash flow is more substantial, allowing for a more efficient and profitable real estate investing experience.

Access to Strategic Buying Opportunities

Some markets offer unique incentives that aren’t available everywhere. Rent to Retirement (RTR) works in markets where investors can purchase properties significantly below market value, get cash back at closing, secure 5% down loans, and take advantage of rate buydowns as low as 3.99%. These opportunities can significantly boost your long-term returns.

Final Thoughts

Ultimately, investing out of state is about being strategic rather than reactive. Instead of waiting for a good deal to appear in your local market, proactive investors can target the best opportunities nationwide, scaling their portfolio and reaching financial independence faster using the experts at Rent To Retirement.



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After reaching an all-time high in 2007, single-family home prices collapsed 27.4% until hitting a low in 2012. Since then, the Case-Shiller U.S. National Home Price Index has exploded by 141.23%. 

Don’t you wish you had a time machine and could buy a home at 2012 prices? 

You don’t, and you can’t, of course. But you can invest in another type of real estate that’s coming off a similar collapse in prices

Multifamily apartment building prices have fallen by 23.5% since reaching a peak in July 2022, according to CoStar. The Freddie Mac Multifamily Apartment Investment Market Index (AIMI) fell 28.1% before bottoming out and starting to rise again. 

And you don’t need millions of dollars to invest in multifamily properties. You can invest fractionally with $5,000 and enjoy all the cash flow, appreciation, and tax benefits of ownership. 

Why Multifamily Looks Like It’s Bottomed Out

First, take a moment to remember the narrative around real estate in 2011-2012. The mood was bleak—all you read were doom-and-gloom headlines, and the narrative was all negative. In other words, there was “blood in the streets.” 

Today, you are in the same mood in multifamily real estate. Investors are running scared after three years of capital calls and distressed sales. 

Every investor knows the famous Warren Buffett’s advice to “be fearful when others are greedy, and greedy when others are fearful.” But the mood among investors is far from the only reason to consider multifamily right now. 

Dropping construction starts

What drives market prices? Supply and demand—and multifamily housing supply rose sharply between 2021-2025. 

But after peaking at 614,000 in late 2022, multifamily unit housing starts have dropped to 370,000 as of February. You can thank the “blood in the streets” for that. 

In 2024 alone, new multifamily construction starts fell by 25%

So yes, the U.S. saw a lot of housing construction post-pandemic. But that surge in new construction has passed and crashed, while the country remains in a housing shortage. 

Continued housing shortage

A 2024 report by Zillow estimated that the U.S. is still short 4.5 million housing units. Most markets don’t have to worry about an oversupply of housing. Quite the opposite. 

Rising rents

Multifamily prices are calculated based on rental income. And rents keep rising faster than inflation. In fact, rents are one of the primary drivers of inflation. As of February, rents nationwide are up 4.2% year over year

Rising prices

After hitting a low in 2024, multifamily prices have started rising again. 

The Commercial Property Price Index (CPPI) index, calculated by MSCI Real Capital Analytics, shows multifamily properties hitting a low in February 2024, leveling out over the next few months, and rising since. 

The CPPI also shows multifamily prices far below their long-term trend line:

image1

That means they have some serious catching up to do, marking now as the perfect time to buy into the market.

Multifamily cap rates are starting to compress again

After seeing how low they could go in 2021, multifamily cap rates expanded sharply from 2022-2023. But in 2024, they stabilized, and in the second half of the year started shrinking again, according to the CBRE’s 2024 Cap Rate Survey.

As a refresher, cap rates are the other part of the price equation for commercial real estate. You divide a property’s net operating income (NOI) by the cap rate to come up with the value. 

Lower cap rates mean higher prices. So, one of the drivers of rising multifamily prices is cap rates turning around and compressing again. 

How to Invest in Multifamily Without Betting the Farm

I get it: There’s a lot of uncertainty in all financial markets right now, real estate included. The Trump tariffs and trade wars, as well as recession uncertainty, all make for fearful investors. So, how can you invest in multifamily while keeping your risk in check? 

Invest small amounts

If you invest in a multifamily syndication yourself, it typically requires a minimum investment of $50,000 to $100,000. I don’t like that. So, I go into these investments with other people through a co-investing club. 

It’s how I practice dollar-cost averaging with my real estate investments, steadily investing $5,000 each month. 

Protect against recession risk

Some investments are recession-resilient, continuing to thrive even during downturns. 

For example, I’ve invested in mobile home parks with tenant-owned homes. If a renter has to choose between paying a $500 lot rent and paying $6,500 to move their mobile home, which do you think they’ll pay? 

Likewise, I’ve invested in multifamily properties that get a property tax abatement for setting aside 50% of their units for affordable housing. Those units have a waiting list—imagine how much more the demand would rise in a recession.

Here are other recession-resilient real estate investments for more examples.

Don’t count on compressing cap rates

The trend line looks positive for cap rates compressing again. But I’m still not counting on that for the success of my investments. 

In my club, we generally like to see strong cash flow in the multifamily investments we vet. We like collecting distributions, like properties that don’t rely on price improvements for returns. 

With strong cash flow, the operator (and you) can sit back and hold the property long term, waiting out rough patches—all while collecting plenty of rental income. 

Diversify with other property types

Yes, it looks like a great time to buy multifamily properties. But you should look to diversify your portfolio. That includes taking a look at industrial properties, mobile home parks, raw land, hotels, and vacation rentals. 

I don’t have a crystal ball, so I can’t predict the next hot asset class. And I don’t have to because I invest in so many different types of properties. 

Diversify across states

I have cash tied up in over 30 properties across 13 states and counting. 

Again, no one knows where the next “hot” market will be. Who cares? Spread your money across many geographical markets, and you’ll catch some of the hot ones. 

Diversify across other passive investments

Syndications are just one type of passive real estate investment but aren’t the only option. You can also invest in private partnerships, private notes, secured debt funds, and real estate equity funds. That also helps you invest for different timelines, including some investments as short as nine months. 

Final Thoughts

Multifamily properties experienced a bear market from 2022-2024, along with the losses and fear that come with them.

The bottom of a bear market doesn’t look and feel optimistic yet. The press and mood remain mostly negative at the bottom before it becomes obvious to everyone a new bull market is starting. That’s precisely the time to buy in. 

As someone who invests steadily every month, I don’t advocate trying to time the market. But as far as I can tell, most market metrics are signaling the bottom of the bear market and the beginning of a new bull market in multifamily. 

It doesn’t feel like the giant party that it was in 2021. And that’s precisely what makes it a better time to buy.

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Natural disasters seriously threaten rental properties, with hurricanes, wildfires, floods, and winter storms causing billions of dollars in yearly damages. For real estate investors, failing to prepare can lead to costly repairs, lost rental income, and long-term financial setbacks. 

The good news? You can safeguard your assets and minimize risk with insurance companies like NREIG, as well as structural reinforcements and emergency planning.

Why Every Investor Needs a Disaster Plan

Every region has its own set of natural disaster risks, from hurricanes in Florida to wildfires in California. Even “safe” areas can experience unexpected weather events, like Texas’ deep freeze in 2021 or the rising flood risks across the Midwest. 

I live in Houston, and I had to deal with the events of 2021 with the wrong insurance. I ended up paying thousands to fix things I thought were covered. This year (2025), we experienced another deep freeze, and luckily, this time, I had NREIG as my rental property insurance provider.

A proactive approach to disaster protection isn’t just about avoiding property damage—it’s about ensuring business continuity. A well-protected rental property retains value, keeps tenants safe, and prevents costly vacancies. The key is knowing where your risks lie and taking targeted action to mitigate them.

Insurance: Standard Coverage Isn’t Enough

Many investors assume their regular landlord insurance policy will cover disaster-related damages, but that’s rarely the case. Most policies exclude high-risk events like floods, earthquakes, and even some hurricane-related damage. Without proper coverage, investors can face massive repair costs out of pocket.

To fully protect your investment properties, consider specialized coverage options that go beyond standard policies:

  • Flood insurance: Covers damage caused by rising water from external sources. This is essential for properties in flood-prone areas. While you may have coverage for named storms (hurricanes), storm surges that could cause flooding due to the hurricane are likely only covered under a flood insurance policy. Talk with your insurance agent to understand your coverage entirely.
  • Earth movement coverage: Protects against earthquake shock and sinkhole losses, which are typically excluded from standard policies.

Some property insurance policies exclude Named Storm coverage, leaving owners vulnerable to hurricane or tropical storm damage. If the property is in a high-risk area, it’s crucial to ensure Named Storm coverage is included, as it’s not an optional add-on but a core policy feature. A provider like NREIG can help investors customize policies to ensure comprehensive protection against a wide range of potential disasters—before it’s too late.

Fortifying Properties Against Damage

Beyond insurance, physical reinforcements can significantly reduce disaster-related repair costs. Simple improvements can make properties more resilient, keeping tenants safe and reducing future insurance claims.

Some key upgrades include:

  • Storm-resistant features: Impact-resistant windows, reinforced garage doors, and roof straps can help properties withstand hurricanes and tornadoes.
  • Fire prevention measures: Clearing vegetation, installing fire-resistant siding, and using metal roofing can protect homes in wildfire-prone areas.
  • Winterization and freeze protection: Insulating pipes, sealing windows, and maintaining heating systems can prevent costly freeze-related damage.

Emergency Planning: A Must for Every Investor

As well as substantial insurance and well-fortified properties, a well-thought-out emergency plan can make all the difference in protecting your investment. A few key steps include:

  1. Tenant communication plan: Provide tenants with emergency contact numbers, disaster instructions, and clear evacuation procedures.
  2. Backup power solutions: Investing in generators or battery backup systems ensures essential systems remain operational during outages.
  3. Cloud-based documentation: Storing insurance policies, lease agreements, and property records digitally ensures quick access in case of disaster-related losses.

Stay Ahead of the Risk

Natural disasters are unavoidable, but preparation determines financial outcomes. With the right real estate investors’ insurance, structural protections, and an emergency plan, investors can safeguard properties, minimize repair costs, and ensure long-term profitability.

Working with NREIG provides essential coverage, including a Tenant Protector Plan for liability (a unique offering only provided by NREIG); Terrorism & Political Violence Coverage; Service Line Protection; E&O for self-managed properties; and Equipment Breakdown Coverage for HVAC and electrical failures. The right coverage ensures your investments stay protected—no matter what comes your way.



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Would you delay your early retirement for years to feel safer and secure once you FIRE? That’s what Mark Trautman did, FIRE-ing before discovering the FIRE movement was even a thing. While he could have retired in his 40s, Mark pushed his retirement date to 50, retiring with a conservative withdrawal schedule that even beats the 4% rule. But, thanks to being invested throughout his retirement, Mark has blown past even his Fat FIRE dreams, spending what he wants, when he wants, without a worry!

But it wasn’t the money that made Mark thankful for FIRE. Mark was able to be right next to his wife and even his father during their last days, being fully dedicated to them and not worrying about a job or paycheck he had to go after. This is the TRUE point of FIRE, and living like Mark could have the same powerful impact on you.

Speaking of paychecks, Mark’s “FI paychecks” are fueling his retirement, so much so that he barely (if ever) needs to withdraw from his retirement portfolio. How is this completely passive cash flow funding his life? Copy Mark’s strategy, and you could be Fat FIRE by 50, too!

Mindy:
Hello, hello, hello my dear listeners, as you may or may not know, my husband Carl and I have a new YouTube series on the BiggerPockets money YouTube channel called Life After Fire. And as a very special bonus, we are going to be airing episodes here on the podcast on Wednesdays. So without further ado, let’s get into it. Today I’m speaking with Mark Troutman from Mark’s Money Mind. Mark has been retired for 10 years and has an interesting spending concept called the Fun Bucket. He also has a super interesting money story in general. We’re going to talk about how he reached financial independence, how he left his job, and how he spends his Tuesdays. Hi there. My name is Mindy Jensen, and today there’s no Carl Jensen. He’s off play and hooky, and this is the Mindy and Not Carl Life After five podcast where we talk about what happens after you reach financial independence. And we call this life after fire because we’re talking about and talking to people who are living their best life after reaching financial independence. Mark, thank you so much for joining me today. I’m so excited to talk to you.

Mark:
Yeah, it’s great to be here. Just down the street almost,

Mindy:
Almost just down the street. Mark recently moved really, really close to me and I’m so excited to have him in town. Mark, let’s talk about your journey up to financial independence. Really quick overview. How did you reach financial independence? What was your job? How did you invest? Give me all the details.

Mark:
So I worked in the financial industry my whole career. I graduated in 1987, went to work in that year in a brokerage firm, which you can imagine was a very interesting year, right? School. I was in high crash in 1987. I was actually sitting on a margin desk in a management training program and there was quotes coming in, but people didn’t have that on their phones or anything. So we were calling clients and saying, Hey, by the way, you need to put up more money or we’re selling you out. And they’re like, why? What’s going on? They’re like, well, the market’s down, whatever, 30%. And so my job was basically you need to call these people and say they need to put up money in the next half an hour or we’re selling ’em out. So that was my first experience with kind of Wall Street as a recent college graduate.

Mindy:
Oh, trial by fire.

Mark:
Yeah. Well, and then I didn’t really have any skin in the game, so it didn’t really bother me too much, but in hindsight now I realize how significant of a day that was at the time. You’re just like, well, I guess this is what the job is. And eventually I got into money management and almost all of my career was managing a mutual fund. So that’s what I did. And it was an equity mutual fund and I invested in equities my entire career, and that’s kind of how I got there. I didn’t have an extreme savings rate some people in the fire community do. It was more like I look at it from a standpoint of gross income, what is my savings as a percentage of my gross while I was living in New York and New Jersey, so my taxes were very high, so I was basically paying between federal and state tax. About a third of my income is going to tax, about a third was going to savings, and about a third was going to spending.

Mindy:
Okay. Well, I would like to note that 33% savings rate is still a pretty good savings rate. It’s not 75% like some people, but that’s okay, because this was also when the early 1980s,

Mark:
Well, late eighties and into the nineties. Yeah, two thousands, all that. Yeah.

Mindy:
Yeah. So 33% is still really, really good. I mean, you retired, what age were you when you retired?

Mark:
I actually ended up leaving at age 50. I kind of backed into what I could have retired at, and it was kind of somewhere in my early forties, but I didn’t know about the fire community. I didn’t know about any of this stuff. Just even at 50, I was like, well, I’m early, and I didn’t find the fire community until after I stopped working.

Mindy:
Wait, wait, wait. You didn’t find fire until after you stopped working. How did you know that you could retire early, mark?

Mark:
Well, I did the math.

Mindy:
What year was this?

Mark:
2015 is when I actually stopped working.

Mindy:
Oh, okay. So this is after the 4% rule. Had you heard of the 4%

Mark:
Rule? Yeah, I mean, I was aware of that, and that’s kind of what I was using as my justification that I had enough. And I also, I ended up sitting for my CFP after I retired, just because I thought maybe I needed to keep some options open. Maybe I do need to work down the road. I wasn’t sure. And as I was going through that, you do financial plans as part of that curriculum, so of course you do your own financial plan. And I realized, oh yeah, I’m good. I don’t actually need to work anymore.

Mindy:
Since you retired in 2015, have you generated any income by trading your time for money?

Mark:
No.

Mindy:
Okay. I love that answer. But although I will say that if you do decide to trade your time for money, that’s okay too. I’m just setting the bar. Okay. So you retired based on the 4% rule. You understand that this works. Do you draw down from your investments?

Mark:
I do draw down now, but I didn’t initially, or at least I was very concerned about doing it initially. I did have a period of wifi, so my wife was working for a few years after I stopped working. She did not make very much money, and she was basically an administrator at a police department, and she was actually deferring all of her income into her 4 57. So we weren’t really living off of her income. But what we were doing is, well, I kind of had income avoidance for a couple of years, I guess you would say, because I was kind of afraid to draw down. I mean, the mass said, yes, you can do this, there’s no problem. You can start living on your portfolio, but when that income stops, I think people don’t realize how much it’ll kind of freak you out. You don’t have this paycheck coming in anymore.
And so I was trying to kind of like, how do I avoid actually having to take money out of my portfolio? So I kind of looked around and we had this classic car and I was like, well, I’m not really using that anymore. If I sold that, I wouldn’t have to draw down for a year. So I sold that. And then in the second year I did work for a very small private company and I owned a very tiny sliver of the stock, but it was a private company, so I never really knew if it would pay out or what it would be. So I never counted it in my five portfolio figure. But they did end up cashing me out in my second year of retirement. And so that enabled me not to have to spend in the second year. And it was about a little less than what I would spend in a year. So it wasn’t some huge windfall or anything. It was basically a year’s worth of income.

Mindy:
Okay. Well, a year’s worth of income is still more than you had and more than you were counting on. I’m sorry, did you say how much that classic car sold for in terms of your annual spending?

Mark:
Yeah, I’ll tell you what it was. It was a Porsche 9 11 9 64 model in case anyone out there was wondering 1993 and it, it’s called an RS America. So it’s a lightweight car. We used to race cars or drive cars on a racetrack. And when we moved to Colorado, and that was in 2008, we had sold all of our race cars. We owned a factory race car and stuff like that. And we had sold all that stuff. And then when we got to Colorado during the market correction of 2008 and nine, my old mechanic called me up or somebody from that club called me and said, Hey, there’s this car available, do you want it? So I bought it for $30,000, drove it on the racetrack for a couple of years, and then it became kind of a collector car. And I was driving it on the racetrack one day and somebody said, I can’t believe you’re driving that car on the track. And I was like, well, why? I paid 30,000, it’s no big deal. That’s what it’s a low cost track car. And he’s like, you need to look that thing up. And I was like, okay. So I looked it up and they were selling for about a hundred thousand dollars at the time, and now mine, because it had been on the track and had a cage in it and stuff, I ended up selling it for 85,000.

Mindy:
Okay. So that’s a nice amount of money. I wish I had a car that I could sell for $85,000.

Mark:
Mr. Twos don’t quite go for that.

Mindy:
So you didn’t take out from your portfolio for the first two or the first three years?

Mark:
Two years.

Mindy:
Okay. What happened in year three that made you feel comfortable with taking money out of your portfolio?

Mark:
So even though I had run my own numbers and I was familiar with the 4% rule, and at around that time is when I started reading big earns material, early retirement now, and he talks about other safe withdrawal rates or other ways to come about the safe withdrawal rate figure. And I read all of his stuff, which if anyone’s familiar, that’s kind of mind boggling in itself. It is very, you definitely get deep in the weeds in that stuff and came to the conclusion that, well, he’s done a lot of research. I agree with the way he approached everything, 3.25% and I should be fine. Plus I hadn’t withdrawn anything in the first two years, so I was already kind of two years ahead of the game because I hadn’t drawn down. And I was like, okay, well if I just say, okay, then 3.25% is my number, not four or 3.25.
And then I had also read an article that Morningstar put out saying that another way to improve your sequence of return risk is just not to take a inflation raise in a year after your portfolio has declined, for example. And it made a really big difference because it gets compounded because if you don’t take that one inflation raise in that year, then the following year you’re taking an inflation raise on the previous amount. But that one year has always, you’re kind of behind a year as a result of that. So I was like, okay, so I have this kind of investment policy statement or withdrawal statement and says no more than 3.25%, and if the market or your portfolio goes down in total value in a year, the following year, do not take a raise. And then I felt comfortable enough with that approach that I was like, okay, you can start drawing down, but I didn’t. So I create a paycheck for myself, but I didn’t give myself the paycheck to the full 3.25%. Actually, it was more like, I want to say it was like two and a half percent just because I didn’t feel like I needed all of it. So then that was an extra buffer. So you can see the progression here, buffer after buffer after buffer contingency after contingency.

Mindy:
Dear listeners, we are so excited to announce that we now have a BiggerPockets Money newsletter. If you want to subscribe to the newsletter, please go to biggerpockets.com/money newsletter and subscribe. Alright, we’ll be right back after this. Welcome back to the show. Okay, so in the 10 years that you have been retired, have you ever taken the full 3.25% out or even gone up to 4%?

Mark:
No.

Mindy:
Wow. And do you feel restricted in any way?

Mark:
No, because I think, like I said, I retired at 50, I could have retired at 42, 43, so I had it more than I needed, I guess you would say. So the portfolio is sizable enough that even at a lower withdrawal rate, I live a very, very comfortable life.

Mindy:
So you now draw down from your investments. What does that process look like? Do you sell every January 2nd? Do you sell quarterly?

Mark:
Actually, I have about a 10 year runway of cash, but it’s still only an 80 20 portfolio. But again, because it’s overfunded and I live at a, like I said, I live at a comfortable level, but it’s not some crazy extreme amount. Maybe by some people’s terms it would be, but not by my terms or certainly the New York City type terms. But I pay myself a paycheck out of the cash amount that’s in the portfolio. And actually looking at the portfolio now, because again, not only did I not have a bad sequence, I had a really good sequence over the last 10 years. So I mean that’s helped a lot. And the income that the portfolio generates between dividends and interest actually exceeds what I spend in a year. So effectively I don’t ever need to sell anything.

Mindy:
Well, you need to start spending more

Mark:
Apparently. And I’m working on that. We can talk about that. I hate, by the way, I’m flying first class to economy and back. You can join me on United. I changed to United from Southwest.

Mindy:
I can join you. You’re going to pay for my ticket?

Mark:
No,

Mindy:
Then I’m going to stick with my ticket on Southwest. Okay.

Mark:
It was an inexpensive flight. It wasn’t that bad.

Mindy:
Yeah. Well, I hope you enjoy your very luxurious first class trip. Let’s talk about this cash buffer as you draw down from it, it’s just in cash.

Mark:
It’s in treasure bills.

Mindy:
Okay. As you pull out of that, do you replenish it?

Mark:
I don’t need to because the dividends and interest, so I do not reinvest dividends on my equity holdings. So those just come in and the interest on treasury bills just comes in.

Mindy:
What is the interest on treasury bills? Right now

Mark:
It’s about four and a quarter right now for very short term treasury bills.

Mindy:
Okay. And what does very short-term treasury bill mean?

Mark:
Zero to three months. Like one to three months.

Mindy:
Do you take money out at the beginning of the year? Do you take it out quarterly?

Mark:
Yeah. Interesting. So from my brokerage account, I have money that’s transferred to my checking account on a monthly basis. So effectively I’ve created my own paycheck.

Mindy:
How did you transition from saving for retirement to spending

Mark:
In what way?

Mindy:
Well, and you didn’t hear about the fire movement until after you were retired. A lot of fire adherence are super savers. They just save, save, save. They don’t spend very much until they reach financial independence and then you kind of have to flip that switch. Did you have a switch to flip or were you always comfortable spending?

Mark:
Fortunately, I had a fairly decent income for most of my career. And even though I was saving 30%, I still had a decent amount of spending. And again, you don’t drive cars on a racetrack if you’re not spending money. So I was comfortable spending in certain areas, but not all areas. So we would spend where it made sense and we had a decent house, we had nice vacations, so spending wasn’t really a challenge, but having that decent savings rate allowed us to not worry. It allowed us to accumulate wealth over time. And so even though I guess I didn’t have a challenge spending money per se, but I’ve had more of a challenge in spending what I can logically spend today. That’s been more of the recent challenge. And it’s kind of like if you don’t fly first class, your inheritors certainly will. Right? So I’ve been telling myself that every time I book a first class ticket, although Katie, my daughter is coming on some of these trips and we are both flying first class,

Mindy:
How do I get adopted? Don’t you want another daughter? Mark, what is the biggest difference between what you thought retirement was going to be and what reality is?

Mark:
So I guess this kind of goes back to one of the things I learned about being financially independent was it’s not about the money, it’s about the time freedom. And I’ll give you two examples. One is my father had cancer in 2018 and his treatments weren’t going well. He decided not to get treated anymore and went into hospice. And this was in early 2018, and obviously I was retired, and I just told my wife and daughter, I said, I’m buying a one way ticket and I don’t know when I’ll be back. And so I was there for the entire period of his hospice. And at that moment I realized financial independence is not about gaining a lot of assets. It’s about having the freedom to do things like that and be where you need to be at the time you need to be there. And then my wife ended up getting cancer in 2019, and for two years she was going in and out of treatments and so forth.
And again, I was able to be there 100% of the time. And she even said at one point, she’s like, I am so glad we’re financially independent because you can be here the whole time and you’re not worried about somebody calling you at work and saying, we need you here. We need you to be doing this. I was 100% focused on her treatments and hoping that she was going to get better. Unfortunately, she did not and passed away in 2021. But I realized that is the power of financial independence, not what it can buy us.

Mindy:
That’s such a powerful statement. And I think that there’s people who are not really in the fire community, maybe they’ve discovered the fire community, they’re like, oh, that’d be great to be a millionaire. That’d be great to quit my job. I hate my boss. And it’s not this realization that you are now able to do the things that you want to do or be where you need to be. I think you said it so well, and I appreciate you sharing that story. So that retirement has changed a lot then for you from when you first retired?

Mark:
Oh yeah. I mean there’s definitely been phases of it. And even after my wife passed away in 2021, that’s really when I think got very involved in the fire community. And it was about the community, not about the money aspects. I’d already figured all that out, but it was more the social aspects. I mean, I could have been just one of these people that their wife passes away, they just sit on the porch or sit in their house and don’t do anything and become depressed. And one of those statistics that the spouse passes away shortly after the other spouse, well, the financial independence community enabled me not to be that person. And it was interesting that, well, I met Amber Lee Grant in 2019 when my wife first was diagnosed with cancer because we had to go to Denver for seven weeks and the next day basically is what they said, you need to be in Denver for the next seven weeks for treatment.
And fortunately, one of us were working, so we were able to do that, but we didn’t have a place to stay. So we reached out in the Choose Fi Denver group and just said, Hey, we need a place to stay. And the outpouring of support was just phenomenal. It brings up emotions every time I think about it. And Amber Lee was one of the people that wrote back and just said, Hey, I have this Airbnb that I’m going to start putting out there, but I won’t do that if you need it. And so we went over there and we met, and that’s actually how the whole fin talks thing started was just conversations that we were having. We actually went to a campfire in 2019. My wife went as well. She was healing from her first bout with this cancer. But then in 2021 after she passed away, Amber Lee called and many people in the community and kind reached out and she said, Hey, I’m going to be speaking up at Camp five Midwest.
I think it would be really good if you came up there and get out of the house, come on up and support me too speaking. And was a little nervous about it. And I was like, yeah, that’s great. I’ll go up there. The person I sat next to in the little circle when you introduce yourself was Jordan Grumman. I mean, you couldn’t imagine a better person to be sitting next to when you’ve just lost your spouse. And that was a really, it’s almost like fate or whatever. It was just a coincidence that we were sitting next to each other. But that was super helpful. And then actually I went to another chem phi, had a good experience at that one. Went to another one after that in Southwest a few months later. And again, Jordan was there and he came over and was like, how you doing? And so you could see this community is, it’s something that’s not like other communities. I don’t know how to describe it. But since then I’ve kind of immersed myself and been to a lot of events. But that was also the Southwest meetup was when the fun bucket actually came about because I was staying at Kevin’s house and we talked until three in the morning about how we’re not spending any of this money and how do we do this? And that was actually when the Fun Bucket was created. And 2021 right before MFI Southwest,

Mindy:
We had to take one final ad break, but we’ll be back with more after this. Thanks for sticking with us though. I definitely want to talk about the fun bucket. I tease it in the opening, but I want to highlight the personal finance community, the word community. Yes, there’s money talk at meetups, but you can go an entire meetup or an entire Camp Phi without talking about money once. It’s the community aspect that is so important in this experience because whatever you are going through, somebody else has already gone through it and has gotten on the other side of it and can give you advice and is happy to do so. And it’s money related. It’s personal related. It’s kid related. I’ve had talks about child rearing at campfires, and I was thinking, I was toying with putting in, if you’ve been to a campfire, you’ve met Mark at the beginning of the show because yeah, you are at, I mean, you go to all of the events. So let’s talk about this fun bucket. I know Kevin sometimes calls it a different rhyming F word, but for the sake of this show, we’re going to call it the fun bucket. What is the fun bucket?

Mark:
So the way it came about was I was at his house, and this was in 2021. So let’s see, that’s almost what, six years into retirement. And he was asking what some of the same questions, what do you draw down? How much do you draw down? And at the time, I think I was averaging less than 2% a year. And he said, well, you need to take some of that icing off the top, move it over into a fun bucket. And I’m like, what are you talking about? He’s like, you are so far ahead of where you could have been if you were drawing down at the 4% rate. And with a normal sequence of returns, we’ve had these good sequences, you are drawing down far less than you could. You need to learn to turn up the dial a little bit in his vernacular, turn it up to 11 and learn to spend some of this money.
And the best way to do that is just to take some of it off the top, move it over into a separate account as if you’ve already spent it, and allow yourself to spend that money no holds bar. So if you do things that you wouldn’t ordinarily do, and I also belong to this rock retirement club, and we’ve talked about that in that club, and it’s kind of overcoming the frugality mindset because I was still always trying to travel on points or for free or wouldn’t buy the extra drink at dinner or whatever. And so taking some baby steps in allowing yourself to spend, and some of the things might be like hire a cleaner if you don’t, instead of cleaning your own house or upgrading to economy plus instead of economy or first class or whatever. And so the fun bucket, the idea was the money is over on this separate account and literally I have it in a separate online savings account labeled fun bucket. And I allow myself to do things that I might not have ordinarily agreed to because I would’ve been like, well, I don’t know if it does it fit into my budget. I’m not sure. And now it’s like, well, the money’s sitting there. That’s what it’s for. Say yes. So I went to Bali for the last two years. We’ve done a whole bunch of super high-end cruises in the last couple years. Whenever there’s a five event that I want to go to, it’s not a question of can I? It’s just, yeah, sure, let’s do it.
And then I reimburse myself from the fun bucket. That’s the idea. And what I have found is that I frequently don’t even have to reimburse myself. A lot of these things are fitting within my normal kind of paycheck anyway, not the really big expenses, but some of the smaller ones, like upgrading a seed on an airplane, typically it fits within my budget anyway, but because there was money set aside for that potential spend, it’s easier to just say, well just do it. So that was kind of how the fun bucket came about.

Mindy:
So do you feel like you’re missing out on anything? Do you feel like, oh, I would like to do this thing, but I can’t because I’m unsure about spending money or I don’t want to pull out of my portfolio?

Mark:
Not anymore. Not since I had have the fund bucket. I’ve not had to have that concern because it’s well funded at this point. So I don’t really have to at this point. It’s more of is there space on my calendar to do stuff.

Mindy:
We are recording this on March 17th. We have been having a bit of a market downturn. It is actually a little difficult to keep up with just how far the market is down right now. The last time I looked, it was up like 400 points. It had dropped, I don’t know, a thousand last week. How has the recent market downturn affected your mental status with regards to early retirement?

Mark:
Yeah, it doesn’t bother me at all because I think being an older person, I’ve been through this quite a few times, and also managing money during those periods of time, these slightly more volatile periods. And again, I mean the market is down approximately 10%, which is just a normal correction. I mean the NASDAQ’s down 13%, but it’s still not even a bear market, which would be 20%. These are very normal occurrences in the equity markets. This is not something that I worry about in any way. I think it’s actually kind of funny that people are talking about it. And I think the reason people have been vocal about it is, well, certainly there’s some political uncertainty with the new administration and everything that’s going on. So that raises people’s uncertainty, I guess you would say, or concerns. But we also just have not had a 10% correction, which literally happened multiple times a year in history, but we have not had one for a very long period of time.
So for very new investors, this is something new to them. They will learn that this is kind of a normal occurrence and nothing to be concerned about. And the bigger ones are when you have periods of time, like the lost decade of the two thousands where the market didn’t do anything. And somebody even asked me, did that delay your retirement? And I said, actually, I think it might’ve accelerated my five portfolio. And here’s why. Because I was an accumulator during that 10 year period. I was constantly saving and investing during that period. So when you are in the saving and investing mode, in fact, you should cheer for markets to go down because you’re buying at that time when you want markets to go up is when you are actually going to tap your portfolio. But in the interim, you would rather have a flat or even down market as an accumulator than an upmarket. So the people who are accumulating and have a very long timeframe should actually be happy that the market is going down.

Mindy:
So this is great for people who have a long-term to retirement. What about people who retired yesterday, retired last week, retired last year?

Mark:
Well, that’s why I think when you get to a point, and I did not do this and I got very lucky, so I was 100% equities all the way up until the day I retired. Now, that could have gone very bad if I had a bad sequence starting the day I retired, I got very lucky. I would say in hindsight, it would’ve been much smarter to have had a runway of cash or cash-like investments somewhere in the neighborhood of five years prior, or at least start building that five years prior to retirement. And then with the ultimate goal of having somewhere in the neighborhood of five years of cash in retirement. So that’s why, I mean, I’m overly conservative and have the 10 years, but I think five is certainly sufficient. And then you don’t have to worry. I do not worry about where my paycheck is coming from. If the markets were to go down or sideways for even a decade, it wouldn’t bother me. But if you’re 90% equities or a hundred percent equities, that’s a real problem in retirement. So you do need to think about having a more conservative portfolio to some degree in retirement. So where that retirement paycheck is going to come from, so you don’t have to worry about it.

Mindy:
Did I hear you say you have an 80 20 portfolio?

Mark:
Yeah.

Mindy:
Okay. So 80% equities and 20% bonds.

Mark:
Well, short-term treasuries.

Mindy:
Okay.

Mark:
Which is, well, it’s even less volatile than bonds themselves.

Mindy:
Why do you choose treasuries over bonds?

Mark:
Well, because I like the idea that it is not going to fluctuate. It will fluctuate from the standpoint of the interest rate environment, just what it will pay. But the principle isn’t going to fluctuate. So right now, earning four and a quarter percent, I’m happy with that. I don’t have to worry about any volatility in the fixed fixed income side having a higher equity exposure than many retirees might. They might be more like 60 40. I’m much more comfortable having a higher percentage of equities, but offsetting that with a very kind of, you never want to use the word guaranteed, but principal protected fixed income portfolio of short-term treasuries and money markets.

Mindy:
So again, what I’m hearing you say, mark, is that you made an educated decision. You didn’t hear it from your best girlfriend the other day over ice cream, and you’re like, oh, you know what? That sounds like an interesting idea. I’ll do that. You knew what you were getting into. You understood the investment vehicle.

Mark:
Yeah, I kind of came about it two ways. One is you can come at it from how many years of cash do you want, and then therefore, what is that in a percentage of portfolio? You can also do I have a retirement plan and you can do the whole Monte Carlo and say, what is the success ratio of the plan based on different asset allocations? And then I have been, Warren Buffett has been kind a mentor to me, not personally, but just I’ve been an owner for a Berkshire Hathaway since the late nineties, and he talks about the 90 10 portfolio. I don’t know if you’re familiar with that, but he talks about, for my wife, after my pass away, the recommendation to the trustee is 90% in he says s and p 500, or he has later said, or total stock market and 10% short-term treasuries. So I used that as a baseline as well. And I said, okay, well why the 10% in treasuries? Why the 90% equities and what does that mean? And I said, I get it. And I’ve looked at some research papers that go through that, and actually it’s a very logical approach, but I just said I feel a little bit better just having 80 20 than 90 10, but 90 10 would work as well.

Mindy:
What do you do for healthcare, mark?

Mark:
So I’m on the A CA. I have attempted to get a subsidy, but every year my income has kind of gone through the level where I can get a subsidy for a couple of reasons. One is the year my wife passed away, I ended up doing very large Roth conversions because I was still in the married following joint category the following year. I was considered a surviving spouse. My daughter was a dependent, so I also did very large Roth conversions before I dropped to the single tax bracket. And then I sold my house, which doesn’t help. I had some capital gains there. So this may be the first year I get a subsidy, but I’m not too concerned about it because the healthcare cost really isn’t that significant in my mind.

Mindy:
That is one of the biggest questions that I get is how am I going to provide for healthcare for me and my partner, my family, whatever their makeup is. And I have also been on the A CA and not found it to be a difficult experience to navigate. If you are finding it difficult to navigate, I would absolutely recommend an insurance broker because the site can be a little bit confusing. I did end up going with an insurance broker because I was looking for a specific doctor to be covered by a specific type of plan, and she was able to help me find that in a way that I was not able to do. But yeah, I don’t find the a CA to be all that difficult.

Mark:
Actually thinking back, so when my wife was diagnosed, she ended up getting laid off from her job, which is a whole nother story. I won’t go into that, but she was let go, and we ended up going on Cobra, which was very expensive through her employer in hindsight. And then later switching to the A CA after, I think it was about 12 months or something like that. Even though we could have gone for 18 months, I think it just worked out that we did 12 months. In hindsight, we should have just switched to the A CA right away. It would’ve been actually less money.

Mindy:
Yeah, Cobra, I think there are very specific circumstances that Cobra makes sense, but Cobra’s usually really, really expensive because you’re paying all of the employer subsidized costs as well as all the ones that you had. And it just always feels like it’s two or $3,000 a month. For Cobra.

Mark:
Yeah, it was like 1800 a month. And then when we went on our own, it was like a thousand a month or something.

Mindy:
Mark, what do you do all day when you’re not gallivanting around the world?

Mark:
Good question. Lately I’ve been nesting. I’ve been working on this house, you’ll have to come over and see my landscaping. It’s almost all in.

Mindy:
Ooh, yes, I would love to.

Mark:
So lately it’s been some of that and I get up, I like to still like to read the Wall Street Journal every day and I exercise. So that’s my mornings pretty much. And then I try to always have at least one thing on my calendar that I feel like at the end of the day, I’m going to be glad I felt like I was productive. So I do have this podcast that I do, so that takes up some times in the week, and then there’s a lot of travel still involved. I do still have a little foothold in Crested Butte, so sometimes I’ll go back there. This past weekend I was skiing there. So your time definitely gets filled up even in retirement, so it’s not a hard thing. And then with this community here in Longmont, there’s always something to do. So never a challenge of having something to do every day.

Mindy:
I really am sometimes very surprised when people say, oh, I don’t want to retire. I dunno what I would do all day long. I look at my husband, I look at everybody else in the PHI community locally, and I say none of them had time to have a job. Now they’re constantly doing, they’re constantly active. Longmont is a great city to be retired in. There’s always people that are not working during the day that can go and hang out and do whatever it is that you want to do.

Mark:
Yeah, I would a hundred percent concur with that. And that’s one of the reasons I wanted to move, because in my other town that I lived in Crested Butte, it’s a very expensive town. So people are having to work multiple jobs and no one was ever available. And that’s the benefit of being here now, is everyone’s available, or at least everyone I know is available. So there’s plenty of opportunity to do things with people. And I think what I have found in this retirement period is the money side. We kind of figure out relatively quickly for most of us, but the social side is really where you should be focusing on making sure you’re complete in this kind of retirement period.

Mindy:
Yeah, absolutely. The retiree who retires and then passes away is doing that mostly because they don’t have anything to do. They sit, they’re sedentary, they are not out there having these relationships and doing these things and that, I mean, typically they’re older, but if you don’t know what you want to do when you retire, start making a list. Carl and I spoke recently with Justin Peters who talked about making a bucket list and starting your bucket list. Now make your bucket list, add continually, add things to it, but also start going through your bucket list and checking things off. So the journey is enjoyable as well as once you get to retirement, you’re used to doing things. So now you say goodbye to your job and you do these things full time. Mark, this was so much fun today. I always love talking to you, and thank you so much for joining me. Where can people find Mark’s Money Mind?

Mark:
Yeah, so on any of your podcast players, Mark’s Money Mind usually comes out about once a week, but usually when I’m traveling, sometimes I miss a week or here or there. I’ve been back now. So hopefully back to a regular schedule and or Marks money mind.com is also where you can find me.

Mindy:
Mark, thank you so much for your time today and my viewers. If you like this video, please give it a thumbs up and don’t forget to subscribe to this channel for more inspiring fire videos, just like Marks. This is Mindy Jensen signing off.

 

 

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Have high interest rates and home prices affected your ability to buy cash-flowing real estate deals? If you’re struggling to find properties that pencil out, you don’t want to miss this episode. If there’s anyone who can teach you how to find great deals, even in this housing market, it’s today’s guest. He wrote the book on it!

Welcome back to the Real Estate Rookie podcast! Today, we’re joined by fellow investor, On the Market co-host, and author of Real Estate Deal Maker, Henry Washington. Given today’s difficult market conditions, is Henry pivoting to another investing strategy? Nope! He’s sticking to “boring,” single-family and multifamily properties that he either rents out to tenants or flips for a profit. But he is changing how he analyzes deals, and he’ll show YOU how to do the same in today’s episode!

Stay tuned if you want to know how to buy your first or next rental property in 2025. Henry will show you the four-step approach he uses to find undervalued deals today and how to buy discounted properties from builders looking to move old inventory. But that’s not all. You’ll also learn how to fund these deals using small local banks, retirement accounts, and other people’s money (OPM)!

Ashley:
With today’s challenging market, many investors are wondering if cashflow opportunities are still out there. Our guest today has not only built an impressive portfolio from scratch, but continues to find creative cashflow strategies even in 2025.

Tony:
Now, whether you’re working a W2 job or investing full-time, our conversation today will give you practical insights on how to adapt and thrive in the current real estate landscape.

Ashley:
This is the Real Estate Rookie podcast, and I am Ashley Kehr.

Tony:
And I’m Tony j Robinson. And to give me a big warm welcome to none other than Henry Washington. Henry, what’s up brother?

Henry:
What’s up guys? How are you?

Ashley:
Good. Thanks so much for coming on today. You’ve built an impressive real estate portfolio when you actually started this, when you had a full-time job in the tech industry. So can you walk us through your journey from employee to investor?

Henry:
Yeah, yeah. I was designing software and doing data analytics, and one thing I realized was I made good money, but I was bad with money and I was okay being bad with money, but I got married and my wife was not okay with me being bad with money. And so I had to figure out a way my solve at the time was figure out a way to make more money and then I can still be bad with money, but I’ll have more. So that’s what got me started looking into real estate. And then as I started to research about how to get going, investing in real estate, a lot of the information I was reading was telling me I had to have some money saved up and I started to save 10% of our income. And so the journey of real estate started to help me learn that I needed to be better with money.
And that’s, so that was what led me down the path to wanting to do it. The next thing I did was I just surrounded myself with other investors. I didn’t know how to do it. And the industry is like the space is crowded with people who want to teach you how to do this. Now, it wasn’t like that seven, eight years ago. There was some people out there for sure, but online education wasn’t as widely accepted. And so I just wanted to learn from people who were doing it in my backyard. So I started going to every real estate meetup I could find, and strategically I would place myself in front and center of the room so that I could meet all the people who were confident in actively doing deals so that I could just be annoying enough that they would want to help me.
So I would just really and say that differently. I would just try to sit by people who were doing deals and figure out ways I could try to help them and if I figured if I could help them with something that they would just naturally want to help me. So that was one of the ways that I got into the space and learned. And the next thing I did was I’m just a really big believer in you get what you give in this world. If you want something, you got to give it. And so I just started telling everybody I was an investor because if I didn’t believe I was going to be one, who else was going to believe me? So all of those things kind of help position me to be ready for my first deal when it came.

Tony:
And as we think about that first deal, Henry, because you said that you weren’t great with money when you started, you started saving money up. So how did you actually fund that first deal?

Henry:
Well, I didn’t fund it. The way we funded the first deal was, I mean, frankly, we used my wife’s 401k, but we were married, so it’s like our 401k.

Ashley:
Are you in a 50 50 state where if you would’ve gotten divorced, you would’ve got half of it anyways or

Henry:
Yeah, yeah, yeah, it would’ve been fine. So yeah, no, we borrowed against my wife’s 401k, so which turned out to be really good at the time because it was 2017, so we bought a property that cash flowed, we were able to raise it to market rents, and we were getting enough cashflow that it even covered us paying back the payments for the 401k loan. So essentially our tenants were paying off our loan. We used to borrow the money.

Ashley:
Henry, can you kind of describe that process of borrowing from your 401k? What is that actually and how do you do it?

Henry:
Yeah, so 4 0 1 ks, right, retirement savings that you have through an employer, typically there’s two ways to get access to that. Well, three ways to get access to that money. One is retire at the appropriate age and then get access to it. Two is you can cash it out before retirement age and that involves you paying lots of penalties and fees and taxes, so it’s very expensive to cash it out. You lose a lot of about half your money is going to go to penalties and fees. And then the third way is you can borrow against it. So since it is your money, most 401k plans will allow you to borrow your own money. So you can borrow percentage of it, I believe it’s like you can borrow up to 75% or something like that. Don’t quote me on that, but you can’t borrow all of it. And then you have to start paying that money back with interest. So you get a payment monthly payment that you’re paying that money back with interest, but it’s your money. So that interest goes back into your 401k account and typically your employer will deduct the payments from your paycheck, so it’ll come out of the money that you’re making from the job.
And so we elected to do that plan. It gave us access to the cash fairly quickly, and because we knew we were buying a deal that was going to yield a better return than the interest it was costing us to borrow the money. And so essentially it was like arbitrage.

Tony:
I love the idea of leveraging the 4 0 1 KI leveraged, and Mindy and I have talked about this from the money podcast about just leveraging your stock portfolio to do that as well. You’ve got enough, you can do it that way also, but do you feel that that’s a strategy that maybe still makes sense today? Say someone does have a good amount of money in their 401k as we go into 2025 and beyond, is the 401k loan still viable?

Ashley:
Well, not after the stock market just tanked.

Henry:
Well, you just won’t have as much to borrow. You just won’t have as much to borrow.

Tony:
That actually brings a really good point because I know for the stock loans that I had, you have to keep a certain margin between the balance of the loan and the value of your portfolio. And if the stock market ever fell to a certain point, you would actually call a portion of your loan due to make sure that you stay within that threshold. Do you know if it’s the same with the 401k loan if the stock market tanks?

Henry:
I do not know if it’s the same with the 401k loan, but it wouldn’t surprise me if that’s the case because like I said, they’re only giving you access to a portion of the money. And so that portion may shift depending on how well the stocks are not doing. But I am not an expert on that. Is it a viable strategy? Yeah, it’s a viable strategy. I think viable and achievable are two different things. And so what I would caution people is the only reason this worked for me is because I bought a really good deal. I bought a house that was valued at $175,000 for $115,000 or 116, something like that. So I knew that if worst case scenario happened, I could literally do nothing, stick that house back on the market as it sat and sell it for one 40 through 1 55. I could sell it under retail value in its current condition and make a profit.
I had a viable exit strategy if something weren’t to work out. If I’d have got into this and realized I didn’t want to be a landlord, there’s a million things that can go wrong. And so where I think this strategy is a problem for people is if you go and buy something that is not a good deal and you end up over leveraged because if that asset is not producing enough income for you to make your payments back, you are now having to pay to feed your property and then having to still make payments on your 401k loan because you still have to pay that money back whether you go buy a house with it or not. And so if you take that money, go buy a bad deal, and now you’re having to feed your deal, you still got to make that payment. So the goal is can you do it? Yes, absolutely. You can do it, Tony, but you got to be sure you’re buying a good deal. You need a deal that has at least two exits so that if you’re playing A doesn’t work, you can execute on the plan B and save yourself.

Tony:
Amber, you actually wrote the book or one of the books on finding and funding deals for BiggerPockets. So for any of our rookies, you want to check that out, we’ll link to it in the description of this video. But Henry, you are an expert real estate investor and we definitely want to get your insights on finding cash flowing deals today like in 2025. It is a little bit of a challenging market and we want to know whether or not investors should maybe be pivoting. So we want to get your insights on that, but we’ll do that right after afterward from today’s show sponsors. All right, let’s get back to our show with Henry. So Henry going into 2025, what is your strategy when it comes to investing in real estate and have you had to pivot at all due to the current marketing conditions like interest rate and rising property prices

Henry:
Overall strategy? I have not had to pivot. So I tell people I’m a boring real estate investor. I don’t do any of the crazy cool fun stuff. People want to buy apartment buildings on creative finance or they want, I buy single families and small, I fix ’em up. I either rent ’em out or I sell ’em. That’s it. And I buy it traditionally with either a small local bank or some sort of hard money or private money, and then I’ll refinance them into 30 year fixed DSCR loans. This is real estate investing 1 0 1 I’m doing, I don’t got no fancy boutique hotels like Tony, I’m just boring. I’m boring, boring real estate, but that’s cool. That’s fine for me, my lane. And so has that changed or am I pivoting? No, I’m not pivoting in the overall strategy. What is changing is the underwriting and your underwriting always has to change.
The market is ever shifting, right? Markets are cyclical. And so we as investors have to figure out what it is in our underwriting that needs to change to suit the new market. So yes, interest rates are air quotes, higher America is seen higher interest rates before, so I don’t think they’re terrible. A lot of people think they are. We were just used to between two and 5%, and so now we see a six or between a six and an eight and people are freaking out. I don’t think it’s that bad. We do have this whirlwind of factors that we’ve never seen before in real estate. We’ve never had a time when we had all time high interest rates in our lifetime, all time high prices in our lifetime. And also we’re starting to get all time high taxes and insurance. It’s all rising. And so that group of factors hasn’t all really hit us in the face at the same time.
And so the challenge that happens is, yeah, I can still buy properties at cashflow. I’m just going to have to buy them with more margin. I’m going to have to buy them for a lower price point. And so the problem isn’t can I find deals that make sense? I can find deals that make sense. The problem is I’ve got to make a whole lot more offers to get to the same amount of deals that I’m used to doing because now I’m offering less than I typically would, and not every investor is their underwriting. So I’m competing with people who are probably willing to pay more, which means I get my offers accepted less frequently, so the volume has gone up. So to answer, the long-winded answer to your question is I haven’t changed much. I underwrite a whole lot more conservatively. I’m planning on buying it cheap enough that the higher interest rates don’t bother me and the higher expenses don’t bother me, and I can hold that property longer if I’m going to flip it because things aren’t just flying off the shelf in the first 30 days anymore.

Ashley:
So Henry, when you’re purchasing a deal, are you right away saying, this is going to be a rental, this is going to be a flip, or are you underwriting for both options?

Henry:
I underwrite for both. I typically underwrite everything as a flip because I have the biggest margins as a flip, and so I know if it works as a flip, most of the time in my market it’ll work as a rental. That’s not going to be the same thing in every market. Like in Seattle, you can’t underwrite it as a flip and hope it works as a rental. The margins are too different. But here, median home price is like 300 and something thousand for starter homes are going for two 50. So retail value. So if I can underwrite something as a flip nine times out of 10, I can make it a rental if I need to. So I underwrite everything, flip.

Ashley:
What are your expected margins? Just to kind of give an example of you, Henry, a successful investor right now, what is the profit you are looking to make on a flip to make it worthwhile and what is the cashflow you’re looking for on a rental property too?

Henry:
Okay, I’m going to answer this question a couple of ways. So I’ll give you an example of a deal I have under contract right now that we’re closing on Friday, so you can get some real numbers and then I’ll tell you typically how I want to do for a flip, and then we’ll talk about the rentals. So the deal I have under contract right now, I’ve got a house under contract. I’m paying 90,000 for it, it’s going to need 40 to 50 in a renovation, and we’ll sell that one for two 50.

Ashley:
Wow.

Henry:
So decent numbers.
What I typically look for when I’m going to flip a house in a profit is I want to make what I put into it, I want my risk and reward to be fairly equal. So if I’m going to do a deal where I got to spend a hundred thousand dollars on a renovation, I want to make somewhere between 80 and 110, 120 on the sale. If I do a deal where I’m going to put 30 in it, I’m okay making 30 on the deal, right? Typically that’s going to be a cosmetic in and out super fast. So I’m okay making around 30, but that’s kind of my baseline when I’m underwriting a deal. Now, obviously those margins, I’m okay shifting them depending on where it is. If it’s a property in a great area and I know it’s going to sell super fast and I’m super confident in it, I may be willing to make less profit because I’m confident and it’s like a basic layout. We know the layout’s going to sell, but if it’s a property in a tough part of town or it’s got a weird layout, I’m going to adjust that to where I want my profit to be higher for me, taking on more risk.

Ashley:
Henry, I really like how you answered that question because a lot of people would’ve answered that I look for 50 to 80,000 per deal without giving any context as to how much capital you’re putting into the deal. You actually set it in a way that made it comparable apples to apples so someone could understand how much of your own risk, how much capital you’re putting into the deal for it to actually be worth it instead of just saying, oh, on average I’m looking to make a hundred thousand dollars, and there could be somebody who’s dumping 200,000 into a property and they’re making a hundred. Or it could be somebody who’s, oh, I don’t put any money in. I get 100% financing and I’m making a hundred thousand. So I really like how you phrased that for us there. Now what about the rental side?

Henry:
On the rental side? So we have to caveat, I know this is rookie podcast, but I am not a rookie, so what I’m willing to make on a rental is a whole lot different now than it was when I was a rookie. So I’ll caveat that and then I’ll talk about what I think a rookie should look for. What I am looking for is if I can find a house or small multifamily in an appreciating market or neighborhood that I’m walking into equity, meaning let’s say ARV on that property is $350,000 and I’m buying it for 175, right? 200. I’m walking into equity on day one, and that property is net positive cashflow, conservatively underwritten, meaning everybody is like, oh, the property is going to cashflow. I’m paying 200,000. I’m going to get 2200 in rent, and it’s got positive cashflow. No, right? I’m talking if I am conservatively underwriting, meaning my rents are going to cover my mortgage principal and interest, my taxes, my insurance, my vacancy, because I’m going to always account for at least 5% vacancy plus 10% CapEx and 5%

Ashley:
Repairs and maintenance,

Henry:
Yes, repairs and maintenance. If I got 30% on the expenses conservatively and it’s net positive cashflow after that, then to me that’s a buy all day long. I don’t care if that net cashflow is $10 or $200 or $300 per door because at this point, the value of walking into equity, the ability to have a property that I’m going to be able to do a cost segregation and offset my taxes because I do flip houses, and that’s heavy short-term capital gains that I need to offset. The other three ways that real estate pays me is far more important to me than the two, three, $400 of monthly cashflow that it produces every month. That is the least important part of how that real estate pays me right now. As long as that property is in an appreciating neighborhood is in good shape or will be in good shape after I renovate, because like I said, the cashflow is the least important. Now, if you are brand new, that’s not something you can do. You’re not there yet. I have a portfolio of other cashflowing assets that are doing great, but you should underwrite your deals for significant cashflow. If that property was going to make two, $300 a door, then I’d say that person should probably buy that property. If that property was going to break even then that rookie should not buy that property,

Ashley:
Especially if you don’t have hefty reserves in place and depending what your reasoning for investing in real estate is too. So if you want to accumulate units to quit your day job, you’re going to have to buy a lot of units to make up that 5,000, 10,000 whenever you’re making a month if you’re only getting that little cashflow.

Henry:
I have two brand new houses, new construction houses that I bought in 2024. Those houses, they retail for 2 25 each. I paid one 70 for each of them. They’re brand new, so no maintenance is needed. I walked into equity on day one. They rent for probably, it just depends on the tenant at the time, but I’d probably say I either break even or I have to feed that thing 50 to a hundred dollars a month considering the hold I have on the expenses. I would buy that again all day long because technically my maintenance is pushed out. I still budget for it as if I’m paying it every month, but technically it’s pushed out probably five to 10 years brand new construction. But I was able to do a cost segregation study. Those properties probably saved me $25,000 each of my taxes, plus I walked into 50 grand of equity on each one, which I can now go get a line of credit on and use it to buy more property. Plus the tenants are paying down the debt on that property. And so that’s an example of a deal that maybe doesn’t net me the ideal cashflow every month, but still makes sense for me to buy at this stage in my investing career.

Ashley:
So let me ask you, because we’ve been hearing about this more and more purchasing new development for rental properties, did you get any incentives from the builder upfront, like a lower interest rate or great lending terms or seller credits? We’ve had a couple of guests on that talked about when you go new development that there’s motivation from the builders to give you these incentives.

Henry:
Yeah, no, I didn’t really get anything. We did get some seller credits, but that was just, we were legally finagling the money so that I didn’t have to bring money to closing. But this situation was this builder so said differently. I guess the answer is yes, because the builder was selling me the properties for one 70 even though they were worth 2 20, 2 25 because he had much bigger developments in the works that were sucking up all of his cash. And because interest rates were rising, he was having a hard time getting those done. And so he was dumping knees to grab some of that cash to go take care of what he needed to take care of in his other developments. And so I was able to walk into a really good deal because the developer had bigger fish to fry because of some of the things that you talked about.
And I think it’s a great point because yeah, if you think about right now and in our current political climate, tariffs are going to drive the cost of materials up, meaning it’s going to be more expensive for developers to build new homes and make a profit. And if deportation causes problems with labor and they’re having to take longer to fix or to finish these properties, they may be willing to take some concessions to get some of these properties sold or pre-sold and off the books. And so it wouldn’t hurt to go talking to a developer and seeing if you could negotiate yourself a deal.

Ashley:
Okay, I am going to do it.

Tony:
I think that raises my next question, Henry, is was this opportunity just listed on Zillow and it was like, Hey, here are two new developments for sale. I guess the bigger question is, where are you going today to find these good deals that you’re adding to your portfolio?

Henry:
That particular deal came through a local real estate agent. The builder had them listed at retail, but I had basically told the agent, Hey, this is what I would take for ’em if you know anybody that can get it done quick. And so he just reached out to me. But how I’m finding my deals right now is still the same way I was finding my deals before. We’re going direct to seller either via direct mail or my website. And what I found most recently in the past probably 90 days, my website has been generating more leads than before than it has on average before. And so people are looking to get out of properties right now if that’s what that’s telling me. And so direct to seller I think is still a great way to get ahold of some of these properties for the simple fact that if you’re going to go on the market or if you’re going to go through a wholesaler and buy off market, you’ve got a middleman to pay. And remember we just talked about you need to get these things and underwrite at lower prices to protect yourself. And when you’re paying a middleman, you’re taking away some of that money that needs to go in your pocket for you to be buying a safe investment. So going direct to seller is going to save you some money and hopefully allow you to find those deals.

Tony:
What strategies are you seeing to really drive traffic back to that website? Is it just word of mouth? Are you doing PPC? What strategies are you leveraging to actually get people onto that website and filling out that form?

Henry:
Yeah, we do pay-per-click for sure. And so we’ve got a company that builds the ads and manages the ad campaigns for us, not cheap. It is not cheap to do this by the folks. This is not how I would start unless you have a healthy budget for your marketing.

Tony:
And that’s what I was going to ask because you could go the route of a wholesaler and obviously they’re going to make their assignment fees and whatever deal they send to you. And there are some investors who were like, man, I hate paying assignment fees because it’s like, man, I could have got that deal myself, but I think people, but you didn’t understand exactly. They don’t understand the work that goes into actually doing that. So if you were starting today, Henry from scratch, what do you feel would be your most effective way to get an off market deal?

Henry:
Okay, if I was starting today from scratch and I needed to find a deal, the first thing I would be doing is A making sure everybody that could hear me or see me or see anything that I do know that I was buying, where I was buying and what I was buying. So I’d be putting a post on Facebook every week. I’d probably put a post that says, Hey, I’m Henry. I’m looking to buy houses in X, Y, Z markets. I’ll pay you a $500 finder’s fee if I buy something you send me. That’s going to help you generate your leads for your business, not just leads for deals, but whenever I do this, contractors are reaching out to me saying, Hey, I don’t have a house you can buy, but if you get something, I’d like to bid it. It’ll help you get contacts for private money.
Maybe somebody you like know or trust is going to see that you’re doing this and say, Hey, well, I got some money I’d like to put to work. Let me know what your next deal looks like, where I get leads for everything in my business just by putting those posts out there. So I would schedule a post once a week on social media, on Facebook and LinkedIn specifically. Those are typically where you’re going to get the most traction with this kind of a post. And then I would start collecting names and email addresses of contacts for contractors, lenders, and all the leads that come through. That’s step one. Step two is I would go and I would go to every real estate meetup that I could, and I’d specifically be looking for new wholesalers that seem hungry, not the person that’s like, yeah, I think I want to get into wholesaling.
I heard you can make some quick, no, you’re looking for the person that’s new, but sounds very serious about it because when you’re a new wholesaler, it’s hard. You’re competing against other people. But what wholesalers have is a budget for marketing because if you’ve got a wholesaler that’s got a budget for marketing and they’re going to market for deals and they know they’re going to have to assign those deals, well, I would be trying to figure out, all right, well, how do I go partner with this person to have him send me or him or her send me those leads when they get them so I can take them down and maybe I can talk them into partnering with me on them, or maybe I can talk them into giving me some exclusivity on those leads, getting first look at those leads. So I’d find out all those new wholesalers, if you’re a new wholesaler, you’re trying to make money, and if you can find somebody who is going to be a buyer for you out of the gate to help you offload those first few deals, that’s super helpful and powerful for them.
So I’d be connecting with as many new wholesalers as I could and taking ’em to lunch and just trying to build that relationship so that when they get those leads, you can get a look at those leads and try to take down a deal that way. And the next thing I would be doing is pulling a list of every single property that’s within your buy box. So if you know you want to buy single family homes, less than four bedrooms, less than 2000 square feet in certain parts of town, whatever your buy box is, your criteria is I would narrow down that criteria I’d get on realtor.com and Zillow and build that list criteria. And then I’d be looking for anything that’s in that list criteria that’s been on the market for 30 days over the average days on market in your market. So you need to do some research.
If the average days on market and your market is 60 days, you need to be looking at anything that’s 90 days or older. If the average days on marketing your market is 30 days, you need to be looking at anything that’s 60 days or older. And I would literally make an offer on every single house that comes up in that list, search at 50% of what they’re listed at. I wouldn’t walk them, I wouldn’t do anything other than say, what’s 50% of RV or what’s 50% of their list price? I’m making an offer at that because if you get somebody that responds and says, a counter offer, well now you can go look at that property and you can make an actual real offer. But what you’re doing in that space is you’re playing the numbers. You’re hoping that somebody because of this economic climate needs to sell and is struggling to because it’s been listed for too long and maybe they’re willing to play ball. And so that’s just like a shotgun approach you can take to make offers on several deals on the MLS right now. So that’s three things I would do if I was brand new that don’t cost me anything but time.

Tony:
I’m so glad I asked that question because those are all just fantastic strategies, and especially on the last one of just offering whether it’s 50% in Henry’s market or 70% in Tony’s market, or 65% in Ashley’s market, just make the offer because I still think that we’re in a really kind of interesting point in the real estate cycle where I think sellers are finally starting to understand they don’t have the same leverage they had before. And it really does feel like it’s shifted towards a buyer’s market, and you can offer significantly below asking price and actually get a response. Maybe they counter and maybe you end up getting the deal. So I think once interest rates fall to a certain point, whatever that point is, we don’t know is it 6%? It’s at five point a half percent, but they’re going to fall once they get to a certain point that’s going to unlock a lot of buyer demand.
And when that happens, it’s also going to unlock a lot of competition for investors like us. So if you can get in now where rates have come down, right? They’re not at like 8%, right? We’re like in the sixes right now and the high sixes, but if we can act while there’s less buyers, it’ll be easier for us to have those kinds of conversations with sellers. So dude, I love that advice, man. Hey, we have to take our final ad break, but we’ll be right back after this. Now while we’re gone, make sure you are subscribed to the Real Estate Rookie YouTube channel. If you haven’t done that yet, head over to youtube.com/at realestate rookie. We’ll be right back afterward from Marshall Sponsors,

Ashley:
Welcome back from our short break. So Henry, last week, Tony and I put up an Instagram story on at BiggerPockets rookie. So if you’re not following us there, go check it out. And we asked people if they had any questions specifically for you. So we received a lot of questions, but there was one that continuously people were asking multiple times, and this question was how do you get your significant other onboard? And at the beginning of the episode, you kind of teed this up perfectly. You mentioned that you used your wife’s 401k, so I’m assuming she was on board with your idea from the start, but can you maybe give some advice to our rookie listeners?

Henry:
Absolutely. How do you get your spouse on board? So this is really advice for anyone with anything. We have to talk to people in the what’s in it for them, because that’s how people listen. They listen to hear Why is this or how is this important to me? And so I teach people this all the time. If you’re a new investor and you’re dealing with a real estate agent and you want that agent to work with you or work for you, or maybe submit an offer that seems like they might not want to submit whatever it is that you need that agent to do, what do agents want? Agents want their commission and they want to get it hopefully as fast as possible. So speak to them in the what’s in it for them. Frame your conversation around how your offer or whatever it is, is going to help them get to their commission and get to their commission faster.
If you’re working with a wholesaler, same thing. Frame your conversation around what you’re doing or what you’re asking or what you’re providing is going to help them get to their assignment fee faster. Speak to people in the what’s in it for them. So when it comes to your spouse, nobody knows your spouse. Hopefully nobody knows your spouse better than you do. So speak to your spouse and the what’s in it for them. Some people’s spouses are going to be very focused on the financial security aspect. So how can you frame the conversation around why you’re doing this to show them how it’s going to bring more financial security to them? Some people’s spouses, like my spouse, she already understood real estate investing. She had uncles and grandparents that had been in the game before.
What’s in it for my spouse at the time? Were a couple of things. One was we were trying to get to a home that we could be comfortable in. We had bought a starter home and we knew we needed to upgrade a couple of times before we were going to get to the home where we could spend a significant amount of our life in it. And so I said, the way I spoke to the What’s in it for her was I said, okay, look, I know we’re trying to get from here to our essential air quotes, dream Home. I said, there’s two ways we can get there. We can get there by continuing to work hard, get raises and promotions until we can upgrade out of this house into our next house and then continue to work hard and get raises and promotions until we can get there.
And I estimate it’s probably going to take us somewhere between five to seven years on that path for us to get to be able to afford the kind of home that we’re looking for. I said, or we can go this real estate investment route and we can try to house hack where we can buy a property, live in one of the units, rent the other unit out, and then that savings and what we would be paying in rent or a mortgage. We were paying about 1200 bucks a month in a mortgage, and we were able to get down to where we were only having to come out of pocket about $200 a month by house hacking. And so we were taking that additional thousand dollars a month that we were used to paying, and instead of just spending it, we put it in a savings account for 12 months.
So 12 months is $12,000. You live there two years as $24,000. So we live there two years, saved up 24 grand. We ended up renting out that property that we were living in, and we used that 24 grand as part of our down payment for the house that we could afford to live in. And then as we rented out that other unit, it was able to then start producing cashflow, which allowed us to pay part of our mortgage at our new property. And so essentially what I pitched to my wife was, I can get us here in seven years on raises and promotions, or I can get us here in two years and have a property that pays for a portion of our mortgage once we get there and we won’t have to save for a down payment. She said, well, that sounds like the plan we should do.
So speaking in the what’s in it for her helped her to get more on board. So the first thing I’d say is, what’s in it for them, your spouse? And then paint the picture of what you’re doing and how it helps meet the needs of the person that you’re talking to. And if you can’t find anything that meets the needs of the person that you’re talking to, maybe this isn’t something you should be doing. Maybe you need to be doing something else. And the other thing is, oftentimes people, spouses, they feel like their spouse doesn’t trust them on this, and maybe that is or isn’t true, but I would argue that if they don’t trust you and you’re in a normal loving relationship, there’s probably something that you’ve done that’s brought on that feelings of doubt. And so I would take a long hard look at you and make sure that when you say something to your spouse, when you make a promise to your spouse outside of you being a real estate investor, that you follow up on that, don’t say, I’m going to go to the gym five times a week and then give up on it every second.
Don’t say, I’m going to do something for the kids and then not do it. Don’t say, I am going to take on this responsibility, take out the trash cleanup and then not follow up on it. Sometimes it’s the little things that we do that lead to the doubt creeping in over time. And then when it’s time for us to go take action on some of these bid things, we’ve kind of crushed that trust over time, and sometimes we need to rebuild that.

Ashley:
Yeah, that’s such a great point as to figuring out if there is a doubt, what that doubt is, and kind of trying to rework that so it’s solving that problem as to why they have those doubts. So we had a ton of other questions, but we’re really short on time. But there was one specific question that I actually thought, this is actually interesting. And it was somebody from James Danner’s team that submitted this question, and the question was, Henry looks great and purple curious as to why he chose purple as his significant color.

Henry:
We would’ve never bought that first deal without her letting us borrow that money from the 401k. I would’ve never started investing in real estate had she not picked me off the ground and kicked me in my butt and told me to go do what I said I was going to do. A story I don’t tell very frequently is not long before I actually was going to get started. I had run into somebody who I looked up to and was telling him about all this. He was an investor as well, and he basically said, Hey, man, you don’t have any money. You don’t need to be in this business without some money, so you need to not do this and go figure out how you can make some real money and then get into real estate investing. And I kind of took that to heart and I was discouraged and I was like, no, he’s probably right. And so she kind of was like, no, you said you’re going to do this. Go do it. You made a plan. Go execute on your plan. So without her, I wouldn’t be here at all. So when it was time to pick a logo and a business, the only thing I could think about was something that relates to her. Well,

Tony:
That is a damn good story.

Ashley:
It was Amanda that asked that question, and I think she’s going to love the answer even more than she expected to after hearing that. Well, Henry, thank you so much for joining us today on The Real Estate Rookie Podcast. Where can people find out more information about you?

Henry:
Yep. Best place to reach me is at Henry Washington on Instagram at the Henry Washington on Instagram, or you can check me [email protected].

Ashley:
I’m Ashley, and he’s Tony. Thank you so much for joining us today. We’ll be back with another episode of Real Estate Brickie.

 

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Over the past month, I’ve decided to make a big move that will greatly affect my real estate portfolio. This was a decision I made after seeing severe weakness in the market and realizing it was time to put my money where my mouth is. For months, I’ve been talking about the “upside” era strategy of real estate investing—the theory that now is a great time to buy as real estate is primed to experience significant upsides in the future, making investors rich. I’m doubling down on this due to market volatility—and in today’s episode, I’m sharing exactly where I’m putting my money.

I made a move that most investors would caution against, but I ran the numbers (many times) and am confident in what I decided to do. Part of my plan is to move money out of riskier assets with potentially lower returns and into assets that I’m confident will generate stronger returns. This is something EVERYONE (yes, even you) should be thinking about NOW to build long-term wealth in the future.

I’ve got two places I’m planning on putting the money from making this move. One will allow me to capitalize on future real estate deals, the other will guarantee me a minimum of a 6.5% return—and that’s just the floor of the return. I’m putting the “upside” strategy into play now, and if you’re feeling the same way about the economy as I am, you should, too!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Dave:
I’m making a big change to my investing portfolio. I’m selling stocks and I’m doubling down on investing in real estate, but probably not in the way you think. A few months ago, at the beginning of January, I explained my upside era framework for investing in 2025. It’s all about finding deals that work pretty well today, but have the potential to really grow and dump rocket fuel on your portfolio over the next couple of years. And today I’m going to share my upside era Q2 update, including some moves that I’m making myself based on everything that’s happening in the economy right now. Because as you’ve probably heard, there’s a ton of volatility across stocks, crypto, and almost every other asset class. But personally, I see opportunity to take advantage of these conditions using real estate investing. And today I’ll explain how I’m personally doing that right now.
Hey everyone, it’s Dave Meyer, head of Real Estate Investing here at BiggerPockets. Welcome to today’s show. If you’ve been listening so far this year, you’ve probably heard me talk a lot about what I believe is a sort of new reality in real estate investing, which I am calling the Upside era. And if you want to get the full framework that I am using to describe real estate right now and to describe my own deal decision making, you could check out Show 10 66. It aired on January 6th, 2025, and it goes into deep detail about everything I’m thinking about. So if you missed that episode, I just want to keep listening to this one right now. Here’s the gist of the framework and how I’m thinking about things from 2013 to 2022 is what I call the Goldilocks era. It was basically this perfect conglomeration of conditions that made real estate investing really attractive, relatively easy and super successful.
These are things like prices going down during the great recession. While rents kept growing, we had low interest rates and by 2013, lending activity had started to resume. So it was pretty easy to get a loan and buy properties at a relatively good price, and that continued for like 10 years and a lot of people got really wealthy and it was great for the entire real estate investing industry. Then as we all know, 2022 hit interest rates started to skyrocket and we have experienced what I would consider a correction or a recession in real estate. And I want to be clear that I’m not saying that prices have gone down or crashed. I think there’s some confusion when I say sometimes that there’s sort of a recession in real estate because the word recession and what I am describing right now really describes the overall economic activity of our industry and that indisputably has gone down from 2021 to 2024, we saw nearly a 50% drop in the number of homes that are bought and sold.
So just by that measure alone, we have been in a recession. We’ve also seen largely prices have slowed down a lot, they’re still growing, but they’ve slowed down a lot. Rent growth has slowed down below long-term averages and in a lot of areas and a lot of asset classes they have actually declined. And so it’s been a really tough couple of years in the entire real estate industry in 20 23, 20 24, and obviously the second half of 2022 as well. But now as we turn the page and go into 2025, I think we are entering a totally new era for real estate investing and it’s what I call the upside era. And I want to be clear, and I think this is really important, that this new upside era has a lot of great opportunities and there’s going to be great ways for real estate investors, large, small, inexperienced, super experienced to profit and benefit from this new era, but it is going to be different from previous era.
It’s not going to be like it was from 2013 to 2022 when everything was just super obvious and kind of easy. Instead, you’re going to have to be a little bit more creative and I think look a little bit further into the future to understand how to generate the best returns. Alright, so that is my overview of the Upside era and as I mentioned at the top of the show, what we’re going to go into today is some moves that I’ve personally made in my own portfolio to take advantage of this new era and the opportunities that are going to be present and profitable going forward. So before I explain though what I’ve actually done in the last couple of weeks, I want to sort of give you an insight into my strategy and this framework that I’ve been using for deal selection. So my personal strategy in the upside era is to find deals that make sense today.
I don’t want to have anything that’s losing money. I want them to be able to break even within the first year of ownership. And I know that break even doesn’t sound like the most sexy thing, but let me just explain to you why I think about this way. First and foremost, I am not talking about that social media break even where people just take their rent income, subtract their mortgage payment and say that’s cashflow. That’s not it. Real breakeven, you have to be talking about CapEx, maintenance turnover, cost vacancies. So I’m saying that you break even and still generate actual positive cashflow after properly accounting for every expense and maintaining a cash reserve. And if you are able to do that, even though it doesn’t sound as sexy as what a lot of people say their deals are, I still think this is actually better than a stock market return because let’s just say breakeven, you’re getting a 1% cash on cash return.
Five years ago, no one would buy a 1% cash on cash return deal, but in this upside era, I’ll tell you why I would at least consider it. I’m not saying I would buy anything that breaks even. Lemme just give you an example. If you were to generate a 1% cash on cash return, that’s a bit of a return, great. But then you probably get two to 3% return just from amortization that’s paying off your loan. Then if you get appreciation even of 2% with leverage, that can be another three or 4% upside and return on your investment. And then tax benefits are usually another 1% return as well. So when you put all those things together, you’re talking about a seven to 10% total return across your entire investment. And that’s not cashflow. I wanted to make that clear. That is a combination of building equity and cashflow and tax benefits, but when you look at that return profile, I think it’s at least as good or possibly better than what you get in the stock market because if you look historically, the stock market returns somewhere between eight and 10% annualized return.
So we were talking about just a break even real estate deal doing as well as the average stock market year. And this is what you have to be comparing your deals to because yeah, this might not be as good as it was in 2015, this perfect Goldilocks golden era of real estate, but as a real estate investor, you need to be thinking about resource allocation and where you are putting your money. And frankly, none of us can put our money into a 2015 real estate deal. You could either put your money in a savings account, you could put it into bonds, you could put it into crypto, you can put it in the stock market or you can put it into private real estate. And so I encourage you, whether you make the same decisions as I do or not, those are all subjective, but I really encourage you to think about your investing decisions this way.
Where are you going to put your money today to best improve your financial future? Do not be comparing today’s real estate deals to historic deals that may never be coming back. So that is the first part of the framework. So don’t get me wrong, I’m not saying just go out and buy any sort of break even deal that is just the first criteria for deals that I’m looking to buy. It has to at least break even because that sets my floor the minimum for my investment is probably doing about as well as the stock market give or take a couple of points. And it also obviously depends on how the stock market performs that year. But then the second part of the framework is really the important, and I think the exciting part is where you need to identify two or three, what I call upsides per deal that could take these average breakeven deals from solid and on par with the stock market to excellent and something that is going to outperform the stock market well into the future.
Because yes, I do want my deal to do as well as the stock market in year one, but let’s be honest, real estate investing is more work. It’s more stress than owning stock and buying an index fund. And so I need parts of my deal to offer upside far and away above what I am earning in an index fund. And that’s why I need to look for these two or three upsides. And just as a reminder, some of these upsides are basically ways that I can take that seven to 10% return and turn it from something that’s easily a 12 to 15% return. And these are things like investing in the path of progress, looking for zoning upside where it can add a unit, add a bedroom, add an A DU. This is things like finding places where there are supply constraints and rents are likely to go up.
These are all different upsides. And when you look at the framework altogether, if you can find a deal that is breakeven and then you have two, three, maybe even four of these sort of little bets that you are placing on your property, if one or two of those bets come true, then you’re going to take this from an average real estate deal to a great real estate deal over the course of several years. And although this might sound a bit different than how other people invest, this is kind of how it’s always worked, right? You are always trying to find deals that are going to grow and improve over time. I just think it’s particularly important right now in this upside era to set your expectations appropriately for what deals are going to look like when you buy them and then calculate how the return is going to grow over time and focus on that because real estate investing frankly just is a long-term game and that’s how you really need to be thinking about it in today’s day and age. Alright, so that is the upside error and the recap of the framework that I am personally using. And we do have to take a quick break, but when we come back, I’m going to share with you the moves that I personally made in Q1 to set myself up for even more upside in Q2 and beyond. We’ll be right back.
Welcome back to the BiggerPockets podcast. We’re here today talking about the upside era and before the break I sort of did a recap of the upside era and my framework for buying deals here in 2025. Now I want to provide you just with a personal update and how I’ve been thinking about my own portfolio, the moves that I made back in QQ one and the moves that I am intending to make and how I’ve set myself up for growth through the rest of 2025. So Q1, I’ve been working on one bigger deal. I am doing a live and flip, which I’m super excited about, but I’m not going to get too much into that today. I’ve made some offers on a couple of rental properties, but I haven’t been able to pull the trigger on any of that yet. But I did make a big move in Q1 that I think is going to really set me up for success for the rest of 2025.
And I want to share it with you because I think it explains several of the different ways that you could earn returns in the upside era and how I’m thinking about positioning myself for the long term. And I think some of the ideas and concepts that I use to make this decision and to make this move could helpful to you. So let’s talk about what I did. And first I just want to say that I want to share this with you in the spirit of transparency, but this isn’t personal advice on what you should do. You got to think about it, your own personal situation, your own risk tolerance, your own asset allocation. But with all those caveats, I said what I did was sell about 25% of my equities portfolio basically meaning my stock portfolio. Now, I did not sell any of my tax advantaged accounts.
I didn’t sell anything in an IRA or 401k. Those are accounts that I intend to keep into my sixties and seventies, not pay a penalty and use that for long-term wealth and my long-term retirement. But I sold about 25% of my normal brokerage accounts. Now, I know that I’m a little bit different than some of my friends that I bring on the show here like James Dard or Kathy Feki who have almost a hundred percent of their net worth in real estate. I am not like that. I estimate that my equities, my stock portfolio is like a third to maybe 40% of my total net worth. And if you do, the math year is say, has sold about 25% of that, that’s like eight to 10% of my entire net worth, which is a pretty big move for me at this point in my investing career.
So the question is then why did I do this? Do I think the stock market is going to crash or what’s going on here? I am not a stock expert. I do follow it pretty closely, but I am not so confident in myself that I think that I can time the market and say when and if the stock market is going to crash. But when I look at the really big picture and I zoom out of everything that’s been going on in different asset classes across the economy for the last decade, the last 20 years, I think that stocks are going to underperform in the coming years. I don’t know if that means there’s going to be a crash and then a rebound. I don’t know if that means they’re just going to grow very slowly over the next couple of years. But when you look at some of the most fundamental ways of valuing the stock market and projecting its performance forward, what you see is that stocks are very, very expensive.
And there are a lot of different ways that you can value the stock market, but two that I personally like to look at, one is called the buffet rule, which is a ratio of the country’s entire GDP to the value of the stock market, the total value of the stock market. And by that metric, stocks are very, very expensive right now there’s another very common way of valuing stocks called PE ratios or price to earnings ratio, which basically compares the price of one share of stock to the total earnings of that company. And if you look at both of these metrics of evaluating stock market or several other of them, they are very, very high. And previous times when we look historically when equities values were this high, the stock market underperformed and in many cases it has underperformed four years and sometimes that’s three years, sometimes that’s five years, sometimes that’s 10 years.
And again, that does not mean the market is necessarily going to crash. It just means we just had two years in a row where the s and p 500 went up more than 20%. That’s amazing. It was great. I was very happy to be heavily invested in the stock market for the last two years, but I just don’t think those returns can be maintained. I think that the best gains have been had, and this isn’t necessarily even a commentary on the economy as a whole, although there is recession risk. Don’t get me wrong. This is just sort of an analysis of previous periods where stock valuations got this high and what happens after. So that’s my look at the stock market. And this sort of relates back to what I’ve been talking about with real estate, right? My philosophy about investing is finding assets that are relatively safe and low risk that have upside.
I just don’t see that much upside in the stock market right now, even if the market doesn’t crash and there has been a lot of volatility lately, but even if the market stays close to where it is, I just don’t see it going up that much more in the next couple of years because it’s already just so expensive. You’re probably wondering, can’t you make the same case for real estate? Real estate is super expensive, right? Well, not really, or at least that’s not the way that I look at it because yeah, real estate is really expensive right now, but it’s due to really different issues. We won’t get fully into that, but if you listen to the show, you probably know that a lot of the reason that real estate is so expensive right now is mostly due to a supply issue. There is a lack of total housing inventory in the United States.
It’s getting even more and more expensive to build, and that has really pushed up real estate prices over the last decade or more. The other thing that changes how you evaluate the real estate market versus the stock market is that housing is a need, right? People need to live in these home, no one needs stock. So when stock market gets volatile or really expensive, people could just sell them without really any implications for their immediate quality of life. That is not true in the housing market. Another factor with the housing market is that 70% of people who sell their homes go on to rebuy. So you wouldn’t just go sell your home because you thought prices might go down a couple percentage points because then you would have to go buy into adverse market conditions instead of what happens in the stock market where people sell off when things get too volatile or too expensive. With real estate, you could just do nothing as long as you’re able to make your mortgage payments, you could just choose not to sell. And so though it makes the dynamics and the fundamentals of the stock market and the housing market really, really different. So to sum this all up, the way I’m seeing it is that there is less upside in stocks and equities right now than I see in real estate. That’s it. We do have to take a quick break everyone, but we’ll be right back in just a minute.
Welcome back to the BiggerPockets podcast. We are here talking about the upside era and how you can take advantage of it here in 2025. So let’s talk about those upsides in real estate that have me excited and making these moves and actually did a whole episode on 10 different upsides that you can use in your own deals. That one came out on January 27th. It was show 10 75, so you can go check that out. But a couple of the upsides that I am personally looking for are one rent growth. I’ve made the case in the past and we’ll continue to that, although I think the first half of 2025, maybe all of 2025 might have slow rent growth. There’s a really good case that rent growth is going to pick up from 2026 going forward. The second is path of progress and building in areas where there is a lot of infrastructure and money being invested.
The third is value add. These are things like doing the burr strategy, flipping or just finding ways to add capacity to homes. The fourth is zoning upside where adding ADUs or additional units on properties and of course other things like owner occupied strategies, which I’m already doing because doing this live and flip this year. So given that and given that I just sold a big chunk of my stock portfolio, how am I going to reinvest that into real estate? Because frankly, the reason that I love real estate and I invest primarily in real estate and that I am making this move is because long-term, my long-term goal is to get enough cashflow that I can live off of. And so whenever I see that there’s sort of an opportunity to reposition some of my money into a asset that is going to build me long-term cashflow, that is sort of what I’m going to do, even if it’s not going to be the best cashflow right now.
But as I said at the beginning of the show, I actually haven’t been able to make any rental property deals work so far here in 2025. I’ve offered on a few, I’ve been looking at a lot. I’ve underwritten quite a few deals, but I haven’t been able to make any work and that’s okay. I don’t like to push it. If the deals aren’t there, I’m not going to buy them. But because I do think market conditions are sort of ripening for better deals to be out there, I’m basically going to split the money that I pulled out of the stock market into two different things. First and foremost, I’m going to take 50% of what I sold and put it into a money market account. If you haven’t heard of a money market account, it’s very similar. He’s a very similar interest rate to a high yield savings account.
There’s some differences that I won’t get into, but basically I can earn four, 4.5% on my money right now, and I like that for two reasons. First is that it is highly liquid if you haven’t heard this term before, liquidity in terms of investing basically just means how easily you can turn an asset or an investment into cash and money market accounts are similar to high-yield savings accounts. You could just easily spend that money. And that is important to me because I am going to be actively looking for deals, rental properties, and I’m actually starting to look at and underwrite multifamily deals right now, and I want to have that money quickly available to me in case that I find that deal, which I expect to find in the next couple of months. I want that money available so that I can act quickly. Yes, in the stock market, you can sell it relatively quickly and you can pull your money out within a week or two, but I don’t want to be in a position where I have to sell my stock on a day that it happened to go down two or 3%, right?
That would be terrible. So I instead chose to sell 25% of my portfolio on an ideal day and then put that money into this money market account so that one, I am earning more than inflation, so I’m still earning a real inflation adjusted return and I have highly liquid assets that I can use to buy real estate deals in the next couple of months. And honestly, a 4% return right now looks pretty good to me compared to how volatile the equities market is. And I could be wrong, the stock market could go up 5%, it could go up 10%, but right now, the risk adjusted return of equities versus a money market account, I’m not complaining about a money market account, especially because it has the secondary benefit of giving me liquidity. So that is the first thing that I’m doing with that money that I pulled out of the stock market.
Now, the second thing I’m doing, and I know this is probably going to be controversial for some people listening to this podcast, but I’m going to use it to pay down my mortgage on my live and flip that I’m going to be moving into here in Q2. I know what people are saying, you should leverage as much as possible or that’s going to slow down my scaling. But just think about it this way, for every single dollar that I pay into my mortgage and I don’t leverage because I would be taking out a mortgage at let’s say 6.5%, I’m basically earning a six point half percent return on that investment. And again, I could be wrong, but I don’t think the stock market is going to get that over the next couple of months. And in the meantime, I can reduce my living expenses by like $1,500 or $2,000 a month.
That is a lot of money that I can be saving, adding to my liquidity, adding to my stockpile of cash that I can use for real estate. And at least to me in my assessment of different asset classes out there, it takes a lot of risk off the table. And to me, it is worthwhile to do this in this investing climate, and maybe I will do this for years if conditions stay the same and I’ll just keep a really low mortgage on my primary residence. But my expectation is that I will probably just refi this and maybe I’ll refi it three months from now or six months from now. It might be years from now, but if rates come down or I see a deal that is better than that 7% cash on cash return, I am getting by paying down my mortgage, I will refi and I will just use that money to fuel my portfolio when I think conditions are better.
So to me, this moves just makes sense. I don’t see a huge amount of upside in the stock market right now, and so I’m taking some money and earning a positive return and giving myself liquidity in order to buy real estate in the second half of the year, and I’m taking other money and just reducing my living expenses, taking risk off the table, and that money doesn’t have to stay locked in my primary residence forever. It will stay in there until I find other opportunities to use that money, whether that’s three months, six months, or three years from now. So personally, that is what I am doing, but as I said at the top, this is based on me, my goals, my current resource allocation, my read of the situation. But the question is what should you be doing with your own portfolio? My first piece of advice is to evaluate the risk adjusted returns of different asset classes yourself.
If you haven’t heard this term before, risk adjusted return, it basically means you can’t just look at the upside potential of every single deal. You also have to look at how risky that particular asset is because this falls on a spectrum, right? On the low end of the risk adjusted return spectrum is probably bonds or money market account, like what I’m investing in right now. These are very low risk, but very low return options for holding your money. On the other end of the spectrum, you probably see cryptocurrency where you have opportunities to double your money or triple your money, but the risk of you losing a lot of that money is also really high. And so you have to sort of look at each asset class, each potential investment in this lens. How likely is it for me to earn a good return? How likely is it that I am going to lose some of my money?
That calculation, that thought process is risk adjusted returns and frankly, figuring out and thinking through risk adjusted returns, it’s not as easy as it used to be five years ago. There’s just no way I would’ve paid down my mortgage instead of buying another rental, just no way. I never would’ve thought of doing it. But today, when I reevaluate risk adjusted returns, it makes a lot of sense. And the reality of this is you really do just have to do this for yourself. There’s no objective evaluation of what the best risk adjusted returns are, right? You might see huge upside in the stock market right now and think that I am crazy to see risk there or risk of underperformance there. That’s totally up to you for me, my personal understanding of markets, my risk tolerance, my risk capacity, my long-term goals, my current cashflow, it’s just different from yours.
And so you need to think about this yourself. The second thing you need to do after you sort of look around the market and assess the risk adjusted returns and different options for your money is to consider your goals. Do you want to be really active in your investments? Do you want to be managing and thinking about your money every day? If so, you could potentially think about reallocating into different asset classes, but if not, if you’re more the type of person who’s said it and forget it, I just want to buy index funds, that’s absolutely what you should be doing. You don’t need to be doing what I’m doing. I’m relatively active in managing my portfolio, and so I am always thinking about these deals. I’m always researching these deals. If this is not something that you do or want to do, then just leave your money and your allocations as they are.
The third and last thing that you should be asking yourself as you’re thinking about how to take advantage of the upside era as we go into Q2 is would you actually do something with the money, right? If you were thinking about selling equities or maybe you’re thinking about selling a rental property or some real estate, think about what you would realistically do with that money. Because if you were going to sell your index funds, for example, and then just do nothing with that money, you’re going to put it in a regular savings account and not earn a lot of money, and you’re just sort of doing it out of fear, you’re probably better off, at least historically speaking, just keeping your money in the stock market and letting it compound over the next several years. But if instead, you’re reallocating because you have a plan to immediately earn better returns, or you want to position yourself to take advantage of opportunities that you see coming in the next couple weeks, next couple months, next couple of years, I think that’s a totally different thing because remember, if you do sell real estate or you do sell stocks, you are going to have to pay taxes on it.
There are repercussions for that. This is not just like, oh, I can take my money out of the stock market, see what happens, and then I’ll just put it back in if it doesn’t work out. I mean, you could do that, but that’s not a good move because you’ll have paid taxes unnecessarily. You have to have a plan for your money. So my three pieces of advice as we head into Q2 in this upside era are, again, one, evaluate different asset classes for risk adjusted returns. And that’s not just stock market versus real estate. Do that for individual real estate asset classes. Think about risk adjusted returns for single family homes versus small multifamily versus flipping versus short-term rentals. And assess if you think there are good opportunities, and if you have the right waiting for where you’re putting your money relative to the second step, which is your goals.
So again, look at those risk adjusted returns, then consider your goals and think about if you have your money in the right place given those two things. And then lastly, really just gut check yourself and make sure that if you are going to make a move, if you are going to reallocate capital, reallocate some of your time in the upside era, make sure that you’re actually going to follow through on it because sort of doing a move like this halfheartedly is probably going to leave you worse off than when you started and just worse off than if you just did nothing. So again, do those risk adjusted return assessments, consider your goals, and then make sure that you actually have a plan to do something with your money. That’s true if you’re reallocating resources or if you’re just trying to put more principle into your overall portfolio here in the upside era.
Alright, everyone, that is my upside era update for Q1 and giving you some thoughts about where I’m going in Q2. I would love to hear what you all are doing with your opportunities for upside as we enter Q2. So if you’re watching here on YouTube, make sure to let me know in the comments. But if you’re listening on the podcast, hit me up on either Instagram or on BiggerPockets and let me know what you’re thinking about. Thank you all so much for watching and listening to this episode of the BiggerPockets podcast. I’m Dave Meyer. We’ll see you next time.

 

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In This Episode We Cover:

  • The big move I made and why I’m cashing out of some investments to fuel others
  • How I’m getting a guaranteed MINIMUM 6.5% return with this big investing move
  • Rental properties I’m looking for right now that have the highest “upside” potential
  • Three things every investor should do right now to ensure they capitalize on the “upside” era
  • Key indicators that the stock market is significantly overvalued (and what I did with my stocks)
  • And So Much More!

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Julie Rose “semi-retired” at just 36 years old with only $500K, trading her corporate job for sunrise safaris in Africa, beach walks in Bali, and mid-day hikes in Mexico.

With “Barista FIRE,” you can retire with a lower FIRE number, still work (minimally) doing what you love, and have almost complete time freedom over your life. Why have FIRE when you can “semi-retire” decades earlier? Plus, your retirement nest egg will be growing in the background, all while you do what you want, when you want, with who you want. Sounds like a dream life, right? Well, you’re not far from it already!

After barely scraping by (even with a good job), Julie knew something needed to change, but she wasn’t ready for it. It wasn’t until she got laid off multiple times that she realized it was time to put her financial future in her own hands. This led her down the FIRE movement rabbit hole, getting almost addicted to saving and investing, and finding herself in a position to quit her job and do what she really loves: travel and get PAID to plan trips for others.

Now, she’s Barista FIRE (FIRE with the help of a side hustle), living nomadically for a fraction of the cost of a basic life in the United States!

Mindy:
Imagine swapping your morning commute for a sunrise hike in Mexico, or typing from a Beachside cafe in Bali effectively making retirement happen decades ahead of schedule. After strategically building her financial foundation, Julie did exactly that. She achieved barista fire in 2021, that sweet spot where she’d saved up enough money to work minimally while her investments grew. Now living a nomadic life most only dream about she’s sharing how she finances, her freedom, handles healthcare on the road and finds purpose beyond traditional careers all while her wealth continues to grow in the background. Hello, hello, hello and welcome to the Bigger Pies Money podcast. My name is Mindy Jensen. Scott’s out playing hooky today, but he’ll be back next week. I am so excited to welcome Julie B. Rose to the podcast. She has an incredible financial independent story and we will cover it all in today’s episode. Julie, thank you so much for joining me today. I’m so excited to talk to you.

Julie:
I’m so excited to thank you for having me.

Mindy:
Before we dive into your nomadic lifestyle, what was your relationship with money growing up?

Julie:
Growing? I think I had a fairly normal relationship and education about money in terms of what they tell you in high school about don’t overdraw your checking account and this is how to do a basic accounting spreadsheet. My parents kind of taught me to track, save some of your money, pay off loans as quickly as you can, but we never learned anything about investing. We never learned anything about maximizing. We kind of followed that same track that the rest of Americans have been told to, Hey, you should buy a car as soon as you can because freedom, and I spent my money a bit foolishly growing up, but I thought, you know what? I’m pretty smart. I’ll just save a little bit. But as we all know, saving is not really the best way to make your money grow, so I really had to teach myself a lot about money in my later adulthood, I suppose my thirties and the rest of us, we’ve been pretty self-taught because the high schools don’t really do it justice.

Mindy:
They really don’t, and we are starting to see more and more bills that are coming into legislatures that are being passed saying, yes, we should give our high school students financial education, but I have a high school student myself right now, she has to take a half a credit to graduate. That’s not enough in my opinion. It’s a start. It’s a great start, but it’s not enough. We could do better.

Julie:
Yeah.

Mindy:
What was your financial position leaving college?

Julie:
My dad, my parents helped pay for my college and I paid for I think about half of it, so I didn’t come in with any college loans. I didn’t come into my first job with any loans, but I sure came in with a big car loan.

Mindy:
Oh

Julie:
Yes. Like everybody else. I’m like, Hey, I made it. I got my first job. I’m making $33,000 a year. I’m going to buy a new car that was $22,000. Right. I’m going to get my own apartment that costs $750 a month, and then of course I had insurance and all my essential bills, and I get to that job and then I get my first paycheck and I’m like, wait a second. What’s fica? The math doesn’t math.

Mindy:
The math doesn’t math.

Julie:
I had to get a second job, even though I theoretically had made it out of college into my first professional job, I had to get a second job working two jobs out of college just to pay for life,

Mindy:
And that unfortunately is not even a unique story. I hear that all the time. By the time I got done with my paycheck, there was no money left and I still had more bills, and that is really disappointing. So what was your career? What did you study in college?

Julie:
Yeah. My first career was journalism, so I started in the newsroom. I actually went to a school that was really well known for the journalism program and I was really active in it, and once I left college, I had the fortune of being hired right in a market 15 newsroom, which most new graduates have to start in a small to medium market. I started in a large market. I started as a producer, so I skipped the intern or the associate, and so theoretically I had a great job, but it was 33,000 a year at the time, and I couldn’t afford everything else because I had that in my head, Hey, I made it. I can now spend accordingly, and it just doesn’t work that way.

Mindy:
How long did you work the second job? How long did you have two jobs for?

Julie:
Oh, let’s see. So I actually, it’s a little bit unique. This was during the great recession, so I was laid off from my news job after about a year and a half, and luckily I had that second job working at a fitness club opening up the cafe at five in the morning. So I had something to do during this layoff, and yay, I had about two weeks of severance. But the realization that that could happen to me really shook things up for me, and it didn’t take me that long to find another job. Actually, that’s what moved me to Phoenix is I got a job offer out in Phoenix for luckily more money, but it really shook me that, Hey, your job is not guaranteed and it could be snatched away from you in an instant, and if you don’t have any buffer, if you don’t have any preparation, if you don’t have any financial landing pad, you are relatively screwed. And so I actually had to move back home with my parents for a little bit during this little period of underemployment until I got to Phoenix to start my new job.

Mindy:
I’m sad that this was your experience, but I’m also really glad this was your experience because a little foreshadowing, it sounded like this turned you in a different direction. What did you do with this realization that your job isn’t secure?

Julie:
Well, you’d think I would’ve got the message the first time around because I went to Phoenix and I got a pay increase, and I’m like, whoa, yay. Life’s back on track. I only had a little bit of a blip and I can keep spending, and so I was stuck in that consumerist mindset and buying things like new clothes every month and still paying for my nice car, and you just get, oh, there’s Pampered Chef and there’s Leah Sophia, and there’s all these stupid shopping trends, and there’s a little bit of the, as you’re in your twenties and your friends are moving ahead in their career and you want to give the impression that you’re moving ahead in your career, so look at the new stuff I bought and look at the parties. I’m throwing the dinner parties and look how I’m moving up in the world.
I felt that pressure a lot. And so I look back now with a whole different lens of like, oh my God, what was I thinking? Those were thousands of dollars that I had spent on stuff that sat in my cabinets and closets that could have contributed to my financial freedom much, much sooner. But that’s the trap that commercialism has set for us. So I was on that path for quite a while, changed a couple jobs, kept on earning more, but it wasn’t until my next layoff that I think it all really sunk in. And during that layoff, I was actually unemployed for five months. Luckily I had four months of severance. So with that buffer, I thought, Hey, I’m going to do something useful with this time because when else am I going to get a paid vacation of this length? I went backpacking in Europe for a month.
It changed my life. I lived out of a backpack, just a carry on backpack, and I walked everywhere and I took buses and I was super frugal, and I realized, whoa, I really have way more junk than I’ve ever needed. Why do I have all this stuff in my house weighing me down? Why am I working and living this life that I get so much more life and energy from traveling and discovering and being curious and learning? Maybe I should refocus that energy. And it was during that experience, during that layoff that I started cooking up a plan and I didn’t really know what I was cooking up yet, but what it started as, Hey, for one, I got to get my life together. I have to get my finances together. I never want to be in a position of financial insecurity again, and I want to work towards a life that truly makes me shine, allows me to shine and have my truest self come out and follow my heart. And four and a half years later, I hit the road.

Mindy:
When did you discover the concept of barista fire or the concept of financial independence in general?

Julie:
It was after I got back from that trip, during that layoff period, and as I was starting my new job, I had decided that, Hey, my financial education is not what it should be. I don’t really know what I’m doing. I had been like, oh yeah, I contributed the company match for a little while and I put it in this and that, and I just kind did what I was told when I was clicking through buttons, but I really didn’t know what I was doing, and I think I had heard maybe or seen little bits about fire or just about financial literacy, and I thought, Hey, I should really learn how hard can this be? I, I’ve conquered and accomplished so much. How hard can this be? And I just led myself down the path reading the books that people recommended, checking out the blogs and found the information fairly easy to digest and also just felt empowered by what was out there that, Hey, I could do this. At the time, I did decide to enlist a financial advisor who I eventually cut ties with, but it helped maybe me get off the ground just a little and started doing things on my own as well. And it became addictive because you see the compounding and accumulation effect, and I’m like, whoa, this is really working.
Truly, it becomes addictive. Then you’re like, how much more money can I pump in and how much more can come up and how fast can I grow? And so it was really a combination of I’m trying different things with investing and then I’m side hustling because I just want that to grow as soon as possible. As soon as I got back from Europe after that backpacking trip and got my next job, which jobs typically are when you change them so often is each one pays you more. I decided I’m going to cut my spending. I’ve increased my earnings, so I’m going to increase my investing, and then I’m going to see where I can fill in with different side hustles and things just exploded for me.

Mindy:
My dear listeners, we would love to hit 100,000 subscribers on our YouTube channel and we need your help. While we take a quick ad break, please hop on over to youtube.com/biggerpockets money and check to see if you are subscribed to our channel. Stay tuned for more after the break. Thanks for sticking with us. So what kind of side hustles were you finding to add to this nest egg that you were doing?

Julie:
My main side hustle, this one has got a whole dramatic story of its own. I’ve talked about it on my blog too. I talk about all my love and relationships and romances on my blog as well. I ended up meeting someone overseas on that European trip that I thought I was going to move to Europe for, and so I’ll try to make this short. It’s a long emotional story, but I ended up putting my house on the rental market, my entire house, which is three bedroom, two bath, two car, garage yard, the whole shebang because if I didn’t have a job, if I was moving to Europe, I had to have some income because who knows if I could even work over there without an appropriate visa, which takes time to get. So I put my house on the market talking to this guy, we’re like, are you sure?
Are we really doing this, dah, dah, dah? He’s like, yes, yes. No risk, no reward. I put my house on the market, I get on the rental market, I get a four month booking, and then he dumps me. So I am like, I’ve got nowhere to live and got another job, and that job was based in Phoenix, even if it was remote, most of the time I’m like, I need to find a place to live. So my side hustle, if you can call it that, was moving into a studio Casita, like somebody’s backyard house in Phoenix, spending $800 a month while I rented out my big house in Phoenix during the Phoenix tourism season from Christmas to Easter, that as you can imagine, paid good dividends. I also was bartending at the Phoenix Open, which is the big golf tournament, made tons of money at that. I went through my stuff and was consigning things. I mean, I had have to look back at every, it was like whatever little opportunity I had, I think I was walking dogs maybe for a little while, whatever went at the time. I was like, let’s do it.

Mindy:
And I love that story because so many people that I talk to, they discover financial independence and they’re like, I’m going to cut out everything. And then they’re like, Ooh, that isn’t so much fun. I’m going to add some stuff back in. But there’s also this hustle culture and the side hustles that you’re doing. I’m assuming you took that money and threw it at your investments and not into shopping some more. It seems like you were shedding, actively shedding as much as you could to in order to get to financial independence as soon as possible.

Julie:
And you know what else that taught me? Moving out of my house for four months, I was hearing from people when the house is the American dream, it’s why you work so long. You’re like, I bought a house. It’s the mark of success for any 30 something year old. Actually, I was in my twenties when I bought it, but it’s like, yeah, I did it. Look at me. I did good. I moved out of my house and my friends were like, oh my God, there’s people sleeping in your bed. I’m like, yeah, but I changed the sheets. There’s people using your brand new kitchen that you just remodeled. I’m not going to take it with me.
It fostered this sense of detachment, which I think is really the number one thing for minimalists, for nomads, for early retirees, for anybody who wants to live a more mobile life, they have to have this sense of detachment from their material things, from their former identity, from basically what life is supposed to be and come up with their own version of that. So having the detachment allowed me to come back into my house and really see it for the flat two dimensional thing that it is. Yeah, I have a great kitchen. I’m not going to take it with me. Oh, oops, it’s scratched. It’ll still sell. I’m not worried about that. I’m not going to live here forever. I’m not going to take this to my grave. And that in itself was probably more valuable than the money that I made, even though I did throw it at my investments and it did quite well for me.

Mindy:
So what year are we talking about here?

Julie:
Okay, so this would’ve been 2018 to 2020, the 2018 tourist season, the 2019 tourist season and the 2020 tourist season. So yes, you’re right. That brings us to Covid.

Mindy:
That brings us to Covid. Well, before we get into Covid, I want to talk about your investing. You’re ramping up your investing, where are you putting your money? What are you investing in?

Julie:
I was playing around a little bit. I think of course, I was reading all the advice like Total Stock Market, the VTI and fx, CACs and all the ones that are very broad, and I put a lot of money in those, and I think I was like, oh, let me try a little Vanguard and a little fidelity and a little, I was just sort of like, let’s just see. And then I thought, oh, maybe some Costco, maybe some Microsoft just for funsies, some Netflix and so on. And most of it did great and some of it not so great, but I kind of felt like it was good practice for me. I’ve since cleaned a lot of that up in the years following, but I had my retirement vehicles, my 401k and my Roth IRA, and then I also had my brokerage, so I made sure to max out my Roth to the level each year, my 401k to the federal level allowable, capturing the company match, which was I think up to 3% at the time. So I hit those limits each year for I think three or four years running during this time period. And then everything else I put into brokerage, and that was where I tried to divvy up where I wanted to put it.

Mindy:
That’s a nice mix. So on the BiggerPockets Money podcast, we talk, we’ve been talking about the middle class trap where you’ve done everything. You have put your money into your home equity or your 401k, but then you become a millionaire on paper and you’re like, oh, how do I access this? Rates have gone up so I can’t just pull equity out of my house and I can’t access my 401k without paying penalties. So you’ve got several hedges against that. First of all, I am assuming that you sold this house. It sounded like this is not currently a home that you own.

Julie:
I sold the house.

Mindy:
That’s one way to access the equity.

Julie:
Yeah, exactly. I sold the house in 2020, in the middle of 2020 after I decided, or while I decided to go nomadic, and I got my asking price. I know real estate has really grown and exploded since Covid, but I made the best decision at the time and I also didn’t want the burden of some kind of responsibility that I had to keep. I had enough issues when I was just renting it out to these vacationers who are like, how do I flush the toilet? So I didn’t really want to deal with that.

Mindy:
Yeah, yeah, and that’s valid. I bet I’ve had rentals too, and yes, you’re like, really it’s Have you never seen a toilet before? It’s the silver handle on the side, you just push down. Yeah, yes. No, I completely get it. And in 2020, so I’m a real estate agent, and I remember the beginning of Covid where you couldn’t go even and see a house unless it was under contract, so people were writing these really quick contracts just to be able to get inside to see it and then canceling it if they didn’t like it. It was a crazy market. So selling in the middle of 2020, covid this weird thing that hasn’t happened in a hundred years, totally valid choice. You didn’t want to own this property, so sell it. That’s what you do when you don’t want to own a property anymore. But you’ve also got your Roth IRA. You’ve got your after tax brokerage accounts, so you have many different buckets to pull from until you can access your 401k. Are you doing any of what I consider to be advanced maneuvers like Roth conversions now that your income is presumably lower?

Julie:
I did that my first year after quitting my job, so I kind of classify those years. The first almost year and a half, I was almost pretty much fully on sabbatical, not pulling any income from work, not really nothing substantial, and that was when I took the opportunity to do one of those conversions and made an investment income at the same time. I did that in my first year. I have not done that since, but it’s something that I think about and will look at when the time comes.

Mindy:
What does barista fire mean to you specifically?

Julie:
Yeah, I use the term sort of barista fire and semi-retirement interchangeably because I think they mean sort of the same thing because the concept of barista fire is that you are sort of financially set to a standard of living that you could live by. I just choose to expand my standard of a living just a little bit, and so I supplement that with income coming in. That is a push pull almost levers that I can tweak as I need to. If I want to work a little bit more, I can always take a more clients. If I want to have more free time, I can say no to clients, and at this point I am pulling a little bit from my brokerage just to sort of maybe pay off a monthly credit card when my income doesn’t match because my income is very flexible right now. But otherwise, I’m almost probably 80% just spending my earnings at this point.

Mindy:
Okay, and are you still working in social media?

Julie:
No. No. Well, I don’t know. Maybe I’m not working for anyone. Anyone else? Not really. I am an independent contractor with a travel agency. Back when I took that one month travel backpacking trip to Europe, I started a blog. I wanted to create the content that I couldn’t find when I went out there, and I was a very kind of juvenile elementary traveler at that point. So some of the information that I needed I couldn’t find and I wanted to produce it for other people. That blog has sort of just become my little creative baby, and now I have quite a substantial readership and views per year. So when I started getting messages, especially as I started talking about my sabbatical and my nomadic lifestyle, I was getting messages of people seeing my travels and they’re like, I want to travel with you, or I want to work with you, or I want to replicate your trip.
How did you do that? And so I basically thought, well wait a second. There’s an opportunity to monetize my experience and my expertise, so what does that look like? Who do I partner with? I had some contacts from back in Phoenix when I was there and different kind of travel events I had attended as more of a travel blogger. I looked up those contacts and found sort of a synergy in terms of, hey, I can hold group trips, I can design trips for clients, I can do travel coaching and that can supplement my lifestyle and also give me some credibility and backing beyond the travel blog and the numbers that I pull in. It gives me the backing of sort of a travel agency with a lot of revenue and a lot of travel sales. So it’s really been a win-win and allows me tons of flexibility in what I do and where I do it. So that probably was about two years ago when I partnered with a travel agency and I’ve been working with them on a part-time basis ever since.

Mindy:
What does part-time mean? How many hours per week or per month are you working?

Julie:
You’re asking me all the hard questions. It’s so hard. I can’t calculate it. I kind of look at the writing that I do on my blog. I look at my social media, the content creation that obviously helps bring in clients, helps showcase sort of my travel expertise. It’s not something that I really calculate because that’s just what I would be doing. I would be storytelling, I would be sharing, I would be expressing myself. These are things that I would do without probably the financial impact. And I did do that for a long time actually. I didn’t make any money on my blog or social media. I was just wanting to share and be helpful and inform people. So I don’t know. It’s really hard to calculate, but I don’t work full time. I can say that, but sure, there are some itineraries that take a little bit more effort and energy than others, and it’s also hard to say what’s work when you’re traveling and having the time of your life, and sure you’re looking after people at the same time, but I don’t know. I dunno how to, I know work obviously is the exchange of labor for money, but at the same time, I don’t know if I can really, I don’t know how to calculate, I’m sorry.

Mindy:
Well, okay. I think this is a really great way to answer this because yes, you’re blogging, but you would be blogging anyway. So is that work? Probably not, even though it does generate some income. How about this? Can you do anything you want or do you ever have to say, no, I can’t do that because I have to do work type stuff?

Julie:
Yeah, I mean both. I can choose. I’m not going to do this trip, but administering a trip requires work that I have to do. So if I choose, I’m going to do a trip, then yes, there’s the administration and the marketing that goes along with that. If a client comes to me and they’re like, I want to do this and I don’t want to do it, I can give it to another advisor so I can say, no, I’m not obligated or indebted to do anything. And definitely I’m not beholden to a lifestyle that I can’t say no, that I am never really like, I need to make money this month, so I’m going to do A, B and C. It more comes from a desire of, yeah, I’m passionate about this city. I am going to be in the same place. I really like this client. They seem really cool and it’s more born of me wanting to empower and help people really put together the trip that is going to change their life. And I think it comes from that, which is a different way to look at it.

Mindy:
What I’m hearing is no, I can essentially pick and choose what I want to spend my time doing. I don’t have to ever say, I have to do this trip, otherwise I won’t be able to put food on the table. I have to do this trip, otherwise I’ll have to pull out of my retirement accounts. I can just choose to do this trip because I want to do this trip with the caveat that if I’m doing this trip, then I can’t do another trip at the same time. Obviously you can’t be at do places at once, but it seems like you get to pick and choose how you spend your days and weeks.

Julie:
Yeah, I call it financial independence, recreational employment.

Mindy:
There you go. That’s great. That’s perfect. Okay, we’ve renamed fire or Acronymed Fire, financial Independence, recreational employment, and you like what you do, it’s clear that you like what you do.

Julie:
I do, I do. And at the same time I have a threshold that I’m going to get to or that I’m at is I’m going to do this much per year, but then I am going to preserve my free time, my leisure time, my learning time.

Mindy:
That’s not your choice. And you have done the things that other people might not do to ensure that you can have the life that you want, which is to travel to host events for other people if you choose to and to go out on your own. If you don’t, I think that’s perfectly valid. You spoke earlier about your current expenses are about 80% covered by your income. What are your current expenses? What are you spending every year?

Julie:
Yeah, so I’ve been tracking this in detail on my blog basically ever since I went nomadic, I think the first year after I quit my job, I spent about 27,000 traveling the world basically the following year, I think I spent maybe around 34, 30 5,000. And then last year I spent 40,000. So compare that to what you might spend in the US living a normal life. I know that back in the day, I say back in the day because who knows what it would cost in today’s dollars, but I think in 20 20 19 or 2020, and this was when I was fairly watching my spending, I was pretty careful in what I was spending and I think I was spending like 50, 55,000 or something like that. So anybody who says, oh, I can’t afford to travel. No, you can’t afford to live in the us especially now.
Especially now, it’s crazy. So I can get by in other countries on far less and what am I spending my money on? I mean, most of it’s travel. I mean flights and accommodations than it’s food. I spend a lot of money on food, and by the way, I’m still enjoying myself. I’m still drinking beer and wine, and I’m still having nice meals and I’m eating out. I’m having a coffee not from Starbucks, but from some local coffee shop wherever I am. So I’m not skimping by any means. I’m just being conscientious and thoughtful about how I spend my money because opportunity costs, if you spend your money on that, then you don’t get to spend it on this and vice versa. But by and large, I’m really not skimping in any way. It just works out that I can get by and much less. So the cost of living is less, but the standard of living is not.

Mindy:
That is such a great quote. We have to take one final ad break, but we’ll be back with more right after this. Alright, let’s jump back in. What was your net worth when you decided to quit your job in 2021 versus what is it today?

Julie:
When I decided to quit my job, and I’ve also, I’ve put this on my website too, I just don’t remember all the numbers, but I have kind of tracked this over the years and it’s like a bell curve. So when I hit that 100, then the 200, then it’s like this. It’s like this, the accumulation effect. So when I quit, I believe I had just cleared about half a million and that was the big milestone. So this was in 2020 and of course, let’s see, it’s March now. So there’ve been some recent market fluctuations. I think I’m at like five 15 now. So lost. Well, it’s not lost until you cash it out, but the value has decreased in the last couple months. But that’s not a thing I’m worried about. I’m kind of like a hit it and quit it kind of mindset. So I will look at it every couple months. I’m not really affected or fussed by it because what goes down will come up.

Mindy:
I agree. I just spoke with JL Collins from the author of The Simple Path to Wealth just a couple of hours ago, and he said that the stock market always goes up. Yeah, it’s a rocky up, but it continues to go up and I’m not concerned. And he said he wasn’t concerned. I’m also not concerned. The market fluctuates sometimes, and that’s just how it goes. So anybody who is listening to this show is probably hearing you say 500,000 and thinking, oh my goodness, how could she retire? Well, she still is able to generate some income that she likes to do. She’s nomadic. She’s out there living the life she wants to live while her investments continue to grow, and she’s not really pulling from her investments. And I think that you have done a phenomenal job of living what PHI is supposed to be all about. You are financially independent, you get money out of the way so you can live your best life. Well, you’ve gotten money out of the way and now you’re living your best life. Did you have a better life at $50,000 in America or $40,000 overseas?

Julie:
I mean, I’m in the Philippines right now and I just spent the last three weeks in New Zealand and before that I was in Australia and before that I was in Africa for seven weeks. So you tell me, it’s been pretty awesome. So no complaints. I mean, at the same time there’s challenges and different obstacles you run into, but you’re going to have obstacles in life no matter where you are. You rather enjoy encountering them in a place or places that give you just more life and just the zest, like we’re here on this planet to become our best selves, and we should be in the environments that do that.

Mindy:
I am sitting here in Longmont, Colorado. I live here. I work full time. And you just listed four places that you’ve been in the last, what, three or four months that I’ve never been in my whole life. So who’s living the better life here? Listeners

Julie:
Come on a trip.

Mindy:
I think Julie, come on a trip. I’ve got a good life. I’ve got, but yeah, but that sounds like a lot of

Julie:
Fun. Well, hey, not everybody is at the point that or even wants to necessarily throw it all away or give it all up. And that’s one of the reasons why I’ve been hosting these mini sabbatical group trips is to give people a taste of what travel can do while they’re still working out the rest of the details. So what’s your appetite without being the full-time commitment that I took, which I mean to be honest is not necessarily for everybody. We can’t all leave the workforce at the same time because then who’s going to do the work?

Mindy:
Exactly. And to be honest, traveling on my bucket list, there are places I would like to go, but I also like my house, so I want to go and then I want to come back and then I want to go and then I want to come back. But I want to go to New Zealand. I want to go to Australia since they’re really close to each other and so far away from me, that’s going to be an all encompassing trip for that one,

Julie:
Of course,

Mindy:
Which would be a much longer trip. But yeah, there’s lots of places I want to see. I just also want to enjoy my downtime. So traveling Nomadically is probably not in my cards, but I will definitely be out and seeing more of the world than I have.

Julie:
Yeah. Well, who to talk to when you’re ready to plan that?

Mindy:
Yes, I do. What do you do for healthcare out in the other parts of the world?

Julie:
This has been a little bit of trial and error over the years, but where I’ve settled is a couple like a trifecta, I guess, coverage. So first I’m on an A plan, which costs me next to nothing. Since I am low income, by definition, what I’m bringing in is not very much, so I barely pay anything for it. And that will really just cover me for when I come back to the us, which is one month to six weeks per year so I can get some of my doctor’s appointments in and any prescriptions that I might need. Then I have travel medical insurance, which fills the gaps. If something happens to me while I’m somewhere else and I want to file a claim for reimbursement, or if it needs to, heaven forbid, get me back to the US emergency evacuation or something like that, then at least I have something happening in the US to take care of me.
And then finally I’ll pay it out of pocket because, and I know this is such a foreign concept to a lot of Americans because we have it in our heads that, oh my god, healthcare is so, so expensive. But you go almost to any other country in the world and it’s much more affordable. Anything is much more affordable. So I’ve got prescriptions. A lot of times you don’t even need prescription from medication, you can just go in and buy it. Or if you want to make an appointment, you can pay out of pocket, which I think some of the medical costs in Mexico, it’s such a fraction of what you would pay in the us then you can get in right away. You talk to an English speaking doctor who was probably educated in the us, you actually get to sit down with that person and talk to them for as long as you want instead of being ushered out in five seconds.
I know a ton of people who have had medical care in Mexico and have had great experiences, and they’re paying a 10th of what it would cost if they were to pay out of pocket and they can get in fast. So Mexico is just one example, but there’s great healthcare in many other places in the world. So think about what you’re paying in the US every month or what a lot of retirees are afraid of paying, and then just put that in your pocket and then the off chance something happens to you while you’re in some other foreign country, pay out of pocket and you’ll be surprised at how little it is.

Mindy:
Probably it’s definitely more affordable in other countries. I know some travel insurance requires you to be outside of the United States for more than six months out of the year in order for it to take effect. And the reason that they do this is because it’s so much less expensive.

Julie:
I mean, it is tricky. There’s a lot of different healthcare plans. This is what works for me because I’m still, I guess, relatively young and healthy. There are obviously people with other conditions and circumstances, so you’ll have to research what’s best for you. But I think the general feeling from a lot of Americans is I just can’t do it because of healthcare. And if you spend a little bit of time exploring what else is out there, people might be surprised. I just want to say that

Mindy:
Absolutely. I was very surprised when I heard from a nomadic friend about how she handles her healthcare. I was like, wow, that’s less than I pay. And probably for much better coverage,

Julie:
I pay like 40 bucks a month putting everything together.

Mindy:
Wow, okay. $40 a month. That’s definitely less than what I’m paying. Julie, do you have a fine number that you are working towards?

Julie:
I think I’m balancing a little bit of the live in the moment, and you can’t control what happens to you in the future. We can’t predict what happens to you in the future. Don’t waste your time worrying about it. I’ll deal with it when the time comes and this is working for me right now. In 10 years, I’ll revisit how my numbers look and maybe come to another decision. But we spend so much time just swirling up these worst case scenarios that that’s such a waste of mental energy. That’s such a waste of where we could spend our time and our brain power. I mean, it’s a balance, right? Because some people don’t think about anything and they’re just like, woo-hoo, do what I want. But I’ve been in that situation where I really just devolved on different scenarios in my mind, and now I’m much freer and happier if I’m like, I’m living in the moment. I’m letting things unfold. I’m being smart. Sure, I’m making good decisions. I am being thoughtful, but I’m not going to nitpick everything.

Mindy:
I think that you don’t need to be pursuing a fine number because you’re already living the life that you want and you enjoy the work that you do. I really, really appreciate your time today. This was so much fun. Where can people find you online?

Julie:
So everybody can find me on my website first and foremost, which is julie dere.com. That is the French way of spelling, and it’s a little play on words from the de, so it’s J-U-L-I-E-D-E-V-I-V-R e.com. And then on Instagram it’s at Julie B. Rose. And with those two put together, you’ll find any which way to contact me or look up my group trips or look up my ebook or whatever else you’re interested in. And would also love to hear people’s comments on this podcast. If you have any feedback from him, all ears,

Mindy:
I would love to hear that too. So you can email [email protected] and I will forward it on to Julie, or you can reach out to Julie at those places. I love your blog. Julie, I saw I first found you when you did an article. The things I would Tell my younger Self, I can’t remember the exact name of it. It was such a great article. Basically just don’t do dumb stuff.

Julie:
That’s my journalism background coming in.

Mindy:
It was a really, really great article and that sparked me down a rabbit hole to read all of your content, even though nomadic life isn’t my goal, it was still really fun to travel through you.

Julie:
Oh, well thank you. I really appreciate that and I love getting that feedback. I put a lot of blood, sweat and tears into being vulnerable and sharing some of this stuff, and it goes against my nature a little bit. I’ve been a little bit of a privacy, but I always appreciate hearing like, oh, this inspired me, this changed me, this I related to this, so thank you for that.

Mindy:
Yeah, you have an authentic voice when you’re reading an article and you’re like, oh, they were paid to write this. All they’re doing is advertising and advertising, and I really like the voice that this is my real life self, and that is kind of hard to find online. So I really, really do love your blog, and thank you so much for joining me today. I really had a good time chatting with you.

Julie:
Thank you for having me. I did too. What a fun conversation. Can we do this again? I could just keep going.

Mindy:
Yes, of course. Alright. Okay. Thank you Julie, and we’ll talk to you soon.

Julie:
Thanks. Bye.

Mindy:
That wraps up this episode of the BiggerPockets Money Podcast. She is Julie DeVera or Julie B. Rose. I am Mindy Jensen saying farewell C shall.

 

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Today’s guest makes $60,000 per MONTH the old-fashioned real estate investing way. He buys rentals you can find on any real estate listing site, uses his own money to invest, doesn’t need “creative financing” techniques to fund the deal, and treats his tenants well. This is a real estate portfolio anyone can repeat, and it has made Welby Accely a multimillionaire in just over a decade, even after he lost everything (three times!).

In a time when every real estate guru is trying to get you into the lowest-money-down deal with the most risk and the shallowest margins, Welby takes it the whole other direction. His simple offer “formula” allows him to buy properties under market value, fix them up, get them rented, and refinance out to create an “infinite return.” Basically the BRRRR (buy, rehab, rent, refinance, repeat) strategy, but EVEN safer.

How does he find rentals that are (almost) always worth more than what he pays for them? Welby says, “Every deal is a flip,” meaning if you buy rentals like a flipper would, your profit margins massively multiply, and you reap huge financial benefits. Welby is a REAL real estate investor, giving you a real strategy you can use in 2025, even with high interest rates. The question is, will you take advantage of it like Welby did?

Henry:
Did you know that every real estate deal is a flip? Even if you’re a hardcore buy and hold investor, you’re going to buy a house, you’re going to renovate that property and eventually you’ll sell that property. So whether it takes you three months or 30 years, it’s still a flip. At least that’s the strategy today’s guest used for the last 12 years to build a portfolio that generates $60,000 in net income every month. Let’s hear how he did it. Hey everyone, I’m Henry Washington filling in today as host of the BiggerPockets Real Estate podcast. Today’s guest on the show is Wellby Elli Wellby’s, an investor operating in the New York and Connecticut markets, and you may have heard him on a few shows around the BiggerPockets network, including episode 4 64 of this very show. Usually when we have investors back on the show, it’s because they’re doing something new and different, but I wanted to have will be back on the show because he’s still doing the same thing now that he was on the episode four years ago.
He’s buying properties on the market, he’s putting down 25%, he’s adding value and he’s selling them at a profit or renting them out for monthly cashflow. We’ll be still doing it now because it still works. Even for someone like him with more than $10 million in equity, it’s all about the basic fundamentals of good real estate investing. If he’s still focused on buying at the right price and correctly projecting his RV after 20 years in the game, you can too. So today Welby is going to tell us why he views every deal as a flip and why he likes putting money down and so much more. Let’s bring on Welby. Welby, welcome back to the show.

Welby:
It feels like it’s been forever, man. Thank you for having me back, man.

Henry:
Oh man. Good to have you back, man. So for the people who don’t know you, can you give us a little background, quick summary of your investing career?

Welby:
Yeah, so my name is Welby Elli. I started buying real estate in late 2003, early 2004. I live in New York and the first piece of property I bought was a four unit property. And what I talked to people about is about the major pitfalls that I’ve experienced in the business, my ups, my downs, the losses that I experienced, and ultimately how I overcame them to be where I’m at today.

Henry:
A lot of people have pivoted strategies or change what they’re doing over the past five years as the market shifted, but you seem to be doing exactly the same thing you were doing before.

Welby:
I’ve thrown some gasoline and fire on it exactly what I’ve been doing before. My story’s the same when I started out, going back real quick in 2003, it took me over 10, 11 years to figure this out.
So I got wiped out in 2008, 10 and 12. I got wiped out. And then what I realized by the time I got into the business around 2013, again, it took me about 18 months to be a millionaire. This is where I realized that the entire business of investing in real estate is a flip. And once I put that in my mind and understood that concept, my approach, I stuck with that. That’s what I’ve been doing. So regardless of what’s going on with the climate interest rates, high or low, slow market down market, it don’t matter to me. It doesn’t matter.

Henry:
I have a very similar business strategy. I’m doing the same things I was doing when I first got started in real estate because real estate is very simple. You have to buy property at a discount, you have to add value to that property and you have to monetize that property at its new higher value. And it doesn’t matter what interest rates are doing, it doesn’t matter what all the other expenses are doing all that just tells me that I need to buy it cheaper, right?

Welby:
Here’s the third part is Henry, most people will hear you just saying that and they don’t appreciate it enough what you just said. So people have this concept of buy low, sell high, but then there’s a threshold of buying low enough to be able to add the value that you just described to that property to ultimately sell that property or even refinance that property to keep that property long term for cashflow.

Henry:
So let’s elaborate a little bit. When you say every real estate deal is a flip, even if you’re a long-term buy and hold investor, every deal is a flip.

Welby:
I don’t care what you’re trying to do in this business. Everything about this business is a flip everything about it.

Henry:
Tell me what you mean by that.

Welby:
Alright, so I don’t care if you looking to wholesale, I don’t care if you’re looking to do subject two, I don’t care if you’re looking to flip like HGTV, I don’t care if you’re looking to do buying holds. I don’t care if you’re looking to buy foreclosures, who cares? Everything about this business is a flip. But what people need to understand is that there’s three major entry points of investing in real estate that the majority of people like to talk about. The first one is a wholesaler. What does a wholesaler do? A wholesaler gets a property under contract at the right price point to ultimately flip that property to somebody like me or my brother Henry. You agree or you disagree.

Henry:
That’s facts.

Welby:
Okay. Second is a flipper like HGTV. What does a flipper do? A flipper gets a property under contract at the right price point, renovates that property to put that property back on the market to ultimately flip that property to an end buyer. Typically retail. You agree or you disagree with me?

Henry:
Absolutely.

Welby:
Okay. Last but not least, is a buy and holder. What does a buy and holder do? A buy and holder gets a property under contract at the right price point, renovates that property, rents that property out to ultimately flip that current mortgage into a long-term mortgage for passive income. You agree or you disagree with me?

Henry:
Absolutely.

Welby:
The entire business of investing in real estate is a flip. Once I understood that concept, it simplified my approach of investing in real estate. So it didn’t matter if I was looking to build new build construction or if I was looking to wholesale a deal to somebody or if I was looking to keep that property for long term. There’s a fundamental approach that you must have regardless of the market that you in the style of investing that you want. And once I understood that concept, you could drop me in any market on this planet and I’m going to make me some money.

Henry:
Yeah, man. So essentially what you’re saying is you have to know how to buy properties the right way because at the end of the day, you got to be able to exit that property even if that exit is you refinancing the loan to yourself,

Welby:
Who

Henry:
Cares? It’s still selling the property, you’re selling your equity, you’re just selling it to yourself.

Welby:
Exactly. And one of the most important skillset that an investor needs to have is the ability to evaluate.

Henry:
Tell me more about that. How are you evaluating your deals?

Welby:
Well, for me, any property I’m looking at, it has to fall into one of two categories. But normally most of my properties fall within both. Any property I’m looking at, it must be a distressed and or underperforming property. I have zero interest in buying anybody’s turnkey property. I must have the ability to add value to the property. If I can’t add value to the property, it’s not a deal for me. So with that approach, let’s just talk about rentals. I’m looking at properties that are distressed, meaning that the property is beat up. It’s the same material, same kitchen, same bathroom that was built in the 1980s, or I’m looking for a property that the landlord is getting is tired. The rents are currently $800 a month. But in reality, if you would give this property some love, I could double the rent. So I must be able to add value to the property.
What most people don’t realize now is that most people are playing the waiting game while Henry and I are playing the forced appreciation game. So the same property that somebody’s going to buy hypothetically at the top of the market and they’re so excited to get to the closing table, you bought that property for $300,000, me and Henry is going to fine negotiate and purchase that property for maybe 120,000, $120,000. We’re going to then now maybe put in another 60,000 to fix it. We have $120,000 of immediate equity that was forced appreciated in the same timeframe of how you purchased your property. So now we accelerate in our wealth way more quicker than when you buying at the top of the market simply to be excited to buy and then wait for appreciation.

Henry:
So you look for distress or underperforming. So distress meaning the quality of the property may be under distress and underperforming, meaning it may not be producing the income it should or could be producing because a million reasons. Sometimes landlords just don’t like to raise rent. Sometimes a lot of landlords are just bad landlords

Welby:
Most of the time.

Henry:
Most of them are, and they don’t do the right things about making sure their properties stay up to date. And so typically when people talk about buying distress or underperforming, that typically means they’re buying everything off market, right? That’s what you do.

Welby:
Oh, absolutely not.

Henry:
You’re not buying off market.

Welby:
Listen, 85 to 90% of the deals that anyone ever sees me purchase, I purchase right off the MLS Zillow, redfin realtor.com.

Henry:
So 2025 right now when everybody thinks they can be a real estate investor, you still buy 80% of your deals on the market off the MLS and you distress and underperforming

Welby:
A hundred percent. Now that doesn’t mean because I don’t want anybody to think they’re going to box me into a corner and say, oh, he only buys in that manner. 80 to 90% of my deals come off the MLS. But of course, given the fact that we’re out there actively investing off, off-market deals will be presented to you eventually,

Henry:
Right? But you’re not spending a bunch of money on off-market acquisitions.

Welby:
I spend zero money on off-market acquisitions. I’m just active and I get opportunities. People contact me or people knows me. I have a reputation in the area and it gets presented to me.

Henry:
Alright, we have to take a quick break, but when we come back I’m going to ask Welby to give us some secrets on how he’s finding these great deals on the market. We’ll be right back. Alright, we’re back with Welby. Let’s jump into finding deals on the market. Alright, Welby, we want to make sure that we give some people some actionable information. You are claiming you’re buying the deals on the market. Most investors would love to just open up Zillow or realtor.com and find a property to buy and go and buy it, but they struggle to do that. So what are you looking for that maybe other people aren’t that helps you find some of these distressed or underperforming properties?

Welby:
Well, doing your recon work in the environment that you’re looking to invest in is vital because I’m sure Henry, if I were to ask you the areas that you are investing in, I bet you that you have your finger on the pulse and when a new property pops up on the MLS, you are aware of it.

Henry:
Absolutely.

Welby:
And then if something lingers on the market longer than usual, you are aware of it as well. So that’s what I do. So I invest heavily in multiple areas in the Connecticut market. I utilize notifications on these apps like the Zillows order redfins or realtors.com to let me know when new properties pop up. And then I have relationships with realtors as well. When new opportunities pop up, I usually get notified and say, Hey, did you see that property there? And then within a few minutes I’d be able to tell you how much I’d want to pay for that property and how fast I can close on that property.

Henry:
Okay, so a new property pops up on the MLS, it hits one of your email notification lists. You get an email. How long does it take you between when you get that email to submit your offer? I think a lot of people think, well, I got to go see the property, I got to evaluate it, I got to figure out what I want to pay for it. I got to submit my offer. So if you get a notification right now, how long until you make your offer,

Welby:
I would have an offer in within five minutes I’d have an offer.

Henry:
So you’re not seeing these properties before you offer,

Welby:
I don’t want to be extreme, but I would say almost a hundred percent of my properties that I put an offer in, I do it site unseen. What happens is, is that you build up enough of an experience to understand because you’ve done enough of these type of properties in the environment that you already can have a strong estimate of what the cost is going to be for you in to that you understand how to evaluate based off of what you project the cost of the rehab is going to be. You understand the maximum of how much you’re going to be able to buy that property for in relations to what it’s going to cost you to fix it, right? So given the fact that I already understand that I already have realtors in my Rolodex, I’ll contact them and say, Hey look, I need you to put an offer in. Here’s my proof of funds. This is how much I want to submit. You will miss 100% of the shots that you don’t take. I already understand that the odds are of me winning a bid on a property is extremely low. That’s just the nature of the business. So you want to cast out as many fishing lines as possible because eventually somebody’s going to bite or entertain your offer. So when I submit my offer, I give my proof of funds, I leave it to the wind and move on to the next opportunity.

Henry:
Okay, I love this. Well, because I think you’re dispelling a lot of myths for people. I feel like people think you can’t find deals on the MLS, but right now in 2025 you’re still doing it. And I think that people think that if you’re going to make offers on the MLS that you need to go see every property. I don’t do that either. We do make offers on MLS deals and we don’t see them. And I think what I want people to understand is the two things that you need to be able to make an offer on a property if it’s listed on the MLS, is you need to know what’s the A RV. And just because it’s listed at a price does not mean that price is the A RV. You need to do your own research and run your own comps or have your agent do their own research and run their own comps so that you know what the A RV is.
The benefit to somebody like Welby or myself is we’re experts in our market. I can see a property and see the address and pretty much ballpark the A RV because I’ve been investing for long enough. But until you get there, you can’t do that. So you need to be able to comp the property yourself. The second number you need to know to be able to make these offers pretty quickly is you need to know what it’s going to cost you to renovate that property. But in order to make the offers on the MLS, you don’t have to have that number dialed in down to the penny.

Welby:
No,

Henry:
You don’t. You just need to be able to ballpark it. We’re not saying buy properties without seeing them. We’re saying make the offer

Welby:
Thank you

Henry:
Without seeing it.

Welby:
You give me goosebumps, bro.

Henry:
Once you get that person to respond to your offer, maybe it’s a counter, maybe it’s an acceptance, then you go see the property and you dial in your numbers to the penny and then you can modify your offer based on what you see at the property. But if you spend your time seeing every property before you make an offer, it’ll limit the amount of offers that you make and it’ll take you forever to get a deal. But what Welby is doing is he is making an offer on everything that pops up that it fits his buy box. And here, lemme tell you another secret. You know what the least important number you need to know is what it’s listed for. I could care less what a property is listed for. What you want to sell your property for is between you and God ain’t got nothing to do with that. I can only offer what I’m willing to pay for it.

Welby:
You know how many people put themselves out of the game because they’re so focused on what the list price is versus understanding your price. Your price is most important to you so you know your price and forget about the list price. What’s also important is within your offering a contract, you want to put contingencies in the contract which will automatically protect you. So then when you do decide if they are entertaining the offer that you put in, when you do decide to go physically, go look at the property. If for whatever reason it blows the budget that you projected because of the contingencies you put in the contract, it allows you to pull out and not get penalized financially.

Henry:
Absolutely. And your agent can help you with those contingencies. An experienced agent, especially one that’s worked with investors before, will know exactly what contingencies need to be highlighted in that contract.

Welby:
That’s right.

Henry:
So I want to give everybody a quick formula that they can use when they’re evaluating these deals and making their offers. This will help you be able to make more offers on deals on the MLS or make offers in general. So what you need to know is what’s my max allowable offer? How much can I afford to pay for this property to hit the numbers that I want to hit? So MAO max allowable offer equals the after repair value or a RV minus your real estate commissions that you’re going to pay. So minus 6% for real estate commissions minus your closing costs. But it’s not just closing costs on the sale, it’s closing costs on the buy and the sell because you got to buy the property and you’ll pay closing costs and then you got to sell the property and pay closing costs. And I like to pad this number because right now buyers are requesting more from you.
When you sell a property, buyers are wanting you to pay their closing costs too. And so I’m padding that number a little bit. So MAO equals RV minus commissions, minus closing costs, minus holding costs. This is what does it cost you to borrow the money? If you’re not paying cash, you’re going to borrow the money. That means you’re going to pay interest. You need to estimate how much interest you’re going to pay. If you’re using a bank, it might be seven, eight, 9%. If you’re using hard money or private money, it might be 10, 11, 12, 13% minus your renovation costs. So that’s the estimate of how much it’s going to cost you to renovate that property and then subtract how much profit you want to make. Once you subtract how much profit you want to make, that’ll leave you with your max allowable offer. And so you can quickly do this math for every property that’s listed that you want to make an offer on, and then you can present that to your agent. Your agent can write that offer. And then when and if somebody responds to your offer either by countering it or accepting it, then you set the appointment, see the property, and you can adjust your numbers accordingly after you see that property.

Welby:
And the reason why what you just described is so important is because you want to avoid burning yourself out. And if you are going to attempt to make appointments and view every single property that you have interest in before even making an offer, you’re going to spend one weekend doing that and then you’re going to say, I’m not doing this anymore because you burnt yourself out. But what Henry just finished describing is pretty similar to what I do and I could make 10 offers in a day in my sleep and never be burnt out.

Henry:
You’re also not burning out your agent when you do it that way because your agent doesn’t have to meet you at every single property.

Welby:
That’s right.

Henry:
It’s a big pain in the butt. Your agent does need to write the offers, but you can have your agent set up a template for this format so that all they have to do is click a few buttons every time you want to submit an offer and not have to write it up fully every time. So I think this is great information for people. Welby. Alright, we have to pause for one more break, but on the other side, Welby gives us more insights to how he’s built his real estate portfolio. Alright, we’re back. Here’s the rest of the conversation with Welby a seller. Alright, Wellby. So you’re buying the majority of your deals on the market, you still do some off-market deals. What kind of volume are you doing, let’s say on a yearly basis?

Welby:
Well, at a peak I was doing 20 to 30 flips a year. To be honest, it’s slowed down considerably, but the returns are astronomical. So that’s why I say that it’s not about the quantity of the deals, it’s always going to be about the quality of the deals that you do.

Henry:
You’re saying you’re doing less deals, but the deals are more profitable. Does that mean you’re flipping more multifamilies or bigger properties?

Welby:
My business model is if it’s a single family property, I’m flipping it to sell. If it’s a duplex, I’m flipping it to sell. If it’s a three unit or more, I’m buying that property to keep long term.

Henry:
So what do you think about investors who are wanting to do this and not putting any money down? How has that been as a growth strategy? Is that something that you did typically?

Welby:
Well, I want to put money down.

Henry:
Okay, why?

Welby:
I like the idea of putting money down because the strategy that I approach with buying these properties, I’m usually able to recoup all my money back within on average less than a year. But if I have to be an extreme 18 months, 19 months, I’m able to recoup all my money back in the meantime. I’ve never stopped flipping, so I’m still generating money elsewhere. So the goal for me is to be able to acquire these properties, put as much money down as I possibly can, or even buying outright if need be, to then ultimately be able to generate enough cashflow that I’ll be able to recoup all of my actual money out of it so I can get to a point of what they call an infinite return on my money.

Henry:
One of the things I like about you as an investor is you do things the old fashioned real estate way, and I think a lot of people try to accelerate things. They try to do more deals than maybe they’re financially prepared to do because they’re not putting money down and then you get over leveraged or they’re trying to find deals without putting in the time or effort or work that it takes to find the deals. And then what really happens is the opposite. You end up having to go really slow or you end up putting yourself in a tough financial position. So I like that you take the approach of, look, I’m going to buy a property, I’m going to find value. I’m going to put my 2020 5% down, I’m going to add the value, I’m going to pull my 20 to 25% out and then I’m going to do the process again. And if you can only afford to do one deal a year that’s right, doing it that way, that’s okay.

Welby:
That’s

Henry:
Okay because you’re doing it in a safe manner that will allow you to over time, be able to do more and more, right? You don’t have to come out of the gate and do 20 deals in your first year. You can come out of the gate and do one or two and then as you build up, you can do three or five or 10 the next year.

Welby:
When I started out, I did exactly how you described after the 10 years of losses. I said, let me do this one deal. Let me do this one deal. Let me do it right. And I followed the steps, I did the one deal and I made $25,000 almost I cried like a baby. I was like, I know I could do it. I said, you know what? Let me do it again. And then the next deal, I made 45,000. Okay, well be it work. Let me do it again. And then before you know it, I’m building up my team, I’m building up my own system, my own strategy, and then next thing you know, I started doing four or five deals simultaneously
And then before I realized it, I flipped my way and I had over a million dollars of liquid cash. I’m a guy from Brooklyn, New York, Queens, New York. I wasn’t born with a silver spoon in my mouth. Then I realized that okay, I’m making this money, but if I don’t find a way to put this money somewhere that’s going to generate passively, I’m about to hit a brick wall. So I started taking that money, started buying me rental properties, but I said I’m going to approach it differently. The conventional way that most people tell people to do is find the cheapest way of acquiring the real estate. That could mean doing FHA, that could mean doing va. That could mean doing a whole bunch of other different programs. And I found that it was dangerous for the majority of people. So I said, let me approach it differently.
Any property I buy, especially if we’re talking about long-term, I’m going to put down 20 to 25% on the acquisition. But here’s the big difference. Your 5%, three and a half percent you’re going to put down on that property is going to be equivalent to the 20 to 25% I’m going to be putting down. It’s the same amount of money, but we bought it differently. So now I don’t have no intent of refinancing out. I got me a long-term 30 year mortgage that is set Now all I got to do is make this thing beautiful. By the time I finish making it beautiful, I’ve already factored in how much I’m going to be able to generate. Then I could time how long it will take me to recoup back that 25% plus the rehab. And then don’t forget, Henry, we forced appreciated the value. So now we got the equitable increase. Your actual money that you put down is almost removed if not already removed, and now you got this property for the rest of your life if you choose to giving you a net positive income substantially. And I just did this over and over and over again.

Henry:
Yeah, man, it’s called real estate 1 0 1 man. I think there’s a lot of distractions out there. People are trying to get super creative. Speaking of trying to get super creative, a lot of people are trying to get creative and get fancy right now because interest rates are high, because taxes are high and insurance has gone up. As we’re in this cycle where the perception of interest rates are high. I say the perception because history would tell you that these interest rates are pretty normal. So how has that impacted what you do? Are you still finding deals that cash flow in 2025 regardless of the interest rate?

Welby:
A hundred percent. If you’d like, I could break down a deal for you that I bought

Henry:
You. Read my mind, that’s what I want to hear. Tell us the

Welby:
Numbers. So this particular property, I’ll give you an example of. I recently bought, I bought about eight months ago.
I bought me a four family property. I ironically, that four family property is down the street from a six family property that I own. That property actually was listed on the MLS. When I saw the property, I wanted to put an offer on the property. The owner listed the property for 190 something thousand if I remember correctly. And now I knew already that the property was worth at least $450,000. When I had my realtor reach out to the gentleman, the gentleman put in the description, he had no interest in hard money, no interest in FHA because he knew that it would not be fundable because it was a distressed property, the condition of it. He only wanted cash. That’s it. So it knocked out a lot of people in this industry. That’s already happening now with a lot of people. That’s why we want people to get themselves ready.
So when I met the person, I offered him 150, 1000 all cash, and I told him I can close in the next seven days. He jumped on it and he sold me the property. So now the A RV as Henry was describing a few moments ago was the number one important question that you must determine because that’s the starting point of an evaluation of a property. I already knew the property was worth 450,000 because I already owned multiple similar properties in the area. I was able to negotiate the purchase of that property for 151,000, and I was able to rehab that property for approximately $60,000. So that meant that I was going to be all in on this property for 211,000. The 151,000 came from a home equity line of credit, and the other 60,000 rehab came from one of my American Express cards. I renovated that property, it took me about a month and a half to two months to get that property fully renovated.
Upon completing the full renovation, I doubled back and I went to the bank for A-D-S-C-R loan. Now for those that don’t know what A-D-S-C-R loan is, that’s what they call a debt service coverage ratio. So now in a type of loan like that, they don’t care about your credit too much, they don’t care about your income, they care about the performance of the property. Now the majority of people in a circumstance like that would’ve refinanced to max out what they could pull out of that property. So they would’ve taken over $450,000. They would’ve taken 70 to 80%, which meant they would’ve pulled out around $350,000 on that property. With the interest rates today, the mortgage on the property of 350,000 in my area, because the taxes are pretty high, would’ve been about 32, 30 $300 a month. Now the property is a four family property. What I decided to do is I only wanted what it cost me buying it and fixing it.
So I got me a mortgage on the property for $206,000. So I pretty much got $206,000 out. I still was left with about $60,000 in the property from the American Express card. The mortgage on the property today, only eight months ago, is $2,006 per month. First apartment I get $1,550. Second apartment, I get $1,550. Third apartment, I get $1,900. Fourth apartment, I get $1,900. This property after expenses is all paid. I’m netting, netting, everybody. Netting well over $4,300 per month, almost $50,000 per year. Since the time I’ve owned the property, I was able to recoup the balance from the cashflow that I was able to pay the American Express card down to zero. So for a property I bought eight, nine months ago, I don’t have a penny of my own money in this property. I have a debt to the bank of 206,000 and a value of $450,000 on the property, which gives me an equitable increase of $250,000 that I can add to my wealth.

Henry:
That is fantastic numbers. That’s great Cashflow numbers. I think what’s important for people to hear about this is the reason that you’re able to, cashflow has nothing to do with the interest rates,

Welby:
Nothing to

Henry:
Do and has everything to do with finding. One of the two things that you mentioned is you found distress and underperforming. In one of the situations. You were able to meet the seller’s needs, the seller wanted a cash sale quick and you didn’t care what that seller was asking. If I recall, you said the seller wanted 190 5K and you paid 151,000, and a lot of people are scared to make their offer because you essentially offered him 40,000 to $50,000 less than what he was asking. And a lot of people see that. They go, oh, well he wants 1 95. I couldn’t pay more than one 50. So it’s not a deal. It’s not a deal. I can’t do anything. What a seller wants for a property has nothing to do with you or what you can pay, and we need to stop making decisions for other people because what most investors do, or what most people do is they say, ah, he wants hundred.
I can’t pay one 50. He’s not going to take my offer. Why did you make that decision for him? You have no idea if he’ll take that offer or not. You don’t know what the most important deciding factor is. The difference between going direct to seller and going on the MLS when you find a deal is your access to the seller. So when I go direct to seller, I can literally have a conversation with the seller and then I can figure out a way to meet their needs. But when you are talking on the MLS, you rarely get to speak to the seller. You’re typically dealing with an agent. And so the only way for you to truly find out what that motivation is is for you to make an offer and see if they jump at it. And so don’t make a decision for a seller that they won’t want your offer.
Try to piece together the best offer that you can put together for you may not be money is the best thing that you can offer. What well be said is I’ll offer you 1 51, but I’ll get you a seven day close. That sounds great. To a seller who wants cash and wants cash fast. I did something very similarly with a property that I bought here. Agent reached out to me and said, Hey, this property is going on the market. This guy wants 120,000 for this duplex. It’s livable. It will need some work, but there’s two tenants in it. And I knew I wanted it and I knew what’s the seller want. So what most people were going to do is they were going to shoot their shot and then they were going to have a 30 day close period and they were going to do an inspection.
They were going to do all this stuff that was going to take forever. I said, tell him I’ll give him 75,000 in seven days. He took my offer because I wasn’t going to inspect it. I knew I was buying some distress and I want to fix that distress. Anyway, so we paid 75,000, had that property closed in seven days, and it started making me money from day one. So I want to make sure people, when you’re making offers on the MLS, you’re probably going to have some competition, but think about what is it that you can offer other than money that might make your offer more attractive. I just said sometimes you can do a quick close. Maybe you don’t have that in your bag just yet, but what do you have? Could you offer earnest money? James Dayner does this. He will offer extremely high earnest money.
He would make offers on properties where he would give them 80% of the money as earnest money. Meaning that they are pretty much saying, here, we’re going to give you most of the money upfront. And then as long as everything checks out, then we’ll close on the property. That made it very attractive. Shows he’s serious, right? So maybe you can say, I’ll put 10, $20,000 down to earnest money. Maybe you can say, I’ll give you 10, $20,000 in non-refundable deposit. If you’re confident that you’ll be able to close and to protect yourself, what you can do is you can say, my earnest money or my non-refundable deposit does not go hard until we have approved inspection. And then that gives you the opportunity to inspect that property. And then if something’s crazy that you don’t like, then you can back out without losing your money. But it still makes your offer very attractive. It shows them you’re willing to put your money where your mouth is.

Welby:
That’s right. I love it. Love it, love it, love it.

Henry:
Awesome man. Welby, this was great information, man. I love talking to you about real estate because I love how you do real estate. You truly do real estate the right way. As you look to the future, man, as you continue to do real estate deals and grow your business, is there anything you haven’t done that you’re interested in doing? Or are you just going to stay the course?

Welby:
Honestly, I love what I’m doing. I love what I’m doing. I have people that try to give me other avenues to do. And you know what? There’s so much more to eat on the table that I’m eating. Let me get my fill and then we’ll see what will happen then. So right now I’m going to stay the course and do exactly what I’m doing and the method of what I’m doing because it’s working.

Henry:
Alright, man. Thank you Wellby for joining us on the show today. Thanks to everyone for listening. I am Henry Washington and we’ll be back with another episode of the BiggerPockets podcast in just a few days.

 

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Making $6,000 in monthly cash flow from just four rentals?! Given the current housing market, it seems impossible, but today’s guest is about to show you the secrets to building a profitable real estate portfolio. There are opportunities out there—you just need to know where to look!

While many beginners hope to one day earn enough rental income to quit their W2 jobs, Jamie Banks did the reverse—leaving her job to go all-in on real estate investing. This risky move paid off, as in just two years, she has already built a portfolio with enough income to replace her salary. She started out co-hosting, and while this strategy helped her learn the ropes of residential investing, it wasn’t going to help her build wealth. So, she turned her attention to buying rental properties instead—using her superpower, networking, to find private money lenders who could help fund her deals!

Jamie’s journey hasn’t been all smooth sailing. She has heard “no” more times than she can count, tried several investing strategies, and bought a property that barely breaks even. But despite the setbacks, she has always found a way to learn and grow. And Jamie isn’t taking her foot off the gas any time soon. Stay tuned to hear how she plans to scale to $10,000 in monthly cash flow and break into commercial real estate!

Ashley:
Hey, rookies, mortgage rates are falling, but the uncertainty of the economy is slowing. Real estate sales opportunity is still here, but getting specific with your strategy is key to finding a good deal.

Tony:
Our guest today built a major cash flowing real estate business in just two years with more growth opportunities on the horizon. Using her superpower of networking, she assembled the right financial partners, informed a specific roadmap to reach financial freedom. Get ready to take notes. There’s a lot to learn in today’s episode.

Ashley:
This is the Real Estate Rookie podcast. And I’m Ashley Kehr.

Tony:
And I’m Tony j Robinson and welcome to the show. Jamie, thank you for joining us today.

Jamie:
Thanks so much for having me,

Ashley:
Jamie. You have so many amazing stories that we’re going to get into, but first could you walk us through on a high level your journey from that first property in Philadelphia to your current portfolio of four properties in just two years?

Jamie:
Sure. So I bought my first investment property in January, 2023, closed on it and a few days later actually got my first arbitrage a few doors down, so became hooked a little and then from there realized that I had a primary residence that I wasn’t house hacking and so I needed to do that as well. So I got kind of a few rentals fairly quickly. I ended up giving up my arbitrage, but after that bought another property in New Orleans, which I think we’ll kind of touch on later as an MTR. And then late last year bought a property in a new market in Indiana, which I did a lot of research on and really found which market in the US works best for my strategy. And so that one’s been a lot of fun as well. So really went from Philly to a few different other markets, but I’m currently utilizing the MTR strategy for all four.

Ashley:
Well, Jamie, I can already tell we’re going to learn a lot of different things from you, from market selection, deal analysis, strategy choice, but you used the word arbitrage. Can you explain what arbitrage is and how you implemented that into your real estate investing journey?

Jamie:
Sure. So arbitrage is essentially renting an apartment or house and then subleasing it or renting it out at a higher rate to another party. And so essentially I worked at the time in commercial real estate and did a lot of research in the multifamily industry. And so my first property was in Philadelphia and I knew and brought it in January I think, which I mentioned and I knew in January and Philadelphia properties have a lot of vacancy because it’s cold and because no one wants to move to Philadelphia in January. And so I kind of essentially door knocked, but they were large apartment buildings. So I apartment knocked and just went building to building, told them I plan to rent to tribal medical professionals, corporate professionals, and basically just went around to different buildings. And so one told me yes, and so from there I had quick numbers on what I thought I could rent it out for because at this time I’m still furnishing the one I just bought, so I don’t really know my right yet. And got a small studio apartment but was in a great area in Philly, which I’ll just say area and location in Philly is very important and so it’s garage parking. And so having those amenities really just kind of helped me really be able to make the most out of that arbitrage.

Tony:
So Jamie, I mean first just super impressive on your end I think to go door knocking to all these different apartments. Did you have a background in door to door sales or what gave you the confidence to just kind go out there and start hitting the pavement in that way?

Jamie:
No, not at all. I think my confidence was more so of understanding the numbers and I will say I did some kind of insider research and had access to CoStar, which for those who don’t know is a huge commercial real estate marketplace. You can pull vacancy rates, occupancy rates, rental rates for all types of commercial real estate assets. And so I could basically pull the numbers for the vacancy rate for different apartment buildings and was able to see the one I ended up or the few that I ended up kind of targeting first were fairly new build and had under 40% occupancy. And so coming to them saying, Hey, I’m willing to sign a 12 month lease or a 14 month lease or I’m willing to move in tomorrow, and just using different negotiation tactics helped me get in. Actually when I first went, I asked for six months of free rent and they came back at four, so I didn’t know I was going to get any, but I was like six months and they kind of talked among themselves and I was like, well, four works. And so it’s just once having the four months obviously really helped my numbers. And so once it was time to kind of renew the rate, the numbers no longer worked, but it was definitely great while it lasted,

Ashley:
I’m starting to rethink my life choices. Maybe I need to go and find new development and negotiate free months of rent and just every year move to a new development and only pay for it for half the year.

Jamie:
I had kind of insider information and I knew from we would do originate commercial loans. We did a lot of preferred equity, which was kind of second position, senior debt to large multifamily. And I knew developers, they’re just trying to get basically people in there so they can refinance and develop something else. So I cannot use that to my advantage.

Ashley:
I’m so impressed by how you were taking all this information to use it to your advantage to create a strategy for yourself.

Jamie:
Thank

Tony:
You. And I love the idea of different leverage points in negotiation like, hey, I’ll move in tomorrow. I think that’s a really, really unique strategy to get them to play nice with you. You start to build your portfolio and just walk through the 30,000 view again. So you buy a property, you get the arbitrage, you exit the arbitrage. What exactly does the current portfolio look like today and what all markets are you currently in?

Jamie:
Yes, so I am currently in four different markets, Phil, Pennsylvania, which is where my first property that I bought was. Also the arbitrage that I’ve since exited is I have a property right outside of DC in Northern Virginia that was a house hack, but I recently moved out of, turned into a whole home MTR, also have a MTR in New Orleans, Louisiana. And then my newest one is right outside of Indianapolis, Indiana.

Tony:
Now something you mentioned, because I’m just curious how this plays into the story, but you said that you worked in preferred equity or private equity. Was that your day job working in that or what was that line of work exactly?

Jamie:
Yeah, so it was my day job and so essentially when I would say interest rates started to increase even I would say the end of 2022, before I would say residential investors started kind of seeing the pain points in commercial real estate, 1% increase on a $40 million property is a lot. And so then there was a deal that I worked on where the bank about a week before closing said instead of lending at 75% LTV or loan to loan to value, which meant basically it was 25% of equity that had to be raised in the deal, they would only lend at 50% and I think that deal was maybe 50 million. And so they’re asking us to come up what’s an additional 25 million or what is that like over 10 million in a week? And so basically the company I was working for at the time really started doing preferred equity, which essentially was coming in as equity, but it was a second kind of a secondary lien. So I think the same way people might use private money and a residential deal, we would come in and offer for a really high rate. The last deal that I originated in 2023 before I left my W2 was at 15%. And obviously interest rates kept going up from there. And so it was more flexible because we weren’t a bank I think definitely helped me catapult into where I am today and how I look at different investments.

Ashley:
And when you transitioned out of your W2 job, you took on co-hosting, is that correct?

Jamie:
Yes.

Ashley:
Yeah. So tell us why you started that business and how that’s going.

Jamie:
I started the co-hosting business when I finished, when I quit my job because to be honest, I didn’t think of how am I going to earn active income. And so as all investors know, you might have amazing cashflow. I would tell you I do have great steady cashflow, but one hot water heater or one month of vacancy can take that away. And so I started co-hosting as a way to see which markets and kind of test out different markets that I would want to invest in because while arbitrage is a generally low cost way to get into a midterm rental, it’s not free. You still have to pay security deposits first, sometimes last month’s rent, and there’s still an initial investment required where I actually got paid to set up in different markets. And so that was a way how I grew my active income.
Another thing I was able to qualify for real estate professional status, which is definitely a key and I only a game changer to me and my husband’s wealth building strategy. Also, I was able to see that I don’t love managing midterm rentals in a lot of different markets. I did that for about a year. I had a team of VAs who was pretty much doing most of it, but I like to do, and I learned this from my W2 days, an annual review of just how is the business doing, how is my time best spent? How is each investment doing? And my co-hosting properties were netting me a few hundred where I have, and we’ll talk about a little later in my portfolio net’s me a few thousand on average per property. And so I saw that for me it was best use for my time to stop co-hosting and focus on raising private money, which is something I already started doing to grow my portfolio because then from there I was able to cashflow more and it’s also less stress because I’m answering to myself versus someone else. And then also I’m able to benefit from the tax strategies as well. So pivoted from that. I think for me, it’s funny, I kind of consider it an internship even though it was my full business, but I think for me, in order to see if I want to do something, I have to do it at scale and test it out. And so it was definitely great to show me markets that are good and markets that are bad for MTR and then also help me identify what makes the best midterm rental market.

Tony:
Yeah. Well Jamie, you seem like just a complete hustler to go from, Hey, I’m going to do this deal, I’m going to do this arbitrage, I’m knocking on the doors. Now you’re setting up the CO and business. And I think far and above and beyond just the skills and the strategies we’ll talk about today, I hope one of the things that the rookies take away is that you just have a very strong bias for action. And I’m sure that’s helped lead to a lot of your success. So we want to hear more Jamie about your investment strategy and how it’s evolved. And I hear you’ve got a little bit of a superpower when it comes to networking, so we want to break that down as well. But first we’re going to take a quick break to hear a word from today’s show sponsors.
Alright, so let’s get back to the show with Jamie. So Jamie, I hear that one of your superpowers is your ability to network. So can you share with us how you networked your way into finding some of these money partners, some of these financial partners to help you fuel your growth? I think for a lot of rookies that are listening, the biggest challenge is, well, where am I going to get the funds maybe after my first deal or my second deal to keep scaling. And it sounds like you solved that problem. So what is the secret? How can I network define all these folks that have the capital?

Jamie:
Yeah, I would say one, it really goes from knowing your investment strategy. And so for me, knowing that for my investment strategy, I need private money for three to five years, which isn’t typical, but knowing this, I’m able to back into, okay, now who is my ideal lender? The same way you have an ideal tenant, you might have an ideal property, a buy box. I like having my ideal lender and for me that’s personally someone who worked a W2 job that they left and they still might be W2 now, but really they have money but not time. And I like to work with people who have, I say left there a prior W2 job because generally they have funds in a 401k or IRA or another investment vehicle that can be transferred to a self-directed IRA and self-directed IRAs allow, basically it allows you to self direct the investment to anything.
So you can self direct it to Tony because he needs 10 bucks or you can self direct it to me or you can self direct it for different things. And so I’ve seen that those lenders or more flexible with a three to five year term because it’s retirement money that they can’t touch anyway. And so with that, I would go to real estate investment meetups conferences and I’m really looking for that specific person. And then also too, just sharing my journey on social media. One of my repeat lenders has actually been from social media and we’ve never met in person, but we’ve talked, she was actually a client of mine with some services I offer. She came to me to learn more about midterm rentals, realized that she doesn’t have time for it, and then decided to invest with me.

Tony:
Jim, you said that one of the other places that you’ve gone is to local meetups and I think that’s just so accessible for most rookies because not everyone’s going to want to hop in front of the camera and make content for social, which I get, but the meetup is something or the local events or the big conferences, those are things that are accessible to everyone. So you said that you had an idea of who you wanted to go after or who, I shouldn’t say go after who you wanted to connect with, but once you found those folks, what were you actually saying to open up that dialogue? How do you go from, Hey, we’re strangers meeting at this meetup to hey, you’re now potentially funding a deal that I’ve got?

Jamie:
Yeah, I think there’s key words that now that I’ve raised a lot of money that I hear, and usually it’s like, oh, I’ve always wanted to invest in real estate. And usually the but is time, right? Or it could be, oh, but I only have $25,000 and I’m in California, which is not going to go really far. And so hearing those things that they’re interested in real estate, I always just let them know that there’s ways to invest in real estate without actually being the landlord. And I was like, and doing all the hard work like I do. And so then if they engage in the conversation, then I’ll just start to let them know that was my last investment. I worked with someone who lended the money and who was the bank who got a fixed return. And then I’m able to operate the property and I take on the risk where the lender gets a fixed return.
And I explain to them a lot of times, obviously it depends, it’s different if we’re at a meetup where we might only have a few minutes versus a conference where we can kind of step aside. But my goal is always to have a separate conversation because I like to have at least three different contact methods before working with someone and starting to negotiate rates because even though this person isn’t a debt partner, not an equity partner who you’re, but maybe talking to continuously, you still are a partnering, you’re still partnering and you don’t want someone and you want to understand it’s like are they going to ask for the money back? Is this their last 50,000? Because you definitely don’t want that. And so I think just kind of asking questions but also just times I’ll even bring up, oh, I worked with someone who was kind of like you and lend this money and just kind of giving the example.
And when someone starts asking questions, I think that’s when you can really just say, Hey, well let’s schedule a call. No pressure to talk about it. And I’ve also started doing webinars where I call ’em how to passively invest in real estate and I don’t just talk about investing with me. I’ll talk about how to invest in res, how to invest in reefs and different investment avenues. Then obviously I want them to invest with me. But I think just even having those webinars that are low pressure and just telling someone, Hey, if you want to learn more, just come to my webinar. No pressure. Think people sometimes like that better than hopping on a one-to-one call where they’re kind of nervous to be sold to. That’s kind of a low pressure way to get the information without having to talk one-on-one.

Ashley:
Now Jamie, it seems like you’ve pretty much stuck to your niche of medium term rentals. What about your locations? You mentioned a couple different cities. What is kind of your geographical niche of where you actually want to invest in?

Jamie:
That’s a great question. All over the US right now, don’t recommend that by the way, Indiana. So I will say that I’m the one, I think Tony said before I take a quick action, and I think part of that is deciding when it’s time to pivot. And so with Philadelphia bought in Philly two weeks later, the market started regulating short-term rentals. And essentially if the property wasn’t owner occupied, it couldn’t be a short-term rental. And so overnight, I’m kind of a data nerd, so I track different data points because for midterm rentals there aren’t the same, it’s not the same data out there that it is for short term rentals. There’s no air DNA and things like that. And so overnight, I track the percentage of properties on the OTAs, the online travel agencies, which are Airbnb, vrbo that are MTRs or that have a 30 plus day minimum. And so that number overnight went from 12% to 30%, which if you look at 30%, that’s one in every three properties on Airbnb is a midterm rental.
One in every three travelers is not a midterm traveler to Philly. There’s definitely going to be more short-term demand. Things like that have showed me, okay, it is time to pivot. I shouldn’t keep buying in this market even though if my property is doing great, it’s definitely time to look at a new market. For me, I’m looking at Indiana right now mostly for, I’ve done a lot of research on different markets, especially since I think I’m, I’m not scared to go to different markets, but it’s been one having solid, I like having medical demand. So that’s from hospitals, that’s from travel. Medical professionals can be a MTR tenant, not my usually ideal MTR tenant because my properties are up to four bedrooms, so they typically needed something smaller. But even if there’s hospitals that have surgery centers and things like that, you’ll have travelers who need to come in the area for long periods of time for let’s say medical reasons.
Also, I like to have education, so this is schools, universities I’ve housed everything from, I housed a couple who were professors at UPenn and Pennsylvania and Philly, and they were from the UK who you never think that teachers and professors come from different countries. So I like having that education demand because no matter what, you’re always going to have your midterm traveler from students. And then third, I like to have a strong corporate demand. Corporate is usually where the most money is. And so I chose Indiana, basically. I chose Indiana because I went to Indianapolis to a meetup and told everyone I wanted to do, and they just started shouting markets and like, oh, go to this place. And someplace was like, no, that’s all corn fields. And so I heard all these markets and I was there for a week by myself, rented a car, and I drove to all these markets.
If I drove to the market, I remember one market I got there and I’m like, there’s no way. I just passed it. It was one or two houses, I don’t think they’ll need to get out, but some markets. I went and went to the chamber of commerce, went to the city planning and zoning to learn what does the city have. And so the city that I invested in, it’s in Boone County, Indiana. Basically I learned that Eli Lilly is investing 4.5 billion in this small town. Meta just committed 800 million to this small town. But another thing is, which I think is key for MTR operators and even STR operators is it’s near Indianapolis, so it’s 30 minutes outside of Indianapolis, which means I can still hire Indianapolis Labor because when I was co-hosting, there was times I was in markets that were small but so small that the labor pool was so small.
So if that one cleaner decide she’s not working today, well, you can’t get your property cleaned. And so for me, it checked all the boxes and then I just started making offers and then ended up getting something a few months later. But I think for me, kind of all those aspects of demand, and especially when there’s one huge demand, like the market I invested in, there’s construction workers who, the construction project that’s going on now where Eli Lilly invested is going on through beginning of 2028, which means there’s going to be construction crews needing housing through 2028, and it took me about three weeks to get a construction crew and they just keep extending and extending and extending because they’re finding work, they have housing, and so it’s a win-win. So I’m trying to buy more there.

Tony:
Jamie, I just want, you’re saying it’s so common and collected, but you’re describing a massive amount of effort. You just said, I went and I spent a week in this market that I was thinking about investing into. I went to this meetup, I drove around, I did all of this research beforehand, and I think it’s so easy to sensationalize the end result of, Hey, you’re at X dollars in cashflow per month with these many properties, but then we overlook everything that you just said about the work that you put into it. So I know I keep harping on the same fact, but I think it’s so important for Ricks to understand that the work that you put into it directly indicates the kind of results you’re going to get. And I’m just super impressed by how much work you put into it. But I do have one follow-up question. How the heck did you know about meta and about Eli Lilly coming into this small town? You said Bloomfield, Indiana, never heard of it before. So how did you get that inside scoop?

Jamie:
Her name is Jennifer. I don’t think she listens to this, but she is my contact with the city and planning department. So the first time I’m driving through, I stop in, and this is before I even knew I was going to invest here, and I just go in and just tell her, Hey, I’m an investor. I like working with businesses who need housing. And she was like, whoa, did you know that? At the time, I think Eli Lilly was only but investing 2 billion, and she’s like investing 2 billion and there’s construction workers sleeping in their car. And I was like, really? Tell me more. And so she’s telling me all about it and then we exchange emails and I will say I do email Jennifer at least once a month, sometimes once a week just to kind of keep that contact. I go usually once every three months.
I think especially it’s a small town where showing my face is really important and it really building trust in everything with vendors has helped by being there. So just keeping that connection. She tells me everything. When it went from 2 billion to 4.5 billion, she just sent me an email. She was like, Hey Jamie, I know you’re interested in this, so I wanted to send you this article. So now she just feeds me all the information, but it really was laying the groundwork and letting her know. And I think not a lot of people go in anymore. A lot of people call. And so I think just me going and I went basically three times in a six month span. And I would say not a lot of people who look like me who are going in to a small cornfield town in Indiana to ask about real estate.
And so that helps me in my favor where I stick out. And so that’s helped people remember me. Even I go to the same bakery, they’re like, Hey, you love the blueberry muffin last time, try this one. And so now that I really know I want to invest in this town, I see the opportunities in this town. I’m trying to find off market leads in this town. So I drove for dollars one time I was there. And so just talking to people, getting out, walking downtown, I have to use air quotes because I’m from a large city where I can’t really call it a downtown, but it’s about a block each side, but just really planting roots in that area. I’ve had even my neighbors would do my shoveling and stuff for snow and won’t let me pay them, I think because I’ve came out and brought them blueberry muffins. So just I realized stuff like that goes a long way where in markets like New Orleans made the mistake of not making those connections beforehand. And so it’s much harder to operate. So just trying to do it better this time.

Ashley:
One other great way to find out about what’s going on in the city is going to the city website and reading the planning board meeting minutes. It’s so boring, but it’s actually so interesting. You will see so many things in there as to what’s upcoming on the agenda for the next meeting that maybe you actually want to attend because it’s something that could affect your business or whatever. But that’s another good way. If for some reason you can’t actually physically get to the town to walk into the town hall there to meet the clerk.

Jamie:
That’s another great tip.

Ashley:
Okay, we’re going to take a short ad break real quick, but when we come back, I definitely want to hear about this New Orleans property and how it’s not as easy to manage as the one you have in Indiana. We’ll be right back. Okay. Welcome back from our break. So tell us about the New Orleans property and it has not gone as you had hoped. Can you tell us that story and maybe some key things you learned from that deal? Specifically?

Jamie:
My New Orleans property is definitely my hardest to manage and breaks even barely sometimes. Most months, no, this property I will say I bought creatively and being completely honest, I looked at, oh, I’m buying my first creative deal with not a lockdown. And the terms were great, and I looked at that and how I was acquiring it favorably more than the MTR rates and the area and just some of the things that I’ve done in other markets. And so definitely paying the price for that. It was vacant for nine months last year, so felt the pain a lot, but learned a lot as well. I think just about one, making sure that you’re doing research in the market. And so in Philly, Philadelphia is a, I think Philadelphia has a connotation that most people know, but New Orleans doesn’t always have that same connotation, but can be a much harder market to operate in.
And so the property where I bought is about seven minutes from the French Quarter and Bourbon Street where the party is, but it’s a few minutes in the wrong direction. And so definitely should have sent someone out to do a sweep of the area and walk behind the property, walk a few blocks and go to the grocery store and just see of what is the neighborhood like. Also, I have done a great job with other markets of building business to business relationships and renting outside of Airbnb and other direct platforms and building my own relationships where frankly, this property isn’t in an area where businesses will want their employees or clients to live. I’ve had great success now that I’ve listed mostly on Airbnb and lowered my rate a ton, but it took some hard lessons on going for a lower rate just to break even. And then also we’ve got hit with, our insurance went up about 150% since buying taxes doubled. And so the numbers are just squeezed. I definitely learned more about even if you’re able to acquire the property at $0 down, you still want to do the same analysis you would if you were putting a million dollars down because at the end of the day, the property management, the reserves and all of the continuous asset management of the deal can really make or break you.

Ashley:
So Jamie, why haven’t you sold the property? Can you kind of break down what your plan is with the property and why you didn’t just offload it?

Jamie:
Great question. So we definitely did try. We basically had a list for sale and rent as an MTR essentially at the same time just to see whatever one kind of bit. First we found an MTR tenant first, and that person has been there a long period of time, and now that I know the pricing, which was just a lot lower, again, new Orleans is another market that’s experienced short-term rental regulations. And so it’s just been really squeezed me, and I have a partner on this one, and we actually did do kind of an analysis on should we sell it, and right now we would lose a good amount because the seller financed a part of it at 0% interest, but we would have to pay the seller back upon sale. And so right now, even if it stays at the same price that we bought it at, just where we at in the loan cycle, the seller owned it for 10 years, we’re getting a lot of principal pay down.
And so right now it’s breaking even, I think last month cashflow at $115. But the month before that might’ve been negative $300, but the fact that it’s breaking even, we haven’t put any money into it in a few months, we are decided just to hold on at least for another year. But another thing too, it’s funny that there’s other benefits of real estate because one last year in 2024, I wouldn’t have been able to get my reps or real estate professional status without the property. A vacant property takes all your time, all of it. And so that’s helped because the other properties were doing great and my virtual assistants do most of the management, and so I probably wouldn’t have been able to claim rep status. Another thing is New Orleans is my favorite city in the us and so getting to go and use it as a business expense, of course everything is a business expense, but that’s another benefit. And so it’s definitely something that we’re going to offload as soon as it financially makes sense.

Ashley:
Yeah, thank you so much for sharing that because I think it’s a great example of when somebody gets into that situation is maybe there’s more options than just like fire sale, let’s get rid of the property and move on where that sometimes may be the best option, but it’s important to compare and look at all the different options that you have when a property is not performing as expected. And in your case, you are being optimistic and looking at the other benefits that you are receiving still from this property and those outweigh taking the loss of selling the property now as is.

Tony:
Well, Jamie, there’s always ups and downs, and like Ashley said, I think we appreciate you sharing that, but it sounds like you’re also eyeing a transition over to commercial real estate. So I guess what is the strategy there? What’s the plan there? Maybe even before that, what’s the motivation? It seems like you’re doing pretty well with your midterm rentals. Why jump over to commercial real estate?

Jamie:
So we didn’t talk as much about my well as we did my past and being in commercial real estate. And so that’s what I did right out of, and it’s funny, I felt like I’ve relearned a lot about single family, but with multifamily, and I’ve underwrote businesses as well, it’s a bit easier for me to analyze just because what I was taught. And then also, I definitely want to grow my midterm portfolio. My goal cashflow is 10,000 a month right now with four properties. I’m at 6,000 a month,

Ashley:
More than halfway there.

Jamie:
Yeah, it’s really three properties because one, again, it doesn’t really count, but I definitely want to buy more cashflow in midterms to get to that 10,000 a month. But then I see commercial real estate as more of wealth building. My goal has been cashflow with most of my properties, especially since I’m doing this. And so I see commercial as being something just fun different, I like commercial. I think there’s different strategies that you can implement in commercial. And before leaving my job, I was managing their whole commercial, their multifamily portfolio. It was about 14,000 commercial units spread throughout like 22 markets. And we would do things in different markets like installing smart EV chargers, and just I would see how it would impact NOI and our evaluation because at that role, we re underwrote properties and redid the valuation every three months. And so I’ve just seen the power of commercial real estate and how small changes to other incomes, small ways to cut expenses, can really catapult the NY, which goes to the valuation, which goes to your wealth. And so it’s definitely not something I’m going to do this year unless someone brings me a great deal. But it’s something I’m still learning multifamily, and I’ve done mixed use as well, is what I’m comfortable with. But I’m just looking into different asset classes. I’ve looked into boutique motels and hotels or self storage, and I do have a bit shiny object syndrome. So now I’m just looking at the feasibility of different commercial assets to see what might be next in the next few years.

Ashley:
Well, Jamie, thank you so much for joining us. I really appreciated you taking the time to come onto the show and to share your journey and your learning experiences. Could you let everyone know where they can find out more information about you?

Jamie:
Sure. And thank you so much for having me. I’m most active on Instagram. It’s Jamie Banks, so my first and last name, real estate, and yeah, you can follow along my journey there.

Ashley:
Awesome. Thank you so much. I’m Ashley. And he’s Tony. And we’ll see you guys on the next episode of Real Estate Ricky.

 

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Home prices are falling fast in some prime real estate markets across the country while others remain stubbornly stuck. What’s the defining factor between a stable housing market and one where sellers are actively cutting prices? Housing inventory! This metric defined the 2020 – 2022 run-up in home prices, but the rubber band of demand is snapping back as buyer power grows, housing inventory rises, and investors get even better buying opportunities.

Remember when people said, “I’ll buy when prices drop”? Well, now might be the time.

ResiClub’s Lance Lambert joins us to provide a holistic view of housing inventory, prices, demand, and emerging opportunities. Lance walks through the most up-to-date data on where housing inventory is rising fast, where prices are quickly declining, and which markets are holding on as sellers remain in control.

We’ll also talk about why homebuilding costs are about to JUMP and the reason Warren Buffett sold his homebuilding stocks shortly after buying them. Will construction slow down, limiting new inventory and leading us back into ultra-low supply? If so, this could push home prices higher, creating a prime opportunity for real estate investors.

Dave:
Hey everyone. Welcome to On the Market podcast. This is Dave Meyer here. There’s an episode of the BiggerPockets podcast that we just recently ran that I think is a great episode for our audience here on the market. It’s an interview I did with Rezi Clubs, Lance Lambert. He’s actually been on the market several times before, and if you know anything about him, Lance is a data journalist. He runs his company, Rezi Club, where he tracks all sorts of real estate data in a really cool way. It’s very visual and super helpful in understanding some of the biggest trends. And in this conversation I had with Lance, we’d go in depth about inventory and why comparing inventory levels to last year is kind of useless. And comparing inventory levels back to 2019, which was the last time the housing market was even a little bit normal, is actually much more useful.
And Lance is going to use that framework to help us understand which markets are turning into good buyer’s markets and the markets where sellers still have the power. And I couldn’t resist because I had Lance here after we talked about inventory. I picked his brain a little bit about construction trends and how rising costs and shrinking builder margins might impact the future of single family construction and how the median age for first time home buyers has shifted and how that shift may impact rental demand in the future. Let’s bring on Lance. Lance, welcome to the BiggerPockets podcast. Thanks for joining us.

Lance:
Thank you for having me, Dave. Housing, housing, housing. There is always so much going on in the US housing market.

Dave:
There is so much going on and you do such a good job of summarizing and visualizing everything that’s going on. I’m a charts geek and you put out some of the best charts, some of the best heat maps, everything out there. I’m excited to have you here.

Lance:
Yeah, and really excited too. I think BiggerPockets, you have a huge audience and in particular, Dave, I think you put out really good smart content.

Dave:
Oh, thank you. I really appreciate it. Well, let’s jump into some of the inventory trends you’re seeing right now and just for our audience, if you’re new to this concept of inventory, it’s one of the more useful metrics in the housing market, at least in my mind because it sort of measures the balance between supply and demand. There’s tons of different ways you can look at it, but generally speaking, when inventory is stable, you have equal or relatively equal amounts of buyers and sellers in a market. When inventory is going up, that typically means that you have more sellers than buyers. And when inventory is going down, the reverse is true. So just wanted to provide a little bit of context there, but Lance, tell us a little bit about what trends you’re seeing in inventory right now.

Lance:
So that’s exactly it. Is that active inventory, not new listings, active inventory, it’s the equilibrium of supply and demand in the market. So actives can rise active inventory even if the number of listings coming on the market is very low. And the reason that it can rise is because demand could pull back so much. And that’s kind of what we’ve seen in a lot of these Sunbelt markets, these pandemic boom darlings, these remote work booms, the short-term rental booms where there was a lot of people going into these markets to buy during the pandemic housing boom, there was a lot of migration in. And what that did is it drove up home prices even more than a lot of other markets saw. So once rates moved up and the pandemic housing boom fizzled out, these markets were a little more strained relative to local fundamentals.
And because the migration in, let’s take a place like Florida, they were going from between summer of 21 and summer of 22, seeing over 300,000 people on a net basis moving into the state. Now it’s only around 60 k plus, so it’s still positive, but it’s not as much as before. And so what that means is the market has to rely more on local. When comes to support where prices got to, that becomes a little bit of a trouble. And so it creates a greater demand shock on the market, pushes active inventory up more. Now the other factor is a lot of these Sunbelt markets are more of what economists would call supply elastic, where they have more home building levels, more multifamily home building levels. And so when you’re in this constrained affordability environment and you still have that supply coming in, what has to be moved?
And so builders do a little bit of the affordability adjustments, these mortgage rate buy downs. And so instead of people having to get a 7% rate, six and a half percent average 30 year fixed mortgage rate, they could go to a builder, maybe get four and a half, maybe get even three something from some of these builders, some of the deals they’re running. And so what that does is it pulls the attention of some of the buyers who would’ve otherwise wanted to buy an existing or resale home, and it pulls them to the new market. And so the existing and resale market has a harder time selling. And so the active inventory builds. And so this active inventory is really a great metric for the supply demand equilibrium. And if you see active inventory move down quickly, that’s suggesting a market that’s heating up greater competition sellers gaining power. And if you see a market where active inventory is moving up beyond the normal seasonality, that’s just a market where buyers are gaining power. And if it happens very quickly, buyers are gaining a lot of power. And so I’m going to share my screen and actually show some of the data across the country. And for everyone who’s listening

Dave:
To this on audio, we will describe it to you in great detail.

Lance:
So this is active inventory across the country now versus the same month in 2019. And so the same month in 2019, I use as a proxy for the previous norm for the housing market. The housing market went through the boom where active inventory across the country was down 60, 50, 70, 80%, and a lot of markets very quickly from pre pandemic 2019 levels. And then once rates shot up, active inventory on a national level has been building, but some markets have gotten back and above parts of Texas, parts of Florida, right, parts of the mountain west. And then there’s also this big swath still of Minnesota, Wisconsin, Illinois, Michigan, Indiana, Ohio, and then almost all the northeast, including also West Virginia and Virginia that are still very tight for active inventory. And those are the markets where sellers have the most power. So if you look at this map and you see the dark brown, that’s where sellers have the most power.
And if you see the green, that’s where buyers have the most power. On a state level, you’ll see that four states, Texas, Florida, Colorado, and Tennessee are now above pre pandemic levels. Utah, Arizona, Idaho, Nebraska, Hawaii, Washington State, they’re almost pretty much there. And then you have some other markets that are kind of getting close. But if you go down, you look at a place like Connecticut where there are 3,100 homes for sale at the end of February. And if you go back to February, 2019, there were 14,000. So right now there are 3000 homes for sale and the whole state of Connecticut, and there were 14,000 homes for sale pre pandemic. And so places like New Jersey, Connecticut, Rhode Island, Illinois, Vermont sellers just in New Hampshire or Maine as well, sellers still have a lot of power. And there’s still a lot of other states like that. Virginia, Massachusetts, Virginia, Pennsylvania, Wisconsin, where things are still very tight.

Dave:
So Lance, tell me, approaching pre pandemic levels of inventory, which makes sense to me as a metric, but should that be seen as a good thing or a scary thing for, I guess it depends on your perspective, but how do you interpret that?

Lance:
So I think the first thing to note is that we were in a very unhealthy housing market during the pandemic housing boom, home prices went up 21% in 2021 alone, which is the most ever in US history for one single year, even more than any of the years during the inflationary spike of the 1970s on a nominal basis. And so that’s not healthy, that’s not sustainable, that’s not how the world should operate. And so the market we’re in is a market that is normalizing from an unsustainable increase in housing demand during the pandemic, during the pandemic housing boom, the Federal Reserve estimates that those first two years housing demand went up so much that to match it home construction housing starts would’ve needed to increase 300%. That’s not possible. Housing starts cannot go from like 1.4 to then 2.8 million and that’s only a hundred percent increase then up to 4 million and then over 5 million.
You can’t go from 1.4 million housing starts over 5 million housing starts in a short period of time. There are hard constraints on the market for supply, right? The labor force, only so many people know how to do windows, carpet construction, the foundation, all of that. And then there’s the supply chain dynamics where it takes years to build a supply chain for lumber, for windows, for concrete, all of that. And so housing starts moving up 10, 20, 30% is a lot, let alone to go up 300%. And so housing supply, the actual number of units in the country is not elastic like demand is. Housing demand can move very quickly. And so during the pandemic housing boom, housing demand surges, that’s all the stimulus, the ultra low rates, of course the work from home arbitrage effect all of that at play. And so as that occurs, the market cannot absorb all of that demand.
And so the demand that got to transact was the demand that paid the most. And so prices overheated and that’s how the market decided who got to actually purchase. And so coming out of that, we’re in this period where the housing market is trying to normalize. And so that normalization in some markets like Austin normalization means correction, home prices actually coming down and some other parts of the country. It hasn’t quite been that it’s just been active inventory starting to build. But to answer your question, I think zoomed out. We don’t want to stay where we were in 2021 long term, but in the short term for some people in the industry, different stakeholders, it can be jarring.

Dave:
Lance, thank you so much for this explanation. I do want to ask you how all of this will impact housing prices, but first we have to take a quick break. We’ll be right back. Hey everyone, welcome back to the BiggerPockets podcast. I’m here with Lance Lambert. We are talking all about the, what I think is fascinating topic of real estate inventory. We’ve been talking about some of the overall trends and how inventory has been shifting upward over the last couple of years, and that there’s basically four states right now that have inventory above pre pandemic levels with another couple of states getting close. Lance, I’m curious, do you think that these markets where inventories is either close or above 2019 levels have a risk of price declines? I mean, some of ’em are already seeing price declines, but do you think that’s sort of a trend that’s going to continue?

Lance:
Yeah, so my view of active inventory is that when you see big increases in active inventory, especially if they happen quickly, that is a market where the absorption usually has shifted, right? Where homes are having a harder time selling and so they’re beginning to pile up on the market. It’s not necessarily that there’s a lot of people in Florida right now who are selling, but it’s that people who are selling in Florida are having a harder time selling. And so the active inventory, what is available in any given month is rising as that has occurred, we’ve already seen pricing weakness in Florida. And so here I have the markets that have enough condos to be measured for condo prices. And you can see that condo prices are pretty much down across the state, and you can go through a lot of these markets down eight, 10, 9%, 13%, and it’s had the most impact on older condo buildings.
So condo buildings built in the OTTs are weaker for pricing than condos built in. The 2000 and tens condos built in the 1990s are seeing bigger price drops than condos built in. The OTTs condos built in the eighties are seeing bigger price drops than condos built in the nineties, and you can just keep going back every decade. And then for the single family market for Florida, it’s a little more resilient in some pockets, especially in some of the northern Florida markets, it’s been a little bit more stable or it’s been a little bit more balanced as a market. But in southwest Florida, places like Sarasota, Cape Coral, Fort Myers, peg Goda, we’ve seen price declines outright for single family as well. And a part of that is that South Florida saw a bigger pullback and net domestic migration once the pandemic housing boom ended. And actually some of the pockets of southwest Florida temporarily saw net out migration. Some of the people who moved in during the pandemic moved out. So that created a greater demand shock. And so we’re seeing prices fall in some pockets of Florida, but if you go across the country, most of the country is still seeing prices either go sideways or a little bit up, and a lot of that is like the Northeast and the Midwest, but it’s definitely not anything close to what you saw during the pandemic housing boom.

Dave:
So I just want to hash some of what Lance showed us here in case you’re listening. Basically Lance, the condo market, when you pulled that up, he was showing a map in Florida all red. There was basically only Miami and the Miami area was showing blue. And then when you look at the single family homes, it was mostly southwest Florida, that was red. There was pockets of growth there in Tallahassee, Gainesville, Orlando, that sort of thing. How closely do you think this map correlates to the inventory question that we were talking about earlier? If you overlay these, would they look almost exactly the same where you could sort of use inventory to predict these future price declines?

Lance:
Here is a map of where inventory is back to or above pre pandemic levels, and that’s the green areas. And then this is how home prices have shifted since their respective peak in 2022. And you will see that the markets where inventory is back to or above pre pandemic levels correlates with where prices have declined from their peak and that the places where things have stayed very tight active inventory has not built up much. Those are the places where prices have actually moved up a little bit more since their 2022 peak.

Dave:
One last question here on inventory, Lance, I am like anyone else, I see these constant headlines that are like inventory is up 80% or 70% in any given market and it’s getting over maybe the last year. How important do you think that recent trend is? Because as you said, inventory was down so far during the pandemic, does it matter if it’s shifting from last year to this year or is the comparison to right now to 2019 really what matters?

Lance:
I do think that 2019 is a really great reference point, and it’s not necessarily that a market today that gets back to 2019 is back to being a 2019 market because what took them to getting back to 2019 was the fact that the market was so unhealthy and that a lot of the homes for sale couldn’t transact. So I’m not saying that a market that is back to pre pandemic levels today is the same as a 2019 normal market, but it is a market that has seen softening and weakness to get back to that level. And so the interpretation of inventory over time is going to change and that this 2019 reference point, if you interpret it a year, 2, 3, 4 years down the road could shift. But I do think it is a really good reference point. And what I would be looking at in my market is pretty much this, looking at the actual number of inventory for sale and seeing how it shifted and if it’s moving very quickly, especially in a local market that’s telling you there’s weakness there. But if you’re in a market where it’s like, let’s take Kansas, this is like a slow grind back up, well that’s probably a market where sellers still have more power than what you’re hearing about in these headlines. Even given that the percentage change for inventory might rank kind of high,

Dave:
That’s super helpful and a really important takeaway for everyone in our audience right now as we’ve been talking about inventory is super important. If there’s one metric honestly that you’re going to track to understand what’s going on in your market, this is the one I look at. And as Lance said, comparing it to 20 19, 20 25, if you’re going to do just one thing, that might be the thing for you to do to understand your market health. Lance and his company Resi Club do a great job of doing that. But there’s tons of other places where you can also just look up this data for free. We talk about them a lot on the show, but you can just also just Google this and check this out. It’s a great, great thing for you to do for yourself.

Lance:
And if they sign up for the Resi Club newsletter, go to resi club analytics.com. In my free list, I send out the state inventory. Datas like this every month to people.

Dave:
Awesome. All right, we do need to take a quick break, but when we come back, I want to ask you, Lance, about a couple other articles unrelated to inventory that you wrote about construction costs and first time home buyers. We’ll be right back. Welcome back to the BiggerPockets podcast. I’m here with Resi Club Lance Lambert. We’re talking all sorts of different things in the housing market. We just had along great conversation about inventory, but I want to shift gears here a little bit. Lance, talk about two different articles you wrote about construction in general. The first one was about cost breakdowns for single family homes and just the general cost of construction, which to me is so important with the future long-term trajectory of the housing market. So can you just fill us in a little bit about construction costs and trends in that industry?

Lance:
Yes. So construction costs, just like home prices went up a lot during the pandemic housing boom, and there hasn’t been much relief for construction costs. The one area of relief is like framing lumber, but the problem there is that while it’s coming off those peaks that it saw in 21 and 2022 is that there is a tariff scare, right? And it’s not just what Trump’s talking about doing. It’s also the fact that we have this system for soft wood lumber coming from Canada that goes through an automatic review for duties. And the duties this year are expected to double, and that’s without anything else that Trump does. So if Trump were to actually put tariffs on Canada, that would put even more pressure upward on lumber. And even if he doesn’t, they’re still going to be upward pressure on lumber. And that’s been one of the few areas of relief. And so in terms of construction costs up 40, 50% for most categories that you look at.

Dave:
Yeah. So do you have any expectation or idea of how tariffs will impact this further? I mean, do you think it will be exactly equal to the amount of the tariff if it’s a 20% increase on appliances, let’s just say, do you think that will correspond almost one to one?

Lance:
It’s hard to say and it’s also hard to say what actually is going to incur with the tariffs,

Dave:
Right? Yeah, we just don’t know at this point

Lance:
Exactly. I think a lot of what’s been talked about for China, I think that’s probably going to go into, but what Trump is talking about with Mexico and Canada, those might be bargaining chips for other types of deals that we reach with them. Maybe it’s getting Canada and Mexico to actually also put on tariffs on China. So it is really hard to tell what would actually happen, but if it does occur, it would be a shock for different categories. And even if it doesn’t, I think there is still a shock coming for lumber and for wood over the next year. So if you look at the breakdowns from builders, and this is over the past two years, the biggest category is framing, including the roof, and a lot of that is the lumber. And so you can see that’s been one of the few areas they’ve actually seen relief, but now that’s one of the ones that they’re going to get some upward pressure on.

Dave:
Alright, so we’re looking here at Lance’s chart and what we’re seeing is that lumber, yeah, was one of the places that there was actually some relief from 2022 to 2024, but we’re looking at electricals up plumbing, hvac, wall finishing cabinets, roofing. And so this just really makes me wonder about trends in construction right now because if rates stay high, right, isn’t there a reasonable case that construction’s going to slow down again, even for single family?

Lance:
So one of the challenges here is that when inflation was roaring in 21 into 22, builders had a lot of pricing power. And so as things were running up, they could just pass it to the consumer. There was an unlimited number amount of housing demand out there essentially is what it felt like to builders. But now that shifted, builders don’t have all the pricing power, but on the other side they’re getting squeezed by some of these higher components. And what’s occurring here is that between some of these markets like Texas and Florida where they’re having to spend more on incentives and maybe bring down net effective prices, and then these increase on the inputs, it’s compressing the margins. And so it could in some of these markets begin to have an impact on activity for single family.

Dave:
So that actually reminds me of another article of yours that I read about builders margins shrinking. Can you just tell us a little bit more about that?

Lance:
Yeah, so what’s been happening to builders is that during the pandemic housing boom, they had pretty much unlimited pricing power and their margins soared. A lot of these builders, if you go look at their earnings reports, had the greatest ever profit margins during the pandemic housing boom as they just had so much pricing power, even though a lot of these costs were rising. But what we’ve seen since then is margin compression from a lot of the builders is they’ve done affordability adjustments to kind of meet the market, but now we’re starting to see a little bit of another leg down for some of these margins at some of these builders. And so Lennar, their forecast is the Q1 will be their lowest gross margin in a decade. And then even the most resilient builder out there, the publicly traded, which is Toll Brothers, and their typical home is around a million dollars even they are seeing a bit more margin compression than was expected. This is what Toll Brothers CEO said the other day. While demand has been solid in our first quarter, we’ve seen mixed results so far for the spring season. And when I talk to a lot of the people in my network, spring’s not necessarily as good as they were hoping for. It doesn’t necessarily mean that it’s a terrible spring, but it’s not necessarily as good as they were hoping for so far as of the end of February into early March. Got

Dave:
It. Okay.

Lance:
And so what does this mean from a home buyer perspective this year? It means that in builder communities where the builders are set on trying to maintain sales, so they’ll do adjustments to kind of meet the market. And in these places, like in pockets of Florida and Texas where there’s a lot of spec inventory and they got to move, it means that the retail buyer could see some deals from some of these builders in the markets where they have more spec inventory. And then from a seller’s perspective, if you’re in these markets where builders have a lot of spec inventory that they’re trying to sell at discounts, it’s going to create some pressure for you and greater cooling and softening in your own market as some of those buyers who would’ve otherwise looked at the resale and existing market turned their attention to the new market.

Dave:
Last topic I wanted to cover today on your reporting is just about the median age of a first time home buyer. I thought this was super interesting. Can you just give us the headline here?

Lance:
Yeah. So over the past three decades, we’ve seen the median first time home buyer age go from 28 years in 1991 to now as of 2020 4, 38. So back in 1991, the typical first time home buyer in the US was 28 years old. In 2024, the typical first time home buyer is 38. So over three decades it’s went up 10 years. And I’ve had some people message me after I put this out that, oh Lance, that’s only because life expectancies went up so much and I pulled the numbers for life expectancy. It’s only went up less than two years during this 30 year period. And so it’s not all because of life expectancy. And I think what’s occurring is a few factors. One is we have a secular shift happening not just in the US but across developed worlds where people are going to school longer, they are marrying later, they are having kids later, and when they do have kids, they’re having fewer kids and then they’re buying homes later.
And then the other factor is that people are also living longer. And this is more for the distribution of household size, which we’re seeing an increase in one household sizes and two household sizes and everything else is decreasing, but the composition of the homeowner is getting shifted out as people live longer as well. And so what we’re seeing here is that the typical age of repeat buyers has gone up from 42 to 61, and all home buyers has gone up from 35 to 56. And the other factor of course, as well, which has kind of pushed this up over the past two years, has been the deterioration in affordability. And so a lot of the people who are older, they have a lot of equity, 40% of the US homeowners, their primary residents, they don’t have a mortgage. It’s paid off. And so for those folks, they don’t have a lock and effective rates If they want to sell and buy something else, more of them are doing it. But on the first time side, the people who are financing it more likely to finance it, more of them have pulled back from the market than the all cash buyers because of where rates have gone to. And that’s put additional upward pressure on the median first time home buyer age, sending it from just a couple years ago at 33 up to now 38.

Dave:
It’s just so interesting, these big cultural dynamics. And I think for anyone listening who doesn’t yet own a home, you get it right? Affordability is low and that’s making it really challenging to buy a home. I’m curious, Lance, from an investor’s perspective, do you think this changes in any way the makeup, the demand for rental properties? Because if people are waiting longer to buy a home, does this mean we’re going to have more families renting single family homes or apartments? That’s been sort of on my mind about my own investing decisions.

Lance:
It’s tough to say. I think there was that assumption by some when rates went up a lot in 22 and it’s like, well, a lot of people are not going to be able to afford now, and so they’ll have to rent. But then there was the factor of often historically when the purchase market softens, the rental market also softens because some of the dynamics that led to the softening and purchase led to the softening in rentals. And of course there was a lot of the supply that was financed a lot of the multifamily projects that were financed during the period of ultra low rates. And so as that kind of rolled in and all those completions came in, that kind of softened the market for rentals and kind of negated some of the effects that some people were hoping from the softening of the purchase market.
But as we look out, I think the biggest thing is if we see the completions for multifamily roll over and in some markets roll over harder, I think that will begin to put some positive momentum into the rental market. And maybe some of these other effects that we’re talking about here could have some impact. I think the biggest impact is really the secular impact, which is a lot of people rented in their twenties. That’s been historically true for a long time and a lot of that product multifamily. But as people were spending more of their thirties and forties renting, that’s creating greater opportunities for the single family rental market and for also kind of that mixed product, some of these townhomes, right? And I think that’s why we’ve seen so much expansion over the past decade in the builds rent side of the business.

Dave:
That’s super. Yeah. Thank you for explaining that, Lance, because if you all have heard me talk about the upside era and sort of the different ways to look at investing right now and evaluating deals, one of my thesis is about future rent growth. And although I’m not saying it’s a good thing that housing prices are unaffordable and people are going to be renting longer, it does just seem that the data is pointing that way. And it does make me wonder, and I think as investors, it’s something to think about what type of housing units might be more in demand in the future based on some of these trends. So that’s sort of why I wanted to get at that. And thank you for explaining that to us, Lance. Alright, well that is what we got for today’s show. Lance, thank you so much. There’s three really interesting topics. You covered them all in great detail, really great explanations. Thank you for sharing your reporting and information with us here today.

Lance:
Yeah, thank you for having me Dave. And if people want to follow my work, get some of my stories in their inbox, they can go to resi club analytics.com, just put in their email and they’ll start getting these data stories.

Dave:
Awesome. And thank you all so much for listening. We’ll see you next time.

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