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Real estate investors are always looking for ways to gain more control over their investments, reduce administrative delays, and maximize tax advantages. One strategy that enables all three goals is using a checkbook IRA LLC—a structure that allows investors to purchase real estate directly through their retirement accounts. By forming a single-member or multi-member LLC within a self-directed IRA (SDIRA), investors can streamline transactions, manage properties more efficiently, and pool capital for larger deals.
Before you start, it’s important to understand the main differences between single-member and multi-member LLCs, how they work within an IRA, and how to set up your own checkbook IRA LLC.
Why Investors Open an LLC Within an IRA
A checkbook IRA LLC is a legal entity owned by an IRA that allows investors to write checks directly for real estate purchases. Instead of waiting for a custodian to approve transactions, an IRA-owned LLC gives investors immediate control over funds, making it easier to seize time-sensitive investment opportunities.
Potential benefits of using an LLC in an IRA include:
Faster transactions:No need for custodian approval on each investment decision.
Greater control: Investors manage their own transactions while maintaining compliance with IRS regulations.
Ability to pool funds: Multi-member LLCs allow multiple investors to combine capital for larger investments.
Liability protection: Separates IRA assets from personal assets, which can reduce risk exposure.
Single-Member vs. Multi-Member LLCs: What’s the Difference?
Investors can structure their checkbook IRA LLC as either a single-member LLC (owned by one SDIRA) or a multi-member LLC (owned by multiple SDIRAs or other investors). Understanding the differences between the two structures is crucial for choosing the right option for your investment strategy.
Here are visuals of how single-member and multi-member LLCs are set up through self-directed IRA custodian Equity Trust Company, which offers the Real Estate Checkbook IRA LLC in either configuration.
Feature
Single-Member LLC
Multi-Member LLC
Ownership
One IRA owns 100% of the LLC
Multiple IRAs or investors share ownership
Control & decision-making
Investor has full control
Decisions must be made with partners
Tax treatment
Pass-through entity (typically disregarded)
May require a partnership tax return
Funding flexibility
Funds come from one SDIRA
Can pool funds from multiple SDIRAs or investors
Best for
Investors who want complete control over investments
Investors who want to partner on larger opportunities
Percentage of ownership is proportionate to the capital contributed. Rules apply, including disqualified persons and prohibited transactions: See IRC 4975 for more information.
How to Set Up an Account With an LLC
Creating an IRA LLC involves several key steps to ensure compliance with IRS rules. Here’s how to get started:
Step 1: Open and fund a self-directed IRA
Before forming an LLC, you must establish a self-directed IRA with a custodian that allows alternative investments, such as real estate. You can fund the SDIRA by rolling over funds from an existing retirement account or making a new contribution.
Step 2: Form a new LLC
Select a name for your LLC and register it with the appropriate state agency. The SDIRA itself—not you personally—will be the owner of the LLC. (At Equity Trust, our affiliate Equity Doc Prep handles this for you.)
Step 3: Open a business checking account
Once the LLC is formed, you’ll need to set up a business bank account in the LLC’s name. (Equity Trust uses an integrated bank that specializes in this type of bank account.) All transactions related to investments must go through this account to maintain compliance.
Step 4: Transfer funds to your checking account
Direct your IRA custodian to transfer your IRA funds to your business checking account.
Step 5: Start investing
With the LLC fully established, you now have checkbook control over your IRA funds and can begin purchasing real estate, tax liens, private loans, and other investments. Revenue (rents) and expenses from your IRA-owned property must flow directly through your business checking account.
Common Mistakes to Avoid
While an IRA LLC offers many potential advantages, it’s important to avoid common pitfalls that could jeopardize your investment and tax-advantaged status, including:
Prohibited transactions: The IRS strictly prohibits certain transactions, such as using the LLC to buy property for personal use or conducting business with disqualified persons (e.g., family members). Violating these rules could result in severe tax penalties.
Mixing personal and IRA funds: All investment-related expenses must be paid from the LLC’s bank account. Using personal funds for any aspect of an IRA-owned property can lead to compliance issues.
Failing to file necessary tax documents:While a single-member LLC is typically a disregarded entity for tax purposes, a multi-member LLC may need to file a partnership tax return (Form 1065). Investors should consult a tax professional to ensure proper reporting.
Not keeping records of transactions: Investors should maintain detailed records of all LLC activities, including expenses, rental income, and asset management decisions, to remain in compliance with IRS regulations.
Learn More and Get Started
Setting up an IRA LLC can be a powerful way to take control of your retirement investments while maximizing flexibility and efficiency. Certain custodians, such as Equity Trust Company, provide full real estate checkbook IRA LLC establishment services, all in one place. If you’re ready to explore this type of account setup, connect with an Equity Trust IRA Counselor.
Equity Trust Company is a directed custodian and does not provide tax, legal, or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.
Equity Doc Prep, LLC (formerly Midland Forms, LLC) is a document preparation company and is not authorized to advise you as to which documents you should use or may need; such advice would be considered the “practice of law.” Please consult your legal or financial advisor before making any financial decisions. Under the guidelines for legal document preparation services, you must make all legal decisions yourself — includingdecisions about the type of documents you need.
BiggerPockets/PassivePockets is not affiliatedin any way with Equity Trust Company or any of Equity’s family of companies. Opinions or ideas expressed by BiggerPockets/PassivePockets are not necessarily those of Equity Trust Company, nor do they reflect their views or endorsement. The information provided by Equity Trust Company is for educational purposes only. Equity Trust Company, and their affiliates, representatives, and officers do not provide legal or tax advice. Investing involves risk, including possible loss of principal. Please consult your tax and legal advisors before making investment decisions. Equity Trust and BiggerPockets/PassivePockets may receive referral fees for any services performed as a result of being referred opportunities.
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In a previous article, I made the case for why North Carolina might be the next boom state. In an accompanying video, I also pointed out that Utah had the highest population growth from new births. Its natural population growth, strong economy, and geographical constraints among its key cities are the main reasons I’m just as bullish on Utah (specifically, the string of cities along what’s called the Wasatch Front).
Utah’s Population Growth
Utah had the highest overall growth of any state from 2008-2023 (approximately 1.68% growth per year, on average).
This is due to some healthy inward migration but mostly because of the large positive amount of “natural change” (more people are simply being born in Utah).
Why is this the case? A relatively large portion of the population (42%) identifies as members of The Church of Jesus Christ of Latter-day Saints (although this number has been steadily declining). And historically, Mormons have larger families than the average United States household.
While it’s OK to talk about Utah as a whole, the majority of the population lives along the Wasatch Front, a string of cities between the lakes and the Wasatch Mountains, such as Salt Lake City, Provo, and Ogden. So, let’s dive deeper.
The Wasatch Front Economy
Jobs continue to be added in the Provo and Ogden MSAs, but Salt Lake City is the primary economic center of the region.
While logistics and utilities make up the largest number of jobs, I like the growth in the “Professional and Business Services” and “Education and Health Services” sectors (white-collar jobs).
Let’s look at the median income for each region.
People are generally paid more in Salt Lake City than in the other two MSAs. However, both Provo and Ogden saw healthy income growth in 2024. Hopefully, this trend continues because many properties have become out of reach for first-time homebuyers:
Geographical Constraints
Here’s a quick, crude drawing of the buildable area between the lakes and the mountains in the region (excuse the messiness):
Courtesy of Google Earth
As you can see from the geography, if the region keeps growing in population, it will eventually run out of buildable land and will have to rely on infill development. It doesn’t take much to imagine how that might affect real estate prices over time. Just look at any coastal California city as an example.
Final Thoughts
While I don’t think Utah will boom the same way North Carolina will, I think the relatively high birth rate and strong economy, combined with the geographical constraints of the region, will push property values up faster than its other pandemic boom-town counterparts like Austin, Texas, or Raleigh, North Carolina.
(I could also make a similar argument for Boise, Idaho. In fact, Boise, Salt Lake City, and Raleigh are my top three metros, and I predict they will see the highest appreciation in the next 10 years.)
Do you live in the region? Do you agree or disagree? Let me know in the comments. I haven’t spent too much time in the region, and I’d love anyone with boots-on-the-ground experience to add their thoughts.
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In the rapidly evolving landscape of real estate investing, staying ahead requires adopting innovative marketing strategies that resonate with modern consumers. In 2025, integrating advanced technologies and personalized outreach has become paramount.
Our partners at REsimpli have made real estate simple, bringing together the perfect mix of tools for real estate investors at all levels. Here are five marketing strategies every real estate investor should consider.
1. Embrace AI-Powered Marketing Automation
Artificial intelligence (AI) is revolutionizing how investors approach marketing. AI-driven tools can analyze vast datasets to predict market trends, optimize pricing strategies, and enhance lead generation efforts. By automating repetitive tasks, investors can focus on building relationships and closing deals.
Platforms like REsimpli offer AI-powered features such as call summaries. AI-generated call summaries provide concise overviews of client interactions, ensuring no critical detail is overlooked and enabling more informed follow-ups.
2. Leverage Data-Driven Direct Mail Campaigns
While digital marketing continues to grow, direct mail remains a potent tool, especially when combined with data analytics. Investors can craft targeted direct mail campaigns that reach the most promising prospects by analyzing demographic and behavioral data.
REsimpli simplifies this process by offering direct mail services with competitive pricing and no minimum order requirements. Users can choose from customizable templates, ensuring each mailer resonates with the recipient. Additionally, REsimpli provides free National Change of Address (NCOA) list-cleaning, ensuring that your mailing list is up-to-date and your outreach efforts are not wasted on outdated addresses.
3. Develop Hyperlocal Content Marketing
Today’s consumers seek personalized experiences. Investors can position themselves as experts in specific neighborhoods or communities by focusing on hyperlocal content. This approach builds trust and attracts clients interested in those areas.
Creating content highlighting local market trends, community events, and neighborhood insights can significantly boost engagement. Utilizing REsimpli’s SEO-optimized seller websites, investors can publish blogs, market reports, and videos that cater to the interests of their target audience, thereby enhancing online visibility and credibility.
4. Utilize Virtual Tours and Augmented Reality
The COVID-19 pandemic accelerated the adoption of virtual tours and augmented reality (AR) in real estate. These technologies allow potential buyers or renters to explore properties remotely, providing a comprehensive understanding without physical visits.
Investors should consider incorporating high-quality virtual tours and AR experiences into their marketing strategies. This not only caters to out-of-town prospects but also streamlines the decision-making process for local clients. By integrating these technologies, investors can showcase properties more effectively and reach a broader audience.
5. Implement Comprehensive CRM Systems
Managing leads, communications, and transactions can be overwhelming without the right tools. A robust customer relationship management (CRM) system centralizes client interactions, automates follow-ups, and provides valuable insights into sales pipelines. Without an effective CRM, real estate investors often struggle to track leads, and they miss opportunities due to disorganized workflows and inefficient communication.
REsimpli offers an all-in-one CRM tailored for real estate investors. It streamlines lead generation, follow-ups, and deal tracking in one place. Advanced features include lead management, automated drip campaigns, and built-in tools, so no lead slips through the cracks.
By consolidating these essential functions, investors can significantly enhance their efficiency, reduce time spent on administrative tasks, and focus more on closing deals. Automating repetitive processes and gaining deep insights into lead behavior allows for smarter decision-making, ultimately increasing conversion rates and business growth.
Final Thoughts
The real estate market in 2025 and beyond demands a blend of traditional marketing methods and cutting-edge technology. By embracing AI-powered tools, data-driven direct mail, hyperlocal content, virtual tours, and comprehensive CRM systems, investors can position themselves for success in this dynamic environment. Platforms like REsimpli provide the necessary tools to implement these strategies effectively, ensuring that investors stay ahead of the competition and meet the evolving needs of clients.
Let’s make your next investment your best investment yet.
Mortgage rates are down, so the housing market should be entering a frenzy…right? Not quite. The buyer’s market seems alive and well, with sellers offering concessions as the housing market visibly “slows.” What’s causing it? New inventory hitting the market? Tariff talks leading to higher housing costs? We’re getting into it all in this episode as we hit on four of last week’s top headlines.
First, how much will a new home cost now that tariffs are in place? With lumber, labor, and material prices all rising, there could be a five-figure added cost per home for homebuilders, making it even more expensive for buyers. Will labor costs continue to rise in 2025 after years of solid growth, or will renovators and flippers finally get relief?
The housing market is slowing down even as we get closer to the spring homebuying season. Home prices are DOWN year-over-year, but one caveat makes this a half-truth. With more inventory hitting the market, buyers could have their pick! And that inventory could grow even greater as mortgage delinquencies start to rise—should we begin to worry? Enough speculation; let’s get into it!
Dave: Today we’re diving into the housing market headlines that are dominating the news. Our panel of experts is here, Kathy Fettke, Henry Washington and James Dainard, and we’re bringing together our takes on the key headlines that you should know about as a real estate investor. Welcome to On the Market. I’m Dave Meyer. Let’s jump in. Kathy, how are you?
Kathy: Great, so happy to see you.
Dave: It’s good to see you as well. James, how you been? I’m doing good. Just trying to get some deals done. Oh, I’m sure you are. It’s good to have the gang back together. Henry, I would ask you how well you’re doing, but you told us before recording that you’re having a bad real estate day, so we want to hear about it. We
Kathy: Want to hear all
Dave: About it.
Henry: I’ve got the real estate woes.
Dave: I’m sorry man, it’s just one of those days. What happened?
Henry: Well, this past week I was supposed to sell a flip and it got pushed because the property’s on a well and I needed to have the well water tested. And so we had the well water tested and it came back that there was some contaminants in the well water. I also spent $1,200 repairing this well, so it’s in good working order and part of the FHA guidelines was that they needed to now go out and measure how far the well is from the septic tank needs to be a hundred feet away. Found out today that mine was not a hundred feet away.
Kathy: Oh no.
Henry: So now I have to decommission the well that I just paid $1,200 to fix and I now have to apply for a tap into city water. The tap is across a busy street, double yellow line street. So I have to apply for the tap, wait to see if I get it,
Kathy: And
Henry: Then it’s going to cost me between six to 10 grand.
Kathy: Ouch.
Henry: To tap into city water, so could be losing our buyer.
Dave: Oh my God. And how long is that going to take?
Henry: Who knows? I’m at the best of the city. I have no clue.
Dave: Oh my God, I’m sorry, man. That is brutal.
James: The digging up the street is the most expensive part in that because you got to cut the street up. But what you want to do though is apply for a cost relief because you can get an exception a lot with a lot of cities if it goes above a certain amount to where they’ll let you move that well instead.
Henry: Huh? Sounds like I’m having a whole conversation with James after this podcast. Okay.
Dave: Let us know what happens because I’m sorry to hear this, Henry. That is rough, but it sounds like maybe James has some solutions for you. All right. We do have to get to our main show today, which was about headlines that all of us are following. If you listen to the show, you probably know the format. Each of us brings a headline that we are following in the news and the group discusses it. Kathy, we’re going to start with you today. What is the number one thing on your mind from the news?
Kathy: Well, we knew that tariffs were coming and they’re here and they’re big ones and they’re 25%, and then there’s been retaliation because other countries don’t necessarily like that. So it’s been big news as far as it actually has been enacted because before during the campaign, I kept hearing people say, oh, he is not really going to do that, but here we are. And so the impact is something we as investors really need to be paying attention to. How much more is this going to cost us? The new tariffs could increase builder costs anywhere from 7,500 to $10,000 per home. So this will affect home buyers as well if it doesn’t change. But right now, this is where we are. And also my article is CNBC. Here’s how terrorists will hit the US housing market. So the third point they make is the greatest impact to home builders will be from lumber cost increases, which are expected to total about $4,900 per home on average. So these tariffs definitely going to affect home builders and certainly flippers the national builders just based on the fact that they could buy so much and maybe already have a lot of this in stock. Perhaps they won’t be as affected as the individual who’s going to be paying for this.
Henry: Here we go again, this covid when wood went up and literally I had construction costs double during covid, so hopefully it won’t be that impactful, but I’ve lived through this once already.
Dave: Well, we’ve already seen lumber prices go up 11% just this month, so it’s already getting pretty significant. It’s still half of where it was during covid, so let’s just keep that on perspective. It could go up more now because it went up before the tariffs were actually enacted, but we’re not in covid territory just yet.
Kathy: Yeah, and I mean the biggest problem with Covid was that you couldn’t even get the lumber. There was complete shortage. So I don’t know that that’s the issue. It’s just more expensive. So clearly people are expecting that this will increase home prices. Could this have more buyers be focused on existing homes? Is this good for flippers because they maybe can’t afford a new home, they’re going to be going with an older one? Does this mean there’ll be more demand for rental property because this is priced out? Tens of thousands more people who cannot afford those increased home prices because of the tariffs? So a lot is in play. I’ve heard the president say that it’s temporary pain, so nobody really knows.
Dave: And just for everyone listening, we are recording this on March 5th, so if things have changed, please forgive us. We are commenting on what has happened here As of the fifth and yesterday, president Trump announced and enacted the 25% tariffs on Mexico and Canada, an additional 10% tariff on China, bring that up to 20% just today we heard that there was a suspension on the tariffs specifically for automobiles, so it’s very much in flux. I think for the purposes of our conversation, we need to assume that these tariffs are mostly going to stay as is, but if they change, we’ll obviously update our thoughts on that in the future.
Henry: Yeah, I think it’s TBD on if this is actually going to raise new construction home prices because single family home sales are based on what consumers are willing to pay, it could just mean they can raise the price if they want to. It doesn’t mean someone’s going to pay for it. So builders could be eating the cost on this as well.
Dave: Yeah, margin’s already down for builders.
James: Lock your lumber prices now. That’s how lumber works. You can get a package, you can lock the price today if you think it’s going up, lock in now. So if you got any plans that you’re working on, submit ’em in, get your lumber locked in. It is not enjoyable when your costs are floating that much during a build
Kathy: And mortgage rates have come down in part because of all this uncertainty and some economic news that’s come out recently that was a little more negative. So perhaps the lower mortgage rates will still allow the buyer to be able to afford the new home even if prices go up.
Dave: I think that is kind of the interesting thing that this is happening in a time where demand is softening a little bit, especially for new builds, we’re starting to see lower sales transaction volume. It’s kind of softening across the market, and so this could actually offset each other like the increase in construction costs and the softness in the market could wind up offsetting each other like Henry said. All right. Should I make you guys all guess if you think tariffs are going to stick around, what do you think,
Henry: Henry? Absolutely. I think they will.
Dave: Okay. Kathy, what do you think?
Kathy: Yeah, I actually think so. I think Trump is really trying to incentivize companies to do business here in the us so yeah, it’s possible.
Dave: James, what’s your batt?
James: I think it’s the art of the deal. I don’t think they’re going to stay. He’s trying to get what he wants and he’s coming in aggressive and I think they’re going to change up because at the end of the day, our economy’s a lot stronger than most of those other ones and they’re going to feel it worse. That’s the bottom line. And so I think it’s just bluffing personally, but I did not expect it to go into effect. Now
Dave: I’m going to hedge. I think there will be tariffs, but there’ll be less than they are right now. There’ll be some sort of deal where certain things are excluded or tariffs on certain key things. I personally think automobiles are going to stay excluded or oil or lumber, things like this. Certain really important things will probably get excluded from Mexico and Canada. I expect the 20% on China to remain. That’s my guess as of right now. But we’ll see. And I’m sure everyone in the comments by the time this come out will tell us we’re wrong because something will have changed by now, but that’s just our guess as of now. All right. Well let’s move on to James’ article because James, I understand you’re bringing an article that talks about construction costs and how they’ve been changing even independent of the changes that are going on in tariffs.
James: This article is for construction pros.com and it reveals the construction industry cost insights for quarter one of 2025. And so what this article talks in about, it had some interesting information. So the labor rate charges, which is going to be your general labor for project managers and labor wages increased 4.1% in 2024,
Dave: 4.1%. That’s kind of like average wage growth over the last year, so that’s not really more than what most labor is going up at least. So that’s kind of encouraging, right?
James: Yeah, I thought so too. And then I started looking into what the average labor wage increase in 2022 was when we had a lot of inflation and we saw a lot of cost increases in construction, and the concerning thing is the average increase was only 3.4% in 2022.
Dave: That just sounds wrong.
James: That’s what I thought. But that’s according to the RS means 2022 construction cost report
Dave: Sounds credible.
James: The article also talks about the material costs. Those are the two biggest factors. How much did it cost to install it? What’s the material costs? They reported the 8.7 average material costs increase in 2024 and that this year they’re projecting at 3.1% increase. It is kind of strange that I’m seeing these numbers. I’m not feeling ’em today. Certain items, we’re definitely seeing cost increases on, especially on mini split systems, HVAC systems that are shipped in from overseas. If we see these tariffs hit that that could continue to grow. But overall, they’re thinking that 2025 is going to have some pretty steady increases on construction costs.
Kathy: I mean, if you’re just going to sum up what all this means, it probably means higher home costs at a time when home prices are already so high and the only saving grace we may have is mortgage rates coming down to help save that buyer.
Dave: I think one of the other potential impacts of this is that there’s just going to be less construction. We need more construction in the US generally speaking, and there might be a slowdown in single family homes. There’s already been a slowdown in commercial for sure, but we might see a corresponding slow down in residential if it’s just more expensive to build, especially in a soft market. We might just see lower starts for the foreseeable future, which these things move slowly but could have a long-term impact on housing prices.
James: Well, yeah, and that’s what we are seeing is it’s not really increasing the price. In 2024, there was 3.9% less housing starts than the year before, and I honestly think it’s going to be even worse in 2025 because a lot of those were backlogged permits that were still in play in 2023 and we’re not really seeing housing go up as much. It’s really that builders are becoming less profitable because they’re getting squeezed on all sides. So I think the real impact isn’t going to be that the housing cost is going to keep going up unless rates fall, it’s going to be people selling land and selling their property to builders that they were getting paid premiums on are going to have to take a lot less for it to actually happen.
Dave: All right. Well, Kathy, you mentioned the magic inventory word, Henry. I think your story has to do with this. We do have to take a quick break, but we’ll hear Henry’s story when we come back. Welcome back to On the Market. I’m here with James, Henry and Kathy talking about latest trends and news stories in the real estate investing universe. Henry, it is your turn. What story did you bring
Henry: For us today? I really just brought a market trend update from realtor com, so it’s their February, 2025. What I like about this article is it kind of puts numbers to some of the things that people are seeing and feeling and hearing in the real estate world right now. People are hearing that things are slowing down, but what does that mean? And so in this market trend report, one of the things that calls out is the number of homes actively for sale does continue to be higher compared with last year. It’s growing by 27.5% and that’s 16 straight months of growth. It also talks about the number of total unsold homes, so that includes homes that are under contract have increased by 18.2% compared to last year, and it says that sellers who listed their homes at greater rates than last year with newly listing homes are increasing 4.2% year over year. So that’s a bit slower. It also talks about home prices. So the median home price for sale this February was down 0.8% compared with last year at $412,000. But it does have a caveat here that more small homes are being listed this year, which has helped decrease that list price relative to last year. Oh,
Dave: Okay.
Henry: Homes spent 66 days on the market, and this is five days more than the same month last year, so time on market has increased as well. Now there’s a chart that shows active listing count February, 2025. The trend line is kind of in the middle of the graph at around 847,000 listings. So post pandemic years, we are at the highest point for active listing count that we have seen, and it does the same thing for total listing count. So how many total listings? It’s almost identical. We’re right in the middle. We’re at the highest. We’ve been post pandemic, but we’re not near pre pandemic levels yet. I think all this means is that things are slowing down, it’s taking longer to sell homes, they are sitting longer on the market, inventory is creeping up, but they are not near pre pandemic levels yet. So things are slow and steady. Things are still selling, it’s just taking longer for things to sell, and you do have more competition on the market, and we are seeing exactly that here in my local market. But again, this is national numbers. You need to look very locally. It does say that 15 Southern and western metros have more inventory than pre pandemic levels right now. So these are very market specific data points. You need to pay attention to your local market to understand how to adjust your underwriting so that you’re not losing all your profits to the length of time it takes for properties to sell.
Dave: I look at the market, I follow a lot of markets. It does seem like everything is slowing down. We haven’t gotten to the point where most markets are negative, but it does just feel like it’s trending that way at least to flatness. To me, it’ll be interesting to see if lower rates reverse that trend. Consumer sentiment is down, economic confidence seems to be down. And so it seems like those are going to be sort of competing interest, like lower interest rates versus economic softness. Which one wins out in the housing market? Kathy, what do you think happens here?
Kathy: Well, we’ve been waiting to see, right? We’ve been waiting for rates to come down to see if this excess inventory will get bought up and we’ll know in next month’s report for sure. But there is a lot of uncertainty. Certainly we talked about it before, but a lot of job lots is certainly in the government sector. There was a lot of hiring during the Biden administration and now a lot of those jobs are going to be gone, and that affected the real estate market then and it will affect it now. But at the same time, Barbara Corcoran’s been saying, if rates go down, people are going to get back in and start buying. It really comes down to affordability. When people are buying their primary, can they afford it, and they don’t worry so much about everything else that’s going on, they just want to make sure do they have a job and can they afford the house that they’d like to buy for their family? And if they can, then we’ll certainly see that in the numbers next month.
Dave: Yeah. I’m curious so many people who are always saying, oh, I’ll buy when rates go down. Well, rates are going down, so are you’re going to buy, right? It’ll be interesting.
Kathy: I mean, it’s the perfect time. It’s the perfect time to be buying. If you’ve got more inventory, you can negotiate a good deal and get a better interest rate. So let’s get the word out there, man. If you’ve been waiting, this is your time, this is the time to get in there.
Henry: Absolutely. Every single one of the properties that we are currently selling that is currently under contract, we have given concessions. We have given them more than we would typically give them in the past. That’s because there’s a lack of eyeballs out there, meaning if I lose this buyer, we don’t know when the next one’s going to come. And so they’ve got some negotiating power. And so if you’re looking to buy like this is the time to go do it, I’m giving closing costs on all four of ’em right now, plus some other things
James: With Seattle, the reason it’s doing well, even though we have a little bit more inventory according to Zander’s new home lot, Seattle is 23% undersupplied of housing today with even the current active inventory levels. And those are things we want to think about as investors. Like, okay, yes, inventory is increasing days on, markets are increasing a little bit, but there’s still a massive demand. Their showings have dramatically jumped. Even with all this tariff talk, which usually freezes our market, we’re still seeing a lot of bodies come through.
Dave: Yeah, I mean that’s good news, James. I think we talk about it a lot how markets are changing. I think we’re going to see even more and more of that, particularly around job markets. Markets where people feel secure in their jobs I think are going to be doing just fine. And as Kathy said, feel good about your job and you can afford it. You’re probably going to buy a house if you’re worrying about your job, even if you afford it. That’s sort of like a gray area, and we kind of have to see how people are feeling about their financial security, but that’s why it’s so important to just keep track very closely of what’s going on in your individual market.
Kathy: I think one thing to note also in Henry’s article on the market trends is that the median price of homes for sale in February was down 0.8% from last year at 412,000. But then there’s a sentence after that that’s really important to read. It says, however, more small homes are being listed this year, which decreases the median list price relative to last year. The median list price per square foot, which controls for size grew by 1.2%, indicating that home values continue to increase. So when you hear data, there’s always a little bit more to it and that median home price. I remember during the foreclosure crisis, it was like people really thought prices were crashing, which they were, but everything that was on the market was a foreclosure,
James: Right? And there’s a lack of sales. So one expensive sale on the month can really change the median home price around. I feel like that data gives way more margin of error now in it.
Dave: Well, if you all listening, want to get the most reliable data on home prices, there’s something called the Case Schiller Index. This is getting real nerdy, but they basically track same home sales over time, so it accounts for and sort of adjusts for the quantity of sales and the size of things. And so if you look at that, home prices were definitely up over the last 12 months. They’re slowing down, they’re flat over the last few months according to Case Shiller. But Kathy and James are absolutely right that if you look at Realtor or Zillow, their methodology is a little bit different. It’s a little more volatile case. Shiller is the best place to look if you want to really understand the true movement of home prices.
Henry: Do you have a monthly best customer membership with them?
Dave: I have their charts tattooed on my arm. I do it every month. It just reference it like a quarterback. Alright. All right. Well thank you for bringing that story, Henry. I have a really interesting one that I think is going to surprise a lot of people. We do have to take a quick break, but I’ll share it when we come back. Welcome back to On the Market. I’m here with Henry, James and Kathy talking and news and trends in the housing market. We’ve heard from all three of our panelists, I have one to share, which is something that honestly is worrying me a little bit, but there was an article from the Mortgage Bankers Association that showed that FHA mortgage delinquencies are on the rise. Now, I have for years been saying I didn’t think the housing market was going to crash. And the main reason I’ve been saying that is because people are paying their mortgages and unless people stop paying their mortgages, it’s pretty hard for the market to crash because people don’t voluntarily sell their homes at lower prices. There has to be something called forced selling. They only forced get forced to sell if they’re going to get foreclosed on. And I want to caveat this and make sure everyone understands the total delinquency rate for people who aren’t paying their mortgage for conventional loans is actually very low. It’s extremely low. It went down year over year, but there’s a subsection of the market just FHA loans, which tend to be lower income households and VA loans. Those delinquency rates are actually starting to go up. And while I think we’re still a long way away from panicking about anything like this, it’s a trend that personally I think is really important to look at, particularly in markets or pockets of the country where there are high levels of FHA or VA loans. So anytime I see loan distress, I worry personally, but I’m curious if you guys are concerned about it or you think it’s kind of just a blip.
Kathy: I don’t have the article in front of me, but I did report on a story recently where it has something to do with the foreclosure moratorium for VA loans that was up. So there was an increase there.
Henry: I
Kathy: Do not have that data, but there could be that.
Henry: I also think there’s going to be, when you’re talking about FHA in va, there’s going to be a subset of people who take advantage of those programs who probably can only afford the home because of the low down payment and low cost of entry into the home. And I think what happens is, because I recently talked to a seller in this position, they get into the loans and then year over year that mortgage payment goes up as insurance goes up and taxes go up. And one person was telling me that they bought their home and the reason that they’re selling it now a year later is because their mortgage payment has gone up $350, which is substantial if you could barely afford the house in the first place and you weren’t putting down any money. So I think the people on the affordability cusp who are using these loans and they’re barely being able to make their mortgage payment, are going to find themselves in some of these tough positions because some people are just under the impression that your mortgage payment is fixed at that price that you get when you sign the documents on day one, and it never changes. And that’s just not the case.
Dave: Well, your principal and interest are often, but not your insurance and taxes. Those can definitely go up.
James: I think Henry’s right, it’s that slow squeeze on expensive things, and that’s getting people, because when we sell a lot of houses, I can people stretch their DTIs and they’re barely getting in and that 300 bucks makes a big difference. And I think that’s what you’re seeing across the nation is it’s that slow squeeze. I mean, even subprime auto loans defaults were up 6.4% defaults on auto loans are now increasing. Credit cards are going up too. Credit cards, home insurance is a real cost used to not be. It makes big, big difference in your monthly payment.
Dave: Yeah, absolutely. I think I’ve mentioned this a few times, but it was almost a year ago now, but we had someone come on who said that in areas of Louisiana and Alabama, places on the Gulf Coast, taxes and insurance are now as much as principal and interest, which is just insane. You’re basically paying your mortgage twice
Henry: Insane. It’s
Dave: Crazy. Yeah. So it’s not everywhere, but obviously that’s going to have a huge impact on people. And I don’t know, I hope this is just a brief thing and either rate relief or hopefully reduction in inflation in the future will improve this. But like I said, anytime I see trouble in the debt market, it worries me. So the shift in trend is something to keep an eye on. All right, that’s what we got for you all today. Should we all just hang around and wait and listen to James and Henry talk about Henry’s woes, but really sorry to hear that, Henry. I hope you two can come up with some solutions that unfortunately is part of the business, but it sounds like you had a bad couple of days,
Henry: Part of the game.
Kathy: Never a dull moment.
Dave: Well, that’s why it’s good to have friends in the industry and to have podcasts like this where you can commiserate and understand that it’s not just you. Everyone goes through these things at some point or another. Well, Kathy, James, Henry, thank you so much for being here today and thank you all so much for listening to this episode on the market. We’ll see you soon.
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Are you stuck with a problematic property? What if you could create thousands of dollars in monthly cash flow just by pivoting to the right investing strategy for your property and market? That’s exactly what today’s guest did, and if you stick around, she’ll show you how to repeat her success!
Welcome back to the Real Estate Rookie podcast! Aleea Stanton’s grandparents gave up their home to put her through college, so after graduating from law school, she saved up and bought them a house. Little did she know that this would ignite a passion for real estate investing and home renovation projects. Before long, Aleea had gone on to fix and flip eight houses—averaging $40,000 in profit per home—and even pocketed a whopping $200,000 on her most recent flip!
Despite the huge profit margins she earned with this lucrative strategy, Aleea decided to diversify her real estate portfolio with buy-and-hold investing. Now, she brings in an additional $3,000 in consistent monthly cash flow, all thanks to a combination of long-term and medium-term rentals. Tune in as Aleea shares her biggest successes and several critical mistakes to avoid!
Ashley: Diversifying your assets is a good way to hedge against the difficult housing market, but knowing which strategy to use for each of your properties can have a major impact on your cashflow and success.
Tony: Our guest today learned some invaluable lessons about the key differences between flipping houses and operating multifamily properties. And in this episode we’ll unpack how picking the right strategy for the right property is key to cash flowing in this market.
Ashley: This is the Real Estate Rookie podcast and I am Ashley Kehr.
Tony: And I’m Tony j Robinson.
Ashley: Aleea, welcome to the show. Let’s start off with a little bit about your background on buying your first house and exactly why it was so important to you.
Aleea: Of course. So I am from Buffalo, New York, born and raised. I was adopted by my grandparents. My mom, she had me at the age of 16, and my grandpa, her dad was like, you know what? You go finish school. I’ll raise Aaliyah. And so growing up with grandparents, it was really different because throughout middle school and high school, my parents on average were about in their late sixties, seventies. And my peers, their parents were in their forties and their fifties. So my grandparents couldn’t really move around comparable to my parents of my peers. And so outside of that, though, my childhood, my upbringing was fantastic. I grew up in the same house my entire life until I was 19 years old. There’s even little drawings of how tall I got every single birthday. And so it was really near and dear to me. I went to the same schools. I knew everybody. By the time I got to high school for about 10, 12 years. When I was 19 years old, my grandparents had to give up their house to help put me through college. And that was really devastating. They lost their house. And so I had always made it my mission to one day buy them a house. And so I remember when I was in undergrad, I was just Googling when top 20 paying careers, and I landed on law. It’s not my passion, but I was like, okay, I don’t absolutely hate it. And I was like, you know what? I’m going to go to law school. And I applied and I got in. And now I’ve been working in New York City as a lawyer at a law firm for eight years. And I was able to save up enough money and during Covid when interest rates were very low at 3%, I jumped the gun and I purchased them a house. That was my first property, my biggest purchase ever in life. I was super nervous, but I did it happy that I did it. Now I refer to it as the gift that keeps on giving, and I remember that there was a bath tub that was huge and they had to really climb over to get inside. I wanted to knock that down and create a walk-in shower for them. So I found a contractor. Reviews were good. We worked on a bathroom. It was a complete gut, made a huge, massive, beautiful walk-in shower for them. And I was like, you know what? I like this. My grandma also likes to cook. And the kitchen at the time was very outdated. And so I was like, you know what? I have some extra money. Let’s gut out this kitchen, give her some new countertops, cabinets, and the like. And we did that too. And ever since then I was like, oh my God, I actually really enjoy remodeling. I really like making houses more functional and than what they currently are. And so I started watching Flip or Flop on HDTV. I watched every single episode and I was like, you know what? I could flip houses. Buffalo is one of those markets where you can still buy a house for 60, 70, 80 k, put some money into it and then make a good profit. And I was like, you know what? It looks like I just need the right team and I could do this. And so that’s kind of how I got into flipping.
Ashley: There is a lot to unpack here, and I love this story of how you got started in real estate. So let’s start with that first house though with your grandparents. What was the process for you? Because living in New York City at the time when you bought them this house, correct?
Aleea: Correct.
Ashley: Okay. So how did you find contractors? How did you manage the rehab of these projects from afar?
Aleea: So at that point, COVID had hit, and so we were working remotely. So I was able eventually to come back to Buffalo. And I remember posting, I joined a Facebook group on Buffalo, Buffalo real estate investors. And I remember posting, does anyone have a contractor that they recommend? And I got 20, 30 comments. And so I just started googling them and I started looking at reviews. I’m definitely a review girly before I go out to eat anywhere or do anything. I look at the reviews and I found a contractor who had decent reviews, who was available also immediately. And so I went with him and it was a good process. I was definitely very new to everything I remember at that if I could just go back in time and do some things over again, I would. But I remember I picked out three different finishes for the bathroom at one point, so it was a little bit of a hot mess, but this contractor was very patient. He kind of walked me through the entire process and the handholding that I very much needed and we got the job done, so we had to work under pressure. It was a very quick turnaround. We were closing, my grandparents needed to move in right away. There was someone who wanted to rent out the current home that they were living in. So we were on a time crunch, but we got through it and I remember I would just bring my laptop and I was working remotely and I would just be there at the house as they were working all day long. I sat there for seven hours, eight hours a day, one to learn and also just to make sure that was my biggest investment. I wanted to make sure my guys were working nine to five or whatever, just putting in reasonable hours at the time. So yeah, I set up shop and I was there on location, on site.
Ashley: That’s incredible to actually do that, to take the time to go and sit there. And I’m assuming it probably wasn’t the most comfortable place to sit in work while rehabbing a property.
Tony: Leah, we want to get into the nitty gritty of you transitioning from this kind of passion project of a rehab into actually flipping from an intentional perspective. But I guess just give us the 30,000 foot view. How many flips have you done and just I guess have they been successful for you financially? Just give us the quick 30,000 foot picture of that.
Aleea: Yeah, so I’ve done eight flips on average. In the beginning I was making around 40 K per flip, which in my mind was great. This again was like a side hustle. It was very passive income. My contractor really is just so trustworthy and he gets in and out and he does such a great job that that’s the reason why I was able to be so hands off and focus on my career in New York City being a lawyer. And so I made good money in all of my flips and I would say with the exception of one Flip, all of my flips had offers, multiple offers over asking within one week of us listing. And so it was great. I was like, this is some of the easiest money I’ve ever made. But I would say my key to success there again, is the contractor. And I learned that from the books that I read. I really did my research and my homework before I purchased my first flip, the books I read, the TV shows that I watched, I knew that your contractor can make or break this whole thing. And so how I found my contractors an interesting story too, because I started just looking on Zillow at houses that were remodeled, and I saw one that just looked absolutely fantastic. The craftsmanship was really there, and I called that agent, and I’m sure as you guys know, agents love to talk. And so this agent went on talking about the property, about the flipping process, and then I was like, well, who did you work with? And he was like, oh, his name is so-and-so, and he gave me his name and the guy’s phone number. And so I’ve been working with the same contractor now since 2023 on every single project, and it’s been great. My last flip that I sold, I made 200 K in profit, so my average now 40 K in profit is higher.
Tony: That’s amazing. And I think you hit on a very important point here, Lee, is that sometimes the best way to find a good contractor is going to the best agents in that town and seeing who their Rolodex of people are because they’ve been in this space, they’ve been buying and selling or in those transactions for a long time, they tend to know who’s good and maybe who isn’t all that great. So I love that strategy. We’re going to hear a little bit more about how Aaliyah is managing this flipping business and some of the pivots she’s made throughout her journey as well. But first, we’re going to take a quick break and then we’ll be right back with Aaliyah.
Ashley: Okay, now let’s get back into the show. So Aaliyah, one of the biggest lessons you’ve learned was when moving from a flipping mindset to a long-term rental mindset, can you kind of share the story of your multifamily investment when you made this transition?
Aleea: Absolutely. So again, I chuckle because I’m just like, only if I can just rewind the clock. I applied my flipping mentality to my rental portfolio and I lost money. I lost money because of that. And so to break this down, I purchased my first four unit long-term hold late 2024. I was working in New York City. I did not have time to come back to Buffalo to see the house in person. So I just sent my agent, I think lesson number one for my first four unit, my first multifamily, my first long-term hold, it was good for me to lay eyes on it. I should have laid eyes on it. So that’s lesson number one. Lesson number two is that we waived inspection. And so again, flipping single family homes, we usually waive inspection because it’s just so competitive in Buffalo to get a deal, you almost have to these days, but we have an idea, worst case scenario, if we waive inspection, we’ll have to update some electrical, update some plumbing, here’s our worst case scenario number, and we’re fully ready to go in and do that full job. Whereas on a long-term hold, I should not have done that because one of the issues that came up later, and this was two months after I closed, I remember getting text messages from my tenants literally every other week that the power had went out. So the electricity was really outdated. This house was built in 19, I think oh eight. It was very old and they had fuses. So every time someone turned on a microwave or plugged in a vacuum cleaner, the power would go out and this kept happening. And so I had to update one of the panels for one of the units. Come to find out, in order to update one, you have to bring all of them up to code. And so I ended up having to update four service panels and there was no house panel, so I had to add a house panel. So that was $18,000 right off the gate that I had an inspection an inspector would’ve flagged for me. And so that was a huge, huge lesson that I learned, and I wish I can go back in time and redo that. Another mistake that I made too was so one of the units was vacant when I closed on it. And so I remember walking through the unit, I was like, oh, this is so outdated. Mind you, it was move-in ready. It was move-in ready. They had granite countertops, but they were in great condition. They had nice cabinets, a little outdated, great condition. The floors were nice, but I was just like, you know what? I could use some quartz countertops here, some white shaker cabinets, we can do some new tile backsplash. And so we gutted the kitchen and we gutted the bathroom, and I ended up spending $16,000 rehabbing this place that really did not need to be rehabbed. And in the end, that only allowed me to increase rent by a hundred dollars. So it wasn’t a value add. And again, that’s just an example of me applying my flipping mindset to this rental portfolio. I should not have done that. I could have made some small cosmetic changes like paint, but to say, I don’t like granite countertops. Let me put in courts, that’s just like Ricky mistake.
Tony: Aaliyah, your story of waving the inspections that totally get it right. Because like you said, as you invest in a market that’s a little bit more competitive sometimes that’s what you need to do to get that offer approved. I can share what I’ve done and Ashley, I want to get your opinion because you just happen to be in the same market. But there are some times when I buy from a wholesaler for example, they’re typically not going to give you an inspection contingency. But what I’ve done is I’ll still do an inspection that way. At least I get the report and I know what I’m stepping into. And my worst case scenario is that I lose whatever EMDI put down, and I have used that one time just like a bargaining chip, like, Hey, I’m just going to walk away. Who cares if you keep my 5K EMD? And we’ve been able to kind renegotiate. So that’s kind of been my approach is still do the inspection even if I waive it and then just say, okay, I got to walk away because of X, Y, and Z. Actually, for you, since you’re in that same market, how are you handling the inspections and due diligence while still remaining competitive?
Ashley: So basically if it’s really dilapidated and I’m doing a huge remodel, I’m not getting an inspection because I’m ripping apart walls anyways, my scope of work is so big that I’m kind of accounting to replace most items anyways to update.
Aleea: We’re throwing in very high EMDs to get these offers done. We’re throwing in 30, 40 at one point I threw in a 60 KEMD. It’s just so competitive, but I completely, I like that strategy and I will definitely use it if for whatever reason I am making an offer on a property and I can use a lower EMD and then I’ll just weigh the cost benefit analysis from there.
Tony: Just one last point on that, and I know an investor now you got to be very, I think careful using this strategy. You can definitely burn some bridges, especially if you’re working with wholesalers in specific markets. But his thing was, dude, I’ll get my offer out, but the contract doesn’t become binding until my EMD is submitted. And he’s like, so I’ll just make sure that if I get a yes today at 12 o’clock by three o’clock today, my crew is out there walking the property and if I find anything wrong, then I just won’t submit my EMD and we’ll let the contract cancel out. So that’s another strategy, but obviously if you keep doing that to the same contractor or to the same wholesaler, eventually they’re going to be like, Hey dude, we’re not going to a contractor anything anymore. So you got to use that I think sparingly probably. So Aaliyah, you go through this process with the four unit, you learned some good lessons it sounds like. What’s your next move after that? Do you double down on that new strategy given that you kind of paid the cost to learn some new lessons or do you continue to pivot into different tactics?
Aleea: I started off this real estate investing only doing flips, and that four unit, of course is my first rental. And then I really just started treating this as a business and I started doing my research and I learned and read up all about cost segregation. I am still working in my W2, and so I am getting killed with taxes. And so my plan is to slowly but surely acquire rental properties to help offset the capital gains tax that I’m getting hit with. And so yeah, that’s my plan going forward. I’m going to take those lessons that I learned and apply them on all my properties. I also realized too that in the beginning stages I was really just focused on design, the pretty stuff. I knew barely anything about electrical, plumbing, the condition of a roof. And so now what I’m doing is I’m just digging deeper and really doing my homework and I’m watching YouTube videos just where they follow an inspector who’s doing a home inspection for two hours, and I’m really just trying to learn the dirty stuff as they call it, so that I know when I’m considering a house and it only has four panels and it’s a four unit, I know that there has to be a fifth one for a house panel. To me now looking back, I’m like, okay, that’s obvious. And I can count them as I’m at the house. I will of course not skip out on seeing it. So yeah, definitely I’m taking those lessons and I’m acquiring more rental properties and continuing to flip
Ashley: Aliyah, can you share the numbers on this multifamily too, what the purchase price was, what your rents are, and then what your cashflow is on the property?
Aleea: Yes. So I purchased the property for $580,000, much well over asking price, and we got the third unit that was vacant that I remodeled fully. We just got that rented. And so my cashflow now is around 600, 700 bucks. It’s not a lot. And I’ve had a lot of repairs. I’ve already put in so much money into this house. I’m not too upset though because it is in an area called Elmwood Village where I’m from, and it’s a fantastic area that attracts a lot of people. There’s lots of bars, there’s really good restaurants. It’s really one of the highlights of our town. And so I am really banking on appreciation here. So this is an appreciation and a cashflow play for me.
Ashley: That definitely is a great area for appreciation to be there. So with this property, you have the four unit multifamily. Well, I definitely want to get into the piece where you’re going to be talking about how you’re finding these deals, but first we have to take a quick ad break and we’ll be right back after this.
Tony: Alright, so we’re back with Aaliyah and Aaliyah. I think the million dollar question here is what are you doing to source your deals? I think for a lot of Ricky’s that are here, they understand the process of I’ve got to work with the contractor, I’ve got to make sure I’ve got a good scope of work, I’ve got to make sure I’m doing those things. But as you said before, the ad break, the money’s made when you buy. So what strategies, what tactics are you using right now to find good deals today?
Aleea: So mostly I am relying on the MLS on what’s on Zillow. I am calling agents, I’m telling agents around town, if you bring a deal to me and we work together, I’ll also sell the deal with you. So they’re incentivized to also keep me on their radar as of right now, again, because it’s just so competitive here, I’m not getting the number of deals that I would like to per year. My team is ready to scale. And so what we just started doing is off market marketing. And so hopefully within the next month or two we should see some results from that and I should be able to acquire more deals. But so far it’s just been relying on what’s on EMLS and I play very close attention to that too.
Tony: Lee, let’s break that strategy down just a little bit more because I think for a lot of rookies when they think about, Hey, finding a great deal, they don’t necessarily think MLS. So what is your specific strategy for sourcing these properties? Are you just going every day onto Zillow and just seeing what’s there and offering it list price or do you have a strategy where, hey, whatever it is, I’m going to offer 70% of that? What is your specific process for sourcing and offering on these on market deals?
Aleea: That’s a great question. So I’ve been looking at properties that have been listed for a while. I usually won’t make an offer on a property that’s only been listed for a couple of days or a week because I just know likely they’re not going to accept my offer. It’s very rare that I give them an asking at asking offer anyways because there has to be enough margin for me to make money and then also for me to have a contingency in case anything goes wrong. So I usually target properties that have been sitting for a while. My best flip where I made the highest profit was a property that went under contract, but then it fell out of contract for whatever reason, and I was able to call that agent right when it went back up on the market. And so it was showing on EMLS that it had been listed for about 30 days. And I contacted that agent and I said, Hey, what’s going on with this house? I’d like to really make an offer. How desperate are the owners right now to sell it? If you get this deal done for me, I will let you represent me on the sell side as well once my team is out of it. And so we were able to work together and I got the deal done. That’s a very interesting story in and of itself though. So to fast forward, I ended up working with a different agent when I sold that house. The issue with incentivizing an agent and telling them that, Hey, we can work together once this house is flipped, is that now that agent, what he did was that he started pitching the house to his current clients. And so he had came to me about two, three weeks into the flip when we had closed and said that he had other clients who wanted to put an offer before we went to market and wanted me to design the house according to their taste and that we would get essentially what I would be listing the house for, which at that time I purchased the house for 500, we were going to list it for eight 30, and he was like, they’ll give you an offer for eight 30, but right now if you take it and then just work with them on the design. And so I can go more into that if that’s,
Ashley: Yeah. Okay. So I’m thinking off the top of my head, pros are you already have an end buyer. Cons are they back out of the deal and they don’t have a good design taste. So what kind of happened in this situation? What did you decide on?
Tony: Or the other piece is now you’re just almost like general contracting for this person and you’ve got to take their taste and their demands and their desires into account. So was it a happy ending for you? Did it turn out how you wanted it to?
Aleea: It was so rocky and I lost so much sleep over this because the issue was was that this agent was really trying to get me to agree to this deal. He also said there was a contingency that he would have to sell his client’s current home in order for them to be able to purchase my home. And so he also said that he would be the only agent on the deal. So he was essentially getting triple quadruple commission on this whole thing. And I started to just question again, me being the lawyer and me being very risk averse, is this in my best interest? I know I’m going to do a great job on this property. It’s in a very highly desirable neighborhood. The design is going to be 10 out of 10. Is it in my best interest to just make a deal before it goes onto market or to show the house to the world and just see what happens? And so I really went back and forth on that, and I remember it got to the point where I was just so confused and a little frustrated that I couldn’t come to a decision that I booked a last minute trip to Aruba, and I went to Aruba and I booked a last minute trip to Aruba and I flew out a couple hours later and I was at the hotel pool and I started just chatting to a lady and she was a real estate agent from upstate New York in Westchester. And I told her this story and she was like, oh, wow. She was like, no, you need to show this house to the world. It’s a beautiful house. You’re doing a great job. Those buyers, if they really want this house, they’re going to be around. You can kind of talk to the agent and get a sense of what their design style is and somehow try to incorporate that a little bit, but they will be around if they really want this house and if this neighborhood is that desirable as you sit. So I was like, you know what? I’m like, that’s true. That makes sense. And so I remember I flew home and I told this agent, I was like, you know what? I’ve decided I don’t want to go through with the deal also because I’m working a full-time job. I don’t have time to handhold decision-making when it comes to the design process. And I was just having nightmares about waiting for a response on paint color cabinet styles handles, there’s tile backsplash, there’s so many decisions that you have to make along the way. And my team, we get in and out, right? It’s very seamless. And so I explained this all to the agent and he was like, you know what Leah? He was like, that’s right. I think that is the best decision here. We should list it a market. And then that gave me a real red flag because the way that he just flipped. So all of a sudden I was like, wow, you have been trying to convince me for so long that I should just make this deal and now you just flip script. And so I started talking to another agent who sold a house in that neighborhood, a couple bucks down that blew all the other comps out the water. And so this agent put on a full presentation, was like, look, I’m the best person to do the job. I have the buyer’s list from that house, the comp for people who didn’t get the deal, who would be interested, and also just to let you know, do you know that that agent was part owner of that house? And I was like, what? I was like, no, he never told me. She was like, what? He never disclosed that to you? I said, absolutely. He did not. So I remember calling him back, I was like, Hey, are you part owner of this house? You never said that. He was like, oh, well, it’s any MLS. It’s on the MLS, you should have known. And I’m like, I’m a lawyer. I’m not an agent. I don’t have access to the MLS. So I would not have known that unless you had told me. And he was like, oh, I just thought because you’re a sophisticated client that you would’ve known. And I’m like, how would I have known? And so I was like, you know what? I’m so sorry, but I’m not going to work with you. I’m going to go a different direction. At that point, I just really couldn’t trust anything he said. And even that decision alone was really, really hard for me to do because Buffalo is a very small town and reputation matters. And so I kind of had given him my word that I would sell this house with him. But it was just so many things that had happened along the way that I was just like, this is not in my best interest. And at the end of the day, this is a business here. And so I let that agent go and I worked with a different agent and I got an offer for nine 90 that I accepted. So we were going to list it for eight 30, and I ended up selling the house for nine 90.
Ashley: There’s two things I want to mention. First, we have to address the fact that you flew to Aruba to talk to someone that probably lived a couple hours from you in New York City that gave you great advice, just the way the world works, coincidences like that. And then the second thing is how that second agent put together a pitch to you. What a great concept as if you are looking to sell a flip is to, instead of just picking the agent you’ve always worked with or the most convenient option, actually going out and looking who sold properties in that area, if they have a list of potential buyers already. And also I’m curious, how was the experience working with that agent? Do you think that part of the reason you got top dollar was from the agent helping you sell this deal?
Aleea: Yeah, absolutely. That agent, I mean, that was my first time working with an agent where they put together this whole pitch. And so when she was like, let’s meet on Zoom, I’m like, okay. And then it was a whole slideshow almost, and this agent had really done their homework, and now I can tell that agents who do their homework versus the agent who’s just looking for a quick deal, that agent knew the area extremely well and just had all the information and what buyers are looking for. And that agent was very involved in the whole process when it came to decisions on staining and restoring the hardwood floors, for example. They came in and she was like, buyers really like this type of brown, not this orangey type of brown, the houses in this neighborhood. I know what they have, do this. And every piece of her advice was just spot on. And I definitely contribute the success and effect that we got this offer for nine 90 because of the team that I was working with. And that is a very valuable lesson. It’s like on one hand, I want to incentivize the agent who I’m trying to get a deal done with to bring my deal to the top of the pile where he can potentially get both sides of the commission, but at the same time, I want to work with the best agent who I know can do the best job at selling my property. And that was the decision I had to make.
Tony: Aaliyah, I mean, what an incredible story and kudos to you for having the courage to kind stand up for yourself and for your own business. I feel like sometimes as a Ricky investor, we can sometimes get swayed by the people that we feel have more experience than we do. But kudos for you for kind of seeing through that and making the right decision for yourself. I want to talk a little bit about the off market, but just one last thought for me on the deal finding side, how this conversation initially started. But I know two investors who do incredibly well. They invest in South Florida and the first, I don’t know, two years of their business, they only did on market deals, and they had a very kind of regimented process where they hired a va, they trained this VA how to look through Zillow, all these different websites and kind of the criteria what the buy box looked like. And then they had a templated email that the VAs would send out with a pay if the asking prices x were always going to offer some percentage of that somewhere around Y. And they just had a team of VAs every single day, all day sending out these offers, and that’s how they got all of their deals for the first two years of their business. So just a reminder to all the rookies that are out there that it’s not a bad deal just because it’s on the MLS. I feel like social media is, so many have other people, they just like Poo P on the MLS, but there are good deals to be had if you make the right offer. So just a reminder for all of our rookies that are listening, but going back to the off market thing, the last question from Ilia is you said you’re kind of experimenting a little bit with the off market strategies. What does that look like for you? Are you doing mailers? Are you cold calling? What’s strategy are you leveraging?
Aleea: This is actually another interesting story. If I take a step back, my one flip that I did not get an offer on within the first week, it was when we listed it on the market right before Thanksgiving, it’s very cold in this market. I didn’t get any offers that I had liked, and so I decided to rent it instead, and I was renting it or I listed it for rent for $2,700. My mortgage at the time, what I owed to my hard money lender was about 2,400 a month. I was just going to rent it, and then hopefully when that person leaves, it’ll be a better season and I’ll get the offers that I had. I was contacted by an agent who works on behalf of insurance companies, and the insurance company was looking to rehouse a family whose house was destroyed in a fire, and he told me that it would be a midterm rental agreement about a minimum of 10 months, and that the insurance company usually pays higher than asking would I be interested. And I was like, of course. And I was like, well, how much? He was like, well, how about $4,000 a month? And I was at that point I thought this was a scam. And I was like, yeah, definitely. Of course. He was like, okay, well let me talk to the insurance company. I’ll hang up and I’ll call you back. So I remember I called some of the agents that I worked with. I was like, Hey, have you heard about this? Have you heard of this guy? They were like, oh yeah, these deals come up once in a blue moon. He called me back, he was like, we can get the deal done for $4,000 a month. We’ll move this family in however they want to know if we can keep the furniture. That was a state, it was furniture that I was renting for my stager. And so I remember I was like, oh yeah, of course. And I was so excited. So I’m calling my stager. I’m like, Hey, is there any way that I can extend the time that this furniture is here? I’ll pay you, blah, blah, blah. She was like, Aliyah, I really have some of my best pieces in your house. I’m booked back to back to back. I really just need this. So I was like, crap. So I called the insurance agent back. I was like, I’m so sorry, but we can’t keep the stage furniture. He was like, well, the insurance company has a vendor that they work with to furnish it, but it would take about two weeks, three weeks for that furniture to arrive. These folks, they want to move in right away. They’ve been cooped up in a hotel room with their dog and their newborn. He was like, would you be willing to furnish the house? If so, we can give you $5,000 a month instead of $4,000 a month. And I was just like, this is absolutely insane. And I did the math. If it’s a minimum of 10 months, that would be an extra thousand dollars a month, $10,000. That’s probably around how much it would take for me to furnish the house. So it would be free furniture, and then I can use that furniture and just list this property as a midterm rental. And so I did that.
Ashley: Or you could even sell the furniture too on Facebook marketplace too, and recoup some of that cost too. Yeah,
Aleea: Exactly. And so that agent, he actually also co-owns a lead company, and so they generate a list of leads, they skip trace those leads, and then they sell that list. And so he approached me. He was like, Hey, we got a fantastic deal done. Would you like to talk about other partnerships we could possibly do? And so I purchased some leads for him. We’re targeting pre-probate and missed mortgage payments as well. And so we’re going to use that list. I’m going to hire a cold caller. We’re also going to try to do some text messages and we’re going to test trial and error this thing out and see how many leads we can get with this.
Tony: Wow. You’ve got some amazing stories.
Ashley: Yeah. Well, Leo, thank you so much for joining us on this episode of Real Estate Rookie. Can you let everyone know where they can reach out to you?
Aleea: Absolutely. So you can find me on Instagram. It’s Lee, LEES, as in Sam, Sheri, CHER. I am on Instagram. You can DM me there and we can talk. I’d love to share advice or get advice from you if you have any that you’d like to share with me or to work together.
Ashley: Thank you so much. And if you want to become more involved in the rookie community, you can join the Real Estate Rookie Facebook group or also message in the Real Estate Rookie Instagram account. We now have to, you can send us a DM or comment on one of our posts or reels. I’m Ashley. He’s Tony. And we’ll see you guys on the next episode of Real Estate Rookie.
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Imagine getting paid to buy rental properties. Well, it’s more than possible, and today’s investor proves it. After spending months looking for the “perfect BRRRR” property, Jon Kessler stumbled upon it and, through a series of fortunate events, got paid $50,000 to buy a cash-flowing rental property. And guess what? This wasn’t a one-time occurrence. Jon repeated this strategy multiple times to build his real estate portfolio with little money and reach financial freedom in just 11 years!
So what is the “perfect BRRRR” strategy, and how can you repeat it to get paid at the closing table, just like Jon? Today, Jon is walking us through his decade-long real estate investing journey, starting with being tens of thousands of dollars underwater on his home in 2008 to getting paid to buy rental properties, building an off-market lead business, and eventually getting to his true goal: financial freedom and truly passive income.
Jon faced a LOT of ups and downs. He started with zero investing experience, had non-paying tenants, a home with negative equity, and built his real estate portfolio all while working a full-time job and raising kids. Think you can’t invest in real estate in your situation? Jon will prove you couldn’t be more wrong!
Dave: The perfect brrrr. You may have heard of it, but only a few investors have ever actually pulled it off. Today we’re speaking with one of those investors who not only executed a perfect Burr deal, but pulled out an additional $50,000 more than what he originally invested. Hey everyone, it’s Dave Meyer here. I’m the head of real estate investing at BiggerPockets and the host of the BiggerPockets Real Estate podcast where we teach you how to achieve financial freedom through real estate. And today’s guest has done just that. We’ve gotten an investor story with a guy named John Kessler from Baltimore, Maryland on deck for you. And one thing I really like about John’s story is that his investing career has three distinct stages. If you’ve listened to any of the shows recently where we’ve had Chad Carson on as a guest most recently, episode 1 0 7 2, you’ll hear Chad’s framework where he talks about having a starter phase, a builder or growth phase, and then at the end, sort of a harvester phase. And John’s career follows this framework and path. In his first six years, he acquired five properties. Then in the next five years in his builder phase, he scaled up to 19 units, including a wholesaling business, and that’s when he did that bur deal where he was able to pull out more than a hundred percent of the capital he invested. Now, 12 years later, John has achieved financial freedom and is investing more passively so he has time to spend with his family. So as we hear John describe how he built his real estate business, I encourage each of you to listen and think about which stage of investing you are in right now, and whether you’re prioritizing your time and your money accordingly, or if maybe you need to readjust. Alright, let’s bring on John Kessler. John, welcome to the BiggerPockets Podcast. Thank you for joining us.
Jon: Absolutely excited to be here. Thanks for having me.
Dave: Yeah, absolutely. So give us a little bit of background. Tell us a little bit about yourself and why you first started looking into real estate in the first place. But I think it was like 10, 11 years ago now.
Jon: Yeah, it was a while. So my background is I’m in tech. I still have a full-time W2 job, married father of three. So real estate’s not my full-time thing. It has always been a side hustle, but got my start a little bit by accident. My first experience with an investment property was, it was a primary residence that I turned into a rental lot of necessity. So what happened was in 2006, I bought my first house for myself, and I was a single guy at the time, and it was this little two bed, one bath, 900 square foot house, and it was plenty of room when it was just me, but six years later, married, we have a 1-year-old, we have another one on the way and we’re just outgrowing it. So the wife and I decided it was time to upgrade. And the problem is in 2008, there was a little bit of a real estate correction.
Dave: Heard about it.
Jon: Yeah, yeah. I was so far underwater on that first property, it just would’ve completely wiped out my down payment. So the only option was to give being a landlord a try, and that’s how I kind of got my start.
Dave: Wow. So you are the prototypical, we call ’em accidental or reluctant landlords. You never sought out being a landlord. You didn’t come to this by financial freedom. It just was necessity.
Jon: Yeah.
Dave: Do you mind telling us a little bit about that primary residence? What’d you buy the property for In 2006?
Jon: Yeah, so this should give you an idea of how inflated prices were. So I bought that house for $150,000 in 2006. I financed 100% of it, which is something you could actually do at the time. It’s not always cracked up to be. It actually wasn’t that good of a thing. Two years later after the crash, I think I would’ve been lucky to sell it for about 90,000. So I was underwater about 60 grand, which was almost 50% within two years.
Dave: Wow. I’m sorry to hear that. So fortunately, it sounds like though, when you were looking to buy your second primary residence in 2012, you had saved up enough money that you could put your down payment on this new primary, but you had to hold onto the other one. You didn’t want to have to come out of pocket to pay the bank, right?
Jon: Yeah, that wasn’t a choice. I could have sold it and been homeless or go back to renting, or I could have bought a house. There was no in-between.
Dave: So what was that like becoming a landlord with a young family working full time?
Jon: I got really lucky in hindsight, looking back, knowing what I know now, my original tenant was really easy. It was a friend of a friend. She kept the place nice. She paid on time. She only called when there was a real issue. So she honestly really helped me forget that I had this rental property.
Dave: Oh, that’s good.
Jon: Yeah, zero cashflow. I was renting it out for pretty much what the mortgage was. I was fine with that. I wasn’t trying to make money. I was just trying to kick the can down the road a few years and then figure it out.
Dave: Well, it sounds like that worked and you were at least able to kick the can down the road. How did you go from this sort of accidental landlord position to actively trying to grow business?
Jon: So I still didn’t really have any intention of being a real estate investor, but about two years later, in 2014, I had managed to save up some money again. And the, I dunno, kind of fear of being a landlord was gone. Even though I didn’t have a ton of experience, it now seemed like an option. And I was already putting money in the stock market through a 401k through work, and I still didn’t know what I was doing, but I knew enough to be able to look at 2014 prices and say if I just bought a similar house but rented it out for the same amount, instead of breaking even, I’d be making, I don’t know, maybe four or 500 bucks a month. There’s something here.
Dave: Prices were still below where they were in 2006.
Jon: Oh, yeah. Yeah. So I called the realtor who sold me my second house because I knew that he had been a landlord just from talking to him from when I bought my second house. And I asked for his advice, what to buy, where to buy, and he helped me find something. So
Dave: Yeah. That’s great.
Jon: Yeah, it was even in the same neighborhood as the first one. Turns out I kind of got lucky with that location. Second one was a three bed, one bath town home, same neighborhood. And it was turnkey. It was fully renovated, nothing high end, but it was well-maintained. It was fine. Move in ready. Great. And I paid 108,000 for it. That was the purchase
Dave: Price. And how did that landlord experience compare to your ideal tenant? In the first one,
Jon: I got lucky again, but in a different way. Still didn’t know what I was doing, didn’t have good tenant screening in place, and I moved somebody in who on paper I never should have placed. Luckily they didn’t really cause damage to the property. They didn’t mess it up, but they did stop paying rent pretty early on. So I got to go through that experience was lucky enough I didn’t actually have to evict them. They moved out willingly, but got the other end of the spectrum with that second tenant,
Dave: Man. So why’d you keep going after this? I’m always curious to hear these things. Everyone takes lumps early in their career, it just happens. I’m always just want to understand sort of the mentality that you approach. You had a bunch of other stuff going on, you had a couple of challenging situations early on. What drove you to build and scale from here?
Jon: Well, I’m not just saying that because I’m here, but shortly after buying that second property, I stumbled on the BiggerPockets podcast and feel like I started to get a real education there, started learning a little bit more about how to all the stuff manage a property. I got exposed to the BER method and that kind of just opened my eyes to what is actually possible.
Dave: Honestly, it’s not that dissimilar story that we hear a lot. I myself, I didn’t know about BiggerPockets. I did my first two deals and was managing seven units at that point before I really discovered the podcast or working at BiggerPockets. And then was like, oh my God, I have been doing everything completely wrong. But luckily I was still turning into profit, doing okay, having done everything wrong. And that was pretty exciting to me, that man, I can get so much better at this. And thankfully it did. So it sounds like discovering the Bur method is sort of what put you in another gear in your investing. Is that right?
Jon: Yeah, it was a combination of that, and it was also the fact that I had this family, now we actually have three kids and we kind of had ’em back to back to back. So there’s maybe a four year gap between one and two. And I was working a much more demanding job than I am now, and I spent a lot of time in the office away from the family, and it really started to bother me that I didn’t have more time with them. So Between that and listening to BiggerPockets, I started to plan and exit strategy, so to speak, which didn’t quite work. I still have a W2 job now. It’s kind of by choice, not because I have to. When was this? Around 2018, I felt like I had enough capital built back up to try it again. And this was my first attempt at a bur same neighborhood, another three bed, one bath town home. This one really didn’t need a ton of work, mostly cosmetic. I bought it for about 92,000, and at the time I was still doing a lot of the work myself, but I think I put maybe seven or $8,000 worth of materials in it.
Dave: Oh, that’s not bad. I mean,
Jon: Yeah,
Dave: For a cheap house it’s still a lot, but it’s not bad.
Jon: Yeah, yeah. No, it wasn’t bad at all. And it appraised for about 1 25 when I was done. So I ended up being able to pull out a little bit of my capital, not all of it.
Dave: And you got hooked?
Jon: Oh yeah. Oh yeah. That proved the concept to me. I was ready. So I mean, it was later on that year, I did my second one, I got a little more aggressive. I also hired a general contractor because it was taking too much of my time away from the family to do the work myself. So I finally started hiring people.
Dave: But it’s kind of beneficial, right to do it yourself a little bit at first because then at least you know what you’re looking for and what some of the pitfalls are going to be and where the challenges lie.
Jon: And I also quickly realized that I really wasn’t saving money doing it myself, because how fast can a contractor remodel a bathroom versus me? It’s going to take me three months, a weekends a hundred percent. And if I had just worked my regular job, I would’ve came out hugely ahead.
Dave: You only save money doing things yourself if you’re actually good at it. If you’re not good at it, you’re losing money and time and efficiency and you’re not scaling. We’ve talked about it many times on the show, but it’s worth repeating as many times as is necessary. Only do these things yourself if you are confident and able to do them.
Jon: Yeah, I agree. Even now I’m in tech. I’m pretty good with a lot of different tech related things, and I still outsource a lot of tech aspects of investing to other people.
Dave: All right. I want to hear how you scaled up to your next B John, but first we need to take a quick break. We’ll be right back. Welcome back, everyone to the BiggerPockets podcast. We’re here with investor John Kessler talking about how he went from accidental landlord to doing his first burr. So back to your story, John, you did your first burr, you did it yourself. What did you do next? How did you sort of develop a more scalable business model for yourself?
Jon: So what happened? I did two burs. They were both off the MLS in 2018. I was able to get most of my capital, maybe half the most back out. And in 2019, I had this idea in my head that I had to do a perfect bur. So I started passing on deals where I was going to be leaving capital, and I just wanted to accelerate the velocity, kind of had the opposite effect. I think I was being too picky.
Dave: I just want to explain to everyone, John, before you do what a perfect burr is. So BURR stands for buy, rehab, rent, refinance, repeat. Basically, you buy a property, you put additional capital into it to improve that. You rent it out and get a stable tenant in there. Then you refinance it. And why you refinance it is to pull some of your capital out. Ideally, you’re able to take out at least your renovation costs, maybe some of your initial down payment as much as possible. And the term quote perfect bur is when you’re able to take out 100% of your equity. So if John on a deal was to invest a hundred grand in both acquisition costs and renovation costs, then when he did a cash out refi after doing the renovation, should he be able to take out that a hundred thousand dollars? That’s a perfect burr. Sorry, John, just want to explain that, but please go on.
Jon: That’s what I thought I had to do because I didn’t really have a clearly defined goal, and I just started to get obsessed with this concept of a perfect burr. So it took me a while. It took me about seven or eight months to find another deal that I thought worked. I actually took an assignment from a wholesaler. This was the first wholesale assignment that I ever took. This is a wholesaler met at a meetup, and this was kind of a sign of the times. Shortly thereafter, I found out that I was not going to be able to close on that anytime soon because Covid happened, and this was a foreclosure auction deal, and they put a moratorium on fore closures. So I didn’t know when I was going to be able to close on this deal. I had this contract and it was just kind of held in limbo indefinitely.
Dave: And did you have earnest money down?
Jon: Yeah, I put down a pretty sizable deposit. It was about $13,000 actually, with the title company.
Dave: Oh, wow. And so that
Jon: Was just
Dave: Sitting there.
Jon: That was just sitting there with the title company in escrow, and I was also responsible for the property taxes of the property until it closed, until it was ratified.
Dave: Oh no. Okay.
Jon: Well, that deal actually turned into one of the best deals I ever did because of the moratorium.
Dave: Tell me about it. I want to hear that.
Jon: I was not able to close on that property for two years. So that’s how long the moratorium lasted, and it was lifted in late 2021. And between 2019 and 2021, property values went up significantly and interest rates dropped. So I had that under contract for $120,000. This was a single family detached and it was a four bedroom, and I knew that I could turn it into a five bedroom, which is really good for voucher programs, which I do a fair bit of. I closed on it. I actually got a private loan from a coworker. He lent me around $190,000 for the purchase. So I was actually able to take about almost $50,000 cash home from the closing table from the purchase I did my remodel, the remodel was about $45,000. So I used pretty much roughly the cash I took home. And then when I placed a tenant and refinanced, it appraised for $330,000. What?
Dave: Oh my
Jon: God. Yeah. So I pulled about $50,000 out of it more than I put into it.
Dave: Oh my God.
Jon: Yeah, it was incredible. And that’s a 30 year fixed. It’s a four and a half percent loan, a monthly payment with taxes and insurance is 1600.
Dave: Wow.
Jon: And today it was rented out for about 27 50 right now a
Dave: Month. Oh my God. Wow. They need to come up with a word other than perfect bird. That’s better than perfect, right?
Jon: Yeah,
Dave: Just pulling a hundred percent out is not perfect. If you can, there’s a more perfect version that you have invented, John by taking out 50 grand more than what you put into the deal. It’s incredible.
Jon: Yeah. All you need is a pandemic and to delay closing by two years and it’s easy.
Dave: I mean, how worried were you during those two years though? Were you seeing the property value go up? I mean, starting mid-summer 2020, things were already starting to go a little bit crazy.
Jon: Originally, I was a little grouchy that my $13,000 earnest money deposit was tied up. And I was also frustrated because it had taken me so long to find a deal that I thought was good enough. But I moved on. I didn’t wait for that to close. I moved on to other deals. But then as time went on, I just got more and more excited for this deal. Just I saw these numbers, I was like just making money I didn’t even own in the property. It was fantastic.
Dave: Yeah, that’s unbelievable. Wow, that’s pretty cool. I just want to take a little detour here. I’m curious about the philosophy. Looking back on it, do you regret waiting to try and find a perfect bur, or would you have been better off just doing some solid deals and not holding out?
Jon: I believe I would’ve been better just doing solid deals I’m holding out, and I had no real reason to wait for a perfect burr. I just got it in my head that that’s what I needed. Yeah. Yeah. It was actually a episode of BiggerPockets that kind of got me unstuck. David Green was talking, and this wasn’t even the subject of the episode. He just, how was your weekend? He is like, oh, yeah, it’s great. I just got an appraisal on one of my properties. I’m only going to leave $12,000 in it. And I thought to myself, wait, you can do that. That’s allowed
Dave: That It wasn’t perfect to be less of money in the deal.
Jon: I just needed to hear an expert say, it’s okay. Of course. And then I sat down and put pen to paper and actually, what is my goal? And then I realized I could afford to leave a little bit more in some of these deals.
Dave: Absolutely. And the reason I bring it up is because I hear this mentality a lot these days because burr is harder. It’s always going to be harder when you’re not in this just rapidly appreciating environment and honestly, unusually, rapidly appreciating environment that it’s always going to be harder to be able to pull a hundred percent of your equity out. But I’ve done a burr in the last year, I still think they could work. I’m not a perfect one, but I guess I’ve never really seen that as my goal. And I witnessed a lot of investors sort of falling into a similar trap that you did, John, where it’s kind of like you are expecting this perfect situation where in today’s day and age, you might just need to be a little bit more patient for your second deal or your third deal and just do the deal that’s in front of you. It’s not for everyone. Some people might want to hold out, but I do witness a lot of people wanting to hit that grand slam, but might be missing triples or home runs in the meantime, holding out for those kinds of deals.
Jon: Oh yeah, absolutely. And I think it gets easier. You accumulate more rentals and get more cashflow, it gets a little easier to not pull off your capital back out.
Dave: That’s true. Once you have more irons in the fire, if you will, it is not like you need to get a hundred percent out. So you could do that second deal to do that third deal when it’s your eighth deal, your 10th deal, it’s a little bit easier to just slow down. That’s definitely true. So in the meantime, John, when you were waiting for the moratorium to come up, were you doing any other deals?
Jon: Yes, I did one more off the MLS later that year, and that was a perfect bur
Dave: Nice two.
Jon: Yeah. I mean, there were some that went the other way too. So they’re not all, they’re not perfect.
Dave: Good to know. Yeah,
Jon: Yeah, yeah. So that was my last deal that I ever did on the MLS even through today. That’s when I realized I could start to leave a little bit more money, and I wanted to try to accelerate, and even though I’m off the idea of doing a perfect burr, I still saw the MLS as being a little too competitive. So I started networking with wholesalers a bit more, and one day I put a post on Facebook and this investor group for locals just kind of describing what I was looking for. And within I would say 10 minutes, a wholesaler replied with a contract he had signed less than a half hour before I made that post, and I ended up taking three assignments from him in less than a month.
Dave: Wow.
Jon: So as a very well-timed kind of fortuitous Facebook post.
Dave: So these were for burrs?
Jon: Yes.
Dave: Okay. And how much better of a deal do you think you got because you went with a wholesaler than for buying an MLS deal?
Jon: So what happened was, actually, let me ask you this. You probably know where I’m going with this across all three deals, how much do you think I paid in assignment fees total?
Dave: I mean, just guessing based on what your deals were costing? I don’t know, 20 grand across the three,
Jon: I paid $80,000 in assignment fees, eight zero across three deals. And I wasn’t upset about it, but I was jealous. But they worked, the numbers worked. I was able to pull out a lot of my money on all three of these deals. I was actually happy that this wholesaler made this much money off of me because I figured he was going to keep bringing me deals. Like, this is great. To
Dave: Be candid, I’ve never bought a deal from a wholesaler. I’ve looked at a lot of deals from wholesalers, but I was figuring what the price point of the houses you were looking at, you were paying five 10 grand maybe per assignment fee.
Jon: I don’t know what his secret sauce was. He was getting incredible deals. Incredible deals. These were so far below what they could have sold for in the MLS. It was incredible.
Dave: I mean, to be fair to the wholesaler, you were willing to pay up?
Jon: Oh yeah.
Dave: I averaged 25, 20 $7,000 per assignment because the deal was still so good that it was worth it. Even when you were paying that large assignment fee. I mean, that is correct. If that wholesaler is creating value and you’re willing to pay for that value, I mean, why not?
Jon: Absolutely. And I really did get probably more than half my capital out on each one. This was working. I would’ve kept buying them from him, but we just never made another one work. So those were the only three I bought from him. But when I saw those assignment fees, I thought, I don’t really know how to go get my own off market deals, but for $80,000, I bet I can figure it out. So that’s what I started doing. I hopped on BiggerPockets and I just found someone who kind of owned a direct mail company, and I reached out and got their advice, and I just started sending letters
Dave: A
Jon: Couple months later.
Dave: So you were basically like, yeah, this was great. I found these three great deals, but I’d rather do these deals and not pay $80,000 for it. Okay. Well, that’s good for you. I am still waiting for the part of the story. John, where you work less, it seems like you just keep taking on more and more stuff.
Jon: Yeah, the way I went about it was definitely not the ideal way. If you’re trying to work less, I did it the hardest way possible.
Dave: All right. Well, I want to hear more about how you started a wholesaling business, but we do have to take another break. We’ll be right back. Welcome back everyone. We’re here with John Kessler. When we left off, John was telling us how he had just paid $80,000 in assignment fees for three wholesale deals that he purchased, but then he was motivated to, it sounds like you started your own wholesaling company, right? John, tell us how you went about that.
Jon: Yeah, so again, I just didn’t know what I was doing. I went on BiggerPockets. I found someone running a direct mail company. I had no particular reason for choosing direct mail. I was just aware of it,
Dave: A popular strategy.
Jon: We hopped on a call. He kind of gave me some advice, and I just started pulling data and sending mail. And at the time, I actually did not intend to be a wholesaler, but once you start marketing, you never know what you’re going to get. And people started calling with properties that didn’t fit my particular criteria, but you don’t want to waste marketing dollars. So I ended up starting to do some assignments too.
Dave: Okay. So yeah, originally you were just looking for yourself. You just wanted deal flow for your own properties. What were you looking for? More burrs?
Jon: Yeah, more burrs. I was just sticking with what I knew. The neighborhoods I knew, these little three bedroom town homes seemed to be working out really well for me. So that’s all I was mailing. It was a pretty small amount of records at the time, maybe 800 letters a month, and it was working, the phone was ringing.
Dave: How long did it take you for the phone to start ringing?
Jon: I mean, probably the day the mail hit, it started ringing.
Dave: Okay.
Jon: Wow. I mean, there’s a delay between when you send letters and when they land, but it was less than a week after I put my order in. I just started getting calls and I got my first deal within a month from that first batch.
Dave: Wow. That’s fast because they’re talking to a lot of people who do this direct to seller, and usually it’s three months, six months, nine months of grinding. So just for everyone listening, that is normal. It is normal for it to take a while, and that is something you need to know is that you might not hit it immediately. Are you still doing this? Are you still running the wholesaling operation?
Jon: Not the same way. And it was similar to when I first tried out Burr and it worked. I tried direct mail and it worked, and I got hooked, and I just started throwing gas on the fire kind of going faster than the, well, I had no systems faster than I should have based on what I had in place, and I was in such a hurry. I started just from marketing channel to marketing channel and just throwing more and more marketing dollars in it. And it was working. It just wasn’t optimized. So it was very labor intense and I was doing all aspects of it. I didn’t have any real help with it.
Dave: And you were still working full-time, right?
Jon: Correct. Working full-time. Still have three school aged kids at home, and I wouldn’t recommend anyone else do it the way I did because I was definitely burning myself out.
Dave: Yeah. It sounds a little bit like you were sort of getting away from the original intent of starting this business.
Jon: Very much so. Very much so. I was working all day family in the afternoon and weekends. I was on the phone looking at properties, managing contractors. I was still self-managing my rentals. After a while, I hired a property manager and he also helped me with construction management. So that did help me free me up quite a bit. But the amount of marketing I was doing at the time was still a lot. So I did that for about two years, and I scaled from five units to 19 units over those two years. And I also whole sailed a few dozen contracts, and I tried to do a few flips along the way. Those didn’t go great, but I tried it out. And early 2023, I finally realized I need to pump the brakes. I’m burned out also out of money, which is important too.
Dave: Yeah, it has a way of slowing you down when you run out of money. But it sounds like you were ready sort of mentally to slow down.
Jon: Yeah, I was ready to slow down. It was hard to go from being that active to nothing overnight. So it kind of took me a while to kind figure out how to relax. And that was in 2023, and I still wanted to do something, but I wasn’t sure what that next step was going to be. So what I ended up doing was I started to focus on more passive avenues and partnerships where maybe I can lend my expertise and money, but not my time. And that’s what I’m doing now. So just to give you an example, I’m still wholesaling, but I’m doing it with partners now. I was just sending mail in their markets and the leads would go directly into their systems and they would take it from there. I was passive after I sent mail, and we would just split it on the backend if it worked out.
Dave: So yeah, that’s generating more active income for you on top of your W2, I mean 19 units an amazing accomplishment. Congratulations. Are you feeling good about that and just sitting on those right now?
Jon: Yes, I am. If I come across another rental that works, I’ll buy it. I’m just not out there aggressively looking. I still talk to wholesalers and evaluate deals. It’s just rates are in the mid to high sevens right now. It’s just hard to make things pencil out. And I’ve also learned that expenses on these rentals are a lot higher than I ever anticipated them to be. So I’m even more conservative in my cashflow estimates than I used to be.
Dave: Yeah, I think that that’s very wise. Do you think that’s just because of the nature of the homes that you’re buying or just all rentals?
Jon: I think it’s probably both. I think people have a tendency to underestimate, but these are also 90 to a hundred years old, so there is CapEx. It’s also what I would consider maybe a B minus neighborhood. And I also deal with a lot of voucher and Section eight tenants. And I’m not saying that all voucher tenants will beat up your property, but in my experience, the average voucher tenant is a little rougher on your property. You also have those annual section eight inspections and you have to fix more things than you would with a market tenant. So that kind of thing all affects the bottom line.
Dave: So how are you feeling then, about your portfolio right now? You set out to earn some passive income to spend more time with your family. Do you feel like you’ve achieved that?
Jon: I do. The original goal, even though I didn’t go about it a very smart way, was to get to a level where if we had to, we could live off of passive income and we’re there. I could today stop working and just live off the cashflow. It would not be a lifestyle that we wanted. We would have to budget all that stuff, but we could do it if we had to.
Dave: That’s amazing. Congratulations. That’s so cool.
Jon: Thank you. That is a very comforting feeling, just to know. It’s almost like I have a second adult in the house working full time, so that’s how it feels.
Dave: So to help our audience level set and set expectations, how long did it take you from starting as a somewhat accidental landlord to be in that place of comfort that you’re in now?
Jon: I would turn the clock back to the second rental. That’s when I found BiggerPockets, and that’s when I first had the idea that I was going to achieve financial freedom from that second rental. It’s been exactly 11 years from the first rental. It’s been like 14.
Dave: Unbelievable. Good for you. Well, I did this math recently where I was talking about almost anyone. If you just are diligent about it, regardless of sort of your income level, if you really stick with it, like 10 to 15 years is a realistic timeframe for people. And it sounds like you’ve sort of fallen right into that timeframe as well. And I don’t know about you, but for me, that timeframe went very quickly. I know for some people it seems like, oh, I can’t wait that long, but it’s fun, it’s engaging, it’s busy, but it’s absolutely worth it, at least in my opinion.
Jon: Yeah, it was very stressful at times, and it was a lot of fun. Most of the time I had a really good time doing it.
Dave: That’s great.
Jon: Yeah.
Dave: Well, thank you so much for joining us. John, before we go, any last thoughts or ideas about what the future holds for you and your portfolio before we go?
Jon: Yeah, I’m pivoting, like I said, more passive direction and the future is probably going to be a lot of syndications as a limited partner, doing that through a self-directed 401k now. And I really like just receiving a check and not having to deal with tenant issues. That’s a lot of fun.
Dave: It’s pretty great. Yeah. Yeah. Yeah, it’s great. It is kind of the traditional sort of arc of an investor, right? You do all this active stuff, you try a lot of things, and then 10, 15 years in, you’re good enough enough to be able to do these LPs, passive investments. I started doing it, I guess, exactly 10 years into it. It’s pretty great. I really like having a balance.
Jon: Yep. Likewise.
Dave: Have you done any yet?
Jon: I did. I just put some money into one. It’s my first one probably about five months ago from a self-directed 401k, and so far it’s working out
Dave: Multifamily?
Jon: Yep. Commercial multifamily. It’s south in Indiana.
Dave: Oh, cool. Awesome. Well, good luck to you. And yeah, if anyone wants to learn more about Syndications Passive investing, we don’t have time to get into it now, but BiggerPockets has a whole podcast called Passive Pockets. You could check out if you want to learn more about that type of real estate investing. Well, John, thank you so much for joining us, sharing your story with us, and best of luck to you as you transition to a more passive investor.
Jon: Absolutely. Thank you very much for having me. This was fun.
Dave: Absolutely. Thank you all so much for listening. If you want to apply to be on the show, just like John, go to biggerpockets.com/guest. You can fill out a form there. Tell us a little bit about your story, and you may just be selected to join me here on the podcast to talk about your real estate investing journey. Thanks again for listening. For BiggerPockets, I’m Dave Meyer. We’ll see you next time.
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Your rental properties are about to make even more money. There’s one often overlooked real estate investing “upside” that, over time, makes rental property investors and landlords rich without any extra effort. This is one upside that Dave is exceptionally bullish on and is one of the most compelling cases for rental property investing. It’s not home price growth, it’s not tax benefits, and it’s not zoning changes—it’s simple: rent price growth.
Rent has steadily grown throughout the history of the housing market and shot up at an extreme pace during 2020 – 2022. Now, the pendulum is swinging in the other direction as rents soften and tons of supply hit the market. But how far are we from going back to the days of solid rent growth? And with the new housing supply already starting to be absorbed, could we get to above-average rent growth again? We brought Chris Salviati from Apartment List on the show to share his team’s rent research.
Over time, your rental income will rise significantly while your mortgage payment stays the same, boosting your profits. So, where are rents poised to grow the most? Will we ever experience 2021-level rent growth again? And will 2025 be the year strong nationwide rent growth returns? We’re breaking it all down today so you know exactly where rents are headed next!
Dave: The potential for future rent growth is one of the main reasons I believe that investment properties will drive great long-term returns for real estate investors in the coming years, and it’s one of the best upsides investors can consider taking advantage of when buying deals today. Today I’m going to explain why. Hey everyone. I’m Dave Meyer, head of real Estate Investing at BiggerPockets, where we teach you how to achieve financial freedom through real estate investing. Real estate investing is like any other business in that maybe the single most important factor in success is how much revenue you can generate. And for rental property investing, that basically just means how much rental income your properties provide every month. And for a very long time, that number how much rent you could collect and how much it was going to grow was a relatively predictable number to project over the course of 10, 20 year hold period that you might have a rental for. Rents would rise and fall with the economy or market trends, but on average, they grew about the pace of inflation or about 3% each year, and that is a really critical point that they were growing at least as fast as inflation if not higher. And then covid happened, and from the beginning of the pandemic, rents were soft for a little bit, but we all know it happened from 2020 to 2022 when rents shot up about 20%, and then the pendulum really just swung back in the other direction. And from 2022 to now, rents had been relatively flat or fallen a little bit. And those crazy swings, of course, make it much harder to predict what’s going on with your portfolio and what kind of returns you can project. And this makes it particularly hard to buy or to get into the market right now because if you’re thinking about buying a property, is your rental going to drop another 5% over the next three years or is it going to grow 10% like it used to? That’s going to make a big difference on your deals and could be make or break on your cashflow. And I’ll just say it upfront, you’ve heard me say it over the last couple of weeks, that I am personally a believer in long-term red growth. It is a big part of my thesis for why real estate is still the best way to pursue financial freedom. I think properties that you buy now with a fixed rate mortgage, so your biggest expense is staying fixed and then your rent grows, makes real estate really attractive over the next 10 plus years. But this is of course, just my opinion and it’s such an important part of our industry that I always want to hear what other experts in the space think as well. So on today’s show, we’re bringing on Chris sdi. He is a senior housing economist at apartment lists where he’s focused on trends in the housing market and rent growth. So I know he is going to have some really good, strong, well-researched opinions on where rent is heading. And I’m really intrigued, honestly, to hear if he agrees with my personal thesis. We’re going to get into why we’ve seen such wild swings in rent over the last several years, how investors should project rent growth going forward, and which individual markets are pointing toward higher rents in the near future. Let’s bring on Chris. Chris, welcome to the BiggerPockets podcast. Thank you for being here today.
Chris: Hey Dave, thanks for having me on. Happy to be here.
Dave: I’m excited to have you. Maybe you could start by just telling us a little bit about yourself and your work at Apartment List.
Chris: Yeah, yeah, absolutely. So I’m senior economist here at Apartment List. I’ve been with the company for about eight years. My role at Apartment List on the economics team is really about tracking what’s going on in the market through all of the really rich data that we collect through our platform. We also look at various public data sets as well and see what other folks are saying out there. But yeah, my role is really kind studying the macro trends of what’s happening in the rental market and putting that data out there in the world to help kind of inform folks about what’s going on.
Dave: Excellent. Well, we’d love to dig in with you just about what you’re seeing in terms of rent trends and where you think they’re going. But to start, maybe you can tell us in your mind what is a normal level of rent growth?
Chris: Yeah, I mean I think of kind of a normal level of rent growth as something that’s tracking pretty close to overall inflation. So if we look back, you have to go back now to 20 18, 20 19 as sort of being the last time that we have, which now that we’re getting pretty far back there, which feels kind of crazy, but that’s really the last time when we were seeing what I would describe as kind of a normal equilibrium level of rent growth. In those couple years things were going up two and a half, 3% pretty close to tracking overall inflation. Of course those national numbers always mask a lot of regional variation that we can talk about, but generally speaking, that’s kind of what I’m thinking about as being normal.
Dave: Okay, so we’ve gone six or seven years now since it’s been normal. I think a lot of our audience probably knows what happens with rent since then, but maybe you could just give us the detailed economist view of what has been the abnormal market since
Chris: 20 18 20 19. Yeah, for sure. So I mean really since we entered the pandemic era, things kind of just started off on this real roller coaster and so 2020, the early phases of the pandemic, what we saw was a lot of folks actually consolidating households, giving up leases, especially younger folks in that shelter in place phase maybe thinking, okay, I’m going to save on rent, give up my lease, go live with the parents for six months or what have you. And so all of that contraction in households meant that rents actually took a bit of a dip. So rent growth was negative in 2020 slightly again, varied a lot where some of the big pricey coastal markets actually saw really significant declines and a lot of more affordable mid-size markets actually saw big increases in 2020. So that’s probably the year where we see the biggest divergence of things going in totally opposite directions depending on where you are. But overall, what that added up to was nationally rents down about 1%, then we get into 2021, things go totally in the opposite direction. All those folks that moved in with their parents realized, okay, that’s not going to work for another year,
Dave: Don’t want to do this
Chris: Exactly. And roommates, people that were living grouped up, maybe that’s fine when everyone’s going to work every day, but when you’re all working from home, nobody wants to have four roommates. And so we saw this huge surge in rental demand, lots of new household formation at a time where we were seeing pretty big disruptions to construction pipelines, not a lot of new supply coming online. So rents went through the roof, rent’s up 18% in a single year in 2021, just wildly record breaking rent growth that continued into the first half of 2022, but then we saw things really start to taper off pretty quickly. A lot of that owing to a bunch of new supply coming online, which I’m sure we’ll talk more about. That’s been really a big factor over the past couple of years and also happening at a time when inflation is kind of taking off for non housing goods as well. And so folks budgets getting squeezed at the other end as well, putting a dampening on the demand side at the same time there’s a lot of new supply and so we saw big deceleration and rent growth. Our rent index nationally actually dipped back into negative territory in late 2023 and it’s been there ever since. So right now our national index is showing the national median rent down about half a percent year over year, so modest declines, but we’ve come down off that peak in total about 5% now.
Dave: Yeah, it feels like the pendulum just keeps swinging back and forth with rent over the last couple of years. Like you said, we had normal, then it was down, then it was up like crazy. Now it’s down. I do want to talk about what you think is going to happen next, but just a couple clarifying questions to help our audience fully get the picture here.
Chris: Sure.
Dave: From my understanding, the big reason that rents have slowed down is sort of this multifamily supply glut, and for everyone listening, Chris alluded to this, but during the pandemic developers really started building a ton of multifamily takes a couple of years for those things to come online, and now in 20 24, 20 25, we’re seeing all these apartments hit the market at once. That’s creating an excess of inventory. Landlords and operators have to compete. They compete by lowering prices and so that’s what’s going on on this multifamily side, but maybe Chris, you can help us understand what’s going on in the single family or small multifamily like duplex kind of style. Is it the same trends and if so, are the trends influenced by the bigger apartment buildings even for smaller units?
Chris: I think that to the extent that that’s largely what we’re capturing our index, our index might be showing things looking a little bit softer than it maybe is in that smaller multifamily space. I think if you look at some of the other data providers out there that have estimates, it is looking like maybe rank growth is a little bit stronger in that smaller multifamily segment. I know CoreLogic has a really good Single family rent index. I think theirs is up by a couple percent year over year right now. So by no means is it we’re not seeing rents going through the roof for those single family rentals, but certainly it’s a bit stronger than what we’re seeing in large multifamily right now. I think that probably carries through to those two to six unit properties as well, the single family rental space in particular. I think that’s a really interesting one because obviously there’s all these challenges on the four sale side right now, so that’s a segment of the market that’s particularly quite hot right now. But also to say that I think your intuition on that is right. I think there might be a little bit of a difference in trends that are happening in different segments of the rental market.
Dave: Yeah, I think I saw the same core logic thing you were alluding to and if I recall correctly, I think they had multifamily a little bit higher than you all basically flat still, but single family rents, were at least keeping pace with inflation. I think they’re up something around 3%. So that is an important distinction. This is super helpful, Chris. Thank you for explaining the context here and I want to shift the conversation more towards the future and I want to share with you sort of this theory that I have and get your opinion on it. But first, we do need to take a quick break. We’ll be right back before we go to break. A note that this week’s bigger news segment is brought to you by the Fundrise Flagship Fund. You can invest in private market real estate with the Fundrise flagship fund. Check it out at fundrise.com/pockets to learn more. Welcome back to the BiggerPockets podcast. I’m here with Chris SDI from apartment list and we just were talking about some historical context, how it’s been six or seven years since we had normal rent growth and have had the pendulum swinging back and forth in rent trends recently. Chris, since the beginning of the year, I’ve been sharing with our audience this theory that I have about the future of rent growth and I’d love to just share it with you and feel free to tell me it’s terrible and I’m wrong or let me know if you agree. My belief is that we are going to see the pendulum swing back again towards accelerated rent growth and maybe perhaps even above that normal inflation level that you were talking about, and I think it’s for two primary reasons. The first is the supply issue that we’ve documented well already today is that although there was a glut of multifamily supply, the opposite is happening. Very few multifamily construction starts not as many units in construction and there’s all of a sudden going to be a shortage of new multifamily, and so that’s going to shift supply and demand dynamics. The other thing that you sort of touched on just briefly before is that affordability in the housing market is still near 40 year lows. And so a lot of folks who I would imagine would want to normally buy a home are going to stay in or perhaps even return to the rental market, and that I think is going to provide additional demand for rental units. So I’ll just stop there. What do you make of that sort of general hypothesis?
Chris: Yeah, I mean I think at a high level, I agree with everything you just said. I think the logic is sound there. I think the big question is really around timing of when these factors play out into actually accelerating rank growth and how big that effect is. But certainly, I mean those are the big storylines. Those are the main things that I’m keeping track of as well. The supply story, it looks like we’re already turning the corner on that. It’s looking like Q3 of 2024 was peak supply 2025. There’s still a lot in the pipeline, so 2025 I think we’re still going to see a lot of new units hitting the market, but it’s starting. We’re on the downward slope and then once we get into 2026, I think that’s really going to change. And on the for sale side, those challenges remain really significant. We’re seeing really low numbers of home sales right now. There’s kind of just this log jam in the market, and so a lot of those folks that I think would like to be first time home buyers are definitely staying in rentals for longer. So that drives stronger rental demand. I mean I think all of that definitely adds up to the pendulum starting to swing back. How much further back it swings, that’s kind of up in the air, but we are starting to see that actually already in our rent index. Like I said, we’re still down slightly year over year, but it’s becoming less negative.
Dave: A
Chris: Few months ago we were closer to down 1% year over year. Now it’s about half a percent year over year. So we’re starting to kind of pull out of that negative territory. I think we’ll get back into by our index positive rent growth at some point this year. Whether it gets back to that kind of two to 3% range, I don’t know if that’ll happen this year, but certainly in the medium term, I think that’s the direction that we’re headed for sure.
Dave: Yeah, I was going to ask you that question. I was actually debating this with a friend who is saying that maybe in 2026 we’d have double digit rent growth. I’m not that bullish. I personally think that we might get it up to two 3% like you said this year and maybe next year we see 5% would be a good year for a lot of people who have been struggling to keep up with their rent growth. But I guess my question to you though is how long does it take once the supply peak hits for rent growth to resume? Because like you said, the wonderful thing about multifamily construction is it’s pretty easy to forecast. You see there’s a lot of good data about it, so we know that we’re going to peak out in terms of new supply, but what we don’t know is how long does that absorption take? How long does it take for all of those excess units to get filled up because we’re not going to see rent growth until that happens and there’s no longer an excess of supply. Do you have any sense of how population trends are changing or household formation trends are changing to help us understand what it’s going to take and how long it might take?
Chris: Yeah, I mean that’s the big question where you kind of ended off there around household formation really. I mean that’s the key thing that I’m thinking about in terms of rental demand. It’s how many households are there out there that are renting and that growth is driven by not just, you can think of it as population growth more simply, but really the more precise way to think about it is how many folks are kind of striking out and forming new households and some of it just pure population growth, new households are going to need to form, but then there’s also the degree to which households are responding to the macro landscape. Do I feel confident in where the economy’s headed and what my job prospects are and is that cnce going to be enough to translate into me making what is for someone that’s doing this for the first time, starting a new household, that’s a big economic choice to say, okay, I’m no longer going to live with roommates. I’m going to go out and get my own place. And so I think that’s the big X factor right now is what’s going to happen with the macro landscape and how does that translate into consumer confidence and down the line household formation. I think there’s a lot of question marks there right now, especially with what we’re seeing with the new administration making some pretty big changes in terms of economic policy. We’re already starting to see that show up in shakier consumer confidence. I think a lot of people are just feeling uncertain about what the future is holding as far as macro stuff. And so I think that could translate to people being more cautious in striking out, informing those new households. But that could just be a temporary thing where maybe that rebounds in the near term.
Dave: I want to explain to our audience to just make sure everyone understands this concept of household formation because a lot of times in the real estate investing world, we talk about population growth and demographics and that’s super important. Those do provide a really important backdrop to any individual market and sort of the whole housing universe as well. But household formation to me is actually the better metric and the difference for everyone out there is just household formation measures how much individual and specific demand for housing there is. And so you can have household formation grow without population growing. As an example, if you have two roommates living together and they decide each to go their own way and to rent a one bedroom apartment, that has not changed the population of a city, but it has added one household essentially that can happen with roommates, it can happen when children leave their parents’ nest. It can happen with divorce, it can happen with couples breaking up. So there’s all these different reasons. And so if you want to understand demand for rentals, you have to understand household formation. And I think the key thing that Chris said is that it’s not just about demographics, it’s not just about personal preference. That plays a huge role here, but economics actually play a pretty big role in household formation as well. If you’re uncertain about your job or if you’re worried about inflation, you probably are less likely to give up having a roommate, you’re probably going to keep having a roommate for a little bit longer. If you’re super confident about the economy, you might go out and get your own apartment. And so there is more to this than just demographics as Chris was alluding to. And that’s why on the show we are always talking about these macroeconomic trends because they do really impact the demand for housing and for rental units. So Chris, I want to follow up on what you said about normalization because you said eventually it’s going to normalize. What does that mean? Does that mean just a return to where we were in 20 18, 20 19? And I’m talking long term, we don’t know what’s going to happen this year or next year, but is your expectation going forward five years, 10 years, which is the timeframe for a lot of real estate investors, do you expect it to be average out about the pace of inflation?
Chris: Yeah, it’s a really good question. I mean, I think over the medium nearish term over the next two, three plus years, I’m thinking that we’ll probably average out in that range that we’ll get back to kind of that inflation level two to 3% range. I mean longer term it’s really hard to say when we’re talking about the five to 10 year horizon when we get into there, I think that’s probably where the regional variation just matters a ton. I think there’s going to be markets that will probably be in that two to 3% range over that whole horizon when you add it up. I think there’s probably markets that will be a lot faster than that, maybe some that will be slower than that. But overall, I think the longer term outlook for rental demand is pretty strong. I think we’re seeing that these challenges on the for sale side of the housing market aren’t necessarily going anywhere in the near term. I think we’re going to see that continue to drive this demand for folks living in rentals for longer, whether that be single family rentals or apartments. The construction side, I think we just talked about a little bit right now. It’s really slowed down a lot from that peak of a couple years ago. And now again, getting into some of these kind of X factors with the new administration, we’re starting to talk about tariffs which could really directly impact multifamily construction and slow things down even further. And so I think there’s reason to believe that with supply kind of coming down off this historic peak and slowing back down and demand poised to be relatively strong, I could definitely make the argument that as we get into that kind of five to 10 year horizon, we’ll see above inflation rent growth over that full period when you look nationally and some markets certainly poised to see much stronger growth than that.
Dave: Yeah, okay. I totally agree. And as an investor, you never want to bank on some outsized abnormal thing happening, but the way I look at it and underwriting my own deals is that I think we’re going to get back to at least normal inflation adjusted rent growth, which is already good as a real estate investor, especially because your debt is fixed. Remember that’s the important thing, but there’s a case for upside. There’s a case that it might be higher, and as an investor you have to try and get ahead of those things. So thank you for sharing that with us. I want to talk to you a little bit about what you just said about differences in markets, and I also want to talk about differences in property class, like a class B class and how those are performing differently. But we do have to take one more quick break. We’ll be right back. Hey everyone. We’re back on the BiggerPockets podcast with Chris STI talking about rent growth. We’re just talking about how generally speaking, we think that rents will probably normalize in the next couple of years and there is some upside for additional rent growth. But Chris mentioned before the break that certain markets will see outsized performance. So tell us a little bit about that. What are some of the trends that you’re seeing or perhaps even things that our audience can look for if they want to understand what’s happening or what’s likely to happen in their own investing market?
Chris: I mean, we’re actually seeing some really interesting regional breakdowns right now. One thing that I think is kind of the big story is a lot of these Sunbelt markets, the places that were really booming a few years ago have actually seen things really get pretty soft very quickly, and it all goes back to that supply story. These are also the markets that are building the fastest. Austin, I think is the prime example. Austin kind of both stands on its own for being quite extreme, but also I think illustrative of a trend that is happening in a lot of these markets throughout the Sunbelt. So Austin has just built a ton far and away across big markets across the country. Austin is seeing the biggest increases in supply right now, and so that’s caused rents to dip. Now year over year, we have rents there down 7%, which is really a meaningful decline. And a lot of these Sunbelt markets are the ones that are actually seeing the softest declines right now. Raleigh and Charlotte, I think both down three to 4%, a number of the markets in Florida and throughout Texas seeing declines Phoenix down about 3%. So it’s kind of interesting that a lot of these markets that were really booming a couple of years ago are now swinging pretty hard in the opposite direction. Again, that’s not reversing the big rent growth of a couple years ago. It’s kind of just coming down off the peak a little bit going forward. All of these Sunbelt markets that we’re talking about I think are still poised to see strong demand. So the thing that’s kind of interesting is that all these markets that I’m talking about, these are still hot markets in terms of people wanting to live there and moving there. It’s just that we’ve seen this huge surge in supply hitting the market and we know that that is starting to come down off of that peak. So I think if you’re thinking about that five to 10 year horizon, maybe these markets throughout the Sunbelt are potentially a little bit oversaturated for the next couple of years, but I think are still poised to see pretty strong growth over the longer run.
Dave: So that’s the second part of my hypothesis here that I was alluding to earlier, is that there’s just this interesting dynamic where the best markets with really strong fundamentals are the softest, and we’re talking about rent, but this is true maybe not in Raleigh, but a lot in Texas and in Florida with housing prices as well. And so it creates this interesting investment dynamic in my mind where you might be able to get a decent deal on a property where rents are likely to grow. And so it might not be the most exciting deal today, but the long-term five to 10 year potential of those types of investments I think could be really strong. That’s a big generalization. I’m not saying every single one of these markets, but some of the markets Chris mentioned I think are really good candidates for that sort of dynamic over the next couple of years.
Chris: One thing I would add too is basically all these markets that we were just talking about, when you’re touching on Austin, Raleigh, Phoenix, what have you, these are all markets that were growing pretty quickly before the pandemic. And so that’s I think something that points to the fundamentals there. These are places that are growing economically and are seeing a strong pull. We also saw some markets that saw these big booms that have kind of been referred to as sort of the zoom towns of people once they had remote work flexibility just going to places that are maybe a little bit more vacation type destinations that are just nice places to live. And so we saw big booms in some of those types of markets that I don’t think have necessarily the same long-term fundamentals, but when we’re talking about these markets that were already growing before the pandemic, and those are the places that I think have the stronger economic fundamentals of being places where people are going to want to live.
Dave: That’s a great point Chris, and I think this is something that as an investor you can take on for yourself to try and understand these trends of where people are moving, where the quality of life is good, where jobs are going. We’ve talked about that a lot in the show recently, that these are predictors of future population growth. And so you can really, as an investor in not that much time, it’s really not that hard. Figure out sort of these discrepancies for yourself. Is there a place where prices are soft and you’re going to have negotiating power where rents are likely to go up because that is a really exciting dynamic. The last thing Chris, I wanted to ask you about was different classes of properties because overall I’ve seen different trends. We see a lot of class A types of properties being built. Does that mean that’s where rents are going down the most? And do you have any insights going forward as to which property classes you think might recover the fastest or see the best long-term appreciation?
Chris: Yeah, totally. This kind of goes back a little bit to being a similar dynamic to what we were talking about with just different segments in terms of property size. And I think there’s kind of something similar at play if you think about it in terms of property class, namely that the Class A properties, those are the ones that are seeing the most competition from all of this new supply coming online. And so that’s where the most substitutability is. And so those Class A properties I think are seeing the softest pricing right now because they have this stiff competition where renters that want to live in that class A type inventory just have so many options out there right now. A lot of these properties are having to offer lots of concessions to draw in that demand. So I do think that’s probably where the softest rent growth is right now. And when you think about class B and class C, especially just in the context of all of the broader housing affordability issues that are going on, I think a lot of people are still looking for more affordable inventory and there’s just stiffer competition among renters on that side of the market. And so I think prices have been a little bit more resilient there.
Dave: Got it. Well, this has been super helpful. I appreciate all your insights and research. Is there anything else you think our audience should know about your research of work at apartment list?
Chris: All this data that I’m referencing, we make publicly available on our blog apartment list.com/research is where you’ll find all the stuff that my team produces, whether that be reports that we write up or just if you’re the more data savvy type who looks to really get in the weeds, like I said, we make all of that data publicly available for downloads to do your own analysis. So that’s where our stuff is at, and our team can be reached at [email protected] if folks have any clarifying questions about the data. So yeah, check out our stuff there and always happy to chat about this stuff.
Dave: Well, thank you so much, Chris. We really appreciate you being on.
Chris: Thanks, Dave, really appreciate it.
Dave: Alright, another big thanks to Chris for joining us today. And just to sort of follow up on the intro where I was talking about my personal thesis about what rent growth means for real estate investors, I think what Chris said reinforces my general belief that rent growth is one of the big upsides that real estate investors should be considering right now, the basic philosophy or framework I’m using is that try and find deals that are really good long-term assets that at least break even in today’s day and age and then have upside for a lot of growth in the future. And I’ve listed some of those upsides. They are things like buying in the path to progress or zoning upside, but I genuinely think that rent upside is perhaps the best one to shoot for the average rental property investor. As Chris alluded to, and as we discussed in the episode today, he expects that things will at least get back to the pace of inflation and there is potential that rent growth will outpace inflation again in the next couple of years. And again, if you have a fixed rate mortgage that can really grow your returns and increase your cashflow over the lifetime of your investment hold. And so that’s one of the reasons I am looking and focusing so much on rent growth in my deals over the next few years. That’s all we got for you today. Thank you all so much for listening to this episode of the BiggerPockets Podcast. We’ll see you next time.
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Should you STOP buying rentals? How do you structure a seller financing deal? Can you invest out of state without a property manager? Whether you’re looking to improve your cash flow or buy a property without the bank, there’s something for you in today’s Rookie Reply!
Our first question comes from an investor who is looking at a potential seller financing opportunity. Should they make multiple offers? How should they structure terms? Tune in to hear the tips Ashley and Tony have used to get low-money-down seller financing in the past!
Next, we’ll hear from an investor whose real estate portfolio is barely breaking even. We’ll discuss whether they should stop buying rentals, but we’ll also dive into their assets and see if there’s an even easier (and more passive) way to build wealth with real estate!
Finally, is there a cost-effective way to manage your properties from afar while still having boots on the ground to handle things like showings and move-in inspections? Ashley has some outside-the-box ideas you could try!
Looking to invest? Need answers? Ask your question here!
Ashley: A lot of real estate content out there tells us just buy, buy, buy. But when do you have enough and how do you figure the best plan to expand your cashflow?
Tony: We’re going to discuss some kind of the box strategies on how to use your assets to increase your passive income and how to find the best blueprint to fit your real estate goals.
Ashley: Welcome to the Real Estate Rookie podcast. I am Ashley Kehr.
Tony: And I’m Tony j Robinson. And today we’re answering your questions from the BiggerPockets Forum.
Ashley: Okay, so here’s our first question. Today I want to put an offer on a property that’s been owned since 1987, which me means owned equity and thus potential for owner financing. But of course I have no idea yet if the owner is up for it. I’m wondering if anyone ever put two offers in a house simultaneously, one conventional financing at a lower price and the other owner financing at list price or closer to list price. What do you think of this strategy? In my head, it shows the buyer that you’re serious and it forces them to really consider the owner financing because they’ll get a better price plus the interest money. What other ways have you approached owner financing for a house that’s on the market with a real estate agent, but it’s been sitting for a bit and already had a price cut? Tony, let’s address the first thing here and it says, I want to put an offer on a property that’s been owned since 1987, which to me means owned equity. So what this person is saying that they think because the person has owned the property since 1987, they’ve paid off their original mortgage and they have a ton of equity in the property. The first thing I think to state is this is not always true. Not everybody pays off their mortgage. Some people could go and refinance, put a line of credit on the property and pull that off, use a home equity loan on the property, do a reverse mortgage where they actually take payments and the mortgage balance starts to add up as you take payments out. This is available to, a lot of seniors will do this to actually give themselves monthly income without taking a full mortgage out on their property. And then when they sell their house or the estate sells their house, then that reverse mortgage is paid back. So the first tool that I would recommend using is stream. So you can go to prop stream.com and on prop stream they actually have a tool where they will look and see if there are any liens or judgements against the property. Also, what an estimated value of that mortgage balance is based on the payments that have been made since the loan origination. You can also go to the court county clerk court records, which are online and in there you can put in the owner’s name and look and see what kind of liens are against them, and if any of those liens or are for the property that’s a line of credit, mortgage or whatever, to know for sure if they do have any debt that’s still on the property. So that would be the first step for seller financing.
Tony: Yeah, great, great breakdown, Ashley. And a very valid point that just because they’ve had it for a while doesn’t necessarily mean they own it outright. The other part, or maybe the next part of this question is wondering if you can put two offers on a house simultaneously. And it’s almost as if someone like listen to a bunch of our Ricky replies and say like, Hey, lemme give you guys the perfect question to answer. So you absolutely can put more than one offer in on a house, and Ash and I both actually encourage you to do exactly that. We most recently did it with our hotel purchase where we gave them a conventional offer and then we also gave them a seller financed offer and they went with the seller financed offer because it kind of better suited what they were looking for at the time they get the interest.
Ashley: Tony, real quick, what you mean by conventional offer is that with bank financing,
Tony: With traditional bank debt, so I have to go out to the local credit union, get a traditional loan, we have to put down 20, 25%, I think it was 25%, maybe 30% even. And much like what the person who asked the question said, we tried to make the conventional financing offer less attractive. So what that meant was it was a lower purchase price. We said, Hey look, if we can do seller financed, we’ll give you the 20%, but here’s the other terms that we need to make this work, but if we have to go to the bank, here’s what that’s going to look like. So you can put as many offers on a house as you want. If you want to give them 10 offers. I do think it’s a great way to try and steer the seller tour at the offer that you feel is most advantageous for yourself.
Ashley: Tony, I’m selling a property and I did have, I’m using a real estate agent and I had a seller approach my agent and say that would I be interested in seller financing? I said yes. And so they said, okay, we would pay 125,000 for the property or do 25,000 down and then the seller financing a hundred thousand. And I said, okay, what are the terms? And the potential buyer came back and said, we don’t know. What do you think is fair and left it on me to come up with the terms. So I think it’s usually the reverse. I’ve always presented the terms because I want to show them at least where I’m at if it’s even worth negotiating. So I thought this was really interesting that the buyer asked me as the seller to actually set the terms and I set the terms and I have not heard anything back. So I dunno if that’s a bad side or what. So we’ve had more showings the property, so I don’t know if my agent is using that as a negotiation tactic, but I thought that was funny.
Tony: I think maybe one thing to call out too ash is just what are the different things that you can negotiate when you’re offering seller financing so that the things that we kind of focused on are the actual purchase price. So what price are we agreeing to the interest rate, if any, that you’re paying the amortization period of that loan, how long are we amortizing this specific debt? And then if there is a balloon payment due and when that balloon payment would be due. And then did I say down payment? Down payment would be the last one. So those are kind of the big ones that you can leverage or kind of tweak and adjust as you’re going through your seller financing negotiations. And maybe for you as the buyer, offering them a slightly higher purchase price makes more sense if you can get a slightly lower down payment and a slightly lower interest rate. Because if for them the most important thing is just getting to their number, say, Hey, look, I can give you your number, but I’m just going to need some support on these other kind of levers or variables that we can influence.
Ashley: Okay. So then the last thing here is what are some of the other ways you have approached owner financing for a house that’s on a market with a real estate agent, but it’s been sitting for a while and had a price cut? So I think what this person already said was submitting two offers was going to the agent and say, I’d like to make two offers, or if you have your own agent, have your agent present the two offers. You could just do a verbal offer where your agent is just saying, Hey, here’s the two things they’re willing to do. If this is something they’re even interested in, I’ll draw up the contract instead of wasting time drawing up contracts for both offers and then submitting them. You could also do a letter of intent. So I do this when it’s kind of a tricky situation and I don’t have confidence that the agents are going to play telephone correctly and tell the seller exactly what I’m trying to offer them and I’ll do a letter of intent where it states the property information and seller’s information, my information, what I’m going to purchase it for, and then what the terms of the purchase are. And then it just has a little bit of disclosure like this is contingent on attorney approval and a full contract and things like that in it. But you could also do that and if you just Google letter of intent, you can get a ton of examples of this too. And that is something you could do to give your offer directly to the seller without having to kind of play middleman two, but without having to do a full blown contract and have your agent write that up because if you’re going to use this strategy on multiple deals for multiple properties, your agent is going to get exhausted and tired of working with you. You are constantly having them drop to offers for every single property and you don’t end up getting any of them, especially if you’re doing low ball offers like I do. So drawing up the letter of intent is a little way to fast track things.
Tony: I think the other thing too is that sometimes you’re going to find some resistance from the listing agent to want to submit seller financing offers. And Ashley, you can check me if I’m wrong here, but agents are by law required to show any formal offer to their client. That’s correct. Right, but is that also true for an LOI
Ashley: That I don’t know. I don’t know. I would think that no matter the form of the offer, I would think even if it’s a verbal offer, I feel like they would have to have an ethical obligation.
Tony: I just feel like there’s just a lot of agents out there who don’t want to deal with federal financing because their biggest concern is, okay, well how am I going to get paid in this transaction? And they just don’t have the education around what seller financing looks like. So sometimes there is a need, if you’re kind of filling some weirdness with the agent, then I would just really submit a formal offer. That way you do make sure that it gets in front of the seller. And then what I’ve heard other people do as well is this might also piss off the listing agent, but you got to do what you got to do, but just go directly to the owner themselves and don’t try and cut the agent out, but just say, Hey look, I submitted this offer to your agent, I just want to make sure you get a copy as well. And then sometimes the sellers are like, well, what the heck? I never even saw this before. So if you’re getting some kind of weirdness and maybe try and go direct to the seller. And then the last piece of advice is that if you see the listing go expire, the listing fails, that’s a great time to then just directly reach out to the seller and say, Hey look, I saw this. You just have this property listed for 120 days. It didn’t sell listing’s gone. Hey, I’m still a super motivated buyer. Let’s talk because when is their motivation going to potentially be the highest once they’ve just failed at trying to sell that property the more traditional way?
Ashley: We have to take a short ad break, but we’ll be back after this. Okay, welcome back Tony. What’s our second question today?
Tony: Alright, so our next question says I’m 35 and I’ve been investing in real estate for the last three years. I want to scale and buy a lot more real estate and lately I’ve been considering switching to multifamily. I currently own seven houses and have a net worth of about $700,000. Congratulations, by the way, most of my properties have an LTV of 65 to 70% and my rentals mostly breakeven or barely cashflow because the rates in my properties range anywhere from seven and half to eight point a 5%. I’m hoping to refi down the road after my three year prepayment penalties expire. Here’s your breakdown of my assets cash, $165,000 self-directed IRA 81,000 real estate, 1.45 million, crypto 10,000. My goal is to make anywhere between 40 to $50,000 in passive income. I realize this might be a bit ambitious given my current portfolio. Now here’s a question. Do you have any suggestions on how I can scale my portfolio? Should I transition into multifamily? What are some of the things that you did to accumulate wealth and grow your portfolio through the years? Alright, so kind of a lot to unpack here. I think the first thing is that it feels like the person asking this question is in a pretty good spot from an asset perspective, 165,000 bucks in cash. They got in self-directed IRA with another 81,000 bucks, another 10 K in crypto. So they’ve got a good amount of just liquid or close to liquid funds, 175,000, another 80,000 they can use to deploy elsewhere. I’m the goal here is getting to 40 or $50,000 a year in passive income. So we know that that’s kind of the backdrop here. I know that we’ll get into the real estate side, but just one thing that kind of pops out to me, Ashley, I’m curious what your thoughts are, but they have this self-directed IRA and for our rookies that are unfamiliar with that term, a self-directed IRA is a retirement account that you get to kind of choose how and where to deploy those funds. Now there are some limitations on how you can legally use those funds. So you got to make sure you’re working with a reputable self-directed IRA company. However, you got 81,000 bucks sitting S-D-I-R-A, I might go try and lend that money out and if you can get 10% every year and your 81,000, you’re getting 8,000 bucks just from that $81,000 that’s sitting in that self-directed IRA right now. And I would imagine there are probably a lot of people in the real estate community, the BP community who would love to have access to $81,000 of capital and pay you a 10, 11, 12% every time you loan them those funds. So that’s one thing to me actually that just kind of jumps at us some maybe low hanging fruit to start quickly generating some cash.
Ashley: Yeah, I’m actually paying 12% right now to a private money lender. I’m actually also doing my first self-directed IRA too. So I have this 401k from an old W2 job that’s kind of just been sitting in index funds and I’m going to roll it over into a self-directed IRA. I’m using equity trust to do that and so I’m going to be using that to invest. So it’s my first time ever doing one and I have to be honest, I did not know all the details of a self-directed IRA for a long time. I thought it was too complex for me or something that I couldn’t do. And it’s actually pretty simple. You basically just fill out paperwork and then you have equity trust is giving me a counselor that’s kind of guiding me through the actual process and what I cannot do with the funds and making it really easy. So if you do have the money that’s sitting in an old 401k, or maybe you already have it in just a traditional IRA, you can go ahead and put it into the self-directed IRAs. You’re not limited to investing just into the stock market. So I’m trying to diversify my portfolio and so setting up this self-directed IRA is something new and exciting to me. The first time I ever heard of a self-directed IRAI was at a meetup and there was this guy and he was walking around basically waving his checkbook at everyone. Yep, I got money here, my self-directed IRA, so if you got a good deal, I’m here to lend and blah blah. Literally going around showing off his checkbook and it was very intimidating. But now looking back on it like, geez, I’d never want to take his money.
Tony: That’s like every Ricky investors dreamed walking to a meetup and someone’s just walking around with their checkbook, right? By the way, that’s a very rare occurrence for all of our rookies that are listening. So don’t expect to go to meetups and probably see that. But yeah, some low hanging fruit there to maybe start generating some of the income itself. But now going back to the main question here, this person is asking any suggestions on how to scale should I transition into multifamily? So what are your thoughts, Ashley? Do you feel that there’s value for this person? Seven properties, not a ton of cashflow right now, kind of high interest rates? Does multifamily make sense?
Ashley: I think the first thing you really have to think about is why do you want to scale and do you really want to scale? So right now the seven properties are breaking even or a little bit of cashflow in there. So do you want to keep accumulating properties that are doing that or do you want to try and find a new strategy that gives you more cashflow but maybe isn’t as passive? Tony? And I think the hot new strategy in 2025 is going to be co-living where you rent to buy the room, you build out a community, but that’s also not as passive as just having a traditional long-term rental. You have one or maybe two tenants, but you have one tenant per a unit where co-living could come up with tons of other situations of a bunch of people living within the same house. So really think about what you want to be involved in and what you don’t want to be involved in if you are deciding to pivot and change into a new strategy to generate more cashflow from your properties. I really like Tony’s idea of this self-directed IRA into money lending because that can be very, very passive for you just to vet the deal, vet the operator who’s actually purchasing the property and running the deal and then collecting your money every single month your interest or at the end of the deal. And then the worst case scenario is yes, if the person doesn’t pay you having to go after them to get their funds. And I recommend setting up a plan in place as to what should I do to protect myself as a private money lender, what should I do if somebody doesn’t pay? What are the steps I need to take action on right away if that does happen and kind of set up your game plan. But I think private money lending is a very, very passive way to generate income if you do have the funds to do that. The next thing is thinking about those seven properties you do have now the equity that you’re going to build over the next 10 years in them. Do you want to sell one of those properties starting at year 10 and then sell another one year 11 and then another one year 12 kind of looking at what those could appreciate to and instead of building up cashflow for a month, can you wait another five years till you’re 40 and then start selling them off and taking the equity from that, maybe putting it into more private money lending. And then, because that’s the one thing that I’ve learned over the years is that I’ve accumulated, accumulated, accumulated. But then as time went on 10 years, it was like, wow, there’s a ton of equity built up into these properties that if I sell one every once in a while, that’s way more cashflow than I would ever get just from buying one single family property or two single family properties in that year generating. So think about what is really important to you as far as how much you want to be hands-on, how much you want to be involved in, how much you want to invest into real estate right now as far as the money, the capital, but also as to your time and energy too.
Tony: And you bring up a really good point, Ashley, too, about maybe switching the strategy. They didn’t state in their question if these are just traditional long-term rentals. But that’s the assumption here. And I think you made the call of like, Hey, can you switch to another strategy because you already own seven houses, you did a lot of work to go out there and build this portfolio. So can you get more out of what you already have? So co-living one option, can you do midterm rentals? Can you do long-term rentals, sober living facilities? We’ve interviewed people that do that. There’s other maybe uses for the properties that you have that might allow you to get a better return for whatever down payment you’re going to put on this multifamily property. Could you use that to build an A DU on your seven properties and maybe get more revenue that way? So I think exploring all of the other revenue potential generating activities with your existing portfolio, I might go down that path first even before exploring multifamily. But I guess we still haven’t necessarily fully answered the question, should they or should they not go after multifamily? I think a lot of it really does come down to, and as you hit on this a little bit as well, it’s like what is the actual goal here and what are the resources like if you go out and buy your first multifamily, so you go out and buy a six unit apartment complex, are you going to be in the same situation as you are with your seven single family homes where they’re barely breaking even or maybe a little bit of cashflow, but now you’re just doing it double the size, right? So if you can maybe find that in the multifamily asset class that there are better opportunities so you can actually start making reasonable progress towards your goal of 40 or $50,000 per month, then yeah, absolutely. Right? Just because you started in single family doesn’t mean you need to stay there. But I think changing for the sake of changing, that’s how you just get yourself into more work and not a whole heck of a lot of progress to show for it.
Ashley: Rookies, we want to thank you so much for being here and listening to the podcast. We want to hit 100,000 subscribers and we need your help. If you aren’t already, please head over to our YouTube channel, youtube.com/at realestate rookie and subscribe to our channel. We’re going to take a quick break and we’ll be back for more after this. Alright, let’s jump back in. So for our last question today we have Hi all. I’ve been house hacking a duplex since 2021 and due to some life changes, we will be relocating out of state since I only own one property, a duplex, I’ve been the property manager. I use rent ready software to manage my tenants. So everything is done electronically. I’ll specifically need help showing the property and getting keys to tenants. I’ve considered a property management company, but the cost just doesn’t seem worth it, although it would be convenient. I’ve also considered just flying back to town and showing it myself as it would be roughly the same cost to do that versus a property management company. But that’s obviously a very inconvenient option. Has anyone had any experience with this and happened to know a better way to show the apartment and get keys to tenants when you’re out of state or if you’re not going to do it yourself? Is a property management company? The only way, in my opinion, using a real estate agent offer to pay them a flat rate. Sometimes people will pay one month’s rent. For my rentals, I pay the real estate agent $500 per rental. So it’s just a flat rate no matter what the unit is or what the rental price is. And this is the real estate agent’s responsibility is to actually list the apartment. So go and take the photos of the apartment, list it for rent, and then do all the showings, coordinate when they’re available directly with the potential applicants and then send them the application review the application. And that’s kind of where I step into is doing the screening process once an application has been submitted and then I do the final approval and then after that the move-in date is set and the agent schedules that as to when she’s going to actually meet them to hand them the keys to do the move-in inspection. And then the inspection is sent to me and I set up on the backend there. Well actually my VA does their on the backend, sets up all of their online portal and things like that too. So in my opinion, that would be kind of the best way is to find a real estate agent that you trust and use them to actually show, but make sure you are a part of the screening and vetting process so that you do have some quality control over who is actually being the person renting your unit. And it’s not just an agent who is willing to rent to anybody to get their paycheck. So thank you guys so much for joining us for this episode of Real Estate Rookie Reply. If you have a question, please head over to the BiggerPockets forums and become involved in the BiggerPockets community. You can also join the Real Estate Rookie Facebook group. I’m Ashley. And he’s Tony. Thank you guys for joining us and we’ll see you next time.
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In This Episode We Cover:
How to reach your real estate investing goalswithout buying more rentals
How to pitch seller financing (and negotiate terms) when buying property
Whether you should make multiple offers on the same property (and how to do it)
If there’s an issue that keeps aspiring early retirees up at night, it’s the dreaded middle-class trap. At just 28 years old, this financially savvy couple is already looking for ways to avoid this issue. Whether you’re just starting your FIRE journey or approaching early retirement, we’ll show you how to do the same in today’s episode!
Welcome back to the BiggerPockets Money podcast! So far, Leah and Zach Landis are doing everything right. They earn high incomes, they spend very little, and they invest the difference. Well on their way to retiring early, they plan to quit their jobs by age 45 or sooner! But will their current asset allocation get in the way of their big goal? What kind of bridge will they need to tide them over until traditional retirement age? Will having children impact their financial freedom?
Fortunately, Leah and Zach have all kinds of options. Tune in as Scott and Mindy dive into the couple’s budget and discuss their best path forward. Along the way, we’ll debate whether they should pause their 401(k) contributions, double down on brokerage accounts, and deploy their cash savings on their “dream” home!
Mindy: Today’s finance Friday, guests are hoping to retire by the age of 45. Their biggest fear getting stuck in the middle class trap as of now. They still have a runway of about 15 years so that they could avoid it. How will they do it? Scott and I are going to give them some advice and give them some answers in today’s episode. Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen, and with me as always is my analytical yet brilliant co-host, Scott Trench.
Scott: Thanks, Mindy. Great to be here with our model of good financial decision making. Mindy Jensen. See what I did there? Alright. BiggerPockets has a goal of creating 1 million millionaires. You are in the right place if you want to get your financial house in order because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting or whether you are in the grind on the journey to financial independence. Leah and Zach, thank you so much for joining us here on BiggerPockets Money. We are so excited to have you. Welcome.
Leah: Thank you. We’re so excited to be here, both longtime listeners, so it’s truly a privilege.
Mindy: Woo hoo. Alright, so Leah, I’m going to start with you first. Where does your journey with money begin?
Leah: Yeah, so I think for me personally, I’m originally from upstate New York. I was raised by a single father and I think he really instilled at us at a young age needs versus wants. So that’s kind of my first understanding of money and he also was always working two to three jobs growing up, trying to help us reach our goals, me and my brother. But he did set expectations with us at a very young age that although he loves us so much when we turned 18, he’s like, you guys are going to financially be on your own. So knowing that from a really young age, I was like, okay, well I’m really passionate about learning. I want to get an education, how am I going to get there? So the one way that my dad did invest in me was with sports. So I was really thankful to get a full ride scholarship to University of Michigan and it was on those car rides from upstate New York to Michigan, which is a six hour drive that I came across the BiggerPockets episodes. So it started listening to the real estate ones as a way to pass the time and then eventually started listening to BiggerPockets Money when that launched. So I think it was really in college that I started to understand, wow, this makes so much sense. It was such a light bulb moment that you don’t have to work until you’re 65. There’s ways to do this so that you can retire early. So fast forward graduate college, I start working in sales as an account executive and it was about a year out of college that I had enough money where I was like, okay, I think I can invest outside of my 401k, but I was nervous with how to start. I ended up working with a financial advisor for my first $10,000 that I invested and then at that point it was the year of 2022 and I heard about, I believe it was actually from BiggerPockets Money, the book, A Simple Path to Wealth and JL Collins. So that book completely changed my life. That’s the book that gave me the confidence to start doing everything on my own. I opened up a Vanguard account, I started dumping money into V-T-S-A-X. By the time I turned 25, I had reached my first a hundred thousand dollars in investments, which I was really excited about, really proud of. Fast Forward, I just turned 28 last week and I’m at over 300 k in investments between my brokerage and my 401k.
Scott: Zach, can we hear about you?
Zach: Yeah, so my money journey didn’t really start until college and in my family just money decisions or investing never really came up as a topic, a conversation around the dinner table. And it actually took my senior year of college where my sister was actually a freshman at the same university and I was looking at somewhere because we’ve never been able to take a class together before and so I said, Hey, there’s this personal finance class that anyone any year can take. Why don’t we just take that so we can have a class together? So we ended up taking it our university with Professor Verone, old Marine, a veteran, and he ended up really opening our eyes to the importance of getting into investing early, the power of time and money and investing. So me and my sister, we actually every year for Christmas, the textbook that the professor actually has a local printing press make for like $20 each because again, he is all about how can we be most economical, their money every Christmas we give it back to each other to kind of remind us of the principles he taught us around investing, saving, et cetera. So that’s really where mine started from my money journey and then now today aggressively investing in a 401k index funds, et cetera. So that’s kind of where we’re at and I think what our total investments at this point are around $470,000 of hopefully retirement ag nest egg for us to build on.
Scott: Awesome. And you’re 28 as well? Yes. Awesome.
Mindy: And what are your careers?
Leah: Yeah, so we are both account executives. We actually work for the same company. We met when we were juniors in college and now we are six years out of college still working for the same company both in tech sales essentially.
Scott: Awesome. And one of the things we get into, we will look at annual income numbers here, but that changes things a little bit. We should think through that there’s a baseline spending we can plan on and there’s a number that could be much higher than that for income potential that could be driven on a given year given that you’re both in sales, right?
Leah: Correct. I think also one other important note, something that Zach really brought to our relationship is he’s the one that was like we should really start tracking our spending. So ever since we were one year out of college, we both have been tracking our monthly spending going back now five years since we graduated in 2019, doing it a year out. We were definitely victims of spending scope creep or inflation lifestyle creep. You’ll definitely see that if you saw our full numbers, but
Scott: You guys spend very reasonably relative to the income that you bring in. So I don’t think you have a spending problem here. We’re getting ahead of ourselves though with that, so we’ll take a look at all those, but you guys are crushing it financially here and you know that, and so this is all about how do we make it happen faster and with more flexibility over time.
Mindy: So what is your retirement goal?
Leah: Yeah, I think for us, so ideally a stretch goal would be to reach full-time fire by 40. I think realistically our numbers probably more when we’re 45 years old because we do plan on having two kids, so those will absolutely throw off our projections, our numbers, our spending. So right now based off our spending, our fine numbers 3.5 million and we’re trying to hit that by 40, but more likely probably 45.
Mindy: So we’ve got 12 to 17 years to get there.
Leah: Correct.
Mindy: Okay. Well I believe you will, but a couple of things before we look into your numbers. First of all, kids don’t have to be expensive. They can be expensive, but they don’t have to be expensive, so spend money on safety items and they’re going to poop in all of their clothes, so go ahead and pay nothing for their clothes, go to garage sales and thrift stores and they can look cute in stuff that somebody else paid full price for.
Scott: They’re going to have childcare, Mindy, because they both make such, we’re going to get to the income numbers in a little bit, but at that level of income, it will not make sense for one parent to stay home unless that’s what you want there, but won’t make financial sense.
Mindy: No, I didn’t say that. I said just don’t spend every dime you can on them because it’s so easy to spend all these stories about, oh, it’s $300,000 to raise a kid from zero to 18. It doesn’t have to be anything close to that, and you can still have a happy healthy child. Your kid wants to spend time with you.
Scott: I completely agree. I just think that there is a risk that they need to be aware of that they’ll be spending 20 to $40,000 between one to two kids in daycare for a handful of the years in there and that depending on how they set things up, but work through that, they may have family nearby. We have all these things to get to. It’ll be fun.
Mindy: That is a good point and one that I always forget about because I did choose to stay home with my kids, not because that makes me a better person, but because I was making $30,000 a year and it was a lot easier for me to be like, well, I guess I’m going to stay home instead of taking all of my salary and instantly paying it all to the daycare people. But anyway, that is not the situation we find ourselves in here with Lee and Zach. We find ourselves in a situation with a total net worth of just under $650,000 and that’s broken out into cash of 106,000. I want to talk about why that’s so high. 401k at 268,000. There’s a little bit in there in a Roth, but the bulk of it is in a traditional 18,000 in a Roth IRA 187,000 in individual brokerage accounts, $352,000 in assets in the primary residence against a $290,000 mortgage. Now let’s get to the income. This is where it’s really fun. Leah makes a conservative estimate of just under $200,000 for 2025 and Zach is at one 70, so that’s a grand total of conservatively $369,000 for 2025. Now, Leah and Zach, would you categorize your area of living as high cost of living, medium or low?
Leah: I would say based on our expenses, I would say medium if not low.
Mindy: Yeah, that’s what I would think too, but I wanted to get your take on that. We have expenses of practically nothing, so I didn’t even do the math on how much you’re making per month, but your expenses are $8,000 a month. Conveniently, you did some sort of annual spending, which is 161,000. Again, that’s a $200,000 delta between what’s coming in and what’s going out. So I think that spending is not your issue at all. Could you tighten it up? Sure, you could. Do you have to? No, you’re still going to get to fi. I would encourage you to look at your expenses and make sure that your money is going where you want it to go. It’s really easy to mindlessly spend on things, but I mean your mortgage payment is $1,700. Your food, grocery 9 25 restaurants and eating out 1748. Okay, so I see a potential savings point, but again, you’re spending $8,000, you’re spending $160,000 a year and making 360,000. If you want to eat out for $1,700 a month, I’m fine with that. I have to give you permission, but I don’t see anything in your spending that’s obnoxious. I see. Obviously you could make cuts, but you don’t need to. Now let’s look at debts. There is one debt for $290,000 on your home. It is a 4.99% interest rate. If I was in your position, I wouldn’t pay that off at all. I mean I would pay it, but the minimum monthly, I wouldn’t make any extras. You don’t have any rental properties, which is totally fine. No pensions and some of the questions that you had were interesting. Do you want to read off some of these questions you had for Scott and I?
Scott: Now we need to take a quick break, but listeners, I’m so excited to announce that you can buy your ticket for BP Con 2025, which is October 5th through seventh in Las Vegas Nevada Score the early bird pricing for a hundred bucks. Off your ticket at biggerpockets.com/conference. While we’re away,
Mindy: Welcome back to the show joined by Leah and Zach,
Scott: Let’s actually start there. What is the first thing on your mind that we can help you out with here that’s present?
Leah: Yeah, I think it’s really on brand with some of your recent episodes. I think something big for us that we’re concerned about getting stuck in the middle class trap knowing that for the past three years I’ve been maxing out our 4 0 1 Ks because I’m like, Ooh, I really like these tax benefits, not having to pay taxes on that money, but now if we’re trying to retire at 40 or 45 and trying to bridge that gap, I wanted to understand your perspective on where should we be deploying that money. I would hypothesize that it’s double down on the individual brokerage and just say bypass the tax savings.
Scott: My immediate response here is there’s another thing in this document that you wonderfully prepared for us, thank you for the prep work and detail in this that says you’re thinking about a dream home that you’re saving up for and that’s a big reason why you have cash. Can you walk me through that? I think that something that tells me that that’s going to be one of the first things we need to think through here in the context of getting you towards your long-term goal.
Leah: So for context, Zach and I both work from home. We plan on having two kids. We are in the Raleigh Durham area, which is a growing market. We want to send our kids to public schools so we know that we’re going to need a four bedroom house just so that we both can have an office, there can be room for the kids and we want it to be in a good public school district. In today’s market, you’re looking at 650 to 850 k for Raleigh Durham area and a big thing for us is that we don’t like having an expensive monthly mortgage, so we want our monthly mortgage payments to be below $3,000 a month. So I think that’s why we’re trying to save up a really big down payment.
Scott: Let me ask you this, what is the interest rate you would get right now if you bought this home on a 30 year fixed
Mindy: 6.75?
Scott: That was kind of the first thing, and this is an absurd statement, but I’m just going to throw it out there for this, that forever home, we didn’t buy ours until our kiddo was one and a half because if you think about what you just described there for your permanent house, good school district, that price range or whatever that matters when the kiddo’s five, right? You may want to get there sooner. I went there sooner with that, but I didn’t do it before we had kids because there was not really a practical advantage for that. So that’s one consideration. What’s your response to that first thing there? Could you delay this up to four or five years at minimum depending on when your timeline is for having the kids in the first place?
Leah: Yeah, I think that we’re thinking ideally we want to stay in our current house for or five more years. Yeah, so we’ll probably have our first kid, well we will have our first kid in this house and we have a three bedroom right now, so we will just have to both share an office, which should be interesting and then have a room for a baby number one.
Scott: Let me ask this one. So there’s kind of two things. If you said I want to buy that forever home right now, I would come in with the heretical advice of saying you give your heretical too much. I would come in with the absurd advice of saying I might consider just paying the thing off, get the mortgage at 6.75%, pay it off, right? Because after tax I assume you’re going to file a standard deduction for the most part. You might have some mortgage interest deduction on a purchase of that size with a 6.75%, but you’re getting a guaranteed six and three quarter percent return on that and sure the market well on average outperform that, but you’ve probably heard recent episodes of me saying I’m a little skeptical about the near term on that front. So that would be one path forward on there. The second one would be to say the housing situation is potentially the biggest lever and I had our kiddo in half a duplex, it was a nice four bedroom duplex on each side on it and you may find if you look up and you’re like, Hey, can we do that for a couple years since we’re going to, this is not our forever home right now, that could seriously accelerate things regardless of whether you choose to keep it as a rental long-term From there, I actually think despite your enormous income and situation, that could be one potential lever for you in the next couple of years that I would urge to consider. I also think Rawle, I haven’t looked, but I’d encourage you as homework. It’ll take you five, 10 minutes, go on Zillow or talk to a local agent and look at what’s for sale in the market in the world. Just like the idea out there. I think what you’ll find is that the prices are absurd and don’t make any sense and you don’t like ’em. Then recast the search and do it for properties that have actually sold. I did this in Denver, which is I think a market that has a lot of similar items going on in there and you may find either that the rabbit hole of thinking about using the housing situation, which is going to be a huge lever for you right now, that will not be available to you in three, four years for it. I think you’ll find that there’s a major bid ask spread that could be very interesting. So what’s your reaction to that whole line of thinking and if you don’t like it at all, we’ll go in a different direction for other parts of this.
Leah: So just to make sure I’m understanding correctly, is your recommendation to actually buy sooner like and lock in the 6.5 of our dream home and then just aggressively pay it off early or is you’re saying pay off our current mortgage and that’s at 5% interest.
Scott: I’m saying consider house hacking, consider a luxury house hack on it. Moving out of this because you have that lever for the next several years, you have a clear bridge to your permanent forever home and it sounds like you don’t really love this house right now. It’s not your forever home, is that right?
Leah: Correct. Yeah. This is our starter home,
Scott: So if you’re going to be in a starter home for the next couple of years and you really want that flexibility a little sooner, that’s a major lever. Just because you earn a super high income and don’t have to do that doesn’t mean that you might not really from an approach like that In particular right now, I suspect Raleigh Durham is getting absolutely crushed from a rental market perspective. I believe that prices are probably down pretty substantially and it’s a deep buyer’s market. Is that correct? Am I wrong?
Leah: I haven’t even honestly looked a lot at buying right now just because I know that it’s far out for us
Zach: From a rental perspective, from the small sample size of friends that I have that are rent, it’s pretty expensive for 500 square foot, one two bedroom, A lot of people, their bank close to 12 or 2100 bucks. Some of it can get pretty excessive. Houses are around the same. I have a couple of friends that are renting houses.
Scott: Great. Well I just considered that for you because one of the things that jumped out to me when I was looking at this, the question that pops in is, Hey, we’re saving up $126,000 for our forever home down payment. So I think there’s either go buy the forever home and then just start paying it off because you’re going to need that. If you want to be retired at 40 and you have a six to 7% interest rate mortgage, six and a half, 7% interest rate mortgage on there, then that’s not a bad plan. Are you going to get super rich on that? I don’t know, but if you think about that in 3, 4, 5 years you could be sitting on your forever home paid off and that would give you flexibility in a couple of years that might be really worthwhile. One of you goes on to earn Uber bucks, there’s a good reason to believe that one of you guys will earn a tremendous income in a couple of years and sales kind of come and go for that. That may be a worthwhile option to explore. So that’s the first thing. That’s the first question and the second is if we can delay the purchase of the forever home for several more years, then let’s deploy this $126,000 in cash and take what’s not working. What’s not really going to be working hard for you in this primary right now? It’s not going to go anywhere I believe in the next couple of years. It is not a meaningful driver of your wealth I guess would be more of the way to say it. It’s not a bad situation that you’re in, but can we take that and redeploy it to something that will be like maybe we’ll be pretty close to our current living situation and we’ll end up with a couple hundred thousand dollars more in four or five years or shot at it at much lower expenses for when we actually go to buy that forever home. Am I making any sense with this first observation here? It’s just the first thing that stood out to me, right? You have all this cash, what’s make a move one way or the other with it?
Leah: Yeah, I’ve actually never thought about that going for the forever home now just taking the cash that we have and just going in and then house hacking it because when we first bought this home in 2022, we did house hack. He had a really close friend that rented a room from us for the first couple years and then when we got married I was down for him to continue living
Zach: Here you were like, you can stay if
Leah: You want. We love you Davis. He was awesome and Davis was like, ah, you guys are married. I feel weird. I’m like, no. So I think that’s actually a pretty cool idea and especially too with my understanding, I’m not an expert but my understanding is that a six and a half percent interest rate is actually still a good interest rate in the long-term range of things. So it’s a good point that you’re mentioning that I never thought of. Why not just do it now and then aggressively pay it down and house half?
Scott: And to be clear, I’m saying there’s two options. One is it doing what you’re saying, which I didn’t even think about House hacking your forever home. I guess we could rent out our basement here, which is our forever home, but that’s not something, trust me I’m saying go for it with a duplex or a triplex. Don’t get a dumpy one that the 23-year-old out of college is going to get. That requires a complete remodel, but you can get probably a nice one. I bet you that you look this year you’re going to find that Raleigh Durham is a deep buyer’s market and there’s an opportunity on that front and that would drive a lot of wealth for win in four or five years. You buy that forever home for it, but if you also could decide to buy it, but I just think this is burning a hole in your pocket, you’re just hoarding cash for a plan that seems a long way away and it was the first thing that jumped out for me in looking at your statement. That’s more of what it is and I would just challenge you to look through a couple of those options.
Mindy: I think having at least an initial conversation with an agent is going to do you a lot of good. You can tell them exactly what you’re looking for, what area, because apparently Raleigh is huge. Tell them where you want to be and what is really important to you. There might be a really awesome property out there right now and tagging off of your comment about the interest rate 6.75, and I’m not quoting you, I’m just saying one of my lenders had sent me a video last week that said that they’re at six and a half to six and three quarters should interest rates drop and there’s no indication that they’re going to, but should they drop and start with the number five? All of the people that are sitting on the sidelines right now are going to jump back in. It’s going to be such a giant mental shift that interest rates are now below six that there’s going to be a lot more competition for all of these properties and more competition means it’s no longer a buyer’s market, it’s a seller’s market. So you have this, I don’t want to say block, but you have this idea that you don’t want to pay more than $3,000 a month for your loan and again, rates aren’t coming down anytime soon, but what if you could get in now pay $3,000 a month, more than $3,000 a month for a couple of years and then should interest rates fall, you’re the only person competing for that property to refinance.
Leah: Yeah, that’s a great point.
Scott: I’m going hold Dave Ramsey here and so is Mindy I think on this.
Leah: Yeah, it’s funny. Originally we were like, oh we got to save up a 350 K down payment, so that’s why we have so much cash on hand and we can’t put that in the market because we’re trying to buy within a five year timeframe and that’s risky but it’s not working for us. To your point,
Mindy: Stay tuned after a quick break to hear what investment vehicles might be a good fit for Leah and Zach to hit five by age 45 right after this.
Scott: Alright, let’s jump back in with Leah and Zach. What do you guys think your dream home would cost you?
Leah: I think that when we were looking at it and we were thinking it’s going to be probably six 50,
Scott: So you guys make three 70 in a bad year in household income 360 9 is what I have here and you could earn more than that even if you max out your 4 0 1 Ks, both max those out after your a hundred K in spending, you should have a hundred K in liquidity easily that you’re going to generate and your at 28 balance sheet reflects that. So there’s not, sometimes I’ll see like, hey, I earn this much income, I spend this much and there’s no cash accumulation, which tells me that one of those numbers is crap. That’s not what’s going on here. You guys are actually earning this income or something close to it and you’re actually spending what you think you’re spending there and you actually will unless things go poorly, which they certainly could generate a hundred K in liquidity so that 600 K house is paid off by the time you’re 34. So you take your spreadsheet and you say, okay, if I put that a hundred K into the market every year in my after tax brokerage account, that’s going to model out to this level at 10%. I’m skeptical and kind of got that pit of fear in my stomach here. I know that that’s not best practice for financial pundits or whatever. However I’m described at this point, Mindy and I are described at this, but that’s how I feel and I’m not sure about it around there, but your model, you don’t can have all these bookends on how that’s going to translate over the next six years exactly what’s going to happen on that mortgage and then that takes out this number from you at 34 where you say, okay, my expense level is now something super low. You have taxes, insurance separated anyways, so you pull out that 1700 from your current level, that’s a different retirement number. We just changed the entire game that we got to play outside of that mortgage pay down here with it and if things go well in a couple of years you could pay it off much sooner. So that was my instinctive response to this could be wrong on there completely, but those just jumped out to me as the first discussion point for today.
Leah: No, I think that resonates. I think too, it’s also if you think about our income history, this is really together one of our first years that we’re making more than we’re used to, so I think it’s helpful to have that outside perspective like, oh, we have to look at this as this is going to be a continuous thing where in the past we haven’t always had a hundred extricated deploy, but now we’re at that point in our careers where that’s the norm moving forward.
Scott: Yeah, if you said, hey, there’s some risk to that or I don’t like it or I’m fearful of it or I want to get rich much faster than that or have much more flexibility, then house hack, get out of this house, house hack, keep the expenses super low and do that. That will provide more flexibility right away than what I just described with buying the dream home. But if you’re feeling like I really don’t want to move into a duplex and figure that one out and have a rental property after that, then this would be a very reasonable approach.
Mindy: One of your questions was avoiding the middle class trap and I just want to push back on what Scott said a little bit to take all of the extra that you have after you max out your 4 0 1 Ks and throw that at your home equity because the middle class trap is all of your wealth is trapped in your home equity, which is not easily accessible and your 401k, which is also not easily accessible, of course you can access it with fees and paying extra and all of that, but why bother when you could just not put that money in there in the first place? So you have approximately a $200,000 delta between your income and your spending and 46,000 of that ish will go to max out your 401k, so that leaves 154,000 to invest. If you’re looking to stay out of the middle class trap, I would be looking at putting that into after tax brokerage accounts, your HSA because you will have medical expenses going forward and I think you can get to a position of financial independence very quickly. What do we say? 17 years? So you’ve got 154,000 times 17 years is 2.6 million and that’s assuming no growth. I think your plan is really solid. Let’s keep you out of that middle class trap first.
Scott: Let me just chime in on the middle class trap here. I slightly disagree if you save up another 200, 300 grand or whatever and put this down on your dream home and then you have a $3,000 per month mortgage payment locked in at six and three quarters percent. We wake up in eight years, okay, we’re 36, we have two kiddos under five in the picture at this. We have to generate $36,000 per year just to pay the p and i with that plan and that will continue. You will be six years out of 30 into that. That’s the middle class trap or that’s a component of the middle class trap that I’m talking about. Okay, you pay off the thing. I agree that having all your wealth in the home equity, I think it’s that partial in-between state that is really keeping people forced in that situation. If that thing is paid off, then one of you may be able to take on a higher risk job that has no base or bottom level with more upside or one of you could stay home with the kiddos for a year or whatever. That’s going to feel very uncomfortable even if you have a high net worth if that will result in the need to harvest assets to pay the mortgage balance on there. That’s all. There’s math and there’s the fielding component of it and given how high interest rates are, I believe that if you do your model and you say, here’s my compounding rate at 10% in the market and here’s my compounding rate on my mortgage, your numbers aren’t going to be that crazy off in 6, 7, 10 years from that and then all of the assets can go from there. So just one component on that front. I agree though that there’s the other path we can take absolutely is putting it all into the market into basically index funds and after tax brokerage accounts, in which case we’re going to get it to a different modeled outcome there and on average that will work the way that you are thinking about it in there, but I think our job is to come in and challenge some of those thoughts and so hopefully this is giving you something to think about.
Leah: I think too, one thing that we’ve been talking about a little bit is I feel like we understand the value and the power of real estate, but for us personally, we don’t want to be landlords. I think that our full-time jobs take up so much of our time and mental capacity that I don’t think we have it in us to be landlords on top of that, but I would be curious to understand what are some other ways I get nervous, especially after hearing you Scott and where you’re at in your journey and you’re like, I’m locating from stocks so I’m like I want to have exposure to real estate but not through rental properties. So what would you recommend
Scott: One option? So there’s several items there. One is if you said, Hey, I want to get really rich really quickly and I want some real estate exposure. I’d say house hack, right? I know you guys are earning a high income, but that would be a place to potentially go for the next couple of years that would be the lowest risk, highest upside play in your situation that I could think of for that. You are absolutely right though that you have an awesome problem because you guys both earn at least a hundred dollars an hour at minimum if not much more in a good year and if that should continue to increase. So it’s kind of silly for someone making $250 an hour to worry about something else, but also we have to couch that with the idea that the goal is fire. So the goal is to make as much money as possible early in life and then stop. And that’s the challenge in terms of how we think about where to invest in that. So if you said how do we get exposure to real estate in a comfortable low risk way house hack, if you say, okay, I want a different way to approach real estate investing, once you buy that forever house real estate, the door for real estate as a huge component of your portfolio will be much harder to reopen. Even if you do not decide to pay off that mortgage, you’ll be shelling out more per month on a regular basis towards that mortgage and that will decrease your ability to invest in an after tax basis because you will be silly, it’ll be really hard to not put more in the 401k at that point when you have a high income and you have the house on that front. So that’s going to be I think the crux of the situation in terms of how to do it. REITs are an obvious answer. You can go look at a REIT index fund, so that would be one answer. We had uc, Ola on the podcast a while back, he seems really sharp. I subscribed to his newsletter. I’ve never made a bet or an investment based on anything that he has put out there. You could just sign up for that on Seeking Alpha or whatever, but that would be one area if you were interested in learning about that. And the last one would be syndications, but I think that would be an option available that syndications are private lending in here. But any reactions to that first?
Leah: Yeah, I think REITs is something that I’ve heard of, but I think I need to do more digging on that. I feel like that’s come up in the past, so I think that might be an attractive option. And then I’ve heard about syndications too, but then I’ve also heard you has be an accredited investor and I don’t know if we’re at that point,
Mindy: But Scott said REITs, I think that’s a great option for you. You make a lot of money in your day to day, you don’t need to spend a lot of the mental bandwidth that you don’t have extra of on a rental property to make $200 a month.
Scott: I guess I was trying to think about how to frame why I am reluctant to do something besides the house and the stock market basically in your situation. And I think the best way I can frame it is while you are worth $650,000 right now at age 28, which is great, you’re still very far away from what you’ve cited as your goal. You need to seven x that number. So a diversified portfolio that’s safe you just know will get you there slower essentially. So those other approaches are not as optimal in this situation. You should pick an asset class I think can go all in on it that you’re the most comfortable with on it. My instinct coming in is if you buy that dream home, okay great, you’re basically going all in on the home right now and you just pay it off and the asset class is de-leveraging or I’m framing that also poorly, but that’s kind of my instinct here. And then if you were sitting here and saying, Hey, I have two and a quarter million dollars and I’m a million dollars away, okay, now it’s time to start really diversifying and building a financial fortress at this point. Or if you said, Hey, the goal, we can reframe the goal to a million dollars because we’re going to have a paid off house and all those other things for the financial portfolio, then again, that also changes things. But I think you’re so far away from what you’ve stated as your goal that an aggressive allocation makes a lot of sense until further notice on this in one or two asset classes. And so if you’re like, what do I do there? Well then you pick one if you like syndications, go big in syndications and understand that there’s risks and high fees and that it’s the wild west, but there’s also the chance that really good returns in many of those cases and real reason to believe that that market is in the dumps. Now if you like REITs going to REITs if you like stocks, going to stocks, but I would pick one or two and just basically say, I’m going to go big on this trust, the long-term averages to get me there still at least 10, 15 years away, grind it out and just make sure that that cash is always being applied to the next best item on that.
Leah: I think that makes me happy to hear actually. I think I would like to just prioritize the primary residence in a dream home and then just continue to go all in on stocks and individual brokerage.
Scott: These are big decisions, so I would not react to any of them right now. I just take ’em as thoughts to think through because I don’t know how I don’t, but these are million dollar items here in the next 10 years. But these are just instincts again that I’m, the questions that I’m asking posing. But yeah, that’s sort of what I did in recent years.
Leah: No, that makes sense. I think one thing I was starting to think through recently too is because we’re 28 now and combined we have 268 K in our 401k, if you just let that compound until we’re 59 and a half, doesn’t that kind of mean that we don’t really have to put that much more into it, we just do the company match even if we’re giving up the tax benefits or would you still recommend no, continue to max that out because the tax benefits,
Mindy: If I was in your position with your income and your spending, I would probably continue to max it out for both of you to get the company match and also to get the tax reduction because you have $154,000 leftover in air quotes because it’s not leftover, it needs a job, but you have $154,000 to put into your house to put into your after tax brokerage. So I think you can do both and you are in a very special position that you can do both where you can still get the tax benefits while also that’s not all of your money is just going into your 401k. If all you had was $46,000 after your expenses, then I would say maybe max out one or the other while putting money into an after tax brokerage. But you have the ability to do both. So I would do that.
Scott: I completely agree. If you came to us and you said, Hey, we have a household income of 150, we’d be going line by line through your expenses and trying to find some more room there and then we would still be faced with a hard trade off where we cannot max out both 4 0 1 ks, HSA, those types of things. You earn so much income and still live the way you did a few years ago when the income was not there, that you should be able to go through the whole neat stack of free tax retirement accounts at least for the next several years, very neatly funding the whole way through for both of you guys and still build even more wealth after tax in your situation. So when that becomes not true, I would revisit whether or not to max amount, but in your case you guys earn so much and you spend so little relatively that I go the whole way through. Well great. So we covered a couple of big questions here around that. Where’s another area you’d like us to take a look or think through here?
Leah: I guess two questions and I think we started looking into it a little bit in preparation for today, but accounting, one thing I’ve never done is accounted for taxes as part of our fine number. So I guess is there a simple answer for how you should be accounting for taxes as part of your fine number?
Scott: Someone reached out the other day, lemme pull this up here. I’m so sorry to the wonderful, brilliant genius who did this and sent this over, I forgot your name, it’s in the email. I’ll give you credit in due course here in the intro or outro that basically says, Hey look, the tax impact is negligible even at super high withdrawal rates and super high net worths in fire because your income, the capital gains tax brackets are you pay 0% on the first $89,000 in income and you pay 15% marginal rate on the next $553,000 in income. So the effective tax rate is zero on the first big chunks of this. So if you have a portfolio of less than around a million or two, it’s basically a non-factor and you can almost just use the pre-tax numbers to really do that planning with a small buffer on there. You do have to start considering it a little bit more when you get to 20 million in net worth and want to withdraw 850 grand a year. But that is not the goal that you have here. So we can kind of ignore that to a certain extent with the caveat that I think that there’s a real risk that every person who’s pursuing fire shaft in the back of their minds, which is that going to continue indefinitely because government policy can change and I wouldn’t be surprised if in the future capital gains are taxed at something closer to ordinary income tax rates in a future state. So just something to keep in the back of my mind, but for now that will not, if you’re using a current tax code in situation, it will have a negligible impact on your ability to retire.
Leah: That chart was super helpful. Thank you.
Scott: We’re going to have this guy who did a really great job on it, come and talk about it on BP Money soon.
Mindy: I’m going to share my screen really quick, Scott. You can withdraw a tax free up to $253,400 because 96,000 0% tax bracket, $30,000 standard deduction, 126,000 principle of investments sold. I think this is an excellent place to start thinking about things. But yeah, and you’re spending $160,000 a year, so your tax obligation is, what did we say? Tax free?
Leah: Yeah, no, that’s helpful. I feel better already. Wow.
Zach: Yeah, we were literally just talking about that too. We were looking through the tax bracket if hey, if we wanted to go big on the brokerage after tax brokerage account, you’re not actually paying anything on that principle. And like you said, I didn’t even think about the standard deduction as well.
Scott: So when you actually go to retire, that will not be a factor. But one thing I’ll also call out is, let’s go back to that mortgage pay down example. One of the things I think that will be potentially more pressing than the can we retire at 40, which you’ll have great financial flexibility and options. If you continue to earn this income and spend the way you’re doing, regardless of what asset class you choose to invest in or how that won’t be the meaningful part of your situation for seven more years probably, then your investment portfolio returns will become the main driver of your net worth potentially. But I think that a more pressing issue is again that let’s zoom in a little bit closer than 40 and fire and let’s zoom in at 35 because 34 right now, I’ll be 35 this year. And that’s something that I’m glad I made certain decisions the way I did because the requirement to realize income is much lower in my life right now. And that would just be the thought process there. You can also lower those tax burdens by not having to realize income. And the way you do that is paid off cars, you have no debt there, paid off house, get at travel rewards or whatever, stockpile the points, all that kind of good stuff. But the lower you can get those expenses, the less income you have to realize the even more negligible that tax burden is and the more flexibility you’ll have.
Mindy: But if you also want to juice the no tax option, your contributions for your mega backdoor Roth in 2025 cap out at $70,000 for those under 50. So you could each put $70,000 in your mega backdoor Roth. Now, I have never done a mega backdoor Roth. We should have somebody on Scott who can talk about mega backdoor Roth and the process for that.
Scott: I bet that they don’t have to do that either. You guys almost certainly based on if you work at a big company, it will have a Roth 401k option. So that would negate the need for you to go through the mega backdoor Roth. But Mindy, we should definitely do a show with the mega backdoor Roth maximizing couple. That’d be interesting.
Leah: We do have that option actually. So when we go in Fidelity, we do our 401k, we can do a Roth or a standard 401k contribution. Would you recommend we just max out the Roth as our option for the year then?
Scott: Oh man. Now we’re going to get into 35 year tax code forecasting. So here’s exactly what’s going to happen over that time period here. I’m just kidding. What I did is I maxed out the Roth for a long time and that was my bias in there. I have so little in my 401k in the pre-tax side of things that this year I’m maxing out the 401k for it. So pre-tax side of things, but I’ve typically biased more towards the Roth for the simple reason of, I believe there’s a really real possibility tax brackets go up and I think there’s a lower probability that the government renes on the promise of tax-free growth in the Roth, but who knows what happens 30 years from now on that?
Leah: How dare we not have a crystal ball?
Mindy: Okay. Well, Leah and Zach, this was a lot of fun. I enjoyed looking through your numbers and I think that you’ve got lots of great options ahead of you. I think that 45 is going to be the longest that you’ll be working. I think you could really start to move those numbers back down. And I think you have a lot of opportunity. You’ve set yourself up for success by not spending every penny that comes in by starting to invest, by thinking about a forever home instead of hopping around from house to house. And I hope that Scott and I gave you some homework to do some things to go dive deep on and see which is the best choice for you.
Leah: Yeah, no, this has been extremely helpful. I think that I thought I had a plan in place and I think today really challenged our thinking in a positive way and gave us some new ideas. So really appreciate it.
Scott: And your plan is great, guys. What you came in with is awesome, and it is just you’re going to win so easily with the income minus expenses. So that’s what you guys are crushing it. Congratulations on that. You’ll win with 10 different approaches on there. Just some nuances that we
Zach: No, I was going to say thank you. Yeah, no, this has been really helpful just to think of all these different avenues we could take to maybe can cut that time down maybe to 38, 35. Who knows?
Scott: My parting shot will be, do you really need three and a half million that that’s the parting shot?
Leah: I know, I know. I feel like the true PHI community would look at our spending numbers. They’re like $1,700 on eating out. Are you kidding me? And I’m like, yeah, we enjoy it. We’re a little bit ramit safety in that sense,
Scott: But that’s totally fine. Your current spending’s a hundred grand, right? So if you look zoom out and you say if you take the paid off house and you keep doing what you’re doing in inflation adjusted dollars, I think you only need like 75 grand in spending right now for that. And if your kids are in public schools, that’s the parting shot here. Is your number too big for it? Because at that point then we have a whole host of other questions. Do we start diversifying earlier? We start getting more conservative with the portfolio allocation earlier, but that’s the parting shot I’ll give you.
Leah: That makes sense. Well thank you guys. This was so fun. We so appreciate it.
Scott: Yeah, thank you guys.
Mindy: You are welcome. This was a lot of fun. Thank you. And we’ll talk to you soon. Alright Scott, that was Leah and Zach and that was a lot of fun. I really enjoyed hearing the different angles that they are considering and really looking at. And I love that they’re not going to find themselves in the middle of the middle class trap in 15 years. A, I don’t want to pat us on the back, Scott, in part because we did that episode about the middle class trap a few weeks ago and talked about you could find yourself having done everything right and still you don’t have any money.
Scott: Yeah. I think what’s also hopefully clear is that this is going to be a journey. We know that this is a real problem that really faces a lot of BiggerPockets money listeners, both people currently in the middle class trap and people who want very badly to enjoy their thirties, forties, or fifties with what they’ve accumulated at that point, rather than waiting until traditional retirement age. But I don’t think Mindy and I have all the answers to that right now and it’s going to be a long journey for us to figure out what that bridge and those approaches look like. So use all this, be on the journey with us, but know that we are not, this is a question that I don’t think has been explored in a really robust way out there and we intend to do that over the course of the year.
Mindy: Yeah, I am super excited to dive into that a little bit more. I’m going to call out anybody who finds themselves in the middle class trap, anybody who is not in the middle class trap. If you want us to review your numbers and your give our opinion of what we would do in your situation, please, please, please email [email protected][email protected] or both of us and we would love to chat with you. Alright, Scott, should we get out of here?
Scott: Let’s do it.
Mindy: That wraps up this episode of the BiggerPockets Money Podcast. He is the Scott Trench and I am Mindy Jensen saying, get on the train Candy cane.
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If real estate investors and developers were worried about the cost of lumber in the wake of Trump’s tariffs, the president has now presented his solution: He plans to increase American logging, ramp up timber production, and saw through 280 million acres of national forests and other public lands in the process.
Clearly, this is a divisive issue, angering environmental groups who fear increased logging would be devastating to American forests and wildlife, causing air and water pollution and increasing global warming.
“Trump’s order will unleash the chainsaws and bulldozers on our federal forests,” Randi Spivak, public lands policy director for the Center for Biological Diversity, an environmental group, said. “Clear-cutting these beautiful places will increase fire risk, drive species to extinction, pollute our rivers and streams, and destroy world-class recreation sites.”
A 25% Tax on Canadian Exports to the U.S.
According to the U.S. International Trade Commission, Canada is America’s prime lumber supplier. In 2021, 46% of America’s forest products were imported from Canada and more than 13% from China—two countries now in the crosshairs of Trump’s tariffs. Canada faces 25% tariffs on all products it exports to the U.S. The U.S. also exports $10 billion worth of forest products to Canada yearly, which will face retaliatory tariffs.
In addition to increasing logging, a White House directive described “onerous” federal policies that have prevented the U.S. from developing a timber supply that would allow it to be self-sufficient. The result, it says, has been increased housing and construction costs and a national security threat.
Overriding the Endangered Species Act
The president has called for a meeting of high-level officials to override the landmark Endangered Species Act, allowing development even if it results in extinction. The committee is usually only convened in the face of natural disasters such as hurricanes and wildfires, and even then, it is rarely so.
However, many developers have welcomed the president’s directive, hoping that it will reduce their overall costs. Peter Navarro, the White House senior counselor for trade and manufacturing, told reporters:
“Our disastrous timber and lumber policies—a legacy of the previous administration—trigger wildfires and degrade our fish and wildlife habitat…They drive up construction and housing costs and impoverish America through large trade deficits that result from exporters like Canada, Germany, and Brazil dumping lumber into our markets at the expense of both our economic prosperity and national security.”
The Terror of Tariffs
The real estate industry fears tariffs could be devastating for home prices in the U.S. due to its dependence on Canadian lumber. During the COVID-19 lockdown, the supply chain slowdown and the shutdown of lumber mills sent lumber prices soaring amid rampant inflation, dramatically increasing construction costs and home prices.
In addition, the government has imposed 25% tariffs on steel and aluminum (commercial construction uses metal studs, not wood), which could affect plumbing costs, as well as the price of appliances, vehicles, and more.
Tariff-induced increases couldn’t come at a worse time. Sales of existing homes fell 4.9% in January—the 19th consecutive month that prices increased, the National Association of Realtors reported on Friday.
According to research firm Pantheon Macroeconomics, prices paid for steel and aluminum could rise as much as 20% in the months after tariffs are implemented before declining.
“The president ran on bringing down the cost of housing,” said Ken Wingert, chief advocacy officer at the National Association of Home Builders. “Increasing the cost of construction inputs doesn’t accomplish that goal, and we will continue to relay that to folks in the administration and on the Hill.”
Expensive Housing and HUD Layoffs Could Continue to Put Homeownership Out of Reach
There was already a 14.5% duty rate on Canadian lumber, which doubled last year, meaning the 25% tariff will mean a 40% lumber tariff. This, coupled with the reduction of HUD staff, could make finding affordable housing even more difficult.
Trump allies paint a different picture, envisioning the housing industry thriving under the new president.
“The deregulation and the tax cuts are really pro-housing, and the Trump HUD team has all sorts of initiatives to promote homebuilding and homeownership,” Steve Moore, a senior visiting fellow at the Heritage Foundation and longtime Trump economic advisor, told Politico. “Trump is going to be very positive for housing, and he’s going to make it so there’s more affordable housing.”
$10,000 More Per House Possible
Rob Dietz, chief economist at the National Association of Home Builders (NAHB), told CNBC that the new tariffs could increase builder costs anywhere from $7,500 to $10,000 per home, citing estimates from U.S. homebuilders. Last year, the NAHB estimated that every $1,000 increase in the median price of a new home means 106,000 potential buyers are priced out.
Lumber costs specifically are expected to increase the average cost of a home by $4,900, according to Leading Builders of America, a trade group representing most of the nation’s publicly traded homebuilders.
Paul Jannke, principal at Forest Economic Advisors, told CNBC:
“Since Trump first imposed the tariffs on Feb. 1, which were then delayed, we’ve seen some increase in buying, with prices for Western Spruce-Pine-Fir two-by-fours increasing 13%. With the reimposition of the 25% tariff on Canadian goods shipped to the U.S., we expect Canadian producers will stop shipping lumber to the U.S. Meanwhile, dealers who have been hesitant to buy, given uncertainty around the tariffs, will need to step up purchases ahead of the coming building season. This will drive prices higher.”
Cautious Optimism From the Construction Industry
The construction industry was cautiously optimistic about Trump’s order to increase lumber production to offset the price increase engendered by tariffs.
“The domestic lumber industry cannot meet current demand, so we applaud President Trump for exploring opportunities to increase domestic supply as a long-term solution,” wrote Ken Gear, CEO of the Leading Builders of America (LBA), in a statement.
The NAHB, which represents small-to-midsized private builders, welcomed the increased lumber production in a statement to CNBC but sounded a note of caution, saying: “Any additional tariffs on lumber could further increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices.”
Final Thoughts
In the age of artificial intelligence (AI), house printing, and advanced construction and engineering techniques, it seems bizarre that the residential homebuilding industry still relies on construction techniques invented thousands of years ago. Chopping down trees to make wooden beams and studs seems old-fashioned and costly.
Also, it’s not as simple as invoking a presidential order and miraculously having reasonably priced home-grown wood appear. Jannke estimates it would take up to three years to build multiple new mills. He explained to CNBC that there are a limited number of companies that manufacture sawmill machinery and even fewer that can build a mill.
Kyle Little, chief operating officer of Melville, New York-based Sherwood Lumber, agreed, telling CNBC: “It won’t be a flip of a switch. You’re taking a 40-year supply chain and trying to switch overnight—that’s hard.”
While the tariffs are implemented and national forests are threatened, researching and increasing the production of affordable alternatives to wood should be a priority. It makes sense not only from a tariff/cost point of view but also from a safety perspective. After the L.A. wildfires, it’s evident lumber is a liability.
Vinyl plank flooring, concrete board siding, and composite decking have proven to be great-looking and durable wood alternatives do exist.In the same way that PEX has replaced copper in plumbing, an alternative to wooden studs and beams needs to be a priority. The good news is that the products are already available. It’s time for mainstream construction to make a change.
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