Tag

Updates

Browsing


Could a few years of aggressive saving put you in the fast lane for financial independence? Is the grind even worth it? Today’s guest was well on his way to a comfy retirement but had never thought about retiring early. Then he discovered the FIRE movement, and with just four years of all-out hustle, he was able to retire at fifty!

Welcome back to the BiggerPockets Money podcast! In 2020, Eric Reinholdt experienced a financial “awakening” that set him on a death march to FI and early retirement. For four years, he minimized his spending, maximized his savings, and threw every extra dollar at his investments. Today, he’s “chubby FI,” has a paid-off house, and is recently “retired”— working just ten hours per week on his own business while preparing to travel the world in 2025!

But was the glamorous destination worth the grueling journey? Should Eric have started earlier or slowed down to reach his FI number? Tune in to hear about the major lifestyle changes he and his wife made to accelerate retirement, the different levers he pulled to grow his nest egg, and the steps you might need to take if you want to replicate his success!

Mindy:
Eric Reinholdt built an architectural design business over the past 10 years. He’s the face of the brand. He built the core products and he makes all the content. His business would be hard for him to sell, but he was able to leverage the business to achieve fire anyway and is now set to travel the world in 2025 at the age of 50. Today we are going to hear his story, how he pivoted to achieve Fire, built a portfolio that comfortably sustains chubby fire and now runs his business on 10 hours a week or less. A very nice cherry on top. Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen, and with me as always is my Phi, like Eric and me, but not yet. 50 Co-hosts Scott Trech.

Scott:
Thanks, Mindy. Great to be here and love the main streamway that you and I achieve Phi different than Eric’s. Alright, BiggerPockets is 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, including if you want to build a so-called lifestyle business to help you dramatically accelerate that path to fire. This episode is brought to you by Connect, invest real estate investing simplified and within your reach. Now let’s get into the show.

Mindy:
Eric Reinholdt, welcome to the BiggerPockets Money podcast. I am so excited to talk to you today.

Eric:
Likewise. Thanks Mindy. It’s good to be with you and Scott and I’ve listened to you guys for years, so it’s super fun to be here.

Mindy:
I love when we talk to people who have listened to us before then all the jokes and all the questions we’re going to ask. So let’s jump right into it. Eric, how did you first discover the financial independence movement?

Eric:
So I was on a phone call catching up with a lifelong high school friend of mine and he mentioned we were 46 at the time and he mentioned that he was getting ready to retire in a few months. So when he was 47 and my jaw hit the floor, I was like, I can’t believe this because for a 46-year-old retirement seemed like this far off destination. It wasn’t even on my radar screen. And so when I learned that fire might actually be an option, I was all in and my wife can attest to this because it’s kind of all I could talk about for the next three or four months. And then I just started kind of running some rough numbers, and I think this is probably similar to you, Mindy, you and Carl, where we looked at what we had accumulated at the time, which I think was our liquid net worth at the time was kind of a little under a million dollars and we started rank some numbers and set two and a half million as our fine number.

Eric:
And so I thought, okay, well this isn’t like 20 years in the future, maybe we could pull that in quite a bit. And so over time we adjusted that number up pretty significantly. So that’s not where we landed on, but I think what we generally agreed on, my wife and I was kind of a number in the chubby fire range, which is between two and a half and 5 million for our FI number, which sets it in context of we can do almost anything that we want, but we can’t do everything that we want. So once I made up my mind that PHI was the, and retiring early could be an option, I just treated it like you guys did death march to phi. Here’s the date that I want to reach PHI by and here’s the number that I want. And if you guys remember that kind of long slide down in the markets in 2022, I was like, I was getting pretty miserable.

Eric:
I could see the date coming and I could see the portfolio even though I was investing religiously, it was just dropping and dropping. And so finally I just kind of had to step back and accept the fact that I really needed to just focus on fundamentals. And that was just keep investing, be mindful of our expenses and then just try and continue to grow my income where I could. And eventually we did hit our PHI number in June of this year, so 2024. So it actually worked out in spite of all my anxiety and hand wringing.

Mindy:
So you just dropped, I love all those PHI Community Easter eggs that you dropped there. Thank you. I think I got most of them. You seemed to be saving for something before you even heard of financial independence, which is very similar to Carl and I. We were saving for the future. What were you saving for?

Eric:
I mean, retirement was felt important, but at some very far future date, and I think maybe a lot of people can relate to this, you’re in the messy middle. We have two boys and at the time I found the fire movement, they were teenagers, so we had just come out of the messy middle where you’re done with the daycare costs, you’re done with all the kind of sports things and camps and all that kind of stuff, and you’re finally earning more. And we saved for retirement and we loaded up our pre-tax accounts every year. But beyond that, we were spending whatever we were earning more, we were just spending it. We got more spending with vacations. We started, we bought vehicles and it was a little bit of lifestyle creep, but we weren’t saving with the express intent to retire early. So it was just like retirement’s important, but also let’s have some fun now.

Scott:
So you used a bunch of fun phrases earlier, like death March to phi, which we’ve covered in previous shows here. But what I want to understand is there’s this pivot point in your journey where you discovered the fire movement from your friend and what changed? How did your lifestyle change in a more tangible way that we can understand before and after that? Aha.

Eric:
I think what we were doing, we were smart. We were always saving for retirement. So I think we were pretty good with finances, we were making smart financial decisions. We didn’t carry a lot of debt and we had been saving since our first jobs out of college. And so I don’t want to pretend like I hit our FI number, this debt march to fi, it didn’t happen in four years necessarily. It did take a lot of time and accumulation over those other years. But we did make some pretty aggressive changes once we found the PHI movement. And I would say knowing that most of our net in 2020 when we found it was in pre-tax retirement savings account, I had a solo 401k through the business. My wife had a 4 0 3 B, but we weren’t saving outside of those. So we made too much to contribute to a Roth directly.

Eric:
So that was kind of a mistake. We didn’t know, we weren’t savvy enough to know about the backdoor Roth. So that was an option that we weren’t taking advantage of and we didn’t even have a taxable brokerage account for savings. We just, like I said, max out our retirement accounts every year and then we’d just spend the rest on our life. So once fi became the goal, we really started about what it would look like not only to just reach fi, but maybe retire early. That was more my idea than my wife’s idea. So the first change we made was just recognizing we need a bridge account to cover expenses between when our early retirement date was and when we could access our pretax pretax funds. So we just ended up using a taxable brokerage for that because at the time our income just didn’t make sense to do Roth conversions.

Eric:
We weren’t going to even consider that. Second thing we did was my wife had access to a 4 57 B plan, which is basically deferred compensation plan. And that made sense for us to take advantage of that because of the tax bracket we were in. So we started taking advantage of that. Next thing we did, which a lot of people criticize is we paid off our mortgage. And I know that wasn’t really an optimal financial move necessarily, but for us it just made it possible for us to be really aggressive savers from 2020 to 2024, which is when we hit our FI number.

Scott:
Eric, you mentioned a chubby fire range of two and a half to $5 million, which I think is a great definition of chubby Fi on there. Do you include your home equity, your paid off home in that number?

Eric:
No, I don’t. No, because we need a place to live and so no, we do not.

Scott:
So it’s two and a half to 5 million in assets that are liquid investible assets, not your home equity. Awesome.

Eric:
Yeah. Home is in addition to that, we consider that in our total net worth, just like our vehicles and things like that, assets that we’re not going to liquidate our home to fund our lifestyle because we need a place to live.

Mindy:
We need to take a quick ad break while we’re away. We want to hear from you. Do you either already have or have an interest in starting a business answer in the Spotify or YouTube app?

Scott:
Alright, welcome back to the show. Not a lot of people pull the trigger on fire in a situation like yours. In my experience, without paying off the mortgage, the folks who have the mortgage usually are way beyond what they need for their fire number. So I’m not surprised to hear that. Even though you said it’s not a controversial point in the fire community, I think you’re going to find that that’s very common.

Eric:
Yeah, it’s nice not to have to include that fixed expense in your FI number. So that’s kind of why we did it. And then from there we looked at the delta and we just set up some monthly savings goals, like pretty aggressive savings goals. We spreadsheeted out what it would take to reach our number. We looked at our current expenses and that was our investment target each month. And this was, we haven’t talked about this. I started a business back in 2013 and that’s really where we took most of the earnings from the business and used that to kind of supercharge our savings. We ended up just kind of living off of my wife’s salary because we could do that, but then we had the discipline to say, okay, every year at the beginning of the year we’re going to do our backdoor Roth and then we’re going to work through and fully fund our pre-tax accounts and then everything else we’re going to put into a taxable brokerage account and just keep building that bridge so that it’ll last longer.

Eric:
And then the last thing that we did, the last kind of aggressive change that we made was I was sitting on a lot of cash for the business in 2020 and I was doing that because I was so fearful of having to go back to work for an employer. I didn’t want to do that. And so I built this kind of excessively long runway that just was not serving us. And so part of this kind of financial awakening and learning about personal finance was like, Hey, cash is, if you want to have a 40 or 50 year retirement, cash is not your friend. You really want to be in equities. And so we started moving cash into the market on a regular cadence and just having a monthly financial check-in my wife and I would say, okay, how are the savings targets this month? And we would just have that as a regular part of our discipline.

Mindy:
Were your savings targets a percentage of your income or were they a dollar figure?

Eric:
A dollar figure.

Mindy:
Okay. And would you say you hit it most months or exceeded it?

Eric:
We did, yeah, but that long slide down in 2022, and I describe it as a long slide down in terms of market corrections, it wasn’t that long obviously, but just looking at those numbers, the further you get away from that number and the closer the time horizon is the bigger those numbers get. So it’s a really unhealthy way to do it, I think because what I ended up doing was the death march defy aspect was I was probably sacrificing things in service of getting to a FI number. Every dollar that didn’t go into an investment account I looked at as taking me further and further away from fi. And it’s a pretty toxic mindset and I think it’s easy to fall into when you’re extreme focus is just on a number and a date. And so I wouldn’t recommend doing that.

Mindy:
I second that, not recommending doing that. That’s exactly how we did it. And you get there but you don’t enjoy the journey. So you said this was a really unhealthy way to do it. Knowing what you know now, what would you do differently? Starting four years ago you discover the PHI movement. What would you do differently so that somebody who’s listening who isn’t quite PHI yet can learn from your mistakes?

Eric:
I mean, I like coming up with the aggressive savings target and I like giving, I think one of the healthy things we did was giving every dollar a job, but I think what was unhealthy was I didn’t plan for spending in the same way that I planned for saving. I think a lot of people don’t consider that in the fire movement. It’s easy to save, but then you reach this FI number and now I’m facing this myself in another couple of months I’m going to start potentially drawing down the portfolio. And if you haven’t built the spending muscle, it puts you at a disadvantage. I would design the kind of life that I want to have between now and the future and you have to make space for all of those things. There has to be room for saving, but there also has to be room for a life that you’re designing, that you’re excited about and that is fun for you and your family at the time that you’re living it.

Eric:
Because that space, and I’ll talk about the messy middle again because I found that hard for myself was the space between here and your fine number is that is your life. It’s not the death march to five, that’s the most important thing. It’s designing a life that you care to live with your friends and family and enjoying the time that you have now because we’re not promised that future PHI date necessarily. And that’s a hard thing to come to grips with if you’re someone who’s a really aggressive saver and you get into that habit of it. But I would encourage spending as a muscle to flex too.

Mindy:
Absolutely agree with you. So it took you approximately four years from the time you learned about financial independence and were intentional about reaching it to the time you actually reached it. How long do you think it would’ve taken you if you would’ve exercised your spending muscle and loosened up a little bit instead of this death march?

Eric:
Oh man, I haven’t thought about that really. Certainly if I could have rewind the clock and started investing more aggressively when I first started my business back in 2013, even if it was a quarter of what I was doing between 2020 and 2024, that would’ve been a much longer lever. So time is really the lever that I wish I could go back and change, but I would probably stretch it out maybe eight years because it got pretty aggressive there for a while and I developed some pretty unhealthy habits. So it’s hard to go back with hindsight. It’s easy to look back and say, oh yeah, I’d started investing 11 or 12 years earlier, but you just don’t get that luxury.

Scott:
I got two questions on this. So this death march to fi concept, this grind I’m gathering that this coupled a large amount of income that required an intense amount of work to drive and a very modest level of spending in tandem for a very prolonged period of time, which results in tons of work and no enjoyment around this. Can you confirm whether that’s true and then give me some details if so on what your lifestyle actually looked like during this time period from an expense standpoint and what your business income look like?

Eric:
I would say yeah, it would probably look like that at the outset to someone on the outside, but my wife was running her own research science lab. She had NIH funding. She was, I would say she’s highly compensated. So that bought us freedom to be able to have a lifestyle that we were comfortable with. We agreed, and I think part of her getting bought in on financial independence retire early as a concept was that we weren’t going to change our lifestyle a lot. We knew we had a limited time with our boys in the house, so they were both teens at the time. Our oldest was getting ready to go off to college in two years and our youngest in four years. So we knew we had a limited window of time that we could make memories with them. And prior to that, we had always spent on vacations and experiences.

Eric:
We prioritized that. So that was important to us enough to preserve. But I will say at a time when our friends were looking at expanding their house and going on, even spend year vacations than we were, we didn’t do some of those things. And now that we have an empty nest, I’m kind of glad we didn’t do those things, but we’re still in our same starter home. We still have a lot of the same furniture that we had when we first built it in 2007. So I think to an outsider, our lifestyle doesn’t look like we expanded that, but to us it doesn’t feel like we scrimped on a lot. So our living expenses are between 10 to 12,000 a month in terms of just operating a basic lifestyle. And during covid, we haven’t talked about me starting my business yet, but during covid, the course side of my business, which ended up really taking off in 2020, was making about 50 KA month. So that’s a pretty big shovel to be able to save.

Scott:
That was just one component of your business. You had other components that were generating on top of that too.

Eric:
Yeah, exactly. I had a client services side of the business and I had a whole product side and the bulk of the product side was the course and digital products business.

Scott:
So we’re talking 600,000 to a million dollars at least in income from the business during this period.

Eric:
So it’s significant. That’s a big shovel. So you can do a lot with that

Scott:
Was the business and also creating an asset. Did you sell the business?

Eric:
No. Nope. We’re going to continue to run the business into retirement. And that’s another kind of controversial thing. We’re going to be recreationally employed is the idea, but my wife will be stepping away from her job in January of 2025 and we’re going to change the way I run the business right now. The business used to take clients and build products and services on top of that client work, and we are no longer taking clients in the business. It’s purely a products business. So we’re going to change the number of hours. Like you said, it does take a huge time investment to build up all the content for the YouTube channel and make the products and courses and also work with clients. And I didn’t want that kind of lifestyle heading into a retirement or post buy at least I wanted to redefine what work was going to look like. And so all of that investment is going to pay hopefully for many years and we’re going to continue to ride on the back of those investments for at least five years is my hope.

Mindy:
So how much time do you spend in the business currently and how much time will you be spending once you change and pivot?

Eric:
Yeah, the current business, I would say I probably can run in 30 hours a week. I’ve stopped working with clients individually and I’ve just really, I hired an agency last year to help me reinvent and design marketing and automation systems so that in preparation for us entering early retirement and wanting to be able to travel around the world yet still operate this business, I hired them to say, okay, let’s turn this business from an active time investment into something that we can run in let’s say 10 hours a week. So my wife and I would be combined total working on this each working 10 hours a week, which feels like such a change from the 50, 60, 70 hours a week that we might’ve been running it from 2020 to 2023. It’s been quite a dial back. So I’m trying to transition so it’s not falling off a cliff here, but 10 hours a week is going to feel that’s definitely going to feel retired to me.

Scott:
Open the conversation. We’re talking about chubby fire, but you also have an asset that you have chubby fire just in your stock portfolio. You’ve got another asset here that’s worth hundreds of thousands or millions or maybe even eight figures. We have no idea because we don’t have the income numbers here on top of that. So you’re really in this way into this fat fire or obese fire range when you really think about it in that context.

Eric:
Yeah, it’s weird to think about that though because the business itself is a personal brand, so you can’t sell a personal brand in the same way. I mean you can certainly value that even on an annuitized basis. Is that kind of what you’re talking like if we’re thinking this thing is throwing off $600,000 in passive income a year, you put a multiple on that and say, okay, this is part of your net worth. Is that what you mean?

Scott:
I guess there’s the component of it’s not actually worth a multiple of income if the business is truly valueless without you behind it. But that’s another component here I think. How do we define that? I think most people who are thinking I want to be chubby or fat fire, I think most people who are chubby fire are probably thinking, oh, I’m a higher income earner. I’m going to amass enough amount of assets, pay off the house, do a lot of the things you talked about, but then there’s this kind of fat fire world or obese world that’s more around the concept of owning a business like this or selling a very large business, for example. And getting into that, I would imagine, let’s use a $600,000 market. It sounds like there’s a different number there around that, but 600,000 plus a two and a half million dollars portfolio is going to generate $700,000 in ability to spend on an annual basis. And so I just want to think about how do you bridge, you are obviously approaching your spending and your situation from the concept of thinking about chubby fire and you have this huge other asset at play. So how do you bridge that mentally and think about your position?

Eric:
I think it’s important to say that we never included the business cashflow in our projections. So if this business shut down on January 1st, 2025, our fire plan still works. So we always wanted to design a plan that wasn’t contingent on me working in the future or my wife working in the future. And so is it great, is it a great buffer to have passive income that is going to help minimize sequence of return risk? Yeah, it’s an amazing thing. Can we let the portfolio season more if we are not drawing down on any of those assets and we have some kind of asset which is producing cashflow to fund our lifestyle in the present? And to me, I look at the business as a buffer. I never looked at it as an asset that I was going to sell because it’s connected to a YouTube channel where I make videos and it’s me, it’s my name connected to it. So I think that as an asset, it’s not the kind of thing that you look at and say, this is an easy thing to sell, but in terms of a cashflow buffering our cashflow, yes, it’s huge. It gives a lot of security and confidence to the number that we set, but it is not reliant on that cashflow to make our retirement work.

Scott:
Well, you got to take one final break and then we’ll be back with Eric.

Mindy:
Let’s jump back in. Do you consider yourself retired if you’re still working 10 hours a week?

Eric:
Yeah, this is a big on my YouTube channel. Two sides of fi. When I mentioned that I was going to be making this transition into retirement or we’d hit our FI number, but I was not going to be stepping away or closing the business, people gave me a real hard time about it. There’s a lot of pushback. Oh, I knew he’d never retire. And for me, reaching FI is just I get to decide what retirement looks like for me. And if you transition from working 50 hours a week and you have all these demands from clients and outside actors on your time, and then you move into a space where you’re making all of the decisions and you have all of the agency for what the next business moves are, and it doesn’t have to be about money, that feels a lot like retirement for me.

Eric:
And retirement doesn’t just have to be about not working. It’s about choosing the things that you want to work on that excite you most and bring you the most joy. And I expect that to change. I don’t think anyone is going to step into retirement that has one singular definition. I could see if for certain people who want to get away from a job and it’s a true grind and it’s boring and you’re not excited by the work, but I don’t have that. I designed myself a job that I’m pretty happy with. And so I think the challenge for me is just kind of transitioning that away from having to earn into other creative endeavors. And yeah, it’s hard.

Mindy:
So I asked that on behalf of the internet, retirement police who can stuff a sock in it, but I think you hit that right on the head, you’re not doing things you don’t want to do. It is really rewarding to create something that people comment on and say, Hey, this was so helpful. This changed my life. I learned something new. Great. And all I did was open up my computer and talk into my camera. So how hard is that? If you stop making videos, your channel will continue to go on for a long time. You could even release if you decide I’m going to go travel and I’m not going to do anything for a month, you could re-release some of these older videos that your newer viewers haven’t seen yet. I’ve seen it done and it works great, but retirement isn’t just about not working.

Mindy:
I don’t think that the majority of people who get themselves to the point of financial independence can be comfortable. Just their personality can be comfortable not doing anything. And way back in 2018 when we started this podcast, Scott said, when I finally retire, I am going to play video games for six months straight. And I’m like, well, maybe, but I bet he doesn’t. And I think he’s altered that comment. Now, I’m sure he’ll play video games more than he does now, but I think that Scott Trench would be bored silly sitting in front of a computer and playing video games for six months. And maybe I’m just projecting my own self because that would really be my definition of hell.

Scott:
I don’t know. A lot of good games come out in the last six years. Apparently

Mindy:
Not, according to me,

Scott:
Especially if I lived in, where is it in Maine, Eric, that you live?

Eric:
Mount Desert, desert Island. Yeah.

Scott:
Yeah. I dunno, as long as there’s a good internet connection there, the four months of winter or six months of winter or whatever,

Eric:
Long

Mindy:
Cold winter, yeah, maybe I would get invested in video games if I had a six month winter. Probably not though. There’s other things to do.

Eric:
Yeah, the retirement police is just an interesting discussion because even when you tell people you’re thinking about retiring early, everyone wants to project onto you what their vision of their own retirement is, and it doesn’t have to be mine. And I’m really comfortable with however you want to define it for you, and if that involves a little bit of work and a lot of play, cool. And it’s going to change over time. I know I’ve seen my co-host who retired five years ago, he’s changed a lot in what he’s done and he’s been able to just kind of follow the threads of interest that he has that aren’t beholden to the work schedule, which is what most of us have to live the majority of our lives doing.

Mindy:
So let’s talk about what you’re investing in. You discovered financial dependence in 2020. You were already investing in some things. What are you investing in? I’m not looking for stock tips, although if you’ve got a hot one,

Eric:
No, we’re boring investors here. We had been a hundred percent equities up until about 20, 21, and then we’re just doing our research thinking probably makes sense to get maybe a little bit more conservative. And I know there’s lots of differing opinions on that, but for us, we just thought that would made sense to kind of dial it back a little bit. Presently, it turned out it was the worst time to get into the bond market probably in history, our current asset allocation is just 80% equities, 15% bonds, and 5% cash. And that’s just for the cash is just in a money market fund. The bonds are split between VGIT and BND and the equities are all in VTI. So it’s just like boring bogle head investing stuff. But having the business here, I can’t ignore that in this whole equation because having the business income helps us just manage our cashflow here, allows us to be a little more aggressive with our asset allocation than if you read like Kitsis or something, he would say Make a bond 10, and we didn’t make a bond tent.

Eric:
And there’s a reason that we didn’t do that is because we can use some of the cashflow that’s coming out of the business to help mitigate some of this sequence of returns risk that you face in early retirement. So yeah, that’s all we have. Like I said, we don’t have credit card debt. We had a little bit of student loan debt from my wife and our mortgage, which we paid off in 2020. And yeah, we kind of talked about that. I think it’s nice not having the mortgage. The additional benefit of not having the mortgage in early retirement is if you ever wanted to kind of game your magi for qualifying for a premium tax credit, you could do that. That’s going to be hard for us to do, I think, given what the business is earning right now. But that’s another advantage to having that taxable account that you can control income that way.

Scott:
Awesome. And do you withdraw anything from the portfolio at this point, or is it all just allowed to continue compounding because of the business income?

Eric:
Yeah, we, as long as the business income supports our lifestyle, that’s kind of how we’re going to approach it. I don’t think I mentioned this, but we have kind of a 60 40 split between pre-tax and taxable assets. So we do have some flexibility in there and at some point we will probably do Roth conversions in the far future, but that won’t be for a while.

Scott:
And nearly all of the after tax position has been built in the last four years. Right.

Eric:
Yeah, totally.

Scott:
What about cash? How do you think about cash in terms of annual or monthly spending?

Eric:
In what way?

Scott:
How much cash, cash relative do your monthly or annual spending do you keep on hand as part of your portfolio?

Eric:
Yeah, we keep 5% of the total portfolio in cash and we just do that. So it’s just kind of dry powder, it’s take care of, we can have some opportunity. If there’s an opportunity there, we can do it, but we’re not stock picking or anything like that. I’m not big into crypto. We have a small crypto position, but it’s not really even an emergency fund. And maybe you’ll tell me, Scott, that that’s kind of a dumb idea. If the business is my cash position, I should have the rest of that in the market.

Scott:
Oh, there’s no dumb or right or wrong answer for cash. I have found that entrepreneurs and folks who own businesses tend to have a very large cash position in a relative sense, and often there’s this complete, yeah, so lemme just make sure I hear what you said. 5% of your portfolio is in cash and how much is in the business in cash?

Eric:
It’s one in the same for me. I’m a sole prop. Yeah,

Scott:
Okay. One and the same. Yeah, so a lot of auto folks seem to separate the two in their minds, so I’m glad you combine it. That seems like super reasonable. Many entrepreneurs seem to have a lot of cash relative to other investors.

Eric:
If you’re buying Facebook ads for example, or you’re paying an agency, you really need that and you’ve got taxes that you’re saving for. So that’s just something I’ve always held.

Mindy:
Yeah, Scott, you just said there’s no right or wrong answer for cash. And I want to clarify or ask you to clarify. If I consider it cash, then it’s not in the market. It can be in a high yield savings account. I might even say it could be in bonds, but I don’t consider money in the stock market to be my cash because let’s say that I put money in there and I don’t know, it’s 2022 and every time I put money in the next day, it’s worth less. That’s not what I’m thinking. Cash is for, cash is for, I need to pay something now and it could be in a, I can’t get it for a month account, but I don’t think it should be in an account that’s flexible like that. What’s your definition of cash?

Scott:
Cash is for me, money in a savings account, a checking account, or in a money market account, something like that, that is really intended to be a cash position. And to be clear, a 5% cash position for Eric is a pretty conservative position. Let’s use that two and a half to $5 million range. You’re talking 125,000 to $250,000 in cash in this particular portfolio, depending on how that range shakes out. So that’s a big cash position, but that’s not incongruent with what I’ve seen from a lot of entrepreneurs here. It’s somewhere from one to two years expenses based on his 10 to $12,000 expenses there. That’s right on the money for what I would expect based on what we’ve talked about from based on a previous interactions with entrepreneurs like Eric in the past, but I think that’s what you mean by cash, right, Eric?

Eric:
Yeah. I keep that in a money market fund. It’s just right in my taxable brokerage and I have it in one or two days and all the spend for the business goes on just a business credit card so we can get all, we’re gaming the points there, but yeah, the cash sits in a federal money market fund.

Scott:
You don’t meet a lot of people who have more than about $250,000 in cash because then you start bumping up against the FDIC limits. So that’s another reason folks start moving that into more high, more illiquid investments at that point. There’s kind of a forcing mechanism there because you’re like, okay. So Eric, thanks for sharing all this. This has been a really fascinating window into your journey and congratulations on all the success in the retirement. Kind of, can you give us a preview of some of the things that you’re going to be on that journey? What do you think you’re going to be doing next or what is the next year going to look like for you?

Eric:
Yeah, the next year, my wife and I mean, I was just talking about this with my co-host of my show that I’ve kind of taken work out of my schedule and I’ve filled it in with travel, so I don’t know if that’s a good thing or not, but we have a very aggressive travel schedule for the next 12 months, and my wife kind of referred to this as the period of hedonism, so we’re going to probably blow it out for the next 12 months and see where we land. We have a lot of big trips. We have our 25th wedding anniversary coming up, so we have a big trip to Japan that we’re planning and lots of other fun things that we’ve been delaying because I mean, we came back from this trip from Europe in the fall here, and this typically for my wife would’ve been, I wouldn’t have seen her for the next four months and because she’s doing the off-ramp from her job, I’m able to spend time with her and we’re able to go hiking together and biking and all these and traveling. And so that’s kind of what I’m filling my time with. I’m looking for the next project. I’m probably going to continue the podcasts that I’m doing and continue making some videos for my own business without all the financial strings attached to it and kind of see where it leads me.

Scott:
There’s a high synergy between owning a business and traveling a lot given the amount of money that goes through a business on a credit card, for example. Have you found that that is aiding in your travel plans for 2025 at all?

Eric:
Absolutely. Yeah. I mean it’s one of the great things about the government incentivizes running a business. There are all kinds of tax advantages to running a business. And so if we can run this from anywhere in the world, I’m probably not going to choose to stay in Maine for the next six months where it’s going to be snowing hard. I’m going to prefer being on a beach in Southeast Asia. So we’ll see where that leads us. But yeah, that’s a great benefit to having a business and being able to have your wife be your copilot there.

Mindy:
How frequently are you checking in on your investments and your net worth and your position?

Eric:
A lot less than I used to. So I think I developed, as I said, some unhealthy habits on the death march defy there, and it was a daily thing and I think probably a lot of people do that, and it felt like I could control what was happening just by checking more. And what I realized was I have zero control over that. What we tried to do was just put a really solid plan in place and just focus on the things that we could control, which was earning more and investing what we could. And so now I try and resist that urge honestly. Do I do a monthly check-in with my wife? Not as much as we used to. I would do it probably more regularly than she would want to, but as you get to that point where you’re going to make the transition and my wife leaves her job and the health insurance there goes away and we have some things to figure out. Yeah, I’m probably checking in maybe more than I have for the past year or so, but it’s, it’s not a daily occurrence. It used to be.

Mindy:
Oh, daily. Gosh, you are just like my husband. I

Eric:
Know. I was going to say, you can relate to this, right?

Mindy:
I can. He still kind of does, but he also enjoys it, so I think it’s a little different. If you don’t enjoy checking in on it, then

Eric:
I mean it depends when the market’s going up. It’s a lot of fun when it’s taken a slide. You’re better off just going out for a hike. That’s what I found.

Mindy:
Yes, that is a two statement,

Eric:
Eric, where can people find out more about you? Two sides of fi.com is where I share my journey on the path to financial independence and retiring early. Yeah, it’s been great speaking to you guys. You have been part of, you probably didn’t know this, but you’ve been part of my virtual personal finance MBA that I’ve gotten, so I appreciate all the content over the years and this can be a real thankless job and you don’t get to hear from people all the time, especially in a positive light. And so I just appreciate you guys sharing your experiences and all the detail you have and the advice over the years. It’s helped me get to where I’m at now. So thank

Scott:
You. Thank you so much for sharing your story. Congratulations on the success. I hope you enjoy the next couple of years and make the most of it. It’s an awesome situation you’ve put yourself in and yeah, look forward to hearing about your adventures.

Eric:
Cheers, thanks. Thank you.

Mindy:
Thank you so much Eric, and we’ll talk to you soon.

Eric:
Sounds good. Bye.

Mindy:
Alright, Scott, that was Eric and that was a really, really fun story. I wouldn’t call his story a repeatable story, but it’s definitely worth listening to. I think a lot of us have this idea that we want to create or start our own business and you have this pie in the sky dream that it’s going to generate all of this income for you. And Eric actually did it, so he kind of won life.

Scott:
Yeah, I mean, got a wonderful business that seems largely automated. He cut back all the pieces. He didn’t like a business like that. I have a little bit of skepticism that it’s as dependent on him as he said it is. And I think that he might have a very big payday coming in the couple of years if he truly is able to automate the business and it keeps growing in this way. So I think that he’s going to have a huge cherry on top and that this guy ain’t chubby fi. He is way past that into the world of fat fire. And I think that he’s going to have a wonderful, wonderful situation bring over the next couple of years. And I think that it’s just another vote in favor of thinking about that business component, especially if you can do what he did and have one spouse generated income that you can live off of and the other spouse can focus on building a business.

Scott:
I mean, it’s just a cheat code on the path to wealth if it works because producing income that whole time and it’s producing this enormous equity value that can be coming up or an annuity that can be built. So super powerful and there’s a whole bunch of other advantages besides the ability to set up your retirement plans that credit card points. I mean, only imagine the amount of money that guy spends on credit cards and the amount of travel miles that racks up to allow him to probably travel the world for free. He’s probably going to have money piling up and he’s going to be spending nothing because he is got all these credit card points he’s racking up. So just a wonderful situation. Hopefully it sparks some ideas for folks, although of course not everyone is going to be able to build a business like that. Even if they do go at it for 10 years. Like Eric, there’s a little bit of skill, a lot of luck, and a really good opportunity that needs to be combined.

Mindy:
A little bit of skill, a lot of luck, the opportunity and also the taking action. He could have just sat there at his day job and never decided to go out on a limb and see if this online thing works. I know so many people who are making so much money online, there is absolutely a ton of money to be made online providing information about the stuff you already know. So if you’re thinking about starting your online business, this is your money Mama Mindy saying do it. And to the internet retirement police, please email me your thoughts at tell someone else that I don’t care. Dot com.

Scott:
Well, Mindy, should we get out of here?

Mindy:
We should. Scott, that wraps up this episode of the BiggerPockets Money podcast. Of course, he is the Scott Trench and I am Mindy Jensen saying we can’t linger humming singer.

 

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds. Thanks! We really appreciate it!

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


It’s what you’ve all been waiting for—our 2025 housing market predictions! We’re sharing where we think home prices, interest rates, and real estate will be over the next year. But we’re not just talking about 2025. We’re also going BACK and reviewing our 2024 housing market forecast, painfully detailing each part we got wrong and congratulating whoever got their predictions right. But how did top real estate companies like Zillow perform on their forecasts? Don’t worry; we’re rating their predictions as well!

Last year, some of us thought home prices would decline year-over-year, while others were confident we’d still see rising prices. We also had surprisingly accurate mortgage rate predictions, so does that mean we could be right for 2025, too? Stick around to find out! Plus, we’re sharing where we think will become the country’s best real estate investing markets and naming the cities we believe have the best potential for building wealth!

Dave:
A year ago, we made some bold declarations about what would happen in the housing market in 2024, and today we’re going to talk about what we were wrong, about, what we were right, about, what Zillow was wrong about and right about. And we’ll talk about what we think we have in store for 2025. Hey everyone, it’s Dave. Welcome to On the Market for our annual predictions show. If you are new to listening to on the Market, this is a fun one for you to join. I am joined here today by my three favorite panelists, Kathy Fettke, James Dainard, and Henry Washington. Thank you three for joining us today.

Henry:
I bet you say that to all your panelists.

Dave:
Well, it’s fair to say that you’re my favorite because you’re the only three panelists, so you are all my favorite. How are you guys feeling? Kathy, do you even remember what you predicted last year?

Kathy:
Sure. No, I really don’t.

Dave:
Well, lucky for you, we have a producer who went back and dug up everything we predicted, so we compare it and spoiler James was wrong about everything, but the rest of us did pretty well.

James:
Or was I? Was I? You

Kathy:
Know what he’s good at though? He’s good at predicting expenses and sales prices and you nails it good a lot and

James:
Return on investment. Yes.

Kathy:
Yeah,

James:
Yeah. Well, when you think the market’s going down, your underwriting looks a lot better.

Dave:
Well, I think something I didn’t predict, I don’t know about all of you didn’t predict, but I just realized that as of today, all four of us released books this year. James’ book came out today, the House Flipping Framework. James, congratulations on writing a book, man.

James:
Thank you. You know what I got to say, I never thought, and my wife says this to me all the time, she’s like, how are you an author?

Kathy:
That’s how I felt. I feel like you kicked and screamed a lot through this one, but you did

Dave:
It. I think you asked me to write it for you like four or five different times, even though I’ve never flipped a house. You’re like, just write it. Just write the book. But seriously, man, congrats. That’s awesome.

Kathy:
And like Henry said, I think we should do some predictions on how many sales you’ll have. I think it’s going to be triple mine at least.

Dave:
Yeah, I need to figure out what mine were for this year and then I’ll triple it. Well, with that, let’s move into our show today where we’re going to talk about our predictions for next year. And I thought it would be fun before I put you all in the hot seat to actually make your own predictions. We will warm up a little bit and just start with reviewing Zillow’s 2024 predictions. So here we go. Zillow’s first prediction for 2024 was home buying costs will level off. I mean, did you guys notice that? Because I’m pretty sure they got more expensive.

Kathy:
Yeah, I love that. We’re picking on Zillow first. This is great. They were wrong, just flat, wrong there.

Dave:
Yeah, so I mean affordability, which is the measurement of home buying costs actually got way worse in the first half of the year when mortgage rates went up to about 8% and home prices continued to go up. And then just briefly in September, it did get a little bit better, but mortgage rates have since shot back up. We’re recording this in the middle of November, and so I would say Zillow’s wrong about this one. Did you guys think that home prices were going to get cooler this year?

James:
Yeah, I did.

Dave:
But did you think it was going to be cooler of price declines, James or mortgage rate declines?

James:
I thought everything was going to decline down just because the affordability and the cost of life has gotten so expensive. Every piece of logic pointed to the housing was going to start declining a little bit. At least that’s what I felt. Rates were almost at all time highs. Pricing was at all time highs and job wages had not gone up. And especially in a lot of more expensive markets like the tech market, everything, people aren’t getting paid more and naturally people are making less and things cost more. I thought price was going to come down. So this was a little bit of a shocking year for me.

Henry:
I can see where you went wrong. I heard you say logic and reason was what you were using to make your decision and that’s probably not going to work in this economy.

Dave:
Are you just doing the opposite thing, Henry? You’re going to think about the logical thing that could happen and then just predict the opposite.

Henry:
Yeah, what’s the dumbest thing in the world and go, yeah, that’s probably what’s going to happen.

Dave:
Honestly, you might be right. It’s like one of those octopi, like pick the world cup winners or

Henry:
Whatever. Oh yeah. When the dog picks the NCAA champion, it’s kind of like that. Yeah,

Dave:
Yeah, exactly. Alright, so I think Zillow was off on that one. Their second prediction was more homes will be listed for sale. Kathy, I’m quizzing you. Do you know if that was right or wrong?

Kathy:
That was right. We had increased inventory by, I forget how much, but 20, 30%, maybe 36%. So yeah, they got that right?

Dave:
Yes, they did. As of right now, according to Redfin, at least the new listings are up a couple of percentage points, but inventory, as Kathy was said, is even higher, which is a measurement of how many homes are for sale at any given point. So Zillow will give you credit for that one. The third thing that they predicted was the new starter home will be a single family rental. I don’t even know what that means. I don’t know what that means. What does that

Kathy:
Mean? I think that means that you can’t buy a house, you have to rent it, perhaps.

Dave:
Oh.

Kathy:
Or they’re saying that if you can’t afford a house where you live, you’ll buy a rental somewhere else. I don’t know. But either way,

Henry:
Either way it’s wrong.

Dave:
Well, I did see something the other day that the average home buyer age has gone up seven years this year. It used to be, I think around 30 and now it’s 37. So that might be an indication that people are continuing to rent rather than buying a starter home if that’s what Zillow even meant to buy this one.

Kathy:
Well, there’s just the difference between renting a home and owning it was so, so dramatic

Speaker 6:
That

Kathy:
Honestly it didn’t make sense for a lot of people to buy when they could rent the same house for half. I don’t know exactly how much, but for much less.

Henry:
And a lot of people who bought during the pandemic were really hit hard this past year with increases in insurance and taxes and that really helped kill the affordability.

Dave:
That’s definitely true.

Kathy:
I mean, just to give an example, I’m helping my sister who has had a lot of health issues and she’s renting a house that would be a $2 million house probably in the San Francisco Bay area and the rent is 5,000. I know this sounds like a lot, but for the Bay Area it’s really not. But think about what the mortgage would be on that.

Dave:
It’d be like

Henry:
15 grand, easily

Kathy:
Make no sense to buy it. So yeah,

Henry:
Isn’t a $2 million house in the San Francisco Bay area parking spot.

Kathy:
It’s

Kathy:
A very old, very DLE home.

Dave:
All right, so for Zillow’s fourth prediction was expect stiff competition for rentals near downtown. I’m just going to go ahead and say this is wrong. I don’t know for sure. I don’t have this data, but downtowns have grown slower in rent and home prices than suburban areas. So if I had to guess where we are seeing slower rent growth, it’s probably in downtowns. That’s where all the multifamily supply is online too. So I’m going to without data say that this one’s wrong unless one of you disagrees.

James:
That’s exactly what I’m seeing in our market. A lot of the newer product that’s come into market, they perform at very high rents and those are the ones we’ve seen not be competitive and they’re giving away a lot of rent and concessions just to get ’em filled. It’s like the B stuff. The renovated stuff’s moving a lot faster. It’s just a little bit more affordable

Henry:
In my market. This is true. Absolutely.

Dave:
Okay, well given that I just made up whether this was true or not, I appreciate you providing some anecdotal evidence to what you’re saying here. Alright, so Jill has made a bunch more predictions, but I’m just going to do one more. Henry and James, I’m particularly curious in your opinion on this one, fixer upper homes will become more attractive to traditional buyers, so not investors. James, have you seen that or you’re shaking your head

James:
No, no. The problem with a fixer upper home for an end user or someone moving into it is you still got to put down a hefty down payment. Your rate is still really high right now, so your monthly payment is way higher than you want to afford, and then you have to pay your rent while you’re renovating that house a lot of times. And then cost of construction so high is just too many costs. So we’ve seen the opposite. We’ve gotten much better buys on the bigger fixtures. I’m substantially better buys.

Kathy:
Well also, yeah, depending on how much needs to be fixed, you might not even be able to finance it

James:
And just to control those costs. It’s like flippers value add. Investors can do the renovation a lot of times for 50% less than a homeowner. And so it doesn’t make it more competitive, it just makes it harder for them to do. And honestly, everything’s so affordable. People want to deal with the headache. They’re like, no, the payment’s already my headache.

Henry:
I think people realize it takes too much cash to be able to do this, and if they have that much cash on hand, then they’ll just buy something that is already fixed up.

Kathy:
I mean, if they follow BiggerPockets and they know how to do it, then yeah, there’s a lot of obviously BiggerPockets followers who have taken advantage of the opportunity for special financing, but traditional financing, it’ss going to be really hard.

Dave:
If only they read the house flipping framework

Kathy:
By

Dave:
Mr. James Dard, get it out. They would be able to do this and build equity in their primary residence. Come on.

James:
You know what I mean? No more excuses. The blueprint there

Dave:
All. So out of those five, I’m giving Zillow about a 50 50 success rate. We did write down three other things that they predicted, but I don’t even know how to evaluate them. They were six is more home improvements will be done by homeowners. That’s probably

Kathy:
True.

Dave:
I’m guessing that’s probably true, but I don’t really know how to measure that.

Kathy:
Yeah, that seems true because there’s staying put.

Dave:
Yeah, seven is home buyers will seek out nostalgic touches and sensory pleasures.

Kathy:
I don’t even know why that’s on there.

Dave:
Is

Henry:
This like home A SMR?

Dave:
Yeah, it’s a weird thing for Zillow to write. I don’t like it. And then last one is artificial intelligence will enhance home search and financing. I’m just going to give this one to Henry. I know how much Henry loves virtual staging. So Henry, what do you think of this one?

Henry:
I think virtual staging is the worst thing in the history of real estate, but I don’t know, man. I don’t think it’s that big of an influence in, definitely not in financing, but in home search. No, I don’t even see that. No,

Dave:
I’m all in on ai, but Zillow makes it easy enough. You just click around. What do you need AI for

James:
Henry? Is virtual staging worse than the homeowner? That’s just guessing on staging though.

Henry:
Yes. Yes it is.

James:
I don’t know.

Henry:
Don’t set me up to think this place is amazing and then I walk in and it smells dingy and there’s nothing in there. It’s the worst. It’s the worst.

Dave:
Alright, so we’ve now graded Zillow’s predictions, but how did we do? We’ll take a frank look back at the calls we made in 2024 and find out who got away with not making any predictions at all right after the break. Hey friends, welcome back to On the Market. Alright, well Zillow did Okay, 50 50 for, it’s just as good as the Husky like Henry said. Let’s see how we all did last year. Around this time we made predictions on home prices, interest rates, and just some questions about what the best markets were going to be and the best opportunities for investors. And fun fact, last year when we did this was the day your granddaughter Mia was born. Kathy, congratulations. Was that a full year ago? Has she turned one yet?

Kathy:
She just turned one November 8th and when she was smashing the cake in her face, she kind of let me know that she’d like me to buy her a house now so that she can have something when she’s 30.

Dave:
And are you going to oblige her?

Kathy:
No. Maybe.

Dave:
Okay, fair enough. Alright, well let’s review home prices. Last year each of us gave a prediction and I am looking them up. Last year, Kathy, you said prices would be up 4% year over year. Henry, you gave a range. Very political, three to 4%. So right on the heels of Kathy James, you said 2% decline, but when our producer Jennifer looked it up, you said flat may be 2% decline. So I’m going to give you that range there. I said one to 2% year over year. So Kathy, congratulations. You were exactly right. I looked this up on Redfin, which is what I use a lot of the data for on the show, and it is as of the last month we have data for, so this is back in September. It was 4% year over year. So Kathy, you nailed

Kathy:
This one. I can’t believe that the crystal ball’s working. Rich bought me one last year and I don’t know, maybe I’m learning how to use it. Finally, congrats,

Dave:
Henry. If you had some conviction, man and just said one or the other, you would’ve been right, but you gave a range. You were technically also right, but a little less right than Kathy.

Henry:
I’ll take it.

Dave:
Well, congratulations. Just for everyone’s education, we have seen home prices start to decline. The growth rate, excuse me, prices aren’t declining, but earlier in the year they were up six, five and a half percent. They’re starting to slow down to about 4%. My expectation is they’ll slow down a little bit more, but we’ll see in our predictions. Before James, you were the only one who predicted a decline and as you said, you were a little bit off on that one. Better luck next year, man.

James:
I had no problem with my prediction because it made me very conservative with my underwriting and part of it I’m conservative because I’m a flipper, so it’s a little higher risk. But the benefit is I thought it could be a 2% decline and Seattle was up 8%, so we saw 10% over our underwriting.

Dave:
Oh, there you go. It was a good

James:
Year. It was a great year. That’s a good year for you.

Dave:
Okay, so the second thing we predicted was recessions, whether we would technically be in a recession or not. Kathy, you said end of Q2 or Q3, we’d be in a recession, Henry. Oops, you said We’ll technically be in a recession but no one will act like it. I like that answer
James. My notes here from Jennifer says recession James didn’t really answer but he’s worried about credit card debts. We’re just going to count you wrong on that one. And I think I got this one right. I said we’ll see GDP slow down but we won’t be in a recession. And according to all the data, that’s what we’ve got. We’ve seen GDP grow this year. It’s estimated at 2.5% as of November 7th, so no official recession and by most accounts people believe that we are heading towards that soft landing that the Fed was predicting. Kathy, you nailed the first one. You’re a little off on this one. Any reflections on what you missed here?

Kathy:
Yeah, I think I was 50% right because I would say 50% of the country really feels like they’re in a recession and 50% they’re buying second and third homes. So it is the tale of two worlds in this country and I don’t think that’s going to change anytime soon. But if you went around and asked people, I swear to you, if 50% would say we are absolutely in a recession,

Dave:
So maybe Henry was right ball, he said technically in recession no one will act like it. But I think the answer, what Kathy’s saying is not technically in recession, but people will act like it. Sort of the inverse what you were saying there, Henry, but I do think we still see people spending despite what Kathy’s sending too. So some of that sentiment is correct. Alright, so moving on to our third prediction, which was about interest rates and where mortgage rates would be right now. Kathy, you said six and a half percent. Henry you said 6.75%. James you said 7% and I said 7.1%. James, you’re finally getting on the board. Man, I think you and I here split this one. When I looked it up this morning, it was 7.05, so it was right between the two of us, but both of us being the most bearish on this one thinking mortgage rates wouldn’t come down. And I think unfortunately for everyone listening to us, we were more correct about that.

Kathy:
But if we did the show three weeks ago, guys,

Dave:
But if we did it eight months ago, we’d be totally wrong.
Yes, they did come down briefly in September, but unfortunately mortgage rates have not come down as much as people thought. And I’m looking forward to the conversation about where we think mortgage rates are going. First, let’s just wrap up. Our last prediction right now, which we made was which markets were going to be the most popular or the best places to invest. Kathy, you said the Southeast Henry. Big surprise. You said northwest Arkansas, but then you also said bigger cities that are unsexy like Cleveland and Indianapolis. James, you said affordable single family homes. Man, we got to hold James’s feet to the fire this year. He didn’t answer any questions last the affordable single family

James:
Homes did do well.

Dave:
That’s true. And unsurprisingly I said markets in the Midwest, so I think Midwest did great. I was pretty happy with that. Kathy, how would you review your prediction about the southeast?

Kathy:
Well, with the data I do not have in front of me, I would say that it did pretty well.

Dave:
Actually, we could talk about this in a little bit, but I was writing, I do this state of real estate investing report for the BiggerPockets every year and I was writing it today and I think that the differentiation now has become Gulf states and other parts of the southeast because Louisiana, Alabama, parts of Florida that are on the Gulf are not doing particularly great, but the rest of the southeast, the Carolinas, Tennessee, a lot of Georgia, as Henry would tell you in Arkansas are still doing well. So I think calling it the Southeast is no longer as accurate, but there’s definitely parts that have done extremely well. All right. Well I think overall, other than James who didn’t say anything, we did pretty well last year and so congratulations. This was, I mean, we started the show and started making predictions about the housing market during probably the three toughest years to make predictions about the housing market and I think this is the best we’ve ever done. It’s

Henry:
Definitely the best we’ve ever done.

Kathy:
Yeah, I just want to say though that even though James maybe didn’t nail this, he probably made the most money last year. Oh, for sure.

Dave:
That’s not even a question. It was good year.

James:
It was a good year.

Dave:
Yeah. Yes. Okay. James has a house on the market in Newport Peach. That’s like his profit’s going to be more than my net worth on that one house.

James:
Yeah, hopefully he get some lift there too because the thing is on market ready to go. It’s a different beast list than that expensive of a house, I’ll tell you that much.

Dave:
Do all yourselves a favor and go look on James’ Instagram and check out the house he’s flipping in Newport Beach, California. It’s like the most beautiful house I’ve seen. It’s really cool. Alright, time for one last quick break, but when we come back, we’re all back in the prediction. Hot seat. Stick with us. Welcome back to the show. Alright, well enough reminiscing about our good and bad predictions from last year. Let’s talk about what we think is going to happen in the next year. Before I ask for reasons, I just want a quick housing prices up or down next year. Henry, your first up. James up. Kathy

Kathy:
Up 4%.

Dave:
I’m with you up. Okay. Kathy already you’re sticking with 4%, which is funny. I think the first time we ever did this, Kathy, you just said 7% for everything, right? I’d like two out three of them. Four is my new number. Alright, so Kathy’s saying 4%, Henry or James, let’s just start with you. Henry. Do you have any more specific predictions about what you think we’ll see home prices do on a national basis this coming year?

Henry:
Yeah, I think I’ll go a little below Kathy and say 3%.

Dave:
Okay. James 2.5.
All right. A little bit slower. I’m going to split the difference and do 3.5% so we’re all tightly clustered here. But just calling out that most of us think that home price appreciation will probably be roughly in the range of inflation next year, not growing much more than that. So just something to call out. But I also want to call out that this is normal. Somewhere between two and 4% is normal. So it’s interesting that all of us are thinking that we’ll have a relatively normal housing market next year. I don’t know if we’ve ever really predicted that before.

Kathy:
I wouldn’t say normal, but it’s just if you just look at supply and demand, still it’s an issue. Even though inventory has risen quite a lot, it’s still way below where it has been at a time when you have, again, the huge population of millennials. So even though most people can’t afford to buy a home, you don’t need that many who can, if four to 5 million homes are trading hands every year and you have how many millennials? What is it? 78 million? I dunno, it’s a lot of us. So you don’t need that many people who can do it and that’s why I just keep predicting in this scenario, there’s only one way it can go. Even if there’s deregulation, even if there’s stimulus to the housing market, you just can’t build that much supply in one year.

Dave:
Yeah, I think the normal part is the appreciation level, but my guess, and we’re not going to predict this today, is that home sales volume is going to remain relatively slow and just for everyone’s reference and context, a normal year in the housing market over the last 25 years has been about 5.5 million sales. This year we’re on pace for less than 4 million, so it’s super slow. Even though we’re seeing prices go up, it’s very, very slow and it feels even slower because during the pandemic it actually went up to over 6 million, so it’s less than 50% of where we were at the peak in 2021. And so if you’re feeling like the market is really sluggish, you’re right, it has really dramatically changed in terms of the total sales volume and personally I think it will get a little bit better this coming year, but I don’t think we’re getting back necessarily to a normal year in terms of sales volume where we have five and a half million.
Hopefully we’ll have four and a half or 5 million would be an amazing comeback and hopefully we’ll get closer to that because it’s one thing for investors, but obviously there are a lot of people who listen to the show who are real estate agents or loan officers and a lot of the American economy relies on real estate transactions and so hopefully we’ll see start to take off again this coming year. Alright, now for the worst part of this show where we all predict mortgage rates and I spent a lot of time looking at bond yield forecast this morning, so watch out.

Speaker 6:
That

Dave:
Means I’ll probably be the most wrong because I spent the most time thinking about it. James, I’m going to put you on the hotspot first here. What do you think the average rate on 30 year fixed rate mortgage will be one year from now? The middle of November, 2025.

James:
I’m predicting we’re going to be at 5.95.

Dave:
Whoa. Wow. Dude, that’s so close to what I was going to predict. It’s

James:
Like locked into my brain. It’s been there for months. I don’t know why. I just think we’re going to be high fives going into next year.

Dave:
Amazing. I will give you a high five if we’re in the high fives next year. Very excited.

Henry:
Well, how can you say that if you didn’t think home values are going to increase by more than 4%?

James:
Well I think part of the reason is we’re going to see some issues going on in the economy otherwise, and that’s why rates are going to be coming down. I feel like we’ve been kind of on the slow skid. We’ll see what happens, but I think there could be a jolt and then there could be some little decline on the backside.

Kathy:
Okay.

Dave:
Alright. I like it. Kathy, what’s your prediction?

Kathy:
Well, to James point, there are astrologers saying that there is going to be a crash, but those are YouTube experts, right? No, I’m going to say six and a half percent because I actually think it’s going to be a pretty robust economy.

Dave:
Okay. All right. Staying pretty high. Henry, what do you got?

Henry:
Six and a quarter.

Dave:
Damnit Henry, stop it. That was what I was going to say. Okay. Alright. I’m going to say 6.12. Okay.

Kathy:
Okay.

Dave:
Precisely 6.12 is exactly what it’s going to be.

Kathy:
I’m so shocked, Dave. I thought for sure you’d think there’d be inflation this coming year.

Dave:
So I do think there are some risks of inflation coming, but I think it might take a little while for that to reignite again is my guess. First and foremost, the reason I think a lot of people are thinking there might be inflation in the coming year is if there are tariffs implemented.

Speaker 6:
My

Dave:
Guess is that if that happens at all, it will not be this across the board tariff like we’ve been talking about. And it will probably take a while for them to actually get implemented. There’s some historical precedent, like when Trump said he was going to implement tariffs on China in his first campaign, he did it, but it wasn’t until 2018. It took two years of negotiating and figuring out the plan. And so maybe it’ll move faster this time, I don’t know, but I think it might take a little while and I think this spread between bond yields and mortgage rates will compress a little bit and so I still think we’re not going to be into the fives, but I think they’ll come down a little bit. Not in the beginning of next year, but by the end of next year, my hope is we’ll be in the low sixes. Alright, now for our next prediction. What else do we have to predict here? Okay, markets. What markets do you like for 2025? Kathy, you’ve always got some good ideas here. What do you got?

Kathy:
Well, it comes from Price Waterhouse Cooper and the Urban Land Institute who has named no shocker guys, Dallas Fort Worth in the top 10 list for six years, but it just dethroned Phoenix and Nashville and moved to the top for 2025. Okay, I’m sticking with my Dallas Fort Worth and then not shocking either Tampa St. Petersburg is also on that list. So those have been, our markets continue to be our markets

Dave:
Sticking with it. Nothing fancy. I like it. James, you got anything other than Seattle?

James:
I love Seattle and now I’m going to start ripping up Arizona. So I like that market too.

Dave:
Nice.

James:
Even though people may think it’s bubbly, there’s always opportunity in every bubble. I mean that’s the thing. There’s always an opportunity in every market, but if I was going to look at buying rentals outside the state or just buying elsewhere, I really do affordable anything that is a more affordable, quality place to live. Like places like Huntsville, Alabama, little Rock, Arkansas on the top of the list. So I’m going to chase more the metrics of medium income versus affordability. I just think that those have the best runway because everything’s still going to be really expensive in 2025 and people want that relief.

Dave:
Well maybe you can join. I got to talk to my business partner Henry about our investments in the late effect cashflow region.

Henry:
That’s right.

Dave:
Three studs under a window doesn’t have the same ring to it, but if you want to start buying some affordable stuff, James, you know who to call

James:
More studs than merrier, right? Dave? We could do this. It could be a swap. We’re doing some flip stuff together. I’ll give you some money for passive markets. I’ll give it to you. Let’s

Henry:
Do it.

James:
And we’ll do a cash swap.

Henry:
Yeah, so James can be our lender for our lake effect cashflow house.

Dave:
You have to come half The fun is we just want to go on a road trip through the Midwest and hang out.

James:
Are we getting a huge rv?

Dave:
Yeah, if you’re coming, yes, obviously. Yeah, I’m in for that. Kathy, you in?

Kathy:
Yeah, I feel like it’s two studs in the money.

Dave:
This will be great. All right. Road trip this summer. Okay, Henry, I know. Well, I kind of gave away your plan or maybe you’re going to say something else. What markets do you like this coming year?

Henry:
Well, I do like the lake effect cashflow area for cashflow, but for the guys of this question, the markets that I think will do the best are going to be major metros. It’s kind of those tertiary major metros. So not the dallas Fort Worth or the Seattle. We’re talking places like Cleveland, Ohio, Birmingham, Alabama, Kansas City, Missouri, Pittsburgh, Pennsylvania, Indianapolis, Indiana. So these places are all kind of that Midwest, tertiary big city where you get affordability but you also get appreciation.

Dave:
Okay, I like it. Well, I’m going to make a couple specific things. I do really think the Southeast is going to keep rocking. I really like the Carolinas personally. I think if you look at North and South Carolina, there’s a lot of good stuff going on there in the Midwest. I think Madison Wisconsin’s a really interesting market and I’ve always avoided this place, but Detroit is starting to grow.

Henry:
Detroit’s on my list too,

Dave:
And Detroit is, I don’t know if I’d invest there myself. You have to know what you’re doing in a city like that, but there is a lot of growth there. And then my bold prediction, this is not fueled by data. This is just a gut instinct. I think suburbs outside major metros that have declined in the last few years are going to grow. So I think outside New York City, I think outside San Francisco, I think outside probably in your area, James, not that they’ve declined, but I think suburbs of major economic hubs are going to grow. A lot of people are getting called back to the office. I think we’re going to start to see those downtown areas pick up again. And the wealthy areas that surround them are probably going to grow. I’m not investing there. I don’t know if those are more kind of flipping opportunities, which I don’t do, but if you’re a flipper, I would look at those places.

Kathy:
Yeah, I mean you make a great point. A lot changed with the election and even here in LA where we were just kind of allowing people to rob and get away with it.
We passed something that says you get actually, it’s actually a felony to Rob. So I feel like in some of these areas where people have left, they might be coming back.

James:
Yeah, some of these cities are pushing back on crime. Quality of living is going to go up in them because it was just out of control. But Dave, every time I pick of Detroit, if you’re looking at it, I remember in 2008 I almost bought my brother a house for Christmas, buy him for a dollar. Dude, they were like 200 bucks. You could get a house in Detroit and I’m still mad. I didn’t go buy a swath of them.

Henry:
You can get it from the Land bank for a dollar.

Dave:
No,

Kathy:
You could

Kathy:
Get ’em for

Dave:
Free. You still can. They’re paying in certain areas to knock ’em down, so they’ll give ’em to you for free. But that’s why, I mean you really need to know what you’re doing. There are certain areas that are really exciting in Detroit, if you read about it, there’s some really cool investment. There’s businesses going in there, there’s jobs going in there and if you’re in the right area it could be profitable. But there are also some areas that have really been hit hard economically. And I don’t know enough about it personally to know which ones which.

Kathy:
Oh, we were really active in Detroit with our single family rental fund we bought in the southeast, but then also offset for cashflow in Detroit. And I think I told you guys, those homes were so old, there was so much maintenance even though they were in good areas. At the end of the day when we sold all the properties, our properties in the southeast had about a 28% IRR. Whereas the Detroit had about six to 8% because all the expenses just ate up the profits. But again, if you go into it knowing that and get the right price, then it’s not for James.

Dave:
I mean better than nothing. But yeah, 6% IRI is not why you’re in the business.

Kathy:
Yeah, it’s

Dave:
Not worth the effort for that for sure. Alright, well we’re all on record. Anyone else want to make just a fun prediction? Got anything else? 2025? Anything you’re looking forward to? Real estate? Not real estate.

Kathy:
I mean I’ve just seen, again, I am not giving an opinion on this. Just what I’ve seen from people I’ve talked to a lot of money was made in the last couple of days. I talked to someone who said, I just made $60,000 last week. So where does that money tend to go? And it does often go to real estate. So I do believe that there will be an uptick in purchases.

Henry:
Bitcoin’s at an all time high. I think there’s going to be several Bitcoin million and billionaires. Yeah,

Dave:
It went up to like 90,000. Yeah, so glad I own one fraction of one Bitcoin. I know. Me too. We got like this one.

James:
I’m so glad I shut down my Bitcoin farm in 2018. That was a miss of all Miss. We had a meat locker stack full of machines. We’re actually one of the only people to put a Bitcoin farm up for sale. Should have kept that one.

Dave:
Well, one thing, maybe it’s not a prediction, it’s more of an inquiry about 2025 is we have talked about actually doing some live events for on the market. And I would love to know if all of our listeners would be interested in that. And if you’re interested in it, what would you want it to look like? Is it a meet and greet hanging out? Do you want us to do economic conversation, local market data? Hit any of us up on Instagram or on BiggerPockets and let us know what you would want to see if we did some sort of live events in 2025. In addition to that, go buy James’s book right now. Go to biggerpockets.com/house flipping yt, that’s house flipping. And then the letters YNT, like YouTube. Even though you might be listening to this on the podcast, it’s house flipping yt go by his book right now. It’s going to be amazing. Thank you three so much for joining us and for being so brave to make these bold predictions as you have. Thanks again for listening. We’ll see you next time for On The Market.

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected].

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


15% ROI, 5% down loans!”,”body”:”3.99% rate, 5% down! Access the BEST deals in the US at below market prices! Txt REI to 33777 “,”linkURL”:”https:\/\/www.renttoretirement.com\/?utm_source=biggerpockets&utm_medium=forum&utm_campaign=forum_ad_tracking”,”linkTitle”:”Contact Us Today!”,”id”:”65a6b25c5d4b6″,”impressionCount”:”792580″,”dailyImpressionCount”:”640″,”impressionLimit”:”1500000″,”dailyImpressionLimit”:”8476″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/720×90.jpg”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/300×250.jpg”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/300×600.jpg”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/320×50.jpg”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Premier Property Management”,”description”:”Stress-Free Investments”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/PPMG-Logo-2-1.png”,”imageAlt”:””,”title”:”Low Vacancy, High-Profit”,”body”:”With $2B in rental assets managed across 13 markets, we\u0027re the top choice for turnkey investors year after year.”,”linkURL”:”https:\/\/info.reination.com\/get-started-bp?utm_campaign=Bigger%20Pockets%20-%20Blog%20B[\u2026]24%7C&utm_source=Bigger%20Pockets&utm_term=Bigger%20Pockets”,”linkTitle”:”Schedule a Call Today”,”id”:”65d4be7b89ca4″,”impressionCount”:”561924″,”dailyImpressionCount”:”629″,”impressionLimit”:”878328″,”dailyImpressionLimit”:”2780″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Center Street Lending”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/centerstreetlending.com\/bp\/”,”linkTitle”:””,”id”:”664ce210d4154″,”impressionCount”:”293450″,”dailyImpressionCount”:”598″,”impressionLimit”:”600000″,”dailyImpressionLimit”:”2655″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_720x90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_300x250-2.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_300x600-2.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_320x50.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”BiggerPockets Lender Finder”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/www.biggerpockets.com\/business\/finder\/lenders”,”linkTitle”:”Find a Lender”,”id”:”664e38e3aac10″,”impressionCount”:”152825″,”dailyImpressionCount”:”215″,”impressionLimit”:”10000000000″,”dailyImpressionLimit”:”10000000″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-320×50-1.png”,”r720x90Alt”:”BiggerPockets lender finder”,”r300x250Alt”:”BiggerPockets lender finder”,”r300x600Alt”:”BiggerPockets lender finder”,”r320x50Alt”:”BiggerPockets lender finder”},{“sponsor”:”CV3 Financial”,”description”:””,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/Logo-512×512-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/cv3financial.com\/financing-biggerpockets\/?utm_source=biggerpockets&utm_medium=website&utm_campaign=august&utm_term=bridge&utm_content=banner”,”linkTitle”:””,”id”:”66a7f395244ed”,”impressionCount”:”113324″,”dailyImpressionCount”:”453″,”impressionLimit”:”636364″,”dailyImpressionLimit”:”4187″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Baselane”,”description”:”Ad copy A”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/09\/SquareLogo-MidnightOnWhite-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/www.baselane.com\/lp\/bigger-pockets?utm_source=partner_biggerpockets&utm_medium=Content&utm_campaign=bp_blog_ad&utm_term=rebranded_v1″,”linkTitle”:””,”id”:”66b39df6e6623″,”impressionCount”:”96615″,”dailyImpressionCount”:”499″,”impressionLimit”:”250000″,”dailyImpressionLimit”:”1713″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/720×90.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×250.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×600.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/320×50.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Baselane”,”description”:”Ad copy B”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/09\/SquareLogo-MidnightOnWhite-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/www.baselane.com\/lp\/bigger-pockets?utm_source=partner_biggerpockets&utm_medium=Content&utm_campaign=bp_blog_ad&utm_term=rebranded_v2″,”linkTitle”:””,”id”:”66b39df70adac”,”impressionCount”:”105408″,”dailyImpressionCount”:”548″,”impressionLimit”:”250000″,”dailyImpressionLimit”:”1713″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:””,”description”:””,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-Logo.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/hubs.ly\/Q02LzKH60″,”linkTitle”:””,”id”:”66c3686d52445″,”impressionCount”:”111897″,”dailyImpressionCount”:”629″,”impressionLimit”:”500000″,”dailyImpressionLimit”:”6173″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””}])”>

When I first dipped my toes into the world of house flipping, I was filled with excitement and a fair share of naiveté. I had dreams of turning rundown properties into beautiful homes and reaping the rewards of my hard work. 

But, like many aspiring investors, I faced my share of setbacks. I experienced the sting of failure, but I learned invaluable lessons along the way that helped me rebuild and ultimately thrive in this business. 

If I could go back in time, there are key insights I wish I had known from the start. Here are five things I’ve learned through trial and error—lessons that could save you from the pitfalls I encountered. Whether you’re just starting out or looking to refine your approach, these insights will help you avoid the mistakes that can turn your next flip into a flop. 

1. The Importance of Research 

First, researching the area helps you understand the local real estate market dynamics, including property values, trends in pricing, and the demand for certain types of homes. Doing your due diligence is essential—if you skip this step, you’re setting yourself up for failure. 

Assess factors such as school districts, crime rates, and future development plans, all of which can significantly impact the property’s value and marketability. Be thorough in your research of the area so you can minimize the risk of investing in a location that may not yield the returns you expect. Take the time to get to know your area! It’s not just about numbers; it’s about understanding the neighborhood.  

2. Cutting Costs on Permits/Contractors 

Pulling necessary permits and hiring licensed contractors isn’t about checking boxes—it’s a way to safeguard your investment and reputation. While you may be able to DIY many of the cosmetic updates, leave it to the licensed contractors to tackle larger scope-of-work items such as electrical, plumbing, and HVAC, for example. I learned this the hard way! 

Having the work inspected and permitted shields you from potential lawsuits and extensive repairs that could significantly increase both costs and the amount of time you are holding on to the property. Don’t skimp on this! Protect your investment by pulling those permits and only hire reputable contractors.   

3. The Pitfall of Overimproving 

It’s easy to fall into the trap of going overboard on upgrades, where every enhancement and addition seems like it will add value. I’ve been there, thinking a marble countertop in an entry-level flip would make all the difference, only to realize it ate into my profits. 

Not only will these improvements cost more, but you will hold on to the property significantly longer, which increases your holding costs. Remember, your goal is not just to improve the property, but to ensure a swift turnaround to maximize profitability. Each extra day that you are holding on to the property means more money stays tied up in financing costs, taxes, and maintenance, ultimately eating into your potential returns. 

Stay focused on cost-effective upgrades that maximize resale value and ensure a quick sale. Trust me—overimproving is a costly trap.  

4. Too Much Personal Touch 

Adding too much of your personal taste can be detrimental to your returns, as it may not align with what most buyers are looking for in the market. While it’s tempting to infuse your own style into renovations, it’s essential to prioritize market trends and appeal to a broad audience. I get it; it’s your project, but remember: You’re not living there! Unique or niche designs can extend your holding time and increase costs. 

To optimize your profitability, focus on timeless upgrades that have broad appeal. While it can be fun to add some personal flair, don’t go overboard.  

5. Ignoring The Landscaping 

First impressions are everything. Investing in landscaping renovation is vital, as it significantly influences how potential buyers perceive the property at first glance. You want them to fall in love before they even step inside!

Not only is the initial landscaping makeover important, but ongoing maintenance is equally crucial. You don’t want your new plants or grass dying and becoming overgrown while you are focused on other aspects of the overall renovation or while the house sits on the market. Keep it tidy; a neglected yard is a huge red flag.

By prioritizing both initial landscaping and ongoing maintenance, you ensure the exterior complements interior upgrades and continues to attract potential buyers.  

Final Thoughts

As I look back on my journey, I realize that flipping houses is as much about resilience as it is about strategy. Each project brings its own lessons, and I hope sharing my tips and experiences help you avoid some of the mistakes I made. Stay curious and open to learning, and remember that every setback is just another opportunity to set yourself up for greater success on the next one. Let’s make those flips count!

If you’re interested in my EXACT Framework behind 3,500+ successful flips, you can order my new book, The House Flipping Framework, today!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


15% ROI, 5% down loans!”,”body”:”3.99% rate, 5% down! Access the BEST deals in the US at below market prices! Txt REI to 33777 “,”linkURL”:”https:\/\/www.renttoretirement.com\/?utm_source=biggerpockets&utm_medium=forum&utm_campaign=forum_ad_tracking”,”linkTitle”:”Contact Us Today!”,”id”:”65a6b25c5d4b6″,”impressionCount”:”792542″,”dailyImpressionCount”:”602″,”impressionLimit”:”1500000″,”dailyImpressionLimit”:”8476″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/720×90.jpg”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/300×250.jpg”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/300×600.jpg”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/320×50.jpg”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Premier Property Management”,”description”:”Stress-Free Investments”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/PPMG-Logo-2-1.png”,”imageAlt”:””,”title”:”Low Vacancy, High-Profit”,”body”:”With $2B in rental assets managed across 13 markets, we\u0027re the top choice for turnkey investors year after year.”,”linkURL”:”https:\/\/info.reination.com\/get-started-bp?utm_campaign=Bigger%20Pockets%20-%20Blog%20B[\u2026]24%7C&utm_source=Bigger%20Pockets&utm_term=Bigger%20Pockets”,”linkTitle”:”Schedule a Call Today”,”id”:”65d4be7b89ca4″,”impressionCount”:”561890″,”dailyImpressionCount”:”595″,”impressionLimit”:”878328″,”dailyImpressionLimit”:”2780″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Center Street Lending”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/centerstreetlending.com\/bp\/”,”linkTitle”:””,”id”:”664ce210d4154″,”impressionCount”:”293422″,”dailyImpressionCount”:”570″,”impressionLimit”:”600000″,”dailyImpressionLimit”:”2655″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_720x90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_300x250-2.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_300x600-2.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_320x50.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”BiggerPockets Financial Services Finder”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/www.biggerpockets.com\/business\/finder\/tax-and-financial-services”,”linkTitle”:”Find a Financial Planner”,”id”:”664e3267b2cc1″,”impressionCount”:”49579″,”dailyImpressionCount”:”122″,”impressionLimit”:”1000000000″,”dailyImpressionLimit”:”10000000″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/FinServ-Blog-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/FinServ-Blog-300×250-1-e1716400562184.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/FinServ-Blog-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/FinServ-Blog-320×50-1-e1716400684636.png”,”r720x90Alt”:”BiggerPockets financial planner finder”,”r300x250Alt”:”BiggerPockets financial planner finder”,”r300x600Alt”:”BiggerPockets financial planner finder”,”r320x50Alt”:”BiggerPockets financial planner finder”},{“sponsor”:”BiggerPockets Lender Finder”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/www.biggerpockets.com\/business\/finder\/lenders”,”linkTitle”:”Find a Lender”,”id”:”664e38e3aac10″,”impressionCount”:”152812″,”dailyImpressionCount”:”202″,”impressionLimit”:”10000000000″,”dailyImpressionLimit”:”10000000″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-320×50-1.png”,”r720x90Alt”:”BiggerPockets lender finder”,”r300x250Alt”:”BiggerPockets lender finder”,”r300x600Alt”:”BiggerPockets lender finder”,”r320x50Alt”:”BiggerPockets lender finder”},{“sponsor”:”BiggerPockets Tax & Accounting Professional Finder”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/www.biggerpockets.com\/business\/finder\/tax-and-financial-services”,”linkTitle”:”Find a Tax Pro”,”id”:”664e38e3c484b”,”impressionCount”:”34978″,”dailyImpressionCount”:”135″,”impressionLimit”:”100000000″,”dailyImpressionLimit”:”10000000″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Tax-Blog-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Tax-Blog-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Tax-Blog-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Tax-Blog-320×50-1.png”,”r720x90Alt”:”BiggerPockets tax professional finder”,”r300x250Alt”:”BiggerPockets tax professional finder”,”r300x600Alt”:”BiggerPockets tax professional finder”,”r320x50Alt”:”BiggerPockets tax professional finder”},{“sponsor”:”BiggerPockets Property Management Finder”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/www.biggerpockets.com\/business\/finder\/property-managers”,”linkTitle”:”Find a Property Manager”,”id”:”664e38e3dc3bc”,”impressionCount”:”55396″,”dailyImpressionCount”:”120″,”impressionLimit”:”1000000000″,”dailyImpressionLimit”:”1000000″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Prop-Manager-Blog-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Prop-Manager-Blog-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Prop-Manager-Blog-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Prop-Manager-Blog-320×50-1.png”,”r720x90Alt”:”BiggerPockets property management finder”,”r300x250Alt”:”BiggerPockets property management finder”,”r300x600Alt”:”BiggerPockets property management finder”,”r320x50Alt”:”BiggerPockets property management finder”},{“sponsor”:”CV3 Financial”,”description”:””,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/Logo-512×512-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/cv3financial.com\/financing-biggerpockets\/?utm_source=biggerpockets&utm_medium=website&utm_campaign=august&utm_term=bridge&utm_content=banner”,”linkTitle”:””,”id”:”66a7f395244ed”,”impressionCount”:”113296″,”dailyImpressionCount”:”425″,”impressionLimit”:”636364″,”dailyImpressionLimit”:”4187″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Baselane”,”description”:”Ad copy A”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/09\/SquareLogo-MidnightOnWhite-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/www.baselane.com\/lp\/bigger-pockets?utm_source=partner_biggerpockets&utm_medium=Content&utm_campaign=bp_blog_ad&utm_term=rebranded_v1″,”linkTitle”:””,”id”:”66b39df6e6623″,”impressionCount”:”96585″,”dailyImpressionCount”:”469″,”impressionLimit”:”250000″,”dailyImpressionLimit”:”1713″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/720×90.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×250.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×600.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/320×50.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Baselane”,”description”:”Ad copy B”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/09\/SquareLogo-MidnightOnWhite-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/www.baselane.com\/lp\/bigger-pockets?utm_source=partner_biggerpockets&utm_medium=Content&utm_campaign=bp_blog_ad&utm_term=rebranded_v2″,”linkTitle”:””,”id”:”66b39df70adac”,”impressionCount”:”105382″,”dailyImpressionCount”:”522″,”impressionLimit”:”250000″,”dailyImpressionLimit”:”1713″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:””,”description”:””,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-Logo.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/hubs.ly\/Q02LzKH60″,”linkTitle”:””,”id”:”66c3686d52445″,”impressionCount”:”111865″,”dailyImpressionCount”:”597″,”impressionLimit”:”500000″,”dailyImpressionLimit”:”6173″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””}])”>

With the presidential election now in the rearview mirror, it’s time to plan and execute your financial strategy, given the new policies likely under a second Trump administration.

Let me be clear from the start: I’m not here to either demonize or lionize Trump or his policies. It doesn’t matter whether you love or hate the guy. What matters is how you adapt because, inevitably, changing rules means new risks and opportunities. 

While there are absolutely opportunities that will arise from a second Trump presidency, today I’m focusing on financial risks—and a few ways to hedge against them. 

Inflation and Overheating the Economy

Trump has proposed a 60% tariff on all imports from China and a blanket 10% to 20% tariff on imports from all other countries. 

Think retailers will just roll over and say, “OK, sure, we’ll just eat those extra costs”? Of course not—they’ll pass them along to consumers in the form of higher prices. 

Read: inflation. 

Nor are tariffs the only inflationary policy Trump has proposed on the campaign trail. Reduced regulation and tax cuts both stimulate the economy, which it sometimes needs, but overstimulating the economy also leads to rampant inflation. 

In fact, too much economic stimulus caused the recent inflation nightmare in the first place. The economy has suffered from high inflation over the last few years, not from a weak job market or low corporate profits. 

Beyond these policy proposals, Trump has never shied away from trying to pressure the Federal Reserve. Expect him to push J. Powell and company to lower interest rates once he takes office. Or “#EndTheFed” entirely, as some Trump allies in Congress and Elon Musk have started advocating for.  

Lest you accuse me of getting my news from left-slanted media outlets, a study by the Wall Street Journal came to the same conclusions. Another study by the nonpartisan Peterson Institute for International Economics calculated that Trump’s combined policy proposals would lift inflation from a baseline rate of 1.9% in 2026 to between 6% to 9.3%. The group also found that the proposed tariffs alone would raise costs by $2,600 annually for the median U.S. household. 

Sustained High Interest Rates

As a real estate investor, what scares me the most about inflation is actually the cure: higher interest rates. 

When the Fed sent interest rates skyrocketing in 2022 and 2023, it devastated commercial real estate markets. Many investments imploded, as floating interest loan payments went through the roof and cash flows turned negative.

Investors have breathed a little easier over the last few months, assuming that interest rates will drop significantly between now and the end of 2025. In their September meeting, the average Fed board member saw benchmark rates dropping to 2.9% in 2026.

And while the Fed foresaw cutting rates to 3.25-3.5% by the end of 2025, MarketWatch reports that derivative traders are now pricing in rates of 3.75-4%. 

Bond traders have also sent bond yields higher on mortgage loans since the election. That, in turn, sent mortgage rates to their highest level since July. 

Why do traders foresee slower rate cuts? Because of those inflationary Trump policies outlined. 

Higher interest rates mean higher cap rates, which is great for buyers, but bad for owners. Alongside our Co-Investing Club at SparkRental, I invest every month in a new group real estate investment. I practice dollar-cost averaging with my real estate investments, specifically to protect against unpredictable gyrations in pricing. 

Ballooning Government Debt

In his first presidency, Donald Trump spent more money than any previous president in history

No, really—during his administration, $7.8 trillion was added to the national debt. And his second presidency is forecast to add a similar $7.75 trillion over the next decade. 

The Congressional Budget Office forecasts the national debt to rise from 97.3% of GDP in 2023 to 122.4% of GDP by 2034. And that forecast dates back to June—it doesn’t take into account the high spending plans of the second Trump administration. 

Ballooning debt adds to our inflation risk over time. What do countries do when their debts become too high? They devalue their currency to inflate the real value away. 

Oh, and high interest rates become infeasible when debts get too high. So central banks have to keep interest rates low, just so the government can afford to make its debt payments. Inflation gets to run rampant to pay for past decades of overspending. 

Geopolitical Risks

I’m not saying a trade war with China will happen. But the further Trump gets from orthodox international relations, the less predictable it becomes. 

People of all political stripes loved to rant about globalization in the ‘90s and ‘00s. But here’s the thing about globalization: Intertwined supply chains kept rival countries playing nice with each other. No one wants to go to war with a country with which they share billions of dollars of supply chains. 

Take away those trade ties, and what do you have? Unbridled rivalry and animosity. 

Businesses crave predictability. It allows them to expand and hire new workers—which grows the economy. Unpredictable policies and international relations leave companies hesitant to invest. 

How to Hedge Against These Risks

Again, the second Trump presidency comes with both opportunities and risks, just like any change in the way the wind blows. Here are some ways investors can come out ahead.

Consistent monthly real estate investments

Broadly speaking, real estate investments make a great hedge against inflation. People need housing, and they’ll pay the going rate, regardless of how much inflation devalues the currency. Industrial businesses need industrial real estate, and so on. 

The main caveat there is interest rate risk. If inflation heats up again, the Fed will raise rates or, at the very least, stop lowering them. That will leave some struggling investors unable to refinance or sell—even as their short-term loans come due. It will also keep cap rates higher than they would have been otherwise. 

That won’t hurt new investments, however. I’ll keep doing what I’ve been doing: investing every month in new passive real estate investments. In our Co-Investing Club, we invest in a mix of private partnerships, syndications, private notes, and equity funds. The opportunities keep coming. 

In particular, cash-flowing real estate investments with fixed-interest long-term debt will help protect against inflation risk and interest rate risk. Watch out for investments that hinge on cap rates compressing again. 

We focus on risk first and foremost, even as we target asymmetric returns. I feel great about both our investment strategy and our past investments, no matter what policy changes come down the pike.

Oh, and the near-certain renewal of 100% bonus depreciation won’t hurt either. 

Certain types of stocks

Some types of companies stand to do better than others under Trump’s proposed policies.

American manufacturers who primarily serve American consumers should do well. Companies that either import or export a large percentage of their products may struggle between U.S. tariffs and retaliatory tariffs abroad. 

India, Indonesia, Vietnam, Taiwan, and the Philippines may benefit from companies moving their supply chains out of China. 

Fossil fuel-heavy stocks such as energy companies may do well. Green energy companies? Not so much. 

Finally, bear in mind that stocks have historically been a solid hedge against inflation. A lower corporate tax rate will only boost profits and stock prices, at least in the short term. 

Precious metals

Gold and other precious metals serve as a hedge against both inflation and geopolitical risk. 

If you worry about either of those risks under a second Trump presidency, you can always seek shelter in “the yellow metal.”

Cryptocurrencies

Trump’s bet on the crypto industry seems to have paid off: The industry donated over $170 million to super PACs funding crypto-friendly politicians, including Trump. Nearly all the candidates those super PACs backed have won, creating a wave of incoming politicians who have promised crypto-friendly regulation. 

That set the stage for a surge in cryptocurrency values, which we’re already seeing. Bitcoin crossed the $80,000 mark for the first time ever in the days following Trump’s victory. 

Don’t Stop Investing

I have friends across the political spectrum, and I’ve seen everything from irrational exuberance on the right to panic on the left. Neither will serve your financial goals. 

Whatever you do, don’t panic and pull all of your money out of investments. Keep investing small amounts, month in and month out. Stock and real estate markets will gyrate like they always have, and your mission is to keep a level head. 

I invest $5,000 every month in a new real estate investment as a member of SparkRental’s Co-Investing Club. I also invest money automatically every week in broad stock ETFs. 

The market goes up, the market goes down. Politicians come, politicians go. I keep investing—and I come out ahead because I try not to get too greedy or too fearful no matter the news of the day.

Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


15% ROI, 5% down loans!”,”body”:”3.99% rate, 5% down! Access the BEST deals in the US at below market prices! Txt REI to 33777 “,”linkURL”:”https:\/\/www.renttoretirement.com\/?utm_source=biggerpockets&utm_medium=forum&utm_campaign=forum_ad_tracking”,”linkTitle”:”Contact Us Today!”,”id”:”65a6b25c5d4b6″,”impressionCount”:”792461″,”dailyImpressionCount”:”521″,”impressionLimit”:”1500000″,”dailyImpressionLimit”:”8476″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/720×90.jpg”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/300×250.jpg”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/300×600.jpg”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/320×50.jpg”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Premier Property Management”,”description”:”Stress-Free Investments”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/PPMG-Logo-2-1.png”,”imageAlt”:””,”title”:”Low Vacancy, High-Profit”,”body”:”With $2B in rental assets managed across 13 markets, we\u0027re the top choice for turnkey investors year after year.”,”linkURL”:”https:\/\/info.reination.com\/get-started-bp?utm_campaign=Bigger%20Pockets%20-%20Blog%20B[\u2026]24%7C&utm_source=Bigger%20Pockets&utm_term=Bigger%20Pockets”,”linkTitle”:”Schedule a Call Today”,”id”:”65d4be7b89ca4″,”impressionCount”:”561818″,”dailyImpressionCount”:”523″,”impressionLimit”:”878328″,”dailyImpressionLimit”:”2780″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Center Street Lending”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/centerstreetlending.com\/bp\/”,”linkTitle”:””,”id”:”664ce210d4154″,”impressionCount”:”293339″,”dailyImpressionCount”:”487″,”impressionLimit”:”600000″,”dailyImpressionLimit”:”2655″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_720x90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_300x250-2.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_300x600-2.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_320x50.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”BiggerPockets Financial Services Finder”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/www.biggerpockets.com\/business\/finder\/tax-and-financial-services”,”linkTitle”:”Find a Financial Planner”,”id”:”664e3267b2cc1″,”impressionCount”:”49564″,”dailyImpressionCount”:”107″,”impressionLimit”:”1000000000″,”dailyImpressionLimit”:”10000000″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/FinServ-Blog-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/FinServ-Blog-300×250-1-e1716400562184.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/FinServ-Blog-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/FinServ-Blog-320×50-1-e1716400684636.png”,”r720x90Alt”:”BiggerPockets financial planner finder”,”r300x250Alt”:”BiggerPockets financial planner finder”,”r300x600Alt”:”BiggerPockets financial planner finder”,”r320x50Alt”:”BiggerPockets financial planner finder”},{“sponsor”:”BiggerPockets Lender Finder”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/www.biggerpockets.com\/business\/finder\/lenders”,”linkTitle”:”Find a Lender”,”id”:”664e38e3aac10″,”impressionCount”:”152772″,”dailyImpressionCount”:”162″,”impressionLimit”:”10000000000″,”dailyImpressionLimit”:”10000000″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-320×50-1.png”,”r720x90Alt”:”BiggerPockets lender finder”,”r300x250Alt”:”BiggerPockets lender finder”,”r300x600Alt”:”BiggerPockets lender finder”,”r320x50Alt”:”BiggerPockets lender finder”},{“sponsor”:”BiggerPockets Tax & Accounting Professional Finder”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/www.biggerpockets.com\/business\/finder\/tax-and-financial-services”,”linkTitle”:”Find a Tax Pro”,”id”:”664e38e3c484b”,”impressionCount”:”34962″,”dailyImpressionCount”:”119″,”impressionLimit”:”100000000″,”dailyImpressionLimit”:”10000000″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Tax-Blog-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Tax-Blog-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Tax-Blog-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Tax-Blog-320×50-1.png”,”r720x90Alt”:”BiggerPockets tax professional finder”,”r300x250Alt”:”BiggerPockets tax professional finder”,”r300x600Alt”:”BiggerPockets tax professional finder”,”r320x50Alt”:”BiggerPockets tax professional finder”},{“sponsor”:”BiggerPockets Property Management Finder”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/www.biggerpockets.com\/business\/finder\/property-managers”,”linkTitle”:”Find a Property Manager”,”id”:”664e38e3dc3bc”,”impressionCount”:”55386″,”dailyImpressionCount”:”110″,”impressionLimit”:”1000000000″,”dailyImpressionLimit”:”1000000″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Prop-Manager-Blog-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Prop-Manager-Blog-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Prop-Manager-Blog-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Prop-Manager-Blog-320×50-1.png”,”r720x90Alt”:”BiggerPockets property management finder”,”r300x250Alt”:”BiggerPockets property management finder”,”r300x600Alt”:”BiggerPockets property management finder”,”r320x50Alt”:”BiggerPockets property management finder”},{“sponsor”:”CV3 Financial”,”description”:””,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/Logo-512×512-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/cv3financial.com\/financing-biggerpockets\/?utm_source=biggerpockets&utm_medium=website&utm_campaign=august&utm_term=bridge&utm_content=banner”,”linkTitle”:””,”id”:”66a7f395244ed”,”impressionCount”:”113241″,”dailyImpressionCount”:”370″,”impressionLimit”:”636364″,”dailyImpressionLimit”:”4187″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Baselane”,”description”:”Ad copy A”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/09\/SquareLogo-MidnightOnWhite-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/www.baselane.com\/lp\/bigger-pockets?utm_source=partner_biggerpockets&utm_medium=Content&utm_campaign=bp_blog_ad&utm_term=rebranded_v1″,”linkTitle”:””,”id”:”66b39df6e6623″,”impressionCount”:”96516″,”dailyImpressionCount”:”400″,”impressionLimit”:”250000″,”dailyImpressionLimit”:”1713″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/720×90.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×250.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×600.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/320×50.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Baselane”,”description”:”Ad copy B”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/09\/SquareLogo-MidnightOnWhite-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/www.baselane.com\/lp\/bigger-pockets?utm_source=partner_biggerpockets&utm_medium=Content&utm_campaign=bp_blog_ad&utm_term=rebranded_v2″,”linkTitle”:””,”id”:”66b39df70adac”,”impressionCount”:”105318″,”dailyImpressionCount”:”458″,”impressionLimit”:”250000″,”dailyImpressionLimit”:”1713″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:””,”description”:””,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-Logo.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/hubs.ly\/Q02LzKH60″,”linkTitle”:””,”id”:”66c3686d52445″,”impressionCount”:”111784″,”dailyImpressionCount”:”516″,”impressionLimit”:”500000″,”dailyImpressionLimit”:”6173″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””}])”>

The Fed’s latest rate cut comes as inflation ticks back up to 2.6%. Although the second rate cut in 2024 was only half the size of the first one at 0.25%, it still signaled confidence in the downward trajectory of inflation, but that might need a serious reassessment.

With the reelection of Donald Trump to the presidency, some economists have suggested that the future rate cuts are in doubt. It’s been long contested that the incoming administration’s economic policies are potentially inflationary, which would undoubtedly put the brakes on further rate cuts.

Could Trump’s presidency reignite inflation? What economic impact would his most widely quoted proposals have, and it will only lead to more speculation about the Jerome Powell and the Federal Reserve’s repsonse.

The Tariffs Question

Most of the discussion about the potential economic consequences of Trump’s second presidency revolves around the promise to impose tariffs on all imported goods. The highest tariffs, at 60%, would apply to goods imported from China. Mexico could see tariffs of as high as 25%, while all other countries could be subject to tariffs of 10% or more.  

Most economists and business analysts are worried that the tariff policy would be inflationary. Nobel Prize-winning economist Simon Johnson told Time magazine, “There’s a lot of inflationary pressure in his [Trump’s] promises.”

First, tariffs would almost certainly pass the increased importing costs on to consumers. According to The Budget Lab at Yale, the prices of consumer goods would rise by anywhere between 1.4% and 5.1% “before substitution.” And that’s the thing about tariffs: They’re not necessarily a terrible idea if whatever it is that’s being imported is simultaneously being substituted by an equivalent domestic product. 

One of the lone voices who did not oppose the idea of tariffs even back in 2022 was the Economic Policy Institute (EPI), which pointed out that Trump’s first attempt at imposing tariffs didn’t have uniformly negative consequences. For example, there were positive developments in the U.S. aluminum and steel industries, which saw more new projects, investments, and jobs.  

The issue, however, was that “many of Trump’s tariff hikes lacked a strategic purpose and end goal, and there was no underlying policy effort made to restore American competitiveness,” said EPI’s report. Without this type of effort, tariffs simply pass the increased costs on to consumers because importers aren’t able to switch to nonexistent domestic alternatives.

In addition, modern supply chains are complicated; some of them are so complex that manufacturers may not be able to easily extricate themselves from existing production operations. This is the case in electronics, for example. 

The other major issue with tariffs is the effect of retaliation from trade partner countries. As the Yale Lab report makes clear, while a scenario in which there was no retaliation would raise $2.6 trillion over the next decade, or 0.7% of U.S. GDP, if trade partners retaliate with their own tariff measures, it would reduce this revenue by anything between 12% and 26%.

The U.S. is an exporting nation as well as an importing one—something that can easily be forgotten when tariff policies are being implemented. If whole industries are majorly impacted by retaliatory measures, they begin needing subsidies, which reduces any net benefits from tariffs even more. 

For example, U.S. farmers needed subsidies during the 2018-19 trade war. Those subsidies amounted to 92% of the revenue collected from import duties.   

Finally, tariffs reduce competition over time, which means that domestic manufacturers raise prices anyway because they now can. Higher production costs would also disincentivize production, meaning less consumer choice at higher prices. 

Whichever way you look at it, tariff policies tend to increase what’s known as experienced inflation—that is, the prices of goods and even housing (we’ll get to housing in a bit). 

The ‘‘Drill, Baby, Drill” Question

But what if tariffs are a red herring, and any economic harm they may do will be eclipsed by the promised increase in domestic oil and gas extraction?

Trump famously promised a 50% reduction in energy costs for households back in August. In theory, if this massive cost reduction could somehow be achieved, it would mitigate the inflationary pressures created by Trump’s other policies.

Travis Fisher, director of energy and environmental policy studies at the libertarian Cato Institute, told Fact Check that “all else equal, more energy production in the U.S. would reduce prices overall,” elaborating that “significant reductions in the cost of all energy resources would mitigate overall price increases, because energy is a costly input into nearly every good and service sold.”

The problem, however, is that the U.S. is part of the global supply chain in fossil fuels. This makes oil prices, in particular, “difficult to move because they are established by global supply and demand,” according to Fisher. Oil companies are highly unlikely to want to vastly ramp up their production at reduced prices since it would significantly affect their profit margins.

Interestingly, the Biden administration was also moving in the direction of increased oil production. Record quantities of oil were extracted in 2023. And yet the Consumer Index for Household Energy climbed under Biden.

So, in theory, extracting more fossil fuels domestically should lower prices, but there’s no guarantee that it will. Sanjay Patnaik, director of the Center on Regulation and Markets and a senior fellow in economic studies at the Brookings Institution, told Fact Check that oil and gas prices are “largely out of the hands of the presidency” because they are part of a “very complex economic picture.”

The Immigration Question

Now, let’s turn to immigration. Much has already been said about the potentially inflationary impact of the drastic measure of deportation on farming and the cost of food in the U.S. So, instead, let’s consider the potential impact on the housing sector. 

The argument for mass deportations mainly rests on the idea that freeing up millions of housing units would reduce current pressures on the housing market and make housing more available and affordable. The reality is, once again, more complex than the proposed zero-sum game. 

Objections to the proposed plans have already been raised by members of the construction industry. Jim Tobin, CEO of the National Association of Home Builders, told Investopedia in October that while it is true that the industry needs to increase its “supply of American-born workers,” the current reality is that “the demand in our industry is so high that we rely to a large extent on immigrant labor. Anytime you’re talking about mass deportations, you risk disrupting the labor force in our industry.”

Census data by the National Association of Home Builders shows that, as of 2022, about a third of all construction workers were foreign-born. In some parts of the country, notably in Texas, the share is closer to 40%. Losing that labor force would eventually drive up housing prices because of increased labor costs.

For fairness’ sake, it’s worth noting that immigration overall drives up the cost of housing. According to a 2017 study, a 1% increase in population in an area drives up rents and housing prices by 0.8%. So immigration is a factor in housing costs, but it is important to put it in perspective. Home prices have gone up 50% since the start of the pandemic; rents went up by 30%. 

As Chloe East, an associate professor of economics at the University of Colorado Denver, told NPR, “While undocumented immigrants may play a small role in increasing housing prices in some areas, the majority of the reason that we’re seeing increases in housing prices is other factors separate from undocumented immigration.” 

The main reason identified by the economists is the chronic underbuilding of new homes, which has been an issue since at least 2008. Mass deportations, by the way, were undertaken both by the Bush administration, which deported 10 million undocumented migrants and by the Obama administration, which deported 5 million. Neither event correlated with any significant improvement in housing affordability. They did result in construction labor shortages

As for the question of sheer availability: Won’t deporting a lot of people simply free up housing that’s already there? The truth is that undocumented migrants rarely live in the type of housing preferred by legal U.S. residents: they typically can’t afford it. Sharing smaller rented apartments is common, especially in communities where people work in construction. Ligia Guallpa, executive director of the Workers Justice Project, told Yahoo! Finance that “very often, where workers build are not places where they can afford to live.”  

What About All Those Building Restrictions?

Since we’re on the subject of housing, Trump may be on to something with his proposals to cut some of the regulatory red tape that currently hampers new construction and increases building costs. Regulatory costs add over $90,000 to the cost of building a new home, as of 2021 figures. Cutting at least some of that could deliver tangible benefits for both construction firms and homebuyers. 

As Ralph McLaughlin, senior economist at Realtor.com, told Investopedia, “There is pretty strong consensus among housing economists that the primary structural problem in the U.S. housing market stems from a very long period of underbuilding homes in this country due to unnecessarily strict land use regulations.” 

So, Trump’s idea about repurposing federal land for new construction? If it works out, this might actually be the policy that has a tangible positive outcome for the housing market. 

Final Thoughts

Without a doubt, Trump’s second term as president will bring about a lot of economic change. How drastic it will be won’t be apparent on day one but rather unfold over months and years.

The key question going forward is what the Federal Reserve does in response to rising inflation numbers and the possible fallout from new economic policies. Will we see mortgage rates higher for longer? It’s far too early to know.

Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


Today, we’re talking about the easiest way to find profitable rental properties in 2024 (and 2025!). It’s not through cold calling homeowners, sending mailers, networking with wholesalers, or doing any other “off-market” strategy. It’s so easy that even real estate investing beginners will have no trouble finding deals. What are we talking about? On-market, MLS (multiple listing service) properties for sale.

You might think, “But everything on the market is overpriced; there are NO good deals left!” That’s where you’re wrong, and today’s guest proves it. Dan Nelson has been buying on-market investment properties for two decades now, and he’s built an entire portfolio doing so (even in recent years). Dan knows there’s a time and place for off-market deals, but he has found so many hidden opportunities on the market that he keeps returning to buy.

During this episode, Dan shows YOU precisely what to look for when browsing listing websites for rental properties or potential house flips. He shares the hidden opportunities most investors miss and why you should NOT be focused on properties that make money from day one. Instead, he walks through his simple strategy to create serious cash flow only a couple of years after purchasing properties most investors overlook.

Dave:
You don’t need to send mail, you don’t need to knock on doors. You don’t even need to work with wholesalers. There are great deals sitting on the MLS right now, just waiting for you to come by ’em. Hey everyone, it’s Dave. And recently I realized that we talk a lot about off-market deals on this show, but personally, I actually rarely buy off-market deals, and unless you’re a full-time professional investor, you probably don’t either. So today we’re talking about how the MLS has actually become a sort of underrated tool for real estate investors and we’ll also talk about some of the trade-offs with off-market deals and some potential dangers that you should think about and try to avoid if you’re going to go for off-market deals. So joining me for this conversation is Dan Nelson. He’s an agent and an investor in Chicago who helps clients from BiggerPockets and elsewhere find great deals on the market every single day. So let’s jump right into our conversation with Dan. Dan, welcome to the BiggerPockets podcast. Thanks for being here.

Dan:
Hey, thank you. Appreciate it.

Dave:
Let’s jump right in. Tell us a little bit about yourself and your career in real estate.

Dan:
Yeah, so my wife quit a job once came home and I said, what are you going to do? We just bought a house. It was,

Dave:
Did you know she was going to quit the job?

Dan:
No, she just walked away
And I said, what are you going to do? And she said, I think I’m going to start flipping properties. And she started on the house we were working on and I went very reluctantly, started my real estate career. She’s been very successful at that. She’s been doing it for 20 years now. Along the line, I said, it probably makes sense to buy multi-unit properties honestly for the insurance of it. What if one of these goes bad? Then we have this to kind of, and so that’s how I got into buying rental properties and I was working with the real estate agent was really great. And then eventually my wife, I’m an insane workaholic, wanted me to quit and I came home and I’ve been doing this since then.

Dave:
What were you doing before you got into real estate?

Dan:
I was in learning and development, so very early building, sort of those training things that you do online. Then I worked for a textbook company as they moved into digital and then I actually got a job training real estate agents and that’s when I would come home and tell the stories. I said, you’ve got to do this.

Dave:
Oh, nice. Well, we are here to talk about deal finding and specifically about finding deals on market versus off market. Can you just tell me a little bit about your history of acquiring real estate and how you’ve typically found properties?

Dan:
Yeah, so it’s funny to me how much people talk about off-market deals because we started, we didn’t know anything about off-market when we started. I mean, right when we began, I started listening to BiggerPockets and all that when it started up and got into that, and that was the first time I heard about it.

Dave:
What year was that?

Dan:
It was 2004 I think.

Dave:
Okay. Oh wow, you were way back then. That’s

Dan:
Awesome. Yeah, so we were buying things on the market and that’s what we did. And over time I built relationships with wholesalers and other people and I source some off market deals as well, mostly for my clients than myself, but for ourself, most of our properties we bought are on the market and my fellow real estate agents that do investing, that’s crazy. But I think that there’s a lot of advantages to buying on market properties. So even though I have access to off market, I tend to still buy most of ’em on the market.

Dave:
So just for everyone listening, if you’re not familiar with the terminology here of on market versus off market, on market means that the seller has put their property on the MLS, the multiple listing service, which is basically, if you’ve never done this before, it’s the properties that you typically see on Zillow or Redfin or realtor.com. These are things that every agent that subscribes to that MLS gets access to off market deals describes a whole different category of property where the investor or someone who works with the investor like a wholesaler or even an agent sometimes develops relationships with a would-be seller before they put their property on the market. And there’s all sorts of advantages to this, which we will dig into in the course of this episode, but just wanted to make that clear. So tell me a little bit, Dan, why do you primarily look at on market deals when the common dialogue these days is that off market is the only way to find deals?

Dan:
Generally off market properties come with a problem. Now this isn’t true of every single one. They come with a problem and it’s a problem that no one’s going to pay you for. So let’s say one of the most recent ones I looked at, there was a crack foundation, which was of course hidden by furniture and rugs and all that kind of stuff, but I found the crack in the foundation, which wasn’t like something to be sealed. It was you’re going to have to repo the foundation. So if you repo the foundation on the house, you can’t advertise when you flip it a brand new foundation that doesn’t make anyone feel better,

Dave:
Right?

Dan:
So you just took on a price to do something that isn’t going to add any value to a property. If you buy something on the market, you could still have a crack foundation, you still could have it, but you’re not going to buy that property, you’re going to buy something else. The more likely scenario, if it’s on the market, they’re going to have taken care of a lot of the things that you have to do and the things that are wrong with it, you’re probably going to be easier to find and easier to identify. So as long as the RV there, and so I’ll say arv, which is after repair value, basically after you do the work on the property, as long as you can see what you could sell it for, it really doesn’t matter where you buy it. So I would not dissuade someone from buying off market properties, I would just say they generally have a problem and that’s why they’re off market.

Dave:
That’s a great way to put it because why would, there’s no other reason why someone would choose to sell off market to an investor rather than put it on the open market where you’re likely, especially in this type of investing climate, to get more people bidding on your property and you at least have more potential buyers with which you can negotiate. And to be clear with Dan, I agree with you Dan. I think that foundation, structural problems, inherent problems with the property are a common one. You also have people who want really specific situations like they want long rent backs or the seller has some particular stipulations that aren’t going to be popular on the MLS. So there’s usually some sort of hurdle to get around if you’re doing an off market deal. But I agree, there’s no reason to say that you shouldn’t do off market deals. I will have to admit I’ve only done one in my entire career. But the point of why I wanted to bring you on is because a lot of real estate educators right now are saying and teaching that you have to do off market. So I’d love to just hear about some of the types of deals that you see in Chicago that are on market. Are these all flips? Are they heavy rehab? Are any of them stabilized?

Dan:
Yeah, and I think that’s essentially, when I think about off-market properties, I think of it as it’s a higher skillset to buy ’em. And so the message that that’s what you should find, I think it’s important to realize that it’s a higher skillset across all of that, and we can go into more detail if you want on that later. But essentially I’ll see a property, I gave you one example, but it’s not an uncommon one that I can find between 200 and 400,000. There’s pretty much every price point in my market, but we all get lured into the lowest price is the best property,
But you have to make sure that the place that you’re putting it on the market, there’s actually a market for you to put money into it. So that matters a lot. So in the areas where you can get the cheapest properties, you have very little opportunity to make a mistake. If you make a mistake, you’re going to lose money because the margins are so tight and if you move up a little bit in price, then you can get something where there’s a lot more room to make money and there’s a lot more leverage. If you don’t hit all your numbers perfectly, you still will be. Okay. So an example would be recently I helped somebody buy a property in Evanston, Illinois, which is where I currently live, and it was on the market. A lot of people passed up on it because it’s a weird property, it has a weird kitchen and a weird layout, but the layout was relatively easy to fix. You just had to open it up and it would look like a typical property in the neighborhood. So they’re going to actually add another floor to the property, basically build up on that, and we’re going to sell it for 600,000.
And I think the market between 600 and 700, where they are is really good. So they want 700,000. I tell them, shoot for 600,000 and then if we can get there, we can get there, but if they can make money at 600,000, they’re going to do great. And that’s an example, but that’s a common example.

Dave:
Alright, time for a break, but we’ll be back soon with more of this week’s deep dish. We’re back with investor and agent Dan Nelson. Okay, so that’s for a property that you’re doing value add on. Are there any properties, at least in your market in Chicago where you can buy something that at least breaks even in terms of cashflow on the market and is stabilized, is renter ready?

Dan:
So in general, anyone that’s selling a rental property pretty much across the board, unless it’s a flip, the rent is going to be way below market value, not near market value, way below market value. So when you buy it, you’re not going to cash flow, but yeah, once you turn over those tenants and bring it up to market, there are lots of opportunities in Chicago.

Dave:
Can you explain why you say that? Why does everyone selling a rental property have their rents under market value?

Dan:
There’s two reasons. Number one, why are they selling it, right? So they’re selling it probably for one of three reasons. One, a family owned it for a long time and they passed it to their kids and they have no interest in being landlords, so they’re selling it. So

Dave:
That’s like the accidental landlord thing.

Dan:
Yes, you got it. That’s a perfect phrase and that’s a big part of the people that are selling it. And then the other one is the person that owned it that’s selling it, they bought it in 1987. They’ve been cash flowing since 1990. So the fact that rents are below market, they don’t care because they’re living in Miami and all they want to do is have tenants that will never ever call them and they know they rents are so low, so they’ll never ever call no matter what, they’ll fix everything in the apartment itself. So they don’t care. Honestly, they’ve been out of the market so long, they have no idea how much the market has changed.

Dave:
Yeah, I’ve met a lot of these landlords, people who I’ve actually lived with landlords like this to my benefit where they don’t know how much they should be charging and you get away with a

Dan:
Steal. Yeah, I’ll give you an example. I own a four unit property and in that property I know the owner on both sides of me and I told him how much we’re getting for rent, how much I’m getting for rent, and they’re getting two fifths of what I’m getting. What? Okay, not even half what I’m getting. Yeah, no. And they said that’s impossible. They said, that’s impossible. You can’t get that much rent. I said, no, I am getting it and I can show you how other people are getting that too. They won’t even listen to me. They think I’m just lying

Dave:
And are you pushing rents really high or is this normal market value?

Dan:
No, I mean try to be basically, I certainly want to be at market value. I don’t want to be the top of the market value. I don’t want to be below market value, but they own their properties outright, so they’re like, Hey, I’m cashflowing a hundred percent of my money. I don’t believe you can get that much more. Even though I’ve told them, even though I’ve showed ’em, even showed them an ad, look, here’s my ad. She goes, oh yeah, I’m sure you advertised it but you didn’t get it. So I don’t know what to tell them.

Dave:
Okay, so the first one was accidental landlords. The second one, these people who have been in the property for so long, they’ve just lost track of what market rent should be and what’s the third one?

Dan:
The third one is somebody that is a recent landlord and they bought the property where the rents weren’t at market value and then they didn’t raise the rents and they’re like, oh my God, being a landlord doesn’t make any sense. It doesn’t make any money at all. So they put it back on the market with the same tenants that they inherited.

Dave:
I mean maybe this is just me because I look at market data all the time, but that is so surprising to me that people wouldn’t try and charge what is a fair market value for their rents. Do you think people just they don’t know or they’re too nervous to raise rent?

Dan:
It’s the second thing. They probably never should have been landlords or they should have just said, I understand the value of owning a property. It’s not all it’s cashflow as you know, and you talk about a lot, of course it’s not all cashflow. That’s only one of the things and they should say, I’m not worried about cashflow. Get a property manager and then direct them to do what they don’t feel comfortable doing. But people get thrown off the fact that they have to get a property manager and how much money they’re going to lose that way. And also they don’t want to actually manage the property. They thought it would be easier than it was.

Dave:
Yeah, I totally buy this. I buy small multi-families in the Midwest, and I see this a lot where the property is for sale, and I think the thing that makes it hard is that the rents are, let’s say they’re $2,000 a month and then the pricing of the property is based on what rent should be. Then the job of the investor then becomes buying that property knowing that your business plan has to entail getting those rents up and as the investor, you sort of have to eat those whatever six to 12 months that it might take to have the tenants turn over or raise the rents appropriately, hopefully at a reasonable way working with existing tenants. And I’ve done that, but I am curious, do you think that’s the move, right? Do you buy it at the full market price or what they’re asking for and then just take on that sort of risk and responsibility yourself as the investor?

Dan:
So the answer is if you think of multi-unit purchasing as a short-term process, then you should be worried about doing the things that you said. But if you think about it as 5, 10, 20 years, what do you care about? Year one, you’re basically outsmarting the owner. That’s how you have to think about it. This owner doesn’t know what they have. I’m going to dig for this piece of gold, I’m going to clean it off and then it’s going to be a valuable asset. But of course we’ll try to negotiate the price down and it has to make sense to the buyer. But essentially that’s it. Anytime people talk about value add property, there’s lots of things you can do to the property to raise rent as well that he never did. So there’s opportunity to get exactly as it is and just clean it up a little bit and there’s opportunity to add a lot to it and get a lot more rent.

Dave:
I will tell you my opinion about this after, but I want to ask you first, when you have a client who’s an investor come to you and say you’re looking at one of these properties where it’s under market rent and the price is assuming that you’re going to get rent up, would you advise people to buy it if it’s not cash flowing on day one?

Dan:
I bought very few properties that were cash flowing on day one.

Dave:
Really? Okay.

Dan:
Almost none because I’m buying and appreciating areas, so I’m more interested in the other three things that are involved with it. I know the rent’s going to be up. I’ve already done my numbers, I’ve seen what’s there. So the four unit property I told you about, it was cash flowing at $50 a month when I bought it. Obviously that was not my goal and now it makes $24,000 a year. So the goal is to find sort of the secrets that are out there. That’s how I see it. It’s like don’t worry about year one plan, year two and year three by year three, you’re going to be cash flowing if you buy the right property. That doesn’t mean you’re going to lose money for the first two years, but it does mean you might be under a little bit the first year for sure.

Dave:
Okay. You sort of beat me to my follow-up question, but I want to expand on it. I was going to ask you what is your timeframe for breakeven? How long, just generally speaking, I’m sure it’s different for every deal, but how long are you willing to cover float a property while you stabilize it?

Dan:
So I am going to tell you basically there’s three types of properties. There’s one that cash flows from day one. It’s never going to appreciate in an area that’s not great. I mean when I say not great, I mean an area that is not appreciating and that’s part of the reason that you can get it for such a good deal. So rents, you’ll be cash flowing day one, you can buy a property that’s cash flowing a little bit and could cashflow a lot more if you made some changes and brought it up to rent. That’s what most people are looking for and also be an appreciating area. So that one, that’s what most people are looking for is going to be cashflowing probably mid year two, but certainly by year three. It all depends on the choices that they make. And then the third one that most people ignore and most people aren’t interested and most people on the forms would tell you not to buy is a property that’s not cash flowing at all. It’s not even close, but it’s an appreciation place. So if you bought all three of those properties in the same year, that first one would be cash flowing all along. It’s always cash flowing, but the cash flow won’t increase very much. The second one by year three, you’re going to be cash flowing by year 10, it’s going to really be cash flowing a lot. That first one will be similar to where it was when you first bought. It’ll be up a little bit, but similar,
But if you bought that other one that’s not cash flowing from day one in 10 years, it’ll be beating all of them on cashflow. So it all depends on your strategy. Most people are looking for that sort of middle property.

Dave:
Well, yeah, I was going to ask why would it take two or three years? Because I’ll just tell you my general strategy is I’ll float it for a year because my opinion is I’ll eat some cash for a year waiting for tenants to turn over. I’ve been doing this thing where I wait for the tenants to leave, I renovate it, that pushes up values, and then I’m able to do that all within a year. Why wait longer than that? Why do two or three years?

Dan:
So everything in that middle group can be a year. It definitely can be a year. So why would it take more than that to cashflow? Because you decided to add a bathroom in every unit and you decided to put washer and dryer inside the unit and you decided to take out the boiler and put in furnaces in each unit you decided to do all that work. So you’re going to take on a lot of cost upfront. That’s going to take you a while to cashflow. But if you’re like, no, I’m not going to do any of that. Maybe I’m going to spend $5,000 in each unit patching and painting and cleaning some things up and that’s it, then yeah, in the second year you should be cashflow for sure.

Dave:
Does this strategy of buying on market deals, do you think it works for beginner investors more than experienced investors? Or what type of investor should pursue this type of strategy?

Dan:
Well, I’m going to say anyone should if the deal makes sense. But for a beginner, when I started, I was listening to podcasts and I would hear people talk about buying off market properties like, Hey, yeah, that’s what I’m going to do, and I would get on a strategy one month, then I’d get another strategy the second month, then I’d get another strategy in three months. So many things that work right or that can work. And I wouldn’t tell anyone that the way that I’ve done it or the way that I help clients do it is the only way that you can do it. But it is certainly the easiest way
And it is what I ended up doing if I was starting out, this is how I would start. If you’re an experienced person, the thing about experience is you’re going to build your network. People hope to build their network from the beginning, then they’re going to be able to get everything off market. But just imagine I had the perfect off-market deal and you’ve never bought a property before and I don’t know how courageous you are not. And you say, yeah, I’d love a great off-market deal. What’s the likelihood you’re going to get that from somebody and it’s your first time versus somebody that’s bought two three properties for and I know they’re going to close if I make someone available and they don’t buy it, the person I worked with is never going to trust me again. So it’s really hard to get the best deal when you start the best thing just to start.

Dave:
Yeah, I really want to echo that because I don’t want to bash off market deals. I have looked at several recently. I’ve only pulled the trigger on one. It was actually a lot earlier in my career. But I think the key to these types of deals is you have to be flexible when you do the off market deals because usually at least the few I’ve looked at in the last couple of weeks, it’s my agent being like, I just found out about this pocket listing. They’re going to list it in three days. Do you want it? So you have to be able to either pull the trigger really quickly, have a bank lined up, be able to buy cash, be good at deal analysis, and know the market cold so that you can make a decision really quickly. Those things work for me because I’ve been doing this for 15 years. It doesn’t always work for new investors. That’s a high pressure situation that is not always necessary to force yourself into that sort of rapid decision making for these sort of off market deals. They all sound great, but just like everything in real estate, there are trade-offs and those trade-offs are usually speed and convenience for the seller, not for the buyer. And so the buyer is going to be giving something up for finding a deal that’s off market.

Dan:
Yeah, I totally agree. One of the best deals I’ve gotten in the last two years, someone reached out to me from BiggerPockets and none of my regular buyers were looking at that moment and I had talked to him and totally he was totally ready. And then I showed it to him and then he got really cold feet and I was like, oh my God, because I’ve convinced this guy that I had a buyer and he was getting so furious with me and he’s someone I depend on to source deals for. Fortunately, the guy did end up closing, but it was such a difficult time because I don’t want to pressure someone into buying it, but if you introduce ’em to something, if it makes sense, they have to pull the trigger. That’s ultimately it.

Dave:
Yeah, absolutely. I think this is one of the reasons why I typically recommend to people, whether you’re trying to figure out how to find your own deal in the market you live in or if you’re considering which market to invest in. I more increasingly in the last few years believe that the availability of on-market deals is a crucial factor in picking a market. And this is not for everyone. If you’re an experienced investor, if you’re flipping houses, if you want to work with wholesalers, ignore what I’m about to say. But if you are new to investing and you work full-time like I do, and the majority of the people who listen to this podcast do think about this a little bit because again, there’s nothing wrong with off market deals, but it takes a lot of effort. It’s a little bit more advanced for me, especially as an out of state investor now, it’s just what I primarily do.
I just want to be able to find deals on market that is so valuable to me that I’m willing to give up a point or two in cash on cash return because I know that there’s going to be more deals available to me. I’m going to be able to have a little bit more time. You often have more options that you can consider through. There’s better comps for on market deals. So there’s all these advantages that I think often get overlooked when people just look at like, Hey, I can buy an off market deal for 10 grand less than I can buy this one on market deal. You sort of have to look at it a little bit more holistically.

Dan:
Yeah, I totally agree. I mean, to me it’s equivalent to you saying, I buy all my groceries at the supermarket, and then you have someone that says, I grow my own food. It would be cheaper. It’s not easier though. It’s much more difficult and it takes a lot more a higher skillset. I think it’s great if somebody says, I want to be a wholesaler. I want to find my own off-market deals. It is essentially a full-time job in your part-time, telemarketer part-time negotiator. For most people, that’s not a job that people would sign up for. Even what I do is all day long I’m dealing with conflict and negotiating and something I’m extremely comfortable with. So if you feel like, oh, those are my two favorite things, then this is probably the right path for you. If you’re thinking, oh, I don’t love to make phone calls where I’m having to be in really tense conversations every day off market might not be what you want to do.

Dave:
Yeah, well it’s so true because off market deal finding is a very different skillset than being able to analyze and operate rental properties. It’s just like you said, it’s marketing versus operations or versus analysis. And honestly, I would hate doing it. You have a very calm demeanor, Dan. I bet you’re very good at this, but I don’t know, it would stress me out way too much to do that type of thing. We got to take a break for some ads and then we’ll be back for more of my conversation with Dan about the value of making on market deals. Thanks for sticking with us. Here’s more of my conversation with Dan Nelson. So Dan, tell me a little bit about if people are into this idea, maybe they’re curious if their market offers these kinds of on market deals, what should people be looking for if you’re just, let’s assume they’re working with an agent or they’re just perusing zillow realtor.com, what should they be looking for?

Dan:
Yeah, I mean, I’m glad you brought up those apps too, because 20 years ago it was much easier to find and source off market deals because you really had no idea what your property’s worth and Zillow and those other apps aren’t a hundred percent, they can be off as much as 20%. I’ll give you an idea. So people say, where do you get most off market deals? It’s people I know, so my next door neighbor is going to sell her house. It’s not in great shape. And I said, what are you hoping to get for it? And she told me $200,000 more than what I could sell it if I sold it on the market and I’m trying to buy it from her.

Dave:
Where did she come up with that number? Was it just a estimate kind of thing?

Dan:
Z told her that’s what it was worth? Yeah,

Dave:
And they get anchored to that number. They see it and they’re like, that’s it. If they consider it in their bank account without thinking twice.

Dan:
So because of that, it’s really hard. So usually if you get an off market, there’s usually a reason soft market as we talked about. So wherever you’re looking, essentially do your math. Obviously BiggerPockets has a rental calculator that you can look at, but ultimately realize that you’re going to get probably if it’s spent on the market for more than two weeks, some money off of it, whether that’s 3% or 5%, some will be more, but essentially that. And then there are tools out there that you can use rental comps for, but most people when they do this, they look at the average rent or worse, the median rent. If that’s what you’re hoping to do, it’s going to be really challenging for you. You can’t get average or median rent in 2024 because it’s pulled down by all these people that own their property outright or got a 3% mortgage on it, and they don’t care that they’re not at market value. So on one street in Chicago, I told you about my street, you might see a two bedroom, one bath go for $1,100 all the way up to $2,500 a

Dave:
Month. That’s great.

Dan:
The same one in some cases you have to make a few upgrades to it to get it up there, but if you’re hoping to charge $1,100 or get the middle of that price, so we’ll say that’s $1,600. If you’re willing to do that, it’s probably not going to cashflow. So you got to look at the top third and say, that’s what I’m looking for, not the highest price that’s out there, but certainly the top third because that’s the 2024 rental price. Otherwise it’s just not going to make any sense.

Dave:
Yeah, that’s such a good point. I think this happens a lot, especially on BiggerPockets. We offer tools that help you estimate rent. I help design this tool, and we specifically show the distribution of rents. If you’re not familiar with what that means, it basically shows what percentage of properties are. If the median rent is 1500 bucks, what’s the high end there? Is it 1800? Is it 2,500? And same thing on the low end. And I think it’s super important not just to consider what Dan was saying is like, is the median actually representative of market rent? But also where does your property fall within that range? Because a lot of times what I’m buying is maybe it is around median when you buy it,
But then once you do an upgrade to it, you need to be analyzing your deal at the 75th percentile. And I never recommend people go the hundredth percentile. You don’t want to be counting on getting the best possible rent in your entire market, but if you have one of the nicer products in the area, you should count on that and you should have trust that you’re able to do that. So I think that’s a great way of looking at it. And I’m partially to blame for this. I put out a lot of content talking about the rent to price ratio in a city, and what we do for that is we use the median rent and the median price. Like Dan said, that’s not what you should be looking for. You shouldn’t be looking for a median rent place. You should be looking for a place where there’s some efficiency between the rent that you can get and the price that you can get as well.

Dan:
Yeah, I mean, I use that tool every time I use it because so many of my clients are from BiggerPockets.

Dave:
I love hearing that, by the way.

Dan:
Yeah, no, it’s great. It’s phenomenal. I started off using BiggerPockets as an investor and to be on the other side that most of my clients come from BiggerPockets. It’s just been amazing. But I show them that and I show them, see all these other numbers. Here’s the number of the BiggerPockets is saying you should get. And I literally say, that’s the sucker rent. If you’re charging that rent, don’t buy a property because it’s not going to work. It’s great that there are lower rents out there and there should be that opportunities out there. But I just go back to the same thing. If you’re in 2024, you got to charge 2024 rents. You can’t charge rents that somebody was charging even in 2014. It just won’t work.

Dave:
Do you target properties that have a little room for upgrade? Are these B class properties or where do you think the sweet spot is for on market deals?

Dan:
So yeah, I mean, I would say low bs. I mentioned before a second bathroom. Most of the rental properties in Chicago are pretty big because the city was built by people that rented. And so there’s so many rental properties in a lot of ’em are really large, but back when they were built, people didn’t take showers every day. So having one bathroom for your whole family was, it’s so funny to think about that. Yeah, that’s true. It wasn’t a big deal. Maybe they took a bath a week. So the idea of having a second bathroom is just seems crazy back then. But now most people want a second bathroom and it’s relatively easy to add a second bathroom and then you do that and that is the biggest impact you’re going to have on increasing rent. So yeah, I look for those kind of properties and other ones that need some work. A lot of people want something that’s a little bit closer to ready to go. So it depends on the person. I don’t want to do anything or I don’t mind spending just a few thousand dollars painting or something like that. So it depends on the buyer.

Dave:
Dan, this has been super helpful. I’m just curious if you have any thoughts on the flip side of this conversation. Where when do you think is the right time for an investor to look off market?

Dan:
So when does it make sense? It makes sense once you’ve learned how to do it. To me, once you’ve learned how, when I say learned how to do it, learn how to be an owner and a property manager and work with tenants, and then you can start to say, Hey, this is what I want to do. And you can get a sense of what really would work for you. And then you can start to build up your network. Obviously there’s lots of tools and all that available, but you are competing against a bunch of people. But if you start to just kind of get to know the area, Hey, I like this area. I’m in this area. And just focus on that area, that’s what real estate agents do. We focus on a particular location and we just target that. But if you do that and people get to know you and you’re essentially the mayor of that area, that would be a great way to do it.

Dave:
Awesome. Well, great advice. Dan. Thank you so much for joining us today. Any last thoughts before we get out of here?

Dan:
I would just say that there are opportunities all over the place, and the hardest thing about buying your first property, it isn’t cash flowing, it isn’t anything else. It’s getting over your own fear. Totally. And I say that word, that’s it. Once you buy a property, you will see the world completely different. You can listen to all the podcasts, you can read all the books, but you’ll start learning once you buy a property and you’ll just see the world differently.

Dave:
Totally. Yeah. I forget who was saying this. This is not an original thought, but you hear on these podcasts, other real estate podcasts, the mental leap that it takes to go from zero to one is huge, but to go from one to two is not that big, two to three, it just gets smaller and smaller and easier and easier every time. And so if you can find something that you’re comfortable with to go from zero to one, you’re going to benefit from that. From years, you’re just going to learn that there are things to learn about this industry. It’s not that complicated. You can figure it out. Most people who are willing to put in the time can absolutely figure this out.

Dan:
Yeah, I mean, I would tell you that most of the people that bought the properties that you’re going to buy ’em from, they got into real estate investing. They couldn’t do anything else. That’s how easy they consider

Dave:
It.

Dan:
You’ll be surprised how many people, and that’s one of the reasons rents are so far below market, is because they just don’t know what they’re doing, but they found a way to get in, and it’s easy enough to do that. If you just get over your fear, you’ll find out that there’s lots of opportunity.

Dave:
Awesome. Well, thanks so much, Dan. We really appreciate being here.

Dan:
Thanks, Dave,

Dave:
And thank you all so much for listening. We hope you enjoyed this episode. If you did, make sure to share it with a friend who’s been saying that you can’t find on market deals. Send them this episode and hopefully they’ll learn something and maybe find an on market deal for themselves. Thanks again for listening. We’ll see you next time.

 

 

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected].

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


Can you still make huge profits from real estate in today’s market? While high interest rates and inflated home prices can make it difficult to find a cash-flowing rental property, there’s another strategy that delivers big returns—if you can stomach the extra risk: house flipping!

Welcome back to the Real Estate Rookie podcast! James Dainard is a master house flipper, co-host of the On the Market podcast, and, most recently, author of The House Flipping Framework. With over eighteen years of real estate investing experience and more than 3,500 projects under his belt, James knows more than a thing or two about this lucrative investing strategy. Today, he joins the show to share a few tips from his new book—like how to find the right deal, choose high-quality contractors, and keep your project on budget!

Whether you’re new to flipping houses or you need help with home renovations, this episode is loaded with advice to help you start and stand out. You’ll learn everything from choosing a market and analyzing distressed properties to building your team, estimating rehab costs, and more!

Ashley:
Real estate investors often eventually find their niche, whether it’s buy and hold, short-term rentals burrs. But today we are joined by an expert in flipping to talk through what to expect for flips in 2025. High interest rates aren’t going anywhere anytime soon, so how do you need to adjust your flipping strategy to still be successful in today’s market? We’re going to get into everything from how to analyze a flip through low cost renovation tips. So welcome back to the Real Estate Rookie podcast. I’m Ashley Kehr and I’m joined with my co-host, Tony J Robinson.

Tony:
And this is the podcast to help you kickstart your real estate investing journey. And we are so excited as always to have none other than James Dainard on the podcast once again. And if you dunno, James, he’s not only an expert in the world of flipping, but he’s also one of the hosts of our sister podcast on the market, and he’s also the author of the newest BiggerPockets book, the Flipping Framework. So Jimmy, welcome to the show, brother.

James:
You know what I got to say? I never thought Annie would ever call me an author,

Tony:
But here we are.

James:
But here we are. The world is changing. I’m happy to be on with you guys. You guys are some of my favorite people to chop it up with.

Ashley:
Well, James, we’re here to talk about your new book, the Flipping Framework, but to kind of start it off, let’s give some value add right away. What is something that makes a flipper stand out, something that gives you that edge, that gives you those successful flips?

James:
I think that’s a great question because the biggest line real estate is the money’s made on the buy because it really depends on how you can execute the plan. So the difference between, I think a very seasoned flipper, they can execute and are very active, isn’t about the deal flow, it’s not the money, it’s the resources they have. They give them the capability to be able to execute the plan. And so I think for any flipper out there that is growing their business or they want to establish the best, you have to have the core components and that’s the people to operate the plan and your vision. So you can control the cost because a lot of times if flipping isn’t about the buy you get, it’s about how you invent the return by putting the right plan on the deal. And so the flipper with the most resources, contractors, vendors, those are the ones that have the best businesses.

Tony:
Let me ask one follow-up question to that, James, you talk about business plans a lot or the plan for the flip itself and how does a rookie come up with what the actual best plan is for a specific property? Because I think we can all maybe identify, hey, this is a really cheap price in comparison to other properties in that market, but how do we actually put together the right plan for the property,

James:
How you put together the right plan, how we can do it. We’re very, very active in the Pacific Northwest where flip or we’re involved in a couple hundred flips a year. And the reason we can do this is because we have the right team around us. And so to come up with the right plan, you need the right team around you and the right team. Your first person is going to be your real estate broker because that broker needs to A, be able to help you identify opportunities, but also to give you what is highest and best use for the property. And so when you want to come up with this plan, how do you make money on this? How do you create equity? It’s about taking data, going through it, and that data’s recent comparables because every house is going to have three sets of comps.
If I’m looking at a house that’s a three bed, one bath house that’s on a thousand square foot footprint and I’m looking at comps, there could be one that it’s a very cosmetic update pricing, which is maybe they have new flooring, new cabinets, new trim, spruced up back to market, a little bit more affordable. Then there’s going to be the secondary plan, which is, well, maybe they take that cosmetic and they take it to a higher level and they start updating roofs, windows, updating all the fixtures to a higher level to where they’re putting in nicer cabinets, nicer appliances, then go for a higher price. Then there is selling it for the most typically, which is where you’re going to add amenities, which could be adding a bathroom. If I’m taking a three bed, one bath house and I turn it into a three bed, two bath with a primary, that can substantially increase the value.
But all three of those cost three different types of renovation budgets. And as flippers, what we’re trying to do is find out what is highest and best use and highest and best use is creating the most profit, not selling it for the most. And so what we do is we always pull three sets of comps for each property. What’s the least amount of work we can do to create a margin? What’s the middle ground? How can we make it really nice without moving walls and changing and adding spaces? And the third is always how do we create the most amount of value, which is going to be adding bedrooms, bathrooms, maybe finishing square footage, but then after you find those three data points, you then have to map the budget. So we find three different sets of comps. We run three different budgets for what we’re trying to accomplish there, and then it goes into our performa to tell us what is the highest profit and the performa going to calculate what our purchase price is, what all our takedown financing is for the hard money.
Because many times we’re taking these properties down with cash or hard money is expensive, we calculate those costs. The costs are anywhere between 10% interest to 12% interest and one to two points. And then we subtract the selling costs, the rehab cost, and it kicks out the net profit and whatever is the highest annualized return, the highest profit that we can make over a 12 month period, that’s the plan that we go with. And so it really comes down to having that broker that can help pull those comps, explain to you what needs to be done to get to that value, and then having a good construction team so you can run the budgets for each one of those plans and then you can make the right decision.

Tony:
You said something that I just want to highlight for our Ricky audience because I don’t think a lot of people approach flips in this way, but you said we look at the profit, but then we look at it as an annualized return. And I think when we look at traditional long-term rentals, short-term, medium term, whatever it may be, a lot of us look at that annual cash on cash return. But when we talk about flipping, most people just look at the pure number, how much cash am I getting back? So can you explain, James, why you look at not just the raw number of profit but that annualized return and how do you actually calculate that annualized return?

James:
Well, the reason I look at deals on an annual basis is because it tells me when to buy a deal and not depending on the duration. And so how you calculate an annualized return is let’s say I’m buying a property and I have to invest a hundred thousand dollars into this property for the purchase price, the rehab costs, the holding costs. Now if I can make, I try to make a 35% return every six months, so I’m always shooting for about a 60 to 70% annual return. And if I’m looking at this property that I have to invest a hundred grand into and I can make $35,000 in six months, that’s going to give me my 35% return on an annual basis, that would be a 70% return. And so the reason I look at everything annualized is because it tells me when to do a deal and not to do a deal because clarity is so important for us as investors, what do we want to buy and does it really make sense for our goals that we’re trying to achieve?
Now with flipping, flipping is one of the best asset classes that you can grow, the most amount of profit, you can grow your cash the quickest, but it’s also the riskiest things can go wrong very quickly. And based on that and based on the risk in the market and the asset class, I always want to know what am I comfortable with? Because if I’m going to take on this much risk, I want to make sure that I’m getting a certain reward. I don’t ever look at net profit on a deal. I look at how much cash do I have to invest, how much am I going to make out and what does that look like on an annual basis? So if I know I want to make a 70% return on a 12 month basis, if I’m looking at a deal that’s going to take three months to do, it tells me when to buy a deal.
So if I can do a really quick deal and if I want to make a 70% annualized return, that is going to turn into I need to get a 25% return in 90 days. Now if the deal’s going to take me a year when I’m looking at the numbers and I’m looking at where do I need to buy this thing at, I want to make sure that I have a 70% cash on cash return because it’s a 12 month basis. So by putting my buy box and putting my expectations at an annualized basis, it tells me when to buy a deal and not to buy a deal based on how long I have to hold it for.

Ashley:
We have to take a quick break, but I wanted to let you know if you are learning a lot from James’s advice on this episode, you might want to check out his new book, the House Flipping Framework. James has flipped more than 3,500 homes and his book outlines the strategies he uses to maximize value in flips and make them a sustainable part of any real estate portfolio. So go check it out now at biggerpockets.com/house flipping. Okay, we’ll be back shortly.

Tony:
Alright, welcome back to the show where we are joined by James Nart.

Ashley:
As a rookie investor, how do you even come up with what is a good percentage? So you’re saying 70%, but if you’ve never invested in real estate or maybe this is going to be your first flip, how do you decide what is a good percentage? Does it depend on your market? Does it depend on your other investments? Kind of give us an idea of how can I decide as a new investor what my percentages that I should be reaching for?

James:
Yeah, and that is a great question. Some of that is your own personal choice because it does come down to risk. If I’m going to take on a property, and like I said, you can lose money very quickly on a flip, I mean I have cut checks for hundreds of thousands of dollars on a house just to get out of that house. And so it comes with that risk. And so if I’m going to take that risk on and based on where I want to be on my goals, I want to make a certain return. So if I’m not making more than 20% on my flip, I’d rather go into a less riskier asset class. I can do private money financing and make 12% and a couple points so I can make 14% of my money without having to do the work and having a lot less risk on the deal.
So for me, on a flip, I want to be at least double that because I’m taking on this risk and so I want to be at double, but then I need to find out, well, does that make me participate in our market? Because every market is different. Some are more competitive, some are less competitive, some markets are more affordable, some are really expensive. And based on pricing of homes and what your competitive nature is in your market, you have to make your adjustments. And so how you figure out that market and how you figure out those returns is the best thing you do is start going to meetups and talking to investors and finding out what they are usually making on their flips. Because if I ran into Tony at a meetup group and he’s like, I want to get into flipping, Hey, can you tell me how much money do you typically make on these things?
How much money do you have to have? I’m going to be able to explain that pretty well. Like, Hey, on my last deal I put on a hundred grand and I made 40. And if I hear that consistent tone, that tells me, okay, I got to be around a 40% return. Now another way to do it if you don’t go meet up with investors is you can track this with data fairly easily. There’s so many different websites out there that will help you track flippers to where I can, or even my title rep, I can actually call up my title rep and say, Hey, can you give me a list of all properties that were bought and sold within a 12 month period in the last 12 months that were bought by an LLC? And he can send me that list. I can then pull up that list on a tax record and go, okay, well this investor bought it for this.
I can then go through the photos usually before and after because a lot of times they’re on market and go, okay, well they did this scope of work, which I think is going to cost about this much, and this is what they sold it for. I then can put it in a performa and I can see what their return was. And if I do that on five to six deals as a sample size, it tells me what my average returns in the market are. And so the thing is as we’re getting started and we’re new investors, that sounds a lot more complicated than it really is. They’re like, wait, what do you do? You pull this list, you get the data. Again, having the right partner and broker on your team is so, so important. And so if you’re a new investor going out and finding that broker that works in that space, they will pull all that information for you.
Or if you contact a broker that is selling a lot of flips in your market, they’re going to know what their clients are buying and selling things for and typically what their renovation costs are, and they’re going to help you explain that to you. And because you’re seeing the volume with them, you know that they’re involved constantly. And so if you’re new, I think the best thing you can do to figure out your market returns, find a specialized broker, not your mom, not your dad, not your aunt, not your friend. Find the broker who’s selling the most amount of flips and the most amount of investment properties. Contact them and that’s who you want on your team.

Ashley:
And where else, James, can you go to find an investor friendly agent?

James:
Well, one of the best resources you can have is the BiggerPockets broker finder because these are brokers that want to work with investors. But the beautiful thing is you’re finding a targeted broker that’s looking to work with investors. Our business, Heaton data real estate, we are a brokerage that is only services for investors. If Ashley came to me and goes, Hey, I want you to find my dream home. Can you show me 20 homes and let’s go look at ’em? We’re actually, I don’t work with that kind of client. I give ’em to somebody else. We work with investors. And so if you find a broker like us, that’s where we can speak the same language and we’re going, Hey, this is what you need to do to transact because that broker also has an interest in you transacting so they can make a commission, but they also have an interest in you long term with investment broker. Because for me as a broker, my clients are clients of mine for 10, 12, 13 years because they’re consistent buyers as long as I take care of them. And so go on BiggerPockets, find the brokers in your area, they work with investors, and then start interviewing them. And if they can tell you what the return should be, a good person to engage with. If they don’t know, they might not know your market like they should.

Tony:
And for those of you looking for that BiggerPockets resource, head over to biggerpockets.com/agent. You can find a good investor-friendly agent in your market. Now, James Masterclass on kind of the return analysis on a potential flip, but what I want to talk about now is actually choosing the market. Now you’ve got a really unique dynamic because you are in one of the more expensive markets in the United States. So for rookies that are starting out, I guess, how do you actually go about choosing which market you want to start in? How do I pick the right market to become a first time flipper?

James:
That is a really great question, right? Because we’re always trying to figure out the expensive markets that it’s hard. They eat up a lot of capital. Many times they have a lot more restrictions like Seattle. It is not only that our deals are expensive, the permitting process is so brutal and it’s so complex, it just takes a long time. And so for a newer investor getting in those expensive metro markets, it is you definitely want to have the right team around you. Or if you are in that market and you want to participate but you don’t have the resources, I then would partner with an operator to where you can start learning that market and learning those processes. That’s one of the best things that you can do. Now if you want to research the market, I’m starting to look into outside markets of where to flip.
Now for me, I do it a little bit more passively flipping. I actually find more experienced operators and try to partner with them in the outside markets rather than chase the market because I always for flipping, it’s all about the resources, it’s all about the skillset. It’s all about the experience. Because the more houses you’ve done, the more experiences you’ve learned. The reason I think I’m a fairly good flipper is because I’ve lost a lot of money and I’ve made a lot of mistakes and we’ve 18 years under our belt. So we’ve made a lot of mistakes and we’ve learned a lot of lessons and we’ve been able to change. But if you want to get into a new market, the first thing you want to do is shop your budget. What cash are you working with? And if you have 50,000, okay, well we have 50,000, then we need to go to a more affordable market.
Maybe Ohio is a great one to be in for or homes that are selling for under 300,000. That is my first thing. I got to shop inside the budget. The next thing I want to do is go, okay, where is the growth? One thing that has been super impactful for us on our flipping in our investing is we have growth in Seattle, we have population growth, we have tech growth, we have job growth. And that’s what really makes a market more stable for flipping. Because even when we go through market cycles, if we have that consistent economy and that consistent growth, we have less ups and downs and we have more stability. And as a flipper, stability is our best friend. Actually, appreciation is our best friend, but stability is really what we want. We don’t want to have these influxes, we don’t want to be sitting on houses for a long time.
We don’t want the markets to go down. And so first thing I would do is shop for budget. What can I afford? The second thing I want to do is what are the markets that are emerging? So I want to look at where’s the population growth, where’s the job growth? Where’s the highest income growth? Because as people are transitioning in, they’re making more money. Guess what? They want to buy renovated houses, and as they relocate, they want the best product. And as flippers, we can deliver that best product. And so I would look at population growth, demographic growth, and then your budget from there, then finding the right team because I would rather flip in a market I liked less if I had the right team around me, then a market that I really loved and had a team that I didn’t really have because Flipping’s built on the operations and the discipline is not just the market.
And so as a new flipper, I would really reach out, find out what are those markets that have the best teams in there that can help facilitate you? And especially if you’re going to flip out of state, that’s a hard business. I’m a backyard flipper. I flip everything that I can put my hands on and if I can’t put my hands on it, I partner with an operator so they can. And so if you’re going to flip out of state, you have to have the right boots on the ground or you’re going to be flying across country every week just to check on your job site. And so research the markets you like, what you can shop and what team you can build around you.

Tony:
James, lemme ask some follow-up questions to that because I agree on the team is one of the most important things when you’re doing the rehab work. But let’s say that I took James and I dropped you in the middle of, I don’t know, Kansas City and say that you can’t partner with someone else. You have to go out there and build that team yourself. So I dropped you in Kansas City, you’ve got no connections there. How would you actually go about building that team? What steps would you take starting from ground zero?

James:
Well, I did just have to do this, so I just flipped the house in Newport Beach. We just listed most expensive flip we ever did.

Tony:
I saw that 9 million,

James:
9 million bucks that we just listed for

Tony:
James when I saw that. So beautiful but so scary. Kudos to you, man. Because when I saw that, I was like, man, you got to have some guts to do a flip of that size. That’s amazing.

James:
Yeah. Now I needed to sell, but we’re getting good feedback. I think we priced it well. Yeah, the bad thing, the good thing about more and more expensive markets, they give you a lot of profit, but the bad thing is your whole times are brutal, right? Even when you’re leveraging 50% of costs, you’re still paying a lot in interest every month.

Tony:
And you shared this before too, even just a small shift in the purchase price, right? Like a 5% shift on a $200,000 home, very different than a 5% shift on a 9 million home. And there’s a lot more risk at those bigger numbers as well.

James:
Yeah. Can you imagine if that house somehow came down 10%, that $900,000, that would not be good.
And that’s the risk that we take as flippers, right? The one thing I did learn, and I want to get back to answer, how did I start over? Is as flippers and investors, I have learned I never should stop buying because the market’s always going to go like this. And what happens is a lot of times as we go through different cycles, investors lock up when they’re losing money. And the thing I’ve learned is always buy more because if I’m losing money, I can buy my way out of that because typically that means the market’s going into correction, everybody locks up and the deals get a lot better. And it is that discipline of just staying in the game. And so for anybody listening, if you’re having a hard time flipping burr, short-term rentals, whatever it is, you have to keep moving forward because if you’re having issues, so is the rest of the nation.
And that means that you’re going to have better opportunities. And a good opportunity is always a good opportunity and it is important. That’s why you have to have those good teams around you. How do you get started? Because I can always buy because I have the people that can execute it. Now, when you’re starting over, it’s a hard thing because it took me a little while. Even in Newport, I had to build a new team for this, but the first steps that I’m doing when I get into a new market is I’m finding a title officer, which sounds weird.
If you find the right title officer, they can point you in so many directions very quickly to get you in touch with the right people. So I had my title officer introduce me to his counterpart down in SoCal. That title officer introduced me. I said, Hey, I need six brokers that work with developers and investors. I don’t want open house brokers, nothing against that, but that’s not what I’m looking for. I don’t want a retail broker. That’s not what I’m looking for. And so they put me in touch with six different brokers. Out of the six brokers, I really liked three of them. And out of those three, I ended up transacting with one of them. And because those were the people that could start finding me the opportunities and also pointing me into the right neighborhoods of where I wanted to start flipping in that same broker that he connected me with also guess what?
Had a general contractor and a builder he could refer me to, which then allowed me to start building the construction and learning about cost and construction. So before I even bought a house and just started talking about buying a house, he introduced me to a builder and then I got to go walk sites with him because I got to get to know the market a little bit. Like what do things cost? What do people putting in, what are those expectations? Because I have flipped a lot of homes up in Seattle, and I know it like the back of my hand, Newport’s a different beast. If I go into Ohio, that’s a different beast of what I need to do. And so that broker then introduced me to the construction partner. That partner allowed me to start learning cost, learning the process before I even wrote the offer.
Because when you get into a new market, you have to know there’s certain that can crush a deal on a flipper. And it’s not just your construction cost, it’s your whole cost. If you buy a property in the wrong location and you don’t know the permitting process and you close on it and it takes you nine months just to get a permit to get going, that can be detrimental to a deal. And so this allowed me to start walking job sites to understanding costs and understanding process. I found out what I should not buy, and it crossed off 50% of the houses right away. And so it gave me clarity on what I was looking for. Now as I started learning that, I also started reaching out and networking with builders all around town and flippers all around town, getting to know them, talking to them, talking about deal flow, how can I help them in their business?
It was funny. I was going out and talking to flips like, Hey, how can I help you like an intern? Because again, it was a new market and so I wanted to learn. So I’m walking through job sites, but by doing that, they’re pointing me out to flooring suppliers. They’re giving me referrals to cabinet suppliers, countertop suppliers, and I’m building up that list. And during that time, as I’m looking for my deal, I’m learning my cost, I’m learning the specs, I learn how to control my budget and get access to materials that I need from there. I have a lot of the key components at that point. Then it came down to financing hard money in California is a little bit different than other states. It’s a little bit more regulated. The process is a little bit different.
And guess who my title rep referred me to? Three different hard money lenders there that I could start working with and talking to. And so first thing I do, find the title rep, then find the broker. If the broker can’t give you referrals for general contractors and where you should be shopping, not your broker, go find the next one. Then start understanding the market, start driving it, walk it, feel it, understand it. Then start digging in to the lending and the data behind that. Title Reps again are some of the best people to pull you data. My title rep down there pulled me every flip that was done within a three mile radius of where I was looking, and I could see what they paid, what they sold it for, and how long that took. And so by doing that, I really could understand the numbers, I could understand what a good deal was, and I could do this all in a 60 day period very quickly.

Tony:
Alright guys, we have to take our final outbreak, but we’ll be back with James in just a moment.

Ashley:
Okay, let’s jump right back in. So Jimmy, now that you’ve built your team and you’ve located your new market, when you get this property under contract, what are the steps that you’re taking to actually build out your scope of work and to plan for the rehab? Do you have any kind of template or checklist or flipping framework that you’re following as you approach the rehab process?

James:
Yeah, you always need a framework for your process. I think that is one of the most underrated, skipped steps from investors. And I think if you’re an investor that’s going way over budget on your projects, it’s because you’re not having clarity in what you actually want to do when you’re giving the original scope to the contractor. And so one thing, and we’ve been involved in over 4,000 flip transactions in the last 18 years, and so we have a lot of experience. We can walk through a house, I can kind of look for things, but that doesn’t mean that I don’t miss things. I miss things on the regular. I mean, Ashley knows me fairly well. I get very a, DD, I start popping all over the place like a good salesperson would, and I’m getting distracted. Then you got to shoot some social media content to tell people what you’re doing.
All these things are disruptive to your business. And so I’m very disciplined with the checklist. We have a detailed scope of work that goes, okay, we need to check these things and do they need to be replaced from the electrical panel to the outlets, to the flooring? Where does the flooring go? Windows? How many windows do I have to replace? And so by having this checklist, it trains my brain to go through and check all those spaces. And by having a detailed scope of work and a detailed scope of work on a checklist is really just anything that you need to do on a renovation. We have it in check boxes and I can go through check and make notes. It keeps my brain focused on the house. And by compiling into that scope of work, then I know exactly what I need to do at that point.
And so having that checklist is really important. If you’re a newer investor, I think one of the things that you should do is if you don’t know about construction, which you won’t know about, estimates, you don’t know what to look for, because a home inspector is not going to be able to tell you what it costs to renovate the house. And when you do this walkthrough with a contractor, bring the comps of what you’re trying to achieve so they can see exactly what you’re trying to do, what needs to be replaced, and you can see the materials that are going in, where the bedrooms are, where the bathrooms are, what the primary bath needs to look like, and give them clarity with that. That will help you get your scope of work created by having the professional come out with you. Now, as you get better at this and you do more jobs, you can take these estimates and you can start to break those down.
So what we’ve done is we have our walkthrough checklist, but then as we’ve gotten estimates from contractors, five estimates, 10 estimates, we can go through and start calculating what’s the average that they charge me to install flooring? What’s the average that they charge me to install a light fixture? What’s the average they charge me in a rewire house? We’ve taken all those averages and we’ve put it into an Excel spreadsheet. So I can go through and just type in the square footages, how the accounts are, where it’s going, what the square footage is, and it kicks me out in estimated budget based on my historical install rates. From there, it’s just about me selecting the materials and we can create a very detailed scope of work and estimated budget that we are almost 98% hitting on almost every one of our projects. So it’s really about just taking the data that you get and breaking it into a sheet to where you can actually calculate the align items.

Ashley:
And what James is explaining, anyone can do this, this is not some crazy Excel Smartsheet that is being built here, is you are taking whatever the expertise is or the job. So for example, painting, we’ll use that. You’re putting painting and you know that the contractor you use charges say two 50 per square foot. So you’re going to put that as the line item. So then you’re going to calculate that, okay, the house that you’re looking at is 2000 square feet. You’re going to plug that into another column and you’re going to have the formula set. So it’ll do 2000 times two 50, and that will be your output as to how much it’s going to cost for the painting. And you’ll go through, and you can do that for flooring, for tile, for a bathroom on average, say a small bathroom, a medium bathroom, a large bathroom.
I know James, you do that for kitchens as to like, it’s going to be a small kitchen, medium kitchen, large kitchen. And then you also do it based on upgrades too, as to what kind of countertops are we using, things like that. Are we going very high end? Are we going low end? And this is something that you can build now even before you actually do your first property, whether you’re doing a rehab on a rental or a flip is start to build this out. Look at what other people are paying in your area. Ask other investors. Go into the BiggerPockets forums, go to Lowe’s or Home Depot and look at the signs they have in the store that say, we will install flooring for 3 99 per square feet. Use that as an estimate, a starting point. It’s at least something. So worst case scenario, you’re having a Lowe’s contractor come in and install your flooring, and that’s actually who I use for all of my flooring. He does all of the Lowe’s contracts. So you can start to build this out now, and as you go through, it’s going to make your life so much easier building a more and more accurate scope of work and a budget for your property too,

James:
Because it is so overwhelming when you first start, right? There’s so many things that go inside of a house. Now I’m kind of a house nerd, I’m a construction nerd, so now it’s just like everyday work for me. I can look at a house and be like, oh, this costs this, this costs this. But I did not have that 18 years ago. And one of the biggest mistakes I made as a new flipper was not knowing my costs before I bought a deal. I guessed because some investor told me that sounded about right, but I had no idea what my costs were. And so the best thing you can do if you want to get started flipping for knowing your cost is take. If you see a certain type of product that you’re targeting, let’s say a cosmetic fixer, but a cosmetic that needs windows, roof, and then a full update with cabinets, flooring, doors, tram, all the things, go have three contractors bid that house.
Those three bids are going to be three different numbers, and they should be very similar if they work with investors in general. And then take that square footage divided by the bids and it’s going to give you an average price per square foot for a cosmetic renovation. And then you can do the same process on maybe a major fixer where you’re replacing all the plumbing, all the electrical, all the mechanicals, and you can do three bids, then divide that by the square footage, get the average price per square foot. And so when you’re looking at a deal, you can go, okay, well based on what I saw, this house was very similar to this. It needs this scope of work. The quotes I’m getting are 70 bucks a foot, so my budget should be this. And you can do it in a very, very simple way.
It’s a matter about just putting in the work and doing the work and bringing the contractors out to the house. And no matter what it is, don’t worry about whether you’re buying the house or not. The contractors are earning your business to get the job. You’re trying to find a good team. It could be a listed house, call the broker, Hey, can I get three estimates before I submit my offer? Go get those estimates, do it again. And then that gives you that baseline for understanding the costs in that market. I’m going to do the same thing. I just moved to Arizona. I will be doing the same thing in Arizona as I start buying there because I at least need to understand the baseline and then I’ll start working backwards for those core costs.

Tony:
James, that was the question I was going to ask, and you touched on it a bit already, but if I’m a rookie again, and I’m doing this for the first time, I just wanted to make sure that the sequence of events for the listeners was clear. So you’re saying you should actually try and get these bids before you’re under contract on this property, not necessarily trying to do all of this during your due diligence phase. Is that what I’m hearing? And I just want to make sure I’m clarifying for the listeners?

James:
Well, I think it depends on professional courtesy a little bit too and where the deal comes from and how flexible they are with that. I am a person that if I say I’m going to do it, I follow through on it even if I regret it later, but I’m like, I already told the person I committed to the person, so I’m going to commit honor this commitment. And so what I also don’t want to do is ruin my name in the market of tying up houses and then letting ’em fail on inspection. I don’t understand my numbers. Now, if you have a great deal, always secure that deal, but what I would say is know your cost and don’t waive inspection before those costs that go in because you can buy. I mean, in 2007, I bought an amazing deal, but I didn’t know what I was doing and I ended up losing all my money on that house, and anyone else that was experienced could have made money on that house.
But because I didn’t know how to control those costs, what my costs would be, that’s how it got ran way out of control. And so you can secure the deal. You don’t have to, because my thing is when I’m getting started in a new market or learning this, I want to get going right away. For me, it could take 30 days just to get a deal under contract, whereas I’d rather just start going to a listing that’s active where the broker will let me in and get that going in the first five days because that’s going to help me get a deal faster. I understand my numbers, and so don’t let securing a deal be your excuse of why you can’t do the work. Just do the work and start understanding your cost, then it’ll be a lot easier to secure deal.

Ashley:
So James, before we wrap up here, let’s talk about the dispo of this property, the getting rid of it, selling it, putting it on market. What are maybe three flipper tips that you have for a rookie investor as to the rehabs done, the projects ready to sell. Here are three things you should do when you’re putting your property on the market.

James:
You want to make sure you’re delivering the right product to the market because you’ve already taken on the risk you’ve bought in the house, you’ve went through the renovation, whether it was 30 days or six months, you’ve done all the hard work. And then what happens is this flippers, we want to get on market, make our money, and we start rushing that final detail. You do not want to do that. So for us, it’s really important in Seattle that we have a good brand, that we have a good product because not all flippers are built the same. Some people don’t do as high renovations. They don’t take the care in consideration. That’s why flippers have a bad name. And so naturally, your buyer’s going to walk into the house, they go, this is the flip, and they’re going to be a little bit nervous because of all the horror stories that have been heard.
And so what we want to do is make someone comfortable not only with our finishes and our approach, but that they’re buying a good house. So for us to ensure our sale quickly, we want to show the buyer that we care. How do we care? We get a pre-inspection done no matter what some flippers will say, I don’t get a pre-inspection done because I don’t want to know about any problems. I have to disclose ’em. I’m a flipper that goes, I want to know the problems, so either at least I can tell the sellers there or I can go fix it prior. So we always have a pre-inspection done where the home inspector comes out, they run their whole pre-inspection report at the same time. We do our own punch list where we go through and we make our own punch list report. We are blue tape in the house.
We’re taking photos of anything that we see is wrong, and we put it into a picture report for the contractor. Once the pre-inspections done and our photos report’s done with our punch list, we then leave it for the contractor to then go through it. We then meet that contractor on site once he’s done and walk through and check every one of those pictures off every one of those line items off so we know that the buyer is getting a good house. The second thing we do is we want to make sure that the property feels good. So we stage every house. Now, some people will say they don’t, and I understand why, especially if you’re in a more affordable market, they have standard floor plans, you might be in more of a track home community. It’s pretty easy for a buyer to envision. So sometimes they don’t want to stage For me, I don’t want to have any sort of objection when I’m selling a flip house because I’m selling a home with very expensive debt on it. Every day that goes by can cost me three to $400 a day with the pricing that I have. I want to make sure that the home feels good, it’s staged, it’s warm, the temperature’s set at the right temperature, and that it’s very, very clean. The last third one that we always do is we make sure that the home is on constant maintenance to where the property’s always well taken care of buyers show up yards tight, the yards weeded and edged, and that a buyer feels really good as they’re walking in. So first impressions.

Ashley:
Okay, so James, why don’t you tell us where everyone can find your book. If they want to learn more about the flipping framework,

James:
Well go to bigger pockets.com. And yeah, the new book’s called Flipping Framework where we break down all the basics of flipping from finding the deal, building your team, interviewing contractors, sourcing the money. It’s an A to Z process of flipping and how to grow and scale it. And so go to biggerpockets.com and get your order in today.

Ashley:
Well, if you want to learn more about James, we will link his information and also a link to his new book in the BiggerPockets bookstore. You can also find him on the market and also all over Instagram at j Dane flips and all over YouTube at Project. Well, James, thank you so much for joining us. And I’m Ashley. He’s Tony. And we’ll see you guys next time on Real Estate Rookie Podcast.

 

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected].

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


Is paying off debt or investing (and potentially using more debt) the best way to reach FIRE? The average American has $104,215 in mortgages, student loans, credit cards, and other debt. Where do YOU stand? If the end goal is FIRE, you need a game plan for your debt, in which case this episode is for you!

Welcome back to the BiggerPockets Money podcast! Not all debt is bad. When used responsibly, it can be a powerful tool that allows you to buy appreciating assets and hedge against inflation. Today, guest co-hosts Kyle Mast and Amanda Wolfe join our panel to share their thoughts on debt. We’ll share how much debt we each have (ranging from zero to millions), how our philosophies on debt have evolved, and how debt can ultimately help you reach FIRE.

But that’s not all. We’ll also discuss the types of bad debt that could derail your FIRE journey and the investments you don’t want to be stuck with during an economic downturn. We’ll even get into the most important financial protection against debt risk—savings and reserves—and why these funds should grow proportionally to your debt!

Mindy:
It goes without saying that Americans are in debt. The average debt in America is $104,215, which includes mortgages, car loans, credit card statements, and student loans. Debt peaks at age 40 to 49, and the largest percentages of the average consumer debt balance are mortgages. And I think a lot of people on the fire movement ask themselves, what should I do with this debt and what debt should I be taking on? We’re going to cover all of that in today’s episode so you can avoid the common pitfalls getting in your way. Hello, hello, hello and welcome to the BiggerPockets Money podcast. My name is Mindy Jensen, and with me as always is my quarter panel co-host, Scott Trench.

Scott:
Thanks, Mindy. Great to be here together. You and I make 50 cent. Did you know actually 50 cent has some great life and financial wisdom to impart on folks? I think there’s two quotes in particular that stand out there. One is, if you die in an elevator, make sure you press the up button and perhaps the more relevant piece of advice that 50 cent has is Get Rich or Dia Try. So go check him out for more financial wisdom like that. You can find his albums on Spotify and anywhere music is sold. Alright, with that BiggerPockets is the goal of creating 1 million millionaires. You’re 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, whether that’s with 50 cent or with several million dollars in debt. Today, we’re so excited to be joined by Amanda Wolfe and Kyle Mast, who I’m sure everyone is familiar with. If you have been listening to the BiggerPockets Money podcast for some time, it’s great to see both of you guys today.

Mindy:
Great to be here,

Scott:
Great to be here.

Mindy:
We know the average American has $104,000 in debt. Let’s all discuss what if any debt we have and if you don’t have any debt, when did you pay off your final debt? Scott, I’m going to start with you. Do you have any debt?

Scott:
I have $1.92 million in outstanding mortgages across our rental portfolio. I have a $0 mortgage on my primary residence and I have a $16,000 loan on a Toyota RAV4 that I purchased two years ago. And that is it. I have a small credit card balance I pay off in full each month, which I do not count as debt.

Mindy:
I would say that I don’t count that as debt either. Millions of dollars in debt is what I heard you say, Scott, but then you said it’s across your rental portfolio, so that’s not really personal debt. That’s your business debt. Scott’s rental portfolio business debt. Wouldn’t you say?

Scott:
The question was do you have any debt? So I was like, all right, well, I got to list all of my debts there. Those are five mortgages across five rental properties in the greater Denver area. I’m very comfortable with that debt. All of that debt is locked in between 3.375% and four and a quarter percent. So it’s all long-term mortgages and it’s reasonably, lightly levered. Somewhere between I would say 50 and 60%.

Mindy:
Okay, so I approve of your debt, Amanda, let’s look at your debt load.

Amanda:
I’m like, wow, it sounds like Scott practices what he preaches. So that feels very trustworthy. Mine is a little more simpler. I have no debt the same as Scott. I use a credit card for every single thing in my life, but I pay it off in full every month and I have no debt.

Mindy:
Okay, so Scott has millions of dollars in debt. Amanda has no debt. I think Amanda wins.

Amanda:
Well, I also don’t have a rental portfolio of five homes. So

Mindy:
Amanda, did you ever have debt?

Amanda:
I did. I’ve had both loads of it. At some point or another, I paid off my final piece of debt, which was my 2014 Ford Escape, which I’m still driving her today. I had a 1% interest rate on this thing and was making the minimum payments for as long as possible, paid it off last summer. And it’s one of those things where, like I said, I was paying it off as slowly as possible because my credit score had been an 8 46 and it dropped 80 points when I paid my car off my last $300 payment. It did recover, but that was a sad day.

Mindy:
Dear credit score people come on.

Amanda:
Yes, literally a fake

Mindy:
Report card for your money, a fake report card for your money that you kind of have to have because nobody will give you credit if you don’t.

Amanda:
Right,

Mindy:
Exactly. Okay. Kyle, Amanda’s got zero. Scott has millions. Where do you fall? I’m guessing kind of in the middle.

Kyle:
Yeah, I lean more towards Scott. I’m in the millions. I’m not going to give the exact numbers that I’ve got, but it’s on mortgages, on rental properties, and we’ll talk about this later on as we get into philosophy on debt and where we’ve come to and where we’ve been over the years. But that’s a kind of debt that I’m super comfortable with. If it’s at a good LTV to the properties and if we’ve got good cashflow on the properties and reserves savings to cover things that come in that are unexpected because that always happens. But I’ve had student loan debt in the past. It’s been paid off, never had any credit card debt. And we can talk about vehicle debt too. I do have some vehicle debt. Mindy, tell us, let’s just jump to you. What do you got?

Mindy:
I have mortgage debt and I have a line of credit against my after tax stock portfolio holdings that I used to buy another house, so it’s kind of all house related. I do have a credit card that I swipe on everything and pay off at the end of every month. I did have a loan for a 0% interest loan for my daughter’s braces that I just recently paid off. She got her braces off now she has a beautiful smile. So I bought my orthodontist a boat and a house and a car and a private plane and all that stuff. But yeah, I don’t have student, I never had student loan debt. My parents pay for my housing, my parents pay for my college, and I have been very, very conscious about not having consumer debt just because I don’t like to be in debt, but I also don’t consider mortgage debt to be debt.

Scott:
That was really interesting to hear everyone’s different takes on debt here. So Kyle, I think we’re going to have a lot of similarities in terms of how we think about these things and that’s going to be a fun discussion here. I’m super interested that you’re essentially debt-free. Amanda and Mindy is discarding her mortgage, which I would feel way. I love having a paid off primary and I feel debt-free even though I’ve got the millions of dollars mortgage that I talked about previously because I don’t have to pay for my personal home on there. If I’d ever had a problem with rentals, I’d just sell ’em all is the way I view it. So anyways, let’s talk about when we first started out on our fire journeys. I want to hear from folks about whether you prioritized paying down debt or whether you prioritized focusing on investing and what influenced those decisions. And Amanda, let’s start with you on that.

Amanda:
Yeah, so for me, I feel like I started my fire journey before I even knew what it was called. So I feel like once you’re kind of in the personal finance space, getting a handle on your money, it comes down the road at some point and you’re like, oh yeah, that’s the thing I’ve been chasing. For me, I grew up really, really poor. So when I finally graduated college and I got my first big girl job, I thought I was rolling in the big bucks and definitely did not have a grasp on how money works at all. So I had a bunch of student loans, but I also knew that I was supposed to be investing in my 401k, but then I was also spending more than I was earning. My salary was like $37,000. So at the time I was just kind of throwing a little bit at everything.

Amanda:
If you’ve seen that meme where the house is on fire and she’s trying to throw a bucket of water on the house that’s on fire, and so nothing is actually getting accomplished. I would say that’s how my journey started. I’m throwing a little money at the credit card, I’m putting a little money into the 401k. I’m budgeting sometimes, but I would say about a year into my first corporate job that I really started sitting down and thinking like, okay, I need to come up with a plan because it seems like I’m not actually moving the needle at all. And it was definitely a learning journey. I prioritized paying down my student loans because having all that debt freaked me out, which if I could go back in time, I would take back because my student loans were like 3% interest, so I didn’t need to knock those out in six years. So I’d probably go back in time and deprioritize that and instead invest the difference. But over time I think it’s evolved, like I said, started out a little bumpy and now I would say I prioritize investing. If I had any high interest debt, I would be working toward that. But any low interest debt, if I got a different car that was low interest, I would not be rushing to pay it off. So that’s kind of how I feel about it, make the most use of my money.

Mindy:
We have to take a quick ad break, but while we are away, we want to hear from you. What kind of debt do you have? You can answer in the Spotify or the YouTube app.

Scott:
Welcome back. We are joined by a Kyle Mast and Amanda Wolf. Kyle, do you next?

Kyle:
Yeah, starting out, I was kind of one of those, I don’t know if you’d call it a weird person, but when I was in college, I was out of state for college. I’d go through the airport and I’d buy a personal finance book every time. I went through one of those bookshops in there and one of them is the Total Money Makeover by Dave Ramsey, the David Bach, what is it? Millionaire? I can’t even remember. Millionaire Next Door is one by Stanley, several of those books. So I had all these things going through my head, kind of like, Amanda, what do you throw things at? But I think I landed on the Dave Ramsey thing early on and one of the things that really influenced me was when I got married and my wife was basically, I’ve said this before, kind of like my venture capitalist in me starting my financial planning firm.

Kyle:
I made nothing. I had no clients and she was just my sugar mama. She had a real job and she was making things and she hated her job and the goal was to not have her work that job anymore, go part-time, help me. So basically our priority was to eliminate every monthly payment we had, which means that you have less that you have to live on. So the faster we could eliminate the largest of monthly payments, the sooner we could take a job where I made less, she could make less in a job that she maybe liked more. So our goal was knocking out every payment we had and that was student loan debt and that was a little bit of a cart debt that she had when we got married, just everything. And that, I can’t remember how many a few years it took us to do that. We lived super lean. So that was the beginning of our journey. That was where we landed. And I wouldn’t change that actually. We paid off low interest rate student loans and the freedom, I’m in that stage of life, the freedom feeling of that I’m in the Dave Ramsey camp, I’m different for this season of my life, but in that season of my life and the goal that we had of reducing our monthly required cash outlay, that was the right decision. And I do the same thing. Absolutely. Again, same way.

Scott:
Alright, Mindy, I know you have a lot of depth here to your answer, but could you tell us about your situation, about how you prioritize this

Mindy:
Investing? Because I didn’t have any debt, but I also had no idea what the fire movement was. So my husband was having a terrible day at work. He banged out on his computer, how do I quit my job earlier? How do I retire early? And then a pop’s Mr. Money mustache and he’s like, oh, that’s interesting. So that created the rabbit hole that we dove down into and we discovered that we were already on the path to financial independence. We just didn’t know that we had been saving for stuff, we were saving for the future. We prioritized a little bit more. We focused on what our expenses were and we focused on being able to invest more. We took some investment risks. We were heavy into tech stocks. We didn’t do anything about index funds. We never heard of them. I don’t remember when we first started investing in index funds, but it was probably a decade after we started our finance journey. Scott, how about you? Did you prioritize paying down debt? Well, clearly not because you think millions of dollars in debt is the best way to go.

Scott:
Well, I started my journey basically broke with a couple thousand dollars, which is a huge privilege because I didn’t have student loan debt or any of those types of things to get going. And when I started my career, I needed a car. So I bought a brand new then 2014 Toyota Corolla. And I remember for a long time I would’ve been like that was the worst financial decision in my life. I should have bought a 2007 Toyota Corolla that was much cheaper for it. That’s how ridiculous I was and am in a lot of ways on that. So that was a big part of it. I had that loan at 1.99% and it bugged me for the next five years that I had that debt as from a personal perspective. So that’s how funky I think I am to a large degree, but I had no problem the next year taking on a several hundred thousand dollars mortgage from my first duplex house hack because I just viewed it completely differently and the leverage and how that was an investment on that front. And I essentially have never racked up any type of personal debt whatsoever in my life. Again, good fortune, very privileged for my upbringing and have college paid for, but I’ve only ever taken out loans for rental properties or my two car purchases.

Mindy:
So I’m hearing you say you prioritize collecting debt instead of paying it down, but for a good reason.

Scott:
Yeah, the 30 year fixed rate Fannie Mae insured mortgage that is at three, but 4.5% is, to me that was just an unbelievable window of opportunity and I tried to take advantage of it, not to the point where I couldn’t sustain it or I was in way beyond way in over my head, but to take advantage of it in a way that would have a really meaningful impact on my life long term. So I think that holding those and never paying them off will be a big advantage for the next 20 years.

Mindy:
So there’s a lot of different schools of thought on debt in general, and I’m hearing a lot of different schools of thought here, but also kind of the same. Scott, would you recommend somebody following in your footsteps if they are on their journey to fire? Or what would you say to somebody who is on their journey to fire with regards to their own debt?

Scott:
Look, I think that if you’re starting from scratch and you want to get to financial independence in a relatively short order and you don’t earn a great income, then you have to take some kind of risk. And for me, that has always been the most obvious risk in that world has been a house hack. There’s just not a lot of other great options like that. You might take an SBA loan too if you’re really interested in the business buying route or entrepreneurship, but at some point you have to take a risk. Otherwise, the brutal reality of saving making 50 grand, saving 10 to 20% of that and investing it in the stock market will just need to compound over 30 years. Yeah, I think I’d largely pursue it the same way that I did to that effect. I think that one of the things that’s bugging me around this is the mortgage debt and the personal debt, and I never really had to face that situation because of the way I approached my house hacking career in life.

Scott:
But for example, I have a savings account with my emergency fund, which has more than the balance of my car loan of 16 grand, which is an interest rate of 2.5%, and the interest rate I get on the savings account is like 4%. So it’s all simple interest and it’s all incremental, so it’s all taxed at the highest relative bracket that I’m in. So am I really getting a spread there by not paying off the Toyota RAV4 loan and then why is that different with my rental property portfolio? Well, the reason is that the personal loan, I can’t deduct, I can’t deduct my interest payment on my car as part of my expense profile, but on the rental properties, the interest is absolutely deductible. So it’s a no brainer to keep my interest rates and my mortgages, my rental properties at the three point a quarter to four and a half percent range.

Scott:
And it’s kind of a toss up the way that I’m managing my money personally about whether I should even have the car loan. So that framework I don’t think was something I had thought through previously. And I think that if my car loan were at four or 5%, I would probably pay it off rather than keep any, there’s no point in having the extra money in the savings account earning 4.5% when I’m negatively arbitraging a spread between that and the car loan, for example. So that’s probably the only difference I would be thinking about or ideas I would want to put in someone’s head who’s listening to this to think about their debt situation.

Mindy:
Now, Amanda, how do you think someone should approach debt on their fire journey? I

Amanda:
Think that it completely depends on the individual because I think there’s the math answer and I think there’s the feelings answer. So the math answer could be like, let’s put it in a spreadsheet and see what makes most sense for you. If you have a super low interest rate on these other loans and you’re actually going to invest the difference, that’s the key part, then maybe it makes more sense mathematically. And I say that’s the key part because a lot of times people will be like, oh, I only have a 3% interest on this thing, so that’s great. I don’t need to rush to pay it off. And then they go and spend the extra money that they would’ve had versus investing it because how we think about it, how Scott was saying even with his savings account. So I think there’s the math answer where you can sit down and say, okay, am I earning more interest on this money versus what debt is costing me?

Amanda:
So that’s the math answer, but then there’s also the feelings answer, which is how does the debt make you feel? So Mindy, earlier when you were like, oh, I don’t count my house debt as debt, I’m like, I feel like I would because as somebody who’s had their home taken away from them when they were a kid, you don’t forget about that type of trauma. And so I think that if that’s something that’s eating away at you, if you’re afraid your car could be taken away because maybe it was your mom’s car was repoed when you were a kid or you didn’t have somewhere safe or stable to live, paying down your mortgage or your car or something like that might be more of a priority for you. It just might feel better. So I think it totally depends on the individual and then their own experiences with money.

Mindy:
Amanda, I love that you called out math and feelings because everybody started their journey at the place that they started, not where anybody else started. So of course the financial independence community and the financial media is telling you all debt’s bad, you should pay off everything. But if you grew up financially insecure and having any sort of debt at all gives you the heebie-jeebies, then Scott and I telling you that you shouldn’t pay off your mortgage because it’s only a 2% shouldn’t be something that you’re like, well, I guess I have to do that. No, if you want to pay it off, pay it off. If you want to be completely debt free and live by Dave Ramsey’s mantra and not have any credit cards and all of that, that’s your choice. Okay, Kyle, how do you think someone should approach debt on their fire journey?

Kyle:
Oh my goodness, this is such a cool show. I feel like this is so awesome. Hearing everyone’s opinion as Amanda’s talking there, everyone’s situation is so different. And this is something that if you read any decent personal finance book, they will have a section and hopefully a large section on behavioral finance. Everyone behaves different. There might be the wrath or the wrath, there might be the math answer, but there’s also the what gets the job done answer. And if you look at history, you look at research, everything points to we do not behave rationally. We behave how we want to behave. So the trick as a financial planner, when I would work with clients, the trick was to figure out what someone’s history was, figure out what their goals are, what behavior will get them there. And it can be totally different for different people.

Kyle:
So to answer your question, how people should start out, it totally depends on their background and where they want to go to how I started out just knocking dead out really fast so we could get my wife out of a job she doesn’t like. That was perfect for us. That’s not going to be perfect for everyone. Someone who ideally the math thing would be house hack, do it again, house hack, do it again. Just keep doing that. That’s really in today’s economy, one of the best ways. At any income level, you can build wealth long-term, but it just doesn’t fit everyone’s situation or their goals even. So I don’t have a specific recommendation for people. What I would say is that be willing to learn over time and adjust your thoughts over time. The longer I worked with clients, the more I looked at people’s balance sheets, their own debt, their own behavior, the wealth that they built, my idea of what risk was and what debt, the risk associated with certain types of debt in line with things like inflation really got influenced.

Kyle:
And I think I am a different person from a financial viewpoint standpoint now than I was 15 or 20 years ago by far. So just know that the seasons of life change and you should probably change along with that, hopefully learning along the way, if you learn a certain strategy that works well for you at a certain point in your life, don’t expect it to learn or work really well for you the whole way through. Be willing to adjust as economy changes, as your family life changes, as your health changes. These things can really influence where you’re starting today, but also if you have to restart or change course later on down the line. So that was a terrible answer. I’m sorry, I have no specific way to start.

Scott:
I think that’s a great answer, Kyle. And yeah, I completely agree with that. I would never today put 95% leverage against my entire net worth to try to get to the next level, but I absolutely would do that again if I had 20 grand and was trying to get started by my first house hack. So it seasons of life and it’s different for everybody and many people are like, that sounds terrible, I would never do that. And that’s fine. There’s just different approaches, different strokes. Let’s talk about that concept that you just brought up Kyle here, how debt strategy changes as you get farther along on your fire journey. And Mindy, I’d love to hear your approach. How did things start out and how did it evolve?

Mindy:
Well, how it started out is that I had no debt outside of the mortgage on my primary property. And I’m sure during the course of the renovations that I was doing on the various live-in flips, I had some debt that I would acquire because if you charge a certain amount on your store credit card, then they give you no interest for six, 12 or 24 months. So I was taking out 0% interest loans on building supplies, and then I tried really hard to get that 24 months. I’m going to sell the house in two years. I could if I timed it right, sell the house and then pay off the debt and pay no interest on that. But again, because it’s a 0% interest rate, because I had the money to be able to pay it off if I had to, I didn’t consider that to be debt.

Mindy:
I have changed my debt strategy a little bit in that we took out a line of credit against our after tax stock portfolio. I think this is called an equity line on your stocks. At one point we had this much margin between what we owed and what we owned and then we watched that margin go smaller, smaller, smaller, smaller, and we’re like maybe something’s going to happen. So we took out a home equity line of credit on our primary house just in case something happened. Something did happen. We had to throw money at that from the home equity line of credit into the line of credit against the stocks until the stock market rebounded and started going back up again. That was a bit of a, Hey, I really don’t like debt scenario. So now we’ve started thinking of ways that we can pay down that margin loan, faster margin loan, that’s what it’s called. But for the most part, we are not going out and acquiring extra debt just for funsies. And we always pay off our credit cards every month regardless of the balance, and that’s never going to change.

Scott:
How about

Amanda:
You, Amanda? I feel like mine has changed as I’ve learned more. So I mentioned in my twenties, I was just so scared of having any debt at all. So like I said, I rushed to pay. I realized I was creeping up a little bit on my credit cards, nothing crazy, like a couple thousand, but I was like, that’s still a couple thousand that I’m paying interest on now. I understand how interest works. So it was like I need to pay those down. And then I wanted to get rid of my loans and I just wanted to get rid of debt altogether because I thought it was really, really scary. But now that I’m in my thirties, I’m like, okay, well I now understand how debt can also be leveraged, so if used correctly, it can work in your favor. So I do think it’s changed as I’ve learned more and understood how it works and understood my own risk tolerance and those types of things. So I completely agree with what Kyle was saying earlier about seasons of life. Sure, probably in my forties and fifties it will look even different.

Scott:
We heard a little bit about it from Kyle. I don’t know if you have anything to add based on your previous response to the last question, but any other color you’d like to add, Kyle?

Kyle:
Yeah, we’ve kind of touched on a lot of it. I think a couple of things to keep in mind as you’re looking on maybe how your debt strategy might change. And so I’ll talk about how mine did. I think I’ve learned over the years the importance of inflation. Inflation is a huge risk that people do not factor in hardly ever into their financial life. And I just saw it with client balance sheets, the people that had things like real estate or a decent sized stock portfolio, the long-term hedge that was, and people that, so I didn’t work with high net worth clients. I worked with middle America as clients. So these were people, some of them social security was their chief source of income with maybe a 50,000 or a hundred thousand dollars IRA. That was their backstop where they take a little bit of extra money from.

Kyle:
And that even though social security, you get a cost of living increase every year. It does not cover true inflation, not even close depending on what your life situation is. But in general it does not. And not having that good hedge against inflation over the course of years really starts to hurt. So that was one thing that my strategy has really been structured around inflation as a piece of the puzzle. And like you said earlier, Scott, the window that we had of two to 3% interest rates at that time, I was doing so much research on historical inflation in societies for the last couple thousand years, and it was just nuts that we could take out loans and refinance in two to 3% for 30 years fixed. And I was just trying to push everyone as fast and far as possible to refinance current loans to lock those in place.

Kyle:
And I don’t think we’ll ever see that again. I think that is just gone. So that’s one thing that’s a hedge that you can put in place and if you’ve got cashflow on a property cover that, or even if it’s a business that you have and you have some sort of business loan that is backed by probably something secured like a property or a building, but the cashflow of the business, that is a good way to hedge your debt and hedge your financial situation in the long run rather than just trying to steer clear of debt completely because debt, well, how do I say this and not sound like I just want everyone to go into debt. Well leveraged debt with good reserves to back up if something bad happens. Reserves means emergency funds is one of the best ways to hedge against inflation in the long run.

Kyle:
And I also think when you’re younger, there’s a huge value to not swinging for the fences, trying things that you might not try later on. And this is someone, if anyone listens to the Radical Personal Finance podcast, Joshua Sheets, it’s another one in the world here. This is something that he’s changed his view on a lot over the years is that when you’re young, you can try things, you can make mistakes, you can maybe go broke, but you can recover and you only have a small window of learning those lessons. And sometimes it’s good to learn those and sometimes you learn such good lessons that it benefits you exponentially down the road as opposed to not trying something that might be a little bit more risky. Again, this word risk, it’s all built around risk, but how do you define it if you don’t put inflation into the scenario, if you don’t put in the risk of not taking a chance on something, that could be great. Yeah, I think there’s just so much more to this discussion as you can tell. I’ve just become so much more nuanced on it over the years and it’s a fun thing to talk about. It’s a really fun thing to talk about.

Scott:
Stay tuned after our final break where we’re going to break down the irresponsible ways to handle debt and what you should not take on and how that could impact your fight journey.

Mindy:
Let’s jump back in. How about you, Scott? Did your debt strategy change as you got further down the financial independence journey?

Scott:
Yeah, I think once again, I’m going to find myself really aligned with Kyle and I’m going to just kind of reframe a few things that he said in the way that I think about it. It’s the same thought process, just a different way of spitting it out. From my view, when I got started on the journey, it was I didn’t have any wealth, so I needed some wealth to protect, and that’s where I had the lever real estate was the tool. But if you take away the leverage, real estate is a definition, it’s that’s a third of the CPI. It is inflation housing cost in a very literal sense. And so if you have a couple of paid off properties, you have the definition, at least a third of the definition of an inflation protected portfolio. Sure, there can be volatility on there, but it becomes less about how do you continue to evolve the wealth and how do you build an inflation adjusted portfolio?

Scott:
And that’s where, just like Kyle said, it’s a stock portfolio, it’s a real estate portfolio, and over time that real estate portfolio will deliver and it will just preserve wealth in line with inflation, preserve an income stream. That should be by definition, again, in line with inflation. And that’s the way I think about it is there’s no point in pacing with inflation. If you don’t have any wealth, you have to get ahead of it somehow by earning a lot, spending very little and investing in a way that can outpace it. And once as your strategy evolves and hopefully you begin to approach fire over the years and decades, then it becomes about preserving wealth there. And debt just amplifies return and or amplifies risk. And so it’s just where can you layer that in to move faster? You never want to get in over your skis, but if you don’t use it at all, you might be there five, you might get there five, 10 years slower.

Kyle:
Yeah, this is as I’m hearing me and Scott talk, I’m just hoping we don’t lose anybody here too. We’re talking about a lot about inflation and leverage. And just for everyone listening, this is really something, it’s important enough that if it’s kind of going over the head or if you’re not comprehending it, I would definitely look into it more. Our economy is built on the assumption that inflation will happen, and if it doesn’t, the government literally prints money to make it happen at a certain point and then subtracts money to make it happen at a certain point. So it’s just the ocean we’re swimming in. So understanding it a little bit is super important to be able to keep pace, even just keep pace with living expenses when Wheat thins now cost $57 for 10 wheat thins. It’s really important stuff.

Scott:
I think that it sounds like there’s a general agreement around avoiding consumer debt. We didn’t even talk about super high interest consumer debt. This is BiggerPockets money. We assume that that’s a given at this point. But there I think are bounds for what’s responsible, what’s reasonable relative to debt, and the alignment that they can be used as a tool depends on your comfort level around there. It can be powerful, but I think there are certain restrictions we should put on it. And I’d love to go around the horn here and hear what you guys think about what’s reasonable and what’s not when it comes to debt. And Amanda, I’d love to kick it off with your thoughts on that.

Amanda:
Yeah, so earlier I was talking about how there’s the math answer and the feelings answer, right? So on paper, what makes the most mathematical sense and then how do you feel about the debt? But I think those two points do converge at a certain point. So if you have, for example, a lot of credit card debt that’s in the 20%, maybe even 30%, that’s when we start reaching a level of just being straight up irresponsible. There is a very popular TikTok trend going on right now where a lot of girls out there are like, I’m in my credit card debt era. Screw it. I’m going to Lululemon, Sephora, I’m getting all the goodies and I will worry about this later. And that could not be a poor choice. It is such a small blip in your life where you’re going to enjoy these little treasures and it is going to haunt you for potentially decades. So I do not approve of this TikTok trend. I think it’s very irresponsible. And so when we think about debt, like I said, there’s the math and the feelings, but they do converge at a certain point.

Scott:
Mindy, what do you think?

Mindy:
First, I want to over annunciate what Amanda just said. She said, I don’t think this could be a poorer choice. I want to make sure people didn’t hear her say, oh, I don’t think this is a poor choice. It could not be a poorer choice. You could not make a worse choice than getting in massive debt in your twenties at this 20, 25, 30% interest rate. I don’t even understand how credit card companies are allowed to charge that and not be subjected to usury laws. But either way, you are making such a big financial problem for what? A pair of leggings, some makeup. Is that what Sephora sells?

Amanda:
Yes. Skincare makeup,

Mindy:
Yeah. You know what? Target sells the same thing at a whole lot lower price tag. And how many pairs of leggings do you need? One to go to the gym today and one to go to the gym tomorrow while you’re washing the ones that are dirty today? Or you could reuse those. I’ve done that before, but you wear ’em twice before you wash them, but you are setting your entire future up to be paying. I mean, there’s also a TikTok trend where women are saying, I’m sorry, where people are saying, I am in massive debt. I have three jobs and all of the income that I’m making still doesn’t cover the interest payments on my debt load. That is the result of some usurious loans, the student loans, the getting used to not paying your student loans, but also buying Sera makeup and Lululemon leggings when you can’t afford them. If you can’t afford them, then no, you don’t deserve them. So that really, really, really just wanted to underline. You could not be making a poorer choice. Scott, I forgot the question.

Scott:
That was it. What are the unreasonable limits you take debt to? Yeah, I think we’re going to make some really big headlines with this particular episode of personal finance panel condemns, putting it all on the credit card and worrying about the payment later on that. But yeah, Kyle, so love the violet agreement there. Kyle would love your thoughts on this subject as well.

Kyle:
Oh man, I’m in the same camp. I worry that we went through this episode and we talked about some of the good aspects of debt and how to do it responsibly, but I’m loving that we’re kind of summarizing it here that there are some major ways that you can just get into trouble buying things that don’t appreciate in value in general, like buying a hamburger and paying it off over 25 years, not a very good idea. So that’s the biggest thing. If you can just buy things that appreciate with debt, that’s maybe a rule to put in there. There’s other rules along with that, but if it doesn’t appreciate in general, don’t buy it. And again, something that has 20% interest a credit card, it is just you’re signing yourself up for servitude in the long run. The thing that I would just add on is the importance of savings and reserves, the importance of stop gaps when you do take on responsible debt even because you never know what’s going to happen.

Kyle:
So in my case, with rental properties, you don’t know when a tenant’s going to give notice and move out and you’re going to have to renovate a unit. It’s going to take three months or four months to get someone back in there. You don’t know. That just happened to me yesterday. I got an email. One of my properties, a longtime tenant is moving out, probably going to have to do some expensive renovations on the property to get it listed, get someone back in there. They’re moving out in the middle of winter. It’s going to be spring almost probably until we get somebody in there. But you have to have the cat and that property has a mortgage on it. I’m going to make a mortgage payment for three to five months that I’m not getting any rent on. But that’s built into the proforma of the property that’s built into the savings that’s going to happen.

Kyle:
So anytime you take on some sort of investment debt, I mean if you want to sleep good at night, have a whole bunch of reserves, have a savings account, also have a Roth IRA, it’s any other account that also is just liquid, even if it’s in the stock market and it goes down by 30%, there’s still something in there and you can get to it. So just have those reserves in the real estate world as your properties increase. If you’re someone who likes to have a certain amount of healthy leverage or debt on them, continue to increase your reserves proportionately. Don’t get ahead of your skis on that, but yeah, that’s the biggest thing. I mean, that’s the way to sleep. Good at night savings for sure.

Amanda:
Can I add just one thing? I know if this will fit in, but regarding the credit card debt piece of things, I thought this was something that everybody knew, but after looking at the comments and these TikTok trends of these girls who are in their credit card debt era, when your credit card gets closed and it’s sent to collections or whatnot, it doesn’t just disappear. It literally follows you for life. So when Mindy was mentioning these people who are working three jobs to just pay the interest on things, it is something that is going to follow you forever. So don’t get caught up in some of the TikTok trends are really, really cool and inspiring. This is not, that is not cute at all. So I just wanted to call that out, that don’t get swept up in the herd mentality of screw it, I’m just going to add it to my credit card and worry about it later. It will continue to follow you. So put the TikTok app down if you are one of those people right now and pay that card off.

Kyle:
Yes, your decisions, no matter what they are, follow you for a long time. What you do in your young years for good or bad financial or not, those can haunt you. And with the era of credit reporting and the amount of data that’s out there, this stuff does not go away. And lenders or insurance companies, cell phone providers won’t, that you’ll pay more down the road for your credit card spending season. It’ll hurt.

Mindy:
And employers, employers are starting to run credit checks on people and Oh, you’re not good with your credit, your financial life. I’m not going to trust you with my company. So having bad credit,

Scott:
I mean you think BiggerPockets is going to hire someone in our finance org with bad credit?

Mindy:
Let me look at my crystal ball.

Scott:
That’s a great way to screen potential finance professionals. Does the sales team need to have that? No, but I think that there’s certain roles where that’s, that’s critical. Alright, yeah, I have two kind of reactions to the what should someone do or what’s, I guess, sorry, I have two reactions to the what’s irresponsible thing here. And I’ll start by saying what I’m not going to talk about is the taking out credit card debt to buy Sephora, because that’s so far out of left field. You should not be doing that in a general sense. And I think we’re all aligned on that. I think that when I think about debt, there’s two things that I think people are getting into trouble with in the real estate world, in the BiggerPockets money world. And one of those is you heard my debt balance earlier, some people went and took that to crazy extremes.

Scott:
So even if it’s multiples of your income in a way that is so far out of hand for you to deal with, it’s all acquired in a relatively short-term basis and you’re going all in a way that you can’t sustain across the decades. I think you’re setting yourself up for a problem. Because even though real estate’s a great bet, or many asset classes are a great bet over the long run, short-term volatility can BK you. And the goal of the game is to keep things compounding for a lifetime and you eliminate the compounding when you go bk. And we’re going to see some real estate investors and some real estate investments go in BK in the next few years. We’ve already seen it in a couple of cases and there’s a limit and you need to know what that is. My loans were accumulated over a decade, one property at a time every two years-ish.

Scott:
So that’s one. The second thing that I would call out is a mismatch between the use of the debt and the asset you’re going to hold. And my favorite example of this is the heloc. When you take $60,000 out for a HELOC and you use it as the down payment on a $240,000 Midwestern rental property, you got to pay back the heloc. That means HELOCs a short-term loan. So I don’t know what your definition of a short-term loan, but it’s probably less than five years. That’s a thousand dollars a month. And not a lot of Midwestern single family rental properties are spitting out a thousand dollars a month in cashflow after $180,000 in mortgage debt to help you pay off the heloc. So that thing’s going to suck a lot of cash out of your life over that. And the reason that’s happening is because you’ve used a short-term debt instrument to finance a long-term down payment and people got away with this over the last 10 years and they’re not going to over the next five years. And that’s a problem, a risk that I want to call out as a mismatch map, the tool to the use case if you’re going to use debt from an investment standpoint. So those are the two things I would call out that I think I’m seeing that are fairly risky out in the investing world in terms of use cases for debt.

Amanda:
Scott, you explained that so well, you’re really good at this money stuff. You should do something with that. I feel like you nailed it because hearing about millions of dollars worth of debt, I feel like you just articulated that so well.

Scott:
Yeah, I think and do I feel like if I had bought all that at once and was a higher LTV, I’d be pretty uncomfortable. But having stockpiled it very gradually over 10 years, I feel much more comfortable with it. And I think that changes the perspective. I don’t know, Kyle, if that’s how it went for you as well.

Kyle:
Yes, very similar scenario. I had a bump in there where I bought more because, but I also sold a business. So that’s more not really buying, it’s more of transferring one asset to a few other assets. But yeah, I agree. You spread it over time. You’ve talked about it before, dollar cost averaging into properties over time just like you would stocks and even dollar cost averaging into good mortgage debt over time and over time, locking in long-term fixed rate debt and having a spread of cash flow over what your property requires and a spread of cash reserves over what your overall situation requires, your living expenses. I think if you can start to think as you build these other through your financial life, you have at the beginning, you usually have one employer where you’re trying to make some money and then you buy a rental property, now you essentially have two employers.

Kyle:
One that’s also paying you just a little bit. If you can build more employers over time, you are reducing risk as long as you’re not taking on too much liability with each of those employers, which different rental properties, stock portfolios, sources of income in your life rather than one employer. So if one goes belly up or you need to throw some cash at it for a while, you have those reserves. I’m just pumping the reserves thing here. I just think that is just a big, big deal. Scott, you touched on it. I want to push on a little bit more. The name of the real estate game is to stay in it. It will go down and if you go out when it goes down, you lose. That’s when you need to be in it and you make it through that. And that’s when real estate is magic in the long run. But if you go out when it’s down, it hurts really bad.

Mindy:
Scott, I was teasing you at the beginning with your millions of dollars in debt, but then you said they’re 50 to 60% leveraged, right?

Scott:
Yes. So there’s a good amount of buffer in there on some of those. And that’s been put some takes over the years. As you buy in 2014, things go up and you refinance in 2021 when rates go down. So there’s puts and takes that go over there that have changed that leverage ratio over the years. But right now I’ll also call out that because I am not going to refinance any of these properties and I’m not going to sell of the long-term bet on there, and I wonder how I’m going to finance the next property maybe via an assumable or seller finance thing, but probably with just cash. And I might go to a cheaper market as part of that as well, given the current higher interest rate environment.

Mindy:
The point that I wanted to make is that you’ve got 50 to 60% leverage. I’m seeing people saying, oh, take out as much as you possibly can when you’re buying properties. Buy it as a house hack, buy it with the owner occupied mortgage, which you can get for as little as three to 5% down and live there for a year and then move out and do it again and again and again. So you’ve got properties that are leveraged between 95 and 97%, and that’s kind of a one-way ticket to losing Kyle Masts game of staying in it. And you could absolutely lose it. I’m seeing people who are losing their properties because they can’t make the payments because they also don’t have Kyle’s R word reserves and they’re just kind of hanging by the skin of their teeth. And that just makes me so sad. So yeah, you want to stay in the real estate. I hate when we call it a game. It’s not a game, it’s a business. You have to treat it as such. But if you want to be in real estate for long term, you have to do it intelligently

Scott:
For a long time. The more you bought and the higher leverage you bought it at, the more money you made. And that worked for 10 years and I was sitting there, am I a fool? Am I just sitting here watching all these other folks get super rich super quick? And if I had just bought more and gone way more all in, I’d be way farther ahead. And the problem is that the type of people who do that are often the people who can’t stop and they just keep going until they’re forced to. And that literally in some cases translated to individuals buying over a billion dollars in real estate, which is now worth 600 million. And that’s a huge problem in some cases for that, especially when you’re financing it with 600 to $700 million in debt and using a lot of other investor capital. So those problems are coming home to roost in here and will be a facet of the economy even though the long-term investment in real estate, if you can hang on, is I think good math.

Mindy:
Yeah. And the way that you hang on is by having reserves so that when something happens, not if something happens, when something happens and you need to put money into your property, you have the money to put into the property, like when your tenant leaves and you don’t have another tenant, that happens. That is going to happen to every single person who is listening to the show who has real estate investments of any kind. If you have tenants in there, they are going to leave eventually. And then you’re going to have to find a new one and you might not be able to find ’em for a while. So you need to be able to float that. And when you can’t float it, that’s when you have to sell. It always happens in a down market Murphy’s Law, that is the way it goes. It rules real estate. So just be intelligent about your investments. And also, Scott, maybe you could have had trillions more in real estate investments, but could you sleep at night knowing that that comes back to Amanda’s feelings full circle. Okay. I think this has been an absolutely fantastic conversation. I always love it when I get to talk to Kyle. I always love it when I get to talk to Amanda and I get to talk to Scott all the time, but I always love that too. So Kyle, do you have any last bits of advice for our listeners?

Kyle:
No. I would encourage people to try to not get overwhelmed with everything that we talked about, the fear, and we’re talking a lot about rental properties in here too. And it’s not the only way you got to go. You can keep things a lot simpler. You can keep things very generic where you save a high amount of your income, you put a decent amount of way for reserves, you reduce your taxes. I mean, I could go off on a whole tangent on taxes that we didn’t factor into a lot of the risk and calculation of this stuff, but you can keep it a lot simpler than what we’re talking about here. So if anyone’s feeling overwhelmed, the main money habits that will get you to your financial independence goals still stand. No matter if you’re taking on leverage in a good way or totally steering clear of it, you can still accomplish what you’re looking to accomplish.

Amanda:
Absolutely,

Mindy:
Amanda?

Amanda:
Yeah, I think for me, I would say to take a step back and think about what you actually want. I saw this stat that just came out, Investipedia, am I allowed to say that? Investopedia did some research recently that showed that the American dream costs $4.4 million, which is $1 million more than the average American earns over their entire lifetime. And when I saw that stat, I was like, that blows my mind because what is the American dream? What is that? To me, that should look different for everybody? So I would say take a step back and figure out what you actually want out of life. Do you want to go do the house hacking thing, which is a little more complicated? You need to learn a little bit so you don’t make some big mistakes. Do you want to just work your nine to five, put money into your 401k and your Roth IRA work until you’re 65? Spend time with your kids on the nights and weekends and call it a day. Take a step back and try to figure out what you actually want out of your life and what is going to get you there. So it doesn’t have to be complicated. It can be if you want it to earn as much as possible. And retire as early as possible, but what does that American dream for you? Take a step back, figure out how to actually get

Mindy:
There. Yes. Okay. Scott?

Scott:
Yeah, I think my key takeaways are use debt only, I think to buy assets that can appreciate over the long run and ideally that cashflow enough to service the debt, map the debt to the right tool and avoid it in most other cases. Last parting thought I’ll leave on that line is, and we’ve discussed this multiple times on previous money episodes, so if you’re a regular listener, please forgive me for restating this for the umpteenth time, but the less debt that you have in your personal situation, for example, like mortgage debt, the less wealth you need to satisfy the financial independence, retire early equation and producing 60 or $70,000 a year in income with a paid off mortgage is a lot easier from an investment portfolio standpoint than producing 120 if you have to pay that mortgage payment, for example, if that’s what’s going to add in there, I guess that’s our two big numbers. So a hundred than a hundred thousand and you’re going to pay more taxes when you realize that much income. So there’s another play there that I think begins to change the math even further in favor of paying off debt early once you get into the upper echelons and begin getting closer to the end of the fire journey.

Mindy:
Yes. Yes and yes. Okay. I just agreed with all three of you. I can’t top any of that because you guys are just amazing and I’m just going to leave that. Kyle, where can people find you online?

Kyle:
Oh, not on social media. I usually don’t hang out on social media anymore. I have a website, kyle mass.com. Sometimes I do some writing there, but that’s about it. Most of the time I’m hanging out with my family and traveling and doing some rental stuff.

Mindy:
Living the fire life,

Kyle:
I guess so.

Mindy:
And Amanda, where can people find you online?

Amanda:
You can find me on social media. She will pull Wall Street Wolf with an E, my Instagram or she wolf of wall street.com is my website. Got lots of good freebies and I do some writing there too.

Mindy:
And you can find Scott and I all over biggerpockets.com where we teach you how to invest in real estate the right way. Alright, that wraps up this episode of the BiggerPockets Money podcast. He is Scott Trench. She is Amanda Wolf. He is Kyle Mast. And I am Miny Jensen saying Tutu Lou Canoe.

 

 

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds. Thanks! We really appreciate it!

Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Check out our sponsor page!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


15% ROI, 5% down loans!”,”body”:”3.99% rate, 5% down! Access the BEST deals in the US at below market prices! Txt REI to 33777 “,”linkURL”:”https:\/\/www.renttoretirement.com\/?utm_source=biggerpockets&utm_medium=forum&utm_campaign=forum_ad_tracking”,”linkTitle”:”Contact Us Today!”,”id”:”65a6b25c5d4b6″,”impressionCount”:”789745″,”dailyImpressionCount”:”547″,”impressionLimit”:”1500000″,”dailyImpressionLimit”:”8476″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/720×90.jpg”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/300×250.jpg”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/300×600.jpg”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/320×50.jpg”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Premier Property Management”,”description”:”Stress-Free Investments”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/02\/PPMG-Logo-2-1.png”,”imageAlt”:””,”title”:”Low Vacancy, High-Profit”,”body”:”With $2B in rental assets managed across 13 markets, we\u0027re the top choice for turnkey investors year after year.”,”linkURL”:”https:\/\/info.reination.com\/get-started-bp?utm_campaign=Bigger%20Pockets%20-%20Blog%20B[\u2026]24%7C&utm_source=Bigger%20Pockets&utm_term=Bigger%20Pockets”,”linkTitle”:”Schedule a Call Today”,”id”:”65d4be7b89ca4″,”impressionCount”:”559415″,”dailyImpressionCount”:”524″,”impressionLimit”:”878328″,”dailyImpressionLimit”:”2780″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Center Street Lending”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/centerstreetlending.com\/bp\/”,”linkTitle”:””,”id”:”664ce210d4154″,”impressionCount”:”291158″,”dailyImpressionCount”:”528″,”impressionLimit”:”600000″,”dailyImpressionLimit”:”2655″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_720x90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_300x250-2.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_300x600-2.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/CSL_Blog-Ad_320x50.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”BiggerPockets Lender Finder”,”description”:””,”imageURL”:null,”imageAlt”:null,”title”:””,”body”:””,”linkURL”:”https:\/\/www.biggerpockets.com\/business\/finder\/lenders”,”linkTitle”:”Find a Lender”,”id”:”664e38e3aac10″,”impressionCount”:”151782″,”dailyImpressionCount”:”109″,”impressionLimit”:”10000000000″,”dailyImpressionLimit”:”10000000″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/05\/Lender-Blog-320×50-1.png”,”r720x90Alt”:”BiggerPockets lender finder”,”r300x250Alt”:”BiggerPockets lender finder”,”r300x600Alt”:”BiggerPockets lender finder”,”r320x50Alt”:”BiggerPockets lender finder”},{“sponsor”:”CV3 Financial”,”description”:””,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/Logo-512×512-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/cv3financial.com\/financing-biggerpockets\/?utm_source=biggerpockets&utm_medium=website&utm_campaign=august&utm_term=bridge&utm_content=banner”,”linkTitle”:””,”id”:”66a7f395244ed”,”impressionCount”:”111278″,”dailyImpressionCount”:”410″,”impressionLimit”:”636364″,”dailyImpressionLimit”:”4187″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/07\/CV3-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Baselane”,”description”:”Ad copy A”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/09\/SquareLogo-MidnightOnWhite-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/www.baselane.com\/lp\/bigger-pockets?utm_source=partner_biggerpockets&utm_medium=Content&utm_campaign=bp_blog_ad&utm_term=rebranded_v1″,”linkTitle”:””,”id”:”66b39df6e6623″,”impressionCount”:”94603″,”dailyImpressionCount”:”454″,”impressionLimit”:”250000″,”dailyImpressionLimit”:”1713″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/720×90.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×250.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×600.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/320×50.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:”Baselane”,”description”:”Ad copy B”,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/09\/SquareLogo-MidnightOnWhite-1.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/www.baselane.com\/lp\/bigger-pockets?utm_source=partner_biggerpockets&utm_medium=Content&utm_campaign=bp_blog_ad&utm_term=rebranded_v2″,”linkTitle”:””,”id”:”66b39df70adac”,”impressionCount”:”102988″,”dailyImpressionCount”:”449″,”impressionLimit”:”250000″,”dailyImpressionLimit”:”1713″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/10\/320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””},{“sponsor”:””,”description”:””,”imageURL”:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-Logo.png”,”imageAlt”:””,”title”:””,”body”:””,”linkURL”:”https:\/\/hubs.ly\/Q02LzKH60″,”linkTitle”:””,”id”:”66c3686d52445″,”impressionCount”:”109128″,”dailyImpressionCount”:”516″,”impressionLimit”:”500000″,”dailyImpressionLimit”:”6173″,”r720x90″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-720×90-1.png”,”r300x250″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×250-1.png”,”r300x600″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-300×600-1.png”,”r320x50″:”https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/08\/REI-Nation-X-BP-Blog-Ad-320×50-1.png”,”r720x90Alt”:””,”r300x250Alt”:””,”r300x600Alt”:””,”r320x50Alt”:””}])”>

According to government-backed housing lender Freddie Mac, there are currently 30 renter households for each house for sale. For real estate investors, the message is clear: There has never been a better time to own income-producing property.

These striking numbers are due to a lack of inventory. The demand for rentals has been ticking up since 2006 when there were only 10 renters per house. However, the 2008 recession caused homebuilders to slow down and banks to tighten lending requirements, thus decreasing the supply of available homes.

Landlords Can Pick and Choose Their Tenants

Landlords have the luxury of picking and choosing from a large tenant pool, which means they can select tenants with high credit scores and stable jobs. However, landlords considering jacking up rents should remember the Department of Justice lawsuit against RealPage for allegedly conspiring with property owners to do just that.

Low Inventory Increases Prices 

The low level of inventory has caused house prices to increase, making Freddie Mac’s help in assisting first-time homebuyers get mortgages invaluable. According to its report, in the second quarter of 2024, the government-sponsored enterprise (GSE) financed approximately 200,000 primary home purchases, 53% of which were for first-time homebuyers. The GSE also launched a platform to help potential buyers work with their lenders to find down payment assistance programs.

However, investors are also competing for these homes, and in the case of all-cash buyers looking to park money while enjoying cash flow and appreciation and waiting to refinance when rates drop, the squeeze has made affordability a major issue in an overly competitive market.

“Less affordable housing is acutely felt by those seeking to buy their first homes, especially those without substantial wealth at their disposal,” the Freddie Mac report states.

Increased Equity Means More Homeowners Have Cash to Invest or Renovate

The upside of decreased inventory and high prices means that those who own a home are sitting on a lot of equity that can be deployed into investments—assuming they can find deals that make sense. Alternatively, investing in home improvements that help increase the value of a home is likely to be a by-product of falling interest rates. Harvard University’s Joint Center for Housing Studies estimated that spending on home renovation should reach an annual rate of $477 billion by October 2025, close to the record set when rates were low.

Decreased Mobility Means More Creativity

Those who have stepped onto the property ladder might be stuck for a while. Homeowners with growing families looking to move into larger homes might have to get creative to create more space, such as buying ADUs or converting basements, attics, and garages.

“The starter home for many has become a keeper home, unfortunately,” Susan M. Wachter, a real estate professor at the University of Pennsylvania’s Wharton School and a former assistant secretary at the Department of Housing and Urban Development, told the New York Times

What the Market Means for New Investors

So, what does all this mean for real estate investors, especially those entering the market? 

An investor’s idea of stability should differ from most homeowners 

While homeownership is still firmly rooted in the American dream and the notion of stability and freedom from ever-increasing rent—a LendingTree survey found that 84% would rather own than rent—for Americans looking to chart a course for financial freedom, personal homeownership should not always be the first box to check. There are several reasons to buy an investment property before a personal residence.

Conventional mortgages are interest-heavy for the first half of the loan, with over one-third paid in interest during the life of the loan. Thus, rather than pay interest on personal property, it’s better to offset that in an investment with cash flow, tenant loan paydown, appreciation and depreciation, and other tax benefits.

Continuing to rent while generating income allows owners to demonstrate a profitable business, enabling them to qualify for more loans and engage in creative financing strategies such as BRRRRing, rent-to-own, subject-to, and flips.

Increasing cash flow covers rising expenses, adds equity

Ongoing moderate rent increases are important tools for landlords to keep up with increased building expenses. For larger buildings, higher rents increase the value of the asset. A large tenant pool will allow landlords to accomplish this.

When and how investors should consider buying a personal residence 

Naturally, investors will want to get off the rental carousel and buy their own residences at some point. The mistake many investors make is buying personal homes that are too expensive. 

To become successful as an investor, keep living expenses low. Thus, taking advantage of FHA low-down payment programs and matching a mortgage payment to an equivalent rental payment or less will enable an investor to curtail paying increasing rents while still reinvesting their cash flow into building a portfolio or taking care of repairs on their investments.

As this Wall Street Journal article shows, there are many ways to be creative in affording a personal residence. These include:

  • Moving in with family members to save for a down payment and closing costs, or even the cost of an entire home, depending on your location.
  • Use a homebuilder-financed mortgage to cover the closing costs and secure a lower interest rate.
  • Receive financial help from a family member. 
  • Move to a cheaper area and work remotely.
  • Buy and co-live with friends. 

Final Thoughts

There has never been a better time to own residential rental real estate, but equally, never a more difficult time to buy it. Turnkey investments are harder than ever to come by due to low inventory, high prices, and interest rates, so investors’ buying criteria are different from those of previous years.

Achieving high cash flow is not easy unless you are OK with buying in so-so neighborhoods. You will need to be prepared to put in some sweat equity or get creative with assumable mortgages or subject-tos to secure low interest rates. Alternatively, simply breaking even could be a win for some investors looking to make the most of tax breaks, tenant paydown, and equity appreciation.

For existing landlords, high demand means they can use their cash wisely by investing in repairs and saving for more properties.

Find the Hottest Deals of 2024!

Uncover prime deals in today’s market with the brand new Deal Finder created just for investors like you! Snag great deals FAST with custom buy boxes, comprehensive property insights, and property projections.

1 6 1

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link


You signed up for short-term rentals (STRs) to make extra cash and get a little passive income. But fast-forward to today, and you’re practically glued to your phone, toggling between guest messages, cleaning schedules, and last-minute booking updates. 

Is this really passive? Nope! Luckily, with STR automation tools like Hospitable, it can be—and, dare I say, even easier than long-term rentals (LTRs).

Automating your STR tasks means eliminating late-night guest inquiries, cleaning logistics, and double-booking headaches. In other words, you’re getting your life back. Here’s how automation can revolutionize your rental game with the right property management software (PMS).

Why Use Automation?

Guest messaging on autopilot

Imagine replying to every guest with a personalized message without lifting a finger. Hospitable’s automated messaging does just that—handling pre-check-in instructions, Wi-Fi password requests, and even a friendly post-checkout follow-up. 

Almost every step can be automated, and the guest will think they interact with you in real-time. You just need to make the messaging as welcoming and natural as possible so they feel like talking to a human being, not a robot. 

Five-star feedback 

The first year an STR is launched usually has lower revenue than years two to five, for a few reasons. Not only do most online travel agencies (OTAs) need some time to push your property higher in the algorithm, but the main reason is the need for reviews.

With automation, you can also set up timed review requests post-stay. Hospitable sends these on schedule, securing more five-star reviews without the awkward “pretty please review us” message. If they believe they had a fantastic experience, we simply ask the guests to leave us five stars. If not, and we could do something better, please let us know in a message so we can correct it. 

Dynamic Pricing and Profit Maximization

Price adjustments, minus the overthinking 

Dynamic pricing tools like PriceLabs and Beyond Pricing integrate with Hospitable, constantly analyzing market trends so you never undercut yourself on rates. This software will use the same technology hotels use to maximize their room rates according to the market each day. 

If you are not automating pricing, you are missing out on money and wasting time. These tools always pay for themselves, averaging around $20 per property monthly. 

A big holiday coming up? Dynamic pricing will adjust for it. Is there a big concert nearby? Yep, it will also adjust based on the demand in the area. 

Prices automatically adjust based on peak season, local events, or orphan days between bookings. Automation isn’t just a time saver—it’s a revenue booster. Learn the inner workings of each dynamic pricing tool and adjust accordingly.

Beyond pricing tweaks  

Not only can you set minimum-stay requirements, but these PMS-integrated tools can also adapt pricing based on seasonal and occupancy trends. It’s all about maximizing every night your property could earn. 

Hassle-Free Check-In and Security

Keyless entry made easy  

Setting up a keyless entry system lets your guests check in any time they like, freeing you from the “What time will you arrive?” text. Hospitable syncs with digital locks, assigning unique codes to each guest that expire upon checkout, boosting security and saving you coordination headaches. 

I always recommend at least keeping one physical lockbox near the door with a key inside in case the digital lock fails. You can include these codes in your automatic messaging and never have to handle a check-in issue again. 

Guest verification? Done  

With Hospitable’s Ad Hoc Guest Verification feature, you can confirm identities for direct bookings or whenever you need extra reassurance. This added security layer helps prevent rowdy or sketchy guests from slipping through while keeping the booking process smooth.

Syncing Platforms and Managing Bookings

Avoid the double-booking disaster 

Picture this: You’re watching TV on a relaxing Friday night. Your guests are checking in soon, and you get a call. 

Guest: Hi, we booked your place, and a guest is already inside! We want a refund right now!

You then realize that VRBO and Airbnb both booked your place on the same weekend. The calendars did not sync up, and now you have to deal with not one but two sets of angry guests. 

Hospitable’s channel manager ensures your calendar is synced everywhere, dodging embarrassing “Oops, we double-booked” messages. Plus, it means all your messages stay in one inbox, so you’re not constantly bouncing between apps.

Streamline direct bookings  

A direct booking website is a great way to increase profits. Hospitable makes building a website easy and integrates with guest communication, guest verification, and payment processing—giving you a one-stop-shop for bookings and brand building. Less time spent on logistics means more bookings with fewer fees. There is no threat of an OTA to shut down your listing because of a terrible guest. 

Cleaning and Maintenance on Autopilot

Cleanings without the guesswork  

Nothing will damage your reviews quicker than a poorly cleaned rental or, worse, a never-cleaned rental. Enter Turno or Breezeway, which integrates with Hospitable. You can set up cleaning tasks that trigger after every checkout, sync them to your cleaners, and even send reminders—no more eleventh-hour panic or arriving guests finding yesterday’s laundry. 

Real-time team alerts 

These software systems will also ensure that important messages, like last-minute changes or check-out delays, reach your cleaning team in real-time. Centralizing communication prevents missed updates and guarantees your property’s always guest-ready.

Financial Reporting and Owner Statements

Automated owner statements  

Managing financial transparency for property owners doesn’t have to be a weekly chore. Hospitable’s Owner Statements feature automates monthly financial reporting, detailing profits, expenses, and occupancy rates. This keeps owners happy and up-to-date, and you from playing the messenger.

Making Money While You Sleep (Literally)

AI messaging features  

Guests love feeling cared for, but that doesn’t mean you must handcraft every message. Hospitable’s AI messaging flow sets up a seamless journey for your guests. You can respond to any guest message instantly based on prior conversations, property details, and any other details you may have added. This means less time thinking about how to answer the guest and more time to catch some ZZZs. 

Cleaning inventory reminders  

You can track cleaning supplies and set an alert for when you’re running low. Imagine never scrambling at the last minute for toilet paper or dish soap again! Amazon can get it there fast, but probably not fast enough when guests need it most. Establishing a cleaning inventory checklist with your cleaners will pay off majorly in the long run.

Less LTR Hassle, More STR Freedom

Automating an STR makes it simpler and even more profitable than managing an LTR. Instead of waiting on monthly checks, doing maintenance checks every six months, or dealing with the occasional late rent, you’ve got reliable revenue from high-occupancy short stays. Plus, with tools like Hospitable, it’s practically hands-free. 

In short, STR automation saves you time, maximizes profits, and keeps your rental running like a dream so you can get back to living yours.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.



Source link

Pin It