Ashley:
If you ever wondered if you really need a realtor to buy an investment property, or have you ever thought about putting 40% down and self-managing making it a smarter move? Well, today we’re going to break that down along with what do you do when a borrower ghosts you? This episode will help you avoid costly missteps and move forward with confidence. This is The Real Estate Rookie Podcast. I’m Ashley Kehr.

Toni:
And I’m Tony J. Robinson. And before we jump into the first question, let’s just give Ashley a big shout out from being so hip that she knows what six seven is. And if you don’t have a kid between the ages of probably, I don’t know, eight and 18, you might not know what that is, but look it up, give yourself a good laugh of going down the wormhole, trying to figure out what it means because we don’t even know what it means. We just know that we should be saying

Ashley:
It. We don’t. But also, Tony brought up too, because before I said I want to say the episode number for this, he said, you do realize this release is in January and it’s probably an old trend by now. So everybody is probably rolling their eyes and every kid that’s sitting in the back of your car right now listening to this is probably like, “That’s so yesterday, that’s old.”

Toni:
That is so yesterday. We’re such millennials.
So my son’s almost 18 and he called me Unc the other day. So I’m like officially my Unc phase. Well, let’s get into the first question for today. Today’s first question comes from McCauley in the BiggerPockets forms. And McCauley says, “I’m looking for guidance on whether or not I am required to use a realtor to buy my second property or not. I hear all of these success stories from so many people about buying rental properties, but no one has ever mentioned if they use a realtor or not. I assume some state laws require you to have a real estate agent in order to close on a house/investment property. My question is, do I need a realtor to buy on/off market deals? And if so, what are some good questions to ask to make sure their expertise aligns with my investment strategy?” It’s a great question.
And it’s the perfect kind of beginner question that I think can maybe put to rest some of the misconceptions that exist out there. As far as I’m aware, and obviously I haven’t purchased in all 50 states, I don’t know of any states that require you to use an agent to transact on real estate. Now, I know there are some states asked like where you’re at in New York where you have to use an attorney for a closing, but attorneys are not agents. So I’m not personally aware of any states that require you to use an agent to transact on real estate. Do you know of any, Ash?

Ashley:
No. The only thing I would think is kind of an iffy area is if the seller has an agent and then you go to buy the property. How would that work? Because anytime I’ve done that, it’s been like a dual agent and they get the 6% commission or whatever, but you sign a form saying they’re representing both of you. So I’ve never experienced or heard of anyone that has went and bought a deal off the MLS and not used an agent, whether it’s the seller’s agent and you’re using that person to represent both of you, or if you’ve gone and gotten your own agent to represent you. So that’s actually a piece I don’t know the answer to.

Toni:
I don’t know either. I’ve purchased quite a few where I’ve gone directly to the listing agent, but I just always offer it to them like, “Hey, I don’t have an agent. You can double in the deal if you want to. ” I don’t need you to, but you can if you want to. So yeah, I don’t know if maybe there is a law or a rule around that. So if you’re watching on YouTube and you have the answers to that question, drop it in the comments and cite your source so we can all go back and double check that.

Ashley:
And don’t cite ChatGPT.

Toni:
Yeah. My good friend Chat said. Even

Ashley:
Though it probably does have the answer.

Toni:
Yeah, it probably does. But I think maybe the main point of this question is just like, is there value? So I think the first part, no. Generally speaking, it is not required to work with an agent. Now, I do think for a lot of new investors, honestly, that there’s value in working with an agent. I think about the first deal that I bought and my agent was an amazing resource, both in terms of getting a better understanding of that area because I was investing long distance, having a connection to other vendors in that market that I was going to need, namely my general contractor that I ended up hiring. So my agent as a first time investor was incredibly valuable, not so much for, I don’t know, like the transactional side, but just their overall knowledge of the market and their connections to other people.
So yeah, I would maybe even just encourage you, McCall, if you’re investing in a market where you’re not super familiar, there is value maybe in having an agent working with you.

Ashley:
And I think too, really sit down and understand what you’re not confident in so you can look for an agent who knows that well. So when I go to a new neighborhood or a new area, I rely on my agent a lot to tell me about the comms, to tell me about the area, what’s up and coming, what’s the bad parts of here, what streets should I stick to, things like that. And I think that has tremendous value. If you need help actually analyzing the deal, make sure you’re working with an investor friendly agent because I work with an agent that does a lot of selling primary homes and not a ton of investment property. And I think I don’t really rely on her at all to actually analyze the deal. I go and do that myself and I feel very confident in that, but I do rely on her.
I rely on her for showings and for a lot of the market analysis. If it’s like a different area of town that I don’t have rentals in, I really, really appreciate the information that she has and she provides for me. And I also rely on her for negotiation as in what are people negotiating in the current market? If I add in a contingency that they need to have the whole house cleaned out, broom swept and leave the appliances, is that going to cut me out as a contender because everybody else is saying, “Leave all your junk. We’ll take care of it. ” So I also rely on her for a lot of the negotiation piece. And as issues come up, even the inspection, I will rely on her as a part of what’s going on in the current market. Are buyers going to take care of this or the sellers take care of this?
So I think there is a lot of value in using an agent, but you have to know going into it, what do you need help on? Because you could get an agent that has no idea what the rental comps are and you needed help on that. And then it’s not going to be as valuable to you as you thought using an agent was.

Toni:
Yeah. Great point, Ash. That nuanced information they have about the market is really important. I met an agent once who sold property in Florida and she told me to not buy homes in her city that were built in the ’90s. And she’s like, “Any other decade, you’re fine. But the ones in the ’90s, she’s like, I bought and sold a lot of houses in this market. Those ones always suck when it comes to getting flood insurance.” She’s like, “I don’t know why, but insurance companies hate the homes from the ’90s.” You only get that kind of knowledge if you’ve done a lot of deals in a market and agents sometimes have that expertise. And then on the other side that I mentioned of just their network and their contract or their contacts, I went out to Oklahoma City. I’ve talked about it a few times in the podcast over the summer and I met with an agent who I found through the BiggerPockets Agent Finder and she gave me the lay of the land, but then she introduced me to, “Hey, here’s an insurance agent for this market.
Here’s a contractor, here’s a handyman, here’s some property management companies.” Literally gave me an entire Rolodex of people that I could then go out and network with to build my team of people to be able to do this remotely. So the right agent I think can make your first deal exponentially easier because of their knowledge and their Relodex of folks they can introduce you to. And then the last part of that question was what questions as a rookie investor should I ask an agent? First, find your agent from the BiggerPockets agent finder because those are typically folks who know and understand what it means to work with an investor and not general retail buyers who are looking to buy their dream home or their starter home. So first just make sure you’re going to the right place. But second, ask them, “Hey, how many transactions did you do last year?
Did you do five or did you do five a month?” And of those 60 that you did last year, what percentage of those were sold to real estate investors or were you working with a real estate investor? And if it was one out of those 60, okay, that’s kind of telling. If it was 49 out of those 60, then maybe that’s a different story. So I think just getting a sense of what percentage of their current client base is an actual investor will give you a better sense of if they’re the right person for you to work with as well.

Ashley:
Okay. We have to take a short break, but when we come back, we’re going to go over running the numbers and deciding how much to put down on a property. We’ll be right back. Okay. Welcome back. This question is from Abdul and the BP forums. I’ve been running numbers for a while now and came to a conclusion that in today’s market and going through conventional investment loan, which is a half or a percent higher depending on your LTV and DTI, it is better to put 40% down and self-manage to generate cash flow. Does anyone else run into this situation? I think this is a great example of not comparing apples to oranges. So when we talk about down payments and we talk about generating cash flow, Tony can say, “I have this property and I generate $1,000 in cashflow and I can say I have the exact same property, but I generate $500 in cashflow.” And then I think, “Ugh, Tony’s doing better than me.
Tony’s got a better deal, blah, blah, blah.” But you have to know the insides of the deal as to, well, Tony paid cash. He doesn’t have a mortgage payment. That’s why he is cash flowing $1,000. I have a mortgage payment, so I’m paying the mortgage. That’s why my cashflow is less. So you have to look at other factors to actually determine how these deals are comparable. And one of those things to look at when you’re deciding on putting a larger down payment is your cash on cash return or any down payment in general as to will the deal still make sense not only to generate more cash flow because Tony could be generating more cash flow, but he could have way less return on his money and could have done better investing that money somewhere else instead of dumping it into this property. If he bought a $500,000 property in cash and he’s only generating $1,000 per month, that’s actually not that great of a deal, in my opinion.
So I would say look at the cash on cash return and not just look at the cash flow that the property is generating. And if you are going to self-manage, I would still look at the numbers if you outsource it. If there is some kind of change in your life that requires you to outsource it or you get burnt out or you just don’t like it, bake it into your numbers so you know going into it, you can still generate some cash flow and keep the property afloat if you were going to hire out the management piece.

Toni:
Ash, let me ask you, because I think that there’s always nuance to this, but I mean, for Abdul to say very matter of factly that it’s better to put down 40% and self-manage, that’s a very case by case basis on how we can actually respond and answer to that question. A lot of it comes down to the market that you’re buying in. A lot of it comes down to the buy box that you’re going after, the strategy that you’re going to employ with that property. But I think to say that as a rule, 40% in self-managing is always the best option is a hard thing to state. If in your market updal and for the specific type of property, buy box strategy that you’re going after you find that to be true, then maybe this solution is not necessarily putting down 40%, maybe it’s putting down 20%, but going to a different market.
If you’re in an area where only 40% down works, well then go find one of the other 20,000 cities that do allow you to put down 20% and still get meaningful cash flow with having a property manager. Maybe try a slightly different strategy where instead of buying a single family home, maybe you’re buying a small multifamily and maybe instead of doing a traditional long-term rental, maybe you’re doing rent by the room or midterm rental to short-term rental. So I think if what you want is a less down payment and to have a property manager, don’t box yourself into looking at the same places you’ve been looking at because it’s not working there. It doesn’t necessarily mean that it won’t work in a different market somewhere else.

Ashley:
I think the last thing too is the emotional piece to it. If you’re going to put 40% down as us wiping out every dollar you have in your life savings and all your money is going to be tied up into this property. Are there other opportunities that you can use some of this money that may be a better opportunity? Also, would you actually sleep better at night if you had more equity in the property and did put that 40% down? Would you feel better not having so much debt and so much a leverage on the property? So I think there’s definitely an emotional piece. And also, would you actually want to self-manage the properties and do you have the time to do it? Do you have the skillset? Do you have the tools and resources to actually self-manage? It is 100% doable, whether you are a stay-at-home mom or you have a demanding W-2 job if you put the right systems and processes in place.
We actually have a really great book on BiggerPockets. It’s called the Self-Managing Landlord, and you can find that in the BiggerPockets Bookstore by going to biggerpockets.com/abookstore. Okay, we’re going to take our last break and we’ll be right back. Okay, let’s jump back in to our last question here. This question comes from Craig and the BP forums. So I sold a property to someone and I carried the loan as in they did seller financing. This person stopped making payments and I foreclosed on him. The property is now in my name, but he walked away and left everything from furniture to clothing and everything else. It’s like he never left, though according to neighbors, he hasn’t been seen on the property for a good six months about the time I started the foreclosure proceedings. This is all new stuff too, not junk. I’m in Northern California and we’ll be getting legal advice, just getting educated before I dig deeper into this.
The man I’m dealing with has a history of frivolous litigation and dishonesty, which is why I haven’t contacted him yet. What could he be up to and what are my responsibilities? Tony, once again, your backyard causing problems for landlords because they’re so worried about- What’s going to happen? … what you could legally do.

Toni:
Yeah. It’s funny, we had a somewhat similar issue with our hotel in Utah where in addition to the hotel, it actually also came with 13 storage units and we’ve had such a hard time tracking down who owned the things that were in these units because we weren’t getting paid for about half of them. And the previous owners didn’t know. They just didn’t even worry about it. They’re like, “Hey, it’s been there for years. We’ll just leave it there.” But obviously we want to be able to maximize that revenue. So we actually reached out to an attorney in Utah and explained the situation and got guidance from them on what steps do we need to take to do this. Now, obviously this is a self-storage unit, which is different from a single family home where you had a lease and they didn’t pay, but basically we had to go through this process where we put a public notice in a newspaper.
We had to get them a certain amount of time to reach out to us and contact us. And if they didn’t, we had a date that we’d be auctioning off their things or selling their things or disposing of their things, but there was a very clear legal set of steps we had to take to dispose of their items without breaking the law. So Craig, I don’t know what that process is in California, but I would assume there’s probably some sort of path you can take given that you’ve already foreclosed and this property now belongs to you of what you can do with those items. It could be as simple as like, “Hey, you own the property, you own everything that’s inside of it as well.” That could be the simple answer or it could be, “Hey, maybe the previous person still has some claim to it.
” But I would probably just reach out to a good attorney, explain the situation and let them give you their best advice.

Ashley:
My guess is that you’re going to have to do an eviction proceeding because in New York, I know if you bought a property that was foreclosed on from the bank, you buy it from the bank. If there are people occupying that property, you have to actually evict them. Even whether they own the property or they had a lease or not, you have to do an eviction on the property. You can’t just kick them out and throw their stuff out. And with this person being completely dishonest, and this is one thing we always make sure to do is even if another tenant tells us like, “Oh, that person moved out, they’ve been gone, blah, blah, blah, they left.” If they have stuff in there and it’s not super evident that they have left or they haven’t given us communication that they left the property, we go through the foreclosure process of having them served.
And obviously if they’re not there, we have it slapped to their door. We always use a third party to serve the affidavit, and then they sign an affidavit saying that they tried three times, a person didn’t answer, so they put it onto their door. And then when it’s still no communication, nothing, whatever, then we go through and start the eviction proceedings. So I’m assuming California probably has a long eviction period just like New York does, but that is probably, I would guess, what the recommendation is going to be is to start that eviction proceeding that you want them out of there. And obviously it wouldn’t be for nonpayment, it would just be like you’re giving them notice that you’re no longer renting to them. And I know some parts, I don’t know if it’s all California or some parts, but there’s something about if you can’t not renew their lease, so there has to be something where this person doesn’t even have a lease that you can go ahead and evict them from the property, but I’m going to guess that’s what your first step is going to be is actually going through the eviction process.
But I would say it wouldn’t hurt to reach out to the person and to ask, “Did you vacate the property? Did you move out? ” And if you can get them, I would put this into an email and have them respond in an email. I wouldn’t do this over the phone, but if you could get something in writing or better yet, send them something to e-sign or have them sign something that’s notarized saying they have vacated the property. So you say, “Okay, they vacated the property. Next step, you’re getting dumpsters, you’re throwing out all their stuff. They left it behind. They have moved out. ” And then you have something that’s notarized that’s stating that they moved out of the property, they’re gone, whatever, if they do try and come back after you for throwing in all their stuff, you have some kind of notice.
But again, talk to your attorney, but I would guess that’s kind of where you’re going to be at is starting the eviction process.

Toni:
So Ashley, let me ask, because obviously you know landlord tenant laws far better than I do. In this case, he sold the property to that person. So it doesn’t seem like there was a lease in place. So you’re saying even though there wasn’t a lease, the simple fact that they had tenancy there would still force you to evict them even if the foreclosure had already closed? That’s interesting. I wouldn’t have thought that.

Ashley:
Yeah. Think about squatters. You could have not owned the property, you could have not had a lease and you could literally go into the property and just say, “Hey, I live here now.” And still the person, the owner would have to go and evict you. So yeah, especially in California, I would say that that’s probably even more lenient of being able to, that person have a claim to the property still.

Toni:
Yeah. Some things just seem backwards, right? It doesn’t seem right that someone could not pay me money, completely not fulfill their obligations, and then I’ve got to rent the cost of getting them out of my property that they already weren’t paying for. So I don’t know. We’ve got to find a better solution for that.

Ashley:
Well, thank you guys so much for joining us today on Ricky Reply. I’m Ashley. He’s Tony. And we see you guys next time.

 

Dave:
These are the best markets to buy rental properties right now in early 2026. If your local market is too expensive or you’re hunting for a new city with serious profit potential, deciding where to invest is arguably the single biggest choice to make as an investor. So today we’re breaking down exactly where smart real estate investors should be looking for new properties right now. We’ve crunched the numbers and in this episode, we’re going to unveil nine prime spots across the country where you should consider buying property today. What’s going on everyone? I’m Dave Meyer, head of real estate investing at BiggerPockets. On today’s episode, we’re giving you our list of best investing markets right now, and this is always one of our most popular episodes of the year. So we’re back in January of 2026 with an updated edition. The timing right now really couldn’t be better for refreshing our market recommendations because the real estate landscape shifting pretty fast right now and investing conditions are really diverging.
They’re wildly different in different regions of the country. So figuring out the right place to invest is more important than ever. So in today’s show, I’m going to highlight several markets that have caught my attention personally, but on the show we also have host of the Real Estate Rookie Show, Ashley Kare joining us. And of course, we also have Henry here as well to share his picks. Ashley, Henry, good to see you both.

Ashley:
Thank you so much for having me.

Henry:
Hey, glad to be here. Thank you.

Dave:
All right. Well, let’s just get straight into it. We’re each going to cover three different markets. I don’t know why this is just the format that we made up last year and it’s been very successful. So three is the magic number. And Henry, I’m going to pick on you. You got to go first. So name your first market. Which one caught your eye?

Henry:
I choose my markets based on that they have cashflow potential where you could potentially get a deal on the market. So I’m looking for a solid rent to price ratio and I’m looking for the median housing price to be in an air quotes affordable range. If I can get a solid rental price ratio and an affordable home price, that tells me there’s probably deal availability on the market should you choose to because I want most people to be able to have access to buy deals here. I don’t want to just pick markets where you got to go off market.

Dave:
Awesome. All right. So tell us what you found.

Henry:
First market I picked is Hattiesburg, Mississippi.

Dave:
I couldn’t tell you a single thing about it.

Henry:
That’s the response I

Dave:
Was

Henry:
Expecting.

Dave:
That’s what you want. Yeah.

Henry:
That’s what you want. But I choose this market. A, it’s a college town. B, it’s got a high rent to price ratio. It’s got relatively low vacancy for a smallish metropolitan area, and it’s a landlord-friendly state. So the median home price, who wants to take a guess at the median home price in Hattiesburg, Mississippi?

Ashley:
175.

Dave:
Yeah. All right. Ashley probably got it. 175.

Henry:
192,000 median price, but the median rent is guess what?

Ashley:
2,200.

Henry:
Whoa. 1,456.

Dave:
Okay. Yeah, there we go. Ashley’s just envisioning paradise. It’s like a rental paradise.

Henry:
But I mean, with those numbers, with the median home price at 192, that tells you on the market you can find homes listed for less than 192, but the median rent’s about 1,500. That’s cashflow on the market. You can probably find a deal listed that will make you some money as it sits. So that’s a rent to price ratio of about 0.76 with a vacancy rate at 6%. That’s really, really solid. So I like the fundamentals here. Yes, you can buy a deal on the market that probably makes sense, but if you’re going to look off market, you can probably find some really great deals and get great year one cashflow, which is hard to do in a lot of markets. You’ve got great jobs because the university and healthcare systems are the major employers in the area. Those are solid job options, as well as if you look at what’s coming to the area, there’s a company called Rouses Markets, which is expanding and entering the city through acquisitions.
So we’ve got more jobs coming in the food space. FedEx is opening a logistics facility in the area. I

Ashley:
Like that.

Henry:
And you’ve got ongoing reinvestment projects and logistics tied to those healthcare companies. So the city’s investing in the downtown. Companies are investing in the market to make sure that they’ve got amenities for their employees, and you’ve got new employers like FedEx and food companies like Rousers coming into the city. So you’ve got growth. And another reason I chose this is they don’t have a ton of new development going on. In other words, they’ve got about a 50% ratio in terms of new permits coming into the area. So it’s not going to be an area that is overbuilt going into the future. So it’s just a solid market. It’s what you’d call a baseit or a double market. You’ve got great jobs, you’ve got growth in the economy, you’ve got low vacancy, and you can buy properties at cashflow.

Dave:
I mean,

Henry:
It’s just solid numbers. They’re not the most amazing numbers for our market, but it’s affordable and it has good numbers.

Dave:
All right. I like this one, Henry. Very good. Ashley, what’s your first one? Is this the one we’re going to hate?

Ashley:
It is because I think it was the last episode we recorded where we all screamed out the state we would never invest in and you guys both said Florida.

Dave:
Okay. All right. I already hate it.

Ashley:
So this one is Ocala, Florida. It is located in between Tampa and Orlando, and it is home of the World Equestrian Center.

Dave:
Ooh, okay. All

Ashley:
Right. One reason I chose it is because it’s dead center and hopefully we can get better insurance because it’s not on the coast of better weather. But the big part of picking this one was because of the affordability, the rent prices you can get, but also that there’s so much new development going on there. 263 acres of sport complex is being put up. Since 2020, the city population has grew about 10%. It’s considered one of the fastest growing metros in the US right now for Marion County, which it’s located in. The average home value is about 267,000.

Dave:
Okay, that’s pretty good for Florida.

Ashley:
Yeah. And then rent varies. I found two different sources. One said the average rent is around 1,300 per month. Another source on Zillow said 1,700 per month.

Dave:
Oh, wow. Okay. That’s pretty good. I actually think there are great markets in Florida, and this happens to be one of them. Ashley, can you say a little bit more about it being in the center of the state? Because I’ve been reading a lot about that and why that’s so valuable.

Ashley:
Well, first of all, you’re more protected from hurricanes coming through being in the center than you are on the coast. Insurance, you’re going to get better insurance because you’re not in a flood zone. And then also you’re located in between two major airports of Florida for easy access. And I did read something too where they’re trying to get approval to actually build their own airport in there because of just the equestrian world deal that’s going on there.

Dave:
All right. I like that. Actually, I was reading some article, I think it was at Redfin, and they were talking about how there’s been all these predictions about how there’s going to be climate migration because of hurricanes or whatever. And what they actually found is that most of the migration due to extreme weather is within the same state, that people aren’t saying like, “Oh, I’m going to leave Florida. I’m going to move to Minnesota.” What they’re doing is moving from Cape Coral or Tampa to Ocala? How do you say it? I think Ocala. We’ll find out in the comment. Orlando. Yeah. Yeah. Everyone in the comments will tell me Orlando. So I do think that is a really interesting trend to be able to capitalize. And obviously, even though Florida’s a little bit volatile for my liking, obviously there’s a lot of good economic population demographic things going on in Florida.
They’ve been talking about getting rid of property tax. I’m skeptical that that’s actually going to happen, but if that actually does happen, that would be pretty crazy. It would probably help the housing market recover there. So I don’t truly hate this. I just pretend hate it for the show.

Ashley:
They do have a good … It’s a 3.3 ratio for every one person that leaves Ocala, 3.3 people come into it.

Henry:
Wow. That’s pretty crazy. So growth is nuts.

Ashley:
And then also 50% of the people rent there too. All

Dave:
Right. You might be winning so far, Ashley. That’s a lot of good stuff right there. I mean,

Henry:
In between two major metros is awesome.

Dave:
Speaking of two major metros, my first one is also between two major metros and it’s a pretty solid market in itself. I set out today to try and find some contrarian ones. I wanted to find some in the Northeast because people say you can’t find cashflow there. I’ve tried to find some in the West and just completely failed. I couldn’t find anything good, but I did find one in the Northeast. It is Hartford, Connecticut. And as Henry said, being between two major metros is great. Hartford, Connecticut is kind of sandwiched right between New York City and Boston, two of the biggest economic engines in the entire country. And it is way, way, way more affordable. So New York and Boston price is easily a million dollars to buy something in one of those cities. But if you look at Hartford, Connecticut, the median sale price, 320,000.
So for the Northeast, that is pretty good. And you’re still, you’re getting rents at about 2,000. So you might be able to get some right off the back cash flow. I’m guessing you’re probably going to have to do some value add, which is totally fine. I mean, for me, at that price point, you hopefully have a little bit of money to be able to invest in that. And it has a really good solid economy. It’s one of the insurance capitals of the entire country. A lot of businesses that have satellite offices from New York or Boston do it there. A lot of people who potentially have hybrid work situations and only have to go once or two days a week into Boston, New York can live in Connecticut. That’s what Connecticut is booming right now. And so it’s great. It’s a pretty recession proof economy.
The Northeast typically is a pretty stable economy because there’s so many big companies there and it’s affordable. So I really like it. It has some of the highest appreciation rates in the country right now. And it’s just totally underbuilt like a lot of the Northeast. There’s just not a lot of development going on. And so you probably have some legs behind you on that. So I really like everything that I’m seeing in Hartford, Connecticut right now.

Henry:
I mean, I’m going to use my official/unofficial powers in this episode to go ahead and deem you the round one winner because Connecticut is such a sleeper market. Right? So many New Yorkers live in Connecticut and commute. What I like about Connecticut is the density of small multifamily. I just love small multifamily in general. And those 20 units and under, there’s a ton of them, tons of them. And you can get great deals on them. Rents are amazing. It’s just a sleeper market in turn. If you like small multifamily, man, you can do great out there. And I just really like it.

Ashley:
How are the tenant landlord laws in Connecticut?

Henry:
It is not as landlord friendly as the South, but is not as tenant friendly as New York by any stretch. So I’d say it’s somewhere in the middle in terms of that. Which I’m okay with. I’m okay with

Ashley:
Middle. If I can make it work in New York, Connecticut. Right.

Dave:
For sure. Right. Yeah. Yeah. You’re only going up, Ashley, from where you are. All right. Well, let’s take a quick break, but when we come back, we’ll do round two with our best markets to invest in 2026. Running your real estate business doesn’t have to feel like juggling five different tools. With ReSimply, you can pull motivated seller lists, skip trace them instantly for free, and reach out with calls or texts all from one streamlined platform. And the real magic, AI agents that answer inbound calls, follow up with prospects, and even grade your conversations so you know where you stand. That means less time on busy work and more time closing deals. Start your free trial and lock in 50% off your first month at resimply.com/biggerpockets. That’s R-A-S-I-M-P-L-I.com/biggerpockets. Welcome back to the BiggerPockets Podcast. We’re going through our favorite markets to invest in 2026. Henry, you went first last time, so I’m going to go back to picking on Ashley.
Ashley, what’s your round two pick?

Ashley:
So this one, I went for a short-term rental market, and I ended up picking Fredericksburg, Texas. So the reason I chose this one is because it’s close to Austin in San Antonio, and it just has a lot going on. A lot of festivals, wineries, culinary tourism. Oh,

Dave:
It’s got a cool downtown. I’m looking at it right now.

Ashley:
It is a little bit more expensive than the usual markets I pick. So the median home value is 514,000.

Dave:
Ooh, okay.

Ashley:
The long-term rent isn’t that great, but for short-term rent, the average nightly rate was $254 per night, 48% occupancy, and the annual revenue per listing averaged around 45 to 50,000 a year.

Dave:
Wow.

Ashley:
So a big part of this one was really just the draw to it. As an investor, I don’t want to invest in a short-term rental in a big city where there’s a lot of major hotels, things like this. In Fredericksburg, there’s just starting to be development of bigger hotels. The Waldorf Astoria is starting to develop a hotel there. So kind of like doing the Starbucks model of following where they’re going.

Dave:
Nice. I mean, that makes a lot of sense. Yeah, that’s a really good idea. It looks very cool. I’m just looking at some pictures right now. It just looks like a fun place to go. So is this the kind of town though where you could rent this out and make money long-term if you needed to, or are you sort of going all in on short-term rentals here?

Ashley:
Yeah. Long-term rentals, you’re only seeing like $1,200 a month. Oh, wow. Yeah. So very well.

Henry:
Wow. So you got to be an experienced operator in this because this sounds risky to me. I mean, I’m not going

Ashley:
To lie. This would be for a short-term rental, this would work. Long-term rental, no.

Dave:
So this is a play where you’re really going to make a high quality short-term rental experience. You’re kind of like making a destination property.

Ashley:
Yes. Yes.

Dave:
All right. Well, I don’t know. Ashley, this one’s a little risky for me to be honest, but I’m not a short-term rental expert, so I might not know. But I would go visit Fredericksburg. It looks pretty fun.

Ashley:
We’ll have to ask Garrett on bigger stays for his opinion.

Dave:
Yeah, we’ll have to ask Gary about this one.

Ashley:
Because he’s from Texas too.

Dave:
Oh, he is. Yeah. We’ll have to ask them about it. All right. I’ll go second on this one. And mine, now I’m going down to the southeast with both of you as well. I’m going to Knoxville, Tennessee. I really do. I like this market a lot. Great market. So we’re seeing prices about 300 grand, which is pretty good, pretty affordable compared to everywhere else. Rent’s pretty solid at about 1,800 bucks. So I mean, you’re not getting amazing cash flow right away, but you probably still can. But there’s just so much to like about the economy. And I actually did a little bit of extra research here because I just wanted to give people an example. When you just look up the rent to price ratio of an average city, this one comes in at 0.6. Not terrible. There’s like value add, you can make that work, probably not going to work for everything.
But I specifically started digging into it because I was curious per Henry’s comment about like, are there small multis? That’s what I like to buy in Knoxville because I don’t even know what kind of housing stock there is. And there are. And when you actually look at the rent to price ratio for small multifamilies, it goes up to 0.75, which doesn’t sound like a huge difference, but that’s a big difference. That’s the difference between probably getting year one cashflow and not getting year one cash flow. So I really like to see that. It has really strong population growth at 1.1%. You have the University of Tennessee as their largest employer. Other largest employer, top five, Dollywood, which I’ve never been to, but I want to go to. So that was exciting. Unemployment rate at 3.1%. Rent is still good. And fun fact, it’s the birthplace of Mountain Dew, which I also enjoy.

Henry:
So there you go. What I like about this market is you can do a little bit of everything. I think you can find deals that work if you’re willing to put in the work in a market like this. It’s a college town, which means there’s going to be growth and jobs. It is not far from Asheville, North Carolina, which is a good real estate market in itself. It’s not far from Pigeon Forge, which is a great short-term rental market if you wanted to get into short-term rentals. I just think it’s got variety of entry points, which is solid.

Dave:
It’s just a great solid market. I think it has a lot of upside too. It’s solid today and might become a growth market in the future. And so to me, that’s kind of the perfect experience. Very low risk, high upside, affordable entry point. I’m like in Knoxville. Henry, you got to go. What’s your second round pick?

Henry:
Look, man, I’m telling you, I like old boring real estate, so I didn’t pick exciting markets. I just picked markets with solid numbers. Second pick, Morgantown, West Virginia.

Ashley:
I just saw West Virginia on a list of top 10 states of where people are leaving.

Dave:
Yeah, it’s a sad situation there. Their economy is really rough.

Henry:
Here’s why I picked it. Median home price, 237,000, median rent, about 1552. So that’s a 0.65% rent to price ratio. It’s got 6% vacancy. Unemployment’s at 4.4%, but one year job growth, around 2%, five-year job growth around 2%. Okay.

Dave:
Oh,

Henry:
That’s

Dave:
Good. So

Henry:
Growth in jobs, small growth, and I know you said people are leaving, but I believe there’s a one or 2% growth in population. But I think this is because it is a college town. It’s the University of West Virginia, which is a Big 12 school. This is a big school, big basketball school. So lots of people end up coming to this metropolitan era. Now, do they stay here after they leave college? That’s a different thing.

Dave:
I want to just say, I think people look at state level population a little too much. I invest in Michigan. It’s a state that has very bad population numbers, but there are very good population numbers in certain cities and I don’t really care what’s going on in the state as a whole because a lot of people might be just moving from within the state to the one or two cities that have good job growth and good economic prospects. And so I just think population is really much more important on a local level.

Ashley:
A lot of the numbers are.

Dave:
Yeah. I mean, yeah, that’s true. Pretty much everyone.

Henry:
But look at the employers. That’s why I like it. So the University of West Virginia, about 7,000, 6,500 employees, that’s big. West Virginia Medical, about 7,000 people employed there. And then Monday Health, which is about 3,000 people. So heavily invested in healthcare, but typically a lot of college towns who have medical schools, that’s what they have in that area. And then Kroger is another big employer in the food space there. So solid jobs, solid schools, solid healthcare, downtown revitalization projects going on. I always like to look at, is the city itself spending money making the place better? Because if the city’s not doing that, then it’s probably not a place where people want to live. But the city itself is spending money there developing a rail transit system to connect people outside of downtown to the downtown area. And then the University of West Virginia is putting a lot of money into expanding its facilities in that area.
So the businesses that are there are spending money and staying there and the city is spending money trying to make the area better. It’s a big school, big 12 school, and you’ve got solid numbers at 237,000 with $1,500 of rent. So you can find deals maybe on the market that makes sense, but if you’re willing to put in a little work, you can probably find really great deals. So just a boring fundamental market. Is West Virginia the sexiest state in the world? No, but we’re not looking to invest in sexy places. We’re looking to invest in places and make money.

Dave:
I don’t know much about West Virginia personally, but I think it goes along with some of my beliefs about the Midwest that affordability is going to drive performance for a lot of places. You see some negative things about the West Virginia economy, so that would be my major thing. But if job growth is happening in Morgantown in particular, that would alleviate-

Henry:
Jomp growth and population growth.

Dave:
Yeah. I mean, that’s true. If you have both of those things, then maybe Morgantown is one of the areas in West Virginia that has grown. So I like it. It’s very affordable. Good place to get into the market, probably going to get good renters. So I like it. All right, let’s take a quick break, but when we come back, we will do around three of our best places to invest in 2026 discussion. We’ll be right back. Welcome back to the BiggerPockets Podcast. I’m here with Ashley Kier and Henry Washington talking about our favorite places to invest in 2026. And I am going with a place that I have actually long thought about investing in. I’ve been looking at deals here for like four or five years and have never pulled the trigger. It is Kansas City, Missouri.

Henry:
Oh, man. I

Dave:
Like Kansas City a lot because it is … If you look at the geographic center of the country, it’s like plop in the middle and it’s like the major intersection of highways and railroads, which makes it one of the logistics capitals of the country just for infrastructure and logistics, which is a really recession proof thing. And I really just like those kinds of solid, blue collar kind of jobs that get a lot of investment from the government, that get a lot of investment from the states. You get a lot of colleges there. There’s just all sorts of stuff going on in Kansas City, but it’s still super cheap. The median home price is 280, rents around 1,500. So cashflow is possible, but the things that I really like about it is just the straight up affordability. The home price to income ratio is 2.3, which is really low.
The country as a whole is about 4.4. So just you can buy a lot of house with your income there. And I think that bodes well for housing demand. It’s also one of the few cities in the country still that is not rent burdened. If you haven’t heard that term, economists, budgeting, personal finance experts say that if you spend more than 30% of your income on rent, you are rent burdened. And like most cities in the country, like the average person is rent burdened, not in Kansas City, which makes me feel like I would be able to find tenants who can pay. I’m not going to have problems collecting rent. And it means that there is potential for rent to grow in the future. Both are good things. There are a lot of investments going in the area. Panasonic just put in a battery plant.
Garmin is expanding in the area and perhaps more important than everything. Kansas City has more barbecue restaurants per capital than any other city in the world. This is true. It’s fast. And I’m going to get a lot of hate for this. I like Kansas City Barbecue. I’m a big fan of Kansas City style barbecue and I want to go eat there. And Henry, you and I talked about this all the time. I like to invest places I like to go eat. And so Kansas City is very high on that list.

Henry:
Kansas City Barbecue is delicious. Kansas City is kind of a conundrum. It’s interesting because a lot of the development on the Kansas side is fairly new.That’s where I think they have a NASCAR track that’s on the Kansas side. I believe the MLS team, the soccer team has a big stadium that’s on the Kansas side and like lots of new stores and infrastructure. So lots of restaurants, outlet malls, the casino I believe is on the Kansas side. So investor heavy market, so lots of competition.

Dave:
Yeah, that’s true. I think that is a good point.

Henry:
But again, lots of small multifamily. It’s a market where you can get lots of small money, but also lots of older buildings, older homes. So you got to deal with the problems that come with those things. But I like the market. Yeah.

Ashley:
Do you guys have a preference as far as which side of the city you’d rather invest in?

Henry:
Most people invest in the Missouri side because that’s where most of the housing is. There’s not a ton of housing on the Kansas side. Yeah.

Dave:
Okay. All right. So that’s my first one. Henry, what’s your round three pick?

Henry:
Round three. My round three prick is one that I didn’t really know going into this, but it is Peoria, Illinois.

Dave:
Oh yeah. This is like on the top of every list right now.

Henry:
So I picked Peoria, Illinois because again, the pricing and fundamentals are ridiculous. What do you think the median house price is in Peoria, Illinois? 220?

Ashley:
180.

Henry:
167.

Ashley:
Whoa. Okay.

Henry:
Wow. 167 with a median rent of about 1260, so just under 1300 for median rent. So again, 0.75 rent to price ratio. Vacancy’s high though. 12% vacancy. So that means people have options. So you got to make sure your rental’s on par. One year job growth, 1%, five-year job growth, about 2%. But the reason I added this to my list was I wanted something that had a little bit bigger of a metropolitan area compared to my other two. Population of about 400,000, so 398,000. Wow. The city of Peoria itself is 110,000, but the metropolitan area puts you at about 400,000, which for that price point is pretty unusual to be able to have a … Because that lets you know that there’s people. People are living there. Population is average population growth, average job growth, which is solid.

Dave:
Yeah. Wow.

Henry:
The top employers in the area, again, healthcare, OSF healthcare, 14,000 regional employees. Healthcare’s massive there. Then Caterpillar, the heavy equipment brand, 12,000 employees

Dave:
There. Oh, okay.That’s big.

Henry:
So you’ve got jobs in heavy machinery, you’ve got jobs in healthcare, you’ve got them spending money again on revitalizing the downtown area. I mean, Illinois, as we showed on the Cashflow Roadshow, is just a great market where you can buy cashflow, and this is no exception to that. If you don’t want to be in the hustle and bustle of Chicago, then you can still find great numbers in a place where you’ve still got a decent sized metropolitan area. You’ve got lots of small multifamily options there. I mean, at those numbers, you can absolutely buy something on the market that makes sense. And so if a big city like Chicago scares you, even though it cashflows, then you can go out to a less industrial city and you can still find great numbers. So there’s markets all over the country in these little pockets where if you look at the fundamentals, the fundamentals make sense.
Are they the sexiest places in the world? No, they’re not the sexiest places in the world, but some of these numbers are pretty sexy.

Dave:
Honestly, there’s so many times we have people come on the show and they’re operating in their hometown. And maybe if you live in a big city or you’ve never been to these towns, they seem kind of random, but there’s absolutely great fundamentals and they’re easy to get to know and there’s less competition to Henry’s point earlier. There’s a lot to really like. I hear these people just investing in their hometown, cities of 50,000, 100,000, 200,000, people doing great, doing fantastic. Sometimes I’m just jealous. I’m like, man, that’s just a manageable market with low competition. You could probably do really, really well there. And so I like these kind of markets, especially if you just commit to it and just like, I’m going to learn this market, like the back of my hand, you’re probably going to do very well.

Henry:
Yeah. I mean, and that’s what you have to do. I see all the comments on posts like, “Oh, you could buy cheap houses, but nobody wants to live there.” Look guys, you’re not going to find a major metro with super cheap houses that nobody’s ever heard of, that you’re going to be able to buy a house and make a ton of cash flow. You’ve got to look at some of these ancillary markets that are closer to some of these big cities, which you’ve got some examples of in this show. This is what you want to do. Yes, there are sub $200,000 homes in America, and there are markets where those homes exist and you can make money. So what we’re trying to do is show you where you can go and find some of these amazing fundamentals. Like I said, they’re not going to be the sexiest places in the world, but we don’t need the place to be sexy.
We just need the cash flow to be sexy.

Dave:
All right. Well, I like it. It’s another good choice. Ashley, round us off. What’s your third round

Ashley:
Pick? My last one is Winston-Salem North Carolina.

Dave:
I almost did this one. It’s a good market.

Ashley:
This metro population, 684,000. The median home value, 250K to 280. The typical rent for a single family home is around 1,600 per month. The vacancy rate is 9%, 2% employment growth. This stood out to me here in the last five years, there’s been 2.6 billion in investment in the area, making 6,600 new jobs. And right now in the pipeline, there’s 11 billion in planned development that would lead to 18,000 potential jobs. So the major kind of industries, the employers here are … Wake Forest has a big healthcare system, Atrium Health, Wake Forest Baptist. Of course, the university, there’s a 330 acre innovation quarter and then a lot of corporate and manufacturing. The Haynes brand is there. And then some government services in there too.

Dave:
I really like Winston-Salem. I almost picked this city as well. I like everything going on in North Carolina, to be honest. I just think it’s a really solid state. There’s so much to like about the economy, population growth, just everything going on

Ashley:
There. Low property taxes, land friendly.

Dave:
Low corporate taxes, so a lot of businesses are moving there. There’s just a lot to like in North Carolina. And Winston-Salem is still relatively affordable compared to Raleigh, Durham, which has exploded over the last couple of years. Charlotte’s gotten is still relatively expensive for how big of an economy it is. But Winston-Salem, Greensboro, which is close, they’re both a little bit more affordable. So I’m all in on this place. I love this one actually.

Henry:
Well, that’s what I was going to say is you’ve got that sister city of Greensboro, which is about a similar size to Winston-Salem and only about 30 minutes away, which in the grand scheme of driving is like the same city. So you really get a two for one with this market.

Dave:
All right. Well, very good one. I’m not going to argue with this. I don’t know. Are we picking winners? Ashley, you win this round.

Ashley:
I’m just going to keep doing the same strategy. Piggyback off of another great one. We did another time.

Dave:
I like it. Well, I don’t think we awarded anyone a winner for the second one. So Henry, we’ll award you that winner. So we each win one and we all feel good about ourselves. And we’ll come back to do this again later this year when we do it because I’m joking, but I really think this is valuable because one, these are good markets. If you want to consider for yourself, if you’re investing out of state or you’re just trying to learn how to research markets, hopefully you see the thought process here. There’s a lot of things that Ashley, Henry and I are talking about, whether it’s economic growth, population growth, but ultimately it really comes down to your own strategy. Ashley picked a place in Florida that I wouldn’t choose, but is great for certain people. Henry picked Morganstown, West Virginia. I probably wouldn’t invest there.
It probably works really well for certain people. Whereas I’m sure Ashley and Henry probably wouldn’t invest in some of the markets that I picked. And so the key thing here is to learn the variables and the data that you should be thinking about because then going out to get it is pretty easy. You can look this stuff up on Zillow or Redfin or ChatGPT. It’s just learning the process of thinking about which markets to invest in. That’s why we do these episodes, not because we want you to pick one of these nine markets in particular, but just so you can see how to think through these questions.

Henry:
We’re not trying to tell you where to invest, but Dave, come on, the people want to know. If we had to pick one of these nine- Ooh, that’s a fun one. What’s the one we would pick? What’s the grand winner that we would choose to invest in? I’d hands down know which one I would choose.

Dave:
All right, go.

Henry:
I’d choose Connecticut.

Ashley:
I think I’m going with Illinois.

Dave:
Henry’s going with Hartford. Ashley’s going with Illinois. It’s funny, we’re all picking up. Actually, I think I’d go with Knoxville, Tennessee, I think is the one I would pick.

Henry:
Why Knoxville for you?

Dave:
I think I said it earlier. I just like that it’s solid right now, but I think it is long-term upside. There’s a lot of markets in Tennessee that have gotten too expensive and overgrown, and I think Knoxville has some potential to run still. I like that it’s a state with no income tax. I like that there’s a big university there. So I think there’s just a lot to like there.

Henry:
I like Connecticut for the density. There’s always going to be growth. People are always going to live in this area because of the pricing of New York City, because of the pricing of Boston, and because those markets are so amazing, there’s always going to be jobs in those markets. So a market like this is always going to see people living there. They’re always going to have jobs and you can get great small multifamilies. So I would be looking for that four to 10 unit property in this market that doesn’t need a ton of work that can make some cash flow now, but be a cashflow monster in the future.

Dave:
Well, let us know in the comments which of the nine that you would pick, or if you think that there’s something way better and we missed the obvious one, let us know in the comments as well. And we will be back with another one of these episodes in a couple of months because we love doing this one. It’s a lot of fun, even though it takes a lot of work and research for each of us. Hopefully you enjoyed this episode. Ashley, thank you for letting us borrow you from the Real Estate Rookie Show. We appreciate you being here.

Ashley:
Yeah, thanks so much for having me. I always love a good homework assignment.

Dave:
And thank you, Henry, for joining us as well.

Henry:
Thank you, sir.

Dave:
And that’s what we got for you today on the BiggerPockets Podcast. We’ll see you next time.

 

In This Article

Slow doesn’t have to mean no cash flow. Just because most experts have predicted a monotonous real estate market for 2026, with no crash or boom, doesn’t mean there aren’t still opportunities for disciplined investors.

“Housing demand is constrained by a lack of affordability—high prices, elevated mortgage rates—while rising fears of joblessness are further depressing homebuyer appetite,” James Knightley, chief international economist at ING, told Reuters. “At the same time, supply is on the rise, with insurance and property taxes putting financial pressure on stretched homeowners.”

If all that sounds a bit morose, even in the light of three interest rate cuts from the Federal Reserve so far, the good news is that history has shown us that malaise in the market doesn’t last forever. Rather, they offer long-term investors a chance to strategize and align their finances for when the market picks up again.

An Equity Hiatus

Real estate analytics site Cotality offered some specificity on the current state of the market, reporting that home price growth slowed from 3.4% in January 2025 to 1.1% in October, the lowest rate since 2012. Meanwhile, a Reuters poll of property experts predicted that home prices will rise just 1.4% in 2026, while rates will remain above 6%.

The truly sobering news for investors is that amid a stultified market, Cotality reported that single-family rent growth slowed to a 15-year low by late 2025, with many large metros seeing flat or even slightly declining rents as large numbers of multifamily construction hit the market. This was echoed by CNN, citing Bank of America data. 

While this gives respite to cash-strapped tenants, it does little to assuage the concerns of investors worried about higher expenses, such as taxes, insurance, and maintenance.

“No Cash Flow Mention ’Til ’27”

A couple of years ago, during the dying days of the Biden administration, investors were being advised to “stay alive until ’25.” Now it appears that the cogent advice is “No cash flow mention ’til 27.” 

Redfin, as quoted by CNN, has labeled 2026 “The Great Housing Reset” and projects that rents could increase by roughly 2% to 3% year over year by the end of 2026, as the delivery of new apartments slows.

For smaller landlords who wish to remain active in the market, this means underwriting deals with conservative rent assumptions and focusing on submarkets where local growth supports steady occupancy.

Finding Opportunities in a “Boring” Market

Warren Buffett’s sage advice on investing is worth remembering in today’s market: “Be fearful when others are greedy, and greedy when others are fearful.” Because rents and home prices are not soaring amid relatively high interest rates and affordability concerns, many buyers are sitting out a stagnant market. This means with less competition, this is an ideal time to buy.

Many investors have taken this advice to heart, choosing the lack of homeowner activity to scoop up deals. Cotality’s investor data shows that investors accounted for just under one-third of single-family home purchases through October 2025, spending about $483 billion. That spending was primarily focused on long-term rentals rather than short-term flips.

A Nuanced Picture

The U.S. real estate market is never a one-size-fits-all for investors, as regional differences are pronounced. This is where prospective landlords can take advantage. Looking for increased inventory and increased days on market can offer insights as to where to find deals.

Cotality’s December 2025 report noted that the Washington, D.C., area had a record 60% year-over-year jump in inventory in November, following federal layoffs and a government shutdown. The nearby Frederick-Gaithersburg-Bethesda, Maryland, area saw a 68% increase in inventory year over year, with days on market rising rapidly as well.

There was a similar story in several Western and Sunbelt states, according to Realtor.com, where price cuts escalated as inventory climbed back above 2019 levels, as buyers balked at 6%+ interest rates. Although national prices were still up by 2.3% year over year through August, softer conditions in several states create more favorable buying conditions.

Practical Moves for Investors for 2026 and Beyond

Focus on the things you can control

“Small wins rather than slam dunks” should be the general real estate investment motto for 2026. Of course, no one would turn down a big payday if they come across it, but they might be a bit thin on the ground.

Instead of a big flip, soaring equity, or expansive rent growth, focusing on the things you can control, such as intelligent financing, clever property choices, skilled price negotiation, and smart management choices, is the prudent way to address investing this year.  

Eliminate debt

Starting from a clean slate helps when planning for the future. Simply saving W-2 or rental income and paying off debt, including consumer debt, helps increase cash flow without raising rents or taking out new loans. Stacking reserves also means you will be better placed to secure financing when you are ready to pursue a deal, instead of going to a lender seeking maximum leverage.

Curate a “buy box”

Start analyzing regions and neighborhoods that fit your investment criteria. Rising rent growth, job availability, and low insurance and tax rates should all play a part in your decision-making. 

If you find your ideal investment choice is in an area you do not live in but would consider, your first investment could be an owner-occupied small multifamily, which you could secure with an FHA loan and house hack, thereby lowering your expenses while you look for more opportunities.

Use your existing equity wisely

This reset period could be a good opportunity to access your accumulated home equity to purchase a new property, complete repairs on existing properties, or reposition financing, all with the goal of increasing cash flow and paying down additional debt before investing again.

Final Thoughts

One of the best cash flow strategies for 2026 amid a stalled market is investing in small multifamily rentals, which are likely to give an investor more bang for their buck than single-family homes. These days, that does not refer solely to two-to-four-unit buildings, but can also include a single-family rental with an additional ADU. Even adding a finished basement to an existing rental property to increase cash flow could be a win-win. 

The bottom line: Work with what you’ve got. Taking out extra loans and leveraging when you can increase cash flow with your current portfolio, or purchasing more than one unit at once—thus mitigating risk across units—is a savvy move in a stagnant market when money is tight.

The Midwest seems to be the best place to invest in 2026 based on its affordability metrics. LandlordStudio’s 2026 guide identifies Cleveland, Indianapolis, Columbus, and Kansas City as top cash flow markets due to entry prices of $150,000 to $300,000 and targeted 8%-12% cash-on-cash returns for well-run rentals.

PropStream’s Top Affordable Real Estate Markets For New Investors 2026 is of a similar mind, emphasizing that positive cash flow is to be found in metros with below-median house prices and solid rental demand.

In This Article

The announcement that President Donald Trump plans to buy $200 billion in mortgage bonds using cash reserves at Fannie Mae and Freddie Mac is the latest White House strategy to lower interest rates and address the affordability crisis.

For real estate investors, anything that moves rates down must be seen as a positive. How low rates will go, however, is another question.

How Trump’s Mortgage Bond Plan Works

The president released a statement on Truth Social on Jan. 4 detailing his strategy for the bond buy:

“Because I chose not to sell Fannie Mae and Freddie Mac in my First Term … it is now worth many times that amount—AN ABSOLUTE FORTUNE—and has $200 BILLION DOLLARS IN CASH.

I am instructing my Representatives to BUY $200 BILLION DOLLARS IN MORTGAGE BONDS. This will drive Mortgage Rates DOWN, monthly payments DOWN, and make the cost of owning a home more affordable.”

Realtor.com explained that the shift effectively turns Freddie and Fannie into large, price-supporting buyers of mortgage bonds, similar to pension funds, insurers, and the Federal Reserve.

How Buying Mortgage Bonds Can Move Rates

Here’s a The Big Short-type recap: Mortgage-backed securities (MBS) bundle many individual home loans into bonds that investors buy. Mortgage rates track the yields on those bonds more closely than they follow the 10-year Treasury. When there is strong demand for MBS, prices for those yields fall, which can result in slightly lower rates for borrowers, stemming from lenders repricing new loans against cheaper funding costs.

“There is no question if Fannie and Freddie get back into buying mortgage bonds for their portfolios, mortgage rates will undoubtedly fall,” David Dworkin, president and chief executive officer of the National Housing Conference, a coalition of affordable housing providers, told the New York Times.

“If you look at all the factors that made rates incredibly low from 2020 through 2022, a large influencer was that the Fed was buying mortgage-backed securities,” Jennifer Beeston, executive vice president of national sales at rate.com, told Realtor.com. “When lenders know there’s an end buyer lined up, they can offer lower mortgage rates.”

Realtor.com’s Jake Krimmel put it in perspective, stating that “a one-time infusion of $200 billion—or a series of smaller purchases that add up to it—are not likely to change the mortgage market’s long-term pricing.” 

During the pandemic, the Federal Reserve’s MBS holdings swelled to almost $2 trillion after consistent buying. The comparison illustrates why many analysts feel the end result might be limited.

“This could boost GSE revenue in the short term, but buying to intentionally reduce rates has very limited upside,” Michael Bright, a former manager of Ginnie Mae’s portfolio of mortgage bonds, told MarketWatch.

A Note of Caution

Before the 2008 financial crash, Fannie and Freddie created sizable investment portfolios by buying MBSes, which included risky subprime loans. When defaults spiked, those holdings became toxic, leading to a government bailout and a permanent conservatorship that exists today. More MBS buying is bound to trigger bad memories, even though underwriting requirements are far more stringent now than they were before the financial crash.

How Trump’s $200 Billion Bond Move Could Affect Smaller Investors

For landlords of all sizes, the question regarding the president’s latest strategy is, how will it affect interest rates?  As analysts interviewed by MarketWatch said, the dip could be modest, shaving a few tenths of a percentage point off a 30-year mortgage rate.

Taken in context, over the life of a loan, that could still add up, and for investors, the additional cash flow it could engender, through refinancing and new purchases, could make a meaningful difference in the battle to stay afloat. 

For example, as Realtor.com illustrated, on a $400,000 loan, if the rate drops from 6.16% to 5.75%, the PITI would decrease by $96 per month, resulting in $34,560 in savings over the life of the loan.

Home Prices Have Nearly Doubled Wage Growth

For investors, the more mortgages with fixed-rate debt they have, the more they could potentially save. However, the fundamentals of the housing market, which could really move the needle, won’t be affected by a nominal rate cut. For that to happen, there needs to be a greater supply of homes. 

Bankrate suggests there is a shortfall of about 4 million homes in the U.S. housing market, which is affecting house prices. However, as the website reports, this is highly regional, and in some markets where prices are too high to attract buyers, they are falling.

Real estate analytics company ATTOM’s G4 Home Affordability Report found that home prices have continued to outpace wages, particularly in pricey coastal areas, contributing markedly to the affordability crisis.

Rob Barber, CEO of ATTOM, said:

“Many Americans were priced out of buying a home in 2025, and affordability remains worse than historic norms in most markets. Still, modest, quarter-over-quarter affordability improvements in many markets at the end of the year offered some encouragement. Over the past five years, home price growth has nearly doubled wage growth, meaning homebuying power in 2026 will depend not only on whether prices level off or decline, but also on mortgage rates and broader economic conditions.”

Without a sizable increase in supply, a rate cut could have a more adverse effect on housing than intended, pushing prices up.

“If consumers are able to afford more homes because monthly payments are lower, home prices tend to rise more quickly,” Gennadiy Goldberg, head of U.S. rates strategy for TD Securities, told CBS News. “So simply lowering the cost of buying a home through the mortgage channel isn’t sufficient to fix the problem in the long run.”

Final Thoughts:  Practical Moves for Investors

Many of the president’s recent creative financial plays, such as proposing to ban Wall Street from buying single-family homes and now the $200 billion mortgage bond buy, are unlikely to create seismic shifts in interest rates or the availability of homes. But cumulatively, they could help edge rates down, and that’s what real estate investors need to watch. 

The practical move is to take the opportunity to refinance once rates drop—even by a few tenths of a percentage point—to create some extra cash flow and claim a small victory. In a challenging real estate market, every win helps.

Dave:
We are only a single week into 2026, and there is already so much news about the housing market. We’re talking about mortgage-backed security buying, a potential ban on institutional investors, and much more. We’re getting into all that on today’s episode of On the Market. Hey, everyone. I’m Dave Meyer here with Kathy Fettke, Henry Washington, and James Dainard for today’s episode of On the Market. Kathy, good to see you. Thanks for being here.

Kathy:
Good to see you. And congrats to Henry. Woo-hoo.

Dave:
Why are you congratulating Henry? You have to tell everyone.

Kathy:
Well, I’m sure they know, but Henry has been chosen to be your co-host on the big show and no one is more deserving. Henry’s just the best human in all ways. I mean, when we go out, I feel bad about myself because he gives the biggest tips to people and he just, oh, just the biggest heart.

Dave:
He does.

Kathy:
Yes.

Dave:
And yes, Henry, congratulations. Now you have to spend even more time with me, unfortunately. Thank you very

Henry:
Much. It’s very kind, Kathy.

James:
You’re the perfect pick, Henry.

Dave:
Yeah.

James:
That’s what we were just talking about before you hopped on. Thank you so much.

Dave:
Yeah. We’re very excited to have Henry, but nothing is changing, by the way, on this show. We’re all going to be here rambling in your ear very often here on the market. So nothing is changing with that, but you will be seeing Henry Moore on the BiggerPockets Real Estate Show, which we are all delighted about. But we’re here to talk about some news today. And man, there’s some slow weeks in news. There are times when we’re preparing for the show, there’s not that much to talk about. But man, there is a lot to talk about this week already in the first week of 2026. So let’s just jump right into it. Henry, you’re the man of the day, so you have to go first. Tell us what your news story is.

Henry:
Well, my news story is one of the hot button issues that’s been coming up over the past two days. It’s from CNN and it basically says that Trump says he wants Fannie Mae and Freddie Mac to buy 200 billion of mortgage bonds. And essentially, it sounds like what he’s trying to do is to get interest rates down. He’s talked about he wants them down for a long time now. And now I think we’re starting to see a little bit of what he might think is a plan to do that. So this would make them one of the largest buyers in the market overnight. And it should, should air quotes, increase demand for mortgage bonds immediately. More demand should essentially push yields down, lower yields, puts downward pressure on mortgage rates, and then hopefully that helps the consumer have lower monthly payments. The real question is, is that really going to work?

Dave:
It worked today. Mortgage rates went down. It’s the lowest since 2023. We got rates at 5.99 today. We have fives. Yeah. We’re in the fives, man. I know. There’s something psychological about it that feels a little good.

Kathy:
And we’re recording this on January 9th. So who knows where things will be?

Dave:
Yeah, because the market’s moving in anticipation of this coming true. We don’t know if it’s actually going to come true, but the market seems to think so. And so they went down 20 basis points. I read some analysis of this today where experts were saying this amount, $200 billion of buying would bring down rates 0.25. So we may have already seen all the benefit, just so everyone

Kathy:
Knows.

Dave:
It might not keep going down unless there’s more bond buying, but I’ll explain in a minute that there are limitations to the way they’re doing it right now.

Kathy:
So get your mortgage now. Yeah. Seriously get

Dave:
Lock in. It’s a good day to lock in a mortgage right now.

Kathy:
You can only manipulate the markets for so long. So take advantage now. I mean, I don’t know if you guys saw the GDP now with the Atlanta Fed, but it is showing over 5% GDP for Q4. Wow. Who knows? The GDP now is kind of a way to gauge the gross domestic product rather than having to wait every quarter. They keep up with it every week. And it is showing, I don’t know why, but a very robust Q4. And if that is true, then you wouldn’t see mortgage rates down. So take advantage now, man. This is just a brief manipulation of the market.

Henry:
Yeah. I mean, I don’t know if it sticks because this isn’t the only factors tied to mortgage rates going down. They’re still tied to inflation expectations. They’re still tied to the investor confidence in the housing risk and it’s tied to supply. And technically there’s still a shortage in supply. So I think if you factor in everything, if it works, doesn’t mean we’re going to see something with a two or three in front of it anymore. I think five is pretty stink, stinking good. So I agree with you. Get to shopping.

James:
Well, I think that is the important thing because I was talking to somebody yesterday and they’re like, oh my gosh, rates are going to drop rapidly if this goes … Like Dave said, what is a quarter point and that might be the most movement it gets. And so every quarter point helps, but it’s not going to be COVID appreciation during that time.

Dave:
No, there’s an important technical difference between how this is being done versus how it was done during COVID. So this is going to be nerdy, but basically during COVID, what they were doing was something called quantitative easing. They’re basically essentially printing money to buy mortgage-backed securities and treasury bonds. That has a very inflationationary effect as we all saw. It helps push up prices. What’s going on now is kind of similar in that the government is still, or government-backed entities at least are still buying these mortgage-backed securities, which does the same thing, but they are apparently, we don’t know exactly how this is working, it’s apparently being bought with profits from Fannie Mae and Freddie Mac. So they’re not inventing money to buy it with, that’s not quantitative easing. So that’s an important distinction. It still has the same effect, but I think what everyone needs to know is that it would be a different policy and I think a much riskier policy to go beyond this.
Because if you’re going to do more of this, like if the Trump team or people just say, “Hey, that worked. We’ve got rates down a quarter point. We want them down a full point. We’re going to buy a trillion dollars in mortgage-backed securities.” The way they would have to do that is through quantitative easing, which has a much bigger risk of inflation attached to it. And so we might not see that. We might see that with a new Fed share or new Fed governors. We don’t know, but I just want to say it would need to be a different policy to keep doing this well into the future.

Kathy:
So I know we’re not supposed to get political here, but I think we’re going to see a lot of this type of thing this year-

Dave:
I agree.

Kathy:
… with midterms coming. Certain people want to be popular to the public.This is just my thought because it is very temporary. And my concern is that whenever we see rates go down, prices go up. And so if that happens, then it doesn’t actually make the market more affordable. No,

Dave:
I totally agree. I think this is a bandaid, like a lot of things in the housing market where you’re just anytime you do demand side support, whether it’s this or helping people with their down payments. I’m not saying it’s wrong, but all it does is temporarily improve affordability, then prices adjust to this new affordability and you still have the same affordability problem. I’m not opposed to short-term solutions if they are paired with long-term solutions. If you’re doing this and you’re making more supply, great, that’s a long-term solution paired with a short-term solution, everyone wins. But when you have just these short-term things that make the long-term problem worse without implementing anything that makes the long-term problem better, I just think it’s like we’re going to be back in the same place six months from now where things are unaffordable and then the solution becomes even harder.
So I’m not sure I’m in favor of this. It’s not so big that it’s going to, I think, create a crazy appreciation in housing prices, but I have concerns about using this as a tool to solve affordability.

James:
I agree too. Capitalism, you’re supposed to let it do what it does and there’s too much manipulation of it now. Let it grow, let it shrink, let it expand and contract. When you manipulate it too much for the wrong reasons, our sandwiches that are now 20 bucks are going to turn into 30 bucks real fast.

Kathy:
It just gets wonky faster when you start manipulating things. Yeah.

Dave:
Yeah. I don’t know. I’m not blaming one side or the other, but I guess it’s just become politically untouchable now for either party to have a recession or a decline in the stock market or decline in the housing market. And they’ll do whatever they have do. Both sides do this. We’ll do whatever they have to to keep things going, but that’s not healthy. There’s a normal business cycle. When there’s too much debt, when their affordability reaches these low levels, it’s got to reset and it stinks for a little while, but then it can recover. Whereas now you do … I’m not saying because of this one move, a quarter point’s not going to do it. But if you keep doing this, then the bubble risk becomes real.That’s when bubble crash risk really starts to accelerate. I’m not saying that’s happening right now, but if we do this once with money that’s not being printed, real profits, maybe this is fine.
But I do worry, like Kathy said, you see this works. It’s the first thing that’s really moved mortgage rates. It’s going to be tempting to do again. And so it’ll be interesting to see if this happens more.

Henry:
Yeah.

Dave:
Well, that’s a big story. Something we’re definitely going to keep an eye out for. My hypothesis is this will happen, and then we’ll hear a lot about this again in May when Jerome Powell almost certainly gets replaced by someone new. Just to everyone knows, Jerome Powell does not unilaterally make these decisions. The Fed board votes on these and not all of them are getting replaced, so certain votes will change. But I do think if the makeup of the Fed changes significantly, we’ll hear more about this over the summer. All right. That was our first story. Thank you, Henry. A very timely one I’m sure everyone will want to be hearing about. We got to take a quick break, but when we come back, we’ll talk about this week’s other huge story about a potential ban on institutional investors. We’ll be right back. Welcome back to On the Market.
I’m here with Henry, James, and Kathy going over this week’s news. We just talked about the Trump administration buying mortgage-backed securities. Kathy, tell us your story.

Kathy:
Well, this is breaking news this week, but again, by the time people hear this, it’ll be old news, but we still need to talk about it.

Dave:
We do.

Kathy:
Yeah. So I’ll just read the CNN version of this. It’s Trump threatens to ban institutional investors from buying single family homes. And this was what he wrote on True Social, that people don’t live in corporations, and so homeowners should be the ones buying and not institutional investors. So many people have different opinions. Again, my opinion is this is a midterm election thing that people just want to hate the institutional investors. And in fact, when you look at the data, the institutional investors only own about 2%, 2.5% of property out there. But I think why some people get more upset about it than others is because it really depends on where you live. Institutions own 25% of rental properties in Atlanta, 18% in Charlotte,
Tampa and Jacksonville, it’s really high. So in those markets, yeah, there could be a huge impact if those institutions get out. However, Logan Motashami at HousingWire kind of mentions this. What about the people who live in those rental properties? It’s kind of a question of the buyer or owner of real estate versus the renter of real estate. Who should get priority? And oftentimes institutional investors are building it. They’re bringing on new inventory. They love the build to rent. Communities, because they’re brand new, they’re easier to manage. They’re built specifically for rental, so they’re bringing on new supply. So my guess is that Trump knows that. Yeah,

Dave:
I don’t think they’re

Kathy:
Banning that. I mean,

Dave:
It’s very unspecified. It’s

Kathy:
A tweet. We don’t know. But they do buy from builders. So my guess is that there will be some kind of clause there that if it’s … I don’t know, maybe new builds or something like that would be exempt, or if it’s specifically built to bring on new supply for renters. But if it’s to not compete with the home buyer who’s trying to buy existing inventory, the hedge funds, the Wall Street buyers aren’t really that active there anymore. I

James:
Actually, I don’t think this is a bad thing at all if it goes through. I agree. I actually agree. I don’t think single family homes should be bought in swarms. We don’t have a lot of that in Washington. There’s definitely some submarkets. But if you look at, as I think things get more and more expensive and it’s not going to slow down over the next 10 years, people are going to be moving into these areas where the hedge funds do own a lot of these properties. And I think we do need to protect that supply and just let it be single family. They’re not buying now, but I know they will, especially when they see the opportunity, but I think there’s a time and a place.

Dave:
I think as a preventative measure, it kind of makes sense. It’s not that bad now. On a national level, it is not what’s causing the problem with inventory. It’s just not. There’s much bigger structural issues.

Henry:
But

Dave:
In those neighborhoods, it does matter in markets where it matters. The other thing I was thinking about is that right now it’s unaffordable for people to buy homes. These large institutions, they can self-insure, they get better mortgage rates than everyone else. And so they have a structural advantage in buying single family homes. And so it could get way worse.That’s the thing that worries me is that if housing remains unaffordable, who else is going to buy homes other than private equity?

Henry:
I think it’s the practices. It’s what they can do and are allowed to do when they buy these homes in bulk that really cause a problem. On a national scale, it doesn’t move the needle that much, but you’re right. In certain neighborhoods, yes, it’s a big deal. I also agree with this to a point. My concern comes like, what is the actual language going to look like if this becomes real? It’s a slippery slope to me. For sure. A corporation is an LLC owning one property. It’s technically a corporation that affects you and I and other mom and pop landlords. And what’s the difference between this and Airbnb owners? They’re also taking away housing stock from people who should own homes. What does that mean? I think there’s a lot here that needs to be flushed out and done in a way that makes sense and is truly done to solve the problem and the actual problem and not creating a bigger problem because investors play a strong role in a real estate market.
Of course. We put inventory back into the market in a lot of cases. And so it’s just, I think it can be … With the limited information we have from a tweet rant, it just could be a slippery slope.

Kathy:
Well, in California, what was floated I thought was a really good idea, which was to give a homeowner or a buyer first stab at it, basically. So
An investor couldn’t buy a house until it’s been on the market like 45 days. Because if you’re a first time buyer, an FHA buyer, it’s a pain for the seller. It takes a long time, but this is really the first time buyer is the FHA buyer. It’s a difficult loan. It may not go through. And if you’re a seller and you’ve got institutional hedge fund wanting to pay cash for your property versus a first time home buyer, you don’t know if they’re going to close. You’re going to do what’s best for you as this seller. But if there was regulations saying, nope, just first time home buyers or any home buyers get first stab at it, 45 days, 60 days, whatever it is, after that, free game, anyone can have it. What do you guys think about something like that?

James:
I think it has to be tangible because 45 days on market, what if someone’s priced too high and then they just take a low offer from a hedge fund?

Kathy:
Yeah.

James:
I mean, the one thing I do know is when … I remember when this became a thing, it was like 2010- ish and 11 when Blackstone came to the market and everyone looked at me and they go, “You’re going out of business. Blackstone’s coming to market.” And they started buying everything. But then what they found out is they don’t want to buy everything. They want to buy something that’s very lightly used and doesn’t need a lot of renovation. And so I don’t think the mom and pops investor, to Henry’s point, or the investors out there buying and actually creating value, they aren’t the same thing. They’re completely different investors. They don’t buy the same things. The hedge funds do take inventory from first time home buyers.

Kathy:
Yeah,

James:
They do. That is the track homes that they buy. And I do think there should be some restrictions like in Australia, and the reason I knew this because I wanted to move there so bad, they don’t allow any foreign entity to buy used homes. They can buy new construction to help with the economy. So they can only buy this product to help builders and help move those things- That’s interesting. … but they can’t buy used. And so even when they’re selling them, they have to sell it to an actual citizen.

Dave:
I like that. That brings inventory online.

James:
Yeah. And it also could bring in more single family production getting made. If they can bring this cheaper money to builders and they can build and rent these out for a while, and then they do sell them after a while because that’s how they’re really making the return. It’s not the cash flow. I think those kind of restrictions need to be put in, but it has to be a tangible. It can’t be 45 days. It’s got to be, is it new or is it not? Is it multifamily? There just needs to be classed out. And I think it could be a very positive things for homeowners and also our economy if they balance it outright.

Kathy:
Yeah, because I think some of these policies are kind of, I don’t know how to say this, but unfair to the renter. It’s kind of like, well, what about the renter who would like to live in a nice home and they don’t want to own it. They want to be in a certain neighborhood. They love the institutional landlords because they’re professional. So what about the renter?

Dave:
That’s a good question. I’ve never heard someone say they love institutional landlords though. I would take a bet that the BiggerPockets audience are better landlords than the institutional investors, or I’d like to believe that.

James:
I would agree with that for sure.

Dave:
Yeah. I don’t know. I don’t have personal experience with that, so I couldn’t say. But I’ll just say, I do think I obviously believe that real estate investors play a necessary role in the United States. I think this talk that we’re a renter nation is not true. If you look at the home ownership rate in the United States, it’s remained the same. There is just for the last 60 years, about one third of people for one reason or another, whether because of preference or circumstance, needs to rent. And I don’t think that those people should be only forced to rent multifamily. I do think there should be single family supply. I’d just rather small real estate entrepreneurs own those properties if it was up to me. Now I’m just manipulating market in my own favor, but I think it’s better for the local economy and for the renters personally that small entrepreneurs own it rather than large institutions.

Henry:
And I think what you’re really saying, and I could be putting words in your mouth, but I think what you’re really saying is similar to the point James was making. The small entrepreneur, us, are buying a different product. We’re taking things that either aren’t lived in or shouldn’t be lived in typically and providing that inventory to the market and the bigger players are not doing that. And if they were, then they would be more a benefit to society than a detriment.

Kathy:
Yeah. I mean, I almost feel kind of like I’m in the category of the institutional because the number that’s been pulled out of the air is 1,000. If you own a thousand properties, you’re considered big. Well, I have a build to rent community. I have two single family rental funds. We plan to do more and I think we’re doing great work. I think we’re great landlords. We did exactly what Henry said. We bought old properties that no first time home buyer could buy because there wasn’t a kitchen, it was moldy, whatever. We had to fix it up and then we put it back on the market as really safe, clean housing, affordable housing. So again, more to discuss here. We’re not at a thousand units, so we’re still under the radar. I do wonder if there’s workarounds where all of … I’ve got three funds, so there’s three different LLCs, so would that be considered three different-

Dave:
Oh, there’s definitely going to be scams about this. There’s 100% going to be shell companies and people getting around this, but I guess we don’t know. We’ll see if they’ve even put forward a bill. We don’t even know.

Kathy:
Yeah, they will.

Dave:
Yeah. I think it’s a really interesting thing. So we will obviously let you know if anything develops here, but as of right now, just a potential thing. We do have to take a quick break, but we have two more stories when we come back. Stick with us. Welcome back to On The Market. I’m here with James, Kathy, and Henry. We have shared two big stories, Trump announcements this week about buying mortgage-backed securities and then a potential ban on institutional investors. James and I actually had the same story, but we can’t do that. So we’re going to let James take this one away. And if we have time, I’ll get into mine.

James:
Oh, I love this story. I had a different one and then I saw this. I was like, I got to talk about this.

Dave:
Well, I brought it because I was just going to make you answer all the questions. So we just got to this faster.

James:
Yeah. Well, the article by Housing Wires is why the fix and flip sector is poised for a breakout in 2026 and- Boom, baby. We’re back. It’s back. Because I will say anybody flipping properties in 2025 knows how bad it sucked. It was not the year for flipping. And it wasn’t detrimental by any means, but it wasn’t great, the overall returns. And we saw this because there was a market shift. Honestly, once the tariffs got announced, the market paralyzed for a while and we started seeing more inventory, less buyer activity and flippers had got squeezed on all sides. They got squeezed on their debt cost. Lending was at higher rates than they’ve been the last couple years. Your typical average fix and flip loan is going to be 10 to 11%, where some people were getting nine before. Your construction costs rose at least 20% over a 12-month period based on tariffs, labor costs, and then the debt times were strangling deals.
We went from an average market time in our market for around 14 days to 20 days to where it was taking us 60, 90. I mean, Dave, how long did it take us to sell our flip?

Dave:
Oh, it was like 180, about

James:
80 days. We almost had it for sale for as long as we renovated it. So those are not normal things, and that’s what really squeezed all the margins across the board. And so this article, I like this because the one thing I love about investing is there’s always that shock factor where things are going great and then it pulls back and everyone’s like, “That’s a terrible thing. Don’t do that anymore.” But that’s where all the opportunity is. So we’ve actually bought more houses in the last three weeks than we bought.

Kathy:
Really?

James:
Oh yeah, I bought three this week and I just bought four and five.

Kathy:
Oh my goodness.

James:
And it’s also because the numbers are normalizing out. When you go through a bad year, the numbers do normalize out and that’s where you can get this rebound effect. And that’s how you can get a spike in your profit. And so what this article talks about is there is going to be more access to cheaper capital, which is true. Hard money rates are slowly starting to come down and there’s more lending options out there for them, whereas they were spiked up before. Inventory is starting to loosen. I know in Washington, I went to list a house or we listed one on Wednesday. There is no homes for sale in a three-quarter mile radius, zero.

Kathy:
Oh my goodness.

James:
Whereas five months ago, we were seeing probably four months of inventory in that little area. So we’re seeing inventory shake up in the certain areas. The renovation costs are starting to level out construction costs. I think I read on construction, they anticipate a 2% inflation on materials this year, which is more normalized than last year. And so we’re not going to see the sudden spike in your rehab cost that takes away from your profit. And it’s all about, I think, Flippers being able to find a good buy too. We’re able to buy on normal numbers. We’re not like buying home runs, but we’re not having to overpay to get these houses that just need a ton of work. The stuff we buy needs everything and it’s a lot of work, it’s a lot of costs, and there’s definitely less competition on them because it’s just too much work for people.
So I don’t know. I’m feeling pretty good about fix and flip. Henry, I know you fix some flips. I want to know, are you loading up? Because I’m putting everything in the bank right now.

Henry:
Yeah, absolutely. We’re just getting better deals right now. I’m finding more opportunities and the margins are so good again. You can truly get a good deal. I’m getting my renovations done reasonably priced. It’s not 2022 amazing, but the opportunity is out there. There are people letting go. And I think there’s just more opportunity coming in 2026, especially from, I think there’s going to be a lot of investor turnover in 2026 of people who bought stuff that they just need or want out of that they overpaid for, that they’re struggling with in the past couple of years. So I’m very optimistic.

James:
Yeah. And I think this last 12 months also allows us to reset how we underwrite deals. Our whole times are longer now. Our construction cost budgets are higher. As you get to go through the data sample and you get to go through experiences, you get to change your underwriting. And so going in, there’s less competition, cheaper money, and you go in with the right numbers, and that’s where you really can have a boom out year.

Dave:
I do have a question. So my story, and I’m going to just combine them, was about how … It’s a headline from Redfin that said there are now 37% more home sellers than buyers. And when I read that, I think as a buy and hold investor, I’m like, yes, that’s good. Finally, you’re getting a little bit better inventory. How do you square that with what you’re talking about with fix and flip? Because that makes better buying conditions, but it also, I would imagine, maybe not in Seattle, but generally speaking, makes the disposition harder. So does that complicate your thinking about 2026 flipping?

James:
Well, and what the article I brought in also talks about is there’s tools that underwriting now as well. And this is really important because I don’t think Redfin’s wrong. There is a lot of inventory. I mean, right outside where I’m at right now, Phoenix, Arizona, there’s a lot of homes for sale out that way.

Dave:
Oh, yeah.

James:
And so you have to still look at the data. There may be 37% more homes for sale than buyers, but where are the buyers? And use those analytic tools. So we’re looking at where’s the velocity, what’s selling and what’s not selling. In one neighborhood, maybe 500 is the sweet spot. That’s where all the activity is. Because even when it was slow throughout, there was things moving and selling, there’s just this affordability cap. And so for everyone listening, talk to your real estate brokers, have them run reports. All MLSs, you can run a sales report of what’s going on in the zip codes and what’s selling and what’s the inventory. And so you got to get a little bit more granule in your underwriting. And that’s not uncommon. I just feel like in the pandemic years, you could go so wide because there was just nothing for sale and it was all going to work out.
Now you have to be very disciplined. What zip code are you in? What price point are you selling on? What’s the days on market for that? And also, what is the velocity of those buyers? And then really focus on those price points. I’m not playing in areas where it’s no man’s land. There’s not a lot of transactions going on. I will go to the areas where we’re seeing the most amount of sales and every zip code and state is different. And that’s why you really want to get, go in the bigger pockets agent finder, find the right broker that can explain where the velocity is. And that’s how you get around that risk.

Henry:
Yeah. And the way we’re doing it is, yes, paying attention to where people are buying, but also paying attention to what people want to buy and then offering value at a discount. So we listed one two days ago and we’re about to get our first offer already. This was a property that was a three bed, one and a half bath, 1,500 square foot house. And we underwrote it as a three bed, one and a half bath, 1,500 square foot house. So I bought it where it would make money if I just renovated it in place and sold it. But what we ended up doing was adding a little bit of square footage. So we stole a little bit of square footage from the garage because it had an oversized garage and we created another bedroom and bathroom, and then we turned the half bath into a full bath by stealing some space from a closet.
And then we took the laundry room, relocated it to the additional square footage and turned the existing laundry room into a bedroom. So now people get a four bed, three bath, 1,800 square foot house, and it’s on an acre and a half. Half, but we’re still selling it at the price point we underwrote it at as the three bed, one and a half bath. So now people are getting a whole lot more value for their dollar, which means I can sell my house faster. It’s just you have to be a smarter investor to tackle the risks, both in where you’re buying, who you’re selling to, and what you’re offering them.

Dave:
I mean, that sounds like a great approach. Maybe I’ll buy it. That sounds like a great house. Yeah. Just to live there. I’m moving in, Henry.You’re more than welcome.

James:
Well, and what Henry’s talking about is just be disciplined with your data. Look at what you’re trying to sell and what it’s selling for, because you may want to cut back or spend a little bit more and give them value, or you want to lean into it. Right now, I have one expensive luxury flip going on and I do not want to mess around. I’m throwing probably an extra 10% budget, a couple hundred grand at this thing, just to make sure I lock that price in. And we’re spending a lot of time touring properties, looking at what’s their expectations. Don’t cut corners, deliver what you’re supposed to at the pricing.

Dave:
All right. Well, thank you guys so much. Any last thoughts before we get out of here?

Henry:
I’m excited for 26, guys. I’m excited.

Dave:
It’s going to be a great year. It’s a good start. So this will be a lot of fun. We obviously have a lot more great shows planned for you here on On The Market with James, Kathy, and Henry. Thank you all so much for being here and thank everyone for listening as well. We’ll see you next time.

Ashley:
Every investor dreams of getting into real estate during the perfect market. But the truth is there’s actually no perfect time. And if you ask our guests today, they’ll tell you some of the biggest fortunes in real estate are built when everyone else is terrified to buy.

Tony:
These two have been investing for over 20 years through booms, through bust, and even the chaos of 2008. So if you’re wondering how to start in a market that feels uncertain, you’re about to hear from people who didn’t just survive the downturns, they used them to build everything they have today.

Ashley:
This is The Real Estate Rookie Podcast. I’m Ashley Kehr.

Tony:
And I’m Tony J. Robinson. And with that, let’s give a big warm welcome to James and Thatch. Fellas, thanks so much for joining us today.

Thach:
Go, let’s go. Wake their ass up this morning. Let’s go.

James:
Yeah, I just flew out of Seattle. I got in late last night. I just missed you.

Thach:
Well, we’re ready, baby. Whatever you got for us, give it to us.

Ashley:
Yeah, I’m ready to talk about pre- 2008. So James, let’s start with you. You were investing before the crash, honestly, one of the very few investors I know that was doing this. What did your business look like when things started to fall apart?

James:
Oh, man. Yeah, 2008 was … You learned a lot in 2008 when the market started crashing, but I was actually a wholesaler that had just started flipping homes. They had about six rentals at the time. And me and my partner, Will, actually branched out on our own. And literally 60 days after we had opened up our own shop, subprime mortgages blew away. They just blew up. There was none to be had. And I remember reading about it in the news, and I didn’t even know what that really meant. I was like, oh. I mean, that’s how new I was in real estate. I had been buying and selling for four years. I got really good at wholesaling by then. And once that went away, it was like the lights went off and there was nothing going on. You go down to auctions, no one was buying.
You could find a house for a dollar and no one would buy it. Just no one wanted to touch real estate. It just went into a massive spin. And I saw a lot of people leave the market at that time. A lot of people quit the industry. And I will say the best thing we ever did was not quit during that time.

Ashley:
Thach, what about you? What was your business looking like during that time period?

Thach:
Yeah. For me at that time, I was actually selling a lot of real estate at the time. I was a realtor at the time, but also I was also at the time fixing and flipping. And good and bad, I actually did a lot of construction during the time. I did a lot of single family new construction, and I was also just beginning to do apartment building, new construction from ground up. And what’s interesting was my residential real estate business, when people are … There’s somebody that always got to sell real estate. They need to buy and steal every day. At that time, I was selling like 150 homes a year. So even when my business went down to 100 deals a year, I was still making good money selling real estate. My rental property did well because when people can’t afford to buy, they got to rent.
I will tell you where I got hurt the most was in the new construction game because it takes so long to buy a piece of property, get plans and permits, build it out, and then sell it and catch the market. Well, in the single family world, it might take you six, eight, nine months to get permits, six, eight, nine months to build it out. It’s a little bit of time. But the thing where I got hurt the most out of everything, my single family wasn’t as bad, but it was the apartment world. You can buy a piece of land. It takes you two year to get a permit and a two year to build it. And so it’s hard to time it. So I got hurt the most in a couple of brand new apartment I was building. And even though I got done with my building, I had a hard time leasing it and I couldn’t get a lease fast enough.
And my note, my construction note was due and the bank wanted to repull it. And we worked out a deal and we ended up getting it done, getting it leased, but we ended up losing on one building, like probably four or $5 million. And then a lot of personal … And then some of my single family, I had to owe Wafed. Jane remember Wafed. I owed Wafaet a couple million dollars. So I will say today, doing the construction, you really got to know what you’re doing. And sometime going big isn’t always better.

Tony:
So Jimmy, you said something that I thought was interesting. You said that a lot of people left the industry during that time. And honestly, I think we’re seeing a lot of that now as well, whereas as things have gotten more difficult to be a real estate investor today, there’s a lot of people leaving the industry also. But you said what helped you guys get through was just the simple fact that you didn’t quit. And Thatch, I saw you nodding your head as well. So Jimmy, I guess to you first, why didn’t you quit? I mean, because you could have. You could have gone out and got a W2 and just plugged away and lived the normal American life. Why didn’t you quit?

James:
Honestly, I think it’s because I was naive. I had just graduated college and been in real estate for about 15 months, full, full-time, and we got really good at getting deals done. And I think we kind of had that Superman like, “Hey, we got this locked down. We’re great.” And I just remember I was … You know what? I was naive, but I also didn’t want to bail on my business partner because we had opened up shop. We were four months in. I remember sitting in my office and I’m sitting there and we have nine guys working for us knocking doors. We were getting a lot of … It was real easy to get a deal back then. It was like anybody would sign a contract, but then what do you do with that contract? And I remember we were literally out knocking neighborhoods trying to sell the house rather than buy the house, just like, “Hey, do you want to buy a rental?
You want to buy a rental?” And it was really hard to make a check. And we were just trying to pay the bills, pay the mortgage, and that was it. And it was hard. And I remember sitting there Googling, I was looking for medical and pharmaceutical sales jobs. I’m like, “I need to get a new job. This is not working.” And I just remember looking over at my business partner and he’s just at his computer. I’m like, “I can’t bail on him. I can’t bail on him.” And we just shut it down. And it was really just about going out and getting a deal done at that point and going, “Okay, well, if we can get one done, how do we maximize that deal?” And that’s where I think the light really turned on. It wasn’t like, “Oh, let me just keep doing the same thing.
Wholesaling properties getting a check.” It was going, “Okay, this is not working. Let’s try to adjust this and make it work. And if it doesn’t, then I need to go find a new job.” And really the big difference was we went from wholesaling a lot and flipping a little to we were buying most of the properties that we were fine because no one else would buy them. And so that’s really what the switch was. It was honestly a 25 naive, didn’t want to bail my partner. And then we had to make some adjustments and test it. And if it wouldn’t have worked, I probably would’ve bailed, but it just got us to squeak by to make it through the hard times.

Tony:
I mean, you guys pivoted, and that’s one of the core tenants of any startup, is you’re going to test your hypothesis against the market. And if it works, great. And if it doesn’t, you try and tweak it just a little bit to see if you can get a better market fit doing something else. Fast, what about for you? I mean, same question, right? A lot of people didn’t make it through. Why do you think you guys are able to succeed?

Thach:
I think the first thing is I had a really good mentor that was way older than me, him and Saul. I’m 55. Saw is like 20 year in front of me and Saul has already walked the grounds of real estate and Saul remind me and many people around us, real estate’s a cycle. It comes and go, it comes and go. And for me, when I get to hang around people who’ve been around multiple cycle, it really, for me, gave me peace of mind knowing that this is just a cycle I’m going through. I just got to learn how to work through the cycle. So for me, when I knew it was a cycle, it wasn’t a question of this is a side hustle. I was a realtor, but I also was an investor and a developer. And Saul was also an owner of John O.
Scott Companies, multiple, and he’s also a big developer in Seattle. And so for me, it wasn’t about I’m going to actually quit because I was already all in and I just need to know how to ride through the ups and the down. And for me, I think looking back today is I think people have to always continue to keep looking for ways how to have more than one leg on their table. And what I mean by that, if you have a table, you only got one leg and that leg is called wholesaling. And when the market is tough, like how it is or what I was back then, if your only income is coming off of wholesale, you’re going to have a really weak table. At that time, I was selling real estate, I did some wholesaling, I did some flip. And so I kept it going from that.
So when I worked through the tough time, and then obviously it got better, and I see the same thing now. What I experienced today is no different than it was the last three decades I’ve been through, because every decade you repeat itself again, again, and again, and I see the same thing all over again. So it’s just a cycle again.

Tony:
So Fatsha, I love your analogy of having multiple income streams to help weather these different storms as they come, but what is your advice to Ricky’s when they’re first starting? Should they try and attack multiple strategies at once? Because a lot of the folks listening, they have zero deals. So should they focus on trying to flip one house and then wholesale a house and then do multifamily, or should they maybe try and build expertise in one strategy first and then branch out? What would your advice be to the people who have done zero deals?

Thach:
I know just from speaking to a lot of rookies, a lot of rookies come in here, they still have some kind of a nine to five job. Now, I’m not saying all of them, but a lot of the people I meet who come in and real estate invest, they still have some kind of a nine to five job. I always say, if you got a nine to five job, keep it, milk that machine as much as you can for what I call active income and then start learning about real estate investing. And if you come in, I think everybody, even someone who’s buying real estate, they should learn how to source deal. If they source deal and they find a deal, they have options. They can wholesale it to make quick money or they can fix and flip it for bigger money. But I think that someone who comes in and they want to just jump both foot in and just drop their nine to five, I think they’re putting themselves at jeopardy.
I think that if they transition slowly into it and work the wholesale market and to fix the flip for quick money, I think that’s great.

Ashley:
Now, Fetch, do you think that we’re actually headed towards any kind of crash or something similar to what happened in 2008 with the housing market?

Thach:
This is a question I get asked a hundred times, literally a month. I talked to, saw my mentor still all the time, and this is what saw … And matter of fact, even the CEO of John F. Scott, he was at a company meeting here recently and he says again, we are going through what we call a 10-year cycle. And he said the 10-year cycle, this is Anna Lennox’s mouth. 10-year cycle, what he noticed is that the market goes up 10 years, up, up, up, up, up, and then it usually correct itself. It takes anywhere between two to three year and it correct itself. And then it goes up 10 years and then two, three year correct us. So the one we just came out of, it went longer than normal. It was more towards the three year versus two years. Atlantic feel right now that we are at the bottom of the cycle and we’re working out of the cycle heading into a upswing market because of inflation is getting more control, but the biggest thing he says is we still have, and this is Saul says too, he been a big time developer.
We’re still in the biggest housing shortage in America and there’s still not enough houses. So it’s a cycle that the economy go through and we got to raise the rate, deal with inflation, it correct itself and then it goes again. But Lennox feel that we’re heading out of the bottom working way up. And what I realized, this is the fourth cycle I’ve gone through now, the last three decade I gone through, it repeat itself exactly the same way.

Ashley:
James, what about you? Do you feel the same or do you have a different take on it?

James:
I kind of think it’s too hard to say whether it’s a cycle or what’s going on right now. I mean, we’ve only been feeling a slide for six months. I mean, really what started this whole thing, the thing about investing is there’s always ups and downs. It goes up, it goes down, it goes flat, it makes adjustments. And to Tavash’s point, what I think a lot of people forget about is before the pandemic, we were on a slow slide going down. Housing was slowly creeping down the wrong way and it was harder to sell things. It took longer to sell. That wasn’t that long ago. And then that cycle got disturbed because of all the money that got pumped in. I think a lot of people are hitting the panic button right now because their performa isn’t going the way they thought. And then they say, therefore there’s a crash going on.
But what we’re doing is we’re adjusting back to normal.What’s really beating up investors right now? Days on market, things take longer to sell. Cost of money’s more expensive. That stuff is what really erodes a deal and beats up your math. It was unexpected. Where you get hurt in a market change or whether it’s, I would not say crash, when there’s an adjustment to conditions, you only really get stung when you’re already in a deal. Right now, we change how we’re buying because we’re expecting longer market conditions. We have to go with what is going to come out of the market.

Ashley:
So instead of being worried of a recession or a crash, you are just adjusting your business and pivoting to be more conservative and to adjust with the market instead of just saying, “You know what? We’re done buying until the market is better.”

James:
Well, and that’s what investing is. And that’s one thing people need to kind of realize you don’t sit on the sidelines ever. You adjust how you buy and you adjust how you want to buy. And when the market gets a little shaky, you should focus on what you’re really good at doing. If you’re a brand new investor and you have no construction experience, don’t buy a flip. Partner with someone doing a flip or go get a really good general contractor you can bring in first. If you are a really good flipper and you want to expand your business, when the market’s adjusting, there’s a lot more deal flow right now. There’s a lot more opportunity. Go work with people and bring … I know a lot of people that are, “Whoa, that’s real loud now all of a sudden.” One of the biggest things is just as the market changes, you should really not stop buying.
I know me and Thatch, we made our wealth when the market was at its worst and that was almost impossible to make money. It was really hard to figure it out, but you just want to stick to what you’re good at. Right now, when I go through a market change, it’s not fun because I have a lot of projects going on. So when you’re stuck in the middle of a bunch of projects, that’s when you get beat up the most. But the one thing I have learned since 2005 is you don’t ever stop buying because when you buy on the peak, you take a little bit of loss, but when it corrects, you’re buying on the big dip and you have to ride the waste. And if you ride through it, that’s how it always averages out. If I get through a bad cycle and I lose some money, typically I’m making 2X because I didn’t stop buying.
Fear really does create a lot of opportunities. And when you’re a new investor, you just want to stick to, okay, what are you good at? Don’t worry about all the noise. What’s everyone doing? Think about what you have. What kind of money do you have? What kind of contractors, what kind of access to resources and focus on that. And that’s how you kill a transitioning market.

Thach:
I want to dovetail on this. James hit it on the market. You see in a good market, even a piece of shit house with bad design, bad remodel in a shitty neighborhood, still get multiple offer. It’s actually because everybody’s buying on frenzy, right? Regular homeowner, they went and they walk into this flip house done by some shitty person with a shitty flow plant in a shitty neighborhood and they still get sold. It’s like, what the hell? And then when the market is doing what it is now, which has been soft for the last two year, you know what don’t sell? It’s this shitty rehab, the shitty no neighborhood, the shitty detail. Those are the ones that actually take longer and people, they have more choices. But I will tell you, in a good area, with good craftsmanship, it’s still sale. It might not get multiple offer in this market, but it’s still sale.
So I think what James is saying, and I agree with him, is you got to pivot. For me now, now I’ve done it so long, I have a certain area that I always going to buy in a good market and a bad market. I always label full market. There’s an A market, B, C, and D. A is the high end, like Newport Beach, you know what I mean? Mercer Island where I live. Those right there always do well. Mercer Islands still do well, but those are high end homes. The D, what I call is the ghetto area. You know what I mean? You can flip in the ghetto. You can wholesale in the ghetto when the market is good, but when it’s a tough market, those ones move the slowest. Why? Because the people who live in those area, their income get affected very fast and not everybody’s trying to buy in those area.
The B’s and the C in a good market, the seas still relatively move. But in a soft market right now, the sea’s even taking a hit. I got a product right now in the sea market right now with new construction and it’s not selling how I want it to sell. And the same townhouses that are being built right now on Beacon Hill, same square footage, James, same bedroom and bath. Mine is near Mount Baker, which is towards Rainier Avenue. And this other project is up on Beacon Hill, North Beacon Hill, same square footage, same bedroom bath, and they selling theirs and I’m not selling mine. Same product, same stuff. And I should show you, location play a big difference in even a soft market. So what am I saying for everybody? If you’re going to invest, know your A, B, C, D neighborhood. In a good market, you could buy anywhere, you’re good.
But in a market that’s actually soft, when a bad market or a tough market, things going to take longer, you have to reduce the price. So me might want to think twice about either, A, if you’re going to buy in the C market, you better get a good price on it from the get go. Otherwise, you will get hurt when it get tougher and tougher. So for me today, I’m really trying to stay close to the B market and get good margin and knowing that if I have to take a haircut, I’m still going to make good money on it.

Ashley:
Well, it seems like 2008 tested everything you guys know about real estate, but what about now? After the break, I want to find out if 2025 is shaping up to be just as scary or maybe even better for investors. We’ll be right back. Okay. So we went over what happened in 2008, the crash everyone remembers, but the rookies just starting out weren’t investing then. They’re just looking at what’s happening today. So James, let’s start with you. With higher interest rates, inflation, tariffs, affordability issues, all of those things, a lot of rookies are really asking, is right now a good time to invest in real estate? So what is your advice to a rookie? Should they be investing? And maybe what’s one strategy they should be going after?

James:
Well, the one thing I think everyone needs to do is don’t overthink it. As investors, we are buying an asset and we’re buying math. So it doesn’t really matter what’s going on in the market, the math is the math. If I’m looking at a rental property and it can make me a 10% cash on cash return on rents today, unless I think the rents are going to drop dramatically, which I don’t think, then that’s a very stable thing. I can buy that and it doesn’t really matter what’s going on with the market. And so for everybody who’s new and even experienced, we get confused and we get on pins and needles, define your buy box, what will you buy, won’t you buy, and stick to it. That’s how you get kind of clarity. For people that are brand new though, the thing I don’t like to do in a transition market is try to create new business plans and go buy different types of investments that I don’t have the experience in.
I’m not going to go out and try to build a skyscraper because I’ve never done that before. I don’t care what the deal looks like. And you want to kind of stick to what you’re good at and focus on partnerships. You don’t have to sit out the … If you want to make a high return, depending on what your goals are, partner with someone that’s really experienced because they’ve gone through different market cycles and it’s going to teach you a valuable lesson and how to navigate a harder market. And if you know that when the market actually gets good, that’s how you crush deals because that was our big competitive advantage. We didn’t make a lot of money in 2008, nine and 10. We barely paid our bills. But when 11 hit and it started going up, we had the competitive edge on everybody and we were flipping, I think at that point we were running a hundred projects at a time.
And when you have a hundred projects in the queue and the market starts going up, things change forever because you have a lot of lift.
But stick to what you’re good at and you want to stick to what you’re good at, stick to what you know, and then get qualified. The more resources you have, shop hard money lenders, have a soft, hard money lender, have a hard money lender, shop DSCR loans, get qualified with traditional loans. Access to capital and resources are what really makes or breaks you as a real estate investor. And if you’re afraid right now, that’s okay. It’s okay to be nervous, but then hedge against it, right? Clarity in your buy box, what will you buy? Nervous, make sure it’s a really good deal, set that bar. Then have access to all the resources just in case that goes sideways, you have different exits and different strategies to save that deal. And the more resources you have, the more safest businesses. And so really just kind of focus on that and really … But before you dive in, get clarity in what you want to do because that’s where everyone kind of floats is they don’t really know what they want to do.
They just heard a podcast and they go here and they go here and they go here and then they go nowhere.

Thach:
I think for me is if I was starting out today, really do your research and know your market. Because every market and every city in that market is different. I was talking to a student yesterday in this one section of Florida and that one section of Florida has a lot more inventory than Tampa. And so they label it as the market is really, really, really bad and tough. And I say, “Where do you live?” She live in this one area in Florida, down in South Florida, but she live in what I call the boonies. Of course, out there. There’s a lot of inventory out there, but go to Tampa. You can’t find listings. It’s tight. Go to Orlando, it’s tight. So know your market, understand it, know your time on market, know what’s selling, what product is selling, know that. Understand that real estate is a cycle.
It always go up, always go down. But I think the most important question they’re going to ask themselves, a rookie is, “What’s my extra strategy when I invest in real estate? Am I buying to fix and flip or am I buying to hold for long-term rental?” This is what Saul said to me a million times. If you’re buying long-term rental, it is playing the long game. Even if you pay 10, 20 grand more today, even the market go down 10, 15, 20, $30,000, 10, 20 years from now, it looks like pennies. So you’re playing the long game, right? It’s not that big of a deal. If you’re playing the flip game, know your market just like you playing the long game, but flip game, make sure you’re buying in a good market and a good product so that if you’re going to get in and get out, get good margin on it, stay in the area where you know the product is moving.
Don’t go buying a 10 buck two somewhere. It takes forever. Know that. But if you’re buying for long-term rental, 10, 20 years from now, you look like a genius.

Tony:
Gotcha. I love that point because I mean, it almost mimics what people say about the stock market. It’s like you don’t buy a stock and try and sell it tomorrow. You buy it, you hold it for 30 years and then you make a lot of money at the end of it. But you talked a little bit about ethics strategies, knowing your market. How are you changing how you’re underwriting deals today compared to when the market was super hot a few years ago? Are you looking at maybe different cash on cash returns or shorter hold periods? What’s changed about how you’re underwriting deals right now?

Thach:
For me, number one, I really focus on buying in the bead market. That’s rule number one for me. I get deal coming across material every day and when it’s in anything less than a B minus C+, I just said, “I’m not interested.” And this is what I learned from Saw. You don’t have to do a lot of deal. All you got to do a few good deal and you be set. The problem, everybody trying to do so many deal and they buy everything and everything. You know what I mean? Okay, I take some of that. I take some of that. I take some of that. Just find some good deal. It’s okay. In order for you to do a hundred deal like James, you have to live through it to be able to do that, but don’t go jumping in tomorrow and want to do 50 deals.
So buy everything and everything. You know what I mean? So for me, know where the good area is. And for me, every deal that I do, I got to get at least 20% gross margin. If I’m flipping a deal after all expense, I got to get at least 20%. If I’m buying a house to fix and hold after all costs, right? The equity I built, I got to be at least 20 plus percent in equity in those deal.
Now for me, what I’m doing today now is I’m buying ugly houses. So I get a good deal on that and I add value to the house by rehabbing it, add more bedroom bath if I need to. And then today, I’m adding more units to it because I’m doing the ADU play and I keep those as long term. And so 10, 20 years from now, when the market is getting more tighter on housing, right? I’m going to look like a genius. So again, this is why it’s important. If you’re buying for a hold, there’s a different strategy and you buy for flip, there’s different strategy. But bottom line is, if you’re buying anything in today’s market, don’t try to buy everything. You don’t need to do everything. Just do a few good deals. Stick to the good area and try to get good margins upfront.
No rates will come down soon. It will come down soon. It’s coming. So if you buy it for long term, it’s okay to buy with a little bit high interest rate, but it will come down. You refi it later. But right now, if everybody’s scared, it’s okay. You get a better opportunity to buy more deal with everybody in the frenzy because in the frenzy, me and James hate it because we got a lot of inexperienced investor buying shit at stupid prices and waving feasibility. We can’t compete with those people. So we let them have it. And those are people who always get hurt when the market turn and then they’re the one who cause a lot of the craziness around town.

James:
Hey, question Thatch. So you’re at 20% now, like three years ago when rates were low, what was your number then? Because that’s the thing. We got to adjust our numbers with market conditions. We’re building in risk into how we look at a deal. So like with flipping, I targeted a 35% return. Right now, I’m at 45% because there’s more risk in the deal. So if it’s got more juice and more meat on the bone, I’ll buy it today. Four years ago, market was great. I’d get a little fin on it.

Thach:
Yeah. And when I mean 20% profit, meaning if I bought something and I’m all in for 800,000, it’s worth a million bucks, that’s 20%, right? That’s 20% profit. I got to make at least 20% profit in a good area, but I don’t go out to the high end market. I need that for James. I go out to the everyday market. I get in and out in 90 days, 20% good money, but it has to be in a good area. Otherwise, I’m not even messing with it. If somebody give me a sea area and I think it’s a good floor plan, I’m going to need probably 25, 30 80% margin, otherwise I don’t touch it.
Now new construction is different because it takes longer, so I need bigger margin. Right now I got so many people shopping deal for me, Jama. Hey Tad, do you want to buy this property? You can put two pack or three packers in new construction, 80 you here and there. Now look at the margins, like 15% margin. Bro, no wonder why they wholesale like it. Last night somebody sent me over a micro apartment asking some stupid prices. I’m like, dude, you missed the time of microapartment. It’s gone now. So again, that’s why they wholesaling because they didn’t get the price low enough.

James:
There’s not a lot of money in development right now. I’ll tell you that much.

Ashley:
Now, James, we’re hearing the word buyer’s market, seller’s market. We’re transitioning to a buyer’s market. What is your take on this and what are you seeing in general across the country? Are we in a buyer’s market or are we headed towards one?

James:
Buyer’s market, for me, I like a buyer’s market. I get to pick the deals that I want to do. When the market was frenzy mode, you kind of buy what you could get. And so for right now, how do I mitigate risk? Buyer’s market gives me a lot more inventory to look at. The only types of deals that I’m buying right now has nothing to do with price point, has nothing to do with location. I just want to make sure it’s a good house that doesn’t have any negative factors on it. It’s easy to resell, but also that my contractors are good at. I buy based on what my teams are good at, not based on what I want to buy. And so when you do that, you can shop it out. And I will say I’ve been able to purchase a lot more properties the last 60 days.
I would say over the last 90 days since the market got bad, I’ve bought more deals than I did all of the year before.

Ashley:
Wow. And are those two flip or to buy and hold?

James:
Both. We’ve bought in apartments. There’s very good deals on apartments. We’ve bought some burnout apartments with not financeable. Heavy construction freaks people out. I mean, that’s we just paid 110 grand a door in Belltown. Now that’s an A market. Those units are worth 450 grand a pop in the hot market with low rates. So there’s opportunity there. And it’s that heavy rehab. And so we’re buying apartments, we’re buying development still, and we’re buying a lot of flips. And it’s just whatever the margins are at, we’re going with, there’s opportunities everywhere. And so buyer’s market, yes, I do, because we’re getting a lot of deals. My phone is burning up with wholesalers going, “Hey, James, I might’ve talked to this guy in two years.” And he’s like, “Hey, I got all these deals because they can’t move them.” Which allows us to get a better deal.
Now, when we go to sell, I don’t care if it’s a buyer’s or seller’s market, I just have to plan accordingly when I’m buying upfront. I can say since June, I’ve increased my whole time projections by 25%. That’s adding two to three months onto every hold that I have. I’m also increasing my construction costs by 10% because we got a floating tariff going on. We don’t know when it’s going to hit, when it’s not going to hit. And so we just have to build these things into the risk. And then I’ve increased my return going, “I want to make more per deal.” And if it hits that stress test, why wouldn’t I want to buy that? And so it is definitely a buyer. I wouldn’t say it’s a buyer’s market. I think it’s a balanced market. And I think when people throw that out, it’s because they bought something bad and they can’t sell their house.
You have to look at the data. The data says what? There’s like three to four months of inventory right now in most markets. That’s fairly balanced. Six months is when it really starts to go to a buyer’s market. And so we’re approaching, we’re just not in an aggressive seller market right now where the sellers had all the power. And so buy good assets, build it into your performa. And if it’s a buyer’s market, that means that there’s better deals for us anyways.

Thach:
Yeah, I agree with you. I think it’s a balanced market. I don’t think it’s a whole, all seller’s market. Right now, some type of product are like in Seattle, ugly house with big yard that you can do ADUs on. The more they hit the market, they get multiple offer. That’s a seller’s market. You get an everyday house that needs some work. It’s more of a neutral market. But if you take a look at the overall real estate market, just everyday people buying and selling, it’s more of a neutral market. The seller don’t have all the upper edge, buyer don’t have all the upper edge either.

Tony:
And I think you guys are making a very important point for Ricky’s right now because a lot of people who are listening, maybe they were trying to get started when the market was going crazy and that potentially discouraged them because they couldn’t get a deal. But now we’re at this point where sellers are willing to entertain reasonable offers on their properties. And I think one of the messages that Ash and I keep trying to drive is if you find a deal, don’t even really worry about what the listing price is right now. Just underwrite at whatever number makes the most sense to you and then offer even below that number because the worst they’re going to say is no. At best they say yes, but the most likely scenario is that they start negotiating with you and then you’re able to start taking that conversation and letting it actually lead somewhere.
So it sounds like both of you are kind of echoing the same thoughts there.

Thach:
Yeah. I think the seller of the media is actually a train seller. The market is soft. So I think that’s why it’s actually easier to negotiate when the media is saying things are friendsy, everything’s selling off within one day, 100,000, 200,000 over asking price, then the seller’s trying to stick tight to their property. You know what I mean? So that’s why it’s funny. Investor, they want to buy on the media say, “It’s a great time to buy,” and they don’t realize they’re fighting against all the other dumb ass.

James:
And I think it’s important, especially in the world we live in now where people are online, they’re looking up to people that have boughten all sorts of different things. What you have to remember is people built wealth when the market wasn’t red hot. They built wealth because they bought on a dip and then when the market accelerated, that’s when they … I didn’t do well when I bought a bunch of properties in 2019, 20, I did well because I bought a bunch of properties in 2010, 11 and 12 that hit the accelerator and the gas during those times. And so this is the time to really pick up better buys right now. And the numbers aren’t going to be sexy. They’re not. But like right now, if I can buy below replacement cost, I’ve been able to do that a long time. I’m like, “I can buy this for $150 a square foot.
It costs me 300 to build this. ” Why wouldn’t I buy that and take a hard look at that? And so that’s the thing to remember. Don’t buy on the now, buy on the location, buy is this good value? That’s where you do well in 10 years. It’s not instant gratification in real estate like we’ve seen. We got that for two years because of the pandemic. It is a longterm road. And if you get in now and you buy consistently, that’s how you come out the other end.

Thach:
You got to have both foot in if you play in this game. You can’t be buying long-term rental as a side hustle because the moment you hit a speed bump or a turtle on the street, you’re like, “That’s all the reason why I shouldn’t be investing in real estate.” You know what I mean? But yeah, I mean, I agree with James. You can buy something for cheaper than replacement, but again, you have to have the long-term mindset gain. The problem with social media is I can go out there and then all of a sudden on my next slide on social media, I’m driving a Ferrari. And now everybody’s coming through, they all want instant gratification when they don’t realize the most successful real estate investor. They ain’t fucking a bunch of young bucks at 20 years old with millions and millions and hundreds of millions out with the real estate portfolio.
It didn’t happen overnight. You know what I mean? They all bought during the downtime and they ride it out. So just know everybody, this is a mindset game more than anything. Gotcha.

Tony:
I love that advice because I think social media has definitely skewed the perception of what it actually means to be successful. But what you guys are saying is that now really is a good time to invest. So now I think the next question is, how do you build something that can last through the next storm? Because we know it’s a cycle. How do we get to the next storm? And that’s what we’ll cover right after a word from today’s show sponsors. Okay. So we’ve covered how to find opportunity and uncertainty. And for Ricky’s who are listening, this next part is about how to build a foundation that doesn’t crumble when the next downturn hits. So you mentor a lot of new real estate investors who are doing this for the first time. What’s the biggest mistake you see them make? And That’s we’ll start with you.

Thach:
I think the biggest mistake is that they all want to happen like now. They all want to go out there and have $10,000, 20,000, $30,000 passive income now and they don’t realize you got to accumulate some. And then as you accumulate them, you can see the cash flow get bigger and bigger. The other thing I see that a lot of investors like, “Oh, I don’t want to buy rentals because $300, $500 on one house before it’s paid off ain’t moving the needle. So I’m just going to just do fix and flip, fix and flip.” And then next thing they know, they become a full-time just active income job. It just become a higher level job. And then 10, 20 year later down the road, they’re in the same spot. A lot of people don’t see James. James used fix and flip as the vehicle to actually two things, one, to source deal, and two, to actually use that money to buy long-term rentals.
And that’s the problem. A lot of the young folks coming there, they think that the game is fix and flip. No, fix and flip is a vehicle to long-term wealth. Jimmy, what about for

James:
You? I think with that said, it’s just that you have to buy in the long and find out where the opportunities are and what vehicles you want to pick. And no matter what you’re doing, because I always tried to think back, okay, when I was new, what do I need to really get moving forward? And it was access to capital. That was the first thing. I needed money because I was 22. No one wanted to give me money and the Red Robin tips, they weren’t covering. And so I think that’s the biggest thing. Go get set up, get your financing in order. Why are people really struggling right now? They didn’t lock their debt. They’re on floating loans and their deals are getting destroyed. So how do you hedge against that, lock your debt? Get set up with the right amount of capital and don’t force a deal.

Ashley:
Jimmy, can you just break that down for a rookie, what that means real quick. Yeah.

James:
Yeah. We want to take away the variables from a deal. And so if I’m looking at a rental property and I get the special loan and I can buy this house and my loan, and it works really well when I got a five and a half percent loan and I can get a DSCR loan that’s fixed for two years and then it’s going to change into a variable rate. It could go up, it could go down. That’s where the risk is. We don’t know what’s going to happen. It kind of blew my mind that so many people are in variable debt going through these deals because as investors, we’re buying math, we’re buying a performa, and if the debt goes up and down, we really can’t project. We’re speculating at that point. We can’t go, “This is what I’m going to make.” And if Thatch has a bunch of rental properties, he wants to know what his monthly payment is and what his income’s going to be.
That tells him his cashflow. When rates go up and you’re not locked in, your cash flow goes away. And that’s why there’s a lot of people in trouble right now. And so the things to mitigate that is lock your debt. When you’re buying today, my numbers shouldn’t change.
And then don’t build in a bunch of appreciation and projections. You don’t need to speculate. Just buy on today. What will it rent for? What’s my payment? What’s my taxes? What’s my insurance? Do I like that cashflow? Yes or no. You overthink the deal and try to force it, that’s where you can get in trouble. So just secure it, lock it and buy in today. And if you like it, it’s a good buy.

Ashley:
Yeah. And not buying based on future projections, based on like you should run your numbers and not be like, “Okay, I’m only losing $200 now, but when interest rates drop, then I’ll refinance, then I’ll make money.” You need to make your purchase price based on today’s numbers and how it’ll work for you. So we just had Lega Dava on recently and she talked about how she had bought in one year $11 million homes, flipped them, but in total she only made $100,000. And one of the things she talked to us about is scaling too fast and knowing what is actually sustainable. So how do you both measure sustainable growth where that system isn’t going to break? That’s let’s start with you.

Thach:
Oh man, I think you got to have an A team. I think you got to have a good general contractor, you got to have some good subs. You got to have people that have been … Obviously if you’re new, you got to find a good general contractor. A good general contractor. And let me tell you something, do not be cheap paying a general contractor. Okay? That’s rule number one. The problem with new investor, they try to go find the cheapest contractor. And what happened is they get their ass kicked every single time.

Tony:
They get what they’re paid for, right?

Thach:
All the time, man. They get delays. They have just the delay costs money, let alone, oh, under budget or this and that, right? Over budget, whatever. But get a good general contractor, right? The good general contractor will have good subs that’ll be reliable. Bad general contractor have their mom and their brother and sister are subs. You know what I mean? Get a good designer, good property manager, get a good agent to understand the market. So for me, you got to build a real good A team and then know your market. I think how fast you go is how good your team is going to be because they’re the one who’s going to slow you down. Okay?

James:
Yeah. And I think going big, this is what I tell people a lot because people go, “Oh wow, you got all these businesses going on. I want to be you. ” And I’m like, “I don’t know if you really want to be me. ”

Ashley:
Nobody wants to work as much as you.

James:
Yeah. I’m wired a weird way and it’s not for everybody and that’s okay, right? But there’s a sweet spot and we don’t have to take over the world playing your sweet spot. I do know my team can manage a certain amount of flips. Once I go past that, all my flips become inefficient or we can do a certain amount of apartment rehabs at one time or we become inefficient and then we have to make a choice. Do we want to take on more expense and more employees? And then we have to load up even more and force it because you have to cover your cost or there’s always that magical sweet spot. And the thing I’ve learned is when I get deal goggles and I go past that sweet spot, things become inefficient, the wheels come off because you physically don’t have the time to manage things like you need to.
Fix and flip is a very high management business. I don’t care what people say, that’s how you control your cost. I still shop for faucets on Amazon late at night for my team, just to keep those costs down.
If you’re not in that business and you don’t go and you get to a certain amount of projects and you’re not there to manage it, that’s where you’re doing more and you’re making less. And that’s what I’ve really learned right now, we have about 20 … No, because we got the zombie flip show going right now. And so it’s like we have about 35 projects going. That’s past our sweet spot. We are typically 20, 25 at a time is right where my team can hum or I got to hire another project manager and then we’re running 40 to 50. But just don’t force it and it’ll be okay. I

Thach:
Agree. One of the things I noticed James, people, they tend to … Let’s say you go past 30, you got to start getting the property manager, another superintendent or another project manager come in, right? They go and they try to hurry up and go get more deal and they haven’t really stabilized a good project manager or a superintendent yet, even work them through the system at least once or twice. Because just because you get a new project manager or superintendent does not mean that person is good or working well with the team. So they just hire a superintendent, they go, “Oh yeah, I got a superintendent. They don’t know how good it is. ” And they’re trying to lower more deal, more deal. Come to find out that superintendent wasn’t that great and it’s caused a lot of issue, but they got all this deal and they can’t afford to let somebody know.
Either they keep this guy and work with it, the whole team hate them, or if you get rid of them, then you’re going to suffer. So be careful how fast you scale. Also, how fast you bring in your team, how well they get trained, how good they work with everybody else, it plays a big role. And this is why I always say, you don’t need to do a lot of deal, you just need to do a few good deal. And a few can be 10, 20 a year, but don’t try to be someone that you see on stage or social media and trying to do that overnight.

James:
And don’t get drunk on the performance because that’s what happens. We all go, “Hey, how do we scale? How do we take over? How do we get to that next level?” You take a performer that you’re really good at doing like, “Oh, hey, look, I’m doing three houses at a time and I’m crushing it. ” What happens when I do 20? And you look at that performance, you build that out and you model it out, but you forget all the things that come along with that. And so that’s what happens. We look at performas and performance lie, guys, they’ll tell you different things because you see it and you’re not factoring for all the outside stuff off the performer. And take your time. You don’t need to be the biggest. I mean, if I could unwound my journey in real estate, I would’ve took my businesses all to 50% of where I’m at right now.
Now, I’m so far deep into it. We have a lot of good employees, a lot of good staff. I’ll never change that, but there is a sweet spot and I honestly probably could have done half as many deals and made twice as much money as I made the last 15 years. And so don’t always listen to what’s going on online like, “Oh, go bigger, go bigger.” They’re blowing smoke half the time.

Thach:
Because a lot of times they count. Just like you said, they count how much … I did $12 million, but I made $100,000. So on social media, they always talk about the gross number or how many transaction I do, but nobody really talk about the real net at the end of the day.

Ashley:
Well, Thatch and James, thank you so much for joining us today. We really appreciate it. That’s where can people reach out to you and find out more information?

Thach:
They can just go on social media. Just my name, That’s Win. They can find me in Instagram, YouTube. It’s all the same thing. That’s Win.

Ashley:
And James, what about you?

James:
Yeah, Instagram, I think. No, Jay Dane flips on Instagram and also the On the Market podcast, the best real estate podcast on the planet.

Ashley:
And also on their TV, right?

James:
Oh yes. Yeah. And there’s we’re filming season two million. I will say this is next level what we’re doing right now. Million dollar zombie flips, A&E. These houses, I’ve been going through these houses. They’re so messed up. I have a rash that hasn’t gone away in eight weeks. I think I … Yeah, I probably need to check that out.

Ashley:
If you’re not on YouTube right now and you’re listening to this in your car, James just stripped down and is showing us where his rash is. Well, thank you guys so much for joining us. We always appreciate having you both on the podcast. Thank you so much. I’m Ashley. He’s Tony, and we’ll catch you guys on the next episode of Real Estate Rookie.

 

Henry:
Real estate is arguably one of the best ways to build wealth and financial freedom, and one of the best investment vehicles for new investors is rental properties. And you don’t have to be some huge investor buying large multifamilies or big apartment complexes. Rental property investing is the average person’s way to build wealth. Whether you want to make $50,000 a year or $500,000 a year, you can do this. How do I know this? Because I did it. Just seven years ago, I owned no assets and now I own a portfolio of over a hundred rental properties. But here’s the problem. Most people have no idea where to start. So that’s why we’ve come up with seven steps that you can use to help you find your first property in 2026. Let’s do this. This is exactly how you go step by step from owning no rentals to your first one.
What’s going on everybody? Welcome to the BiggerPockets Podcast. I am Henry Washington and I used to have a corporate W2, but now I own over a hundred cashflowing rental properties and that allows me to invest in real estate full-time.

Dave:
And I’m Dave Meyer and I still work full-time. Well, I have a good job. I am the head of real estate investing at BiggerPockets and I’ve been investing in rental properties for more than 15 years. We obviously have different approaches to real estate investing, but maybe we should just take a minute and talk about why we are doing this and why our audience is probably sitting at home thinking, “Yeah, maybe I should do this, maybe real estate.” But what are the two or three reasons you think, honestly, I think most Americans should be considering investing in real estate. What are the top reasons for you?

Henry:
I think what most Americans are facing now is that the typical American dream doesn’t necessarily work anymore. It’s hard. It’s very, very hard to have one job that pays you enough to be able to afford a comfortable life. I think you can afford a life of some kind, but most people typically want more. They want to be able to take more vacations. They want to be able to spend more time with their family. And with how much life costs, groceries costs, gas, costs, mortgages cost. I think Americans find theirselves in a position where they need a way to generate some more income on top of their day job. And that’s the position I found myself in, and that was seven years ago.

Dave:
A lot of it’s gotten harder. I mean, I call me a skeptic, but I just don’t trust anyone else to take my retirement or my financial future seriously. I don’t think the government’s coming to help me. I don’t necessarily think any employer’s going to be around for me for the entirety of my career. I have a great job, but I’m not going to work for one company for 45 years. In my opinion, since I graduated college, I’ve always thought, how do I do something entrepreneurial so that I can take some control over my own financial future? And to me, real estate’s the best thing to do. There are plenty of other ways you can use entrepreneurship, but I’m not that creative. I’m not going to go start some business that’s going to change the world. I don’t know how to make an AI company, but I could run a real estate business.
Absolutely. I could do it.

Henry:
Absolutely.

Dave:
So can pretty much anyone.

Henry:
Absolutely. And for me, there’s just safety in real estate. And so being able to own something that’s a physical asset that literally everyone needs, there’s comfort in that.

Dave:
Yeah, absolutely. And this is possible. I always cite this stat. It’s a stat I made up, but that’s why I cite it so often because the creator is just so smart. No, I did the math because I think that a lot of people love the idea of financial freedom, but it feels so far away. And I did the math and basically no matter where you’re starting from, if you just buy regular on- market deals, you have to buy good deals, but if you buy regular on- market deals, you can get what we’re talking about, financial independence in eight to 12 years. And if you hustle like Henry Hussles, you could probably do it in five to seven. And so that’s what’s so cool and inspiring about real estate investing is even though things have gotten more expensive, even though mortgage rates are higher than they were eight years ago, buying on market average deals, if you just dedicate yourself to learning this craft, you can do it in under a decade, compare that to 45 years, the average career that someone works in a corporate job.
They’re not even comparable. So that’s why I’m in real estate. It sounds like we’re the same raises. So let’s move on. Let’s talk about how to actually do it. We’re going to walk you through our seven steps to going from where you are today, maybe not knowing that much about real estate, never having bought something before, to how do you actually go out and buy that first deal? What’s step number one?

Henry:
Step number one is to have some goals.

Dave:
Yeah.

Henry:
Look, people say it all the time. You got to know where you’re going to understand what you want to do. But I think in real estate, you get this excitement when you learn about it because you feel and see how powerful it is and you start to see other people doing it. And a lot of us who are action takers just kind of go and then we figure it out later. But in this business, understanding exactly how much money you’re trying to make and in what timeframe are you trying to make it in will really help set some guardrails for you so that you don’t spend a lot of time wasting time doing things that aren’t valuable to you.

Dave:
There are so many different tools you can use. There’s long-term rentals, there’s flipping, there’s all these different things. If you don’t take a moment to figure out where you want to go, you can very easily choose the wrong tool. And that’s not necessarily a mistake that you can’t come back from, but it does waste a lot of time. There’s an analogy I used in my book where if someone walked up to you and said, “What’s the best car?” What would you answer? I don’t

Henry:
Know. What do you want to do with it?

Dave:
Exactly. Are you trying to race?

Henry:
Because

Dave:
Maybe you go buy a supercar.

Henry:
Are

Dave:
You trying to build something? Maybe you want a truck. Do you have a family? Maybe it’s a minivan. But unless you know what you’re trying to accomplish, what you’re trying to do, you might pick the wrong tool. And I know it is fun to go out there and start daydreaming. I got to

Speaker 3:
Do it

Dave:
All the time. I do it too. But I really recommend everyone take a minute and set a goal. That can mean a lot of different things. So for you, what does a good goal look like? What are the kind of things you should be thinking through?

Henry:
Yeah, I think there needs to be some level of tangibility. And that’s why I said it the way I said it earlier. How much money are you trying to make and in what timeframe? Because your goals are going to dictate the strategy that you use because you could have an aggressive goal of making $200,000 in the next 90 days.

Speaker 3:
Yep.

Henry:
Well, that’s not going to be with rental properties. Your goals will help to dictate your strategy. So put some tangible goals behind it. We’re all doing this for money of some kind. Some of us need money now. Some of us need money later. Some of us need money now and later. But everybody’s in a different financial place and everybody has a different financial problem to solve. And so be tangible with it. What’s the amount of money that you’re looking to make and what timeframe are you needing to make it in? That’s the easiest way to start planning your goals.

Dave:
So what’s yours?

Henry:
Yeah. So my goals for money each year is I want to generate somewhere between 600,000 and a million dollars in net profits from flips that I want to use to help pay off current assets.

Dave:
That’s a lot. Yeah. That’s pretty good. And that’s just you or with partner? That’s just trade up? Yeah. Wow, that’s incredible. But do you have a goal with your rental properties? You use that money to put back into your rental properties. Do you have a number of unit goal or cashflow goal long term?

Henry:
The number of unit goal is more measuring stick. The cashflow goal also is … So right now, I think we generate somewhere around 30 or $40,000 a month in cash flow, but I don’t live off of it
And I don’t plan to live off of it. What the goal is is to pay off one third of my portfolio over the next 10 years. And if I can pay off one third of my portfolio over the next 10 years, I’m going to take a look at how much net cashflow that gets me and then I’ll decide if I need to pay off more or if I’m comfortable. Can I live off of this amount of money for the rest of my life? Because one of the things people don’t talk about with real estate is it’s all an active business. Some strategies more active than others. If you want it to be more passive, you got to get some unleveraged properties because unleveraged properties are going to pay you better than leveraged properties. And if I have more unleveraged properties, then I don’t have to flip as many houses because flipping houses is all of the active.

Dave:
Yep, exactly. And this is a perfect goal. Your real goal is to own unlevered properties. 100%. You’re using flipping as a strategy to get there quickly. And this isn’t exactly why you need to set your goals first because if you just said, “Hey, I want to flip,” you might make a ton of money. It sounds like you do make a ton of money, but you’re doing that with a different goal in mind. And so you have to cater and adjust your flipping strategy to pursue that bigger goal. And I think that’s a really important thing that’s sort of keeping you on track.

Henry:
And also lets you know how much of it you have to do. Right,

Dave:
Exactly.You could scale it down in the

Henry:
Future. Yeah. Do I need to do five flips or do I need to do 25 flips? That’s going to depend on the amount of money you want to make and what market you’re in. Because as we saw recently, somebody in a market is flipping one house and making what I make dang near in a year doing 10 to 15.

Dave:
That’s crazy. Yeah, absolutely.

Henry:
So yes, those are my goals. Everybody’s goals are going to be a little different, but after goals, in my opinion, comes strategy. So I know you literally wrote a book about strategy, so how do you feel about that?

Dave:
Well, I think that’s right. And I think that honestly, this is all strategy. I think goals are important part of your strategy, but I think when we, in real estate, when we talk about quote unquote strategy, we’re talking about the types of deals that you want to do. And I do think that’s the appropriate next step. My goal’s pretty similar. I want unlevered rental properties to pay for my entire lifestyle and then some within 15 years. And I can pay for my lifestyle with real estate now, but I don’t. And I’m sort of more in a growth mode. So over the next 15 years, I want to transition to more passive. I’ve been doing that for already for five years now. And how do I do that with less and less debt, which to me means less and less risk. So then I work backwards from there.
What kind of deals do I need to do? Do I need to flip houses? No. For me, it’s something I might do opportunistically because it’s fun in this industry, but I don’t need to do that. Do I need to do midterm rentals? No. Do I need to do short-term rentals? No, I could. But to me, given my goal, my strategy first and foremost is how do I buy a great asset at a great location that I’m going to be proud to own for the next 30 years? That’s the number one thing I look at. And then from there, I’m like, all right, is that a short-term rental? Is that a midterm rental? Is that a Burr? Is that a long term? That to me is more of a management choice. That’s a business plan choice. To me, it’s like I want something that I can own for a really long time, which is a very different strategy than buying stuff, renovating it, and flipping it.
And so that’s why we probably have different short-term strategies. But for me, it all starts with that goal and then I sort of work backwards. And that’s why my strategies right now are buying long-term properties. Maybe I switch up how I manage those rentals over the next 30 years, but I want the great asset and the great location that I’m going to hold onto for a long time.

Henry:
Yeah. And I think that that’s a brilliant way to look at it because if you’re looking at it from assets you want to hold forever, you may actually do more than one strategy with a particular asset. For sure. For example, I have a rental property that was a long-term rental, but in this particular city, in this particular area, mid-term rentals do really well. And so I converted it and it’s doing excellent right now. Will it do excellent forever as a mid-term rental? Probably not. Totally. We may have to put it back.

Dave:
People sometimes say, “Oh, are you a short-term rental investor? Are you midterm rental investor?” I’m like, “I’m a buy and

Henry:
Hold.” I’m going to buy a holding.

Dave:
Yeah, that’s what I do. I want to buy stuff for the long term and hold onto it and whatever helps me hold onto it. I would do that. Whatever is a good business decision at that time, I will do that. That’s to me the number one thing. And once you have that, once you say, okay, I’m a buy and hold investor, then you can go out and start picking your markets because I’m in an interesting position. I live in Seattle, very expensive market. It’s not a good buy and hold market. It’s not. That’s why I invest out of state. I didn’t pick the market first. I said, “Here’s my goal. Here’s my strategy. Now I got to go find a market that I can successfully do that in because Seattle ain’t it.

Henry:
” Preach, preach. I don’t know how many times people ask me, “What’s the best market to buy property in? ” I’m like, “I have no idea for

Dave:
You. ” Exactly.

Henry:
No idea what you want to do, what your goals are. That’s truly the way you should be looking at picking markets. And I feel like people pick markets because they think, A, either it’ll be easier to find a deal or more affordable to pay for a deal, but you should really pick your market based on your goals and your strategy.

Dave:
In that order. In that order. I really do. Hands down how I feel. Some people live, you live in a good market where you can kind of do a little bit of everything, which is nice, but that’s not true everywhere, especially in expensive markets. It’s very difficult to do it. So if you want to be a buy and hold investor, you can be creative, more creative than I care to be because it takes a lot of work and I have a full-time job. So I’m not going to go out and do student housing, for example, or rent by the room. I’m just not going to do that. Yeah, it’s more work to go find a market. I travel there. I go look at deals. I would rather do that because it’s just more aligned with my goal. It’s more aligned with my strategy of buying great assets and holding onto them.
And that’s how I pick that market. Perfect. So those are our first two steps. Number one, pick your goal. Number two is strategy and market, which we’re kind of combining because I do think it makes sense to do those. Next, we have step three, which I think we might disagree about this one. I think we’re going to disagree about which one should go third. You can weigh in on which one you think is right right after this break. Running your real estate business doesn’t have to feel like juggling five different tools. With Ree Simply, you could pull motivated seller lists. You can skip trace them instantly for free and reach out with calls or texts all from one streamlined platform. And the real magic AI agents that answer inbound calls, they follow up with prospects and even grade your conversations so you know where you stand.
That means less time on busy work and more time closing deals. Start your free trial and lock in 50% off your first month at resimply.com/biggerpockets. That’s R-E-S-I-M-P-L-I.com/biggerpockets. Welcome back to the BiggerPockets Podcast. Henry and I are sharing our seven steps for investing in real estate, going from wherever you are today to getting that first deal. And we were planning the show and we agree on the seven steps, but I think we disagree on the order of them, right?

Henry:
I agree.

Dave:
Okay.

Henry:
I agree to disagree.

Dave:
I disagree. We both agree that goals come first, then comes strategy/market. What do you do as third?

Henry:
Find a deal.

Dave:
Find a deal. So you would just go out. I don’t necessarily disagree about that, but I’ll offer a counteropinion, but you go first and just share finding a deal.

Henry:
Yeah. I think finding a deal is the key to being able to make money. I also think finding a deal makes all the other subsequent steps easier to you. If you’re going to find a contractor, it’s hard to talk to contractors about hypothetical deals. They don’t want to talk to you about

Dave:
It. It’s so

Henry:
Pointless. Right. And then also it’s easier to find money for deals the better your deal is. And so being able to go out and find a deal.

Dave:
So I guess within making a deal as your third step, do you create a buy box?

Henry:
Yes. Okay.

Dave:
Absolutely. Yeah. You take that market, you take the strategy and you get … How specific on your buy box?

Henry:
For me, it’s square footage wise. If it’s a single family home, I don’t want anything over 2,800 square feet. So I want less than 2,800 square feet. I want it built after. I think we just changed the buy box filter. Anything built before 1960, we don’t want. Now you could live in a place that’s a big city and you only want to buy in little pockets of the area, and so you have to know what zip code you want to buy in. You could live in a place where there’s tons of old properties, and so you don’t have a choice. You have to buy something older. So you’ve got to get real specific depending on your market. I just happen to live in a market where I can have a broad buy box.

Dave:
Yeah. I recommend for new people to be as specific as you can. It can be overwhelming, all the options that are out there. And so if you’re new, figure out a price point that you can afford, that is reasonable. Figure out what kind of asset. For me, personally, single family, small, multi, I’m like, whatever, whatever the numbers work on.
Trying to figure out what type of condition that you want, class A, class B, class C, what kind of neighborhood. The more specific you can be, the better the decision making process is going to be because if you’re new, you can do it, but if you’re analyzing 100 deals, 200 deals, looking at every deal because your buy box is so wide, it can be really overwhelming. And so trying to just be like, this is what I’m going to do first. I want something that’s manageable, a 3.1 that’s under this price point, it’s got an attached garage, that’s my buy box. That’s great because you can really hone in and practice your skillset. So I don’t disagree that going out and finding a deal makes things better. I do think just for new people, one step you can consider putting before the deal on the buy box is talking to a lender
Because I see so many new people get stuck at this. They’re being like, “I can’t afford it. ” I’m like, “Do you know that? Do you actually know that? ” Because there are 5% down loans, there are VA loans, there are owner-occupied loans, there are FHA loans, there are all sorts of things. There are government programs, state and city sponsored programs that help you with your down payment or your closing costs. And if you’re feeling stuck, please just go talk to a lender. If you feel good about your buy box, go do what Henry said. But if you’re feeling stuck, just talk to a lender. It’s their job to help you understand what you can afford and they will give you a number that you could go put into your buy box that you could say, “I can actually afford this. ” So it’s just one thing.
We don’t really disagree, but that’s something I think you can consider doing

Henry:
First. It’s interesting because I think we’re trying to solve the same problem for people a different way. Both of us want you to go take the action and you’re saying going and talking to a lender will truly let you know what you can go buy and stop guessing at it or making assumptions for people. And what I’m saying is finding a deal will motivate you to go find the money. And so what I’d say to your plan is talk to multiple lenders.

Speaker 3:
For sure.

Henry:
Because sometimes a lender will tell you no or tell you they can’t do something and it’s based on their limited information about the products that they offer- Or their bank. Or their bank. And there’s a million other banks out there that have a million other products to offer you. And so talk to multiple banks and get a consensus from them and that will truly help you understand what you can and can’t go do.

Dave:
I am so guilty of this. I’ve been interested for the last six months or so of buying a multifamily, not huge, but 12, 15, 20, something like that. But if you listen to my other buy box shows where I get into detail about what I’m looking to buy, I really like fixed rate debt. I don’t like commercial loans.
So for a little while I was like, “Oh, I’m not going to buy multifamily because I need a commercial. I want an adjustable rate mortgage.” And a couple weeks ago, I was like, “I haven’t even talked to a lender. They’re fixed rate commercial books.” Absolutely. I know if there are. But I just in my own head was just like, “Oh, I don’t want to get a commercial loan.” And I was just being lazy and I was like, “Now just go call them.” I’m like, of course they’re fixed rate commercial debts. 100%. Not that hard to find. I was just being lazy about it. Now by doing that, I’m like, okay, now I can make a buy box because I know what’s possible. I know what the rates are going to be. I know what the rate premium’s going to be because a fixed rate commercial loan’s going to be higher than an adjustable rate.
So I can bake that into my underwriting. And now I feel better about my buy box.

Henry:
And if you follow these steps in the order we’re giving them to you, you will learn so much by talking to lenders because you’ll be able to sit down and say, “These are my goals. This is the strategy I’m looking to employ.
And here’s the buy box that I’m looking for for deals.” And they may have options for you for loan products that are new or we don’t even know existed or you had no clue exist yet. But these, especially community banks, their job is to help investors in their market figure out how to get deals done with them. And so they may be able to piece together a strategy for you that you didn’t know as an offer. For sure. Absolutely. If you’ve got all these things lined out for them. All right. So we agree to disagree, but it sounds like we agree essentially on the same thing. Do

Dave:
This in same week. You can do it all. You can get

Henry:
To this. Yeah. You need to talk to lenders. You need to find a deal. All of this will be a benefit to you, especially if you’ve done the first two steps like we outlined. And so moving on to the fourth step, which is to analyze some deals. And I don’t know if you know this about this guy, but he loves analyzing deals.

Dave:
I do it for fun.

Henry:
I do too. I’m

Dave:
A deal junkie. Deal. It’s funny though, because you offer on way more than I do, but I’ll know I’m not going to offer on them and I’ll just watch this.

Henry:
And run the numbers anyway.

Dave:
But yeah, I think this is where you go from research to action. This is where you’re filtering, you’re doing your buy box, you come up with these great ideas, but ultimately real estate is really, it’s just math and execution. And this is the math part where you just say, is this a good deal or not?
And I know that sounds intimidating, but it really isn’t that hard. It’s really doing a little bit of research. The hard part is your assumptions. The math, the formulas are super easy. It’s you figure out your cash flow and you divide it by how much money you invested, that’s a cash on cash return. That’s easy. But your assumptions like how much rent you can collect, the ARV of a property, what your expenses are going to be, that is hard. I think that’s a skill that takes a little bit of time to get good at. I think I’ve gotten good at it, but how do you get good at that?

Henry:
Well, I’d say for people starting out, you’ve kind of hit the nail on the heads. The two things you need to have a handle on are after repair value,

Dave:
Which is just what you can sell for once you’ve

Henry:
Renovated it. Once it’s fixed up, what will that property trade for? You have to understand what that number is for your assets. But for a new person that can be very intimidating because the access to the data that you need to accurately get this information is behind the door that only real estate agents have the key for.

Dave:
And comping’s kind of

Henry:
An art. And comping without access to that information can be extremely challenging and overwhelming. So it is a skill that you have to learn. We don’t have time to tell you exactly how to go do all that here.
But so typically when you’re new, the best way to get that information is to partner up with a real estate agent who can help you run that analysis. So understanding ARVs, that’s the most important data point you need to get a grasp on when you’re going to be investing. The second data point that’s important and hard for new investors is renovation budgets. Not everybody who is investing in real estate has a construction background. I know I did. I still struggle with this. And this was extremely overwhelming for me when learning to run the numbers. There are several things that you can do to get familiar with it, but it’s just something that’s going to take time and experience.

Dave:
I think that I’m not good at construction. I’ve done plenty of it, but some people have a feel for it. They’re like, “Oh, I know how much this is going to cost.” Yeah, exactly. It’s like, oh, like James Standard, our friend, you probably- I do it all the time. You have a good feel for it. I do not. But I think the best thing I’ve learned is just to ask other investors. That is the number one easiest thing because yeah, you can go ask a contractor, but they’re building in profit and they’re going to try and, not all of them, but many of them are just trying to maximize their own profit.
I think talking to another investor, if I go to another market, I’m like, “What does a bathroom cost you? ” What does a kitchen cost you? That is the most valuable thing that you can do to get those assumptions right. Because like Henry said, ARV expenses, those are tough. Rent, you can usually figure, I don’t think rent estimates are that hard, but if you can nail those two things, it’s really going to help you a lot in your deal analysis. And that’s just why you have a community. That’s why you have bigger pockets. That’s why you go on and talk to people and BPCon, whatever it is. These are the relationships that really help you get around these assumptions because they’ll know they’ve done it.

Henry:
And I think one pro tip to doing just that is talking to other investors and learning about renovation budgets is ask other seasoned investors if they’ll send you bids from contractors that they didn’t hire because you’ll learn a ton by reading a bid for a project renovation. You’ll learn about what it costs to paint a house of a certain square footage. You’ll learn about what it costs to lay flooring in certain rooms of certain types. You’ll learn about-

Dave:
Scope of work, like

Henry:
What people are doing. Reading your scope of works, just having access to those is data. And you can start to build your own spreadsheet based on a cost per square foot model just by looking at other people’s bids.

Dave:
Yeah. I mean, yesterday, Henry and I were tooling around Seattle. We went and someone, we were talking to this guy, he was like, “You want me to send you my spec sheet?” We were like, “Yeah.

Henry:
Yes,

Dave:
Great.” So now we can see what he’s paying for cabinets for tile and for all these different things. And that just helps you orient yourself. And I think that’s really the hard part of deal analysis is people hear this word analysis and they think it says math and you’re like goodwill hunting up on the board. It’s like you just go to bigger pockets, just put in the calculator. That part is easy. Just go use the calculator.

Henry:
You just have to know what to plug in.

Dave:
Yeah. You need to know to plug in. That’s the hard part. The other hard part I think is knowing what’s a good deal because once it spits out a number, is that good or not? I think that’s another sticking point for a lot of people is like, you see, let me just throw out a number for you. You see 5% cash on cash return, what do you think for rental property?

Henry:
Not a good deal.

Dave:
Not a good deal.

Henry:
Yeah.

Dave:
I’d probably take 5% in the righ market.

Henry:
In the right market, in the right

Dave:
Situation. I would take it. Yeah, exactly. So I think that’s what people struggle with when they’re new is like, is this a good deal? So do you have some benchmark returns that you use either for flips or rental properties?

Henry:
Yeah. So for flips, I try to keep it super simple. I’ve talked about this before. I want to net make what I spend on a renovation. That lets me know that my risk and reward is in line.
So I don’t want to do a $200,000 renovation and make a $30,000 profit. That’s way too much risk and not enough reward. That’s a quick and dirty way for me to know if what I’m paying for the property is worth the effort that I’m putting into it from a flip perspective. On the rental property perspective, I still use to this day, the BiggerPockets Calculator. And what I’m trying to get to on my rental properties is I want them to cash flow positive or break even depending on the neighborhood that they’re in. So I’m okay buying a breakeven property. If it’s in an up and coming area, I’m going to get the appreciation, debt, pay down, tax benefits, but I’m in a different place. I think, but for most people, if you can get somewhere between seven and 10% cash on cash return for a rental property, you’re probably doing very well.

Dave:
Yeah, that’s good in today’s arcade. I agree with you. I will take anything down to even like a 3% cash on cash return if it’s in a great neighborhood that I know it’s going to be growing. Again, my strategy long term. I’m not thinking … This is why your goals are so important

Henry:
Because if- Your money later.

Dave:
Yeah, exactly. If my goal was I want to retire in five years, I would be only doing 10, 12% cash on cash return deals, no problem. I’m like, “Hey, if I’m buying a property that’s in great shape, in a great location, the cash flow’s probably not going to be amazing this year, but it’s still going to be in great shape from 10 years. It’s going to be in a good property. Location’s still good. The condition of the home is still good and rents have gone up and my debt is fixed, then I’m getting my cash flow.” So I’m willing to do that. The number I use is I want my total return. So I add up my cash on cash return, my appreciation, my amortization, my tax benefits and any value out I do. And I want that to be a 15% annualized return. It’s a little less than double what the stock market average is.
And to me, that’s worth my time because I don’t put as much time into real estate investing as you do, but I still spend 20 hours a month on my real estate portfolio.That’s more than stock investing. I want to get paid for that. That’s an incredible return. At 15%, just so everyone knows there’s a little rule of thumb here. Your money will double every five years.

Henry:
For those of you who are still around in this episode, that was your reward for it. That’s a phenomenal calculation to be able to run that most anybody can use and do immediately. So congratulations for sticking around. Thanks. That’s why he is the co-host of the BiggerPockets podcast.

Dave:
Yes, it’s true. But if you think about this for a minute, Michael’s 15 years, 15%, your money doubles in five years, then it doubles again. So you’re at 4x and then it doubles again. So you’re at 8X. So by doing 15%, which is very achievable, this is not crazy numbers. These are deals that I can do without worry. I can do this- Things

Henry:
That you can find on the market. Things

Dave:
On the market, I can 8X my money in the next 15 years. Think about that. And it’s an unbelievable value proposition. And so that’s how I think about it. And the 3% cash on cash return, honestly, it’s not because of the cash. It’s like that just gives me the cushion. I’m very conservative of my expenses, but it gives me even a little more cushion to make sure that I have a bad year. I can pay for these kinds of things without coming out of

Henry:
Pocket. Yeah. I think that’s the thing people need to understand when we’re talking about Oh, net returns is both you and I underwrite extremely conservatively.

Speaker 3:
Kind of scared.

Henry:
Extremely. The scenario in which that my properties perform like I underwrite them is probably pretty low. They probably all perform better than I underwrite them.

Dave:
Oh, all of mine do. That’s my goal. That’s why I do that. That’s 100%. Yeah. Someone sent me a deal. I was showing you this the other day in Detroit. The agent sent me really good rent comps, all these things. I was like, “It’s going to be 2,400 underwriting.” I’m like, 2,100. I just immediately discount all of it. Not because they’re wrong, but because I want to see the worst case scenario. Worst case scenario. Yeah. I want to see the worst case scenario. And then it works. I’m like, great.

Henry:
Yes.

Dave:
All upside

Henry:
For you. 100%.

Dave:
Yeah. All right. So now we’ve given you some benchmarks and some rules of thumb out how to identify what’s a good deal, but then you got to go get it. This is your territory. So I’m going to turn this over to you, but we got to take a quick break. We’ll be right back. Welcome back to the BiggerPockets Podcast. Henry and I are sharing our seven steps to getting from where you are today to buying a rental property. We’ve gone through our first four, which first was setting your calls. Second was strategy/market. Those look kind of a hybrid. Third was lenders and deals, another hybrid, but go out and figure out what you can actually accomplish. Fourth was analyze. Fifth, making offers. I feel like this is an underrated part of real estate investing. And in the market today, it is more important than ever.

Henry:
Absolutely.

Dave:
Take us to school.

Henry:
I feel like this is where people are falling short right now because it’s not that people don’t have enough leads for deals. It’s that people aren’t making enough offers on the leads that they have. And I think this all boils down to psychology. I think people are just scared of rejection and so they don’t make enough offers.

Speaker 3:
100%.

Henry:
And because we know as investors that our offer, especially if you’re making offers on on- market deals, that the offer that we need to make for the deal to pencil based on the analysis that we just talked about, how you need to run, we know that that offer is going to be substantially less than what people are asking for. They’re going to be disappointed. And so we make, again, we make decisions for other people. We go, “Ah, I’m not going to offer on this deal. They want 300,000. I can only offer them 125.” So we go, “There’s no way they’re going to take that and we don’t offer.” And what we have to do is get our personal feelings out of the equation and we have to learn how to make uncomfortable offers. Or as I like to put it, we have to learn how to make disrespectful offers respectfully.
There’s a way to make your offer on your property in a way that shouldn’t put somebody else off. Now, we can’t control how somebody else reacts to our offer, but we can do it in a way where it makes sense. So I made 12 offers on on- market deals last week. Here’s how we did it. We did verbal offers and the verbal was just a text message. And we created a text message script that was kind. And my agent sent this to the agents listing the properties and it said, “Hey, I have an investor client. He would like to make an offer on 123 Main Street. It is going to be lower than what you’re expecting, but what we can offer you is we can close it in seven to 14 days. He won’t ask your client to fix a single thing. We’ll take it in as is condition
And we will make this a very seamless and easy process for you. ” And then we say what the number is going to be. Out of those 12 people, two of them replied with counteroffers and one of them said, “Hey, my client actually owes X, Y, Z on this property, so we couldn’t take that offer. Could they come up to this? ” I couldn’t. So we said, no, thank you. The other one was listed for 200. We offered 125. They came back at 150. I said, “Let me go see it. ” I ended up offering 135 and they took it all from just sending a text message or a verbal offer. And most people would’ve said, “They’re listed at 200. They’re not going to take your $125,000 offer. That’s not for me to decide.” We just figured out a way to do it respectfully. I think we just have to get comfortable being a little uncomfortable.

Speaker 3:
Absolutely.

Henry:
And so if you’re new, it’s a conversation between you and your agent about what’s a way that we can do this that makes sense. That worked for my agent. My agent said, “Look, I don’t want to write up all those offers to them just get rejected. That’s a lot of my time.” I said, “That’s fair. So what’s a way that we could do it that would take less time?” And that’s how we ended up with the text message rule offer.

Dave:
Yeah, I think it just goes back to what we always talk about, just having real estate being mutually beneficial. I think some people might say, “Hey, you’re offering them less, you’re trying to screw them over.” But I don’t see it at all that way. When someone lists something on the market, they say, “Here’s what works for me.

Speaker 3:
”

Dave:
And by you reacting to that, you’re saying, “That doesn’t work for me. Here’s what would work for me. Does that still work for you? ” And they have that option to say yes or no. That’s the whole point of a market is for people to have these conversations. And so not on every deal, but on some deals, there’s going to be a number that works for both of you. And that’s what you’re searching for. There are sometimes they’re going to say, “No, that’s fine. That’s okay.” There’s sometimes they’re going to say yes, and that’s even better because apparently you have met their conditions. I think I told you the other day, I was working on one of my first flips. I took an under offer, underasking offer, still hit my target. Absolutely. Still buy for me. So it’s just up to you to have that conversation and to initiate it.

Henry:
It’s the seller’s decision whether they’re willing to take that offer or not. And when you’re making offers on the market, the only way to figure out if a seller’s willing to take less is to offer less because there’s intermediaries in between you and the seller. It’s not like where you’re making offers off market where you have more information and you can do that. And if you’re making offers off market, you still have to be able to do the same thing. You have to be able to make an offer to people at what may be lower than they’re expecting. I do this all the time, but I do it very respectfully in off-market deals. And I have a whole framework for doing that, which we can go into in another episode. But the point I’m trying to make with this step of making offers is you’ve got to get comfortable with a little uncomfortability and figure out a way to make the offer that makes sense to you and not be so concerned with how it might be interpreted by the person receiving the offer.
Because at the end of the day, they don’t have to sell you anything. Yeah,

Dave:
Exactly.

Henry:
It’s a business decision. It’s up to them. You’re not taking advantage of them. And the same people mad about you making lower offers than what people are asking on the market are the same people that are low balling people on Facebook Marketplace for stuff. So it doesn’t matter. No one’s saying the same. Exactly.You’re willing to do it in other areas. Right. You can do

Dave:
It here. Yes, you can.

Henry:
All right. So we’ve got the goals, we’ve got the strategy, we’ve got the market, we’ve got the money, we’ve looked for the deal, we’ve analyzed it, and now we’ve made an offer. What the heck do you do next?

Dave:
Sign the piece of paper. Sign a piece of paper, right? Yes. I mean, no, you got to close. I’m not going to get into that here. It’s pretty easy. Yes. They’re going to sign someone, an escrow agent who’s going to figure this out for you. You’re going to figure out how to close. That’s not bad. But then I think your first 90 days are pretty important as a real estate investor. How are you going to maximize and execute your business plan? I think that’s really what you need to focus on next because when you go out and buy your deal, when you create your buy box, you should have a plan. You don’t just buy and then you’re like, “What now?” If you’re going to be a short-term rental, you got to jump into furnishing that thing right away. You need to figure out your management strategy.
You need to put your properties in place. You’re going to do a Burr, hopefully during the closing period, you were already getting bids, you were figuring out your scope of work. Now it’s time for you to go execute. I think this is a time where you don’t think about your next deal at all,
At least in the beginning.

Henry:
You

Dave:
Do not think about your next deal. Don’t think about your taxes. Don’t think about … I mean, honestly, this is bad advice, but I wouldn’t even think about setting up the perfect systems. I would just say go and do the most important thing you could possibly do. If you’re doing a renovation, nail the renovation.

Henry:
Yes.

Dave:
If you have a stabilized property, screen your tenants well and find a great tenant who’s going to be happy in your home.

Henry:
Yes.

Dave:
Go do that. Figure out the number one most important thing and do it the second you’ve signed that piece of paper.

Henry:
Absolutely. I couldn’t agree more. Execution and timing is everything when you are operating a real estate business because literal time is money. Because if it’s a rental property, the longer it’s not rented, the more it’s costing you. If it’s a flip, the longer you’re holding it, the more it’s costing you. So you do. You have to figure out what is the immediate next step that I need to do and you’ve got to go execute against that step. I would say the thing that I would encourage you to do is to document as much as possible about what you are executing when you’re getting started.

Dave:
I wish I had that.

Henry:
I wish I had done the same thing.

Dave:
And then I just made it up again the next time.

Henry:
Because you end up repeating things that are not beneficial to you. We are all going to end up wasting a lot of time doing things that aren’t that important in your first deal. You’re going to do things that you hate doing that you’re going to wish you had documented so you have a process for bringing in somebody else to do it next time. Just you know how many times I waited until closing day to get insurance on a property because I just- I always forget to

Dave:
Transit for the utilities. Yes. I always forget.

Henry:
So if you write these things down, the next time you’re doing a deal, you’ll be able to be a little more proactive and save yourself a lot of time and effort.Just learn from our mistakes. Just literally every step you do, write it down. And then that way you’ll at least have an order of all the things that you did and you can start to eliminate some of those steps or pre-plan some of those

Dave:
Steps. Yeah, totally. Yeah. I think execute’s the right word. I think the other way, this word gets used in different contexts in real estate, but it’s just stabilize. Get in there and own it. You have your bills set up, you have your tenants in place. That’s what you need to focus on. I feel like when you arrive in a new place on vacation, you go get your bearings, figure out where you’re going to sleep. You put your bag down, you own the whole … You feel comfortable. Then you can start making decisions. I feel like that’s kind of what you need to do in those first 90 days. It’s just get your bearings, check everything out, make sure you feel comfortable. Then you can go into the optimization, then you can start doing the asset management piece of it. But you got to just get in there and take control, essentially.

Henry:
And also I would be figuring out who’s going to be on your team for the long term because you’re going to start executing and that’s not all going to be you. You’re going to have contractors, you’re going to have subcontractors, you’re going to have property managers. There’s all these people you’re going to have to engage with. Keep track of who you like working with and who you don’t like working with because honing that team in is going to help you be more efficient as you’re going forward as well. These are all things that I probably should have did a better job of when I first got started because all we’re trying to do when you get that first deal done is exactly what we’re saying. Keep your head above water. So just take some time and document this process and document who you’re working with and whether you enjoyed working with them or not, because your team is everything as you continue to execute going forward.
And the best operators I know have great contractor and business relationships who now basically do all these steps for them without them having to spend a lot of time operating these deals.

Dave:
For sure. All right. Let’s move on to step number seven, which is after you’ve executed, stabilized, gotten that property, you figure out what’s next, right?

Henry:
Absolutely.

Dave:
I feel like that’s kind of like you take stock of what you did, right?

Henry:
This is where all those notes we just told you to take come in handy because you’re going to want to go do more deals. That’s probably going to be in your goals that you’ve set up in the beginning. But now you’ve got some experience and now you’ve learned something. And what you may have learned could be that you need to re-look at your goals. You may have hated what you did.

Dave:
That’s

Henry:
A great point. Yes. My goals for when I first got started were far and away different than what they ended up being after I got a few deals under my belt. You’re just going to learn a lot about what you planned on executing and what you actually executed against. And you’re either going to get better and more efficient at the thing you currently executed against, or it is okay to go back to your goals and say, “Nope, it’s not this. It’s that I have to try something different. It didn’t turn out like I wanted it to turn out. I didn’t enjoy it at all. ” That is okay. Reevaluate your goals and then decide, do I continue to execute on what I just did and do it better or do I need to start fresh and that’s okay.

Dave:
Yeah. I think whether it’s your goals, your strategy, your market that changes, it’s okay,
But figure that at the end. I don’t think you should be tinkering in it. Absolutely. For me, I did a short-term rental. I didn’t really like it, to be honest. I’m okay. I would do it again, but it’s not like, oh, I’m going to go out and do a lot of those. I do strategies right now. I literally never heard of when I started investing. I didn’t even know it was a thing. You add that in once you sort of take stock. I blend. I never thought I would do something like that. I never thought I had the capacity to do something like that. So I think it’s just really important to say, “Here’s what you’re good at. Here’s what you like. ” For me, I like rental properties. I don’t mind property management. I like interacting with people. I’m totally fine with that, but I don’t like doing off-market deal funding.
It’s not something I like doing, so I’m not going to do it. And so I’ll build my portfolio. I’ll go into my next one. Think about that. You’re probably the opposite. You love off-market deal finding, but there’s probably something I do that you hate. So that’s what you got to do.

Henry:
Well, I’m doing this entire process right now, but with new construction, I’m building my first ground up with construction. And so I am literally documenting the entire process because if I decide this is something I want to grow and scale and do, I want to get better at it, especially this pre-construction phase, which has been a nightmare for me. And so I need to learn how to become more efficient at that if I want to get better. But at the end when I’m done, I’m going to take a look back and say, all right, do we- Did you like this? … truly want to do more of these. Was it fun? Was it profitable? Was it worth all the time and the effort? These questions I don’t have answers to yet, but as part of this exercise, it’s exactly what I’m going to do when I’m done.

Dave:
All right. Seven steps.

Henry:
Seven steps.

Dave:
Let’s see if I can remember them. What do we got? We got goals. Then we had strategy/market. Then we had deals/talking to a lender, analysis, offers, execution, and then-

Henry:
Evaluation.

Dave:
Evaluation. Yep. That’s all it is. I mean, it is a lot of work. It’s work. You got to go out and do something. No one’s going to hand this to you. You got to go absolutely and do it. But these are steps that everyone can follow. It’s what I follow in every single deal. It’s not like it really even changes. You still just do the same thing. Even if you’ve done one of these or you’ve done a hundred

Henry:
Of these. Yeah. And it starts to just work on autopilot as you build more systems and a team and have more processes. It gets easier. I know that sounds overwhelming when you first get started, but a lot of this stuff we do in our sleep. I analyze deals for fun. Like I said, I made 12 offers last week. That’s awesome. Yeah. All of this gets better the more experience that you have. But I think this framework is absolutely a framework that you can follow and land a deal. Well, thank you so much for joining us on the BiggerPockets Podcast. I hope that these steps and this framework is valuable to you. This is truly the things that Dave and I are doing every day in our portfolio. As always, leave us your questions down below or let us know what framework you follow when you are doing deals in your market.
We would love to learn more about that. Thank you so much for watching. We’ll see you on the next episode. Go

Dave:
Set your goals.

 

In This Article

I’m not going to sugarcoat this. Things have changed in the short-term rental world.

The BiggerPockets Pulse survey just dropped, where we spoke to over 600 BP members about their investing strategies and thoughts about 2026. More than half the investors we spoke to now believe long-term rentals are the best strategy heading into 2026. 

Short-term rental sentiment? Notably lower. At the same time, the majority of investors still plan to grow their portfolios over the next 12 months.

If you’re reading those tea leaves, it looks like people are tired. Rates are still elevated. Home prices feel uncertain. The easy-money days are gone. 

After a few years of being sold the dream of “passive income” through short-term rentals, many operators are quietly admitting they never signed up to run an actual business. So they’re pivoting to long-term rentals because it feels simpler, calmer, and frankly, less exhausting.

I get it. I really do.

But here’s what nobody’s talking about: The investors bailing on short-term rentals right now aren’t the ones who treated it like a business in the first place. They’re the ones who thought they could post some iPhone photos on Airbnb, set the calendar to auto-price, and collect checks while sipping margaritas.

That version of short-term rentals never existed. And 2026 is the year the market finally stopped pretending it did.

For those of us still in the game, we’re looking at a great opportunity.

The Part Where I Got Honest With Myself

Here’s what the survey data is actually telling us. Everyone sees that long-term rentals are polling higher and short-term rentals are cooling off, and they’re interpreting that as a directional signal: “LTRs are safer, STRs are riskier, so follow the herd.” But what that data really means is that competition in short-term rentals is about to thin out dramatically. 

When half the market decides a strategy is too hard or too risky, they don’t just slow down. They exit, sell, convert properties, and stop buying new ones. 

And that creates exactly the kind of environment where disciplined operators can find deals that pencil beautifully because sellers are motivated and buyers are spooked.

This is how opportunities actually work in real estate. They don’t announce themselves with fireworks and champagne. They show up disguised as problems that scare off the casual money. Right now, long-term rentals are always popular, but they’re experiencing an even bigger lift because they feel safe and predictable. 

This means the short-term rental market is about to see fewer people chasing the same listings, and fewer operators willing to bid up on quality assets. If you’re not afraid to operate a hospitality business, 2026 might be one of the best years to acquire short-term rental properties we’ve seen in half a decade.

I run 20 short-term rentals across Texas, mostly within an hour of Houston and Austin. Some are big, generic houses in suburban neighborhoods. Others are weird, wonderful properties like geodesic domes and mirror houses near regional attractions.

Here’s the difference: My generic houses generate about $2,000 in cash flow per month because I self-manage them. If I handed them off to a property manager? We’d be at breakeven, maybe slightly negative after fees.

My unique builds? They’re crushing it with high occupancy, premium rates, and repeat guests. But they only work because I built a team around them, such as virtual assistants, cleaners, and a maintenance crew. 

That didn’t happen overnight. It took three years of grinding before I realized I was spending my evenings answering guest messages during dinner and literally driving across town to drop off tissue boxes instead of building systems.

There was a breaking point where I had to choose: Work in the business, or work on the business.

Most STR operators are still working in it. And that’s why they’re exhausted.

What I’m Seeing Right Now

I know investors with three or four houses near Lake Travis or outside Austin who are struggling. Their occupancy is down to 40%, maybe 50% if they’re lucky. 

And when I review their listings, it’s clear why. They haven’t updated their photos in two years, using the same generic furniture from 2022. Their pricing strategy is “set it and forget it.” They’re not reinvesting in the property or building systems. They think they can just coast because “It’s Airbnb, people will book it.”

No. They won’t.

The market has matured. Guests are pickier. They’ve stayed in hundreds of places by now, and they know what good looks like. 

If your property is just another beige three-bed/two-bath in a random neighborhood with no unique selling point, you’re competing on price. And in a saturated market, that’s a race to the bottom.

That’s why I shifted my entire strategy. I’m only buying large homes with a unique feature (think pool, lakefront, something memorable) or unique couples’ cabins with private amenities. Those are the properties people are actively searching for and booking in 2026.

The cookie-cutter suburban rental? It’s done.

The Skills You Didn’t Know You Were Building

When you run a successful STR, you’re learning:

• Pricing based on real-time demand, not fixed annual leases
• Systems for cleaning, maintenance, and guest turnovers
• Customer experience and reputation management
• Team building and delegation
• Ongoing asset optimization instead of passive holding

You might not realize it, but these are professional operator skills you’d find in the upper ranks of a prestigious hotel chain. Once you have them, real estate is just that much easier. It also opens the door to other assets like boutique hotels, RV parks, campgrounds, mixed-use hospitality assets, and small commercial properties with operating components.

Long-term rentals teach you patience and discipline. Short-term rentals teach you how to run a business. Historically, that’s where disproportionate wealth is created in real estate.

I didn’t start out thinking this way. I thought I was just buying houses and listing them online. But after three years of doing this, I realized I was building a hospitality business that used real estate as the vehicle.

That’s a completely different game. And it’s a much better one if you’re willing to play it.

The Chaos Actually Protects You

One of the most common criticisms I hear about short-term rentals is that they’re “too chaotic.” And yeah, compared to a long-term rental where the tenant calls you twice a year, STRs feel like you’re running a 24/7 customer service operation.

But here’s what that chaos actually gives you: early detection.

My properties are inspected by cleaners or maintenance staff every few days. If there’s a leak, we catch it before it becomes a $10,000 mold remediation. If the HVAC is making an unusual noise, we fix it before it fails in the middle of summer with guests inside. And if the deck board is loose, we replace it before someone twists an ankle and we’re dealing with insurance claims.

Long-term rentals feel calm because you’re not seeing the problems. They’re just accumulating quietly in the background. Then one day, your tenant moves out, and you discover the water heater has been leaking for six months, the HVAC hasn’t been serviced in three years, and there’s a mystery stain on the ceiling you’re afraid to investigate.

A typical long-term rental might generate a few hundred dollars in cash flow per month. That works great until a single repair wipes out an entire year of profit. STRs generate higher gross revenue, but they also force you to stay on top of maintenance.

In essence, STRs teach (force) you to be proactive.

The Tax Advantage Nobody Talks About Enough

I’m not a CPA, and you should talk to yours. But in many cases, short-term rentals qualify for accelerated depreciation without requiring real estate professional status.

When structured correctly, this means you can combine meaningful cash flow with aggressive depreciation, often offsetting active income and freeing up capital for reinvestment. In an environment where appreciation is uncertain and rates are elevated, that flexibility matters more than headline returns.

This isn’t about gaming the system. It’s about understanding that operating real estate is treated differently from passive ownership. And if you’re willing to treat your STRs like a business, the tax code rewards you for it.

Long-term rentals can also use depreciation, obviously. But the ability to actively participate in your STR business and unlock those benefits without needing to hit 750+ hours in real estate to qualify for Real Estate Professional Status (REPS) with the IRS? That’s a meaningful advantage for many investors.

Why Low Sentiment Might Be the Best News You’ll Hear All Year

The BiggerPockets survey shows uncertainty about home prices, mixed expectations for rates, and a general sense of caution heading into 2026. Those conditions don’t reward hype. They reward competence.

When sentiment drops, weaker operators exit. They sell their properties, convert them to long-term rentals, or leave them half-empty while they determine what to do. Competition thins. Quality assets become easier to identify. Pricing power shifts back to the investors who actually understand their numbers and operations.

Short-term rentals don’t disappear in down cycles. They consolidate. And consolidation has always favored disciplined operators over casual participants.

This is the environment where I’m taking my biggest swings. I’m pursuing larger projects: homes that offer something you can’t find anywhere else, couples’ cabins with private hot tubs and fire pits—properties that create memories, not just a place to sleep.

Because here’s what I know: The investors who are serious about this aren’t going anywhere. They’re getting better, building teams, reinvesting in their properties, and treating this like the business it always was. And when the market eventually recovers, they’re going to be the ones who dominate.

The Real Question You Should Be Asking

Short-term rentals aren’t for everyone. They never were.

But if you’re reading this and are undecided, the question isn’t “Should I do STRs or long-term rentals?” The question is: “Am I willing to build a business, or do I just want to own real estate?”

If the answer is the latter, long-term rentals are great. They’re stable, predictable, and low-drama. There’s absolutely nothing wrong with that path.

But if the answer is the former, short-term rentals remain one of the fastest ways to build cash flow, develop transferable skills, unlock meaningful tax advantages, and eventually move into larger commercial assets.

Low sentiment doesn’t mean the strategy is broken. Sometimes it just means the people who misunderstood it have finally left.

And for the rest of us? That’s when things get interesting.

Ashley:
Today’s guest did something most investors swear they never do. She bought a short-term rental site unseen over FaceTime while she was literally attending Tony’s conference.

Toni:
And not just any house, this place probably should have come with a hazmat suit. We’re talking a drug using previous owner, cooking in the fireplace, code violations, foundation issues, an old electrical fire, you name it. Most people would’ve run, but Alex said, “Yeah, I’ll take it. ” Now, what she turned it into is even more impressive, especially because she was juggling a full-time job, a toddler, and a renovation that ballooned from 100K to 200.

Ashley:
This is The Real Estate Rookie Podcast. I’m Ashley Kehr.

Toni:
And I’m Tony J. Robinson, and let’s give a big, warm welcome to Alex. Alex, thanks for joining us today.

Ashley:
Thank you so much.

Alexandra:
So excited to be here.

Ashley:
So Alex, you technically became a landlord back in 2020 with your Chicago condo, but you’ve said you’ve never felt like a landlord. What actually changed that identity for you?

Alexandra:
Yeah. So my husband, I had actually just met my husband and we were moving in together and we were living in Chicago. And my property that I had bought there probably five or six years before that was also a dilapidated condo that had nothing had been touched since 1962 when I bought it. So I renovated that condo. It was my primary home for a long time. And then when I moved in with my husband, we turned it into a long-term rental. And so I was essentially an accidental landlord, which is sort of a trend right now of people that had a property and didn’t really quite know what to do with it. And I decided to rent it out and it started doing really well.
I actually rented it in less than a day. So it’s great property, great area of Chicago. It has been cash flowing ever since that point around 800 a month. And so it’s been really good for me. But again, I didn’t really know what a real estate investor looked like. I didn’t think it was me, I guess. And then a few years later, I started working for Steadily, the landlord insurance company, and obviously started to listen to BiggerPockets and listening to you guys as part of my role there. And just stuff started to click for me. The wheel started turning. I started to think about investing very, very differently after that point. And then having the opportunity to just work and learn and then do it also while I’m learning, I think has been just such a really wonderful thing for me.

Toni:
Alex, can we talk a little bit about limiting beliefs? Because you said you had a rental that was doing $800 per month, and that’s a really solid first deal. And I think it’s so interesting to hear you say that even though you had one of the more successful first deals that we probably heard on the show in terms of just pure cash flow, you didn’t quite feel like an investor. What was missing? What wasn’t there or what would’ve needed to happen to make you feel like more of a quote unquote investor?

Alexandra:
I think limiting beliefs, I think that’s such a good word for rookies or for people starting out because I think like many people, I grew up believing, or I grew up having my mom and my family essentially tell me that debt was bad. Dave Ramsey, all of those things that you hear about that, I’ve never carried a balance on a credit card. And then you see people in the media that own buildings and there’s really no in between of who you can identify with. And so definitely I’ve had a corporate job my whole life. I sort of have always had an entrepreneurial spirit, but never had the courage to bet on myself to put myself out there to really think through what that is. So Red Rich Dad poured out as a kid. Actually, my mom had us listen to it in the car on the way to school while we were probably in middle school.

Toni:
I love your mom already. She seemed amazing.

Alexandra:
I know. So I know what it was. A mother. Yeah. Knew what it was, but just had this very overwhelming idea that debt was bad and that you should not essentially invest in things and just get a job, do a really good job, try to excel at that job, and hopefully you’ll get to retire at some point.

Toni:
And the reason I bring up the limiting belief, Alex, because I think what you shared is a common thing that I hear from a lot of both investors who maybe have done one deal and those who are looking to do their first, they don’t yet identify as a real estate investor. And I think that one of the most important, not even decisions, but maybe one of the most important things that I did as I started in the world of real estate investing was that I called myself an investor or I proclaimed that I was going to become an investor before I even had my first deal. And I think it’s like a very small, subtle shift, but I do believe that the most important conversations we have every single day are the ones we have with ourselves. And I just tried to start telling myself like, “Okay, I’m going to do this.
This is going to happen. It’s going to work.” And I think it’s important for all the folks that are listening to hear that because if you’re listening to this podcast and you still have this belief that you don’t have what it takes or maybe that you haven’t been able to bet on yourself yet, it all starts with very small things and one foot in front of the other before you know you’ve got the first deal. But here you are now and you’ve built the portfolio. Now, I know you have a marketing background. You even worked on the Jake from State Farm ad, which we talked about before, which is probably like one of the more well-known kind of marketing experiences in television. But how did those skills, do you think, Alex, translate to helping you as a real estate investor?

Alexandra:
Yeah, I think a lot of it has actually fueled my desire to go into the short-term rental space or the midterm rental space. So my background, worked for large ad agencies my whole career, really big brands, State Farm, Uber, all the brands, all the fun creative stuff, but mainly worked in experiential, so event marketing. And what brings me the most joy, which I’m very clear on my goals in life is I love to create and I love to bring experiences to people that they’ve never seen before or that really surprise and delight them. And that is something that fuels me my regular job and then fuels me with this. So my husband and I, actually when we moved into our primary home about … Okay, so by the way, we moved from a condo in Chicago with a doorman at a grocery store and we never had to leave this beautiful condo that we had.
We hard launched into owning a single family home and had the entire sewer system back up into our house about a month and a half after we moved into this house. So we had to move out. We had to get a midterm rental, which now I know what’s called a midterm rental. It was just like, “I don’t know where to live. We got to find a place to live.” We found out from our insurance, which was great that we were going to get like $7,000 a month to use towards housing. And what could we get with that $7,000 a month, a two bedroom, two bath apartment because people were charging so much money and we live in Plano, Texas, we’re not in California, so much money for these short-term rentals or mid-term rentals, I should say. And then on top of that, the person that we were renting it from had a really tough time allowing us.
We wanted to bring our crib. My son was nine months old at the time. We were like, “Can we move some furniture out of here?” They were so unaccommodating to us. So through that process, I knew in my head there is a market here for people that are super accommodating, looking to have a great experience. How can we go above and beyond what the status quo is for families and specifically for young families and just do better, just do better than what’s available because there was not a lot of people I found in that process that were willing to be a go- giver, as Jesse Vasquez says, and just do the right thing.

Ashley:
Now, before you decided to implement this strategy that you saw this opportunity at, you actually got laid off from your job and that can be really life altering. And you’ve said that moment completely shifted how you saw your future. So what clicked for you emotionally and financially?

Alexandra:
Yeah. And I think honestly, listening to you and Tony has been such an inspiration. So thank you guys so much for what you do, but Tony has a similar story, but I was always a very high achiever and was working for a well-known retail brand and a global role, was working constantly because you have calls with China at 10:00 PM and all kinds of things and very abruptly got laid off because the company, it’s a retail and retail’s not doing well. And so that really changed all that fear I had to start and to invest in myself, that completely changed because I started to really think about all these companies and all this work I’ve done in my career and these people trusting me to spend and manage millions of dollars. Why am I not trusting myself to spend and manage the $100,000 that my husband and I had managed to save up on a property?
And so that fear of the unknown of a company or somebody else being able to take something away from you so quickly, it just lit a fire under me and I just started to say, “Well, why am I not betting on myself? Why am I not trusting myself to know what I can do best? And I know how to market in my regular life. Why would I not be able to market this property and be able to get it rented and filled up?” So it was a huge shift for me.

Ashley:
We’re going to take a short break, but when we come back, we’re going to talk about this house that was bought sight unseen while on FaceTime. We’ll be right back. Okay. So Alex, let’s start about the wildest part of your journey. You bought a house site unseen over FaceTime while you were actually at Tony’s short-term rental conference. So walk us through that moment, that FaceTime call, and what convinced you that it was actually worth the risk to buy this property at Site Unseen?

Alexandra:
This is actually the second house I bought via FaceTime Sign Unseen. Our primary … My mom, when we were living in Chicago, my mom had to come walk the house because it was in 2021 when the houses were just going that same day. So I guess I’m more comfortable with it, but this was a New Western property. I had a New Western, I think for rookies especially, it’s a company that really specializes in basically selling wholesaled properties that you have to buy in cash. You have no inspection. It’s done very quickly. It’s kind of almost like an auction in some ways, but you are buying a property that you know what the disposition price is, so you know what you’re kind of starting at expecting, and then you have to have hard money or cash to buy it, and it’s just kind of like you got to move quick.
So a lot of times I think flippers use it, and then there’s usually some type of ARV estimate in there, as well as what they think the renovation would cost. So I had talked with New Western, I talked with Robert, his name’s Robert, my guy from New Western. I liked him and I trusted him. He was in a contractor. So I had seen a couple properties with him before this, but he called me the night before. I was, like I said, I was at Tony’s conference, called me the night before. He said, “I’ve got this property. It’s coming on, you have to go see it tomorrow at two o’clock.” And it was in the best neighborhood. It was in a neighborhood we could not afford when we moved to Dallas. And so I knew the neighborhood well. It was also in a very specific pocket that if there was … Currently, it can change any time, but currently there are no regulations in Dallas for short-term rentals.
There’s been a lot of legal legal flip-flopping and lawsuits and all kinds of things, but it’s considered a multifamily because it’s a half of a duplex. And so I knew most of the regulations around this area usually exclude multifamilies, which is what I liked about the property too. So it’s a great area, very central to things. The neighborhoods also around the property are older, really well established, homes above one million. So for a midterm rental, especially somebody that was just like us, that maybe has to move out of their house quickly for a renovation, it would be just a great situation for that type of scenario. So that’s why I liked it.
My husband was supposed to go over there, but he got called on a client call. So we were both on FaceTime. We both just barely saw it. He sent me some videos of it, but the price was so good. It was listed at two, I think it was 201 is what it was listed at. And the comps in the area were all above 450. So I was like, there is a lot of need on this bone. And even if we completely screwed up and the recommended renovation cost that they had given us was 100,000. And I was like, okay, it’s probably not 100. It’s probably more like 120, 125. The house was the worst house you can think of. When I think about a house of horrors, it was this house.
It had a small fire in it. There was graffiti all over it. Unfortunately, the owner was not in the best mental situation. She was the owner. The house had so many code violations against it. The city of Dallas, it was another thing. The city of Dallas wanted this thing sold. So there was a lot of interesting things with this property that I was like, “What can go wrong?” There’s a lot of upside to this. So even if everything goes wrong, it’s still not going to outweigh the upside to all the positives of this property. So that’s how I was kind of thinking about it. And I was like, “Time to roll the dice. Scared money, don’t make money. Let’s do this. ”

Ashley:
Alex, I want to go back to this company as in to why did you decide to use a company to find a deal compared to other routes like direct mail or on the MLS?

Alexandra:
I mean, I have a full-time job. And so I’m 43, but at the time I had a three-year-old. And I really thought everything you guys talk about all the time, it’s like, what’s going to bring you joy in this investing process? Finding and knocking on doors or direct … And I actually have experience with direct mail even, but I think that probably scares me more than helps me in it because I don’t like it and there’s a lot of waste with it. So I think this was sort of an easier route for me at least for just finding my first deal. Would I do it again? I probably, knowing now what I knew then, I would do this deal again, but there are other ways. Then now I have more connections to find just straight wholesalers. The financing part of this was so wacky that I think I would have … I wish we would have had a different way, but I still would have done this deal the same way again.

Ashley:
I think that’s a really important key point as to it may not have been the best path or the most profitable path, but it got you started. And you got this, even though you had the condo before, this was like your first investment deal that you were focused on primarily as an investment. And I think sometimes as investors, we get caught up in making sure we’re not spending money, we’re getting the best deal. And even with wholesalers, there’s always like, “Oh, I’m not going to pay a wholesaler an assignment fee.” That’s not fair. They only found the deal. I don’t want to pay them $20,000. Well, sometimes it’s a lot harder to find the deal and negotiate it than you think. And if the numbers still pencil out, it can still be so worth it. That first initial deal doesn’t have to be your golden goose.
It doesn’t have to be the best deal ever, just has to be good enough to make you money, hopefully, and then propel you on your investing journey. And like you said, looking back, you learned a lot of things and you probably would do the same path again because obviously it worked out for you. And in my case, I partnered with someone and I gave them a lot of meat on the boat. I gave up a lot of equity, a lot of cash flow for them to be part of the deal, but I do not regret it. I probably wouldn’t do it again right now because I know so much more and I know I bring more to the table, but getting started, having that one person trust me, it was so worth it to not worry about that I’m doing everything to maximize every single dollar and I’m getting the best deal ever out of this.

Toni:
Ash, let me ask, do you have a new restaurant out by you in Buffalo?

Ashley:
No, I had never heard of it before. I mean, maybe, but I had never heard of it before.

Toni:
Yeah, maybe they’re more like a Midwest, West Coast thing, because we have New Western out here as well. And even when I was in Oklahoma City, New Western was out there also. But I guess what I’ve found, and again, every market’s probably a little bit different, but because they’re such a big kind of machine, I found that a lot of times their deals, to Alex’s point, they either go really, really fast or the ones that don’t go that fast or the deals that no one else wanted, so they’re usually not all that great. So I think for all the rookies that are listening, New Western’s great because it’ll at least kind of give you some form of deal flow, but I do think there’s a lot of value in finding the kind of smaller wholesale operations because A, they typically have a smaller buyer’s list, so you’re competing with less people, and then B, there’s a little bit more flexibility on the terms of closing.
I’ve worked with wholesalers where I was able to do a full inspection because we had that relationship. So if you can source maybe the smaller players in your market, it might be an easier way to get started for Ricky. And we had Dominique Gunderson on, she’s been on a couple times now, but her entire strategy was just like going to local meetups and finding the wholesalers that were doing deals there and just meeting as many of them as she could. And that’s where she gets the majority of her deals from now is from those wholesalers. So just word of caution or not word of advice, I guess, for the Rickies that are out there.

Alexandra:
That’s what I would do if I did it over again, is now I have more wholesaler connections that have actually met through this process and this deal. And I would probably just go directly to the wholesalers I’ve known and met over the time.

Ashley:
Another easy way, if you’re like me and very introverted is just Google, sell my house fast in Buffalo, New York, and you’ll get all of the wholesalers websites that come up and you just, instead of wanting to sell your house to them, you say you want to be put on their buyer’s list too.

Toni:
Now, Alex, you had a reno budget. You said that they had told you initially 100, but then you said, “Hey, let’s shoot for 125.” Did you actually hit that number of 125?

Alexandra:
No, we ended up with furniture, which is a different story because I got a lot of stuff on online auctions, which I highly recommend. That is the biggest rookie tip I would give to anybody is see if there’s any online Amazon return auctions that you can buy literally a whole house of stuff on, but we were all in around $200,000.

Toni:
Okay. I want to go back to 200K because that’s obviously more than what you had projected. But tell me about this Amazon online auction. I haven’t heard of this before, someone who furnishes a lot of properties.

Alexandra:
Yeah, I mean, there’s two I would mostly use. So hybrid.com, if you go there, there’s all kinds of auctions on there. And then auction hub Texas, which is obviously I’m in Dallas, which has a lot of building material auctions. So anytime somebody returns something to Home Depot or Lowe’s or sometimes even Costco, they have Costco auctions on there, that stuff does not get restocked. It goes to on a pallet and gets sold off for pennies on the dollar. And then these are the auction sites that they then take that stuff, disassemble it in a warehouse, you go get a box truck like my husband and I rented and you go pick up a bathtub and a whole bunch of other stuff for a quarter of what you would pay at Home Depot for it. It definitely is like the time, money balance. So do you have more time or do you have more money?
Because it definitely takes a lot more time. But at that moment, we were really sweating bullets with the amount of money that we were burning onto this renovation. And so we were like, “What can we possibly do to cut some costs?” Probably the best one I found was a … And I also met a ton of fun people along the way, and that’s the joy you have to find in some of this. But I met a guy who had bought a warehouse, bought a building, and it was filled to the brim with light fixtures. So it had been a lighting company, I believe, beforehand, and they were high-end light fixtures. And so I bought the entire house, all the lighting, beautiful designer light fixtures for 20 bucks a piece, just all kinds of things that I was able to save money through that and really kind of elevated the property, honestly, more than I would’ve if I would’ve just stuck with, I don’t even know, Home Depot and Amazon or Lowe’s or wherever you buy things.

Ashley:
You can’t even buy a standard boob light for $50 or $20 anymore.

Alexandra:
I love the hunt of it too. I think that brings me joy.

Toni:
So I’m on the high bid website and I would encourage all of our rookies to at least go check it out because there’s categories of virtually everything. There’s sporting goods, normal toys, that seems normal, consumer electronics, but then there’s also boats and aviation, construction and farm, real estate even. This is pretty cool. I’ve never bought anything from an auction, so I have to go and check that out. But let’s go back then, Alex, to the actual rehab itself. So you budgeted 125, it still ballooned to 200. Where were some of maybe the gotchas that kind of pushed the budget up?

Alexandra:
Yeah. So part of this, I’ll start at the beginning. The condition of the house, like I said, was very, very rough. The first day I walked in, it was filled to the brim. So she was essentially kind of a hoarder. And we spent $6,500 in trash removal and dumpsters throughout the level, the time of the process. So immediately we got in there. We closed and I drove over there to meet the junk removal guy because time was a really big factor in all of this. So the initial walkthrough really after we had removed the dunk and I could see it, there were fleas everywhere. I had to go home and put on my rubber boots and truly should have had a hazmat suit, honestly, in there. The previous owner had been cooking out of the fireplace. And so the smoke from that was just in all of the insulation, all of the drywall.
We could have saved some of it, but we just made the decision of just it’s a short-term rental. If there’s any type of scent there, people will complain. So that was a pretty big whopper of just removing all of the drywall and all of the insulation. The HVAC system and then all of the duct work all had to be replaced as well. Some of that was due to the fire and then some of it was just damaged again from cooking in the fireplace. And then there was a sunken living room, which I work in insurance. I know all about liability and people love to sue. And so that was something that I just knew couldn’t stay. And so we had to get an engineer and figure out how to fill in the sunken living room, which again, as a rookie, I was like, “Oh, you just throw some concrete in there and that’ll be fine.” No, that is too heavy for the foundation.
And so we had to went through several different ways of thinking about it, but what we ended up doing was filling it in with sandbox sand, like the really fine sand that my kid plays with, rebarb, and then you fill it in mostly with that, and then leveling it with a two-inch layer basically of concrete. Maybe it’s thicker than that. I can’t remember. But that was the recommendation from the engineer so that it didn’t just, I guess, be too heavy for the rest of the house and it could all balance out. We also had to do 20 beams for the foundation. We had to add those. That was six grand. That was nothing compared to everything else. So it was one thing after another. We replaced about 80% of the electrical. The house, it was like we completely just rebuilt the house and there was really nothing that could stay.
And I knew the house was bad, but I didn’t know it was that bad. So those were some of the bigger ticket items.

Toni:
I want to talk about budgeting and absorbing those costs. But before I get to that, Alex, I think just hearing everything that you just listed, that is a very heavy rehab job. And you worked in marketing and advertising, so it’s not like you have a background in construction. Does your husband work in a trade or related field?

Alexandra:
Oh, no. He’s in sales and yeah.

Toni:
Neither of you have this wealth of knowledge when it comes to construction management. How the heck did you figure out executing on all those different things? Who was your kind of guiding hand here? Was it the contractor who was kind of like your right hand? Were you working directly with subs and you guys were just like YouTube university trying to figure it out? How did you not get overwhelmed and how did you identify what actually needed to be done?

Alexandra:
I really, honestly, to start with, I think what gave me the most confidence is that I’ve worked on events before. And so I know what a project and a budget looks like. I know I’m very used to managing a budget and using spreadsheets and all of the above. A couple things here. So I did buy, I think it’s James Daynard’s book on estimating rehab costs. Okay. So I use that. A balance J Scott. J

Toni:
Scott.

Alexandra:
Jay Scott. I’m sorry. J Scott bought that. You guys told me to buy that, bought it. So I started there and we had done the renovation on our primary home, which we was paid for by insurance. And so I had a little bit of understanding. We had a general contractor. I did get three bids, know all about the three bid brought process and trying to compare and negotiate, know that from my day job. So I tried to do that as much as possible just upfront. But once we decided to go with Carliff from Golden Builders, who I would plug, because she was honestly just emotionally really there for me. She was our general contractor. I liked that she was female. She worked with all of our subs, really organized everything really, really well. That I would say not to be just completely biased, but I’ve never worked with a contractor as organized as she was.
And I do think having a female of some of those types of things I think sometimes helps. She was super organized with the timelines and got me everything that I needed. So that was super rare. It was also in my day job in advertising, you get to pick two of the three things, speed, good, cheap. And so we chose speed and we chose good. We did not choose cheap. And I kept having in my head this idea that every day we’re not open, that’s $200 in Airbnb rent that we could be obtaining. And so I just kept that in my head as I was just like, how can we get this done as quickly as possible? We had holding costs, we had, which I’ll talk about in a second, the juggling of our borrowing against our IRAs. And so I had to get it done quickly.
And so she really helped with the timeline and with managing all of these very large things. Was she cheap? No. No, not at all. So that’s just the trade-off that we made.

Toni:
And what about the actual funding piece? I mean, because you went over budget by 80 grand, give or take. What was the mix of cash and other funding sources you used to actually get through the rehab?

Alexandra:
Yeah. So we really had to figure this out as we went along. And I would say that that is is the biggest piece of advice that I would’ve given to myself at the beginning of this, if I could go back and say, “It’s going to be okay.” So I’m 43, my husband is 46 and we’ve been working in the corporate world. We have sizable IRAs, 401ks. We got all the retirement stuff for somebody that has not been investing in real estate. And so at the end of the day, I was just like, “You know what? If we absolutely have to break the glass and cash out one of these things, we’ve got it. ” But it turns out we didn’t have to. We just juggled it all. So we started originally with hard money, which I know Ashley, you’ve said that you do not like hard money.
And I do not like hard money either now after this process because I don’t like the draw process. The draw process is not in your favor. We had to basically, you get reimbursed. So I thought they were just going to write us a check for $100,000. If you do private lending like I would do next time, that’s what happens. But you have to wait for the inspection and I couldn’t do multiple things at the same time. Carla needed like … She needs a check for like 20 grand a day or 30 grand. I was like, “This is literally, I’m giving you a car right now.” So I was like, “How is this going to work?” So we pulled up HELOC on our primary home, which was about $55,000, which anyway, that’s another story because I should have appraised for a lot more, but it didn’t, but that was fine for what we needed.
So we pulled a HELOC, we used that cash and I pulled it all out. I was like, “I need all of this cash right now.” So pulled it out and then we did use some of that to then pay and get access to the hard money, which we had to do in draws afterwards. Then we took a loan against my husband’s 401k, which was about $33,000, which is probably the best tool that I didn’t know about until I had to know about it because all of the interest just goes back into his retirement fund. So he was going to be contributing last year anyway to it, might as well use that money and then all the interest that we’re paying, which is, I don’t even know, I think maybe 8% or something like that. So if you’re already going to be contributing 8% to your 401k, you might as well borrow that money, use it if you need it, and then you’re paying yourself back.
And so there’s literally no downside to using that. So that was 33,000 of it. And then as we were kind of shifting all this money around for the hard money and for just sort of temporary, we first borrowed, you can borrow, I’m not a CPA, I’m not a whatever, but you can borrow money from your IRA as long as you pay it back within 60 days. So we borrowed $50,000 from my IRA and then we borrowed another $50,000 from my husband’s IRA to pay back mine originally. So this 50,000 was sort of like floated for four months. And then because I knew we just have to get to the refinance. We just have to get this thing appraised and do the refinance and then we can pay all this back and get it figured out. So I was just trying to get to that end game, which I knew I could get to if we opened on November 1st and had everything set for that.
So that was the juggling of it all. But all of this was just information that I honestly learned and started asking questions of our financial advisor, our financial, the establishments we have our money in and just started asking questions. I really didn’t know that we could do any of this before I started.

Toni:
Alex, I would think that there were maybe some folks listening whose heads are spinning a little bit with all the different moving pieces you guys have going on with this deal. And even more so, like Dave Ramsey is probably like shaking in his boots right now, hearing all that’s going on right now. How did you not feel fearful about what would happen if this doesn’t work out the way that we want it to? Because I think that’s what holds a lot of people back is they can read the books, right? They read the book on estimating rehab costs, they can find the contractor, they can even find the deal, but they stopped because they have this fear of what if it doesn’t work out the way that it’s supposed to? So with all these kind of different plates you guys were spending at the same time, was there any fear around what happens if this doesn’t work?

Alexandra:
There was a crippling fear to the tune of, I actually lost 15 pounds without doing anything because I was so scared the entire time. I was not sleeping. I was super scared. But you know what I kept going back to, and I’ll give a big shout out to my friend Sarah Weaver who is in the MTR space. I saw her speak at an event. It was my very first event I’ve ever went to and really identify with her. We have a lot in common personally, but she talked about stepping into that fear and just owning the fear. And it’s almost like an anxiety tool where you’re just able to look at it for what it is and say, “This is a fear I have, ” basically. And just saying, at some point you have to make a decision in your life and you have to say, “I’m going to step into this and I’m going to live my life being a little bit of fearful and having a little bit of that anxiety, but I know that I’m going to bet on myself.” And there was a lot of that self-talk.
And I said to my husband at the beginning, “I believe in you. I believe in me and I believe in us on this. ” And we just kept saying that to each other over and over and over again. But yes, it was absolutely the scariest thing I think I’ve ever done in my entire life because the whole thing, it could have appraised for way less than we thought it was going to. We could have, I don’t know, the whole … We were also, the previous owner was still sort of hanging around the neighborhood and actually at the very beginning of the project came back and broke a … Or I don’t even know. I don’t know who it was. I’m not going to assume it was her, but I’m assuming it was somebody affiliated with her, broke all the windows and got … Yeah, because we cleaned this place out and I think somebody was mad about that.
So there had been drug activity at the house. There was just all kinds of stuff that I was afraid of, kind of constantly afraid was going to happen. Once we put all this drywall back up, was this whole house going to get burned down one night? So all of that stuff definitely kept me awake at night. But like Sarah said, at some point you have to step into that fear and just bet on yourself and go for it. And I just kept saying that to myself. So appreciate her and her that advice.

Ashley:
We also love Sarah and I think she’s a phenomenal speaker and also investor. I can definitely resonate with that fear though. That was one of the things that stopped me from getting started and we always say time, money, experience or knowledge, and then just that fear, like having the courage to actually take action. And I just thought like all these worst case scenarios. And one thing that always helps me is like, okay, what is it that I’m afraid of? What will happen if that happens and how would I have to solve it? So now I have a plan in place like, okay, the roof flies off. I’m having reserves in place to make sure my tenants are put up at a hotel. I’m contacting my insurance company and I’m putting in a claim and I’m having the roof rebuilt and now I have a new roof.
One thing that I’ve started to realize with guests on the show and just other people I’ve met in my life, and you seem like one of these people, I’m going to put you in this box. Laura Sides that we had on as a guest is another one. We have no real estate experience, no construction experience or anything like that, but you’re willing to make the phone calls and you’re willing to take action upon action until you solve the problem or figure it out. And I had this aha moment recently when I’m purchasing a house and the owner is in assisted living and I’ve been dealing with his daughter. She has no real estate background. She doesn’t work now. I don’t know if she did at any point what her background is, but I know nothing with real estate or construction. We had some things that we wanted corrected in the inspection.
Within a day, she had four different vendors lined up, scheduled, and will be at the house next week and everything will be repaired and completed. And I’m thinking like, “Wow, I’m really slacking. I can’t even move that fast on things.” But it was just like she makes a decision, she takes action, she gets it done. And I think that is a more valuable tool than to actually have construction experience or a knowledge that you’re actually willing to take the time to figure out and make the phone calls to actually get something done.

Alexandra:
Yeah. I think to me, it’s just all project management and anybody that has any type of adjacent role in project management can do a large renovation. I think as long as you’ve got some type of understanding of, this is what this person told me, I’m going to get a couple more quotes, I’m going to compare that, I’m going to see if that tracks, and then I’m going to move forward with one of them.

Toni:
So Alex, you go through this renovation that would’ve scared 99% of rookies away, but it turns into a short-term rental that you’re actually running. So we want to hear about what that experience has been like right afterter from today’s show sponsors. All right, we’re back here with Alex and we heard the story of how she found the deal, the ups and downs of renovating it, and now we’re here of what happens when it actually goes live. So I guess really quickly, Alex, how long did the full renovation take?

Alexandra:
So we started June 28th and we finished the first week of October. So the renovation itself to rebuild this whole house took a little bit more than three months, which was miraculous.

Ashley:
Yeah. For how extensive of a rehab you had to do?

Alexandra:
Yes. Then the more miraculous thing with two full-time jobs and a three-year-old, my husband and I, we took control of the property the first week, end of the first week of October and November 1st I hit go live on Airbnb. And so it was three weeks to get it furnished, designed, all the little touches, closet rods, hooks, all those things in about three weeks, which was, it literally almost killed me, but we did it.

Ashley:
So now the question that everyone’s wondering is, what is the numbers? Did this end up being a good deal? So your purchase price, your rehab, what did it appraise for and what do the cashflow numbers look on it now?

Alexandra:
So we were all in around like 410 or so, give or take a little bit. And the day before the appraisal, I did not sleep. I was prepared. So I had a full six page document of every single upgrade that we had made on the renovation also. And that was advice that I had probably picked up from this podcast or one of the BiggerPockets podcasts was you need to be at the appraisal, the walkthrough with the appraiser, you need to present yourself as the owner, not an investor, and you need to have everything documented, which I did. And they took the information. And so I was sweating bullets. We both were, because we knew it needed to appraise … Our number was, it needed to be appraised for basically 460 or more for it to kind of all make sense for us. And that was the realistic number.
There had been one other property. We actually waited for the appraisal a couple more days because there was one other property that had just sold. And so we were waiting for that to sell before we did it too, which was also highly helpful for us. So it did appraise for 475. So we were able to get all our money back out and be okay basically with all the loans and everything we had taken out. Not all of our money we didn’t get out, but we were able to pay off all the loans and do what we needed to do with that appraisal. So that was one key. And then now where we’re sitting now … So we just passed a year, our gross revenue for the year was right around 62,000, and then our operating expenses were around 36. So basically we’re netting around $25,000, which is exactly what I had expected and anticipated when I had run the numbers originally.
So it wasn’t this screaming deal. I really didn’t need it to be. I just needed it to not bankrupt us. And it’s done pretty well. And it’s for the most part, it’s been really full. We had a six-month midterm stay almost right off the bat from us exactly like our avatar, exactly who I wanted it to be. It was a family with four kids that had an insurance claim and then lived in the neighborhood. And so that told me exactly what I needed to know, which was I was right. I was right. And I knew this was going to be a great place for people that were displaced from their homes in the neighborhood. And most of the short-term stays after that, which have been anywhere between two and four days are mostly just people visiting their family in the neighborhood. And it’s really stayed consistently fulfilled with that type of thing.
It’s not necessarily in a location where people who are just coming to visit the Dallas area, which there’s not … I’m a little biased because I don’t think there’s a lot to do here, but I guess there’s enough to do here, but it’s people coming to visit their families, and that’s what we built the house for.

Toni:
And you said, Alex, you guys gross somewhere around like 65, I think you said?

Alexandra:
Yes, around 62. Yeah, yeah.

Toni:
62. So somewhere in the 60s range, and you guys are all in at 410. So that means you’ve got a gross yield, or I’ve heard people use different terms. So basically, if you divide your revenue, by your purchase price, you’re at about almost 16%. And what I usually encourage folks is you want that number to be somewhere between 15 and 20. If you’re at 20, it’s like a screaming good deal. 15 is a good baseline. So this is a really, really solid first deal for you because you’re right in that sweet spot. And I think even more so, and I would assume that you guys have learned so much on this deal that anything that comes after this is going to feel like a walk in the park because you guys did so much on this first deal. But I want to talk, Alex, a little bit about the actual experience of running this short term/midterm rental.
And obviously you’re a marketer focused on experiences and I’m sure you bring that into hospitality. What kind of things have you leveraged from your day job that you brought into your short term rental that might make you a little bit more unique as a host?

Alexandra:
Yeah, it’s so fun to host because I work for Steadily, I work from home for the most part, and the ability to connect with people and be there for them, whether it’s just like them visiting their family and doing something really fun and extra for them. So I almost always go, and I know I need to probably delegate this out, but I love doing it. I go over there and I leave them a personal note and I usually leave some type of gift. So depending on what they are coming for. So if they’re coming for a cousin’s or a nephew’s second birthday, I’ll leave them some balloons or I’ll go pick up a $5 muffin situation from the grocery store that’s like across the street from the property. And so I’ll always go do something like that for them. And it just really brings me a lot of joy because a lot of people will always, they’ll write notes.
We have 100% five star reviews, which I’m very, very proud of, super host, all the things. Honestly, because of that, we just hosted a woman for two weeks that was recovering from a cancer, a breast cancer surgery. And a good friend of mine just went through a battle with breast cancer. And so that was so meaningful because she lives far away. It was so meaningful for me to be able to be there for this woman. I went and got her extra ice. I left flowers for her. I coordinated extra with a company that delivered a recliner specifically for people who are recovering from that surgery. And so I just get a lot of joy from it. Apart from money, it is a true creative outlet for me. The family that came in and stayed, the very first one that we stayed, it was around Christmastime and I went and got gingerbread cookie making kit.
All of this stuff costs $5 to $10. And Ashley, I know I’ve seen that you do a lot of similar things. It does not take much to really exceed someone’s expectations. And it brings so much joy to me personally to be able to do that.

Ashley:
Yeah, I definitely prefer to set the bar low and then to exceed expecting it. Well, Alex, thank you so much for joining us today. We really appreciated having you on. Where can people reach out to you and find out more information?

Alexandra:
Well, you can follow us on Instagram. Our continued real estate journey at the Real Estate Reeves is our Instagram handle. Our next trick of our sleeve is we’re hoping to do a live and flip next year. So we’re actually about to go look at a property right now to potentially buy for a new primary and then turn our primary into a rental property. So that’s our plan.

Ashley:
Great. Well, we’ll have to have you back on when you complete that live and flip. Thank you. I’m Ashley. He’s Tony, and thank you guys so much for joining us for this episode of Real Estate Rookie.

 

Dave:
Are we in the midst of an AI bubble? The technology, it’s clearly incredible. It has already started to reshape our economy, our labor force, and it has been the primary, some would even say the only catalyst for economic growth and the stock market for some time now. There is generally speaking, just a lot of excitement about AI and for good reason. But is the hype about AI getting ahead of its actual usefulness? And as such, could we be in an AI fueled bubble? Or on the other hand, are we just at the beginning of a massive economic boom? Today and On the Market, we’re going to dive into the AI economy, what it means for our country as a whole, and what it means for real estate investors in particular in the year to come.
Hey everyone. Welcome to On The Market. I’m Dave Meyer, the chief investing officer at BiggerPockets. And today we’re going into a topic that I have been wanting to discuss for a while now. We’re going to be talking about AI and whether or not we’re in a bubble. And it’s taken me a while to research this. I needed a lot of time to dig into this because there’s so much to it, but I have done it. I spent weeks looking into this topic. I’ve learned a lot. And today I’m going to share with you what I’ve learned because as you have probably heard and seen, the financial news is full of pretty contradictory opinions about AI and its role in the broader economy. Many people seem to be all in. They are betting big that AI can power the stock market and the entire US economy to even greater highs than it’s at right now.
Others though feel that AI spending and the valuations in the stock market is creating a bubble. And should that pop, it would have dire consequences for, of course, the stock market, but also potentially for the entire economy, real estate included. So which is it? Is AI a growth engine that’s just starting to get going or is there some irrational exuberance going on in the broader market? Today, we’re digging into the AI economy. We’re talking about what’s going on, where all this money is flowing, what might happen in the coming year, and how it could impact investors. Let’s do it. So if you watch any financial news or really just follow any media, you know that AI is really all the rage these days. It’s not actually that new of a thing. People have been experimenting and talking about AI for a long time now. But what’s really changed and what I’m going to focus on in today’s episode is basically what’s happened since ChatGPT launched in November 2022.
Because that was, at least for the average person, the birth of AI or generative AI, which is the type of artificial intelligence that we’re all using when we use Gemini or Claude or Grok or whatever you’re using, those are called generative AI models. It’s a type of artificial intelligence that can do exactly what it sounds like. It generates stuff, ideas, research, sentences, images, videos, that kind of thing. And this mainstream introduction of generative AI when ChatGPT came out is really what has changed behavior in the stock market, has changed behavior with businesses, in the labor market. It was really the first, or at least the most tangible tool the world, at least the average person got to see the power of AI. And since that happened, things have really started to go crazy from there and with good reason. I probably don’t need to tell any of you this, but of course the potential impacts for AI in general and generative AI are enormous.
I do not think it is an exaggeration to say it could be one of the most significant technological advancements in human history. Everything from research, medicine, law, art, all of it is ripe for augmentation by AI. So naturally, businesses and investors are pretty excited about what’s going on here. To many investor types, this is basically like the start of a new internet era. If you remember back then, if you were alive for that, you might recall that investors and entrepreneurs, when the internet came around, saw huge potential and they actually realized a lot of that potential. Many people built enormous fortunes riding the wave of the new technology that was the internet. Workforces, systems, processes, all of them were completely recreated. And in reality, although there were some dips and bumps along the way, the internet lived up to the potential that it had when it first came out.
And I’ll say personally, I believe that the potential for AI to do the same thing is there. AI has enormous potential. So when I’m talking about whether or not AI is a bubble, what I’m talking about, at least in this episode, is not about long-term potential. I’m not really debating even if AI is going to be useful or not. What I’m talking about is whether investors and companies are getting too excited too quickly. Are they getting ahead of themselves? Are the decisions that businesses and governments are making about AI logical or are they irrational? That’s really the question that I want to dig into today, like what’s going on with the AI economy today and in the next few years, not decades from now, because as investors, that’s what’s going to matter to us for our portfolios in real estate and in the stock market.
It’s going to impact how you make financial decisions because as you’ll see throughout the course of this episode, the AI economy has gotten so big that whether it succeeds or fails, we’ll touch almost every other part of the economy. And that’s why we’re digging into the short-term impacts of the AI economy here and now in this episode. So to get into that, we got to first just kind of take a look at what is actually going on in the AI world here and now today. There are, of course, tons of different companies getting into the AI space, but unsurprisingly really, the spending is really dominated by just a couple of massive players that are known in the industry as the quote unquote hyperscalers. These are some of the biggest companies in the country or in the world. We’re talking about Microsoft, Alphabet, Google’s parent company, Meta, Amazon, OpenAI, Oracle.
We’re also talking about companies that support them and build infrastructure, companies like Nvidia or AMD, those kind of companies. In just the next year alone, these US tech hyperscalers are expected to spend a massive $527 billion on AI capital expenditures alone. That’s just one year in 2026. That is triple the level that was seen of investments before ChatGPT came out. So this is massive scale in just the last three years. Now, I know that billions of dollars, if you read about the financial news or the government, hundreds of billions of dollars gets thrown out a lot these days. So I just kind of want to put this in perspective, just how much money this is. If you just took the money that these couple of companies are spending on CapEx for AI, just isolated that spending alone, it would be the 31st biggest economy in the world.
It would be about the size of Norway, which is a very wealthy country I should mention, Norway’s entire economy. But the Unitited States economy is just frankly so much bigger than every other country. When you measure it, this is only one and a half percent of the Unitited States GDP, which is not that crazy. Now, total overall spending alone is not really enough to understand these issues. We kind of have to dig a little bit deeper and talk about where this money is actually going. As real estate investors, maybe you picked up on this, but a minute ago, I said that the hyperscalers are spending over a half a trillion dollars on capital expenditures. Does that term sound familiar? It should, because we have this in real estate investing. In real estate investing when you’re talking about a rental property, CapEx or capital expenditures, usually talking about things like renovations or putting in a new roof or an HVAC system.
And in the AI world, it’s kind of similar. We’re talking mostly about infrastructure, which for AI at this stage basically means massive data centers. The majority of this money is going into data centers. So much of it, it is kind of hard to fathom. Data centers in general are basically needed to create the computing power that AI and LLMs large language models need to run off of. And frankly, right now, these hyperscalers are all competing with each other to try and build the best models, the fastest models, iterate on these ideas so quickly, they need as much computing power as they can get. And they’re just building these data centers like crazy. You probably hear about it. I don’t even know where you live, but there’s probably a data center getting built somewhere close to you because they’re getting built everywhere. And we’ll talk more about this in a couple minutes if this actually makes sense.
But just for now, note that companies aren’t really pouring money into hiring or into software. They’re putting money into hardware. And this hardware is massively expensive stuff. Some companies like Microsoft, one of the most profitable companies in history, tons of money, same with Google, right? They can self-fund these things, but there are also other companies like OpenAI, a relative newcomer onto the scene, they’re taking out massive debt to just build, build, build. Before we keep going, I just want to caveat this to say to all my friends here who are real estate investors, don’t get too excited about data centers. People ask me this question all the time like, “Oh, there’s a data center going into this neighborhood. Should I buy property there?” No, not just because there is a data center going in there. That might be a sign of other good things happening in that area, but data centers alone are not really long-term job creators, right?
At least as of now, they help construction in the short term, but these are largely automated facilities that might need a couple dozen people to manage them, but this isn’t like a major corporation moving in and moving their headquarters to an area. So I personally wouldn’t buy real estate near a data center solely for that. It’s just not a big enough long-term driver of housing demand. So I just want to caveat that because I know a lot of people are listening to this episode thinking about, what does this mean for my portfolio? I just want to say right now, I don’t think it means the data center building should really impact your strategy all that much. Anyway, back to the question of whether or not we’re in a bubble. I just talked about sort of the spending side, but we also have to figure out what is happening with revenue.
These companies are spending a ton, but are they actually making money from their investments? And the answer is not really, or at least not that much. There has been actually quite a lot of high quality analysis on this topic because these companies are mostly publicly traded companies. There are a lot of professional analysts digging into all the publicly available information about these companies. And from what I’ve gathered from these analysis, in order to justify the 500-ish billion dollars in annual spending that these hyperscalers alone are committing right now, these companies need to generate roughly $2 trillion in annual AI revenue by the end of the decade. That’s roughly how the math works out when you’re talking about stock valuations and whether these companies are going to live up to the expectations that stock investors have into them. So just in a couple of years, they need to get to $2 trillion, but as of right now, as of late 2025, early 2026, the data that we have shows that actual end user revenue, people buying products like ChatGPT or partnering with Amazon or one of these other companies, that revenue is estimated to be under 100 billion and still a lot of revenue, $100 billion, but we’re saying that the industry needs to 20X its AI revenue in four years, possible?
Yeah, it’s possible, but you see why the debate exists, right? Because a 20X revenue increase, while it could happen, it is far from a sure thing that is extreme growth, even for an incredible technology like AI. And so this is the basic argument. Is the investment worth it or is this going to go to waste? Are these companies just wasting potentially hundreds of billions of dollars? In the last year, valuations from AI companies have gone sky high and basically people want to know, is this sustainable? Can the technology actually deliver the revenue and the profits and live up to the investments and the valuations they are getting right now? Or is this another dot com bubble where investors bet too much too fast and a reckoning came, right? You can see why people are comparing this to the 1990s because everyone knew in the 1990s that the internet was a big thing, right?
No one was debating that, but so many people just put tons of money into the stock market because they thought, “Oh my God, the internet is going to raise all ships.” And although the internet eventually did deliver on its potential, it wasn’t without paying. There was a bubble that burst before the true tech expansion and wealth really hit the market. And so people are wondering, rightfully, is this going to happen again? Everyone agrees AI is great, but are people putting too much money before we know if there’s a winner or is this time different and are these companies in great positions actually to be able to win the AI race and capture all the revenue and wealth that will very likely come from an AI boom? Now, we got to take a break right now, but when we come back, we’re going to discuss this in more detail.
We’re going to talk about the bull case, the people who are optimistic about this, and we’ll talk about the bear case, people who are fearful of a bubble. We’ll talk about why some investors think AI has tons of room to run and valuations are going to go crazy while others are fearful of a bursting bubble in the coming years. We’re going to get to that and I’ll also share my thoughts on what this means for real estate investors after this quick break.
Welcome back to On The Market. I’m Dave Meyer talking about AI and whether or not we are in a bubble right now. We talked about just what was going on with spending, but now let’s get into the bull and bear cases. And we’ll start with the bull case. Basically just means the optimistic case, people who are really favorable, optimistic about AI right now and think that the stock market and the economy has tons of upside beyond where it is today. I’m going to talk through a couple of the arguments that these folks make. And the first is pretty simple. Many people believe that AI will just grow the overall economy, that it is so efficient, it will add productivity to the economy, which is the way that you grow an economy without adding more people. It needs to become more productive. And they think that AI will make the economy just overall more productive.
Vanguard, the financial giant, has actually done a study on this and they predict there’s an 80% chance, very good chance, 80% chance that global growth will outperform consensus estimates due to AI. Specifically, they believe that there’s a 60% chance that the US economy hits 3% real GDP growth, which is great. Generally, we average about 2% real GDP growth, and Vanguard is saying that they think the US, this is going to grow. It’s going to go up to 3% real GDP growth, which may not sound like a lot, but going to 2% to 3% is actually pretty good. Furthermore, there are other economists, Mohammed El Arian, he is a very well respected economist who works at Penn Wharton. He believes AI will quote raise the speed limit for the economy, which is sort of this interesting metaphor that I kind of like. He’s basically arguing that the ceiling for GDP growth can basically just go higher.
In an economy without AI, there was just kind of limits to how much the economy could grow in a given year. And he believes that limit is kind of getting taken off and GDP growth can go even higher in an AI era, which would obviously be good for the entire economy. It could justify the spending and the super high valuations from AI companies. So that’s number one, right? It’s just going to grow GDP. The second argument is that the dotcom bubble is very different from all the investment that is going into AI because the hyperscalers that are putting all of this money into the stock market are profitable companies, right? These are like some of the most profitable companies out there, Meta, Alphabet, Amazon, Nvidia. These companies have hundreds of billions of dollars to spare. It sounds like a lot of money, but most of these companies are valued in the trillions and they can, quite frankly, this is crazy to say, but I think that if Amazon missed on a hundred billion dollar bet, they’d probably be fine.
And it’s the same thing with Alphabet or Meta, right? These companies are so big. They are so profitable that they are not as vulnerable as the companies during the dotcom era. Everyone always makes fun of pets.com. It’s kind of like the thing that it’s the stereotypical thing people point out, but there were tons of companies that were getting huge valuations before they were even profitable. Tech kind of got a bad name for highly valuing these kinds of companies, but that’s not really what’s going on here. The companies that are driving the S&P 500, the stock market forward are profitable companies. And so that is very different from what was going on in the late 1990s and early 2000s. So even though stock valuations are very high by historical standards for these companies, many Wall Street experts argue that it is justified. The third thing is that there’s general consensus that AI is going to be very disruptive and whoever wins the quote unquote AI race is going to make a ton of money, right?
The winner is going to be very, very successful. And what a lot of stock analysts and economists believe is that there is sort of a moat because of how expensive this is. I could call that how expensive it is to build data centers, which you can argue both ways. Some people will say that’s making these companies spend way too much. Other people, the people who are more bullish about AI say, “This is actually not a bad thing because these companies, these seven, eight companies are the only ones who can afford to build this stuff. So they are more likely to win the AI race.” Whereas in the past, it was pretty easy for a company to start a new website and compete with pets.com or all these apps were very easy to build. What they’re saying is that AI is so hardware and CapEx dependent that the winner of the AI race is more likely to be an established, big, profitable company than it is to be a small disruptive company like it happened often during the dotcom bubble.
And argument number four is kind of interesting. It’s just about infrastructure spending. I said earlier that massive spending over $500 billion is huge and that that comes with some risk, which it certainly does. But I want to call out that actually there is historical precedent for this kind of investment. This is not some sort of spending that we have never seen before. And you’d actually find some people out there who say that we are underspending. We’re under investing in AI, which is kind of crazy when you think about that number. But when you look at the data, historically, the amount our country between public and private sectors have invested into truly transformative technologies. I’m talking about things like railroads back in the 1800s or electrifying the country around the turn of the century. Infrastructure spending on those huge projects peaked at about two to 5% of GDP.
And AI investment right now is about 1.5% of GDP, suggesting that the boom could keep going. Now, I’m not sure, and we’ll talk about this later, that that’s justified, but I’m just saying that if you have a transformative technology like railroads or electricity, spending one and a half percent of GDP on building out the infrastructure for it is not unheard of. Now, I went on a whole rabbit hole about how the US actually overinvested in railroads and there’s kind of a crash there. So keep that in mind. But still, there’s precedent for this kind of spending. So to summarize, the bulk case is AI is massive. It’s going to grow the economy overall, and it’s likely that one or several of these hyperscalers that are spending all this money, they’re going to win and they’re going to get the revenue and the valuations that the people who are investing in it are expecting.
And they also argue that mostly these companies who are investing tons and tons of money, they have the money to do it. So that is a credible case, right? But what about the bear case? What about the people who are more pessimistic about it? Their arguments go as such. Number one, is spending in the right place? Data centers are massively expensive, but we don’t really know that much about their utility, right? We’re building these huge things. Are they going to become obsolete in two years, in three years, in 10 years? We honestly don’t know because the technology is shifting so rapidly, it’s not really that hard to imagine like, “Oh, we build this entire data center with all these NVIDIA chips and we’re spending billions and billions and billions of dollars.” And then two years from now they’re like, “Oh, actually we need a totally different kind of data center.” You can kind of imagine that happening, right?
And so bears are saying, “Yeah, we’re spending, maybe the total amount of spending is right, but we don’t even know if we’re spending it on the right thing.” And so some would argue that a lot of this money could potentially be wasted. That’s argument number one. Argument number two is really the revenue thing. I brought that up a little bit earlier, but basically these companies are spending so much money, but without really the revenue to justify it right now. And this is really, in my opinion, the most credible bear case right now because the spending, like I said, it could be justified. There’s historical precedent for it if it was generating revenue, but it’s really just not. If you look at OpenAI, the creator of ChatGPT, they maybe, we don’t know, they’re a private company, but the estimates are that they might have about $20 billion in revenue in 2025.
That’s a big number, right? Any company would probably be pretty happy to have $20 billion in revenue. However, maybe you wouldn’t feel so good about 20 billion in revenue if you had $1.4 trillion committed to infrastructure spending in the next eight years. It is just 1.4 trillion is so crazy. That is so much money, it is kind of mind blowing. Similarly, Meta, who’s spending tens or hundreds of billions of dollars has admitted they are not seeing any direct revenue impacts due to their investments in AI right now, but those are just two of the companies. If you look at Microsoft and Amazon, they are reporting positive returns on their investments. So it’s kind of a mixed bag right now, but by no means our company is saying, “Hey, we’re investing in AI and we are getting an immediate ROI out of this. This is so great.
We want to just keep investing in it. ” That is not what people are saying. And in fact, not just with these hyperscalers, when you look at the people who are buying the products from these hyperscalers, so just regular businesses that are using ChatGPT or Amazon Cloud services or whatever they’re investing in, adoption is not so great. MIT just did a study and they said that 95% of AI projects get no ROI. Another report from IBM says that only 25% of AI projects are getting their expected ROI. So there are reasonable questions about what revenue these companies can generate in the short term. So generally speaking, there are projections that GDP will grow. There are projections that these companies will earn their valuations by increasing their revenue. There is a ton of talk and excitement, but the revenue just isn’t there yet and it has a long way to go to justify current stock valuations.
Some might call this speculation. Speaking of those valuations, I think that’s sort of what we need to get to because we’re talking about are we in a bubble? And the bubble could burst because people feel like the stock prices of these huge companies that carry so much of the S&P. These companies make up so much of our stock market. We have to understand how they are valued. Similar to real estate, people can value things on a cap rate or a cash on cash return or whatever. There are so many, dozens of different ways that you can value stocks or the stock market. But one is called the Schiller PE. It’s called the Cape Ratio, if you’ve ever heard of this. It basically measures stock prices against 10 years of inflation adjusted earnings. So the CAPE ratio right now is roughly at 39 or 40X. So it’s basically saying that’s 39 or 40 times those inflation adjusted earnings.
That probably on its own makes no sense. So let me just tell you that historically, the long-term average is 17X. So we’re at more than double. We are now at 40X earnings in the CAPE ratio. Normally it’s at 17X. And the only other time in history that the CAPE ratio exceeded 40 was right before the dotcom burst in 2000. So this is why bears are saying maybe we’re in a bubble because there are just some technical ways of measuring the stock market that are throwing off red flags. Every time the CAPE ratio has crossed 30 for an extended period, the market has eventually seen a decline of 20% or more. So that is another argument that bearers are making. The last one I want to talk about, which is a whole other big topic and it is complicated. So I’m not going to get super into it, but there is this big thing going on where all of these companies, it’s kind of incestuous.
They’re all like funding each other and investing in each other. It’s this giant web of companies spending in and investing in one another. And it’s kind of weird. You can look this up. You should Google it because I can’t explain it briefly in this episode, but it’s worth looking into if you’re interested in this topic. Basically, you see companies, let’s just use Nvidia as an example. They’re investing in AI companies and giving them money. They’re saying, “Hey, we’re going to invest in you, but with the money that we’re investing in you, you have to turn around and buy Nvidia chips.” So they’re saying, “Hey, here’s some money to buy my product with. ” It’s called vendor funding. There have been some pretty bad examples of this in the history where this has not worked out pretty well. Of course, it could be different this time.
It always could be different, but it does make the system to me at least feel a little bit fragile, right? The whole thing where they’re all funding each other, it just makes it seem like a little bit of a house of cards. Now, I’m not saying that’s necessarily what it is, but I would feel a little bit better about this if these companies were making their money and getting their money to invest from revenue, not from one another and sort of trading and propping up the whole industry as a whole. I should say that people who are really bullish about the market think that this is a positive. Some people say it’s a strength because profits are getting reinvested back into the AI ecosystem. But bears, famously, Michael Burry of the big short fame, who famously called the 2008 housing crash correctly, has pointed at this as the reason that he is shorting Nvidia and that he’s getting out of the market because he thinks that this whole thing is going to collapse.
This is not my expertise. I recommend you look into it, but this is a big thing that a lot of experts in this field are pointing to when they’re making their bearish case. So just to summarize the bear case, you would say there’s really no revenue. We don’t know if the money’s going into the right place. Valuations are already near all time highs and can that be sustained? And there’s all this vendor funding. Basically, stocks are priced right now for perfection. When I was reading some of these analyses and reports, that’s the thing that kept coming up is that the way stocks are priced right now, it’s like these companies have to just execute perfectly for the next couple of years to justify them. And bears think that that’s unlikely and that’s why they think that we’re in a bubble. Whatever side that you’re on, I think you can see, I feel at least there are logical arguments on both sides.
And of course, no one knows for certain, but I will share with you my thoughts about all this and which side I’m falling on and how I’m planning my own financial decisions right after this break.
Hey, everyone. Welcome back to On The Market. I’m Dave Meyer. Today we’re talking about the AI bubble. I’ve shared with you a little bit about what’s going on with spending, the bull case and the bear case. And now I’ll just share with you sort of how I’m feeling about after spending several weeks digging into this topic. And I approached it as unbiased as I can. Everyone always is biased, but I I genuinely just didn’t have a real opinion on whether we were in a bubble or not and just started digging into this. And as I’ve done this research, overall, I lean pessimistic about the AI bubble. I’m not saying that it’s not possible that things keep going. As I do with the housing market, I’m going to do the same thing here and say that I don’t like saying X is going to happen or Y is going to happen.
As an analyst, I am trained to think in probabilities. That’s what we do. And I just try to think about what is the most likely thing to happen? Not saying that the alternatives can’t happen, but I think the most likely thing to happen in the next couple of years, I’m not saying in 2026, but in the next couple of years, is that there is going to be a correction in the stock market, a fairly significant one. I don’t know the timing of that. We’ll talk about that in a minute. But ultimately, here’s why I’ve come out this way. Number one, it’s kind of a simple argument, but just we don’t know if this is going to work. We just don’t know. People are so excited about it, which I get. I’m excited about a lot of AI things too, but we don’t know if these companies are going to be able to pull off what they are saying they’re going to.
There’s not really that much evidence of it. Yeah, ChatGPT and Gemini are super cool, but businesses aren’t really adopting them. They’re not making tons of revenue. They’re not saying, “Oh my God, ChatGPT has totally changed my whole business.” Sure, there are individual instances of that, but that is not happening at the scale that they need to justify the stock valuations that they are. And I am not saying, do not get me wrong, I am not saying that I don’t think AI will work in some way, shape, or form. I definitely think it will. What I’m saying is that the AI tools that we have right now is what I would consider a V1, a version one of generative AI. And if you think back and look at history, how many V1 technologies have failed? So many of them, right? How many electric cars failed before Tesla finally got it right?
How many social media sites failed before Facebook took off? Remember when people were investing in Blu-ray or LaserDisc or whatever, only for streaming to take over? We just don’t know what the final form or at least this growth form of AI is going to be. And yes, there are several reasons, there are good reasons to bet on these US-based hyperscalers, but this is what people always say. They always think that the incumbents are going to be there forever. If you asked people 30 years ago, will GE still be one of the biggest companies in the world? Will their investments pay off? Probably everyone would say yes. Look at GE now. Everyone always thinks GE or Sears or whatever are going to be there forever because they can’t envision something that hasn’t happened yet. And then something new comes along and shocks the entire world. I’m not saying it would be wise to bet against these US hyperscalers, but to assume that they’re going to win and win with the current technology framework and infrastructure and investments that they’re making today, that is a really big if.
Because in my opinion, even if Amazon wins, they might have to rebuild every data center they have. They might need to go from LLMs to something called a world model, which is a total different way of building AI. We just don’t know. And I get that they may nail it. They may. But if you’re saying that we are valuing stock so highly because we’re so confident that they’re going to win, it lacks evidence. And to me, as an analyst, that’s why I trend pessimistic, because until you show me evidence that these companies are going to nail the revenue side of it and earn these valuations, I’m going to lean pessimistic. And I just kind of want to build on something that I said before, because again, not saying AI won’t work in some form, but these large language models, these things like ChatGPT where you’re typing in and communicating within AI, what they call them agents, right?
This is just one kind of AI. It is only one structure, architecture for building AI models. There are totally different ways that you can do it. There’s something called a world model that I was starting to look into, and a lot of AI researchers think that’s actually the better way to get to agentic AI, the ultimate holy grail of AI that all of these companies are trying to get to. Some of them, a lot of the leader and researchers thinks that LLMs and all these investments that they’re making is not the right way to go, that there’s a better, different infrastructure for building AI that’s smarter and more efficient. Now, I am not smart enough to know which one is right. I’m just saying that LLMs are not the be all end all. I don’t think anyone agrees or thinks that LLMs in their current state or the end state of AI, that this is the best it’s going to get.
We’re always going to be typing to ChatGPT and writing prompts and getting them back. No one thinks that. So we just don’t know how we’re going to get to agentic AI. Some people think LLMs can get there. Other people think that they can’t. And so I just want to show you that there’s a lot of doubt about the right way forward with AI. And that means that some of these companies could be wasting hundreds of billions of dollars building infrastructure that they don’t need. The thing I kept thinking about when I was doing this research is like, what if OpenAI? Super exciting company. I use ChatGPT all the time. I use Gemini all the time. I use these things. I’m not saying anything bad about these, but I kept thinking, what if OpenAI is basically like the Blackberry of the. Com era? Does anyone remember the Blackberry?
It was kind of the first smartphone, but not really. It didn’t have apps. It wasn’t touchscreen. It had the little track ball and the whole keyboard. I had one and you would BBM everyone. And everyone thought like, “Oh my God, this is amazing. I can text, I can go on the internet, on my phone.” And everyone thought Blackberry was here to stay, right? Then all of a sudden the iPhone came out and everyone was like, “Oh, wait, this is a way better technology. That whole Blackberry thing sucks. I’m never going to buy another Blackberry. All I’m going to do is buy an iPhone or an Android.” And now Blackberry isn’t even a thing anymore. And I’m not saying for sure that that’s going to happen to AI, but this happens all the time, even with really exciting technology. And I think there is the chance that it happens again because history is frankly filled with exciting new technologies where the first mover, the person who introduced the thing doesn’t actually win and the winner actually comes out of nowhere.
And in some ways, this reality is why companies have to spend so much. They are 100% in a race to figure this out first and to try and crush any competition and beat everyone else to the end state. But to me, that means even though one of these companies very well could win, even one US-based hyperscaler could win, a lot of the other companies are not going to win. They’re going to be massively inefficient and they might spend hundreds of billions of dollars in total flops, which of course would negatively impact their stock prices and could pull down the entire economy. That’s my number one thing. It’s just like, we don’t know if this is even going to work, if this is the right infrastructure. And the second reason I kind of lean pessimistic is just the revenue thing. Maybe they’ll get to $2 trillion.
Maybe revenue will start to explode. But when I look at these adoption rates and what CFOs and companies are saying about their implementation of AI, they’re all saying they’re going to implement more. They’re not saying they’re getting great ROIs. And I don’t see companies spending way more because there isn’t a new tool. ChatGPT, yeah, it’s gotten better since 2022, but has it really changed all that much? Are people going to start opening their pocketbooks? I mean, maybe they’ll come out with new product. I don’t know, but we haven’t seen something that’s really going to start driving their revenue in massive ways. Amazon’s been more successful, but we’ll see how that comes out. But for right now, I’m skeptical because there’s just not revenue to justify these valuations. So overall, the way I’m thinking is that there is short-term risk. I’m just not sure we’re there yet.
AI is super exciting, but we’re betting on valuations. The stock market is basically saying, “We know that these companies are going to win. That’s what their valuations are telling us, and I don’t see it. I think they have a good chance to win, but I am skeptical about buying in at these valuations thinking that they’re going to go even higher.” So much of the stock market right now. So I think it’s about a third of the S&P 500’s growth is predicated on one of these companies winning and doing it perfectly. They have to nail it because it’s already priced as if they’re kind of going to win. So if there are any errors, the market could tumble. And I’m not saying that means AI failed, not at all. I just think this is kind of similar to the dot com bubble. People were rightfully excited back then, but they made irrational investments.
Ultimately, the technology, the internet, hugely impactful. And this could be happening again. People know AI is impactful and something is going to happen from it, but I think there is a risk that there’s some irrational investing going on right now. Now, of course, that doesn’t necessarily mean it’s going to be a catastrophe. Of course, stock market crashes are fairly common. We don’t like them, but they happen. And the market rises again. And I personally believe that even if there is a crash, the market will recover. But there is some really interesting data that suggests a crash now could be pretty bad. There was a recent article actually in The Economist by an economist named Gita Gupinath, and she basically says since more ordinary people are investing in the stock market than ended before and more foreign individuals, a stock market hit could be more widespread and have a bigger impact on consumption in the US, which I should mention drives about 70% of our economy, that it could have a really big hit on that.
She actually calculated that if the stock market takes a proportional hit as the dotcom bubble. So basically relative to its size, the same kind of decline, it would destroy $20 trillion in household wealth in the US alone. This could impact consumption, of course, 70% of GPP, like I said, it could impact retirement plans for the massive boomer generation whose majority of their wealth is in 401ks and in the stock market. And this is where the AI potential bubble spills into real estate investing for me because I think if we see the stock market crash, we could see demand for housing and consumer confidence decline. If this happens, yes, some things would be beneficial to the housing market. You would probably see mortgage rates drop, which would provide a floor. I’m not saying that there would be a crash in housing because of this, but I do think it could keep transaction volume low and the sort of very normal and expected human reaction of fear would start to take over because if people see their net worths decline dramatically, they might tighten up on home buying or buying cars or moving into a new apartment.
All of that could weigh on the real estate industry, especially if this potential bubble combines with some other labor consequences of AI that we haven’t even gotten into in this episode. That’s a whole other topic. But I think everyone knows that many people, even the CEOs of these hyperscalers are saying that AI is going to have massive impacts, not good, on the labor force. And so if you combine a potential bubble and decline in $20 trillion of household wealth with a bad labor market, that could really subdue appreciation and rent growth in the housing market in the short term. So that is something to keep an eye on. And I’m not saying that that’s going to be a disaster for real estate investors. I actually think when these things happen, better buying opportunities exist. And so if you’re in it for the long run, that could potentially be good.
I mean, people look back on 2009 to 2012 and say, “Man, I wish I bought then.” That was during an era of fear when not a lot of people were buying and investors had an opportunity to buy good assets and good prices. So I’m not saying this is a disaster for real estate investors. I’m just saying that it’s something that could happen. And why, even though this is a real estate investing show, I am paying so much attention to the AI bubble because it is so big that it could really impact the rest of the market. One other thing I want to call out how this could relate to real estate investors is that if the stock market does decline by 10, 20, 30%, whatever, institutional investors could slow down because a lot of these quote unquote institutional investors are things like pension funds, they’re endowments and they have actually, they have kind of rules.
They have these allocation buckets. So like they say, “We’re going to invest 20% in real estate, 80% of the stock market.” That’s kind of our philosophy, our investment thesis. So if the stock market drops, that actually it’s kind of just this math thing, but it overweights their percentages. They’re over allocated into real estate. So that means they might slow down on buying real estate just because the value of the stock market drops. And that means they could stop buying new properties. They might even sell some assets to rebalance their portfolios. As we’ve talked about in the residential market, these companies own about two to 3%. So I’m not saying that would be crazy, but it is something that you should keep an eye on. So after all this research, hopefully this has been helpful to you, but where I’ve landed is I am still a little bit torn, but I lean a little bit pessimistic about the stock market and whether these valuations can be sustained.
I am skeptical. Anytime our economy or the stock market is so dependent on a few companies, it makes me a little bit worried. Anytime stock valuations are honestly speculative, like let’s just call it what it is. They’re speculating that these companies are going to earn revenue. This isn’t like, “Hey, they had great earnings this year and we are justifying our valuations based on that. ” Some of it, a company like Microsoft or Amazon, obviously a lot of their valuation is based on actual earnings, but the run up in their valuations over the last year or so has been largely speculative. And so that worries me. Even if these are amazing companies, some of these are incredible companies doing amazing things, but the margin of error to me is just small. And so that introduces a lot of risk. And as with everything on this show, I cannot say for certain what will happen.
My goal with episodes like this is just to explain the risk. Just explain that that risk is out there so that you know, because I believe personally, my philosophy on investing is that risk isn’t your enemy. You can invest with risk, but you have to know that it’s there. You need to make decisions and underwrite your deals, understanding all of the risk that is out there. And to me, this is a risk that is out there for the economy and it could spill over into the real estate market. And that’s why I’m trying to share with you the risks that I’m seeing so that you can plan accordingly. I should mention, I’m still heavily invested in the stock market, but I have made my portfolio a little bit more defensive because even though I do think a retraction is likely a correction, we just don’t know the timing of that.
And that’s what’s so hard about stock investing. I’m not going to give stock investing advice. That’s not my expertise or my purpose of this show. But I will just say this, that even though I think that there’s a correction coming, valuations might go up another 30% and then crash 20%. We just don’t know. That’s why I personally just take a dollar cost averaging approach to investing in the stock market and put money in at regular intervals, but I have shifted to a little bit more defensive. I want to be in the stock market in case I’m wrong and things keep going up because I’m 38 years old and even if the market crashes, I think it will come back by the time I want to retire and maybe live off some of my stock investing. I don’t want to get out of the market. I’m not panic selling or anything like that, but I am making it a little bit more defensive.
I am willing to forego some potential upside to protect the downside because after all this research, I do lean a little bit pessimistic, like I said. So that’s it. That’s my analysis of the AI bubble potential as of right now. There are good arguments on both sides, but I’m leaning a little bit pessimistic right now just because I think a lot has to go right almost perfectly for these valuations to be justified, and that just rarely happens. So that’s how I am thinking about this and I’m going to plan my own stock and real estate investing, but I’d love to know what you think. Are we in a bubble or not? What should we as a community here at On the Market be thinking about in terms of AI? Let me know in the comments below. Thank you all so much for listening. I’m Dave Meyer.
I’ll see you next time.