Dave:
15 years ago, Matt McCurdy had everything most people want, a fresh MBA, a stable corporate job, and a clear path to retirement in 30 years. There was just one problem. He didn’t want to wait 30 years. So he sat down, wrote a business plan for real estate investing and bought his first rental property. Then he bought a few more. When his stable job became not so stable and he had to leave his W-2 job a few years later, he didn’t panic. He already had a backup plan generating income for him. So he decided to go all in on real estate and continue to build an impressive rental property portfolio. Today, Matt owns more than 50 properties and has a cheap financial freedom decades earlier than he would have if he had stayed in that cubicle. Matt took his financial future into his own hands instead of relying on a corporation and you can do the same thing.
Keep watching to find out how.
Hey everyone. I’m Dave Meyer, Chief Investment Officer of BiggerPockets. Today’s show is an investor story with Matt McCurdy from Cedar Rapids, Iowa. Matt’s going to share his story of how he escaped the corporate treadmill by buying great cashflowing properties in Cedar Rapids, Iowa. In this show, we’ll talk about why he waited almost 18 months to buy his first property, how he navigated a crossroads of whether to stay small or keep scaling, and how he bought 20 homes in a single deal with only $30,000 in cash. That actually happened. It’s a great story and there are a lot of lessons that all of you can apply to your own investing careers. So let’s bring on Matt. Matt, welcome to the BiggerPockets Podcast. Thanks so much for being here.

Matt:
Yeah, thanks for having me.

Dave:
I’m excited for our conversation to learn a little bit about your real estate investing journey. Let’s start from the beginning. Tell us a little bit about where you were in life when you decided you wanted to get into real estate investing and what brought that on?

Matt:
Well, I was in the typical role that a lot of people are in. In corporate America, grinding away, in a desk job, didn’t really see a way out of that. I saw a corporate ladder that I was trying to climb, but didn’t see it happening as fast as I wanted it to. So read the book that everyone typically has read. Robert Kiyosaki’s book, Rich Dad, Poor Dad, and then it kind of took off from there.

Dave:
That is a common angle, people reading Rich

Matt:
Dad

Dave:
Poor Dad. How old were you at the time when you were thinking about this?

Matt:
I think I was 27 when I read that book.

Dave:
And what was your career like? You said it was a desk job. Were you making decent money, just not fulfilling?

Matt:
Yeah, decent job. Call myself middle class. Did a four-year degree from the University of Iowa and moved through two different corporate positions in the supplier management role. So got to manage a lot of suppliers through project schedules, budgets. And from there, just didn’t see a way to transition to executive level to make the money I wanted to without going through the mundane manager roles that just grind people out.

Dave:
So where’d you go from there, Matt?

Matt:
Well, I started with a simple business plan. Speaking of my educational experience, they harped on creating a business plan. And I also saw that through my corporate America experience. So I said, “Well, if it’s working for Fortune 500 companies, it probably would work for me. ” So that’s what I first started with was a simple business plan. I knew I was going to be wrong from the get- go. It took me a year and a half to actually buying my first rental property, but after that it was plug and play and rent and repeat and try to go as fast as I could.

Dave:
I love that. So tell me a little bit why you wrote a business plan. It’s not something we hear a lot about in real estate investing. What was in it and what was the point? If you knew you wanted to do real estate, why go through the exercise?

Matt:
It helped me clear up everything that was in my brain and what I was hearing, what I was reading, what I was learning to put it onto paper. And once you put that onto paper, there’s something that happens between your brain, your nervous system, everything where you are actually committing to this and you’re really thinking through it. You can have ideas all day long, but it’s one thing to be very strategic with what you’re trying to do in your business. And now you’re trying to articulate it on the computer or writing it down on paper. Nowadays, it’s through AI. Why not? It’s very simple now. So there’s really no reason not to do it.

Dave:
It’s a differentiator, right? Absolutely. So few people do it. Whatever format you want to put that in, that doesn’t really matter. I think it’s the exercise of thinking through all the variables and what you’re good at. I love that. I think it’s really good advice that people should be following. So once you did that, Matt, what was your first deal? How’d you go about actually getting in the game?

Matt:
Yeah. So the first one was a prototypical single family house that was three bedrooms, one and a half bath house in Cedar Rapids, Iowa, not too far from a local elementary and high school. Just location-wise, it made a ton of sense. I wanted to position myself to rent to as many people as I possibly could.

Dave:
No, I mean, I think especially for your first deal, just trying to get that mass appeal kind of rental where you’re not going to have a lot of vacancies, you’re going to find a high quality tenant. It just makes a lot of sense. What was it like though? How mu did you buy it for? How’d you finance that?

Matt:
Yeah, I bought it for $92,000, which sounds ridiculous nowadays. It does. It does. Which still, this kind of shows you where I was at in Cedar Rapids in particular. We’re right around probably 225 to 250 for that house nowadays. I was always looking to force appreciation and really through that was just buying a house that needed some work. So this house needed about $15,000 worth of work. Some of it was sweat equity. My fiance and I did at the time, but that was a three bed, one and a half bath that we made a four bed, two bath.

Dave:
Okay. So you were doing real value add. This wasn’t just cosmetic. You was doing some structural stuff. And you did all the work yourself?

Matt:
No. So I would say half and half. I had a contractor. My actual father-in-law helped me on some stuff too. Nice. Because my wife and I, or my fiance at the time, both of us had W2 jobs. So we were very busy, but we were burning the candle at both ends, going over there after work, working on weekends, just doing anything and everything, kind of clawing to scratch and claw to get that put together.

Dave:
How long did that take? Well,

Matt:
We closed December 13th and we had a tenant in there January 1st. Oh,

Dave:
Okay. Oh

Matt:
My gosh. We were messing around and that’s-

Dave:
Yeah, we’re in celebrating the holidays that year.

Matt:
No, we did. We bought this house in December of 13th of 2013. We got married January 11th of 2014. So roughly a month later, we went from renovating this house to getting married. I can remember many, many nights. It’d be midnight, one o’clock, and we were just going after it. But we’re young and stupid.

Dave:
Yeah. I mean, it helps sometimes to be young and stupid, at least in my case. Yeah. Well, good for you. I mean, that’s kind of the hustle that it takes, man. This is a lot of times when you’re just getting started. You just got to do what it takes. It’s going to be different for everyone, but recruiting your father-in-law, doing the work yourself, figuring out a way to get it funded, that’s usually what a first deal looks like. I know a lot of people want to raise private capital or do something advanced to start, but I think the hustle approach is not only the most common way, but often the best way you learn a lot, you learn what you like, what you don’t like, what to avoid in the future. And whether or not, honestly, if you’re going to like this business, but I assume since we’re talking here today, Matt, that you liked it, even though it sounds like a stressful couple of weeks and a very big push to get this thing open, sounds like it worked out well for you.

Matt:
I had my idea and I went with it. I’m too stubborn to stop. I learned, speaking of learning some things, I did not scope the sewer line. And that house unfortunately had Orangeburg sewer lines, which people don’t know what Orangeburg was. It was this magnificent revolutionary product back in the ’60s that they put in a lot of houses for sewer lines. And it was wrapped with some kind of cardboard paper type exterior, which go figure in the ground. It’s eventually going to rot and fall apart. So on our honeymoon, I was getting phone calls and I was actually dealing with a collapsed sewer line and tenants that were fortunately patient with me and were able to get some people to help while I was out of state.

Dave:
Yeah. These are the things you learned, right? Now, I’m sure you get a sewer scope on every deal you do. So sounds like a great first deal, Matt. I want to hear about what you did next, but we got to take a quick break. We’ll be right back. As a host, the last thing I want to do or have time for is to play accountant and banker, but that’s what I was doing every weekend, flipping between a bunch of apps, bank statements, and receipts, trying to sort it all by property and figure out if I was actually making any money. Then I found Baselane and it takes all of that off my plate. It’s BiggerPockets official banking platform that automatically sorts my transactions, matches receipts, and shows me my cashflow for every property. My tax prep is done and my weekends are mine again. Plus, I’m saving a ton of money on banking fees and apps that I just don’t need anymore.
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Welcome back to the BiggerPockets Podcast. I’m here with investor Matt McCurdy, talking about his first deal, how he hustled into a single family home in Cedar Rapids, Iowa. Matt, after that first deal, you had a couple hiccups, but it sounds like overall it went well for you. What’d you go on and do after that?

Matt:
Unfortunately, I didn’t have a bank role. I didn’t have the idea of syndications back then. So I really just used my W2. I did the old fashioned way, saved a lot more than I spent. We were living pretty broke just to try to save every dollar because every dollar and cent got me closer to my end goal, which was ultimately to leave corporate America. So the faster I did that, the quicker I could get to it. So short-term sacrifice equals long-term gain, and that’s the way I look at it. So 2014, we just bought a couple properties, two single family houses, and then in 2015, we really scaled up a lot quicker with four duplexes and then I want to say three additional single family houses.

Dave:
And you were doing that just still with your W2?

Matt:
So that is part of it. The other part is, unfortunately, my wife, her mom passed away in November of 2013. I’m sorry. We had that on the front end, bought that first house and then got married. So we had a- Wow. Like I said, a busy couple months.
But we used some of that life insurance money to help pay for the down payment on those four duplexes. We still have those four duplexes. We still talk about how those are Karen’s duplexes. It’s just a great way to remember through that. But what we also did was find a different financing, basically a local credit union, and that loan officer was a lot more aggressive than what I was used to dealing with with the first few properties. And that’s something I’ll always advocate to do. I’m doing it right now. I’m actually trying to shop around different insurance companies, always trying to shop around, not necessarily rub it in the current people’s face that you’re doing it, just do it kind of behind the scenes and see if there’s other better options out there. And luckily we’re able to find a different loan officer that took a little bigger of a chance with it, did some bridge loan stuff with us and made it work so we could tackle those four.
It was a bigger bite than I was used to taking buying four duplexes all at the same time, but they’re all on the same block. Tons of synergies there. And then really once you hit five or more, it starts snowballing where it becomes- I agree. Instead of hundreds of dollars, it becomes thousands of dollars. And now thousands of dollars just sounds better.

Dave:
Yeah. It also buys more.

Matt:
Yeah, it does. It really does. And then every dollar that you’re taking from that, especially if you have a W2 job like I did, it was just compounding so much faster for me.

Dave:
It really does. Between the equity you’re building, the cashflow you’re getting, you’re saving more money, it really does have a exponential effect. People call everything exponential growth, but it actually can be exponential growth if you’re reinvesting your profits in the way that you should. So it sounds like you grew fast, Matt, but you were working at the same time. Your goal though was to quit your job. So did you have a number in mind, like, if I can get to X cashflow a month, I can quit my job and I need Y number of properties to get that cash flow. Is that what you were working towards?

Matt:
Yeah. And I was just trying to keep it simplistic. I ended up leaving corporate America in 2017, or corporate America left me is how that went.

Dave:
Oh, you lost your job?

Matt:
Yeah. So they moved my job to corporate headquarters and I didn’t really want to move there. Oh, fair. It didn’t really make sense for me to move, number one. And number two, I was planning on leaving in April of 2017, but they actually gave me severance until about April of 2017.

Dave:
Is it funny how some things work out like that?

Matt:
Yeah.

Dave:
It’s like meant to be.

Matt:
It is. So what I was doing around that was like $500 a month per property.

Dave:
Wow. Okay.

Matt:
So that’s what I wanted. I think I had about 20 properties at that point. Oh,

Dave:
So you’re making like 10 grand a month in cashflow, which I mean, tax advantage cashflow too. It’s probably more like making 12 grand or 13 grand in W2 income.

Matt:
Yeah. And looking back on it, I was naive like, “Oh, is this enough?” Because as real estate investors, we know how much our P&I, principal and interest are, the insurance, the taxes, all those things weren’t as crazy as they are now.

Dave:
No, it

Matt:
Was much easier. They were more stable. Nowadays, it’s a little different, but the big variable was your maintenance and repairs. “What’s that going to cost? What if five furnaces go out this year? Oh, man. “But it still felt weird because I went through the American educational system. We are not taught to become entrepreneurs. We’re not taught to be out on our own. We’re taught to get good paying jobs and then go retire and then die. It still felt raw and weird, but- I

Dave:
Bet. It’s all

Matt:
Right.

Dave:
It’s also kind of addicting when you have the cash flow and the W2 income, it takes a little pressure off the real estate side, at least speaking from experience. You have all this income that I think for most people covers your living expenses and then everything else you could just keep reinvesting and reinvesting, but I’m sure you have to change your strategy a little bit because now you’re living off that cashflow and it’s not just pure reinvestment into your

Matt:
Portfolio. Absolutely. At first, I said I was retired and then I was like, ” Wait a minute, my friends are making fun of me. Call me the retired guy.

Dave:
“And

Matt:
I was like, ” No, I graduated from corporate America. “There you go. I graduated
Because flash forward to 2018, I was never busier. I couldn’t believe how I went from fishing and golfing and trying to fill my time in 2017, see where I would go to just putting on the full throttle in 2018 and acquiring as much as I did. But it was a good reset because I didn’t know where I was going to go. I wanted to make sure my numbers were right. I still couldn’t believe that I wasn’t going to get hammered with taxes. I was just used to that mindset of the W2 where you get hammered with taxes, you’re meant to kind of be average and work through whatever they tell you to do. Whatever HR tells you you can have for a raise, whatever they tell you, you can have for a bonus, you accept and you move on. And now I’ve entered a new space where it’s up to me what I make.
It truly is. And it’s-

Dave:
Yeah, it’s

Matt:
So

Dave:
Liberating.

Matt:
It really is. It’s very liberating, but also scary. Where are you going to come up with the money to grow at this point? Where are you going to come up with the money if some of these risks actually come to fruition?

Dave:
I think it’s cool, the idea of just taking a little bit of time off. It helps reinforce that you really want to do real estate because if you have enough money to go play golf and go fishing, and then you’re like, ” Actually, I like doing this. I want to keep growing. I enjoy this. “And I think that’s where it goes from exciting and motivating because there’s this financial element to being fun and fulfilling where it’s like, this is a business and it’s something that matters to me more than just the dollars and cents. So in 2018, when you dove back in, where did you apply your time and your energy?

Matt:
It was the first time I acquired a package of single family houses. And that’s a really good niche if you have the capital or you have the leverage to be able to do something like that. And this package was sitting on the MLS. Oh, wow. Really? It was just sitting there underrented and that’s what turned a lot of people off. They didn’t understand what the market rent was for this portfolio. To give you an idea, those were $114,000 houses times 10, so 1.14 million. And I was able to cross collateralize some stuff. And I was a real estate agent, used my commission for some of the down payment, representing myself as a buyer. So I only brought, I think, maybe $100,000 to the 20% down.

Dave:
Oh my God, that’s amazing.

Matt:
So fast forward roughly eight years. Some of those properties are pushing 200, some of them are 250, $250,000.

Dave:
On average, double basically.

Matt:
In 2018, some people were talking about, well, maybe we’re overpriced at that point. But going back to my business plan, I would’ve shied away from that because I wasn’t making $500 a month in cashflow before repairs and maintenance. I was only going to make about 350 to 400 there. But the way I justified it is, do I want to grow? Number one, the answer was yes. Number two is, okay, what have I been doing in the past to make that 500? And it was to renovate a lot of these houses. And there were only about one or two of them that truly needed renovated. The rest of them were just plug and play and we were able to keep a lot of those tenants in place even after major rental increases.

Dave:
I mean, I think this is part of the trade-off that you have to make. It’s like you make more if you dive deep into one property, if you’re going to do value add. But sometimes when you want to scale, like Matt’s talking about, you have to give up some of the immediate upside. It’s not giving up the long-term upside, but you can’t renovate 10 properties all at once. I would imagine in your position, you’re buying 10 and you say, “This is more of a turnkey kind of thing. I might make a little bit less per unit on this, but I’m getting 10 all good deals at once, even if they’re not all home runs.” That’s just part of the trade-off as you scale, is just figuring it out. You want to do one great deal at a time or a couple pretty good deals at a time.
I think when you’re at the point Matt was at a couple pretty good deals makes a lot of sense. So Matt, I want to hear more about how you took this over because I do think people are sleeping on this idea of acquiring portfolios as they scale. You were able to not put that much down. It might be more accessible than people think. We’re going to dig into that, but we got to take one more quick break. We’ll be right back.
Welcome back to the BiggerPockets podcast. Matt McCurdy and I are here talking about his journey from buying a single, single family home in Cedar Rapids, Iowa to buying a package of 10 properties in 2018. Let’s talk a little bit about these 10 properties because it sounds great. You only put a hundred grand to buy $1.1 million of properties, but I would imagine taking over these properties all at once is kind of like an operational challenge. What was that like?

Matt:
It is. And then the part I didn’t tell you, we actually were expecting our son, he’s now seven, but he was born in mid-November of 2018. We closed on those right around Halloween of 2018. Oh my

Dave:
Gosh. So everything all at once.

Matt:
Yep, of course. That’s the way I roll. But at that point, my wife had a little bit of feedback for me. The question was, how are you going to manage all these? Because at that point I was self-managing everything and I started my path of hiring a property manager. And what I did was I still self-managed most of my portfolio, but everything I was acquiring moving forward, I was giving to a property manager because I was still being cheap and scarcity mindset of just not wanting to give over everything because I didn’t value my time as much as I probably should have.

Dave:
Did you hire a firm or were you trying to hire a person who actually worked for you and just managed your rentals?

Matt:
He was more of a mom and pop property manager versus ABC property management company kind of thing.

Dave:
Personally, I find those people to be more effective.

Matt:
This one wasn’t.

Dave:
Oh, no. Uh-oh.

Matt:
Yeah. I went through two, one every year and then finally ended up hiring someone in- house and to this day he’s still my property manager.

Dave:
Yeah. I mean, that’s kind of the dream, right? The

Matt:
In- house property

Dave:
Manager.

Matt:
That’s the ideal world.

Dave:
Did it at least give you confidence that you could keep scaling from that point? Having hired a property manager, did that mean you could go out and buy more units? Did you want to go buy more packages? What did that open up for you, if anything?

Matt:
It helped me to really develop that team that Robert Kiyosaki talks about, develop that team. You got to have a team and maintenance and repair contractor type workers are just, they’re tough. They’re really tough to find because all those property management firms have those contractors and you pay for them sometimes dearly, but getting some of that control back was definitely a blessing for the portfolio.

Dave:
So Matt, after you did this, 2018 still, you started to systemize this business, you’re now not working in corporate. Catch us up to what you’ve done between 2018 and today. I

Matt:
Started looking at mobile home parks and I acquired a couple of those, one in 2020 and one in 2021, but I still didn’t take my eyes off of the single family duplex area that really has been my bread and butter. And I ended up acquiring another package in 2023 back again, prices are white hot, shouldn’t be able to get anything. And I ended up buying a package of 22 houses.

Dave:
Oh, whoa. In Cedar Rapids still? All the same?

Matt:
Yeah. Yeah. Yeah. And again, that was another thing where I lowered my cashflow expectations, but I ended up buying in for the equity.

Dave:
Because you got such a good price?

Matt:
Yeah, it really made a ton of sense. I’ve combed through those numbers so many times I couldn’t believe what I was actually buying. I’m pretty sure from purchase price to appraisal value, it was roughly a million dollars difference. And that was me not turning a wrench on anything.

Dave:
How would you not do that, right?

Matt:
Yeah.

Dave:
How did that come about? Were you looking for a package or did it just kind of fall into your

Matt:
Lap? That’s a funny story. I’m a real estate broker in Cedar Rapids, and I actually helped this client for the first property he ended up selling, but he just kind of started going with another agent and I guess she convinced him to put him into a package or maybe he got tired of dealing with the onesie-twosie sales that I told him to do and he just wanted to be done and out and just the timing was right. There was a little bit of a lull in Iowa in the fall of 2022 and early 2023 where things were just kind of sitting a little bit longer than they had in the past. And everybody was thinking, “Oh, I’m going to have my house listed, have 10 offers in the first 10 hours kind of situation.” And then when that didn’t happen, people kind of panicked. So I actually told the agent, I said, “I don’t know how he’s going to react to me even offering on these.
He has my phone number. He could have totally just reached out to me and saved himself all his commission.” But again, I was representing myself as the buyer and got commission to buy my own properties. And that one, I didn’t bring much to the closing table either because I was able to cross collateralize one of my mobile home parks and use my commission. I think I brought like $35,000 in cash to closing for- Wow.

Dave:
That’s unbelievable.

Matt:
$2.2 million purchase.

Dave:
Unbelievable. Yeah.

Matt:
It’s all about getting creative.

Dave:
So Matt, we got to get out of here, but maybe just tell us before, what does your portfolio look like today and what are your plans for the future?

Matt:
Yeah, so my portfolio, I have roughly 50 buildings. So between single families, duplexes, 60 front doors, and then I have about 90 mobile home lots that are filled with about a hundred additional lots that I need to infill for mobile home park stuff. And then just recently wrote a book, got it published right before Thanksgiving.

Dave:
Congrats. What’s it on real estate?

Matt:
Yeah. Yeah. Awesome. I call it the guide to buying one to four unit real estate. And just kind of really the idea was to write something. I never wanted to be an author, but I have a son that’s seven and I’m not sure if he wants to be in real estate or not. But if I got hit by a bus, I have all this knowledge that I haven’t shared with him, nor could he comprehend right now just at his age. So I just wrote 15 chapters in this book of things that I really think are critical for investors to understand. And it’s certainly only, I think, 160 pages long. So it’s not terribly in depth to the point where you have all these strategies, but at least it gives you an idea of understanding things. And I try to put in stories and humor to make it fun and real life concepts kind of like what I’ve shared today in that.
So yeah, the book’s called Corn Fed Millionaire Playing upon all these farmers in Iowa.

Dave:
That’s awesome.

Matt:
I’m not a farmer if you’re wondering. Is it

Dave:
Out yet?

Matt:
Yeah. Yeah. We published it right before Thanksgiving of 2025.

Dave:
Awesome. Well, check it out. Corn Fed Millionaire. I love the title.

Matt:
Yeah. Yeah. And you can check me out. I have a real estate brokerage firm and anybody that’s looking at Cedar Rapids market, you can go to investoredgere.com/biggerpockets and you can get a free Cedar Rapids market report, kind of tell you what’s been going on. We’re like every other metro in the country. We have a couple data centers that are They’re coming online and just a ton of rental demand that we’re seeing from that.

Dave:
Well, Matt, thank you so much. Congrats on your success and thanks for sharing your insights with us. I know probably buying packages of houses sounds difficult, but if you look at the way Matt sort of methodically went from hustling his first deal to getting a little bigger to getting a little bigger, that’s how you scale. You have to put in that effort upfront and then these opportunities, it does start to snowball, whether from your financing or your deal flow. This is how you build a successful real estate investing career. It takes 10 years. It takes 15 years, but you can absolutely do it. And Matt, congrats on all your success. It sounds like you’ve really done it all the right way and happy to hear that this has worked out for you in the way you were hoping.

Matt:
Yeah. Thanks a lot. Thanks for having me.

Dave:
And thank you all so much for listening to this episode of the BiggerPockets Podcast. I’m Dave Meyer. We’ll see you next time.

Indianapolis and the state in which it sits, Indiana, couldn’t be further apart when it comes to their real estate fortunes. For mom-and-pop landlords eyeing Indiana for future investments, the sharp divide between parts of the city and state is indicative of the modern-day market realities that need to be considered when underwriting deals.

Indianapolis: Zillow’s Top Buyer-Friendly Market

Indianapolis has been on investors’ radars for some time, culminating in Zillow ranking it as the most buyer-friendly market among the 50 largest U.S. metros for 2026. The listings giant cited a perfect storm of buyer favorability.

Orphe Divounguy, senior economist at Zillow, said of the list, which featured mainly Midwestern and Southern cities:

“Home shoppers have room to breathe in these buyer-friendly markets. Lower competition gives buyers more time to decide and wiggle room to negotiate, adding up to a less stressful shopping experience. Cooling prices today, paired with expected growth ahead, make for a good entry point for those who have been waiting for the right moment. For sellers, pricing strategically from the start becomes that much more important when buyers hold the power.”

Affordability Is a Key Driver

“People are gravitating toward this area due to the market affordability,” Laura Turner, a broker and owner of F.C. Tucker Laura Turner Realty Group, told local news outlet WRTV. ”Nationally, they may be spending 50% to 60% of their income [on their mortgage]; here, it’s 30% or less of their income.”

“Companies are going to be looking at this area to say we want to locate headquarters to Indianapolis,” Turner continued. “Because of the affordable housing, because this is a destination that people are wanting to raise their families in.”

For smaller investors looking to augment their incomes with additional cash flow, Indianapolis works because entry-level prices and cap rates make turning a profit or at least breaking even a real possibility, even as interest rates flutter around 6%. However, Indianapolis also serves as a cautionary tale for what investors need to watch for when scouting markets.

Regional Indianapolis: A Tale of Two—or More—Cities

Metro Indianapolis, like Pittsburgh and Detroit and other older Midwestern cities, functions as a regional system rather than a single city. Commuting patterns and housing patterns mean that neighboring regions are often influenced by one another.

Stats show that growth across all regional areas does not happen at the same pace, and generally, regional growth, where residents can live and work, has grown much faster than city growth in the downtown areas. 

The same is true of Indiana as a whole. Recent metro growth in suburban neighborhoods in central Indiana has not been matched by growth in the denser city centers, which have suffered. 

According to Indianahub.org, the state’s growth has spread out into:

• Logistics corridors
• Suburban office nodes
• Life sciences clusters
• Industrial parks

However, in the city center, signs of urban decline are evident. According to Axios, the Indianapolis metro area grew by 2.2% between 2020 and 2023, making up half of the gains in Indiana’s population.

Indiana’s Foreclosure Problem Uncovered

According to real estate analytics and data platform ATTOM, Indianapolis ranked near the top of national foreclosure rates with roughly one filing for every 1,249 housing units in February. Another Indiana city, Evansville, recorded one for every 1,316 units, giving it a top-five foreclosure berth alongside the state’s capital.

Indiana’s dive into foreclosure despair hasn’t been sudden. Last year’s ATTOM foreclosure reports showed one filing for every 302 housing units, signaling a multiyear blip, comprising homeowners who, amid job losses, inflation, and rising interest rates, simply don’t have the money to pay their mortgages.

How Exactly Can Indianapolis Be the “Best” and “Worst” at the Same Time?

If Indianapolis were a comic book character, it would be the Joker, wearing two expressions at the same time. But how does a mild-mannered Midwestern city manage to have such an extreme split personality? 

It’s because we are not comparing apples with apples. The Zillow report focuses on conditions facing would-be buyers today—mortgage affordability, competition levels from other buyers, and expected appreciation. ATTOM, on the other hand, focuses on borrower distress among existing owners. Also, ATTOM’s figures account for households that fell behind on payments months or even years earlier, reflecting economic conditions over a long period, some stemming from the forbearance conditions put in place after the pandemic.

The Idiosyncrasies of the Indianapolis Market

Indianapolis is a unique market in many ways because it is many things at once. Regarding its foreclosure ranking, the city had a high number of “zombie foreclosures,” according to ATTOM data: 6.5% of foreclosures stemming from financial mishaps years earlier, often in the form of vacant or distressed houses.

“ATTOM’s data doesn’t pinpoint the local nuances behind why certain metros stand out, but in parts of the Midwest, it likely reflects a mix of older housing stock, slower demand in some neighborhoods, and ownership or equity situations that make distressed owners more likely to walk away early,” Rob Barber, CEO of ATTOM, told Realtor.com. “Those conditions can increase the chances that a foreclosure becomes a zombie, even though overall zombie rates remain low nationally.”

Investors Are Flipping Foreclosures Into Rentals

Additionally, because of Indianapolis’s unique regional layout, many disparate areas—some thriving, others struggling—are included in its overall reported numbers, creating a somewhat confusing picture.

While the investor heat has been turned up on Indianapolis for a while, with out-of-towners rushing in to rehab and rent, many locals feel this has only contributed to the real instability, taking homes away from local owner-occupants.

“Far too often, when these homes end up going into foreclosure, they end up being purchased by out-of-state investors, who then flip them into expensive rentals,” Amy Nelson, executive director of the Fair Housing Center of Central Indiana, told Indiana Public Media (IPM).

Final Thoughts: How Out-of-Town Investors Should View Indiana

Overall, Indiana’s foreclosure numbers are not off the scale and reflect normalization after years of housing instability rather than a crash. In ATTOM’s national release, CEO Barber emphasized that even with year-over-year increases, “overall foreclosure levels remain well below historic norms.”

Realtor.com noted that foreclosures in Indianapolis and other Midwestern towns actually represent an opportunity for new investors. However, as with any investment, due diligence is required, especially with an out-of-state investment where you cannot just jump in your car to check on your rental. That means meticulous tenant screening, hiring the right property manager, and doing your homework on which neighborhood you are investing in.

In Rust Belt Midwestern cities like Indianapolis and Pittsburgh, neighborhoods can change not only from region to region but also from block to block. FHCCI’s review of Marion County pinpointed specific neighborhoods such as Crown Hill, Near Northwest-Riverside, Maywood, Near Southside, and Martindale Brightwood as having the highest foreclosure rates, with the far Eastside also flagged for heavy out-of-state investor activity. Homes in these neighborhoods will need to be examined block by block. It’s also probably best to examine alternative neighborhoods to stave off competition.

It’s important not to believe all the investor hype about Indianapolis, which would have you think that, amid the deluge of new residents, jobs, and affordable housing, you can throw a dart anywhere on the city map and make money. Mortgage rates, employment, and tenants’ profiles are only part of the picture.

“It is rising escrow costs, for instance,” FHCCI’s Amy Nelson told WBOI News. “Although your mortgage payment very often hasn’t changed much, it’s the other costs that have, and that can be home insurance rates, which have been escalating, and utility costs and property taxes, all of which can have a significant impact.” 

Talk of lower interest rates has sparked hope that house flipping could make a comeback. Guess what? It never left. 

According to a new report from New Western, a marketplace for off-market properties for investors, local flippers supplied 217% more starter homes to the market in 2025 than homebuilders did, reshaping the narrative of how first-time buyers find affordable houses.

Why It No Longer Makes Sense for Builders to Construct Smaller Homes

Like the dinosaur, starter homes once roamed across the length and breadth of America until a cataclysmic event—the COVID-19 pandemic and rising interest rates—made them an endangered species. In particular, the new construction of starter homes dwindled. 

The New York Times, citing data from the Federal Reserve Bank of St. Louis, recently reported that builders broke ground on 1.36 million homes in 2025, slightly down from 2024. Given the 4 million-home supply gap reported by Realtor.com, there is still a significant void to fill.

“It has become more expensive, almost financially not viable, to build what we thought was a starter home: a 1,000-square-foot home,” Christian Kosko, a D.C. mortgage lender who often works with younger buyers, told the Washington Post. “They’re now incentivized to build million, million-and-a-half, $2 million homes. That’s where the profit is for those builders. The ramp-up in interest rates has made numbers for building smaller homes no longer work, even when they are mass-produced.”

Zillow senior economist Orphe Divounguy told the Post:

“In 2022, when mortgage rates more than doubled, the builders started to build smaller. They tried to make the math work for potential homebuyers. But prices have increased so much, it’s still very difficult to afford a home, especially in markets that don’t allow for building on small lots.… When a builder goes in there and tries to actually build something that would sell in today’s market, they just can’t.”

Flippers Have Flooded In to Fill The Void

The potential for a starter home comeback was always there. Entry-level homes have been the hardest-hit segment of the building drop-off, falling from 40% in the 1980s to just 7% today, according to the Home Buying Institute. 

The supply of older homes, ripe for renovation, remained, waiting for investors with cash and contractors to turn things around. New Western’s Flip Side Report, based on dozens of major U.S. markets, found that local independent investors delivered 120,193 entry-level homes to the market in 2025, compared to 37,923 starter homes delivered by builders, marking the previously mentioned 216.9% edge for flippers.

In a recent press statement about the report, New Western cofounder and president Kurt Carlton said: “What if the real housing crisis isn’t that we haven’t built enough homes, but that we’re letting millions of starter homes disappear? Fixing today’s housing challenge isn’t just about building more homes. It’s about whether attainable housing actually exists at the entry point.”

Carlton added that in 2025, “small, local independent investors quietly became the largest supplier of starter homes in America,” not by building subdivisions but by “revitalizing existing homes that would otherwise remain underutilized and returning them to productive use.”

Amid Rising Construction and Labor Costs, Fully Finished Homes Carry Increased Appeal

In a 2026 prediction article, Forbes outlined the appeal of renovated and furnished homes to prospective homeowners over fixer-uppers. Shaun Pappas, partner at Starr Associates, said in the article:

“We also anticipate continued bidding wars for properties that are ready to move into. The continued rise in construction costs, including labor and materials, has made it more difficult for home purchasers to buy and perform renovations. Therefore, we see a potential decrease in the housing prices for homes that need renovation work, and an increase in housing prices for homes that are ready to be occupied.”

Starter Homes: A Close Relationship With Cash Flow Investors

Whether you’re a flipper or small landlord, starter homes are likely at the center of your investing equation. For flippers, the relationship is obvious: demand. Given the affordability crisis, smaller homes are not only an entry point for many but also a longer-term option, doubling as empty-nest residences for older homeowners.

New Western’s analysis shows that renovated homes are usually priced well below new construction and often below the median price of homes on the market, making them an attractive proposition for small investors looking for long-term holds and cash flow. A previous report from New Western showed that revitalized homes are 35% to 80% more affordable than new construction in most markets, and 17% more affordable than the market median existing-home sales.

The vast pool of older housing means there is also a large potential for BRRRR flippers once interest rates drop, or for those who have the cash on hand to undertake a rehab project for rent and refinance at a later date.

Small Multifamily Homes are the New Starter Home

According to Realtor.com, based on data from the National Association of Home Builders, small multifamily homes of two to four units are filling the new-construction starter home gap. Financing is easier for these builders as they are larger and make financial sense for homeowners because the rental income offsets the mortgage payment.

Investors could look into buying these too, especially newer investors looking to kick-start their landlording journey, because they qualify for FHA loans that require a 3.5% down payment. By rinsing and repeating, while refinancing the former personal residence into a conventional mortgage, investors can accrue a sizable portfolio in a short period of time.

In many cases, the urban infill lots accommodating small multifamily properties have replaced older single-family housing stock as zoning laws have changed to allow more housing. In newer developments, outside city centers and established suburbs, two-to-four-unit homes sit alongside townhouses and single-family homes.

“In both cases, the appeal is affordability and access to a neighborhood that can’t always be attained through the traditional single-family home path,” Realtor.com senior economist Joel Berner said in a press release. “These townhomes or duplexes offer entry-level buyers the opportunity to own a home in a neighborhood they like without spending more than they can afford.”

Final Thoughts: Best Cities for Investing in Starter Homes

The scope for generating cash flow from starter homes is only going to increase as a slate of zoning reforms moves through the legal system to increase housing across the country. Often, that means building small multifamily units in place of older single-family homes. In others, it means constructing ADUs where lot size allows, while also renovating the existing single-family structure. In all instances, opportunities for flippers and landlord investors in the starter-home space are considerable.  

Some cities are more favorable to investors seeking starter homes than others. Most tend to be smaller metro areas in the Northeast, Midwest, and South, as this Realtor.com report shows. Cross-referencing that report with this comprehensive analysis from Construction Coverage using data from the U.S. Census Bureau, Zillow, Redfin, and Freddie Mac will give you an accurate reading as to where to begin your starter home investing career.

Ashley Kehr:
What if the biggest mistakes in real estate don’t happen at the closing table? They happen in the three decisions you make before you even write up an offer.

Tony Robinson:
Today we’re answering three questions straight from the BiggerPockets forums that every rookie has to work through before deal one. How to pick a market when your own backyard does a pencil, whether to buy a rental or a primary residence first when you’re just starting out, and what you actually need to know about short-term rental regulations before you bet your strategy on Airbnb.

Ashley Kehr:
This says the Real Estate Rookie Podcast. I’m Ashley Kerr.

Tony Robinson:
And I am at Tony J. Robinson. And with that, let’s get into our first question, which comes from the BiggerPockets Forums. Now, this is a longer question, so I’m going to paraphrase a bit here, but the question that basically says, “I’m an aspiring investor living in Los Angeles and investing locally is basically out of the question. Even a house hack in this city is tough right now. Anything with an ADU or multiple units in a decent area is well above the $1 million mark. So I’m stuck at the stage of choosing a market. I’m looking for out- of-state opportunities where I can actually cash flow. What criteria should I be using and how do I narrow down from the entire country to one place that I can actually commit to? ” It’s a great question, and it’s one that a lot of rookies honestly get stuck on initially is where do I invest?
Now, I’m just going to talk strategically here for a moment because I think it’s an important foundation to lay. There are over 20,000 cities in the United States, 20,000. So the chances of you finding the Goldilocks city that is the absolute perfect match for you, or like the Cinderella slipper, where it is the absolute perfect city for you. It’s going to be tough. With 20,000 cities, there are probably hundreds, if not thousands of cities that you can invest in that would make sense to help you achieve your goals. So the thing that you should be focused on is not what is the absolute best city for me to invest into. The thing you should do first is ask yourself, what do I want out of a city? What are my investment goals? What boxes does a city need to check to give me confidence to invest into it?
Because when we then start with ourselves and we have a clear set of criteria, all we then have to do is compare our criteria to the cities that we’ve come across. And if they match, well, then we simply add them to our list of places to invest. And if it doesn’t match, we set them to the side and we can do so confidently, and then we move on to the next. So just from a strategic standpoint, I want you to rewire how you think about market selection. Once you’ve got that set aside and you’re okay with the fact that we’re not looking for the Cinderella city, we’re just looking for the cities that match, then there are some basic data points that we can look at. Now, you didn’t mention what strategy you’re focused on, but let’s just assume you’re focused on things like traditional long-term rentals.
And if that’s the case, some of the basic things we’re looking at are population and job growth. Is that happening in the cities that you’re considering? Is it a city where there’s a lot of people leaving or is it a city where there’s a lot of people coming in? Landlord friendliness, right? How easy is it be to actually be a landlord in that specific city? Are you in a place like where me and Ashley live, California, New York, which are some of the toughest states to do that? Or are you somewhere like Texas where maybe there’s a little bit more flexibility or favor towards the landlords? Price to rent ratio, right? The price of the home compared to the rent, is it a healthy ratio? Is it 0.25%, which would be pretty low? Or is it a market where maybe you can still hit the 2% rule, which maybe doesn’t happen as much these days.
But those are the big things we want to look at. What are the data points within that market that suggests if it actually supports the strategy that I’m looking to go after?

Ashley Kehr:
You can also go to biggerpockets.com/markets, and this will actually take you to a market finder that will help you analyze a market based upon your goals and what you’re trying to achieve and basically everything Tony just said. So you can find that at biggerpockets.com/markets. Okay. Coming up, you’ve identified a market. Now the question is, what you actually buy first? Is it a rental or maybe your primary residence? For investors in their 20s with limited capital, this one decision could shape the next decade. We’ll be right back after a word from a show sponsor. Okay, welcome back. So let’s say you’ve done the work, you’ve got a market in mind, you’ve been saving up and you’re ready to make a move. But now comes to a question that trips almost every early 20s investor up. Do you buy rental first and keep renting yourself or do you buy a primary and start building equity in the place that you live?
So this question comes from the BiggerPockets Forums and it says, “My husband and I are in our early 20s and we want to buy a house, but we’re trying to decide if it would be better to buy a rental property instead.” We’re okay with house hacking if there’s a separate kitchen and living space. We want to be financially independent by our early 40s. Should we use a 3% down payment on a rental or buy a house to live in for our first property? For reference, we make about 85K combined pre-tax. Okay. So everyone’s sick of house hacking, I know, but they did ask about it, okay? They’re okay with it. That would be my number one choice, house hacking definitely would be. But it also depends on what markets you’re in. So first, what I want you to do is to look at the purchase price, okay?
What type of property would you be able to buy? So maybe go and get pre-approved and see what your actual spending limit is. Can you even get a duplex for the amount that you want to buy? Could you get a single family home that doesn’t need tons of rehab, it’s completely dilapidated for your price point. So I think right there is a great starting point. Compare your two options. If you took the money that you had and you did a 3% down payment on your primary residence, what would that get you for a single family home? Then I would also take and look and most likely, unless you found some lender I don’t know about, you’re not going to be able to do a 3% down payment on an investment property. It’s probably going to be more like 20 at 25%. And that property, if you’re just renting it out and you’re going to keep renting yourself, what would that money get you and would you be able to save up that type of capital?
So really that’s why I love house hacking is because you’re allowed to use that low primary residence loan with a low down payment to get into a property and to have it as an investment as a rental. So I think that’s a really good starting point. And I want you to think about how much money you’re saving that you would be paying in rent. If you were to live somewhere else, then I also want you to look at appreciation. When you’re comparing doing these different strategies, what house will also give you a lot of appreciation? When I started buying investment properties, they were small, little rinky dang, duplexes that had cosmetic updates, but still were like troublesome properties and they have no appreciation. I sold them for two, three times what I bought them for because I bought them so below market value and because I sold them in 2021 at the height of the real estate market since I’ve been alive probably.
And so that is literally the only reason I made money on them. So look at that too. You don’t want to give yourself a headache. You don’t want to problem property either and get into too much then you can actually take on.

Tony Robinson:
I think they’re in an incredible position, right? To be in their early 20s and they say that they want to retire, be financially independent in their early 40s. Talking two decades of time to work this plan toward financial independence. Actually, I couldn’t agree with you more on leveraging a house hack as their kind of primary vehicle here because it allows them to A, to your point, get into a property with low money out of pocket, but then B, gives them the ability to reduce their living expenses. So I’m just going to give you maybe a sample roadmap of what the next 20 years could look like. Without even being too overly aggressive, let’s say that you buy a property today, small multifamily where you live in one unit and you rent out the other units and through that, you’re able to live not even necessarily making cash flow in this deal, but you’re able to live rent free.
You have no living expenses because the other units are fully covering the mortgages, principal interest, taxes, and insurance, which is pretty reasonable today in a lot of different markets. You do that for two years. So you get to save up, let’s say that maybe you would be paying 2,000 bucks in rent, but instead you get to pocket that $2,000 every month for two years. $2,000 a month over 12 months is $24,000. That over two years is $48,000. So every two years, you get to save up $48,000. If you’re buying a primary residence, and let’s just assume for simple numbers sake that maybe you can put 5% down. You’re not even doing an FHG at 3.5%, but I’ll round up to 50 grand. Let’s say that’s a 5% down payment. At 5%, that’s a massive down payment. Let me even go a little bit smaller. Let’s say 50,000 over maybe like a, let’s go like 20%.
That’s 250,000. I don’t know what market you’re in, but let’s say every year you’re able to buy a house that’s maybe like 400,000 bucks, right? 50 grand, depending on what kind of down payment you can use, that’s pretty reasonable. So every year for two years, you’re buying a property, putting down 50 grand in another primary residence, and then you look up in 10 years and you’ve got five properties that you’ve done that with. Now you’ve had to house hack over that timeframe, but you’ve accumulated five properties. Now maybe you’re at the point where instead of house hacking, you’re just buying single family homes where you go in, you live there yourself, but now you’ve got all this cashflow coming from your first five properties that still every two years you can buy another single family home. So you have five or 10 years of buying multifamily properties, you were house hacking.
Then you had another 10 years of buying single family homes, you lived there for two years, you move out, turn it into a rental, buy another property. At the end of that timeframe, you now have the portfolios of single family homes plus a portfolio of small multifamily homes. And for a lot of people, that could get them to the point of being financially independent. So simple roadmap, but that’s my challenge to you is to work that plan. All right guys, we’re going to take a quick break. While we’re going, be sure to subscribe to the Real Estate Rookie YouTube channel. You can find us @realestaterookie and we’ll be back with more right after this. All right guys, welcome back to our last and final question. This one also comes from the BiggerPockets Forms. And it says, “I’m just starting out and I’m looking at short-term rentals through Airbnb and Vrbo, but I read that Airbnb places a maximum of 90 days that you can rent out your property as a short-term rental and will disable your listing once you hit that cap.
Is this true? I understand each city or county may have their own permitting requirements, but how are people making any return on their investment if it maxes out at 90 days?” This wouldn’t even cover expenses. Do people have to keep switching between short-term and mid-term and long-term rentals to make this work? It’s a great question. And I think that’s why it’s so important for us to do these reply episodes because we can maybe put aside some of the misinformation that’s out there about real estate investing. Airbnb as a platform does not have any cap on usage. There’s nothing on the Airbnb platform that says that there’s any sort of cap on how many nights you can rent out your property. Now, there are certain cities, counties, municipalities that do put limits on usage. For example, I was just looking at a city in Wisconsin, I think it was Wisconsin Dells, that says you can only rent your property out for 50% of the year.
So your maximum occupancy on your short-term rental in the city of Wisconsin Dells is 50%, but that is a city-based ordinance. Airbnb is a platform, does not have any sort of restriction on usage. Now, my strong recommendation to you is to, for whatever city it is that you’re thinking about, instead of guessing or taking kind of secondhand knowledge on what that ordinance says, do the research yourself. If you just type in whatever city you’re thinking about and then you follow that with the word short-term rental ordinance, typically that’ll pull up whatever information you need about that city, that county, and how they regulate short-term rentals. And even better is if you can pick up the phone and call, even better is if you can walk into the office and talk to them in person. And the things you’re trying to understand is, are there any restrictions on usage and occupancy?
Are there any restrictions on zoning? Are there any restrictions on maybe proximity to other short-term rentals? Are there any restrictions on the actual number of people that I can put into my short-term rental? Ask all the questions you have about what do I need to know to legally operate a short-term rental in this market? Some cities have a long laundry list of things you need to do. Some cities say you don’t even need anything. It’s your property, do what you want. So all that to say, there’s no cap on the platform. It’s a city by city, county by county difference.

Ashley Kehr:
Tony, didn’t you once fly to Texas to actually walk into the office to discuss short-term rental regulations?

Tony Robinson:
I did. Now we were already planning the trip. We wanted to go out there to look at these properties, but while we were there, we went into city hall. And quick backstory, we were opening up our first arbitrage units, and this was in Dallas. And literally, I think two weeks before we were supposed to fly out there, Dallas came in the news for effectively banning short-term rentals. And we’re like, “Man, that’s not great.” So we went into City Hall and come to find out, City Hall did pass this ordinance, but they had no set plans yet for enforcement because they were basically preparing for a legal battle in court. And that was, I think, maybe three years ago at this point. And that legal battle is still going on today. So there’s still tons of Airbnbs in Dallas because they haven’t sorted out what that’s actually going to look like.
So yeah, walking in and being able to talk to someone, I’ll never forget, I asked them like, “Hey guys, I saw that you guys, here’s what’s going on. ” And they kind of chuckled because they’re like, “Man, we don’t even know why this is happening and we don’t think this is going to stand.” And that gave me a certain degree of confidence that I could probably sign a one-year lease for the short-term rental and still be okay.

Ashley Kehr:
We have this ski resort town near us where they’ve changed the laws and well, they’ve changed the zoning. And so people who bought houses in 2021 by 2023, they couldn’t do short-term rentals anymore. And so it has really actually crushed the market. There are so many houses for sale because a lot of people bought short-term rentals the height of the market in 2021, and then they went and changed all the zoning. And basically it was something along the lines of like, it has to be your primary residence to be in the village. And then they changed the zoning even. So it included more properties than it originally did and things like that. So it’s really hurt a lot of investors that had short-term rentals in the area. Now the market is just saturated with houses for sale and people trying to sell them because they can’t rent them out.
And also they have less of a buyer’s market because it’s only people that can afford to have a second home in these areas and nobody that actually lives in these towns can afford these houses. So the buyer pool is very, very slim compared to if they would allow you to have short-term rentals. Well, thank you guys so much for joining us today. I’m Ashley. He’s Tony. And we’ll see you guys on the next episode of Real Estate, Ricky.

Dave:
The great stall is here, and the housing market in 2026 is shaping up mostly the way we expected, at least so far. Things are changing. There’s a war in Iran. Gas prices are rising. The labor market is weakening, and the housing market will react to all of this in ways that can introduce new risks, but can also create new opportunities for real estate investors. In today’s March housing market update, we’re going to dig into the most recent housing market news and help distill it down from overwhelming to digestible things you can actually do to grow as an investor. In this episode, we’re going to cover home prices, affordability, and inventory. We’ll also talk about how you can potentially save money on property insurance, new risks that have been introduced into the market, and the best opportunities where investors should be focused in March 2026.
Hey, everyone. Welcome to the BiggerPockets Podcast. I’m Dave Meyer, investor, chief investment officer of BiggerPockets and Housing Market Analyst. Today, we’re doing our monthly housing market update because you probably already know this, but things in the economy are changing rapidly. We’re seeing bigger regional variances. The economy is sending mixed, and I’ll be honest, sometimes scary signals. It could be a lot to take in, but don’t worry. I got you covered. I’ve read all the news. I’ve analyzed all the data. Today I’m going to help you focus on what’s important and ignore what’s just noise. First, we’re going to talk about the state of the market. We’ll look at prices, inventory, affordability, and transaction volume, so you know exactly where things stand today. Then we’ll do a deep dive into insurance prices. I’m going to share an update on my risk report to help you understand what risks exist in this market.
And then we’ll end with the fun stuff. Opportunities that are emerging in today’s market. Let’s do it. First up, we’re talking about home prices, and really not much has changed here in the last month with prices. We’re still in our weird flatish, slow correction. It’s what I’ve been calling the great stall, and that has been coming true. Prices are up nationally, somewhere between a half a percent, one and a half percent, really depending on who you ask. So they’re up nominally. That means not inflation adjusted like the price you see on Zillow is going up a little bit, but they’re actually coming down in what I think is the more important number, the inflation adjusted number. This matters for investors in terms of your return, but it also matters for overall housing market affordability, which we’re going to dig into next. Hint, basically, prices are going up slower.
Then incomes are rising, which makes affordability a little bit better. But of course, regional differences are huge right now. We’re seeing total differences between markets in the West and the Southeast than what we’re seeing in the Midwest and in the Northeast. As of right now, 40% of markets are now seeing declines. I’m guessing you can guess where those are. It’s mostly on the West Coast and in the Southeast states like Florida and Texas, Louisiana, California, all seeing declines. Some huge in Florida and Texas, but elsewhere, the declines are mostly modest in those 40% of markets. And then there are still markets in the Northeast and the Northwest that are going up. But I think the key thing to call out here is that even in those markets that are growing, the rate of growth is decelerating. It is slowing down from where they’ve been over the last couple years.
Everything in terms of prices is really starting to slow down. And that’s one of the key takeaways from the report that we have for you here today, is that if you’re underwriting deals, if you’re analyzing your portfolio, I would discount appreciation in almost every market from where it’s been over the last couple of years. I think we are going to see continuing slowing for the foreseeable future. So that means if you were seeing 5% growth, it might go down to two or three this year. It might be flat this year. If you saw flat last year, I would count on declining prices in those markets. Now it doesn’t mean you can’t invest as we’re going to talk about later. That means opportunities. You can buy at a discount. There’s going to be more deals on the market, but you got to do your underwriting and anticipate that lower appreciation.
I think that’s the main key from our pricing update here today. Moving on to our sales volume update, because in any market, we need to look at prices and volume, the total amount of things being sold. That’s how you get to a healthy market. A healthy market for housing is where appreciation is a little bit above the pace of inflation. Let’s call it 3.5%. That would be great in my mind. And where you’d see five, five and a half million home sales per year, that’s probably what a good number would be. And the good news for February, that’s the last month we have data for, is that home sales went up a tiny little bit. So that’s good. I want to be encouraged where we can, but it is up from one of the worst numbers we’ve seen in a really long time. In January, it was actually down to 3.9 million.
So way off from that five, five and a half million that we want to be at. I said this last month, but I thought the January numbers were a bit deceiving. They’re kind of a blip because they had all those crazy blizzards. And so things just slowed down a little bit. So we did see bounce back to what we’ve been seeing for basically the last four years. We’ve been at four to 4.1 million. That’s an annualized rate for home sales for the whole year. And we’ve basically been there since 2022. And I’m glad to see it bounce back because I know a lot of people were concerned in January, is it going down? It was at 3.9? Is it going to keep going down? We’re back to where we were for the last four years. And unfortunately, I kind of think it’s going to stay this way.
I think even though affordability is getting a little bit better with the labor market is where it is, people are nervous that I don’t think we’re seeing a lot of buyers coming off the sidelines. That is true. Even though mortgage rates dropped from 7.1% a year ago to about 6% right now, even with that improved affordability, that hasn’t changed. People are wary of the housing market right now. So I think, yeah, it’s going to stay slow. But there is good news in the housing market, and that is around affordability. I am stoked about this because if you listen to the show, you know I’m all about affordability. I think that’s what drives the housing market, especially in these kinds of times. And those are the markets I think that are going to perform better. And that has largely been true since I’ve been saying this for the last three or four years.
And the good news is that affordability continues to improve. This has been going on for months and it keeps getting better little bit by little bit. Now, there are different ways to measure affordability. I kind of think there are three different variables that you need to think about. One, of course, is home prices. That’s the big one, but mortgage rates matter and incomes matter. You have to look at all three of those things in some relation to each other to measure affordability. And affordability basically means how easily can the average person buy the average priced home. And to talk about that today, I’m going to focus in on one metric. It’s one that I like. It’s a good metric for affordability. It’s basically, it’s called the payment to income ratio. This is basically your monthly payment on your mortgage, your principal, and your interest. And you compare that to the average income from the average American.
It has been getting better and it’s been consistently falling for a couple of years now, actually, when you look at it that way. It is now about 27%. The average person’s mortgage payment, it’s about 27% of their household income. That’s not the best it’s ever been. It’s certainly not where it was during COVID or the 2010s, but it’s not bad. Considering the fact that most budgeting experts recommend 30% of your budget should go to housing. And so we’re at 27%. That’s pretty good, right? That’s better than where we’ve been over the last couple of years. It’s basically where we were in a lot of the 2000s. Yes, much higher than it was in 2010, but that was unusually low. So even though we’re not yet at “normal affordability” yet, it’s still good news. Now, if you’re wondering what’s driving it, is it a crash? No, we just said home prices are actually up nominally 1% year.
So it’s definitely not a crash even though for years people have said affordability is so bad that there’s going to be a crash. Well, the first part of that sentence is true. Affordability is really bad, but there is another way that affordability can get better. It’s the great stall. It’s what we’ve been talking about. Affordability can improve by some combination of wages going up, stagnating home prices and falling rates. And that, my friends, is exactly what has been happening. Home prices, maybe they’re going up a little bit on paper, but like I said, they’re not going up as fast as inflation, nor are they going up as fast as wages are going up, meaning that relatively people are gaining more income faster than home prices are going up. That improves affordability. I just said earlier that mortgage rates have gone down 1%. That improves affordability.
It’s not as dramatic as a crash, but these little changes sustained over time can improve to affordability and that’s what we’re getting. In just the last year, the average mortgage payment has fallen nearly $200 a month. That’s great, right? If you’re talking about buying a rental property, that’s $2,400 more per year in cashflow if you are going out to buy the exact same property. We’re going to talk in a little bit about how you can save even more money if you do the right things with insurance, but that is an improvement in affordability that can meaningfully change which deals actually work for you when you’re going out and buying. So although the housing market is far from perfect, this is a real improvement. In fact, about one in six markets now are at historical affordability levels. As crazy as that sounds, that’s actually pretty good compared to where we were the last couple years.
We were at zero basically a couple years ago. Zero of metro markets were near their affordability ranges, historical affordability. Now we’re at one in six. It’s better and it’s trending in the right direction, even though we do admittedly have a long way to go nationally. So that’s where we stand, affordability. But next, let’s talk about where we’re going because we’ve talked about where prices were, but I think most people listening right now want to understand what’s going on in their market, where prices might be heading. And for that, we’re going to look at inventory. We’ll do that right after this quick break, stick with us. As a host, the last thing I want to do or have time for is to play accountant and banker. But that’s what I was doing every weekend, flipping between a bunch of apps, bank statements, and receipts, trying to sort it all by property and figure out if I was actually making any money.
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Welcome back to the BiggerPockets Podcast. I’m Dave Meyer giving our March 2026 housing market update. Before the break, we shared that housing prices have been largely flat over the last couple of months. We are seeing affordability improvements, which is great news, even though the market is still really slow. But that’s sort of where we are today. That’s a snapshot in time and kind of looking backwards. But if we want to understand where things are going, that’s when we look at inventory. It’s something that allows us to look forward a couple of months and predict where prices are going to be. Now it doesn’t predict a year in the future, two years in the future or anything like that, but we’re heading into the busy spring buying season and I think it’s useful to start looking at inventory to understand in your market what prices are likely to do.
Now, when I looked at inventory data this month, it’s kind of interesting because different sources are saying different things. Just for an example, we’re looking at realtor.com, and I’m not saying either is better than the other. Realtor delivers good information. They’re saying that inventory is still rising, but it’s sort of plateauing. We’ve been, for the last couple years, in really, really low historical levels of inventory, and although it’s been rising rapidly and some people say that’s signs of a crash, I think most housing market analysts would say that’s just a recovery from where we were at artificially low inventory levels during COVID back to normal levels. What realtor is saying is that even though active listings, it’s a measure of inventory climbed 8% over the last year, growth is slowing. It used to be 15% year over year, 20%, and that rate of growth has slowed nine consecutive months.
And actually, if you’re worried about a crash or you’re worried about some 2008 thing unfolding, just want to remind people that even though realtors says inventory is up, they’re saying that we are still 17% below pre-pandemic levels. So keep that in mind. That doesn’t mean that prices can’t go down at these inventory levels. They absolutely can, and we’ll talk about that in a minute, but it does mean that inventory is not spiraling out of control, which is good. That provides a stability to the housing market. Now, where inventory is growing the most really depends on where you are regionally, and it also depends what price tier you are in, in the market. So most of these inventory gains, as you probably can guess, are in the south and the west. That’s why we’ve seen housing prices come down there. Again, inventory is a great predictor.
When you see inventory go up, usually means the market is going to soften. And so we’ve seen concentrations of supply going in the south and west. That’s why we see markets going down in those areas. That’s something we’ve talked about a bit, but the thing I want to call out here is that we’re actually starting to see inventory really go up below $500,000. So that’s a little bit above the median, but I would say the lower half of the market is starting to see inventory go up, whereas the higher end of the market is still holding relatively strong. So that’s where we’re staying with active inventory according to realtor. They’re also saying that new listings, which is a measure of how many people are listing their properties for sale, grew 2.4% year over year, and that’s pretty low. I think that’s pretty good sign if you’re worried about a crash.
I mean, if you want a lot of more inventory, if you want more deals to find, it’s not the best, but 2.4% is a reasonable growth rate. And so what we can see when we look at these things combined, if you say, “Hey, inventory is up almost 10%, but new listings are up 2.4%,” you could sort of deduce what’s going on here. The reason there’s more inventory is not because more people are selling, it’s because less people are buying. So you could just basically say that demand has declined a little bit over the last couple of years based on those two numbers. Now, when we look at Redfin, another great source of data, they’re actually saying something a little different. This is sort of like what’s representative of going on in the market. One day you’re here like, “Inventory’s up.” The next day you hear inventory’s down and it’s kind of hard to distill what’s actually going on.
And even on a national level with two large reputable companies, the same thing is going on. We saw that realtors said that inventory was actually up 8% year over year. Well, Redfin is saying that inventory is actually down 2% year over year. It’s a pretty big difference. Realtors said that new listings were up 2.5%. Redfin is saying that new listings are down 1%. So what do you make of this kind of thing? I think as an analyst, what you do in these kinds of situation is try to get the general vibe of both datasets, see what they’re saying and see what commonalities you can find. I know that doesn’t sound scientific, but this is actually what you do. You want to try and look for something that would be called like a directional trend, meaning it is hard to determine the exact number because both of these companies are going to have different methodologies for doing it.
So we don’t know which one’s right. We don’t know if inventory is down 2% or up 8%. But what we can see among all of the data is that inventory growth is slowing. That recovery in inventory that I was talking about, it’s losing steam. Even if it’s up a little bit, and it will again depend largely on regions, it is losing steam. And we’ll talk about that a little bit more in the risk report, but to me, that is a sign that we are in a normal correction. When prices start to flatten, when they start to go down, you would expect fewer people to want to sell. You would expect lower demand. That’s exactly what we’re seeing. If a crash was starting to unfold, you would see inventory going up and up and up. The pace of inventory growth would probably be going up. And so that is not what we’re seeing.
And that’s the major thing that you should know if you’re worried about risk. But I think the other thing that you should know is that if you’re looking to buy right now, you should expect a relatively soft market, and that means you’re going to be able to negotiate. In a climate where things are sitting on the market, and that’s happening right now, days on market are up about a week over last year. They’re way up from where they were in COVID. Sellers are going to be more willing to negotiate in these markets where inventory is up and going up more. So that is something everyone should be doing is looking at new listings, looking at inventory for your market and figuring out how aggressive you have to bid. If you’re in a market in Connecticut where inventory is 50% below where it was in 2019 and days or market are still 10 days, you’re going to have to be aggressive.
But if you’re in Florida and your inventory is going up, this is an opportunity for you to negotiate and to be really picky. And so inventory is the number one thing. If you want to be active in the spring market, go do some research. Go pull these numbers from Redfin or from realtor, go on ChatGPT, ask them to pull inventory numbers for you and see what’s going on in your market. That’s what’s going to help you actually set your tactics and your strategy for the next few months. So all in all, as we look at the housing market as it stands today, we’re in the Great Stall. I am not taking any victory laps yet, but so far the market is doing pretty much what I said it would do when I made predictions back in October or November last year. It’s pretty flat. It’s pretty slow, but there is more inventory and better deals are hitting the market.
Next, we’re going to move on to our deep dive for the month, which is about insurance prices. It’s something that we get to a little bit here and there on the show, but this month it’s something I want to dig into the data on because I think it’s more important than ever that investors understand what’s going on with insurance so they can properly underwrite, so they can properly assess the performance of their deals because premiums have been going crazy. And this is sort of new for investors in the last couple of years. It used to be so boring to talk about insurance. I honestly never used to even think about it. Now it is a real variable you need to consider. The big picture here is insurance rates are still going up, unfortunately. I wish I had better news there, but I don’t. Over the last year, insurance premiums have gone up 6%, so that’s like double the pace of inflation, but there is a little bit of a silver lining here.
It’s the slowest growth rate since 2020. So the onslaught that we have been facing for five or six straight years now is at least slowing down. I know that’s probably not a lot of solace to people who are paying more and more for insurance, but at least there are signs that we are out of this era where we were seeing literally 15, 20% insurance jumps in a single year. Now it’s down to six. We can swallow that, but it’s still not the best. So why is this happening? Why is insurance going up? Well, first there’s a big thing, and this is sort of unfortunate because it means that prices aren’t going backwards, but it’s because of home values. This is sort of one of the downsides to appreciation and equity growth. I think it’s a small downside considering how much wealth has been created and equity has been built in real estate over the last couple of years, but when a property is worth more, it just costs more to insure, right?
This makes sense. A $200,000 home is going to be cheaper to insure than a $300,000 home. So the average price is bound to go up during a time of massive appreciation. Now, I know this hurts cash flow a lot, but when you weigh the benefits of massive appreciation versus increases in insurance premiums, I’m sure most people who have hoped properties for the last five years would take it, but it does matter going forward if you want to hold onto these properties or what you’re going to do with these properties. So home price is going up. That is increasing the cost of insurance. But it’s also, let’s just be honest, insurance companies are just charging more. There’s actually a metric. They basically track how much it costs to insure $1,000 of home value, and that’s now up to $6.21 per year. That is only up 2% this year.
So that is relatively good because previously the two years before combined, it went up 30%, which is a lot. So if you put these things together, the average insurance premium is now basically double what it was in 2017. Used to be $107 a month on average. Now it’s $201 a month. Yikes, that is brutal. It is basically double. And I know a lot of things have gone up like crazy over the last couple of years, but if you break it down, you actually see that insurance costs have gone up the most proportionally of all expenses basically for real estate investors. Because if you look since COVID started, basically since December 2019, it’s up 72%, right? Even with home prices skyrocketing, the average interest that you pay is only up 35%. The principle you pay is 22%, taxes are up 31%, but insurance 72%. So insurance is the most relatively speaking.
Now, the good news here is that I think it’s probably going to slow down. Like I said, it’s slowed down a bit. And the fact that insurance carriers are not really jacking up their rates per $1,000 of insured, it’s only up 2%. And because I think home prices are slowing regionally, from the research I’ve done, it does look like we’re going to get back towards more normal paces of insurance growth over the next couple of years. So for investors who are doing their underwriting, I get this question a lot. Should we expect insurance to keep going up 10% a year? It is regional, and I’ll get to that in a second. But I think generally speaking, that like three to 5% range around inflation is probably what we’re going to get over the next couple of years. That doesn’t help the increases we’ve seen over the last couple of years, but it does make it more predictable, which is super important for investors.
And I think that’s good news. Now quickly, I want to just talk about the regional changes. I mean, California just getting absolutely hammered over the last couple of years, double digit increases still. We see this in parts of Washington, Georgia, parts of North Carolina, parts of the Northeast, but there’s good news here too. This is going to be surprising to some people, but after years of just relentless increases, Florida and Texas actually saw decreases in insurance costs for the first time in years. Some markets seeing as big as 6% declines, which is a welcome relief to investors and homeowners alike in those areas. So that’s what’s going on with insurance, hopefully slowing appreciation, but you’re probably wondering, what do I do about this? And for that, there’s basically one simple, totally underutilized strategy. Change providers shop around for insurance premiums. I know this sounds absolutely stupidly simple and it kind of is, but actually when I was digging into this, I saw that on average, people who own homes, only about 11% of them change providers each year.
That means 90% are just sticking with whatever premium increases their insurance brokers send to them. They’re just sticking with it. And maybe that’s fine. Maybe it is the best thing for you, but I am betting for the vast majority of you out there, if you’re looking for a simple way to improve your cashflow, switching insurance providers is a no brainer. And that maybe you don’t even need to switch, but at least shopping around absolutely works. There is some data from the ICE Mortgage Monitor. It’s something that we look at every single month and that they show that for people who switch, they on average save money and sometimes they save a lot. On average, they’re saying it’s at least a five to 10% savings, and some markets, it’s even more. Just as an example, if you look at Orlando and Houston, they sort of dug into these two markets.
They showed that about 20% switched in those markets that’s higher than average, and their average savings was four to $500 per year in premiums. That’s really meaningful. That is a great way to improve your cashflow each and every year. And I should mention that those markets, Houston, Orlando, those are relatively affordable markets and those are for single family homes. So if you extrapolate that out to a duplex or a four unit even in those markets, or you extrapolate it to a more expensive place where you’re buying a duplex for 400, 500, $600,000, those savings on insurance could be upwards of $1,500 per year. That’s over a hundred bucks a month in cash flow, just doing a little bit of shopping. Now, if you look at the big picture here, I told you that mortgage payments are down $200 per month. Now, if you shop around for insurance premiums, now we’re talking maybe three, $400 a month in improved cash flow over last year.
That doesn’t even mean buying a different kind of deal. That just means by the fact that affordability is improving. By the fact that you can shop around for insurance, you can get significantly better cash flow each and every month. This is why I’m saying even though prices are flat right now, there is opportunity to generate better cash flow than we have seen in a while and insurance is a big part of that. And I know insurance may not be the sexiest part of investing, but if you want to maximize cashflow in your next deal, shop around for insurance. It’s the same thing as getting multiple quotes from contractors. You don’t just go out there and accept the first bid, find the best deal for the coverage you need. And I should mention, if you want to shop around and you’re BiggerPockets Pro member, you can actually get 5% off immediately just by being a BiggerPockets Pro member with steadily.
They’re a great landlord-focused insurance company. Definitely check that out. But just to summarize this deep dive into insurance, costs are still going up, but I think underwriting for three to 5% premium increases in the coming years makes sense. Make sure you don’t get caught, but hopefully it’s going to come back down to earth closer to the rate of inflation, and that’s going to be welcome news to most investors. But in the meantime, shop around. We still got more in our March housing market update. After this quick break, I’ll share my risk report and the opportunities I’m seeing in the market. Stick with us, we’ll be right back.
Welcome back to the BiggerPockets Podcast. I’m Dave Meyer. This is our March 2026 housing market report. Now we’re going to turn our attention to the risk report, something I do every month because there’s a lot of news out there. There’s a lot of scary headlines. There’s a lot of people saying stuff on social media. That’s not always true, but there is real risk in real estate investing. There always is. There’s risk in any type of investment. And I just want to share with you what I’m seeing in the market and where I think the risks are. Big picture though, things are fine, right? Things really are fine in the housing market. If you listen to this show, you know that I think the big canary in the coal mine for a housing market crash is delinquency rates. If people stop paying their mortgages or cannot pay their mortgages, that’s a big red flag that would really increase what I think is a 20, 25% chance of a crash in the coming years to something much higher than that.
But as of right now, that’s not really happening. Delinquencies actually went down for the second month in a row. Now that was mostly led by early stage delinquencies. It’s measured in different stages, how many people are 30 days late or 90 days late, or actually in pre-foreclosure or foreclosure, all these different things. The early stage stuff is getting better actually. Fewer people are going into those early stages of delinquency and foreclosure. That’s good news. The later stuff is actually getting a little bit worse. So it’s a little bit of a mixed bag. Foreclosure starts are up six and a half percent And over last year, but I should mention still 20% below pre-pandemic levels. So when you see those headlines that say foreclosure starts are up over last year, that’s true. Still below 2019 levels when no one was worried about foreclosure crisis. So keep that in mind.
90 day delinquencies, more serious delinquencies are going up and are rising. And so that is a real risk. These are things that we need to keep an eye on. But again, they are rising but not to any sort of concerning level. Nothing like we saw during 2008. If they keep rising, that is something we’re going to have to talk about. But right now it’s relatively stable. And personally, I think the fact that more serious sort of later stage delinquency stuff is getting worse actually makes sense to me because we’re still working our way through a lot of the post-forbearance program issues in the housing market. A lot of people who couldn’t pay their mortgages during COVID basically got a break for a couple of years. And then when those programs stopped, they started making their way from 30 days to 90 days into pre-foreclosure, into regular foreclosure.
And so the later stage stuff that is working its way through, but I am at least encouraged right now to see that the beginning stages, the early stage delinquencies are going in the right direction. They’re actually going down. So overall, fine in terms of delinquencies, but that’s something we are absolutely keeping an eye on every single month because again, it’s the earliest indicator we’re going to get for severe market risk. Right now, we don’t have that severe market risk, at least in any of the data. There’s no evidence of it right now. But that said, I do want to just call attention to the fact that I do see more risks coming into the market right now. Things like the war in Iran. We don’t know what this is going to mean. We hear conflicting information every day. We’re going to be there for a long time.
It’s going to be quick. We don’t know. Oil prices went from $65 a barrel, up to $100 a barrel. Now they’re down to $80 a barrel. We don’t know. But when things like this happen, when there’s more geopolitical uncertainty in a very interconnected global economy, it just raises risk. I don’t even know specifically what those risks are, but as an investor, you just want to say things aren’t as stable as they were a couple of weeks ago because oil prices could lead to higher inflation. And if inflation goes up, mortgage rates go up. So these things can trickle into the housing market for sure. I’m hopeful oil prices will go back down. I’m hopeful inflation doesn’t get worse, but I think there’s risk of inflation and mortgage rates going up now that didn’t really exist in the last couple of weeks. And I also just think it’s going to slow down the market more.
I already said we are at 4.1 million home sales. The market is slow, but people don’t make decisions in uncertain times. They try not to. And so I think this is going to weigh on transaction volumes. I think it’s going to weigh on demand in the housing market because people are uncertain about the war, but also about the bad jobs data. That’s the other thing that got announced this month. January is actually surprisingly good jobs data, but if you look at the overall trend and you look at February specifically, the most recent month that we have data for, it’s not looking particularly good. We are seeing that the US lost 92,000 jobs, and I think a lot of that is concentrated in higher income areas. I do think there is a high risk of a white collar recession, and that could weigh on overall housing demand.
And that could be for both rentals. So in terms of vacancies could go up and for housing prices. Now, I’m not saying we’re going to get to 10% unemployment, but I’m just saying these are things that weigh on the market. It’s things that could take us from a flat market to a slightly declining market. I said at the beginning of the year, I think we’re going to be in a slightly declining market. So I think things are progressing largely in the way that I imagined in terms of the labor market. But when you introduce these new variables like the war, it does put more downward pressure on potential pricing and demand than we had just a couple months ago. Now, none of this, I just want to be clear. It means that I am predicting a crash. I don’t want anyone to think that. It is always possible.
I always say that on the show, is it crash possible? Yes, it absolutely is. I made my predictions back in November. I said there’s about a 15% chance of a crash. Right now, I’d say it’s a little bit higher. By crash, I mean more than 10% declines this year. Are we going to see 10% declines in housing prices in 2026? I don’t think so. Is that chance bigger than 15%? Yeah, I think it’s gone up a little bit. Maybe it’s 20%, maybe it’s 25%, but I still do not believe that it is the most likely scenario. We are not in 2008. Homeowners have a lot of equity. Like I said, forced selling is still unlikely. We see people paying their mortgages. The real risk here, I think that the only chance we get a full-blown crash is if we see a massive increase in unemployment.
If the AI fears really start to come true and unemployment goes from four and a half to seven or 8%, people start freaking out. We see a lot more new supply coming on the market. We see way less demand, then a crash could happen. Can that happen? Sure. Yeah. I can imagine a scenario where that unfolds, but again, the evidence, the data as of today, doesn’t support that. We’re seeing slowing inventory growth. We are seeing delinquencies relatively stable. Unemployment did tick up a little bit, but the worst AI fears have not yet come to fruition. So I think like most things in the housing market, the big dramatic thing is not going to happen. What’s probably going to happen is some combination of these things in little bits where we just see a week slow market. So I’m not really changing my overall prediction about what’s going to happen in housing.
I just want to raise the reality that the risks are going up. And I’m not telling you that to scare you. I just want to be honest about where I think things are heading and where the potential risks are. And I’m also mostly telling you to help you focus on opportunities and where they’re going to be, because there are going to be more and more deals in the coming months. If inventory is going up, if people are scared, those are often the best times to buy. I started in 2010. People love talking about how easy it must have been. Everyone was so scared to buy real estate in 2010, but if you bought right, it was one of the best times to buy. And although this is a very different situation in 2008 and 2009 and 2010, generally speaking, when people are fearful, when inventory starts to go up, that means there is going to be better deal flow.
I really believe in the coming months we’re going to see more and more motivated sellers, which means that you’re going to have the opportunity to pick up good assets at a discount. If you are a buy and hold investor, this is what many of you have been waiting for. People have been saying, “I’m going to buy when prices are going down.” Well, relative to inflation, prices are going down. The averages I’ve been giving you of 1% growth, that’s for home buyers. As an investor, you might have an opportunity if you buy right, if you bid right, if you find the right deals to buy five or 10 or 20% under current market comps, these are the opportunities that you should be focusing on. Now, yes, you need to be patient and specific about what you buy, but there are good things out there. And you couldn’t buy under market value in 22 and 23, maybe even in 24, but now you can, and that’s what you should be focusing on.
I know it’s scary to see some headlines where people are freaking out, but as an investor, you should be thinking about, now I can get value. Where do I find value in the market? Because there’s better opportunity for value than you’ve been able to find in, I think, like five years. Now personally, I think the good value is going to be in the B and C class buy and hold assets. Again, I think there is pain coming. It is not reflected in data. This is just an opinion. I’m just going to share with you, my opinion is that the pain in the housing market that’s coming is mostly going to be concentrated at the top end of the spectrum. We see the biggest risks to the labor market and wages and layoffs with white collar workers. That is where AI is coming for a lot of jobs.
We haven’t seen that fully impacted in the market yet, but I do think it’s going to happen more and more. I think if consumer spending starts to slow down, companies are going to look for any excuse to not hire expensive people and maybe they start laying off. And I think we’re going to see the high end of the market be kind of weak. It’s not in every market, but I think generally speaking, I like the idea of focusing on workforce housing, starter home kind of assets make a lot of sense to me because if you look at the employment trends in the trades or in healthcare or sort of blue collar jobs, employment’s great. It’s doing really well there. And I think that’s going to lead to solid demand for both rental properties, meaning low vacancies. And if you’re a flipper and you’re selling homes, there’s going to be opportunity there as well.
That’s basically what I’m trying to do. And these are the basics of the upside error.This is what we’ve been talking about for years. Good investors are going to see the current market and say, “Yeah, there’s going to be slower appreciation. There is some risk of price decline, but I’m in this for the long run and I am going to be active and selective and opportunistic and find great assets that I couldn’t afford or couldn’t compete for in previous years.” That’s what the market is giving us right now. And that’s where I’m going to be focusing my attention for the foreseeable future, buying good value and positioning myself for long-term upside. That’s our housing market update for today. I’m Dave Meyer. Thank you so much for listening. We’ll see you next time.

This article is presented by Cost Segregation Guys.

Ask 10 real estate investors to explain depreciation, and you will get 10 different answers. Some will get it mostly right, while others will confuse it with something else entirely. A few will admit they just let their CPA handle it and have never really dug into how it works.

That is more common than you might think, and it’s also a real missed opportunity. Depreciation is one of the most significant tax advantages available to real estate investors, and understanding it at a basic level makes you a sharper investor, regardless of how many units you own.

What Depreciation Actually Means

In plain English, depreciation is the IRS’s acknowledgment that physical assets wear out over time. 

A building is not going to last forever. The roof will eventually need replacing. The plumbing ages. The structure itself has a finite useful life. Because of this, the tax code allows property owners to deduct a portion of their property’s value each year to account for gradual wear and tear.

Think of it like this. If you buy a piece of equipment for your business that has a 10-year lifespan, you can deduct one-tenth of its cost each year rather than writing off the whole thing up front. Real estate works the same way, just on a longer timeline. You paid a certain amount for the property, and the IRS lets you spread that cost out as a deduction over the course of several decades.

One important note: Land does not depreciate. You can only depreciate the structure itself, not the dirt under it. When calculating depreciation, the land value gets separated from the building value, and only the building portion counts.

Residential vs. Commercial Timelines

The IRS assigns different depreciation timelines depending on the type of property. For residential rental properties, that timeline is 27.5 years. For commercial properties, it is 39 years. 

These numbers are not arbitrary. They reflect the IRS’s general assumption about how long each type of structure has a useful life.

What this means practically is that each year, you can deduct 1/27.5 of your residential building’s value, or roughly 3.6%, as a depreciation expense on your taxes. For a commercial property, that works out to about 2.6% per year over 39 years.

These are the standard timelines. There are strategies, like cost segregation, that allow certain components of a property to be depreciated on much shorter schedules. But as a baseline, 27.5 and 39 years are the numbers most investors start with.

Why Depreciation Does Not Mean Your Property Is Losing Value

This is one of the most common points of confusion, and it is worth addressing directly. Depreciation for tax purposes has nothing to do with what your property is actually worth in the market. A building can be depreciating on paper while simultaneously appreciating in value. These are two separate things.

Tax depreciation is an accounting concept. It exists to reflect the theoretical wear and tear on a structure over time, not to track market conditions. Your property’s actual value is determined by what buyers are willing to pay for it, which is influenced by the market, location, condition, rental income, and dozens of other factors that have nothing to do with the IRS’s depreciation schedule.

Many investors have owned properties for 20 or 30 years that have tripled in value while being fully depreciated on paper. The two things simply live in different worlds.

How Depreciation Reduces Taxable Income

Here is where depreciation becomes genuinely powerful. When you own a rental property, the income you collect from tenants is taxable. But you are also allowed to deduct legitimate expenses against that income—like mortgage interest, property taxes, insurance, repairs, and property management fees.

Depreciation is another deduction you can stack on top of those. And unlike most deductions, it does not require you to spend any money in the year you claim it. It is what accountants call a noncash deduction. The wear and tear on your building is assumed to be happening whether or not you wrote a check for it.

The result is that many rental property owners show a loss on paper even when they are cash flow positive. Rent comes in, expenses and depreciation are deducted, and the taxable income left over is often significantly lower than the actual cash in their pocket. Depending on your situation, that paper loss can also potentially offset other income, though the rules around this involve income limits and passive activity rules that are worth discussing with a tax professional.

Where Most Investors Get This Wrong

The most common misunderstanding is not about the mechanics of depreciation itself. It is about what happens when you sell.

When you sell a property, the IRS requires you to pay back a portion of the depreciation you claimed over the years. This is called depreciation recapture, and it is taxed at a rate of up to 25%. 

A lot of investors are surprised by this at the time of sale because they either forgot they were taking depreciation deductions or did not fully understand that those deductions were not free. They were more like a deferral.

The second most common misunderstanding is simply not claiming depreciation at all. Some investors, particularly those who are newer or working with generalist CPAs, end up not taking the deduction they are entitled to. The IRS still counts it as if you did, which means you could end up paying recapture taxes on depreciation you never actually benefited from.

Final Thoughts

Depreciation is not complicated once you understand the basics, but it does reward investors who pay attention to it. Knowing how it works, what it affects, and what it eventually costs you gives you a clearer picture of the real financial performance of your properties.

If you’re ready to go beyond the standard 27.5- and 39-year schedules and uncover faster write-offs hiding inside your property, Cost Segregation Guys can help you do it the right way. Their team makes the process simple, identifies the components that qualify for accelerated depreciation, and helps you maximize deductions while staying aligned with IRS rules. You can reach out to Cost Segregation Guys to see how much you could potentially accelerate, and start keeping more of what your properties earn.

Traditionally, townhomes were often starter homes for singles and young couples, becoming rentals by default when the owners decided to upgrade to a single-family home. That is changing.

Previously, the additional cash from a townhouse starter pad-turned-rental and its tax benefits were crucial first steps toward building wealth. Now, however, amid the affordability crisis, Realtor.com reports that they have played an increasingly important role in homebuying, serving as both starter homes and long-term residences for owners due to their lower price points.

With a greater number of townhouses on the market and those looking to live with lower housing costs, such as the 55+ community and singles, increasing in number as well, townhomes’ role as investment vehicles could also take on greater significance.

“Townhomes now make up the largest share of the for-sale homes on the market in our data history,” explained Realtor.com senior economist Joel Berner. “And they appear to be picking up steam as builders push forward with smaller and more affordable projects to meet the demand of buyers who are struggling to make a purchase in the detached home (single-family) space.”

Townhomes Are Being Built at a High Rate

New Census construction data showed townhouses are being built fast and steady, up 3.8% year over year, offering investors the chance to buy new homes that require less maintenance at far lower price points than single-family homes.

From a wide lens, townhome starts were up 37% from the second quarter of 2019 to August 2024, according to homebuilding research and data platform Zonda.

“In today’s challenging housing market, consumers’ growing interest in townhomes is a direct response to two primary pressures: affordability and lifestyle preference,” said Ali Wolf, chief economist at NewHomeSource, which is owned by Zonda.

Realtor.com’s Berner explained:

“Townhomes are generally lower-priced than single-family homes and sometimes offer community services and amenities that single-family homes (especially those outside HOAs) may not. They also tend to be concentrated in more urban areas and closer to city centers. The drawbacks are that they are generally smaller and, by definition, share walls with other homes.”

The low cost of construction has made townhouses a winner with builders. According to the National Association of Home Builders, after the second quarter of 2025, the previous four quarters saw 179,000 homes built. The four-quarter moving average market share is the highest on record for data going back to 1985.

The Appeal of Townhomes to Buyers and Renters

Townhomes work as rentals for the same reason that they work as owner-occupied homes. Affordability and low maintenance make them appealing to a wide demographic. They also have some advantages over single-family homes. 

Here are some of the demographics who are looking at townhomes and why.

Single women

According to NewHomeSource, single women often prefer the sense of community and safety that a townhome offers, with shared walls and neighbors close at hand. Data from the American Enterprise Institute’s Survey Center on American Life shows more Americans, particularly young women, are single.

Single-parent families

Single-parent families are on the rise in the U.S. According to U.S. Centers for Disease Control and Prevention data, as cited by NPR, 40% of all babies in the U.S. were born to single mothers raising children on their own, often without partners. Increasingly, these women are over 30, can afford to buy or rent on their own, and are opting for townhouses.

Millennial appeal

Millennials enjoy living in walkable communities with access to amenities.

55+ buyers

Empty nesters enjoy the low-maintenance lifestyle that living in a townhome offers, especially those that appeal to their aesthetic values with high-end design, while also being a part of a community.

Townhomes as an Investment

Not every townhome community is a great investment. One downside of living in an older townhome community with poor management is that, as an owner, you are clustered with other homes. So, even if your rental is in great shape, if the surrounding homes are beat up, it’s not a good look for potential tenants.

On the upside, townhomes generally have lower property taxes than single-family homes, but they usually have HOA fees, so you’ll have to weigh the two against each other, along with additional expenses, to work out your final cash flow numbers.

Pre-Construction Pricing, Multiple Homes

For investors looking to build a manageable portfolio of doors near one another, approaching a building to negotiate a pre-construction price for multiple units might be a viable opportunity. You’ll own brand-new rentals next to one another, requiring minimal maintenance. 

There might be some caveats to this approach, however, if the HOA laws state that investors can only own a certain percentage of homes in the development.

Low Maintenance

While dealing with HOA fees eats into your cash flow, it also means that owning a townhome is great for passive investors who don’t want to be bothered with day-to-day upkeep issues like lawn mowing, roof cleaning, landscaping, pest control, HVAC inspections, trash collection, and snow removal.

Townhomes as Short-Term Rentals

According to AirDNA, the platform that analyzes the short-term rental market, some townhome markets offer homes costing less than a single-family property and—for STR purposes—earn more. 

It might sound too good to be true, but AirDNA whittled down the list to the following:

• Savannah, Georgia
• Seattle, Washington
• Key West, Florida
• Philadelphia, Pennsylvania
• Denver, Colorado
• Pensacola, Florida

For purely short-term rental purposes, townhomes located in popular vacation spots can be high earners. AirDNA did the number crunching to analyze the top townhome STR markets in the U.S in terms of annual revenue. In May 2024, when the survey was compiled, they were:

• Vail/Avalon, Colorado: $125,872 annual revenue potential (ARP)
• Park City, Utah: $111,874
• Key West, Florida: $100,094
• Steamboat Springs, Colorado: $97,399
• Savannah, Georgia: $94,715
• San Diego, California: $83,449
• Breckenridge, Colorado: $75,443
• Santa Rosa/Rosemary Beach, Florida: $68,554
• Nashville, Tennessee: $66,898
• Sarasota, Florida: $64,631

Final Thoughts

Like any investment, townhomes as rentals are highly dependent on location. Being near universities, hospitals, and other employment hubs means you’ll have a steady supply of tenants. This is where the advantage of owning a townhome kicks in—they are about 10% less expensive than single-family homes, require less maintenance, and can earn decent rental income.

If you own a townhome in a popular tourist area, you might be able to purchase it as a second home and deduct some or all of the mortgage interest, under the limits that apply to your main home, providing you live in it for more than 14 days of the year or 10% of the days you rent it out, whichever is greater. That means you can benefit from rental income and depreciation of the rental portion, even if it is classified as a second home, provided you meet specific conditions. 

For hands-off investors or those considering a short-term rental, townhomes offer a wide range of opportunities.

Dave:
48 trillion dollars of real estate could be changing hands soon as baby boomers age and bring their massive inventory of property to the market. Some have called this impending demographic shift, the silver tsunami, and have claimed it will cause a crash in the housing market unlike anything we’ve ever seen in the past. But those same people have been saying this for 10 plus years and clearly it hasn’t happened, but the situation is changing. Boomers are now on average in their 70s and the generational shift of property and wealth is already starting to happen. We can see it in the data. So will that lead to this long predicted crash? Will the market shrug it off like it has for the last decade? Today and on the market, we’ll find out.
Hey everyone. Welcome to On The Market. I’m Dave Meyer, Chief Investment Officer at BiggerPockets. Today on the show, we’re addressing a demographic issue facing the housing market as baby boomers wants the biggest generation in the country age and give up the very substantial portion of the housing market that they own in the United States. Either because they’re choosing to rent, they go into assisted living or they pass away. And this shift, which I should say is completely inevitable given the demographics and the sad realities of mortality, this shift is going to hit the housing market in a way that aging and people getting older doesn’t normally hit the housing market. It doesn’t normally create these structural shifts, but this one probably will. And that is just because of the sheer quantity of housing stock that Boomers own. We’re going to get into the details of that a bit later, but for now you should just know it’s a ton.
They own way more real estate than you probably think they do. And the generational transfer of these properties, either by selling them or passing them along to their heirs is going to impact the housing market. But in what ways? Is it going to be a crash? Like all the people calling for this silver tsunami have been saying for more than a decade now. Does it mean we’re going to have faster sales? Does it mean we’ll have slower appreciation? What will this demographic shift actually do to the market? People obviously have very different takes on this. Some people sort of just blow it off and say that the market’s going to absorb it, nothing’s really going to happen. On the other end of the spectrum, people are calling for a crash saying that boomers are all going to sell in a relatively short time period that’s going to create a supply and an inventory spike and that’s going to push down prices.
But today on the market, we’re going to find out what is most likely to happen. We’re actually not just going to spew some hype or blow things off. We’re going to dig into the actual data and trends and uncover what this situation will likely bring to the housing market and what it means for investors. We’re going to start by laying the foundation. We’ll talk about demographic realities and how kind of in crazy, insanely concentrated housing is right now in the boomer generation. Next, we’re going to talk about the timeline, because people have been calling for this generational shift for more than 15 years, at least. I think the term actually started coming around in the 80s, but it started gained ground in 2008 to 2011 is when people really started talking about it. Clearly that crash hasn’t happened yet, but given the inevitability, when will this actually start?
Next, we’re going to talk about inheritances because even if boomers eventually leave their homes, which they will, will it all hit the market or are they just going to pass it down to younger generations desperate to get a deal on housing? And then lastly, we’ll game out what is actually going to happen or what is likely to happen. I’m going to pull it all together for you using historical precedents, examples from other countries. And we’re going to bring in the other dynamics of the housing market that we talk about a lot on this show to give you actionable information about this upcoming generational shift so that you can actually do something about it and make decisions about your own portfolio. With that, let’s get to it. So first up, let’s just talk about what’s going on with demographics. You probably know this, but Boomers, biggest generation in the US for a very long time.
This was after World War II. There’s just a massive spike in births, and this created the largest generation we had ever seen. Actually, as boomers have started to age and unfortunately start to die off, millennials are now the biggest generation, but boomers for a long time were so big that it sort of created this economic force that changed the entire landscape of our country as they reached different periods of their life. When they were reaching peak home buying age, when they were in their peak earning age, when they were starting to retire, has had huge impacts on our economy. And housing, especially of late, is no different. What the boomers do because there are just so many of them and they have so much wealth impacts all of us. Just to drill into the housing piece of this, as of now, boomers own 41% of all US property, which is a lot.
For the first time ever, Americans over 70 now own a larger shale of real estate wealth than middle-aged Americans, people from 40 to 54. That is not normal. Normally people who are mid-age, who are at the peak of their earnings, who have families, they have the highest concentration of wealth when it comes to real estate. That has shifted for the first time only recently. Now it’s people over 70 that is very unusual. And it’s not just mid-life, middle-aged people who are negatively impacted. Actually, if you want what I think is maybe a sadder comparison, if you look at people under 40 years old, they own just 12.6% of real estate wealth. That is one of the lowest it has ever been and it’s been completely unchanged for over a decade. So it’s not like millennials and Gen Z are catching up. If anything, the opposite is happening where more and more of the real estate wealth is concentrated in older generations.
So if we’re just tracking the accuracy of these claims about a silver tsunami that’s going to crash the market, which I have been consistently hearing for so long, that just hasn’t been true as of yet. Boomers have not been selling en masse and they have largely held on to their real estate. But why? Why are they behaving so differently from other generations? We have some information about this, both from surveys and just some demographic data. The first reason they are not selling and they still hold so much real estate is just lifestyle preferences. Actually, there’s a real estate survey from Clever Real Estate. This was just back in 2025. They found that 61% of boomers, so the majority of boomers say that they never plan to sell their home. That is up seven percentage points in just a single year. It went from 54 to 61 in just a single year.
And the reason for that, that the survey is really good. It dug further into that and asked, “Why do you plan to never sell your home?” And more than half of them said, “They just want to age in place. They don’t want to go into assisted living. They don’t want to downsize or find a new home. They just want to age in place. And that’s pretty different from other generations.” On top of that, 34% of the people who said that they never will sell their home is because they plan to leave it as an inheritance. And actually 30% of them worry that they can’t afford a new home. That’s the lock in effect, right? Just impacting everyone across the board. The boomer generation is no different for a lot of people who own their home for a long time. Perhaps they’ve paid off their mortgage or they have a two or 3% mortgage rate.
It is more expensive for them to downsize. This is something we talk about on the show all the time. This is holding up the housing market a lot right now, and the boomers are experiencing that the same as everyone else. So the point here is that one of the main reasons is people just want to age in place. You see at least a third of boomers saying that they will never sell their home because they are going to age in place. And that is significant impacts for what’s going to happen in this demographic shift. So that’s something we have to keep in mind. But the second reason we haven’t seen this flood of inventory on the market is really economic because as boomers started to age, starting to hit retirement age about 10, 12 years ago, rates for the 12 years they were in their age when they were going from working to retirement, we had this epic run of low mortgage rates and they were able to refinance into very affordable payments even without their salaries, right?
Even just using social security or pensions or pulling out money from their 401k because rates were so low when they had to make these decisions, they have affordable payments probably locked in, but that’s not all. Actually, less than half of Boomers even have a mortgage in the first place. 54% of them own their homes outright, meaning they are under very little pressure to sell and they have very low cost of living. So unless something forces them to sell, why would you? You’ve lived in your house probably for 30 years, you’ve paid off that mortgage, and if it’s more expensive to go somewhere else, why would you do that? And so they’re under very little pressure to sell. So when you look at these two things together, they don’t want to move for lifestyle decisions. And for the most part, they don’t have to move because they have the economic wherewithal to stay in place and not sell.
That means that this silver tsunami people have been saying is going to crash the market for 10 years has not materialized because boomers have largely held on to their property, but they’re aging. That still happens, right? They keep getting over. And so is the math going to change? And will we finally start to see the impact of this generational shift in the housing market? We’ll get to that right after this quick break. We’ll be right back.
Welcome back to On The Market. I’m Dave Meyer talking about the generational shift that we’re seeing in the housing market where boomers are aging and eventually, although it hasn’t happened yet and calls of a crash from a silver tsunami have been way overstated, this is going to happen at some point, right? There is a certain inevitability that boomers are going to die and they’re going to pass along their housing either by selling it or passing it down to their children, but that inventory will move in some way or another over the next decade or two because as of right now, the oldest baby boomers are starting to turn 80 in 2026. We are seeing that the average baby boomer is about 72 years old. The average lifespan in the United States is about 74. So we are in that time when I think this is probably going to accelerate.
And that means that this inventory may finally start to hit the market, right? If more boomers are dying each and every year, won’t we see all this inventory hitting the market? Well, it could be, but there’s also one way that it doesn’t actually hit the market. What if they don’t sell? What if they just pass along their homes to their children who, I should say, will probably be very grateful for a home with a low basis or potentially even one of those half of Boomer homes that actually don’t even have a mortgage at all. This trend of passing along properties to your children is increasing and will play a large role in how big of a quote unquote silver tsunami or generational shift actually hits the market. So let’s dig into this for a little bit. I said this at the top of the show and it is true that this transfer that we are seeing from boomers to millennials or to Gen X is already starting to happen and it is accelerating.
According to Cotality’s database, really good data source of property deeds, they showed that in 2025, a record 34,000 homes were transferred through inheritance in the 12 months prior to that. That is actually 7% of all transfers. So if you’re looking at all movement from one owner to another, 7% of it is now from inheritance, which may not sound like a lot, but that is the highest share ever recorded. So this is real and it is starting to accelerate. Now, of course we should mention that’s 340,000 properties that might otherwise have hit the market increasing inventory, but it didn’t happen. That’s kind of the point I’m trying to make here is that a sizable amount of inventory is never hitting the market because it’s being inherited and that is likely to continue. As of right now, 62% of younger Americans expect to inherit a property. And if you just presume that’s right, which I think some people are going to be very unpleasantly surprised to find out that they don’t actually inherit a property, but let’s just for now presume that about two thirds of all inventory boomers hold could never hit the market, just pass right on to their children.
That will definitely suppress the impact of this demographic shift because inventory may never truly spike. If only a third of Boomer owned properties hit the market and that drips out over the next 10 or 20 years, market probably going to absorb it just like it has for the last 10 years. But of course there are some caveats there, right? Like I said, I think 62% of people inheriting property, probably too high. I imagine that people will be disappointed to find out that even though their parents want to get out of their home, they still have costs like moving into assisted living or they have healthcare costs and they need to sell their home to actually finance those things. So I think it’s probably less than half, but I’ve looked at a bunch of different surveys. I think it’s probably going to be 30 to 50%, which is still a lot, right?
That’s still a ton of inventory that’s not going to hit a market unless, because there are a lot of caveats here. We talk about 30 to 50% of homes just being inherited and never hitting the market, that is a presumption that the people who inherit those properties don’t actually just turn around and sell, that they hold onto them. And that is another question that we should explore. I actually tried to find data about this and LegalZoom did a survey and found that 42% of young Americans don’t feel financially prepared to keep and maintain an inherited home. Just think about that for a second. We’re talking about what I think most people, at least on paper or in their heads, would dream of as a windfall, right? You’re getting a property either with partially paid off mortgage, maybe an entirely paid off home owned free and clear, but because property taxes and maintenance costs and insurance costs have gone up so much, 42% say they don’t feel prepared to inherit that home, that’s a lot.
We actually had a recent guest on Melody Wright who said that she saw that 70% will sell. I think that number is a little high. I wasn’t able to find great data on that, to be honest, but my guess is that even if the historical trend is 70%, like 70% of people sell when they inherit a home, that that’s going to shift. The housing market is just so unaffordable. I don’t think there has been ever a more attractive time to inherit a home versus going out and buying one for yourself. I think for most millennials, just speaking as a millennial and how expensive it is for my peers and colleagues and friends to afford homes, I think almost everyone I know would do whatever they can to keep the homes that their parents might pass down to them. Not everyone’s obviously getting that, but anyone who might get a home passed down to them, I think are going to try pretty darn hard to be able to hold onto that.
So even if it’s still a lot, I don’t think it’s going to be 70%, I’d say at least 50% hold onto them. So if we do all this together, and again, I am extrapolating a lot of data here. This is not precise, but I’m just saying maybe 50% of people pass their properties down onto their heirs and then 50% of them hold on. That means that 25% roughly of the inventory that boomers hold will never hit the market, but that means 75% will hit the market, and that is still a lot of property coming to market over the next couple of years. Now, that might sound like the silver tsunami that people have been predicting, but there are three important things to remember here. First, people aging and downsizing or dying or having someone inherit a home and sell it, that is not new. All the stuff we’re talking about are things that happen every day for years.
That is always happening. So it’s not like we’re like, “Oh, we have normal inventory now.” And then as boomers start to die, we’re going to have 75% of their inventory hit the market on top of what we already have. We are already starting to absorb some of this. And although I do think we will see an upward pressure on inventory because of this over the next couple of years, it is not additive. You’re not adding all this on top of existing inventory. It is part of existing inventory. The second thing is that in addition to this being an important part of inventory already, even though this new upward pressure on inventory is coming, it’s not like they’re going to list all their sales for once. That’s why I hate this term, the silver tsunami. It makes it sounds like it’s this wave that’s going to come through and crash everything, but really what’s going to happen is that health decisions or family decisions are going to play out over the next 10 or 20 years, and this will be a long and sustained upward pressure on inventory, but it’s not all going to come at once.
I just really don’t like this idea of a tsunami. I think it’s more like the tide, right? If you think about a tide going in or out, it happens slowly and it happens almost imperceptibly at any given time, but over the long run, the market will change. And I do think that we have this long-term upward pressure on inventory, which we’ll talk about more in a minute, but that means downward pressure on appreciation when there’s more inventory. But just remember, this isn’t going to be event. It is something that is going to happen over the course of a decade or more. It’s already been happening for several years and will probably happen for at least 10 more years according to the data and research I’ve done. So that’s number two thing to keep in mind here. Number three here is that, as I said at the beginning, even though boomers own a lot of property, they are no longer the biggest generation.
Millennials are the biggest generation, and millennials are at their peak home buying age. So even though we’re going to have this upward pressure on inventory, we also have a demographic tailwind that’s working with us. They’re sort of counteracting forces, right? The baby boomers were so big, but they’re selling, which means there’s going to be more supply, but the millennials are even bigger right now and they’re buying, which means that a lot of that inventory could get absorbed. Now, it’s going to be different in different kinds of markets. It’s going to be different for different asset classes, which we’re going to talk about in a minute, but those are sort of the big picture things I want everyone to remember here. Yes, more inventory probably will come to the market over the next five to 10 years, but there are many reasons to believe this isn’t going to be a one-time crash, and that’s because boomers have already been selling for several years and it hasn’t caused a crash.
They are not going to do it all at once. This is going to stretch out for a decade or more, and we have demographic tailwinds helping us because millennials are now the biggest generation in the US. So it’s not a tsunami. There’s no single event that’s going to come and rock the real estate and market, but what will happen? What does this mean for real estate investors? We’ll get to that after this quick break.
Welcome back to On The Market. I’m Dave Meyer, talking about the generational shift happening in the housing market. Before the break, I said I don’t think it’s going to be a tsunami. I have not liked that word for a long time. People have been calling for it for 10 years, at least hasn’t happened because as we’ve discussed, the transfer of boomer property to other generations is going to happen slowly, even though it will add upward pressure on inventory for I think at least the next five to 10 years, maybe even longer. But if it’s not a tsunami, what is it? How is this going to shape out? Of course, we don’t know exactly what will happen, but we can extrapolate. We know what’s happening in the housing market, how inventory and demographic and demand dynamics are shaping up. And we can also actually look at what’s happened in other countries.
And I want to dive into that just for a second here because there are other advanced economies that have similar demographic situations playing out a few years ahead of us. And so we can actually sort of look a little bit at specifically Japan and Germany. There’s a pretty good comps just demographically speaking as to what’s happening in the US. So let’s just look at Japan for a second because they also had a boomer equivalent after World War II. They also had an increase in births, but it actually happened a little bit earlier. And so almost a decade in advance, we might actually see what might happen in the United States. And what you see, if you look at property values in Japan, and they do have a lot of different rules, they have different tax incentive, different structures, all this stuff, you actually saw home prices go down.
It wasn’t a crash, but you did see home prices go down as their baby booner generation turned 75 plus. We are between 68 and 80 right now in the US who were right in that time. Now, there are some key differences between Japan and the United States. Japan has had a total declining population for a while now. The US still has a rising population for now, but if you listen to the episode I did on this a little while ago, it was a couple weeks ago, I did a whole thing on population decline. It is very likely as of right now that the US population is going to start to decline. So we could see some of the shifts that happened in Japan in the US as well. We also can look at Germany really quickly. Actually, we saw some research across the 22 OECD countries as some of the largest advanced economies in the world.
And basically what it showed was that aging will decrease real housing prices on average by around 80 basis points per year, so 0.8 per year. So that is pretty significant, right? That is a headwind to housing increases. Now, it’s important to remember that the US is starting from a structural supply deficit, right? So even though we might see more vacancy, we are starting from a negative, right? And so some of this might just get us back to a balanced market. But as we talk about on this show, all of these things, all these variables, none of them are a silver bullet. None of them are going to change the market unto themselves. What happens is some things put upward pressure on prices, some things put downward pressure on prices. And our demographics in the United States, which have been huge accelerants for housing prices over the last several decades and still are today, and I believe still will be for the next five years or so.
And starting the 2030s, maybe beyond that, it might become downward pressure on pricing. Doesn’t mean you can’t invest, doesn’t mean that housing prices are going to crash, but it’s sort of a flip. It’s a flip of a switch from a tailwind where it was helping appreciation to a headwind where it was going to hurt appreciation. That to me is sort of the big takeaway here is that it’s probably going to be a tailwind for appreciation, but let’s just game out a little bit what actually might happen here. As I do with housing predictions every year, I like to just offer different scenarios. I’m not going to sit here and pretend I know exactly how this is all going to play out, but I’ve done a lot of research on this and I do think I can share what’s the most likely scenario, at least the way the data looks today.
Similar to where we are in the Great Stall, I think this is going to play out very slowly, sort of like a slow grind, right? It’s the wave, it’s not a tsunami, like I said, it’s this sort of rising tide of inventory. Boomers probably going to continue aging in place for as long as they can. They’re probably going to transfer property to their heirs gradually, and many of those heirs I think are going to choose to occupy or to rent out. Again, they don’t have to move into it. They can rent it out rather than sell. And I don’t think we’re going to see this massive tidal wave that everyone’s predicting. Not all of this inventory is going to hit the market. I think it’s probably closer to 50 to 75%. That is also going to happen over 10 to 20 years. And what I think that means is that over the next 10 to 20 years, we’re going to see more inventory and slower appreciation.
Now that is on a national basis. And as you all know, that is not really how things play out in real estate. It’s not really what matters to most of us as real estate investors. I actually think that we are going to see the biggest downward pressure on pricing in rural areas and in age dense suburbs. So if you look at places, I’m going to just call out Florida, right? They have a very old population. In those suburbs, they’re probably going to have the most downward pressure on pricing out of all of the markets. You also see that a lot of older folks live in more rural areas proportionately, or I should say rural areas are disproportionately made up of older people. So the pressure prices are going to face are probably going to be more in rural and suburban areas and much less in urban cities.
On top of Florida, also call out other places where retirees tend to move, places like Arizona or parts of California. You also see parts of the Midwest, even though they are not sunny, do have high concentrations of baby boomers. And so those are all places where I think you need to look at and rethink what appreciation in those markets might be. We might see flat markets there for a very long time. So I think we really need to consider that in those specific regions. I’m not saying that on a national basis, but just in these specific places. That’s what I think is the most likely scenario. Is there a scenario where it causes a crash? Yeah, I kind of just did a thougt exercise to try and think of like, can I think of a way where there is a big crash? And I think it has to be some sort of black swan event where all of a sudden, maybe there’s a massive stock market crash where boomers are losing some of their wealth and need to tap into their home equity to pay for day-to-day expenses and they sell their homes.
That’s something I can imagine happening. There could be some healthcare shocks, right? Boomers are in their 70s right now as they get into their 80s. We all know the price of healthcare keeps going up and up and up. And so maybe in five, 10 years, a lot of these boomers are in their 80s. They need money to pay for long-term care. They start to sell in mass in more of a concentrated fashion. Could those things happen? Yes, but I think that might probably be part of a bigger economic crisis. And so it’s not like the boomer situation alone would cause a housing market crash in that situation. It would probably add to it though, right? If we had a massive unemployment, massive stock market crash and boomers will be impacted that just like everyone else. So it’ll be another thing contributing to some challenges for the housing market.
But I don’t think. I have a hard time seeing this situation alone without some other external catalyst causing a full on real estate crash. I think the much more likely scenario is the more boring scenario where it puts downward pressure on pricing, modest downward pressure on pricing over the next five, 10, maybe even 20 years. So that’s not great news for appreciation, but again, gradual, not all at once. So with all that said, what does this mean for real estate investors? I’ll just recap this quickly, but basically what I said before, I think we’re going to see more inventory. We’ve been in a very low inventory for the last couple of years, and I do still think it’s going to take years to recover. I’m not saying this is going to happen in 2026 or 2027. I talked about this earlier. I think this is more in the 2030s, but we’re going to be moving towards there gradually.
Over the next couple of years, I think we’ll see more inventory recover. So that’s going to put some downward pressure on appreciation, but it also means more deals. I’ve said this for a while, but I think appreciation is going to be subdued for a while. It’s going to be slow. We might have flat prices for years to come. We may not see real home prices, inflation adjusted home prices for many years. I actually, we had Mike Simonson on the show from Altos Research knows a lot about this. He said he thinks it could be 10 years. And I know that seems frustrating and I know it can be scary, but it really just means you have to change your approach to investing. It means you have to change your approach to underwriting deals. I personally believe underwriting for very low or even no appreciation is smart.
I think I might even start doing that indefinitely. Actually, when I was writing my book, Real Estate by the Numbers, I wrote it with Jay Scott, great investor. He and I were sort of debating this because I underwrite for appreciation or have for the last 12 years, very modest, two, 3% appreciation for most deals, just because that’s what the long-term average is. But I actually think for the next five, 10 years, although it probably will still have some positive appreciation, as an investor, if you want to be conservative and protect yourself, I’d underwrite for little to no appreciation. That’s what Jay Scott does. He told me he’s never underwritten for appreciation. And that just means you’re going to have to look at a lot more deals. You’re going to have to be a lot more discerning. But if you do that and you can find those deals, which you can, it just takes patience and practice.
But when you find those deals, they are extremely low risk because you’re not counting on any appreciation. You’re counting on all those other benefits that real estate can bring to you. So that’s a takeaway number one, more inventory, lower appreciation, but we are going to get better deal flow. That is the trade off. That’s how it works. When appreciation is high, deals are hard to find. Then the pendulum swings back and deals are easy to find, but appreciation is low. And I think we’re sort of in the middle right now. I don’t think we’ve reached that sort of reality check time when sellers are lowering prices and rent to price to ratios start to improve, but I think we are heading in that direction. This is one of the reasons I am personally going to start focusing more on cashflow than I have in the recent years.
And that’s my plan indefinitely because as we all know, real estate makes you money in four or five different ways. We got cashflow, we got appreciation, taxes, value add, amortization, right? And because appreciation I think is no longer reliable, hopefully it comes. I could be wrong about that. Hopefully it comes, but I just don’t think it’s reliable. It is not obvious that it’s going to boost your returns. So that just means as an investor, what you need to do is just look at those other four things. How do you create a deal where some combination of tax benefits, value add investing, amortization and cash flow get you the return that you are looking for? I’ve been saying this for years, but I look at total return. I look at how my total return is among those five different ways you make money. And so if appreciation’s going to contribute less to my total return, that means those other things are going to have to work a little bit harder.
And for me, cashflow and value add are the things that you can really control. Tax benefits for some people, I’m not a real estate tax professional, so I have limited options on tax benefits. If you have those options, I would recommend getting creative there. But for someone like me or if you’re a W2 employee, cashflow and value add, those are the ways to make money in real estate right now. That’s how I plan to make money in real estate right now. It’s why I flipped the house last year, not because I want to be a flipper, because I want to get better at value add investing. And because I’m making that shift, it does mean it’s harder for me to find deals right now. I haven’t pulled the trigger on anything this year. I do want to try and buy some real estate this year, but I haven’t been able to find anything that has the right return for me.
But I will just say anecdotally and talking to friends that better and better deals are coming. I’m looking at more that are interesting and I firmly believe that more are coming. Like I said, that’s the trade off. The pendulum is swinging back in the right direction. This may sound like a bold claim, but I actually think over the next couple of years, cashflow will get easier to find. I think that prices are going to stagnate. I think they’re going to fall this year. I don’t think they’re going to grow a lot in the next couple of years. But if you look historically, rents typically don’t fall as much during these types of periods. They might even grow. And so what that means is rent to price ratios will actually get better, meaning that your prospect for cash flow is going to get better. I don’t think it’s going to get us back to where we saw rent to price ratios after the great financial crisis, but it will get closer.
And that means cashflow will get better in the coming years. And so that’s sort of the shift that I am making. Take what the market is giving you. It is going to give us less appreciation. It is probably going to give us more cash flow. Have we reached the part where cashflow is easy to find? No. And that’s frustrating. And that means you have to be extremely patient right now, which is what I am doing and what I recommend you do as well. That’s at least the way I’m approaching this, but I would love to hear your opinions on this and how you’re going to approach investing in light of this demographic shift that is going on. That’s what we got for you today for On The Market. I’m Dave Meyer. We’ll see you next time.

Ashley:
If you’ve been around real estate investing for more than five minutes, you’ve probably heard the word syndication thrown around. And if you’re a rookie, you’re probably thinking, “What is that? And should I even be paying attention to it? ”

Tony:
Yeah, it’s one of those terms that gets sauced around like everyone’s just supposed to understand it, but no one explains it in plain English. What it actually is, how it works, whether it even makes sense for where you’re at right now. So today we’re breaking it all down. What a syndication actually is, how people make money with them, what risks are there, and then how it compares to owning rentals yourself.

Ashley:
And we’re also going to talk about the other side of it, what it really takes to run a syndication, because that part gets glamorized a lot and the reality is very different than what you see on social media. This is The Real Estate Rookie Podcast. I’m Ashley Kehr.

Tony:
And I’m Tony J. Robinson. And with that, let’s talk about what a syndication is like in plain English. So a syndication without any of the crazy jargon is basically a group of people pooling their money together to buy something together. You can technically syndicate anything. You could syndicate a racehorse. Our friend Mauricio Raul talks about syndicating race horses. You can syndicate a restaurant. You can syndicate buying a business. That’s what private equity is, is basically a big syndication of people pooling money to go buy businesses. But obviously this is the Real Estate Rookie Podcast. When we talk about syndications in our industry, it’s a real estate syndication. So generally speaking, you have two groups of people inside of a syndication. We talk about who’s involved. The first group of people are your general partners and the second group of people are your limited partners. Your general partners are the folks doing all of the work associated with the deal.
And your limited partners are the people bringing the capital to the deal. So generals are the ones doing all the work, limited are the ones bringing the capital. Those two groups work together to buy whatever asset it is being purchased through that syndication.

Ashley:
So the next thing is a syndication, just a fancy word for using someone else’s money. If you’re pooling money, can you just say, “Hey, everybody, give me your money and I’m going to go and buy something.” But really there is a lot of more to that. There is the general partners and there are the limited partners. And depending what side you’re on, this could be a passive investment versus more active. When we think of your normal day real estate investing, you’re going out and buying. It is more active. When you are investing in a syndication, you are passive. You have no control. You may have some voting rights, right? Tony, compared based on different things in a syndication, depending how it’s structured. But other than that, you are not operating the deal, you are not finding the deal, and you really don’t get a say in much at all.
Also, there’s a difference in kind of control versus convenience. If you’re just buying a property yourself or maybe you’re in a small partnership with a syndication, you have no control, but it’s also convenient. You just give your money and you let them do all the work and hopefully you’re getting some dividends, you’re getting a return or you’re getting a big cash out when they sell the property in the end. So there are differences as far as that as to investing. So when you think of a syndication, really think about, first of all, what side of the syndication you would rather be on. And we’re going to break into that more as to what each side looks like. But first we’re going to talk more about the passive side when you are invested as a limited partner and you’re just giving money to be in the deal.
So this is a question that’s probably popping into your head. Do I need to be rich to invest in a syndication? We often see if somebody posts about a deal that’s saying it’s a $50,000 minimum, $100,000 minimum to invest. And there’s two different … Actually, there’s probably more that I don’t even know about, but there’s usually two SEC regulations. Okay? So that’s another thing we haven’t talked about is that syndications are regulated by the SEC. Where if Tony and I just went and partnered on a deal, we are not obligated to follow the SEC regulations. It’s when you pool a large group of people’s money and there are people that are not active. So even if it is a couple people, if they’re not active in the property, like Tony and I, if we invest in a deal, we both need to actually materially participate.
Even if that’s just Tony reconciling the bank account every month and me doing the rest, they have to have active and material participation in the deal to not be under … Sorry. To not be under the SEC rules and regulations. Tony, do you want to break down the two kind of … What is 50? Yeah, these are those.

Tony:
Yeah, I’ll break down the differences between the types of syndications that are most commonly used. So again, Ash and I are not securities attorneys, so go talk to someone who’s qualified. We’re just giving you some general education here, but there’s a 506B and a 506C506B, 506C. I like to think of the 506B as the 506 buddy, and the 506C is like the 506 commercial. So on the 506B, as Ashley said, you can raise money from people that you are already buddies with, your friends, your family, people who you have preexisting relationships with. Where if someone from the SEC came and said, “Well, hey, Tony, Ashley gave you a million dollars for your deal.” I can point to 700 plus episodes that we’ve recorded together, all of these text messages and emails, all the meetings we’ve been on together, the vacations we’ve gone on together. I have a preexisting relationship with Ashley, so it’s okay for me to raise money from her under this 506B.
Now, if I just met someone today and then they gave me a million dollars, well, it’s a little bit harder to establish that preexisting relationship. So 506B is for people that you already know. These are warm contacts. These are friends, family, people that you have a relationship with. Under a 506B, you can’t go and advertise on social media or any platform. There’s no general solicitation is what it’s called. So I can’t go send out a mass email to 80,000 people. I can send one email to one person, but if I send it to a big list, that’s soliciting. If I post on my social media, that’s soliciting. If I buy a billboard, that’s soliciting. Any type of general marketing activities that’s one to many is considered soliciting. So that’s not approved through a 506B. A 506C allows for general solicitation. So I can go and get on a podcast.
I can get on YouTube short form. I could put it in a magazine ad if I wanted. I can do whatever I want, right? But there are limitations around who can invest in a 506C.
And you have to do what’s called an accredited investor, which takes me to my next point that you have to be what’s called an accredited investor to invest in a 506C. And that’s basically kind of like a fancy way of saying you have to have some level of income or net worth to be able to prove to the SEC that you’re what they call a seasoned investor. So the requirements for being an accredited investor are either $200,000 if you’re an individual of annual income over the last, I think it’s like two or three years, with reason to believe that that will persist going into next year. Or if you’re a married couple is $300,000 or a net worth of at least $1 million, not including your primary residence. So it can either be based on income or based on net worth. I’ve heard rumblings of them changing those figures because it’s been the same for a while now, but I believe as of today, that’s still what it is, but that’s the trade-off.
506C, I can go in mass markets. So if I’ve got a big brand or a lot of folks, I can go market it, but I can’t get the kind of everyday investors. 506B, I can’t market it, but I have maybe a wider demographic of folks that I can then go market it to.

Ashley:
So then the next question is, what do you actually own in a syndication? And you’re actually owning a percentage of the property or properties that are in the syndication deal. You’ll notice that your name isn’t specifically in the deed because there will be some kind of company set up that you will be a limited partner in. You are going to most likely put your money into the syndication, so give your money, and then they are going to go and buy the property. So you’ll mostly commit to the purchase of the property before they actually own it. Then you’ll buy the property, and then when they go and refinance or sell the property, that is oftentimes when you’re going to be repaid or even bought out of the property. So it will really depend on the term you sign on for when you’re doing the syndication.
Oftentimes you’ll see it’s a three-year commitment where they’re going to hold onto the property or they’re not going to refinance for three years and they’re going to stabilize the property. Tony, how do you have your hotel set up? Do you have a certain timeframe as to when investors will be paid back where you’re going to refinance or sell the property?

Tony:
Not explicitly stated. Our note is a 10-year note, so that’s kind of the timeframe that we’re up against more than anything, is just making sure that we either refinance or exit within the first 10 years of owning it. So we’ve got some flexibility there, but just going back to your point earlier, Ash, on the structure piece, just as an example, let’s say that I’m the general partner and I need to raise, just for basic numbers, let’s say that I need to raise $10. And of that $10, all of that’s coming from my limited partners. If I buy, say Ashley is a passive investor and Ashley buys two shares, so she spends $2, that means she owns 20% of that limited partner pie. But remember, the limited partner pie is not the entire pie because me as a general partner, I own, call it maybe 30%.
So Ashley, with her $2 investment, owns 20% of the 70%, 20% of the 70%. So on a property that’s maybe worth, again, for just round numbers sake, let’s say the property’s worth $100, 70% of 100 is $70, 20% of 70 is seven times 0.2, which is 1.4. So Ashley owns $14 out of that $100 pie based on her 20% ownership. So I know the math gets a little tricky, but just trying to break it down for you as best as we can that when you invest in a syndication, your ownership is based on the amount of money that you put into the deal for your investment. So unless you put up 100%, you’re typically not going to own 100% of that deal. It’s some smaller percentage.

Ashley:
And you have to look for what percentage is available to the limited partners. In your example, you would use 70%. So there is no way that you would be able to own 100% of the property because it is two separate pools there. Okay. So now that you’ve invested your money into the syndication, I put my $2 into Tony’s syndication, how do you actually make money in a syndication and when? So now, Tony, this is on the passive investor side, and we’ll go and we’ll talk about the general partner side later and how they make their money, but what is your first opportunity when you put money into a syndication to actually seize some money back to you? Yeah.

Tony:
Well, first I’ll say that most syndications, at least in the real estate space, probably aren’t returning anything for the first couple of years. They’ve spent in the first couple of years to really stabilize that property and stabilize that asset, improve income, decrease expenses to be able to eke out profit and improve that profit as time goes on. So 2025 was our first operating year, our first full year operating in the hotel, and we didn’t do any distributions. All of the cash stayed within that business, but we did a really, really good job, especially on the back half of 2025 of starting to reduce our labor expenses and increase our income. We’re recording this right now in February of 2025. January and February are the slowest months of the year for a hotel, incredibly, incredibly slow. But we doubled our January revenue year over year, but we also cut our labor expenses at half for January of 2025.
So those are the things we’re really working on in a syndication is trying to improve operational efficiency, increase revenue and all those things. So first, it takes some time to really get to that point. But usually the first opportunity you have to realize any sort of return from a syndication is through distribution. So it means that there’s cashflow being produced by the property, that pile of cashflow gets to a point that’s big enough to say, “Hey, we’ve got enough in this pile here to start sending money back to all of our limited partners.” And it’s usually a very small percentage as you start. And again, that number starts to ramp up as that deal matures and progresses. So cashflow would be the first. The second, and this is where a lot of those bigger chunks of cash start to come back, is if there’s a refinance.
So let’s say that someone buys a deal initially maybe on some sort of bridge debt or basically like hard money, and then they refinance at year two or year three. And during that refinance, because they’ve, again, increased the income, decreased the expenses, increased the profit that’s being produced, a bank looks at that and says, “Hey, you bought this for two million, but now I think it’s worth four. So I’ll give you a loan for three million.” So now there’s a million dollars that they just made that they can go send back to a lot of their folks who have invested into that deal. So that’s one way. And then the biggest thing that we typically see is that the biggest payday comes when that property sells. So they buy it for two, maybe 10 years later, five years later, it’s worth 10. And now they just made eight million bucks and that’s when those private money investors get a really big check at the end.

Ashley:
We are going to take a quick break, but when we come back, we’re going to cover what it is like to be a GP, a general partner of a syndication and running the deal. We’ll be right back. Okay. Welcome back. So what’s the big difference between being a passive investor in the LP side or being the sponsor and being part of the general partnership? So sponsors, Tony, what is the actual duty and responsibility of a sponsor of a deal?

Tony:
Basically everything. They’re the ones that are sourcing the market, deciding on the market. They’re the ones that within that market. They’re the ones that are sourcing the deal. Once the deal is found, they’re doing the underwriting. Once the underwriting is confirmed and they’re negotiating on the contract, once the contract is signed, they’re doing all of the due diligence. Once the due diligence is done, they’re the ones that are going through the managing the rehab, repositioning the property, whatever it may be, and then managing the property long-term oftentimes comes down to either the GP or they’re maybe managing a property manager as well. So every single part of the transaction falls under the responsibility of the general partner. Again, the limited partners are really there just to bring the capital, the GPs do literally everything else.

Ashley:
And when we say the sponsor, that’s not necessarily one person, that’s a group of people. Tony, how many people are actually in your general partnership?

Tony:
So for us, we actually set ours up slightly differently because there’s only four of us involved on that deal. We didn’t actually syndicate this deal. We did this as a joint venture. Now- Oh,

Ashley:
I didn’t know that. Oh, then we can cut this part out or we can

Tony:
Keep. So because there’s only four of us, we actually didn’t run this as a syndication. We did it as a small joint venture. Now, the difference here is that one, all of our partners have voting rights. So I’m the manager of our NC and I’m also the property manager, but I can be voted out at any time by my other three partners because they have the voting rights to say, “Tony, you’re actually doing a really poor job managing this. We want to hire someone else, so I can be voted out at any time.” So we meet quarterly to discuss performance and do all those things. So there’s a certain level of involvement that all of our partners have. I’m still responsible for the majority of the day-to-day, but all of the major decision-making. I can’t sell it on my own. I can’t refinance it on my own.
I can’t even replace myself on my own. I’d have to get buy-in from all of our other partners. So we structured ours as a joint venture, making sure that they were voting rights, making sure that everyone had an actual say on the different actions that go into it, and then keeping each other in the loop and leveraging each other’s expertise to make those decisions around what we do at scale for the property. Yeah.

Ashley:
I honestly had no idea this whole time I thought you did a syndication, but honestly, a joint venture, I would way rather do that than just a syndication deal all day long. Let

Tony:
Me just hear that because we had attempted two syndications prior to that. And neither one of those were able to raise enough money to actually closing those deals. First deal, I think we raised four million out of six million that we needed. The second deal, we got halfway on a $3 million raise.

Ashley:
And I think clarify that when you mean raised. It’s not like you had people give you money and then you sat with it in your bank account. No,

Tony:
That’s exactly what happened. That’s exactly how it happened. So we raised everyone’s money, right? So we had all these different webinars and-

Ashley:
Oh, okay. I thought you would’ve just got commitment, but you actually got to the point of taking their money. Wow.

Tony:
We had money wired in the bank. We had four million bucks sitting in a bank account for this deal. And then as the funds kind of dried up, we had to go back and wire all those funds back and have people to say, “Hey, we didn’t get to the raise.” So it was a very, I think a lot of learning, obviously very frustrating, but we learned a lot through both of those processes, which is why for the third go around, we’re like, “Hey, let’s just go a little bit smaller. Let’s try and simplify this process.” And that was one that we were finally successful with, but that’s how we set up the hotel to make it easier on ourselves.

Ashley:
I was going to do a syndication too. I think probably it was around the time maybe when you were going to do the West Virginia one. Was that the one of them? Okay. Yeah. And mine was a campground and we got the campground under contract. I put a $100,000 earnest money deposit down, but gave myself 60 days due diligence period or something like that. But I met with attorneys, everything like, “Okay, what do I need to do for a syndication?” And then during my due diligence period, I just found so many more issues than I expected with this campground and we ended up getting out of the deal, getting our earnest money deposit back. And I am so thankful because I don’t think that I understood the responsibility of being a GP and how much you are responsible to other people. And I just don’t think that I have the … First of all, I don’t like to take a phone call.
So having to … First of all, pitch to investors, following up with them, what’s going on with the property. And I know there’s all systems and processes to set up like that, but I really like the fact that if I make a mistake or I decide against something or I don’t take action on something, and if I lose money because of it, it’s me losing money and I’m not losing it for anybody else. If I decide to go hang out with my kids for one day and it’s going to lose me a hundred dollars because I’m not doing something one day sooner, that’s okay. It hurts me. I’m taking the laws because I want to do that. But I learned a bunch of things about the syndication process, but not to the full extent that you definitely have going through the deals.

Tony:
Yeah. So I do think that 4A Ricky, doing a syndication on the GP side as your first deal would probably be a bigger undertaking because there’s a lot that goes into it. So if you are interested in syndication as a GP, as a general partner, the person putting the deal together, my strong recommendation would be to find someone who’s already done a few successful syndications and see what value you can bring to them. So if someone came to me with the hotel and said, “Hey, Tony, I’ve got a great hotel that it’s under contract. I just need your help with everything else. I need your help raising the capital. I need your help managing the rehab. I need your help managing it once we get it. I need your help with all these different pieces.” I would love to give someone a piece of the pie because they brought together the deal that maybe they can execute on themselves.
So if you are a Ricky that’s listening, one, send me a DME on Instagram @TonyjRobinson if you find something, but second, partner with someone who I think can fill those gaps for you to make it a little bit easier to get that first one done.

Ashley:
Yeah, it’s definitely a lot of things to figure out and a lot of legal implications. And also a big thing is having someone sign for the debt. If you’re doing a huge deal, they’re going to want, what’s the word for it, the person that’s going to sign on the debt that has the high net worth-

Tony:
A KP, a key principle.

Ashley:
A KP.

Tony:
Yeah. And what they’re looking for is someone who’s like, “Hey, if we’re going to write you a loan for millions of dollars, we need someone on your team who has the net worth to cover this debt that we’re giving it to. ” Because even if you find a great deal, even if the numbers look fantastic on paper, who knows what could happen in the future? So the banks want to make sure that they have some form of guarantee to say, “Hey, the buck has to stop somewhere. We got to get paid.” So the buck’s got to stop somewhere. But what I will say also is that depending on what size of property you go after, our buy box specifically asked for our hotel was we wanted seller financing. And while that limited us on some options, it also gave us incredible flexibility in that initial acquisition because we were able to negotiate terms that really played, really it was a win-win.
It worked out really great for the sellers, but also worked out really well for us. It wouldn’t have to jump through the hoops that a traditional bank might’ve made us jump through. So there are other levers there I think that might work as you’re looking to put the deals together also.

Ashley:
Okay. Then kind of another topic if you are thinking about being a sponsor of a deal is, do you need your own money in the deal? And technically, no, you could raise all the money, but I would say probably anybody that’s teaching or talking about investing in a syndication, when they talk about how to vet the sponsor, how to vet the deal is one, I would say this is probably in the top five of the first questions you should ask, is are they putting capital into the deal themselves? So are they having some skin in the game? And I think that just shows they believe in this deal too. They’re committed to this deal, that they’re investing their own capital. So I would say yes, you’re going to have an easier time finding people to invest in the deal if you’re showing that you’re committing your own money and putting it into the deal too.

Tony:
I will say, even if you are able to find a deal, raise all the capital without putting any money into the actual deal yourself, there’s still other costs that you as the general partner are responsible for. I mean, just putting together all of the paperwork for a syndication is tens of thousands of dollars. It’s not a small expense to put together this paperwork for the deal. I think on our last indication, we spent like 30 or $40,000 on paperwork just on the paperwork that people are going to sign was 30 or $40,000.

Ashley:
And just think that’s not even like it wasn’t guaranteed either. You ended up sending money back and it didn’t happen. Yeah.

Tony:
That’s a college tuition that we just spent on paperwork.

Ashley:
Sorry, Sean, you’re not going to college. Here’s some documents that we blew up.

Tony:
Here’s the TPMs that you can go through. So there’s that, right? There’s the legal cost. There’s the due diligence, just getting out to the property, paying for inspections. Even just like an appraisal on a commercial property is significantly more expensive than an appraisal on a single family home. An inspection on a commercial property is significantly more expensive than a single family home. Even your earnest money deposit. The first syndication that we attempted, we put in about 50 grand for our EMD. Our EMD alone was 50 grand, and then we spent, I believe, another maybe 50 or 60 grand between our legal docs and our initial due diligence. So we were all in for about a hundred grand on this deal that did not close. So you’ve got to make sure that someone’s got to foot that bill. So if it’s not you, that you have a partner who’s willing to commit that sort of capital, but it is definitely a more capital intensive game to get into.

Ashley:
Now let’s talk about why a lot of people want to be a sponsors and how they get paid. So here’s the important thing to know right here is that they make money on the purchase and the sale, but during the actual operation, it’s very minimal that they end up making, especially if the property isn’t performing well, if you’re not seeing distributions, they’re not getting distributions. They can be the operator or the property manager and charge fees for that, but it tends to be very minimal compared to the money that they make upfront. So there’s usually an acquisition fee, which is a huge chunk of money. And that is for paying them for their time to source the deal, to get it under contract, to cover some of those upfront expenses for their time to do the due diligence and the time to collect everybody’s money and get all the paper signed, everything like that.
There’s usually a huge sum that they’re making upfront from just the acquisition of the property.

Tony:
Yeah. So the acquisition fee is definitely one big piece. And then to your point, Ash, there’s the asset management fee that a lot of syndications will charge where that’s on a regular basis, could be monthly, could be quarterly. The general partnership is charging the syndication of fee for continuing to manage this asset on an ongoing basis. And that’s separate from the property management fee. There’s usually, again, a separate property management fee. The asset management fee is for being the person just overseeing the property to make sure that everything’s moving correctly. And then the third fee would be the property management fee. Some syndication or syndicators do this in- house, others farm this out, but for the ones that really want to make sure they’ve got cash flow coming in, they’ll do property management in- house. So they collect the property management fee, they collect the asset management fee, they get the acquisition fee upfront.
And then if there’s a big capital event, sale, refinance, et cetera, they’ll get some percentage of the proceeds from that as well.

Ashley:
Okay. Then kind of the last piece here for, if you’re going to be a sponsor is you need a team along with any other partners you have on the deal. You need an attorney, a CPA, you need a lender, property managers. You need somebody who’s going to be able to support you in different elements. You cannot do all of this yourself. And if you’re buying a multimillion dollar property, sorry to say it. I really, really love Tony’s short-term rental calculator. I really, really love the BiggerPockets calculator That’s not going to cut it to underwrite a $100 million multifamily property. You’re going to need something more complex. And then also just asset management support. My one really good friend is the sponsor for a syndication and there was this one time we went on a family vacation and literally half the time she was on the phone trying to get insurance quotes for these properties and negotiating the insurance and figuring all this out.
So there definitely is a lot of work that goes into the deal upfront when you’re acquiring it and like throughout. So if there are things that you don’t want to manually do or take care of, you’re going to need to hire somebody on your team to take care of those things. All

Tony:
Right. So we’re going to take a quick break, but while we’re going, if you’re not yet subscribed to the Real Estate Rookie YouTube channel, you can find us there at realestaterookie that way you can not only hear money nationally’s voices, but see our faces every Monday, Wednesday, and Friday, and we’ll be back with more of it after this. All right, we’re back. So we talked about the syndication from the side of the limited partnership, the people putting money into the deal. We talked about it from the side of the general partnership, the folks who are actually managing and putting everything together. Well, let’s kind of finish off by talking about how do we know if a syndication is a good deal or just total garbage. So what are some of the red flags look out for, why sometimes projected returns can be a little misleading, and just the importance of focusing on the operator’s track record.
So red flags and pitch deck, I think first and foremost, it’s maybe the underwriting piece that Ash talked about before we took our last break. We want to make sure that there’s a level of realism, I guess, inside of the projections that we see. It’s almost like when you see any deal and you see a pro forma from the person that’s selling it, those are always the rosiest, most optimistic, sometimes unrealistic projections that you could see. And if some Someone’s pitching a deal to you based on the proformas that were given to them by the seller, by the broker who’s on the deal, that will be a big red flag for me. I want to see a lot of research that went into how this deal was actually put together.
For example, when we pitched our hotel to our potential partners, one of the things that we did to put all of our data together, we did not use my Airbnb calculator, like Ashley alluded to before, because to her point, that doesn’t work on a big deal. What we used was a custom underwriting tool that we paid someone a few thousand dollars to build out for us for all of our hotels, because that was the strength that we needed in our underwriting. We went through and we looked at every single calendar for all of the comparable hotels in that same town, and we manually clicked through their calendar for 12 months out to get a sense of how their pricing was. We got data from the brokers on what is the average ADRs in the market and what is the average occupancy in the market. We looked through all of the one bed and single room Airbnb listings to see what they were charging both historically and looking for to give us a better understanding of what the property could do.
So you just want to see a level of rigor in their underwriting to make sure that they’re presenting the right data. The second thing is you also want to see that they’ve stress tested this deal.What happens if the assumptions are off by 5% or 10%? What happens if they’re off by 20%? Did they just assume best case scenario or did they give some variance in how that property might perform? The last piece that you want to see is what is the actual business plan? What are we trying to execute on here? Is the goal that, hey, this is actually a really good property, but it’s just maybe being mismanaged. Do we need to improve the marketing? If I’m buying a hotel, are they only on their own direct booking website and they’re not on booking.com or Expedia or all these other travel platforms? Is there an opportunity there just to exact same property and maybe get more distribution?
Is it a heavy rehab? Are we going through and are we rehabbing every single property? Is it maybe an expansion? Is there room to add more units? What is the business plan and what are the underlying economics that make that business plans down? And then the final piece I think would be the team. Who’s on the team? What’s their track record? How much of this have they actually done before? What was the level of success on those deals? Or if there were failures, what did they learn? And how were they incorporating that into this deal? So those are the things I’m probably looking for, Ash.

Ashley:
I think one thing too that we’ve seen more and more often is, oh, they have a social media following that they’re probably good to invest with. And I think that’s for all things, not just syndications as, oh, this person has a following. They must be trustworthy. Other people must believe in them or they must be good at what they do if they have a huge following. So I think make sure that you’re not basing, doing a syndication off of popularity, I guess, and really doing your due diligence on the person and the deal and the team members. So the last thing here before we wrap up is, what is the worst case scenario in a syndication? If you are investing in a syndication deal, the worst case scenario is you lose it all and you get nothing back. So if you’re looking at $100,000 minimum and you put in $100,000, that can mean over a two, three year span that you are getting nothing.
You don’t get any payouts, no dividends, nothing disbursements over that period of time. And then the property fails and it could be foreclosed on by the bank, taken by the bank, and you are left with nothing. There could be sold at a loss where maybe you get part of it returned. So there are different outcomes, but when you are doing a syndication, you have to understand that you are not in control. So if the property does fail, there’s nothing you can do about it to turn it around and you have to rely on the people that are the operators that are part of the GP. So make sure you are doing your due diligence because in the end, you can blame the people who brought you the deal. You can blame the sponsors as much as you want, but this is a risk you have to know can happen when you are investing in a syndication that you could not get any of your money back.
And I think that’s one thing that I really like about being a smaller investor is that I have control over the deal and that if the property is poorly performing, that I feel like I could do some things to at least get a partial return on my investment. And I think that’s a lot harder to do when you’re talking huge multimillion dollar properties to be able to turn them around quickly or to exit quickly. I think we’ve seen a lot in the last several years. In 2021, it was everybody became a syndicator. I mean, I almost became a syndicator. Tony almost became a syndicator. It was like the next, you got to do it. Once you’re investing in real estate, the next step up is doing a syndication. And that’s the next big thing. And it was deals were just flowing and there was so much opportunity, there was low interest rates, and we could do a whole nother episode on what happened during the last several years.
And if that’s something you would be interested in, go ahead and put in the comments here on YouTube. We can kind of go over how so many syndication deals have struggled the last several years of what they went through. And a lot of it obviously has to do with the change in the market, the change in rates. And don’t worry, we’ll bring an expert on for you guys to talk about that and dive deep into the numbers on that if you guys are interested. Well, thank you so much for listening. I’m Ashley. He’s Tony and rookies. Remember, syndication, not the best way to start out in real estate investing as a rookie, get some experience under your belt or partner with someone like Tony. Find him a hotel and D him at TonyJRobinson, or you can DM me if you find a lake house at Wealth Room Rentals.
Okay. We’ll see you guys next time. Thanks so much for listening.