Ashley Kehr:
Today’s rookie reply is a great one because it hits three different fears that rookie investors have when they’re ready to move on from learning into execution.

Tony Robinson:
Yeah, we’ve got someone worried about how to rinse and repeat after their first rental. Another rookie panicking mid deal because insurance blew up their numbers. And a W2 investor trying to use short-term rentals for tax savings without getting crushed by regulations.

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

Tony Robinson:
And I’m Tony j Robinson. And with that, let’s get into today’s first question. So this question comes from the BiggerPockets Forum and it says, after spending four months reading and listening, I’m close to finally taking that first step, enough talk time for execution, but I still find myself questioning what do I do after I purchase my first rental? I’m focused on long-term rentals and cosmetic burrs, but I struggle with grasping creative ways to finance and rinse and repeat. While I’m fine dropping 40, 70 K as a down payment, I feel stuck in a holding pattern wondering if I need to wait and save another 40, 70 K to do the next deal. I’m excited about Cleveland, Cincinnati, Pittsburgh, and Dayton. Any nuggets of wisdom would be appreciated. Alright, so this question is really about how to scale your portfolio beyond the capital that you currently have access to.
I think there are maybe a few approaches that you can take. The first approach is to do probably the simplest way is just to take the 40 70 K that you have right now, put that down as a down payment on a deal, and then save up under the 40 70 K and just repeat that process over and over again. It’s slower, but it’s significantly less work and requires less creativity and it’s just a really kind of tried and true approach to build a portfolio. The second path is that you find a way to recycle that initial set of capital. So you can do things like the burrs that you mentioned where you’re buying a property, you’re renovating it, you’re rehabbing it, then you’re refinancing to get back some or potentially all of the capital that you put back into that deal, right? So the burrs strategy is the second way, and then another way is then partnering with other people to help fund your deals.
So if you’ve taken down this first deal, you’ve got a bit of a track record, you’ve proven that you know how to find deals, execute, and so on and so forth, maybe then you start leveraging partners and their capital to take down more deals. And then maybe probably the more complicated path is going after something like more creative financing. If you can do seller financing where you’re finding properties that are owned free and clear and then you’re negotiating directly with the seller to have them loan you the money is another way to scale beyond your original capital. But in my mind, Astros are probably the four big buckets, but curious what your thoughts are.

Ashley Kehr:
Yeah, I think the last part of this question as to should I wait and save up more money or should I go ahead and try and find another creative way to purchase a property without waiting and saving up money? But I think the answer is really to do this simultaneously. Start saving again, but also looking for deals where you can do some creative financing. So whether that’s a bur where you’re using hard money and then you’re going to refinance out of it and pull your money back out, whether it’s going to be finding a deal where the person will do seller financing. If you go to, I think it’s called landwatch.com I think is what it is, you can literally click a toggle or a filter that is for seller finance deals that are available that people are already saying they’ll do seller financing and you can submit offers and put the offer as seller financing.
One thing that I’ve always done is when I get to go face to face with a seller or I try to have my real estate agent communicate this, if I’m going to submit an offer that’s seller financing, I always like to say, have you talked to your accountant or your CPA about the tax advantages of doing seller financing? And that usually piques a little bit of interest and it sounds more reputable to somebody having it come from their own personal CPA rather than from somebody who’s trying to buy their property. If I try and tell them like, oh, here’s all the advantages and the reasons why it’s more likely they’ll listen to their CPA than me who’s trying to haggle them for a deal.

Tony Robinson:
Just last thing I’ll say asra, I do think that there’s value in thinking about deals number two, five and 10 before deal number one, but I think it’s a bit of a fine line because oftentimes I see people get so caught up and well, how do I scale and how do I get property number two and how do I get property number five that they lose focus on the fact that they don’t even have deal number one yet. So I think the majority of your focus right now should be on how do I make deal number one work? And then from there you can start making pivots and adjustments to go on to deal number two, number five, number 10. But don’t get caught in that loop of thinking so far ahead that you forget to take that first step.

Ashley Kehr:
That’s totally a great point. So we’re going to take a quick break, but when we come back, we’re going to understand when you should walk away from a deal or stick it out. We’ll be right back. Okay. Welcome back. So this next question comes from the BiggerPockets forums and it says, hi, I am a new investor to real estate. I’m 22 and looking to do a house hack using an FHA loan with three and a half percent down. I’ve got under contract on a property in Baytown, Texas, but during underwriting we found insurance costs were 6,000 to 8,000 per year plus flood insurance. The deal no longer cash flows even long-term, and I’m past my option fee. I feel stupid backing out but don’t know what to do. Is my earnest money gone? Please help. Ouch. That does hurt. And it doesn’t say how much the earnest money was, but I will say I’ve lost earnest money.
There was a deal, it was a cabin and I found out some things, title issues and all this stuff after my due diligence period was over and I think it was $2,000 and they told the sellers, keep the money. I’m backing out of the deal. And looking back now, I would’ve rather have lost that $2,000 than be stuck in a deal where I’m losing even more money. And I think that would probably be the case in this situation. If I mean just six to 8,000 per year plus the flood insurance, I don’t think I have a single property right now that is that much an insurance per year.

Tony Robinson:
Yeah, that is wild. Six to eight grand plus flood insurance and flood insurance is not cheap. You have to go out and go out and get special flood insurance. Yeah, I agree with your point, Ashley. Whatever the EMD is, you have to weigh that cost against the ongoing cost of owning this property year after year after year after year to see if it actually makes sense to move forward with purchasing this property. I think a lot of this goes back to what Ash and I talk about a lot is that it’s easy to get emotionally attached to a deal and feel like you’ve already put so much time, effort, and in this case money into a deal. But sometime the smartest thing to do is to walk away. And if your deal does not work because of these new finances, then just go back to the settler and be honest.
Say, look, I had every intention of purchasing this property, but the flood insurance quotes that came back and the insurance quotes that came back are significantly higher than what I had originally anticipated. So I would ask that you release my EMD because this is not within my control. It’s not me trying to back out of the deal. Like here are the cold hard facts. Hey look, if you have an insurance agent that can give me a better price, I would love to talk to them, but if not, please work with me to make sure that we can walk away amicably. So I’m with you, Ash. I think I’m walking away from this deal because it’s not worth stepping into

Ashley Kehr:
Wait 100%. That should be the first step is trying to renegotiate with the seller. You might as well ask, they probably don’t want to have to start all over in the process of selling the property. So maybe they do have some wiggle room to continue to make it work. But that’s where I would start.

Tony Robinson:
And kudos to you for being 22 and locking down your first house hack, right? And then it’s a great way to start. We’re going to take a quick break, but while we’re gone, if you haven’t yet followed the podcast on Instagram at BiggerPockets rookie, then you can follow Ashley at Wealth and Rentals and me at Tony j Robinson and we’ll be right back after a quick break. Alright guys, we’re back and we’re here with our final question. This one’s about short-term rentals, taxes, and regulations. So the question is, I currently invest in long-term rentals but cannot take advantage of real estate professional status due to my W2 job using the short-term rental tax loophole to offset my W2 income with supercharge my investments. But I’m afraid of buying a property denied, but I’m afraid of buying a property and getting denied a short-term rental license.
Can anyone recommend beginner friendly STR markets, preferably within three to four hours of NYC? Alright, so a few things to unpack here. I think the first piece is that we need to break down what the short-term rental tax loophole is. I’ll try and do this in a way that’s super clear for everyone to understand. Real estate investing offers the ability to take losses, whether those are real losses like you actually lost money on that property or paper losses, things like depreciation, which is not a real expense, but it’s a paper loss. You can take those losses and apply them against other forms of income that you collect. Now, in order to take those paper losses and apply them against your W2 income, you have to be what’s called a real estate professional or qualify for what’s called the real estate professional status. For most people with a day job, it’s virtually impossible because you have to show that you put more hours into your real estate business than you do into your day job.
Most people can’t prove that. But with short term rentals, because they are classified as a business in the eyes of the IRS, not necessarily passive income like a long-term rental, you don’t have to qualify for real estate professional status. There’s something called material participation. And as long as you can show that you materially participate in your short-term rental, that then unlocks your ability to take the passive losses from your short-term rental and apply them against your W2 income. So I know that’s a mouthful, but if you just look up short-term rental tax loop, you’ll get some more insights there. So that’s this person’s motivation. And I know a lot of people who invest in short-term rentals primarily for the tax benefits associated with it, and it truly does give you the ability to largely reduce or sometimes even eliminate your tax bill altogether. Okay, so that’s the first piece.
Now, what this person is worried about is the regulatory landscape of the short-term rental industry. And while it’s shrewd that the regulations across the country have changed, shifted, evolved, some have gotten significantly more strict, it doesn’t mean that every single market is this huge regulatory risk when it comes to short-term rentals. There are really a few core things I look at to gauge the regulatory risk in a market. The first thing I look at is what is the current ordinance in that market? Can I legally rent a short-term rental? Is there a cap? Can I only do it in certain parts of town? Does it have to be a certain property? Is there a limit on occupancy? Is there a limit on usage? Just understanding what that current ordinance is to make sure that it allows me today to profitably run this property as a short-term rental because there are some markets where you can run it as a short-term rental, but you’re capped at only using it for 30 days out of the year.
Who cares if I can use it in any way, shape, or form if I only get one month from that property? It doesn’t make sense as a short-term rental. So just understanding the current ordinance. And then the second element is understanding the risk of that ordinance changing in the future. And the core thing that I focus on when I think about answering that question, Ash, is how economically dependent is that city on the revenue generated by short-term rentals? I’m going to pick on your home state of new, and in New York City, they effectively banned short-term rentals a few years ago. But if you think about why NYC was able and willing to do that, it’s because they didn’t care about the money that short-term rentals generated for that city, right? Like NYC is one of the, if not the most populous city in the United States, it generates revenues from literally every single industry.
It has no economic dependency on Ashley and Tony’s little Airbnb. But if you think about true vacation destinations, places where people only go to vacation, those are cities that are truly dependent on the money generated by short-term rentals in the form of transient occupancy taxes in the form of property taxes, in the form of people coming in saying a few nights and spending money in the local businesses where if those short-term rentals were to shut down that local economy would be severely impacted, maybe even collapse. So we want to look for cities that have that element of economic dependency and not so much the big cities that have a lot of things driving that economy. So that is my brief masterclass on the short-term rental tax food poll and regulations and how to avoid them. Ash, any questions or what do you have to add to that?

Ashley Kehr:
Any value that I can provide is I know the New York area and destination, so I can add two places that I think would be a good short-term rental areas to invest in. I did a quick Google search and tried to look real quickly if they’re short-term rental friendly. And it really depends on the specific area, but within that three to four hours of New York City is the Poconos tons of things, skiing in the Winter Lakes in the summer, and then also Lake George. It’s one of the cleanest lakes across the us I think in a great destination area. It’s close to I think Saratoga, where they have horse r ising and different things like that. But yeah, so those would be the two markets I would look into and just searching real quick, you have to get permits, things like that. And the laws vary depending on the specific area that you’re in and things like that. But those would be the two places that I would go and stay in a short-term rental.

Tony Robinson:
And I think the other thing I’d add to that question too, Ash, and this is not true for short-term rentals, but for all strategies is ask yourself what your motivation is for staying within three to four hours of New York City. Is it because there’s just this comfort factor of being able to go and check in on the property yourself and in case something happens, you’re there to kind of be present? Or is it because maybe you want to use it yourself if it’s more so the personal use, that makes sense. But if you’re leaning towards this tighter radius simply for comfort reasons, I would encourage you to understand that whether the property is four hours away or eight hours away, you’re probably not going to be the person cleaning the Airbnb. You’re probably not going to be the person fixing maintenance issues. You’re not going to be the person restocking supplies, you’re going to hire all of those things out anyway.
So if you can find a deal in a property that’s in Bozeman, Montana or Des Moines, Iowa, or name the city in the random place on the west coast, if that is a better deal for your specific situation, I wouldn’t say that you should necessarily avoid that just because it’s not as close as you want it to be. There are tons and tons of people every single day who are buying properties remotely and are successfully managing them as long as they have the right systems and processes in place and likely for you. You’re already listening to this podcast and we share a lot of the different ways you can do that remotely.

Ashley Kehr:
And one thing I would add too is if you want to use it for yourself personally, make sure you’re aware of what the rule is for that. Isn’t it a pretty gray area though, Tony, as to how many days you can actually use it if you’re writing it off as a short-term rental?

Tony Robinson:
Yeah, there was a lot of discussion on this, but yeah, I mean, usually what most lenders say is that somewhere around seven to 14 days is a good baseline of personal use. So there’s actually two different things we’re talking about here. One is a lending requirement, and then the other is how the IRS views it. So from the IRS perspective, your average state duration for the year has to be seven days or less. So as long as your average guests stay, when you look at all your reservations is seven days or less, then you’re still able to quantify this as a business. Once you get over seven days, they start to treat it more like a traditional long-term rental and you lose that ability to qualify for material participation. But if you’re seven days or less, you get that ability. So midterm rentals wouldn’t qualify for material participation because most of your saves are 30 days or more on the lending side.
The only real requirement is if you’re using a second home loan to purchase the property, and if you’re using the second home loan, there’s a personal use carve out where you have to use a property yourself in order to qualify for that specific loan. And I’ve heard different figures from different lenders, but seven to 14 days is like a usual good benchmark, but you just got to have the intention to use it yourself at some point during the year. So luckily, those two things are not connected. So I can get whatever kind of debt I want. I can get hard money, private money, conventional debt, not FHA, because you got to live there, but I can do any kind of debt that I want, and as long as I’m seven days or less, I can still qualify for material participation.

Ashley Kehr:
Yeah, I think another point I wanted to make on that too is just if their motivation is three to four hours is because they want to use it for personal use, knowing that they can’t spend, depending which way they go, they can’t spend their whole summer staying there, going every single week up there for the whole summer if they are going to use it for the short-term rental tax loophole or whatever too. So I thought I would use my A-frame all the time, the day I was so sad to rent it out the day I rented out, I was like, oh, don’t worry, kids are going to come here all the time. We haven’t stayed the night once. Maybe one time we went since we started booking it out, but it’s like, yeah, don’t make that a huge deciding factor, I would say, as to deciding on a market if you don’t know for sure if you’ll actually use it or not. Anyways, thank you guys so much for listening to this episode of Real Estate Rookie. I’m Ashley. He’s Tony, and we’ll see you guys on the next episode.

Dave:
If you skip this episode, you could be leaving thousands of dollars on the table. They say there’s only two things guaranteed in life, death, and taxes. And since you’re alive watching this right now, today we’re going to focus on the latter how real estate investors can legally pay less tax. And things have changed a lot this year. Big time. The big beautiful bill tax provisions are going into effect for this April’s tax deadline, and it has huge implications for real estate investors, and that’s true whether you own one rental or an entire portfolio. The strategies we’re sharing today, they could save you hundreds, thousands, or even tens of thousands of dollars over the lifetime of your investments. In this episode, we’re also going to share under the radar tax strategy that 99% of investors are missing out on. And we’ll have a CPA tell us what you need to do today so you’re never scrambling during tax time again.
Hey, what’s up everyone? I’m Dave Meyer, chief Investment Officer at BiggerPockets. Today’s guest on the show is Amanda Hahn. If you haven’t heard Amanda before, she’s been on the show a lot, but she’s an expert. She’s a CPA tax strategist, and she’s a real estate investor herself. She specializes in helping investors pay the least amount of possible taxes legally. And since April 15th is coming sooner than any of us hope or think. Let’s bring out Amanda and learn together how to save some money this year. Amanda Hahn, welcome back to the BiggerPockets podcast. Thanks so much for being here.

Amanda:
Yeah, thanks for having me, Dave. I’m super excited to be back.

Dave:
Well, we’ve had you on the show many times, but some in our audience may not know who you are yet, so can you just introduce yourself for us?

Amanda:
Of course. Hi everyone. My name is Amanda Hahn, and what I always tell people is that I am a CPA by day and by nighttime I am like many of you a real estate investor. My husband and I co-authored the two BiggerPockets textbooks, so if you haven’t checked those out, make sure to do so. One of my passions is really in helping to educate people on all the different things they can do to use real estate, to not just build wealth, but also to save a significant amount in taxes if you do things correctly. So really excited to be here. It’s that time of the year when taxes are top of mind.

Dave:
It is. Well, thanks for joining us today, and if you haven’t read Amanda’s book and you want to save money on taxes, it’s the single best thing that you could do. Self-admittedly, Amanda, this about me am terrible at this stuff. I’m not good at tax strategy, but I’ve gotten better because of reading Amanda’s books and getting to know her. So definitely check that out, but hopefully we’ll give you a little taste of the kind of stuff that you can learn here in this episode. So Amanda, maybe just break it down for us, for people who might be new to investing or for those who are just scaling their portfolio, I think a lot of us, it takes a little time to realize that you should be thinking about taxes. What sort of the big buckets of tax strategy that investors should be thinking about?

Amanda:
Yeah, well, we will start at the basics, which is that it’s important to understand when you invest in real estate, you are actually a business owner in the eyes of the IRS. And so we hear people talk a lot about how tax law favors business owners when it comes to write-offs, deductions, depreciation. And so it’s really important to understand that as a real estate investor, I am now able to take advantage of a lot of those same tax benefits and deductions that the traditional business owner has access to. And this is true regardless of whether we own our rentals in our individual name or in our trust or in an LLC,

Dave:
We call it real estate investing. But it really is just entrepreneurship. You’re starting a small business to own real estate just like any other service business or business that you create. And that is good. That’s a good thing for real estate investing. That’s why you get better tax benefits than if you were to go out and buy stock or cryptocurrency or anything like that. That’s why real estate has so many advantages. So what are the big things that people should be thinking about as they enter tax season right now?

Amanda:
What’s really interesting is when we work with investors all over the US on proactive tax planning, about 40% of tax returns that we review from previous years are not optimized for tax savings. And I can share some of the most common mistakes I see. And I think these are kind of the things that we should all keep in mind
As we get ready for tax season. And we’ll start with just capturing expenses as real estate investors. I think we’re all really good at making sure we write off our mortgage interest and property taxes and management fees. But some of those common mis deductions, even insurance, property insurance is one that we see missed pretty frequently. Really, and it’s really strange because we all have property insurance, but just some of the overhead things. Home office, most real estate investors manage their rentals from their home. Very few people actually go out and rent an office space. So if you have an eligible office, make sure you are claiming it because it does help you to save on taxes either today or sometime in the future depending on your facts and circumstances, but just overhead expenses, going to BiggerPockets conference, your BiggerPockets membership, buying a textbook, for example, using your car for business, right?

Dave:
Yeah, absolutely. For sure. I always wonder about travel. Is that something that you can deduct? I invest out of state, and so sometimes I’m going to visit the Midwest and I’m staying at hotels. That’s something I can deduct, right?

Amanda:
Yeah, for sure. And you actually, it’s not a requirement that you own rental properties in a state in order to take a tax deduction. What is required is that you’re able to demonstrate the main reason for that travel is related to real estate activities. So for example, if I didn’t own any properties in Orlando, but I’m going to Orlando for a BiggerPockets conference, that travel itself should be tax deductible, right? The flights, the hotels, the food when I’m there. And same thing, if I happen to have a trip planned to go to Ohio to look for rental properties, even though I don’t end up buying any properties, my travel costs could be deductible as long as I can show I went there for the purpose of looking for real estate touring properties and things like that.

Dave:
So I want everyone to listen to that. This is something that comes out a lot when we talk about outstate investing. People don’t go and visit markets that they’re considering investing in. And I always encourage people to do it. It’s a big expense, I understand that, but it is tax deductible in most situations. So that does take the sting out of it a little bit. It is a business expense and encourage you to think about it. So that’s one big thing people should be thinking about the returns, right, expenses. What else is there?

Amanda:
Well, along this kind of a similar line, oftentimes when we review tax returns, obviously one of the big things we look at is depreciation, right? Our ability to take a paper loss on the purchase price of the rental building we purchased, and we frequently we’ll see the depreciation as a very round number. So $500,000 for Main Street or $200,000 for Fremont Street. And that usually jumps out to me as not really capturing all of our costs associated with the acquisition of a property. Because we all know when we buy a property, we’re not just paying the purchase price of it, we are also paying closing costs. And there is different allocated or prorated property taxes, insurance and all those. So one thing we can do for any of you who’ve purchased a property during the year, sold the property, refinanced on a property, make sure you send your closing disclosure to your accountant as you get ready to meet them because then they can take the closing disclosure and pull out all of those associated expenses beyond just you telling them what the purchase price is.

Dave:
Okay, that’s a very good tip. And how big of a difference does it make? If you have an average rental property, it’s $400,000, you’re making some cashflow off of it, how big of a difference in your tax is it when you prepare the tax, right? And when you do it sort of just haphazardly?

Amanda:
Oh, the answer really depends from person to person, right? Because one question is going to be what is your tax rate? If you’re someone who is in a high tax bracket because you make a lot of income from other sources, then even a thousand dollars of a deduction could save you $500 in actual cash. And for some people that’s, it’s a decent amount. I think for anyone, I would never throw away $500 for no good reason. No. But if you have a good system to track your expenses, those items add up over time. So if you’re able to utilize it this year to offset your taxes, great. If you can’t because of passive activity limitations in the tax world, I always encourage clients, still track them, send it to your accountant because you want to make sure it’s reported. Because even the expenses that you can utilize today, you never lose them. You get to utilize them some point in the future.

Dave:
In an era of real estate investing where it’s super hard to find cashflow, this is cashflow. We often treat taxes as this separate income source or something different to think about in real estate. But as Amanda just said, she used a modest example of if you can save 500 bucks, that’s reasonable. If you could save 1200 bucks and that’s a hundred dollars a month in cashflow, that could change your cash on cash return from 3% to 6% in a given year if you’re actually just doing this right? And it’s one of the ways I think you could just keep more money in your pocket and that really has measurable differences in your actual overall return profile.

Amanda:
Yeah, I used a very small example, but if we go to the other extreme and say, well, how impactful could that be in real life? If we’re talking about somebody who invested in a rental property where the building was $400,000 with the current law where we have a hundred percent bonus depreciation, that could be what? $120,000 of a deduction just in the first year. If you’re in a 50% tax bracket, that could be $60,000 in tax saving. So we’re saying, okay, save 500 or save 60,000. I love both of those.

Dave:
Yeah, sign me up a hundred percent. Alright, so those are some great basics that everyone, whether you’re just starting or have a big portfolio should be listening to. Of course this year we have some exciting tax stuff, I think from a real estate investing perspective where many of the provisions that were passed last year in the one big beautiful bill act are starting to go in effect. So I want to pick your brain on that a little bit. Amanda, we do have to take one quick break. We’ll be right back. Welcome back to the BiggerPockets podcast. I’m here with Amanda Hahn talking about tax strategy. It’s the beginning of the year, it’s time that we all start thinking about this. Amanda enlightened us before the break just on how you should be thinking about capturing your expenses on a property level and how to maximize your deduction so you can keep more money in your pocket. A lot of things are changing though, Amanda. It’s not just the same old, same old in tax world for real estate investors. So maybe you can give us a high level overview of what has changed and what’s in the big beautiful bill act that is relevant for real estate investors.

Amanda:
Yes. Well, I mean not surprisingly with the current administration, the one big beautiful bill included a ton of very amazing benefits for real estate investors. One that I think everybody was really excited for was the return of 100% bonus depreciation.
Previous to that, we can always take depreciation on our rental properties, but under the old law, if there hasn’t been changes this year, bonus depreciation would’ve only been at 20%. So with the change of the law, now bonus depreciation for 2026 is at a hundred percent, which effectively means if you bought a property after January 19th, 2025 or anytime in 2026 and the foreseeable future, not only do we get to take depreciation on our rental properties, but that amount is supercharged, meaning we can take a very significant tax benefit upfront rather than the traditional rule of having to wait over a significant number of years to take a tax write off for it.

Dave:
And maybe you could just help us understand what is the benefit of frontloading depreciation and what are some instances or circumstances where you recommend that for real estate investors?

Amanda:
For sure, the purpose or the benefit of accelerated depreciation, basically saying rather than waiting over time to take a tax benefit on the purchase price of my rental building, I’m going to do what’s called a cost segregation study. And what that does is it allows me to then take faster depreciation this year and maybe the next few years rather than having to wait. So effectively we’re looking at the time value of money of

Speaker 3:
Savings.

Amanda:
In other words, I know I have to pay taxes to the IRS, I can either pay it now or I can pay it slowly over the next 27 or 39 years. And if I choose to pay my taxes later, that means I’m able to keep my cash longer with me today and reinvest and grow that money today rather than just giving it to the IRS. So that’s where the concept of it. Now, I will say it is not for everyone. So don’t run out and start taking accelerated depreciation just because you hear it here. The ideal profile of when you want to take accelerated depreciation are in years where you can actually benefit from it. So that would be years where you have high taxable income and or years where you can actually utilize rental losses to offset that different set of income that you’re generating, whether it’s from a W2 or a business that you operate. And so conversely, who should not do a cost segregation? Well, you should not accelerate depreciation if you’re not able to utilize it this year.

Dave:
For someone like me or maybe for someone else who has a W2 job is bonus depreciation and doing the cost even worth it.

Amanda:
Another great time to do cost segregation is if you have a gain. So let’s say I have a portfolio, but I sold one rental for a huge gain and I didn’t want to 10 31 exchange or use other strategies. I could also consider a cost segregation on one of the properties in my existing portfolio and try to offset one with the other.

Dave:
So you can actually take the depreciation from one portfolio property and apply it to another one even if you’re not a real estate professional.

Amanda:
Yep, exactly. Exactly.

Dave:
Love that.

Amanda:
And I will say one other thing since we’re on the topic of someone who is not a real estate professional, you may have been told by your accountant that there is no tax benefit to you investing in real estate because either you work full time or you make too much money. And when you hear that from an accountant, they’re doing what I called tunnel visioning because all they’re saying is, for example, Dave, you are not going to see a huge benefit this year in owning rental real estate. You’re still going to pay taxes on your W2 income. But what they’re not factoring in are the different benefits, which is I generated rental cash flow that I’m not paying taxes on. And also in the future when I generate future cashflow, I may not have to pay taxes on. And also the most important part, which is at the end of my investment with this specific property, if I were to sell it at that point, I can actually use all of the accumulated losses from that property to reduce not just the capital gains from the sale, but also W2 and all other income as well. So there’s absolutely benefit to being a real estate investor. It’s just a timing of when somebody actually sees that.

Dave:
One of the things I struggled with early in my investing career is you look at these things, you say, oh, I’m going to pay this tax eventually if I just defer it. And at least for me, I didn’t really appreciate the time value of money element. I can keep more principle in my pocket and use that to go buy other investment properties to make renovations on my properties. And in addition to just delaying that, this is getting nerdy about it, but you also wind up paying your taxes in inflated devalued dollars over time too. So you’re purchasing power. Part of the idea of the time value is money is your money is worth today more than it’s worth in the future. And so if you can hold onto it and use it to build your portfolio currently, then it’s better to invest a hundred dollars today than it’s a hundred dollars several years from now.
And so that’s one of the main things about tax strategy that real estate allows you to do. And that’s kind of the same idea behind a 10 31 too, right? You eventually in theory at least have to pay that tax, but if you can defer that and go out and save the 20% on capital gains and just go buy another property, it means you just have more purchasing power, which is so powerful, especially early in your investing career. So anyway, long conversation here about bonus depreciation, depreciation in general. Anything else from the one big beautiful Bill act that our audience should know about?

Amanda:
Yeah, well beyond bonus depreciation, one of the good things about the one big beautiful bill is that we were able to retain the tax that’s called qualified business income deduction, QBI for short. So that was something that was available that was then extended as part of the one big beautiful bill. And basically the reason we care about that is real estate investors is QBI basically allows certain types of business income to have tax-free treatment up to 20%. So an example could be if I’ve owned my rentals for many years and even after using depreciation and cost segregation, I have to pay taxes. There’s taxable income. Well, under QBI, if I had a hundred dollars worth of taxable income, I may only have to pay taxes on $80 of it, which means $20 of my taxable rental income could be completely tax free. And this doesn’t just apply to rental income, it applies to all different types of income, specifically in real estate as well. So for those of you who are flipping properties, doing wholesale, or if you’re property manager co-hosting all of the different types, up to 20% of that taxable income could potentially be tax free under QBI deduction. And that is something we enjoy for 2025 as well as 2026.

Dave:
Amazing. Finally, a tax win for flippers at wholesalers. Honestly, as you’re listening to Amanda, most of the benefits for real estate investors come with buy and hold styles of investing. It doesn’t need to be rentals. A lot of them still apply for short-term rentals or midterm rentals, but it’s kind of a buy and hold. The transactional kind of real estate doesn’t always get the same treatment. But QBI is a great example,

Amanda:
Although I will say that for some reason a lot of tax returns we review that are prepared by other firms are often missing that QBI deduction. So one of the things as you’re getting ready to meet with your accountant to file last year’s taxes, that’s another question you can add to the list is just to have them double check, make sure I’m getting my qualified business income deduction. And it very well could be that, hey, it doesn’t apply to you because you have rental losses, right? So when we have losses, it doesn’t apply because we’re already not paying taxes on it. But to the extent you have taxable income from real estate or even a non-real estate business, it’s super, super significant when it comes to savings. We see this mostly with our clients who do fix and flips and our clients who are on the active real estate side, brokers, realtors, has been a very significant tax saving in the past couple of years.

Dave:
All right, well everyone, make sure that you have QBI or at least think about QBI and see if you qualify for this QBI deduction this year. Sounds like that could be a huge savings. Alright, we got to take a quick break, but when we come back, we’re going to talk to Amanda about how to set yourself up for a stress-free and hopefully very profitable tax prep season this year. Stay with us. We’ll be right back. Welcome back to the BiggerPockets podcast. I’m Dave Meyer here with Amanda Hahn talking tax prep and tax strategy for 2026. We’ve talked about what things you should be looking for in your tax prep this year. Talked about the new changes in the one big beautiful bill act that investors should be paying attention to. But Amanda, I just want to talk about the stress that comes with tax prep. It’s not fun for most people, so how do you systematically recommend people go about doing this so that they can capture the most benefit, but that’s not driving them crazy?

Amanda:
I’ll tell you what I feel are the two main reasons people hate tax season. I mean outside of just the fact that they have to pay taxes. I think one is record keeping. Okay, if you’re someone who has not done good record keeping last year, this is sort of the end of the road where you’re like, man, now I got to go through my bank statements and my receipts and try to categorize all the stuff that I don’t remember what I did or didn’t do. And really the best way to change that is just to have systems in place, right systems for your bookkeeping and accounting. If you have the budget to outsource it, great, take that off of your hands If you don’t, it’s really just a matter of setting time aside on a monthly basis to make sure you do all of that.
Because if you’re like me, it’s difficult for me to remember what I did a week ago. So for me to have to think about a year ago, that’s the stress of like, oh my gosh, it’s like a mountain of paperwork and we know it’s coming every year, tax time comes. So I think just taking the time set up a system that works for you, whether it’s QuickBooks or SSA or an Excel spreadsheet, whatever that happens to be, but getting the system set up so you are doing it on a month-to-month basis really will help alleviate a lot of the stress at tax time. I think the second reason people don’t like tax season is the surprise. So the surprise of

Dave:
So true,

Amanda:
The anxiety of like, am I any refund? Am I going to owe a lot? The best way to alleviate or prevent that is with proactive tax planning. So for a lot of our clients, and that’s why we focus so much on the planning because your tax bills should never be a surprise. If you’re planning during the year, if you’re meeting with your accountant throughout the year, before you buy properties, before you sell properties, before you open a new LLC or partner with a friend of yours, to always kind of have at least touch points on, okay, what’s our income, what’s our deductions? So that by the end of the year in December, we have a pretty good idea whether we owe or we’re going to get a refund. But I will say you can only have effective tax planning if you have good financial records. So that also goes back to just having clean bookkeeping. So we know

Dave:
That’s a good point.

Amanda:
We can monitor year round.

Dave:
Well, I want to talk to you more about tax planning. I think that’s a super important thing. But when you talk about bookkeeping, are there any tools? You mentioned QuickBooks, tesa, both good tools. Are there any new ones? I’ve been getting a lot of ads honestly for AI bookkeeping. I don’t know if that’s just people who want to say everything is AI right now, but it’s really just the same product. It’s always been. But are there any specific things that you think people should be looking for when they’re setting up a system

Amanda:
From a tax perspective? The main thing you want to look for is the ability to track income and expenses by property. That is what’s required for IRS reporting. And also just for you as a property owner, if you have multiple properties, I want to know how each property is doing. And I think a quick tip I would say is to have a separate bank account that you use exclusively for real estate things.

Dave:
A hundred percent, yes.

Amanda:
If you have an LLC for your rental properties, use that account. If there’s no money in there, you transfer money from your personal account into the LLC account and then pay for the expenses. That I think helps to cut people’s bookkeeping headache by maybe 80 or 90%.

Dave:
Yes, there is a no brainer for doing that. That’s a great quick tip. So let’s talk a little bit about tax planning proactively. I like this idea. So can you give us an example? I’m going out to buy a new property this year. I call you and say, how do I plan for this in the most taxed optimal way? What are some of the things you’re thinking about or some of the things I should be thinking about?

Amanda:
And I think, again, it kind of depends a little bit on the different facts and profiles of a specific taxpayer. So if we’re saying, oh, well Dave is not a real estate professional, a household with dual income W2, nobody is really able to claim real estate professional status, then maybe a recommendation could be, can we consider a rental property or the next one you buy to be a short-term rental?
Why? Because short-term rentals, we can use the short-term rental loophole where you don’t have to quit your job. Real estate could be a side hustle. You could potentially use the short-term rental losses against W2 and other types of income provided that you meet all of the requirements that still being hands-on and all those things. And so that part of the conversation then maybe kind of veers into where should the property be? Should it be close enough where you can be more hands-on, or are you comfortable with using apps to be able to semi manage or self-manage remotely as well? And then what kind of entity who should be on it? Is it one person, both spouses? So that’s the fun part, right? The initial question is, I want to buy more real estate this year. And then it turns into a lot of different decision makings on, well, have you considered this or that also to get the optimal tax benefit too.

Dave:
Yeah, and I would imagine we started this section of show just talking about stress, that when you plan this upfront, that basically takes away what you were saying, the stress of the unknown at the end of the year. When you add a new property, it’s only incrementally making your taxes more complicated, not like doubling it. If you’re going from one to two properties, now you have double the amount of work you have to do for taxes

Amanda:
For sure. I mean, just having even a system could be, I have a checklist whenever I buy new properties, here are the things I need to put in a folder, the closing disclosure, the appraisal form. I also probably want to make sure I have an entity set up, or at least I’m going to call my CPA, let them know these things happened. So just having that already. So every time I am expanding my portfolio, these are the things I’m going to keep here together. And that tax time is just a matter of sharing all those things in that folder with your accountant or with your bookkeeper even on a monthly basis.

Dave:
Awesome. Well, this is great advice and I really recommend people doing this. Again, I know I keep saying this, but I just think in general, people get really excited about buying properties when they’re first starting, which is right. And then two years into your investing career, you’re like, oh my God, I could have been doing this so much better from a tax perspective, but take it from me, take it from Amanda. Just try and do this stuff upfront. I promise you it will be worth your time and money. It is always worth your time and money to start doing these things upfront.

Amanda:
And I will say I unfortunately do meet people who historically are very model citizens when it comes to tax filing. If they just have a W2 job, they own their home and it’s like always filed on time, filed by February or March, and then, oh, I bought rental properties and then I got overwhelmed and I just basically stopped filing tax returns because I didn’t know what to do. But I think it’s really important to understand if I’m describing you as a listener, it’s really important to understand that taxes don’t go away, so you will have to file your tax return. And again, the sooner you do it, the better you’re going to feel. I promise you.

Dave:
All right. One last question for you, Amanda, before you get out of here. You said you’re also a real estate investor. What are you investing in these days?

Amanda:
Oh, well, actually I live in California, but I grew up in Las Vegas and I went to college there. So a big part of our portfolio has been in Las Vegas, so we continue to expand in Vegas. But I think our latest acquisition was in Florida, and I talk about this with clients as well. In the last couple of years, we’ve gotten more and more into passive investments through syndications and things like that all over the us. And for us, it’s just a change in priorities. And our focus, we’re in a season of life where we have two young boys that require a lot of attention with sports and all the things. So it wasn’t like before when we were starting out, it was a lot of Burr properties. We have the time, we didn’t have the money, we had the time, and now we’re in a different place where we have more of the resources but not as much time to go after the properties ourselves. And we might change when the kids leave us and go off to college, then we might go back to doing burrs or maybe doing our own apartment buildings.

Dave:
A hundred percent. I’ve done the same thing, done a lot more passive investing over the last couple of years. And that’s the benefit. You get to a place where you’ve put in the hard work and then you get to choose. You get to choose if you want to do investing passive. I moved back to the States now I’ve kind of missed doing some active investing. So I’m doing that more for fun than just not needing to. But that’s the goal. So congratulations on getting to that stage in your investing career.

Amanda:
Yeah, thank you. And are you considering house hacking with your new home?

Dave:
I’m calling it a live-in flip because we’re not renting out any part of it, but we bought an under, it’s a 1968 build and it feels like it’s 1968, I’ll tell you that. We got popcorn ceilings. We still have those intercoms that people used to have super old school. They still work. It’s pretty fun to use

Amanda:
Only in the expensive homes though, when they have those, right?

Dave:
I think back in the day, yeah, it was nice, but it’s still perfectly comfortable. But the idea is we’re going to start renovating it and hopefully spend probably in somewhere in the 200, 250 grand range, but we think it will increase the value like 400,000. This is in Seattle, very expensive market. But that’s kind of the idea. But I’m calling it a live in flip, but I don’t know if we’ll actually sell it after two years. We might live in it for longer, but we’ll see. But we’re going to do a value add to it.

Amanda:
Yeah, I love that. And I think a lot of clients, I mean a lot of newer investors think that primary home investment strategies are for people who are just starting out in real estate, but I think people will be shocked to know how many of our clients that are doing very large deals also try to optimize their primary home a hundred percent to the nth degree. So I love that.

Dave:
Yeah. The other place we were considering buying was a house hack. It was like an up down duplex, and we were going to rent out the bottom basement. Personally, my dream home is like a primary that has an A DU above a garage that I could rent out. That would be the perfect situation. But Henry and I actually just did a show about this yesterday. We recorded it talking about how at every phase of your investing career, thinking about your primary residence as an investment makes sense. You don’t have to for your lifestyle, but there are always things you can do to make your primary home a money maker for you if you’re willing to make what I think are pretty small sacrifices to get those gains.

Amanda:
And the tax benefits are just typically pretty amazing when we’re talking about primary homes. Absolutely.

Dave:
Well, Amanda, thank you so much as always for being here. We really appreciate it.

Amanda:
Yeah, thanks for having me.

Dave:
And if you want to learn more from Amanda, you should go check out her two books that she’s written. You can get them on biggerpockets.com or you can always find them on Amazon. And I’m happy to say Amanda will be back at BP Con this year speaking and leading a tax workshop. As she always does, BP Con tickets are now available. Early bird tickets are for sale to the cheapest they will ever be. So if you want to get in there and get some hands-on advice from Amanda and her husband Matt, come to BP Con in Orlando this year, biggerpockets.com/conference. And if you to hear the episode I was just talking about with Henry and I talking about primary residents, it’s episode 1236. It came out on February 6th. Go check that out. Thanks again, Amanda, and thank you all so much for listening to this episode of the BiggerPockets podcast. We’ll see you next time.

Looking for an affordable, cash-flowing market earmarked for major development and a projected population and economic surge? Grand Rapids, Michigan, could fit the bill.

Among the new projects planned in a billion-dollar development, the Transformational Brownfield Plan in the Grand Rapids Riverfront area, is the construction of a new soccer stadium, amphitheater, apartment building, and supportive infrastructure, Michigan Public, an NPR station, reported when the project was announced in 2024.

In late 2025, another development was announced: the seven-acre Fulton & Market riverfront plan, led by Magellan Development and local partners, costing $795 million, backed by the Michigan Strategic Fund, and including multiple new housing projects.

“This corridor has long been a vital part of the community, home to so many people and businesses that make Grand Rapids special,” Winnie Brinks (D-Grand Rapids) said in a statement. “It’s great to see them finally getting the attention and investment they deserve.”?

The Michigan Economic Development Corporation reports that the development will add roughly 630-735 new housing units, including three new towers, with tax-capture incentives. Magellan president J.R. Berger called the Transformational Brownfield Plan “a cornerstone of the Fulton and Market development” that unlocks the ability “to transform riverfront parking into a vibrant ecosystem of residential, restaurant, office, retail, hospitality, and public space that connects neighborhoods and further energizes downtown Grand Rapids riverfront.”

The Appeal to Investors

Those unbeatable Midwest price tags, coupled with economic development, have made the chilly Great Lakes area and beyond a hotbed for investors in recent years. Below the hulking skyline cranes and beyond the hype of the Midwest, Grand Rapids is anchored by some sturdy business fundamentals.

According to regional economic development group The Right Place, Greater Grand Rapids’ cost of living is about 8% below the national average, even as the area experienced 6.1% population growth over the last 10 years and a 9% increase year over year in residential building permits in 2024, which occurred in conjunction with burgeoning healthcare and tech industries.

The Stats

In a positive sign for investing, the Grand Rapids area is predicted to enjoy a moderate but steady price appreciation rather than an explosive boom and all the frenzy that comes with it. A housing trends analysis from Redfin noted that as of January 2026, the median sale price in the city was about $282,000. That marked a roughly 4.4% increase from last year, with the price per square foot up 5%, and homes sold in a brisk 33 days, signaling a price-sensitive buying public, but overall demand remains solid.

Realtor.com named Grand Rapids as one of its “refuge markets,” where buyers are migrating from larger, more expensive metros in search of affordability, value, and stability.

“Our 2026 top housing markets offer better value than nearby high-cost hubs, yet steady demand and persistent inventory shortages keep prices moving upward,” Danielle Hale, chief economist at Realtor.com, said in a press release. “For buyers, that can mean more competition and faster price gains. For sellers and homeowners, it signals strong demand or home price appreciation and equity gains.”

A Deeper Dive

Home prices in Grand Rapids rose a healthy 9% in 2024, preceded by 7% in 2023 and a 32% increase overall since 2021, according to Grand Valley State University’s Seidman Business Review, drawing on data from Greater Regional Alliance of Realtors (2025) and Federal Reserve Bank of St. Louis (2025). The price increases in the area have been driven by rising employment and constrained supply, which seems set to change, as 40% of residential permits in 2024 were for multifamily construction.

The Investor’s Play

The economic push toward development, as well as toward more established healthcare and tech industries, creates a housing need. For smaller investors, development projects always create opportunities around the glossy new riverfront condos in the modest infill projects in surrounding corridors.

According to real estate company Cornerstone Home Group, the best values for investors to buy in Grand Rapids come with B-class and C-class properties, which include the biggest Grand Rapids neighborhood Creston (North Grand Rapids), as well as the West Side, Southwest/Burton Heights, and Walker, all of which should be able to be purchased between $150,000 and $300,000, per Zillow data. 

Rents and their outlooks for investors are as follows, according to Cornerstone:

• Studio, about $1,280 to $1,330 per month: Stable to modest gains
• One-bedroom, about $1,420 to $1,540: Moderate gains
• Two-bedroom, about $1,640 to $1,800: Moderate gains helped by new builds
• Three-bedroom, about $1,850 to above $2,110: Stronger gains, especially for single-family rentals

Sizable Rent Growth

Small landlords make up the main investor base in Grand Rapids (institutional investors own less than 1%), says Business Insider. Rents are up year over year from 4.1% to 4.5% as of mid-2025, according to the Cornerstone Group. This follows a statewide trend in which housing demand has increased while supply has not, leading to rent increases, according to the Mackinac Center for Public Policy.

Not helping matters have been the number of foreclosures in the state, with Michigan one of the top five states in the country for foreclosure activity as of the first half of 2025, according to ATTOM.

Final Thoughts

Grand Rapids has come a long way. It still has a way to go, however. Behind the splashy headlines of imminent development, U.S. Census statistics reveal that 16.9% of households were living in poverty, which is higher than the state average. With new construction and businesses coming to the city in the next few years, there is an ideal opportunity for astute investors to purchase low-priced rentals in pivotal areas, get them up and running, and enjoy the ride as the city takes flight.

For most of us, the frenzied bidding wars and constant price hikes of the post-pandemic housing boom are recent memories. That’s why it might come as a surprise to find that over 60% of homebuyers bought below asking price in 2025, according to brokerage and listings portal Redfin, when analyzing MLS data.

The discounts buyers received were not pocket change, either. Redfin reports that the average under-market offer accepted resulted in a 7.9% markdown, which was the largest since 2012. On a purchase price of $399,000, which was 2025’s median list price, that amounts to $31,592, more than enough for a down payment on a smaller investment or enough to fund some upgrades on the new property. 

The average discount across all homes—not just those selling below list price—was 3.8%.

Why and Where Discounts Are Back

Nabbing a discount isn’t as easy as throwing a dart at a map, despite the vast number of homes trading under asking price. There are some basic fundamentals at play—high interest rates, insurance costs, cost-of-living issues, and sellers outnumbering buyers.

Specific markets have exacerbated these issues, particularly where insurance costs have become a major concern, such as West Palm Beach, Florida, where discounts topped 10%, according to Redfin. Elsewhere, the Midwest, notably in Detroit and Pittsburgh, saw near or above double-digit discounts.

In total, Redfin says there are a record 47% more homesellers than there are buyers, making it the most negotiable market in years. For investors looking to capitalize on the malaise, it offers a great chance to get a deal. 

Said Redin senior economist, Asad Khan, in a press release:

“Homebuyers in 2026 shouldn’t write off homes that are slightly above their budget because there’s a good chance they’ll get some sort of concession from the seller, be it a price cut, money toward closing costs, or funds for repairs. This marks a reversal from the pandemic homebuying frenzy, when house hunters were advised to search for homes below their budget because fierce bidding wars were causing properties to sell far above the asking price.”

How Investors Should Interpret the Data

Condos are where the big discount action is. Just under 70% of condo buyers paid less than the asking price, with Florida seeing some of the biggest discounts in the country, in part due to a lot of construction and insurance/affordability issues.

However, just because buyers can negotiate doesn’t mean they can secure deals for pennies on the dollar as they did after the 2008 crash. The dynamics at play now are very different, tied to the affordability of regular homeowners rather than to overleveraged buyers with bad loans who are being foreclosed upon. Home prices are unreachable for many buyers, increasing 25% since 2020, according to U.S. Census data, rising faster than most people’s incomes.

Investors should review last year’s numbers alongside 2026 projections to gauge where the market is heading and make offers accordingly.

“The bottom line for 2026 is that it will be a transitional year,” Chris Reis, a broker with Compass in Seattle, told CNBC Make It. “There won’t be a crash or a boom, just the market finding its footing after years of extraordinary disruption. Buyers will have more selection and negotiating power than at any time since the pandemic.”

Look to See Where Prices Are Falling

Buyers will have the most negotiating power in cities where prices are expected to drop, and according to Zillow, most of the 22 cities where that is expected to happen will be in the Southeast or West.

“These places, among others, saw a huge frenzy during the pandemic, so part of what we are projecting is that demand continuing to come back down to earth,” Realtor.com’s Jake Krimmel, a senior economist, told CBS News. 

Even though Zillow expects prices to rise in the 78 other largest U.S. cities, as increases are expected to be small, there may still be room for negotiation. Fewer contracts on the table from homebuyers means more opportunities for investors, as happened in 2025.

Final Thoughts: 6 Tips for Structuring a Lowball Offer That Gets Accepted

1. Structure an offer that is compelling, not insulting. 

Your goal with your offer is to start a conversation, not shut it down. Present an offer with a professional contract and a few contingencies, with a fast closing. Be a problem solver, not an antagonist—that means not pointing out everything that is wrong with the property.

2. Back up your offer with comparable sales data. 

Using comparable sales data is a standard way to justify an offer when the listing price is below market value or the asking price. Tying an offer to objective comps shows that some thought has gone into the price rather than aggressive haggling for the sake of scoring a deal, and it will be received more favorably.

3. Be flexible on the closing date. 

As a landlord, your move-in date is usually not as specific as a homebuyer’s, which might be tied to a job transfer or the start of the school year. Allowing the seller flexibility on closing makes a lower offer more palatable.

4. Have strong financing lined up. 

To have a chance of getting a lowball offer accepted, your financing needs to be rock solid—and ideally, all cash is the way to go. This eliminates any questions about whether you can actually close. 

If you cannot buy all in cash, showing that you have cash in the bank, a recent preapproval from a reputable lender, along with employment and income sources, and good credit scores, will help to put a seller’s mind at ease.

5. Focus on listings that have been on the market for a while. 

Wrongly priced listings tend to sit on the market and lose their shine. Sellers are usually hit with a crisis of confidence when no offers come in. They will be more open to being put out of their misery, relieved to receive an offer, and ready to move on with their lives.

6. Use your investor position to tailor your offer. 

Most offers only address the buyer’s needs, not the seller’s. As an investor, you can speak to a seller’s pain. 

Other offers might be inspection contingent, in which the prospective buyer will point out every flaw to negotiate a lower price. That immediately sets up an adversarial situation. It’s like criticizing someone’s child. The seller won’t be enthusiastic about doing business with that buyer. 

If you can swoop in with an all-cash offer, talk up the house, and offer a swift closing, the seller will be more inclined to cut their losses and accept your price.

Ashley:
Most rockies believe there’s a moment coming when they’ll finally feel ready to buy a deal. When the market makes sense, the numbers feel safer and the fear goes away.

Tony:
But the truth is that moments almost never comes. And in 2026, that belief alone is the biggest reason most rookies will stay stuck on the sidelines.

Ashley:
This is the Real Estate Rookie Podcast, and I’m Ashley Kehr.

Tony:
And I’m Tony J. Robinson, and today we’re going to break down the reasons why most rookies will not buy a deal in 2026. And as we go through these reasons, we’re also going to call out how you can be the exception. So if you hear yourself being echoed in some of these points, don’t worry, we’ll try and show you how to fix it as well. All right? So the first reason that you probably won’t buy a deal in 2026 is because you’re confusing comfort with confidence. And we’ve talked about this in the podcast before, but oftentimes rookie investors want to feel comfortable with the idea of buying their first rental. They want this comfort when they submit the offer. They want this comfort when they sign the closing docs. They want this comfort when they welcome in their first tenant or their guests or their first flip or whatever it may be.
But here’s the truth, guys. It is physically impossible to be comfortable and to be growing at the same time because by definition, growth only happens when you’re stepping outside of whatever comfort zone you currently exist in. So if you’re waiting for this moment of this comfort to appear in order to do this thing you’ve never done, you’ll get stuck in this endless loop where you never actually take action. Now, confidence on the other hand is something that you can build towards. The more deals that you underwrite, the more people that you talk to who’ve already successfully done the thing you’re trying to do, the more agents you talk with, the more property managers, the more general contractors, the more data points you have to support your decision, that’s how you build confidence. So that’s the first one for me. Stop confusing comfort with confidence. Focus on confidence, not comfort.

Ashley:
A big part of this I think people don’t look at is you go to a W2 job most likely every single day and you feel safe. You feel comfortable taking on a job and that provides you that comfort. And going into real estate and buying a property feels uncomfortable. It feels like a risk. You have to look at the differences of these because you feel comfortable in your job, but you could literally be fired at any moment, any day and lose your income. But yet people see a job as they’re comfortable with that, but somehow real estate and buying a property is a bigger risk and has greater potential to fail. But if you look at the two different scenarios, having a W2 job is really not that safe at all. Where if you’re buying an investment property, you have more control over that asset and more options as to how you can actually make it profitable, make it an opportunity for yourself than your own W2 job in most cases.
So I think having that control piece is a big difference of being able to lessen your risk and to provide an opportunity for yourself that you can control and not your boss or the owner of your company that is controlling your future.

Tony:
And what this costs you when you’re stuck in this loop of trying to feel comfortable before you take action is that you never actually get the reps in that build the confidence. The only way that you build confidence is by getting the reps in, using the data that’s in front of you to actually get the reps in. So I always tell folks, it’s like the first glass ceiling you have to break through is submitting that first offer. And I would encourage every single person who’s listening today to just go submit an offer on something and just make it an incredibly low, almost insulting offer because the goal isn’t that you actually get the offer accepted. The goal is that you stop being afraid of submitting an offer. So when you get stuck on comfort versus confidence, you lose that ability to get your reps in.
But in terms of how you can be the exception, the first thing is to take action before comfort shows up. Just walk into this knowing that it’s going to feel a little uneasy. You’re going to be second guessing yourself a little bit. You’re going to be like, “Am I doing this right?” Now, I’m not telling you to jump in ill-equipped or unprepared, right? Still do all the work you need to do to feel that you’re taking the right next step, but just know it’s going to feel a little uneasy. It’s going to feel a little maybe nauseous as you submit that first offer. And then I think the next piece is to define the one uncomfortable action that you’ll take. Already talked about submitting the offer. I think that’s a great big one to take. But even before that, simple things like picking up the phone and talking to agents.
How many agents can you talk to to help you get to your first deal is a great thing to do. How many general contractors and quotes can you get for a potential property that you’re looking at? The more action you take, the easier it becomes to take that next step. And I think if we measure our progress based on the actions that we’re taking, not necessarily whether or not the deal is done, that’s how we make sure that we’re making progress over time. So that’s the first one. Stop confusing comfort with confidence.

Ashley:
Comfort actually keeps most rookies from starting, but next we’ll break down why chasing good deals keeps them from ever finishing. We’ll be right back after a word from our show sponsors. Okay. Welcome back. So once rookies push past comfort, the next trap looks productive, but still prevents buying. So let’s get into why you won’t buy a deal. And that reason is because you’re waiting for a deal to just fall into your lap without actually going out and finding a deal. And I’ve definitely been guilty of this myself. Even over the years, I’ll just sit and think, “You know what? I’m not going to chase a deal. Maybe I’ll get one this year or something.” But I think that if I really, really want to find a deal, I have to go out and I have to put in the work. I have to put in the effort of finding the deal and not just scrolling the MLS waiting for the perfect deal to appear to me.

Tony:
Yeah. You can’t manifest a good deal into your life. You can’t positive think your way into a deal.You’ve got to actually do some work. And our good friend, James Danar from the On the Market podcast always talks about deals aren’t found, but they’re built or they’re made or he phrased them in a certain way, but it’s like basically you have to go out there and manufacture the right deal. And for him, what he talks about a lot of times is, “Okay, what does a business plan look like on this deal that would allow me to turn into a good deal?” So maybe I’m buying it as a three bedroom, but I’m converting it to a five bedroom, and that’s how I make this deal work. We’ve interviewed Laka Davetha and she’s built an incredible portfolio in the Seattle area, but what she’s focused on a lot recently are ADUs.
And for her, it’s like, “Hey, I can go out here and buy a single family home and maybe it doesn’t work that way, but if I do a detached ADU, that completely changes the economics on this deal. And now I’ve got two properties for the price of one, which allows me to go out there and generate more revenue.” The Nawsums, Shannon and Christian, who we interviewed in the podcast, they do room rentals and they’ll go out and buy a three bedroom home and convert it to a seven bedroom home and then they’re renting to students. So it works for their business model. So I think we’ve got to get out of the idea of just, I’m going to look on Redfin or Zillow and that’s where I’m going to find the perfect deal, but it’s how can I maybe get a little bit more creative?
How can I put a little bit more work? How can I view this from a slightly different angle to try and find the right approach for me that allows me to get a good deal?

Ashley:
And I think even before that, if you’re waiting for the right deal to fall into your lap, do you even know what the perfect deal is? Do you even know what deal you want to fall into your lap? Have you defined your buy box? Do you know exactly what strategy you’re going to do? And that will really help you narrow down your focus and be able to actively go after what you’re looking for instead of just waiting and looking and like, “Oh, you know what, that doesn’t look great. No, not that, not that. ” And waiting for what’s going to be perfect for you, I think really defining what is the deal that you’re looking for first and then trying to actively go and search for that. And it’ll be easier to search for it if you actually know what you’re looking for too.

Tony:
Now, Ash, you make a great point. And two things I’d add to that. Number one is that if you’re just waiting for an agent to send you good deals, it’s not that that approach won’t work at all, but it is that that approach is going to be a significantly slower route toward finding your first deal. Of all the properties in my portfolio, I think maybe my first, the very first one that I bought, I think might be the only one that an agent actually sent to me where they were like, “Hey, here’s one that kind of pops up that meets your buy box and your criteria. Here’s where I think we should submit our offer,” so on and so forth. Every other deal has been me out there searching, hunting, underwriting, analyzing, and then going back to my agent saying, “Hey, here’s my offer. Here’s what I’m thinking.
What are your thoughts? Cool, you’re on the same page. All right, let’s move forward.” So I think first you’ve got to change the role that your agent is playing to more of an advisor than your straight deal finder.

Ashley:
It’s just a bonus if you get a deal brought to you. I’ve gotten a ton of deals from word of mouth referrals. “Oh, my cousin’s selling a property. Let me give you their number. I know they want to get rid of it. “Those should just be bonuses and you shouldn’t depend on the agent bringing you deals or the word of mouth deals or referrals from other people to lock in a deal.

Tony:
And I think the second piece to your point, Ashley, of you won’t know what to look for until you start taking some of this action. One of my strong recommendations for folks is that before you even start hunting for a deal to purchase, first do the research on what’s already working well in your market. And this can apply to long-term rentals, short-term rentals, midterm rentals flipping, but let’s say that I’m a flipper. I can use Zillow, I can use Redfin. There are websites like PropStream or Privy where you can make the search a little bit easier, but I can go back and find properties that have recently been flipped in the market that I’m looking at and I can very quickly start to identify, okay, well, where are the areas where the majority of the flips are happening? So then I can go from an entire city or an entire county, maybe down to a specific zip code or certain blocks within those cities that actually work well.
Then I can start to see, okay, well, what are the bedroom counts and kind of square footage ranges that are usually moving the fastest? And then I can say, okay, well, maybe the one bedrooms don’t sell all that well. Or man, if I get below 1000 square feet, those tend to sit a bit longer. But if I’ve got a good starter home, three bedrooms, two baths, even up to four bedrooms, those tend to move pretty quickly. But man, if I start trying to sell like a five or a six bedroom, those tend to settle a bit longer as well. So you can start to engineer what your buy box looks like by simply looking at the data of what’s already been successful in your market, and then that gives you a better sense of, okay, now what do I need to go look for in this market to be successful?
So if you’re trying to find deals, one of the best places to start is by looking at what’s already sold in your market. I think an additional point to add to this too, Ash, is that as you start to do the work of actually sourcing the deals, one of the other points that you should be focused on is better understanding the seller. And I think that’s where a lot of Ricky investors also get caught up is that they see the list price for a property and they take that as gospel, right? It’s like that seller is only willing to accept that list price. And I was just talking to someone yesterday who’s looking to buy their first Airbnb and he was looking at a pretty expensive property in upstate New York. I think it was listed for like $1.69 million and the deal worked for him at like 1.3.
So there’s like a $300,000 gap, which is not a small amount of money, but the property had been listed for the better part of a year. So this guy who’s looking to sell this property has been sitting on a $1.7 million property for over a year and it’s just been sitting empty and he has been renting it during that time. So for me, it’s like, hey, there might be some motivation for this seller to actually budge off of that 1.7 purchase price. But the guy who I was talking to was like, “Man, I just don’t want to offend this seller.” And what I shared with him was I would be more concerned about locking up a property at the wrong price than I would be about offending the seller. So I said, “Man, just submit the offer, whatever number makes the most sense for you.
” So he went to the agent, his starting number was 1.2 million, and the agent came back and said, “Hey, look, it’s listed at 1.7. I know the seller will probably come down to 1.5. 1.2 might be too much of a stretch.” But even there, we went from 1.7 to 1.5 with one quick conversation. So I think the biggest thing for rookies to understand is that you’ve got to put the ball in the court of the seller to either accept, reject, or alter whatever offer you’ve submitted to them, but don’t try and get in their head and make that decision for them. So I think that’s one important point when it comes to finding the right deal.

Ashley:
I think too, if you don’t know this person personally, if you offend them, will you ever talk to them or meet them again or even think about them again? In most cases, no. Okay, you offended someone, you will never interact with them again because they’re not selling your house, you’re not buying it and you move on to the next deal. But if they negotiate with you or they bring it down, now you’ve got yourself a deal. Trust me, I’m the worst person to ask about confrontation, but even that, I am okay with

Tony:
It. But Ashley, let me even ask you, let’s say that you were selling that property for 1.7 and someone came and offered you 900K, would you even respond to that offer?

Ashley:
Yeah, I would at least counter offer. I would at least do a counter if I would say the 1.5 or whatever, I would at least counter and say that’s the lowest I’m willing to go.

Tony:
And what if they came back after you countered it at 1.5 and they’re like, “You know what, Ashley, since you countered me, I’m actually going to reduce my price to 500K.” What would you say next?

Ashley:
Then I probably would just tell my agent, either don’t respond or … So

Tony:
At that point, you might be considered insulted by their offer, right? Let’s say that same seller came back to you and they’re like, “You know what, Ashley? I have some time to reflect. I realized I was wrong for that offer of 500K. I want to now offer you a full price offer at 1.7.” Would you be okay with that? What would you say to that?

Ashley:
Yeah, especially if this is an investment property, I don’t care who I’m selling it to. Even my own house, I don’t care who’s buying it or what you’re going to do to it. Yes, someone that’s lived into their house and taken care of it and built beautiful gardens and everything, and then maybe they want to drive by once a week and make sure everything’s wonderful, wants to sell it to a family and blah, blah, blah and stuff like that. But as an investor, I do not care what you do with the property after you’ve written me a check.

Tony:
And I think that’s the scenario or that’s the mindset for a lot of people. And that’s why I went through that little thought exercise because it’s like, even if you offend a seller with your first offer, there’s usually some number where that offer is no longer offensive. You’ve just got to figure out if you can get as close to that number without going over where the deal makes sense for you.

Ashley:
And one thing too is follow up with them. So you do your low ball offer, whatever, they don’t respond or they get mad, whatever happens. Three months later, follow up and ask their agent or would they be willing to come down anymore or what’s going on with the deal? Follow up. There’s probably been two circumstances I can think off the top of my head where I’ve put offers on a property, they said no, and six months later it closed for less than what I had originally offered. But I don’t know if it’s either just them thinking I’m not interested anymore because it’s been so long or them if they really were insulted and didn’t want me to buy it because of my first offer, but yet they sold it because of that. But I think continue to follow up. Even if you do insult the person and they’re mad, continue that follow up with them or their agent at least with your agent or something like that.

Tony:
And I get why so many Ricky investors are worried about quote unquote insulting the seller, but guys, just know if you come back with a better offer, that insult, it usually goes away pretty quickly, right? So understanding the seller, trying to get a better understanding of their pain points. One other piece on that too, Ash, and we’ve interviewed a lot of folks who have talked about this. You mentioned that the seller who wants to drive by and see their garden every time. And it’s because we’ve interviewed folks who’ve gotten incredibly great deals because they offered something that seemed super insignificant to you as the buyer, but was very significant to the person who was selling it. We’ve interviewed folks who have gotten big discounts because they helped the seller move. They’re like, “Hey, I’ll get a moving truck for you so you don’t have to worry about moving everything out.
” We just interviewed someone who got a deal because they promised to take care of the garden that this little old lady had been cultivating in her backyard. So there are so many, like Ash, even you, you said one of your deals, you promised the seller that you would keep one of the tenants in place because she had been there for so long. So every seller has a different motivation and the better you can understand what’s important to them, the better offer you can craft that’s not even related to the price of the property that might allow you to actually close on that deal. So we could probably do an entire episode just in negotiating with sellers and understanding motivations, but just now high level, super important to focus on.

Ashley:
BiggerPockets also has a great book for negotiating deals written by J. Scott, and you can find that in the bigger pockets of bookstore. Last

Tony:
Piece I’ll hit on this point here is it’s also important to understand the different financing options that are available to you as you look to buy, because that can also have an impact on the offers and the deals you can actually close on. If Ashley and I are both looking at the same exact property, but Ash has just gone to Bank of America to get her debt and they’re like, “Hey, Ashley, we need 30% down on this deal.” And I go to my local credit union or I go to 20 different credit unions and they’re like, “You know what, Tony? Actually, if you get this deal and you invest another 50K into the rehab, we think it’ll be worth a lot more once it’s done. We’ll fund the whole thing You just got to go out there and find the deal.” Same exact property, but very different loan products is going to allow me to execute in a way that Ashley wouldn’t be able to execute on.
So one of the biggest mistakes that we see rookies make that gets them stuck on the sideline is going to one bank or one lender and thinking that that person has all of the potential loan products that are available to you as you look to go buy this deal. So shop around more, try and get more options in terms of loan products, focus on those small, local, regional banks who have more flexibility when it comes to financing investment properties, and then pick the right one that matches for the specific deal that you’re looking at. All right. So even knowing how deals work isn’t enough. And right after the break, we’re going to talk about why learning still isn’t translating into action. We’ll be right back after this. All right. So at this stage, the problem isn’t information, it’s execution. So the final reason why most rookies won’t buy a deal in 2026 is because you get stuck learning and you never start executing.
And this part is, it’s a sticky, kind of slippery slope because learning feels super productive. You’re listening to the Real Estate Rookie Podcast, you’re watching YouTube videos, you’re saving random little clips on social media. All of this feels important and it feels like you’re making progress, but the thing is that learning doesn’t actually carry any risk. There’s zero risk associated with listening to a podcast or watching a YouTube video or saving things on social media. Without clear deadlines or stakes, education just can kind of turn into a delay. I met someone a few days ago who had been thinking about buying an Airbnb and her and her husband had been thinking about it for over two years. And while I committed them for like, “Okay, hey, it’s great that you took your time to educate yourself.” There’s not that much. It should take you 24 months to actually jump in and take action.
So you’ve got to figure out how do you make sure that the accumulation of knowledge doesn’t lead to in action. And what I typically share with folks is that if you get to a point where you’re listening to the Real Estate Rookie podcast or whatever the podcast you listen to and you’re reading the different books and you start to realize that you already know the majority of what we’re discussing, you know the terms, the frameworks, BER, you know ARV, you know this, you know that. You’re like, “Hey, Tony, I know. I’m supposed to go talk to the local banks as well. Hey, yeah, I know I’m supposed to submit an offer that’s going to be a little bit lower than what I’m comfortable.” If you know all of those things, then that’s a really, really good sign that you’ve already absorbed enough knowledge and now it’s time to step into actually taking action.

Ashley:
If I was a doctor, I would diagnose you with analysis paralysis. And I think this is just a huge thing. You want to feel back to the beginning of this episode, you want to feel comfortable and confident and you think that the more you learn and the more knowledge you have, the better you feel. Think about it. You go to school and study for how many years just to get your first job and so you feel confident and ready. You’ve got all of this schooling, all of this studying under your belt and now you’re ready to do the job. And I think in real estate that can be detrimental to you sometimes. Yes, I’m not saying go ahead and just jump into it without knowing anything, but you don’t need to have four years of schooling to understand how to purchase a property and to operate it as a rental.
And I think that’s where most people get confused is that they need to absorb all of this knowledge. They need to know everything, but you don’t. You can think about the people who become accidental landlords. Think about the people who are going through some kind of significant life impact that is detrimental to them, but they’re still being able to buy a rental property. Think about somebody who didn’t even go to college fresh out of high school, bought their first house hack. Think about the people that are being able to do this without spending years and years doing research or thinking about it. And you are probably already ahead of most people that get started by having two years to talk about it, by having two years to absorb knowledge to learn. Think about if you bought a property two years ago, how much farther you would be ahead, how much equity that property would have accumulated, how much experience you would have already obtained.
So as you listen, especially when we have the rookies on and to some of the obstacles and the hurdles that they have overcome to do this, a lot of you listening are probably in a way better position to actually start because of maybe time, money, the knowledge you have already absorbed. And I think a big telltale sign is if you go into the BiggerPockets Forums, you can answer a question, a couple questions, because you know the answer, you’re already a lot farther ahead than other rookies too.

Tony:
And I think the first step is usually the hardest. And it’s this very common thing that we see amongst the folks that we interview and just the people that we meet in life that the first deal, like from the time you commit to actually closing that first deal, somewhere between a year to 24 months is pretty common, but that second deal never takes as long as the first deal. And that’s because once you get that first deal done, everything else becomes so much easier. So just know that the first step is usually the hardest. So if you want to be the exception here on this last reason that most rookies won’t buy a deal, here’s the one challenge. Set a goal on the number of deals that you’ll analyze in 2026 and the number of offers that you’ll submit in 2026. And if you just work really, really hard to hit those two things, chances are you’ll end up finding at least a few deals that are good enough for you to really want to move forward with.
So how many deals are you analyzing? How many offers are you submitting? And the goal is that you can use both of those actions to get you to your first deal.

Ashley:
Well, thank you guys so much for listening to this episode of Real Estate Rookie. I’m Ashley, he’s Tony, and we’ll catch you guys on the next one.

Dave:
You’re not going to find cashflowing houses sitting on the MLS like it’s 2018. You need to create your own asset. You need to build your own equity. And as an investor, that’s your job. And that’s the part of real estate investing that honestly scares a lot of people away in the current housing market, but fortunately it doesn’t have to. Value add can be as easy as a new coat of paint or a bathroom makeover, so you can raise your rents and add an extra few hundred bucks to your bank account every month. Or it can mean larger renovations that supersize your equity and put you on the fast track to financial freedom. There’s actually four categories of value add investing, ranging from cosmetic updates to light renovations, heavy renovations, all the way up to new development. And today, three experienced value add investors will help you determine which exact strategy you should use to add value on your next investment.
Plus, we’ll even reveal how you may be able to add hidden value with extra square footage or even another bathroom in properties you already own.
What’s up everyone? I’m Dave Meyer, Chief Investment Officer at BiggerPockets. And I’m joined today by truly the dream team of value add investing. My co-host, Henry Washington and our friend from on the market, James Dainard. And in today’s episode, we’re going to go through the different levels of value add investing, everything from cosmetic to gut down rehabs. And we’re going to give you a really good overview that you could use in your investing. But also, if you want more hands-on instruction for how to be a great value add investor, we have a really super fun and exciting announcement. Henry James and I are going to be hosting a one-day value add conference in Seattle this March 28th. It’s the first time we’re ever doing something like this. Only 120 tickets are going to be sold. It’s going to be a somewhat intimate conference here with hands-on instruction from some of the best value add investors in the entire country.
So if you want to check that out, you can go to biggerpockets.com/seattle and get your tickets. Not a lot of tickets. So if you’re interested, go get those today. So let’s jump into our episode today. Henry, maybe you could just tell us what are sort of the big buckets or different styles of value add investing that there are?

Henry:
Yeah. Well, first and foremost, value add investing means just that, right? You are going to do something that should add value to the property. Could mean adding actual dollars to the property, but there’s also value add in terms of adding perceived value, which may increase buyer’s desire to want your property because of what you’ve done to it. So that’s how I think about value add. And the categories I lump this into on the low end of the spectrum are just cosmetic updates. When I think of a cosmetic rehab, all I think about is paint and floors. Those are the main things you’re going to be doing. You’re not moving any walls, relocating a kitchen from one side of the house to the other. This is just simply we’re refreshing what’s already there.

Dave:
This is my comfort zone. This is where I’ve lived for a decade. I’ve lived here.

Henry:
Yeah. This is the stuff that anybody should be able to do. Most people can run a cosmetic update by themselves. They don’t need to hire some general contractor to come do all those things. Now, should you, that depends on the project, but you typically aren’t even having to pull permits to do some of this work. It’s truly just refreshing what’s existing. The next bucket I think about is a light renovation. And so the difference in my opinion between a cosmetic and a light renovation is that in a light renovation, there may be some more structural things that you’re doing. Yes, you’re going to do the paint and you’re going to do the floors, but maybe you do need to remove a wall. Maybe you’re going to put new windows in the property. You’re going to spend a little more money, do some things that are a little more structural, but for the most part, it’s a cosmetic update with-

Dave:
A little spice on it.

Henry:
Yes. A little chili powder on top, right?

Dave:
This is the stuff though that doesn’t even get James out of bed in the morning.

James:
Oh, don’t get me wrong. I love a cosmetic fixture. I just can’t make very much money on them in my

Henry:
Market. Next bucket is your heavy renovations. So when I think of heavy renovations, you’re going to do everything you do in a light renovation, but you’re probably moving walls. You may be relocating kitchens. You may be adding bathrooms, whether you’re on concrete foundation or slab foundation. It may be that you’re doing foundation work, putting a new roof, you’re doing new mechanical systems, water heaters, plumbing systems, electrical. This is major systems and structure. And then the finish work, which is the paint flooring, tile work, things like that. So when they say a gut rehab, that’s what I envision when I think of the heavy renovation bucket. It may be down to the studs, maybe it’s got the walls up, but you’ve got to do everything. You might need to get an engineer involved. You might need to get somebody involved to help you draw up plans.
You’re probably going to need to pull permits for the majority of the heavy lifting that you’re doing. This is a full-blown, almost new construction project, but the walls and everything are already up.

Dave:
Which make it harder than a new construction project,

Henry:
Right? Arguably it is. It’s what I’m learning because I’m doing my first ground up development this year and I’ve done heavy renovations. And the ground up development, once you have the plans, you just kind of hire people to do the stuff. It kind of moves a little more smoothly. The heavier renovations, they’re scary.

James:
Yeah. On new construction plans, the benefit is you don’t find mold inside your walls, rot, fire damage, termites. Definitely more predictable.

Dave:
Yeah. I mean, I’ve never done ground up development, but I feel like ground up development’s like you buy a Lego kit and you know all the pieces are there, you just have to follow it. And a heavy renovations, you have that bucket of Legos where you just have a thousand from different things and you pour it out on the ground. They’re like, “Now go build a house.” You have to kind of make it up as you go

Henry:
Along. Some of the Legos are already there and you have to piece some other ones in to fit with what’s already there.

Dave:
Yeah. They’ve been super glued together and you’re like, “What the hell? How do I bring these things apart?”

Henry:
That

James:
Is probably the best analogy I’ve heard.

Henry:
Yes.

Dave:
Well, I think those buckets make a lot of sense because you’re sort of going from on the low end, lowest risk, but also lowest reward.You could get some upside, but if you do a heavy renovation, probably highest risk, highest reward at this point, ground up development, I think depending on that. But that’s just a way for everyone listening to sort of think about the different categories here. As we talk about this, you should be thinking about which type of value add investing makes sense to you. And before we go any further, I just want to caveat this and say that although a lot of times value add investing is associated with flipping, you can and probably should be doing this stuff for rental property investing too. I think that’s kind of the epiphany I had two or three years ago when the interest rate environment changed.
It’s like, I don’t necessarily want to be a flipper, be doing a lot of flips, but if I want to be a good rental property investor in today’s day and age, I at least need to be doing light renovations and maybe doing heavy renovations to maximize my performance. And so I think everyone, regardless of strategy, to be honest, most people should be doing value add these days. I mean, James and Henry, I’m curious if you agree.

James:
Yeah, because it makes you that Swiss Army knife investor. One of the best things we ever did in our investing career was to A, find a deal. How do we find a deal and analyze it correctly, but B, how do you implement the construction plan? And by flipping, we have changed our whole investing career because everyone thinks of us as flippers, but we build homes that’s the adding value, right? That’s the same type of process. You got to create a plan, budget it, implement it. But most importantly, in Seattle, it’s really hard to get good rental properties with equity or they can break even our cashflow in Seattle, San Francisco, any of these expensive markets. So the reason we love value add is because we don’t have a choice. And so we’re able to take down multifamily properties that most people do not want to take down or they cannot make the numbers work.
And we can make the numbers work because we know how to control the cost. And that’s implementing that value add. And the money we’ve made in the wealth we’ve made on our rental portfolio has way outweighed what we’ve made on our flipping business. But the flipping business gave us the tools to be able to buy those properties, stabilize them and increase them.

Dave:
All right. Well then let’s dig into each of these topics. So easiest to hardest here. Let’s just start with cosmetic updates. So as Henry enlightened us before, this is like bathrooms, paint. I think about refinishing stuff, sprucing it up. What are some applications for cosmetic updates, Henry? And what kind of investors does this make sense for?

Henry:
This is great for beginning investors because it gives you a taste of what it’s like to work with a contractor or subcontractor to get a project done and to manage that project. It’s much easier to manage a cosmetic rehab because the timeframe is shorter. The scope of work is shorter and not as intense. The dollar values for the labor and materials are less. And so it’s a great way to get your feet wet because we’re all going to make mistakes and have made mistakes when working with contractors and managing renovations. Is it always easy to find a cosmetic update where you’re going to buy it at a price point that’s going to allow you to slap some paint on it and sell it for a whole lot more money? They’re not easy to find, but they do exist. And if you put that into your buy box and you’re specifically searching for these kinds of products and you’re being very intentional, yeah, you can probably find them, but obviously best for new investors.

Dave:
Definitely good for new investors because let’s just be honest, anyone can do this. It’s not difficult. It sometimes is going to take you getting multiple quotes. You might have to fire a contractor and hire a new one, but anyone can do this. You can figure out what floors to put in. You can figure out what paint to do. And you’d be amazed by how much that can improve maybe the value of the property if you’re selling it, but just the rentability too. You’re going to command a higher rent, you’re going to have more people who apply for your rentals. This is a great thing. So for all new investors. The other two categories of investors I would say that this works well for are out of state investors. If you’re buying something and you want to do a little bit of work to improve your properties, but you’re doing it from afar, these are kind of projects, at least in my experience, that go well out of state.
Most property managers can handle this kind of renovation on your behalf on a good timeline and on budget. This isn’t super complicated where you need to be on site every day. Get some photos, go to the property, pick a paint color, get some LVP and go do it. This is good for that. The other thing I’d say is just for busy people. If you’re not going to be spending a lot of time at your project, cosmetic updates can be great. But as Henry said, it’s maybe not, especially in today’s day and age, going to add a ton of value to the property today. If you’re flipping, this might not work, but if you buy a property and you want to hold onto it for 10 years and you’re saying like, how do I improve this so that I can command the best possible rent for the next 10 years, cosmetic updates all day?

James:
The reason it’s good, because it’s still just organizing subs and organizing implementation, but it’s a very tangible thing for you to wrap your brain around. If I’m going to install flooring and I know someone will install it for $2 a square foot, I can go shop over and over and over again to get my flooring price down. And so it’s very easy to control your cost. That’s what’s so beneficial for all new investors. But when you start going, “Hey, I got to rewire this whole house.” It’s going, “Okay, well, how much does this cost?” Yikes. “What do I got to do? ” But cosmetic updates, they can make a huge impact in the value too. It always comes down to how much dollars are you spending? Does that increase value? All

Dave:
Right. Well, let’s take a quick break, but when we come back, we’re going to talk about some of the bigger impact type of value add investing, light rentos, heavy renos, and ground up development. Stick with us, we’ll be right back.

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Dave:
Welcome back to the BiggerPockets Podcast. I’m here with Henry and James Dainer talking about the value add playbook for 2026. We talked about cosmetic updates and how it’s really just a strategy. If you can find the right deal, it can work for pretty much anyone. There’s just no reason not to do it if you find a deal that it works for. Let’s move on to what Henry described as light renovations. James, what’s the division between a cosmetic update, light renovation, and when do you want to move from sort of the easier projects to a light renovation?

James:
When I look at a light renovation, you can do windows, you can do roof, but you’re not really adding spaces where you got to add a bathroom or reconfigure the layout. That’s where you start going into a heavier renovation when you have to twist a house around. And so a lot of times when you’re leaving things where they are, you can control the cost a lot more. I might be able to open up my kitchen, but if all my appliances are all staying in the same spot, it keeps the cost way down. Or if you can just take everything out of a bathroom, even if you’re fixing the plumbing and doing all those things, but everything stays inside that shell, you’re replacing light for like. And when you’re doing that, there’s way less domino effect that happens in construction because when I buy a house and we’re starting to add bathrooms and bedrooms, costs can domino very quickly.
But when you’re doing light for like, you can price it and price it and price it and really stay on top of that.

Dave:
So what do you look for when you’re looking for a deal? If you want to do a light renovation, what are some of the characteristics of a property that you think make it a good candidate? Henry’s bouncing. I got to throw it to you after this. You have something to say.

Henry:
Yeah. This is a sweet spot for me because I feel like a lot of people want to do these projects and have no idea what to go look for. So when I want to do a light renovation, obviously I’m looking for homes that are in livable condition. So as you’re perusing whatever MLS or Zillow or realtor, you don’t want the things that are down to the studs. So it needs to be in livable condition. But a couple of indicators I’m looking for that let me know that I can probably add real value in a light renovation is I’m looking for covered square footage that’s not accounted for in the heated and cooled square footage. In other words, if there is a sunroom that isn’t heated and cooled, it’s already under roof. And because it’s under roof, I don’t have to do anything structural. All I need to do is figure out a way to heat and cool that space to add it to heated and cooled square footage, which technically makes your home bigger.
The bigger the home, the more square footage, the higher the value of the home. So I’m looking for things like sunrooms, additions maybe that were done that aren’t heated and cooled, right?

Dave:
Basements.

Henry:
Basements. Yeah. You have to have keen eye to see some of those things. And another indicator I look for to help me find some of these are bedroom and bathroom counts where square footage doesn’t seem to match. If I see a two bed, one bath, 2,000 square foot house, that lets me know there’s a lot of opportunity for me to do a light renovation to add bedrooms and bathrooms under the current footprint.

Dave:
Aren’t you always wondering what people are doing with that? There’s like, do you just have like a 900 square foot bedroom? What are you doing in that

Henry:
House? It’s usually the older homes that were built, like the mid-century style homes, they have like a living room and a formal living room and a den, and they have all these living spaces. Those indicators for me scream, “Hey, this could be a light renovation where you can add a lot of value.”

James:
One of the most important things about cosmetic versus heavy is do you have the right spaces already that just need minor tweaking? Because that’s where people get in trouble with value add is they see a four bed, three bath house and they go, “Oh, I got a four bed, three bath house and I can cosmetically update it, but they don’t have the same spaces.” The primary might be way smaller, smaller shower, smaller closet. The kitchen could be half the size and that requires a lot more reconfiguring. I love a cosmetic fixer that is packed full of garbage and it is gross because I call it cosmetic because I don’t have to move walls. And again, I can get that property deeper than grandma’s house because it just smells bad. And so I’d rather spend more on trash and just getting it out. And then I’m working with the same footprint as grandma’s house.
It’s just a little bit maybe moldier, crunchier and smellier.

Dave:
Something I’ve done in the past that’s been really good is like making a formal primary. Sometimes when there’s a small bathroom-

Henry:
All the time.

Dave:
Yeah. It just feels like three kind of mid bedrooms and you make one into a primary, that can really add a lot of space. And maybe you’re only moving one wall or two there. To me, that’s a manageable thing that you could do, still falls under the light renovation category. But I think this is where you sort of get into the true building equity. Cosmetics, maybe you can build some equity, but to me this is where you can actually make a delta in the value of your home.

Henry:
Bro, like a pro tip is usually when there’s a half bath, like I’d say 60 to 70% of the time there’s a closet somewhere close to it or on the other side of that half bath. And a lot of the times I’m able to steal that closet and add a shower. And all of a sudden you have a full bath, especially when they’re in half baths or in primary bedrooms. I’ve stolen space from the closet on the bedroom on the other side to add a shower space. And so you’re not really changing the layout and adding a whole new bathroom. You’re just expanding an existing bathroom, which makes things less expensive because the plumbing’s already there. You’re just reconfiguring some of the existing square footage. You’re doing what James said, which is like for like, you’re just adding an additional piece of that bathroom. Man, it’s so important to just have an eye for those things.
So as you’re looking for properties, pay attention to where the closets are in relation to where the bathrooms are. Pay attention to what rooms back up to each other. I love homes that have the two living rooms, like a formal living room and a regular living room, because no one really uses formal living rooms anymore. It’s not a desirable feature like it was. And most buyers would much prefer to see a house with an additional bedroom than to have that same square footage include one less bedroom and be a formal living space. And so that’s another way I look at adding value.

James:
Yeah. Or in the basements, I love taking, because basements have two beams running down them essentially. You can create a bedroom, but a flex space every time. So every time we do a bedroom in a basement, we always put in big French doors because if the buyer wants a bedroom, they can get that or they can make a bigger bonus room. So it just gives them that option and it’s a non-structural move. We just frame it straight down.

Dave:
James, this can seem intimidating. I think cosmetic most people can wrap their head around, but then starting to move walls, you need some more skills. So what are the skills people need and how do you recommend people get comfortable scaling up from a cosmetic to this kind of rehab?

James:
You don’t have to jump right in. I didn’t start flipping massive projects right out the gate because I did take my first step and I bought my first big fixer and it went terrible. We went way over budget, way over timeframe, and I didn’t know what I didn’t know. And I lost a ton of money on this house. And it was my first big swing on a big fixer. I had to take a step back and go, okay, well, I bought that really cheap. We sold it high. It was what happened in the middle that went sideways. I paid like 275, I sold it for 500, and yet I still lost money. That’s what I had to learn how to control. And so after that house, I was like, “Well, I don’t want to do any more of those, but I want to start learning and kind of partnering people.
” And so back then I was doing a lot of wholesaling and I was also helping investors find deals. And that’s where I learned the most because I started selling them to more experienced investors and I would participate in their project with them.
And on one deal, I even threw my whole assignment fee into the deal and the guy gave me some ownership in it and he just let me go through the process. But I got to learn what are the steps because that’s where people get in trouble. They see a vision, they see the math, they don’t know the steps that it takes. So when you want to get into value, you got to build your core team. And your core team is going to be an architect, an engineer, a general contractor, and you should have three and start just getting the facilitators for you together.
You have to have yourself with the right pieces around you. That’s the key. It’s all about the team. Everyone wants to chase the deal. And I always tell, chase the resources and the team because the team will help you get through that deal. And so if you’re new and you want to get into it, start working out networking, meeting with people, building that team, but then start participating with other people. You can partner with other value add investors and learn that process, see what they’re doing. You get to see the timeframes and all the little hiccups and bumps that go through it. It’s better to give away more upfront and learn to prevent losses down the road.

Dave:
That’s great advice. And it’s something that I’ve been doing with James. He’s been teaching me slowly how to flip, getting a little bit more involved in each deal and it’s been super helpful. The other thing I’ll say for if you want to learn light rehabs, if you listen to the show, you’ve heard my favorite strategy these days is something I call the slow bur. It’s basically you buy a property, it’s doing all right, it’s got tenants, and then you opportunistically renovate it when people move out. Slow bur can be a great strategy for this if you’re new, because number one, if you’re buying something where there’s already tenants, you’re not using hard money like you would in a flip. And so if you’re paying six and a half percent on your mortgage instead of 12% on your mortgage, it takes a little bit of pressure off you to nail it the first time.
If you go two weeks longer, you don’t hate your timeframe exactly, the penalty on that is a little bit less. And the other thing is if you buy something that has tenants in it, it gives you, in my experience, a couple months to make a plan, to build the team that James was just talking about, to get permits if you need to permit something. And it just takes a little bit of that time pressure off, which for me is something that I used to worry about in terms of doing this. It was something that would prevent me from being in real estate, doing these kinds of deals because I just was worried about getting it done quickly while working full-time. And so this is an approach that you can consider.

James:
Right now, I’m in Newport Beach. I just landed here. I don’t have the resources and the teams like I have in Seattle. And so we’re doing the biggest flip we’ve ever done, but I brought in a partner on it because he knew the code, he had the people, and I’m giving away a portion of my deal to him, but my overall construction costs are probably 35% less than they would be if I hired it out and I would still have the learning curve of going through some bumps in this city. And so by bringing him in, I’m really watching the pricing and it’s allowing me to build a correct budget for my next project going, okay, this is what this takes. And my annualized return is actually going to be better even though I’m giving away a big portion of the deal.

Dave:
Henry, when do you cross from light rehab to the intimidating, sounding heavy renovation?

Henry:
Yeah. For me, a heavy renovation is I am touching almost every surface, and that includes the surfaces behind the drywall.

Dave:
Surfaces you don’t want to be touching.

Henry:
Yeah, absolutely. And you’re replacing systems most or all of the systems. You might be redoing the plumbing because you’re moving a kitchen from one side of the house to the other. You may be adding bathrooms. Adding bathrooms doesn’t sound like a big deal if you’re on a crawlspace, but if you’re on a concrete foundation, it gets expensive fast depending on where that main plumbing line is. You could be jackhammering up your foundation all across the entire footprint of the home because the bathroom you want to add and where you access the main line are on completely opposite sides of the house, that is pricey.
So these are the things where it’s not easy to just make a decision on your own. You have to get someone else involved like the city may need to get involved, an engineer may need to get involved and tell you, because people think you can just walk into a house and go, “Oh, that wall’s stupid. Shigon, that’s not how it works.” Some of these walls are load bearing, which means they need to carry the load of the house. And some cities require you to get an engineer to come in and tell you what you can and can’t do or what kind of beam you need to put in to support the weight. If it’s a two-story house, you got to support the floor above it. That’s kind of a big deal. If it’s a single-story house, you don’t want the roof laying on the ground, that thing matters.
So these are the kinds of renovations where you can’t just make a decision and move forward. You’ve got to bring in professionals or city officials to help you get the approvals necessary to make sure that the work you’re doing isn’t just value add, but it’s actually not endangering somebody’s health or safety.

Dave:
That’s a good way to put it. I think that’s sort of the key thing here is you’re going out of your own comfort zone. And at least for me, it’s like you’re going out of just making decisions, being able to run the subs kind of easily yourself into something that’s much, much bigger. But the roar for this is huge, right? Because this to me is where you cross the barrier of no normal homeowner wants to buy these types of properties. You’re getting into a class of inventory that a lot of other people don’t want. Because a normal homeowner might be willing to renovate a bathroom or a kitchen or to do a cosmetic rehab. But this is where you’re sort of working with projects that need a lot of love, but those are the biggest opportunities. And James, this is basically, I mean, not all you do, you do a little bit of everything, but this is like your sweet spot, right?

James:
Yeah, I am glutton for punishment. Flipping is a very hard business to run and it’s very hard to systemize on a long-term basis at scale. I think it’s the hardest by far, but I just love the numbers.

Henry:
This is where the juice is, right? You need the juice. It needs the juice.

James:
And this is how you create value, right? And you create equity for burrs or flipping. This is how you maximize a deal because if I’m looking at a house and it’s a thousand square feet up and it’s a two bed, one bath, and I have a thousand square feet below, and let’s say that house will sell for $400 a square foot on the market, fully finished. That’s the average price. I can renovate a basement and add square footage for about $110 a square foot. That’s where I can 3X and 4X my money because I can go in and go, “I’m going to renovate this basement. I’m going to spend a hundred grand here and I just increase that value.” And so that’s the important part is what do you need to create? Now, it’s not as simple as that because many times it’s $100 a square foot for the entire house.
But in that example, if I’m spending $100 a square foot, I’m spending 200 grand, but I’m getting $400 a square foot on the backside, that’s where it makes sense and you can force that equity up. And so that’s why it’s very important to really run your right comps. What is this property worth? What do I need to create? And then it comes down to what’s the cost to create that. And a flipper’s job or a value add investor’s job is to go, how do I keep that cost at a hundred bucks a foot? Because that is a full-time job to do that. And that’s where people get tripped up because they go, “Oh, the math’s math is simple, but it’s all about controlling those costs.”

Henry:
I agree with you. And I think another differentiator between these heavy renovations and the cosmetic and light that we have been talking about is the amount of subject matter expertise that not only you need to have, but who you hire needs to have in this situation because yes, you have to hire licensed plumbing professionals, licensed electrical professionals, licensed contractors to do a lot of the major work. That goes without saying. But the decisions on what they’re doing, where they’re moving things to, what kind of value that creates, what kind of product that creates, that’s on you as the investor. And you could spend a lot of money on a heavy renovation and not produce a product that your customer wants in the neighborhood that that house is in or doesn’t have the amenities that they have. In lighter cosmetic, we’re leaving things where they are.
The house has what it has. We all already saw that and we want to leave it where it is. But now we’re trying to add value by adding the right spaces or amenities that your buyer wants and you have to have some market expertise to understand that and you have to hire experts to do the work in the right way that you’ll actually get it approved and it won’t sit waiting for permits or you’re going back and forth with the city because they keep denying your permit because you’re not doing things the right way. So it is a much more knowledge specific value add strategy.

Dave:
I think that’s kind of the fun part though too, Hannah.

Henry:
I was going to say, I think this is why Dave likes it because it’s math and Solving problems.

Dave:
It’s like resource allocation, which is my favorite thing. It’s like, okay, I got this budget. How am I going to spend it to maximize the value of this home? James has totally converted me to the dark side now. It’s fun to me to doing this, but it is higher stakes for sure. You can absolutely screw it up. You can overdevelop it, you can under develop it, you can do all these different things. But I was curious, what is the increase in return potential when you go from a light value add to a heavy value add? I don’t know if you know in absolute dollars or your ROI, James, do you have a sense of how much more juice there is?

James:
What I have seen in Seattle is on a six-month project with a heavy value add versus more of a cosmetic where you’re doing Windows roof and everything else. The return is going to be about 30 to 35% cash on cash on a cosmetic. On a value add, we’re looking about 50%.

Dave:
Wow.

James:
And so you get an extra 10 to 15% more for that project and the work you have to do.

Dave:
We got to take one more quick break. Stick with us. We’ll be right back. Welcome back to the BiggerPockets Podcast. Henry and I are here with James Daynerd talking about value add investing. So I’ve been curious about flipping but never done it, but I just want to explain sort of the progression I did to get comfortable with it if other people are interested in this, but don’t want to dive in head first. Basically, I’ve done three flips now. The first one, James, basically I was a passive partner. I just put money into it, just got to sort of observe from a distance, underwrite the deal, but I had no real involvement day-to-day. That one turned out great, thanks to James and his team doing a great job. The second one we did together, but James was basically like, “You could come and look at the property.
We’ll tell you about some of the decisions, but I’m still making all of the decisions.” And that was a really cool experience for me because I got to go to the property. I really learned the order of operations, which is super important to me, when to hire different subs, when to go to the city, just how all the pieces kind of fit together. But I wasn’t on the hook for sort of big decisions about where to allocate money, how we were going to reconfigure the house. But I got to see James and his team sort of think through those things in real time. Then the third one, me and my brother-in-law bought together, we partnered on it and we made the decisions and we actually figured out where we were going to spend money. We hired the GC, we ran the subs. And by that third time we felt comfortable.
We did sell that and made some money. So I just wanted to share that with people that you don’t have to jump right into this. I’m lucky and know James, but there are great flippers and great operators in pretty much any market. And if you want to try and find, like James said, partners where you can be a part of these deals, it’s a really good way, at least for me, it was a really good way to start getting into heavier value add without having to take this all on, both from a financial perspective and a time perspective right away, because I just didn’t feel comfortable with that. You did that too, Henry?

Henry:
I still, to this day, meet some of my best friends and contacts at real estate events. So I’m partnering on a purchase that will close on next week of a flip. And this flip is in the heavy renovation bucket. It was down to the studs. Now, the story on this one was it had a fire five years ago and the lady’s been trying to put it back together and work with the city and she’s just run out of money and she’s failed her inspections. And so she’s got a lot of things to go fix and not a lot of money. So she’s just like, “Somebody please come buy this thing from me. ” So I walked into that deal and I’ve done hundreds of flips, right? I walked into that deal and I said, “I don’t have the comfort level to know how to fix all the problems that the city’s identified.” Because essentially it’s like a ground up development that’s gotten to the point where you’re about to close in the walls and you have to pass your inspection.
That’s what the property is like. And I am just now doing my first grindup development. And so I didn’t want to leave the money on the table, so I brought in my builder who’s helping me build the ground up development. He walked the property with me. We looked at the entire list from the city. We made a plan for every single item that they’ve identified. We called the city, told them about our plan, got them to give us a light, “Yeah, this will work.” And then now we’re buying the property. We’ll fifty fifty on that deal because I brought the deal. I’m even bringing the financing, but he’s going to manage the renovation. He’s going to be responsible for the work, and that’s going to help us do this heavy renovation. And that’s a partner that I met at a real estate event.

Dave:
See, exactly. This is a perfect example. Thank you for Henry.This is an experienced operator who’s taken on partners. This happens all the time. I think honestly, people think that partnering is for beginner investors. Every investor I know partners all the time, every single one. So it’s just get out there and put yourself out there and you can meet these people.

James:
I’ve found a lot of partners at BPON over the years.

Dave:
Yeah, that’s awesome. Good reason to come. And maybe you’ll just come to the Seattle conference and you’ll start meeting some people to partner with March 28th in Seattle, biggerpockets.com.seattle.

James:
I’m so excited for this. We are going under the hood. By the time they’re done, they’re going to be ready to go.

Dave:
I’m excited. This is going to be a super fun event. I think this is one of those topics where you really need to have hands-on coaching. And James and Henry are going to be there coaching. I’m going to be there attending. I just want to learn more. But also one of the cool things is we’re also doing sort of like a premium VIP kind of thing the second day, and we’re renting a bus and we’re going to drive around and James is going to take us to three of his projects that he’s working on. So you’re actually going to go get literal hands-on experience and we’re going to go out to a nice dinner. It’s going to be a lot of fun. So you should definitely come check it out. I will be just making sure everyone is well-fed and is having fun. And James and Henry are going to teach you how to do value add investing.
All right. So that’s heavy value add, a great place to be. But let’s just talk quickly here before we get out of here about new construction, heavy development. James, you do a little bit of both. You prefer flipping from what I hear, but when is a good time to do new construction? Who’s it right for?

James:
It’s just probably some best use. What can you buy it for? How much can you build it for itself? Or I have a partner, Will, and he runs our new construction side. And so it’s still running a performa. What can I buy it for? What’s my cost? What can I sell it for? What’s going to give us the highest profit? And so every deal we look at in Seattle, we look at it both ways. Does it make more sense? How much time does it take? But when you want to get into building, I think it’s really important that you understand what you’re buying. There’s a couple hard rules I have in flipping and development. I don’t buy in hills. I don’t buy wetlands. I don’t buy environmental. It’s a nightmare
And it takes forever. But usually what I see, and I have a partner, so we split this way. It’s after people flip about 20, 30 homes, they start going volume. They switch to building because it’s a lot more systemizable. You can buy it, you get plans, you can get quotes. And I think it really just comes down to what’s the opportunity. I’ll build or flip, but it’s what’s given me the highest profit. What I do is I don’t build a lot right now, but I flip lots off. So that’s how I create value on a property. We buy it, we renovate it kind of more cosmetically, and then we sell off the daddy lot in the back. You don’t always have to build to actually create value. You just have to create the value, which might be a lot or building a house. Absolutely.

Henry:
I’ve been doing this for years. I’ve been buying properties with additional lots, collecting the lot by selling the house and keeping the lot, and then that gives me options. I can either build on it if I want to, if the finances make sense or I can sell it off if the finances make sense. We’re doing one right now. So anytime I have a house that’s on any kind of double lot, I usually make a call to the city right after we close and see, will they allow me to split the lot? And if they will, then I will definitely split it. I’m literally doubling my profit on one of my flips because I sectioned off an acre lot that I’ll sell for 75 grand and I’ll make about 75 grand profit on the flip itself.

Dave:
All right. Well, we’re not going to get too much into new construction today, but it’s just a reminder that it is there. It’s another way to add value if you have a vacant lot. But for most investors, I think right now, think about what level of investing is right for you today. Or if you’re an experienced investor, you could be doing all of them. But if you’re sort of just doing one deal at a time, figure out which one’s right for you because there’s no right answer. If you’re busy, you’re doing it out of state, you’re new, cosmetic works. You just have to find the right deal. Light renovations, you can find these deals. In my experience, you can find these deals right now pretty well where you can add to the value of the home, but also really driving up rents. I think that to me is sort of what I’ve been looking for a lot recently, or you can get into heavy value add because that’s where all the juice is.
It’s really just a question of your strategy, the amount of time, the amount of capital, the amount of experience you have. But I highly recommend for everyone thinking about how you can add value in your portfolio today because it’s just working in 2026. It really just does work. All right. Henry, James, any last thoughts before we get out of here?

James:
Dave, I am excited for our value add conference and for everybody listening, you’re going to get a lot of my internal documents and tip sheets and budget sheets. So if anybody buys a ticket and there’s only 120, you guys, this will be blown out in no time, I will give away my free scope of work checklist. When I’m walking a property, all my team, this is what we fill out to create our scope of work. And that’s what we start with when we’re creating

Dave:
Value. Honestly, that’s worth the price of the ticket alone, so you should definitely check that out. Again, it’s March 28th. You’re going to learn a lot, but it will also be a lot of fun. So definitely join us. James, thanks so much for being here.

Henry:
I will come on anytime.

Dave:
And Henry, as always, thank you.

Henry:
Glad to be here, buddy. I love, love talking value ad.

Dave:
Also, if you like this episode, go listen to episode 1088. It’s one of Henry’s crowning achievements as a podcast host. He gave us 10 ways to add value for under $10,000. It’s an awesome episode. It’s really relatable strategies that anyone can use to go check that out. And of course, if you like this episode, share it with someone, give us a like, give us a review. We always appreciate it. Thanks again. We’ll see you next time.

Every time I’ve tried to get “clever” and pick “the next hot investment,” life crammed some humble pie down my throat. I don’t do that anymore. 

In my stock investments, that means broad index funds instead of picking individual stocks. Large cap to small cap, U.S. to international, every industry: I’m in it. 

In my real estate portfolio, that means spreading small ($5,000 to $25,000) investments out across every axis you can imagine. Here are those six axes I make sure I diversify amongst.

1. Geography

I’ve invested in over 40 passive real estate investments, spread over 16 states and dozens of cities. 

I have the humility to know that I can’t repeatedly predict the next hot market. I might get lucky on the first one or two, but the law of averages will catch up with me sooner or later. 

So? I put the law of averages to work for me. Rather than parking $50,000 to $250,000 in a few real estate investments and hope I picked a hot market, I practice dollar-cost averaging. Every month, I invest $5,000 or more in a new deal. 

Some will perform great. Others may struggle. Most will perform around the middle of the bell curve. 

That’s OK. I can sleep at night knowing that the law of averages has my back. 

2. Asset Class

The same principle applies to asset class. 

My co-investing club looks at multifamily, industrial, land, mobile home parks, storage, and more. Again, we’re not trying to pick the next hot asset class. We know that by diversifying our investments, we’ll get exposure across the spectrum and insulation against unpredictable crashes.

Sometimes investors even get multiple asset types in the same property. “One of my best diversification moves was purchasing a multifamily property with 10 storage units attached,” explains active investor Austin Glanzer of 717 Home Buyers. “The storage units help offset the mortgage and require very little upkeep. Tenants rarely reach out about them, yet they significantly increase the NOI and value of the property.”

3. Debt vs. Equity

Taking that asset diversification a step further, our co-investing club also invests in secured debts, not just equity investments. 

On the debt side, that looks like private notes secured with a first-position lien against real property, with a low loan-to-value ratio (LTV). For example, last year we lent money at 15% interest to a land investor to help him expand his business. He put up his own home as collateral, with a first-position lien at 65% LTV. 

On the equity side, we invest in a mix of private partnerships, syndications, and equity funds. These don’t pay as much income up front, but we get to participate in the upside profits on the back end when they sell. They also have the potential to pay out “infinite returns.”

Debt investments pay a high-income yield, on a predictable schedule. They also mature and close out at a predictable timeline, often sooner than equity investments.

4. Timeline

I want to stagger when my money comes back to me, which means diversifying across investment timelines. 

I’ve invested in nine-month notes, for a quick turnaround. And I’ve invested in long-term investments that won’t close out for seven to 10 years—and everything in between.

First, I have to find a place to redeploy that capital, which I don’t want to have to do all at once. Dollar-cost averaging, remember?

Second, I have to pay taxes on capital gains when an equity investment sells for a profit. I don’t want all of those hitting in the same year and driving my tax bracket through the roof. (Although I do practice the lazy 1031 exchange, which certainly helps with that!) 

Finally, some people actually want to live on these returns. I’m not quite there yet, but many of my fellow members in the co-investing club want staggered repayments to cover some or all of their living expenses. Ever hear financial planners talk about bond ladders? It’s the same concept, but with passive real estate investments. 

5. The Operators

Active investors often rant at me about how they want total control over their investments and don’t want to invest with other operators. I even know a few passive investors who only stick with a couple of operators. 

I totally disagree with them. I want to diversify across many different operators, and only increase my position with one after they’ve proven they will steward my money well. 

Even if you think that you or some other operator is the most competent investor in the world—which I’d challenge—that still leaves you with key principal risk. What if you have a stroke tomorrow and become incapacitated? Or die? Or something happens to a loved one, and they put everything else in their life on pause while they deal with that? 

Then there’s the fact that you just don’t know how skilled an operator is until they’ve lived through a couple of market cycles. I can tell you firsthand that when I was buying properties actively in my 20s, I thought I was hot stuff. Then 2008 hit, and I got a splash of cold water in the face. 

I’ve invested with dozens of operators. Some had absolutely sterling reputations when I invested with them, and they later disappointed me. Others have proven to manage my invested money with skill and integrity. 

But it’s hard to know for sure until you take that leap with them. This is why I leap with $5,000 first, then maybe $20,000, then $50,000. 

Many members of my co-investing club also invest actively. But they diversify their real estate portfolio by investing passively, across all the axes outlined. 

6. Mix in Related Businesses

In some of the industrial real estate investments I’ve made, I’ve gotten direct or indirect exposure to the industrial business itself. 

For example, we invested in an industrial deal a couple of years ago where we got an ownership interest in the business in addition to the property. The deal went full cycle in late 2025, paying out an annualized return (IRR) of 27.6%. Most of that profit came from expanding the business, not improving the real estate. 

Active investor David Musser explained to me how he diversified his own real estate investments to include a local business: “We own rental properties, and we diversified by opening a nearby e-bike store. By hiring the right people, the business runs mostly passively. On top of that, we Airbnb the apartment above the shop, which creates an additional income stream.” 

There are always ways to diversify further. 

Earn Through Concentration, Keep and Grow Through Diversification

Most people earn their money through one or two active income streams: their job and/or a small business. Perhaps they even win big on an employee stock option or a crypto payout. 

That’s concentration. There’s nothing wrong with it, but it can disappear overnight. 

You keep and grow your wealth through diversification. One of my 44 passive real estate investments might get hit with a fire, a hurricane, or a lawsuit. A crash in one sector or city might bruise the few investments I have there. 

But as a whole, my portfolio will keep growing over time. This is how I went from $0 to $1 million in less than seven years. 

My investing philosophy of dollar-cost averaging with small amounts every month helps protect me from risk. It doesn’t mean nothing ever goes wrong, or that every investment pays out huge returns. But it does mean that my returns form a bell curve rather than a few isolated blips on the sonar screen, and the law of averages helps protect my money. 

When foreclosure activity reaches the REO stage, it represents the outcome of financial distress. The homeowner is no longer in the picture, the auction process has concluded, and the lender now owns the property outright. For real estate investors, this phase often marks the most visible—and actionable—point in the foreclosure cycle.

According to ATTOM Data Solutions, December 2025 delivered one of the most dramatic shifts in bank-owned inventory all year. National REO counts surged more than 53% month over month and nearly doubled year over year, confirming that the elevated foreclosure activity seen throughout 2025 is now fully materializing into lender-owned supply.

This acceleration matters. REOs don’t rise in isolation—they are the result of months of earlier distress working its way through the system. And as more properties land on bank balance sheets, investors may begin to see increased inventory, greater pricing flexibility, and expanded opportunity in certain markets.

December’s data suggests the foreclosure cycle is entering a new phase as we move into 2026.

National REO Inventory Surges Sharply

According to ATTOM Data Solutions, 5,953 REO properties were recorded nationwide in December 2025, representing:

• +53.27% month over month
• +92.72% year over year

This is one of the largest monthly increases in REO inventory in recent years. The year-over-year growth—nearly doubling from December 2024—confirms that foreclosure completions are accelerating, not slowing.

While Foreclosure Starts and Notices of Sale provide early and mid-cycle signals, REOs reflect real outcomes. These are properties that did not resolve through loan modification, reinstatement, or auction sale. Instead, they now sit squarely in lender portfolios—often awaiting disposition.

State-Level REO Trends: Where Inventory Is Building Fastest

Florida

Florida recorded one of the most significant REO surges in the country. Even as early-stage filings fluctuated in prior months, December confirms that a growing number of cases are now reaching completion.

• 427 REOs
• +37.30% MoM
• +202.84% YoY

California

California reversed earlier softness with a sharp monthly increase. While the state’s foreclosure process tends to move more slowly, December suggests stalled cases are finally resolving.

• 449 REOs
• +42.99% MoM
• +35.65% YoY

Ohio

Ohio’s REO inventory continues to trend higher, reflecting a steady conversion from auction activity earlier in the year.

• 179 REOs
• +37.69% MoM
• +62.73% YoY

North Carolina

North Carolina remains one of the fastest-moving foreclosure states. REO volume more than doubled year over year, underscoring how quickly distress advances through the pipeline.

• 152 REOs
• +24.59% MoM
• +102.67% YoY

Texas

While Texas REOs held flat month over month, the year-over-year increase remains striking. The state continues to convert distress into completed foreclosures faster than most judicial markets.

• 546 REOs
• 0.00% MoM
• +135.34% YoY

Why the REO Stage Is So Important for Investors

REOs differ meaningfully from earlier foreclosure stages and often appeal to a broader set of investors.

1. Banks become motivated sellers

Once a property becomes REO, it is no longer a loan—it’s an asset that carries maintenance costs, tax exposure, and reputational risk. Many lenders prioritize liquidation, creating opportunities for negotiation.

2. Due diligence is more accessible

Unlike auction purchases, REOs typically allow investors to:

• Conduct inspections.
• Review the title before closing.
• Obtain appraisals.
• Use financing, including non-recourse loans.

This makes REOs particularly attractive for investors seeking a more traditional acquisition process.

3. REOs reflect real market stress

Rising REO counts indicate:

• Fewer successful loan workouts.
• Auctions failing to clear inventory.
• Lenders accumulating properties.

When REOs surge, it often signals that broader housing pressure is becoming harder to absorb.

4. Retirement account investors gain flexibility

For investors using a Self-Directed IRA or Solo 401(k), REOs offer:

• More time for due diligence.
• Clearer transaction structures.
• Opportunities for long-term buy-and-hold strategies.

Compared to auctions, REOs align more comfortably with retirement account rules and timelines.

County-Level REO Insights: Where Conversions Accelerated

Looking beneath state totals, county-level data reveals where foreclosure pipelines are converting most rapidly.

Florida: Broad-based REO growth

Florida’s REO surge was geographically diverse:

• Lee County posted one of the strongest month-over-month increases, reflecting continued Gulf Coast stress.
• Orange County (Orlando) also saw meaningful growth, tied to earlier investor-heavy filings.
• Miami-Dade and Broward Counties remained elevated, contributing to statewide totals.

Investor takeaway

Florida’s REO growth is not isolated to one metro—inventory is expanding across multiple regions.

California: Inland markets drive the rebound

California’s December increase was led by:

• Riverside County, where delayed cases finally reached completion.
• San Bernardino County, continuing its role as a foreclosure pressure point.
• Los Angeles County, which posted moderate but consistent growth.

Investor takeaway

The Inland Empire remains the most reliable source of REO inventory in California.

Ohio: Central Ohio leads

Ohio’s REO growth was concentrated in:

• Franklin County (Columbus), which showed one of the strongest MoM increases.
• Cuyahoga County (Cleveland), contributing steady volume.
• Montgomery County (Dayton), adding to statewide momentum.

Investor takeaway

Central Ohio continues to offer visibility into future REO supply.

North Carolina: Rapid conversion continues

North Carolina’s YoY surge was driven by:

• Mecklenburg County (Charlotte)
• Wake County (Raleigh)

Investor takeaway

Despite a slower pace earlier in the fall, December confirmed that many cases have now reached completion.

Texas: High velocity, high volume

Texas’ REO inventory remains elevated:

• Harris County (Houston) led the state.
• Dallas and Tarrant counties contributed significantly.
• Bexar County (San Antonio) continued its upward trend.

Investor takeaway

Texas remains one of the most efficient foreclosure pipelines in the country—distress converts quickly.

How Investors May Use REO Data Strategically

REO data may help investors:

1. Identify markets where bank-owned inventory is expanding.
2. Anticipate pricing flexibility from motivated sellers.
3. Plan long-term rental or renovation strategies.
4. Align acquisitions with tax-advantaged retirement accounts.

Tracking REOs alongside Foreclosure Starts and Notices of Sale provides a full-cycle view of market stress—and opportunity.

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