February 2023

This article is presented by DoorLoop. Read our editorial guidelines for more information.

Can you win in any market?

No seasoned real estate investor would deny the importance of keeping up with macro and micro market conditions. Ignore either, and you don’t really stand a chance.

With that said, lately, conversations of a downturning market have swallowed up evergreen advice. So, it feels like not enough is being said about tried-and-true strategies, principles, and tools. 

Why does this matter? It’s these very strategies that are invaluable for being successful in any market, whether that be to:

• Maximize your profits
• Reduce the energy spent managing your rentals and reduce stress
• Streamline systems and processes to save time 
• Anticipate issues or roadblocks by preparing in advance

Getting a read on a changing market is vital to the success of your portfolio, but there’s a lot you can do now that will help you be a more successful investor, whether the market goes this way or that. 

Before we start, let’s talk about what we won’t cover.

Besides obvious tips (I know, you’ve read a billion articles with those, and you’re tired of it), the things include:

• Considering your local market
• Maintaining a property
• Choosing the right property

If you were looking for general, boring tips like those, then I’m sorry to disappoint, but there are plenty of other articles you can read on BiggerPockets that cover that.

Instead, below, we’ll be talking about more creative (but still evergreen) tips that aren’t so obvious. Some may ride that line, but the reason I include them is because I feel there’s something that’s often missed about the topic. 

While you’re bound to have heard some of the tips I’m going to cover before if you’re a seasoned investor, my goal is to give you something new and actionable you can take with you to actually improve your business no matter how long you’ve been investing. 

Ready? Let’s talk about it. 

1. Expand Your Networking Opportunities Beyond Just Agents And Investors

As a real estate investor, the value of connecting with other investors who may be able to fund your deals or be a partner on a project is clear.

Connecting with local agents who can find you deals you’re willing to invest in is also straightforward and something you’ve likely already done as well.

And you’ve probably already tried or actively participated in local networking events and groups.

But one area I’ve seen investors at times not take full advantage of is connecting with other local professionals, such as:

• Title companies/officers
• Contractors
• Loan officers

Depending on the types of deals you do, there are many other people that play a vital role in the process of buying and selling real estate that you can benefit from.

Don’t be shy about it, either. These are mutually beneficial relationships that can and will bring you deals and them business.

2. Factor Vacancy Rates Into Your Overhead

Handling vacancies is just a part of managing rental properties. If you’ve been at the game for a while, you know that. How landlords handle vacancies, however, can vary greatly.

The most important thing you can do is make sure you have funds put aside for vacancies, which allows you to have a way to immediately turn around and:

• Market the property
• Get an inspection done
• Get the unit cleaned

All without having to worry about it affecting your bottom line for that month.

The most common numbers thrown around are 5-15% of your gross monthly rent, with 10% for vacancies being conventional wisdom. However, you’ll need to figure out what number works best for you depending on factors such as your market and the type of properties you’re renting. 

Some landlords don’t like putting anything aside at all, in some cases using a line of credit (LOC) to handle surprise expenses. However, this is risky and needs to be handled properly to not incur additional debt.  

3. Find A Great Property Management Company That Matches Your Style

If you’re newer to real estate investing, contracting a property management company could save hundreds of hours per month and your sanity.

If you’re a seasoned investor, however, you may have had a bad experience with a property management company, dropped them, and never given it another try.

The problem with hiring a property manager is that they’re like any other partner in your business: you need to mesh well. If you don’t, it doesn’t work. 

Not every property management business operates the same way. Some companies will have a process that works for you, while you may clash with others. 

Also, every property management firm is run by people. Some of those people you’ll click with, others you won’t. 

You should read up on how to find a property manager that works for you and take some time to learn what you should be looking for before trying a few out.

4. Screen Tenants Fully And Don’t Be Afraid To Turn Someone Down

Sometimes, you have to take what you can get. I get that. However, in many markets, you can and probably should be a bit pickier than you typically are in how you select tenants. 

A better tenant will save you an immense amount of time and money over the course of a lease. They’ll lead to fewer calls, issues, and more time.

It may be worth waiting a bit longer than you typically would to see if you can find someone that is a better fit. 

Make sure to run full background checks, too, not just criminal background and credit reports. Use a service like TransUnion’s SmartMove® that offers access to unique reports such as:

• Eviction history
• Income insights
• ResidentScore system

Doing so will give you a fuller picture of whether that applicant is a good fit, leading to fewer tenant issues over the long run. 

5. Expand Your Toolbelt To Include Creative Financing Tools

If you’ve dipped your toes into creative financing already, you’ll know there are a variety of ways you can find and make profitable deals that are outside of the typical process. 

When the market changes, what worked before may not work any longer (or for a period of time). Some types of deals are mainstays in every market, but how hot they are is another story. Still, others you may want to stay away from altogether, depending on market conditions. 

Short-term rentals aren’t always hot, for example. Neither are fix-and-flips, depending on what kind of deals you typically do and your market.  

To help combat that and allow you to find more deals that make sense based on what you’re looking for (and find ways to grab properties you otherwise wouldn’t be able to), you can sometimes use creative financing.

This includes a variety of strategies, such as:

• Seller financing
• Subject to
• Certain hybrid approaches 

Creative financing is a whole different beast, so there isn’t enough space here to dive into the details. However, you can start with this article.

6. Systematize As Much Of Your Process As Possible

You need to work to streamline and systematize your process in every way possible. That includes how you:

• Choose which properties to invest in
• Renovate your properties
• Manage your properties
• Collect rent
• And more

Time saved is money saved and the more you widen your margins the more likely you are to be able to make a particular deal and property profitable.

The other benefit to systematizing? You can teach a team.

If you have a few dozen doors and you still don’t have more than a VA on your team, you’re probably keeping things too close to the chest. 

Systematizing saves you time and money, and can even make it easier to expand your reach into further markets. 

7. Invest In Property Management Software

I know, if you’ve been doing this for a while, then any change to your process can feel like nails to a chalkboard. I’m sure that’s how Blockbuster felt when they turned down buying Netflix for just $50 million too. 

What’s my point? Change is almost always uncomfortable, but adapting is necessary for survival. And what has been one of the biggest upgrades to the portfolio and property management process in the past two decades? Property management software.

Gone are the days of spreadsheets and notepads, and in their place have arrived streamlined, centralized, and simplified systems that make:

• Everything easier to locate and track
• A variety of tasks take less time than they used to
• Make more possible with less effort

Not every property management tool is created equal, but most tools will help you in a variety of useful ways and areas, such as:

• Rent collection and late fees
• Listing, screening, and leasing
• Maintenance and tenant communication
• And more

Conclusion

The number of great tools, resources, and wisdom out there is limitless. You truly can make it in any market if you know how to play it. 

Some factors are outside of our control, but by building out your toolbox, you’ll have more opportunities to build a successful portfolio in a way that works for you. 

One of the best tools we’ve found at DoorLoop after speaking with thousands of landlords is simply knowledge and information, whether that’s knowing about landlord-tenant laws, how to properly evict a tenant, or access to documents such as forms, checklists, and applications. 

That’s why we put together an all-resources zip file with all of our best checklists, templates, and other resources. It includes: 

• A collection of checklists such as an apartment maintenance checklist, deep cleaning checklist, sales and negotiations, and an HOA audit checklist
• Lease agreements and rental forms for every state
• Landlord reference letter, introduction letter, termination letter
• Chart of accounts template
• A residential property questionnaire to find out how happy your tenants are and where you can improve
• Security deposit return letter
• And way more

Being a successful real estate investor in any market is a tall claim, I know. But you’ve never had more access to better information than now. Make the most of everything, and don’t be afraid to reach out to your fellow investors for advice and guidance.

This article is presented by DoorLoop

DoorLoop is the highest-rated property management software online

DoorLoop is the easiest-to-use, highest-rated property management software used to manage hundreds of thousands of units in more than 100 countries around the world. Attract tenant applications, manage leases & work orders, collect rent on autopilot, run accounting & reports, communicate with tenants, and much more from anywhere with ease. 

Learn More About DoorLoop

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

Andy Walden, Black Knight, joins ‘The Exchange’ to discuss rising rates and their impact on the housing market heading into the spring.

By Eric Tolic, a serial entrepreneur and growth marketer.

You’ve probably heard this mantra before: “Money does not solve all your problems.”

In the case of startups, it’s true more often than not. Unfortunately, we live in a society that praises the ability to attract investment, often with complete disregard for the underlying business. While obtaining capital is no easy feat, it should never be seen as the end, but rather a means to the end.

The Entrepreneur’s Perspective

Despite the fact that fundraising is commonly portrayed solely as a beneficial endeavor, in reality, that is not the case. Before we take a look at the various steps involved in getting a startup backed, let’s first establish the pros and cons of raising capital as a founder.

Pros

• It enhances the credibility of your company.

• It offers increased financial resources to cover expenses.

• It provides access to deep networks and industry connections.

Cons

• You will be subject to ownership dilution.

• You might have reduced control over your operations.

• You could have added pressure to hit targets and deadlines.

Without a thorough analysis of the many repercussions associated with bringing on investors, over the long term, you could end up with regret. To avoid this, it’s pivotal that you as an entrepreneur have awareness of the sacrifices you are making in exchange for money.

What Is Required To Secure Funding

Now that you understand how raising capital is often important in the development of a company, we can take a look at what is necessary to obtain financial resources. Whether you’re seeking funding from angel investors or venture capitalists, it’s essential to have a strategy in place to successfully navigate the process.

Here are some key steps to follow as you work to raise capital for your startup.

1. Develop a business plan.

Before you start fundraising, it’s crucial that you have a clear idea of what your company does, what it needs capital for and how it will generate revenue. This means you should create a detailed plan that outlines your objectives, target market, competitive landscape and financial projections.

2. Determine what you need.

In order to raise capital, you must thoroughly understand how much funding is necessary to achieve your business goals. Be sure to consider all costs associated with launching and growing your startup, including salaries, rent and marketing, as well as any other expenses you’re likely to incur.

3. Identify potential investors.

As a first-time founder, it’s imperative to note that not all investors are potential candidates for your company. In fact, many angels and VCs have preferences with regard to the industries in which they entertain opportunities. Therefore, when deciding who to pitch, always do your homework.

4. Network and make connections.

Building relationships with industry professionals is a key part of the fundraising process. Some of the ways to connect with the right people include attending events, joining relevant organizations and using social media. By doing so, you can increase the odds of landing an investment.

5. Practice your pitch.

When approaching investors, it’s of utmost importance that you relay information in a clear, concise and compelling manner. As you develop your pitch, consider seeking guidance from a mentor given these individuals can help eliminate ambiguity around various aspects of your business.

6. Prepare for due diligence.

Should you attract interest, the investor at hand will typically conduct a more thorough assessment of your company to ensure it is indeed a viable investment. Be prepared to provide any documentation they request, including records such as licenses, trademarks, patents, contracts and more.

7. Negotiate the terms.

Once you’ve secured an offer, it’s now time to review the provisions of the agreement. At this stage, entrepreneurs usually hire a lawyer for advice on the best route forward. It is often beneficial to have multiple term sheets, as it incites competition and allows for greater leverage in negotiations.

In conclusion, raising capital for a startup can be a challenging and time-consuming process. However, by following the steps above and being well-prepared, you can increase the likelihood of success in acquiring the funding you need.

David:
This is the BiggerPockets podcast show 726. In the future, lock it up, understand your contract and your contingencies, have your realtor go back and renegotiate in the thick of it, right? Because now they’re in emotional state. They’re like, Ooh, we’re finally going to sell our property. They’re thinking about what they’re going to go spend the money on. They’re shopping for their next thing. So when you come back and say, I need another 30 days, they’re not going to tell you to pound sand. That’s a great learning lesson. I’m glad that we were able to go through that together. I’m sorry that you missed it, but this should encourage you to go write another 10 offers way below asking price on other properties and see which one of these people want to play ball. That’s the name of the game.
What’s up everyone? This is David Greene, your host of the BiggerPockets Real Estate podcast, the biggest, the best, the baddest real estate investing podcast in the world. Here today is my co-host and partner in crime, Rob Abasolo. We’ve got a fantastic episode for you guys. In today’s show, we bring back our three mentees and get a progress update on the progress that they’ve been making in their journey, and we actually have some pretty cool stuff to share. We’re starting to see some progress get made. Rob, what did you think of today’s show?

Rob:
It’s good, man. It’s really good. It’s really nice to see they’re all starting to turn the corner and they’re all starting to figure out what exactly they want to do and they’re all starting to take action and you could just sort of see their minds sort of opening up and evolving and being like, wow, okay. Because a lot of the stuff that they’re doing now I feel like seems so inconceivable to them like a month ago or two months ago when we first started this, right? And so now that they’re actually doing it, it’s just funny because it’s like a lot of this stuff was very simple, but small goals and they’re doing those every single day and every single time they achieve a small goal, you can just see the confidence glowing from them.

David:
Yeah, that’s a huge piece of success and we’re learning that with these mentees is you’ve got a big goal, a place you’re trying to get to, an end destination, but you don’t get there in one step. You actually have to set up a lot of smaller milestone markers along the way that guide you in your journey. It’s one of the things that I’ve learned from Jocko Willink when he talks about Navy Seals and how they succeed throughout the day. I believe it was Andy Stump I heard talking about this, where they describe when you’re in seal training, buds training, it’s incredibly difficult and rather than thinking about I’ve got to get through two weeks of this or a month of this, they say, just get through the next portion. In another two hours, they’re going to feed you and you’re going to get to rest for a minute. Just think about the next two hours.
If you can get to that point, worry about what comes after that when you get there. And what we’re doing here is the same thing, setting small goals, turning it into bite size chunks that are manageable, asking yourself and debriefing at the end of the next milestone, what did I learn? What could I do better? How do I prepare for the next one? And then taking that next step can change things in a big way when it comes to success. Really, success is just an accumulation of all of these small goals.
Before we get into today’s show, I’ve got a quick tip for everyone here. When you are lost in an ocean of possibilities, look at your tasks and your business and assess what you could implement as a system to streamline or track your progress. It is very difficult when you’re wandering around and you just say, what do I do next? And you start asking people, what do I do? When you start looking to the universe for some kind of direction as opposed to having it written down and planned out, I’m going to do this and then this, and then this. Just removing the wondering of what am I supposed to do and replacing it with a system that you can work can do wonders for your peace of mind and removing anxiety. And it can also empower you because you can always say, what could I have done better and how do I do better on the next step? Rob, before we bring in our first mentee, is there anything you’d like to say before we get into it?

Rob:
No, I was just going to ask you if you had any crazy stuff or anything wacky happen in your real estate portfolio these days?

David:
Yeah, I am “drowning” in problems right now. I just [inaudible 00:03:42] that yesterday. One of my short term rentals, it’s really of all of the 18 properties I bought, this was the only one… I’m sorry, out of the 8 that are being rehabbed, this was the only one that didn’t have a problem. I was very grateful for it. I would think God every day that this property was doing well. And I woke up yesterday to find out that while the garage is being converted into living space, the main unit has been sitting in two and a half feet of water for the last week, and we think that a pipe burst in the kitchen and started flooding the house and no one knew, and the water has been building and building and building for a very long time.
So when I sent my contractor in there to take a video of the inside of the property so I could send it to a designer, taking a page out of your book to try to make the property look better, he couldn’t get the door open because the water was so high. Turns out the entire floor, the entire subfloor, all of the electrical outlets, all of the furniture, everything two and a half feet and below on that property is completely trashed, including the basement underneath it and more. So that’s one of the things in real estate investing that you don’t expect to hear.

Rob:
Well, you know what’s better than a hot tub, Dave? A house tub. I say, turn, make lemonade out of lemons. Let’s get a heater in there and let’s create the first house tub of this size.

David:
This whole disaster might have been worth it just for you to come up with that. Why get a hot tub when you could get a house tub?

Rob:
Well, I just had a guest try to cancel his Airbnb stay at one of my properties about a week or two ago because my wifi levels were too high. He said it was bothering him in his sleep, so I had to work that one out with Airbnb.

David:
That’s funny. So you had to send a worse router in there because was it the buzz that he was hearing that was keeping from sleeping?

Rob:
Oh dude, no. He was just, there’s a closet downstairs and I know it’s full of equipment and it’s bothering me when I sleep, I want to cancel. And I was, that’s not a thing, man.

David:
There’s a tinfoil hat and the nightstand next to you, just put that on.

Rob:
Exactly. For a small fee.

David:
Yes. All right. Well, it happens to the best of us. Not that I have the best of us, but it happens to all of us. Problems pop up that you don’t expect. It’s all about how you pivot and try to learn from that mistake. So in today’s show, you guys are going to learn about the problems that our mentees are encountering as well as the advice that Rob and I give them to navigate through it. I think you’re going to love it.
All right, Philip Hernandez, last time we talked, you were going to network with agents who had experience with land deals and then analyze the potential pitfalls of the desert hot springs property. Walk us through your updates.

Philip:
Yeah. So I had some great conversations with agents, particularly I connected with one that specializes in land. He started sending me some of his listings. I think that’s a relationship that’s just starting out, but it was really great to talk to somebody that I didn’t really have to explain some of the things that I’m always looking for in land as far as wells and access and zoning. And so it was really refreshing to connect with that agent.
And then, yeah, I’m also a musician. I played a New Year’s Eve event at this 40 acre retreat center that happened to be for sale, and I developed a relationship with the owner and I’ve had a few meetings, three hours worth of meetings of him and me just on the phone really going through his books and trying to figure out what is this actually making and would this work for our business plan? And yeah, trying to figure out if that’s something I want to take a bite of has definitely been in the back of my mind for the last couple weeks.

David:
Okay, cool. You also have gone through a couple struggles, so tell us what was your struggle of the week?

Philip:
Yeah, my biggest struggle was I found a property that I visited that was in my dream location of not just for a retreat center, but actually someplace I’d love to live that I have a lot of connections with. And we got into negotiations. I submitted an offer, I got a counter offer, and it was a counter offer that was totally within my budget. I think I got a little too overconfident in this is a buyer’s market, you can just ask whatever you want. And I asked for a due diligence period that was not in line with what the seller wanted and they went with another buyer and I’m definitely still feeling bummed about that one and secretly hoping that they fall out of a contract. But yeah, that was really hard on an emotional level really.

David:
So that kind of disappointment’s something a ton of people in real estate have to deal with, this missing, something small that you feel like I’m going to stick to my guns and I’m not moving off of this. And then later you’re like, why did I die on that hill? How can you move forward with this new knowledge in place of knowing what you wish had done different to frame it differently?

Philip:
I think the biggest takeaway for me is instead of trying to play this game where I win every single advantage that I can get in a real estate transaction, just finding what is my number, what is the number that will work for my business plan that I will feel good about, and then just going forward with that number and not playing some mind game like could I have saved 5 grand here, 10 grand there?

David:
Yeah, that’s a good point. It’s very easy to measure the wrong things when we’re trying to win in real estate investing. So you can win in things that don’t actually have objective value to you sometimes or they have a little bit of value, but you put a lot of effort towards them. And then the other things that have a lot of value you maybe overlook. So don’t beat yourself up about that because this is a thing that we all learned. This is how my system or Rob’s system, whatever, people have our own system. It’s usually a set of values is what we’re referring to when we talk about a system. They’re developed mainly through these frustrations that you experienced. Can you give us a little bit of detail about what the seller wanted and what you were looking for and how you missed?

Philip:
Yeah, so this property is listed for a million dollars. It was on the market for almost 10 months. I had been told by the listing agent, it had fallen out of contract a couple times. So I was feeling like I was in a very confident position to really ask for a lot. So my initial offer was more than 200 K below asking, and then we got a counter that was only 50 K from what I had asked for and has totally fit our numbers. We were a little concerned because we’re looking at land and things that don’t necessarily have permanent structures built on them, so we wanted a longer due diligence period. For them, they’re sick of this property, they’re ready to get it done, and they’re like 30 day due diligence. I decided to ask for a 60-day due diligence, which was asking way more than they were ready to do, and that was where I tripped up and, yeah, somebody else came in and said, yeah, 30 days is great.

David:
Was this the property that I had said, Hey, write an aggressive offer and see how they counter you?

Philip:
Is actually very similar property. Actually, that property, I didn’t get a counter offer. That seller was like, you can go take a hike, but it was really the exact same strategy that we talked about for that.

David:
All right, so that’s a good lesson that you recognized. You went after two properties. This couldn’t have worked out better. One of them told you to go pound sand, the other one countered you aggressively. Then you’re like, oh, these guys want to play ball. So you did get very close and that is a good lesson for everyone who’s listening to learn from what Philip did is by poking holes in different properties, you saw which one had the weakness. Your finger went right through the paper on the one where they countered you aggressively.
The advice I’ll give you the next time that happens is when you feel like, oh, they really want 30 days, I really want 60 days, but this price is really good and the numbers work, accept the offer, start your due diligence and when you get to the point where 30 days have passed and you are… this is especially for California, and you have to waive your inspection contingency, meaning your deposit’s at risk, offer them another 5 grand or maybe 10 grand to extend you another 30 days.
You don’t necessarily have to release money from your deposit because that’s money that you’re losing if you don’t buy it. But you could just be like, you know what, I was going to pay you X price. How about if we readjust it and I’ll give you another $5,000 if you give me another 30 days? At that point, their pot committed. They’re like, well, we don’t want to lose this buyer. We lost our other buyer that walked because we went with Phil. But, you tried to negotiate that extra 30 days when they had the leverage because they had other buyers.
The goal as the buyer’s to get that thing locked up, get all your competition, okay, get that girl off the market, she’s yours. You don’t want to be worried about, she wants to go to Forbes Steakhouse, but I want to take her to Applebee’s when she’s got other opportunities of other guys that’ll take her out. Once you got the date set and you got that property in a contract, you got a little more wiggle room to negotiate to buy herself some extra time. So that’s just a little bit of experience for you moving forward. Just because you said I want 30 days instead of 60 doesn’t mean that you’re not going to get the 60.

Rob:
That’s really good. Honestly, you never cease to amaze me, David, with your negotiation skills, but it is, it’s really hard to negotiate in the moment because tensions are always high, but once you’re in the deal and you show them that you’re a serious buyer and that you really want this, asking for a two-week extension and then another two week extension is always a lot easier because all the stakes are high for everybody. We’re all in the deal. No one wants the deal to fall out again, and so you have way more leverage on the backside.
I do want to say, Philip, I don’t want you to be too down on this because 30 days due diligence on this type of project really isn’t enough. Personally, I think you need 60. At a minimum, for this kind of stuff, I’m always looking for 90 days plus. So I don’t want you to beat yourself too much about it because I just don’t think 30 days is reasonable, but employing David’s tactic, that’s how you turn the corner on a deal like this.

Philip:
Yeah, that’s great advice. And, yeah, we had coincidentally, a very similar property that we were in negotiations for, and it was the same thing that made us lose the property is that they wanted… in that case, they wanted a 19-day due diligence period and we’re like 19 days, this is totally not reasonable for what we want to do. But in hindsight, because I was following how it got under contract, the people that it got it under contract and they did request two extensions because it closed fully 40 days after they got it under contract.

David:
I’m sad to hear this happen to you, but I am not surprised. That’s just the experience that I have being in this situation, representing clients. Really frankly, this is why having a good agent makes such a big difference, right? When Rob and I did our deal together, he kind of got to see how my brain works and how I think, but we also had an agent that could implement my strategy well. There’s some agents that just can’t do it. So you had the right idea, and that’s the point we want to highlight here. It’s just the execution could improve and you should expect that. Nobody walks into something and crushes it on their first moment. What I just said, the majority of people listening are probably thinking, I didn’t even know you could do that. And nobody knows you can do that unless they’ve done this often

Rob:
Hey, it’s kind of like whenever the buyer or the seller’s like, I’m selling this house as is, no repairs, and then you’re, okay, sure. And then the inspection comes back and you’re, but I need you to fix all of these 1000 things. That’s pretty much what you’re walking into.

David:
Yes, that’s a rule that I learned, there’s no such thing as an as is sale. No one should even say it. When they say as is, it means nothing. If there is an inspection contingency in place, there is no such thing as an as is sale because you will just say, okay, I don’t want your house. What do you mean, you have to buy it? No, I’m walking out with my deposit. Well, I don’t want you to leave. Okay, then fix all this stuff and you’re right back to where you were.
But don’t fight that battle in the beginning when they have the leverage because they can still date other people. They’re still shopping that property. Once it’s in escrow, you’ve taken leverage away. And the opposite’s true of sellers. If I’m representing you as a seller, I’m, no, we’re not going into contract with this buyer until they show they can get due diligence done in 30 days or we structure it so you lose 10 grand if you want to back out. We get something if you get out of this deal. But most agents aren’t that smart, man. They just go along with the road of least resistance.
So in the future, lock it up, understand your contract or your contingencies, have your realtor go back and renegotiate in the thick of it, right? Because now they’re in an emotional state. They’re like, Ooh, we’re finally going to sell our property. They’re thinking about what they’re going to go spend the money on. They’re shopping for their next thing. So when you come back and say, I need another 30 days, they’re not going to tell you to pound sand. There’s no one else to take that deal to. It’s been showing pending on the MLS for the last 30 days. They’ve lost all their leverage. Now, they don’t like it, but they have to agree to it, and if you want to sweeten the deal, give them a couple extra thousand dollars on the purchase price.
So that’s a great learning lesson. I’m glad that we were able to go through that together. I’m sorry that you missed it, but this should encourage you to go write another 10 offers way below asking price on other properties and see which one of these people want to play ball. That’s the name of the game. One question that you asked this week was about systems and you asked if there’s a way to streamline due diligence for analyzing properties. I assume that’s because you’re like, how could I have possibly got this done in 30 days? What are some questions that you have on that topic?

Philip:
That’s definitely a part of it. I also, as a side note, just yesterday, which was really exciting, I got a 22 unit in Cleveland under contract with a couple of partners. So now it’s a lot different because it’s a commercial property, there’s not land that I’m analyzing the due diligence, but we are definitely on a timeline with our due diligence for this 22 unit. And so really being as focused and really having the best checklist that I can even imagine for going through this is at the top of my mind.

David:
All right, Rob, from his perspective, because this is sort of in your wheelhouse, is there anything in particular you can give Philip advice for when it comes to streamlining due diligence?

Rob:
Yeah. So I think that this is a really tough one because when it comes to due diligence on these types of land deals, it really does require acquainting yourself with all the different roles in departments for all the different counties that you’re going to be calling. So there’s going to be a difference between a plan checker and then a building and safety official and then the environmental health department and then the zoning commission.
So you basically have to learn the language of all these different people and call them and ask them the same questions. So one of the things that I’ve learned doing this multiple times with different properties is I tend to call over and over and over again, and sometimes I’m a different person. I just want to hear all the different regurgitations because while the code is always the same, people’s interpretations of the code is always very different.
So I like to call all the different city officials and basically kind of understand their basis for why they believe what they believe, why they have certain code in place from septic tank to how big the septic tank has to be to off-grid procedures, can you use compost toilets and all that kind of stuff, right? I’m getting in the nitty-gritty here, but the reason I say all this is I tend to write down all the questions that I’m going to ask beforehand because you don’t want to sound like you’re just rambling out of nowhere when you’re on the phone. You want to have a very concise and meaningful set of questions for everybody, and then you want to learn the names of the people at that different department and ask for a referral on who you can talk to next.
So hey, thank you so much for your time. I know that you didn’t know too much about what off-grid toilets are allowed here. Is there anyone in your department that you could point me to? So I think having a very long list of questions like that, and then also make sure that you’re notating who you talked to. That way if you talk to them again, they’re not, weren’t you the guy that called two days ago? And then you’re, no. So I’ve done this so many times where I’ve called the same county over and over again, and at a certain point when that happens to you and they’re, you just called two days ago, your cover’s kind of blown, and then they won’t give you the time of day, right?
So make sure that you’re notating exactly who you’re talking to, what their position is, what they do, and then also write down all your questions in advance so you can keep those conversations as concise as possible. Because for the most part, people don’t want to talk to you on the phone for an hour. I don’t know if you’ve tried this yet, but they want to get you off the phone as quickly as possible.

Philip:
For when you’re doing that and you’re talking to county officials, will you have things that will come up and be like, okay, this is a red flag, this means that I shouldn’t pursue this opportunity?

Rob:
Not necessarily no, but I ask them, what is something that could possibly happen that would stop this project from moving forward? Most of the time they’ll say, oh, there’s not really something that could stop it, but you do have to watch out for this. But what I like to do in this due diligence phase is to know that my project is technically feasible and then I close on the property and then we can do the actual permitting, but there’s no way for you to do the full on due diligence in 60 days and know every single answer. You can get a pretty good idea, and that’s what you’re trying to know, right?
You’re trying to check the feasibility of your project so you have the confidence to close on your property because what you don’t want to do is close on your property with all these unanswered questions and then find out that you can’t actually develop your project, right?

Philip:
That’s great advice. Thank you so much.

David:
All right, Philip, thank you very much for your time. Appreciate you and congrats on that Cleveland deal. Let’s hear more about that the next time that we speak.

Philip:
Sounds good. Thank you guys so much. Really appreciate it.

David:
Danny, last time we talked, you were finding a broker to work with and you were going to work on building up your ability to be a little more outgoing and make conversations in a more fluid way. We had kind of touched on rather than just attacking that directly, work on some other areas of your life where you were uncomfortable to just get some momentum going to then take that momentum once it was built up and apply it to this problem that you’re having now. So how did that go?

Danny:
Yeah, so hey, in the words of John Foley, I’m glad to be here. When thinking about the introvertedness, I did go and kind of just work on it a little bit every day like you all suggested. Because it was the top of mind after the last podcast, I was able to think about it in various situations where I’m talking to new folks and maybe I think you mentioned the cashier at the grocery store at restaurants, just kind of getting a little bit more conversation every day and it has become a lot more natural just as working out and just lifting up a little bit more every day and a few more weights. So it’s been working out pretty well.

David:
Okay. I got to say, it actually comes across on this conversation. You’re a little bit more outgoing and maybe not ridge is the right word, but it’s been a little bit more loose. Am I completely imagining that or do you feel a little bit more like you could flow?

Danny:
Yeah, I do. I definitely feel a lot more comfortable. I think part of it also is that we’ve done a few of these already, this is the third recording, so I’m less in my head about what I need to talk about and over-preparing and really worrying about that part of it and I’m able to be a little more comfortable.

David:
But there’s a lesson in that also, which is that the first couple times you do anything, it’s awkward AF, it’s hard. And the more that you stick with it, the more natural it becomes, and that is not different when it comes to analyzing deals or talking to people or attending events or like with our last guest, Philip talked about he wrote an offer, he got a really good counter offer, he just kind of fumbled it when he got to that point. But the next time he gets to that point, he’s not going to fumble. You can’t expect to hit it out of the park on your first shot. So props to you for sticking with it and recognizing the process does get easier the longer you go. Now, you had mentioned your struggle this week was that it’s the continued problem of having to balance your real estate investing work with your full-time work. How are you staying motivated on that front?

Danny:
Yeah, we also have the kind of like Rob as well, I also have the challenges around family life and kind of making sure that I carve up enough time there. So for me, I think it comes to the realization that I’ve got to embrace the chaos so that stuff isn’t going to change. I like my job. I plan on putting my full energy when I’m there. When I’m at home, I plan on putting my full energy in my family, so how do I fold this in and make it part of my daily life and make incremental progress also, where it’s not just a big bang thing every Sunday, spend all day and just kind of bust my butt and try to get all these checklists done?
But that has been motivating for me, just that realization, keeping my eye on the bigger picture. Why am I doing this? So making sure that that’s always top of mind. And this big thing about extreme ownership, just kind of saying I’m responsible for the results, so if I don’t do anything, nothing happens. So I always just keep using those things to keep pushing myself and having the right mindset as I keep going through.

David:
Yeah, that’s right, our success is much more determined by who we are than just what we do. A lot of people get into real estate investing thinking, if I just do these things, I’m going to end up with this result. It’s not the case. It’s who you are. Now doing things will impact the person you become. That’s what the key is. As this character’s being built, you will find that the right opportunity’s, the right people. It may be even a completely different asset class than what you thought, but it does become known the longer that you stay on the journey. So this is the way Danny, stay on the way.

Danny:
Yeah, I love it and just a little progress every day, it’s been awesome.

David:
So touching on systems, you mentioned that you like ways to systemize how you’re trying to educate yourself. Let’s talk about that for a little bit. How’s that been going?

Danny:
Yeah, obviously since I discovered real estate and decided that I want to dig into it, this podcast has been a big primary source of information besides all the books and all the other ways to learn. I find since I’m doing a lot of digging in Sacramento, there’s a lot of drive time, so I’m folding in time instead of listening to the radio, I’m making sure that I’m going through some podcasts or some audiobooks there. Gives a lot of time. In relation to my family life, taking my daughter to practices and stuff like that, there’s gaps there where you can go and get a few things done or smallish things done. Do a module or read, listen to part of a podcast, make a phone call or email and just find those gaps. Even at work, take a walk, go take care of a couple of phone calls. I think that kind of stuff has been really helpful just to recognize all the extra time that there is during the day and being able to prioritize these things.

David:
Have you tried signing up for the YouTube Premium feature where you can listen to it even when the app is closed?

Danny:
I have not.

David:
It’s a good 15 bucks a month or whatever it is. It’s one of my favorite things I did. So I invested in some AirPods and YouTube Premium. Because most podcasts will play their stuff on YouTube. If it’s not on YouTube, if you’re just listening to a podcast, of course you can do that too. But anytime I’m doing anything, I’m going for a run. I’m at the gym working out, I’m going to the grocery store to buy food, your meal prepping, you’re washing your car, cutting your grass, whatever you’re doing, you can have this stuff going on in the background. It doesn’t have to be let me carve out an hour of the day to sit in my room, in my couch and just listen. Right?
You can be something that you’re doing while other productive things are happening. So if you’re trying to figure out how to find more time, one way is you can find ways to educate yourself while doing other stuff that we all have to do, right? Like Rob’s got to go pick up his kids, he’s got to go deal with situations with them. You could be educating yourself in the middle of that. And so there’s probably some ways that you can combine synergy here to save yourself some time. As far as your action plan for your next steps, tell me what you got in mind and how we can help you with that.

Danny:
Yeah, so I’ve spoken to some brokers, some folks in Sacramento. I think I’m pretty comfortable with one person. I’m going to start now kind of dialing up the evaluation side and kind of going through and really more closely looking at these deals with the intention of making aggressive offers there. So that’s the next step for me is to just go in and to… I’ve been up there a few times. I see some interesting properties. Now it’s time to where the rubber hits the road and just really dig in.
I think it’s going to be interesting for me in terms of aggressive offers and when we think about 10 to 20 unit properties, there’s a lot of money. The price point that I’ve been looking at is about 2 to 4 million. Still upmost things out there are vastly overpriced based on what I can tell. So aggressive offers may be 600, 700 K less. So is this the right market? I get the feeling there’s going to be opportunities and it may be just kind of going through and just keep doing it. It’s going to be one of those things where just keep working at it. It’s not going to be the first time that I go through and they’re going to accept the offer. But is that reasonable, 600, 700 K off of listing price or am I just so out of whack right now that I should be rethinking?

David:
Everyone listening needs to do what you’re saying right now? This is the strategy I’m recommending for everyone in this market. When Rob asked me for advice, I give him this advice. When I’m buying my own properties, I’m doing it. Get out of the habit of running your analysis with the BiggerPockets calculator on the list price from Zillow. Stop that. Stop analyzing it at what is listed for and saying nothing works, and then just saying, I can’t buy real estate. Find the area, the asset type you want, the crystal clear criteria. Sounds like you know, stuff in the 2 to 4 million range, 20-plus units in these areas. Know that, know the number that makes the deal work and just write the offer at that number.
And you’re not trying to get it accepted, you’re trying to get a counter offer. You’re trying to find the seller that’s like, well, I was listed at 4. You wrote it at 3.4. What about 3.55? Okay, now they’re very close to where you want to be and you can look for creative strategies to structure this. Maybe they give you a note and second position so your down payment’s a little bit less. Maybe they fund you some money at 0% interest that you can use for the rehab. You do something once you get it really close.
And so the action needs to be taken aggressively. More offers should be written, but don’t write them at… Don’t just, A, look at a bunch of stuff at the list price and say, nothing works. This is what everyone else is doing. Danny, your competition is analyzing stuff at the list price. Doesn’t matter. If that stuff’s been sitting there for a while, sellers are listening to the news. They’re seeing interest rates are not really budging. It’s slowly wearing in on them that they’re going to have to sell, and if they want to sell, it’s going to be at whatever offer they get, not what they want. Make sense?

Danny:
Yeah, absolutely. I think I’ve learned from you, it’s not about that list price, it’s about what prices at work works for you. And I’m definitely of that mindset.

David:
So I literally have a spreadsheet, it’s got tabs, offers written and then offers accepted, and then it goes down properties I have, stuff in rehab, blah, blah, blah. When I write an offer on a property, it goes into that tab because I’m going to follow up in two weeks and write another offer. Maybe they say no to your 3.4, that’s fine. In two weeks you write it again. They say no again. Well, six weeks later, maybe that 355 counter comes back. Okay. That’s the way that we win in this market is you’re just poking, poking, poking, looking for the soft part. Quit waiting for sellers to get there on their own and just decide to reduce the price, go after it and find them before they do the price reduction so you’re the one that locks it up.

Danny:
Absolutely. Thank you.

Rob:
One quick thing, Danny, have you put in an offensive offer yet?

Danny:
Not yet. No. I’m just-

Rob:
All right, yeah, you got to do it, dude. I think you’re probably very scared. You’re like, oh my gosh, if I do this, it’s going to ruin that person’s life. It’s all going to come crashing down. Everyone’s going to talk about me for years to come, and no one will… dude, no one cares. Just do it and then expect the no. Get them to tell you to pound sand, basically, and then be, all right, whew. First rejection feels good, let’s do it 10 more times. Honestly, every “bad offer” that I’ve ever made, it feels good to get the first one out there because it’s, all right, I knew they weren’t going to go for that, but now let’s go for another one.
So I would say just to get the jitters out, go make an offer. Go make a crazy offer on something that you’re like, eh, I don’t really want this one, but if I got it for a million dollars less, I guess I’d take it. And you can make the offer. They’re going to say no, whatever, move on. But you just got to get that the jitters out, I think, and then you can make it more of a recurring habit.

David:
That’s your homework.

Danny:
Yep.

David:
Well, I want you to come back next time we talk with several of Rob’s double O method, the offensive offer.

Danny:
All right, will do.

David:
Yeah. And remember, the goal is not to get it accepted, the goal is to get a counter. So you can play with that. You can start off at a level of offense, and then, dude, I don’t like that. Maybe come up a little bit and at least it gets a conversation going, which is what you really want. You want their agent to come back and say, no way. And your agent to say, well, what would it need to be? Well, what about this? Now you are at least building some momentum. You’re not just throwing spaghetti at the wall and hoping it sticks.

Danny:
Yeah, love it. I will absolutely do that.

David:
All right. Thanks, Danny.

Danny:
All right, thank you.

David:
All right, that was Danny. Next up we have Wendy. Wendy, you have Rob Abasolo’s favorite name in the world. He loves to mention it every time we talk to you. How’s it going?

Wendy:
Aw, that’s great. Thank you. Yeah, I like my name too. I think I’ll keep it.

David:
The last time we talked, you were assessing your existing properties for potential as either medium term rentals or short-term rentals. I understand that they’re not necessarily in areas where that would work, but you were going to kind of do a stress test just to see what would need to be done. Walk us through what that process was like.

Wendy:
Yeah. All right. First of all, it was a great experience. I went ahead and analyzed all these different properties that I have in I would say C class neighborhoods, and here’s the interesting fact. People still do Airbnb and short-term rentals in these kinds of neighborhoods, and I was surprised. Now all that being said, most of the ones that I’ve got, the ones in Indiana, they’re stable. They’re performing right now on a long-term, and I’m not ready to jump head into any of those to kind of upset those apple carts yet.
Baltimore, I think, could be a really great midterm rental market. However, once again, as I look at those areas, they’re still a little bit transitional, if you will. And so I’d maybe like to wait one year. I’ve got section 8 tenants in three out of four of them. The fourth one I think would be a decent one for a midterm or short term rental, but I’m going to wait this year out to kind of see what’s the right approach for them in a year.
But I’m going to take my best opportunity one, which is in Ocala, Florida. Now, these are two properties that I have put money down on that are delayed a year, and I’m frustrated, yes, but they’re supposed to be done in April, and I’m going to take one of the two of those. As I did the analysis, with the interest rates the way that they are now, it’s pretty much just a break even when these properties get put to market. So I think the opportunity for me is to turn one of those, this is the least risky path, into a midterm rental. I can’t do short-term rental in that community, but I can do a mid-term rental. And, what that would do is take my cash flow from breakeven basically to about $600 a month. At least my analysis shows that’s what the market should garner. So that was where that ended me at.

David:
So you’ve had some several positive things that kind of came out of that little stress test or mock experiment here of seeing what it would look like if you move some of your existing inventory into medium term rentals.

Wendy:
Yeah.

David:
Okay. That brings us back to your original question, which was like market, should I go invest in? I believe it was Las Vegas, is that what we were talking about? Is that right?

Wendy:
Yes.

David:
Okay. So what’s your thoughts on that after our last conversation?

Wendy:
Okay, so since we last talked, I’ve got a lender, I’ve got a realtor, and I selected this real data driven lender who’s done a lot of work in Vegas for 20 years, who has very clear criteria for what they will recommend their investors or people buy in certain parts of town. So they look at it kind of like this L, if you know Las Vegas, and you kind of stay away from the areas that are close to the strip. Ironically, that’s where all the short-term rentals are, which I don’t know, I’m sure you’re familiar with the short-term rental market there is kind of in an upheaval right now because they’ve put some strict rules into place.
So that’s the one downside of Vegas is that it is, it’s probably a B minus or a B market for me to go into. It’s got great opportunity, and even for mid-term rentals and even for a short-term rentals, if you can get a contract and you are living in the property, they’ve got some strange rules. But it is potentially a little bit saturated because of all the hotels that are there because of all the other short-term rentals that are going to maybe be pushed into the midterm rental space.
But I did get to have a conversation just last night with Jesse Vasquez, who is the midterm rental guy, and that was fabulous. He kind of gave me some insights and hopes. He said, it’s not a terrible market, it’s not the best market, but it definitely can be done there as far as midterm rentals are concerned.

David:
Okay. So what are you thinking as far as that strategy? I think you were talking about possibly moving there to house hack. Are you thinking medium term rentals might be the way to go?

Wendy:
Yeah, so here’s my safe approach because I have this sort of Murphy’s Law of real estate investing, what can go wrong will go wrong. So I’m pretty conservative in how I want to do things, although I’m also a bit of a nomad, and so I’m free to do whatever works best for me financially. So I’m thinking that with my first go round in Vegas, that I’d like to buy a house, maybe a four, five-bedroom house with at least three bathrooms, possibly four as many as I can get, and house hack that as a person who lives in that house, and then also rents out the rooms to others, maybe some mid-term rentals. If I could get a short-term rental license, I could probably use one of those rooms for a short-term rental license. But rent out the other rooms to either traveling nurses or digital nomads, or even just people that I find in the market that are looking for something.
The market seems to be able to bear a minimum of $1,200 a month for a really nice place. Now, there’s some kind of low end, not look great looking ones for 800, 900, 1000, but if you wanted to live somewhere where you felt comfortable and safe and it was sunny and it was nice, I think you could get people to pay definitely upwards of $1,200. So I’m thinking if I can get three rooms filled at that price, I can pretty much cover the mortgage and mine and at least break even with a house hack in Vegas.

David:
I love it. This is some encouraging news, much better than when we first got started, and it seemed like every potential had some kind of a roadblock. So if people want to hear more about Jesse Vasquez, he’s a friend of Rob’s, and turns out he knows a bunch of my friends too so we’re probably going to become friends. You can hear him on episode 728. It should be the next one that airs after this episode, and you’ll be blown away just like Wendy was. Now, Wendy, in your update last week, you mentioned that you’re struggling with limiting beliefs. Let’s talk about that. Where can we help you with those?

Wendy:
Oh, yeah. So I guess this is a pattern for me. I go between this balance of analyzing new opportunities and things and analysis paralysis that kind of stops me from taking action. And sometimes it’s for the right reason, but other times I feel like I should have done that. I look back six or eight months later and I’m like, look, someone else just made it happen, why wasn’t that me? So I try to look for reasons almost to say, no, it won’t work, and I’ll move on. Even when I was going to talk to Jesse last night, I was about to get on the phone with them, and he said, I have some very specific thoughts about Vegas, and all I could think was, ah, he’s going to tell me not to do Vegas.
And part of me sickening as this sounds, felt relieved that I could say no, and then I could move on to some other new idea. But at least I recognized that in myself and I said, gosh, don’t do that to yourself.

Rob:
Basically, you were relieved that it wasn’t going to work because then that kind of would allow you to stay in the research phase that maybe would get you onto this next thing.

Wendy:
Yes, it’s like this self-fulfilling prophecy of failure. And so perhaps the first step is realizing it in yourself. And luckily, when I did talk to Jesse, he didn’t say that at all. And so I think I’m going to just try to take a step back and say, all right, realizing that I do have these self-fulfilling ideas about what will work and what won’t work, that as you guys have said, many times, anything will work in any market if you put your effort toward it in the right direction. Not anything, but most real estate plays can work. You just have to put effort into it.
I’m not afraid of effort, I guess I’m just afraid of failure. It’s my life savings, and so that’s what kind of holds me up. And then in addition right now in Las Vegas or even around the world, I think everybody’s wondering what’s really happening with the market. It has dropped. Is it going to keep dropping? I know I can’t anticipate that I’m going to buy at the very bottom of the market, but I want to at least know that I’m not buying into something that’s about to drop a hundred thousand dollars as soon as I buy into it. So those fears I have.

Rob:
Sure. Well, first of all, I think recognizing it is huge. I’m like that too, right, I’m just like, all right, not going to work, let’s find something else. But I think after doing this for a couple of weeks, what you probably struggle from what I struggle with, which is the shiny object syndrome of real estate’s, great, there’s so many things out there, and I just want to do it all. And I’m always, I’m not closing doors, I’m not opening doors. And so for me, that’s always a problem because everything’s an option. And when everything becomes an option, then it’s just really hard to make any kind of final decision. So I think really what it sounds like in this particular episode, in this moment in your life, we’ve sort of found the strategy. You want a house hack in Vegas, you’re open to it.
I think it’s time to just commit to that. I think it’s time to commit to that specific strategy, to that specific decision. Is that something that you’re going to do? If it is, yes, I’m ready to do it, boom. Because as soon as you have that final decision and you’re like, this is what I’m going to do, it’s really hard to move from that because now we can actually start taking actions to make that decision come to fruition. You can start looking at houses in Vegas that are the five bedroom, four baths or three baths or whatever you can get. You can start making a recurring list on Redfin. You can start contacting agents, you can start making offers.
And really the deeper you get down into this rabbit hole of that specific strategy, the harder it is to climb out of it, which is a good thing, I think. So I think it’s just really, the problem is at the beginning of this, when there’s so many options, it can be a little overwhelming, but committing to what your strategy is, which I think is the house hack, I think that’s going to solve a lot of these problems for you.

Wendy:
Right. I feel like I’ve made the decision to go ahead and do it, and I’ve got realtors looking and I’ve given them a very clear set of criteria. And so now the question becomes, what’s the right size house? What’s good enough? What’s not good enough? So now I kind of have my systems and my prioritization matrix to work me through what’s a good one versus a bad one.

David:
All right. On the topic of systems, you mentioned that you use a lot of spreadsheets, that you are spreadsheet dependent and spreadsheet friendly. What have you learned from all the systemizing that you can share with our listeners?

Wendy:
Well, systems help me make better decisions. That’s the overarching theme in general. But I wish I had more of them, and sometimes there’s too many of them. That’s the double-edged sword of systems, because I do have many spreadsheets and sometimes they’re not as organized as I’d like them to be. But let’s take, for example, when I’ll be analyzing a property, I do have a very clear process of going through this, and what it is I get the property listing from the agent, and then first I look at the aesthetics of the house, the space, does it have enough bedrooms and bathrooms, and does it have a good space and does it have at least 2,500 square feet, et cetera, et cetera. What’s the area around the house?
And I start to look at it from a Google Maps perspective. What part of town is it in? Does it have parking that’s good? Does the street look attractive? And then I go out to Zillow and I look at what else is for sale in the neighborhood? What did it sell for last time? How long ago did it sell? Just getting an economic picture of it. And from that, I get a good enough idea of the unit if I can’t go visit it, I’m kind of a tactile person, would love to put my eyes and hands on it, but if I can’t, this is how I do it.
From there, then I go to do the analysis from a moneymaking standpoint. If it’s a long-term rental, I’ll look at a rentometer or the BiggerPockets version of it. The short-term rental, I was able to do it through AirDNA. And then for midterm rental, there really is no official calculator, but it’s kind of one and a half times the long-term rental rate and/or what I think the market will bear, which is about 1200 minimum a month for a room. So if I multiply that times 3, it’s 3200, how does that compare to my mortgage? Put myself into the mix, and that’s how I can at least say, all right, we’re at the point where maybe now we could determine what we might offer to pay for this house. I loved your advice though on how to make more offers and just make it at what you think you should make it at as a starting point.

David:
All right. So first piece of advice that I’ll give you is come up with a hypothetical deal. I think you mentioned if it has at least three bedrooms, they each rent for 1200. That allows you to break even and have a space to live in. Some form of an avatar like that and make that a baseline. Or maybe this is what I have to have. Then say, how can I improve on that? If three bedrooms works, how do I get four? Or how could I get five? And don’t just set your search for, I want to look at four bedroom homes. Of course, you can do that, but look for every three-bathroom house and notice that, let’s say maybe a three-bedroom house has 1500 square feet, what if you set your parameter to 2200 square feet? You’re going to get more four bedrooms.
What if you set it to 2,600 square feet, but you find a three-bedroom house? Okay, the people who are looking at 2,600 square foot homes are probably looking for five bedrooms. So they’re going to be missing this home. There’s probably enough square footage in that 2,600 square feet to add two more bedrooms or even possibly three. You have to look at every floor plan. But you are going to define the gems like that. If you know that three bedrooms works, look for ways to get more square footage and say, could I add four? Could I add five? Could I get six? And if the answer is yes, does it have parking? Does it have enough bathrooms? Does the floor plan work?
That will give you something to do. Like you said, you’re not afraid of effort. That you can put that energy towards that’s going to be productive for you, rather than just looking, well, what three-bedroom houses are out there and what’s the best one. That’s a frustrating approach to take, okay? When you find it, it’s probably going to have been on the market longer than the competition because there’s not a lot of people looking for a three bedroom home that’s 2,600 square feet.
So then you write the offer at the price that works for you. Now, it might be the list price, it might be less than the list price, but do something like we mentioned where you write an offer to try to get a counter. Now what happens, this is my strategy is I don’t look to hit a home run on any one area of a deal, I look to accumulate several areas where I win that combine to make it a grand slam. So if you’re getting a 2,600 square foot home that you could get five or six bedrooms out of now instead of breaking even, you’re going to be making 2,500 bucks a month or so on this deal. Maybe you get into a better neighborhood and then you get it less than what it’s worth, and then there’s a value add component to it.
Those combine to make the deal really good. After you’ve seen a handful of those, your brain is going to recognize them like, Ooh, that’s the one I want to look at. That has potential. Then it won’t be as hard to find them. They’ll start jumping out at you when you’re looking at houses. Does that make sense?

Wendy:
Yeah. And that brings up one of my other questions is with this house hack thing, how many individuals will live in a single 3000 square foot house? Do we max out at four people that don’t know each other? Are we trying to get a couple of couples? What’s the right mix of this? And I just haven’t mastered that understanding yet.

David:
Yeah, I can’t say for sure. I’ve never had a person that asked the question of, well, how many people are living there? Mostly what they say is, what does the room look like and what is my rent? That’s the majority, right? Because when you’re living in a room of a house, it’s kind of understood you’re not going to be spending a ton of time in the common area. It’s more of a hostile type environment. I just want to save money. I want a bed to sleep in. I want a place for my stuff, but I’m not looking for a home. It’s a very transitory type of a situation.
So I’m sure they prefer to have less people, but I don’t think it’s nearly as high on the priority as do I get my own bathroom? How many people do I have to share a bathroom with? That’s what’s going to be on most people’s minds. Just like when you check in a hotel, you’re not asking, well, how many other people are staying in the hotel?

Wendy:
But you do want your common area to be attractive and maybe some outdoor space where I might sit and read a book. Those are things I’m thinking about, but I don’t know if it’s what they’re thinking about. They’re just like, I need a place to sleep and I need a place to shower.

David:
I don’t think that they’re thinking nearly as much about, I want a place to read a book. If you like your privacy, you’re not looking for rooms to rent, you’re looking for an apartment. The people that are looking for this are looking for a budget option, which is how I lived my life for years as a cop. I was like, I don’t want a place to sit and read a book. I just need a place to go sleep and shower and then get back out there to work. So you’re going to be having traveling nurses that are trying to rack up that overtime and other people that are wanting to be out hiking and exploring and doing stuff. They don’t want a place and abode to chill. Those people are buying their own house or renting their own house or renting their own units, not sharing rooms. That make sense?

Wendy:
Yeah.

David:
Okay. So that’s some advice I’ll give you. And then I would also check in on local ordinances to make sure that there aren’t limits to how many people can be living in a house, which I don’t think is going to be a huge deal because it’s usually neighbors that report that. What will be a huge deal and what I tell people all the time, because we work with a lot of house hackers on the David Greene team, and we’ve got this down pat, make sure there’s enough parking. Everyone forgets that.
If there’s not enough parking, your tenants will park in front of the neighbor’s houses. The neighbors will get mad because even though they don’t own the space in front of their house, they think they do. And when they can’t park in front of their own house, it gives them some incentive to call the city and make your life hell. So you’re looking for houses, not necessarily track homes, where your neighbors are really close, you want a little bit more space and you want to make sure that there is plenty of parking.

Wendy:
Interesting. Yeah. Okay. And then I can turn loft areas into other bedrooms as well, right?

David:
Heck yeah. You want to look for that. That’s what I used to do is I’d find a house with a loft that was three bedrooms, turn the loft into a bedroom, turn the living room into two bedrooms, and still have a family room, and I could turn three bedrooms into six.

Wendy:
Wow.

Rob:
Yeah. We do that all the time on Airbnb. We mark it lofts as bedrooms. We disclose it, we say, Hey, it’s an open space, but there are beds. We put two beds in them and it can be used as a bedroom for sure.

David:
Or you just put up some drywall and turn it from a loft into a room. It’s cheap to do that if you want to actually just put up a door and frame off that loft.

Wendy:
Interesting. Okay. Well, I’m thinking if this works, that this will be my first foray into this city of Las Vegas, and I will probably then take Jesse Vasquez’s approach with other units, and I will maybe just rent the entire house out, houses, get a number of properties, sort of either under contract or arbitrage and start to make some relationships and build a business. Maybe this is my way out of my W2 someday as to kind of just really become a midterm rental kind of specialist in this area. So that’s my longer term thinking.

David:
Well, that’s exciting stuff.

Rob:
Yeah. That’s cool.

David:
We will check in with you soon. Thank you very much, Wendy.

Wendy:
Thank you.

David:
All right. I want to thank all of our mentees for participating in this program with Rob and I and sharing their journey with the BiggerPockets community. This has been awesome. Rob, any last words before we get out of here?

Rob:
Nah, but I will say it’s been really cool to see the journey and then the actual character development of so many people. For example, we kind of glossed over this, but Philip casually mentioned that he got into a 20 unit

David:
22 deal, yeah.

Rob:
Yeah. We didn’t even talk about that. I’m, wait a minute, where was this two weeks ago when we talked about it with them or two months ago? I don’t remember what the timeline is on this. But, that’s huge progress. And that’s just the tip of the iceberg for some of these peeps. So really to cool to see that they’re actually taking action. I think they’re so close to turning the corner, and I’m excited. I think as soon as Danny goes and makes a low ball offer and gets basically a big fat no, I think it’s going to be a little scary at first, but I think he’s going to feel good afterwards.

David:
Yeah, he’s making some big progress. Just you can tell with his personality, he’s definitely starting to open up and you’re seeing some of those natural talents and gifts that Danny has, are making themselves manifest. Before when he was thinking, I don’t really know enough to be doing this, some of that was held back. And then Wendy, I can also tell that and focus is starting to come in. She’s starting to get that target in her sights, and I have a feeling Wendy’s the type of person that when she zeroes in on that target, she’s taking it down. There’s not going to be any stopping her. So this has been very cool to see.
And I want to thank you, Rob, everybody, if you could DM Rob or leave a thank you to him in the comments, he’s here with a very sore throat, ruggling through the show, coughing up a lung because he is dedicated to this process and loves our listeners just as much as I do. So thank you, Rob, for being here.

Rob:
For sure. Happy to be here.

David:
And thank you listeners. Also, we wouldn’t have this podcast without you. We are here to help you make more money and build a better life, and we sincerely love you, and thank you for being here. If you could, please give us a five-star review wherever you listen to podcasts, that helps us out a lot. All right. That’s all I have. This is David for Rob “The Infirmary” Abasolo signing off.

Pandemic-induced work-from-home arrangements gave a lot of airtime to the concept of “autonomy.” Without managers to oversee their every move, employees naturally had to engage in more self-direction. This idea spooks a lot of business leaders, who fear team members will loaf when they’re not being monitored or given detailed instruction.

For the majority of workers, this attitude is misguided. Although some employees are ill-equipped to work without the structure of an office and being told what to do and when to do it, most aren’t. They embrace the chance to prove their ability to accomplish business goals. They may need time to make the adjustment, but they thrive when they’re given a sense of empowerment over their own work.

You may be surprised at how your team ramps up performance when you stop making assumptions and allow them to make significant decisions for themselves. Here’s how you can boost your team’s autonomy and why you should give it a try.

Delegate Better and Lead Quietly

Delegation is a tough act for many leaders. They cling to a belief that their title makes them the boss of everyone in every way. If you want to build an autonomous team, you’re going to have to loosen your grip.

Delegate roles to those team members whose talents, skills and experience seem best suited for them. Give your team the authority to make and execute decisions without requiring them to get your approval at every turn. If goals and assignments are clear, employees should be allowed to take their respective balls and run with them.

Your role as a leader is to give your team the resources they need and to be available to answer questions and provide guidance. Let’s say you want to delegate broader responsibility to the tech lead on your team. That person has been carrying most of the coding burden. You’ll need to work with your lead on finding ways to hand off the coding so they can step into the new mentoring and managing duties you envision for them.

When you delegate authority, you’re giving your team the opportunity to fully invest themselves in their jobs and take ownership of the process and outcomes. Nothing but good can come from that.

Give Everyone Autonomy and Watch Leaders Emerge

Team autonomy can’t be a pick-and-choose affair. You will need to give everyone on the team autonomy to make this work. That includes those members who have hitherto relied more on management direction than independent thought.

The delegation of authority to specific team members doesn’t mean they work in a vacuum. They still need to collaborate with the rest of the team. If you’ve done your job well, those employees you’ve asked to step up will provide the structure some team members need while maintaining the team’s overall autonomy.

For example, if you delegate the responsibility of creating a project timeline to one individual, that person will need to consult with the other team members. The team will discuss factors that affect the timeline and create one everybody thinks they can live with. They’ll then hand off the timeline for you to monitor (not approve).

What happens during this process is the emergence of leaders at every level. Autonomy encourages peer-to-peer learning that organically creates a strong team dynamic. Everyone learns something from everyone else.

Effective leaders build up those around them. If you’re providing the autonomy that allows employees to lead on various levels, you’re building a remarkably productive and resilient team with tremendous depth.

Trust Your Team, and They Will Reciprocate

Trust is a reciprocal proposition, especially when building autonomous teams. You must trust your team to make good decisions when you give them autonomy. In return, your team must trust that you have confidence in their ability to make decisions that lead to strong results.

Employee trust is critical to key factors like productivity, collaboration, innovation and conflict resolution. These are the qualities of a successful team, which in turn translates to a company’s success.

No one said it would be easy to trust your team to make crucial decisions for themselves. This is where your ability to mentor, guide and coach comes into play.

Autonomy doesn’t mean you stand by and watch the team or a project self-destruct. On the contrary, autonomous teams gain confidence from knowing you are monitoring their efforts and that, if they get too off course, you will step in. For example, you’ll take time to discuss possible solutions with emerging leaders who appear overwhelmed or suggest the team meet to brainstorm ideas to resolve issues before they go too far.

What you won’t do is throw up your hands and take over. If you do, you’re telling your team you’ve lost trust in them, and they’ll respond in kind. If you nudge them in the right direction, they can course-correct on their own. That’s what autonomous teamwork is all about.

Lifting Your Team’s Autonomy

Giving your team autonomy doesn’t mean giving up your leadership. You just have to approach it in a different way.

The degree of autonomy you allow and where you apply it are still at your discretion. But even a little of it, done well, will create more constructive collaboration than chaos.

Ashley:
This is Real Estate Rookie episode 260.

Amanda:
The tax benefit of a lease option is that the options money you get upfront, you don’t have to pay taxes on it until later on when the option is exercised. During the lease option term, you still own the real estate, which means you continue to get the depreciation benefits, the write-offs, and things like that. So it’s getting more money upfront, but also retaining the tax benefits because you still are the owner.

Ashley:
My name is Ashley Kehr and I’m here with my co-host Tony Robinson.

Tony:
And welcome to The Real Estate Rookie Podcast where every week, twice a week we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. I want to start today’s episode by shouting out someone by the username of Leo Zhang, and Leo left a five star review on our podcast that says, “Goldmine for real estate investment. Tons of valuable information and suggestions from real estate investors. You will find the roadmaps to success here”, with four exclamation marks. So Leo, we appreciate you and for all of our rookies that are listening, if you had not yet left us an honest reading review on Apple Podcast or Spotify, wherever you listen, please do. The more reviews we get, the more folks we can reach, the more folks we can reach, more folks we can help. And that is what we like to do here at the Real Estate Rookie podcast. So Ashley Kehr, what’s up?

Ashley:
Well, we are a week away… Well, days away, not even a week away from your short-term rental conference, the summit. And I’ve been nervously checking the weather because each time I go somewhere it’s bad weather-

Tony:
Bad weather.

Ashley:
I did get the email from your event planner today saying there is a chance of rain over the weekend. So I really hope that it’s not me that’s bringing it because I need warm weather. I’m super excited. It does say 80s.

Tony:
Yeah, so hopefully it’ll be warm. Not too crazy Florida. The weather’s always unpredicted. But yeah, we’re excited. We leave in less than 48 hours to take off and we actually almost spend almost a week in Orlando because we’ve got some stuff to do before hanging out a little bit afterwards, going to Disney World with the team and stuff. But we’re pumped. We’re going to have almost 400 people there, so it should be a fun couple of days and I’m glad you’re coming.

Ashley:
And I’m bringing my mom and my kids, so they’re just coming for the weekend. They’re flying down Friday night and then they’ll fly back Sunday night and then I’ll stay for a couple more days. But yeah, it’s just a great excuse to have a family day.

Tony:
We’ve been traveling a ton because we had Rob from the real estate show. He had his short term rental event in Houston last week. So Sarah and I went there and I spoke on stage for a little bit, and then we came home and it was a slew of birthdays, so it was Sarah’s birthday yesterday, it was her sister, my sister-in-law’s birthday two days before that. And it was my cousin, who’s one of my best friends’ birthday in between their birthdays. So it’s just been literally nonstop. So I’m excited after the summer, we’ll get to relax for a couple of weeks before we keep moving.

Ashley:
Yeah. Hey, I have a question for you before we actually get into the episode, what are some of the things you look for when you decide what conferences you are going to attend? Obviously the ones you are asked to speak at, but what are some things you look at?

Tony:
That is a fantastic question, Ashley. I think the majority of the conferences I’ve been to as of late, I’ve gone as a speaker, so that that’s kind of been the main driver. But honestly, as I think about the things that I want to learn, it’s not even necessarily real estate strategies at this point. I think what I’m more so focused on at this point in my career is the business principles to support my real estate business. And those are the kind of things that I’m starting to look for. I haven’t really bought a ticket for any new… But anyway, that’s what I’m looking for. Actually, let me rephrase my answer. There’s one thing that I’m really looking to exceptionally get at in short-term rentals, and that is revenue management. So there’s so much that goes into pricing your properties the right way. And there’s a big conference over the summer that we’ll be going to that has a deep dive into that topic specifically. So that’s the one real estate thing I’m really focused on. What about you?

Ashley:
Yeah, well, my son had his football banquet this past weekend and I had someone come up to me and say they have two short-term rentals and I’ve talked to them about it before, but they’re like, we are just ready. She was an attorney and actually has retired as an attorney to focus on the real estate, and she’s like, I just want to learn more about these short-term rentals we have and how to maximize them and run them better and all these things. And so she’s like, I just don’t know what conferences to go to and all these things. And she’s like, as an attorney, I did conferences all the time. She’s like, I’m sick of them, but I know I should get back into it for the short term rentals. I was like, I know exactly which one you should go to. I was like, there’s going to be one in Austin, I’m going to the one in Florida.
And I was like, when I went to the one that was in Newport Beach, I went on stage and I did a shot of tequila, not you’re normal conference. But anyway, I thought it was such a great question as to, I don’t even know which ones to attend and what to add value. So maybe we can actually do a rookie reply on that as to how to vet your conferences that you’re attending. And I think you made a great point as to figuring out what you actually want to get out of the conference first and then kind of narrowing it down from there too.

Tony:
Yeah, there’s so much information out there. I think most conferences that are put on, you’ll probably get some value from. I think what’s more important is your level of preparation going into that event. Conferences are those things where you get out what you put in, and if you’re in there, you’re taking good notes and then after the event, you’re spending some time to let that information actually percolate in your mind and identify how you can use it. And then you implement that stuff. That’s where you really get the value. But I think the unfortunate truth is that you see a lot of conference junkies who go from one conference to the next, and they’re well known at these different places, but they aren’t actually implementing what they’re learning when they go there is they’re not getting the full benefit from it. So I think the prep beforehand is probably what’s most important.

Ashley:
Yeah, I agree. The one thing I like to do is at the end of the day is just sit down and jot down what I learned or what’s the action I want to take care of. And usually by the end of a conference, I’m just itching to get home and get back to work. Those flights home after a conference are the most productive[inaudible 00:06:38]-

Tony:
Productive[inaudible 00:06:38].

Ashley:
I’m so motivated from all the people I’ve met, everything like that, and it’s just getting stuff done and things I want to do. Yeah.

Tony:
So just last thing, our friend Tyler Madden actually told me that he does this, because he and I, we’ve been to two different conferences together and both times he almost always spends an extra day after the conference in the city and he uses that extra day to really go through everything that he learned over the course of that conference. So I think I might say a lot from our friend Tyler and add a buffer day after each event so I can just sit down and really deep dive, what did I learn, how can I implement it, and so on.

Ashley:
And just to get caught up on work from being at the conference because the last time we recorded, we both had pulled all-nighters, and one reason you had is because you were at a conference all day, so at night you had to do your work. So being able to still be on your trip and to relax, be in a different setting than your house, because when you get home you have to do laundry, you have to unpack, you have house stuff to do, you got kids to take care of, things like that. So having that extra day to get caught up, I think that’s a great point too, is taking the information you learn from the conference and kind of putting it into action.
So with me taking my kids this week, I think it’s a kind of great segue into a guest that we’re actually having on the Rookie Reply. I’m going to a conference. This is a business write-off. My kids are coming with me, my mom is coming with me as a nanny, and they get to hang out at the pool all day and have fun. So that is definitely a great way to maximize business travel, taking your kids with you and turning it into a little vacation for them. So we are bringing on Amanda Han, who we did a full episode with for episode 255, and we are going to have her answer some of your reply questions. So make sure you guys listen to the end to hear Amanda answer your questions.
Okay. Our next question is from Katie. If you purchase a property using personal private money and use personal money for rehab and plan to use the property as an Airbnb, what is the seasoning period before you can go to a bank and refinance it to pay off the private money loan and use proceeds for another investment? This is a great question because it really depends on the bank. I’ve seen it where there is no seasoning period, but very typical is six months to 12 months. So my business partner, he’s purchasing a primary residence that he used hard money, now he’s going to refinance with the bank and the one bank that he’s talking to right now, it’s a 12-month seasoning period. Tony, what are you typically seeing?

Tony:
Yeah, I think it varies as well. So when I first started investing, the bank that I was using, it was no seasoning period. As soon as your rehab was complete, you were able to refinance. However, it was only a rate-and-term refi, so essentially you weren’t able to pull out any additional capital. You were just paying off that initial mortgage that was on there. So for me, I had increased the value of the property by whatever, 50, 70, $100,000, but I couldn’t tap into that equity. I could only refinance up to an amount that was equal to the existing debt. So yeah, like you said, I think it varies by the bank.
In the short-term rental space, though and most banks that I’ve talked to, they typically do want to see somewhere between 6 to 12 months because they need some proof as to what kind of income that property will produce as a short term rental. There are some banks out there that are now doing their own projections and underwriting to say, Hey, we think this property will do X, Y, Z as a short term rental, but most banks still want to see at least six months of actual booked revenue in order to do that refinance as a short-term rental.

Ashley:
Tony, you brought up a great point as, and I think we should highlight this, is that there is a difference between refinancing and doing a cash-out refinance. So how your bank didn’t have the seasoning period, but they would allow you to refinance the property as to what the existing data is. And typically this is based off what the purchase price is for the property, and they’re probably going to give you the same loan to value that the first lender did onto the property.
So that’s one thing my business partner just ran into now, is that he can refinance at any time with this small local bank, but he can only pull out 80% of the purchase price of the property, and that won’t include any of the rehab. But if he waits 12 months, then he’ll be able to pull out whatever the appraised value is, 80% of the appraised value of the property. So that’s definitely something you should be doing before you’re purchasing a property is talking to banks, talking to loan officers and finding out that information before you go ahead and purchase the property so you can kind of have your game plan, your timeline spread out.

Tony:
Yeah, the bank I actually worked with, they were slightly different because it wasn’t just a purchase price. They actually did allow me to include the rehab cost in there as well, but it was only because it was a construction loan that they owned. So they said, here’s a construction loan for you to purchase and do the rehab and then we’ll convert you to long-term debt. But that’s the beauty of it is that there are so many different lending institutions out there, banks, credit union, small, big, medium, and every single one is going to have a different flavor in terms of what they can offer. But Ash, what we didn’t define as seasoning period, so maybe you want to define what that is for folks maybe aren’t familiar with that phrase?

Ashley:
Yeah, so the seasoning period is how long the property is gaining value. So it’s like letting your property set because a bank is looking at your property and if you go and refinance in 30 days, they’re going to say, wait, you just bought it for 200,000 and now you’re saying it’s worth 300,000, 30 days later? So they want that seasoning period for the property to appreciate and for you to add value to it doesn’t make sense. Not really, especially if you’re going in and you’re blowing a hundred grand to appreciate this property, but the seasoning period is where they want to see the appreciation on that property. And there’s not always going to be appreciation there either.

Tony:
And I think what I’ve seen most cases, Ash, let me know if it’s the same thing on your end, is that typically that seasoning period doesn’t start from the day that you purchase it. It starts from the day that the rehab is complete. It’s like if you’re doing a BRRRR and they want to see six months, what I’ve been told from the banks that I work with is usually it’s six months after the rehab is complete. Is it the same for the lenders that you work with in your neck of the woods?

Ashley:
No. If I’m just going to a bank and I haven’t used any kind of existing financing with them, I used hard money or private money or cash to purchase and I’m going to do that refinance, the seasoning period starts the day that you purchase-

Tony:
Purchase it.

Ashley:
… the property. On the residential side, at least. On the commercial side, I’ve seen that you can refinance it anytime.

Tony:
Talk about that then. So you’re saying on the commercial side, as soon as you buy, if you rehabbed it in a day, theoretically they’d allow you to refinance on day two?

Ashley:
Yeah. So to give you an example, this is one of my favorite financing deals ever, and this happened in 2018, 2019 maybe, where I went to a bank and I said, I want to purchase this property, what can I do? And they actually said, we can give you a 90-day unsecured loan. So this was a no collateral and this was what I was going to go and purchase the property for. They wrote me a check for the exact amount to purchase the property and as we closed on the property, and the deal was is that I would go with the same bank to refinance it and put long-term financing on it.
I purchased it with that loan, they gave me that 90-day loan, and then I put in a $800 new fridge of one of the units. I got it rented out, and I think it was within two days of the purchase, we had the appraisal done. I don’t remember the exact numbers off the top of my head, but we bought it for around 35,000 and it appraised for I think around 50,000 and we were able to pull out $42,000. And so we were able to take to pay off that 90-day loan, pay for that $800 fridge, but that was just two weeks after closing and we were able to go and refinance it on the commercial side of lending.

Tony:
I wonder if that was because they maybe took the line of credit more so as a cash purchase and not necessarily a mortgage that was secured by the property itself. Do you think that had anything to do with it?

Ashley:
No, because for this property that my business partner’s trying to purchase now, its was a cash purchase that he’s pay… I think it was maybe a private moneylender, I don’t remember exactly, but on paper it’s a cash purchase and they still want that one year seasoning period. It doesn’t have anything to do with the [inaudible 00:15:50] on it because they’re going off of the purchase price. Where commercial lending, they’re looking at, okay, I put tenants in that property and it’s added value that way. And I do remember the bank being very shocked at how much it appraised for, but that’s also the value of buying under market. I know that we got a great deal on this property and that’s why I purchased it.
And so I think the bank was actually kind of upset that I was able to go and refinance and pull so much money out when I bought it for 35,000 and then two weeks later I’m able to pull out $42,000 out of that property. But yeah, the commercial side I haven’t at least run into any situations where I have to have a seasoning period on the commercial side, and that’s when the property is in an LLC. So in this example that Katie gave us, she has the property in her personal name where you most likely will have to use the residential side of lending.

Tony:
Interesting. Well, Katie, hopefully that that’s helpful for you. I’m trying to think if there’s any other loan products that might be beneficial. I mean, even on the DSCR side that’s what we’ve been kind of exploring for a lot of our short-term rental purchases as of late, if you are doing a rehab or anything like that, they still typically want to see that seasoning period as well. And for us even if we weren’t commercial, they still wanted to see it if you’re using a DSCR for short-term rental. And just to give all the listeners some context, the lending space for short-term rentals is still incredibly new, and the loan products you can get on the long-term rental side haven’t quite all made their way over to the short-term rental side. So you still do see less options, kind of more hoops you have to jump through when you’re trying to get loan products specifically built for short term rental. So keep searching, keep digging, and hopefully you’ll find a bank that can kind of work with you.

Ashley:
Okay. So our next question is from Robin. Good morning. Good morning. So at what points can you raise rents? In Oregon, each year you can raise rents at 9%. I can also raise rent after the lease is up, right? When can I make adjustments to the lease after it’s up? Okay. So we kind of have two questions there on leasing and increasing those rents. So that’s definitely a hot topic I see especially if you are inheriting tenants as to when you can actually increase the rent to market rents or at least bring it up a little bit as to what the rent is currently.
So great question, Robin. The first thing I would say is that you have to know what your state laws are. So if you already know that you cannot raise it more than 9% of the current lease agreement. This is definitely something you want to look into when you are purchasing the property to see how long it’s going to take you to actually bring the rents up to market rent. Where I live in New York State, in our county, I know in New York City there’s some limits on what you can charge for rent, but as far as where I’m currently investing outside of Buffalo, New York, there are no limits as to how much you can increase or what that rental price can be. Tony, did you run into any of that when you were doing long-term rentals in Louisiana?

Tony:
For us, in Louisiana, luckily we didn’t inherit any tenants, so we didn’t have to necessarily worry about increasing rents on anyone. But to your point, Ash, if I were in a situation where I did have inherited tenants, I would want to know what is our current lease state and then what are the local laws and regulations and really lean on my property management company to help give me, I guess, the right information in terms of what that looks like. Because it is super specific and what we do in California and my city is probably super different than what Robin’s doing in Oregon and so on and so forth.

Ashley:
And I think a good resource is to look at your county or your city at some of the nonprofit organizations that, look, they’re housing specialists. So in Buffalo, New York, there’s Belmont, and Belmont actually gives out the Section 8 vouchers in our counties. So look into where people get a Section 8 voucher in your county. And a lot of times these organizations have free or very low cost training as to what these laws and regulations are, and especially teaching landlords how you can appropriately increase the rent or how to handle that. So I recommend looking for some kind of organization like that and taking one of the training classes. A lot of them even provide a book too with the updated tenant landlord laws or if you even go to your local town hall, a lot of times they have pamphlets too. Here’s one for tenants, things you should know, and here’s one for landlords, things you should know.
And then the second thing, you can raise rent after the lease is up. That is correct. When somebody is currently in a lease, you cannot raise their rent until the lease expires. So make sure you’re looking at that information when you’re purchasing the property and seeing when that lease agreement is up so that you can raise rent and then also be cautious of giving proper notification. So in New York state, depending how long the person lived there, you have to give them so much notice that their rent is going to increase.
So they live there less than a year, so their first one year lease is coming up, you have to give them 30 days notice. If it was more than that up to two years, then it’s 60 days and then after that it goes up to 90 days notice. So make sure that you’re planning for that too. And then the last question of that was when can I make adjustments to the lease? And that would be the same period as to when the lease is up. When you send that rent inquiries, you would also make the new lease with the changes in it.

Tony:
Ashley, have you ever purchased a property where there were tenants in place but no documented lease?

Ashley:
Oh, yes.

Tony:
So how do you handle that? Do you come in and do you raise rents immediately if they’re way below market rates or what’s your process to handling that?

Ashley:
Yeah, so I bought a portfolio from an older investor who just had people send him money and it’s kind of a handshake deal with most of his tenants. And so when you purchase a New York state, a lot of times when you fill out the real estate contract, it can have a rent rider addendum to it. And this rent rider basically states how many units there are, what the tenant’s name is, what unit it is, how much they’re paying in rent, and when their lease term is up. So the seller had filled that out for me and then I went and I sent an estoppel agreement to all the tenants with his permission that stated that I was going to be purchasing the property and if they could give me their name, their contact information, what they pay in rent, when’s the last time they paid in rent, things like that.
So I basically took what they were saying and what he was saying, and then I compared it and I had one tenant that was living in a two bed, one bath, and it was a six unit and all the other ones were paying $500 a month and she was paying $300 a month. She had lived there for 30 years and she took very good care of the place. So what I did instead was I increased it by increments. So I think for the first two months it was increased by $25, then the next two months and went up another 50 and we increased it over, I think maybe the course of nine months or something to get her up to that comparable rent. So that’s one way to do it and I always like to include what are the market rents?
So if you were to move to a different unit in that same market, how much would it cost to show that I’m usually still below market rent when doing these increases. Plus you’d have to pay your moving costs, change your mailing address, all the other headaches that come with moving too. And I really have never had an issue of increasing rent and getting a lot of pushback on it.

Tony:
Is that tenant still there? The one that had been there for 30 years?

Ashley:
Yeah. Yeah.

Tony:
Wow. That is a crazy longevity with one person.

Ashley:
Yeah, so now it’s been… I bought that in 2017.

Tony:
That was five years ago.

Ashley:
So longer than 30 years she’s been there. Yeah, so 35 years.

Tony:
It’s also crazy to think, not to go too far off on a tangent, but the people do rent for that long. That could have been a mortgage that was paid off almost. It’s an interesting dynamic for sure.

Ashley:
Okay, you guys, next up we are bringing Amanda on and she was going to answer some of the Rookie Reply questions.

Tony:
All right, Amanda, well welcome back to a Rookie Reply episode. We had you on episode 255, but you provided so much value. We knew we had to bring you back to answer some more questions from the Rookie audience, so thanks for chatting with us again.

Amanda:
Yeah, excited to be here.

Tony:
All right, so we’re going to lob a few questions at you. The first one comes from Greg Carroll, and Greg’s question is, I started on my five-year goals and one of them is to be able to buy houses to put into a trust for my nephew and nieces and kids to pay for college if they choose to go like Brian did for his daughter. Is it possible to do that for someone else’s children? If so, how do you do it?

Amanda:
Yeah, that’s a great question, Greg. So you can put a rental property into a trust and have the beneficiaries be whoever you want it to be. It could be your own kids, could be, like you said, nieces and nephews. Could be my kids too. My kids would love to benefit from that too.

Ashley:
Amanda will provide her kids births and social security numbers for you guys to add them.

Amanda:
And not just Greg could be anybody. But in all seriousness, it also depends on what kind of trust we’re talking about. So in our previous episode that we did, we kind of mentioned it a little bit, there’s various different types of trust in how it’s treated for tax purposes. So what you are describing definitely could be done, beneficiaries could be anyone you want it to be, but I think maybe a better, or maybe a more flexible way to do it is to not put it in kind of a special trust. I mean, could be like your living trust or it could still even be in your name or like your LLC name, but really just earmark for the future cash flow or future equity to go to these various kids and nieces and nephews. The reason for that is if the properties are in your living trust or your name or your LLC, then you continue to get the tax benefits of the rental real estate during your lifetime.
And then at some point in the future, if your intention was pull money out and help them pay for college or just even passing it to them eventually when you pass away, then the people who inherit the properties from you, you could get step up basis, which is a huge benefit. It basically means that they nor you will be paying taxes on the appreciation through your lifetime. But I love what you’re trying to do, but definitely worth a conversation with your tax advisor to see if it should be a trust at all and if so, what type of trust might be best?

Tony:
So what you’re saying Amanda is that Greg might be over complicating it a little bit by trying to set up the trust and there might be some simpler ways to achieve the same goal of using the cash loan equity from this property to pay for his kids and nieces and nephews college?

Amanda:
Yes, you’re exactly right, Tony. I love how you summed up what I said in five minutes, in five sentences, and that’s why you’re the host of the show.

Ashley:
Okay, Amanda, are you ready to move on to our next question?

Amanda:
Yep.

Ashley:
This question comes from Matt. I wonder, my renters want to buy my condo they live in. There are some benefits to it like no agent fees, no repair cost, no grace period when property is empty waiting for purchase, no repair costs, et cetera. What are the best options to sell it? Thinking about doing rent to own, me providing seller financing, how that looks from an operation perspective or just doing a regular sale. Are there any tax benefits versus the other?

Amanda:
Gosh. Well, great question Matt. There’s so many different possible exit strategies. So we can talk through some of the consequences of the ones that you listed. So if you were just to do an outright sale, like you say, you can skip on the commissions and great benefits of doing for sale by owner, that doesn’t change into the tax impact of it. So if you wanted to, you could do a 1031 exchange, which means you’re selling this property and then you reinvest the money into another rental property. And so if you’re following the tax rules of doing it correctly in a 1031 exchange, you can get out of this property and then into maybe a bigger, better property without paying any taxes currently. Or you mentioned maybe rent to own or maybe like a lease option, things like that. What I like about the tax benefit of a lease option is that the options money you get upfront, you don’t have to pay taxes on it until later on when the option is exercised.
During the lease option term, you still own the real estate, which means you continue to get the depreciation benefits, the write-offs and things like that. So it’s getting more money upfront, but also retaining the tax benefits because you still are the owner. And then you mentioned seller financing is another one. So seller financing is good as well. The key difference in seller financing is that when the contract is executed, you’ve essentially sold the property. So you no longer own the real estate, meaning you don’t get depreciation anymore. Now the buyer has depreciation, other deducting mortgage interests and things like that.
But as a seller, there is still a benefit. Then the benefit is that you get to defer the taxes on the gain over X number of years as you collect money from your tenant buyer. So instead of just selling it outright, maybe you have a huge taxable gain. If you do a seller financing, you carry a note for five years or 10 years, you can defer the capital gain slowly over the next five to 10 years as money is collected on your part. So all different possible solutions with differing tax benefits.

Tony:
So Amanda, and me, I just want to make sure I’m following here too. So it sounds like the 1031 exchange could work well if Matt has the desire to quickly acquire another property, but if Matt just wants to take the profits and use it to whatever lifestyle, whatever it is, then probably going lease to own and might make more sense because that’s still going to give him the tax benefits of owning the property and then he’s not getting this big tax bill at the end of the year. Am I following that correctly?

Amanda:
Yep, exactly.

Tony:
Okay, awesome. I actually never really thought about the differences as the seller between lease to own and seller financing, but now it’s almost more beneficial for the owner to do lease to own versus seller finance. So that’s interesting.

Amanda:
Sometimes, and I don’t know if there’s a distinction, a technical distinction between lease to own versus a lease option. I mean lease option, meaning we have a lease agreement and we have a options to purchase agreement. So you’re a tenant, but you’ve given me some money upfront to say, okay, at some point in the future you can buy it at a stated price, and that’s slightly different than a lease to own where you pay after X number of months or whatever, then you own the property. So that’s maybe a little bit more like a seller financing, so not to get into the woods of.

Ashley:
No, that’s great that you broke it down. Yeah.

Tony:
All right, Amanda. So going on to our next question here. This one comes from Amber, and Amber’s question is I’m looking to best leverage $98,000 in profit from a sale into a bigger opportunity for cash flow and equity. I also want to reduce my tax liability on that sale. Right now I have an approval to only purchase a home at a minimum of $250,000 ARV with a $200,000 loan with hard money at $187,500. Since my approval, the interest rate has gone from six and a half to the high eights. So Amanda, just to sum up this question, they’ve already sold the property, they’ve made $98,000 in profit. So my understanding is maybe 1031 exchange is already off the table because they’ve already completed the sale. So what other options does Amber have to get the best tax treatment on that $98,000 in profit?

Amanda:
Yeah, I mean, answer depends on the timing of it, in terms of when was this property sold. If it’s still within the same year of us addressing this question, then even though she can no longer do a 1031 exchange after the fact, she could still do what’s called a lazy 1031 exchange. And that’s just something that we made up. So if you Google it, probably won’t find any definitions about that. A lazy 1031 exchange is basically people who’ve already sold the property but are looking for ways to offset the gain by reinvesting into other real estate. So as long as you’re doing it within the same year, so I sold property one in January of this year, but before December 31st, I buy more real estate. With my new rental properties I can maximize my expenses and write-offs, I can do cost segregation and the loss I create can be utilized to offset the gain on the property that I sold.
Even though they’re two completely different transactions, but that’s just how tax law works. If you have loss on one rental, you offset the gain on the other rental. So definitely still possible to do. I know she mentioned the interest rates are going up, and unfortunately there’s not much that we can do as investors to control what the rate is going to be. You can look for cheaper financing, you can look at partnering with other people to make the numbers work out, or I mean, you find the best deal that you can right now, and you can always refinance when the interest rates decreased again. So yeah, a couple different options there, I think.

Tony:
Amanda, something I learned. Well, first, the big benefit obviously of the 1031 exchange is that you get to defer those capital gain taxes from the sale of that property. But the challenge is that it’s a tight turnaround time. It’s a tight timeframe to identify that next property and enclose on a property. Someone mentioned to me earlier this year, oh gosh, its 2023 now, so last year.

Ashley:
Last year.

Tony:
Yeah. Someone mentioned to me last year about a reverse 1031 exchange. Have you heard that phrase? And if you are familiar with it, would you mind breaking down what it is and kind of how it differs from a regular 1031 exchange?

Amanda:
Yeah, definitely. So in a 1031 exchange, the way that it works is when you sell a property, and this has to happen at the time of the sale, so maybe for someone like Amber who’s already sold, we can no longer do it because you have to have an intermediary involved in the transaction before you sell. So when you sell, you have 45 days from the date of sale to identify which properties you will buy as replacements, and within 180 days you have to close on one or multiple of what you’ve already identified. So you meet those two rules. And there’s other number rules too, in terms of sales price, purchase price and things like that. But let’s say you meet those timelines, then you can defer all your taxes. But yes, what we’ve seen recently when it was a hot seller’s market, that was really easy for an investor to list the property and be sold the next day, but now they’re sitting on this money in the intermediary and they’re trying to replace it a lot more difficult to find the right properties to close on where the numbers make sense.
And that’s why we saw a lot more of the reverse 1031 happen. So reverse 1031 just means that you already have your replacement properties identified and maybe even purchased. So I already know I’m going to buy this property on Main Street for X dollar amount. I’ve identified it, I might have even closed on it. And then you list your current existing property for sale. So that’s really the only difference, and I encouraged a lot of my clients to do it the last year, year and a half for that exact reason. You don’t want to be in a bind where like, oh my gosh, now I have to quickly look for a replacement property where the numbers might not make sense.

Tony:
And the big benefit of the reverse is that it takes away that time pressure because you’ve already identified the property, you already know the property. Obviously the downside is you have to come up with the capital to purchase that new property first and then go back and kind of replace it from that other capital. But I think the ability to search for the property without the pressure of 45 days, 45 days that allows you to find a better deal potentially, and you might get more value out of your 1031 exchange by doing it that way. Well, thank you for bringing that down, Amanda. Something that I learned that was new to me, I figured I’d share with the Rookie audience as well.

Ashley:
And Amanda, if somebody else wants to do that, who should they go and talk to? Is it their CPA or should they go right to a 1031 intermediary?

Amanda:
Yeah, great question, Ashley. So I typically recommend you start with the CPA, and the reason is because your CPA will be able to tell you whether there’s a gain on the sale of the property, and if so, how much is the gain, right? I mean, doing a 1031, whether a regular one or a reverse one, there’s cost associated. It’s not free to do, right? You have to have an intermediary do it. And like Tony was saying there’s kind of the downside of the timelines and the stress of all that. So for some investors, maybe if the gain is small, they don’t care.
Maybe it’s like, Hey, I’m only going to save a thousand dollars in taxes. I’m not even going to worry about it. And you don’t really know what the gain or loss is going to be unless you talk with your tax advisor. Even for someone who like, Hey, I’m selling Main Street property, I know it’s going to be a gain, but I might have other losses from my other rental properties or my other business that I can already use to offset. In which case, maybe 1031 is not really needed. So that’s why I talked to the CPA first. They’ll let you know whether it’s needed, how much it’ll actually help you to defer taxes, and then you can decide, does it make sense for me to hire an intermediary and go through those steps?

Ashley:
That’s such a great point too, as to what are kind of your goals or what are you looking to do within the next year too, because maybe you want to go and purchase your own primary residence where it’s not going to be based off of rental income. So you want a year where you’re showing high income, so you’re actually going to pay the taxes on that profit instead of doing the 1031 exchange to show that to get approved for a loan. So just another great example of why it’s important to do that tax planning with your tax professional. Okay. Well, Amanda, thank you so much for joining us for this week’s Rookie Reply.

Amanda:
Thank you.

Ashley:
Can you let everyone know where they can reach out to you and find out some more information about you?

Amanda:
Oh, yes. Keystonecpa.com is my website. If you want more tax tips and tax strategies, we have a lot of free downloadable resources. And if you just want to follow me personally and see what I’m having for lunch and what I’m doing on the weekend, you can find me on Instagram @qmanda_han_cpa.

Ashley:
I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson. And we will be back on Wednesday with another guest.
(singing)

Often, the leaders we remember the most are the ones who inspire us to take action or to better ourselves and make an impact. To be inspirational in this way is a goal many leaders dream of achieving, yet it’s not a skill that always seems to come naturally to those who try.

Thankfully, there are a few steps you can follow to help put you on the right path. Here, 10 members of Young Entrepreneur Council each offer up one step leaders can take to be more inspirational day to day and discuss why developing this trait will benefit you, your team and your company overall.

1. Radiate A Positive Vibe

Remember to have fun, even as a leader—or especially because you’re a leader. At your next meeting, think “How can we work better together to make this great?” versus “How do we avoid forking this up?” Given emotional contagion, your vibe matters. While there are times when I switch postures to be more direct, in most of our one-on-one interactions, being positive pays off. – Charlie Gilkey, Productive Flourishing

2. Share Your Failures

Your failures make you more human rather than just a leader. Never forget to share your failures with your teams. It’s all about courage and authenticity. Inspirational leaders are not afraid to take risks and stand up for what they believe in. They are authentic and genuine, and they lead by example. Furthermore, they are flexible and able to pivot when needed. – Candice Georgiadis, Digital Day

3. Learn To Be A Great Storyteller

If you want to be a more inspirational leader, your No. 1 skill to learn is storytelling. Every single person loves it. There is something about human nature that makes us drop everything and pay attention when we hear a good story. Learn to weave your messages into well-developed plots with thought-provoking insights and you’ll be able to inspire and motivate people around you. – Solomon Thimothy, OneIMS

4. Cultivate Emotional Intelligence

Emotional intelligence is key. Being emotionally intelligent allows leaders to better connect with their teams, to build trust and rapport and to create a positive and inclusive work environment, fostering greater engagement and commitment from team members. Leaders can practice mindfulness and self-awareness and also seek out development opportunities to enhance their emotional intelligence. – Lauren Marsicano, Marsicano + Leyva PLLC

5. Be Generous And Giving

Be more giving. Be generous. An inspirational leader gives employees what they want (within their capabilities). For example, if your company is doing well, pass along the rewards to your employees. A leader also knows that while money is a motivator, so are recognition, praise and rewards. Even speaking directly to an employee about a job well done is inspirational and a powerful motivator. – Shu Saito, SpiroPure

6. Practice Empathy

Leadership is a skill and it takes practice to develop. One of the most important skills for a leader to have is empathy. Leaders should understand how their team members are feeling and what they are going through. Leaders can also perform better by being aware of how others perceive them. How people see the leader will determine if they are seen as inspirational. – Kristin Kimberly Marquet, Marquet Media, LLC

7. Get Inspired

The key to being inspirational is to be inspired. Develop the hunger to learn from other leaders. They don’t necessarily have to be in business. Pick any person who has left a mark in the world that’s worth emulating. It could be Bill Gates, or it could be the pope. Read and learn about notable figures from different industries, cultures and disciplines. The internet has a wealth of information. – Bryce Welker, Crush The GRE Test

8. Embody Your Company Values

The most inspirational thing a leader can do is embody their company values. In my company, our core belief is “People First.” This means that our employees and customers always come first. We implement this belief every day by listening to people. Leaders can develop this skill by taking small steps and being consistent. It will make an impact as you work at it over time. – Syed Balkhi, WPBeginner

9. Listen To Your Team

If you want to be a more inspirational leader, take some time to listen to your team. Employees appreciate it when their bosses listen to their feedback and take action based on what they learn. You can develop this skill by practicing. Have a biweekly one-on-one meeting with your team members so you can better understand their needs. Take what you learn and find new, inventive ways to improve your business. – Chris Christoff, MonsterInsights

10. Pick Them Up When They Are Down

You are the energy you give to your team. I always focus on having a positive attitude when communicating with my staff. When they are tired and experiencing low morale, as leaders, we must pick up our teams and keep them going with a positive mindset to help move us toward our goals. A leader is nobody without their team. – Alexandru Stan, Tekpon

Dave Meyer:
Everyone, welcome to On the Market. I’m your host, Dave Meyer, joined by Henry, Jamil, James, and Kathy. How is everyone?

Jamil:
Great. Fabulouso.

Kathy:
Doing well.

Dave Meyer:
Good. Well, it’s good to have you all here. Jamil, we missed you while you were gone. It’s great to have you back.

Jamil:
Thank you.

Dave Meyer:
For everyone listening, we’re going to have two parts to this show today. We’re going to play a game called, Hot or Not, where our panelists are going to tell us whether they like certain strategies for this type of market, and then we’re going to go into what we call our correspondent show, where we’re going to be talking about some of the more important, and relevant news stories for real estate investors that are going on right now in February of 2023. Hey guys, ready to play Hot or Not? I feel like this could get mean. I feel like it’s like a middle school game. I have some repressed feelings about a game called Hot or Not.

Jamil:
A past trauma?

Henry:
Flashbacks of rejection.

Dave Meyer:
Yeah, just being notted a lot.

Jamil:
But is that website still up? Should we all put our pictures up on it?

Henry:
Absolutely not.

Dave Meyer:
I am on my work computer, and I’m not going to type in hotornot.com on my work computer.

Jamil:
Do they track keystrokes there on your work computer? Like what’s Dave typing today?

Henry:
Scott Trenches just watching you type all day.

Dave Meyer:
Yeah, sorry [inaudible 00:01:26] .

Jamil:
Although just to say I think if Dave was looking at Hot or Not, in my world, all that would appear would be sexy, or not sexy numbers.

Dave Meyer:
Oh yeah. Yeah.

Jamil:
It’d be like pie charts, versus line graphs.

Henry:
Look at that IRR. Mmm.

Dave Meyer:
It’s true. It’s just data visualizations, and people talking dirty about them. All right, well, enough of that. Let’s get on to our show, where we’re going to be talking about different strategies. I want to hear from each of you, is this strategy right now hot or not? And I guess it’s not like hot, like are people doing it? Is it, would you do it? So let’s start with short term rentals. Henry, hot or not?

Henry:
I’m going with nyet.

Dave Meyer:
Nyet? Okay.

Henry:
Not, not hot. I say that with a caveat. I’m doing it with a couple of deals, but I think what you’re starting to see with the Airbnb kind of slow down, both seasonality obviously is playing a role, but also the increased inventory of Airbnbs is causing demand to go down, which is causing pricing, nightly rates to come down.
And I think you saw a lot of people who had gotten into the Airbnb space because they were just like, “Oh, I can make five times what I’d get long-term rent. I just got to throw some furniture in there, and stick it up on Airbnb? Heck yeah.” Right? So, you’ve got a lot of people in this space who are truly running a business, who are truly looking at the metrics, and setting their properties apart, providing the amenities necessary in their particular regions.
They didn’t do that kind of market research. They’re not true operators. And so I think that if you look at Airbnb from that perspective, in 2023, you’re going to see a lot of those people who just kind of came in hoping to capture a bunch of cash, they’re going to fall to the wayside.
I still think buying properties at deep enough discounts that you can afford to pivot, and you can put those on Airbnb, I still think there’s some benefit there and you can make decent money with Airbnb. But, you have to operate it properly. Do the proper market research, offer the right amenities, have the right business practices in place, be able to do the proper marketing.
You didn’t have to market before, you just had to have it out there, and now you have to market, and set yourself apart. And so, it’s a more… I don’t even want to call it a more difficult strategy now. It’s what it should have been in the first place, is it’s a business, and you should treat it that way.

Jamil:
Hospitality.

Henry:
Yeah.

Jamil:
It’s hospitality. We got to get back to hospitality, right Henry? I mean let’s… There’s a Airbnb here in Phoenix, Arizona, it’s always booked because they have llamas.

Dave Meyer:
There. Everyone go out and get a llama, just go get a llama.

Kathy:
Llama. I never thought about it.

Dave Meyer:
Put a llama on it.

Kathy:
There’s one here that has a giraffe, so yeah.

Dave Meyer:
What? That seems illegal.

Kathy:
It’s a famous giraffe. It’s the one from…

Henry:
It’s the Toys “R” Us giraffe?

Kathy:
No.

Dave Meyer:
It’s Geoffrey? It’s Geoffrey.

Henry:
He retired from Toys “R” Us?

Kathy:
It’s the one from the Bachelor one, the Vegas one. What am I trying to say? The movie.

Henry:
The Hangover?

Kathy:
The Hangover. Yes, yeah, it’s the one from The Hangover. It’s that one. Yep. It’s a rescued giraffe from Hollywood.

Dave Meyer:
Honestly, you know what? I would stay there. I’m curious now. All right, so everyone, it’s short term rentals are hot if you have an obscure farm animal, but if you don’t, be very careful about it, is apparently the lesson. Does anyone else disagree? Anyone else want to give me hot or not for this? Jamil, it sounds like not? Kathy or James?

Jamil:
Yeah, not.

James:
Not.

Kathy:
Not. Not right now. I keep reading stories that actually it’s increasing now, and that vacation properties are kind of back in style, but I could tell you in our own case, we’re down 50% from last year, if not more.

Dave Meyer:
Same. Yeah, mine mine’s down a bit too, and I don’t know, I feel like it was a gold rush, and now it’s back to just grinding it out, like any other business. It’s not like the easy money any more like it once was. But maybe it’ll rise again. We’ll see. All right, let’s move on to buy and hold. Kathy, I’m just going to give you a layup right now.

Kathy:
Hot. So hot. So, so hot.

Jamil:
I mean, can anyone disagree with that?

James:
Yeah, I’m a, I’m going to disagree with that.

Dave Meyer:
You are?

James:
I’m a not on buy and hold.

Dave Meyer:
Really?

James:
But it depends on what you want to buy. Like the BRRRR properties I think are really hot. That’s a hard to buy. But for us, at least in our market, the lower income stable ones where you’re just putting 20% down, like a traditional rental property, and that’s kind of how I’m defining that the, you’re still competing against first time home buyers, and that market is competitive. Yes, the market’s down, but we’re moving stuff, and so it’s hard to get a good, stable, just buy and hold. And again, I’m classifying this as single family rentals. I think there’s a lot of multi family, a lot of BRRRR opportunities, but if you just want that straight base hit, single-family rental deal, not a good yield right now, I would get something else.

Dave Meyer:
Yeah, that’s interesting. So you’re saying basically you like rental properties, but it needs to have some sort of value add component.

James:
Yeah. It needs to have value add. I just don’t think the opportunities are there. If you want your base hit rental deal, 20% down, carpet, paint, release, the margins are not good. Not with the rates right now. And you have to put more money down, and I think you can get into buy and hold, but you got to get the ones that no one wants, or the ones that are a little bit hard, and then those deals are substantially better than they were 12 months ago. So there’s opportunities, and holdings, but just not for your straight base hit deals. This is thought… I think for me, you can get 3x your return in the other spaces.

Kathy:
It’s funny, I would’ve thought that, but I just had a conversation with our Indianapolis team at Real Wealth, and they said the cash flows today are the same that they were before, because rents have gone up so much in those areas, and now there’s more inventory.
Last year you couldn’t even get anything, and if you did you’d have to outbid other people. You’re not having to do that now, but the rents have gone up, and they’re holding. So he said it’s no different, and in so many cases the sellers are actually paying points to bring your rate down, and so you’re probably getting the same, if not better rate than you could get last year. So, I thought that was really interesting, and we had looked at the proforma, and tore it apart, and he was right. It’s similar.

Jamil:
Right now. I like buy and hold as a short term strategy. I know that kind of sounds crazy, but I think that if… Because I’m allergic to holding stuff, and I’m going to continue to be that way, because of past trauma, 2008, and getting my hand burnt when I was trying to buy a multi-family.
But what I’m going to say is, I am still seeing opportunities to buy really, really deeply discounted property out there, and if I can hold it just this period of time of pain where I think things start to stabilize, and once we come around the bend, if I can at least break even between my purchase, until my exit, which I think will be 18 to 24 months from now, I am looking for substantial returns on that. So, I just want to buy, hold. I don’t even care if I cash flow, just break even until I can take my exit, and cash in my chips at the casino.

Dave Meyer:
All right, so that’s like lukewarm, lukewarm, not hot or hot. It’s like-

Jamil:
Yeah. Yeah.

Dave Meyer:
Yeah. Okay.

Henry:
I mean, I agree. I think James and Kathy are both right, honestly. It’s similar to the Airbnb conversation. There was a gold rush when the market was super hot, and you could get 2% interest rates, and things were going up in value so quickly. So, you could buy something at a slight discount, and all of a sudden you’re renting it out, rents were going up, so you can make the cash flow work.
You’re not going to find those easy opportunities as much, the ones James was talking about. You’re not going to be able to make those pencil. But if you can, and are good at looking, and finding undermarket value deals, I mean, the discounts that we’re able to get, and then the rents that we’re able to get from, after we renovate those properties, man, we’re cash flowing just as much as we were before.
And a lot of the times it’s making more sense, because typically in my business, we keep the multis, and we sell the singles, but right now, the way we’re deeply getting the discounts on these singles, it makes more sense sometimes for me to just keep them as rentals, even if I do it in that short term timeframe, like Jamil is talking about, when I can sell them at more of a discount.
So even if it’s not something I want to keep in my portfolio forever and ever, the cash flow makes sense right now, because if I do turn those deals, like for example, I have a deal right now, I’m closing today, I’m going to make a $17,000 profit. It would’ve made more sense for me to just renovate it a little bit, stick a tenent in, and cash flow it every month until the market changed. So, the numbers are just making more sense as rentals on single families, depending on the type of discount you’re able to get, and how much you got to spend on that reno.

Dave Meyer:
For sure. All right, well let’s do one last one. Let’s talk about flipping here. James, hot or not?

James:
I think it’s hot. If you find the right opportunities, but it has to be ones that… Where we’re having success in flips right now is going in the spaces that everyone’s freaked out by. There is a lot of opportunities in there. When we’re buying an average price of seven to 950,000, the discounts are about 15% cheaper than the flips that we’re looking that are 300 to 500 on the acquisition.
And so, it can be hot if you get into the right space. I think the overall investor demand is that the not right now. No one’s really looking for flips, which is another good thing for us. We can go find those opportunities that are there. I mean, I just bought a house, we contracted it yesterday. I would’ve paid 600 for this at the beginning of the year, or at the beginning of 2022. We just contracted over 435.

Jamil:
[inaudible 00:12:08].

Henry:
Wow.

James:
And not only can I flip it, I can also build a daddy with a backyard.

Dave Meyer:
Oh, nice.

James:
But because it was a full permit job and it’s going to be a 12 month project, everyone’s like, “Nah, I don’t want to deal with this right now.” So, the margins have… Starting to really increase on the ones that are tougher. So if you can hang in there, and actually go after… Go where no one else is going, and you can absolutely crush it right now.

Dave Meyer:
Anyone else have thoughts, hot or not, on flipping?

Kathy:
I would’ve said not hot, but James is so hot that it’s making flipping sound hotter. But he makes a really good point that, I mean really, I wasn’t flipping when it was super hot for everybody, because I’m just not good at it, but maybe it’s time to start. But there’s a lot of belief that rates are going to go down in May, because the inflation numbers are going to look so much better year over year, and the average is year over year, and that may is really the month that that’s going to happen. And so, if you were to get something now and try to sell it in May, that could be really good timing, now that you mention it. It makes a lot of sense if you get it now with the discount, and then resell when mortgage rates are better.

Jamil:
Personally, of course I flip houses on TV, and so A, I have to for a part of my life, but secondly, the price point really matters. And for me, I’m staying away from the luxury, or, I’m not super luxury, but that between 750 and 1.5 million kind of price point, I’m staying away from flipping anything in that range. I’m really liking manufactured homes. I’m really liking really, really, really, really entry level fix and flips with minimal repairs, that that product is still moving. It’s profitable, and as long as you can acquire at a good price, it’s safe.

Dave Meyer:
All right. Hot. Enough said. Flipping is hot.

Henry:
Yep. I got two deals. I got two deals I’m going to net six figures on at flips right now, in this crazy market.

Dave Meyer:
Nice.

Henry:
And we’re talking six figures in Arkansas, so the margin is… That’s huge for here.

James:
Yeah. What kind of cash on cash return is that? Is that like two, 5000%?

Henry:
Yeah, well, I literally have no money in either one of the deals, so it’s infinite for me.

Kathy:
Smoking hot.

Dave Meyer:
James, those are the type of numbers I look at on hotornot.com, just those types of IRRs. All right, well we’re going to take a quick break, but then we will come back with our correspondence show.
Okay. Serious time everyone. All right, that was fun. Now, let’s talk about the news. James, you have a story for us about how the housing market is performing. Can you share something with us?

James:
Yeah, so this article is from Fortune Magazine, and it says, “Well, we are in a bifurcated housing market correction. Just look at these four charts,” was the title, and what it references a lot. It talks about how John Burns, which is a great data source in general, was predicting at the beginning of the year, a big decline, versus what they were saying at Zillow, where Zillow was actually predicting a 24% increase this year, year over year.
And John Burns came out pretty negative at the beginning of the year, thinking that there was going to be a fairly big decline, and it turns out he was not wrong in a lot of the major cities, and what it looked like was, in the top 150 major housing markets, 100 of them declined pretty drastically. San Francisco was down 10.5%, Austin’s down 9.5%, Reno’s down 9.3%, et cetera. And then there was 50 that were really just flat.
And what it comes down to, we’ve all been talking about it for the last couple months, is just the affordability in the market, and the markets that have been the biggest decline also had the furthest appreciation, but they were already at the top of the market going into this last… Like in 2018, things were at the top, and people were hitting their affordability. Once rates dropped so low, it spiked everything up again. But once those rates started increasing, it just had to get back down to the affordability.
And so, it really talks about how they believe that rates are going to continue to increase for next year, and that you need to watch, in these… As you’re investing, or how I read it is how you’re investing, you can look at the markets, and where their affordability ranges are, and that has a huge, huge impact on whether that market’s actually going to decline.
It’s not about that fad of a market anymore, or like… Some of the novelty in the markets have worn off, and it’s really just comes down to straight affordable. Can the buyer pay this with what income that they’re making? And so, as a flipper, or an investor, how I kind of read that is we think rates are going to go up, then yes, we could see further decline, like in Seattle. Seattle was a big drop.
I know in Jamil’s market too, in Phoenix, we saw a big drop, and it all had to come in with that top end of the market. And so, if you think rates and affordability are going to continue to climb, that those could actually deflate even further. But, it is talking about how it really just made two different markets. You have your affordable markets, and your expensive markets, and the affordable markets have seen very, very little, to zero decline. Like in Charleston, they were saying, has saw zero, and the expensive markets are deflating down.
And I did think that was the interesting point. Yeah, it comes down to affordability, got two markets, and I actually think there is going to be a third market though. It’s not just going to be two. I think you’re going to have your affordable markets, like tech, and that’s what we’re seeing right now. Seattle, San Francisco, Austin, the markets have deflated about 10% from last year, and I’m seeing it about 25% down from peak pricing.
But now we’ve kind of hit this affordable market, and we’ve sold a ton of houses in the last 10 days. I was running about 35 to 40% pending on all of our… At any given time we have about 60 to 70 listings. We were running about 35 to 40% pending for the last six months, and now we are up to 55 to 65% pending, and I’m getting offers regularly on all product, not just affordable.
We listed our farmhouse flip for $3.25 million. We were anticipating to be on at 60 days. We got an offer in 10 days. And so, things are moving again. So, as a flipper, I’m going, “Okay, well if the rates are going to spike up, I just need to undercut my values a little bit.” But there is this sweet spot where things are trading, and it also leads to big opportunities in these deflated markets.
Because what this is saying, is it’s all based on affordability, if we all think rates are… I think rates are going to drop in the late quarter, that means I’m going to see some appreciation there, too. And that’s what you can check for to get those massive equity pops, and really change your whole trajectory in real estate, for me. So I’m looking for those opportunities that I’m going to see those equity pops, because it makes it kind of more of an equation. Like, “All right, if we know where it’s going to sell on the affordability factor, then we just got to watch rates, and we can run with the rates, and kind of watch those equity positions rise or shrink.”

Dave Meyer:
Are you saying, James, that you think it’s picking up in Seattle because prices have fallen so far that they’re now affordable again?

James:
Yeah, it just got out of reach for people, because there’s still a ton of buyers in our market. We listed a couple homes last week, or we have a listing coming up right now in Mount Lake Terrace. Mount Lake Terrace is… So it’s north of Seattle, good commuter city. We saw massive appreciation in this neighborhood the last two years. I’m talking about 50, 60% appreciation. Huge, because just location, development, and the city also being improved.
And it definitely shrunk about 10% from where it was in the peak, but I pulled up, or [inaudible 00:20:34] get into list, there isn’t one home for sale in the entire city of Mount Lake Terrace that I saw that would be… So I’m going to be the only house for sale.

Dave Meyer:
Whoa.

James:
And what happened is, there was a lot more inventory in the wintertime, which I do think the seasonal slowdowns are coming back. Seasonal slowdowns were always a real thing, until COVID hit. Wintertime, you’re always going to sell your… It is going to take longer to sell, it’s going to sell for a little bit less. And then with rates increasing, it got the inventory increased more. But I mean, we’re talking about, their inventory increased like 35, 40% in these areas, if not up to 80%, and it got absorbed in the last two weeks, very, very quickly.
And we’re actually starting to see some multiple offers again too, where things are getting actually bid up, as well. So, I feel like it had this sudden drop, we’re on the shelf, and now the consumers are… They have to buy it. There is so many buyers in our market, they just can’t get in reach with what’s coming to market. And now, with the pricing getting down to that sweet spot, things are getting consumed again. I mean, there is a substantial amount of buyers in our market, even with the high rates, and no inventory.

Dave Meyer:
Wow. Super interesting. Yeah, I’ve heard a lot of that. I was just talking to my real estate agent in Denver who was saying something similar, and I guess Seattle and Denver are probably those types of tech markets. What you were talking about, that tier of tech markets that are high priced, and have seen some of the furthest drops, peak to current, so far. Jamil, given you’re in a pretty pricey market there, what’s going on with you in Phoenix?

Jamil:
Well, we had a very seismic type report by the New York Post, where Goldman Sachs predicted a 2008 style crash in Phoenix, Austin, San Diego and San Jose, and they’re predicting 27% or greater price decline for 2023. So, this obviously created just a massive ripple effect of conversations amongst the investor community, and real estate agents, and whatnot. So, my phone was blowing up, and so of course I start doing some digging, and looking at how true is this prediction.
And looking at the corrections, of course, each of these markets have seen declines, and what I’ve seen so far, from peak to present, we’re looking at about a 9.9% peak to present drop in Phoenix, Arizona, San Jose. And again, data is varying between different sources, but it’s all relatively close, from in San Jose I’m seeing about 8.9% peak to present, San Diego, 6.7% peak to peak to present decline, and in Austin, 14% peak to present decline, which is… I mean that, to me, if I’m looking at a possible market that could have that type of depression, or that type of crash, it could potentially be Austin.
But again, the fundamentals in each of these markets are really strong, and you still have very, very strong lending criteria. Days on market on average is like 30 days, or less in each of these markets. You’re also seeing these surges in first time landlords, which is an increasing thing, which is an interesting thing to think about, because people who have cheap debt in these markets, rather than just go and throw their house on the market, and sell it at a steep discount, they’re deciding to turn into landlords, and they’re going to hold that house, and keep that cheap debt, and possibly remove that from creating inventory increases.
The other interesting piece, because I have KeyGlee in my world, we’re in one of the nation’s largest wholesale operations, and I’m looking at buying, and what the institutional buyers are doing, and it’s just interesting timing that we see a report like that come out, and the institutions that we’re working with are all turning up, they’re buying in those markets.
And then when I say turning up, I mean they’re reaching back out to us. They’re emailing saying, “Hey, send us everything,” but our buy boxes have changed dramatically. So now, they are decreasing substantially where their offer number would’ve been. And so, it’s like they’re looking at a report like that as their justification for coming in, and trying to purchase that 25% below where they would’ve been purchasing, say, three or four months ago.
So it’s like this, is report creating movement which will actually fulfill the prophecy that this situation could potentially occur? So, that’s interesting. But, on the other side of that, after the holiday season, we looked at our pendings, just here in Phoenix, Arizona, and I mean, it’s spiked, just like James was reporting, in the last little while his flips, he’s at what, 50 or 60% pending, where normally he’d be at like 35, 40% pending.
We’re seeing something very similar here in Phoenix, Arizona as well. So, how does that happen? How is a 30% decline supposed to occur, when we still have low inventory, when building has screeched to a halt, when we’ve got home locked buyers, because interest rates were low for all that time, and they do not want to let go of that asset?
I mean, I don’t know. I don’t see it. I don’t see it. I don’t see it naturally happening. But again, everything that we’re looking at, and working with right now, are not natural real estate cycle phenomenon. This is all manipulation. It’s all so many different factors, and agencies, and institutions, and doing things. I’m not a conspiracy theorist, I’m just looking at the writing on the wall and I’m like, “Who’s controlling? Who is the puppet master here, and how do I become friends with that person?”

Kathy:
I could tell you one of the puppet masters is the one we’ve been talking about for a year now, and it’s the Fed, and what they’ve been doing. And this isn’t my article, but it’s an article that’s really good, and I’ll just share it really quickly. It’s from National Association of Home Builders, and I think you guys also saw this, how many households were priced out by higher mortgage rates in 2022.
And it shows these graphs of when interest rates went from 3.25%, to percent to 7% in a matter of months. I mean, what a shock to the system. This is doubling the payment in just a matter of months. And in that process, it went from 44 million people who could afford to buy a home, down to 26 million in a matter of months. We’re talking 15 million people priced out, boom, just like that, in a matter of months. I’ve never seen anything like it.
Now, recently, we went from that 7% rate down to about 6.4%. So this article is basically saying in the last few months that brought 2.6 million people back into the market. Now, as over the next few months, most people are assuming, and seeing that with inflation going down, so will mortgage rates, mortgage rates follow inflation, and that we will probably get into the high fives. And that brings in a whopping almost 8 million more people who can afford to buy.
So, a lot of what, again, James was saying earlier, and what you are saying now, Jamil, of like there’s this change, it’s because now there’s more people who can come back in, and they’re learning, and they’re being educated by their mortgage broker that, “Hey, you’re going to pay a little bit more to get your rate down maybe to the fives, maybe a point or two.”
I just talked to a mortgage lender yesterday who said, “It’s just like a point or so to get you into the fives.” And again, that’s bringing in 8 million more people, and paying that one point is a lot less than the higher prices that they were paying before. And you have a lot of people who are sitting on cash, ready to buy, and suddenly couldn’t, but had the down payment. So, it’ll be a lower down payment, but the difference goes towards paying down the rate. So, that may be one of the reasons you’re seeing more people coming back in, and sales picking up.

Dave Meyer:
And people are coming in with FOMO. They missed the opportunity.

Kathy:
Yeah.

Dave Meyer:
Because rates spiked, and now they’re back in it, and they are moving right now. They are really jumping on stuff. They don’t want to get priced back out again.

Kathy:
Yeah.

Dave Meyer:
When you put it that way, Kathy, it’s pretty amazing. The housing market has been as resilient as it is.

Kathy:
Yeah.

Dave Meyer:
The fact that we’re seeing, I think the Kay Schiller came out the other day, in a seasonally adjusted manner. It’s just 2.5%, peak to trough, to peak to current is 2.5% declines, and that’s with what, 30% of buyers being priced out? It is pretty remarkable, and I think why, to your point, Jamil, 30% declines. Maybe in a few markets, who knows, but it just seems unlikely, especially with what’s happened in the last couple weeks with there’s a lot of activity going on.

Kathy:
Yeah. And it’s important to note that with sales down, sales down 30%, you’re getting a smaller pool of properties to even look at, and averages to even look at. It was kind of like in 2009, when everything was a foreclosure that was on the market, then prices seemed really low, but it wasn’t a real price, it was just foreclosure prices, because that was the main what was on the market, and that’s what we’re seeing. What’s on the market is maybe being discount, but that doesn’t really state the whole, it’s sales are down so low, it’s just a small percentage of what’s out there.

Dave Meyer:
Yeah, absolutely. Well it’s interesting what you said Jamil. I’m curious to hear how it evolves with these institutional buyers, because you’re sort of at the forefront of it in Phoenix. I think it would be interesting to know, in some of those other markets that you mentioned, you said like San Jose, I don’t think that’s a big institutional buyer area, or San Diego, it’s so expensive.

Jamil:
Not a huge institutional buyer area, but they do buy there, and it’s some of the… Also those smaller portfolio buyers, which are still… It’s still in the hundreds of millions of dollars when we’re talking about access to capital, and their ability to purchase. So, I mean, they’re still buying, they’re turning on the taps.

Henry:
I am with you Jamil. I get it. I also, not a conspiracy theorist, but I mean, you can put pieces together of a puzzle, and if it makes a picture, it makes a picture. But what you’re saying is echoed in my market, it’s also right in line with the article that I brought to share, which is that mortgage demand has jumped 28% in one week, as interest rates are now at their lowest point in months.
And so, the highlights of the article are just saying that the average interest rate for a 30 year fixed is around between 6.2 To 6.4, and more people are applying for mortgages. It’s up 25% week over week. Now, putting that into perspective, that’s still down 35% from 12 months ago at this same time. But when you look at rates being at their lowest point since September, that’s significant.
And I think what you’re starting to see is that people are realizing that the two and 3% interest rates, that ship has sailed. I think people are finally starting to get it. We’re not going back there. We’re not going to get that low again. I mean frankly, a lot of people don’t want to get that low again, because what does that mean for what’s happening in the economy, if we have to get there again?
And so, people are just starting to realize that this is what you pay for an interest rate now. Life happens, and things move on. Yes, people are… There is a subset of people who are priced out of the market, but that’s going to happen, no matter what interest rate you’re at. So, there are some people that can afford to buy, some people that can’t. I think people are starting to… I think the sticker shock is wearing off, and it’s just now this is what rates are, and life continues to move on.
People need to move for different reasons. People want to move for different reasons. And when you have two income households who have stable jobs, and are making a decent salary, it’s easier for them to afford homes. And what I’m seeing in my market is echoing that. It’s echoing what you’re saying as well. We listed a flip, which would be considered for a luxury flip in my market, and that’s a “risky” strategy right now unless you’re James Dainard. So, those luxury flips, we put it on the market, we had it on the market for 24 hours, had 10 to 12 showings, and got four offers, all over asking price.

Jamil:
Over asking.

Henry:
Over asking. One of them… We listed it at 550, and we are under contract at 570.

Dave Meyer:
And what’s the median home price in your area, Henry?

Henry:
The median home price in my area is like 300.

Dave Meyer:
Oh, so this is really upscale.

Henry:
275 to 300. Yeah.

Dave Meyer:
Okay.

Jamil:
I think I want to move to northwest Arkansas, man.

James:
Yeah, I think we all should move there.

Dave Meyer:
We keep saying that, but I don’t even know if they have an airport. How do you even get there?

Henry:
We have an international airport. You have to remember-

Dave Meyer:
Sure.

Henry:
That the Waltons funded this place. Do you think the Waltons aren’t going to have an international airport built here, where they can get in and out?

Dave Meyer:
I think they have an airport that they use. I don’t know if we’re allowed to use it.

Henry:
Private.

Jamil:
Henry, was that 20% spike in mortgage applications national, or just in the-

Henry:
National.

Jamil:
Region… That’s nationally?

Henry:
Yes.

Jamil:
Guys.

Henry:
Mortgage applications are up. More people are entering the market because I think they feel a little more comfortable that these are what the rates are going to be, and people are applying for home loans. And also, to echo what Jamil was talking about, the money is starting to be in demand again.
I’ve had two conversations in the last seven days. One with an institutional buyer, just like Jamil was talking about, called me and said, “Hey, send me anything. Send me what you have, we want to buy.” And one a bank, yesterday, a banker, small local bank literally reached out to me and said, “Hey, we need your business. I can still do loans with a six in front of them,” which is, when you’re talking about commercial lending, we’re usually paying a higher rate, so that’s solid. So he’s like, “Bring me what you got. I can do loans with a six in front of them. I’m willing to be flexible with the rates and terms.” So, they’re wanting to lend, more people are buying, and so I kind of see what you’re saying, Jamil. I see what you’re saying.

Dave Meyer:
I like it. All right. Well, that’s super interesting. I mean, I think that we’re in this really odd spot with mortgage rates, where people don’t know if they’re going to go up or down. And so, anytime there’s this… Like over the next year or so, where if there’s these short term fluctuations where they go down, people are jumping in.
And I think this just goes to show something that people overlook from a housing market perspective, is just demographics. There are just a lot of people who want to buy homes, and they are willing to wait for a little bit for a mortgage rate, but most people aren’t like us, where they’re sitting around looking at the interest rates, and forecasting what they’re going to be in May, and then October, and thinking about their strategy. They’re like, “I want a house. It went down half a point, and I’m going to jump in now.” It just goes to show, that’s how homeowners who make up 70% of the housing market make their decisions. It’s not what we’re talking about. All right, Kathy, let’s round it out. What do you got for us?

Kathy:
Well, this is actually a blog from the JP Morgan website. It’s JP Morgan Chase. The Economic Outlook for 2023, Trends to Watch. This was actually written in December, but I really think they’re pretty spot on so far. They said, “The US economy likely will slow this year, but the economy will grow.” So, it’s like half a percent to 1%. So, super slow growth, but that’s not a recession. That’s important, I think, for a lot of people who are hearing… I mean, all you have to do is type in recession on Google and you might want to get a handkerchief, and just cry a little bit.
But yes, the economy is slowing, but it doesn’t really look like a recession is coming quite yet, and they kind of predict it would be maybe towards the end of the year, or 2024, but mild. So, we shall see. It depends a lot on what the Fed does. Now the Fed just raised rates another 0.25%, and it looks like they’re going to do it again probably in their next meeting, another 0.25%.
And they’ve been saying for a long time they’re shooting for about a 5% fund rate, Fed fund rate, and they’re almost there. So, it could just be one more. A lot of people are in agreement that it would just be one more quarter percent rate hike, and then it just holds there for a bit.
And based on what we’re seeing, where we keep seeing job growth, and we keep seeing jobless claims declining, in spite of everything that’s happened this year, that could be true. That could be true that it’s a very mild recession at the end of the year. So those thinking that it’s going to be a 2008, it’s different. It’s different. Totally different dynamics this time around.
And then, as far as the housing market, you guys all said it all, I think we know it may be better than JP Morgan. I don’t know their lenders. They might probably need to know what to expect too. They’re expecting residential investment could be down 10 to 12% in 2023.
So again, that’s not a 2008 housing market crash, and that’s an average, meaning that some areas would do worse, and some areas would do better. And that’s what we were talking about, these different markets. I’ve been following John Burns Real Estate for many, many, many years, and that was always his message is that every single market is different. And there, again, no national housing market, and some are going to be more affordable, some are going to be less affordable, some are overpriced, some are underpriced. You’ve got to know your market in the end, when it comes to housing, but the overall economy really doesn’t look as bad as some people want to tell you it will be.

Dave Meyer:
I’m so glad you brought this up, Kathy, because I think that there is this overwhelming media narrative that there’s going to be a recession, and I think that is very unclear still. Economists, I just saw this poll by Bloomberg that said, I think it’s like 65% of economists think there’s going to be recession. So two out of three, that’s not a sure thing.
Goldman Sachs is the first bank that just upwardly revised their forecast. So, now they’re feeling more optimistic. They just said there’s going to be no recession in 2023. So, there’s some really interesting stuff here. The labor market is holding up surprisingly well. We just saw that GDP grew almost 3% in the fourth quarter. There’s interesting stuff here.
But I do want to say, that for the housing market in terms of appreciation and prices, narrowly avoiding a recession could be the thing that pushes housing prices down further, because that’s probably the only scenario I see where mortgage rates actually go up from where they are right now. Right?
Because if there’s a recession, that pushes down mortgage rates, and the only way I think mortgage rates go up is if the economy, if the yield curve kind of normalizes, and bond yields go up, and then we start to see mortgage rates closer to seven again. So, I don’t think they’re going to be crazy, but it’s just interesting that the overall economy doing well might be the thing that makes the housing market do worse.

Kathy:
Well, it wasn’t saying that the economy’s going to be robust, or again, growing. Normally you’d want to see a two or 3%, or 4% growth, and they’re saying maybe a 0.5% to 1%. So, I’m kind of still in the camp that mortgage rates are going to decline this year, based on the fact that the economy is slowing.
But this is, again, these are the headlines people see is, “Oh, the economy is down,” but oftentimes what they’re not seeing is, it’s the rate of growth that’s slowing. And that’s the same with housing prices. Like, “Oh, it’s down.” Yeah, the rate of growth is down, and that’s good compared to last year. So, again, read articles fully, because the headlines are meant to scare you, and unfortunately, too many people only read the headline.

James:
Does anyone else think that this is more of a slow squeeze, rather than a… It kind of had its jolt, now it’s like this slow squeeze that we’re going to be in for the next 12 to 24 months, but also, this slow squeeze could actually make rents go through the roof. As housing is just kind of out of reach, because if the economy’s not growing rapidly, that’s what we also saw. It wasn’t just rates, of why the housing market exploded. That was a huge portion of it, but it was also stock growth, investment growth, where access to liquidity was through the roof for people.
People were just printing money, and they could put money down. It’s like, “Oh, the house is up at 200 grand. Well, I’ll just put that down as by down payment.” And so the liquidity’s been squeezed, and so, right now, the cost of housing and the rent, it’s still a way out of whack. And so, I’m actually really starting to dig into some of these rental markets like, “Hey, I still see… Whereas I thought it was going to be stagnant, I’m actually starting to think that there could be some growth in some certain neighborhoods for sure.” Because the cost to own is just so out of whack still, and the slow squeeze is just going to make it harder to absorb that. Things will sell for pricing, but it’s going to be slower. So, in my opinion, rents are going to climb at that point.

Dave Meyer:
Interesting. Just because in markets, especially like in Seattle, just does not make sense financially to buy a house.

James:
No. Or like in Newport Beach. I mean, my rent payment’s a third of what my mortgage payment would be.

Dave Meyer:
Wow.

James:
No, it’s My rent payment is 50% less than my mortgage payment, if I put 50% down.

Dave Meyer:
What? That’s crazy.

James:
Oh, it’s crazy.

Dave Meyer:
Wow.

James:
I’m like, “It doesn’t make any sense to me. I’ll go buy an apartment building instead.” I don’t know. It just doesn’t… But yeah, so I could see some growth in that sector. The slow squeeze will actually, I think, get runway on the rents.

Dave Meyer:
All right. Well, I think that’s great advice. Don’t assume, just because people are saying that there’s a recession, and it’s a foregone conclusion that that is true. It’s actually a much more complicated, and nuanced economic situation, and that’s why there’s not really a real definition of recession. We’re just in this gray area.
I think Mark Sandy, the guy at Moody’s called it like a slow session. It’s like, it’s just going to be slow, and the economy’s going to be lame, but it’s not actually going to go backwards. So, there’s some nuance to it, and listen to shows like this, so you can understand it.
All right. Well, thank you all for being here. This was a lot of fun to have everyone back together. If you guys enjoyed this show, we would really appreciate some reviews. We get tens of thousands of people listening every week, but we only get like one review a week. All it takes is what? Five seconds. Go, give us a five star review on Spotify, or Apple. We really appreciate it. If you enjoy this type of show, and this type of content, it would mean a whole lot to us. Thank you all for listening. We’ll see you next time for On The Market.
On The Market is created by me, Dave Meyer and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza, and Onyx Media, researched by Pooja Jindal, and a big thanks to the entire Bigger Pockets team. The content on the show On the Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.