March 2023

President Biden’s proposed Budget for the Fiscal Year 2024 seeks to promote expanded access and improved affordability in healthcare and education while cutting taxes for low-income families and shrinking the deficit, but the proposed funding comes from increasing taxes on the wealthy and eliminating an important tax break for real estate investors, which will likely be rejected outright by many in Congress. 

Depending on your politics, you might have different solutions to taxes. Many might suggest that changing the tax code to be less advantageous for the wealthy is more complicated than you might think. In this case, Biden’s proposal may unintentionally harm middle-class families in the process, research suggests.

This article takes a look at how this proposal to the tax code could affect real estate investors, in particular.

Raising Taxes for the Wealthy

The proposed budget would increase taxes on wealthy Americans in several ways. For example, it would:

• Increase the capital gains tax rate from 20% to 39.6% for people earning at least $1 million in any year
• Increase the Obamacare tax rate from 3.8% to 5% for people with incomes of at least $400,000
• Levy a minimum 25% tax rate for the wealthiest 0.01%, or households worth $100 million or more
• Increase the tax rate on personal income from 37% to 39.6% for people who earn at least $400,000, reversing a previous tax cut 
• Place restrictions on the maximum contribution to Roth IRA accounts for people who earn at least $400,000
• Removes the step-up in basis for inheritances at death, affecting unrealized capital gains greater than $5 million ($10 million for joint filers) 

It’s important to note that while the effective tax rate for the top 1% has decreased since the 1970s, it’s still more than eight times higher than the average effective tax rate for the bottom half of earners, according to the Tax Foundation. But since the federal government spent $1.38 trillion more than it collected in revenue in 2022, it’s not surprising that policymakers are considering increasing tax rates for the wealthy, especially since wealth disparities were narrower in the years when high-earners paid more. Research belies the claim that cutting taxes improves the economy, and the government collects less revenue when tax rates are lower, so raising rates for at least some taxpayers may be essential.

There are, however, some unintended consequences of raising capital gains taxes above the threshold. For example, homeowners who earn far less than $1 million or even $400,000 annually may get stuck with a tax bill for selling a home in a hot market, where a $1 million home isn’t a mansion — it’s a median-priced single-family home. For example, the median home price in San Francisco sits at about $1.3 million, even after declining this past year. Even with the capital gains exclusion for primary residences, a homeowner who bought a property 20 years ago in what has become a hot market could potentially get dinged at the higher rate in the year they sell. That could make affording a similar home at today’s high mortgage rates difficult to achieve for movers. 

It’s unclear how many people will fall into this category. But it’s worth questioning whether certain exceptions may be necessary and whether the capital gains tax increase is the best way to accomplish the federal government’s goals. For example, critics say an increase in the capital gains tax rate discourages saving. The Congressional Budget Office estimates that a tax on consumption, which would encourage saving over spending, would have the greatest impact on shrinking the deficit—but this would also disproportionately impact low-income earners. There’s no easy solution. 

Eliminating 1031 Exchanges

Another aspect of the proposed budget is the elimination of 1031 “like-kind” exchanges for real estate investors, which have been around since 1921. Section 1031 of the tax code allows individuals to defer paying capital gains tax on an investment property by using the proceeds from the sale to purchase a similar property of equal or greater value. A fact sheet from the White House compares the tax benefit to an “indefinite interest-free loan from the government” and categorizes it as “wasteful spending on special interests.” 

There seems to be a misconception that real estate investors are already wealthy and insatiably greedy, and that they avoid paying a fair tax rate while exploiting their tenants for more income. Perhaps the framing of policy initiatives perpetuates the stereotype, but in the vast majority of cases, that’s patently false. The 1031 “loophole” doesn’t exclusively benefit the wealthy—it benefits real estate investors from all walks of life. 

Mom-and-pop landlords own 41% of all rental properties and nearly 73% of all two to four-unit buildings. These are not people earning $1 million annually—the estimated average annual income for landlords is $97,000. While real estate is often touted as the preferred investment vehicle for the ultra-wealthy, it’s also a tool for everyday people to boost their retirement savings and save enough to send their kids to college. Small deals for inexpensive properties make up the majority of like-kind exchanges. 

Furthermore, research shows there’s nothing wasteful about the like-kind exchange tax break—it plays an important role in encouraging economic activity and revitalizing communities and added $97.4 billion in value to the U.S. GDP in 2021. Like-kind exchanges make investment more efficient, creating hundreds of thousands of new jobs. They also make it viable for investors to convert vacant commercial spaces into apartment buildings, something that’s important to encourage during today’s housing shortage. The National Association of Realtors offers a few anecdotal examples of how 1031 exchanges have enabled investors to rejuvenate communities. 

Critics say the removal of 1031 exchanges would reduce federal revenue, exacerbate housing shortages, and lead to a decline in housing quality for tenants since property owners would have less incentive to upgrade their units with new kitchens and bathrooms. Companies may also be discouraged from relocating to buildings that better meet the needs of the business and employees. While it’s possible there could be a benefit to placing limitations on 1031 exchanges, eliminating them entirely would likely have adverse negative effects on the economy, research suggests. 

The Bottom Line

There’s a strong argument for increasing taxes on the wealthy to fund social programs. It may not be the only way to improve economic mobility, pull people out of poverty, and shrink the wealth gap, but it’s a potential solution—even some notable billionaires have come out in support of the idea.

But in the process of reforming the tax system, policymakers need to be careful that proposed solutions do not unintentionally harm low-income and middle-class families and communities or real estate investors who contribute to the economy in a positive way.

Not sure how to maximize deductions for your real estate business? In The Book on Tax Strategies for the Savvy Real Estate Investor, CPAs Amanda Han and Matthew MacFarland share the practical information you need to not only do your taxes this year—but to also prepare an ongoing strategy that will make your next tax season that much easier.

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

Have you heard about planned obsolescence? It’s an industry practice of designing products with limited lifespans (thus driving sales). It explains why electronics are now the fastest growing source of waste in the world, with big impacts on our planet. Social entrepreneur Laetitia Vasseur founded STOP Planned Obsolescence to reverse this trend (Halte à l’Obsolescence Programmée — HOP, in French). Ashoka’s Hanae Baruchel caught up with her to learn more about her movement’s activation of 70,000 consumers and 30 companies across France driving better policies and practices to build tech that lasts.

Hanae Baruchel: Laetitia — let’s start with the basics. What is planned obsolescence?

Laetitia Vasseur: At HOP, we talk about three types of “premature” obsolescence because in France, planned obsolescence is a crime with a very specific legal definition. The first type is technical obsolescence. That’s when a spare part is designed to break easily or when a chip is inserted in a product to make it stop working after a specific amount of time. Software obsolescence is the second type. The hardware might still work perfectly, but the software makes it obsolete, for example when you update an operating system that breaks or slows down your device. And the third type is cultural or psychological obsolescence. That’s a marketing strategy to make people think they should change their devices even though they still work properly.

Baruchel: This phenomenon dates back at least to the 1920s when the light bulb industry agreed to deliberately limit the lifespan of all lightbulbs to 1000 hours. You saw a documentary about it that ends with a call to action to end planned obsolescence – and you took it quite literally. Why?

Vasseur: It made me very angry both from ecological and consumer protection perspectives. Eighty percent of the environmental footprint of a product comes from manufacturing. And electronics are the fastest growing source of waste in the world. That’s why it’s essential to extend the lifespan of our devices, and give them second and third lives. Recycling alone isn’t the answer because not everything can be recycled and it is very energy intensive.

So I started to look for ways to contribute. At the time, I was working in the French Senate as a Parliamentary Assistant to a Green Party MP. I convinced him to let me work on this problem, which led us to introduce a law against planned obsolescence. It slowly made its way through the legislature and in 2015, France became the first country in the world to recognize planned obsolescence as a crime.

Baruchel: You eventually decided to leave the Senate to focus on this issue fully.

Vasseur: Yes. I knew that intentional planned obsolescence would be hard to prove legally, but that without putting the law to use it would have no teeth. So, I created an association to collect cases of planned obsolescence reported on by consumers. I knew we could make our case only if we grouped our complaints. In 2017, a U.S. study came out revealing a lot of complaints about iPhones that stopped working properly. The culprit was an iOS update, released right before a new iPhone hit the market. For us this was a clear cut case of planned obsolescence to drive new sales. We took Apple to court in France and won. They were fined €25 million and had to disclose their wrongdoing on their website. Making it public was really important for us because brands care about their image. This was a reputational blow for Apple.

Baruchel: So, by now the rules of the games had started to change. Planned obsolescence was a crime, and companies started to see there were consequences when they broke the law. But you didn’t stop there?

Vasseur: As much as this was a victory, I also knew that there wouldn’t be a lot of clear cut cases like this one. We needed to create an incentive for companies to extend the lifespan of their products. So we developed the French Reparability Index. The index scores devices like computers, smartphones, washing machines, and other household items on five criteria – like how easily it can be disassembled or reassembled, whether spare parts are available and affordable, etc. It helps to orient consumers, and it also makes companies compete for a higher reparability score. Disclosing a products’ reparability score is now mandatory throughout France – much like nutrition labels on processed foods.

Baruchel: As you point out, even if something can be repaired, it’s often so expensive that people don’t bother.

Vasseur: Yes. 70 percent of people don’t repair their devices because of the costs associated. So we created an innovative way to finance repairs by levying a mini-tax on corporations to finance France’s Repair Fund, launched nationally in December 2022. It’s really easy for consumers. All they have to do is go to a licensed QualiRépar repair shop to access repairs at a cheaper price. For example, people will get a €25 discount on smartphone repairs, or €45 off when it comes to laptops. The repair shops are themselves paid partially through this fund.

Baruchel: Are these measures being adopted elsewhere in Europe?

Vasseur: It’s underway. The European Union plans to make a reparability index mandatory across the Zone, which is great news. The only big downside is that their index won’t take the price of spare parts into account. From our standpoint if something is too expensive to repair, it’s not really reparable.

We’ve had another major victory in France which take things one step further. In 2024, all products covered under French Reparability policies will also need to be scored on their “durability”. This new mandatory index will incorporate criteria on reparability but also trustworthiness, robustness and upgradeability. We plan to export the Durability Index to the rest of Europe, and internationally.

Baruchel: You now have a coalition of 70,000 French consumers who are invested in this cause as well as an association of 30 or so companies in France who want to lead their industries and make products that last. What’s next for these groups?

Vasseur: We try to federate as much as possible – there really is strength in numbers. With our consumer coalition, we always want to protect and advocate for them, but we also want to build new consumer mindsets and a culture of durability. That’s why we created a website called Durable Products that provides people with advice and reparability resources near them. Similarly with companies: it’s important for us to show that building the circular economy and fighting planned obsolescence is not just for “angry citizens” or “activists”. Companies have a crucial role to play in building the alternatives and our corporate Durability Club demonstrates that some companies are ready for this shift and leading the way. We help them get there.

This conversation was edited for length and clarity.

David:
This is the BiggerPockets Podcast Show.

Rob:
746. Oh man, that felt good.

Jake:
I can’t believe three years ago I was buying my first property and today I’m collecting over $200,000 in rent.

David:
So, welcome to the show, everybody. That was Rob’s attempt to try to sync with me on an introduction. As you can see, there’s a reason that I usually do it alone. But, Rob, thank you for trying. Today’s episode-

Rob:
My fusion brother.

David:
Yes, that’s right. Let’s do that again. Put your hands up.

Rob:
You have to watch this on YouTube to see the magic happen.

David:
Today’s episode is going to make you laugh, make you cry, make you want to go run through a brick wall, and make you want to go hug your kids and pet a puppy. It is fantastic. Rob and I interviewed Jake Radawick, who is a 27-year-old who has 28 rental doors, over $200,000 in income, and he’s done this all in just three years. Getting a humble start as a valet, parking cars, moving into live-in flips, using the BRRRR strategy, putting low money down on properties, and then scaling into a different market and buying a 20-unit apartment complex. That and more in today’s show. I could talk about this forever, Rob. What were some of your favorite parts of the show?

Rob:
I think it’s a really great story. If you start out with the trust fund and you have a ton of money to get started in real estate, this is how you scale. No, obviously that’s not what this is. This is actually a very, a perfectly, I don’t want to say normal because it’s like it’s very abnormal how quickly he was able to do this. But I love his story that he wanted to save up 9,000 bucks and he did that. I mean, there’s a lot more to this we’ll get into in the episode, and then he got into this property and then he scaled again by putting another 3.5% down and he scaled again and again and again. It’s this snowball that I think anybody listening at home today can achieve, and he made that very obvious because it was all mindset for him.

David:
That is such a great point. It was how he built the momentum of a snowball that got bigger and bigger and bigger, and now that snowball’s taking out the obstacles for him. He’s not having to do all that work. If you are a new listener, you’re going to love how he got his first deal with less than $10,000 and he gives specifics on exactly what he did to save that $10,000. If you’re an experienced investor, you are going to love how he approached going to banks to get a loan when they kept telling him no. He eventually figured out a way to get them to say yes. When you listened to this, guys and gals, I promise you you’re going to think, “Is it really that simple? Does that actually work?” The answer is yes. He did the right moves. He took the right steps. He went to the right people, and he just kept doing it until he got what he needed. It is not that complicated.
This is an awesome story. You’re also going to love that Jake shares his why. It has to do with his family, what he saw his parents going through and his older brother. This one is one for the record books. You’re going to want to share this with other people.

Rob:
It was moving. It’s a moving story, and I think a lot of people today will take action, and I’m excited. I’m excited for everybody to listen to this one.

David:
Yeah, and you want to watch all the way to the end because you’ll get to see Rob cry, and who doesn’t want to want to see that?

Rob:
Just a little. So, someone was cutting onions over here.

David:
That’s right. Before we get into today’s show, today’s quick tip is-

Rob:
Surround yourself around people who are smarter and more successful than you. That’s something that Jake talked about a lot and how he was able to level up and scale his entire portfolio.

David:
Yeah, his idea to buy that apartment complex literally came from a meetup that he went to when he just asked honest questions, “Guys, where should I be investing?” He didn’t have to pay for a super expensive course. He didn’t have to overthink it. It was literally just talking to other investors. So, get out there, share your love of real estate, find other people that love it, and make some progress yourself.

Rob:
And get on the BP forums. Ask there. I mean, there’s hundreds of thousands of people there that will answer your question.

David:
Yeah, now more than ever, this is important because it’s hard to find anywhere that works for real estate. So, if you haven’t been talking to people, now’s the time to do it. All right, let’s bring in Jake. Jake Radawick, welcome to the BiggerPockets Podcast. How are you today, my friend?

Jake:
I’m doing good. Super excited to be here.

David:
Well, I’m glad to hear that. Before we get into your story, I’ll want to hear, where do you live and where are you investing?

Jake:
That’s a great question. So, I live in Spokane, Washington. It’s roughly 15 miles west of the Idaho state border. I’m investing locally using owner-occupied loans here, and then I’m also investing in Memphis, Tennessee as well.

David:
And I hear you take advantage of those beautiful outdoors in Spokane. What outdoor sports are you into?

Jake:
I have a great girlfriend. She’s super active and she loves CrossFit, so anything I can do to keep up with her. I love to mountain bike, love to snowmobile, to ski, snowboard. The cool thing about the Inland Northwest is we have tons of lakes and tons of mountains. So, whether it’s a ski resort or just hanging out in Lake Coeur d’Alene, just tons of opportunities to enjoy summer and winter.

David:
That’s cool, and it’s important to like where you live. Rob and I were having a conversation about why is there people that still live in certain areas. I don’t want to say any names because we probably have listeners there, but you’re like, “It’s freezing cold, it’s so boring. You know can leave, right? You don’t have to stay there.” I was wondering if there’s a form of Stockholm syndrome that some of these geographic regions have a hold on the people that live there because it is important. You have to enjoy where you’re at, otherwise what’s the point of doing all this. Now, I know you started investing only three years ago. You made a remarkable amount of progress in that time. What was going on in your life three years ago that made you decide to get into real estate?

Jake:
It’s a great question. So, it was March of 2020 and I was working as a project engineer for a construction company in Seattle, Washington. So, I would do that during the day, and on the side I was working as a valet at night and on the weekends at a higher end restaurant in Everett, Washington. I was grinding. I was working during the day and then taking as many shifts as I could at night. I was talking to the owner of the restaurant and she was talking to me and I was like, “I need something more. I’m looking for something more.” And she’s like, “Jake, you’re super driven. You got to get in real estate.” And I was like, “I hadn’t even thought about it.” And so, that kind of pushed me in towards real estate and buying my first property over near Seattle, Washington.

David:
That’s funny because I also got my start in restaurants.

Jake:
Yeah.

Rob:
So, Jake, you were looking for more. What was the reason for that? Was it because you just wanted more money? Were you not liking the paycheck that was coming out of being valet, or just general, the idea of wanting to progress in your career?

Jake:
Yeah, Rob, great question. So, I just, I feel like all my life I’ve tried to take as little as I can from my parents. My parents have always taught me to work hard, but my brother lives with them and my brother’s super important to me. And so, they spent a lot of time taking care of him and enjoying life, and so I try to be as self-sufficient as possible. And so, I got into real estate because the idea of passive income, I was working as many hours as I possibly could in a week, and I just needed a way to make more without working any more hours, which wasn’t possible.

David:
What would you say was driving you to need to make more money?

Jake:
Well, I have this dream, and call it farfetched, but I really want to have a life where my wife doesn’t have to work. And then I have a brother that’s autistic and he’s 35, and I want to be able to take care of him and not have that impact my future family as well as the life that he deserves as well. So, I really wanted to, I felt like it’s my responsibility to ensure that I can be there for my future family as well as the family I have currently.

David:
Okay. That’s some pretty heavy pressure that you’re feeling with, and you were 24 at the time-

Jake:
Yeah.

David:
… that you have these thoughts. So, you’re looking at this realizing, “I don’t want my spouse to have to work when I get married, and my parents are stressed out from having to care for my 35-year-old,” I guess at the time he would’ve been 33-year-old brother that you said was autistic.

Jake:
Yeah.

David:
And you also recognize that someone’s going to have to take care of him. So, you feel all that pressure on your shoulders. What was your plan originally, just work a lot of shifts at restaurants, or were you going to try to get into higher end restaurants? What was going on in your heart that facilitated this conversation? Because the manager of your restaurant didn’t see this going on and just go initiate a conversation. I’m sure you were reaching out trying to put together the pieces of this puzzle.

Jake:
I don’t know. I really liked the idea of being self-sufficient. My parents always taught me to work hard, and they were really good at working a lot of overtime, they were really good at working hard as an employee, and I really wanted to break out of that cycle and identify a way that I could start being an investor. As soon as I rented out my first townhouse and I had my first taste of passive income, I was like, “Wow, this is remarkable. I could do my day job and invest in real estate and the passive income from there can support my brother while my active income can support my family.”

David:
Yeah, I mean, that’s exactly how real estate works. I’m just curious why you think you really chose to take on the responsibility of caring for your brother as opposed to saying, “I’ll just let somebody else do it, and I’m just going to stay in my lane and do my thing.” What is it about you? Maybe up to that point in your life values that someone had put in you. Where do you think that came from that you ran towards responsibility and answered that call, as opposed to what most people do, which is just, well, that’s my brother’s issue and my parents’ issue?

Jake:
I think it was just me growing up and watching my dad. He did a lot for us, and to include, he worked as a contractor in Afghanistan where he worked out of country for all but 29 days out of the year for four years straight, and he did that so we could have the great life we did, but he sacrificed being present in our lives through my whole high school career. And so, growing up, I noticed that and I took note of what he sacrificed for us to give us a good life. My goal was I wanted to give that same life to my future family, but I want the opportunity to be present because that’s so important.
He used to call up his buddies that he… So, to give background, he was 20 years military and then 10 years he was a police officer before he became a contractor for a private company in Afghanistan. While he was a police officer, just like you, David, he was taking on every overtime shift he could. I was growing up and I saw this. I saw that Dad was always gone, and I didn’t want that for my kids. And so, I wanted to figure out a way to break the cycle. I saw and I was like, “If he’s giving all this time now, I’m going to give all this time before I have kids so that I can be present in those moments.”

David:
That’s some powerful stuff. Your dad really set the example of work ethic. So, you understood, I want to work really hard, I want to continue the legacy and continue the momentum that my father built. But you also saw the downside of the way he took to working hard. You didn’t get to see your dad as often. He didn’t get to see his family. I know what that life is like. You’re tired all the time. You’re sleeping at weird hours in the day. You’re always grumpy. You just have this sick, nauseous feeling that you carry around all the time for being sleep-deprived and exhausted. You never really feel healthy. You never have a lot of energy. So, you realize I don’t want to go that way, but I’m not going to rebel completely against hard work and say, “I don’t want to be like my dad.” You actually found this perfect medium.

Jake:
Yeah. Yeah, nobody in my family before me has ever owned more than one piece of real estate. I was kind of seen as the crazy person when I got into it, but I appreciate them supporting me all the way through, and it’s done me pretty good so far.

David:
Okay. So, what was the conversation like with your restaurant manager? How did they bring real estate into the conversation? Did they paint a path for you?

Jake:
Well, so I was currently managing her whole team of valet drivers, and I was just talking to her. Her name’s Jen. I was like, “Jen, you’re doing so great. I mean, what’s the next step here?” And she’s like, “Jake, you’re an awesome employee, but you got to be more than an employee. You got to be an investor.” She just said, she’s like, “You got to buy a piece of real estate.” The real estate market, it’s probably 2019 at this time. She’s like, “You got to buy a piece of real estate. The real estate market in Seattle, Washington is booming, and I’m making so much equity. That equity’s going to be so much more than you could ever make. You could work as many hours as you want here, but it’s never going to be as much as you can gain just by owning a piece of real estate.”
And so, that’s what I did. I didn’t have a plan. I didn’t know what I was doing. I didn’t even know what an inspection or an appraisal was when I put my first offer in. I just took it step by step. I said, “What do I need to do?” I need to contact a real estate agent. I did that. They directed me to a mortgage lender and then I went there, and I just took it one action step at a time, and it kind of fell in my lap.

David:
I think that’s a good point to hit because even though it sounds simple, there’s a lot of people don’t take action at all till they know all 27 steps, or however many it’s going to be, and they get to 26 and they’re not going to start till they know that 27, whereas the way it typically works out is you take the first step and that is what opens the door to the second step. And then you ask the loan officer, “Well, what do I have to do next?” “Well, you’re going to find an agent.” “Do you know one?” “Yeah, I know three. Here you go.” You talk to them, you talk to other people. Now, that agent’s, you don’t want them to say that, you want them to say this. Each of those steps opens doors to the next step.
It’s kind of like walking through the fog, or Brandon Turner used to have the analogy of driving through the fog is you can’t see what’s a hundred feet in front of you until you get closer to it. I mean, I love that you just said, “Okay, I’ll just keep taking it one step at a time.” What did that first deal look like? What caught your eye? What advice were you given? What made you say, ‘That’s the one’?

Jake:
David, I would love to say I was a genius here, but I wasn’t. I had $15,000. Actually not even that, I had $13,000, and I just had to find something that I could afford and fix up. And so, we found something in Lake Stevens, Washington, and I was able to buy this townhouse. Didn’t have a plan, just knew that I was going to buy it and then move into it. Ironically, this is right when COVID was hitting. So, I bought it, and then I lived in it temporarily, fixed up, add some more LVP flooring.
Now, at that time I read the book by Brandon Turner, How to Buy Real Estate with Low Money Down, and I’m like, “Oh my gosh, there’s actually a strategy to this.” And then I read your book, BRRRR. From there, it was like a rocket ship taking off. I immediately realized Seattle was great for appreciation, but I could move six hours away and invest in Spokane, where I was able to get a triplex for with an FHA loan for 3.5% down. I left my job, found a new job just to travel over here to invest in real estate, and that’s where my journey took me. So, after that deal, it kind of opened the door to what real estate could offer, and then from there I read a few books, and it was off to the races.

David:
So, that’s actually the secret to success for everyone listening. Read Brandon’s book, read my book, and you’ll be on a rocket ship to millions, really.

Rob:
And read your upcoming book, Scale, right? That’s coming out pretty soon.

David:
Oh, I love how this is becoming a running thing here. If you ever listen to the really old episodes of the BiggerPockets Podcast, Brandon and Josh would have these frequent callback jokes like Brandon couldn’t pronounce the word rural, Josh did not like the city of Detroit, Josh would repeatedly make fun of Brandon because everything, really, he was very good at doing that. But there would always be these callback jokes, and my book, Scale, is being one of the only books that Rob has ever read, other than his Japanese comic books. This is coming up all the time, Jake. So, if you’re curious why he’s doing that, it’s because Rob has developed a sense of humor. It’s like he’s going through adolescence right in front of our eyes. We’ve got a child actor.

Rob:
Well, you know, every new book that’s coming out, we’re coming out with so many great books to help people like Jake out in their journey. So, it’s promotion month for you, David Greene.

Jake:
I can’t say that word either. So, I’m just like Brandon, I can’t say that word.

David:
Well, because you’re investing in a rural area. Yes, that’s it, Spokane. Okay, here’s what I like so far. You did not overcomplicate things. You just said, “I’m buying small multi-family. I’m using an FHA loan. I’m going to buy in a area where I believe I can get tenants, and then I will see where it goes.” There’s really limited downside to that. Really, the only way you mess this strategy up is you buy in an area where nobody wants to rent or there’s high crime or there’s other undesirable attributes or the property doesn’t cash flow. So, if you know how to do basic analysis on a deal, you don’t need that much money to get started. How much did you end up putting down on this property?

Jake:
I ended up putting down I think 9,900 or it was 3%. There’s program through Freddie Mac, I believe it is, or Fannie Mae, the first time home buyers program, and you can put down 3%. And so, I put down 3% on something that was $320,000.

David:
It’s amazing. Right?

Rob:
That’s amazing, yeah.

Jake:
First deal was 3% down, second deal was 3.5% down. And so, within 12 months, I had two properties, three tenants, and I only put, I mean less than $20,000 into deals.

Rob:
So, Jake, tell me a little bit about how much were you making as a valet, if you don’t mind talking about this, because it probably took you a while to get there. I think this $10,000 number, you were at 9,000, but did it take you a long time to get to that $9,000 or is this something that, were you hoarding your whole life?

Jake:
It did not take me a long time once I decided I was going to do it. I made the mistake, of course, a lot of young guys will do this, when you get out of college, the first thing you want is a new truck. So, I bought a new truck and that put me behind.

David:
Wait, real quick, how much did you put into that truck? How much did you spend on it or how much did you put down?

Jake:
I put the same amount as I put on my first house.

David:
That’s what I was wondering.

Rob:
Nice. Well, I love though that you said, the most important thing you’re going to say this interview is it didn’t take long as soon as I decided I wanted to do it. Right? So, you put down $9,000 on a truck and then you’re like, “I want to buy a house.” And then you saved up the cash?

Jake:
Yep, I saved up. You guys did a podcast about side hustle. Side hustles are so important. In college, I worked two jobs. Out of college. I got a job. Everyone that gets a full-time salary job usually just does that salary job. Well, I did my salary job and then went and worked at a restaurant where my coworkers were coming for happy hour. I would leave early, set up the valet team, then valet my coworkers cars, and then stay there till 9:30, 10 at night, work there, and then see them at work again at 6:30 in the morning.
Then I moved to Spokane, I obviously don’t have that valet job anymore, and I’m like, “Okay, what am I going to do now?” Still managing my house in Seattle, moved to Spokane, have my triplex, and I hear this new app called Turo. And so, I’m like, “Okay, I got this new truck and this hefty payment because I’m a dummy.” I was like, “How am I going to offset this? I’m going to turn this liability into an asset.” And so, I just start Turo-ing it as much as possible. I buy a little dual sport motorcycle. So, I would put the motorcycle in the back, drive the truck to the airport, drop it off, take the motorcycle out, ride that for however long it was rented, and then when it was time to pick it up, I would just come ride this little dinky motorcycle back, put it in the back, and then just get my truck back.

Rob:
So, were you actually making money on Turo? I used to do that back in the day, and I just did it so that I could break even on my car payment. But you were actually turning a profit doing this?

Jake:
It was until it got saturated. In 2020, it was pretty good, ’21 was not as good, and then ’22 was pretty slow. But yeah, with COVID, a lot of the rental car companies sold off a lot of their fleet to increase their revenue, and so that meant they had less cars which meant Turo was prime for that period.

Rob:
Nice. Okay. And so, it was basically through valeting and side hustles and Turo that you were able to get up to your first $9,000 or so?

Jake:
Yes. Yep.

Rob:
Cool. And so, if you don’t mind me asking, were you making any cash flow on these first couple of properties?

Jake:
Yeah, so in that townhouse, I was making a hundred dollars in cash flow. So, I really had no cash flow. But I only had it, I closed in March and I accepted a new job in December over in Spokane. So, I knew I was moving over 250 miles away, and so I immediately rented it out, and then I moved and then I used my FHA loan to buy the triplex. I knew it was a good idea. Looking back, I didn’t know how to run my numbers exactly the way I should have, but it worked out really well. I bought something that was under-rented, increased the rents on them, was there onsite. I manage that until today and I got some great property management experience and was able to go from there to buying a few more.

David:
We’re going to get more into your story and we’re going to learn about how you scaled your portfolio, but I want to take a quick second and dive into what you’re doing is what we call the snowball method or building momentum. Most people understand this from the perspective of I have three houses, I pulled out the equity, I reinvested it, I got to nine. They see the snowball once it’s already pretty big. What I love about this is you’re explaining what you did to push the very first pebble down the hill and all the ways that that built momentum.
So, you start off as a valet. You’re doing a good job in the position you have in life so that they promoted you to be over the other valets. They don’t do that to the bad employees. They do that to the good ones. Your boss likes you which meant you are sacrificing, you have a servant’s heart, you’re bringing skill, you’re bringing value into the marketplace where you are. You’re not waiting until you get a better lot in life before you bring value. Right? Those values that your father gave you and your mother translated into the success in the workplace. That led to advice that you need to buy real estate. So, now you get a side hustle and you come up with this Turo idea where you were able to take a bad decision, which was buying a truck, and turn it in to mitigate the loss. Right?
You’re building momentum. You come up with this clever idea to put your motorcycle in the back of the truck so that you have a way of getting around, while you’re getting your truck payment paid for doing this Turo method. That led to you buying the first house, which you did from the money that you saved, doing something anyone can do. There’s nothing different about your story that any other American couldn’t do if they wanted to go get a second job, rent out their stuff on Turo, work, like you said, you would work at the valet place and you got a second job to make more money and you would then serve the people that were your employees basically. The people that worked for you, you’re now taking their keys and parking their car. Okay? That’s incredible that you had that level of humility because you were that driven.
This is the work it takes to build up your down payment to get the snowball moving in real estate. Okay? And yes, you did use a low money down strategy, but you still needed some kind of money. I love the approach you took wasn’t I don’t have $9,000, I guess I can’t invest in real estate. It was what would it take to make $9,000?

Jake:
You’re correct, Dave. Yeah,

David:
Rob, what are you thinking here? Because you also did the Turo thing, you did the house hack thing, you guys both have great hair. There’s a lot you got in common with Jake here.

Rob:
Yeah, I love it, man. I think a lot of people say that they want to make more money or they want to get into real estate, but the actions that they take to do that never really lead up to fulfilling that desire. Right? And so, you said that you wanted to do this, but I think the thing for you that I’m seeing in your story is that you needed to do this. Right? You needed to succeed in real estate because you had your why, your family, your brother. You talked about that. With that fire burning under you, you’re like, “I need to figure out how to make 9,000 bucks to get into real estate.”
I think that’s a very easy mindset change that a lot of people can just think about. Right? Like, “I need to do this.” If you need to do it, then you’ll go out and make it happen, because a lot of people, like I said, they want to do this stuff, but they don’t actually take the action because a lot of us work nine-to-five jobs and you’re really tired afterwards and no one wants to actually work after their nine-to-five job because they feel like they’ve worked enough for the day. You know what I mean?

Jake:
Yeah. So, I want to add on that. Not only did I have my why, but my why is my brother and he’s not… I choose my words carefully here. He’s my biggest inspiration. So, this is actually him right behind me right there. Growing up, I remember he was always told, “There’s no way with your disabilities you’ll ever be able to get a driver’s license.” And yeah, it took him a few times, and yeah, he didn’t get it till he was about 19 years old, but he eventually got it. There’s so many people when you have a disability that try to tell you what you can and cannot accomplish, and he never listened. He never listened to anything they said.
He really wanted to go to WSU and get his zoology degree, and yeah, it took him seven to eight years, but he did it. He sat in tutoring for six hours a day. He can’t type. So, he had a tutor type for him. I mean, those two things right there that he did showed me that if you don’t listen to what people say, if you don’t let other people tell you what you can accomplish, you can do so much more. He was my biggest why and my biggest inspiration.

Rob:
That’s amazing, man.

David:
The thing that stands out to me is where others might say, “That’s a lot of work. You’re working two jobs, you’re driving to the airport, you’re dropping it off, you got to get the motorcycle out of the truck. That’s just too much work. Real estate’s supposed to be passive income.” You’re comparing yourself to your brother and saying, “I got it easy compared to what he’s got to do.” It really does change the way you approach these things when you look at this and say, “Well, whatever I have to do now is much easier than what my brother’s having to struggle with. This is easy work compared to him,” and which I think probably had a role in why you took such a vigorous approach to building up this momentum in your snowball.

Jake:
Yeah.

Rob:
Well, that’s awesome, man. So, you get into these two deals, you said that you’re making some cash flow, you’re starting to kind of figure things out. Now I think we get to the point where it’s how do you actually scale from this point. Right? Because we know that you’ve got the tenacity, the grit to make this happen. What came next for you to sort of figure out how to expand your portfolio?

Jake:
One thing at a time. One thing at a time. So, living in the triplex and we get this opportunity. I could not have accomplished what I have accomplished without great agents. I had an agent, my girlfriend and I had an agent that brought us a deal and they said, “Hey, this is a great flip.” And we’re like, “All right, let’s go for it.” We didn’t know what we’re doing. I had never flipped a house before. I’d thrown in some LVP, but I’ve never done a full flip. That was the biggest learning experience ever, not only for my relationship, but for learning how to flip a house and what to sub out and what not to sub out. I mean, and I flipped this house with my girlfriend. We lived in the house. We had no way to cook our food besides an air fryer and a toaster. We had lawn furniture set up in the middle of the house for a summer.

David:
How much were you spending on haircare products during this time when money was tight?

Jake:
You know what’s so funny? I’m such a frugal guy, and my girlfriend and my friends make fun of me for it. I just go to Great Clips and I tell them, “Hey, just cut the sides off. Keep it finger-light on top. Make it easy.”

David:
So, this is a humble-brag. You’re like, “It just looks this good on its own [inaudible 00:27:56].”

Jake:
This looks this good all the time. I appreciate the compliment.

David:
Can you define what LVP for us is?

Jake:
Yeah, luxury vinyl plank flooring. If you’re going to do any sort of rentals, I definitely recommend it. You can get at Lowe’s Home Depot and it looks really nice and it’s renterproof.

David:
Yeah, you could beat the crud out of it.

Rob:
So, you mentioned you moved, you were working a new job at this point. Right? What was that job?

Jake:
Yeah, so I moved over, I was a project engineer in construction which basically is an assistant project manager. Moved over, took a job as a project manager for a company over in Spokane, Washington. So, now I am managing up to 15 to 16 commercial construction jobs at one time. So, I’m managing the HVAC and plumbing specifically, but I’m managing 15 budgets, 15 construction crews, and I’m staying in communication with 15 clients/customers for my main job. And so, I just took what I’d been doing commercially for my W2 and I said, “Well, if I can manage a budget and a schedule for a full-time job, I’m pretty sure I can do it for this residential house.”
But the funny thing is, guys, everyone thinks if you work in the trades means you know how to do the trade. I managed the budget, I used a keyboard, and I tried to do my own plumbing in my flip. My poor girlfriend, I actually ripped a pipe in half with a wrench on a Friday night and we flooded the basement, used all the towels, I used all the towels to mop up the basement. Then I told her that she had to shower at the gym. We had to go to the gym to take showers for the weekend because I wasn’t going to pay a plumber overtime to come on the weekend. She’s like, “Okay, can I have a towel?” And I was like, “Well, all the towels are actually in the basement soaking up the water in the basement.” So, we had to go buy new towels and shower at the gym.

Rob:
Oh man. Nothing solidifies a relationship like living in a remodel. Okay, so this is really great, and this actually goes back to what we were saying earlier where people work their nine-to-five job and they get home and they don’t want to work more. Right? You were not only working a nine-to-five job, you were working in construction and I’m sure the last thing you wanted to do was come home and actually continue doing more construction and remodeling. But you mentioned you were living in this property at this point. Was there ever a moment that you were like, “Yeah, you know what? Maybe we’re just going to go rent or go buy another place and not live in the same house”?

Jake:
Yeah, yeah, I promised my better half I would not have her live in an unfinished house again, if we did another flip that we wouldn’t live in it at the same time because I think it’s fair that she deserves a working shower and a way to cook food. But you’re young and you live, you learn. I grew so much through the experience. I had no idea what I was doing going into it. I subbed out some stuff that I probably could’ve done myself and I tried to do some stuff myself that I probably should have subbed out. I mean, I definitely don’t recommend trying to replace a dryer outlet by yourself. I learned that the hard way. So, I think, yeah, there’s stuff that I learned that it definitely helped propel me forward. I think if you just go in and you’re just willing to figure it out, you can accomplish it.

Rob:
I think I’m mostly agree with all that. David, what do you think? Because for me, when I was building my tiny house, I ran out of money and I kicked the crew out and I had to finish the last 40, 30, 40%. And so, I actually did all the final electrical. I had several outlets blow up in my face and then I broke several pipes doing it. I’m really glad that I did it though. But Dave, did you ever find yourself in the middle of your own remodels just doing tasks that had to get done for the sake of budget, or were you always pretty good at delegating that stuff?

David:
Bro, I can’t even call it a remodel. I tried to do some stuff myself. There’s two crazy stories, one was trying to take a bush out of a backyard that ended up in an entire day, thousands of dollars spent. I ended up hacking into the pipe that the pool would use to filter the water and flooding the entire thing because I don’t want to spend 150 bucks to have some professionals pull this bush out. I could take up the whole podcast telling that story. The other one was changing the door locks after a tenant left, which was like five trips to Home Depot to buy different tools. It was so bad that I realized I could have literally just gone to work, made overtime, and it would’ve been 10 times more money than what I had saved by hiring somebody.
So, I’ve never even attempted to do a remodel. I’ve always just focused on the numbers and then kind of staying in my lane. I have respect for you guys that do this. Brandon Turner has tons of stories of carrying toilets out of houses that were literally filled with feces and crawling through basements at 6’5 trying to fix things. I think he likes doing that stuff. Maybe each of you guys have a little part of you that’s like, “I like taking on the challenge.” It feels like going out into the woods and coming back with a deer draped over your shoulders.

Rob:
I did before I went full-time into it. Back when I was first getting started, real estate was a hobby, and so when it’s a hobby, you kind of enjoy learning and everything. Now, of course, it makes sense from a scale standpoint. It seems like that’s something that you were starting to figure out as you were going, Jake. So, were there any systems or habits or anything that you were working on that helped you determine your scale strategy?

Jake:
There wasn’t necessarily systems. So, after the triplex, we flipped the house, and then we moved into another duplex that I put 15% down on. After that I knew I had to… I knew Spokane was a great appreciation market, but I wanted to invest in a cash flow market to diversify my portfolio. So, I actually, I talked to some friends and there was a meetup. So, you guys on BiggerPockets have the local meetups listed on your website, and there’s this local meetup in Mastermind that meets in Bothell, Washington, it’s called Addicted to ROI. I connected with this Mastermind. I’d strongly advise, I don’t care what Mastermind you join, just join a Mastermind, surround yourself with people that are doing more than you, and you’ll be surprised at how far you can go.
And so, at that time, I realized the price of equity in my Seattle townhouse had gone up so much that I could sell it and make over 10 times what I put into it. So, I determined I’m going to sell it, and then from there I’m like, “All right, I need to figure out where I’m going to plant this new capital through a 1031 exchange. And so, I used this Mastermind group to start picking others’ brains that like, “Hey, where you investing? Where you investing?” I got a ton of different results. I surveyed those markets, and I found out where I could collectively establish a good team, and that was Memphis, Tennessee. I like that it’s a cash flow market. It’s a little riskier than Spokane. So, it’s adding some risk to my portfolio, but higher cash flow.
And so, I’m said, “All right, I’m going to go to this market.” No experience investing out of state. I take the money from my flip that I just talked about, and I buy two duplexes in Memphis. So, this is my first experience investing out of state. I mean, I had my rockstar realtor, she went to my inspection, she helped me out finding a local lender. That’s how I kind of projected to out-of-state investing. It was through joining a Mastermind and then just surrounding myself with people that are doing more and people that are investing out of state. I started to realize, “Well, maybe my market isn’t the most bang for my buck. Maybe I can go further and do better by doing what’s uncomfortable.” The whole process of what I’ve done has been super uncomfortable because I didn’t know what I was doing until I did it.

Rob:
That’s how it goes, man. So, look, just so that I understand the timeline a little bit, you buy these first two properties, you put down six and a half percent.

Jake:
Yep.

Rob:
Then you do a live-in BRRRR.

Jake:
Yep.

Rob:
And then you do another live-in BRRRR, and then you said you bought two more duplexes.

Jake:
So, I took the money from the flip, bought the duplexes in Memphis, and then I buy this property with 15% down, this duplex, and then I remodel it. The one half, I remodel it completely. So, I’m totally invested in this duplex $57,000, and I’m like, “Oh my gosh, I’m broke. What do I do now? What do I do now?” I’ve heard about this thing called a HELOC. So I started talking to people on Mastermind. I’m like, “How can I get this money back?” Someone’s like, “Oh, you should open a HELOC. It’s a great opportunity. You get 90% loan to value if you live in it.” And so, I opened this HELOC and I get 50 grand. So, now I’m only really seven grand into this property. Well, I have access to 50 grand again. And so, at this time I closed on… I’m still in the process of selling this townhouse in Seattle. I’m opening a HELOC in my primary, my duplex that I’ve lived in for six months, and then I’m buying these properties in Memphis.

David:
So, it sounds like you’re starting to pick up some momentum as far as analyzing deals, finding opportunities. You’re buying these properties in Memphis, but you can only make so much money work in a W2 job, especially as a young guy to be able to buy them. Right? So, you’ve kind of run into the problem of I have more opportunity than I have capital to get into it and I can’t really save my way. That worked to get your first $9,000, your next 12 or $13,000. Now that you’re buying these 20-unit properties, you can’t park enough cars to get enough money to do that.

Jake:
You’re so right.

David:
So, you’ve learned one of the secrets of real estate is when you buy it right and you add value to it, there is value that you could pull out of it through these equity loans and credit. Was that really the bridge that you needed to get from the way you had got started into scaling up into these 20-unit properties?

Jake:
Yeah. So, this is last year around July. I had closed, so I’m living in a duplex, I still have my triplex. I have this 1031 that got me a six-figure return, and then I was like, “Okay.” I find this 19 unit, I actually put an offer back in February of 2022, and then he denies it. And so, I’m just like, you know that 45-day window, you’re searching for deals. Out of the blue, he calls up my agent and says, “Hey, I’m ready to sell.” Well, times have changed. Interest rates are different, and so we were able to talk him down and we get under contract on this 19-unit property. I was able to buy this property, so I was going to throw my 1031 at it, and I knew I needed about $80,000 more. Right? So, I opened a HELOC for 50,000 on my primary and I determined that I’m going to save $30,000. There’s nothing I’m going to do to make this deal not happen.
Now, me telling myself that was huge, guys, because I went to three different banks, I went to two hard moneylenders, and all of them told me this wasn’t going to happen. “Jake, there’s no way to get a loan over your net worth. Jake, you only have small multi-families. There’s no way to buy a 20-unit property. Jake, the market’s changing.” I was like, “Okay, thank you for your time. I really appreciate it.” Next call. Eventually, I started talking to this bank, specific bank and this business relationship manager back in February about these duplexes, and that didn’t work out, but what I did was I called him once a month and just checked in. And then this 19 unit came up and he’s like, “Oh, let’s make it happen.”
All right, and then so we went into underwriting and I got denied. Right? Not enough reserves. Okay, let’s bring on a co-signer. Denied again, need more experience. Okay, let’s bring on a different co-signer with more experience. Denied again. And so, I’m talking to my agent, I’m like, “Are they just denying me just to deny me?” So, I had to figure out what to do, and so I just called up this banker, his name’s Dan. I said, “Dan, Dan, you’re the man. Tell me what we need to do to get this closed because I’m not going away.” And then he said, he’s like, “Well, let’s get…” They could see, because I had money in the bank, how much money I had in the bank, and they’re like, “Well, if you could throw another 7% at it and then get a cosigner, we can make it work.” I said, “All right, done.”

Rob:
You already had the co-signer at this point, right, didn’t you have?

Jake:
No, you don’t have to try to make it make sense. It didn’t make sense to me either.

Rob:
Okay, that is how underwriting, they ask you for things you’ve already given them, but it’s just slightly different.

Jake:
Yeah. Remember the first time they said I needed more reserves? Well, they just stripped me of all those reserves and they said I need to throw it into the deal. And so, I put 27.5% down on this deal, and then now we’re in the process right now. So, this was back in October, I closed. Right? The reason was the rents were so low, they’re only generating $6,000, but now I have it making $11,300.

Rob:
Wow. So, you almost doubled it.

Jake:
Yeah, and that’s why, it’s a beautiful property, and I want to give credit, my agent’s a rockstar down there. Without her, I would… When you’re investing out of state, having agents that are investor-savvy is so critical and she was able to fund this deal and she was able to make it work. Yeah, we ended up closing and now I’m at, I just had employment today and we’re opening up a second to get my money back down to 20%. So, I had to get really creative with the financing, and on top of that I was able to utilize the market swing. I always look at the rent ledgers. I’ve done a lot of things wrong before. One of the things I did right was I looked at the rent ledgers and I found that right before closing three people had moved out. So, I ended up getting 50,000 back at closing.

David:
Wow.

Rob:
That’s cool.

David:
Can you define what a rent ledger is for us?

Jake:
Yes. So important. So, a lot of sellers will give you something called a rent roll. A rent roll is a list of all the leases and how much the rent is for each unit of a property, where a rent ledger actually shows you what they’re paying. So, the difference between a rent roll, which you’ll get a lot of times, shows you what they’re supposed to pay, a rent ledger shows you if the tenants are up to date, if they’re behind, what they’re actually paying, their profit. It’s basically a profit and loss statement, and it’s really important to get these from the seller because a lot of times they’ll try to bluff you with a rent roll and you’ll figure out some people have a rent that amount to much, but they’re not actually paying. So, the truth always comes out with the rent ledger.

David:
So, the rent roll is what it could be. That’s potential. A rent ledger is what it is.

Jake:
Yeah.

David:
And you recognized, hey, these three units either aren’t paying, aren’t occupied, there’s no money coming in, so you owe me this much money at closing because we’d agreed upon numbers that were based on the rent roll. Is that accurate?

Jake:
That is accurate.

David:
Let’s hear, I mean, this is a pretty cool story, man. Tell us what your portfolio looks like today. How many units are you currently owning?

Jake:
So, at current, 28 units. If you include my girlfriend’s duplex we live in, that’s 30 units.

Rob:
And what’s the annual gross rental income on both, on all, I guess, 30 units?

Jake:
Well, not including her two doors, it’s $235,000.

David:
Okay. That’s pretty freaking cool. And then how much of that is profit? What’s your cash flow on that?

Jake:
My net is $75,000 a year.

David:
Is that more or less than you were making when you were parking cars?

Jake:
David, that is a great question. I am making more in passive income than I was my first salaried position out of college.

David:
Which is awesome.

Rob:
That’s amazing. And how old are you, man, just for everyone’s edification?

Jake:
I’m 27 years old.

Rob:
So, you’re making $75,000 passively as a 27-year-old.

Jake:
That is correct.

Rob:
And you’re done? That’s it?

Jake:
Absolutely not. I wouldn’t be doing my brother very much justice if I did that, would I? I got to keep going. My goal is I want to retire my family.

Rob:
It’s amazing, man. Have you talked to your brother about this? What does he think about all this?

Jake:
You guys are going to get to my heart here. He always calls me and he says, and he is like, “Jake, I just wish I could do as much as you do.” And the truth is, I wouldn’t have done anything if it wasn’t for him. So, he’s successful through me, and I would not be where I am without him.

Rob:
It’s amazing, dude. I think what’s really cool about this is real estate is a really tough journey sometimes, but I think when you have a purpose like that, you’re going to love this game. You’re going to love so much about what comes next because it’s true, man. You’re 27, you’re making $75,000, you’re doing this for your family, but you are just at the beginning. You got so much to go.

Jake:
I know. I really just want to thank all the people that took me under their wing. I just went. I didn’t know what I was doing. I just took action, and I asked questions to people that were more intelligent and further along than me, which I was able to find through a Mastermind group. I even, I remember I had to go to my Mastermind group and I had scheduled a one-on-one call with this woman named Jennifer, and I said, “Jennifer, everybody at my work is telling me that what I’m doing is crazy and I’m overleveraged.” And then she’s just like, “Jake, don’t listen to anybody. Don’t listen to anybody. Remember your why. Just don’t stop trying, and it’ll work out.” So, you don’t have to figure it all out today. You just got to take one action and just be willing to fail. I’ve failed, but just take one step at a time and before you know it, it’s insane. Especially with Masterminds today, with BiggerPockets Podcasts, the younger generation has so much opportunity to excel in real estate with the education that’s available to them.

David:
That’s awesome. If people want to learn more about you, they want to connect with you after the show, which I’m sure many of them will, where can they find out more about you?

Jake:
I’m just a normal guy. I got a Facebook and Instagram. My name’s Jake Radawick, and if you want to connect, if you’re interested in investing in Memphis or Tennessee, Memphis, Tennessee or Spokane, Washington, let me know.

Rob:
What’s your Instagram handle?

Jake:
It’s just Jake Radawick.

Rob:
Nice. Okay, R-A-D-A-W-I-C-K, right?

Jake:
You got it.

Rob:
Awesome man. What about you, David? What can people learn more about you?

David:
They can find me at davidgreene24 everywhere. That’s YouTube now. You can go to youtube.com/DavidGreene24. It’s kind of cool, YouTube made handles. They can find me on Instagram or social media there, and then they can check out davidgreene24.com. Don’t ask me why the 24. It’s not a cool story, but it is what I’m stuck with now. I’m married to that handle. How about you, Rob?

Rob:
You can find me over at robuilt on YouTube or on Instagram. But what I would really love if this episode inspired you in some way, because I know it inspired me, please consider leaving us a five-star review on Apple Podcast with something that you learned today or wherever else you download your podcast. It really does help us. It helps move us up the charts, get served to new audiences so that we can reach other people that are looking to get started in the world of real estate.

David:
Yes, thank you. And if anyone here would like to send Jake or Rob free haircare products because they still have hair, please consider DMing them to get the correct mailing address. Jake, thank you so much for being here today, man, and thank you for sharing your story. Everybody likes to come on these podcasts and they like to brag about how many units they have or how well they did. You gave us an authentic, transparent, vulnerable look into how you did this, what mistakes were made, what went well, how tenacious you were, and most importantly, the why. I’m going to give you the last word. Is there anything you want to leave people with regarding having a why and how important that is in building a portfolio?

Jake:
I just think it’s important to have a why that’s not only yourself, but whether it be your son, your daughter, your brother, your sister, your parents, having that why and then using that as a motivation just to keep going. There’s going to be mistakes. Just keep going and just learn through actions. Just take it one step at a time. Buy that first multi-family property, buy the second one, and before you know it, you don’t know where you could end up. You could be so far. Looking back, it’s only been three years, which is crazy, but I mean, you blink and you’re there.

David:
Awesome, man. Rob, anything else you want to say?

Rob:
Oh, not after that. That was amazing. Yeah, thanks, Jake. We really appreciate your story, man.

Jake:
Appreciate you guys having me on.

David:
Thank you, Jake. And if you like this show, if this is your first time listening, if you’re getting back into this because you’ve been away for a while, welcome back. Go to YouTube and leave us a comment, tell us what you thought about the show, something you want Jake to hear or know, what you’d like us to get into. We read these comments, we love to hear what you guys think, so go there and let us know. I’m going to let you guys get out of here. This is David Greene for Rob, my personal promo code, Abasolo, signing off.

Mechanics is the branch of physics that deals with the behavior of physical bodies under the influence of forces and motion. While the principles and concepts of mechanics aren’t directly applicable to startups, they can be used metaphorically as mental models which help you think more precisely about the business world.

In this article, we will discuss three key concepts from mechanics that are useful as mental models for tech startup founders.

1. Inertia

“Every body continues in its state of rest or of uniform motion in a straight line, unless it is compelled to change that state by forces impressed upon it.” – first law of mechanics, Principia, Isaac Newton

Inertia is the tendency of an object to resist a change in its state of rest or motion. This concept is crucial for startup founders because it can help them understand why it’s difficult to change the direction of a business once it’s set in motion.

An object that is moving in a particular direction will continue to do so unless there is a significant force to change its course. The more massive the object, the greater the force needed to change its course (or speed of movement).

The same applies to businesses. The bigger the business – the more money, interests, stakeholders, habits, and intertwined structures and procedures there are in the business, the harder it is to make any changes in general. That’s why big businesses tend to be extremely inflexible.

That’s not necessarily bad especially in good times, while the business is generating value. It’s hard for a single person to mess them up. At the same time, this is deadly in volatile environments where flexibility and adaptability are crucial. In tech, especially on the cutting edge of new technologies, flexibility is crucial.

That’s why small startups have a considerable advantage when it comes to innovation. They have much less inertia, which allows them to iterate and pivot much faster and much cheaper.

2. Friction

Friction is a force that resists motion between two surfaces in contact. In mechanical systems, friction can cause wear and tear, reduce efficiency, and even cause failure. That’s why mechanical systems often have methods to reduce friction – e.g. oiling the gears.

In the startup world, friction can take many forms, including market competition, regulatory hurdles, and technical difficulties.

Understanding the sources of friction in your startup can help you find an effective lubricant. For example, if you’re facing a lot of competition in your market, you might need to focus on developing a unique value proposition or finding a niche market. If you’re struggling with regulatory compliance, you might need to invest in legal expertise or explore alternative business models, etc.

3. Resonance

Resonance is a physical concept that describes the tendency of a system to oscillate at a certain frequency when stimulated by an external force. It is a property that can be found in many different physical systems, from mechanical systems like bridges or musical instruments to electrical and electronic circuits.

The concept of resonance has been used metaphorically to describe the behavior of social systems and networks, where it refers to the phenomenon of ideas or behaviors spreading rapidly through a group of people.

For example, resonance can be useful for startup founders in the development of marketing and branding strategies. Just as a musical instrument can be designed to resonate at a certain frequency, a brand can be designed to resonate with a certain audience. By carefully crafting a brand message that speaks to the values and aspirations of their target market, founders can create a sense of resonance and connection that is critical for building a loyal customer base. This might involve developing a distinctive brand identity, crafting compelling marketing messages, or leveraging social media to create a sense of community and engagement around the brand.

Commercial real estate is facing stress from several directions. The primary stress is rising interest rates, which are putting upward pressure on cap rates (which pushes down asset values), making refinancing costs increasingly difficult and expensive to come by. But there is another risk arising, specifically to the multifamily niche of commercial real estate: oversupply. Recent data suggests that there may be a short-term glut of multifamily units hitting the market at an inopportune time. 

To fully explain this issue, let’s take a look back at construction trends for multifamily properties (defined as properties with five or more units) over the last several decades. As you can see in the graph below, after severe declines in the number of multifamily units from 2008-2014, multifamily construction and the total number of multifamily units have picked up considerably. 

Since the beginning of the pandemic, the upward trend of increased multifamily building exploded even further, and as of Q4 2022, surpassed one million units under construction for the first time (at least according to CoStar’s data).

Of course, it takes several months, if not years, to build multifamily units, even in good times. But recent years have not been easy on builders—at least in terms of delivery schedules. With supply chain issues and labor constraints, construction has taken longer. This trend is resulting in a huge glut of inventory that has yet to hit the market. Looking at the chart below, you can see CoStar’s forecast for delivered units shows 2023 being the highest on records, with 2024 coming down a bit but still high. Yes, forecasting is difficult, but forecasting construction deliveries is a bit easier than other datasets. Due to the fact that builders and developers need to get permits for construction, there is solid data about projects that are planned and in the pipeline. Personally, I take this forecast a bit more seriously than I do other forecasts. 

An increase in supply is not a problem if there is proportionate demand to “absorb” the new units—but there isn’t. Demand is falling off. 

The chart below tells a very compelling story. First, look at the blue bars. That is the same as what we looked at above—high unit deliveries over the next two years. But then look at the orange bars that show “Absorption” (a commercial real estate metric that measures demand). It’s not keeping up. 

After a banner year for demand in 2021, “net absorption” (absorption – demand) turned negative, meaning more supply is coming onto the market than there is demand. That was in 2022! In 2023, even more units are expected to come online, and as this graph shows, demand is not expected to keep pace. Of course, some builders could cancel or pause their projects, but it is an expensive proposition that builders tend to avoid if at all possible. 

What happens when supply outpaces demand? Vacancy increases, as you can see forecasted in this CoStar projection. This should be a concern to anyone in the multifamily space and to any real estate investor. An increase in supply and a commensurate increase in vacancy can decrease income and push down rental rates. The data I’m showing, and my analysis, is regarding commercial properties, but downward pressure on rents and rising vacancy in multifamily has the potential to spill into the residential market in certain areas. 

Of course, this national-level data doesn’t tell the whole story. I took a look at several individual markets to see how this is playing out on a regional level. What I found is that certain markets are at significant risk of overbuilding. I picked a sampling of five markets that I think are at high risk of rising vacancy and rent declines for multifamily: Santa Fe, New Mexico; Punta Gorda, Florida; Myrtle Beach, South Carolina; Colorado Springs, Colorado; and Austin, Texas.

These markets all have significant construction pipelines, with a high number of units scheduled to hit the market relative to current supply and relative to expected demand. 

On the other hand, many cities, which I found to be smaller cities, are still doing relatively well. 

Missoula, Montana; Athens, Georgia; Midland, Texas; Provo, Utah; and Topeka, Kansas, all have solid net absorption, and their construction pipelines are very reasonable relative to current inventory levels. To me, these cities have a much smaller risk of vacancy and rent declines. 

Every market is unique, and I am just showing a few examples of markets at risk and not at risk. But I encourage you to do some research yourself and identify how your market is doing in terms of construction. You can find lots of good data for free on the St. Louis Federal Reserve website or just by googling absorption data for your local area. 

Conclusion

Multifamily properties are seeing a supply glut hit the market at an inopportune time, where rising interest rates are already putting downward pressure on prices and cash flow pressure on operators. As such, 2023 and 2024 could shape up to be difficult years in the multifamily space for current operators. 

The important thing to note here is that the supply glut and demand shortage will likely be short-term. Long-term building and demographic trends support strong demand for multifamily rental units well into the future, which bodes well for investors. For example, a recent study shows that the U.S. needs 4.3 million more multifamily units in the coming 12 years to meet demand. Household formation is likely down right now due to short-term economic conditions. Inflation is negatively impacting renters’ spending power, and economic uncertainty is stopping young Americans from forming their own households. It’s unclear when this economic difficulty will end, but when it does, demand will likely pick back up. 

Given this, investors could have good buying opportunities in the coming months and years. With cap rates likely to rise, prices for multifamily should go down. If NOI also drops due to oversupply issues, that will push prices down even further. This could allow inventors with some dry power to get into multifamily at attractive prices, but remember—this is a risky time. Be careful not to buy just anything and to understand the market dynamics in your local area in detail.

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

PR, aka hype, is important to VC investments in order to enhance the value of the venture and to create a market for later rounds of capital, after which investment banks want to take the company public, or strategic acquirers want to buy the venture before it takes off. The hype of huge valuations at each round is duly reported in the business press to make the venture into a “unicorn” (please note that any venture can become a VC-unicorn and I have written on Forbes about the method to do it.

So, what’s wrong with this hype? It has a long tail that often has unintended consequences.

The Price Destruction in the Stock Market

Ventures that come to market with a lot of hype from the VCs, investment banks or business press often end up with high prices for the stock – prices not supported by fundamentals. This hype may be partially responsible for destroying wealth in the stock market (prices as of 11/14/22):

· Carvana has fallen from about $360 to about $8.

· Affirm has fallen from $164 to about $10.

· Redfin has fallen from $96 to about $8. And now a financial analyst tells us that the company’s model is “flawed.” If so, should a professional financial analyst have disclosed it before it fell? Or before it reached a market cap of $10 billion? Did the hype affect judgment?

The Price Destruction in the Crypto Market

Sam Bankman-Fried was funded by VCs and promoted by the press – until his Icarus-like fall from grace caused a lot of pain among many investors who were left holding the bag. But the hype was on full blast. Now gurus like Elon Musk tell us that they could see through the hype. Why didn’t they say anything earlier?

The Value Destruction in Corporate Mergers & Acquisitions

The percent of corporate acquisitions that fail is supposed to range from 70 percent – 90 percent. Some of these are likely to be corporate acquisitions of the hot ventures funded by VCs and heavily touted by the business press so that the VCs can exit at an attractive valuation. And perhaps destroy corporate value. Caveat emptor?

The Dilution and Brainwashing of Entrepreneurs Seeking Early VC

VCs earn their high returns by seeking a significant share of the ventures they finance, and then hoping for a few successes and homeruns. Given the risk they are taking, and the few potential unicorns, the dilution seems justified. But when the business press endlessly hypes the unicorns that received VC, they are playing into the hands of the VCs. The reality is that 94% of unicorn-entrepreneurs took off without VC, and 76% never got it. So early VC and the capital-intensive angel capital-venture capital model rarely succeeds. Is the constant hype from the business press influencing business schools and incubators to focus on the VC Model, that helps about 20/ 100,000 ventures after Aha, instead of focusing on the Skills-Model that can help every entrepreneur?

The Credibility Destruction in the Business Press

Many in the business press like to parrot the VC community. Here is the most egregious example, and a mea culpa, by a Fortune magazine writer about the alleged con pulled by Sam Bankman-Fried. Should Fortune magazine know better than to repeat “facts” that are handed to them and assume that a venture has high credibility because a “reputable” VC financed it? Would Elizabeth Holmes (Theranos) have gained such prominence without having to prove her technology, and with no academic credentials if it weren’t the complicity of the business press who accepted her word and the “credibility” of her investors as gospel?

MY TAKE: The fact that VCs have their own interests should come as no surprise to the business press. There are good reasons for VCs to push the hype button. VC funds have a limited life (usually 10 years), and they have to get a high annual return (usually 20%+) to compensate investors for the high risk. So, VCs need inflated exits, and they need it fast, especially to compensate for the 80% of failures in their portfolio. Hype helps.

But why does the press have to destroy its credibility to benefit the VC industry? And why do academics ape the VC model?

Fortune CryptoHow everyone fell for SBF-including me

Yahoo NewsElon Musk and Mark Cuban are letting loose on FTX’s Sam Bankman-Fried: ‘Bulls**t meter was redlining’

MORE FROM FORBESHow You Too Can Create A Billion-Dollar UnicornBy Dileep Rao
Fortune CryptoHow everyone fell for SBF-including me

Yahoo NewsElon Musk and Mark Cuban are letting loose on FTX’s Sam Bankman-Fried: ‘Bulls**t meter was redlining’

MORE FROM FORBESHow You Too Can Create A Billion-Dollar UnicornBy Dileep Rao

David:
This is the BiggerPockets Podcast show, 745.

Henry:
I love, obviously love house hacking as a strategy and oftentimes when I’m talking to investors, the main objection that I hear is, “I don’t want to share walls.” Or, “My spouse, I can’t. I’m not going to get my spouse to share walls.” Or, “I don’t want to live next door to my tenants.”
I’m living in my dream house right now because I bought a house hack for two years. Two years of uncomfortability, one year of uncomfortability could change the trajectory of your life. Do you want to be wealthy or do you want to be comfortable? And if you want to be comfortable, why are you even here?

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Podcast here today with my co-host, Rob Abasolo and Henry Washington as we break into the most important phenomenally underrated strategy you cannot afford to miss in 2023. Yes, that’s right. We are talking about house hacking.
Today, we’re going to cover what you always need to keep in mind if you’re house hacking, and how things might have changed in 2023 causing you to look at this a little bit differently. We get into affordability, risk, cash flow, why experts are doing this, why more experts should be doing this. And for those of you with capital and experience, make sure you tune in because I think everyone should be house hacking throughout the real estate investing journey. I know I do. And so do others like James Dainard, Brandon Turner, Mindy Jensen, Rob Abasolo, Henry Washington, and more.
Today’s quick tip. Don’t just house hack, adopt house hacking as a mindset. There are a lot of ways that you can find expenses in your life and you can either eliminate them or turn them into income. I was blown away the first time that I heard Amazon would do this, is they would literally look at their expense sheet and say, “What do we spend money on? Well, we’re spending a lot of money for servers to host our thing. Well, why don’t we start our own company where we have our own servers and then hey, we can rent them out to other companies that need them.” That’s a company that became AWS.
That mindset, that way of looking at expenses and asking, “How can I turn them into income?” Can change your financial situation for the future. Train yourself now to start thinking like that.
Today’s show, we’re going to get into three things, we’re going to cover in today’s show and more. Why house hacking in 2023 is one of your best options? Both the benefits and the opportunity that you may not be thinking about. How you can get started and why this is not something just for beginners? Why you shouldn’t be stopping at just one or two?
House hacking isn’t just about houses, it can unlock capital everywhere. All right, Rob, Henry, anything you guys want to say before we get into the show?

Rob:
I think this is one of those episodes that spouses are going to send to their spouse and they’re going to say, “See? See? Rob, Henry and David said to do it, we got to do it.” And I think a lot of people will kind of change their tune on their stance on this.

Henry:
I agree. I think you hit the nail on the head when you kicked us off by saying, “Underrated.” I can’t reiterate that enough how underrated of a strategy this is and people do, they stick their nose up at it either because they’re experienced and don’t think they need to do that anymore or because they don’t want to deal with some of the uncomfortability or inconveniences that come with it. But I’m telling you, stick around and hear us out. This is something we all need to continue to do.

David:
Yes, sir. And you need to understand the cost of not doing this. We are talking about hundreds and hundreds of thousands of dollars if not, millions of dollars in money that you could be making and saving in the future. And Rob tells a story about how his first deal turned into his first house hack, which turned into a million dollar empire that he’s sitting on now built at the feet of real estate.
And after your spouse does listen to this and they finally agree and the weight is lifted off your shoulders and the two of you are approaching real estate together and you’re full of gratitude, simply DM me on Instagram for my mailing address and you can send me the gift that you no doubt will want to, after they listen to this show.
All right, let’s get into it.
All right, welcome my friends, Rob and Henry to our show today. We are going to dive into probably the most oatmeal bran muffin, boring strategy in real estate yet by far my favorite strategy. I cannot stop talking about it. I’m an evangelist for this. I do long distance investing. I do BRRRR investing. I do short-term rental investing. I do multifamily. I do commercial. I do all of it and I still can’t stop preaching the gospel of house hacking. It’s just way too good.
So house hacking for those that have been living under rock and haven’t heard, is turning your house into an investment property. Basically it’s taking the place you live and using it to journey income. There is a host of benefits to using it and we are going to talk about why 2023 is your year to house hack. Rob, what’s your thoughts on this?

Rob:
I am a big fan of house hacking. I have said for many years that I attribute all of the wealth that I’ve ever built, because of house hacking, because I was able to really sacrifice the short-term comfort for long-term gain.
I shared my space with strangers, with friends. I’ve rented, I’ve Airbnb’ed tiny homes on my property, little studios. I’ve mingled with people. I’ve had awkward conversations with people, but all in all, the rent that I’ve been paid from house hacking has saved me from ever paying a mortgage and I could not be more grateful for this niche in real estate.

David:
Awesome, man. Henry, what about you?

Henry:
Man. House hacking literally changed my life. I have multiple long-term rental properties and I can tell you without a shadow of a doubt, that I am literally sitting here right now in my dream home that we bought because we were able to house hack for two years.
I can also tell you that, even if I had never bought a single other rental property for my portfolio, I still could have got into this property and lived here and afford to live here just because of the house hack I did alone, changed my life.

David:
That’s awesome, man. Now, house hacking helps you in so many ways, one of which is it covers your housing costs, why you’re trying to break into real estate investing. So few investors understand how important it’s to actually manage their own money, have a budget, track your expenses, know where your money’s going to be going. They just think, “No, no. I want to buy real estate estate so that I can spend money on whatever I want.” And it rarely ever works out like that.
When you start tracking your income, one of the first things that you’ll find is your biggest expense is housing, right? So it’s very common to get these books about saving your way to being a millionaire over 700 years of putting your money in the stock market and it’ll grow. The problem is that whole save a cup of coffee every day, don’t spend five bucks model. It’s such a small chunk of your income that if we were Methuselah and lived to be 900, that might actually work. By the time you hit four or 500 years old, you’d have a lot of money, but we die before that. There needs to be something more aggressive.
Eliminating your biggest expense, your housing allowance is a far, far sounder and wiser way to get money saved so that you can get into real estate. And the problem is when you don’t house hack, you’re giving up more than just what the property is going to be worth. You’re giving up all the future properties that you would’ve made.
See, real estate works in this exponentially progressive manner, whereas snowball forms. You get your first deal, you create equity, you pull the equity out, you buy three more. Those get even more cash flow, you save that and equities growing, you reinvest the cash flow, you reinvest the equity. Now, you went from one to three to eight and it exponentially grows.
That’s why you hear people like us that have been investing for five to 10 years that are having conversations that are, it just seems so easy to us. Well, it wasn’t when we were starting. It’s hard for every snowball to pick up steam when you first get started. When you don’t house hack, you’re giving up the future 10, 20, 30 years down the road of tens of millions of dollars that real estate will build for you.
There’s several ways that you can get involved. There’s the low down payment options. This is probably why I like it the most, it requires less money. FHA loans or you put 3.5% down if you’re having trouble coming up at the rehab and you can find a contractor that’ll work with it. There’s a 203(k) loan, which is like an extension to an FHA loan where you can borrow a 97 and a half percent of the construction cost as well.
And when you’re only putting down a small amount of money, this is why I think it’s even better than BRRRR when you can pull it off. The value of BRRRR is that you get your money back out of the deal. Well, if you only put three and a half percent into the deal, there’s nothing to get out. You don’t need to go through all the headache of finding this fixer upper property and going through a construction and hoping the appraisal comes in.
Doing all the things we do to make real estate work, it’s easy. You just buy the best house in the best area that you can afford with as much money as you can get pre-approved for and put as little down as possible and boom, you’re started with real estate investing. Anyone can do it, people can do it, families can do it.
If you want to get investing in real estate, but your spouse isn’t completely on board, you can often get them into this as opposed to, “Let’s go put 25% down on a $500,000 house. Let’s take our whole a hundred thousand dollars nest egg.” Dump it in one property and hope that it works out, versus, “Yeah, let’s just take out of that a hundred thousand dollars to buy a $500,000 property. We only need about 17 grand, 17,500.” That’s a much easier pill to swallow than the full a hundred thousand dollars.
So that’s what I think about it. Do each of you have anything you want to share on just how people should be looking at house hacking in 2023?

Rob:
Well, what I like about house hacking is that you can get very creative with it. So when you talk about what the actual definition of house hacking is, it’s renting a room or a space or a unit on your property to subsidize your mortgage. That’s ultimately what it boils down to.
And so a lot of people will say, “Well, I don’t really want to. I don’t want a stranger in my house living with me. I don’t think I can do it.” I think I’ve got some thoughts around that. I think Henry does too, but you don’t have to let people live in your house.
When I bought my house in LA, it had a 279 square foot apartment studio underneath it, and I Airbnb’ed that studio for a long time and then I rented that to a long-term tenant. I never had to see those guests or those tenants, and they subsidized 50 to 75% of my mortgage, of my $4,400 mortgage. And then I built a tiny house in my backyard, and again, that’s not connected to my home. I would see guests walking in and out of that house, but there are just so many ways you can break into it.
I talked about this on another episode where I actually rented an Airbnb, that was an Airstream in someone’s backyard that they craned back there and they were charging a hundred bucks a night and that subsidized their mortgage. So you can get super creative with it and depending on how introverted or extroverted or social you are, I think you can sort of adjust what house hacking means for you.

David:
All right. Henry, let’s move to you. What are some ways that people can get started if they want to get into house hacking?

Henry:
Yeah. Absolutely. I think the best way, what I like about what Rob said is you’re absolutely right, you can get creative. But the best way to get started is obviously you need to find a place that you’re going to want to live and house hack.
So it’s all about that property search and it’s all about, to me, it’s about getting creative because if you don’t want to live in the same direct home as somebody else, then you look for a duplex, quadplex, multifamily. If you don’t want to live in a duplex, quadplex, multifamily, you can look for properties that have mother-in-law suites or in-law quarters or some sort of other detached type of living situation.
So whatever your comfort level is, there is probably a property out there that will fit your comfort level and needs. You just have to be diligent and smart and creative about how you’re searching and what you’re searching for. So it’s about that open communication with your real estate agent who’s helping you to look, setting up the right keywords with your searches.
I was fortunate enough that my house hack was a whole separate house behind mine, so didn’t have to share the walls. And then what Rob said is also true. The true definition is just monetizing that house to subsidize your mortgage. And so people hear house hack and they go, “I don’t want to be next to my tenants.” Or, “I don’t want to share walls.” But that doesn’t have to be the case. Just like Rob said, you can also look at something like, I call them super short-term rentals.
You can look at something like a platform like Peerspace, where you just rent maybe a room that you’ve curated to look a certain way or maybe an office or some other small space, where you can rent that space by the hour to somebody who wants to come in and shoot a commercial or a video or all kinds of things. People look for curated spaces for hourly rates.
There’s even ways where you can just ranked out random space in your garage for other people to store their stuff. There’s so many ways to house hack. So being able to find a property that fits your comfort level and your needs, is huge.

Rob:
Yeah. I think there’s a website called Rooster. I don’t know if they’re still in business but, and it is basically Airbnb for storage where you say, “Hey, I got a whole garage. Come put your storage into my garage and pay me $75 a month.” Or something like that.
And I was like, “Man, they’ve really thought of everything.” You can really rent out anything in your house, and it probably makes sense. They’re going to start renting out fridge space here pretty soon, I feel.

David:
I’ve had clients that bought a house with us and they’ve rented out the pool in their backyard. People would pay 150 bucks for two hours to go swim laps or teach their kid how to swim. I’ve seen people put little mini putting greens in their backyard and people will pay to go back there and use that. They’ll rent out the RV access and someone will pay a couple hundred bucks, kind of like a mobile home park to put a trailer back there.
As we were talking, Henry, I was thinking about how there’s people that will teach, make 200 cold calls or drive around for seven hours looking at houses and mail a letter to someone with a shabby yard, but they’re not willing to look on Zillow for a property that has more bedrooms or more space in the backyard that they could use. Unfinished square footage that could be very easily converted. I think house hacking is, it’s the one of those things that’s so obvious that you just look right over it.
Now, it can’t be that easy, it has to be harder. Let me go try to find something that’s more difficult. What do you guys think about… Oh, no, first, Henry tell us about your Washington Wealthy Walls principle.

Rob:
The WWWP.

Henry:
WWWP. So we here at the WWWP, our firm believers in that wealth is not built inside of your comfort zone. No one ever builds wealth in a comfort zone. You’ve got to get at least a little uncomfortable if you want to start building wealth.
I love, obviously love house hacking as a strategy and oftentimes when I’m talking to investors, the main objection that I hear is, “I don’t want to share walls.” Or, “My spouse, I can’t. I’m not going to get my spouse to share walls.” Or, “I don’t want to live next door to my tenants.” And those things are or can be viewed as minor inconveniences.
Why are you looking into a way to build wealth? To replace your income, replace your job, get to financial freedom. These are tall tasks, life-changing tasks. And you’re concerned about sharing a wall for a short period of time? Are you kidding me? You’ve got to get a little uncomfortable. Who cares if you have to share?
I’m living in my dream house right now because I bought a house hack for two years. Two years of uncomfortability, one year of uncomfortability could change the trajectory of your life. Do you want to be wealthy or do you want to be comfortable? And if you want to be comfortable, why are you even here?

David:
That’s a great point. Rob, one of the big issues in 2023 that we’re all struggling with, is affordability. Sellers don’t want to drop their prices to the point that we think it’s a great deal as a buyer, but interest rates are so high that even as prices come down a little bit, they’re still not at a point where they’re going to cash flow really strong or sometimes at all. So there’s a bit of a stalemate. What do you think about house hacking in 2023 as a solution to this affordability standoff?

Rob:
Personally, I think that house hacking is the most important pivot that real estate investors can start to consider for 2023 because you’re right, things are really expensive, and now I do think that sellers are starting to drop prices a little bit, but even with that, the interest rates are still really high. So even if a seller drops their price $50,000, interest rates being what they are, still makes that a relatively expensive place to live, relative to what it was a year ago.
And so I think people now, are at this standpoint, that at the fork in the road, “Do I want to live in a house and sacrifice a little bit of comfort?” Or, “Do I want to keep renting?” And I think for the people in the former group who are willing to rent a room to subsidize the mortgage, it can effectively make it significantly more affordable.
Let’s say that you’re talking about a $3,000 mortgage, that a year ago might have been $2,300 with lower interest rates. Well, if you’re willing to sacrifice some of that comfort and you can get a house, that you can rent a room out for a thousand dollars, now, you effectively have subsidized it to where it is a little bit more normal to what prices were a year ago.
So I think people really have to start opening their minds to this, especially for the people that are very impatient and have been waiting a long time to get into a home and are really frustrated with the interest rates. We got to do things that make us a little uncomfortable to get ahead.
Just like Henry was saying, “Do you want to be uncomfortable? Do you want to be wealthy?” And I think most people that are in this space and that are listening to this podcast right now, I think we all have the similar mindset that we want to build wealth.

David:
Yeah. And I think there’s a huge contingency of people listening to this right now who’ve got some money saved up, who’ve been waiting for the market to crash. They want to buy real estate. They know that they don’t want to be a renter forever. They’ve already committed to that. They don’t know when. “When do I jump in?” It’s like game of Double Dutch and you’re like, “Urgh.” You’re waiting, you’re watching that rope go. You’re trying to time it, but it never quite feels like the right moment. And then oftentimes the market can take off on you before you realize what happened and you’re like, “Oh, that was my window right when I blinked.”
One thing I love about it is the hesitation that you get to buy real estate when you’re not sure what the market’s going to do is you feel like, “I got one shot.” You’re Eminem. It’s the beginning of eight mile. You’re sitting there with vomit on your sweater, you’re super nervous. You’re like, “I only get one chance to go crush this.” And that’s massive pressure.
When you’re house hacking, you take that a hundred thousand dollars, $50,000 savings, whatever it is that you’ve earned over time. And you only have to spend a small chunk of it. You are decreasing your risk and preventing yourself from spending your entire nest egg on one deal at the wrong time. Instead of spending the whole hundred grand, you’re spending 17,000 of it, which you could save back again over a period of time.
So that it’s not like it’s the end of the world if you jumped in too soon. It’s better that you actually got the property. And then when you’re extending that over the next 30 years, there was no perfect time. The perfect time was 30 years ago. When you’re looking at it in the moment, you’re really trying to get the timing right. When you’re looking at it over a longer period of time, it doesn’t matter quite as much.
And so when you’re house hacking, you’re reducing your risk of even buying in at the wrong time, because you still have a lot of capital for it to buy another one next year to buy another one next year, versus when you’re going in there trying to buy that perfect Airbnb, you got to put 25% down on the deal, then you got to dump the money into furnishing it. You can run out of cash. Rob, what say you?

Rob:
Well, let me ask you this, David. If you’re going the FHA route and you’re putting down three and a half percent, can you tell me a little bit how often can you do that? What does the FHA guideline say? Can you buy a house every year or is it every two years?

David:
You can buy a house every single year, but you can only have one FHA loan at a time.

Rob:
Okay.

David:
So you’ll get an FHA loan, you’ll put three and a half percent down. The next year you’ll just use a 5% down like a regular conventional loan, and then maybe you can refinance out of the FHA, when you have more equity and then use the FHA on a future deal. And this is so important in 2023 because we don’t know what the market’s going to do. That’s what I’m getting at. It could go down. It could go up. There is no sound advice we can tell you guys because no one knows.
We don’t know what the fed’s going to do. We don’t know what the Biden administration’s going to do. We don’t know what the next president administration’s going to do. But we know that if you don’t buy real estate at all, you never actually get out of your situation. So this to me is like the perfect medium.
You don’t want to spend all your money and hope that you bought in at the right time, but you don’t want to do nothing and just keep watching as life gets away from you. So you reduce your risk by taking on more discomfort just like Henry said. You rent out rooms to people, maybe you got to deal with some noisy walls, you learn the fundamentals of real estate, but you put as little down as possible to get as much real estate as you can.

Rob:
I mean, ultimately my personal belief for house hacking, it’s not about printing money and making gobs of cash. I just genuinely feel that house hacking is about getting out of your mortgage, because the faster you can get out of paying for your mortgage, the faster you can start saving that money and compounding it over time.
So if you’re able to get into a home, let’s say that $3,000 mortgage example I was talking about earlier, and you’re able to get two or three roommates in that home that pay your $3,000 mortgage, what have you done? You have saved yourself $36,000 a year that you would not have otherwise, and now you can use that $36,000 to invest in real estate, in some other capacity.
And we just did an episode, I don’t know if it’s aired yet, that talks about how to get into real estate for $10,000. 36,000 bucks, you can do all the things we talked about three times, three and a half times.

Henry:
I’m so glad you brought that up, Rob, because that was exactly where I was going to go next. I talk about house hacking changed my life and it did, but what really changed my life was the amount of money that I was intentional about saving because I didn’t have to spend it on the mortgage.
We actually took what we were currently paying in our mortgage before we bought that house and put that up against what we then had to pay or not have to pay by doing the house hacking. And we were intentional about continuing to make that mortgage payment we were used to making. We just made it to ourselves in a savings account, and we could watch that money grow. And as we watched that money grow, it triggered the chemicals in your brain that want to continue to see that grow, and so every time we found some extra money, we were throwing it in the savings account.
Just by doing that house hacking and seeing that money grow, it helped us to get more creative with more saving, that helped us save up the money that we could then use to invest in another property. So it’s really, yes, house hacking is a phenomenal strategy, but if you’re not intelligent or diligent about the savings that the house hacking provides, then you’re doing yourself a huge disservice.

Rob:
Yeah, it’s basically meaningless at that point, right?

David:
All right. So we’re all on board with house hacking as the best strategy that we can think of in 2023. It’s a combination of the lowest risk and the highest returns. It also sets you up to buy more real estate in the future, hopefully when the market crashes and we all want to jump in.
Now, you’ve got all this money set aside that you’ve been able to save from the examples that Henry and Rob both provided. So when it comes to getting started, Henry, what are some things that people need to know about underwriting the deal, what it looks like to get your first property? Et cetera.

Henry:
Yeah. I mean, if you’re shopping for a home, people are very familiar with shopping for the home process. It’s very similar. You’re just shopping for a home that’s going to meet your particular house hacking requirements. So you need to connect with a real estate agent, preferably one who’s either worked with investors before or understands the concepts of house hacking, so that they’re sending you deals that make sense to kind of save you the time of waiting through lots of listings that aren’t going to make sense for you or your goals.
You want to also get pre-approved for the loan product that you are going to use, to be able to buy that property. So you can know how much you are going to have to put down or how much you are able to get approved for. Now, there are some caveats to that as well, because there may be some education that you have to provide to either your agent or your lender on the process or what they’re looking for, because there are multiple loan products for this, and not every lender is familiar with the types of loan products that you can use to do this.
And so you do need to do some of your own education, but you want to make sure that you’re working with people who, if they don’t understand, are open to you educating them. I know, that you have this, you are in the mortgage industry David, what do you think about being able to connect with the proper lender to meet your house hacking needs?

David:
Well, you want a lender that has worked with people doing the similar thing before, because a normal lender can get you a loan, but now you’re sort of on the hook to figure out what pieces you might not be aware of.
So there are different down payment requirements for duplexes, triplexes and fourplexes and single-family houses. That wasn’t the case a couple years ago. If your lender isn’t aware of that or doesn’t tell you that, you’re like, “Oh, I’m pre-approved for $500,000.” And then you go find a duplex or a triplex that’s 500,000, they go, “Oh no, those you got to put 10% down or 15% down. It’s not like a single-family home.” You did all that work. Now, it’s not going to be helping you.
There’s other lenders that can propose creative solutions. So you find a property and you don’t quite have enough money to buy it and they say, “Well, if you can get a gift from a family member, you can use that for the down payment.” You might not have even known that was a possibility if your lender didn’t bring that up to you.
And then you also have the good lenders, like how we train ours. They’re going to look at your other assets and they’re like, “Well, you got an FHA loan on this property you bought seven years ago, that you’re at a 5.75 interest rate. We can refinance you out of that, get your PMI dropped off of it.” It’s called something different on an FHA loan, but it’s the same idea as PMI.
“Save you some money there. Maybe your rate goes from 5.75 to 6.25, but your payment’s actually less because you don’t have PMI. And you can pull a little bit of cash out of that property and now you can use an FHA loan on the next deal.” And you go from like, “Oh, how am I going to do this?” To, “Oh, that’s super simple and there’s other benefits.”

Rob:
Well, isn’t there an opportunity as well to use the rents from a house hack towards your DTI? I don’t know… What are the rules there? Because I know that probably you can’t use rents from a room, but if you bought a duplex, couldn’t you apply the rents that you’d get from that duplex towards your DTI?

David:
They kind of swing back and forth on if you’re allowed to do it in a multifamily property. Most of the time they don’t want you to. But what you can do is buy a house as a house hack, move into a new house next year, and now you can use the rents from the first one to help you qualify for future ones.

Rob:
Got it.

David:
So you may not be able to do it on every individual house, but when the minute you get your second one, you start to get that snowball effect we were talking about and everything gets easier for you with progressive deals.
What’s your guys’ thoughts on how they can use BiggerPockets calculators to help them figure out what their payments would be on the property in case their agents aren’t David Greene team agents that are experienced and helping run numbers for them?

Rob:
My thoughts are, they should use it. It’s a very easy calculator to comp out a deal. Put in the numbers, put in your price, put in the rent, and it’ll split out basically if it’s a good deal or not. But it’s a very intuitive tool. I think you can go over to…

David:
biggerpockets.com/calc.

Rob:
And use it for free. I think you get several uses for free before you have to make an account or something like that.

David:
That’s right.

Henry:
It’s funny because this sounds like a shameless plug, but it’s not. Before I was ever associated with BiggerPockets, I was using that calculator. I still use those calculators today. They’re there because they’re good. So just use them.

David:
They’re easy. They just tell you exactly what to do and you don’t know what to do there’s a little question mark, you’re like, “Oh, that’s what that’s asking me. Thank you.” That’s what BiggerPockets does. We make things very easy for people that want to complicate it.
The highlight that I want to that take out of this how to get started here, is the goal is not to create a lot of cash flow out of a house hack. Occasionally that happens, sometimes a pitcher leaves a fastball right over the middle of the play and you just crush it. Those deals sometimes come your way.
Generally speaking, the goal is not to get cash flow. The goal is to remove your mortgage payment. The goal is to allow you to save more money. And when you do that over several properties, the savings of your mortgage turns into cash flow when you move out of it, and you eventually live the rest of your life never making a mortgage payment again. Which is how Henry was saying he’s able to live in his dream house.
It’s just a little bit of delayed gratification, getting that snowball rolling down the hill early that becomes something big that you then can use to take on some of the big cool multifamily projects or stuff that we talk about here.
All right. I want to transition a little bit into picking the market. Henry, are there markets you’ve seen where house hacking doesn’t work or doesn’t work as well?

Henry:
Yeah. I mean obviously, the more expensive coastal markets, the New York’s and San Francisco, sometimes even the LA’s and the San Diego’s, right? Where the cost of a house is so expensive that even when you house hack, you’re not going to be able to completely offset your mortgage and you’re still going to have to cover a significant amount of that mortgage. And then you start, and then you’re moving into the realm where house hacking could get risky because not everything goes perfectly.
If you end up in a timeframe where you don’t have a tenant, that’s all on you to carry that. And if you’re buying something with a mortgage that you can’t afford to pay, unless you’re house hacking in a very expensive market, you can find yourself in a sticky situation.
And so in those very expensive markets, I think you have to be super diligent with the numbers, super and be very open with yourself about your budget and what you can afford to do in a worst case scenario. And in those situations, maybe it makes sense to look at a different strategy, but make sure that you have budgeted and done the numbers and understand exactly what you would be comfortable paying above and beyond what your share of that mortgage would be. And if it becomes unaffordable at that point, then you look at pivoting strategies.

David:
Oh, first let me ask you, Rob, what do you think? You agree?

Rob:
Yeah, mostly. I don’t know. I think you can make it work in any market. I mean, I moved to LA and I made it work there. Now, you may not be able to rent it to somebody in the long-term sense, but I bought my house in LA, 624,000, it was about four times the amount that we bought the house in Kansas City, and that was a lot.
It was actually a very scary amount. We were scared to tell anybody in our family or friends how much this house was because we just didn’t want them to judge us for buying this expensive houses. And so in my mind I was like, “Well, I had heard about Airbnb.” And that’s kind of the beginning of everything, and I was like, “Well, I think this little 279 square foot apartment, if I rented it long-term, I could make maybe 12 to 1500 bucks a month month, which isn’t bad, but if I put it onto Airbnb and list it for a hundred bucks a night, I think I can make two to $3,000 a month.” And that’s exactly what happened.
So I was able to make that property work. When I was making $3,000 a month there on my $4,400 mortgage, now my mortgage is 1400 bucks and I was able to make that work. And then I built the tiny house in the backyard and I was renting that out for at its peak, three to $4,000 a month. So I was actually making money on that property very quickly once I figured out how to make that deal work.
But I didn’t walk into that deal blind. I had done the math, I had done my comps, I had run the numbers on Airbnb and I made that work for me. And even on the flip side of that, I mean I’ve looked at, I think it’s, you find the house that you want and you figure out how to make it work, right? Because I looked at a lot of houses in LA that were under 624.
There were houses that were $500,000 that I was like, “I would never dare put my wife in this house.” And so when I mapped it out, I was like, “If I don’t house hack and I buy a house at half a million dollars, we’re going to spend so much more money than if we just spent an extra $124,000 to buy our house.” And then we house hacked the little studio apartment under it. And so we made that deal work.
So it was actually a lot more affordable to us to buy a house in LA and house hack, than it would’ve been to buy a house, otherwise, it actually would’ve been impossible otherwise.

David:
I think you guys both make super good points and it’s this, I love that I now get to be the one to sort of parse out what each of you said and simplify it after hearing your cases.
Henry’s case is right. In more expensive markets make it difficult to get your mortgage covered completely or cash flow. A hundred percent true. So if you buy a triplex in the Midwest, maybe your mortgage on that’s 1200 bucks, you rent out each side for 600, so you end up living completely for free in that case. The tenants are paying 1200 and you’re living for free. Then you move out and you’re making 1800 on the triplex, but it only costs 1200. Boom. You got some cash flow right out the gate.
But if you go into a coastal market, you’re probably not getting a hundred percent of it paid for. The other side of that coin is that the person who bought the triplex is now making, they’re saving a total of $1,800 a month because that’s what they’re getting in rents. But the person in LA who was paying 4,800 for their rent and now only has to pay a thousand dollars, is actually adding $3,400 to their wealth every single month. So you end up making more in coastal markets, but it doesn’t show up on the balance sheet of cash flow. Okay?
So each of you are right in a sense, and that’s something that people need to be aware of, when they’re deciding how to house hack in their market. If you’re in California where we are, you’re not going to get a hundred percent of your rent paid, but you’re ultimately going to make more money every month than someone in a cheaper market.
And if you’re in a cheaper market, you do have the opportunity to get a hundred percent of your rent paid or maybe even get some cash flow, but you probably need to buy more properties to make up for the fact that not as much money’s coming in per property. That’s where you’re going to need to make sure what you’re doing. It’s even more important to save your cash so you can keep buying.
They work in both. You just approach it a little bit differently. So for some context here, if Henry was able to drop his mortgage from $2,500 a month down to $500 a month from house hacking, so he’s saving two grand a month, that’s about $24,000. And you buy a house for about 500 grand and put 5% down, that’s about $25,000. That is pretty much a hundred percent return on your money.
Where else in 2023 can you get a hundred percent return on your money and get real estate, where rents are going to go up every year and have a loan that you’re paying off? We haven’t even included in that return. And beginning appreciation and know that instead of your rent going up every single year, the tenants are paying you more every year in addition to the hundred percent return. I don’t think there’s anything even close in 2023 that will give you that, that isn’t wildly risky.
Okay, we’re not talking about a crazy cannabis enterprise here. We’re just talking about boring real estate. They get you a hundred percent return and all the future upsides. So now Rob, when it comes to house hacking, there’s more than one way to do it.
People typically look right down the box and they’re like, “This is the only way to house hack.” It’s actually tons of options available, many of which fall within your specific purview.
So tell me, what are some of the ways that when someone buys a house as a primary residence in 2023, that they can take advantage of some of the other more lucrative strategies with their home that maybe they couldn’t in other circumstances?

Rob:
Yeah, man. This is where the sky’s the limit. And I’m, before we even dive into buying a house, I actually think that you can house hack without owning a property. This is a very popular model in New York specifically, where you go and you obtain the lease and you effectively find the roommates. You’re the one on the hook with the landlord, but you actually find the roommates and you basically decide what they pay you for their room and you subsidize your cost that way.
At my wife’s best friend was part of this, and she understood that where she went and basically applied for a room at this lady’s apartment, and she knew that she was paying a lot more than market rate, but it was furnished and she didn’t even have to do anything. She didn’t have to pay a deposit or anything like that, but the person who was running that lease paid $500 a month versus the other two roommates paying $1,200 a month. So that’s just a quick example of a way to supercharge house hacking.
If you really don’t even own the property, if you’re like, “Man, I don’t have the three and a half percent, I got to stay renting.” That’s a total option for you too. Another way, obviously we’re talking about the 12-month rentals, but what I wish I would’ve done when I got started, I just didn’t know about short-term rentals. And we all know that that’s my thing and I love it.
But if you’re not the kind of person that wants to commit to somebody for 12 months at a time, which is super fair because you don’t know how your tenants are going to shake out, you could rent your room on Airbnb. There is a section on Airbnb that says private home, and then there’s entire home, shared space, shared room.
You can actually rent to two people to share the room, hostile style. You can rent the room one at a time, and you can actually make a lot more money doing this than finding a long-term tenant because you can charge 50 to $125 a night for your room. And if you did that 10 times a month, like 10 days for example, that might actually pay you more than renting to a long-term tenant for 30 days at a time.
And then there’s also the fact that you can do medium-term rentals as well. With short-term rentals, you never really know what types of regulations there are. And so if there are regulations against short-term rentals, the medium-term rental bucket actually gets you out of short-term rental regulation. And when you’re renting to people 30 days at a time, you’re allowed to do that in every city because that falls under long-term rental jurisdiction. So you could rent to people on a medium-term rental basis.
And also there are a lot of cities that will allow you to rent your property on Airbnb if you live in that specific property. It might be illegal if you don’t live at that property, but if you live there, they understand that they’ll write rules in place for those types of Airbnb hosts that are legitimately trying to subsidize their mortgage.
So it isn’t just, we’re not in the age of 12-month leases anymore. I think you could do medium-term rentals. You can rent your room five days a month if you want to. You don’t even have to own the property. The sky’s the limit here. So you find a deal that you like and you make it work however you want to based on your comfort level and how much money you need to make off that property.

David:
So where else in 2023 can you find a strategy that lets you do a short-term rental in a market that won’t let you do short-term rentals? It’s Los Angeles, Southern California, my real estate team down there. This is one of the ways we’ve figured out around all the restrictions against short-term rentals because the neighbors hate it. They just, “We don’t want it.” So then the city restricts how many permits that they issue, and they put all these ridiculous restrictions in place and it makes it so hard to do. And so you just, “I guess I can’t do short-term rentals in 2023.” Not so.
You buy that property, all of a sudden a lot of those laws that affect tenants don’t apply to you. It’s an absolute awesome loophole. So one of the things that you’ll see in a city like Los Angeles is they’ll say, “If you buy a property that has tenants in it and they’re paying $400 a month instead of $2,500 a month, you can’t raise the rent. You have to honor the lease that’s in place.” And it just makes it so those properties don’t make sense.
But if you’re going to live in it, you could absolutely bump them out of one of the units. I think of it as long as it’s the biggest one and you can move into it. And then after you’ve lived in it for a while, if you choose to want to rent it out, you can do that at market rents.
A lot of the stuff that stops investors doesn’t stop homeowners, and you have to start thinking of house hacking as a homeowner strategy that works for investing, and you couldn’t get around a lot of this stuff. That’s one of the reasons that I just wanted to highlight. House hacking in 2023 has so many benefits that other strategies don’t have.
All right, Henry, once you’ve gotten the strategy down, tell me what’s next? How do you get into this snowball that we talk about? Should you just get one or two house hacks and stop, or should you keep going?

Henry:
Oh, man. My personal opinion is you should house hack every single year until your spouse or your significant other says, “I do not want to share walls or live in a duplex ever again.” Until I hear those exact words. I would just rinse and repeat and repeat because of all of the highlights we talked about leading up until this, it’s such a phenomenal way to build wealth.

Rob:
Are you there yet by the way, or are you still house hacking? What’s your current situation?

Henry:
I am not house hacking in this one, but as we are, we have looked at other homes and I literally won’t look at them unless there’s a way I can monetize part of that home, going forward.

David:
It is, once you see it, you cannot unsee it.

Henry:
Yeah. My wife knows, man.

Rob:
We’ve house hacked for so many years. I’m at that point, she’s like, “Uh-huh, we’re good.” The money is not meaningful to us anymore. She’s like, “I know you want the content and I know you want to talk about it on you… No more.” And I’m like, “Okay, that’s fine. We did it.” We earned our badge of honor. I’ve done it. I’ve got my rite of passage.

Henry:
You got your merit badge.

Rob:
Yeah. Exactly.

David:
One of the things to highlight here is that house hacking is not just a strategy, it’s a lifestyle. It’s a way of looking at the world like Henry was just saying, “I can’t not look at a property and think, how could this produce income? Because if it doesn’t produce income, I don’t want it.” We’ll find some way to make that rhyme and it’ll be a fun thing that we start saying, “This is especially important for new investors that are trying to get started, that are trying to get that momentum going with the snowball.”
We know people, I think Craig Curelop wasn’t just renting out his house, he was renting out his couch and we were teasing him like, “At one point, he is going to rent out his clothes.” People start renting out their cars on Turo, and they’re renting out the pools in the backyard. They’re renting out saunas. There’s the Peerspace movement that’s starting.
This is not going to make you a multi-millionaire, okay? We’re not saying just start renting out your goldfish for other people to play with or something like let people take your dog home for a day if they want a dog. But the point is, you can learn the fundamentals using some of these strategies and those will make you a multi-millionaire in the future.
You’re not going to stay at this level of house hacking or clothes hacking or whatever we’re talking about forever, but it can kind of get you over that initial fear of, “I don’t really know how to do this.” And then once you get comfortable with it, you stop doing it in a small scale. You start doing it at a bigger scale.
Rob, you’re a great example of how that worked out. Can you just paint us a short picture of how you went from house hacking, an ADU in your backyard to now considering rental arbitrage on a 50-unit portfolio in Pigeon Forge?

Rob:
Yeah. Yeah. Okay. So that first house that I bought was $159,000, and we sold it three years later for $215,000, after all fees and costs and everything like that, we had a $40,000 profit. We used that $40,000 to put three and a half percent down on that property in LA, and after seller credits and everything, we actually only paid $18,500. And now that property today has gotten me over $200,000 in rents. It’s worth $1.3 million.
So just from house hacking, literally half a million dollars in net worth or are a little bit over half a million dollars, in net worth from sacrificing that. I could sell that house today and have half a million dollars in my pocket, because for four years I chose to be a little uncomfortable and have a roommate and have people in my backyard and people under my house. And that’s obviously led to the $200,000 in rents that I’ve gotten from that property has obviously led to me just reinvesting that into all of my Airbnbs.
I’m at 35 doors now, like you said, I just got approached about a 52-unit rental arbitrage, master lease in Pigeon Forge, and I can do everything that I am doing today because of what house hacking did for me, and I just can’t vouch for this strategy enough because it has opened every door in my life that I’ve ever wanted open.

David:
So here’s the magic. It’s not should I house hack or long-term rental, house hack or short-term rental, house hack or BRRRR. House hack can get you in the door, and then you can use medium-term rentals, long-term rentals, short-term rentals, renting out your pool, refinancing the house later, live in flip. You can buy a fixer upper as house hack, fix it up over a couple years, sell it, not have to pay any capital gain taxes because it was your primary residence as long as you were there for two out of five years.
All the stuff you hear us talk about at BiggerPockets, almost all of it is compatible with a house hack. I’m trying to think of the right analogy. You know that website Zapier? You guys familiar with that? It basically makes any computer program talk to anything else. If you have Zapier, you can do anything else with it.
House hack becomes that, at its flexibility, it’s low risk, it’s big upside, all of this together. It just over time and time again, shows up as the best strategy possible. And going into 2023, this is the one I can confidently tell everybody, this is what you should be doing. You guys have any last words on what you want to tell the audience about why 2023 is the year that they should be house hacking?

Rob:
I don’t, no. I put it all out there. I’m very staunch supporter of house hacking.

Henry:
Lift it all.

Rob:
I think it’s pretty clear. Yeah. I’m like, “I put it all out there on the podcast.” Just do it. It really is one of those things that at the very least, it builds thick skin and it allows you to just understand some of the discipline that goes into being a real estate investor.
And even if you do it for a month, you can at least say, “I did that.” And everything else after that is, I think it makes everything a little bit easier because once you’ve kind of done a house hack, it kind of just puts you out of the comfort zone that prepares you for the rest of your real estate journey.

Henry:
Exactly, man. What a low risk way to try several of these different strategies that you’re seeing, you’re interested in. A lot of people say they want to be landlords and then they’re landlords and they may not like it. Well, this is a low risk way for you to try it. A lot of people say they want to do Airbnb and then they do Airbnb and they don’t like it. What a low risk way to try it, man.
You can kind of cut your teeth on several strategies, learn what you do, love what you like best, and you don’t have to take on a ton of risks to do it with this strategy. And by the way, you’re going to be building wealth, so do it.

David:
Thank you guys. Rob, where can people find out more about you?

Rob:
You can find me over @robuilt on YouTube and Instagram. What about you?

David:
You can find me @davidgreene24, and please do on Instagram, social media and YouTube. Henry, what about you?

Henry:
@thehenrywashington on Instagram or henrywashington.com.

David:
And if you’re hearing this message and you are intrigued, you’re like, “Oh, this is what house hacking is. I’ve heard people talk about it.” Or maybe you’ve been knocked off of your perch of the ivory tower elite thing. “I’m too good for house hacking.” And you realized, “2023 is my year. I need to actually get in and do this.”
Head over to biggerpockets.com. We are more than a podcast. We are a website, and you can simply put in the phrase, “house hack” into the forums and literally have more information than you could possibly digest if you tried on that forum. Advice people that do it, challenges they’ve run into, how they overcame them, strategies that work, how people became millionaires just from house hacking.
Plus, you can get those calculators we talked about at biggerpockets.com/calc, and you can analyze to figure out what your property would cost in case your agent is not as good as one of us and doesn’t know how to do that.
But here’s what’s important. You don’t want to let 2023 pass and look back 10 years later and say, “That was one of those open windows where I could get into the best neighborhood. I could still get an inspection contingency, I could still get an appraisal contingency. Rates were a little bit higher, but they dropped after that I could have refinanced out of my 8% loan into a 5% loan and saved even more money, and I let it pass because I was too busy waiting for NFTs to make their comeback.” Don’t be that person. Get into real estate while you can and do it smart. You will not regret it.
This is David Greene for the BiggerPockets podcast host signing out.

People want to draw parallels to the past, but the current real estate market is nothing like 2008, Cedrik Lachance, director of research at real estate analysis firm Green Street, tells CNBC.