April 2023

Do Americans really vote with their feet, leaving high-tax states in favor of low-tax states?

While most people don’t move often—and many never leave their home state—we can look at trends and patterns among those who do move across state lines.  

I’m not interested in the politics of it. I’m interested in the actual migration numbers compared to tax rates. Set aside your politics for the next five minutes, and let’s focus on the raw population numbers. 

After all, population change is the foundation of demand for real estate. By understanding where people are moving, we can understand where real estate markets will boom over the next few years. 

Measuring State Tax Burden

First and foremost, how do we compare taxes between states? 

Some states charge high income taxes but no sales taxes, and vice versa. Others go heavy on property taxes but light on sales and income taxes. 

Fortunately, WalletHub already does the heavy lifting of combining state taxes into one total state tax burden number. It includes the typical percentage of income that residents pay toward state income taxes, property taxes, and sales and excise taxes. If you’re not familiar with excise taxes, they’re additional taxes on items such as alcohol, tobacco, or gasoline.

Mapped: Tax burden by state

You can see how every state ranks on tax burden in the interactive map below:

We’re mostly interested in comparing the highest-taxed states to the lowest-taxed states, however, to see whether more residents are moving in or fleeing. Without further ado, here are the 10 highest-taxed states:

Likewise, check out the 10 lowest-taxed states: 

As an additional perk for real estate investors, two of those states—Wyoming and Delaware—top MarketWatch’s list of best states for forming an LLC.

Population Growth and Migration Patterns

It’s worth pausing for a moment to separate two concepts: population growth and interstate migration. 

While inbound or outbound migration does, of course, impact a state’s population, it’s not the only factor. One state could have a higher birth rate, or it could have more immigrants arrive from other countries. Population is easy to track through Census data, despite the delay in the government actually releasing it. 

When we talk about “migration,” we only refer to U.S. residents moving from one state to another. It’s harder to measure but potentially more relevant to whether taxes impact Americans’ decisions about where to live. 

Population changes

One look at the map and you can certainly see similarities between state taxation and population changes:

Low-tax states like Delaware, Florida, Tennessee, Wyoming, South Dakota, and New Hampshire all saw significant population gains. High-tax states like New York, New Jersey, Hawaii, Maryland, and Illinois all saw population declines. 

That said, it’s not a perfect correlation. High-tax Maine, Vermont, and Connecticut saw population growth. The state with the lowest tax burden, Alaska, saw no population change at all. 

Still, the 10 highest-taxed states saw their populations drop by an average of -0.25% over the last two years. The 10 lowest-taxed states saw their populations jump by an average of 1.83%.

Interstate migration

Where did Americans move last year?

Every year, United Van Lines releases a report answering that very question. Check out the map for where Americans moved in 2022:

The top 10 states with the most inbound migration are:

1. Vermont 
2. Oregon 
3. Rhode Island 
4. South Carolina 
5. Delaware 
6. North Carolina 
7. Washington, D.C. 
8. South Dakota 
9. New Mexico 
10. Alabama 

The 10 states with the most outbound migration are: 

1. New Jersey 
2. Illinois 
3. New York 
4. Michigan 
5. Wyoming  
6. Pennsylvania 
7. Massachusetts 
8. Nebraska 
9. Louisiana 
10. California 

The 10 states with the most inbound moves charge an average total state tax rate of 7.91% (that excludes Washington, D.C., as WalletHub provides no tax data for D.C.). The 10 states people are fleeing the fastest charge an average total tax burden of 8.76%. 

Again, there’s a link, but it’s not a perfect one. People keep moving to Vermont, despite the high taxes. And leaving Wyoming, despite the low taxes. 

That said, the data from United Van Lines is much more limited than the actual Census Bureau population data. United Van Lines says people are leaving Wyoming in droves, but the state has seen population growth nearly 33% faster than the national average over the last two years. Take the United Van Lines study with a proverbial grain of salt. 

Are Americans Leaving High-Tax States?

While I have no doubt that taxes factor into where people decide to move, it’s certainly not the only factor. Climate, amenities, job availability, cost of living, and proximity to family all play a role as well. 

In other words, don’t run out and buy up tundra in Alaska just because it charges the lowest tax burden in the U.S. 

But don’t dismiss state tax burden as a factor, either. Sure, people like the warm weather in Florida, but they also love that Florida charges no income taxes. 

The correlation between state tax rates and population change is stark. But you have to be careful about inferring causation from correlation. To prove that tax rates cause people to move, you’d need a massive survey that actually asks them. 

Impact on Real Estate Markets

The impact of taxes on population change is all well and good as an intellectual exercise, but what does this have to do with real estate?

As a real estate investor, I was curious whether state tax burden had any correlation with real estate appreciation over the last few years. The population change data suggests that it would, but there’s nothing like rolling up your sleeves and looking at the actual numbers. 

So, I compared the average three-year home price appreciation (using Zillow data) in the 10 highest-taxed states to the 10 lowest-taxed states. Sure enough, there was a difference:

Between the end of February 2020 through the end of February 2023 (the latest data available), the 10 highest-taxed states saw an average home price change of 33.59%. The 10 lowest-tax states saw an average home price jump of 40.86%. 

I’m no public policy expert and have no intention of debating tax policies or politics. Looking at this data, I believe taxes are one of many factors that Americans consider when moving. These migration and population trends impact where I invest in real estate, and while taxes don’t tell the whole story, they certainly play a role in it. 

Ignore taxes, population changes, and migration patterns at your own peril as a real estate investor.

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Jeff Taylor, founder and managing director at Digital Risk, discusses the latest U.S. inflation data and the impact of recent banking volatility on the housing sector.

Since launching on the campus of Miami University in Oxford, Ohio, Mad Rabbit has changed the game in the tattoo aftercare market. They are doing so by bringing change to an industry that is thousands of years old but one that has been largely resistant to innovation until recently. I sat down with Oliver Zak, co-founder of Mad Rabbit, to talk about their journey, community-driven product development process and unique retail strategy that allows them to take a different approach to brand building.

Dave Knox: How did you come up with the idea for Mad Rabbit

Oliver Zak: My co-founder Selom and I got started in business during our sophomore year in college. Selom introduced me to the concept of e-commerce, and we spent the next six months exploring how to build a brand online. We began with dropshipping, which taught us valuable lessons about building a brand and differentiating ourselves through customer service and ambassador programs. We couldn’t compete on product differentiation, but we learned how to succeed in other ways. After a few months, we sold that business for $7,000, which was a big win for us as college students. It showed us that we had a potential interest in pursuing this type of business further.

During our senior year, we were between jobs and looking for a new opportunity. I had a tattoo appointment, and I was frustrated with the recommendations for healing tattoos. Most of them involved petroleum jelly, which I felt was outdated and unhealthy. I asked my tattoo artist if there were any natural alternatives, and there weren’t. That’s when Selom and I decided to create our own natural tattoo care products.

We ordered ingredients from Amazon and local apothecaries and began experimenting with different formulations. Our first product was an all-natural tattoo balm made with seven natural ingredients. We used it for aftercare, and it worked well. Through marketing these products with Facebook ads, and that summer alone, we were able to generate $300,000 in sales. We later in 2021, developed a soothing gel that was more specific for tattoo healing, which continued to skyrocket the brand. This success showed us that we had found a need in the industry and that we had a viable product-market fit.

Selom and I learned a lot about building a brand through our dropshipping business. This experience helped us develop the skills we needed to create and market our own natural tattoo care products. We are proud to offer a safer, healthier alternative to traditional tattoo aftercare, and we are excited to continue growing our business.

Knox: You launched both of those businesses while students at Miami University. What advantages did this give you to connect with your target audience?

Zak: Miami is not known for being a particularly tattooed school. However, it does have a strong entrepreneurial ecosystem that supports and champions startups. Selom and I were able to leverage this ecosystem to launch our natural tattoo care products business. Our recently launched college ambassador program focuses on metropolitan areas where tattoos are more prevalent. This has helped us reach a wider audience and build our brand.

One of the resources that helped us get started was a business fraternity that we joined freshman year. This speaks to the resources available on campus for those interested in entrepreneurship. Outside of my finance degree, which helped me learn the language of business, the biggest value add for Miami while I was there was definitely the entrepreneurial community of students, faculty, and alumni from the school of business. This vibrant entrepreneurial community that helped us launch our business. We are grateful for the resources and support we received from the Farmer School and the larger community, which helped us turn our idea into a successful business.

Knox: What has been the driving force behind the success of Mad Rabbit?

Zak: I never thought I’d be the tattoo guy, but I’ve always been good at identifying areas of opportunity. I noticed that tattoos were becoming more popular, even though they’ve been around for thousands of years. In 2012, only 20% of US adults had a tattoo, but now in 2023, it’s closer to 50%. That’s a lot of growth in a short period of time. This trend isn’t just in the US, it’s global. Japan and South Korea just legalized tattooing, and self-expression is being championed through tattoos.

The tattoo industry was ripe for disruption. It’s historically been a cash-only, under-the-table business. There was never any formal training for tattoo artists, so you had to convince a shop to take you under their wing. This made it a pretty slow-to-adopt and exclusive community. Nowadays, there are tons of resources available online, and Mad Rabbit is passionate about helping aspiring artists.

Our success at Mad Rabbit came from addressing a pain point in the industry. Tattoos don’t always heal well, and a big reason for that is the recommendation of using petroleum jelly. It’s great for scrapes and cuts because it helps build up a scab, which protects against bacteria and dirt. But it’s terrible for tattoos because the ink gets stuck in the scabs, and when they fall off, your tattoo can look awful in week two. That’s frustrating when you’ve spent thousands of dollars and hours of pain on your tattoo.

We saw an opportunity to innovate and offer a better solution for tattoo aftercare. People resonated with our clean and natural tattoo care products because they worked, and they addressed a real problem. We’re proud to offer a safer, healthier alternative to traditional tattoo aftercare, and we’re excited to continue growing our business.

Knox: Why did you decide go on Shark Tank and what’s been the impact on the business since then?

Zak: I wasn’t the one who applied to Shark Tank, it was actually my partner Selom. I grew up watching the show with my family every Friday since I was 13 years old. My dad is an entrepreneur, and I always knew that I wanted to do my own thing one day. So when we got the call that Shark Tank was interested, it was like a childhood dream come true.

Being on Shark Tank gave us access to a huge audience, even if they weren’t necessarily our target customer. The people who watch the show aren’t necessarily heavily tattooed, but they might have nieces, nephews, or grandkids who are interested in tattoos. That goes a long way for gifting during the holiday season and overall brand awareness.

It was an amazing experience, and we learned a lot from the sharks. We were able to secure a deal with Mark Cuban, who has been a great partner for us, and still is. He’s been very supportive and has helped us navigate the retail landscape. We’re grateful for the opportunity that Shark Tank gave us, and we’re excited to see where Mad Rabbit goes from here.

Knox: Since launching the original healing balm, you have expanded across multiple products. What drives that product innovation strategy in deciding something’s the right product to launch under Mad Rabbit?

Zak: At Mad Rabbit, we’re proud to say that a lot of our product ideas come from our community. We’ve become an umbrella for a bunch of different subcultures who are passionate about wearing their hearts on their sleeves. We have surfers, chefs, hairstylists, tattoo artists, and more. All of these people are brought under the Mad Rabbit umbrella, and they connect on things like sharing tattoos, best tips and tricks.

Most excitingly for us, we get to leverage conversations between the brand and our consumers. Most of our products have actually come from ideation within our online communities. They’ve asked for soaps, lotions, and other products, which is really exciting because it extends beyond the aftercare period. We’re able to focus on daily care and maintenance, which is really important for long-term care of tattooed skin.

A lot of the CPG giants out there are formulating for the mass consumer, and until the number of US adults with at least one tattoo passes 51%, they don’t see it as a market worth formulating for. But we’re small and nimble, and we listen to our customers. We can ideate and innovate accordingly.

Once we have those ideas, we move on to the prototyping and product development stage. We get samples from our chemist and our manufacturer. And then one of our final checks is with Dr. Elliot Love, who is on our advisory board. He’s a tattooed dermatologist and skin cancer surgeon. He’s a strong point of authority that we’re able to leverage from a scientific ingredient perspective to put the cherry on top, if you will.

Knox: Your retail strategy is also unique in that you sell not only through direct to consumer but also places like Urban Outfitters, GNC, and tattoo shops across the country. What led you to this strategy versus chasing a mass retailer initially?

Zak: We definitely want to be wherever our customers want to buy us, including mass retailers. But our initial strategy was direct-to-consumer online only, through Shopify, Facebook, and Amazon. That’s how we reached our million customers today.

Once we gained some brand awareness, we started launching in “brand accretive” retailers, like Urban Outfitters. Many of our customers are under 35 years old living in metropolitan areas are passionate young people, which is exactly Urban Outfitters’ customer base.

We also saw an opportunity in the health and wellness industry. Health fans care about what they put in and on their bodies, and they want their tattoos to look good too. That’s why GNC saw a great opportunity for us to expand beyond supplements and into skincare.

The tattoo parlor channel is really important for us. It’s point of care, billboard space. We sell aftercare products where they’re needed and when they’re needed, and most importantly, we get the artist’s recommendation on our side. The tattoo artist is the authority on how to heal a tattoo, so winning over their recommendation is crucial.

With the tattoo industry approaching 51% of US adults having at least one tattoo, the artist is really the bread and butter for us. We also have the opportunity to sell in other fragmented retailers like surfers, skateboarders, chefs, hair stylists, and barbers. Tattoos are the common link that can sell across various channels.

Knox: With your recent Series A funding from Lucas Brand Equity, what are the plans for the business as you bring in this funding?

Zak: Part of the funds we raised are for building out our boots-on-the-ground sales team. There are about ~30,000 tattoo parlors in the US, and it’s a really important space for us to win over. We’ve always been a strictly digital brand, so building a big sales team is a new venture for us.

We’re also looking to up our content production. We’re opening a headquarters in Los Angeles this spring/summer that will serve as a content-enabled tattoo studio. Our pro team artist will be tattooing there, capturing 360 content, and providing product testimonials. We’re also giving them a space to record and grow their own personal brand, which is an exciting opportunity for us to empower them and provide mutual value.

Lastly, we’re focusing on additional product development. Most of our products today are consumer-facing, but we’re working on innovations that will give the artist a better tattoo experience. This will go a long way in winning over their recommendation for aftercare and daily maintenance.

Ashley:
This is the Real Estate Rookie Podcast, episode 277.

Tony:
You’ve learned so much on this first deal, Sarah, that I’m sure if we talk to Sarah today versus Sarah six months ago, you’re two totally different people when it comes to your knowledge of real estate investing. Even if you’re able to walk away from this deal eventually down the road at a breakeven, it’s still the multiple, the return on that is 10x, 100x because you’ve been able to learn and give yourself the tools you need to keep growing.

Sarah:
Thank you. I knew that this was just going to, hopefully it’d be just growing in equity and break even for a few years. That’s fine. It’s the digging myself into a hole right now, it’s just what’s-

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

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Today, I want to give a shout-out to someone who goes by the name of Andrew. Andrew left us a five-star review on Apple Podcasts. His review reads, “Great host, amazing company, unforgettable information, BiggerPockets is one of the most altruistic companies I know. They provide so much value free of charge, and this podcast does not disappoint. Very knowledgeable guests and amazing host. Definitely worth checking out.”
If you haven’t yet, if you’re a part of the rookie community and you have not yet left an honest rating and review in whatever platform it is you’re listening to, please take the few minutes takes to do that. The more reviews we get, the more folks we can reach, and the more folks we reach, more folks we can help. That’s what we love doing here. I feel like we’ve been getting a string of really positive reviews as of late, Ashley, and it really helps my super tiny ego, my super sensitive ego when I hear all this positive feedback.

Ashley:
Sarah is a special guest today because I did a giveaway on the pre-order that when someone pre-ordered the book Real Estate Rookie: 90 Days to Your First Investment, one person would get to come on the show with me and Tony and we’d get to interview them, but also they could ask us some questions and how we can really help them on their journey. Sarah is completely honest that she bawled her eyes out yesterday and things are not going as she expected with the rehab of the property. We kind of go through what she has accomplished. She was stuck in analysis paralysis for a couple years, finally took action, and we talk about what that action is and how she found that momentum, and now that she’s into the property, something that has come up and how she’s going to work through it and overcome it.

Tony:
There’s one part of the episode where she gets super vulnerable and really just, we go into kind of a deep conversation about the challenges that come along with being a real estate investor. I’m so appreciative that she opened up to us in that way because I think it sheds a light on the part of real estate investing that doesn’t get talked about enough, and that’s the challenges and the doubt and the fear and how do you work through that. We spend, I think, a decent part of the episode just reframing those challenges that she’s going through and positioning them in a way that actually supports Sarah and her long-term goals of building wealth through real estate.

Ashley:
When Sarah first found out that she was the winner, she won this, she declined it actually. She said, “No, I don’t. I just got my first property under contract. I haven’t really done any real estate investing yet. I don’t think this is really for me.”
And so, I had someone email her back and say, just, “You are perfect. You’re in it right now.” We love how this podcast episode came out because she is literally in the nitty-gritty right now, and somebody who maybe did this a year ago or two years ago. There’s things that they’re not going to remember, things they’re going to forget as they’re telling their story, so I think listening to how this is impacting her right now, it can motivate you and inspire you, but also it can show you what some risks are.
Take a listen to today’s episode and take it with a grain of salt is that it’s not always going to be picture perfect. There’s not always going to be this huge win at the end, or maybe there still will be for her. We just don’t know yet. That was why I thought it was so intriguing and interesting to listen to somebody who’s kind of in the trenches of it right now on their first ever deal. Sarah, thank you for purchasing the Real Estate Rookie book too.

Sarah:
Oh, you know it.

Ashley:
I appreciate it.

Sarah:
I got it. I thought it was spam that I won this. I almost deleted it.

Ashley:
Well, we’re super happy to have you here. Tell us about before even real estate as to who you are and maybe what brought you to find real estate investing.

Sarah:
I’m an interior designer in San Diego, and about five years ago I started casually looking into real estate investment just for fun, looking at places I like to visit, and learning about money management and personal finance and mindset and figuring out how I could do it. I didn’t really know, I didn’t have any tools at the time, so I just look at expanders and people who have done it before and how I can do it. Three years ago, I found you guys and just gobbled up as much information as I could. I was buying all the books and watching the podcasts and YouTube and really trying to get as much information and catch up as I could.
Couple years after that, I started realizing I got some analysis paralysis going on here trying to be perfect and get everything and have this fear of failure. It was this mindset balance that I was trying to go through a lot and I watched a couple friends buy properties, and that really motivated me and lit a fire under me to like, okay, let’s get serious. Let’s start making some offers and take some action steps. I was meeting with realtors that I met through BiggerPockets and brokers and getting my spreadsheet lined and my cash flow, figuring out what I could do and what my strategy was. If one strategy didn’t work, I’d pivot and go over to another direction and explore that for a little bit and go over here.
About a year ago, I got serious and ended up, I put one offer in and got outbid by $5,000, but that was good practice. But again, then I pivoted to a different location that had a little bit less competition and it was closer to where I live, and the market started to change and I just kept the big picture perspective and thinking, okay, maybe this is less competition for me, and even though the interest rates are higher, I can re-file later and just made it work with what I had, and then made an offer a week after it was listed and it got accepted.

Tony:
Man, congrats.

Ashley:
I want to touch on real quick, one thing that you said that was really important, and you talked about the analysis paralysis. Then you said you got to the point where it’s like, okay, I have to take action. Right after that, you said you started making the offers, and that right there is just such a huge thing where people don’t even make the offers, they never even make it to that step as to feeling comfortable to putting offers in. Why do you think that you decided to make offers? What are some of the things that made you feel comfortable and confident that you’re ready to put those offers in whether they’re accepted or not?

Sarah:
It was scary, but I had seen a lot of places that I wasn’t really sold on and this one fit and I thought it was manageable and it fit in the cash flow for living in it for a year for me, and then doing a short-term rental after, so just running the numbers constantly. It did feel like a little bit of a stretch at the time. Being in California is a bigger investment for what you get.

Tony:
Congratulations, Sarah, on just taking that action because I think so many people get stuck at that phase, so the fact that you’re able to push through that I think is super impressive. But something else you mentioned outside of the analysis paralysis was the fact that you saw other people in your network who were taking that step, and that was part of what gave you the confidence to do it yourself. I think that’s such an important thing to call out, because for a lot of our rookie listeners, they’re on this island by themselves. They’re binge-watching or binge-listening to the podcast and they’re binge-watching the YouTube channel and they’re reading all the books, but then they look to their left and they look to their right, and they’re the only person that’s doing this in their current circle.
That’s why we stress so much, Ash and I, the importance of building your network so that there are other people around you who are going through that same journey. Whether it’s the BiggerPockets forums, the Real Estate Rookie Facebook group, joining some of the BiggerPockets boot camps, or other coaching programs, whatever you can do to surround yourself with people, that gives you the confidence to say, “Well, man, if Ashley and Tony can do it, I’m just as smart as those guys are, I’m sure I can do it too.” I love hearing that.
I want to talk a little bit more about your buy box, because you talked about shifting markets. You mentioned that before we started recording, that you live in San Diego, California, which is a pretty expensive market for most folks. I guess two questions, a, why not invest in your backyard? Was it just the price point or was it something else? Then, B, how did you solidify, okay, this is the type of market that I’m looking for because the country’s a big place. How did you narrow it down in one specific city?

Sarah:
I wanted to be local, and I felt like that was more manageable for me. But at the time when I was looking around San Diego, I thought, okay, maybe I can get a duplex and BRRRR it with an FHA, but I had my parents cosign with me, so that threw a little wrench in to the buy box. Then, I was just pivoting around condos. I only had about a $500,000, that was pushing it at the time too, limit. I had to make sure that I could cover the mortgage and how I would do that. It started to feel out-priced in my backyard for me. Then, I just went out to a vacation spot an hour and a half away that I love to visit and feels good. You get out of the city, it’ll draw people out to just regroup and get grounded and escape rough reality. It’s fun.

Tony:
Are you in Julian, California? I assume that’s the closest vacation spot to San Diego. Can you just describe what Julian is for folks that aren’t familiar with SoCal?

Sarah:
Julian is I think one of the only places around SoCal that’s four seasons. Right now, we’ve been hit with a lot of snow and a lot of rain, but then we’ll have super blooms in the spring and then a pretty dry summer, kind of like the desert about 95 degrees, and then goes into a beautiful fall where all the leaves change and it’s pumpkin picking and apple picking. It’s really family-oriented. There’s hiking, there’s a dark sky network.

Tony:
Sarah, I love, and I’m kind of leading because I wanted to follow up with this is that the majority of our listeners probably have never heard of Julian, California. Even for me, I’m an hour and a half north of you, and I never really heard of Julian either until I started knowing people in San Diego. But for people that are in south of where I’m at, everyone knows Julian. The reason I’m bringing this up is that every pocket of the country, every state has its own local regional spot where it’s like, “Hey, yeah, if I want to go to the snow, this is where we go.” Or, “Hey, if I want to go to the river, this is where I go.” Or, “Hey, if I want to go to the lake, this is where… If I want to go mountain biking…”
Every state has its own little area that caters to that traveler. And so, many people ask me, Tony, how do I find the right market? How do I know where to invest? Really, I say, it doesn’t really matter. You could pick any state. You could drop a pin on any map in any of the states in the United States, and you’re going to find at least one market that makes sense. The fact that Julian works for you I think is an important thing for us to call out to the listeners.

Sarah:
I heard somebody say that they put a pin where they live and they went out about an hour and then just went around a radius and like, “What’s manageable for me, Mexico, the ocean? Okay, over here.”

Ashley:
Sarah, what’s kind of the plans with this cabin then, this property? Can you tell us a little more about it?

Sarah:
One of the selling points was it was a two plus one upstairs and a studio downstairs. Having those two incomes eventually really helped the cash flow and made the price point worth it for me, and it just evenly balanced. As soon as I move out, then I hope to get a long-term renter in there just because I’ve listened to the communities where everyone’s investing and I want to provide some kind of local housing for people as well as using part of it for a vacation spot for people and create that balance.

Tony:
You’ve got the 2-1 upstairs, a studio downstairs. You’re currently living in the property, correct? Then, the plan is to rehab or how are you-

Sarah:
Yeah, I got a rehab. It’s more than I thought. There were a couple issues. There was an active leak when I put the offer in and they were dealing with their insurance. I was under the impression that everything would get fixed as they were going through and get the insurance to clear off. Then, they whittled it down to the cause of the leak being these upstairs doors upstairs on the patio and the basement studio is below it.

Ashley:
Oh, so it was coming in through the doors like the doors weren’t sealed and then coming down as a unit.

Sarah:
Well, Whoever put these doors in, wood doors without an overhang, so the wind and the water and snow just seeped in. They give me credit to replace the doors, got the property, ordered the doors, have them ready to be installed, and there’s still a leak. There’s so much water on the mountain, it’s just soaking wet. On my first day I got the keys, I shoveled two feet of snow off that 20-foot patio with a huge heavy shovel and was just… over them. Really, it was a mountain welcoming to me.

Tony:
That’s got to be one of the best welcome to real estate investing stories that I’ve heard on this podcast in a while. Like the day that you close, you have to shovel two feet of snow. That’s awesome.

Ashley:
Especially when you live in San Diego. For me, that’s normal to go to a property to do that.

Sarah:
No, I don’t do snow, really. Last time I was in Telluride for a friend’s wedding and I fell. Anyway, so it’s a learning curve and it’s fine, but it’s just now in the discovery phase of other things that I’m starting to need to put some more focus on and pivot my budget.

Ashley:
Are you having to remodel both units?

Sarah:
I was only planning on the upstairs. That would be like, because that’s the cabin vibe, it’s got the wood ceilings and the beautiful fireplace and really cozy.

Tony:
Just really quickly, Ashley, I just want to pick your brain. Obviously, Sarah, this is your first investment. Every time we buy a property, we learn something new. For me, I feel like, and it depends on the property, but I often try and get the seller to repair depending on what our goal is, but to repair certain things. If it’s something like aesthetic demos, I know I’m going to change that stuff myself anyway, so I’m not going to ask the seller to put a new flooring or redesign the bathrooms.
But for example, we just bought a property and we had the seller replace the septic tank because we knew that the septic tank was bad and it could’ve been on us. He just would’ve given us a credit to go out there and have it done ourselves post closing or to have the seller do it. We push really hard to have the seller repair it because there is that unknown of, okay, what if it’s more than the septic? What happens after that? Ashley, I’m just curious, when you’re buying deals, how do you determine what you’re going to solve and fix versus what you want to push towards the seller?

Ashley:
All of my properties are pretty much as is. They are so bad that you can’t even pick and choose for me to say, “I want this fix.” It’s just, come on Ash, look at this property. That’s not going to do anything to improve it. I never asked for anything to be done. Maybe if I started to focus more on things that weren’t as big of rehab projects, maybe I would ask for things, but I’m putting in my offers knowing that I’m going to have to be doing a lot of work and a lot of different things. The probably one thing I would ask for though is the septic and the well to be done. I think that is a great example.
When I flipped a house in Seattle, Washington, we purchased the property with no inspection, but we did ask for a sewer scope because in Washington, or at least in Seattle, if there’s some law or regulation where if the sewer line needs to be fixed to your house, if you are the new owner taking it over, you’re not grandfathered into some kind of thing or whatever. But if you are the current owner of the property and you go and make that repair that it’s a lot cheaper because you don’t have to do something, I don’t remember exactly what the law was. That was something the person I was partnering with, they always asked if there was something wrong with that sewer line connecting to the main. They would always ask for the seller to make that repair, even if they had to add on to the purchase price to cover the cost of it because it was so much cheaper to have the current owner purchase the property or repair that thing than to have you, as a new owner, do that.

Tony:
Cool. Awesome, Sarah. Obviously, that first deal is where you’re going to learn a ton, so I’m glad that we’re getting some good learning lessons from this one. I wanted to circle back quickly to the numbers on this deal. If you wouldn’t mind just walk us through what your purchase price was, what your total cash to close, and what you’re projecting for the rehab costs.

Sarah:
It was $500,000 and I did 5% down. Here’s where I messed up on my numbers. I only allocated 1.5% for closing costs when I should have probably put 3% down. I had spoken to probably four different lenders.

Ashley:
Why was that, Sarah? Was there something else that came up in your closing costs that made it double?

Tony:
Because I’m in California too, and I usually budget about 2% for our closing costs.

Sarah:
I don’t think I knew to pay a year in advance for insurance, and then four months for property tax or whatever that was. But what was good is I got a $9,500 credit from the seller that went right into closing costs, so it made it really even. After the inspection report, which raised some eyebrows, I called in a contractor to do a walk just to see, is this thing going to fall off the hill? Is this worth it? Am I going into a money pit? He’s like, “No, but there are some fixes that you’re going to want to do, and you could probably do it for $30,000. Then, furniture would be on top of that.” That’s what I broke down and I was constantly going back to these numbers, like each part that needed to be upgraded, what that cost would be, and then it made sense, but now that I’m in it.

Ashley:
Did you have an actual inspector come or you just used the contractor? You had both the inspection report and then the contractor. I think that’s a great mix to do if you can do both of those to get two different points of view. At this time, were there things that were different that the inspector said that should be done that maybe the contractor didn’t or anything like that?

Sarah:
A lot of the leak was pointed again to these French doors on the patio. They voluntarily put in a French drain behind the house at their cost of $11,000 to keep the water going away from the house. When I got in there, water was still coming underneath the house in that location. It could be the water heater, it could just be water coming from who knows what direction. I don’t know, but it makes me wonder because they didn’t disclose any subterranean water intrusion, why did they voluntarily put in an $11,000 French drain that wasn’t really done properly? It wasn’t down as deep as it needs to go either. It’s getting one plumber in, it’s just like, “Sell it immediately,” and one guy says, “Okay, let’s figure out what we can do to just keep moving along and take it in stages,” but it’s been overwhelming.

Tony:
One question I just want to ask because you kind of glossed over this, but as a first time investor, you were able to find a contractor to come walk your property with you, which is a challenge for so many new investors is finding the right contractor-

Ashley:
Even the experienced investors get someone to come.

Tony:
It’s good to get someone to actually show up. Can you walk us through, Sarah, how you found that person and what they charged you, if anything, to do that walkthrough with you?

Sarah:
Yeah, thank you for asking because when I pivoted over to Julian, I really wanted to use a local realtor, and she has been invaluable because she’s had bread and breakfast two or three different spots since the ’90s, so she knows people, she knows all the subs, she knows the best contractors. It was her high reference of a really good local contractor. He came out, I paid him $350, and then he gave me a report of here are things to address. Then, on the side he told me the estimate of what it would probably run, which is about $30,000. I know, I come from interior design and construction, I know those numbers just get out of hand. Part of me is just kicking myself for being naive or I don’t know.

Ashley:
What would you have done differently in that situation looking back now?

Sarah:
Yesterday, I was wishing that I was having buyer’s remorse and a lot of regret, and that was in the morning when that one plumber said, “I’ve dealt with people who just throw money into this situation and spend $70,000 and it’s just like you’re chasing your own tail.” But then, I talked to three other people later that day and I ended up talking to one guy who was trying to find the positive in the situation, say, “Look, let’s handle these three things. Let’s get the flood under control and get a wall up there and start to finish up the upstairs.”

Tony:
I just want to pause on this for a second because first, Sarah, I totally appreciate the transparency and the vulnerability here on the show, because these are things that so many of us struggle with as investors is like, “Man, am I making the right decision. Am I going down the right path? Did I just royally mess up?” These are all things that we struggle with at times. Just first know that you’re not alone. Let me ask this question first. How much cash flow annually were you anticipating to make on this first deal?

Sarah:
Upstairs, it’s probably only 52 because ballpark for the upstairs was like 250 a night at 50% occupancy, usually Thursday to Monday, it’s not as much as Joshua Tree area. That was just cutting it close a little bit with the long-term renter eventually, I thought that would be something stable, but when I move out and fix the downstairs, I got to short-term rental the downstairs just to recoup some money and have some pause, just have some pause down there that I have some days to come in and fix things if something’s going on.

Tony:
Here’s the reason I ask that question, because even if you’re able to break even on this first deal, even if you’re able to break even, in my mind, it still achieves its purpose because Ashley didn’t retire off of her first deal. I didn’t retire off of my first deal. David Greene didn’t retire off of his first deal. Beardy Brandon didn’t retire off of his first deal. Rob… I haven’t met a single person that did one deal and they were just like, “I’m done. I’m riding off into the sunset.”
The purpose of the first deal is to educate yourself. The purpose of the first deal is to give you the foundation and to give you the structure, to give you the confidence so you can go out and get your second deal and then your third deal and then your fifth deal, and then your 10th deal. You’ve learned so much on this first deal, Sarah, that I’m sure if we talk to Sarah today versus Sarah six months ago, you’re two totally different people when it comes to your knowledge of real estate investing. Even if you’re able to walk away from this deal, eventually down the road at a breakeven, it’s still the multiple, the return on that is 10x, 100x because you’ve been able to learn and give yourself the tools you need to keep growing.

Sarah:
Thank you. I knew that this was just going to, hopefully it’d be just growing in equity and break even for a few years. That’s fine. It’s the digging myself into a hole right now, it’s just what’s-

Ashley:
Well, I think too, you talked to that first plumber and he was like, “Sell it, get rid of it.” But you went and you talked to other people. There are people that would’ve just given up right then and there and just like, “It’s over. I need to list it. I need to basically give it away. I’m going to lose $50,000 on it, sell it for less than what I got it for.” But instead, that same day, you talked to other people, and I think that is such a major takeaway is don’t always rely on one opinion, one person that you went and you had other plumbers come and look at it. The fact that one of them was saying, “Let’s tackle these things first. Let’s get into it and take it steps by steps,” where maybe it’s more like taking it in these little parcels, these little segments can break it down for you and build out a plan.
And just like doing a full rehab, you want to have a plan in place, where myself, and I’m sure Tony too, where we have both done rehab projects where it’s like, “Okay, let’s just get it started. Let’s wing it.” But really, the best ones go where you have that plan in place, and I think that you’ve found a contractor that knows that too, where he can help you, let’s take it step by step and try to mitigate the damage. One thing that we have done is look at an issue and to see, okay, where’s something that we can, not even stop the bleeding, but slow the bleeding, so slow down the water that’s coming in and then work on actually stopping it. Then, what’s the actual solution to solving this complete problem so that it doesn’t happen again? That may take a little bit of time, but if you can keep working on the upstairs, because there’s no water coming into the basement, is there?

Sarah:
It’s in the basement.

Ashley:
I’m sorry, the upper one?

Sarah:
No, there’s no water coming in to the upstairs. It’s only the downstairs basement and it’s either the water heater, a subterranean, or maybe a leak from the patio into the storage unit next door.

Ashley:
I think part of it too is that you can still continue to work on getting that short-term rental operational, so then you have that income coming in to kind of offset some of these rehab costs that you may need to do to get that basement unit finished.

Sarah:
Exactly, and just wait for it to dry up next month. We have a couple rains coming in again. The good thing is that I came in knowing what this problem was going to be if. I would’ve bought it in the summer when it was dry and then this came and out of the blue, I would’ve been rocked, at least it was like got thrown in the deep end right away.

Tony:
Sarah, and there’s a reason I’m asking this question, but what are your long-term goals? Are you hustling to replace your income from your interior design business as fast as possible so you can exit that? Is real estate more of a long-term play where you’re looking to supplement your retirement? Help us understand the context of why you got started.

Sarah:
I will still work. I love doing interior design, but this is definitely a retirement goal. It’s figuring out how to diversify my assets and I’m in my 40s, I’m single, and I’m looking forward to what am I going to do for some stability in 25 years and collecting a portfolio that I can eventually have as passive income would be good, and some stability for me, I’d like to have my own home, but San Diego is… During COVID, it just got out of control. Everybody moved here.

Tony:
The reason why I ask about your goals, Sarah, is because I think that helps align or frame this first deal in an even better perspective because you don’t need this deal to work out today for you to feel financially stable. I think what you need to start asking yourself is, does this deal still make sense 5 years from now or 10 years from now or 15 years from now? Just the fact that you bought in a Southern California market, that by itself, assuming history continues the same trend it’s been on, it’s going to appreciate over the next 5, 10, 15 years. Even if you just hold onto this and it’s just break even for those 10 years and it’s just paying for itself, you’ve got an asset that’s wildly appreciated over that same timeframe, now you can refinance and now you can sell it and you’ve got so many different weights to happen to that equity. There are lots of ways to frame this, Sarah, where even though it seems scary in the moment, I still do think that there’s a lot of upside for you.

Sarah:
That’s what the contractor told me because I was looking at him, I’m like, “Am I buying a money pit? Tell me straight up.” He’s like, “No, get yourself in the market. Get your foot in the door and then just deal with it as it goes.” He’s like, “Look, this house has been here, it’s lasted this long. All of us are up here on the mountain.”

Ashley:
Well, Sarah, we really appreciate your honesty and also sharing what your experience has been like. There is nothing better than hearing someone’s story as they’re going through it instead of years later where if you were telling this same scenario two, three years from now, I bet there’s a lot of that that you would just forget about. It’s like childbirth. You have that first child and you’re like, “I’m never doing it again. That was so painful. That was awful.” Then, a year later like, “Oh, the baby fever.” It’s like, “Oh, that wasn’t so bad. I’m going to do it again.”

Tony:
I can totally relate to that feeling.

Sarah:
I might get a partner next time. I’m going to get a partner next time so everyone can have some [inaudible 00:32:31].

Ashley:
Was my first deal was with a partner because I was scared something like what you’re going through would happen. The partner I chose had a really good network of people who could help us and he also had a lot of cash savings. And so, I think for me, that was my security blanket when I first started is having somebody else to go through it where it wasn’t just me that if I fell down, there was someone else to fall down with me, I guess, in a sense, and just having those two minds to figure out what’s next. What’s your plan going forward and what can we help you with on this property or the next property?

Sarah:
I think getting the management software organized so that I can just get the flow and take a little stress off of me because now I’m having to focus a little bit more on rehab and staging it. I think you talked about Guesty or Hospitable, I’m not sure which one you guys, what works the best for you.

Ashley:
Tony, you can probably answer the short-term rental one better, and then I can touch on the long-term side.

Tony:
Absolutely, Sarah. There’s a few pieces of our software stack. I think the first piece that you need is some kind of channel manager or property management software. There are several out there. We use a company called Hospitable. Another big one is called Guesty. OwnerRez is another big one. I think just kind of finding the one that you feel is most intuitive to you, they all pretty much do about the same thing. I think it’s just the interface and usability that makes the most sense for you to choose one.
The second thing you absolutely need is a dynamic pricing tool. We use PriceLabs. AirDNA is another big one as well. There’s a couple other ones out there. Wheelhouse I think is another one that folks use, but if you want to maximize your revenue, typically you don’t want to use the pricing suggestions that Airbnb and Vrbo give you because Airbnb and Vrbo want their prices to be competitive, whereas us as the host want to maximize our revenue. Those goals are kind of at odds with one another.
Then, the third thing that we use just to help reduce some of the management workload is our digital guidebook. Giving guests both have written and video instructions on how to use the property, we found tremendously reduces the amount of questions that we get from folks and it reduced the amount of time we have to manage the property. Just quickly recapping, you need property management software, you need dynamic pricing tools and you need a digital guidebook.

Sarah:
Do you have a program that you use for the guidebook or do you do Airbnb’s guidebook?

Tony:
I don’t use the Airbnb functionality because we book on both Airbnb and Vrbo. If your guidebook’s only available through Airbnb, then anyone who books through Vrbo won’t have a guidebook. We typically go with a third party platform. I’ve seen some people that just do it in Canva, they’ll create a digital version in Canva that’s really aesthetically pleasing. Then, there are companies that offer digital guidebook services. Hostfully has a digital guidebook. Breezeway has a digital guidebook. I think some of these other PMS have digital guidebooks as well, but I prefer the software version because it’s a little bit easier to update it on the fly. You don’t have to print anything out and just send it to the guests when they check in.

Ashley:
I actually just hired, because up until this fall, I only had one short-term rental and my cleaner just took care of everything for it. She did all the messaging, everything. Then, as they started to add a couple more units, I decided that I should be more like Tony and I should put some systems in place. I actually hired somebody to do the research and I basically just told them what I wanted the software to do for me and they actually put it all together for me. we use Hostfully. We do the guidebook through Hostfully, but it’s also the property management software. We use that side of it too.
Then, we use RemoteLock to set up automated key codes for everyone that integrates into the messaging that we send to everyone as to what their key code is and automatically changes it for each person. Those are really the only two that we use that I know of, at least. She might have something else in there. Tony, for the cleaner, do you use something separate for your cleaner because I think we have that where it sends them an email when a new booking is and then they can accept it or decline it. I don’t know if that’s through Hostfully or not. How we have it set up, I’m not sure.

Tony:
A lot of the channel managers have some limited functionality to manage your cleaning staff and your maintenance staff. Initially, up until about four or five months ago, we handled that all through our channel manager. More recently, we added in a second software, or not a second software, our fourth software that’s specifically focused on our cleaning and our maintenance staff, and it’s called Breezeway. Gosh, I know we have an affiliate link I’ll share with you afterwards. Oh yeah, it’s breezeway.io/robinson. I think if you use that, you get 25% off or something like that.
But Breezeway is really cool because it integrates with your PMs. All of your bookings are populated into the calendar and it forces your cleaners to go through a checklist they have to complete in order to mark a clean as done. It actually requires them to submit photos as they’re going through the property and completing all of those steps. I can see, for example, one of the things that we were getting messages on from our guests was that there were no sponges, but we know that we’ve instructed our cleaners to leave sponges, so now in our cleaning checklist, they have to take a photo of the cabinet underneath the sink open so we can see that there are trash bags, dish pods and sponges underneath the sink. There’s a lot of functionality like that where it can help hold your cleaners accountable. We use Breezeway. It’s been really great for us.

Ashley:
Then, as far as when you turn the basement one into a long-term rental, I think Rent Ready is a great one just for having that one unit or even the first 10 units. They have every aspect that you need in the software such as collecting rent online, doing your bookkeeping, they have leases that you can sign electronically on there, just it’s very basic. You can pay for add-on such as if someone has a maintenance request, you can actually sign up for their call center where you have a dedicated number that the person calls and someone on their team troubleshoots it with them or dispatches a vendor that you would like them to use for whatever the problem is. There’s also Avail, there’s apartments.com, even Zillow has started to build out some kind of rent manager system.
Then, for another piece to doing the long-term management, it’s Rent Ready, Avail, apartments.com. Trying to think. I know there’s one other big one too that’s great for just starting out, but as far as growing and scaling, then there’s AppFolio, Buildium property where these ones have a minimum fee where it doesn’t really make sense until maybe you’re at 20 to 30 units to actually implement that software and they just have more bells and whistles. But the same thing with short-term rental or long-term rental, the software has so much automation in it that it makes it very easy to actually run your units remotely, and then manage them that way.
Also, too, look at just Googling different messaging too. Instead of having to think, okay, what should my message say to the guest when they book, or what should it say to somebody the day they move into their long-term rental unit? You can easily find samples online and then just tweak and tailor it to your property specifically. Then, as you add additional units, you just copy and paste and tweak it. A lot of times, the software will have templates too, at least in the long-term rental side, and so that it will automatically pull the tenant’s name, the property address, and input that, and you can send out everything to all your different units if you need to.
For example, there’s going to be someone snowplowing the driveway on this day and you want to send it to the four units in your quadplex, it will automatically put in each person’s name, things like that and send it out. I think integrating the short-term rental and the long-term rental property management software, it takes some time to get it set up, but the automation that it can provide will really, really help you. Like you said, you need to focus on the rehab side of bit.

Sarah:
Yeah, I would need to de-stress.

Ashley:
Tony, real quick, do you want to touch on just using virtual assistants to run some of these pieces of that too?

Tony:
Honestly, I think virtual assistants are probably one of the most underutilized team building aspects for real estate investors. It doesn’t get talked about enough. Right now, we have five VAs on our team. Three that focus on operations, two that focus on pricing and our software stack. One of my biggest regrets as a real estate investor was not hiring those folks sooner for the amount of cost that you have to pay these folks in comparison to the value that they provide. It’s a really big return on investment there, and they definitely allow you to scale up your business faster with a little less headache.
If you plan to build a decently sized portfolio, if you want more than one property and you know that you want more than one property, hiring those people on that first property makes it so much easier because now, you guys are learning together, you’re able to set those strong foundations so that way, you’ve got really tight processes at one property so when you get to 5 or 10, it’s just a matter of adding more units and not necessarily trying to scale your team at the same time.

Ashley:
The great thing too is that even if you have one property, you can find virtual assistants who are working for maybe 10 different investors with only a few units, so you can easily afford them because you’re sharing the cost basically because they’re working for a ton of other people, where maybe if you found somebody local, they want a part-time job that’s at least 20 hours or something like that. I think that’s a huge advantage too. Going on Fiverr or Upwork are two great places to start to look for the virtual assistants. Well, before we wrap it up, is there anything else that we can help you with?

Sarah:
No, I’m so appreciative of you guys. I’m getting feedback, but thank you guys. I really appreciate you for having me on.

Ashley:
We are so glad that you came on, and thank you again for purchasing the Real Estate Rookie book because it led you to us.

Sarah:
Never thought that would happen.

Ashley:
It was great to meet you and for you to share your journey and where would be the best place for people to follow you and keep updated on what you have going on with your duplex?

Sarah:
Well, I don’t post a lot, but I am on Instagram, @quesarara, Q-U-E-S-A-R-A-R-A.

Ashley:
You’ll have to share your journey. Post more on it. Hey, and before we close out, do you have an idea of when you want to take your short-term rental live?

Sarah:
By the end of May. That’s heavy season.

Ashley:
That’s soon. Okay, great. Well, we wish you the best of luck and thank you so much for taking the time to chat with us. Even though you’re a rookie, you’ve provided so much value to this episode, and I think a lot of people will take away some lessons learned, but also a lot of motivation and inspiration from you. Thank you for coming on. We appreciate it. Thank you guys. I’m Ashley, @wealthfromrentals, and he’s Tony @tonyjrobinson, and we will be back with another episode. See you guys soon.

Speaker 4:
(singing)

As the days grow longer and the first hints of warmth return to the air, we know that spring is just around the corner. This delightful season bursts with the promise of renewal and growth, inspiring many of us to don our cleaning gloves and tackle the dust bunnies that have taken up residence in our homes over the winter months. But have you ever considered applying this same rejuvenating energy to your personal life? As we clear out the cobwebs from our living spaces, we can also benefit from a thorough “spring cleaning” of our thoughts, habits, and relationships.

Here are nine ways an annual spring cleaning of your personal life can lead to a more balanced, fulfilling, and downright meaningful existence.

Refresh and Renew

Spring symbolizes new beginnings and growth, making it the perfect time to clear out the clutter in our minds and make space for new experiences, ideas, and goals. It’s a great time to think about your start to the year and check in on your progress toward your goals. This annual renewal can bring a sense of excitement and anticipation for the possibilities that lie ahead.

Reduce Stress and Promote Relaxation

Reducing stress and promoting relaxation can be achieved by decluttering our surroundings, prioritizing our commitments, practicing mindfulness, and fostering healthy relationships. By clearing away physical clutter, we create an atmosphere that encourages mental clarity and peace. Streamlining our schedules helps us allocate time for leisure and prevents burnout, while mindfulness techniques, such as meditation or deep breathing, enable us to manage stress more effectively. Finally, nurturing positive relationships contributes to our emotional well-being, offering support during challenging times. These actions work together to create a harmonious and balanced life, enhancing relaxation and reducing stress.

Boost Mental Health and Well-being

Organizing and decluttering your personal life can lead to a profound sense of accomplishment and satisfaction, positively impacting your mood and self-esteem. This can, in turn, lead to improved mental health and overall well-being. In addition, by taking the time to reassess your priorities, reevaluate your relationships, and establish healthy boundaries, you create an environment that fosters mental and emotional resilience.

Enhance Productivity

Enhancing productivity is achievable through maintaining an organized and decluttered life, which allows for improved focus and efficiency. By eliminating distractions and methodically organizing our thoughts, we create an environment conducive to tackling tasks and achieving our goals more quickly. In addition, streamlining our workspaces, schedules, and mental processes leads to a clearer understanding of priorities, enabling us to allocate our time and energy more effectively. Ultimately, adopting an organized approach to our personal and professional lives empowers us to maximize our potential and accomplish more in less time.

Develop Healthier Habits

Developing healthier habits can be facilitated through spring cleaning, as it encourages a thorough reevaluation of our routines and behaviors. This introspection enables us to identify unhealthy habits that may be holding us back and offers the opportunity to replace them with more positive and productive alternatives. In addition, by consciously assessing our daily actions, we can make informed decisions about the changes we wish to implement, fostering personal growth and well-being. Spring cleaning serves as a catalyst for self-improvement, allowing us to transform our lives and cultivate habits that support our goals and aspirations.

Strengthen Relationships

Taking the time to nurture and maintain your relationships can improve your overall happiness and well-being. Spring cleaning your relationships involves evaluating their health, addressing unresolved issues, and investing time and effort in those connections that truly matter. Unfortunately, this may mean limiting time with people that aren’t healthy for you.

Encourage Self-reflection and Growth

Encouraging self-reflection and growth can be achieved through the process of spring cleaning your personal life. This opportunity for introspection allows you to delve deeper into your priorities, values, and goals, fostering a clearer understanding of your aspirations. By taking the time to reassess these aspects of your life, you can more effectively align your actions with your ambitions, paving the way for meaningful personal growth. Embracing this practice of self-examination can lead to transformative changes that enrich your life and propel you toward realizing your full potential.

Improve Physical Health

Enhancing physical health can be achieved through decluttering your living space and embracing healthier habits. A well-organized and clean environment fosters a sense of well-being, motivating you to engage in activities that support your physical health, such as exercise or adopting a more nutritious diet. In addition, by creating a space that promotes positivity and order, you set the stage for a lifestyle that supports and nurtures your physical well-being, ultimately contributing to a happier, more vibrant life.

Set and Achieve New Goals

As you reevaluate your priorities during spring cleaning, you may be inspired to set or revisit new goals. This process can provide the motivation and clarity to make meaningful progress in your personal and professional life.

So I recommend designating a “Spring Cleaning Day” for yourself in the upcoming weeks, a day devoted entirely to your personal development and self-care. This particular day allows you to deeply examine various facets of your life, such as your habits, relationships, and aspirations. By committing this time to introspection, you can better understand your current path, pinpoint areas that need improvement, and embark on purposeful changes to enhance your overall well-being. Embrace the transformative potential of your Spring Cleaning Day and unlock the benefits of a more balanced and fulfilling life.

Strong demographics have fueled the U.S. demand for housing over the last several years. As millennials, now the largest generation alive in the country, hit their peak home-buying age, demand for home purchases and rental units has surged. This demographic strength has been one of the several variables that have pushed up home prices since prior to the pre-pandemic period. 

But demographics isn’t everything when it comes to demand—economics matters too. And with persistently high inflation, and a great deal of economic uncertainty, there is the risk that demand for housing could slow in the coming years. What happens to demand over the coming years will have big implications for real estate investors. 

As such, in this article, I’m going to break down recent demand trends, provide a forecast for national demand over the coming years, and give a list of the top and bottom 10 markets for housing demand growth. 

Measuring Demand 

There are several ways to measure demand for housing. We typically look at total sales volume, mortgage purchase applications, and some conglomerate metrics like inventory and months of supply to measure the balance between supply and demand. In the rental market, we typically use a metric known as “absorption”, which measures the total number of occupied rental units in a given market. To combine these different markets into one useful metric, I like to track the total number of households and the growth rate of that number.

If you’re unfamiliar with the formal definition of a “household,” the census website states, “A household (or “ordinary household”) in the sense of the census survey describes all the persons sharing the same main residence, without these persons necessarily being blood-related.”

In other words, any housing unit occupied as a primary residence is a household. If you live with your parents, that’s a household. Live with a partner and your kids? That’s a household. If you live with one or more roommates, even though you’re not blood relatives—it’s still a household.

This definition makes sense because it helps us measure the total demand for primary residence housing units. If you add up all of the households in the U.S., that should, in theory, be equal to the total demand for primary residences in the country as well (this analysis doesn’t include demand for second homes or short-term rentals). 

Over time, the total number of households tends to grow because the population is growing. The birth rate in the U.S. has slowed considerably, but it will take decades for that to be reflected in household formation numbers. In fact, right now, we’re at a high point for household growth. 

According to the 2020 U.S. Census, the biggest age brackets in the U.S. are 25-29-year-olds, followed by 30-34-year-olds. This population distribution aligns closely with the age at which most people start their own household, which is typically when a person reaches their late 20s or early 30s. This demographic reality has driven strong demand for rental units and housing for several years. 

But as I said at the beginning of the article, population is not the only factor that impacts household formation. It is possible for household formation to slow, even with a strong demographic. And the opposite is true as well—household formation can speed up even if the population trends aren’t particularly strong. Economics plays a large factor in household formation. People won’t take the financial leap to form a household unless their financial situation supports it. And right now, as we all know, the economic picture is cloudy at best. 

For the last several years, rent growth and home price growth have made housing generally unaffordable in the U.S. The U.S. is now “rent burdened” for the first time, and housing affordability has hit multi-decade lows. All of this is happening at a time when inflation is eating into the spending power of all Americans, and there is fear of further economic pain in the future. Basically, it’s not a great time to start a household if you don’t have to, and the data supports it. 

As shown by this data from CoStar, household formation has been on a wild ride over the last few years (as has basically all housing market data). Following a brief period of negative growth during the beginning of the pandemic, housing formation rapidly recovered—leading to strong demand for houses and rental units. But the frenzy peaked in Q3 of 2022 and has come down sharply. CoStar provides a forecast (shown in orange) of where they expect household formation to be over the coming years, and it’s markedly lower than pre-pandemic. Personally, I think there is some more downside risk in the short-term than is seen in this forecast, but I think the 5-year average is probably about right, given demographic trends.

This slowdown in demand will, of course, impact real estate investors, as it will likely lead to slower appreciation and rent growth in the coming years. But, it’s important to recognize that demand is still increasing, and most experts believe we are still under-supplied for housing in the U.S., meaning demand can slow down, but the market may not reach equilibrium anytime soon because supply is low. 

The data shown above is on a national level, and as we all know, real estate is local. Using CoStar’s historical data and 5-year forecast, I found the 10 markets with the strongest forecasted demand and 10 markets with the weakest forecasted demand over the coming years. I filtered only for markets with greater than 100,000 households because a lot of the smaller markets are less recognizable (and probably less interesting to all of you reading this). 

Top 10 Markets for Forecasted Demand

Bottom 10 Markets for Forecasted Demand

These lists are not comprehensive but should give you a sense of the range of outcomes projected over the coming years. For the top markets, like Provo, Utah, and Austin, Texas, the total number of households is expected to grow by 2% per year for each of the next five years. On the side of the equation, we have Charleston, West Virginia, which is projected to decline by 1.2% per year for each of the next five years. 

Conclusion

For investors who are considering what market to invest in, I highly recommend you study the household formation patterns in your city. Population growth is a good start, but if you really want to understand what’s happening with the demand for housing, look at household formation. The Census Bureau has free data you can analyze to see historical performance, and you can Google projections for your city to help you get a sense of what might be coming in your area. 

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

They are majestic and beautiful and critical to the world economy. Coral reefs, often called the “rainforests of the sea,” support roughly 25% of all known marine species. They are vital not just to sea life, but to human life. And the planet has lost half its coral reefs since the 1950s due in large part to climate change.

The total economic value of coral reef services for the united states alone, including fisheries, tourism, and coastal resilience, is over $3.4 billion annually, according to the National Oceanic and Atmospheric Administration. That includes $1.8 billion a year in flood protection benefits from averting damage to property and economic activity. The annual value of U.S. commercial and recreational fisheries dependent on coral reefs is $200 million.

Now, an unlikely pair is teaming up not to save existing reefs but to create new more resilient reefs: Marine scientist Dr. Deborah Brosnan of the Ocean Shot Project, and John Paul DeJoria, co-founder of John Paul Mitchell hair care systems and Patron Spirits. Brosnan has been studying coral reefs for more than 25 years, with a specific focus on the Caribbean.

“Coral reefs are at risk. We have lost more than a third of coral reefs already,” Brosnan told CNBC. “And the prognosis for losing more is high. So right now today, we lose more coral reefs in a day than we can restore in a decade.”

Coral reefs are one of the most important ecosystems on the planet, according to Brosnan, who explained that while they occupy a fraction of the sea floor, they support more than half a billion people a day. A living coral reef will break 95% of a wave’s energy, which means it creates a calm lagoon and protects us from storm surge. Reefs are mitigating sea level rise.

Brosnan’s solution is not to restore damaged reefs, but rather replace them with manmade reefs designed to be far more resilient to climate change.

 “We came up with the technology to figure out the shape that a reef should be and the size that the reef should be in order to promote biodiversity and to protect the coastline,” explained Brosnan.

The reefs are made of a PH-neutral concrete — calcium carbonate, which mimics the natural makeup of reefs. It’s a dead skeleton, but then the team attaches corals grown in a nursery — 300 of them from 3 different species. Fish then move in. 

Last fall, the first project was installed off the coasts of Antigua and Barbuda. It was neither easy nor cheap, but Brosnan found a billionaire backer, DeJoria, to fund the project, which cost about $1 million.

“It’s my way of paying a little bit of rent for being here on the planet earth,” said DeJoria, who has a real estate project on Barbuda.

“I’m doing a billion-dollar project of fine beautiful homes. Incredible. It’s a big project,” he explained. “The people, they are very wealthy people, and they love the fact that everybody’s getting a good job, making good money, and that we’re bringing the reefs back.”

While DeJoria touts the jobs he’ll bring to the islands, restoring the reefs has a much wider economic impact.

“When you lose a coral reef, you lose extraordinary beauty, so when that disappears, tourism goes down because it’s not a nice place to go. Added to that the fisheries. Coral is vitally important for fisheries,” said Brosnan.

 Brosnan and DeJoria intend to build a facility on Barbuda to manufacture these reefs, which could then be installed anywhere around the world. They have two more ready to go. The technology is there, but the ability to scale it is a larger financial hurdle.

 “The question is, will the world listen?” asked Brosnan. “This is very doable. This is doable in the region, it is doable globally. What we need is the investment in the technology, the investment in the deployment, and the recognition that there is a return on that investment in terms of our own health, our own safety on the coast, and the livelihood of at least a billion people on the planet.”

Every business faces setbacks at some point. Whether it’s a campaign that didn’t perform as well as you expected or a product that experienced major delays in production, setbacks seem to be part of the everyday entrepreneurial experience. What really makes a difference is how you respond to them.

Here, 11 members of Young Entrepreneur Council share how they respond when they experience setbacks in their businesses and what steps they take to effectively reset and move forward.

1. Lean Into The Failure

We pull every team member involved into a retrospective and encourage everyone to dump every failure they can think of on a board. Once that happens, the group sheds ego and is able to learn from the failure, which is the only thing you can do once it has happened. The opportunity to learn through failure is the single most impactful driver of growth for any company. – Anthony C Johnson, Stellium.co

2. Reflect And Identify The Root Cause

When facing a setback, I prioritize taking a step back to reflect and analyze the situation. By identifying the root cause and learning from our mistakes, we turn challenges into opportunities for growth. This approach allows us to adapt and implement new strategies, ensuring continuous improvement. Embracing a resilient mindset and focusing on lessons learned fosters a strong, agile team that can navigate setbacks effectively and drive Velvet Caviar toward long-term success. In a dynamic business environment, resilience and adaptability are key to thriving amid challenges. – Michelle Aran, Velvet Caviar

3. Analyze Data And Evaluate Individuals

Take a two-pronged approach: analyzing data and evaluating individuals responsible for key performance indicators. First, collect and analyze data at every level of the organization. Identify areas costing the company significantly with little return on investment, make informed decisions about where to cut back and invest more resources in growth drivers. Second, evaluate individuals associated with underperforming metrics. Understand why this has happened and whether it’s due to a lack of training or poor performance. Address the root cause, provide necessary support or take disciplinary action as needed. This step ensures a culture of accountability, allowing the business to bounce back from setbacks and maintain a growth trajectory. – Jinny Hyojin Oh, WANDR

4. Maintain A Positive Attitude

I know that setbacks are a natural part of the entrepreneurial journey and it’s how I handle them that defines me. By staying optimistic and persistent, I can overcome any obstacle that comes my way. Maintaining a positive attitude is effective for several reasons. First, it helps me maintain a sense of resilience in the face of adversity. Rather than giving up or getting discouraged, I can stay motivated and focused on finding a solution to the problem. Second, a positive attitude is contagious. When I’m able to maintain a positive outlook, it can inspire and motivate others around me. This is especially important when working with a team, as a negative attitude can quickly spread and lead to a toxic work environment. – Sujay Pawar, CartFlows

5. Look At The Full Picture

The first thing I do when our business faces setbacks is a fast zoom-out to see the full picture and not only fix the issue, but also see the opportunity out there so we win from that situation. It’s been effective for the past 14 years. It led me to realize that any recession, attack or business problem came with something good at the end of the day. – Alexandru Stan, Tekpon

6. Check In With Your Mental State

When I experience a setback in business, I first take care of my mental state—my motivation and confidence in my abilities. It is important to stay positive and remind yourself of your bigger purpose, the impact you are trying to achieve and that this setback is simply feedback so that you can improve. It is also very helpful to reread thank-you letters from your customers or even positive Google reviews of your business to remind yourself of your past success and that your work matters. This usually cheers me up, helps me to refocus my attention on my mission and build a growth mindset. – Feruza Djamalova, Sobirovs Law Firm

7. Take A Moment To Pause

Pause and reflect! Running a business is a game of “go, go and go.” However, it is important to take a step back and reflect when setbacks happen. You can do this by going offline, asking the team to take a breather or just focusing on other things besides the setback at hand. In those moments of reflection, you begin to understand that some setbacks could be a function of your product, others might be a function of your strategy and more. Once you are in a much better headspace, you can reenergize and make the right decision with the team. – Paul-Miki Akpablie, Akos Technologies Inc.

8. Adopt A Growth Mindset

Setbacks are an inevitable part of the business journey. While it can be discouraging to encounter obstacles, I have learned that the best way to deal with setbacks is to adopt a growth mindset and approach them as learning opportunities. One thing I do when faced with a setback is to take a step back and analyze the situation objectively. I ask myself questions such as: What went wrong? What could I have done differently? What can I learn from this experience? By reflecting on these questions, I can identify the root cause of the setback and develop a plan to prevent similar issues from happening in the future. Finally, I remind myself of the big picture and focus on the long-term vision for my business. It’s important to not let setbacks derail me from my goals and to stay motivated. – Kelly Kercher, K3 Technology

9. Maintain Perspective

Acknowledging the setback and keeping it in perspective is key to moving on. It’s not productive to dwell on what went wrong. Spending time figuring out how to correct the problem and making sure it does not recur is essential. – Evan Nierman, Red Banyan

10. Take Full Responsibility

Taking full responsibility is effective because it helps me avoid blaming others or external factors for the setback. Instead, it allows me to focus on what I can do to improve the situation and move forward. I also reset my vision by revisiting my goals and objectives to move forward. This helps me stay focused on what’s important and avoid getting sidetracked by setbacks. – Renato Agrella, Acerca Consulting

11. Slow Down

Slowing down is the hardest thing for me to do. However, when you slow your roll, you are already head and shoulders above everyone else. Reacting instantly or reflexively rarely results in a good choice. Once I have slowed down, I examine the situation from every angle to determine where I could have done something differently. Where did I ignore my intuition or stray from a closely held value? Where did I presume I was the exception rather than the rule? Both of these are incredibly effective because they are things you can control. You can control how quickly or slowly you react to a situation (and often your pace will impact those around you) and you can control your accountability and what you learn from a setback. Otherwise, you’re just putting out fires. – Maren Hogan, Red Branch Media

Let’s face it, Seattle isn’t about to land itself on any hottest lists of affordable places to invest any time soon. But a lack of bargains doesn’t mean that there aren’t opportunities to be had. For those who own Seattle property or find a suitable investment in this area, homes attract high average rents and opportunities for consistent returns and appreciation. With single-family homes enjoying similar returns to the stock market without the same level of volatility, stable “Tier 1” markets like Seattle could be an attractive option for your portfolio. 

Late last year, Redfin reported that Seattle was the fastest-cooling market in the U.S. As an already expensive city to buy into, the extra heat in the market turned out to be unsustainable as interest rates and inflation began to bite on large mortgages. The good news is that more bargaining power was finally available to those that do have the capital to get into the Emerald City.

So does it make sense to try and invest in Seattle in 2023? BiggerPockets has teamed up with Belong to bring you a snapshot of the Seattle rental market. Belong is a modern alternative to property management companies that is humanizing the rental experience and making it easier for individual homeowners to manage real estate investments in popular cities like Seattle and San Francisco. 

Only you know your financial situation and what you can take on, so this report is designed to support your research with an indication of average rents and the current state of the rental market in Seattle, including:

• Are Seattle’s cooling real estate prices enough to lower the barriers to entry?
• How does the median price of homes in Seattle compare to similar Tier 1 cities?
• What kind of rental income can I expect from a property in Seattle?
• When is the best time to list a Seattle rental to achieve the highest rate?
• Will the tech downturn affect real estate in Seattle? What are the other macroeconomic factors to consider?

Are Seattle’s Cooling Real Estate Prices Enough to Lower the Barriers to Entry?

Like most Tier 1 markets, investing in Seattle can be challenging due to high entry costs, especially for those needing a mortgage. This is why the market is cooling, with debt costing twice as much as in recent years. A price reduction in a hot area should be a cause for celebration for would-be investors, but not in this instance. Even a 5% drop in prices isn’t going to make the area more affordable if you need to take out a mortgage at a 6% – 7% interest rate. 

Additionally, demand exceeds supply, making Seattle a seller’s market with low inventory. Homeowners with good fixed interest rates are unlikely to sell unless necessary.

How Do Median Prices in Seattle Compare to Other Tier 1 Cities?

According to realtor.com, the Median Listing Home Price in Seattle is $780,000, with the Median Sale Price of $750,000. Most homes are selling for close to ask, indicating a seller’s market. 

If you look at other Tier 1 west coast cities like San Francisco, the Median Listing Home Price is $1.3M, some $520k higher than Seattle. 

Although Seattle may not offer a quick profit, it’s a viable option for investors who can’t afford other Tier 1 cities. With stable renter demand and long-term growth potential, owning a home in Seattle could be profitable, but less so for short-term cash flow.

What Kind of Rental Income Can I Expect in Seattle?

The ROI and cash flow of a Seattle property depends on mortgage expenses, appreciation, and tax benefits. Despite recent fluctuations due to the pandemic, Seattle properties have generally appreciated very well over time. 

According to NeighborhoodScout, Seattle real estate has appreciated by 137% over the past 10 years, with an average annual home appreciation rate of between 5.69% and 9.02%, placing Seattle in the 10% for appreciation in the U.S. 

With interest rates still climbing at the time of publication and some areas hotter than others in terms of demand, you will need to run a new cash flow analysis on any rental property or potential purchase to get an accurate view of your ROI. Below we have compiled some averages across the Seattle metro area to get an understanding of what you might expect to see. 

Belong, who partners with owners of single-family homes, apartments, and condos, has seen average rental rates between $2,476-$3,305/month for the Seattle market over the last 12 months. 

How does this compare to other Tier 1 markets? Looking at San Francisco again, single-family homes and condos on the Belong Bay Area network rent for an average of $3,754. When you consider that the average price of a home in S.F. is around $520,000 higher than in Seattle, it highlights the favorable cap rates and potential for a strong return on investment. In the Bay Area, you would be hard-pressed to find a neighborhood with SFHs that average for less than a million dollars, whereas Seattle still has cheaper entry points around the $500k – $600k mark.  

According to Belong partner, Zumper, median rents are up 6.2% YoY in March 2023, trending up from last month. The breakdown by housing type is:

• Studio: $1,477 (+14% YoY)
• 1-Bedroom: $2,021 (+7% YoY)
• 2-Bedroom: $2,795 (+4% YoY)
• 3-Bedroom: $3,330 (+0% YoY)
• 4-Bedroom: $3,700 (+6% YoY)

According to the latest U.S. Census data for Q4 2022, rental vacancy rates in the Seattle/Tacoma/Bellevue area are sitting at 4.7%, down from 5.7% in Q1. This is consistent with neighboring cities of Portland/Vancouver/Hillsboro, with a vacancy rate of 4.8%, down from a high 6.1% in Q1. 

When is the Best Time to List a Seattle Rental?

Like most cities along the west coast, Seattle rental prices are seasonal. As the chaos of the pandemic cools off, we’re seeing a return to peaks and troughs of seasonal pricing that weren’t experienced during the up-and-up rent climbs. 

While Seattle is famous for its rain, it’s also famed for its incredible outdoor lifestyle and walkability, which sees a peak in demand across summer when there’s plenty of sunshine and blue skies. Seattle enjoys the same peak in rental pricing around August that we witness in other Tier 1 markets across California. In fact, August is the best time to attract top dollar for your property in Seattle, according to Belong data (pictured below), with the average rent peaking at $3305. Seattle is also home to many desirable school districts, so larger family rentals in these areas attract hot competition and rents in the lead-up to Semester 1 in September.  

Comparing Belong’s data to a wider data source such as Zillow (which includes multifamily and apartments in their numbers), their market trends show the same peak in Summer, with average rents peaking between $2,450-$2,461 in the August/September period.  

That’s not to say that investors renting out a Seattle home in winter will take a huge hit. Even as the average rate dips seasonally, Belong homeowners still get an average monthly rate of $2,500-$3,000 during low months like December. 

March is also a strong month for rents, and if this trend continues, rents will remain stable before peaking in August. If you plan to enter the market, you have time to prepare and benefit from higher prices in a few months. 

What are the Other Macroeconomic Factors to Consider?

Interest rates aside, what other macro factors should be considered before investing in the Seattle metro area?

The Seattle metro is:

• One of the top five cities for household income.
• A city with a low unemployment rate but is experiencing anxiety around layoffs.
• Being hit harder by inflation, with rates higher than the national average.
• Still experiencing low rates of mortgage delinquency and foreclosures.
• Investing in transportation to close gaps and improve accessibility.

Seattle is an affluent area, with residents earning a median household income of $105,391, according to the latest Census data. This ranks the city fourth among the 100 largest metro areas in the U.S.

This is largely fuelled by a lucrative job market. If you look at the Redmond area, median income jumps to $147,006—unsurprisingly, given it’s where Microsoft is headquartered. It’s hard to look at macro factors influencing the Seattle real estate market without discussing the current tech downturn. Could industry layoffs put pressure on homeowners or lead to distressed inventory on the market? 

Microsoft, Amazon, Meta, Salesforce, and Google have all made employment cuts affecting Washington-based workforces. In fact, Seattle is said to have some of the highest layoff anxiety. But while tech has driven much of Seattle’s growth in recent years, the local economy isn’t vulnerable to this industry alone. 

U.S. News recently examined the Seattle unemployment trends and found that the rate of unemployment in Seattle is lower than the national average and that the rate of foreclosures remains low. Only 1.5% of mortgages are reported to be delinquent in the metro area, and 0.1% have active foreclosure filings. 

The Economic and Revenue Forecast Council released their March 2023 results, stating that while the overall unemployment rate began to rise earlier than anticipated in 2022, employment also increased by 16,300 in November and December—3,800 more than forecasted. They also noted that consumer price inflation in the Seattle metro area continued to exceed the national average in the year ending in February 2023, adding to the cost of living pressure for residents.

For existing landlords, this high inflation, layoff anxiety, and uncertainty in the market may cause workers in the industry to postpone trying to buy a home and rent for longer. Seattle is already home to more renters than owner-occupiers, sitting at 55% renter-occupied in the last Census. For those looking for an in, these layoffs haven’t yet created a flood of distressed housing stock on the market. That may change if economic conditions worsen, but it’s worth noting that the tech industry typically employs skilled workers and gives generous exit packages, which softens the blow to the local economy. 

Another notable factor is transportation. The SoundTransit system expansion will see improved accessibility across Seattle, impacting the value of local real estate as it becomes easier for people to get into the city. Investing in real estate in these areas (such as Lynnwood, Shoreline, Everett, and Marysville, for example) before the transit system is completed could provide a lower entry point with an opportunity for higher rent and home appreciation over time as access to amenities improves. ??

How Real Estate Investors Can Keep a Pulse on the Seattle Rental Market

Whether you’re new to the real estate investing game, dealing with a problematic property management company, or burnt out on self-managing your rental home, BiggerPockets, and Belong can help. 

From ebooks to podcasts, BiggerPockets offers educational resources for every level of real estate investment experience and strategy. When it comes to managing your home, Belong is not a property management company but a residential network offering industry-leading services to both homeowners and their residents. 

From not charging hidden fees for the essentials to industry-first fintech solutions to manage your cash flow more effectively, to guaranteeing rent, Belong will partner with you to make owning a rental property worth it. And you’ll never need to lift a finger. Learn more and find out if your home is eligible (even if you’re mid-lease!) here!

This article is presented by Belong

Own a rental property? Say goodbye to property management and hello to Belong. Belong brings end-to-end home management services to your fingertips. 

Enjoy guaranteed rental payments, vetted residents who love your home the way you do, 24/7 support for you and your residents, innovative cash flow solutions, an industry-leading mobile app, and maximized rental value. 

With Belong, you can create long-term wealth while earning passive income.

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