February 2024

Pittsburgh-based investor and house flipper John Walker of Turnkey Investment Properties and his business partner, Jim Auten, usually have around 10 flips on the go at any time. When rates were low, and business was booming, that number doubled. However, high rates and low inventory have seen many of their fellow flippers exit the market. 

“It’s a case of the last man standing right now,” Walker says.

According to recent Bank of America research, it’s a scenario played out across the country, with sellers staying put for fear of sacrificing a low mortgage interest rate. About 80% of outstanding U.S. mortgages are at interest rates below 5%.

“It’s a needle-in-a-haystack scenario, with the margins thinner than ever,” says Walker. “You’re buying high and attempting to push the comps as far as they will go to eke out a profit. The good news is that generally, if you do a good flip, you’ll find a buyer because there’s so little on the market. Still, you have to be meticulous on the buy and construction sides to make a profit.”

North New Jersey-based flipper Shaheer Williams of Urban Luxury Development is a 30-year real estate veteran. He routinely has several flips going on. And he says the market is currently tighter than he has ever known.

“Right now, my advantage over many newer flippers is my reputation,” says Williams. “The other metrics, such as construction costs and the buy price, don’t allow much room for negotiation, so I’m getting deals because of my track record and personal network.”

Looking to flip houses but concerned about risk? Here are some tips from Walker and Williams for minimizing risk and keeping deals flowing in a tight real estate market.

1. Use Private Money With a Deed-In-Lieu of Foreclosure

Building a long-term relationship with private lenders who get paid once the deal closes rather than demanding monthly payments takes away the stress of coming out of pocket in the midst of a flip. Using a deed-in-lieu of foreclosure—which guarantees the property reverts to the lender should the deal fail to close—in the lending agreement also puts the investor’s mind at ease while ensuring that none of the flipper’s personal money is tied up in the project. 

Says Walker: “We don’t mind paying 10% to 12% for private money, knowing there are no headaches or additional hurdles to jump. We are 100% funded for the purchase and rehab. We always deliver, even if we have to take a hit on our profit, which happened when rates went up.”

2. Always Close

“Realtors know I will always close, which is why they bring me their deals first,” says Williams. “In this business, your reputation counts for everything. You make your money on the buy side, so when a good deal comes along, a Realtor needs to know there won’t be any hiccups and their buyer will deliver.”

3. Fine-Tune Renovations to Save Money

Flippers should go through every inch of a home looking for ways to save money. Here are a few tried-and-tested tips to minimize the expenses of your renovation:

• Save and refinish existing hardwood floors, or use vinyl plank flooring instead of new hardwood planks.
• Repair rather than replace older windows.
• Reglaze tubs and shower surrounds.
• Refinish kitchen cabinets with paint and new hardware.
• Convert attics and basements to add extra livable square footage. A chic, partially finished basement resembling a trendy coffee shop adds a wow factor and costs a fraction of a fully finished subterranean man cave. Rafters in flat black, exposed industrial can lights and conduit, painted brick walls, and floors covered with a commercial-grade rug photograph well and are a hit with buyers.
• Use gravel instead of asphalt or concrete on the home’s exterior, or repair rather than replace concrete.
• Get your real estate license to access new deals and save on commissions.

4. Reliable Contractors Are Key

Most flippers agree that good contractors are worth their weight in gold-plated fixtures. The cheapest contractor is not always the best if it means they will drag out a project. A fast flip saves money, as it gets a property listed quickly, eliminating holding costs.

“Broke contractors always charge less to get a job,” says Walker.

“Don’t be fooled by their sticker price.” Williams concurs. “I used to manage my own crews to save money, but it was a constant headache and cost me valuable time in the long run when I could have been finding other deals. Now I use a few reliable GCs I know will complete the job on time.”

5. Renovate Based on ARV

Extra bedrooms add value, but pricey chandeliers don’t. Similarly, a high-end luxury appliance isn’t going to move the needle on your ARV. Choose appliances and fixtures that match your sales price. Sometimes an antique or vintage store can unearth low-priced treasures that pop in the right setting.

6. Virtually Stage

Moving furniture in and out of a house leaves scuff marks, and staging can be expensive, especially when a home sits on the market for a while. Virtually staging a home costs a fraction of the price, especially when using overseas stagers on freelance sites such as Fiverr.

7. Stay on Top of Design Trends, and Keep Your Buyer in Mind

No one wants a home that looks dated. Equally, a home resembling a futuristic nightclub might limit your buyer pool. Always renovate with your target buyer in mind. Understanding the demographics of your neighborhood and the people attracted to your home’s price point is critical to achieving a quick sale.

8. Interest Rates Should Determine Your Renovation Budget and Sales Price

Higher interest rates have thrown a spanner into the works of homebuying affordability. Coupled with higher home prices and wages that have failed to keep up, potential buyers are getting squeezed out of the market. 

In June 2023, the cost of a typical home reached a record of $410,200, up more than 14% on the previous year, according to the National Association of Realtors, marking an increase of over 40% from October 2019, before the pandemic. However, that number dropped to $387,600 in November.

Even with projected interest rate cuts in 2024, increases in construction costs mean that if you want to snag a buyer for your flip, you will have to scale back your finishes and buy less expensive homes than when rates were lower.

9. Future-Proof Your Home

Ensuring your home is equipped for the future is relatively cheap but will give you an advantage over other homes on the market, allowing you to push the sales price. 

Future-proofing add-ons include:

• Provide an all-electric home with smart energy-efficient appliances and extras like Nest thermostats and remotely operated camera doorbells.
• Provide Level 2 EV charger-compliant wiring.
• Conserve water with low-flow fixtures, appliances, and greywater systems.

Final Thoughts

Low inventory means that house flipping is still viable, but meticulous attention to detail is needed in every aspect of the process. Buying right in the first place is more important than ever. 

Often, this means getting back to old-school granular techniques like driving for dollars, knocking on doors, and local networking because personal interaction is liable to carry more weight with a seller than AI-generated content on a mass-mailing campaign. Online marketplaces (Facebook and Craigslist), social media, and property auctions are also still proving effective.

During renovation, itemize every proposed upgrade. Investigate ways to save costs. 

Finally, all-cash buyers jump to the front of the line when selling. Consider negotiating a discount to minimize your holding costs to ensure a fast sale.

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Torsten Slok, Apollo Global Management chief economist, joins ‘Closing Bell Overtime’ to talk falling housing starts, the Federal Reserve and the state of inflation.

Dave:
Hey everyone. Welcome to the BiggerPockets Real Estate Show and this episode of Bigger News. I’m going to be your host today, Dave Meyer. And today we’re going to be talking to Natalie Ambrosio Preudhomme, who is a commercial real estate expert at Moody’s Analytics and she’s an Associate Director of Research there and she focuses specifically on climate. And we wanted to bring on Natalie today to this show because climate has been impacting real estate investors forever, but particularly over the last couple of years. I don’t know if you all have heard, but I’ve been talking to friends in California and in Florida and insurance costs are going through the roof. Some insurance companies are just leaving those states altogether. I’ve personally been dealing with this a lot in Colorado where there are wildfires. It’s been really difficult to even get insurance. So we’re going to bring on Natalie today to share some data and information with us all that can help you make more informed decisions as an investor.
And I mentioned earlier that Natalie is an expert in commercial real estate, and I think that’s important to note because this type of data about which places might see floods or which places are going to see insurance premiums increase the most are things that the big institutional investors like BlackRock and some big commercial REITs, they’re all looking at this data. And so I think for us as smaller, I’m just generalizing, most of the people listen to this show are residential investors. And I think the people who listen to the show, no matter how big or small you are as an investor, you should be looking at this data to help you make decisions. One about the cost benefit analysis of any risk mitigation strategies you might want to implement. Or two, help you decide where you want to be investing. So with that said, let’s bring on Natalie Ambrosio Preudhomme from Moody’s Analytics. Natalie, welcome to the show. Thanks for being here.

Natalie:
Thanks so much for having me.

Dave:
Could you start by telling us a little bit about what you do at Moody’s Analytics?

Natalie:
So I’m on our economics and thought leadership team within our commercial real estate part of the business. And so I focus specifically on climate change. And so I do research and market outreach, really connecting the dots on climate risk and traditional commercial real estate metrics that our institutional investors and lenders care about.

Dave:
And why do commercial real estate investors care about climate and climate risk?

Natalie:
So there’s a lot of ways this is really starting to unfold that I can dive into, but at the foundation, there’s both physical climate risks and transition risks, which are both starting to have financial implications. And so just really quickly, I’ll define both of those and then we can dive in. But physical risks are things like acute, severe weather events like wildfires, floods, individual heat waves. And then there’s also chronic stresses that are unfolding over a longer timeframe such as sea level rise or water stress and drought. So those are our physical climate risks that are threatening real estate assets. And then this transition risks, this is the bucket of risks that we face from the transition to a low carbon economy. And so this can take a few different shapes. It includes regulations around emissions reductions as well as shifting technology and then also shifting consumer preferences and demands.

Dave:
Okay. Great. So that’s really helpful in understanding those two different things that you study. And are you saying that both these physical and transitionary risks have financial implications for commercial real estate investors?

Natalie:
Yes, exactly. And so there’s different ways that this is made manifest, but starting on the physical risk side, there’s the obvious impacts of if an asset itself is hit by a flood or a wildfire, then there’s of course lost revenue during the business disruption. There’s increasing operating costs due to the repair and maintenance and all of that. And then there’s also some less obvious rippling indirect impacts. So even if the asset itself isn’t hit, but there’s a hurricane or storm in the region, so transit infrastructure is down or flooded, employees can’t get to work or supply chains are disrupted. And there’s instances of this happening where a manufacturing facility itself wasn’t damaged, but the employees couldn’t get to work after a storm. So it had halt its operations for a couple of days, which of course leads to disrupted revenue. And so that’s a few of the ways that physical risks affect real estate.
There’s also these broader ways such as through increasing insurance costs, which really has broader implications at a market level as well as for asset value. And then just briefly on the transition risk side, we are seeing a rolling out of what’s called Building Performance Standards. They take different shapes, but they’re typically at the city or state level and they put restrictions on the amount of emissions from a building or the energy use of buildings. And there’s fines associated with going over those emissions. And so, again, this is changing the calculus where it’s no longer, “Yeah, it’d maybe be nice to have a green building.” But now it’s like, “Oh, we’re going to get fined if we have emissions over a certain level.” So this is really a financial conversation.

Dave:
I think there’s a lot to unpack here. But before we jump into it, I just want to ask who is looking at this data currently? Because we’re talking about commercial real estate and that’s your specialty, but are the lessons and insights that you uncover in your work also applicable to residential investors and some of the smaller types of investors that make up most of our audience?

Natalie:
Yeah, absolutely. And I think some of the examples we’ll discuss today, it’s pretty easy to see that they are widespread across a physical asset real estate. And I’ve in the past done research on the climate impacts across different asset classes. So all that to say that yes, if anyone is invested in a physical asset on the ground somewhere, then that’s at risk from a lot of these things we’re talking about.

Dave:
Okay, great. So I just want everyone listening to know that even though some of the examples we might talk about are about commercial real estate and perhaps larger assets, that a lot of what we’re talking about may be applicable to even smaller assets or the things that you invest in. Now, let’s talk a little bit about the physical risk. As a real estate investor, there’s always physical risk, so there’s always been risk of fire, of flooding. Can you tell us what has changed recently and the scale of that change?

Natalie:
Yeah. So there’s a few different things to unpack here. I’ll put a pin in insurance because that’s a huge thing to unpack. But taking a step back, like you said, there’s always been, for millennium people have thought about floods happening next to rivers and we’ve always been developing with this in mind. The huge shift in our mindset now is that it’s really evident that the past is no longer an accurate representation of what the future is going to hold. So it’s no longer a reliable indicator to say, “Well, this asset flooded once in the last 100 years, so we should be pretty safe with that in mind going forward.” The increase in global atmospheric temperatures is having a rippling effect there on local conditions and it’s doing that in a way that is really changing the frequency and severity of these events like storms and floods and extreme temperature events.

Dave:
And is that happening universally across the country or is it located more in certain areas?

Natalie:
It is a global phenomenon, this climate change trend, however, the way that it impacts conditions varies locally. And so we do work at Moody’s, we at Moody’s acquired RMS, the catastrophe modeling firm and some other climate risk providers. And so we really leverage an array of data sets including a global climate models and more local hydrological models and things like that that really try to help wrap our heads around and communicate to the market around what the changing conditions are like at a very specific location.

Dave:
And so certain areas may have a major increase in risk and others may be less so, correct?

Natalie:
I always get the question, “Okay, you study this, where should I move?” And I typically say that yes, there are some regions that tend to be less exposed, at least to the hazards that we have a visceral reaction to like hurricanes or wildfires. There are areas, so the Upper Midwest or the Pacific Northwest. There’s some wildfires in the Pacific Northwest, but those areas tend to be less exposed to these visceral hazards. However, my first answer is usually, it’s more about picking your climate hazard because it would be very hard to find a place that’s not exposed to any of these changing conditions. So yeah, you might be trading more intense precipitation for wildfires or things like that. So it’s really a matter of choosing which one you want to prepare to deal with and build resilience to, if that makes sense.

Dave:
It does. So would it be fair to say as an investor, your approach should be just to try and understand the risks as best as possible because then you can mitigate them?

Natalie:
Exactly. Yeah. The first step is really thinking about forward-looking, leveraging forward-looking data that shows you how your assets are going to be exposed to these changing conditions. And then exactly figuring out what to do about that risk.

Dave:
So now that we understand why this climate data matters for investors, we’re going to get into first and foremost, how you can access this information and boil it down to numbers that apply to your real estate decisions. We’ll also talk about some of Natalie’s guidance on how to navigate the increasingly complicated insurance landscape. And we’ll talk about what smart investors can do to stay resilient after the break.
Welcome back everyone. I’m here with Natalie Ambrosio Preudhomme, an Associate Director of Research at Moody’s Analytics. And right now she’s walking us through her latest research on climate and how it impacts investing decisions. So how could a small or medium-sized real estate investor start to understand some of this data and how it might impact their portfolio?

Natalie:
We have tools and there’s other tools out there where, and just using ours as an example, you can put in an address or upload a portfolio of dozens or thousands of addresses and receive back information on that exposure. And there’s two components to that in our data. There’s the exposure layer which shows you based on its location and the broader area, how an asset is exposed to these changing conditions we’ve been talking about. And then there’s an impact layer which shows the estimated average annual damage that that asset will face from a specific hazard.
So yeah, they can leverage tools and really wrap their head around, okay, what is my asset exposed to? And then also what is the financial implication of that? And really having that dollar estimate can then inform very strategic decisions on the investing in resilience or asset level risk mitigation. Because one can look at how much the risk mitigation costs and think about the estimated average annual damage and multiply that out over either the hold period of the asset or the life expectancy of whatever risk mitigation you’re talking about and do some calculations to figure out the best steps.

Dave:
Wow, very cool. So can you help us maybe contextualize this with an example? So maybe if you have another example, go ahead. But I have a property I own. It’s in the mountains in Colorado, wildfire territory. So how could I use your tool or the data that’s out there to better position my property as an investment?

Natalie:
You can start by, exactly, using some sort of data to understand the changing conditions at that property. And so wildfire, there’s lots of different components that contribute to wildfire risk at an asset. There’s changing moisture deficit or changing precipitation patterns as well as long-term drought patterns. And then that combines with your burnable vegetation that’s in the surrounding area. And so understanding those metrics. And again, there’s data sets that combine all of that into a number that shows you your relative risk based on those metrics. And then really understanding your property too. And so if there’s defensible space around that property, so that’s when there’s room between the building itself and any vegetation. Or if there’s outbuildings or different things on the property, making sure those are spread apart. So that’s the first step is just understanding the situation around the exposure to these physical phenomenon and then also what’s happening at your asset.
And then the second step is thinking through, okay, so if I am in a spot that really is exposed to this phenomenon that’s going to make wildfires, how can I implement risk mitigation measures? And that’s why it’s just important to understand, like we started with, to understand which risk your asset is exposed to because it can be overwhelming thinking, I need to prepare for everything climate change has in store. But being able to prioritize based on what you’re exposed to then really helps narrow into, okay, what risk mitigation measures are there? And I can move forward with those.

Dave:
This is super important because as investors, so much of our decision making comes down to essentially a cost benefit analysis. And when I hear about climate risks, and let’s just use this example of my property, it can be hard to know how much money to spend on mitigation and how much risk you’re at. Because my HOA in the area does a great job, they offer these defensible space, which if you don’t know, it’s basically removing vegetation near the house so that there’s no trees really close to the house that might catch and then light the house on fire. But obviously that costs money. And so it’s hard to know, is it worth it? Am I really at risk? So it sounds like whether it’s wildfires, floods or any other climate risk, there is now increasing amounts of data that can help us as investors decide what mitigation approach is worth it and is going to be a positive decision for me over the lifetime of me owning a particular asset.

Natalie:
Exactly. Yeah. Having this data that shows the financials at risk, the cost of this potential damage really helps drive that resilience conversation in a way that’s been a bit challenging in the past.

Dave:
And do you have any sense of, this is probably too broad of a question, but I’ll see if you have any rules of thumb. But is there any data you’ve seen that shows how much more capital expenditures that people need to put into their properties in order to properly mitigate against some of these risks?

Natalie:
So I think that is very context specific. And another important part and a challenging part of this resilience conversation is that it’s very location specific. Again, down to not just the characteristics of your building, but also who’s using the building? What are the activities happening within that building? All of that influences things like energy demand or supply chain considerations, and those are key ways that the costs of climate change translate into financial costs. And so I don’t have a number like that off the top of my head because it’s very specific based on all of these local factors.

Dave:
Yeah, that makes sense. All right. Well, I think hopefully as some of these data sets get built out even more, you can start to at least comp some properties and see what costs what. Now, you mentioned a really important topic for real estate investors, which is the cost of insurance. Can you just talk generally about insurance companies, are they looking at the same data? Is this what they’re looking at? And is this partially fueling why we’re seeing premiums go up so much?

Natalie:
Yeah. So we’ve been doing a lot of work to wrap our heads around the insurance landscape. We, similar to you I’m sure, are really seeing this have a tangible impact on CRE transactions. Where lenders are finding that their borrowers are struggling to achieve the necessary insurance requirements without having premiums that actually present a cashflow risk. So insurers have been pulling out of high risk areas. Some of those that have pulled out of California or stopped writing new policies did in fact cite increasing hazards as one of the reasons. And so yes, to answer your question, we are seeing that this is behind the changing conditions. We’ve been doing some research on this that I can dive into if that’s of interest?

Dave:
Yeah, I’m super interested because it makes me really wonder about the future of insurance for homeowners or investors in these markets. In California, we’re just seeing fewer providers. Same thing is going on in Florida. I know in Colorado there’s certain areas where it’s very difficult to get a policy, even if it’s for just a single family home, just a place to live. And so it is confusing about how this might really impact the long-term housing market and potentially, not to be overly dramatic, but I guess if there’s no insurance, it could really impact where people choose to live.

Natalie:
Oh yeah, absolutely. And I think that’s happening to some degree now. Definitely not being dramatic. It’s being very realistic about what’s going on. So yeah, there’s a lot of pieces to dive in here. And so just to keep setting the scene, I guess, a tiny bit around what we’re seeing. So last summer or early fall, we did some research on just trying to understand the landscape of increasing insurance premiums. And so we looked at the insurance line item and operating cost data that we had on CMBS properties, commercial mortgage-backed securities. And we did this across our five key property types of multifamily, retail, industrial office and hotel. And we found that there wasn’t a clear geographic trend in terms of markets that saw increasing insurance premiums. They were really scattered across the country. But we saw that the majority of properties across the country were seeing compound average annual growth rates of over 5% for insurance. And there were a large share that were over 10% of those CAGRs in the last five years. And that was the timeframe we looked at.
And so all that to say that this is a substantial issue that’s really scattered across the country. And so that’s just laying the scene a tiny bit. And then you were asking around what’s going to happen and what the insurers are looking at in terms of data and their reactions. And so it’s really a multifaceted challenge and question because the insurance industry is also, A, fragmented across the different states. And so the markets function fairly differently depending on the state that you’re talking about. And they’re also, of course, highly regulated. And so depending on the state and the hazard that you’re talking about, there’s even been challenges in making it possible for insurers to leverage forward-looking data to set their premiums. So in California, insurers weren’t historically allowed to use forward-looking models to determine their wildfire premiums.

Dave:
Really?

Natalie:
And so that presents significant challenges. And so there’s a lot of conversation, dialogue, happening right now between policymakers and the insurance industry and homeowners or borrowers and scientists even. Really trying to figure out next steps for this and thinking around changing some of these regulations and just thinking about different ways to really combat this question of, “Well, some areas are just going to keep getting hit and so are we going to keep developing there?” Something needs to give. I think the industry has reached a point where it’s clear that something needs to give and now we’re working to identify the way forward.

Dave:
Got it. Thank you. Yeah, I think for everyone listening, this is something really important to watch because it really does have an impact. I have a friend who’s a big real estate investor in Florida and told me he’s planning to sell most of his properties because even though he had good cash flowing deals, the increase in insurance premiums has really damaged his business and there’s no end in sight necessarily. Hopefully things start to slow down. But he told me on a certain property, it more than doubled, he had one that almost tripled in a single year. And so it makes it really difficult to predict, just very difficult to know one of the major expenses in your business. Now so far, this has mostly been the big high profile ones, just so everyone knows, have been in California and in Florida.
But I imagine in Colorado, I know there’s wildfire risk. A lot of the west, there’s wildfire risk. So I am curious to see if this continues. So something that we’ll have to keep an eye on over the next couple of years. All right. So now we’re really in the thick of it and we’re about to take another quick break, but when we come back, Natalie’s going to tell us about what she expects to see in terms of new building standards and how this fits into the bigger picture of housing supply and affordability. So stick around.
Welcome back. Natalie Ambrosio Preudhomme and I are talking about trends in major weather events and what the latest research means for investors. Let’s pick up where we left off. Now, Natalie, I want to switch to something you talked about earlier, which is about building and building standards. So you said Building Performance Standards are changing. And I have a lot of questions about that. But can you just give us a little background context on that and how building standards are changing?

Natalie:
The Building Performance Standard specifically is referring to buildings’ climate operations or emissions. So specifically these are related to emissions reductions at buildings or reducing energy use at buildings. They take different forms whether they’re actually assessing the emissions or the energy use, but the end goal really is to reduce the emissions of buildings.

Dave:
Are these at a federal level, state level or how are they implemented?

Natalie:
So in the US, they’re rolling out in a fairly fragmented way. In terms of how they’re rolling out to date, there is what’s called the National Building Performance Standards Coalition and that’s a group of state and local governments that have committed to publishing Building Performance Standards by Earth Day this year, so in April of this year. And then there’s a second cohort who have committed to it by 2026. And this isn’t to say that there aren’t any published already, there are a handful of cities around the country and a few states who do already have Building Performance Standards. And so all that to say it is rolling out in a very fragmented way, but we do expect to see an acceleration of this rollout in the next couple of years.

Dave:
And what is the objective of most of these programs?

Natalie:
The root objective is to reduce emissions from the building stock. Buildings’ emissions are responsible for a large share of cities’ emissions. And so these are feeding into their broader climate commitments that many cities have made. But yeah, it’s really focused at the building itself and reducing emissions.

Dave:
From the little I know about constructing large projects, I am a more small-time investor here, when I hear about these building standards, it strikes me that adhering by them might be a more expensive form of construction. If it’s just even a more energy efficient appliance, it usually is more expensive.

Natalie:
Yes.

Dave:
Or I don’t know, energy-efficient windows are more expensive or HVAC systems.

Natalie:
Totally.

Dave:
So my question is, is the total construction cost going to be higher for these types of buildings?

Natalie:
Absolutely. And we’re thinking of it a lot because a lot of these apply to existing buildings. There’s a lot of conversation around the retrofit costs to then comply with these laws to avoid the fines. And that’s something that we are looking at closely and that’s what our clients are asking. “Is it better to just pay the fine or to actually retrofit?” And so we were talking about cost benefit analysis on the physical risk side, and this is cost benefit analysis on the transition risk side. I will say there’s a lot of opportunity in this space to look at all of these numbers and then move forward strategically. And so things like replacing your various appliances at the end of their useful life. And just when it’s time to replace them, replacing them with energy-efficient versions.
And that’s just one example, but there’s ways to really plan this out in a strategic way that makes the best use of the costs and the benefits. One other thing I’ll say on this in terms of construction also. There was just an example that I was writing about in Boston. They did include numbers that showed how much more expensive it tends to be to develop this type of very highly energy-efficient building, but then also the fact that it uses so much less energy that those costs will certainly be recouped in the lifespan or before the lifespan of that building. So the savings were significant even in light of the increased cost of construction.

Dave:
Interesting. Yeah, because I think one thing that I think about quite a lot is that there’s a shortage of housing in the United States and there is of course this effort to reduce emissions or improve the resilience of buildings. But if that makes it even more expensive, it’s already very expensive to build, if it makes it even more expensive, is that going to dissuade people, developers from developing and just further exacerbate the housing affordability problems that we have right now?

Natalie:
Two things I will mention there. One, and this gets back a bit to resilience, where it is an investment up front, but that the savings are substantial. And the interfacing of both the sustainability or transition risk side and the resilience side. Things like reducing energy demand and things like that. Yes, they reduce emissions, they’re sustainable, but they also prepare for increasing heatwaves and surging costs we’ve seen in energy demand through the summer. And things like affordable housing or just any housing, it’s particularly important to ensure that the asset is resilient and that those who are using the asset will be safe and be able to function during these extreme events. Like power outages. Yes, they create a substantial commercial disruption, but they also are a human health and safety concern.

Dave:
I agree and see the long-term value of making more resilient, more energy efficient buildings. I think what hangs me up sometimes is just the details of how the industry works. Where what might happen is the developers who take on the most risk will face increased construction costs while the eventual owners and operators of the building or the tenants of the building are the ones to enjoy the benefit. And so that’s what worries me is that there’s not an incentive for developers to build if it’s just more expensive for them only to save other people money. Does that make sense?

Natalie:
Yeah. So a few things on that. We are seeing with this increasing demand, so tenants are increasing their demand for greener, more resilient buildings. Again, large corporations are making climate commitments and the need to have their offices or their facilities in buildings that allow them to comply and meet their commitments. And so with this increasing demand, there is already some research that shows the greenium or the fact that folks are willing to pay more for these green buildings. And we expect more research to be coming out on that as more and more folks really focus on this issue. So that’s one, just a relatively simple fact that increasingly they will be able to sell or at least the greener buildings for higher prices. And again, this has already shown to be the case.
The other thing I’ll mention too is this green financing. And so there are a variety of incentives from the Inflation Reduction Act. There’s also various rebates and utility incentives. And then there’s also things like PACE, Property Assessed Clean Energy, which is another thing that’s rolled out at the state level. And so it’s only authorized in certain states. But that’s a specific financing mechanism for green properties that allows for the financing to be received upfront without any payment. And then it’s tacked on to the property taxes of the property, essentially. And that’s how it’s repaid. And so there is a variety, it’s a fragment in space that needs to be a little bit better understood frankly and fleshed out, with the resources, getting to the right people. But green financing for buildings is a space that can help with this as well.

Dave:
Well, Natalie, thank you so much for sharing your research and knowledge with us. Before we go, is there anything else that you think our audience should know from your recent work?

Natalie:
Yeah. Thanks so much for the conversation. I will just really underscore that we’re working hard to connect this exposure to climate hazards with the financial implications. Really doing work that demonstrates the impact on things like vacancy rate, asking rents, operating costs and then net operating income. And so I would say this is a really exciting and important space to keep watching and paying attention to, and it’s only going to become more important in the coming years. So yeah, thanks so much for having the conversation with me.

Dave:
Absolutely. And if you want to learn more about Natalie and her team’s work, make sure to check out our show notes, which you can find below, which we’ll link to all the research and report and great work that she’s doing. Natalie, thanks again for joining us.

Natalie:
Thank you.

Dave:
Hello everyone and welcome to the BiggerPockets podcast. I’m your host today, Dave Meyer, and I’m bringing you something very special today. It’s a webinar, maybe my favorite webinar that I’ve given in a long time or maybe ever. It’s called The 90-Day Challenge and I’ve adopted it to fit the podcast format. So don’t worry, there’s not going to be any visuals that you can’t see. We are just taking this concept of the 90-Day Challenge that has been a very successful webinar for all of our listeners and our users on biggerpockets.com for years, and we’re bringing it here to our podcast and to our YouTube channel. Now, the webinar is called The 90-Day Challenge because what we’re going to do today is I am going to challenge each and every one of you to get your first deal or if you already have a deal, get to your next deal in just the next 90 days.
And I know that that might seem crazy if you’ve never bought real estate before or you’re worried about market conditions or where you’re going to find the right type of cash filling deal. But I assure you that by the end of this webinar, this podcast, this presentation, you’re going to have the tools and the knowledge that you need to get that next deal in just the next 90 days. And I’m super excited for you guys to spend the next hour or so with me because I’ve actually done this webinar before. I did it sometime last year in 2023, and I’ve been able to see the results, which is really cool. I’ve seen that people who listen to the very content that you’re about to listen, to go on to get their first deal or to get their next deal in the 90 days following, listening to it.
And so I’m excited on all of your behalf because I know that this content and the frameworks that I’m going to give you are really helpful and have helped hundreds, if not thousands of other investors before you. Thank you guys for spending this time with me. I’m very humbled, I really appreciate it. It’s a really great way for you to demonstrate your commitment to real estate investing by listening to this. And honestly, that is so much of the challenge with being a real estate investor is just committing yourself to it and actually educating yourself and getting to that first deal and to reward you for taking this very important first step. BiggerPockets wants you to have a little gift. It is 20% off our Pro membership just for showing up and listening to this webinar.
Now, you can go Pro, we’ll put a link in the description below. You can go to biggerpockets.com/pro, but make sure to use the code 24, like the numbers two, four, challenge that will get you 20% off. But let me tell you, if you actually stick around to the end of the webinar, I have another gift for you, perhaps even a greater gift for you. So you’re going to want to stick around and get that as well. All right, so those are the good giveaways. Definitely stick around for it.
Before we jump into it, let me just introduce myself. I am sometimes a host, a guest on this show. My name’s Dave Meyer. I’ve been a real estate investor for 14 years. I’ve invested rental properties, commercial properties. I’ve one lonely little short-term rental, but I’ve been doing this a long time. I’ve also worked at BiggerPockets for a long time, eight years now, and I’m currently the vice president of Market Intelligence. So I get to study the housing market, study real estate and what works well and share that information with all of you. And that’s what we’re going to do in today’s webinar.
So with no further ado, let’s jump into the 90-Day Challenge. All right, to start off today’s webinar, the 90-Day Challenge. I want to tell you all the story of my first deal. I started in 2010 back in Denver. I was waiting tables and I was just really interested in real estate and it took me quite a while to get my first deal. I definitely, I don’t know how many days it took, but it was a lot more than 90. But eventually I educated myself enough and did enough effort and just hustling to get my first deal with the help of three partners. But I made a ton of mistakes over the course of that time and it’s because I didn’t really have a system.
I was just making things up as I went along. I was flying by the seat of my pants and that created a really steep learning curve. And I think when people who are new or just getting into real estate investing think about doing it, they think sort of about my story. They like, “Oh my God, I’m going to be learning everything on my own and it’s going to be really difficult and there’s going to be no one there to help me.” But what I learned over the course of my investing career is that there are systems, there are tools, there are built in communities and networks that help people invest in real estate just like BiggerPockets. And when you use those tools and you use the resources that thousands of other investors have used, then it becomes a lot easier and that is what makes it possible for you to get your first deal or your next deal in just 90 days.
And again, that is the idea behind this webinar, the 90-Day Challenge. Here’s how it’s going to work. Here is today’s agenda. The first thing we need to do is learn the three key steps for successfully finding, analyzing, and funding great long-term rental properties. There are other great ways to invest in real estate, but today we’re going to be talking about long-term rental properties. And again, the three steps to making the 90-Day Challenge work are finding deals, analyzing deals, and then funding those great deals. So that’s the first thing on the agenda. The second thing is to get you buy ready in the next 90 days and some of you might be by ready. If you are, that’s great, that’s going to give you an advantage. But even if you’re just sort of by interested right now you want to get into real estate but you’re not ready yet to pull the trigger, well by the end of this webinar you will be ready to buy within 90 days.
That will happen within the next hour. Then third, we are going to discuss some of the biggest roadblocks to buying your first property. And I think this is really important because there are roadblocks in buying real estate. It can feel really hard, but once we identify them and we talk about them and we figure out how to mitigate them, then it’s pretty easy to move around those roadblocks. So that’s number three. And then the fourth step on our agenda is going to be a demonstration and I’m going to describe them to you. I know some of you’re probably watching on YouTube, some are listening to this, but I’m going to describe how some of the tools and resources that we have at BiggerPockets and that I personally use to find properties, analyze deals, I’m going to show you how to use them so you can do them the same way I do and the same way that tons of other professional investors do.
Now, before we jump into that, let’s just take a step back and sort of set the scene about why you should care about this and why you should participate in the 90-Day Challenge in the first place. So maybe you’re interested in cashflow, that is a very common and great way to get into real estate or perhaps you really want tax advantages. There are a lot of those in real estate. Maybe you want those. Maybe you really like the idea of not working so hard for your money and getting that passive income that comes in like clockwork. Or maybe you like equity and just want to build those big chunks over time. All of those are very possible and very good reasons for you to invest in real estate. But if you’re like me and honestly most of the people that I know who invest in real estate, all those things, cashflow, equity, are really just a means to an end, right?
You pursue those financial goals because you want something more meaningful, something even bigger like a life of financial freedom. Maybe you’re pursuing financial independence, that feeling that you can actually live life on your own terms. Maybe you want generational wealth to change how your entire family’s finances are well into the future. Maybe you want to just feel more secure and build a financial fortress.
But whatever it is, all of these options help you build that true financial freedom and it comes one rental property at a time. And I want you guys to think about before you decide whether or not you’re going to participate in the 90-Day Challenge, ask yourself what that would be like. How would it feel to be financially free? What would you do with that freedom? I mean, it would change everything, right? It would be incredible for you to not have to worry about money and to feel really secure in using your time and your life the way that you want.
And I’m guessing that most of you know this, right? So the question is if it is really obvious why real estate is so great at producing financial freedom and financial freedom is so important, then why doesn’t everyone do it? Well, the truth is that a lot of people have some reservations and I’ve been teaching real estate for a long time, so I’ve heard a lot of these reservations. So let’s just talk about them. Let’s get them out into the open and address some of the reasons you might not want to pursue this. Maybe you’re thinking you don’t have enough money, that’s a really common one. But the truth is that you can take actionable steps right now like today to build your savings and connect with the right people for funding. And we’re going to talk a lot about that today.
Or perhaps another reservation is a fear of losing everything. And that makes sense. No one wants to lose money. That’s not why you get into investing in the first place. But what you might realize over time is that choosing the right deals and making sure you don’t lose money is really just a process. It’s a simple analysis framework. You just figure out, run the numbers and you’ll know what deals are good to buy and which ones you should skip. And more on that in a moment.
Or maybe you lack confidence, maybe you just don’t know what a good deal is or you don’t know where to find the right people. Well, I’m going to teach you about some of the tools that you can use and that will give you confidence to find good deals and pursue them without a lot of the fear that you might have right now. And I know all these roadblocks exist because I had them too.
I know exactly how you feel. I had reservations, it would be crazy if you didn’t have reservations before you knew some of the systems and processes that can help you. So don’t worry, I felt the same when I was in your shoes and I was still able to succeed. And I am not special, guys. There’s no knowledge that I have that you can’t learn. I don’t have any skills that you can’t also learn, but I still did it. And guys, I really am not special. I don’t have any special skills or special knowledge that you can’t learn. I did it because I learned how to do simple, repeatable, proven processes. I have found three steps that I need to take to help me invest in real estate. It’s finding the right tools, figuring out what other people are using and using those same things. Number two is getting the right education and continuously educating myself.
So I’m always learning and always getting better. And third is to surround yourself by the right people. That third one I think a lot of people overlook in real estate, but real estate really is a relationship business and you need to find the right people. So those are the three things. You find the right tools, get the right education and meet the right people.
And at BiggerPockets, this is what we create. If you listen to the podcast, you probably know a little bit about us, but we have a whole website, we have all sorts of tools. We have an amazing community of over two and a half million people and we have made it so you can get the right tools, you can get educated and you can meet the right people all from the BiggerPockets website. That has made a huge difference to my investing career using these tools and using this simple framework.
Like I said, when I first got started, it took me a long time, probably a full year to get my first deal. It took me three years to get my second deal after that, so I didn’t go particularly quickly and I still got to where I am, but I could have scaled so much faster and so much easier if I had used these tools. And honestly, this is not unique to me. This is actually a common story that you hear in real estate. Just take it from Jason Vile. He’s a BiggerPockets user. I found him on the forums. He was talking about this and he said that he just replaced his six figure income with passive real estate income in just three and a half years. That is a lot faster than I will when. So just take it from me, take it from Jason.
These stories are real. They’re possible. You can go look up Jason in the forums and find out. What Jason has learned and what I have learned and so many others have learned is that it doesn’t take many properties to start building the momentum that can set you on a path towards financial freedom. What it takes is just a few of the right properties and with those you can start to supplement your income, you can grow your wealth and that’s what turns into living life on your own terms. When you have the right knowledge and the right tools and the right people, you too can buy your first property sooner than you think. This is not some far off goal that is some pie in the sky thing that’s going to be five years from now. You can get started today and have a property in the next 90 days and I’m going to prove it to you.
So even though there are established ways to do this, there is work involved in getting there. It’s going to take a couple of smart steps to get on the path to building real estate wealth. And I’m going to prove it to you. And guys, I’m not going to say that this is something that’s super easy and that it’s not going to take work. It definitely is going to take work, but it’s not rocket science and it’s just a few small steps that you need to take to get on the path to building real estate wealth. All right, so let’s turn our attention now to the three core steps for buying great long-term rental properties. As you know, there’s tons of options to invest. As I said, you can do flips, you can do burrs, you can do all that stuff. But the most common strategy for BiggerPockets members to attain that long-term financial freedom is the tried and true long-term rental strategy.
So that’s what we’re going to focus on here today. And the three steps to buying great long-term rentals are simple. Step one is finding deals, step two is analyzing deals. And step three is funding deals. So let’s just break these down one by one starting with step one, which is finding deals. In BiggerPockets, we sometimes run these surveys and from one of our recent surveys, we found that finding deals was the second-biggest perceived challenge to investing in real estate only behind funding, which we’re going to talk about in a minute. And notice that I said perceived challenge because finding deals is not something you should be overwhelmed by. There are many good ways to find deals. You can drive around and look for vacant properties, you could run direct mail marketing campaigns, you can go to courthouse auctions, you can pay for prospects lists, you can comb through MLSs like Zillow or one of those other property listing services.
Those are all good options, but the truth is about all the ones I just named is that they take a lot of time and effort and you can try them. A lot of people use them to find amazing deals. But I recommend if you want to save some time, remember we’re on a 90-day time limit here. If you want to save some time, use my favorite way to find deals. And it’s also the easiest way to find deals, which is to get an investor friendly real estate agent.
Investor friendly agents are very different from regular agents and I know someone you might know a lot of agents, there’s millions of there in the country, but there’s a difference between investor-friendly agents and regular agents. And what investor-friendly agents will do is help you find actual deals. Investor-friendly agents think like investors. They understand the numbers that need to exist to make things work. They need to know what the right rent to price ratios. They need to be able to tell you what a property might rent for and what hidden expenses there might be. They’re local market experts and can help you identify the right neighborhood, the right zip code, the right block for you to invest in.
And crucially, this one’s super important, they also have a strong boots on the ground network to help you tap into. So I recently just started investing in a new market and I relied on my investor friendly agent to find contractors and property managers and even a lender as well. So these people have great networks that can really help you and that’s what differentiates them and that’s why they can help you find deals and is honestly the reason the way that so many investors find all their deals. I think I’ve found all of my deals except one or two from my agent. So it is a really common, really easy way to do it.
So you’re probably thinking that sounds great, but how do I find one of these amazing agents? Well, it’s pretty easy. Again, at BiggerPockets we make tools to help you speed up your investing process. All you need to do is go to biggerpockets.com/agent. You can type in some information about your budget, when you want to invest some information about your strategy and you’ll get matched completely for free within two minutes. It couldn’t be easier with tons of great investor friendly agents. I’ve done this myself, I’ve met really great agents and this is just a super easy way for you to find deals. So if you’re one of those people who have been overwhelmed or worried about finding deals in a competitive market or a confusing market like we’re in right now, well this is a great way for you to get around that.
All right, so that was step one. And now that you have sort of a time friendly strategy for finding deals, you need to know how to analyze this deals. And this is one of my favorite, if you don’t know this about me, I really love deal analysis. I wrote a whole book on it called Real Estate by the Numbers. Deal analysis is kind of my thing. And the thing that gets most people hung up on it is that it’s going to be a ton of math and it’s going to be super hard and you have to memorize all these formulas. Couldn’t be further from the truth. If you have the right tools, analyzing deals is super easy and I’m actually going to prove that to you today. I’m going to just walk you through a deal analysis. And before we do that though, I just want to make clear why you have to get good at deal analysis.
And it’s because the simple fact is, even though if you have a great agent, even if you have good deal flow, 99% out of properties out there are not good real estate investor deals. It might be great for a homeowner if you want to live in them, but for investors, you need the numbers to make sense as an investment and a lot of properties just aren’t that way. And so you need to take all the deals that you’re getting from your agent or from elsewhere and analyze all of them to find the best ones. So if you are looking for a property, you may get 50 leads from your agent, right? They’ll send you 50 houses, then you need to analyze like 20 of them and maybe one of those will work.
And that might seem discouraging like, “Oh, I have to analyze 20 deals to find a good one.” That’s just how real estate works, this is how everyone does it. And after I show you how to use the rental property calculator on BiggerPockets that I use, you’ll see that analyzing 20 deals, not really hard. You can do it in a matter of minutes.
Okay, so I’m going to jump into the rental property calculator on BiggerPockets. We have all sorts of other ones for flips, spurs, all that, but again, we’re talking about rental properties. If you guys want to find this later or you want to follow along if you’re watching on YouTube, just go to biggerpockets.com. There’s a little tools in the nav bar and just drop down and go to rental property calculator. Now I found a property ahead of this webinar that we’re going to analyze. It’s in Cleveland and it is a four bedroom, two bath house that is listed for $115,000.
And so when I’m using the calculator, the first thing that I like to do is just put in the property address and then put in some photos so I remember what property I’m looking at. This is a nice looking large gray house. It’s two stories, it’s got a nice balcony on top, pretty good curb appeal too. It’s got a nice green lawn that I can see here. And the interior looks relatively recently updated. It’s not like brand new cabinets, they look like they’ve been painted. They might be from the eighties or something like that. There are hardwood floors, they need to be cleaned up a little bit. So I do think we’ll put a little bit, we’ll assume we’re going to put a little bit of money into it, but overall property looks like it’s in a pretty decent shape. And again guys, I don’t really know anything about this property just to be perfectly candid.
I just am going to give you an example. I’m going to make some assumptions and talk you through how you do this. So first things first, after we put in the property information, what we need to figure out is what we’re going to buy it for. And we’re going to assume that we’re going to spend $114,900, which is what it is listed for. And so for now, I’m going to assume that’s what the purchase price is going to be. The next major expense in analyzing a deal is closing costs. And I’m going to put $5,000 here and I know that because I’ve done a bunch of deals and I know what closing costs usually are for me. But in the BiggerPockets calculator, so if you don’t know this, there’s these little buttons on the side. You can’t see this if you’re listening to it, but there’s these little buttons on the side that will tell you rules of thumb and all sorts of tips and tricks that you can use to fill out some of the questions in the calculator that you might not know the answer to.
So for example, purchase closing cost, a little tip here says use one and a half percent of the property price. So that’s really helpful if you’ve never bought a property before. Okay, I’m also going to assume that we’re going to spend some repairs. So I looked at the house quickly, it looks like it’s in decent shape, but I do want to clean up those hardwood floors. I’m going to assume that there’s about $5,000 of repair and that if I can do that, I can increase the property value. It’s known as the after repair value up to $125,000. So those are my major expenses going in. Again, purchase price, $115,000, repairs, $5,000 and purchase closing costs $5,000. Now let’s talk about how much of a loan we’re using. So we just talked about purchase price, but most people don’t want to pay all $115,000 out of pocket. You want to take out a mortgage.
So I’m going to assume that we’re going to use the most common amount for real estate investor to take out, which is 75% is going to be a loan and 25% is going to be our down payment. For interest rates, right now they’re about 6.75%, so I’m going to write 6.75% for my interest rate. And I’m going to assume we’re going to use the most common loan term, 30 years. So this is a pretty vanilla loan. For real estate investors, you usually put 25% down for a 30-year term. That’s it. So we’re flying through this guys. We’ve already talked about property info, purchase, loan details. Next comes rent. This is obviously really critical. You need to know what you can get in terms of revenue for any property that you’re analyzing, but BiggerPockets has a tool for that. It is very, very easy.
So just scrolling through here, I can see that the BiggerPockets Rent Estimator estimates that the rent for this property is $1,300. And it also tells me that the confidence is really high in that number. And so I can click into this and learn more and see that there are a lot of comps in this area for four bed, two baths, similar size, similar year built and that they’re renting for about $1,300 bucks. So while I’m running this deal and trying to figure out whether this is one, I should potentially consider making an offer on that. I feel pretty good about this rent, so I’m going to stick with it. $1,300 sounds pretty good to me. And that’s about it. We have one more thing to talk about in rental analysis. Hopefully you guys can see that this is not very complicated.
We put in purchase info, we put in loan details, then we estimated rent, which BiggerPockets did for us, and now we go to expenses. Now BiggerPockets again has already pulled in the property tax information for us, which comes out to $62 bucks a month for this house. And for insurance, I did look this up ahead of time, it was estimated about $83 per month for insurance on this property. The last thing for expenses that we really want to do, it’s not the last, we have two more actually. So the last couple of things we need to talk about are what are known as variable expenses. So these are things that might change month to month like repairs and maintenance or capital expenditures. And so what I like to do is to use a percentage of income to estimate how much money we need to keep in reserves.
So for repairs and maintenance, I’m going to say 5%. For capital expenditures, I’m going to give another 5% for vacancies in case I have a hard time or getting a renter from time to time, I’m going to allocate 8% and make sure that that doesn’t count towards my income because I’m setting that money aside to make sure that my numbers still work, even if there are vacancies and even if I do have to make repairs. So that comes really easy on the calculator. I’m also going to put in management fees. I live out of the country and so I have to pay property managers and I usually pay them about 8%, which is what I’m going to put in here.
Now if you buy a duplex or a small multifamily property, you can put in information on the calculator when you’re analyzing a deal for some other expenses, some things you might want to consider like electricity, gas, HOA fees, any of that. If you as the landlord are paying it, you want to put it into your deal analysis.
But this home, this one I just picked up kind of randomly is a single family home. And so as an investor, typically if you own a single family home and rent it out, you just have the tenants take over the maintenance, excuse me, take over the utility contract. So they pay their own electricity, they pay their own water and gas and so on, and that makes it really easy. So I’m going to make that assumption. So that’s it guys. That’s all it took to analyze a property. I put in purchase information, loan details, rental income and expenses. And now I’m going to just hit update analysis and see what we get here. And what I found now is that this is actually a pretty good deal. I kind of picked this deal randomly.
I know that Cleveland offers good cashflow, so I wanted to pick in a market that probably has good cashflow, but what it shows is that this property, just using my assumptions, would get about $260 per month, which is good for an 8% cash on cash return, which is really, really good. I can also break down all sorts of other really helpful stats like my analyzed return profit, if I sold it, how much I would walk away from, and that’s really all it takes to analyze deals. So hopefully you guys can see that even if you have to analyze 20 deals or 30 deals to find that first deal or your next deal, by using the right tools like the one I’m showing you here, it can become really quick to do it. I was just jabbing on and talking to you about this and it took me like five minutes. If I wasn’t talking, I could probably do this in two minutes or less and you can do the exact same thing.
The last thing I want to share with you about this is that you can print these out in a really professional looking way, which is super helpful for finding partners or finding lenders, which we’re going to talk about in just a second. So I hope that after this demonstration and description of what’s going on with the calculators that you can see that deal analysis is something you can learn right now. So we’ve already knocked out two of the things you need to do to complete the 90-Day Challenge, which is fine deals gave you some recommendations there and then analyze deals, which I just showed you how to do. And that’s pretty cool. You can go and start getting this practice in. And I think that’s super important.
It’s kind of like preparing for a presentation at work or any other skill that you want to learn. You got to just practice it. And so analyzing deals is something you may want to practice so that when you find the right deal, you feel very confident in your numbers and you’re ready to go pull the trigger. That’s it. Now you’re getting leads, right? You have the tools to analyze deals. What comes next? It is our third step, which is funding deals. There are a lot of ways to fund a real estate deal. You can do conventional loans, you can do hard money loans, you can do private money partnerships, so many different ways to do it. And our surveys, I was talking about some of the surveys we do at BiggerPockets before our surveys show that funding is actually the number one challenge in buying real estate.
And I think that kind of makes sense. A lot of people, if you don’t have the money, you’ve never done this before, assume that it’s really hard. But the truth is that if you find the right property funding deals can actually become a lot less stressful. And I know this seems kind of counterintuitive, but think about it for a second. If you’re an investor and you’re able to identify great deals, people will want to fund those deals. If you go to an investor and show them that little PDF I was just describing and say, “Look at this deal, it’s got an 8% cash on cash return, I’m going to make a 17% annualized ROI,” then a partner or a lender or a bank is going to be like, “Yeah, that is a safe investment to lend to this person and I feel comfortable lending to them.”
That’s why we do this in the order. That’s why finding deals comes first, then analyzing deals, and then the last step is to fund those deals because it will be a lot easier to fund your deals once you find good ones. So hopefully that makes sense. But you’re probably wondering how do I even find a good lender in the first place? Well, again, at BiggerPockets we make this super easy for you. We have a lender finder that can help you find investor friendly lenders who can help you get funding. They understand all the different types of loans that are available to investors and which ones are right for you and your strategy. Again, all you need to do, just go to biggerpockets.com/loans and then enter in some basic information about what you want, what your budget is, how big of a loan you’re looking for, and you’re going to get matched with an awesome lender who can help you figure out your options.
So that’s it guys. These are the three core steps. Just to recap. Step one was finding deals. Step two was analyzing deals. And step three was funding deals. So the question is, are you going to do this? This is the 90-Day Challenge. So let me ask you, are you willing to commit to spending just 15 minutes per day on each of these steps five days a week for the next 90 days? And you don’t have to do each of these things every day. So some days that might be 10 leads per day, look getting 10 leads from your agent. Some days it might be analyzing two or three deals or five to 10 in a week. Or maybe one day you’re just going to be like, “I’m going to spend 15 minutes and call two lenders.” That sounds doable, right? When you first start investing, you’re thinking about building a portfolio and all these things you have to do, it’s kind of intimidating.
But when you break it down into these small bite-sized pieces like meet an agent, look through some leads, analyze a deal, talk to a lender, it becomes almost comically simple, right? You’re not going to find the right deal on your first try, but if you stick to this, if stick to these three simple, simple processes for 90 days, I’m confident you can find that right deal because I’ve seen it. I like this quote by a guy named Jim Rome who says, “Ghat life doesn’t get better by chance. It gets better by change.” And this is so true about real estate, it’s not really rocket science. None of this is hard. Hopefully you can see from this presentation, this is easy stuff. The hardest part is dedicating yourself to it. So I think the question you should really be asking yourself now that you know some of these things is are you willing to make the changes in your own life to get that next deal?
And I know that it can feel for newbies that you’re jumping off a cliff and there’s all this risk associated with real estate investing. But take it from me, an experienced investor in the hundreds or thousands of other ones I know and work with and have seen succeed, that it is not jumping off a cliff. It is more like a gentle, uphill, lovely hike with your friends. There are communities that can help you. There are tools that can help you. And yes, you’re going to have to put in a little effort, you are walking uphill, but it is not like you are going to be taking these huge risks or walking off a cliff or anything like that. And I know this because at BiggerPockets we build tools to help investors on their journey and to make it easier for them to get on their journey towards their life goals.
This isn’t theory, guys. This is not something that I’m just making up and presenting to you at a webinar. This is how thousands of real estate investors, including myself, have found financial freedom. So as we start to wind down the webinar, there are two big questions I want you to ask yourself. First is, are you fired up? Because I hope you are. I hope you are truly committed to using real estate to obtain financial freedom. Are you? The second question is, will you take on the 90-Day Challenge and commit to working on the three core steps, 15 minutes per day, five days per week for the next 90 days? Now, if you say yes to those things, then I feel very excited for you and confident that you are going to do well in real estate.
But unfortunately, information like the information I’ve presented to you today is not everything that you need. Because if information was enough, then everyone would be doing this, right? So what then is the key to success? Well, it’s action. It is taking action and actually committing yourself to moving forward and doing the things that we’ve discussed today. I know that sounds really, really simple, but daily consistent action is what separates real estate investors who go on to succeed and build a portfolio and the people who get stuck just wanting to invest but never actually pulling the trigger. I’ve seen this from so many other people on BiggerPockets that this type of action, this commitment, the 90-Day Challenge actually works. I recently ran across another forum post for someone named Jason and he talked about how his experience in buying a cashflow property came from the 90-Day Challenge because he dedicated himself to that 15 minutes a day, five days a week for the next 90 days.
And I know it sounds comically simple because it is, guys, this is really possible. Now, I don’t know why any of you are listening to this today, but I suspect it might be because you’re tired of working your full-time job or maybe you want to start preparing for your future retirement. Those are good goals. Or maybe you don’t want to be a wantrepreneur anymore and you want to actually start building a business for yourself. I don’t know. But those are pretty common reasons people find themselves on webinars just like this. But what I do know is that real estate investing really works, but you have to work it. You have to put in work to make it work for you. And at BiggerPockets, our goal is to help you work your real estate business in as simple a way as possible to help you get to your goals as fast as possible and with the least amount of pain.
And so with your permission, I’d like to make a special invitation offer to all of you to upgrade your real estate investing toolbox with BiggerPockets Pro. BiggerPockets Pro has basically everything you need to succeed in real estate investing. We’ve got tools, it’s got content, the community, services, it’s all here. Some of the highlights are of course the calculator that I showed you, but you also get leases, you get rent estimators and the tools to help you in your three steps. So that’s finding deals, we’re going to help you with that. Analyzing deals and funding your deals.
Altogether, BiggerPockets Pro is truly a one-stop shop to start scale and manage your real estate portfolio. And if you’re wondering that sounds too good to be true, how can one subscription possibly provide all those things? Let me just take a couple minutes to dive in. So first and foremost, you’re going to get this amazing analysis tool, which to me is honestly the most important part of real estate investing is being able to spot good deals and ignore bad ones.
And BiggerPockets Pro offers unlimited use of our calculators. There’s actually nine different calculators and off market deal finding software from Velo, which is worth like over $600 bucks on its own. It also, BiggerPockets Pros in addition to analysis, helps you get up the learning curve quickly by attending our boot camps for 50% off. These are opportunities to learn from some of the best investors in the business like Henry Washington or Ashley Care and get some really intimate, direct interaction with experienced investors who can help coach you on your specific challenges and what you’re working through in your 90-Day Challenge.
It also helps you supercharge your network. Being a Pro gets you into the more serious community. At BiggerPockets, every member of our community is valuable, but Pros are more likely to do deals and to do deals with one another. So by going Pro, you show people you’re serious and get into that sort of higher tier of the community.
There are also all sorts of other tools in what we like to call your landlord command center. So if you want property management software, we got it for you for free. That’s from Rent Ready. Usually costs 240 bucks. You get it for free as part of Pro. If you want portfolio monitoring to see how good your deals are doing accounting software, we got that for you from Stessa. Do you want lawyer approved lease agreements? We got that for you for all 50 states. So when you put this all together, you can see how this helps you across your entire investing portfolio and across your entire investing career.
Now, that probably sounds pretty good, but there are a couple other things that you should know. First and foremost, Pro is tax-deductible for a lot of people. So if you talk to your CPA, you can deduct the cost Pro from your taxes. And the most important thing about why you should go Pro is that it actually works. Take it from Aaron C, who is a BiggerPockets Pro member. He says, “That there is no way I could analyze the volume of properties I do without being a BiggerPockets Pro member.” Remember, that is important. Doing volume of analysis is important, and that’s what Aaron uses Pro for or take it from Beth who says, “It’s the foundation of her real estate investing endeavor.” She cites the valuable tools, the connection to the agents and all the information that she needs as why she is a happy, satisfied BiggerPockets Pro member. There are so many other stories like this. I encourage you to go on the BiggerPockets forum and check it out for yourself.
So you’re probably wondering how much this costs, and I think it could easily be thousands of dollars. If you added up the value here, it could be over $5,000. But at BiggerPockets, our mission is to help ordinary Americans understand and utilize the power of real estate investing. And so we price our products accordingly. And BiggerPockets Pro is normally just $468 per year, and that’s pretty good. But at the beginning, I told you for joining this webinar, we would give you a special treat, which is 20% off Pro. And if you go Pro Annual a year of Pro for just $312, that’s $156 off in savings that you’re going to get just for listening to this webinar. But there’s actually a lot more, I’m feeling very generous. BiggerPockets is feeling generous, and we want you to get into take the 90-Day Challenge and get started. So we’re going to offer you a few more things.
First is the Show me the Money Starter Pack. This includes additional content like our nine-hour Low and No Money Down workshop, our six steps to eliminating debt and other worksheets to help you if you don’t feel like you have the money to get started, figure out how you can fund your first deal. That’s valued at 4470 bucks. You’re getting that for free if you go pro today. Second one, one of my personal favorites. It’s called Demystifying the Housing Market. If you know anything about me, I love analyzing the housing market. I love demystifying it. And so I’m going to give you my state of real estate investing report, a video on investing in an uncertain economy and a guide to how to invest in changing economic conditions. That’s worth over $500 bucks, but you’re getting that for free.
And the last one is Ace Your Analysis, which is coming directly for me. I’m giving you all, if you go Pro today, my book Real Estate by the Numbers for Free. It comes with an Excel master file that will help you upgrade your analysis and video tutorials on how to become eight expert at running deals and doing rental property analysis.
So all those things together, you get to Show Me the Money Starter Pack. You get to demystifying the housing market and ACE your analysis toolkits if you go Pro today. And the best thing of all of this guys is if you want to buy it, go on, try it, and if you don’t like it, we’ll give you your money back. BiggerPockets offers a 30-day free, a hundred percent refund, no questions asked. So if you use Pro and you don’t like it, we’ll give you your money back. We want people who go pro to actually use these tools in the 90-Day Challenge or in their other efforts to become financially free through real estate investing.
So just to summarize all these bonuses, the bonuses alone are worth $1,700, but if you upgrade for Pro today, you’ll get them for $312, but you got to do it today and you need to enter the code 24 challenge. So just go to biggerpockets.com/pro and enter the Code 24 challenge, that will get you the 20% off as well as the starter pack, the demystifying the housing market bundle and the Ace Your Analysis toolkit.
So that’s all I got for you guys today. Thank you so much for listening to the webinar. I really appreciate you spending this time with me. I hope that you can see that you can get started on your real estate investing journey today. The 90-Day Challenge is all about giving you the tools, the knowledge, the information that you need to get started. And all it takes is 15 minutes a day, five days a week for the next 90 days. And I’m confident if you use the right tools, surround yourself by the right people and get the right education, you can get your first deal or your next deal in that timeframe.
My name is Dave Meyer. Thank you guys so much for listening. If you have any questions for me, you can always find me on the BiggerPockets forums or you can message me there. I look forward to seeing you as part of the Pro community.

The LeFrak Organization CEO Richard LeFrak joins ‘Squawk Box’ to discuss the state of the commercial real estate market, the stressors facing the sector, and more.

Dave:
Hey, everyone. Welcome to On the Market. I’m your host, Dave Meyer, and today we’re going to be digging into three of the most pressing and important headlines facing the real estate investing industry. And to do that, I have my friends, Kathy Fecke, James Dannard and Henry Washington joining us. Kathy, how are you today?

Kathy:
Doing great. We survived the atmospheric river, so all good.

Dave:
What is an atmospheric river?

Kathy:
Apparently when the clouds open up and just dump a lot of water.

Dave:
Rain? Is that just a fancy term for rain?

Kathy:
Yeah, life-threatening rain in California.

Dave:
Okay. Well, this is maybe why on this episode we’re going to be digging into headlines so that we don’t just see things like atmospheric river and read too much into it when all it is is rain. We’ll be doing the same thing, hopefully, for the real estate market to help you not overreact to any potential headlines that you’re seeing. James, how you’ve been?

James:
I’m good. I took off in the atmospheric river last night. It was a bumpy ride out.

Dave:
It’s almost like it’s a normal weather phenomenon. All right, Henry, it’s good to have you on as well. Hopefully down in Arkansas you don’t have to make up fancy words for just normal weather.

Henry:
Yeah, today I am here despite the atmospheric brightness that we are experiencing. I believe some call it sunshine, but down here in Arkansas we like to get pretty fancy.

Dave:
We got a real meteorology team over here. Thank you for joining us. All right, well, we do have a great show for you all today. We’re going to be covering, like I said, a couple of major headlines facing real estate industry, like what’s going on with the big NAR Sitzer/Burnett lawsuit. Updates on credit markets and what’s happening with banks and are they lending to real estate investors. And we’ll be talking about fresh data about the labor market that we’re seeing here in 2024. Let’s just jump right into our first headline, which is Keller Williams reaches a $70 million settlement.
If you remember, there’s been this ongoing lawsuit against NAR and a lot of the largest real estate brokerages in the country alleging that they colluded to keep their commission structure in place against the best interest of home sellers. We did get a jury verdict back in the fall that found NAR and some of their co-defendants liable. Now we’re seeing Keller Williams, one of the largest brokerages in the country with over 180,000 real estate agents reaching a settlement to address these antitrust claims. Now, it seems like this story just keeps evolving. James, as an agent, what do you make of the updates in this story? How are you thinking about Keller Williams behavior here and what it means for the next few steps that might unfold from this lawsuit?

James:
I feel like we’re going through an evolution of broker fees. I think that happens in every business, every service and what we’re seeing now is the traditional way and the assumption of doing business might be getting changed, where it’s like, “You’re a broker, you just get paid this and you move on.” The fact that they settled does, I think, make a pretty important impression on what’s going on right now and it could open it up for other lawsuits. They did admit to no wrongdoing and they were just trying to get this thing gone. It looks like they settled for the 70 million, they’re trying to move on and now they’ve agreed to change their business practices. I don’t think it’s going to impact us in the next 12 to 24 months, but over the next four to five years we’re going to see this evolution of broker fees, which I don’t have a problem with whatsoever, because if you really look at the history of brokers, back in the ’90s, they didn’t have the internet.
They had books and advertising and brokers would meet together and they would have to go over the inventory and then bring it out to the market. It was a lot of work, and we still get paid the same percentage today with a lot higher numbers. We’re getting paid well and I feel like this is going to be the evolution of the niche broker, and if you’re a niche broker with a high level of service or a specialty, you’re going to get paid well. And if you’re just pushing paper and putting signs in the yard, you might get paid a lot less and it could be going to that Redfin style model. I think people need to brace for it and don’t be delusional about it. I don’t think it’s going to have that much impact over the next 12 to 24 months.

Dave:
Well, I’m curious because, just as a reminder, as of right now we have this jury verdict that held NAR liable, but we haven’t heard from the judge exactly what this means. Kathy, do you think this move by Keller Williams is trying to head off a really big injunction from the judge so that they don’t change everything and they’re saying like, “Okay, okay, we’ll change a little bit.” And that way it won’t disrupt their entire business model?

Kathy:
Yeah, I don’t want to speak for them. I do know that NAR and HomeServices have refused to settle. They are taking a different bet. They think that they’re, I guess, going to get a better deal if they keep fighting. Again, I’m trying to read minds here. I have no idea what’s going on in those boardrooms, but I can tell you from personal experience that we had to settle a case once where we had absolutely nothing to do with it. We weren’t involved, we were just named and our attorney said, “This is just a business decision. You have to look at it just like a business. You could spend a whole bunch more money trying to fight or you just put up your hands and say, ‘We didn’t do anything wrong but go away.’” It could be that’s what they did or they just thought it could be worse if we wait. I don’t know. When you go to a jury, you have a jury who may not know very much about real estate deciding your fate. Again, it was just a business decision.

Dave:
Henry, have you noticed any changes in the way the agents you work with are operating? What are you seeing?

Henry:
No, no changes in the way they’re operating so far. I agree with James. I don’t know that we’ll see any major changes in the next one to two years, but I do think that the industry is going to change and I don’t believe it’s a bad thing. It’s like any other industry. You typically get paid based on performance and level of service and customer service. I think those agents and brokerages who are going to provide exceptional customer service and who are going to go above and beyond in their business practices are going to not just survive but thrive in a market where you’ve got to provide those things in order to make money now. You didn’t have to provide that before, right? You were going to get your percentage as long as you were the named broker, agent on that deal. You have to think about home buyers, especially first-time home buyers. They’re called first-time home buyers.
They have no idea what a good level of service is from a real estate agent, right? They’re just trusting that this person knows what they’re doing and they just have to take what’s given to them. It’s not till they’ve been through maybe their first deal and then they get a better agent on their second home purchase and then they realize, “Oh my goodness, our first agent just really didn’t do much compared to the level of service that we’re getting now.” I think that it’s just going to mean that, like I said, the better agents who provide a good quality of service and operate a better business will do well.

Kathy:
Yeah, my concern is that people won’t get a buyer’s agent and they’ll either try to do the negotiation on their own or they’ll use the listing agent. My message to all you out there who maybe have not bought your first property, be really careful about going to the listing agent and using them to double represent you. That was our very first deal. I didn’t really know back then, this was a long time ago before I knew anything about real estate, and I didn’t know the difference between a buyer’s agent and a listing agent. I just went with a listing agent. In retrospect, they weren’t serving me. They were hired by the seller. They did not negotiate on my behalf because that would be… How do you do that when you’re representing both? It’s like getting an attorney to represent two parties, speaking of the NAR situation.
That’s my concern is don’t be lazy, don’t just use the listing agent because they are not necessarily working in your favor unless you’re an expert. Now I do that just so they get more commission and I get the deal, but hopefully this means that people will get a buyer’s agent and get one who really truly will represent them and understand what that means. What do you even need a buyer’s agent for? Hopefully to help you negotiate. To make sure that you’ve got all the proper inspections. Hopefully someone who knows the area, knows the history. Really, it comes down to that. What does a buyer’s agent do besides have really beautiful marketing and maybe great hair and a great car?

Henry:
Yes, I agree with you, but I think this is moving in a way that every other business operates. Hiring a real estate agent has always baffled me. People don’t do any research. They just pick the family friend or the person at their church or the lady who’s on your kid’s soccer team, other soccer team member, mom, right? That’s the level of research that they put into it. It’s always baffled me that that’s how it was done before. Going forward, it’s just going to be you have to do the same amount of research that you would do for anything else. If you’re going to hire a plumber, you’re not just going to hire some Joe Schmoe off the street. You’re going to go ask people who you trust who are in the industry or ask people who have had plumbing work done recently. Who did you use? What was your experience like? Can I have their phone number? And then you might ask a series of qualifying questions when you get them on the phone. You just have to do this normal now.

Dave:
Yeah, that’s so true. This whole situation reminds me, I guess, it was probably 10 or 15 years ago when Uber came around and certain taxi drivers and drivers got with the times and figured it out, and then there were some that just stuck their head in the sand and were fighting against it and were suing and they were just fighting upstream. To me, it just feels like that’s what NAR is doing. KW, a lot of these other brokerages are settling and, I think, are trying to adapt to the times and maybe ready to move on a little bit. Then there are others who are just really digging in hard when, at least to me, it feels like the winds have changed, are already… What am I saying? Winds have changed. Is that a saying?

Henry:
Atmospheric river has changed path, it’s now flowing upstream.

Dave:
The atmospheric river has changed and now things are changing (beep). This has gone off the rails. Should we do that again?

James:
Yeah, I think it worked. I fully understood what you were trying to say, Dave. The money is stopping flowing for these brokers that don’t offer additional services.

Dave:
Yeah, I think people have to accept that things are changing and there’s still a way to make money, as Henry just pointed out. It’s just you need to adapt to the new time, which is true in every single business.

James:
Every investor does use numerous brokers, right? Depending on whether you’re trying to get the deal or not. I’m a broker, sometimes there’s brokers bringing me deals and they’re off-market and I’m being buyer in this scenario, not my service fee. I don’t really see this changing too much for investors. If anything, it might actually steer more deals their way because they might just go straight calling the listing broker. To Kathy’s point, when you’re going direct to that listing broker, you do want dual representation if you can get it. Then you are protected. They have a fiduciary duty to watch over you. But investors are a lot more savvy than your normal homeowner because they’re doing a lot more transactions. For not having representation, they don’t care half the time because they’re buying it a certain way and that’s what they know to buy, and they’re doing their own feasibility inspections anyways.
I think it actually might push more deals towards investors. The one thing I can see this affecting though is off-market transactions because a lot of times when you’re negotiating direct to seller is you’re looking at, “Hey, this is a cash convenience sale.” You have all this cost when you sell, which is anywhere between 5 and 6%. Many times those sellers will give you that credit to get that discount that you need, right? And it’s that inch game where you’re just trying to get that net number to them where they’re happy and we can [inaudible 00:13:05] it. Now, that’s going down by half. It actually makes a much bigger negotiation for wholesalers and brokers on direct to seller, but I think on-market it’s going to push more deals investors away, but off-market it actually could add a bigger gap and less off-market deals could be getting done.

Dave:
All right. Well, thank you. I appreciate that insight, James. We’ll all just have to wait and see how this goes over the next couple of months, but I think those are some wise things to keep an eye out for. All right, now we’ve covered our first headline and we will be right back with two of the most important headlines impacting the real estate industry after this quick break.
Welcome back to On the Market. Let’s move on to our second headline, which is that, “Banks are being rocked again as real estate losses mount.” This article talks about a specific bank, New York Community Bancorp, where shares plunged a whopping 38% after posting a $252 million loss in just the last quarter. This was higher losses that they were expecting and they were already expecting pretty big losses on commercial real estate. This is a little bit concerning, but at the same time I feel like we keep hearing about this pending apocalypse with commercial lending, but so far it’s been contained to a few banks. Kathy, do you think this is a sign of more trouble to come in the future?

Kathy:
I think it’s a sign of bad business practice, honestly, and lack of diversification. I think in the case of this New York Bank, the bulk of their portfolio was in office. COVID obviously accelerated the work from home environment, but it’s been a trend for a while. With business stay diversified. Make sure you’ve got plenty of reserves on hand and don’t over leverage, and all the things that people should know about. To me it’s like, “I wouldn’t have done that if I were the owner of the bank.”

Dave:
James, with your commercial deals, are you noticing any big change recently in commercial practices? Because I know they’ve changed over the last few years, but in the last three months has anything altered?

James:
It’s funny, I read these headlines and some of it, I believe, is just hype and it’s for a specific type of asset and product in the market and they make it seem doom and gloom with these local commercial banks. But we’ve had the easiest time getting access to capital from commercial banks on townhome sites, apartment deals. It has not been a struggle to get financing. We actually just got a development loan where we perform about 20%. That we were going to leave 20% of the total project in. The banks appraised it. They ended up giving us a 90/10. They gave us 90% leverage with an interest reserve in there for 12 months. And because their loan-to-value position was good and they liked us as a borrower, I think if you have that long-term relationship, don’t always shop your banks guys. Staying with the same bank and getting that consistency with them, they’ll lever you more.
Even all this doom and gloom news that the banks aren’t really lending, they don’t really want to. If they like you, they’re being a little bit more aggressive. I think build those relationships, you can still get debt, especially on residential. Apartments, townhomes, development, single family, you can get that. Office? Yeah, it’s not the most desirable, but even right now we’re about ready to list an office building, small office. We didn’t think it was going to get much traction. We talked to five banks and they all pre-approved it for a purchase. If you have the right product in the right area, banks will still lend you. It’s not as bad as what I’m seeing in the articles. But I will say some of these guys have made some bad moves and lost some serious money, because I was even reading that article, it’s like, “Some small ripples.” I’m like, “33 billion is a small ripple?”

Dave:
It’s another atmospheric ripple.

James:
Yeah.

Dave:
Henry, I know you work a lot with local banks. I’m curious, how would you advise investors who maybe don’t have the track record that you have or James has with local banks? How do you establish those relationships to create that credit worthiness in the eyes of these banks?

Henry:
Yeah, that’s a great question. Well, first I want to piggyback off James and say I completely agree. I’m seeing the exact same thing. I’ve got two deals that I’m closing on at the end of this week, both with local banks, both with creative aspects to them. One, I’m doing an owner carryback for part of the down payment portion. A lot of banks, if they’re being tight, they’re not allowing you to do some of those things, right? But this bank is totally fine with that. Another bank we’re closing on a deal where we’ve got seller credits involved. One of these banks is only my third deal I’ve done with them and the other bank it’s the very first deal I’ve done with them. I think what you’re seeing is these banks who are smarter, who may have some of these office assets are trying to diversify and want people who are doing really good deals to bring those deals to them so that they’ve got some different asset types in their portfolio that have a good amount of equity in them.
To answer your question, Dave, you’ve got to speak to these banks in the what’s in it for them, right? And the what’s in it for them with these small banks when you’re brand new is you want to bring them a deal that’s got equity in it because that’s a lower risk investment for them. They want low risk loans in their portfolio. They have to loan to stay in business and if they’ve got a loan to stay in business, they would much rather take on low risk loans in a residential space because then if they end up with those assets, they’re not really stressing about it. They can sell those assets and recoup their money. They’re not losing their shirt like they are in some commercial spaces or in some office commercial spaces. You’ve got to have a good deal. That’s first and foremost.
If you’re buying off-market, you can go and get a deal and then bring a good deal to them. If you’re buying on-market, you’ve got to get a pre-approval first and a bank can give you a pre-approval, but make sure when you’re going to ask for that pre-approval, you’re talking to them about your strategy. What is it you’re going to look for? “I’m going to look for single and small multifamily that I can get at a 30, 40, 50% discount. I want to bring those assets to you and have you finance those deals.” The second thing that you want to mention to the bank is that you are looking for a long-term relationship. Banks need deposits and they need to loan.
Share with them your plan. “I’m looking to buy these types of assets in these markets with this type of equity in it, and I will bring my business bank accounts here to you and we can have a relationship where I keep my deposits here, you continue to help me grow my business and I’m helping you grow yours.” Right? You’ve got to speak to them in the what’s in it for them. You can’t just go and say, “Hey, give me some money. I’m trying to do some deals.” They need to know what you’re trying to do and what’s in it for them.

Kathy:
100%. Banks are in the business of lending. They’re desperate to lend right now, but it’s the basics. You got to have a good deal. They got to have security. Land development, that’s all riskier, so that’s going to be more expensive or more difficult to get. That always has been… Well, not always. They’re going to look at the risk level and in residential, there’s not a whole lot of risk there right now. Just bring them a good deal, especially if you’re putting money down.

Dave:
This is such a good conversation because I think as Henry just brought up and Kathy reiterated that. If you understand how banks make money, you can very easily work with them. This is so important with any business, any contractor that you work with, any lender, any agent. If you understand what they’re looking for, then you can adjust your own strategy, your own requests, your own proposals to them accordingly. And as Henry and Kathy just stated, there’s this term in finance where people say that banks are either like, “Risk on.” Quote, unquote. Or risk off. That is basically just a shorthand for how much risk financial institutions are taking. Right now most financial institutions are quote, unquote, “Risk off.” Which means that they’re not going to be lending on the type of projects Kathy just said, development or land deals as readily, but they have to make money.
If you can bring them low risk deals, they’re going to be thrilled by it. Thank you both for bringing that up. I think that’s a really important point and really helpful tactical advice here for everyone listening that if you are worried about being able to finance your next project, think about the relative risk, just take a minute and sit, and put yourself in the bank’s position and ask yourself like, “If I were the bank, would I lend on this deal?” And if the answer’s no, maybe bring them a different deal and go find something else. We’ve now hit our first two headlines on Keller Williams settling the antitrust lawsuit and headwinds in the banking sector due to commercial real estate weakness. Stick with us because after this we’re going to be talking about the, spoiler alert, robust labor market.
Welcome back to the show. All right, with that, let’s move on to our third headline, which is about the labor market. We just can’t stop talking about this labor market because it continues to surprise. The headline is that the January jobs report showed US job growth surging. The labor market added 353,000 jobs in January 2024, which is the highest mark in over a year. We’re seeing strength across a lot of industries. High paying sectors like professional and business services accelerated and piled on 74,000 jobs. Healthcare added 70,000, and we’re seeing wages growing faster than traditional historic rates above and beyond the pace of inflation. Spending power, after years of getting pretty hammered is starting to recover slowly. Henry, what do you make of this labor report and what it means for you as an investor?

Henry:
You know what? This is reflecting what I’m seeing here in my local market as well. I think I read that we added like 10,000 jobs last year and we have about the same amount of people moving to the area. It just shows the strength in the jobs market and some strength in the economy. I believe that that’s going to be beneficial for the real estate market. These people need places to live. A lot of these companies are not doing remote work or are lighter on remote work now. That means people have to move to these new places where the jobs are being added. They’ve got to have a place to live. They’re going to be buying homes. They’re going to be building homes. They’re going to be renting homes. We’ve also seen a 9% rise in appreciation here in home prices. I think it all plays in hand in hand. If there are jobs, people are going to need homes, and if they’ve got money to pay for them… It just speaks to a healthy real estate market.

Dave:
Kathy, how do you look at this labor market situation, in particular how it relates to the Fed and interest rates? Do you think this will change their calculus after signaling they may be open to a pivot and cutting rates in 2024?

Kathy:
Yeah, there’s no pivot in sight right now. This was a big miss by economists. They just cannot get a grasp on the job market and why it just keeps expanding and why it just keeps being bigger than expected. I have my theory on that, and the theory is that second stimulus package was probably not needed. It was a ton of money created and put out in the economy and it’s still out there circulating. When you look at a deficit like we have today, we better have job growth. We better have something for all that money printing. That’s, again, my humble opinion on it. Lots of money circulating. It’s creating lots of jobs. How are we going to pay off that debt? Don’t know. Nobody knows how you’re going to pay off the debt, but at least we’ve got job growth.

Dave:
What do you think, James? Are you seeing confidence from buyers right now? Because it felt like for a couple of years, buyers were pulling back a little bit, not necessarily because of affordability, that was obviously a big part of it, but people also want to feel secure with their income before they make a huge purchase. Do you think the continued resilience of the labor market is going to increase in demand for homes?

James:
I think that always is going to be correlated. The one thing about this jobs reports is it’s so up and down every month. It’s like, “Oh, finally cooling.” Then it’s red-hot. Then it goes cooling. I swear two months ago it was saying it was way down. It was going in the right direction. I do feel like buyers are confident, but more, I do feel buyers came to life the last two weeks for sure. I think it has to do more with them just knowing that the Fed is saying, “Hey, look, we’re going to start going in the opposite direction at some point.” They think there’s no free fall. It’s funny because when I do talk to people about the job report, even real estate professionals are like, “Hey, the jobs report came out hot this month.” And they’re like, “Oh, what’s that mean?”

Dave:
Yeah.

James:
They’re focused on the now, right? Most consumers like, “What I experience now?” And at the interest rate, and they’re not looking at all the factors. But I didn’t think this was great news because if it’s this hot and it keeps going, even if it’s pulsated, they need stability. And I don’t think they’re going to start moving rates until there’s stability in the jobs market, the economy in general and not this surging. As investor, as we’re trying to perform out deals, that’s what we’re looking for, consistency and stability. Every time this goes up and down, it makes me a little bit more nervous because it could go the opposite way real fast and cause some market shifts.

Dave:
Yeah, that’s a great point. And just to remind everyone why we as real estate investors should be thinking about the labor market. Few reasons. One, first and foremost, labor market very correlated with overall economic growth. That’s really important. The second thing that I think has become more important over the last few years is thinking about the role of the Federal Reserve. We talk about the Fed a lot, but just as a reminder, they have two different jobs. The first job is to maximize employment. They care a lot about the employment rate, labor force participation, and the many different ways that you can measure and evaluate the strength of the labor market. On the other hand, their second job is to control inflation. Obviously they’ve been really focused on that element of their job the last couple of years because inflation got out of control.
But if you think about this job, you see a paradox here, because maximizing employment can lead to an overstimulation of the economy, which leads to inflation. But if you work too hard to combat inflation, that will slow down the economy and negatively impact the labor market and people’s ways of earning a living. The Fed is constantly on a seesaw. They are just going back and forth and trying to find the right balance between maximizing employment without overshooting and having a lot of inflation. That’s why these labor market reports are so closely watched by people like us and economists because they are trying to read the tea leaves and think about how the Fed is going to react to these labor market reports.
When you see strong labor market reports like the one that we’re seeing here, that, to me, at least signals, “Hey, maybe even though the Fed has said that they do intend to lower rates in the future, it might take a little bit longer because they don’t need to focus so much on preserving the labor market. That’s doing great, and they can keep focusing on the inflation piece, which is still above their target of 2%.” We’re still above 3%. That’s why we’re talking about this and why it’s so important, even though it might feel a little bit abstract from real estate investing.

Kathy:
Yeah. Also, how it affects us is people keep hoping that mortgage rates will go down and mortgage rates don’t go down when the economy’s booming. It doesn’t work that way. I think we can at least expect rates will be where they are, and I’m speaking mortgage rates, probably for a while because my guess is the Fed will keep the Fed fund rate where it is until they see things slow down a bit. But I can tell you in the markets that we invest in like Dallas, Texas in general, Texas was the number one market where that job growth happened, and Florida was pretty close behind. From an investor perspective, I’m going where all those jobs are going and that’s where we’re investing.

James:
This is why we’re in the mess we are now, right? The economy was way too hot. The money was way too cheap and then cut rates. Hopefully, and as much as I hate to say this, they keep rates where they need to be until we get this fixed because if they start cutting rates, things could explode again. And we’re going to be exactly… It’s great in the short term, right? We all make a bunch of money. We’re selling things for a lot. We’re renting things for a lot, but there needs to be some stability for us to move forward over the next five years.

Dave:
Absolutely. Well, thank you all so much for your insights on these latest stories. If you have any ideas of stories you would like to hear us talk about on future episodes of On the Market or these correspondents show, please let us know. You can put that in the comments below on YouTube, or you can always find me on BiggerPockets or Kathy, James or Henry on BiggerPockets as well. And share with us your thoughts or stories that are of particular interest to you. James, Kathy, Henry, thank you for joining us. Thank you all so much for listening and we’ll see you for the next episode of On The Market. On The Market was created by me, Dave Meyer, and Kailyn Bennett. The show is produced by Kailyn Bennett, with editing by Exodus Media. Copywriting is by Calico Content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.

John Kim, analyst at BMO Capital Markets, joins ‘Squawk on the Street’ to discuss his insights into the commercial real estate market, whether distressed funds will help to stabilize the market, and more.

I often hear new investors ask: “What types of properties are the best? “What should I look for when evaluating rental properties?” 

They are starting at the wrong point. As with any major venture, real estate investing starts with clarifying your goal. And every investment decision you make must align with your goals.

For most investors, the goal is financial freedom. However, financial freedom is more than just replacing your existing income. It’s about maintaining your current lifestyle for as long as you live. To achieve this, you need passive income that meets three requirements:

1. Rents must outpace inflation: If rents do not outpace inflation, you cannot achieve financial freedom because inflation continuously erodes purchasing power. The major driver for rents and prices is population growth.
2. Income persistence: Financial freedom requires that your income lasts throughout your life. Your financial future is tied to the long-term economic growth of the city where you invest.
3. Income reliability: The rental income must continue, even in bad economic times. The reliability of your income hinges on your tenants remaining employed, even during economic downturns.

The Process

Property selection is a three-step process, as illustrated here, starting with the investment location or city.

1. Location/city

The first and most important investment decision is the city where you invest. The city determines all long-term aspects of your rental income, including the ones listed in the graphic.

Primary selection criteria:

• Significant and sustained population growth
• A metro population > 1 million
• Low operating costs

2. Tenant segment

In order to have a reliable income, your property must be continuously occupied by a reliable tenant. A reliable tenant is someone who stays for many years, always pays the rent on time, and takes good care of the property. Reliable tenants are the exception, not the norm.

Also, you will need multiple reliable tenants over the years you hold the property. The best way to accomplish this is to select a tenant segment with a high concentration of reliable people. You can find this segment through property manager interviews. Once you identify a segment with a high concentration of reliable people, determine what and where they are currently renting. 

Based on these properties, you can create what I call a property profile. A property profile has at least four elements:

1. Location: The location(s) where a significant percentage(s) of the target segment are renting today.
2. Property type: The type of properties they rent today. Condo, high rise, multifamily, single family—the type does not matter. Only a reliable tenant matters.
3. Rent range: What the segment is willing and able to pay.
4. Configuration: Two bedrooms, three-car garage, large backyard, single-story, two stories?

Property selection

You can give your property profile to any real estate agent, and they can find conforming properties. However, property selection involves more than matching the target tenant segment’s housing requirements. The property must also:

• Meet your initial ROI and cash flow requirements.
• The price must be within your budget.
• The time to rent must be low.
• The renovation cost and risk must be acceptable.
• The property should have low maintenance.

A good property manager can provide an accurate rent estimate and time to rent for the property, and an investment real estate agent can provide the rest of the information needed.

There’s much more to selecting (and bringing to market) good investment properties. However, these criteria should give you a good idea of the fundamentals.

Final Thoughts

I outlined the process for achieving financial freedom through real estate investing. If you follow this process, your odds of achieving financial freedom are excellent. If you have questions, feel free to ask in the comments below.

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