March 2024

You might be wondering how exactly you can attain such groundbreaking growth.

The path to increasing your business by 33% is filled with actionable strategies, innovative approaches, and untapped potential just waiting to be explored.

Ready?

Increase Your Prices by 10%

You can approach this tactic in a few ways to suit your business model and customer base best:

1. Yearly Price Increases for Existing Customers: Implementing a systematic annual increase for your existing customers can be a practical method to boost revenue. Pro Tip: Bake this into your contracts.
2. Increase the Price by 10% for New Customers: Alternatively, you can opt to increase the price of your products or services by 10% for new customers. This strategy enables you to test the market’s response to your pricing and adjust accordingly.

Example:

Imagine a business coach:

The business, which offers professional development workshops, currently charges $200 per participant. With an average attendance of 50 participants per workshop, the revenue per session is $10,000 ($200 * 50).

By implementing a 10% price increase, the charge per participant would rise to $220 ($200 + $20). Assuming the attendance remains constant at 50 participants, the new revenue per workshop would be $11,000 ($220 * 50).

If most people were willing to pay $200, they wouldn’t blink an eye at $220. Wouldn’t you?

Get 10% More Customers

Acquiring 10% more customers is a critical step toward achieving your goal of 33% growth.

This task can be approached through three main strategies: Referrals, Outbound Selling, and Inbound Marketing.

Each strategy requires a tailored approach and presents unique growth opportunities.

Here’s how to get started with each:

Referrals:

Referral Programs: Encourage your existing customers to refer new customers by offering incentives for the referee and the referrer.

Easy Start: Create a simple referral form and email it to your current customers, explaining the benefits for them and the person they refer.

Outbound Selling:

Cold Emailing and Calling: Reach out to potential customers who fit your ideal customer profile but are not currently in your network.

Easy Start: Identify 10 potential businesses each week and send personalized emails or make calls introducing your offering.

Social Selling: Leverage social media platforms to engage with potential customers and showcase your products or services.

Easy Start: Start building your brand on LinkedIn by writing great content (daily). From there, connect with your target audience and strike up great conversations.

Inbound Marketing

There are TONS of ways to do inbound marketing.

If you’re not currently doing inbound marketing, get started.

If you are doing some of these methods, expand into others.

SEO: Optimize your website to rank higher on search engine results, making it easier for potential customers to find you.

Easy Start: Include relevant keywords in your website’s titles, headers, and content.

AdWords: Google AdWords allows you to skip the line and pay for placement at the top of Google’s SERPs (search engine results pages).

Easy Start: Start with a small budget ($500/month) to test different keywords and ad copy to see what brings the best results.

Email Newsletter: Keep your customers engaged and informed by regularly sending out an email newsletter with updates, offers, and useful information.

Easy Start: Set up an opt-in form on your website. From there, write a weekly email newsletter in your niche.

Organic Social: Leverage social media platforms to build relationships and communicate with your audience without paid advertising.

Easy Start: Choose one social media platform where your target audience is most active and post valuable content daily.

All of these are easy to say and hard to do. Get started today.

Increase Buying Frequency by 10%

Encouraging customers to buy more often boosts sales and deepens customer loyalty and engagement.

Here are some practical ways to encourage customers to make purchases more frequently:

Upselling:

Offer customers an upgraded or premium version of the product they’re interested in at the point of sale.

Example: If you’re a business coach, offer a 1/2-hour and a 1-hour time slot.

Cross-Selling:

Recommend related products or services that complement the customer’s original purchase.

Example: Using the coaching example, let’s say you offer coaching around social media growth and social selling. Start offering social templates.

4. Guerilla FSBO Tactics

Real estate agents are expensive for exit strategies, and aren’t always necessary. Sure, unique and upscale properties probably need a realtor to do some serious sales maneuvers, but an average middle-class house? The primary marketing is a simple MLS listing.

Today’s real estate investors can list their properties on the MLS using flat-fee listing services such as Clever and Houzeo that cater to For-Sale-By-Owner customers, at a fraction of the cost of a traditional realtor. But MLS listings are just the beginning.

There are entire Facebook groups dedicated to local real estate available for sale. If you’re targeting investors, there are also Facebook groups for local real estate investors, not to mention local real estate investing clubs. For that matter, you can take advantage of our nationwide Facebook group for real estate investors, with roughly 32,000 members!

It doesn’t take a realtor to put a “For Sale” sign in the window, or host an open house. Or, for that matter, to post flyers in the local grocery stores, fitness clubs, coffee shops, etc.

In some ways, this technique is the opposite of hiring an auction house. You’ll do all the work yourself instead of handing it off, but you’ll maintain much more control over the process, and you can wait for the right price. You’ll also be in an excellent position to offer seller-financing as part of the package, to help encourage buyers along (more on this later).

5. Auctions

Auctioning off properties works great when you need a quick sale.

Don’t expect top dollar – auctioning real estate prioritizes sale date over sale price. But when you absolutely, positively need to sell a property by a certain date, auctions are a reliable way to sell.

As anyone who has auctioned anything can tell you, who you choose as the auctioneer matters. A lot. Reputable auction companies attract serious, reputable bidders, who trust that the auctioneer is not deceiving them. It takes time for auctioneers to build trust – just ask Sotheby’s, who has been around since 1744.

Established auctioneers also have powerful marketing machinery in place, to reach the maximum possible audience. They cultivate extensive mailing lists, standing ad slots with local publishers, familiarity with the best ways to reach the right prospects in the local market.

But even when you use a reputable, experienced auctioneer, the outcome remains a gamble. Your final price will come down to who turns out that day, which can be affected by random variables like the weather, or seemingly unrelated events like a conference taking place across town. Maybe the traffic is just exceptionally bad that day, and prospective bidders decide not to make the drive.

Auctions aren’t quite an act of desperation, but they certainly won’t attract top dollar, either.

6. Dodge Taxes by Rolling Your Profits into a Larger Property

Taxes suck, even lower capital gains taxes on real estate. They siphon off money you could otherwise put toward building passive income and reaching financial independence. 

Fortunately, you don’t have to pay taxes on your profits from selling real estate. Not if you use them to buy another property, using a 1031 exchange. 

Within 45 days of selling your old rental property, you identify a replacement property you plan to purchase. You must then settle on the new property within 180 days of selling the old one. 

The new property must cost at least as much as the property you sold — it’s a tool for scaling your real estate portfolio, after all. 

Read up on how 1031 exchanges work before pulling the trigger, and keep rolling your real estate profits into ever larger rental properties with greater cash flow!

7. Pull Out Equity with Loans (Which Your Tenants Pay Back)

One of the most common real estate exit strategies is to sell the property to cash out the equity. But then you lose the asset, and no longer benefit from ongoing cash flow or appreciation. Where’s the fun in that?

Alternatively, you could keep the property and still pull out the equity through a rental property loan. It clips your cash flow, but you get to keep the property, which continues appreciating, and you can keep raising the rent each year. You get paid out for your equity, but you don’t have to pay taxes on it. Quite the opposite: you get to deduct the interest as a landlord tax deduction!

In other words, you can have your cake and eat it too. And your tenants can pay the mortgage back down again, just like they did the first time around. 

Win, win, win.

The FBI appears to have launched an investigation into a Bellevue-based real estate investment firm, the first indication that the company’s former executives could face criminal charges connected to allegations they ran a Ponzi scheme.

For at least the last decade, iCap raised money from investors in Washington state and elsewhere, promising to invest in Seattle-area real estate projects. But last spring, investors grew concerned as the company stopped making monthly interest payments. By the fall, iCap filed for bankruptcy and a third-party restructuring firm, Paladin, took over.

Paladin said last month it believed iCap was a Ponzi scheme, using investor funds to repay other investors while doing little of the real estate redevelopment it promised. According to bankruptcy filings, the company owes 1,800 investors and other entities a total of $250 million.

As part of the bankruptcy case, attorneys for former CEO Chris Christensen wrote in court filings last week that the U.S. Securities and Exchange Commission and FBI “recently opened a criminal investigation into iCap.” 

“It is too soon to know whether the investigation will lead to any indictments or who the targets are,” Christensen’s attorneys wrote, urging the court to hold off on determining whether the company was a Ponzi scheme “until the parties have a clearer understanding of the criminal investigation.”

Christensen has denied that the operation was a Ponzi scheme.

The restructuring company last month urged a bankruptcy judge to find that iCap operated a Ponzi scheme, alleging that most of iCap’s income came from investors, not from real estate projects, and that iCap used most of its cash to make payments to investors, not for real estate projects. A Ponzi finding could allow the company to tap into more financing to fund the ongoing bankruptcy, according to court filings.

The dispute appears to have attracted the attention of federal regulators in recent months.

The SEC notified Christensen in February it was investigating iCap, and the “federal government confirmed its investigation of the same” this month, Christensen’s attorneys wrote.

Both agencies declined to comment. It’s unclear how the investigations are related. The SEC does not conduct criminal investigations.

While investigations are in their “nascent stages,” Christensen and others have received subpoenas from the SEC and the Washington State Department of Financial Institutions, the attorneys wrote.

Christensen’s attorneys did not respond to a request for comment Monday, but have denied in court filings that he operated a Ponzi scheme. 

Attorneys representing iCap investors, who are still waiting to find out if they will ever recoup their investments, welcomed a federal probe. Investors “should feel encouraged knowing that federal investigations are underway,” John Bender, an attorney representing the committee of investors in the bankruptcy proceedings, said in a statement. “We will support federal investigators however we can.” 

Christensen, the former CEO, “vehemently disputes” the Ponzi scheme allegations, his attorneys wrote.

ICap “bought, developed and sold or otherwise exited out of approximately 60-70 real estate projects in Vancouver, Seattle, Tacoma, Bellevue and Renton, generating hundreds of millions of dollars in proceeds,” they wrote this month. That work included securing permits and paying for construction work, “a large business operation that completed a large number of complicated real property projects.”

That activity “stands in stark contrast to the typical Ponzi scheme,” they argued, adding later, “Even an unprofitable business is not synonymous with a Ponzi scheme.”

Christensen also disputed the conclusion from a consultant Paladin hired that iCap was a Ponzi scheme, claiming the consultant lacked expertise in real estate and based his findings on incomplete records.

Christensen, the restructuring company and other parties in the bankruptcy continue to argue about whether iCap operated a Ponzi scheme and whether a bankruptcy judge should decide on that question any time soon.

Christensen’s attorneys contend the criminal investigation could interfere with Christensen’s Fifth Amendment right against self-incrimination and that the government could use the bankruptcy process to get “premature access” to evidence relevant to the criminal case. 

Bankruptcy Judge Whitman Holt appeared sympathetic to that argument during a recent hearing, saying he found “this dynamic very troubling” and was “concerned about rushing forward in a way that steps on other people’s toes or creates problems.” 

Investor attorney Jay Kornfeld noted that a year has passed since iCap stopped making interest payments to investors. “For investors and individuals [who] have lost in many cases their life savings, that is a long time, and we would urge the court to keep this process going,” he said.

The next hearing in the case is set for Wednesday. 

Working for a company is the most common way people in the United States earn their living. As an employee, your earnings are reported on IRS Form W-2, and federal, state, Medicare, and Social Security taxes are withheld every time you are paid.

Although there are benefits to being an employee—like simplified tax preparation—you may pay more in taxes than self-employed individuals or business owners because you can’t claim certain deductions. That doesn’t mean you don’t have options, however. You may be able to supplement your income, grow your net worth, and reduce your tax obligation by investing in real estate.

Understanding Real Estate and Tax Basics

An investment in real estate can be used to lower the overall taxes you pay, including your W-2 income. This is done by using certain tax strategies, like depreciation, 1031 exchange, deducting mortgage interest, and taking advantage of tax credits. Your ability to use real estate tax deductions to offset your W-2 income from investment losses may be limited by the “passive loss rules,” however.

A passive loss occurs with a rental property when the operating expenses exceed the rental income. If one of your rental properties suffers flood damage, for example, and you don’t have flood insurance, the repairs could be more than your rental income in a year, depending on the severity of the damage.

There is an exception to the passive loss rules for the 2024 tax year if you qualify as a “real estate professional.” A passive real estate investment is one in which you do not materially participate, like renting apartments or single-family homes. 

If your adjusted gross income is $100,000 or less and you incur a loss from your rentals in a tax year, you may be able to use the loss to offset non-passive income, like W-2 income, for up to $25,000 if you are a real estate professional.

To qualify as a real estate professional in the eyes of the IRS, you must meet two criteria:

• Material participation: You are actively involved in the operation of your real estate investments. The IRS provides several tests to determine material participation.
• Time spent: You must spend more than 50% of your working time in a tax year materially participating in your real estate investments. This is to make sure your real estate activities are your primary occupation.

If you believe you qualify as a real estate professional, it’s important to keep detailed records of your participation in your real estate activities to prove it. If you are audited, you’ll need proof of the hours you worked and the nature of your involvement.

Real Estate Strategies for Reducing W-2 Taxes

There are several ways that you may be able to reduce your W-2 taxes with a real estate investment. The type and whether you have an equity or debt investment determines the strategies you will qualify for.

Direct ownership and rental properties

Owning long-term rentals lets you grow your net worth almost on autopilot. Other than making sure your rentals are maintained and a few other tasks, this strategy can be mostly passive.

The most common way investors reduce W-2 taxes with rental real estate is by depreciating their properties. Depreciation is an accounting strategy that allows you to deduct a portion of the purchase price of your property on your taxes each year until the full amount has been deducted. Remember that the depreciated value of a property is not the same as its market value.

For a residential property, the IRS allows you to depreciate it over a period of 27.5 years in 2024. For commercial properties, the depreciation period is 39 years.

Real estate investment trusts (REITs)

A real estate investment trust (REIT) is a way to invest in real estate without having to deal with tenants, maintenance, and other time-consuming real estate issues. REITs are companies that own and operate income-producing properties. They invest in many different types of properties, including residential, commercial, industrial, and others.

Although some REITs are privately controlled, many are publicly traded on stock exchanges, which makes them highly liquid investments. Income from a REIT is received as a dividend.

Although a REIT does not directly lower your W-2 taxes the same way as rental properties, there are some indirect ways that it may provide tax benefits. REIT investors can benefit from tax-deferred growth on their investments, for example, if they are held in tax-advantaged accounts such as IRAs or 401(k) plans. Qualified dividends may also be taxed at capital gains tax rates in 2024, which are lower than the rates for ordinary income.

Real estate crowdfunding platforms

In recent years, a new way to find real estate opportunities has made it easier to invest. Real estate crowdfunding platforms operate entirely online and allow you to pool your money with other investors for certain projects. You can browse many different opportunities and crunch the numbers to see which ones appeal to you.

The best real estate crowdfunding platforms offer different types of investments, including single-family homes, apartments, commercial properties, industrial properties, and real estate development projects. You can invest in income-producing properties or act as a lender and earn interest.

If you are a W-2 earner investing through a crowdfunding platform, the tax implications will depend on whether you are a debt or equity investor. And if you are lending money (debt investing) to earn interest, the interest is taxable as ordinary income in 2024.

If you are an equity investor who earns investment income, you may be subject to capital gains tax if you sell your investment for a profit. You may also be able to take a depreciation deduction for the portion of the property you own.

More Advanced Real Estate Tax Strategies

If you are an experienced investor, you may be considering a 1031 exchange or investing in an opportunity zone. Both strategies may help you save on capital gains taxes in the current tax year. Here’s a look at each.

1031 exchange

A 1031 exchange is a strategy that allows you to defer the capital gains tax when you sell a property for a profit. Named after Section 1031 of the IRS tax code, some people refer to it as a “like-kind” exchange because you purchase an investment property that is similar to the one you just sold: You essentially swap one property for another.

This strategy doesn’t eliminate the capital gains tax, however—it just postpones it. The tax will eventually need to be paid. The main benefit of a 1031 exchange is that it gives you more money to invest in a new property when you sell.

Opportunity zones: investing in economic development

An opportunity zone is an area that the government believes will benefit from economic development to spur job creation. They are usually low-income communities with older homes and few businesses. Real estate investors can take advantage of certain tax benefits by investing in qualified opportunity funds (QOFs), which invest in businesses or real estate projects in opportunity zones.

An important benefit of investing in a QOF involves the deferment of capital gains tax. If you sell an investment property and reinvest the proceeds in a QOF within 180 days, you can defer paying the capital gains tax until you sell your investment in the QOF or until Dec. 31, 2026, whichever comes first.

Seeking Professional Advice

Coming in at nearly 7,000 pages, the U.S. tax code is complex and changes every year. Because it’s important to make sure your taxes are prepared correctly, be sure to seek the help of a tax professional. Some real estate tax strategies are complex—like 1031 exchanges—so you want to make sure you get everything right.

Seeking the advice of a financial advisor is also a good idea if you are considering certain real estate strategies. A financial advisor can provide expert guidance and may make recommendations to help you reach your investment goals faster and save money on taxes.

Finding someone to help you with your investment strategy and taxes has never been easier. With the BiggerPockets Tax & Financial Services Finder, you can quickly find an investor-friendly professional near you.

Final Thoughts

Investing in real estate for W-2 employees offers many benefits that go beyond tax savings. You could invest in rental properties, for example, to supplement your future retirement income. If you use the monthly rental income to make the mortgage payments, the notes will eventually be paid off, and you will own the properties free and clear. You can then enjoy mostly passive income in your retirement years, or sell your properties for a lump sum.

With careful planning, a real estate investment can also be used to lower the taxes you pay on your W-2 income. In addition to helping you save money, your investment will also appreciate over time, making it a strong hedge against inflation.

Before you take a tax deduction or credit, be sure it’s permitted in the current tax year. The tax code is amended every year, and something that is a tax break one year may not be the next. 

If you are unsure about a particular tax strategy, a tax professional can ensure that your taxes are prepared correctly and that you take every legal deduction and credit that you are due.

Related IRS Publications and Resources

Dreading tax season?

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

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

David:
This is the BiggerPockets Podcast show 922. What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate podcast here today with a Seen Green episode and I’m joined by Rob Abasolo. We’ve got an awesome episode for you. If you’ve never heard a Seen Green show, we take questions from you, our listener base, and we answer them for everybody to hear. Today’s show starts off with a live question where we go back and forth with the caller and then we have some recorded and written questions that we share with everybody. We’re going to talk about house hacking, we’re going to talk about options to scale when it comes to house hacking. We’re going to be talking about what happens when you hit lightning in a bottle and you grow a big portfolio and you’re not sure what to do next. And we’re going to be talking about if you should keep a property with a lot of equity and a great rate, or if you should sell it and start scaling a new portfolio. All that and more in today’s Seeing Green. Rob, how are you feeling today?

Rob:
I’m excited. I’m excited for the curve balls that are going to be thrown our way and I’m excited to hit some home runs, hopefully for everyone at home, help them get a little perspective on how to do this whole real estate thing.

David:
Yeah, so let’s see how Rob does when he takes his at bats. Let’s get into our first question today from Ethan. Oh,

Rob:
Before we jump into it, just a quick reminder, if you ever want to submit your own questions for a Seeing Green episode, head on over to biggerpockets.com/david and who knows, maybe we’ll pick a ruki, one of your cues.

David:
All right. Our first question comes from Ethan here. Ethan’s got quite the portfolio, 20 single family homes in Nebraska. Two flips a short-term rental in Scottsdale, a short-term rental in the Smokies, 11 single family houses in Chattanooga, Tennessee, and 50 doors in Illinois, as well as a farm ground in New England and Kansas, England. I dunno if I left anything out there. Maybe you also own a private jet, some oil rigs, perhaps a yacht you put on

Rob:
Turo. Maybe it’d be better to ask where Ethan doesn’t have real estate.

Ethan:
Being diversified is always a good thing. I don’t own anything in New England, that’s Nebraska, but I’ll have to take a look in New England.

David:
Good point there. That does make sense. There’s not a lot of farms I would imagine in New England, Nebraska does make a lot more sense there. It’s like

Rob:
I was like what? I was like, does that farmland go from Nebraska or New England to Kansas? It’s like a giant farm.

David:
I’m in Vegas at a Keller Williams event that I have not been sleeping enough and it is very visible here, but don’t worry, I am still awake enough to answer your question. So Ethan, let me know what is on your mind.

Ethan:
Simple question I get from my wife often I’ve been actively growing this portfolio the last decade. I probably have no end in sight as far as what is going to be the destination and my wife asks me every time we talk about a property or even our existing portfolio is when is enough going to be enough? We have a big family, six little kids. Oldest is 11, youngest is going to be three here in about a week. So I understand those. There’s a lot of expensive things coming down the roads with medical weddings, school, we go to a Catholic school here in Nebraska, so again, it’s a high operating cost family and I understand that and try and want to prepare, but she’s very humble and very simple and I know you guys are actively growing. It seems like those wheels never stop. Kind of relatable to that. So curious where the finish line is for you guys.

Rob:
Well lemme ask you this, are you still working at W2 or are you like a full-time real estate investor?

Ethan:
I do have a full-time job. I’m a independent contractor, but I do have a full nine to five job, yes.

Rob:
Wow, okay, cool. And then what is your income from your real estate portfolio?

Ethan:
I actually updated it today. My monthly cashflow is about 3,400 bucks. That’s just in Nebraska. The other stuff is with the partnership, so it’s him and I, so I didn’t figure anything that into our monthly income.

Rob:
No worries. Well, I think it really depends, man, honestly on what your goal is and you can kind of start to sniff it out pretty quickly. I talk to people, friends in this industry that their goal is I want to be a billionaire. And I’m like, okay, well then I don’t know when enough is enough because it’ll take a very long time to get there. But then there are people like me that I’ve realized there is sort of like this. There really is this moment where a certain amount of money doesn’t really change happiness or anything like that. And so for me, I always find that where I’m trying to go is to where I could make the income that I was making at my full-time job in real estate, I’m not going to say passively, but consistently with doing some work, I would never really count on this idea of retiring and being completely passive in real estate. I think you’ll still have to work for it, but I mean it depends on how much you love real estate and I understand your wife is wanting to keep it more simple, but if you feel like you want more out of this and you want to keep doubling or tripling up where your income is, then you may not really be close to enough yet. So I mean I don’t know enough about you to know this yet, but how much do you love real estate and let’s start there.

Ethan:
I enjoy it a lot. Honestly. I go back to the original BiggerPockets days a decade ago and I was reading through some of the forums last night and some of my inboxes with guys and it’s really kind of got me fired up again in the interaction that we can find amongst the real estate space. So it is something I really enjoy, whether that be the tenant relationships or even just the finding new deals. I really like to travel and I think that’s one thing my wife, I know that she likes to travel as well and I try and push her. These future opportunities are going to allow us to go wherever we want to. That’s one thing I try and push, try and plant that seed a little bit and water it as much as I can.

Rob:
Sure. The other thing I was going to ask that I probably should get some clarity on is do you want to work your job for the rest of your life? Because that’s important too. Some people are like, I hate working for the man I need to get out of this. And then there are other people that are like, yeah, I want to work my solid job for the rest of my life. And so I think that kind of factors into your decision a little bit too.

Ethan:
And I do have a great job, work for a great group of guys, so that is probably something, I mean I would say normal retirement age, that 50 mid fifties range, which is going to be 20 years, which as fast as the life goes right now, especially with young kids, it’s going to come quick. So I’d say 20 more years of that full-time job and I’ll be ready to be be done.

Rob:
So then honestly, this is my favorite scenario to be in, to be completely honest with you because there’s so many people that want to replace their salary with real estate, quit their job, and if you make 50 to a hundred thousand dollars, that’s really hard to replace with real estate, it’s really, really, really hard. You’re not super far off from that, but you would have to triple how much you’re making right now to make $10,000 a month where the power of real estate comes in. For many, many people, especially in your circumstances, if you’re okay with working for the rest of your career and working a nine to five and that’s where you’re going to make your money, then you’re in such an amazing spot because if you have an extra 3,500 bucks, let’s say you scale that up a little bit to $5,000 a month coming into your pocket, that’s life-changing money for a family that is vacation money.
That’s where the fun of real estate starts to really ramp up because you actually have cashflow to use for expendable income and vacations and everything like that. And then where it all comes to a head is when you’re 65 and you do retire from your job and not only did you make $5,000 a month doing real estate, you now have this portfolio of 20 single family homes and this and that and all that stuff. That’s all paid off worth multimillions is my guess. And then you can sell all that and retire a millionaire. That to me is the best place to be versus the person that’s trying to get to $10,000 a month in real estate and wants to quit their job tomorrow. So I actually think you’re probably going to find a lot more happiness being a small and mighty investor as our friend coach Chad Carson would talk about. And we did an episode with him back on episode 7 95 talking about his book, small and Mighty.

Ethan:
That’s awesome. Good perspective and definitely relatable. I’ve always said the real estate I don’t think provides my family any value even when it’s on our deathbed or down the road. So I’m sure the plan long-term would be to start selling if a house at a time will pay for a wedding hopefully at that point. But

Rob:
Absolutely, I mean you buy $150,000 house and 15 years from now I’d like to think that that house has been paid down considerably and has it appreciated a lot more as well. And at that point maybe you can sell it and use some of those to fund those things. So I think I find happiness with real estate funding the life that I want, trying to chase some big arbitrary goal of, I don’t know, like I said, a billion dollars. I have a lot of friends that want to be billionaires. I’m like, why if you make a million dollars a month or a hundred million dollars a month, your lifestyle probably isn’t going to change all that much if you’re actually a prudent investor and you are frugal if you got to a billion dollars. I don’t know. To me it all, it becomes this really weird competition with real estate investors and sometimes I’m just like, honestly, I’m pretty good where I’m at. I like to be happy in real estate. And I think for me, the whole enough question really comes down to at what point does real estate make you unhappy and that’s when real estate is enough.

Ethan:
That’s awesome. That is very solid insight. So it helped this year we were able to travel to Scottsdale and stay in our own Airbnb, my wife and I and our two friends. So I do think that provided a good insight for her to say, okay, maybe this is why we’re doing it, but I’d love to have an Airbnb or a Hellman every travel high travel or high vacation place in the country. That’d be a future goal of mine.

Rob:
Well, and I could have given you a much shorter answer and just said enough is when your wife says it’s enough and that’s the right answer to that question. But yeah, I think you have to kind of throw her a bone and make sure that she’s down for the ride to otherwise, yeah, there’s a turning point with real estate where it’s like, man, I’m making $3,400 a month to, I’m only making $3,400 a month, and you want to try to stop that second sentiment from ever coming in.

Ethan:
Right, understood.

David:
Alright, Ethan, do you mind if I offer you another perspective here?

Ethan:
Of course.

David:
Alright, before I do, let’s take a quick break and we’ll come back to hear my thoughts and we’ll come back. We’re here with Ethan who’s got a lot going on in the real estate world and he’s trying to figure out when enough is enough. When we say things like When is enough enough, the answer is typically I have as much as I need, how much more do I need? And it starts to feel like it’s greedy and then implied in that is life would be better if I wasn’t doing this. Which oftentimes very well maybe the case. It’s like I’m not spending as much time with my kids, I’m not doing as many things as I could be doing that I want. And that is a great question to ask, is accumulating more real estate the best move for my specific life? But for a lot of people, I think the assumption that what I have is good and it could only get better is erroneous.
I went through a two year period, I’m barely now climbing out of it. It looks like where business got decimated, my portfolio got decimated. I was the victim of a lot of property fraud where people stole titles to my properties. That forced me into a 10 31 where I had to buy a lot of real estate in a really short period of time. Right When I did that, I had a lot of bur properties, projects going on, interest rates doubled, everything went wrong at one time, and what had appeared at one point to be way more reserves and way more conservativeness than what I would’ve possibly needed actually became, thank God I have that because the plane would’ve crashed if I didn’t have a buffer that was that big. And everyone had asked me that same question, well David, when is enough enough? Why are you working so much?
Why are you doing this? And I think in my gut I knew the answer and this confirmed it. It’s because the more real estate that you accumulate, the more risk you’re taking on. We don’t talk about it like that a lot of the time and it doesn’t get presented that way because the market’s done nothing but go up. We’ve had a great 10 year run where everything just went up and so you don’t think about the risk you’re taking on because it rarely ever occurs, but when those rates shot up really quickly, it got exposed that, oh, this is actually a risky thing and things can go wrong. And to me it was like a perfect storm. I hope to God nobody else ever has the perfect storm of what I had, but I’m very glad that I had a lot of equity in my properties.
I’m very glad I had way more in reserves than I thought. I’m very glad I was still working and I had not retired and I didn’t have the ability to make money through stepping up efforts with whether that was flipping houses or selling properties or running businesses more. I just want to put that out there for you and for everybody else, if it’s just getting more to get more, it’s a good question to ask, why am I doing this? But if it’s getting more to offset the risk that we’ve taken off building big portfolios, well then I would say keep working, keep saving, but do it in a way that doesn’t take away from the goals you have in life, your family. Do the things that you like doing, do the things you enjoy doing, but don’t just be like, well, should I quit the whole thing?

Ethan:
I get that. Yeah, and that’s been a big part of why we started to go out of state and it was through a lot of the stuff again, through BiggerPockets that I realized I thought I had to be able to touch it, see it, feel it to invest in real estate and quickly realized that wasn’t the case. So we’ve been kind of backing off what we have here in Nebraska and moving out of state and my wife knows I can’t touch those, so that’s made her happy on that side of it.

David:
Yeah, that’s great. Rob, I mean you’re scaling probably one of the fastest real estate investors slash content creators out there on the interwebs. Is this something you’ve thought about as much as you’re taking on right now and as fast as things are growing, what you’re doing to kind of counter some of the risks that you’re taking on as your portfolio grows as fast as is?

Rob:
Yes, David, this is all I think about, especially as someone that’s looking at getting into developments and buying developments that are typically three to 10 million at a time. What I’ve learned is that we have this idea that we want to make cash so much on the front end and like cashflow, cashflow, cashflow that we never want to hire people because when we hire people we see that as making less money. But what I’m discovering is to really scale, you do have to hire people, make less money on the front end, but in the long term you’ll actually build so much more wealth because of what you can do with teams. And that’s the thing that I’ve never really unlocked building a 40 unit short-term rental portfolio is I was just doing it all by myself and I was too greedy and now as I’ve learned, if I can bring more people on, be a little less greedy right now, it’ll actually set me up for the rest of my life. So yes, existential question that you just asked me there, David, but it’s the only thing I think about whenever it comes to real estate.

David:
Well Rob, you need to read scale if that’s where you’re at, the book that you talked about all the time and haven’t actually read,

Rob:
I guess so I guess so

David:
Ethan, anything we can tie up for you there?

Ethan:
I do have one last question, especially Rob, you mentioned these bigger portfolios or bigger books or properties that you guys are buying. Do you get any sort of anxiety or like buyer’s remorse when you get the acceptance on an offer or if you sell a property? It’s like every time that offer’s accepted it’s like this rush of dopamine and I can’t decide if it’s fear or anxiety or joy, but it’s the same thing every single time. I’m just curious in your guys’ experience if that’s the same thing.

Rob:
No, I’m usually pretty relieved, but I’m a little scared, but I’m always happy that I did it. That little buyer’s remorse is really short-lived and will never compare to whatever the opposite of buyer’s remorse is. When you miss a good deal that was in front of you, that’s a lot more painful to see. This property that I just stalled on for like 12 hours or a day and it just went because I knew deep down it was a good one and it flew off the shelf and I’m really sad at myself and disappointed that I didn’t move faster. That’s a way worse pain than the short-lived buyer’s remorse that I’ll have on having an offer accepted. That’s common, everyone has that, but for the most part the excitement typically takes over pretty quickly.

Ethan:
Right on. Good.

David:
Alright, thanks Ethan. Keep us up to speed with what goes on there, man. Appreciate you. Thanks

Ethan:
Guys.

David:
Alright, thank you everyone for submitting your questions. We would not have a show without you, so give yourself a little pat on the back for making all this possible. And remember, I want more of them, so head over to bigger biggerpockets.com/david and submit your questions. And who knows, maybe we can feature you on a future episode of Seeing Green. Alright, if we’ve changed your life or if you’re just enjoying this show, let us know. Make sure that you like, comment and subscribe to the channel and let us know on YouTube what you think about today’s show. Alright, moving on. We have an Apple review to go over and then we will move on with the show. The review says the more the better you do. I’ve been listening and learning from the BiggerPockets podcast for the past three years. This free resource has led me to making some really solid real estate decisions. Did I say it’s free? I share the podcast often and I really hope that others see the value in this podcast from great B eight via the Apple podcast app. Well thank you for that. That’s awesome. I remember Rob, when you first stumbled upon our show and we had you on and you were an amazing guest and you thought that I hated you, but I didn’t. I thought you were really cool and you had similar things to say. So if you, did you ever leave us a review, Rob? Curious.

Rob:
I was too hurt. I was like, David doesn’t like me.

David:
We got over that now we’re besties, besties, trying to change the short-term rental landscape one property at a time. Time. But

Rob:
How funny would that be if I went and left us a review right now? Hey, I’ve been listening to the show for five years. This is a five star show. It’s my favorite. Rob is so handsome.

David:
That would be funny. You should do that. You should leave a review and say why you’re better than David. Alright everybody, we hope that you’re enjoying the show so far. We’re going to take a quick break and then we’re going to be back with a question from Zach about what to do after his house hack. Alright, and we’re back. Thanks for sticking around. Zach’s got a question about house hack strategy and Rob and I are going to get into it. Let’s hear Zach’s question.

Zack:
Hey David. Zach Chesky here, 27 years old. I’m a biomedical engineer by day and I try to be a house hacker by night. I just bought my first single family home in Dearborn, Michigan. Looks like a good market for medium term. There’s a hospital DTW airports right there and just general visitors of Michigan. My question is after this rent by room house hack strategy, do I shift towards Airbnb, which seems like the market could get me about two x, what a long-term could get with I understand recommended three to five x. Do I rent my room continuing once I leave rent out my area getting around the same with arguably less work or do I just go to a long-term rental, sacrificing some long-term cashflow that I would need to supplement my current job? Appreciate the help always. Awesome, thanks.

David:
So with his buffet of options, where should he start?

Rob:
So basically he could just hit the easy button right now, replace himself with someone else to rent his room in that home and cashflow like 800 bucks a month. A little bit more than that, but I think that’s a pretty good option.

David:
So you’re saying that he should continue to rent by the room?

Rob:
I think so. I mean if we examine his other options, he could do a long-term rental, long-term rentals in his area. He mentioned our 1500 to $1,800 to do that, so he wouldn’t make as much money doing that. And then short-term rentals in the area are looking at around a 31% occupancy. Again, this is information that we have on the backend, so for him to try to make money on Airbnb would be tough. What most people don’t consider with short-term rentals is that there’s a huge operational expense that goes into running a profitable short-term rental, whereas long-term rentals are just fixed expenses for the most part. Short-term rentals, you start adding cleaning and what you pay to Airbnb and vrbo and it really takes a lot more money to be profitable in an Airbnb than a long-term rental at first glance. So I don’t know if that’s going to be his best route.
And then of course he can always go the medium term rental route, a three bedroom and his area goes for about $2,600 a month. However, it’s not like you can just snap your finger and fill your place with the midterm rental tenant. It’s hard to do that and you really have to work to find those tenants. So because it seems like the safest option he has is to rent by the room, I would go that route. He’s making a little less than he would with the midterm rental, but he won’t have to work super hard to source that midterm rental tenant. So I think it’s pretty clear he just transitions from house hack to rent by the room.

David:
You know what I love about your analysis there, Rob? You went over all the options and you wait each of them on their own merit and it became pretty clear at the end of the day, Hey, there’s a lot of vacancy as a short-term rental. Hey, traditional rentals aren’t bringing enough money. The rent by the room strategy here is the perfect answer for this property. And then it’s not that much work, especially if he goes forward with economies of scale. If he gets another house hack, he does the same thing. He rents by the room, he’s got all the same systems he’s using with his first property, then he could just transfer over onto the second one and then he could do it again and then again and then again. Now he’s got five houses, he’s doing rent by the room. Now there’s enough income that you can hire a person to sort of manage that little mini portfolio and just handle whatever little disputes come up with all the tenants and it’s going to be the same disputes that happen all the time.
So that person isn’t going to take a ton of time and you have a pretty efficient system that allowed you to scale five properties. And if you hit the point where you’re like, you know what? It’s too much work with all these rooms that I’m renting, fine sell all 5, 10 31 into a small little apartment complex, buy a 10 unit place somewhere and start over scaling again with these smaller little houses doing the same thing that you’ll move into hotels. This is not a bad way to get started in a tough real estate market, building a portfolio and creating some equity

Rob:
And he’s pretty much already doing the rent, buy the room. All he has to do is put one tenant in there, easy peasy, go make your extra $880 a month. My man, that seems like a pretty solid plan to me. This next question comes to us from Robin in Idaho who posted this question in the BiggerPockets forums. Her question, should she sell her primary residence and use it as equity for her rentals? She says, we have a home worth about $650,000. We owed $350,000 in a place where we couldn’t afford to sell and buy another property. They got it back during Covid times interest rate was 2.8% and it was before a crazy boom out in northwest Idaho. She says, we’re stuck because my husband makes just enough to live. We’ve cut every possible expense and really want to acquire rentals but can’t find the capital. We have $250,000 in equity in the home after realtor cost. Is it crazy for us to sell, take the equity and move to a better cashflow market like Atlanta or Fayetteville, North Carolina and start our rental acquisition there. And then she asks, what are some great, even if they’re crazy strategies for building the real estate empire with $250,000 if we could go anywhere and we will do anything. All right. That’s an interesting question.

David:
Short answer here. I don’t think it’s crazy actually. When I started my whole bur run in north Florida, that’s where I buy most of them. I sold a property in Arizona that had appreciated more than the rents had kept up with it. It was basically a property that had a new housing development that was being built close to this house. And so the value of my house kept going up because the comps that were being built were brand new homes that were more and more expensive, but there were so many of these new homes that were built that were bought by investors that I really couldn’t keep getting tenants in my area or rents to keep going up because they had too many options. So what I found is the value of the home went up faster than the rents could keep up with.

Rob:
So scrolling around in the forums here, some of the answers were it sounds like they’re living on a single income. So one solution is get a job and work on that double income to save up money so that you can buy another rental. Some other people said you should house hack and then other people said it’s too risky right now to sell. I’ll give you my take First and foremost, I think that, I mean I hate to sound like a broken record, especially since we just did a whole question on this. I love house hacking and I think for you, getting a job might be pretty tough. Maybe you’re accustomed to a certain lifestyle. I would go the route of figuring out how I can make money the fastest. There’s two ways to do that. One, you can house hack rent out a room in your property.
Maybe that makes you an extra 300, 4, 500, 6, 7, 800. I’m not really sure in that market, but let’s just call it 500 bucks a month. That right there, that helps. It’s not going to be what turns into a real estate millionaire, but it definitely puts a dent in things over time. That’s one. Two is I probably would try to get some sort of extra job. You don’t have to go full time, you don’t have to go back to corporate life. You don’t have to work a nine to five maybe if it’s even 10, 15, 20 hours, that alone right there, the money that you make there can compound pretty quickly with the money that you’re making on a house hack. I’m not a big fan necessarily of selling. I mean, you always have this age old question of like, well, if I sell it, where am I going to go?
And you mentioned that, hey, we live in a place where we can’t afford to sell and buy another property. Well, if that’s the case, you kind of have this once in a lifetime opportunity to own this house that you can’t afford to live in because you bought it at the right time. That to me is always going to be the safest, more conservative route. I’m an aggressive investor by nature, but I always tell people, if you’ve got this magical primary residence with the 2.8% interest rate, that should be your backup plan, that should be your ripcord. In the case of like everything goes wrong, you can sell this property and cash in $250,000 if you really, really, really needed to. So for that reason, I’m always a big advocate of just hanging onto it. I know it’s not a super sexy answer to say, Hey, get a job house hack, make an extra 10, $20,000 a year, but it’s not a sprint, it’s a marathon.
And if you save up 10, $20,000 this year, house hacking and getting another job, and you do that next year as well, well great. Two years of hard work, saving and preparation can actually put you into a position where maybe you do invest in a different smaller market where 40,000 bucks or $50,000 depending on what you can save up, does allow you the luxury of buying another rental property. But my answer is, if you sell it, where are you going to go? So for that reason, stay there. 2.8% interest. That’s a beautiful thing in 2024. Don’t mess with it. What do you think, David? I mean that’s my approach. I think a 2.8% interest rate in this world in 2024. It’s the most beautiful thing ever. I think getting lucky and buying at the top of a boom is amazing and I think that they should build their net worth based on this amazing purchase that they made in 2021 and not sell it. I know it’s a bit of a conservative answer, especially considering I am a little bit more aggressive, but that’s how I feel. Sue me.

David:
All right, I’m going to play devil’s advocate here. I had a property in Arizona that I bought and then they built a housing development right next to it. They built more and more expensive houses making the value of my house go up. But a lot of those houses were bought by investors. So the rents never went up on my house because they couldn’t raise ’em too high because they would just go rent one of the new homes. So I had growing equity without growing cashflow. I sold that property, I took the equity, I took it into North Florida, and that’s what was my first bur. I pulled the money out, I bought my second bur and I bird up to about 40 properties, maybe 50 at one point in that area off of that seed money from the one thing. So even if they do something like that and they lose that 2.8% interest rate, if you can turn it into a whole portfolio of other properties, it can make sense.
The beauty of this dilemma is both options work. You keep a great rate, you keep a lot of equity, you win or you sell it and you take 300 grand, 250 grand into another market, and if you can execute growing that capital, you win. I think the key here is are there other opportunities and can you execute on them? Do you have the experience of an investor? Do you know what you’re going to be doing? Do you feel confident in what you’re going forward in? Or are you kind of just slow and steady wins the race and you still need to slowly acquire properties? That’s what I’d be looking at here. This is not the market where you can just go throw a quarter million dollars into something and trust that it’s going to work out well. There’s a learning curve to whatever strategy you get into because there’s a lot more competition.
So in today’s show, Rob and I talked about when enough is enough when you should keep scaling and how you should keep scaling, which is great to know in case you ever hit that great run where you buy a whole bunch of property, including a farmhouse in New England. We talked about how to evaluate your opportunities after you do a house hack. That’s something to think about once you get the first one down, where do you go from there? We talked about selling a primary resident to build a rental property portfolio, and we talked about Rob’s perspective as seeing solo. We also got into what’s going on in Rob’s life and in my life and in what you can do to support us. And we want to know what can we do to support you all. So let us know in this YouTube comment what we at BiggerPockets can do to help you with your goals. We will read those and we just may put those in a future episode of Seeing Green as well. Remember to submit your questions at biggerpockets.com/david so we can put you in a future episode of Seeing Green, and I’m going to let you get out of here. This is David Green for Rob. Seeing solo AB solo signing on.

Matthew Michelini, head of Asia-Pacific at Apollo Global Management, discusses its decision and the company’s $11 billion offer for Paramount’s Hollywood studio.

Are empty city office buildings going the same way as zombie shopping malls, or can they be revitalized to become residential apartments and condos? 

That question has many developers, city planners, banks, economists, and commercial landlords scratching their heads. What’s not up for debate is that commercial office space in major cities are experiencing a death spiral, or an “urban doom loop,” as quoted in the New York Times, in the wake of the pandemic, as remote working and high interest rates have limited options for troubled building owners. The future of American cities is riding on a solution.

Across the country, prices are being slashed as they were in 2008, with 50% or more markdowns. The knock-on effect has been a decimation of city budgets with a loss of tax revenue, affecting every aspect of a city’s efficiency and upkeep. Ancillary businesses such as restaurants, hotels, and entertainment venues also are feeling the pinch.

In the same New York Times article, a professor from the New York University’s Stern School of Business estimated that the national office market lost $664.1 billion in value from 2019 to 2022. That has caused businesses and inhabitants to leave, further affecting tax revenue and increasing homelessness. 

Offices to Apartments: Is It Possible?

An often-touted remedy to vacant office buildings is converting them to housing. After all, with an urban housing shortage, surely it makes perfect sense. But is it feasible? There’s more to it than clearing out desks and bringing in beds and baths. 

The good news is that—at face value—it is doable, but as with many commercial real estate issues, it’s complicated.

A shining example of such a conversion is 160 Water Street in New York City’s Financial District, a former 1970s constructed office building, recently revamped as Pearl House, a new amenity-filled 600-unit apartment building.

The obstacles

Money and sustainability are the crosscurrents of resistance, making such conversions difficult. According to economist Stijn Van Nieuwerburgh, a professor of real estate at New York’s Columbia Business School, only 10% to 15% of office buildings nationwide can be converted to residential use due to their heavy carbon footprints and the difficulty in bringing in enough plumbing, light, and air. It’s not impossible, but it’s pricey. 

Another factor to consider is that, like Pearl House, rents would need to be high to cover the construction costs. That means luxury apartments instead of affordable housing, which is not the mandate for most cities.

City Living: A New Reality

Cities as we have traditionally known them—hubs for business—are most likely changing. While certain companies are demanding workers return to the office, for others, the reality is that it’s far cheaper for workers to be remote. And it’s far less expensive for retailers to forgo expensive stores in favor of e-commerce sales backed by robust online marketing.

So what’s left for cities? Entertainment, shows, restaurants, clubs, and socializing. In this respect, the Wall Street Journal contends, American cities are starting to thrive again with tourism up—just not near offices.

An Opportunity for Investors

With the price of office buildings slashed, there is an obvious pull for investors to come in and buy at fire-sale prices. If there is a demand to live in former downtown office areas of major American cities, bold developers will start repurposing newer buildings or tear down older ones. 

A key component to making this work is to make cities attractive places to live once again. With that in mind, creating a new dynamic—a work/life culture where workers can walk to work rather than commute—could be a feasible new model. After all, it’s not that offices are completely empty; they’re just not full. Also, not everyone can work from home. 

Hybrid work models provide a middle ground for workers who are now used to working in their sweats and slippers while doing the laundry and companies demanding face time and usual business practices in the office. This concept is being adopted by city officials across the country, with incentives for developers to build more affordable housing. 

The conversion model is hardly new. Over the last 20 years, almost 80 New York City office buildings have been converted to residences, the most in the country, according to CBRE. Such conversions are credited with converting Manhattan’s Financial District into a livable neighborhood for families rather than a soulless commuter destination. 

Nationally, from 2010 to 2021, 222 office buildings were converted into residential space, with Philadelphia seeing the most, followed by Chicago. A slew of such conversions are in the pipeline for New York. Some will tout the new work/life model, with office spaces beneath luxury residences. Additional conversions are slated for Philadelphia, Cleveland, Los Angeles, and Washington, D.C.

Cash flow in luxury condos is always challenging. Often, they are the domain of affluent investors looking to park their money, leaving the units vacant rather than dealing with the hassle of tenants. 

However, many buildings welcome the short-term and mid-term rental models. Miami is one such city where investors only live for a few months of the year and look to lease their units for the rest. According to a report by the Chamber of Commerce as quoted on Condo Blackbook, Airbnbs in Miami command the 10th highest average daily rate ($290) of all the large cities in the U.S. Smaller pockets such as Miami Beach ($426), Key Biscayne ($571), and neighboring Fort Lauderdale ($297) boast even higher average rates. 

While Miami condo prices are not cheap, offset by the global demand to visit the city, office-to-condominium conversions elsewhere could likely be more affordable, with developers looking to do early business to spark sales. Realizing that there’s nothing developers fear more than empty buildings, Airbnb and other short-term rental sites have specifically targeted them, offering to join forces nationwide. While apartment rentals are the obvious target, savvy investors looking to strike a deal for condos could use the same approach to generate ongoing passive income.

Final Thoughts

The pandemic has dramatically changed the use of office space in major cities. This, coupled with technology (Zoom, Google Meet, etc.), meant that the conventional use of office space was due for a change sooner or later. Time and money spent commuting and the cost of office rents versus tangible productivity meant that the pandemic accelerated the change rather than caused it. 

However, the loss of office space has dovetailed with a chronic housing shortage, and should cities encourage developers to reconfigure empty offices into housing, there could be an opportunity for developers and smaller investors alike.

Make Easier and Smarter Financing Decisions

Deciding how to finance a property is one of the biggest pain points for real estate investors like you. The wrong decision may ruin your deal.

Download our What Mortgage is Best for Me worksheet to learn how different mortgage rates impact your deal and discover which loan products make the most sense for your unique position.

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