“If our objective is to increase productivity, innovation and economic growth in the UK, immigrants are our natural allies.” So wrote Lord Bilimoria in the foreword of Passport to Progress, a new report we recently published here at The Entrepreneurs Network in partnership with ABE Global.

Derin Kocer shows that high-skilled immigrants are more prone to entrepreneurship and have a knack of making economies more productive and innovative. It calls on politicians to make the case for the positive benefits of high-skilled and high-potential immigration.

The report puts forward a number of policy recommendations, inspired by the best existing policies from around the world, to attract top international students, high-skilled professionals, STEM researchers, entrepreneurs and unusually talented individuals.

For example, Canada has been exceptionally successful in attracting high-achieving international students in the past two decades, accounting for a six-fold increase in numbers, realising the benefits of positioning international graduates as the future of its workforce. The report argues that any country competing for international graduates needs to copy Canada in offering graduates a right to work, with their time at university counting towards permanent residency.

The UK’s High Potential Individual visa, which grants two-year work visas to graduates of top universities, is highlighted as a unique and creative policy example. However, the report argues that what counts as ‘top academic institutions’ should be expanded to include graduates from institutes such as the Indian Institutes of Technology. It also advocates for granting permanent residency to advanced STEM students on their day of graduation.

Passport to Progress also makes the case for pro-migration policies, through the establishment of specialised task forces within the Government to actively recruit entrepreneurs and talented STEM professionals. The most ambitious historical example of this was the US’s Operation Paperclip whereby over 1,600 German engineers and scientists after the Second World War, who later led the American space program. Given the historic context this wasn’t without controversy, but a modern equivalent wouldn’t suffer from this.

The report also highlights Israel’s Innovation Labs programmes, which provide migrant entrepreneurs with access to critical technological infrastructure, and New Zealand’s Global Impact Visa, which creates training, investment and networking opportunities for migrant entrepreneurs.

The political context for making the case for more immigration is challenging. As Rob May, Chief Executive Officer of ABE Global, said: “Recently, the central relationship between immigration and innovation has come under attack. Motivated by desires to limit headline net migration figures, the positive effects of migration have once again become clouded in a hostile narrative that finds its fulfilment in the populist rhetoric that any immigration is antithetical to national progress. This neglects the historical truth that the flow of ideas, talent and people has been the cornerstone of security and prosperity.”

But we’re optimists. “Immigration is a story about opportunities. We need more of those stories and Passport to Progress is our contribution to how,” says Kocer. “We hope to unlock a sensible conversation in which the true potential of migration can overcome misplaced concerns,” says May. I would add that the arc of history bends toward more high-skilled immigration, as the evidence mounts. After all, over a third of the UK’s fastest growing companies have at least one foreign-born founder.

David:
This is the BiggerPockets Podcast, show 817.

Dan:
I started as a poker player. So negotiation is actually my favorite part of being a real estate agent. I love it. When you’re thinking for yourself like, what is this property worth? And you’re evaluating it for yourself, you’re looking at properties completely different than an agent that has never bought an investment property or maybe even hasn’t bought a property themselves at all. They don’t understand how to value the property and where the price should be because they don’t know what it’s like to have skin in the game, and they don’t know what it’s like to have skin in the game over and over and over again.

David:
What’s going on everyone? It’s David Greene, host of the biggest, the baddest, and the best real estate podcast on the planet, aka The BiggerPockets podcast. Welcome all of you. We’ve got a great show for you today. I am joined by my co-host, Rob Abasolo, who’s looking svelte, fit, trim, handsome, dark, well-dressed, well-manicured. Like can you just slow down this glow up that we’re all getting to experience in real life?

Rob:
Yes. I’m now changing my title to co-host with the co-most.

David:
Hmm.

Rob:
Yes. Yeah. So, if you could start referring to me as that, that’d be awesome.

David:
This is a true marketer at heart because that’s incredibly cheesy, yet will still stick in my brain. Sticky cheese, the Sticky Cheese Method with Robert Abasolo, Marketing Co.
In today’s show, you’re going to hear all about two popular markets, Chicago and Houston, as well as agents that work in those markets that can give you the scoop on what to look for, what to avoid, and how to approach buying real estate there. We talk a little bit about cashflow versus equity, identifying up and coming markets and the right approach to take in a challenging market.
Rob, what do you think investors should keep an eye out for on today’s show?

Rob:
Honestly, I think it’s a really great educational episode for anyone that is new at working with real estate agents in general because as you’ll hear in today’s episode, you’re going to hear how they provided value, how they were able to save deals, how they were able to price properties, and it really is just nice to know that there are realtors out there that are really thinking about your deal from every angle. We talk about owner financing and how not all realtors are down to have that conversation with the sellers and the importance of having someone that’s willing to go at bat for you.

David:
That is true. Having the right agent in your quarter can make a huge difference in having a portfolio that scales or having a portfolio that fails. Today’s quick tip is simple, head over to biggerpockets.com/agentfinder to match with an investor-friendly agent now. It’s fast, it’s free, and it’s easy. That’s biggerpockets.com/agentfinder and I am on there too, so hopefully, you all go find me and click on my beautiful bald face so that we can get in touch. All right, let’s get into today’s show.
Dan and Jodi, welcome to the show. So nice to have you two here today. We’re going to get into some interesting markets, Houston and Chicago. We’re going to run through each of these markets and then we’ll get into some recent deals that you two have helped close. Then we’ll talk about what made those deals work, and all of our listeners can use these insider tips and secrets on their next deal too. So we’ve done these before. They were a hit. We’re going to be learning all about what is available in Houston and Chicago.
Dan, we’ll start with you. A little bit about your background here. I understand you’ve been in real estate for 20 years. You’ve been an agent for five. You were full-time in learning development and training agents, started flipping with dozens of houses being flipped over the years. 10 units total. Made up of single family and multi-units. And you are a poker player who used your winnings to start in real estate. Did I miss anything there?

Dan:
No, you got it. That’s right.

David:
Awesome. All right. Jodi, you’ve been in the game for 20 years. You own a boutique brokerage where you have 12 agents that work for you, a property management company with home design and remodeling, a little bit of everything. 22 single family homes, a couple commercial properties. You’ve got historic homes that have been converted into office space. You flipped 30 houses, and one of the agents on your team was an investor that you met through BiggerPockets and you helped them acquire their first few properties. They later became a full-time agent on your team, and now you’ve got a full brokerage. Did I miss anything there in your story?

Jodi:
I think that pretty much sums it up.

David:
Awesome. Well, it’s nice to have you two here. Now that we have a little bit of background on you, let’s get into your markets. Dan, I’ll start with you. What are some of the long-term benefits to Chicago?

Dan:
Well, Chicago really didn’t go through the huge growth spurt that a lot of the other markets did. We increased about 3%, 5% depending on what part of the market we’re in a year. And some of our areas are just now returning to pre-recession prices. So that tells you that while our prices have gone up, there’s still a long way from what you’ve seen in the other markets. So there is incredible opportunity to appreciate price, and as you always say, there’s going to be a lot of appreciation in rent as well.

David:
There you go. What about population shifts? What’s the economic engine that’s driving Chicago?

Dan:
So, like every northern city, there’s always people as they get older, they tend to move to warmer climates. But for the most part, our population has done really strong work. Now, getting all the people that thought that they could live forever in Tahiti and work remotely, realizing they’re going to have to go in the office, they’re returning and we’re starting to see all that happen.
So there’s a couple of things. Number one, we have major hubs here like McDonald’s and Motorola and Allstate, Grubhub, and then United Airlines. And United Airlines is important because they have a hub here. And as part of that, there’s a huge consultancy part of Chicago. So, we have all the big companies like Deloitte, McKinsey, and Bain. And those people tend to be nomadic unless they take a full-time job that’s going to last forever. Most of those people expect to be here for a short period of time. And that period of time is one to three years. That’s what they expect. So they’re going to be renters even though they can easily afford properties.
But companies like United, when you have a hub at United, you think of people that the captains of the airlines, but you also have all the people that are just getting the snacks to the cart and there’s just tremendous opportunities. So whether it’s white collar or blue collar, there’s great paying jobs all over the city.

David:
But you’re seeing a tenant base is what you’re getting at. These are people that need to rent?

Dan:
Yes, exactly.

Rob:
And tell us, Dan, why should people consider Chicago?

Dan:
Well, Chicago is an extremely popular city to live in. We recently had the number one ranked restaurant. We have lots of world-class restaurants. It’s the place that improv lives and it’s the number two theater city in the United States. A lot of people move here when they graduate from college in the Midwest because it is the New York of the Midwest. There’s endless opportunities. The public transportation system is incredible. You don’t have to own a car here, but you can also own a car and find parking here. So it’s a great combination of both. So there’s a lot of reasons that people want to live here. So you’ll always have people that want to live here to buy and to rent.

David:
What would you say are the specific strategies that work best in the Chicago market?

Dan:
Anything works in Chicago. When you think about short-term rental, Rob, I loved your @BPCon this year was great.

Rob:
Oh, thanks.

Dan:
When you talked about short-term rentals, just the creative ways in which you can do it, and I think that helps you stand out because there is a lot of competition in short-term rentals, but you should know that the city ordinance to say that you do have to live in the property. So whether it’s a multi-unit property or single family home, you have to live in it. So it’s not something you can easily do out of state. So most people are moving to midterm rentals.
Obviously, I’ve flipped a lot of properties. It’s really easy to flip in Chicago because not only do we have tons of distressed properties, Chicago is unique in that on the same street, you’ll have a property that’s $350,000 sitting next to a property that’s $850,000 around the corner from a property that’s $1.2 million. So those other properties make the appreciation happen very quickly if you make the right changes to the property.
But I think the bread and butter in Chicago, the thing that most people should focus on, two to four unit properties. We have tons of them in Chicago, but they’re getting torn down every day because as people are looking for places to build single family homes and convert into condos, those are the best ways to do it without having to build completely from scratch. So, if you get into a two and four-unit now, it’s going to be become more and more valuable because it doesn’t make any financial sense to build them, they were built a long time ago when labor and materials were cheap. And if you were going to spend that amount of money on a property now, you would build a single family home or you would be able to hide in rentals or high-end condos. You would not build what’s there today. And there’s 1200 for sale right now in the area. So, there’s lots of opportunity.

Rob:
Awesome, man. Well, thank you for the snapshot. And before we move on to Jodi here, just wanted your take on the pizza, yay or nay?

Dan:
I am a huge fan of deep dish pizza, but you should know that true Chicagoans don’t actually think that’s their pizza. They have a different style called pub pizza, which is actually cracker thin. That’s what they think is their pizza. So, the people that think that deep dish is a Chicago local pizza, it’s really people that transplanted here that fell in love.

Rob:
Oh, interesting.

Dan:
But I love it all.

Rob:
Yeah, I did not know that. I’m a New York sliced guy, but occasionally, I do like to eat lasagna, and that’s where the deep dish comes in. But yeah.

Dan:
Yes, exactly.

Rob:
I think it’s all right, I got to try that. Well, thanks, man, I appreciate it. So Jodi, I’m going to ask you the same question. Can you tell us a little bit about some of the long-term benefits of investing in Houston?

Jodi:
Sure, absolutely. So I think some of the long-term benefits, and we’ve got a very favorable tax environment here in Texas, both for investors, property owners, as well as businesses. We’ve got good steady appreciation over the years. It’s a very landlord-friendly state. And we’ve got a very strong rental demand here in Houston. I know we’ve just had a 19% increase in rental properties over the last year, 3% increase in price. I think our average rental price now is about $2,350. So it makes it a very lucrative location for investors to look at long-term buy and holds.

Rob:
And what are some of the population shifts in Houston and some of the economic engines in the area?

Jodi:
So Houston is the fourth-largest city. Personally, I’ve experienced a ton of out-of-state people moving into Houston. I think the statistics are, we’ve had about 85,000 newcomers to Houston over the past year, two-thirds of those being people moving from other states. I think on an average over the past several decades, Houston has seen an increase of about 2% population. Some of the big economic sectors in Houston. Of course, everyone knows us for oil and gas. However, there’s a huge healthcare. We’ve got the number one largest bed center in the area, so that’s a big driving factor there. We’ve also got aerospace and biomedical research, tons of job opportunities in Houston.

Rob:
Yeah. Yeah, for sure. Oil and gas is a big one. NASA, like you said, and then overall, not specific to Houston, but we also have Whataburger and Bucky’s here, and that’s just an overall economic driver for Texas in general. Other than those two amazing things, why should people consider Houston?

Jodi:
Well, I think they should consider Houston based on a couple of what we’ve discussed in regards to our population, our good long-term appreciation rates. We’ve got a vibrant art and food scene, which is very important, low cost of living. Houston’s a very diverse community.

Rob:
And did you mention that the average rent in Houston is about $2,300?

Jodi:
Yes.

Rob:
Okay. Yup.

Jodi:
About $2,300 in Houston, yes. That is about a 3% increase from last year. Single family homes have jumped 19% year over year with the average lease price climbing 3%, which is now at $2,363, which is a record high. There’s also been a total of $4,396 leases were signed compared to $3,690 in July, which is the highest volume of single family leases that have ever been recorded in Houston history.

Rob:
Wow.

Jodi:
So we have a very strong rental market. The demand is there.

Rob:
It is. I mean, I grew up in Houston from zero to 18. I feel like it’s just such a different city 10 years later, which I guess you could say about really any city, but being from here and actually returning, it is just crazy how much development. And honestly, yeah, the real estate seems to be growing at all times. The rent prices definitely seem to be so much higher every single year. What strategies are currently working here?

Jodi:
I see I’ve got a lot of clients that are interested in the long-term buy and holds. Of course, with interest rates increasing the way that they are, it is a little more difficult to cash flow, but I’ve got a lot of investors focused on more long-term appreciation. And so, some of the metro areas in Houston, areas that have very good school districts, I have noticed I’ve got a lot of clients that are interested in that for the long-term appreciation aspect.
I think Houston is such a diverse area. It’s so large that you can really focus on multiple different strategies just based on what the investor’s goals are. So, I’m seeing a lot of newer investors that are purchasing properties, house hacking, or inside the loop, possibly looking at properties with garage apartments, doing short-term rentals there in order to offset those mortgage payments and be able to get in oftentimes with a little less than the typical 20%, 25% down payment for investment properties of owner occupying them. So I think there’s multiple strategies.
Of course, we also have older homes. So, doing the BRRRR strategy. Over the past few months, I’d say the majority of my clients are looking for the long-term buy and holds and small multifamily anywhere from two to four units, and we’re having great success there.

Rob:
And then when you said the loop, what do you mean by the loop?

Jodi:
I’m sorry. Inside the 610 loop, so that’s more inner city. And then you’re going to have, there’s three loops in Houston. And you’re going to have the 610 loop and then the Beltway, which is a little more suburban and far out, which used to be considered far out, is the Grand Parkway loop where you’ve got all the more suburban areas. And those are some of the areas that are really good for long-term buy and hold. Good appreciation, great school districts.

Rob:
Very cool.

David:
So I want to ask each of you a question that doesn’t get brought up a lot in real estate, but I think it’s a question that needs to be asked. The last decade, we’ve primarily invested for cashflow. Podcasts have described cashflow as the reason to invest. This has been the right motivation is you should invest your money to get cashflow. And if appreciation happens or if rents go up, so much the better, but you need to really rely on cashflow. And Jodi, as you mentioned, rates have gone up, but prices really haven’t gone down. Supply and demand is out of whack right now. There’s still much more demand than supply. So cashflow has been largely eaten up in a lot of markets, but prices haven’t come down to fix that.
What are your thoughts? We’ll start with you Jodi, on if a buyer is not going to get cashflow, are there certain markets they could focus on within Houston where you think rents will go up, So eventually they will? Do you think that there’s a strategy where they should be okay with breaking even if they believe the property values are going to increase? Or do you think that investors should just stop buying properties unless they cashflow really strong?

Jodi:
I think if a property makes sense, and especially buying in some of the areas that I had mentioned, some of the suburban areas where you’ve got steady appreciation and I think it’s always a good idea to buy if you can have someone else cover your mortgage and help build equity. And so, I would suggest some of the areas, some of the suburban areas, I’d say like Katy, Cypress. The school districts are the driving factor. You’ve got a lot of people moving from out of state specifically looking for those areas, wanting their kids in good schools. And so, you’re going to have long-term renters, good steady appreciation on average about 7% per year. So I am seeing a lot of investors now that are diversifying their portfolios and they are perfectly fine with breaking even and focusing on areas that have good long-term appreciation. That is something that we assist in guiding our clients and showing them the statistics in specific areas and giving them their feedback of which areas are ideal for that.

Rob:
Yeah. Houston is a really interesting city in that it is 80 cities all clustered around one big city. It feels like every suburb of Houston is just its own little metropolitan area. Like Cypress for example, I think that’s a really great booming area in Houston. But five years ago, it didn’t look like that. It was just fields. And you drive by Cypress now and it really is its own living, breathing city. I agree though I think a lot of those cashflow opportunities I think do tend to come from some of the suburban areas. It’s interesting how it is seemingly tougher to break even.
I’m actually working on a seller finance deal in Houston right now at the moment, and it loses money. And the seller proposed the terms to me. I said, “Hey, this loses money.” And he was like, “Well, the thing is with real estate investing, sometimes you got to lose money, but you understand that you’re building equity over time.” And I was like, “Well, yes, but I don’t like to walk into deals where I’m losing money automatically.” So we’re trying to work out terms to break even, but it definitely gets tougher in Houston specifically because the property taxes in Texas seem to be pretty high.

David:
Dan, what about you? What are your thoughts on investors that are having a hard time finding cashflow in the Chicago market? Do you think that there is an argument to be made for taking maybe a delayed gratification approach if the fundamentals are strong and you believe you’re going to have rent and price growth, that it’s okay to invest in those markets? Or are you like, “Hey man, cashflow till I die. That’s the only reason to invest. If you can’t find it, just don’t buy.”

Dan:
I’m really glad that you brought this question up and you guys had a great interview recently with Barbara Cochrane where she talked about she expects to overpay for properties and she’s thinking long-term. When you think about year one of a rental property, I just don’t think it makes any sense. Real estate to me is a long-term process and I just don’t think it’s that hard. You buy a property, your tenant pays down your mortgage and eventually, you are going to make a lot of money. If you’re not making a lot in the beginning or even breaking even or a little below it, eventually you will. The rents will go up. The price you’re paying for the mortgage will stay the same.
As somebody that invested in properties not knowing what he was doing in the beginning, I started before I even knew about BiggerPockets. We didn’t know what we were doing it, and here we are years later, our properties are worth two or three times what we paid for them. And we’re cash flowing and everything. I just think if you focus on short-term today, that was a strategy for 20 years ago. That’s not the strategy for today.

David:
That’s a great point. What worked before doesn’t always work now. And let’s give a disclaimer. Rob made a good point. This does not mean buy a property that bleeds two grand a month hoping that it goes up. That is not what we’re saying. We are talking about if fundamentals are strong, businesses are moving into the area, there is not enough supply for the demand that you see. Let’s assume Cypress, I know nothing about it, but hypothetically speaking, this is an area everybody wants to move into. The school scores are high, wages are higher in Cypress than they are outside of it. You have every reason to believe that this area is going to grow at a faster pace than the others around it, but wages haven’t gone up to the point where the tenants can afford to pay enough for the rent to make it cashflow. Right?
There is an argument to be made, I think, that buying in better areas will make you more money over time, but they may not crush it right away. That is not to say buying in a war zone and hoping that rents go up is a good strategy. I want to clarify that because it seems like there’s always someone, no matter how much I try to make this clear, that finds a way to be confused and accuses me of saying, “David Greene said cashflow doesn’t matter and we shouldn’t even analyze properties, and you shouldn’t even look at it.” That’s definitely not what we’re getting into. But I do think that some of the better markets like what we’re talking about today, have more competition for the homes which drives the prices up, which does eat up a lot of the cashflow, unless you find that unicorn that we’re always looking for.
So ,let’s move on a little bit here. Each of you has a deal that you’ve done. Jodi, I’m going to start with you. Tell us about the last resort.

Jodi:
So this was a property that one of my buyers located. It had been in contract previously. Typically, when I see that, I like to reach out to the listing agent, get some background information, see if they have any current inspections on the property, just try and figure out any insight that I can get that would be beneficial for my borrower going in. Got under contract, I think we negotiated after reviewing the inspection report. So she had a good idea of knowing what issues were going on with the property, which it was pretty much renovated, not many issues at all. We were able to negotiate about a 20K price reduction and got into contract. Everything was going smoothly. She opted to have another inspection report done. We negotiated a few repairs there during the option period.
Moving towards closing about three days prior to her financing contingency, found out that the lender had miscalculated her monthly incomes. Let me backtrack a little bit. She’s self-employed so this was a stated income loan. So, found out she wasn’t able to get approved. At this point, she had already sold her home in Austin, packed up and moved to an Airbnb waiting for closing in Houston.
So, we went to every other lender. I’ve got a good resource of lenders that I’ve worked with over the years and basically, everyone said no, they didn’t even know why the first lender approved her. The funds just aren’t there, she’s not going to be able to get it approved.
That initial lender had suggested going in with basically private moneylender or hard moneylender. Her rate was just jumped up to 12%, wasn’t going to make sense. I sat down with her, said, “Look, I know you really want this property, but you’ve got to take emotions out of it. Put your investor cap on. It doesn’t make sense.” Her intention was to occupy one side of the property and short-term rental the other. It was still, with that interest rate, going to make it very difficult for her to cashflow anything.
So, as a last resort, I reached out to the listing agent, was able to negotiate with her, and the seller agreed to seller financing with some pretty favorable terms. The terms were actually about 2% lower than the initial rate that she was going to go with, with the stated income loan.
So, we were able to negotiate that. Another hurdle came up that found out there were open permits on the property and the contractor that had done the renovations walked off. Seller couldn’t get ahold of them. And if anyone knows, working with permitting in the city can be difficult at times.
So at that point, we stepped in. I also have a construction design remodeling company. Got my project manager involved. They were able to go to the city, pull some strings with some people they know, and we were able to get those permits passed. And we actually closed on that deal about two weeks ago, and she has had it leased out on short-term rental for the past two weeks. She’s had full vacancy.
So it was a deal gone south that had many hurdles, but we were able to shift gears when needed and use our resources to actually get a more profitable deal for the investor as opposed to what she was initially going in at.

David:
You had me at pulled some strings with the city to get the permits approved. You just became my go-to Houston real estate agent. Congratulations, Jodi. You’ve skipped to the front of the line.

Jodi:
Well, it is hard to do. But at the end of the day, I mean what we’ve learned and we’ve learned in many municipalities in working with permitting, ultimately, they just want the job done right. And if you do it right and you do it the first time and you follow the guidelines, it’s not that difficult. So, we’ve got a good reputation working with many of the cities, and they know if we’re on the job that it’s going to be done right the first time. And so, not necessarily… no money under the table, anything like that, but just representing our clients to the best of our ability and getting the job done.

Rob:
And when you said that she was booked full occupancy, what do you mean by that? Do you mean that she listed on Airbnb and every night was just getting booked by guests?

Jodi:
Yes. Yes. For two weeks. She can’t believe it. She is a newer short-term rental or Airbnb host. She had her last property in Austin and she said she had about 50% vacancy there. So she’s new and she’s been booked for the past two weeks, so she’s super excited about that.

Rob:
Cool. Very fun. Well, how did you find the deal?

Jodi:
It was on MLS. And as I mentioned, in this market, just well, given the past year market, you had to be a little more creative to find deals. So I always like to look at properties that have fallen out of contract. Oftentimes, you’ve got sellers that are motivated, they may be in contract for something else. And so, when I see that something’s fallen out of contract, I like to jump on those and try and get it locked up as quick as possible for my clients.

Rob:
Awesome. And how did you help with the due diligence, the team building and some of those other aspects within the deal?

Jodi:
At first, I assisted in recommending our inspectors, lining that up. As I mentioned, our contracting company came in and they were able to get the permits cleared, which the seller was unable to do. I also got her in touch with an attorney that was able to structure the owner financing terms and draw up the paperwork. Also connected her with a property management company that she hasn’t employed yet because she’s been doing the management herself for the short-term rental, but that she would possibly, in acquiring her next one or other properties, she would help utilize.

Rob:
And you talked about it with some of the connections that you were helping to make, but were there any other ways that you demonstrated value to your client?

Jodi:
I believe just not giving up and being persevering over the hurdles that we encountered. Many people would just walk away, but ultimately, I mean I make a connection with all of my clients. And at this point of the transaction, I wasn’t giving up and I was making sure that she was going to be able to get this closed no matter what. So I think thinking outside of the box such as owner financing, that that’s something that I would say retail agent may not consider, but as an investor myself, I know that where there’s a will, there’s a way, and you don’t know unless you ask. So first, suggesting it and then putting her in touch with the correct people that were able to structure the deal and get it closed. I think that’s a way that we were able to turn tables on, what could have been an ugly situation and made it profitable for both her and the seller.

Rob:
In general, because I agree, I think any realtor that is willing to go to bat on the owner financing side, an amazing, amazing trait and characteristic. Do you feel like in general, most realtors are pretty, not anti, but won’t really ever take that to the seller?

Jodi:
Absolutely. I think most realtors, just because they don’t necessarily understand it. And I think a lot don’t want to come to their seller and propose something that they don’t understand or can’t educate them on. So, I have encountered many that do not want to. And then, as I educate them on how it can be most beneficial to their seller, as well as the buyer, I’ve been pleasantly surprised that others will. I believe that they need to be educated at first and know how it can help all parties involved.

Rob:
Awesome. Well, keep fighting the good… Now, I know who to come to for all my owner finance deals.

David:
All right, Dan, let’s talk some Chicago real estate. By the way, how come you don’t have an accent? Why is it that I go to cities? I just got back from Boston, I was there for the UFC fights. 20% of the people had an absolute iconic Boston accent like you hear in movies, then 80% of them just sounded normal. How does that happen?

Dan:
I was not born in Chicago. I actually was born in Indiana, so I have an Indiana accent.

David:
Okay, you are off the hook. What about everybody else that lives in a big city but doesn’t have the accent?

Dan:
Well, it really depends on the community you’re from. You mentioned this about Houston, but Chicago, it is really a collection of neighborhoods, and there are neighborhoods, and you live and work in that neighborhood, and everybody sounds the same. And then, in a different neighborhood, they sound completely differently. We have Polish neighborhoods where people only speaks Polish, and we have lots of neighborhoods where people only speak Spanish, and then we have lots of neighborhoods where people sound like Saturday Night Live Skid.

David:
That is a sound answer. I threw it at you out of nowhere and you gave a very good explanation. You also highlighted what I should have thought about, which is not everybody that lives there was born there and grew up in grade school, so there could be some transplants that I should have thought about. But the Saturday Night Live Skid is exactly right. It was actually my first time visiting the East Coast. And I kept thinking, every time I would talk to someone with a really thick accent, they’re pretending to be a character out of a movie in Boston. There’s no way that they actually talk like this all the time. And then I eventually realized, “Oh no, it really is that accurate.” They don’t like Rs. The letter R gets dropped out of everything they say. They’re just not fans of the R. All right, so tell me about Logan Square.

Dan:
So I had a client that had called me up from the Agent Finder on BiggerPockets. And I talked to him, got a sense of what he wanted to do, and got him qualified with a lender that works with multiunit properties, and felt really good about him. And very rarely, but every now and then, I find something on the private listing, which is just absolute slam dunk. So I called him up, and I said, “We should do this.” People don’t know private listing or listings that you can’t see on Zillow or Redfin that only brokers that know how to access them and make them available to their client, can show them. So I called him up.
And so many people that are listening to this podcast are listening for years and are afraid to buy something. And I found that when I offered him that, that he was suddenly dragging his feet nervous because it was the first thing I was showing to him. And I said, “Trust me, this is an absolute great deal.” And he looked at it and he loved it. They had redone the whole thing.
But David, as you know, a lot of the people that sell multiunit properties have no business doing it. They don’t know how to price them, they don’t know what they’re doing. And he just listed it way below market. But because it hadn’t hit the public market yet, there wasn’t much competition. So I’m begging this guy to get the offer in and he’s thinking and thinking. And finally, we get it in, and they said, “Oh, we just got another offer that’s much higher than that, and so we’re going to go that way.” So we lost out in it.
And then, he spent the next day going through, looking at his numbers and going, “Oh my God, I really screwed up, didn’t I?” I said, “Yeah, you really missed out on something.” And I don’t tell people this, but when there’s a multiple offer situation, I don’t tell them because I don’t get their hopes up. I’m always calling that agent saying, “Listen, if anything’s going wrong with this deal, give me a call. We’re going to get this done. It’ll be a sure thing.” Because a lot of people when they bid over asking price, once they do that, then they start to regret it and they have second thoughts about it, and then they start renegotiating the price. And so, that was happening. He called me up and he said, “Is your buyer ready to go? And I was like, “I hope so.” And I said, “Yes, absolutely.” I called him up. And by then, he was really excited for the deal. We got it under contract and everything looked great.
So this is a unique property. It was a two-unit property in Logan Square. And Logan Square is a neighborhood that is appreciating like crazy. There’s great restaurants and bars and breweries. People want to live there. So there’s lots of opportunity if you get a property there to find renters. But what was unique about this property was there was a top floor and then the bottom unit had two floors. And the people that lived in it were brother and sister. And in order to give themselves privacy, where the stairs were, they put a piece of drywall to separate them so they had privacy. And so, when the appraiser came by, he said, “This is not a two-unit property, it’s a property that has two pieces that aren’t connected.” And he couldn’t understand. All we do is take down a piece of drywall and it’d be fine. So he did not appraise at value.
So I had just promised this agent that we could get this done and now suddenly, it’s not appraising. But fortunately, the lender I worked with is really creative and we came up with an idea and we went back and I said, “Look, can you get the seller to take the drywall down? We’ll redo our loan so we get another appraiser out.” Because usually if you send the same appraiser out, no matter what you do, it’s not going to appraise above value.
So they had to, at cost, take down the drywall, clean it all up, make it look great. We sent out another appraiser. And a nice twist of fate, it appraised at $60,000 above what he was paying for it. And he got it. He got $60,000 of equity from moving in, and it’s cash flowing from day one. He’s really excited.

David:
You said something earlier, I don’t want to skip over. There is a psychological condition where if you are paying less than the asking price, you think you’re getting a good deal, and if you’re paying more than the asking price, you think you’re getting a bad deal. And it drives me nuts because it’s like tell me you’re an amateur without telling me you’re an amateur. It’s you use the list price to make your decision on the value of the property. It does happen where a house is listed low and writing an aggressive or over asking price offer is the smartest thing you could do to lock it up before they get a lot of other offers and realize they listed it low.
So what probably happened is you were speaking to that listing agent, they knew your guy was sniffing at the bait, but he hadn’t actually bit on the worm yet. You were trying to get him comfortable with going in strong and playing the listing agent like, “Hang in there, hang in there, hang in there. Come on, buddy, we got to do this.” And then someone else called and the listing agent told them, “Oh, I got another buyer.” And his guy was like, “Oh hell no, I’m buying that thing now.” Came in 20 grand higher, he gets the great deal. Your client wishes that he had.
I just want to co-sign on what you’re saying here that it is not inherently bad. Your agent is not ripping you off if they ask you to pay over asking price or I should say they recommend that you do that because sometimes properties are priced low, sometimes they’re going to get seven offers and the new baseline for what the seller expects, it goes from the $600,000 asking price to $650,000 because that’s where the offers have come in at. And had you paid $610,000 in the beginning, it would’ve looked like a good deal. Have you experienced that as well, especially with some of the small multifamily?

Dan:
David, yeah, that’s absolutely the bane of my life is I always tell people it’s not the price of the property, it’s the starting price. So sometimes the starting price is too high and sometimes it’s too low. And you can use the data to figure that out. It’s not hard to figure that out. I can tell usually if a property’s going to go the first weekend. So do you want the property at the valuation you put it or do you want it at the valuation that some agent, who may not even know what they’re doing, listed the property at? Yeah, I totally agree.

David:
There’s another point there where when you’re selling your house, because I know a lot of our listeners, at some point, we’ll need to sell a house with an agent. There is a temptation to choose the agent that says, “I want to list it at whatever the highest price is.” It feels safer. Like, “Well, this person said $700, but this person said $800, I’m going to go with the $800.” And then it sits there for four months not selling and it becomes stale product and nobody’s seeing it in the searches, and the showings dry up, and you have to drop it to $700 and then you get offers at $650 because it’s been there for four months and nobody wants it at that price.
It’s your own fault because you went with the agent that told you what you wanted to hear versus the agent that said, “Let’s list it at $700, try to get several offers and now my skill as a negotiator will play and I will push those offers up to $750,” versus, “Let’s price it at $800 and maybe someone will write an offer at $750.” It just doesn’t work that way. That’s another thing I want to highlight. The skill of the agent you choose plays a huge role in how much money you make. But most clients, and I think you probably can both agree, have no idea if they got ripped off or if they won. All they know is what their agent tells them.
You both negotiated against other agents that did a terrible job, and you knew it, and you knew they cost your clients money because you knew you made your clients money. In order for one side to make money, somebody had to lose it. That’s the way that it works. And I’m sure those agents never go and tell their clients, “I screwed up. I listed your house too high. I got too greedy. I went on vacation for three days and didn’t want to answer my phone. And so, the buyer that we had moved on somewhere else,” whatever the case was. They say, “Oh, those buyers are just jerking you around.” It’s just be very careful who you choose as your agent and make sure they have a lot of integrity because they can color how that went down however they choose to and you won’t be privy to that information.
As investors yourself, I’m assuming that each of you have a different perspective when it comes to this. So I know, Dan, we’re still wrapping up on your deal here, but do you have experience with selling real estate where you feel like your experience as an investor is helping your clients because you can shoot straight with them where other agents that don’t own their own rentals, that need that deal to pay their mortgage, feel pressure to tell them what they want to hear?

Dan:
Yeah. You mentioned at the beginning I started as a poker player, so negotiation is actually my favorite part of being a real estate agent. I love it. And some agents don’t. They can’t sleep at night going through the negotiation process. But yeah, when you’re thinking for yourself, what is this property worth? And you’re evaluating it for yourself, you’re looking at properties completely different than an agent that has never bought an investment property or maybe even hasn’t bought a property themselves at all. They don’t understand how to evaluate the property and where the price should be because they don’t know what it’s like to have skin in the game and they don’t know what it’s like to have skin in the game over and over and over again.

David:
Jodi, how about you? Have you seen experiences like this?

Jodi:
Yes, absolutely. For example, I had a property. I had someone that called us that an investor wanting to do a full rehab on a property. And they called in our design remodeling company, and one of my salespeople went out to do the bid. They realized, “Hey, this person probably doesn’t need to put in $80,000 to sell the property.” They consulted with me, and they had multiple other agents that told them, yes, they need to put granite countertops in, they need to change the floors, they need to put in a roof.
And when my salesperson came in and said, “Hey, I want you to look at this property, they want to do a full remodel, I don’t think it’s necessary.” I evaluated it, looked at the comps and said, “Absolutely not. It’s not necessary. Put some paint on the walls and the property’s going to sell.” There’s no inventory in the neighborhood right now. So I put my investor cap on thinking, no reason to go in and spend all of this money to maybe make a $20,000 difference because the home’s not going to appraise if not. So, absolutely. I think many times as an investor, we put that cap on and think how we’re going to save our client’s money as opposed to making it the most beautiful home in the neighborhood and making our marketing collateral look good.

David:
Yeah, a lot of people don’t realize agents don’t get training in what they’re supposed to do. A lot of it is just whatever occurs to them is the right way to think about it. It’s sort of the Wild West, and that’s why choosing your agent wisely is so important.
One of the things that I’ll do, just like you said, Jodi, someone will say, “Hey, I want to sell my house.” And I’ll look at it. It’s not updated. It’s got the green shag carpet, the white tile, brown grout linoleum, the oak cabinets, wallpaper with sunflowers, just your typical, this is not going to show well. I don’t assume that they need to go spend a $100,000 to upgrade their house because they may only get A $100,000 back if they do that, but they spend three months going through this really annoying rehab that ruins their life.
I just look and see, well, how many actives versus pendings do we have? When there’s nine active properties for sale and one or two pending, there are too many homes for the buyers that are out there looking. And so, we are going to have to do something to improve the condition of this property if we even want a chance versus there’s one property active and nine pending, there’s so many buyers out there looking for these properties that you don’t have to do anything. They’re going to pay almost the same price because they have no other option.
And that little thing, I swear, agents don’t even think about it. They just go and look up comps and they get a price and they say, “Here you go.” They don’t call the other agents and ask them, “How many showings are you getting on your listing?” They don’t call the agents of pending properties and say, “What did you go under contract for? How many offers did you get?” That’s really the only way I’ve found to get a snapshot of what’s going on in the market, is to talk to the agents that have pending homes for sale and ask them, “How many offers came in? How aggressive were they? Would you price it at the same price? Would you go higher? Would you go lower?” But that one little thing will make such a big difference when you’re giving information to your clients.
So all of our listeners, as you’re going to choose your agent, hopefully you’re using the BiggerPockets Agent Finder to do so, ask questions like that. See if the agent… When you say, “What do you do to sell a home? How do you make sure I know I’m pricing it correctly?” If you just get a, “Um, uh, well, we look at comps,” probably not the agent you want selling your home.
And the same goes for buying a house. You want to be asking them similar questions to what you hear Rob and I asking on today’s show of Dan and Jodi, because you could tell from their answers they know their market, they know what’s going on, they know where the opportunities are, they know what to help you avoid, and that’s what you’re really looking for, especially if you’re investing in a market you’re not familiar with.
And if you like more information than how to do that, check out Long-Distance Real Estate Investing where I explain the process for doing so and having the right agent is a crucial piece in that puzzle.
Dan, Jodi, thank you so much for being here. I really appreciate you guys. Jodi, if people want to find out more about you, if they want to reach out, where can they find you?

Jodi:
So I can be found on thisislivin.com. There’s no G at the end. And on Instagram and Facebook, Thisislivin_Properties.

David:
All right, and how about you Dan?

Dan:
Dan Loves Houses everywhere, including my website.

Rob:
Nice.

David:
Is it like Dan heart for loves like the poker suit?

Dan:
No. That would’ve been great. No.

David:
Rob, how about you? Where can people find you?

Rob:
You can find me over on YouTube and Instagram at ROBUILT, R-O-B-U-I-L-T.

David:
Did you give up on TikTok because someone stole ROBUILT over there?

Rob:
No, I’m still on TikTok, but you get the good-good over on Instagram.

David:
There you go. You’re only giving us the best version of Rob, not the mediocre.

Rob:
That’s right, that’s right. The weird stuff is on TikTok, but the good stuff, Instagram.

David:
Yeah, if you want to get the best of Rob, it’s like the very end of the buffet. Don’t eat early, avoid the TikTok. Wait till you get to the end. That’s where you’re going to find the most expensive items. Don’t fill up on all the mac and cheese that they put out early.
You find me at davidgreene24.com or @davidgreene24 on Instagram or your favorite social media.
Thanks again, both of you. Really enjoyed having you here. Rob, anything you want to say before we get out of here?

Rob:
No. No. Thank you for your time and maybe I’ll be investing in Chicago and more in Houston with you all, so thanks. We appreciate it.

Dan:
Thank you. I really enjoyed it.

Jodi:
Thank you all so much. I really appreciate it. Thanks for the opportunity.

David:
This is David Greene for Rob “End of the Buffet” Abasolo signing off.
Is there any cheese you don’t think is great, if we’re being honest here?

Rob:
Blue cheese, like crumbles, not a fan, but I like blue cheese dressing for my wings.

David:
So you like rotten cheese in its liquid form, not in its solid?

Rob:
Well, when you put it that way, it doesn’t really change anything, but it does make me feel worse.

David:
Well, if you like blue cheese, you should check out some green cheese, and you’re going to hear more of that coming up now.

Rob:
Green Cheese, that was your nickname back in prison, right?

Artificial intelligence can be an entrepreneur’s best friend or worst enemy. Channeled incorrectly, it can bring FOMO, anxiety, and fear of irrelevance. It can make business owners believe they’re not moving fast enough and their team fear they’ll lose their jobs. Used well, however, the benefits are huge. Do more in less time, make more impact with less effort, and make more money with a fraction of the cost.

AI is more than ChatGPT. Much, much more. Tools are popping up all over the place, each promising to transform your life and work.

Rowan Cheung is founder of The Rundown, a fast-growing AI newsletter providing an in-depth look at the latest developments in AI. In less than a year, The Rundown has gained a following of over 325,000 subscribers who rely on its content to stay informed about the latest advancements in artificial intelligence. Cheung is on a mission to inform millions of people about the latest advancements in AI and highlight how technology is transforming the world. His AI database, Supertools, records the best tools mentioned in the newsletter.

I asked Cheung to give his top 20 list of the tools entrepreneurs absolutely have to use.

20 AI tools that entrepreneurs can use every day

ChatGPT

Large language model (LLM) ChatGPT, “remains one of my most useful AI tools for generating content ideas including hooks and titles, analyzing data through Code Interpreter, using various plugins, and proofreading my newsletter,” explained Cheung. And while he doesn’t use ChatGPT (or any AI tool) to write his newsletter, “because there’s a risk of hallucinations and misinformation, AI produces really bulky, unreadable copy, and he just likes the human touch,” it’s great for ideation, proofreading, and instant access to a sounding board or co-editor.

Claude 2

Another LLM, Cheung described Claude as, “a less robotic version of ChatGPT.” Claude has a higher context window (up to 75,000 words), is “more up-to-date, can read multiple files similar to Code Interpreter and is completely free.” Claude’s specialism? “Analyzing extra long articles, or for any sort of copywriting suggestions.” Cheung also believes Claude feels more human and is, therefore, a better chatbot to talk with.

Midjourney

An AI image generator Cheung described as, “the highest quality.” He uses this platform to “generate images and thumbnails for my newsletter.” Accessed using Discord and prompted with words, Midjourney can remove the need for photographers, models and complicated sets. Simply describe the image you’d like to see and watch it appear before your eyes. Re-prompt to edit, and download for publication.

Adobe Photoshop Generative Fill

“I use Photoshop like a madman for my social media content and newsletter content, so this is a game changer,” said Cheung. Adobe’s new feature uses Adobe Firefly image creation model, allowing you to expand any image to whatever you can imagine in a few seconds. While Midjourney creates assets from scratch, Photoshop will do more with what you already have. Make use of Adobe’s automation tools and level up your imagery game.

Automation tools

Automation tools Make, Bardeen and Zapier automate your workflows, and each have different strengths. “The power of these tools is incredible, allowing you to automate basic tasks without lifting a single finger.” Cheung has made multiple automations, but one of note is that, “whenever someone replies to one of my posts on any social media channel, it gets sent to my private Slack channel.” This means he can simply stay logged in to Slack and ignore the others. “From there you can respond individually to the responses you find interesting, or even connect it to ChatGPT to generate a response.” He advised that you don’t get caught up on what to automate, rather, “get started with basic automations and letting the more advanced ones come to you with time.

Notion AI

“Notion is a place where I store all my notes,” said Cheung, who explained, “it’s literally my second brain and without it, my mind would probably explode.” Not only can you use Notion to take notes, but Notion AI will help you ideate and mindmap ideas, and if you add Super, you can create websites straight from these notes, without writing code. Cheung’s website Supertools, an AI tools database, was created from a database on Notion using Super.

Rewind

“This AI tool documents everything I see through my Mac laptop or phone screens, processes it, and then allows me to back-track certain content when needed.” Useful for prolific researchers or people who see a lot of stuff. “I go through multiple pages and apps daily, and it helps me recall exactly what I need when I forget throughout the day.” Use Rewind to group content you have seen by theme, for research, presentations or your own newsletter.

Fireflies AI

“Fireflies is a new tool I’ve been experimenting with to semi-automate my meeting notes,” said Cheung, who meets with AI tool creators that want to be recommended in The Rundown. “It transcribes and analyzes all my meetings into a condensed summary for future reference.” And while you might not need every detail from every meeting, “when I forget a thing or two, it’s nice to have the option to revisit.”

Wondercraft AI

This tool, with tagline “effortless podcast creation, for the AI era,” turns written content into engaging podcast episodes. “I’ve been using the tool to turn my newsletter editions into audio versions,” said Cheung, who describes it as an, “incredible tool for creators who simply don’t have enough time to do everythings at once.”

Vimcal

“This is your calendar app on AI steroids.” Cheung uses Vimcal to schedule his time efficiently, because it organizes his schedule to maximize work periods. Especially for busy entrepreneurs with too many meetings, tasks and an overflowing inbox, Vimcal calls itself the, “world’s fastest calendar” and claims to be the only calendar designed for remote work.

Superhuman

Described on its website as, “AI-powered email built for high-performing teams,” Cheung said Superhuman is “an email assistant that streamlines email productivity.” While not specifically all AI, it has “accelerated my emailing experience with its automated organizing systems.” Its built-in AI features include creating an entire email from a few notes, and matching your tone and voice to a tee. “I get a lot of emails every day,” said Cheung, and Superhuman sifts through to prioritize my responses.” You can also integrate your scheduling systems to avoid double-booking.

Social media schedulers

Taplio and Tweethunter are “LinkedIn and Twitter scheduling apps with AI features,” said Cheung, who uses both of them to schedule some of his content ahead of time. One feature of both is the ability to see when you should post, “which matters for the algorithm,” and both offer AI-generated tweet and post creators where they suggest content based on your brand’s topics.

Grammarly

The classic spell checker tool that now uses AI, Grammarly launched in 2009 but has been building AI tools including paraphrasing and text-generation. “I have Grammarly on 24/7,” said Cheung. “Not only does it help me with small mistakes I make while writing content across my newsletter, Twitter, and LinkedIn, but it helps me find more applicable synonyms in seconds.” Spot errors and mix up your wording with this tool.

Gamma

“Create beautiful, engaging content with none of the formatting and design work,” says the Gamma website. “This tool has been helpful when I need slide deck presentations created quickly,” said Cheung. It’s essentially an automated presentation generator that produces full presentations from a few settings and prompts. It also allows real-time edits. “The output usually requires some small changes, but the majority of the work is completed for you after the first round of prompts.”

Feedly AI

Feedly is a news aggregator app that compiles news feeds from a variety of online sources to customize and share with others. “I use Feedly to simplify and narrow my daily research, which has made my process much more organized,” said Cheung, who uses it to research the latest trends for his newsletter. Forget staying up to date with multiple sites, use AI to deliver everything you need to know to the same place.

Poe.com

Created by the team behind question and answer site Quora, Poe’s goal is to be the universal chatbot. “Poe lets people ask questions, get instant answers, and have back-and-forth conversations with several AI-powered bots,” according to its website. Putting existing chatbots into one platform for users to try for free,via a simple mobile interface, Cheung said, “it’s great to try and test chatbots before buying a subscription.”

Consensus

“ChatGPT currently produces fake citations, and this tool is the solution,” said Cheung. Consensus is a research tool that helps get your answers with credited citations, specifically from research papers. Ask your question, for example, “do people trust AI coaches?” and Consensus finds answers from evidence-based sources, or says there’s not enough evidence around. Anecdotes and hallucinations don’t make an appearance.

Perplexity

Perplexity AI “unlocks the power of knowledge with information discovery and sharing,” according to its website. Cheung describes it as, “another AI-chatbot search engine generated to deliver answers to all your questions,” and said, “Perplexity is a great tool to have on hand when you have quick questions requiring evidence-based responses.” No fluff or waffle, just cold hard facts.

Google Sheets AI

Not to be left behind is Google, which recently “integrated AI features into Google Docs and Drive,” said Cheung. “It’s actually extremely useful, especially creating templates for Google Sheets for data projects I want to start.” You can use a “Help me organize” prompt in Google Sheets to create tables with AI, as well as asking it to draft a trip planner or task tracker.

20 AI tools to help entrepreneurs in their business

If you haven’t yet boarded the AI train, these tools will get you started. Identify your biggest business challenges and see if you can make them disappear. Sign up for a free trial, experiment with a specific task, and assess the time you save or the output quality you improve. Forward-thinking entrepreneurs are finding the tools that will make the difference, and the ones that are right for you could be in this list.

Dave:
Hey everyone, welcome to On the Market. I’m your host, Dave Meyer. Joined today by Kathy Fettke. Kathy, how are you doing?

Kathy:
Well, you may or may not know I am obsessed with following the Federal Reserve, so today’s show is exciting to me because I feel like maybe we’ll get some insights when Jerome Powell is speaking so cryptically. You need someone to interpret that.

Dave:
Yeah, this is a great episode. If you haven’t heard before, we were having a guest on, Nick Timiraos, who’s been on the podcast, I guess this is his third time now. He is the chief economics correspondent for the Wall Street Journal. So a super well credentialed reporter. Sounds like he basically just flies around and follows Jerome Powell, whatever he does. Maybe we should do that. I think we should go to Jackson Hole next summer. It sounds like a great place to go visit.

Kathy:
Absolutely.

Dave:
Just a big bunch of nerds in a beautiful place, so maybe we’ll go do that. But in reality, Nick does all of that for us and just helps explain the Fed’s policy and thinking in a super digestible and interesting way. So Kathy, what are you going to be looking out for in this conversation?

Kathy:
Just confirmation that everything’s going to be okay and that they’re not going to throw us into a deep, dark depression, which I don’t think they’re going to, but just to get a better read on what’s going on because a lot of people probably didn’t realize until the last 18 months even who the Fed is and what their role is and so forth. And there’s probably still a lot of confusion about that, which we probably should explain to people who they are and what they do.

Dave:
Well, that’s a good point, Kathy. So I will just briefly explain what the Federal Reserve is. It’s basically a government entity. It’s our central bank in the United States. And they are responsible for monetary policy, which is basically what is going on with our money supply. They have a dual mandate from Congress. So their job is to use monetary policy to, one, ensure price stability, is how they say it, which basically means control inflation. And the other part is to maximize employment, which AKA just means make the economy grow as quickly as possible.
And why the Fed I think is so controversial and so interesting is because those two things are completely at odds with one another. Inflation is driven by an overheated economy, so their job is to heat the economy but not lead to inflation. So they’re always sort of walking this type rope, like on a seesaw, trying to balance two conflicting mandates. And it’s why I think Kathy and I are so fascinated by everything they do because obviously it impacts us as investors, as Americans, but it’s also just kind of a soap opera also what they’re going to be doing, or maybe only I see it that way.

Kathy:
Well, it’s a soap opera that we all get to be a part of. So it affects us and that’s why it matters.

Dave:
Absolutely. I just think people follow it like it’s a sports conference.

Kathy:
That’s true.

Dave:
Or maybe not the average person does, but the people who are nerds like us, read his transcripts, read the Fed’s transcripts after everything he says because obviously it impacts us like Kathy said, but it’s just kind of incredible how much power over the economy this small group of people had. So it really is important to pay attention to. And that’s why we’re bringing on Nick. So with no further ado, let’s bring on Nick Timiraos from the Wall Street Journal.
Nick Timiraos, welcome back to On the Market. Thanks for being here.

Nick:
Thanks for having me.

Dave:
For those of our listeners who didn’t join us for the first two times you were on the show, can you please reintroduce yourself?

Nick:
Sure. I am the chief economics correspondent at the Wall Street Journal and I wrote a book, Trillion Dollar Triage, about the economic policy response to the COVID shock of 2020.

Dave:
Yes. And you have been an incredible insider for us and reader of the tea leaves about Fed policy and so we’re excited to have you back. We are recording this at the end of August, it is the 30th of August. Just last week the Fed did meet in Jackson Hole. Nick, did you get to go to Jackson Hole by the way?

Nick:
Yeah, I was there for the conference this year.

Dave:
All right. Well, that sounds like a nice place to go visit, hopefully a fun work trip. What were some of the big headlines from the symposium?

Nick:
Well, the focus of the symposium was on Chair Jay Powell’s speech. He always gives the morning opening address. Of course, last year his speech was kind of a rifle shot where he squarely dedicated the Fed to bring down inflation saying that they would accept a recession. I mean, he didn’t use those words, but he said there would be some pain involved. And so that kind of had everybody’s antenna up for this year. Well, how will he follow 2022? What’s he going to say now?
This year he was more nuanced, focused still on bringing inflation down. The way I think about the Fed right now is there was an interview that Kobe Bryant had in 2009 after the NBA Finals. The Lakers had taken a two-games-and-nothing lead and a reporter asked him why he didn’t seem happy because Kobe seemed very sober and serious after the Game 2 win. And Kobe said, “What’s there to be happy about? The job’s not finished.” And that’s sort of the message that I think we got last week from Jay Powell and that we will continue to get from the Fed until they just see more evidence that inflation’s coming down. So that was sort of the takeaway was. Yes, we see that inflation’s improving, but we need to see more of that. And if the economy strengthens here, then the Fed will go up again with interest rates. So that was one of the takeaways from the Jackson Symposium.

Kathy:
And one of the big concerns they have as an inflation driver is too many jobs, right? Because then employers have to raise their wages to attract employees, I mean, generally. So we’re going to have a lot of jobs reports out this week and already had one that was actually more what the Fed seems to want. Would you agree with that, that they might be getting more of what they want this week?

Nick:
That’s right. So the Job Openings and Labor Turnover Survey, which came out at the end of August, which is for July, showed that job openings dropped to 8.8 million. It was as high as 12 million. One margin you can measure labor demand is job openings. Now some people say it’s not that reliable because technology has made it easier to post jobs, and that’s a fair point. But still you see that companies aren’t hiring as aggressively as they were in late 2021, early 2022. And the fact so far that labor demand seems to be coming down without an increase in the unemployment rate and we’re going to get the unemployment rate for August in just a couple of days, that’s the sign of success so far. But I think that’s where the emphasis is.
What the Fed is the Fed really wants to see is wage growth that slows down. It was running around 5% last year. And if you think about the components of wage growth, it’s inflation. Or if you think of where you get inflation, it’s really what part of the wage picture is productivity. And so, if you have say 2.5% inflation and 1% increase in labor productivity, that’s 3.5% wage growth. The Fed would be fine with that. 5% is probably too high unless we have a big boom in labor productivity. So you would want to see the wage numbers continue to come down. And the way that the Fed and other economists will see progress on that is just that you have somewhat less hiring because that gives you more comfort that’s supply and demand are better balanced.

Kathy:
I’m curious. Logan Mohtashami, I don’t know if you know who that is, he writes for HousingWire, he is of the belief that this robust job growth that we’ve seen is really just jobs coming back after the pandemic and that it’s not really as robust as it might seem. What do you think about that?

Nick:
Yeah, it’s definitely a fair of thesis to have. If you think about a lot of the things that we’ve gone through, if they were to happen year after year after year, prices going up, strong hiring year after year after year, that would probably be a bigger cause for concern that you were going to get control of these things. If there are a one-time shift, a one-time increase in the price level for cars, a one-time increase in household formation because people during the pandemic decided to go out on their own and rent an apartment, move out in mom and dad’s basement, then it means that a lot of the strength that we’ve seen, it just can’t be expected to continue. So I think Logan’s point of view is a very sensible one. And if that’s the case that this has been kind of companies in the leisure and hospitality sectors that just haven’t been able to catch up to where they were before but they’re now catching up, then job growth would slow, wage growth would slow.
And you’re seeing that one of the measures of whether the labor market is tight is what share of people are quitting their jobs. Because think about it, you quit your job, you’re more likely to quit your job to voluntarily leave your job if the job market’s really strong. You think you’re going to get more pay. You can raise your wages and your income if you go to a different employer. And the quits rate is a measure that we can look at and it’s been coming down. In the report that just came out at the end of August, it fell back to the level that it was before the pandemic. It was at a historically high level before the pandemic, but it went way up in the past couple of years. You think about companies that were throwing panic wages at people that keep them employed or to pull them into job openings. And so if the quits rate is coming down, that could also be a sign that some of the frenzy that we saw in hiring is behind us.

Dave:
Nick, there are seemingly so many different labor market indicators and none of them are perfect. If we want to understand Fed thinking, are there any metrics that the Fed favors when they’re trying to evaluate the strength of the labor market?

Nick:
Well, we’ve talked about wage growth. Wage growth is important to them and there’s a quarterly wage measure called the Employment Cost Index, which is seen as kind of the best quality measure of wages because it adjusts for changes in the composition of hiring. So if in one month you have a bunch of low wage jobs being created and then in another month you have a bunch of high wage jobs being created, the monthly payroll report doesn’t quite filter through those compositional differences. The Employment Cost Index does. We just got that at the end of July and wage growth was running in kind of the mid-fours. We’ll get that again for the second quarter at the end of October. And so that’s one.
But they don’t just put all their eggs on one indicator. They’re going to look at kind of a constellation of indicators. And if they’re all generally moving in one direction, which they are right now, which is towards slower wages like we discussed, fewer openings, it’s a sign that the labor market might still be tight, but it’s not as tight as it was. It’s coming into balance. And those are generally things the Fed wants to see.
Ow, if you were to see a big decline in payroll growth, that would be a different signal from what we’ve had and obviously people would start to say, “Well, have we slowed down too much?” Or if you saw hiring kind of ticking back higher here, inflation’s been falling, so that means our inflation adjusted wages are actually rising now and maybe that’s supporting more of the consumer spending. We saw strong retail sales in July. So if you saw some kind of acceleration in economic activity, that would also make the Fed maybe a little bit nervous because they think that we’re going to get back to the low inflation rates we had before the pandemic by having a period of slower growth. And so if you don’t have that slower growth, it calls into question their forecast that we’re going to get inflation to come down.

Kathy:
We keep joking on the show, let’s just stop spending money and we’ll solve the problem. And that hasn’t been the case. It seems like part of that was due to people with the stay-at-home orders, they weren’t spending as much money, they were saving money. And then man, when they got out, they went crazy. But from the recent reports, it looks like they’ve kind of spent it like it’s petered out and now they’re working on credit cards. And then you hear these reports that and then students are going to be having to pay their student debt again. How do you see that factoring into people maybe slowing down their spending?

Nick:
Yeah, if you look through the recent earnings reports for the retailers like Macy’s or Best Buy, you do hear more references to this cautious consumer. Executives or 2022 was great, everybody was out spending money on things that they hadn’t been able to go buy. And now you’re seeing maybe a slowdown. You’ve seen a slowdown, and the question is, student loan payments, what is that going to do? Is it really going to crimp consumer spending? Maybe people just don’t pay their student loans and they keep spending on other things. So there are maybe more question marks.
We’ve already dealt with some pretty serious questions this year. I mean after the failure of Silicon Valley Bank and a couple of other banks in the spring, there were concerns of a serious credit crunch. And so far it seems like we’ve really avoided at least the more scary scenarios there. Obviously, it’s harder to get a loan now if you rely on bank credit, but we haven’t seen maybe some of the more dire scenarios realized. And so it does suggest that maybe there’s more resilience in the economy than people anticipated. Or maybe we’ll be talking six months from now and it’ll all be obvious that the lags of the Feds rate increases, the bank stress they finally caught up with the economy, but we really haven’t seen it through the summer, have we?

Kathy:
No, I’m really glad you brought that up because that was going to be one of my questions that we know that the M2 money supply just blew up during the pandemic, so much money in circulation. And then one of the ways to slow down the economy is pull that money back out by less lending. And I thought that’s what was happening, is lending was becoming more strict and more difficult to get. Is that true for new businesses? Obviously, credit cards are being used and banks are fine with that.

Nick:
Yeah. Well, if you look at the growth of the money supply, you’d sort of want to take a trend, kind of a pre-pandemic trend and extrapolate, “Well, this is what growth of the money supply might have been if not for the pandemic.” And so even though the money supply has been contracting over the last year, it’s still probably running above where it would’ve been. And so to the extent that you’re a monetarist and you use the money supply, it’s hard to tell maybe what the signal there is.
If you look at lending standards, what banks are reporting right now, it’s gotten harder to get a loan. Commercial, industrial loan, commercial real estate banks are really tightening up on that kind of lending. In the corporate bond market, I mean, if you’re a big borrower and you’re borrowing in the investment grade or the lower investment quality, lower credit quality, the high yield market, we haven’t seen maybe as much of a pullback there, though with higher interest rates it is more expensive to borrow.
So those are questions. I think one of the big questions is to the extent companies locked in lower interest rates during the pandemic when interest rates were just very, very low, if you have a four or five year term loan, that doesn’t mature for another couple of years, but what happens when it does? What happens when companies have to roll over their debt in 2025? If we’re looking at interest rates that are still as high as they are right now, then you could see more of a bite. And we haven’t had interest rates that high for that long, so it’s hard to see that effect yet.

Dave:
Nick, from your understanding of the Fed’s own projections, how are they feeling about a recession? We keep hearing these signals that they’re okay with a recession and they’re forecasting them, but I see a lot of upward revisions to GDP forecast recently and I’m wondering if the Fed is more confident now that they might be able to achieve their so-called South landing.

Nick:
Right. I think that’s going to be the big question, Dave, heading into the Fed’s next interest rate meeting, which is in mid-September. So every quarter they produced these economic projections. And in June, officials were raising their projections for inflation. They saw inflation coming down a little bit slower, but they still had growth declining in the second half of this year and they had higher interest rates. They thought that because inflation wasn’t going to come down quite as quickly, they were going to have to raise interest rates a little bit more.
Now you have the first set of projections that are coming since the declines in inflation from June and July, and we will see about August here in a few weeks what happened with inflation in August. And so there’s a chance that they’re going to bring down their forecasts for inflation, certainly for 2023, but they might have to revise up their forecast for growth, because as you noted, whether it’s a recession or just a period of below trend growth, the Fed thinks that the long run trend growth rate for the US economy is just below 2%. So if you’re not doing that, if you’re not growing below trend or you’re not having a recession, then it raises the question, what is going to crunch demand enough to get inflation down the way that you’ve been forecasting?
Now, sometimes economists refer to this as an immaculate disinflation or a period in which you kind of have a painless drop in inflation. We’ve certainly had that so far, right? Inflation came down this summer without a huge cost, or really any cost in the labor market, but that’s because you’ve had supply chain improvement. Rent growth is slowing and that’s going to continue to provide some help to getting inflation down. But I think the worry right now is if the growth picture is getting better, what does that mean for inflation not six months from now, but maybe a year and a half and now, the end of next year?
The Fed in June was projecting they’d get inflation down to just around 2.5% at the end of 2024. Do they still think they can do that if we don’t get a period of slower growth? Do they just say, “Well, we think we’re going to get the slower growth because of everything we did on interest rates, but it’s going to come later”? I think that’ll be an important question for the September meeting and it’ll kind of tell us how much more they think interest rates have to go up. In June, they were projecting that they’d have to take rates up one more increase from here since they did one in July. And so, one question is do they still think they have to do that? I haven’t heard a lot of support for more than one increase. So I think the question is going to be, are they comfortable here or not? And the growth picture and the inflammation picture, they’re cutting in opposite directions.
The other big change we’ve had since the Fed’s last meeting has been the increase in August in interest rates, especially 10, 30-year loan rates have gone up quite a bit. And the Fed expects that to slow down the economy, they’ve actually wanted to see financial conditions tighten. And so that’s happening now, but that also you kind of have to say, “All right, well you’re getting better growth, but you’re also getting higher interest rates. Market determined long-term interest rates. And so does that offset some of the concern you might have from stronger growth?”

Kathy:
Wow, I hadn’t really looked at it that way. I was really happy that we might be avoiding a recession, but now it’s like that means rates higher for longer and maybe we don’t hit that 2% goal. I mean, how could we get to that 2% outside of a recession?

Nick:
Well, I mean that would sort of be this immaculate disinflation or soft landing story where you just continue to get all the things that went wrong in the pandemic, they’re now reversing. And so you’re getting increase in labor supply. We’ve had more immigration that’s maybe taking some of the pressure off of wages. And so if the supply side of the economy heals, and that’s something the Fed can’t directly control if we get a lot more apartments being delivered and that’s going to bring down rents, if we get more auto production and that’s going to bring down car prices or at least prevent them from going up quite as much as they’ve been going up.
So if you really were to see a really positive response on the supply side of the economy and you reduce demand enough, maybe you can get inflation down, I think it looks more possible that that’ll happen than it did a few months ago because you are getting these better inflation numbers.
I think the other point with a soft landing, people talk about a soft landing, which is really where the Fed is able to bring inflation down without a recession or without a serious recession. To get something like that, historically you’ve needed the Fed to cut interest rates once it’s clear that they’ve done enough. Or maybe if they’ve gone too far, they’d take back some of the interest rate increases. And so in 1994, the Fed raised interest rates by 300 basis points over a 12-month period and then Greenspan cut interest rates three times, 75 basis points in total.
This time I think the Fed is going to be a lot more careful about doing that because we have had inflation that’s much higher than it was in the 1990s and they’ve warned about this repeating the mistakes of the 1970s. One of the mistakes of the 1970s was that they eased too soon. You had what was called stop-go where they would stop, inflation would rise, so they’d have to presume interest increases. And so, to really nail a soft landing, you have to be confident that inflation is going to come all the way back down and you’re cutting interest rates because you think that’s going to happen. And if we’re in an environment where it’s sort of looks like, “Well, inflation’s going to settle out, but maybe closer to 3% than 2%,” everyone should know the Fed has a 2% inflation target. They think that’s important because it helps center expectations in the public’s eye. And if it looks like maybe the Fed is going to abandon that target, it can really mess things up.
So they’re going to be serious about shooting for 2%. And if it looks like inflation isn’t getting back to 2%, it’ll call into question how quickly they might be able to undo some of the increases they’ve had. And that I think will continue to create higher recession brisk in 2024 even if we don’t go into a recession this year.

Dave:
I think that’s a great point, Nick, and I tend to agree with the sentiment that the Fed has been very candid about the fact that they’re going to try and they don’t want to repeat this mistakes of the 1970s. I keep thinking about what Kathy and I talk about all the time, which is the housing market here. And if you think about how the housing market would react to probably even slight interest rate cuts, it would probably spur a frenzy of activity, which would probably reignite inflation very quickly. Even though housing prices aren’t necessarily in every inflation category, you just think about the amount of economic activity that the housing in general spurs. And so it makes sense to me that the Fed, given their stated targets, wants to keep interest rates higher for longer even if it’s just for housing, but obviously it’s for other sectors beyond just what we talk about on this show.

Nick:
Yeah, I mean, there’ve been a lot of things in this cycle that have been unusual, right? The post COVID recovery has been unlike any from post-work experience. The housing cycle part of it has been I think a complete surprise. I mean, especially at the Fed, if you had said you’re going to get a 7% mortgage rate and you’re going to see new home sales having bottomed out home prices have possibly reached a bottom here, right? We just saw on the Case-Shiller Index, I think for July, June or July, or I guess it was June, we’re going back up now, that’s not something a whole lot of people had on their bingo cards for this year.
To be clear, the way that inflation gets calculated by the government agencies, home prices may not play as bigger role as people think. They’re looking at owner’s equivalent rent, which is sort of an imputed rent for your house. And so during the housing boom of 2004 and ’05, actually shelter inflation didn’t go up nearly as much as the 30% increase in the Case-Shiller Index because what’s happening in the rental side of the market matters a lot. But that doesn’t really change anything of your point, Dave. It’s true that if you see a re-acceleration in residential real estate, that’s just one less place that you’re going to get the below trend growth that the Fed is looking for.
Someone said to me yesterday, “The Fed broke housing in 2022. They can’t really break housing again.” So even if it’s not going to be a huge source of strength for the economy here, I mean it looks like the resale market’s just frozen right now, then neither is it really going to be a source of drag or slowdown. And it just means that if the Fed is serious about seeing slowdown, they’re going to have to rely on other parts of the economy to deliver it.

Kathy:
Yeah. The housing market, I’m guessing, took everyone by surprise. It’s shocking that we’re back at our former peaks. And you said we’ve got to fix the supply side and build more. Is that even possible to build enough supply and housing to meet the demand?

Nick:
Well, you have a lot of rental supply that’s going to come on the market, right? So it’ll be interesting to see where the rental market goes in the next couple of years and what that does to vacancy rates and rents. I think that it’ll be an interesting question.
You also have these demographic forces that are quite constructive, right? I mean the millennial generations coming of age moving into their peak home buying years or rental housing years. So you do have sort of positive forces against this backdrop of higher interest rates and really terrible housing affordability. I went through some of the earnings calls for the home improvement companies, Lowe’s, Home Depot, and they feel good about kind of the medium to long run that people have housing equity right now. If you think about how different this recovery’s been from the period after the housing bust, people have equity, they’re spending money on their homes. If they’re not moving, they’re fixing that kitchen, doing the bathroom remodel. And so it’s a better environment for a lot of the home product companies even if you don’t have the same degree of existing home sales that we were used to in the earlier part of the century.

Kathy:
Well, we talked a little bit about mortgage rates. And if mortgage rates come down, it could unlock the market, but it would also bring on a new frenzy. We saw that tenure mortgage rates are generally… I’m saying this for the audience not you, but mortgage rates generally tied to the 10-year treasury, which we saw go up, I suppose, in anticipation of people seeing not a recession and seeing robust growth and not getting where the Fed wants to be and they’re going to raise rates and keep going and so forth. But just this week we started to see that back off and a 10-year treasury come down, which then brought mortgage rates down a bit. Do you see that continuing that trend of the 10-year coming down?

Nick:
It’s hard to predict the very near term fluctuations. It’s interesting. The last time we hit 7%, which was last November, we weren’t there very long. People got worried about growth, more optimistic about inflation and yields came down. But if I think back to a few months before that, maybe May, April of last year when the rate increases really got underway in earnest, and there were a lot of people who thought, “Oh, we’ll get back to a 5%, 4.5%, maybe 5.5% mortgage eventually,” and I think now you’re seeing more doubt about that. You’re seeing more doubt about whether interest rates will fall back as low as they were not just before the pandemic, but in the 2010s period where we got used to having mortgage rates between 4 and 5%. There are a couple of different reasons for that. One is that there’s just more treasury supply. We’re running bigger deficits. We’ve cut taxes, we’ve boosted spending. We have to spend more on healthcare as the baby boomers age. And so you have more treasury supply and somebody’s going to have to digest all of that and they might require a higher yield for it.
A couple of things that happened more recently that are being pointed to as catalysts for this increase in interest rates, one is that the Bank of Japan has been changing their monetary policy. They had had a fixed cap on long-term Japanese government bonds and they have suggested they might let that cap on interest rates rise a little bit. Well, Japan’s the largest foreign buyer of US treasuries. So if Japanese investors now have a more attractive… They can earn something on their 10 year JGBs, maybe they aren’t going to buy as many treasuries. So you’ve begun to see other forces that were keeping interest rates lower. Long-term interest rates were held down because you had strong foreign demand. Now, if you have some of these forces reversing, I do think it calls into question maybe a 6% mortgage rate could be the new normal, maybe not. Maybe we go back into a recession and the Fed has to cut all the way and you do end up with lower interest rates. But I do think there’s maybe more potential for this to end up in different places from where people were expecting.

Dave:
Nick, thank you so much for being here. We really appreciate it. This has been another eye-opening, very informative conversation with you. Thank you for sharing your wisdom with us. If people want to follow your reporting or check out your book, where should they do that?

Nick:
All right. I’m on Twitter, @nicktimiraos. And you can go to my website, which is N-I-C-K-T-I-M-I-R-A-O-S.com.

Dave:
All right, great. Thanks again, Nick.
Kathy, what’d you think of Nick’s thoughts on the Fed?

Kathy:
He just makes so much sense. And it really helps people like me and you who are trying to make decisions, financial decisions, and it depends a lot on what the Fed is going to do. So I think he brought a lot of clarity.

Dave:
Absolutely. The more I listen to people like Nick who know what they’re talking about, the more convinced I am that the Fed is not lowering interest rates anytime in the near future, and I think we all need to just accept that. That doesn’t mean necessarily that mortgage rates can’t go down a little bit. I do think there’s a chance that they’ll go down a bit from where they are, but where we got at the end where he was saying we should expect 6% interest rates, I think that’s, in my mind, at least how I’m going to operate for the next year or so, is thinking that maybe they’ll come back down to 6.5, something like that, but I don’t think we’re getting a 5 handle anytime soon, and that’s okay. As long as you just sort of accept that, you can make your investing decisions accordingly.

Kathy:
Yeah, absolutely. And that was kind of a light bulb moment for me too, where I’ve been really thrilled about a soft landing and like, “Wow, is this possible after all the Fed has done to try to wreak havoc?” But then on the flip side of that is, “Oh, that means we might not get down to the inflation target anytime soon if the economy isn’t going into recession.” So it’s opposite world. Like I’ve said so many times, good news is bad news, bad news is good news. I just look forward to someday having just normal news.

Dave:
I’m with you. I don’t think it’s going to come for a while. To be realistic, like you said, I think the only way the Fed cuts interest rates is being forced to do it, right? Their whole goal is to control inflation until the labor market breaks and we have a serious recession, they have no reason to cut interest rates. And they’re not going to do it for real estate investors. They don’t care.

Kathy:
No.

Dave:
And so I think that’s good because rates come down, but then we’re in a serious recession. So either way, there is probably some unfortunate economic realities staring us in the face for the next six months to a year. Maybe longer. I don’t know. But I don’t buy the idea that as soon as inflation dips down into the 2s, the Feds are going to cut rates. I just don’t see that happening. I feel like they’re going to hold it up for as long as they can and we just need to deal with it.

Kathy:
Yeah. Their fear of inflation is greater than their fear of recession, which is what it is.

Dave:
It is what it is. Exactly. All right. Kathy, thank you so much for joining us and for asking so many great and thoughtful questions. We appreciate it. If people want to follow you, where should they do that?

Kathy:
Realwealth.com is where you can find me and also on Instagram @kathyfettke.

Dave:
All right. And I am @thedatadeli on Instagram or you can always find me on BiggerPockets. And if you like this episode and know people who like talking about the fat of this stuff, share it with a friend. We always appreciate when you find an episode of On the Market that you like if you share it with your community so they can be more informed and also make great informed investing decisions just like you. Thank you all so much for listening. We’ll see you for the next episode of On The Market.
On The Market is created by me, Dave Meyer, and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, research by Pooja Jindal, copywriting by Nate Weintraub. And a very special thanks to the entire BiggerPockets team.
The content on the show On the Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

Ron Insana, chief market strategist at Dynasty Financial Partners, and Steve Grasso, Grasso Global CEO, join ‘Power Lunch’ to discuss a doom loop underway in residential real estate, the Fed’s hesitancy to adjust policy to help the housing market, and the correlation between interest rates and housing supply numbers.

It should come as no surprise that a healthy and happy employee is a more productive one. This is why many employers are looking to employee wellness programs to help their team members build healthier habits to improve both their physical and mental health. However, getting employees interested in taking advantage of these benefits means considering their needs and what gets them excited to participate.

For a list of perks, policies and initiatives that might spark the interest of your team members, consider the following suggestions from the business leaders of Young Entrepreneur Council. Here, they recommend ideas they themselves have implemented or have seen succeed in the workplace and discuss why they believe employees are so excited to take advantage of these benefits.

1. ‘Brain Health Days’

One perk or initiative that employees might be genuinely excited about in a company wellness program is “Brain Health Days.” These are additional paid days off that employees can take to focus on activities that promote self-care, stress reduction, mental and emotional well-being and overall whole-body wellness. Leadership should set an example by taking Brain Health Days too. Share suggestions and resources for self-care activities that employees can engage in during their Brain Health Days. This could include mindfulness exercises (e.g., breathwork, yoga, meditation), physical activities, creative pursuits or simply spending quality time with loved ones. Taking a day off is not enough; knowing what to do when you have a day off is key to a successful and restful Brain Health Day. – Dr. Christine Manukyan, STORRIE Institute™

2. Special Interest Groups

One subtle but effective way to drive participation and engagement is to encourage your team to create groups for people with similar hobbies and interests. For example, our employees have formed book clubs, knitting groups and other small collectives. We even have a group of employees who track their water intake together because they all felt like they weren’t getting enough. When you encourage people to engage with each other in this way, bonds are formed over similar interests and values. Put it all together and you have a happy workforce that is free to talk about things they like outside of work while at the office. – Daman Jeet Singh, FunnelKit

3. Reimbursement For A Monthly Book Purchase

One perk that I’ve seen get a great response is reimbursing each employee for a new book each month. It was left deliberately open-ended, though several life and business books that were a good match to the company culture were recommended. Some employees bought the recommended books, and it drove some great discussions in the workplace. Other employees just used the benefit to get a new book for their child every month, and they often talked about how much they loved that benefit. – Matt Doyle, Excel Builders

4. A Pet-Friendly Environment

A simple but effective way to create engagement and make employees happy is to have people bring well-behaved pets to work. That is, create a pet-friendly environment with the agreement of virtually anyone who comes to the office. You can do this on specific days or times, and having pets come to work makes things more interactive and fun. It can also be a powerful reason for people to stay loyal to a business. So, consider making pet-friendly initiatives a way to get employees excited. – Syed Balkhi, WPBeginner

5. An Individual Wellness Allowance

I believe in personalized wellness experiences for everyone at Velvet Caviar, so one effective policy is offering an “Individual Wellness Allowance.” Employees can invest this allowance in fitness classes, meditation apps, healthy meals and other things that resonate with them personally. This personalization promotes active engagement, as it respects individual needs and preferences, creating a happier, healthier workforce. – Michelle Aran, Velvet Caviar

6. Donation Funds For A Cause Of Their Choice

We have found a lot of success in providing each employee with funds to make a donation to a cause closest to them. It is a small gesture from the company as part of our community outreach program, but it allows people to share who they support with us. People appreciate the concept, and it helps out an organization they have a passion for. – Zane Stevens, Protea Financial

7. A Budget To Create Their Ideal Work Environment

If you’re looking to revitalize your company wellness program with a perk that’ll make employees jump for joy, trust me, nothing beats letting them build their workspace oasis. Embrace uniqueness, promote well-being and watch your team thrive like never before! One-size-fits-all just doesn’t cut it when it comes to productivity and well-being. So, we went the extra mile to ensure our employees had everything they needed to create their dream workspace, and we let them build it as they desired. Whether someone needs a standing desk, a funky beanbag chair or a desk adorned with cute potted plants, they get it! We provide a budget for each employee to curate their ideal work environment. – Pratik Chaskar, Spectra

8. Wellness Challenges

A fun perk to include in a wellness program is “wellness challenges.” These challenges can be team-based or individual competitions or milestones. There can be activities such as step challenges, meditation streaks or healthy recipe contests that switch off every month. These challenges introduce friendly competition and camaraderie that help strengthen a company’s culture. Additionally, incorporating rewards or incentives for participants or teams who successfully complete the challenges adds an extra element of motivation and excitement. – Jennifer A Barnes, Optima Office, Inc.

9. A ‘Learning And Experience’ Stipend

One of the most impactful perks I’ve seen is the “Learning and Experience Stipend.” Allocate a yearly budget—say $1,000—for each employee to spend on courses, workshops or experiences that contribute to their well-being and personal growth. It’s not just about gym memberships or yoga classes. Allow them to pick up a painting class, learn a new language or even take a culinary course. The ROI? You get an engaged, enriched and more versatile team. People don’t just want to work—they want to grow. Make your company the platform where that growth is not just possible, but celebrated. It’s an investment in their holistic development, and it pays back in loyalty, creativity and morale. – Idan Waller, BlueThrone

10. Group Yoga And Meditation Sessions

We host group yoga and meditation sessions both virtually and on-site, which we’ve found is a great way to combine wellness with team engagement. The sessions are completely optional and, because it’s offered in-person and online, enable people across geographies to easily participate. We also give a budget to team members who want to organize and lead their own wellness sessions. Not only is it fun, but we’ve found it promotes a stronger culture in our organization. – Nanxi Liu, Blaze.tech

11. ‘Flex Time Fridays’

In order to drive participation and engagement, companies can introduce “Flex Time Fridays.” Under this program, your employees are allowed to have a half day off every Friday. But to make use of this benefit, they will have to complete their goals by Friday morning. This will not just generate excitement, but it will also encourage employees to work more efficiently throughout the week. – Thomas Griffin, OptinMonster

12. Week-Long Company Wellness Retreats

Create advocacy around personal wellness through a week-long corporate wellness event or a company retreat where wellness advocates use presentations, cooking contests and fun fitness classes to instill healthy habits. This may include personalized health coaching for team members and the opportunity to explore specialty services like reiki, acupuncture, different massage therapies, sound meditation, breathwork sessions, forest walking and yoga activities. Inspiring venues like lakefronts and forest settings help create an atmosphere where team members feel more connected to nature, can let go of their professional roles and engage fully in wellness programs with their body and minds, increasing productivity, boosting mental health, reducing stress and making it enjoyable. – Brian David Crane, Spread Great Ideas

David:
This is the BiggerPockets Podcast, show 816. This is a play where you’re trying to grow equity. You’re trying to turn that $20,000 of cash into $100,000 of equity. And in the future, that $100,000 of equity can be reinvested into more properties as your snowball grows. Now it’s time to put some solid fundamentals and a little bit of elbow grease into that $20,000 that you have and start building some equity in the future so you can make big moves later.
What’s going on everyone? Is David Greene, back with another episode of Seeing Greene. If this is your first time listening to one of these, I think you’re going to love it. In the Seeing Greene episodes, I take questions from you, the BiggerPockets community, and answer them for everyone to see the type of stuff you would never get answered unless you were a fly on the wall in my office listening to the consultations that I do with David Greene team, or [inaudible 00:00:50] brokerage clients or at one of my events. But you’re in luck. You don’t have to actually get out of bed or even put on a pair of pants. You can listen right now to all of the questions people are asking and hear my answers from the comfort of your own home, car or commute.
Today’s show, we cover what to do when you’re feeling overwhelmed just trying to get started. I’m sure a lot of you can relate to that. If you’re starting to partner, what do you need to know and what should you be aware of. And is it ever okay to move into a luxury property? That and more on today’s episode of Seeing Greene. Before we jump into the questions, today’s quick tip, when you’re struggling, you need to lean on your community and BiggerPockets is the best place to do just that. If you’re looking for an extra personal touch or you like to be around people in person, consider checking out BP Con this year in Orlando. You can learn more about tickets and times at biggerpockets.com/events. And remember, I will be there along with my team and other BiggerPockets personalities, like my co-host, Rob Abasolo.
And remember, if you want to have one of your questions answered on this show, I’d sure like to have you, head over to biggerpockets.com/david where you can submit your question there or share it with a friend if you’re shy. Also, remember that if you’re listening to this on YouTube, please leave a comment as you’re listening, let us know what you think. We read those all the time. All right, let’s get into our first question.

Jacob:
Hi there, my name is Jacob Klavitz. I live in Suffolk, Virginia. My wife and I have recently gotten ourselves out of some debt. We’re in the military, so it’s not like we make the most money in the world, but we find ourselves with about $20,000 in savings, and we are just kind of overwhelmed on where to start investing that to really make it work for ourselves. I think real estate’s a great spot for us, but the question that we just kind of have is where should we start? What should we start looking for and how should we go about using this money in the most efficient way to build something for ourselves?

David:
First off, Jacob and Jacob’s wife, congratulations on getting yourself out of debt. That is a much bigger accomplishment than a lot of people realize that it is. In the world that we live in now, we tend to focus our congratulations on growing a portfolio, acquiring a property, adding cashflow. It’s always something that we are gaining, but getting rid of debt is just as important. So not owing people money, putting yourself in a position where your finances are stronger will actually kind of be like shedding weights, so that as you run this race of real estate investing, you’re able to run faster. I love that you focused on that. I also love the habits that are built to get yourself out of debt and playing good old-fashioned defense.
In fact, I talk about that in my upcoming book, Pillars of Wealth. I’ve got an advanced copy right here, if you’re watching it on YouTube, you can see it. How to make, save and invest your money to achieve financial freedom. And I talk exactly about this, like it’s getting out of debt, putting yourself in a position of financial strength and then using that position of financial strength to safely scale a portfolio, which I recommend people do like a financial fortress. It’s not about how fast you can get big or how much you can acquire, it’s about how safely you can acquire it. So on that note, let me give you some advice that comes out of the concepts that are in Pillars of Wealth. First off, you’ve got 20 grand. Let’s look at how this could be invested in a way that is synergistically beneficial to both of you. So if you’re going to spend $20,000, how do you make it go as far as it can?
Well, first off, you’re going to want to use leverage. The more leverage that you can borrow from someone else, like a bank, the more you can make that 20 grand go. The lowest down payment you can get away with in the world of real estate is generally an FHA or a conventional loan, that’s three and a half to 5% down, which means we’re going to be having a conversation about you buying a primary residence to live in and not paying rent to someone else. Now, if you already live in the property that you own, that’s okay. You could either sell it or you could keep it and make it a rental, depending if it cash flows, but I’d like to see you guys buy another primary residence.
Now, house hacking is where I’m going with this, especially to get started, you want to buy an area that’s going to grow over time. You want to buy something that hopefully you can add value to. So either adding some square footage, developing a basement, developing an ADU, doing something to make the property worth more. And you want to do it in a way that you can move out of this house next year and make it cashflow. You see where I’m going at here? We call this the sneaky rental tactic. How can you buy a property that can function as a rental property for you in the future, but you didn’t have to put 20 to 25% down onto buy like an investment property? This is not illegal, this is not any kind of fraud. It is absolutely 100% copacetic to buy a property to live in and then move out of it later and make it a rental property. The sneaky rental tactic is what we call it, and I think this is a great way for you to get started.
Now, to recap on this, I want to see you do this with a property that will cashflow when you move out, which means that property needs more than one unit. That means you’re probably going to have to add some value to it, which means part of the property is going to have to be developed or created to function as additional rental units. And I want to see you do it in the best area that you can get into so that over the long term the rents and the value appreciate over time. This is a play where you’re trying to grow equity. You’re trying to turn that $20,000 of cash into $100,000 of equity, and in the future, that $100,000 of equity can be reinvested into more properties as your snowball grows.
Congratulations to you for getting off to the great start that you did and getting out of debt. Now it’s time to put some solid fundamentals and a little bit of elbow grease into that $20,000 that you have and start building some equity in the future so you can make big moves later.
All right, our next question comes from Omar in Chicago. Omar says that he has done a handful of wholesale deals in the Chicago metro area to accumulate funds to start doing BRRRs. I’ve recently started taking action and have successfully completed several wholesale deals to accumulate funds for buying rental properties. I recently connected with an old friend and we are now actively searching for deals together. My question is regarding the establishment of a limited liability company, also known as an LLC. Should we form a single LLC as 50/50 partners or should we each create separate LLCs to form a joint company entity?
All right, first off, since you’re asking questions about partnerships, I highly recommend you and everybody listening to this, goes and listens to episode 801 of the BiggerPockets podcast, where I talk with Ashley and Tony about partnerships, they even wrote a book on partnerships. So you didn’t ask about that, but I think if this is something that you and our listeners are interested in, you should definitely go check out that episode, but not yet. You got to finish Seeing Greene first before you go see Ashley and Tony. Seeing Greene.
All right. There’s different ways that you can set this up. You’re going to need to talk to your CPA about this and your friend’s CPA because they’re going to have much better advice for me. And the reason is it depends how your specific taxes are set up. LLCs are known as pass through corporations, which means the money that they make passes through them and to you. Which means that, here’s the way I understand it at least in my mind and remember, I’m not giving tax advice because I’m not a CPA. Money flows into this LLC and I tend to look at money like water flowing into this bucket of an LLC.
Write-offs come out of the LLC, so that could be dinners, that could be trips, that could be expenses that are associated with the business, but you often would do them in life anyways. So you and your business partner go to dinner or you travel to a different area to look at these properties, or you attend an event or you seek legal advice that you’re going to do anyways, but now you get to write it off against that business income. So some of the water right off the bat is sucked out of that bucket. What’s left passes to you and you’re only taxed on that. So if you’re able to take expenses that you already had, remember this is not additional expenses, we’re not talking about buying a car you don’t need or going out to eat for dinners that are not necessary because it’s a write-off, that’s a terrible idea.
We’re talking about things that you were already spending money on and you’re able to legally write them off of this business. Maybe you buy a vehicle or some of the registration for your vehicle or the mileage that you’re putting on, it can be deducted out of the LLC. Now, the rest of the money that didn’t get taken out of the write-off passes through to you. That’s what you’re taxed on. But if you have some depreciation going on in your own world, other properties that you’ve bought and you’re a real estate professional, so rep status, now you can shelter the income that came to you from the LLC by some of that depreciation, and that’s the name of the game When you’re a full-time real estate professional. The bad news is you always got to be buying properties, you can’t stop. But the good news is if you’re doing that and you can use bonus depreciation, you can significantly lower your tax bill.
I say all this to say whether it runs through an LLC and then flows to you or it flows directly to your LLC is a question for your CPA because I don’t know how they have your tax situation structured. There may even be a way where money goes into an LLC that you own 50/50 with them, then passes out of the LLC you own with them, into your LLC or into your own name. That’s what I would check with the CPA, is like what’s the most efficient way to set this up? Now my concerns are not just about taxes, which I think is what you’re asking as far as how you want to establish the business, I’d be more concerned with the relationship. So let’s say that you guys are buying properties and you’re putting them in this LLC that you own 50/50 and then while you’re using the company’s resources, you find a deal that you go put into your own name or a different LLC than your partner. How are they going to feel about that?
If they thought that you guys were doing this together, but then you had a deal come to you from an outside source, maybe it wasn’t through the funnel that you guys built. It was a friend of yours or a person you met before. In your mind you think that’s okay. In their mind they think that deal should have went into the thing you own 50/50. It can cause a strain in the relationship. Then they might go do the same thing. Well, fine, if you’re going to do that, I’m going to do it too. And the next thing you know, you’re each running your own separate businesses, but kind of co-mingling company resources to do it and the relationship starts to deteriorate. So I’d like to see you have an upfront conversation with your partner about what you’re going to do when deals come your way that you don’t think that they should be a part of the company, or if all the deals are going to be a part of the company. And if they are, what if one of you works harder or is more successful than the other one?
What are you going to do if at some point you realize that you’re responsible for 80% of the success of the company, but you’re sharing the profits 50/50? So as long as you get all this stuff worked out, you’re okay, but you got bigger fish to fry than just how the income is going to be taxed and the title is going to be held. Make sure you go check out episode 801 for some more advice on this topic.

Speaker 3:
Hey David, thanks for taking my question. Dude, you’re amazing. Hey, what do you think about luxury hacking? For context, we are basically financially free. I would say after taxes and everything, maybe 100, 120 every year from just being an agent. So I usually buy another hack or another rental. What do you think about luxury hacking? Because we’re house hackers, we’re used to it, covering everything or close to everything. So now with a three-month-old, we’re thinking about luxury hacking in an amazing area, amazing schools and everything, and then paying an extra two to three grand per month for that, even with whatever the other unit gives us. We’re not used to it, so what do you think about it? I can cover it no problem, but I don’t know if I’m being too emotional to live in a more luxurious place because we don’t live in a bad place at all. It would just be better for schools later on when she turns like three, four or five, whatever. So what’s your take? Thanks, man. See you.

David:
Hey, BrandCo, thank you. Love this question. These are the exact kind of questions that you should be asking and the exact kind of questions that the BP community wants to hear. At what point can I get rid of my FI guilt? Is it ever okay to spend money on something? Do I need to be making my own soap, churning my own butter, stitching my own clothes? Or is it okay to spend two to $3,000 a month to go buy a property that I really like? You called it luxury hacking, but what you’re really describing here is house hacking on a house that doesn’t cover 100% of the income. I can’t tell you if it’s okay or not, though I am leaning towards telling you yes, it’s fine because you said you can cover it, no problem. I’m going to give you a different way to look at it.
All right. Most people that learn about house hacking, that learn about real estate investing, you sort of get taught in the most simplistic way possible, like the same way you teach a little kid to ride a tricycle or if you’re my age, a big wheel. Those were all the rage. It’s different than riding a bike, but the fundamentals are similar, but we don’t give a five-year-old a bike so that they can fall off of it. We give them a trike or something with training wheels, so it’s easier. Then when they learn how to ride a bicycle, there’s a transition, but I thought it was supposed to be this way. It is when you’re five, but we’re now transitioning into some more nuanced and slightly more complicated wealth building principles. So let’s just understand the way that you have been taught to look at real estate is overly simple and it tends to focus on nothing but what I call natural cashflow.
Natural cashflow is if you just grab a property and rent it out, what is the income? What are the expenses? Is there a difference and is that difference positive or negative? That’s as simple as most people get when they’re learning how to build wealth. But now that we’re transitioning from checkers into chess, I’m going to give you a slightly more nuanced way of looking at money that should make a big difference as you’re building your wealth. Wealth is a form of energy that is stored. You go pour energy into work. You are compensated for that work from the energy that you put out. The amount of time, the amount of skill, the amount of value that you brought, all effects how much energy comes your way. And then we store that energy in a dollar and when we store the energy in a dollar, we call it savings.
When we store the energy in stocks, we call it a stock portfolio. When we store the energy in real estate, we call it equity. But it’s all a form of energy storage and again, this comes out of the book Pillars of Wealth: How to Make, Save and Invest Your Money to Achieve Financial Freedom, which everyone can get a much deeper understanding of this at biggerpockets.com/pillars. And I highly, highly, highly recommend you do because it will change the way that you look at building wealth and make it make much more sense. When you’re only looking at cashflow, you miss all the other ways that the places you store your money in can cause growth. So when you put your energy into a property and you measure the cashflow that it puts out, that’s a form of your energy growing, but it’s not the only way that it grows.
You could move into a property that saves you two to $3,000 a month so that you have no living expenses at all, but what if the property isn’t going up in value? It’s not bad, that’s saving you 24 to $36,000 of energy every single year not having a mortgage payment. But you’re saying, “Hey, I want to live in this area over here and it’s going to cost me 24 to $36,000 of energy to live this luxury,” as you’re referring it to. But what if the property appreciates by more than 24 to $36,000 a year? You mentioned it’s in a much better school district. It’s in a much better area. I’m assuming this means it’s harder to get into those places, which means that you have got constricted supply, which is always a great thing. When demand remains constant or improves and supply is constricted, value will go up.
In this case, that means equity will go up, which means your energy is growing at a disproportionate rate that’s positive for you. Do you see where I’m going with this whole thing? And we haven’t even gotten into the fact that rents tend to increase over time more in the better areas. So you’re going to be coming out of pocket, let’s say 2,500 bucks a month. Let’s split it right down the middle. Well, next year it may be 2,300 bucks a month you’re coming out of pocket because the rent went up by $200. Next year it might be 2,200, then 2,050, then 1,850. You see where I’m going? Every single year that you own this property, the amount of money that you have to pay to live in it is going to be decreasing, which builds wealth in your favor. At the same time, all things being equal, it should be appreciating at a much higher rate than the properties that are in areas with less demand, so to speak, not as good as school districts, maybe supply isn’t as constricted, there’s not as much demand to live there.
When you understand the way that energy flows within wealth building, you will start to recognize that buying the property that you spend money every month to get into, could very well lead to you making significantly more wealth than buying the cheaper property. Now, where you have to be careful of this is when you’re not making enough money through your job, through your savings or through your investing strategy, that you cover the two to three grand a month that’s coming out. This is a terrible idea for your first property when you don’t have a lot of cash. When people are getting started and they don’t have a lot of energy and savings, I would never tell them to go buy the property where they’re going to be spending $2,500 a month of their own money. I would tell them to buy the areas where they can keep their savings high and their expenses low.
But you’ve already got several properties. It looks here in my notes like you’ve got 10 tenants over four properties, which are a mix of long and midterm rentals. You’ve got a solid portfolio. In my idea of portfolio architecture, which is mentioned in the book Pillars, I talk about building a very strong base of low risk and low reward assets. Once you have those, you can step it up, which would be like your midterm rentals. Now you’ve got some medium risk and medium reward assets. Now you get into elevated risk, which is what we’re talking about right now, but there’s also elevated rewards. You see what I’m getting at? You don’t have to choose between equity or cashflow between big wins or boring plays. You can get enough boring plays that you stack up that cover you in case something goes wrong with the big win, and then you can chase the big wins, which are going to be what build big wealth for you in your future.
So don’t feel bad as long as you’re financially secure with putting your family in a house that you like living in, especially when you can still house hack and only be spending 2,500 bucks instead of 5,000 or $6,000 a month, which is what all your neighbors are going to have to be paying. Great move. Congratulations on you for what you’re doing and congratulations on being the poster boy of what a real estate investor should look like. You build wealth through real estate so that you can have a better life. Thanks for the question and let me know in the YouTube comments if you’d like me to address anything else.
All right, thank you everyone for submitting your questions. We literally could not have the show without the awesome questions that you all submit, so thank you for doing it. If you’re listening to this and you’d like to submit your question, I’d sure like to see it. Please head over to biggerpockets.com/david where you can upload your video or leave your written question there and hopefully you can be featured on an episode of Seeing Greene and help a lot of people while getting the advice that you’re looking for.
Also, make sure that you like, comment and subscribe to the channel. If you’re watching this on YouTube, you’ll see the ever present fidgeting that I do in the chair when I’m trying to talk and think at the same time. And if you’re not listening to this on YouTube, if you’re listening to it on Apple Podcasts or Spotify or Stitcher or anywhere else, please go give us a five star review so the other people can find this channel and we can make it even better. All right, let’s get into some of the YouTube comments from episode 777 and 789 and see what you all are saying.
Louis Vargas 7644 says, “I’m a new investor starting off in Connecticut with my first three family. One day I’ll be on your show to share my story. I appreciate all the gems.” Thank you Louis, and for everybody who’s listening to this who doesn’t know what a three family is, that means you don’t live on the East Coast because on the East Coast, that is literally how they refer to a triplex. A four family is a fourplex and a two family is, as you guessed it, a duplex. A little bit of real estate trivia there for you.
From what to sell on Amazon. “I am not going into real estate, at least not anytime soon, but I watch your YouTube videos on a regular basis because I absolutely love how you give your viewers realistic expectations in terms of the amount of work, dedication and perseverance it takes to be successful at anything. I think oftentimes many people wonder if content creators actually practice what they preach and you are not afraid to tell us the truth about just how hard and competitive it is in real estate and even how long it takes for success. For me, that is the proof that you make your money doing the business and not just by selling a course full of pipe dreams for people looking for an easy route. In fact, you don’t even really make content for people that are not willing to do the necessary work that is unavoidable. I really respect you and thank you for that.” Well, I wish I knew your real name, what to sell on Amazon, but thank you. That’s probably the biggest compliment you can possibly get.
For those of you listening, there is absolutely a difference between people that try to hype you up and sell you on the dream because they want you to spend your money on their course, versus the people that are making money through the dream, which you usually don’t portray it like a dream. It’s hard work just like everything else is hard work, and we at BiggerPockets are going to shoot straight with you and let you know. But that doesn’t mean you shouldn’t do it because all the best things in life come after some hard work.
From Pope of Cholos. That’s a pretty funny name. “Still the cleanest shirt in the dirty laundry. David, 2023 words to live by, great quick tip.” Yes, that is real estate. It’s not as good as it was but it’s still better than everything else. The cleanest shirt in the pile of dirty laundry.
From 2004 CBR, I believe that’s a motorcycle. I’m going to have to run it with my production staff, but I think a CBR is a Honda. What do you think, judges? Judges confirm I was right. I don’t know how many CC’s this is. So Honda or 2004 CBR, let me know in the comments if you’re rocking a 600cc CBR or a 1,000, we all have to know.
Now your comment was, “Another great show. Thanks for all the great guidance. I would like to correct you on your Cali comment. I’m born and raised in California and definitely call it Cali as do many others. Again, that might be my upbringing in the East Bay and listening to West Coast hip hop music since it’s the ’90s, it’s all about perspective.” Okay, this is a good comment, I see why my producer chose it. I just got to say, I don’t know if I believe you, rap is the only place you hear anyone talk about Cali and it’s always rappers that are not from Cali. Notorious B.I.G. is going going back back to Cali Cali, but I don’t hear a whole lot of other people say it unless it’s someone like Tupac who is making music that will be listened to by people that are not in fact in California.
So I’m not sure. In fact, let’s make this a poll. Audience as you’re listening to this, if you live in California, first off, you need to know who I am and we need to be connecting because I’m here too, but second off, let me know in the comments, do you call it Cali living in California or is this something that people outside of California tend to say about Cali? To me, the litmus test, if someone’s from California, they definitely say hella and they probably don’t say Cali, but I could be wrong. I’ll be the first person to admit I don’t know at all. So let me know, do you say hella and do you say Cali if you’re from California, let’s take this to the masses.
All right, we are going to be getting back into the show in a second here. Before we do, I’ve got a quick Apple review from the Seeing Greene episode 789, that one of you awesome people left us. This is labeled, giving non-real estate advice to team. “David, you are the man. There is no better thing to do for that youngster than to tell him that he needs to work hard and be an example to his siblings. Life is not about how many doors you have or how much money you want, it’s about being a good example for others to follow. And all that family needs to have someone to model after with their parents being gone. You and Rob and BiggerPockets have made our lives change and made going to work fun because we get to listen to your podcast. May God continue to bless you too and BiggerPockets.” From Tom via the Apple Podcast review section. T.
Om, I really appreciate it and I remember this episode. We had a young man who I believe his parents had passed away not too long ago. He was living with a family member, possibly grandparents, had two younger siblings that was asking me, “Hey, I need to make money, my family needs me. What can I do to make money in real estate?” I believe he was doing some day trading or maybe some crypto trading. And his heart was in a beautiful place, as he was taking on the responsibility of leading his younger siblings, which is exactly what I love to see, but his head wasn’t quite there. His head was still thinking, how do I make quick money in real estate? And guys, if there’s one way to make sure you lose money in real estate, it’s to try to make quick money in real estate.
It can happen, but this asset class is not designed to make quick money. It is designed to literally build wealth slow. If you look at the way amortization schedules work, where higher degrees of payments go towards principal and not interest over time, how this is a highly inflation sensitive asset class, which means over time the values go up and the rents go up, and you look at the fact that we can get fixed rate mortgages spread over 30 years so that your expenses don’t go up. It starts to make sense that the literal architecture of real estate is designed to be something that makes more sense as you build wealth slowly.
So if you’re getting sucked into some program that you think you can make quick money in real estate, not going to tell you it’s a guaranteed scam, but I would be extra, extra cautious because that’s not how the people that I know that built their wealth in real estate made it. That’s how the people that I know that lost their money in real estate did it. So thank you Tom for recognizing that and to the young man, I can’t recall your name, who is trying to do this for your siblings. If you’re listening to this, my heart is with you, my thoughts are with you, my will is with you. I would love to see you make it. Focus 100% on being the best person you can be, bringing the most value that you possibly can to the workplace. Show up every day in work like it’s the last day of tryouts and you don’t want to get cut and you will be successful.
All right, our next question comes from Whitney in Eastern Europe. Let’s see what Whitney Shea has to say.

Whitney:
Hey David, my name is Whitney and I’m hoping that you can help me. We are an active duty military family. My husband’s been in the Marine Corps for 27 years. We’re still sort of going strong but maybe going down towards the retirement path within the next few years. We kind of became accidental landlords because we were upside down in our homes when we had to change duty stations. So it’s turned out to be a blessing in disguise because we do have a home in South Carolina and we also have a home in Florida and they are both paid off. They’re both rented out. And so we are again very grateful to have that cashflow. At the same time, currently we are living, we’re stationed in Eastern Europe and we are going to be heading back to the States in a few months, to Arizona.
So with all of that said, all that background, we also have a child heading off to college. And so lots of little details, but we’re really kind of at a crossroads where we’re kind of listening to other people say, “Oh, you should sell your houses because of the way the market is.” We’re sort of more the buy and hold people, thinking that way. So we’d love to just get your position, your perspective, your thought process on best next steps for this Marine Corps family. Thanks so much.

David:
All right, thank you for that, Whitney. Man, I love problems like this because no matter which direction we take it, you’re in a positive place. So you’ve got properties paid off in South Carolina and Florida and you’re beginning to build a home in Tucson, Arizona, which is relatively affordable for Arizona. You’re in a really strong place. I don’t know that I agree with people that say sell you off your homes because there’s a market crash coming. I hate saying this because you never know, tomorrow there could be a market crash and then everyone’s coming for me with pitchforks to the swamp, trying to get Greene like Shrek. Wasn’t there a thing in Shrek where they were all chasing him down to the swamp and he’s, “Get out of my swamp.” I’d hate to have you guys coming after me that way.
I’ll just share. I’ll show my work. I’ll tell you how I came to the conclusion. I don’t think we are likely to see a crash in real estate. I actually think if we do see an economic crash, real estate could go down. I think it would go down much less compared to everything else. In fact, I think if we see asset classes getting hit, real estate would probably be the last one to go. And that’s not because a homer for real estate. It’s because I think that the supply demand fundamentals of real estate right now are incredibly strong and we’ve seen this with the resilience in the market. Interest rates for mortgages keep going up and up and up. We’ve seen the commercial space start to get hammered. There’s a lot of people, and this is, I don’t know a nice way to say it, a lot of operators that did a good job.
They increased the NOI on their properties, they managed it as well as they could, but cap rates expanded faster than the market could keep up with because they just increased interest rates so quick and so suddenly, and a lot of those operators are going to lose money on their assets or lose their assets, see what I did there, altogether. It’s a problem. And yet the residential space, in spite of all of this, has been so resilient. The property values have not plummeted. In some places they’ve dipped a little bit, like you mentioned Arizona. That Phoenix market, the Vegas market, they’ve come down some, but that’s because they were going up so fast. It’s relatively really strong compared to everything else. I think the stock market would be much more likely to take a hit other than real estate. So I would not listen to the people saying to sell your homes, especially because they’re paid off.
Your homes are paid off, it does not matter if they drop in value a ton. And remember, if you go sell them, you probably have to buy something else and people always forget this. If you sell high, you got to buy high. If you sell low, you got to buy low. It’s very difficult to get the best of both worlds unless you’re selling out of one market and into another, in which case you should probably read Long Distance Real Estate Investing, where I detail the strategies and systems you need to do that well. But even then it’s usually roughly the same. You can’t win by selling high and then buying low, it’s incredibly difficult to pull that off. So when your friends are telling you to sell, I would say, well, where are you going to go put the money? You’re going to have a bunch of taxes, a bunch of commissions, a bunch of closing costs, a bunch of headaches, a bunch of make ready costs to get the most for the house.
Then if you do have a successful sale, where are you going to put the money? You’re going to probably have to put it right back into real estate, now maybe you have to do a 1031 exchange. You’re just complicating your life to not really get that big of a gain. So I don’t know that there’s anything wrong, Whitney, with just hanging tight. You’re in a really good position. When I’m playing poker, which happens about once every four years, I have no idea how I do so well in poker. In fact, I’m going to tell you my strategy so if anyone ever plays with me, now they’ll know how to beat me. But what I typically do is I try to win a couple hands early and get a big stack of chips and then I just fold every single hand that is a killer. And I probably shouldn’t be admitting this online, but that is what I do and I tend to end up at the winner’s table almost every single time that I play.
You’re in that position right now. You’ve got a big stack of chips. There is no reason to make a move. You do not need to rush into anything. Don’t let the pressure of the people at the meetups or I have this many doors and you don’t have this many doors or I’m up to this many units, all the things that people get into don’t matter. That’s their race and they might not even be running their race. They might just be trying to get significance and attention from people at these meetups because they’re insecure. Your race is all about your family. You’re in a great position. You’ve got a lot of equity built up in these properties. You don’t need to move it. If you’re going to do something, let’s just make some small safe bets.
When I’m playing poker and I got a huge chip, I’m only going to play the best hands and I’m not going to overextend myself. I’ll play the hands that are great and if the cards come out and my hand becomes not so great, I just fold. I took a small loss. Or if I win, it’s only going to be on a monster hand unless everybody else just folded. I really think that strategy works for you and your family here. Build your house in Tucson. You probably are building a house you like. The next property you get into, maybe build another one, but whatever it is, make sure it has more than one unit. Try to get into something with at least three units, so you have several units that you can rent out in the same property, which significantly decreases your risk and just slowly grows your cashflow. Base hits are all you need. Even just taking a walk to get on base is fine when you’ve got a big lead like you do.
Don’t go making any big risks. Don’t go making any big moves. Don’t try to throw the long bomb here, if we’re using a football analogy, and risk and interception, just keep running the ball in a boring way. Keep making boring moves and over the next 10 to 15 years you’ve accumulated real estate hopefully in the best areas you can get, you guys will be doing great and you’ll never have financial worries and that is a big win.
All right, our next question comes from Amanda Lane in Florida. Amanda says, “I’m 30, I’ve been a deputy sheriff for 10 years and I bought a house when I was 21, no kids, and now I’m selling a house. I’ll net $200,000 from it conservatively, which is like winning the lottery to me. I’m moving back to Chattanooga, Tennessee and have a few duplex options in mind. I want to do this as smart as I can for obvious reasons.” Amanda, your life so far sounds suspiciously like a country song. You’re working as a deputy sheriff, no kids, sold your house in Florida. You’re moving back to your hometown in Chattanooga, Tennessee. You got a couple options in mind. Let’s move on here.
“I feel like I have a reasonable grasp on the first basic steps or what I think I should do with a substantial sum of cash. But myself 20 years from now might wish I could go back to this very moment and do it smarter. So pretending that we’re back in time now, like I’m living 20 years in the future, looking backwards, how can I either route my plan better or who can I connect with that can explain answers to questions I don’t have?” Well, if you had given me some of those questions, I’d be answering them now. You can always DM me and we could try to set up a consultation or something for you. But I don’t know that there’s a whole lot of people that you can go to and say, “Here’s what I think you should do.”
You really do need a person who’s done this before, which is why I understand you’re reaching out to me because I have, that understands not just your risk tolerance and not just your options, but your skills. People forget that. There are certain parts of real estate that I would be good at and other parts I’m not good at, and vice versa for other people. You really want to build a strategy around the skills that you’re bringing to the game. Now, because I don’t have enough details to answer your question like I’d like to, let me give you some practical advice that I think will work for everyone listening. If you’re in a good position, you’ve got $200,000 saved up, don’t make a move in a market like this that’s not terrible, but it’s definitely not the market we’ve had in the last decade where they were just printing money like candy out of a Pez dispenser, and it was very likely that real estate was going to keep going up, which it did. Be more careful.
There’s nothing wrong with staying debt-free right now, even if your wealth isn’t explosively growing, you don’t need huge wins in a market like this. What you want to avoid is big losses. Consider house hacking. Again, I love the strategy of house hacking every year. You get into the best neighborhoods, you put the least amount of money down, you get the better interest rates. You don’t rush and go too fast to where mistakes get made. You can add value to the property slowly while you live there. You can do this by renting out the rooms, adding units, finishing off square footage that wasn’t developed. There’s so many options that you have and you can do it for 5% down. I love this. Really, if you just did that, Amanda, you just bought a new house to house hack, you moved into it, in 10 years that first house you bought will go up a lot, especially if you’re buying in Chattanooga, which is one of the markets I think we’re likely to see significant appreciation in over the next decade.
And then the house that you bought the second year is going to have nine years of appreciation. The house you bought the third, seven years. Those first five are going to do really well 10 years from now. Now, if you’re going 20 years in the future, imagine if you just bought one house a year, that’s it, at 5% down, no huge risk. 20 years from now you’ve got 20 homes, you’ve got an accumulation of 20 years of rent increases, of value increasing, of you saving money continually because you never had to pay mortgages. You’re in a position that you may never have to worry about money again. Don’t race forward competing with other people. Don’t think you have to go buy seven properties and develop these lots and do something huge. If you’re bored with your life and you’re not super skilled with real estate, don’t feel the pressure to get out over your skis and do more than you need to.
You’re one of those people, like the last question we took, in a really solid financial position. Use that to your advantage. When you’re running out of chips in poker, you got to go all in whenever you get a halfway decent hand. There’s some people in life who are in a really rough position. They hate their job, they owe a lot of child support, they’re having a hard time making ends meet. Those people probably need to go start a business, become an entrepreneur, work 80-hour weeks. They got to do something drastic to get out of the situation they’re in, but that’s not you. So enjoy what you’ve earned, enjoy some of the fruits of your labor, make smart sound financial decisions, continue to play defense, continue to avoid lifestyle creep. Put your money into properties that over the long term are going to appreciate and will not cause you headaches and run your own race.
Now, let’s say that you do want to make some bigger moves in the real estate space and that’s why you’re reaching out, because you want to be more involved. My advice in that case is to find a person that has done a significant number of deals. That could be flips, that could be commercial multifamily properties they bought, but definitely someone that has some experience under their belt. And maybe bring some of that money that you made into a deal that you do with them. Not only does that decrease your risk of losing the money in the deal because they’re experienced, but it increases the likelihood that they’re going to teach you something that might catch on and get you excited and you could follow that path and pursue that end with your own real estate investing career. I’d much rather see you do that than get hooked up with some other really excited newbie who hasn’t done anything and then just close your eyes and hope for the best.
And that was our last question. What do you guys think? Was this a good show? Do you like hearing this advice? Do you like staying up to date with information going on the market because it’s changing so fast? Was there something that you wish that I would’ve said or I would’ve been asked that never got brought up? Well, good news, if I didn’t answer the questions you had, you can always ask them yourself, biggerpockets.com/david. Feel free to share that URL with somebody else if you are shy, but they are not. And then also, remember we read the YouTube comments. So go in there, leave me a comment, tell me what you thought about the show. We just may read it on a future episode, but even if we don’t, we’ll definitely see it and incorporate the information into the show.
I love you guys. You can follow me at David Greene 24 on all social media, or you can go to davidgreene24.com and see what I have going on. I help people like you every single day trying to grow their wealth and responsibly manage the finances that have come under their control. I’d love to see you guys continue to do better every day more than you were the day before. And I love the perspective of what’s this going to look like in 20, 30 years, instead of what’s this going to look like tomorrow? If you’ve got a minute, check out another BiggerPockets video and if not, I will see you on the next episode of Seeing Greene.

Rick Caruso, founder & CEO of the Caruso Real Estate Empire, joins ‘Power Lunch’ to discuss vacancy rates in commercial properties, real estate strength in outdoor centers, how municipalities can help make downtown offices more enticing for renters, and developing infrastructure to reduce retail theft.

By Rieva Lesonsky

At this point, most small business owners know that digital transformation is necessary for their businesses to survive in today’s continuously disruptive times. And yet, according to David Rogers, a professor at Columbia University and the author of The Digital Transformation Roadmap (available in September), 70% of digital transformation efforts fail. He says that’s because “companies view these efforts as technology problems rather than the organizational challenges they truly are.”

But entrepreneurs can’t let those dreary stats stop them. And don’t assume that failure is a given for your small business.

Rogers says, “The imperative of digital transformation is less understood among small businesses. Some owners have started efforts, while others may not even be sure exactly what digital transformation means.”

In his book, Rogers lays out a framework that companies of any size can use to tackle the barriers to change. He says, “It gives leaders a hands-on tool kit to unlock the potential of every person inside their organization to drive growth.”

I interviewed Rogers (via email) about how small business owners can demystify the digital transformation they must undertake to survive in this digital era.

Rieva Lesonsky: Can you explain the importance of digital transformation for businesses that want to grow?

David Rogers: My definition of digital transformation is simple: transforming an established business to thrive amid continuous digital change.

This is the challenge facing every established business today. They must continuously test, discover, and try out new customer experiences and operating models. The reason is that new digital technologies are driving such rapid changes in customer behaviors, business models, competition, and new entrants in every sector. No matter the size of your business, the fundamental challenge you face is the need to adapt so you can continue to grow.

We see in companies like Netflix that it’s not enough to have one great idea and build a digital business based on it. Netflix’s first business model was streaming content it licensed from others, but once that service proved incredibly popular with customers, the licenses became cost-prohibitive. Netflix had to shift to a model where they created the content themselves, becoming a film and television producer. Then they pivoted to becoming an international network, translating content from all over the world into different markets. Most recently, they discovered that total subscriber growth is topping out, so they’re testing cheaper advertising-based offerings while they revisit how easily they let people share their passwords.

Every company that has grown continuously in the digital era—whether Netflix, Amazon, or Domino’s Pizza—has succeeded by constantly transforming their businesses and approaching them from new directions.

Lesonsky: What are some common reasons digital transformation efforts fail?

Rogers: I’ve been researching this topic for years. I wrote the first book about digital transformation. That book [The Digital Transformation Playbook: Rethink Your Business for the Digital Age (2016)] focused on how companies must rethink their strategies for the digital era. But what I’ve learned in the years since is that even if you do rethink your strategy for growth, it can be very hard to make change happen within your organization.

That is where so many companies struggle. It’s why we see [so much] failure. It is why my latest research focused on digging into the root causes of that failure. Where do organizations get off track?

I discovered five fundamental barriers to change faced by companies of all sizes. These are the key barriers that prevent digital transformation and real innovation from happening:

1. No shared vision. There’s no alignment of everyone in the business around a single view of where their industry is going, what role they want to play in it, and how they will pull together to achieve that outcome.

2. No discipline in priorities. I see companies moving in 100 directions because there’s always a new technology, trend, fad, or opportunity that might be relevant to your business. Most companies lack the discipline to focus on a few strategic priorities and say no to the rest. The worst is when I see companies focus on technology first rather than starting with the customer problems they’re trying to solve.

3. No habits of experimentation. Companies are used to dealing with any new problem or opportunity through planning. Whenever they see a new digital opportunity, they say, “Give me a business case. Show me the benchmarks, and let’s gather lots of third-party data. Then, we’ll do a detailed plan of action and give everyone their marching orders.”

But in a dynamic and unpredictable environment, which is the digital world, that’s a recipe for failure. The only companies that succeed are those that develop a real skill set for constantly testing, making small investments, moving quickly, and experimenting to learn what does and doesn’t work in the market.

4. No flexibility in governance. As a result, companies struggle to allocate funding between their existing core business and new opportunities. They struggle to allocate people. And they struggle because they apply the same metrics, rules, and operating model to new ventures that they use to run the well-established parts of their businesses.

5. No growth in capabilities. I see companies trying to keep up and pursue new strategies for a rapidly changing market, but they’re not investing in the right digital technologies, data, talent, and skill sets. And they are not focusing on building the right digital culture within their organizations.

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Lesonsky: What are the first steps to take if you haven’t started digitally transforming?

Rogers: The first step is to define a shared vision that must be unique to your business and understood by every employee, investor, and stakeholder.

A shared vision starts with knowing where you’re going and why. Begin by defining your “future landscape”—a shared point of view on how your industry is changing. What do you see as the biggest forces defining the future for your business? It also means defining your “right to win.” That means understanding your company’s unique capabilities or advantages that enable you to play a key role in the digital future and create value for your customers.

But knowing your future landscape and your right to win is not enough. You also need to ensure everyone has a clear motivation for change—because this kind of transformation requires everybody in the company to be involved. And change is difficult! It’s much easier to keep showing up at your office and doing the same job you did yesterday.

That motivation for change comes from two things. One is what I call a “North Star impact.” And that’s a clear answer to this question: “If you can transform, how will that make a difference in the world? How will it change the lives of your customers, your employees, and maybe society as a whole in a positive way?” That’s critical to motivating your employees.

At the same time, you also need another piece of motivation, what I call your “business theory.” This is an explanation of how investing in your digital strategy is going to generate financial returns for the business. And that piece is critical to gain the backing of specific stakeholders: your chief financial officer, anyone in charge of a P&L, and outside investors. All these people need to agree on a theory of how investing in digital transformation will drive financial growth if you want them to be aligned and support the change.

Lesonsky: If you have started, how do you measure success?

Rogers: The key to measuring success in any digital transformation is to first have that shared vision in place. That is, you know where you’re trying to go and why and how your particular digital strategy will generate an impact for the customer and financial gain for your business. With that understood, you’re in a position to know how to measure things and see if you’re moving in the right direction.

Far too many companies try to start with measurement. They just say, oh, we’re going to become a digital company. And then they start looking for generic, off-the-shelf assessment tools that look at things like, “What kind of technology do you have in place?” This is meaningless in terms of business outcomes, which is the whole point of any digital transformation effort.

Again, you have to know the impact you’re trying to have on the customer and how you believe this will generate a return—whether that’s revenue from new products, reaching new customers, or reducing operating costs. There are many ways digital strategies can generate financial returns.

Once you know these [two things], you can start to pick the key performance indicators (KPIs) that will guide your investments and let you know if you’re making progress. I call this defining success. It should include metrics for customer and business impact. If you define success this way, measuring digital transformation is very straightforward.

Lesonsky: What lessons can small, growing businesses learn from the well-known big brands that have successfully undergone digital transformation?

Rogers: Smaller businesses actually have an easier job changing. They can learn a lot from all the mistakes made by bigger, older companies as they tried to transform into the digital era. As businesses get larger, it becomes much harder to drive change.

For small, growing businesses, the key is to be on the lookout for those five barriers to transformation. Make sure you have a shared vision, that you are disciplined in setting clear strategic priorities, that you learn and master the process of experimentation, that you maintain flexibility in your governance (how you manage people working on your existing business versus those working on new opportunities), and that you keep investing in and growing your technology, your talent, and your culture.

But the main thing is to not let myopia set in. For any company, the longer you’re in business and the more successful you are, the harder it is to overcome the natural tendency to define your future by the products that have been successful for you in the past.

Large businesses struggle with this problem, but small businesses face it too. The more you grow, the more successful you are, the harder you have to push back against this mental trap. Instead of focusing on what products have gotten you where you are today, keep focusing on, Who is your customer? What are their problems? And how can you keep adapting and finding new ways to solve their problems and create new value for them?

In the words of Andy Grove, famed CEO of Intel, “Only the paranoid will survive.”

About the Author

Rieva Lesonsky is CEO of GrowBiz Media and SmallBusinessCurrents.com and has been covering small businesses and entrepreneurship for over 30 years. Get more insights about business trends by signing up for her free Currents newsletter.

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