Online shopping has exploded in the UK, particularly during the last decade. The parcel industry was already worth an annual £6.9 billion in 2013, but by 2020 it had more than doubled to £14 billion.

And then there was the Covid-19 lockdown, during which the only way we could buy many items was by getting them delivered.

The Royal Mail is the UK’s biggest courier company, having delivered items to Brits since the 16th century. However, where there is a booming industry, there will be pretenders to the crown. With the likes of Yodel, DHL, UPS and many more all entering the fray, consumers have more choice than ever.

Except, until recently, at the Post Office. The 11,500 Post Office branches around the country worked exclusively with Royal Mail until it was announced at the start of November that it would allow customers to use services from Evri and DPD over the counter as well.

This deal makes sense for the Post Office. By offering more services, it encourages additional custom through its doors. And for the courier companies, it puts their offering in front of new eyes.

Collaboration in business is an incredibly powerful tool for entrepreneurs who want to grow and succeed. Here are a number of ways that it can boost your business.

What Entrepreneur Collaboration Looks Like

There are many ways in which entrepreneurs can collaborate. Joint ventures and strategic partnerships involve businesses undertaking specific projects together, with all parties contributing resources to take advantage of an opportunity. This could be developing products or services together, combining marketing activity or any other project in which they work together for the benefit of all organization.

Startup incubators and accelerators provide an environment in which entrepreneurs can share ideas and feedback, exchanging advice and support. And some businesses join a consortium or alliance with their peers to tackle various industry-wide challenges.

Reasons For Entrepreneurs to Collaborate

Diversity of Experience

Although the image of the entrepreneur is someone who builds their business from the ground on their own, there are many advantages to finding someone to act as a sounding board.

It can be difficult to continually think of novel solutions to the challenges that you face, and that is why collaborating and networking with your peers can help. They can help provide you with a fresh perspective that helps you work around your issue and you can provide the same service for them.

A fresh pair of eyes on a situation can be the spark you need to find the right path forwards.

Optimize Resources

Whether you are B2B or B2C, you will most likely face issues with customers tightening budgets during uncertain times. If revenue is falling or flatlining, reducing expenses is a necessity.

Through collaborating with other businesses, sharing resources such as skills or technology, you can create efficiency savings. Other examples of the benefits of collaboration in this area include economies of scale, where two or more businesses can access lower costs by purchasing in bulk together or sharing distribution channels, for example.

Expand Your Network

Working collectively also connects you with your partner’s network and vice versa. Through working together, you will meet with people and organizations with whom you might not have connected previously.

This opens the door for future partnerships, access to potential clients and other such opportunities to grow your business. In addition, you can access new markets through your collaboration with another company.

Risk Mitigation

One concern of entrepreneur life is the knowledge that the fortunes of the company rest on your shoulders. Any business leader must have some level of risk appetite, but when there is no safety net, it can lead to caution that might slow growth.

When you share the burden of the risks that you face, you can feel more confident taking on challenges, knowing you have backing and support behind you and that you won’t have to start again from square one.

Adaptability

When the market is turbulent, the ability to pivot is essential and that is more difficult to do when you are focused on a specific goal without any external input. By having collaborators available for advice, you can work on being more responsive to changes in the industry and even improve your ability to preempt them.

For many entrepreneurs, seeking collaboration might not be a natural impulse, but the advantages are plain to see. Working together brings a range of benefits that can help your business grow and succeed.

Mindy:
Hello my dear listeners and welcome to the BiggerPockets Money Podcast where we talk to David Greene today about his new book, Pillars of Wealth. Hello, hello, hello, my name is Mindy Jensen and with me as always is my pillar of financial knowledge, co-host, Scott Trench.

Scott:
Well, with me as always is my arch ally in personal finance, Mindy Jensen.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business, or go back to the fundamentals, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.

Mindy:
Scott, I am super stoked to talk to David today, but first, let’s have our Money Moment. Today’s Money Moment is provided by Innago. Start saving time and money with Innago’s free property management software. Find out why Innago is the number one rated property management software. As an exclusive offer to BiggerPockets listeners, you’ll get $25 for using Innago at innago.com/biggerpockets. That’s innago.com/biggerpockets.
Today’s Money Moment is if you’re like a lot of us who do most of our shopping online, you can be leaving major savings on the table if you don’t have browser extensions for shopping. Plugins like Capital One Shopping, Rakuten, and Honey have features that can track the items on your wishlist and determine when the item is cheapest to buy. They also scour the internet for promo codes and automatically apply them to your order. And with the holidays around the corner, it can never hurt to save on every trip to an online shop. Do you have a money tip for us? Email [email protected].
Before we bring in, David, let’s take a quick break.

Scott:
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Mindy:
And we’re back. Buckle up, this is an awesome show. You do not want to listen to this at 1.5. David Greene needs no introduction to the BiggerPockets universe, but if I had to give one, I would say that David is the host of the BiggerPockets Podcast. He runs the top producing David Greene team with Keller Williams and also owns The One Brokerage, an award-winning mortgage company with a nationwide presence.
David is also the author of several bestselling books. I think, what, five, David? Five bestselling books on real estate and investing, and he joins us today to talk about his latest book called Pillars of Wealth. David, welcome back to the BiggerPockets Money Podcast. I am so excited to talk to you today. Can you tell us a little bit about Pillars of Wealth and why you chose to write this book now?

David:
Yeah. So this one is book number six with BiggerPockets. It’s like almost a thing now where every year a new book is coming out. This book is the hardest one I wrote, but in all transparency is probably my favorite. From the position that I’ve got, sort of in the crow’s nest of real estate, I see so much of what’s happening in the whole space because you’re hosting the podcast, you’re talking to investors, I’m running real estate related businesses.
So when you see changes in the economy, changes in the way that real estate transactions take place, I really see them before everybody else does. And I’ve noticed that within our space of real estate education, there is a constant undercurrent of let’s make this look like it’s easier than it really is because we can get more clicks and views.
This isn’t a BiggerPockets thing, this is just real estate educational space. You’ll see a lot of influencers doing that. And real estate almost has been portrayed as this magic pill. I have no money, I have no job, I have no life, I have no credit, I have no skills, I have no friends, the cat never picks my lap to sit in. How do I buy real estate?

Mindy:
You have no business buying real estate if you have none of that stuff.

David:
Yes, that’s exactly right. It’s irresponsible to tell somebody if their financial house is in that much disarray that you need to go add weight to this terrible foundation by owning real estate, because not only does real estate make you money, but it can cost you money. Things can go wrong and you need to have some reserves set aside in order to do this as well as some skills.
Now, that’s not to deter people from investing in real estate. I really think this should be the carrot that gets you to put your financial house in order. You want to buy real estate, you’re here listening to the podcast. That’s wonderful. Let that be what motivates you to take certain steps to put yourself in a position that you’ve earned the right to do it. Just like if you want to bench press 500 pounds, you wouldn’t just go load up a bar with 500 pounds and say, “Well, how do I lift 500 pounds?” You would start with what you can lift and you would steadily increase it.
So this book was written to sort of be the antidote to the gurus that go out there and say, “Hey, you can just do it this way. Or you could just do it that way. Here’s the way around the obstacle,” instead of the obstacle might be a necessary part of your journey to put you in the position where you do build the skills, the knowledge, the experience, and the ability to build wealth through real estate.

Scott:
I just want to violently agree with you on this topic and use another example here of using a HELOC to fund the down payment on a purchase. So this is a common way that folks could try to get around the problem of not having liquidity. Well, the problem is a HELOC is a short-term debt instrument. Right now you’ll see rates in 7, 8, 9% range for a lot of HELOCs. It’s a second position loan against your house essentially, right?
And if you take out a $60,000 HELOC for your down payment on a rental property, relatively small HELOC for a down payment for example, and you assume it’s a five-year payback, you’re paying $1,000 a month in principal back against that HELOC, not to mention the 5 or $600 a month in interest. That absolutely cripples your cashflow on a deal and you’re in that position where for the next five years, this property is sucking cash out of your life as you look to repay that HELOC.
And that’s what the danger of getting into real estate without a strong financial position looks like. It’s a pet peeve of mine with the HELOC thing. People don’t think that through and they think it’s going to magically turn out on the other side. No, that’s a highly risky situation and you’re going to be bleeding cash for a long time to get yourself out of that.

David:
Yeah, that’s the reality of what we see. How do you find a property that cash flows $1,000 a month if you have the down payment? That’s incredibly difficult. Everyone’s having a hard time with that. Now, on top of that, you have to pay back $1,000 a month on a HELOC, which is not free money. You are still taking on debt and agreeing to pay that money back. You’re amplifying the risk that you’re going to be facing if something goes wrong, and you’re making it a harder lift at a time when it’s already hard.
And like you said, Scott, the problem is this is a very easy bullet point someone can put in a 30-second TikTok video where they say, “You got no money? Well, just use a HELOC on a previous property. Problem solved.” And that’s one of the reasons that I wanted to write the book because the way I built my portfolio and the way I think that you’re really supposed to do it is with a slow, steady, somewhat boring approach.
You get the skill of saving money, which is the first pillar, playing defense. I know that on this podcast, that’s what you guys are all about is, how are you wise stewards of the money you have? Then you build the skill of making money. That is actually a skill. That is not just a thing people are born into being able to do. It’s not something you can do or you can’t do. It’s a thing you have to learn.
And there’s several chapters on the things that people that are good at making money are good at doing, exactly what to do. And I learned those skills myself playing basketball in high school and working in restaurants. You don’t have to go to Harvard or some Ivy League institution to learn these types of skills, but you do have to give your very best when you’re in the position in life that you’re at right now.
And then the third pillar is you have to invest that money into something where it’s going to grow over time. Now, most of our audience does not need to be convinced on the third pillar. That’s something that the FI space maybe needs to be sold on, or the people that are really good at making money but not that great at saving it. They need to understand you have to invest that money. The BiggerPockets audience understands that already, but I don’t think they hear about the first two pillars and how they are just as important as the third.

Mindy:
To our investors who are listening to this episode, you mentioned saving, you mentioned earning more, you mentioned optimizing and investing. What should you focus on first?

David:
The first pillar that I talk about in the book is defense. This is saving money. It’s pretty obvious that I like to use the analogy of money is a form of energy, and I use the picture of water being poured into a bucket. So the more money that you can make or energy you can create is like pouring more water in a bucket. If that bucket has holes, it doesn’t matter how much water you pour into it, you’re just going to lose it again.
Also, if you get good at saving money in your own personal life, you are much more likely to manage the money through a business you create responsibly as well. My experience is the people that live fast and loose with their own finances tend to do that in business.
There are people in business who solve problems by looking for efficiencies, creating more accountability, having better systems, having better employees that they don’t have to micromanage because that person does a good job. And there are people that just throw money at problems in business, “Oh, we don’t have enough leads. Let’s buy more. Oh, we have a bookkeeping problem. Let’s just hire three additional companies to keep our books.”
They’re throwing money at problems which will work when there’s plenty of water coming into that bucket, but what we see right now is the money is not changing hands as quickly, the water is drying up, the bucket’s empty very quickly. So my personal thought is that if you can create the discipline, the delayed gratification, the ability to tell yourself no, that is a superpower that will translate into the business that you run, the short-term rental that you run, the rental portfolio that you build.

Mindy:
And what’s the framework you outlined for being able to save more money easily and how did you make it a fun challenge for yourself?

David:
Yeah, it’s not about depriving yourself. I’m very clear in the book. I’m not saying that your life should suck and you should be in pain all the time. It’s about having a plan for where your money goes. You should sit down with a sober mind and objectively look at what your goals are and say of my income, X percentage will go to these different things. If you love eating out, that’s great, spend money on eating out. But if you don’t really like eating out and you’re doing it just because it’s easy, that’s just stupid. If you’re not getting a lot of satisfaction and joy from that, don’t do it.
There’s lots of things that we spend money on because we’re in a bad mood and retail therapy is going to make us feel better, or it’s convenient, or like, “Oh, my girlfriend’s complaining, I don’t spend enough time with her. Let me take her to a $300 dinner to get her off my back.” It’s a stupid use of your money when what your girlfriend probably wants is a night of playing monopoly in the house to connect or something like that.
When you throw money at problems, you don’t actually make life better. So what I tell people to do is to start with a budget, literally a spreadsheet that says, “Here are the different things I spend money on. Here is how much I am choosing to allocate towards each one.” Then adjust your life to fit that budget. It’s the same way that if you wanted to lose weight or get in shape, you’d come up with a caloric budget and then you would have to adjust your life to fit the budget, not adjust the budget to fit your life.
Once you’ve done that, there’s apps that you can put on your phone that will track how much money you’re spending on different things that you can actually follow to make sure that you’re falling in line with the budget that you’ve created.
And the analogy that I use in Pillars is, it’s like floating down a stream with a current, with your eyes closed. You probably don’t feel the current when your eyes are closed and you don’t see the landscape moving next to you. When you first start looking at what you spend money on, it’s like opening your eyes and realizing, “Oh my gosh, I’m moving this very far backwards down this stream. I didn’t realize how much of my money was flowing out the door.”
The next step is to put your foot down in the riverbed and say, “I’m not going to just let this current carry me. My spending habits are not something that are going to control me.” It’s only when you put your foot down in the riverbed and you say, “I’m not spending this money anymore, that you actually feel the weight of that current, where you realize, “Oh my gosh, I’ve been solving problems with money,” or, “I’ve been undisciplined with this.” That is hard and that’s where the challenge starts.

Scott:
I just want to again violently agree with David. That’s the theme of today’s show. If you’re a $200,000 per year household income earning couple, which would put you in the upper two thirds, right on the bubble of the two third level for the income of the people who listen to this show and the real estate podcast, and you spend $10,000 a month, that’s $120,000 a year, you might be accumulating 20,000 or $30,000 on top of that. I have talked to so many people who say, “Well, spending less isn’t my problem, I need to make more.”
No, spending less has a double effect on your overall situation. First, it increases the amount you accumulate with which to invest, which can then drive returns. And second, it reduces the threshold you need to achieve financial freedom. $120,000 a year, if you want a portfolio generating $120,000 a year in passive income means you have to buy a lot of property or pay off a lot of property in order to actually generate that much cashflow.
If you can drop that spending to $80,000, you have $40,000 more after tax … It’s all after tax, by the way, anything that you don’t spend … and you only need a portfolio that generates $80,000 a year, that’s a double whammy. That has an enormous multiplier effect on the day that you actually achieve your goal of likely financial independence. So I think wealth creation begins with frugality, and I completely agree with this as a starting point.

David:
Here’s an example that I talk about when it comes to defense and that no one thinks about and it just blows my mind that we don’t. Everyone is in the pursuit of passive income. There is an obsession with I need more passive income so I can have a better life. If you can earn a 6% return on $100,000, that’s about $500 a month. It is very difficult to get a 6% return on an asset that you would be comfortable owning in a good location that has some upside. It’s possible, but it’s not easy to do.
People will say, it’s not worth doing this because I can’t find it. However, if you can knock $600 a month off of your budget, that is the functional equivalent of earning a 6% return on $100,000. How hard is it to save $100,000? You are talking about years of your life that it takes to save that much money. And like you said, Scott, the money that you make is taxed. It makes it even harder to be able to accomplish that.
When times are tough, like right now, when investing is more difficult, it doesn’t mean you shouldn’t do it, but it’s just harder to make it work. Why would you not turn that same energy towards what you’re spending your money on and take control of something that you can control, which is your own personal budgeting?
And that’s one of the reasons that I never wrote the book on house hacking, but it’s like my favorite strategy of all of them because it’s hard to go accumulate $500 a month of passive income. It’s much easier to buy a house and rent out a part of it and reduce my own living expenses from $2,000 a month to $500 a month. That’s a $1,500 return. How much capital would I need to save to be able to make $1,500? So to your point, this is just something that needs to be spoken about more often because people have more control over that area of their finances.

Mindy:
You have something you can cut from your budget. There’s frivolous stuff. You’re paying too much for stuff. I use Mint Mobile for my phone that is $15 a month and you could pay $100 a month. Why would you pay $85 a month more for essentially the same service, or exactly the same service, or lesser service, because Mint is pretty flipping good? So if you have a problem with your cash outflow, your cash inflow, look at your budget. I bet you’ve got something to cut. I bet you’ve got a lot of somethings to cut and it might not be fun, but it’s probably not going to be that hard either.

Scott:
We’ve talked a lot about defense. Let’s go to offense. What’s your philosophy on offense? And by the way, I do want to call out on the last time we interviewed you on the BiggerPockets Money Podcast, we heard about your incredible journey as a waiter and all the hard work that you put in, the extra effort that you liked to put in. It wasn’t quite enough to get to Red Robin Waiter of the Year status like James Dainard, but clearly you guys share the same mentality with your approach to service there. Is that essentially the underpinning of how you think about earning more?

David:
Yeah. I learned all this within the ecosystem of a restaurant now. And I think you make a good point there because I do get along very well with Jimmy. I think it’s because we have a very similar approach to excellence in what you’re doing.
So when I was in college, I mentioned this the last time we did the interview, my goal was to save $500 a week from tips from tables. So I had to play defense. I couldn’t spend money on dumb things. I didn’t go out to eat. I didn’t take vacations as a 20-year-old. I just didn’t understand what was so hard about life at 20 that I needed to go to Mexico with my friends and be crazy.
But I also understood that I needed to work more hours or stay an hour and a half later to close that I could double my income by being the closer of the restaurant when everybody else wanted to go home. So I started to pick up these little tips of how to be good at making money. I noticed if I can close, I can get more tables. So the question became, well, what do I have to do to be a closer?
Sometimes I’d give them 20 bucks to go home early and I’d stay and pick up another couple tables and make 80 bucks and I was up $60. Sometimes just being the boss’s favorite. She schedules you as a closer more often because you come into work when they need somebody or you have a better attitude than other people do.
I would pick up shifts when I had nothing to do. If I was sitting at home and there was nothing really compelling, I would just start calling the other servers and saying, “Hey, do you want me to work for you?” And there was a very good chance that if you give most people a chance to take the day off, they’re going to take it.
So I was intentional and then I realized that if I wanted to wait on more tables, I had to be just better at being a waiter. I had to be faster, I had to give better service, I had to have a better attitude, I had to be more efficient. And in the restaurants that I worked at, time was your enemy.
If you get to a table and they’re not ready to order and they take a long time to put their order in, your other tables are getting pissed because they’re like, “We’re hungry, where’s our food?” Or if it takes you a long time to get the information from your notes into the computer for the kitchen to start on, your food’s waiting to get run out to another table and the kitchen’s yelling at you. There’s always stress.
And I just learned to let that stress mold me into a more efficient person. I would look at the better waiters that had done it for years and ask them, “How do you solve these problems? What happens when you end up in these situations?”
And they would give me really good advice, like stop running to the kitchen to get one thing and running to the table to drop it off and running to the kitchen to get one thing. Go to the kitchen, get everything for every table and take it all at the same time. Well, I had to be more disciplined. I had to mentally drill it in my head, table three needs this, table four needs this, table five needs this, and then grab it all at one time.
Those skills actually translated very well into other things I did in life. When my real estate agent business took off and I was very busy and my clients had a lot of stress and I had a lot of moving pieces, I learned how to clump them all up into things that I could create into a system to be more efficient than what other people did.
My personal take is that you should approach every day at work like it’s the last day of tryouts and you don’t want to get cut. If you take this approach that I’m going to the gym and I’m going to work out as hard as I can and I’m not going to leave until I am too tired to lift another weight, it is impossible to not get stronger. The same happens with the skills you build at work.
And what I find unfortunately is that most people have got this philosophy, and I don’t know where it came from, but it’s everywhere, that you’re a sucker if you do that, that you shouldn’t work harder until your boss gives you a raise, that you shouldn’t try harder until they do something to make it worth it for you. And I just think that that’s foolish advice.
I think it’s foolish in a relationship to say, “Well, I’ll love them when they love me more.” That probably never works out. I’ve never heard of a married couple who said that was a good strategy. It’s almost always we have to start with what’s happening.
And I really believe that people need to focus much more on the skills they are building and the value that they bring to the marketplace, whether that’s their job, their boss, their client, their customer, or the market as a whole depending on what environment you’re in. You will start to build skills. And as you build skills, you will become more valuable.
And everyone’s biggest fear is what if I do that and I don’t get a raise? And my answer to everyone is like, that’s the best position you could be in because now you have confidence to move on to the next job and know you’re going to crush it versus, “Well, I haven’t been working out for the last two years and now tryouts are coming up and I’m in bad shape. I can’t take that next job.”

Scott:
I have long felt that there’s an interrelationship between defense and offense, where if I am spending less money, accumulating more cash, I have more liquidity, I have more passive income, I can be more aggressive and my options begin to explode and multiply in terms of my ability to earn more offensively. Do you agree with that interrelationship that there’s a paradox, the less you spend, the more you can make?

David:
A hundred percent. Yeah, because if you look at the jobs that pay the best, they usually have the least security. If you go take that W-2 job, the pro is that you’re guaranteed to get the paycheck. The con is that you won’t have as much opportunity. The people that make the most money are some form of an entrepreneur, some kind of 1099 worker. They have some kind of sales. They have a hand in creating revenue for the company.
I refer to this as they catch the fish instead of cleaning the fish. Fish catchers will always be compensated more overall because the skill that they bring is inherently more valuable to the enterprise. The downside is they have less safety, they have less security, and there’s more risk. They might not eat at all that day or make no money if they couldn’t get the fish to bite or they missed setting the hook. Whereas the fish cleaners, they’re going to get paid no matter what happens.
So if you want to get into the higher tier of making money, it comes at the expense of losing security, which means you need to be in a strong financial position. If you’re saddled down with car debt and student loan debt and housing debt for a house that you don’t need and spending habits that are poor, it’ll be so much harder to make that jump into an area with less security.
And you also need to spend some time in those higher paying jobs before you learn how to do them well. You don’t just get on a boat and learn how to catch fish. There’s skill that has to be developed. And like you said, Scott, if you’re not in a strong financial position, you just won’t make the jump.

Mindy:
Okay, David, we’re going to put you on the hot seat right now. What are one to three things an investor should do today to get in the game?

David:
The first thing that they should do is read Pillars of Wealth and understand that investing is a third of the journey. It’s not the entire thing. And let that be the carrot that guides them.
The second thing that they should do is look at their budget and say, “What could I cut from this that wouldn’t kill me, but would put me in a better position?”
Most people, and Scott, you talk about this in Set for Life, the biggest expense they have is their housing allowance. People assume they have to pay the $2,500 a month for rent. That’s just what it costs to get an apartment. And they don’t think about, “What if I rent a room from somebody else? What if I rent a room from somebody else and cook for everybody, or I do the cleaning, or I do something to add value to that relationship? What if they give me an even bigger discount on my rent?” House hacking works both ways. You can own the property and rent out the rooms, or you can rent the room from someone else to help save money until you’re able to own the property.
And the third thing is they should take a good hard long look at the mirror and say, “Do I go to work every day like it’s the last day of tryouts and I don’t want to get cut? Am I giving a hundred percent of the effort that I could be giving or am I stuck in this toxic mindset that says, I want to make as much money as I can, doing as little work as I have to?”
That is something that somehow has gotten into our minds and people operate that from a default level and it puts them in an adversarial relationship with their employer because their employer doesn’t like someone who’s saying, “I want to do as little work as possible and make as much money as possible.” Now, you’re clashing. You don’t have a partnership. What you want to have is a team environment where you doing better equals them doing better, which means that they can pay you more money.

Scott:
David, thank you so much for joining us today. I’m picking up what you’re putting down, not literally. What do you bench these days?

David:
I hit a record maybe six months ago when I was working all the time. I hit 315 and I was shocked that I did that, but I’m sure it wouldn’t be there right now.

Scott:
I’m metaphorically picking up what you’re putting down. Really appreciate it. Really enjoyed Pillars of Wealth. And thank you for all you do to bring a lot of knowledge to the BiggerPockets community on a regular basis. Appreciate it.

David:
Thank you, Scott. Thank you, Mindy. Great time.

Mindy:
David, I always appreciate your time. It is always fun talking to you. For those listening, he was on episode 12 of the BiggerPockets Money Podcast. Go back and listen to that because he dropped nugget after nugget after nugget of wisdom and you need to hear his entire waiter story because it is a doozy. He just hit the highlights today. David, where can people find you when they’re looking for you online?

David:
They can find me at davidgreene24 on social media, and davidgreene24.com. And they can also check out the BiggerPockets Real Estate Podcast where we do our very best to help people build wealth through real estate every week.

Mindy:
Awesome. David, thank you so much for your time today.
All right, Scott, that was David Greene. It’s always so much fun to talk to him. I don’t even know how he keeps so much knowledge in his head. I guess that’s where all the hair went.

Scott:
That’s awesome.

Mindy:
Pushed it out with all the knowledge.

Scott:
No, yeah, I can’t just help completely agreeing with David on a lot of these things. I think it’s always for me about the basics and the fundamentals. And look, I know that I missed out on more of a run-up that I could have had over the last 10 years if I had levered up, pulled cash out, gone all in on real estate and really just ridden the wave of appreciation 5, 6, 7, 8 years ago.
But I’m also happy that I haven’t done that and I have a lot of cash and I have a very stable and secure position that I can consistently grow and maintain. And I’m not worried about cashflow problems. I’m not worried about average daily rates going down in the short-term rental market, and I’m feeling very secure and confident in my long-term rental investing strategy, and will buy another one in 2024 and continue on business as usual here.
And I think there’s a lot to be said for that, and that’s why I’m proud to do what we do every week on the BiggerPockets Money Podcast and preach the basics of personal finance. I’m glad David is obviously so aligned with that and has built his business the same way.

Mindy:
I love that. Yeah, I am always looking for my next real estate deal, but I’m not frantically looking because I have money in the stock market and that’s where it’s growing right now because that is a more comfortable place for me in this time period.
So if you’re interested in investing in real estate, start keeping an eye on the market. But don’t just jump in blindly because some schmuck on YouTube told you, “Oh, you could totally do it,” because they’re not going to be there to pay your mortgage when your tenant is evicted. And they’re not going to be there to fix your house when your tenant trashes it.
So do your due diligence, go to biggerpockets.com, learn everything there is to know about real estate investing through our forums, through our blogs, through our boot camps, through our books, through our podcasts. There’s so much knowledge out there for you. All you have to do is read it, or listen, in the case of the podcasts.

Scott:
And keep your fine financial fundamentals sound. Spend less than you earn, pile up cash, and that is the major de-risker in any investment strategy you can pursue. If you’re saving 2, $3,000 a month, that can wipe out or mitigate really almost any mistake on a property or two that you might purchase for a pretty long period of time. It cannot wipe out the mistakes on 10 properties purchased or those types of things.
It’s investing in whatever asset class, real estate, stocks, whatever, consistently but not aggressively, maintaining a position where forever more cash comes into your life than goes out, controlling your expenses.
And look, as unsexy as it is, it starts with defense. The less you spend, the more you accumulate, the more you need in passive cash flow to fund a position of financial freedom, and the more risk you can take on in your investing strategy because you have a bigger cushion to fall back on your monthly burn rate, or monthly accumulation rate. And so it’s all about fundamentals and the fundamentals will propel you through any market condition.

Mindy:
Scott, I could not agree more. All right, I could sit here and talk forever about this, but I think we’ve covered it. And David is fabulous. Where is the book available, Scott?

Scott:
The book is available at biggerpockets.com, where you can get a lot of bonuses associated with the book as well. And of course, anywhere books are sold, like Amazon, Barnes & Noble, and elsewhere.

Mindy:
All right, Scott, that wraps up this episode of the BiggerPockets Money Podcast. He is Scott Trench and I am Mindy Jensen saying, got to jet, whippet.

Scott:
If you enjoyed today’s episode, please give us a five star review on Spotify or Apple. And if you’re looking for even more money content, feel free to visit our YouTube channel at youtube.com/biggerpocketsmoney.

Mindy:
BiggerPockets Money was created by Mindy Jensen and Scott Trench, produced by Kailyn Bennett, editing by Exodus Media, copywriting by Nate Weintraub. Lastly, a big thank you to the BiggerPockets team for making this show possible.

China reported better-than-expected retail sales and industrial data for October, with retail sales growing 7.6% compared to a year ago. CNBC’s Evelyn Cheng reports.

Imagine having no diapers for your baby and using newspapers instead. Or picture running out of formula for your hungry, crying newborn and giving your child Gatorade, so they don’t starve to death. While these scenarios are heartbreaking, this is the reality for nearly half of American families according to The NBDN Diaper Check 2023.

On Saturday night, more than 800 guests including Hollywood stars and executives, business leaders, and philanthropists packed the Pacific Design Center in Los Angeles and raised more than $12 million to support Baby2Baby. The national nonprofit, run by Co-CEOs Kelly Sawyer Patricof and Norah Weinstein, provides basic necessities to children experiencing poverty. “This event is so much more than just a party. It single handedly raises millions of dollars to make Baby2Baby’s vital work possible. This one night is where Baby2Baby raises 60 percent of their operating budget,” Olivia Wilde shared on stage alongside Kim Kardashian and Zoe Saldaña.

The Giving Tree Award

During the fundraising, Kardashian, who received Baby2Baby’s Giving Tree Award last year, donated $500,000 along with Emma and Jens Grede from SKIMS.

This year, the nonprofit honored Oscar-nominated actress, Emmy-winning director, producer, and humanitarian Salma Hayek Pinault. “We already knew Salma was a force, but are blown away by her genuine passion for giving back. She cares so deeply about helping children in need which is our entire mission at Baby2Baby. From her commitment to increasing resources and opportunities for women and girls to her support of children impacted by natural disasters, Salma emulates exactly what this award means to Baby2Baby,” Weinstein said.

During Hayek Pinault’s acceptance speech, she stressed the importance of dignity. “Diapers are dignity, make no mistake,” she said. “Everything you donate and everything that Baby2Baby brings – there is an intention, not just money. It is love. It is compassion. It is caring. We are interconnected – baby to baby.”

Other Hollywood stars who presented included Jennifer Garner, Julie Bowen, Zooey Deschanel, and Channing Tatum. Snoop Dogg performed live and D-Nice ran the after party. Guests mingled as they tried featured dishes from Los Angeles’ top chefs and restaurants, which was curated and led by Jon Shook and Vinny Dotolo of Jon & Vinny’s, Son of a Gun, Cookbook Market and Carmelized Productions. Participating restaurants included Funke, KazuNori by Sushi
SUSHI
Nozawa, and Craig’s Vegan Ice Cream. Foodies who stopped by Broad Street Oyster Co. x goop Kitchen’s spot were served by Christopher Tompkins and Gwyneth Paltrow. The event was presented by Paul Mitchell and included additional sponsors, City National Bank, and Volvo Car USA.

Powered By Women

When Sawyer Patricof and Weinstein addressed the attendees, they shared how they have developed an innovative model and unique approach to help alleviate the burden felt by families experiencing poverty from a variety of angles, including manufacturing, advocacy, influencer marketing, and more, always finding ways to evolve their approach to meet the needs of the families they serve.

They say much of Baby2Baby’s success can be attributed to the combined effort of an ever-evolving network of an all-female board of directors and angel ambassadors including Kerry Washington, Mindy Kaling, Kim Kardashian, Olivia Wilde, Vanessa Bryant, Jessica Alba, Zoe Saldaña, Kristen Bell, Ali Wong, Blake Lively, Ayesha Curry, Kate Hudson and more. “Our incredible supporters advocate for Baby2Baby every day of the year and leverage their unparalleled platforms to raise millions of dollars for Baby2Baby and the children we serve.”

Alleviating A Massive Need

Baby2Baby has distributed 375 million critical items over the past 12 years. “We are supporting children in all 50 states and received requests for 1.3 billion diapers this year alone,” Weinstein said. The organization has given out 170 million diapers and launched their own diaper manufacturing system to make them at 80% less of the cost.

The Co-CEOs also discussed Baby2Baby’s collaboration with the White House, which is addressing the alarming maternal mortality crisis in the country. Sawyer Patricof and Weinstein further emphasized Baby2Baby’s recent crucial efforts around the globe. This includes providing aid to children in the Middle East, dispatching more than half a million emergency supplies to children affected by the Maui wildfires, providing formula and clothing to support families who lost their homes in the aftermath of tornadoes in Mississippi, delivering more than 350,000 emergency supplies to Florida following the devastation caused by Hurricane Idalia, and more. “We know and deeply understand the fear of donors that their money or donations will not reach the intended recipients. But ours did and do,” Weinstein said. “We step back and listen and assess. We wait for requests to come in from trusted partners on the ground–from the smallest grassroots organizations to the largest government agencies like FEMA or the Red Cross. Then, we provide families with their most urgent needs–in the shortest possible time,” Sawyer Patricof added.

David:
This is the Real Estate Rookie episode 339er. Hey, what’s up? This is David Greene, the host of the BiggerPockets Real Estate podcast, and today I am on the Rookie Show, taking over the rookie feed to share a presentation of buy, rehab, rent, refinance, repeats or BRRRR. In this episode, we’re going to cover what makes a great bird deal, whether today’s market is good for BRRRR investors or not, and if BRRRR is the right strategy for you. I’m going to be teaching you how to master the must knows for successful BRRRR investing. Whether you’re a first-timer or a season pro, get the latest tips for great BRRRR deals, market suitability, and finding the right strategy. Many investors have fast tracked their portfolio growth journey using the BRRRR, and I am one of them. The BRRRR strategy, buy, rehab, rent, refinance, repeat can allow you to get the most out of your capital and reach financial freedom in years instead of decades.
But with today’s market conditions, BRRRR, investors need to be more focused than ever on correctly running the numbers, projecting expenses, and estimating the after repair values. In today’s show, you’re going to learn must knows for any BRRRR investor from the BRRRR guy himself, me. Whether you’re searching for the first BRRRR deal or rehabbing your fifth, you’ll want to hear my latest tips and tricks for all BRRRR investors, so don’t miss out. During the podcast, you are going to learn a little bit more about ways that real estate investors evaluate deals to make sure you don’t end up with something that loses money after you’ve done all the work. If you decide that you would like to sign up for a BiggerPockets Pro membership and get access to the calculators that we investors use to analyze our deals, I’ve got good news for you because you’re listening to this podcast and supporting BiggerPockets, I’m going to give you a discount code for 20% off of a yearly pro membership.
So take a second to write this down or put a note in your phone to save 20%. The discount code is, OWNIT20, O-W-N I-T 20, that’s OWNIT20. All right, I hope you’re feeling chilly because it’s time to BRRRR.
Welcome everybody. I’m David Greene, the host of the BiggerPockets podcast here today to talk with you guys about BRRRR. In fact, yesterday at my jiu-jitsu class, there’s a young man named Dylan, Dylan, if you’re watching this, what’s up? Who knew who I was and was assigned to work with me and called me Sir BRRRR, which is my nickname given to me by my cohost Rob Abasolo. So I wrote the BRRRR book, which we’ll talk about later. I’ve used the BRRRR method to supercharge my portfolio and I’m here to talk to all of you today about how you can do the same. So if you’ve ever heard this BRRRR word, you don’t really know what it means, you know it has something to do with repeating a process.
Well, don’t worry, by the time we’re done today, you’re going to have a very good understanding of what it is, how simple it is, and how you can use it to use the same capital to buy a lot of real estate. So welcome, I’m glad you guys are here. I’m thrilled. Let’s go over a couple ground rules. First off, get your phones out. You don’t have to put them away. I want you to have your cell phones out while we are going through this. And here’s why, there will be points in the presentation and I’m going to want you to take a picture of the screen so that you can remember what we talked about. So if you have your phone out and ready to go, that will help us. Also, you can follow me at David Greene 24. I didn’t cover that earlier, but if you guys have a question after the webinar, you want to get some clarity on something, the best way to get ahold of me is to send me a DM on Instagram or Facebook.
All right, what if I told you that you could make your capital go further? Would there be any interest in that? I mean, is everybody here bleeding money out of their ears right now? Is it like, “Man, I got all this cash and I just need to find somewhere to put it?” Well, if you’re not Pablo Escobar, you probably don’t have that problem. You’re probably looking for a way to take the little bit of money you do have and stretch it further, which would be a good thing. Do you want to increase the velocity of your investing? Meaning do you want to make transactions happen more frequently? Do you want to reach your investing goals faster? Are you not wanting to need 50 years before you can save up enough money to buy enough real estate to become a millionaire? Well, you can. Anyone here can using BRRRR. By the end of this webinar, you will understand why BRRRR works and the expert tips to follow.
All right, let’s get into today’s agenda, what we’re going to be going over. We’re going to talk about some door prizes. We’re going to talk about why experienced investors love BRRRR. We’re going to talk about if BRRRR is the right deal for you, finding a deal, tools to help expert tips and tricks, and we’re going to analyze a deal together. Pretty cool. So stay all the way until the end for expert tips and tricks because you don’t want to miss those. So who are we here at BiggerPockets?
Well, we have over 2 million members. We have the number one podcast for real estate investing in the world hosted by yours truly, 5 million plus forum posts. These are questions that investors have asked and other members of the community have answered. As well as 40 million total YouTube views and counting. It doesn’t take that many properties to achieve financial freedom, but it does take the right goals, the right plan, and the right actions. So who am I? Well, my name’s David Greene, I’m real estate investor and I live in the Bay Area of Northern California. I own rental properties, I flip houses. I’m a commercial investor. I co-host the BiggerPockets podcast with Rob Abasolo. I’m the author of Buy, Rehab, Rent, Refinance, Repeat the BRRRR book. Long Distance Real Estate Investing, that’s the first book I wrote for BiggerPockets. Also, the top producing agent series for BiggerPockets, which is three books written to help real estate agents and some more houses.
Those are sold, skill and scale and like you, I was once a newbie to real estate. So let’s talk about what BRRRR is before we get into it. It’s an acronym. BRRRR stands for buy, rehab, rent, refinance, repeat, and this is the order of operations when we’re buying a property. So first you buy a house, then you rehab it to make it worth more, then you find a tenant and rent it out to them to get cashflow. Then you refinance the property when it’s worth more than what you paid for it to get a lot of your capital back out. Then you take that capital and buy another property to repeat the process. So why do experienced investors like me love BRRRR? Well, first off, it’s a low or a no money down strategy. Now you will still need money to buy the property, but if you do this well, you will leave only a little bit of your money or get all of it out of the deal.
You’ll also increase your return on investment, and that’s because you’re leaving such a small amount of money in the property, but you’re still getting cashflow that the ROI and the money that you leave in there is astronomically high. You’ll get the most out of your capital. So your money’s going to be working hard for you just like you had to work hard to make that money. You’ll increase the velocity and the efficiency of your investing, which means you’ll buy more properties and you’ll buy them better than if you were not doing BRRRR and you will supercharge your wealth. You will get wealth faster, still using sound fundamentals of real estate investing. So is BRRRR right for you? Do you like what you’re hearing so far? Well, here’s some things to consider before choosing to BRRRR. First off, are you willing to do a rehab and are you going to hire it out?
Do you do the work yourself or are you going to pay a contractor or a handyman to do some of this work? Because most BRRRRs involve fix or upper properties, which mean there will be a rehab, whether it’s lighter, extensive, there’s still a lot of work. They require solid skill planning to find a deal. So we’re going to share some great tools later to make this possible for anyone to do. But know when you’re BRRRRing, you have to find a better deal than when you buy traditionally to make this work, which is one of the reasons I like it is it forces me to buy better, but it is going to be harder work. And here’s some of the potential cons of BRRRR. Well, first off, you’re usually going to use a short-term loan to buy the property, this could be a hard money loan, it could be private money. We’re going to get into some of the different ways you can finance it.
Then there’s the problem that you may have a low appraisal after the rehab. So you’re going to learn in this method, you buy a property and then it has an after repair value, what you think it’s going to be worth after it’s fixed up. Well, sometimes it appraises low and that messes up your whole plan for pulling your capital out of the deal. You’re going to end up with a rehab that ends up over budget. That can happen too. So you plan to spend say 50,000 for the rehab and it becomes $75,000. That can mess up your numbers. There’s a seasoning period. Traditionally it’s been six months for conventional financing. Now for some it’s up to 12 months. So it can be hard to refinance that property until you’ve waited a period of time.
So if you thought you were just going to do this every three months, that can be tough depending on what kind of loan product that you’re using. There are two potential closing costs, so you may have closing costs when you first buy it, as well as closing costs when you rehab it, that’s an added expense. And then the rehab itself is stressful. It can involve pulling permits. It can involve talking to a contractor. It can usually go over the timeline. Rehabs are notorious for being headaches, and when you’re buying fixer-upper properties, that’s a part of what you’re buying. So it does have a lot of downsides and now that I think about it’s probably better that we don’t talk about BRRRR. I mean, if something’s hard, it’s usually bad. Eating vegetables is hard. Lifting weights is hard, exercising is hard, raising babies is hard.
I changed my mind, I don’t think we should be doing this at all. Actually, no, that’s terrible. In fact, we have the word nope written in cursive with paint. That was very, very impressive. Whoever wrote that on this hardwood floor, that’s actually a really good nope. But nope, we’re not going to run away from things that are hard. BRRRR has propelled many, including myself towards financial freedom and I believe that anyone here can do the same. So how do we work around the cons? Well, first off, remember that every strategy has unique downsides. How do we address them? How do we address the short-term loan? Well, you can use a hard money loan to buy the property, but you’re going to have additional closing costs. So know that when you’re getting the loan, you should contact a mortgage broker. I own the one brokerage, so we can help you with that.
You may have a relationship with the mortgage broker. You want to ask questions like what financing options do you have available for short-term debt? This is not a 30-year fixed rate loan on the property, this is a loan that you want to get for a shorter period of time. Then there’s the low appraisal after the rehab. Well, you want to plan your rehab well and you can contest appraisals. In fact, owning a mortgage company gives me an advantage there. Sometimes we’ll order an appraisal and it will come in low and we’ll go to a different lender and have a new appraisal ordered instead. Sometimes we’ll contest the appraisal and say, “Hey, I think your guy messed it up. Here’s some comps we should consider.” And they may redo their original appraisal. And the more you do rehabs, the more confident you get with knowing what to do when they go wrong.
You also have the problem of the rehab ending up over budget. There’s no way around it. You just have to have access to extra money in case that happens. Then you’ve got the seasoning period. One of the ways that we address that problem is we don’t always refinance into conventional loans. Sometimes we refinance into A-D-S-C-R loan or a bank statement loan. Some of the other financing options that… Or a portfolio loan that don’t require you to wait the full 12 months, and again, that’s a mortgage broker question. If you work with a mortgage broker, they have many different banks that they can find you financing for. Versus if you work with a direct lender, they usually have one bank with one program, and if you don’t fit within those parameters, then they’re not going to be able to help you. And then it comes to actually doing the rehab. How do we address that?
Well, something that I need to highlight about BRRRR, especially if you’re not familiar with real estate, this does not work when you pay fair market price for a property or you don’t add value through the rehab. This is a method for buying a property below market value and or adding value to the property through the rehab, upgrading it, adding square footage to it, fixing problems that someone else didn’t want to fix. This is something that you only do when you can get a property for less than what it’s worth. This doesn’t work for a turnkey property that you’re paying fair market value for. There’d be no way to get your capital back out of it. You’re actually trying to create equity when you buy this property and fix it up and then take that equity out and put it back as cash in your bank to invest into the next deal.
So that’s another important thing to highlight, that the BRRRR method is not something you just choose to do on some condo in an area that you love and you paid what it was worth. This is something that’s going to take a little bit more work to find the better deal. So let’s talk about how to find the right deal. Okay? Well you’ve got networking and BP can help you there. You can go to real estate investment groups. That’s a way to meet other investors or wholesalers that are actually people out there actively looking for really good deals, putting them in contract and then assigning those contracts to you. You can go to Meetups. These are places where people go and they get together and they talk about their businesses and they talk about what they’re investing in and they build relationships. You can get on the forums like I mentioned earlier, BiggerPockets has forums with all kinds of different deal finders or agents and different people that you’re going to need in the transaction all conversing and having conversation.
Or you can tell your family and friends, “Hey, I’m a real estate investor. I am looking for someone who needs to sell their house, especially if it’s ugly, a hoarder house, death in the family, something that wouldn’t work great to put on the MLS and sell for the maximum price possible.” You can do what we call driving for deals. Now, this is a method where you get in your car, you drive around neighborhoods. Maybe you’re an Uber driver and you do this while you’re working. Maybe it’s when you’re on your commute, maybe you’re taking your kids to swim practice, and as you’re driving through residential neighborhoods or when you’re waiting for practice to end and you’re driving around listening to the BiggerPockets podcast or BiggerPockets on YouTube, you look for properties that are in terrible condition. You want to find something with overgrown grass, boarded up windows, clearly deferred maintenance, something that lets you realize that the owner isn’t taking care of their property and maybe more inclined to sell it.
Then you look up their information using skip tracing technology and you send them a letter or give them a call or an email or whatever you do, and you say, “Hey, I’d like to buy your property. Can I make you an offer?” There are wholesalers. This was one of my favorite methods when I was knee-deep in BRRRR, is I would find people that had deals under contract for less than what they were worth, and I would buy it directly from the wholesaler and then I would do my rehab. I’d also look for three kinds of distress. I talk about this in my book Pillars of Wealth that will be coming out for BiggerPockets. The first is market distress. This is when a entire market is in a bad position. Something during the recession, if you were buying houses in 2010, we had a lot of market distress. There was a ton of properties for sale, good time to buy.
You also look for property distress. This is like when I was saying driving for deals. You’re looking for a property that is clearly in bad shape and other people don’t want to buy it because of its issues. Then you look for personal distress. That’s when a human being is in a bad point. They’re facing foreclosure, they need money for medical bills. There’s something going on in their life or maybe they’re going through divorce, they don’t want to deal with it anymore. They just want to get rid of a property easily. That’s something investors can take advantage of. You’ve also got investor friendly agents, agents that are good at finding deals for you on the MLS and negotiating them. BiggerPockets can help you do this with agent finders. So if you go to the BiggerPockets website and then you click on tools, you can click on Agent Finder and find an agent in your area that can help you.
If you’re in my area, northern or Southern California, you should definitely email me, reach out to me because I can help you. But if you’re not near me, BiggerPockets has a great way for you to find another agent that like you enjoys BiggerPockets and speaks the language. So what makes a good bird deal? First off, you should read the bird book for all the tips and tricks, but while you’re here, I’m going to cover some of the big ones. First off, you want to buy under market value. You want to get that house for as far below fair market value as you can possibly get the seller to agree to. There’s some rules of thumb you should look at. The 1% rule is a rule that states the property should rent for around 1% every month of what you paid for the house, which means if you pay a 100 grand, it should rent for around a thousand dollars a month.
If it’s close to that, it is likely to cashflow and not a waste of your time. Now, the 70% rule is another helpful rule. Now, this is a rule that says you should try to buy a property from an owner for about 70% of what it would be worth after it was fixed up. So you take 70% of what you think it’s going to be worth after it’s fixed up, you subtract your rehab costs and that’s where you make your initial offer to start your negotiating. Now, that doesn’t mean you have to follow these rules to a T, but they are guidelines that give you a framework for where to start when you’re considering pursuing a deal. Also, remember that appraisals can vary by location. So if you look at a four bedroom house on one side of town versus a four bedroom house on another side of town, it’s very possible that one of them will be worth more than the other because it’s in a better side of town.
So remember, it’s not just by city, it’s actually by neighborhood. When you’re looking for comparables to determine what a property is going to be worth after it’s fixed up. And then you’ve got rehab best value ads, okay? We all know you can fix up a kitchen, you can fix up a bathroom, you can make a property more desirable, but did you ever think about adding a bedroom? Did you ever think about buying a two bedroom home that has 1400 square feet and converting the bonus room, the den, the living room into another bedroom or two if it has living space like a family room already? This is a fast way that you can take your two bedroom house and have it compared to three and four bedroom houses by adding bathrooms. Same for creating more livable space. Maybe you have an attached garage that’s not being used for anything. Maybe you have a covered patio that’s really big not being used for anything. You can actually wrap that into the house and create another master bathroom, move the kitchen to that part of the house.
Adding square footage to small homes is a great way to add value to the property. Now, remember that 99% of the properties out there are not really deals you have to analyze for the best one. So let’s analyze one together. We’re going to take a minute here and we’re going to go to biggerpockets.com and I’m going to show you guys how you can actually actually analyze a deal. Here’s the one we’re going to analyze. We’ve got a nice cute little house. Now, this looks like it’s a single storey, but it actually has a basement, you just can’t see it from this picture. See the dining room here. Living room here. It looks like it’s in a pretty good shape. Just could use a little bit of updating. Maybe replace the carpets, maybe give it a fresh coat of paint.
You can tell it’s in a pretty nice neighborhood here. It got some good bones, I can tell from looking at this thing. It is a 1950s ranch up down duplex, meaning it has a basement that has already been converted into the lower side. The purchase price is 220,000. That’s what we’re going to try to buy this thing for. The rehab is 50,000. That’s what it’s going to cost to turn that bottom unit into something that is more livable to upgrade it. And when we’re done, we should have an ARV, meaning an after repair value. This is what we think the property’s going to be worth of $350,000. Okay, so to run through these numbers, we’re going to try to buy it for 220. We’re going to put 50 into fixing it up to spruce it up, make it worth more, and then we’re hoping it’s going to be worth 350 when we’re done.
The estimated rents from unit one are going to be 1600 and unit two are going to be 1600, and property taxes we assume will be about 220 a month. And this is what unit one looks like. We’ve got a mud room, remember I told you to look for square footage that’s not being used well, that mud room could probably be converted into either additional living space. We could take a bedroom that might be next to it and make it bigger. We could take a bathroom that might be next to it, make it bigger. We can add another bathroom here if the mud room’s not being used for anything. Sometimes you can knock down a wall and there’s a closet on the other side, and you can make this into an actual bedroom.
Whatever you do, you want to take space like mudrooms that aren’t being used for anything useful and try to add them into the square footage of the property in a better way. Then we’ve got the kitchen here. We can tell it’s a little bit outdated. We can probably spruce that thing up, and then as you see, the bedrooms are fine. They’ve got some pretty nice hardwood floors, but they might need some paint and definitely some new window coverings. This is unit two. It’s a two bed, one bath. So you can see there’s already a bathroom in the basement and there’s a bedroom in the basement. You can see that they had a renovation that they were doing but had water damage and drain issues, so they had to stop. Now, when I’m looking for properties on the MLS, I love seeing pictures like this. This is what I want to see because it scares away other buyers, but I just see that a lot of the work has already been done. We just have to go put in some drywall. We could make this thing look pretty.
The basement also has a rec room and a utility room, so there’s a lot of square footage here that we can try to use for better purposes. I like that. The more square footage that I see and the lower the price of the house, the better. So this is a very good BRRRR candidate. So we’re going to switch over to biggerpockets.com. We’re going to use the BRRRR calculator and I’m going to show you how BiggerPockets has tools that can make analyzing properties much, much easier. So all we’re going to do is head over to the BiggerPockets website. We’re going to hover over tools. Then we’re going to go to calculators, and we’re just going to roll down to BRRRR. See how easy that is. We’re going to hit start new report. The report title is going to be called Up Down Duplex.
In this case, I don’t know that we actually had the property address, but let’s say that you found this thing online somewhere. This is where you would type in the property address so that you could just remember, okay, this was the property that I was running. We’re going to say this is in Denver, Colorado, that’s where BP headquarters are. Remember the annual property taxes? We already know were 220, but what if you didn’t know what they were? That can be intimidating when you’re a newer investor, you don’t know how to calculate that. You’re going to click on this little guy right here. This will tell you how to find what the property taxes are for an area. So anytime you come across one of these boxes and you don’t know what to do, you hover over the question mark and it will tell you what you’re supposed to be putting into that box.
We could add a photo if we wanted. In this case we don’t need to, but you may want to put in a property description, 1950s ranch style, up, down duplex with basement value add potential, lots of square footage. That’s something you could do to remind yourself when you’re going over these past reports, which property you were analyzing. Can you click on other property features here? And this is where we could put in, well, it was a four bedrooms and it was a total of say, four bathrooms. You can put this information that will remind you more of the property that you were analyzing, because you’re probably going to do this for lots of different properties. All right? Pretty cool. BiggerPockets makes this very easy. Hit next step and now we’re going to put in the purchase price. We’re going to try to buy this thing for 220.
The after repair value is 350. The purchase closing costs are going to be around, let’s say probably $5,000. Don’t know what those are, hover over the little question mark here, right? Typically they are one to 2% of the purchase price of the property, but in this case, we’re going to go a little bit higher. The estimated repair cost was $50,000. Now we could just walk the property with a contractor and ask them what they think it would cost to fix it up. That’s the number they’re going to give us. Purchase loan details. Now, there’s different ways you can buy a BRRRR. We talked about using private money, hard money, cash, lots of different ways. So in this case, let’s assume that we have our primary residence. We took a HELOC on that. We’re going to use the money from the HELOC to buy this thing.
So we’re basically using cash from our HELOC that we’re going to be using. We are planning on refinancing this property after 12 months. That’s when we think we’re going to get the money back. And we’re going to give ourselves an estimated rehab time of two months to do this work. Now let’s talk about the refinance loan. So this is after the work is done, what are the terms of the loan that we are going to go get? Well, first off, our loan amount is going to be 80% of the $350,000 that we think it’s going to be worth. Most banks will let you borrow around 80%. So let’s take the 350×0.8 is $280,000. The interest rate on that loan, we’re going to assume on an investment property is going to be 7.5%. And are there other refinance closing costs? Probably another, oh, you know what? 5,000, I think I put 5,000 for closing costs to buy the property, so we’re going to have another 5,000 when we want to refinance it.
Are there any other loans, fees and points? Well, let’s say that if there was, we would wrap them into the loan or you can choose to pay them out of pocket. However you click there is how the calculator is going to determine extra costs you have for closing costs. This is not an interest only loan, so it’s going to calculate the principle and the mortgage and it’s going to not have PMI because we’re leaving 20% of the equity in the deal by only pulling out 80%. When it asks you how to amortize it, we always want to use 30 years, that’s the best loans to use. And we can skip this typical cap rate for the area that’s more for commercial property. So we’re going to hit next step. Total gross monthly rent. Well, we calculated this in each unit we thought would rent for $1,600. Okay, so that means it’s going to be 3,200.
Now if you don’t know how to calculate what the rent’s going to be when we clicked on tools and once a BRRRR calculator, you can also just go to Rent Estimator and BiggerPockets has an actual software tool that will look up the address of the property you’re looking at and tell you approximately how much it will rent for a month. And then other monthly income, this is where you would put any information if the tenant’s paying you for laundry or something else. In this case, they’re not going to be. Fixed landlord paid expenses. Some areas require landlords to pay the water, the sewer, the electricity, the garbage, or maybe they don’t always require the landlord to pay it, but it’s written into the lease that the landlord will pay. That not the case in most areas though. So in most people where you’re living, the tenants are going to pay for their own water, sewer, electric, garbage, no, they wouldn’t pay the HOA fee, but they might have renter’s insurance, so you don’t have to worry about that when you’re the landlord in most cases.
The property taxes, we might’ve done something wrong. Yeah, I guess we calculated them at 220 a year. I don’t think that’s right though. I think we need to fix that. It should probably be 220 a month, I’m going to guess. So that’s okay, we will click on previous step. Now this will happen and it happens for the best of us when we’re analyzing properties where we either enter the wrong information or we make a mistake. The BiggerPockets calculators make it very easy to fix that. So the property taxes are $220 a month. I put them in AS $220 a year. That $220 a month, it actually comes out to 2640.
So I’m just going to change that number, Make that 2640. Then I’m going to click on the next. Here we go. We’re just going to pick up right where we left off. Don’t have to worry about any of these fixed landlord paid expenses. The variable landlord paid expenses we’ll have to pay. Now, this is where we budget money for things that could go wrong, so we know at some point we’re not going to have a tenant in the property, so we’re going to have a 5% vacancy. That means we’re going to take 5% of the rent and we’re going to budget that for times when nobody is renting our property. We do the same thing for payers and expenses. We typically take 5% of the rent. We say that’s how much we’re going to put towards things that break in the house. Capital expenditures are when you set money aside to pay for big things like the roof going out, the air conditioner going out, the water boiler, big expenses of things that are going to break so we can budget money for that.
And then if you have a property manager like you’re not managing the property yourself, you set money aside for management fees. In this case, at this rent range, probably around 8% is what you can expect to pay. That’s about it folks, as I’ve walked you through how to do this, it’s still only been about five minutes of time it took to run through this entire thing, so let’s say calculate results. All right. Now the calculator does all the work and gives us the results. This is 123 Main Street in Denver, Colorado. A four bedroom, three bathroom property with two units, one up, one down each rent for $1,600 that we purchased for $220,000. Let’s see what the numbers look like here. Now that $286 and 20 cents of cash flow may not sound super impressive. However, I want you to consider that that is an infinite return.
What that means is, we pulled more money out of this deal than we put into it and it’s still cash flowed. Now, that may seem too good to be true, but those of you that understand the BRRRR method get it’s not. Now, let me break that down for you. Remember, we paid $5,000 in closing costs, we see this on the left-hand column. We had estimated repairs of $50,000. The total cost, what we paid for the house plus the repairs, plus the closing cost was 275,000, and then we had an after repair value of 350, which means when we got an appraisal after this was done, the bank said it’s worth $350,000. They’re going to give us a loan for 80% of 350,000, which is the same as if we bought it and put 20% down. To the bank, it doesn’t matter if it’s equity in the deal or if it’s money that you bring to the closing table, they just care what percentage of the property’s value they’re giving you the loan for.
So in this case, we got a loan after we were done for 280,000, but remember the total project cost was 275,000. They gave us 280, which meant they gave us five grand more than what we put into this deal. We ended up with more money after we did the deal because we bought it at such a good price and because we added value through the rehab so well. Which means our cash on cash return cannot be calculated because it’s infinite. There is no cash left in the deal. In fact, we got cash out of the deal and we’re left with $286 a month of cashflow. This is how people like me took the same money and kept reinvesting it and reinvesting it and reinvesting it over and over and over, adding more properties to our portfolio with the same capital.
Okay, so you’ve added some equity to your net worth, you’ve added some cashflow every month, you’ve got your money back, you can go buy another property. And if you’re someone that likes numbers, if you scroll down on this calculator, you can see what your total annual income would likely be in year one all the way through year 30, assuming that rents or property values go up by two to 3% a year. All of this is made very easy by these BiggerPockets calculators. So if you’re intimidated by numbers, you don’t have to be, you just have to know where to find them and how to put them in the box and the calculator will do all the work for you. Let’s get back to our presentation here. Now that you’ve seen just how simple it can be to analyze a BRRRR possible project. Now, here’s something that’s cool. Even if you are not a pro member, if you just have a BiggerPockets profile, you will get your first two calculator reports for free, so you can use that calculator anytime you want just for having a BiggerPockets profile.
Two simple questions I want to ask you. Do you understand how BRRRR can help supercharge your investing journey? Does it make sense why this supercharges, how quickly you acquire properties? It’s because you’re not saving $85,000 and putting a down payment, saving $85,000 and putting a down payment. Taking equity from a property and putting it into the next one, and then being no more equity to invest. You are putting money into properties, growing money within the property you just bought because you bought it for less than what it’s worth, and you added value through the rehab, taking that money out of the property and then buying the next one. That supercharges how quickly you can acquire properties, and this works best if you’re making and saving money all at the same time that you’re doing these projects. Do you believe that if you have commitment, knowledge, and tools that you can reach your investing goals?
Now, you can’t do it without that. If you don’t have the knowledge to do this, it’s not going to help. And if you don’t have the tools, you can have the best intentions, but you’re not going to get anywhere. If you don’t have the commitment that you’re actually going to commit to doing this and go through, well, you could have the knowledge and the tools and it’ll be useless. You really need all three, and as you’re listening to this, I just want to ask, do you have all three? Are you committed to putting your money into real estate so it can grow and spending less of it on things you don’t need? Are you committed to gaining the knowledge that you need and listening to more webinars like this, more podcasts like this, more books like this so you can do what I did? And are you committed to getting the tools that you’re going to need in order to take this commitment and this knowledge and put them into practice?
“If you really want to do something, you’ll find a way, and if you don’t, you’ll find an excuse.” Now, you guys can tell me, maybe in the chat, “Yeah, David, I’m committed or No, I’m not committed.” But you know what’s crazy? Even if you didn’t tell me, I would know if you were. Because if you are committed, you’ll find a way to get this done, and if you’re not committed, you’ll find a way to make an excuse why you didn’t get this done, and that’s how simple life can be. People don’t become millionaires by accident. People don’t hit financial freedom by accident. People don’t get in good shape by accident. People don’t get six packs by accident. They do it by eating carefully, working out the right way, being committed to a process. Now, if you want to be a financial fitness person, if you want a money six-pack, if you want a portfolio six-pack, you’re going to do certain things to make it happen just like people that are into fitness do certain things to make their body look the way it does.
If you answered yes to those questions, let’s look at some tools that are going to help you minimize risk, increase confidence in a deal and blast off into success. The biggest one is going to be BiggerPockets Pro. This will be the best bang for your buck if you’re committed to making money in real estate investing. It is a one-stop shop to start, scale and manage your portfolio. BiggerPockets Pro will allow you to analyze investment properties in minutes and determine which ones are worth pursuing with unlimited access to analysis calculators and rent and rehab estimators. Now, you saw what the BRRRR calculator looks like. There’s also just a traditional rental property calculator. There’s a lot of different tools on there. I only showed you one of them, but there are many.
This is an example of what kind of reports you can get when you use the BiggerPockets calculators. Very easy to read and very easy to use. There are rehab estimator calculators. So if you’re trying to figure out how much it’s going to cost to do a rehab on a property, we got you. You put all the information in there and it’s going to give you the report. It will help you become a better investor with curated video content and webinar replays, covering everything that you need to make smart investments. You also get access to pro exclusive videos. Now, BiggerPockets has a lot of free content, but these are videos exclusively for pro members that not everybody else has access to that. When you join in, you get to watch these videos. We have a couple examples here on tax benefits, multifamily, private lending, things that the experts use to grow their portfolios that you can learn about.
You’ll get access to the investing with No or Low Money Down Workshop. This is some of the best content I ever made with my best friend Brandon Turner. We hung out at his shed in Hawaii and we got into some really good stuff, including the BRRRR method for how to invest in real estate with no or low money down, a $200 value, which is yours if you’re a pro member. You’ll get access to the Finding Great Deals Masterclass, where Brandon sat down with Elliot Smith, Nathan Brooks, Lance Wakefield, and Nate Robinson, and went over door knocking, direct mail marketing, relationships and driving for deals. A $990 value where you can learn from some of the best in the business at their respective strategies only available for pro members as well as the book on the Best Ways to Find Real Estate Deals For Investing Success by Brandon Turner.
You get to show the community that you meet business with your pro badge. So this here is Blaine Alger. When you see his profile, he’s not just a lurker hanging around looking through the window like the other people working out. But he’s in the gym grinding, sweating, and building a better financial body. You get to save time and money and minimize your risk with lawyer approved lease documents for all 50 states. So you can make that deal we just looked at even better on the numbers by managing it yourself. And if you like to property manager, that’s something that you want to do yourself to save money, we have forms that you can use that are lawyer approved for all 50 states that you can have your tenant sign that will function as a lease, standard Lease agreements. You can save thousands of dollars on tools and services that you’ll use in your real estate business with BiggerPockets partners like RentRedi and Invelo.
RentRedi is free property management software for pros. If you’re not pro, you’re going to have to pay for this, but this is some of the best in the business when it comes to managing properties. You’ll also get discounts on AirDNA in case you want to analyze short-term rentals or a Keystone CPA Inc. That can help with real estate strategy tax planning. If you use Invelo, when you sign up, you’ll also get a $50 credit for marketing costs to send letters with the Invelo software. Plus you’ll gain access to our discounted 10 week educational bootcamps. Those are only available to pro members and they’re only $225 per course, but if you’re not a pro member, you can’t take them at all, this is only for the committed. We’ve got a rookie bootcamp, a multi-family bootcamp, a short-term rental bootcamp, a rookie Landlord bootcamp, a house hacking bootcamp, lots of cool stuff there, only available for pro members. But what’s the number one reason to consider going pro? It works.
You’ve got Aaron C here who’s a BiggerPockets Pro member that says the BP Calcs are my go-to for analyzing potential properties. There’s no way I could analyze the volume of properties I do without being a pro member. I locked up my first three unit almost a year ago that I’m now selling for almost a $70,000 profit that will go towards something larger. The BP calculators were a huge factor in making sure my numbers were right. Patrick M. says, “Back in June, I intended one of your webinars right afterwards, I signed up for Pro. And the next couple of weeks I analyzed a bunch of deals. Eventually I found a fourplex, I got it under contract three weeks after signing up for Pro and a week later I closed on another property that was six units. Big thank you to you and the entire team. Final quick tip, sign up for Pro Annual I made my money back at the closing table.”
So how much is BiggerPockets Pro? Well, here’s what’s crazy. It’s only $390 a year. That is less than the cost of a home inspection on a single property. Of all your expenses in real estate, this one is one that barely even makes the radar. It’s almost insignificant compared to the normal expenses that we have when you’re buying a property. You saw the numbers that we were putting into the calculator for buying a property. Closing costs rehabs, that’s not going to be including the home inspection, the pest inspection, the roof inspection. If there’s a pool, you might have a pool inspection, a foundation, the notary signing, it can be around the same cost as this. Like, buying property, you’re going to have transfer taxes, you’re going to have title fees, escrow fees. There’s a lot of money that goes into real estate investing, which is what allows you to make money out of it, but the BiggerPockets Pro membership is only $390 a year. And because you’re watching this webinar, we’re going to give you a discount of 20%, which means if you sign up now, it’s only $312 a year.
It’s getting ridiculously cheap. I don’t know how BiggerPockets is able to offer this at the price that they do, maybe I guess it has something to do with the level of commitment that the members have. But this is a very, very, very good price for getting access to everything I just showed you, all the education plus the calculators that help you analyze deals. So use that code, OWNIT20, O-W-N I-T 20 to save your 20% off on a BP Pro membership. Now, just a reminder, if you sign up for BiggerPockets Pro, you’re going to get the Pro membership plus $2,000 worth of bonuses. 20% off your first year of Pro annual membership, a $78 value. Pro exclusive video workshops, a $1,500 value. The lease agreements templates, which are about $100 per state, and you’re getting 50 of them. A free rent ready property management subscription, a $239 value. Plus unlimited rehab and rental estimates, analysis calculative reports, and a profile badge all for signing up.
You just got to use the code, OWNIT20, O-W-N I-T 20 at biggerpockets.com/pro. So I’m going to give you guys a minute while we’re here. I’m going to keep talking so you can still hear me, but I want you to open a second tab. If you’re using Google Chrome, just hit the little plus sign at the top where all your tabs are. And once you’ve opened up that new tab, I want you to type in biggerpockets.com/pro. It’s going to take you to the website where you can sign up for the Pro Annual. It’s going to give you a couple options. I want to make sure you get your 20% off. So remember, you’re going to click on BiggerPockets Pro Annual, and when it asks you for the discount code, there’s a little box put, OWNIT20, and you should click a button and it should tell you that it worked.
Want to make sure you don’t miss out on that discount if you’re serious about wanting to start making money through real estate and you need BiggerPockets Pro to do it. What if you’re already a pro? Well, everything that I just mentioned you already have access to, you might not have known. Just go to biggerpockets.com/pro/videos and you can see everything that we talked about. You can also find the bootcamp info at biggerpockets.com/bootcamp. Now, what if you sign up and you decide you don’t like it? “David, I actually need that $312 for the year because that can buy me 70 cups of coffee, and that’s more important than becoming a millionaire in my future.” Okay, I hear you. Don’t worry. Give BiggerPockets Pro a try for up to 30 days, and if you don’t love it, you can email [email protected] and get a 100% refund and you can still use everything else on the site.
This is a no-brainer, guys. If you’re not already a pro member, you need to go do it right now, and if you are a pro member, you know why I’m saying this is great. Look at all the different people that already love their pro membership. There’s a ton of them, this is why you see the people with the badge on their name that says pro, mine says premium, right? Even I’ve set up this with BiggerPockets. You guys can do the same, and I hope that you do. Remember, the late great Jim Rohn, “If you really want to do something, you’ll find a way, and if you don’t, you’ll find an excuse.” If you want to a six-pack, you’ll figure out a way to get it. If you want to be a millionaire, you’ll figure out a way to get it. If you want financial freedom, you’ll figure out a way to get it.
I’m just sharing with you the way that I did. I walked myself to the top of the mountain and now I’m going back down to the bottom and I’m telling all the people that are down there looking up, “Here’s the path that I took. Here’s the way I made the journey. Here’s what I did when it got hard. Here’s how I avoided the Poison Ivy.” I’m just trying to share with you guys the path that I took, and I hope that you follow me on that. A BiggerPockets Pro membership is a great way to get yourself started and get on the same journey, because you’re going to need these tools just like I did when I was climbing that same hill. So remember, this is over $2,000 worth of value plus the membership for just $312 a year. If you use the code, OWNIT20 at biggerpockets.com/pro.
So if you’re signing up, I want you to tell me in the chat, how many of you signed up and are you excited to start this journey. Now, we’re going to get into the expert tips and tricks that I promised you earlier in the show that we would do. First off, you should analyze deals with more than one exit strategy. So let’s say that you looked at this deal that we did in Colorado, this up down duplex, and you buy it and everything looks great, but the rents aren’t 1600 a month. Something goes wrong. There’s a school that shuts down where this property was. This was a great school district. Now, nobody wants to rent there. Let’s say you’re only able to get $1,100 a month per unit. It may not give you the cash on cash return that you want. It may actually be losing money if that happens.
But you’ve added so much equity to this property because you bought it right, and you rehabbed it, right, that you can still sell it to somebody else and make cash that way. That’s an example of a second exit strategy. Maybe you thought, “Hey, I’m going to buy this thing and I’m going to put it on Airbnb and I’m going to get way more than 1600 a month,” and so you go into it and it just doesn’t work. It’s harder than you thought, the neighbors complain, the city shuts you down. Something goes wrong with your Airbnb plan. Rent it out traditionally for $1,600 a month and boom, you got a second exit strategy. This is something that the pros all do. Target aspects of the rehab that increase the value of their property for the appraisers. Flooring and paint are two very, very powerful ways to get a high ROI on the money you spent to make a property look much nicer.
Landscaping is another way that you can really imppress appraisers that you don’t need to hire skilled labor for. It’s not like paying an electrician to go do landscaping. You can find people that will do that work for relatively cheap, or you could do it yourself. And then focusing on the kitchen and then the master bathroom is huge. And the last piece of advice is making it an open floor plan. Tearing down walls so that the property feels more open, makes it more valuable.
Choose cost-effective value adds to increased ARV. One of the things I talk about in long distance real estate investing is if you’re going to be doing a small area like tile in a shower, flooring in a bathroom, back splash on a kitchen, I splurge for the really expensive materials to make it look really nice, and the trick is, I don’t need very much of those materials. So even though I’m paying five times as much for the materials, my budget’s only going from say, $300 to $1,500, which isn’t that bad when you consider that the labor is going to be the same whether I use cheap materials or not, and labor’s a bigger part of the overall cost. So if I’m redoing a shower, the quote might be $8,000 for labor. So I can either pay 8,500 or 8,300 and use the cheap stuff, or I can pay 9,500 and get a beautiful shower.
The difference between 8,300 and 9,500 is insignificant, but the difference between a gorgeous shower and a plain basic model is going to hurt my appraised value. Does that make sense? Now, if it’s a material that I need for the entire property, the flooring for the whole house, I’m not going to buy the stuff that’s five times more expensive because if I have to buy a lot of it, that’s going to wreck my budget. So I only use this tip and this trick for when I’m doing something in small amounts. Build a good relationship with a hard moneylender because you never know when the deal’s going to pop up and you want to be able to fund it quickly. You can reach out to me and I’ll put you in touch with my mortgage company. Or you can go to biggerpockets.com and click on network and you can look for hard moneylenders that are approved by BP. Or you can just attend meetups or you can go on the forums and ask people, “Do you have a good hard moneylender?”
Sometimes you’ll see HML is the acronym that people will use for that. But finding one will make it easier to fund deals when you have to close quickly. Have your rehab budget laid out when you’re analyzing your deal. So as you’re looking at the property itself, make sure you have a good understanding of what it’s going to cost to fix it up. In the example, we knew that the rehab was going to be $50,000, but it’s hard to make an offer on a house if you don’t know if it’s going to be 50 K or 150 K. Have your final financing in the works early in the rehab process to cut down on your fees. So what I would do is I would go to the one brokerage. I would get pre-approved for my refinance. Once it’s done, then I would use different funding to buy the property and fix it up, and then I’m already pre-approved when it comes time to do my refi. So it’s going to be easy and I’m already approved. You don’t want to get stuck paying a hard money loan and unable to refinance out of it.
Always add an overage for your budget for contingencies. Assume things are going to be more expensive than what you thought and give yourself a cushion. All right guys, those are my expert tips and tricks for you. I’m excited to see you guys on your journey. Let me know if you went pro on BiggerPockets, it’s the best ROI you could possibly get in your career. I don’t know of a better deal that’s out there. I don’t know why it’s only $312, but I like it. Sometimes I don’t understand why Netflix is so cheap, but I know that I get a lot of value out of that Netflix. I ended up spending like 6 cents for every time that I watch it.
Some things in life are like that, and you just got to take advantage of them. So thank you for joining me today. I really appreciate being able to teach you guys, and I hope that all of you take this information and go apply it to make your lives better. Remember, you can follow me on social media at David Greene 24. There’s E at the end of Greene, look for the check mark so you know that it’s actually me. You can follow me on YouTube at youtube.com/@DavidGreene24. I go live every single Friday night on my YouTube channel to take your questions. Or you can check on my website, davidgreene24.com to see all the different things I have going on and how I can help you. When you’re done with this, either listen to another webinar, listen to one of our podcasts, or go to biggerpockets.com, go to the website and check out everything that we have to offer you there as well. Thanks a lot. I will see you guys on the next one. Good luck to everyone.
All right, I hope you enjoyed today’s show and you learned a little something. If you’ve heard other people talk about BRRRR, now you know why they’re saying it. Or if you’ve wondered, “Why do they keep saying BRRRR?” Because you’ve always thought it was B-R-R-R-R. It’s true, but they both mean the same thing. All right, if you want to be a BP Pro member, you can save 20% off using coupon code, OWNIT20. This is David Greene, I have hijacked the Rookie Show. Your regular hosts are going to be back next week, so don’t fear, you could catch me over on the BiggerPockets Real Estate Podcast after this episode. (Singing).

Dave:
Hey, everyone. Welcome to On The Market. I’m your host, Dave Meyer. And today, I’m going to be diving deep all by myself into a very hairy, confusing, but important economic topic. We’re going to be talking about what the heck is going on with the American consumer. If you follow headlines or read pretty much any news, you’re probably seeing really conflicting signals. People are spending a lot of money, but debt is also soaring. Economic confidence is down, but big purchases seem to be up. And I know that what’s going on with American consumers is not directly related to real estate, but it is still a super important topic that impacts every single investor and just our everyday lives. In the US economy, consumer spending actually makes up 70% of gross domestic product. That basically means that what consumers are doing makes up 70% of the entire economy.
And obviously, even though that’s not directly related to your particular investments or which homes you may be buying or selling, it obviously has impacts on rent prices. It has impact on whether people are going to be moving, what your tenants are thinking about, how comfortable you might be in making an investment, what risk you’re willing to take on. Today, we’re going to dive deep into this topic. And let me warn you guys, I guess it’s not a warning, but let me just tell you that we’re going to go into a lot of different numbers. We got all sorts of different stats. We have lots of different graphs. Well, actually, I guess you guys can’t see the graphs, but I can see the graphs and I will describe them to you. Or actually, I wrote a blog post on this on BiggerPockets that came out a couple of weeks ago, so you can also check that out if you want to see the graphs. We’ll put a link in the description. Today, we’ll find out what is going on with the American consumer. But first, we’re going to take a quick break.
First things first, when we talk about consumer spending, let’s just talk about the highest level possible thing, which is known as personal consumption expenditures. That is just a fancy word for how much consumers are spending. And people are spending a lot. Despite recession risk, despite inflation, despite higher interest rates, consumer spending is still up and is, in fact, at an all time high. But remember that when we were talking about all of this money that is being spent by consumers, that there has been a lot of inflation over the last couple of years. There has been a lot of new money introduced to the monetary supply. And so that means although the total figure, the total amount of money that has been spent by consumers in the last quarter, it is devalued dollars. And so although this top line number is huge, we have to dig in deeper to get a sense of are people feeling good about the economy, what they’re spending on, can they afford the things that they are buying.
And beyond this one top line measure, things get a little bit murky. We’re going to dive into a couple of different subsections. We’re going to talk about consumer sentiment. We’ll also talk about consumer debt because that is a really hot topic right now. We’ll also talk about the labor market and try to make sense of what is going on in the big picture. When we look at sentiment … And the reason I like to look at consumer sentiment is because it’s an important lead indicator. And if you’re not familiar with that term, a lead indicator is basically one metric or statistic that helps us predict or forecast another one. And I like consumer sentiment because it is a good lead indicator for consumer spending. When we’re talking about the big picture, it stands to reason that if sentiment declines, consumer spending might decline.
And if consumer spending declines, then GDP might decline. That could send us into a recession. I know it’s like a couple of orders of thinking here right now, but that’s why consumer sentiment is so important, at least in my opinion. Now, what is going on with consumer sentiment? This is measured by surveys, typically by the University of Michigan. That is the most reliable one. And what’s happening is sentiment has actually been up this year. If you look at the start of 2023, actually in the end of 2023, consumer sentiment started to rebound. Now, it’s important to know, because you’re not looking at the charts that I’m looking at, that prior to that rebound, it had fallen off a cliff. This index starts at 100, so that means average is about 100, and that’s where we were heading into the pandemic.
Consumer sentiment was relatively normal. Then when the pandemic happened, completely nose dived. It went down to about 75. That basically means that consumer sentiment … Basically, you can think of it declined 25%. Then through part of 2020 and into 2021, things got a little bit better. Then when people realized COVID was around for a couple more years, it absolutely plummeted to about 55, but it has now rebound up to 68. That’s a complicated way of saying that consumer sentiment has been climbing, but is way down from normal levels. But the key thing that has changed is just in the last month, it actually started to fall. If you can tell from me naming all these numbers, it has been very volatile, but it is starting to come down again. And I think as we talk about the big broad picture, that is really important.
For a little while in 2023, people were starting to feel better about the economy. Now they’re feeling slightly worse. It only fell a little bit. And so this is going to be important indicator to watch, is if that consumer sentiment declines even further. Now, when I do my research into the economy, I don’t like to just look at a single source. That data that I just mentioned is from the University of Michigan, but I also like to look at some surveys from the Conference Board that also measures sentiment. And what you see from the Conference Board really lines up with what you see from the University of Michigan, that over the course of 2022 and 2023, things were looking a little bit better, and then they start to decline. Now, the Conference Board, they ask a slightly different question. It’s not just consumer sentiment.
They ask, “How do you feel about your family’s current financial situation? Is it good or bad?” And for the last year or so, it’s been flat. It’s been relatively low, but it has been flat. But over the last two months, it has started to decline. And so when I look at these two data sets together, what I can see is a trend emerging, is that people were feeling uncertain about the economy. Things … Sentiment wasn’t high, but it was at least stable. But over the last month or two, people are starting to see decline. Now, that is kind of interesting because actually, if you look at a lot of broad measurements of the economy, the economy is doing pretty well. Just today, October 26th when I’m recording this, GDP numbers came out and GDP grew at 4.9% year over year, which is a humming economy. And it’s important to know that that 4.9% number is above and beyond inflation.
In other words, the economy grew almost 5% above the rate of inflation. That, to me, sounds like a good economy. And as we’ll talk about, the labor market has remained relatively strong, but at the same time, despite those facts, consumer sentiment is declining. And that brings us to consumer debt. People are spending, sentiment is slipping, but debt is at an all time high. The first metric I like to look at when we look at consumer debt is just the broadest thing, it’s called US total household debt. And that has hit a whopping $17.6 trillion. That is a very large number, obviously, and it is the all time high. But again, when we look at these absolute numbers, we need to remember that these are somewhat devalued dollars because of the increased monetary supply. But the other thing you should know is that it is starting to level off.
Consumer debt really has gone up since … it’s sort of … The way it’s trended over the last couple of years, it was going up to the Great Financial Crisis. It went down for a couple years. Then since 2013 or so, it has been marching up relatively steadily. And now, the last two months are actually the first time in about 13 years that it has start to level off. Again, this looks at a trend. Things were going okay. Things are going over okay. And then the last couple of months, things start to level off. Now, this number, the total US household debt, I think it is a little deceiving because it includes mortgages. And so of course, since from 2013 to 2023, of course household debt has gone up a lot because the value of properties has increased so much. And so when anyone bought a house in the last 10 years, which is millions and millions and millions of people, their debt went up.
Now, their equity went up too, so that’s the good thing about it. And a lot of this, you could argue, is considered, quote, unquote, “good debt”. Remember, when we talk about debt, there is bad debt, which is basically used to finance your lifestyle. And this is just my objective opinionation. There’s no definition of good debt and bad debt. But to me, taking on debt to finance your lifestyle to buy things that you can’t afford and that have super high interest rates is not necessarily a good thing. Good debt is something that is used to fuel an investment, like a rental property. I think you can also argue that student debt for the right degree at the right college is also an investment in yourself. Those are things that we’re using debt to improve your financial situation in the long run. And when you look at this debt and that a lot of it is mortgage debt, you have to think that some of it, at least, is considered good debt.
It is obviously shocking to see this number really high. But I think to try and understand consumer behavior, we need to drill down into another indicator, which is credit card debt. Now, credit card debt is less commonly used as, quote, unquote, “good debt”. Of course, there are good reasons to take on credit card debt if you want to start a business or you need to fund your business. There’s all sorts of good reasons to do it. But generally speaking, a lot of credit card debt is bad debt. And so when we want to understand American consumer, I think this is an important indicator to look at. And what you see when you look at credit card debt is that is at an all time high. For the first time in Q2 of 2023, which is the last quarter I have data for, it topped $1 trillion for the first time.
And I think more concerningly, because that number, it’s just … These days, we throw trillions around, so 1 trillion might not sound like that much. But I think the more concerning thing if you look at the graph, which I will describe to you, is that it’s just pointing straight up. For the last six or seven months in a row, consumer debt has really been spiking. It was at about 750 billion, now went up to a trillion in just the course of six months, so that’s a 33% growth in just six months. That is a very rapid increase in credit card debt, something I have personally never seen data for. That is going to be another key indicator to watch, is that consumer and credit card debt is really high. Now, if you’re like me, when you see this and you see consumer household debt is high, credit card debt is super high, you’re like, “Oh my god, this is going to lead to a disaster.”
But lucky for you, I did some homework for you and tried to understand does this really matter. And what I found is actually super interesting. What I did was look at consumer debt and figure out how much people are paying on that debt on average and how much that is relative to their disposable income. Put that another way, of all the disposable income an average household has, how much money, what percentage of that are they putting towards their debt? And the answer is only about 5.8%, so that is actually really low. And so think about how this can happen. You might be curious. If debt is ballooning, how can people’s percentage that they’re paying towards that debt actually stay too low? And there’s two reasons. One is inflation. We’ve printed more money, so people have more money. That money is devalued, and so they might be paying this debt, but it actually is less of their total income.
The second reason is that interest rates are super low. So many people refinanced during the pandemic. And so out of all of that $17 trillion of debt, a lot of it is mortgage debt. And so people took out new mortgages at a lower interest rate. And so even though total debt is going up, their payments on that debt may have gone down. And so 5.8% of disposable income going towards debt service is higher than pre-pandemic levels. I should make that clear. But it’s marginally higher. It used to be about 5.6%. Now it’s at 5.8%. It is way lower than it was during the Great Financial Crisis. And it has actually flattened out. By that metric, even though debt has really risen for consumers, it’s not really affecting them day to day. This starts to explain why consumer spending might be so high. Now, I did two other things because I’m a nerd and I really was just curious about this, but I wanted to look at US consumer debt as a percentage of monetary supply and US GDP.
Let’s do those one by one. Monetary supply is just a fancy economic term for how much money is circulating in the economy. And if you’ve paid any attention over the last couple of years, you know that there was a lot of money printing during the pandemic, several trillion dollars. It grew at the fastest pace we have ever seen. And so that has its own concerns. That is an issue that … Of course, that’s not what we’re talking about today, but that is of course an issue. But when we talk about its relationship to debt, it is really important to note that it grew faster than total debt. And so the amount of US consumer debt as a relationship to the total amount of money in the US economy, it has actually gone down. Pre-pandemic US consumer debt to monetary supply was about one to … It was about 100%.
Now it is about 80%. It is rising, but it has gone down. And that’s what I’ve been talking about throughout this episode. When I say this debt, yeah, these numbers are huge, but as a percentage of all the money in the US economy, they’ve actually gone down. Now, when you do the same sort of equation with GDP, you see the same thing. When you compare consumer debt to the total output of the US economy, it is basically flat. It has remained almost entirely flat for the last 10 years, so that really hasn’t changed. And just to recap, I just want to make sure everyone understands what I’m saying here. Debt is going up. That is true. But when you look at debt relationship to the economy as a whole, it’s basically the same that it’s been for the last decade. When you look at debt as a percentage of the monetary supply, it’s actually down from where it was pre-pandemic.
And so this, to me, signals that yes, having a lot of debt is a big long-term problem, but it hasn’t really changed. That problem has existed. That existed for 10 years. And it hasn’t really changed over the last couple of years, even though the headlines suggest. And they’re accurate, the debt has gone up. But when you think about people and the country’s ability to pay that debt, that hasn’t really changed, even though it is a long-term problem. Now, to back up that claim that I’m making and this research that I did, I looked into delinquencies on debt. This is basically looking at there’s all this debt, the number is going up, are people actually paying their debt? And the answer is yes. We see that credit card debt, people are actually paying relatively similar to pre-pandemic levels. Auto loans are starting to tick up a little bit, but are still relatively low in historical terms.
And mortgages, which is the biggest batch of consumer debt, are still extremely low. We talk about this all the time on the show. But there’s just mortgage delinquencies are very low right now. Now, all this can change, and we’re going to talk about that in just a minute, but we’re just talking right now about what is happening today. And right now, delinquencies on all this debt is really low. Now, one thing that was worth noting out, the chart I’m looking at shows delinquencies on student debt, which obviously dropped to zero at 2020. It actually used to be the highest delinquency rate. It used to be about 12% of delinquencies on student debt, which is higher than any other debt category that I can find or that is tracked, and that has fallen back down to zero. Later in the episode when we talk about things that might shift the balance in the American consumers, student loan debt is definitely something that we need to talk about.
But again, as of right now, delinquencies are very low. Just to summarize my reading of the American consumer right now, consumer spending is up, but it’s starting to flatten out. Sentiment, on the other hand, which has been kind of stable, is starting to decline. We have record levels of debt, but as of right now, Americans are paying their debt as agreed. The question now becomes what is going to happen in the future? Is this situation going to stay the way it is? Or is there a potential that all of this debt and consumer spending might start to decline? The question becomes could there be a debt crisis? Could the labor market break? And could consumer sentiment start to decline and send GDP downward? I don’t know the answer to that, of course, but I will pose five questions to you that I think are important to thinking through what might happen.
Now, the number one question to me is will the labor market break? Now, when we talk about the labor market, there are many ways to measure the labor market. None of them are perfect. If you look at unemployment though, it is near historic lows, although it’s ticking up a little bit. Wages, which were outpaced by inflation for many years, have actually started to outpace inflation by just a tiny little bit for the last couple of months. When you look at labor force participation, it is really starting to rebound near pre-pandemic levels. And as of the last reading, job openings, there are more than 9.6 million job openings in the United States. Although there is no perfect way to measure the labor market, when you look at all these things together, it is surprisingly strong. I personally thought we would see more unemployment than we do right now.
And although we are starting to see some softening, I don’t think anyone would describe what we have right now at the end of October 2023 as a, quote, unquote, “broken labor market”. But many economists, many analysts I think rightfully are questioning whether the labor market will break in 2024. We have been tightening interest rates for about 18 months. And most academic research shows that it takes somewhere between six and 18 months for the impact of higher interest rates to ripple through the economy. Think about that for a second. That means that right now, 18 months after the first interest rate hike back in March of 2022, we are just now starting to feel the impact of that interest rate hike. And that means even if the Fed is done raising rates, that for the next 12, at least six, maybe 12 months, we are going to feel ripples from interest rate hikes that already happened six months ago, maybe even 12 months ago.
And a lot of analysts and economists believe that one of the ripples that are felt are increased unemployment. Now, you’ve probably heard a lot about layoffs, but those are highly localized in certain sectors, like tech. In many other industries, job growth is booming. And they’re not always good jobs. Some of them are low paying jobs. But just, again, if you look at the whole picture of the labor market, it is strong. But I think that is … To me, the number one question mark going into 2024 is will we see a significant uptick in unemployment? I think it’s inevitable that we’ll see it go up a little bit, maybe to 4%, 4.2%. But do we see it get to 5%, 6%? Those are the numbers that really start to weigh on consumer sentiment, consumer spending, and could really weigh on GDP.
That is my number one question. The number two question is will pandemic savings run out? Now, a lot of people talk about this, rightfully so, that when you look at consumer spending and the lack of debt delinquencies, is that there was a lot of stimulus during the pandemic. People also just … even if you … Regardless of stimulus, there was nothing to spend money on, so people saved a lot of money. And this is a really hard thing to track. I’ve seen many different studies, but one recent one actually from the Fed, the San Francisco Federal Reserve Board, said that they believe that the excess savings that people built up during COVID are likely to be depleted during the third quarter of 2023. The third quarter of 2023 just ended at the end of September. By the Fed’s own analysis, they think we’re going back to pre-pandemic levels of savings, which obviously could put downward pressure on consumer spending.
If people run through their savings, they obviously have less money to spend. And so that is a really big question. It seems most academic studies that I have seen suggest that they have run out or are about to run out. And so whether or not that has an impact on consumer spending, we’ll have to see, but you mean logic dictates that it probably would. The third question is student loan repayments. Now, 40 million Americans have student loans, and those were forebeared. Is that a word? They were in forbearance for almost, I think, maybe over three years. And as I just said earlier, that was one of the highest delinquency rates of any type of … It actually was the highest delinquency rate for any type of debt. And I hope that people don’t go delinquent on their student loans, but they don’t even need to be delinquent on them for it to impact the economy.
There are estimates that the average payment that is going to start being resumed this month in October is 300 to $400 per month. That is a lot of spending money. If you think about 40 million Americans spending $300 less per month on consumer goods or consumer services and putting that towards their debt service, that is a really big potential impact on the economy. And so that is one I’m definitely going to be watching really closely. The fourth is the geopolitical situation. Now, everyone who follows the news knows that we are in a very volatile situation with wars in Ukraine and Russia and a new one emerging in the Middle East. And I’m not smart enough to pretend to know how ongoing wars and all this international tension that is going on impacts American consumers. Honestly, I don’t know. But let’s just say that these types of tensions make the economy more volatile in general.
The whole world becomes a bit more volatile. And so we have to consider what happens with these geopolitical situations when we’re trying to forecast the economy in 2024. Now, again, I have no idea what’s going to happen there, but I just want everyone to think about that this could impact the US economy. The last one, number five, is a potential government shutdown. Now, we avoided one with a last minute extension, but that was just for 45 days, and there is still potential that there will be a government shutdown. Now, government shutdown doesn’t necessarily directly impact consumer spending or consumer behavior, but it does have a psychological effect on pretty much the whole country. And there are government employees and service members who will not be getting paid. And so those people not getting paid, these are millions of Americans, they obviously might tighten up their spending.
And so when I look at this situation, when I look at these five questions … Will the labor market break? Will pandemic savings run out? What happens with student loan repayment? What’s going on with geopolitical situation and a potential government shutdown? To me, I see a lot of potential risk in consumer sentiment and consumer behavior going down. Now, I don’t know if that’s going to happen, but to me, it looks, and a lot of the data suggests, like we may have peaked for this cycle. Guys, I’m not one of those people who thinks this is going to be a crash of all crashes and that that’s going to destroy the entire economy. But business cycles are normal. Recessions are normal parts of living in a capitalist market economy. And we might be at the peak of consumer spending, at least for now. Now, consumer spending peaking or going down a little bit doesn’t necessarily mean we’ll be in a technical recession.
There is no real technical definition of recession. It is a subjective evaluation by a bunch of people at the National Bureau of Economic Research. But remember, consumer spending is important. It is 70% of the US economy, but it is not the entire US economy, and it is possible that other parts of the economy make up for any potential downside. But I just wanted to give you guys my reading of the situation. Because consumer sentiment is such an important driver of the economy, I wanted all of you, all of our listeners, real estate investors, investors in other things, and just Americans in general, to understand what’s happening and some of the risks to the biggest driver of the American economy going into 2024.
Of course, this is just my reading. If you have different opinions, I would love to hear from you guys. You can find me on Instagram where I’m @TheDataDeli. I really enjoy debates about this. No one knows what’s going to happen, guys, but this is my reading of the data. And if you have a different one or have thoughts or questions, feel free to hit me up. Thank you all so much for listening to this episode of On The Market. I’ll see you guys next time.
On The Market was created by me, Dave Meyer, and Kaylin Bennett. The show is produced by Kaylin Bennett, with editing by Exodus Media. Copywriting is by Calico Content. And we want to extend a big thank you to everyone at BiggerPockets for making this show possible.