Hong Kong Monetary Authority chief executive Eddie Yue says the risks rising from negative equity in Hong Kong are “manageable” despite the higher for longer interest rate environment.

David:
This is the BiggerPockets Podcast show, 840. What’s going on everyone? It is me, David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, the baddest real estate podcast on the planet for a long time, bringing you what you need to know about real estate to stay up to speed, current, and in the know of what’s going on in this market, which is changing now, more than ever.
In today’s episode, Rob Abasolo and I will be handling it, Seeing Greene style. Now, normally there’s a green light behind me. That’s not the case right now because I am traveling to promote Pillars of Wealth, but that doesn’t stop us from bringing you educational, powerful and free real estate content.
In today’s show, ooh, you’re going to love it. We get into sequencing the work for rehab projects. What is the order that you should do when it comes to getting pre-approved, to getting bids on construction, ratting offers, moving forward with the escrow and strategies you can use to put that in your favor. When cashflow is or isn’t appropriate, this is a really good discussion about the complicated question of, is it okay to cashflow negatively if I’m making a lot of money, and what needs to go into that question?
With the aging population, is real estate a risk long-term? I thought that was a really good discussion that we had as well. Rob, what are the factors that make real estate go up or down in value, and what will that be like in the future if the population of America stops increasing like other first world countries have? And can I own real estate while still renting where I live?
All that and more on today’s show. But before we get to our first question, today’s quick tip is simple. Get your team together, build your core four, and start your journey and BiggerPockets can help. We’ve got an agent finder, which you can find at biggerpockets.com/agents. I’m one of the people on there, so go look for me as well. You can find an agent in your area and ask them if they can help you put your core four together. If they know what that means, it means they probably read my book and you’re off to a good start. Rob, anything you want to say before we get to our first question?

Rob:
This is very fun. This is a very fun format. I can’t believe I’ve been missing out on this for two years. Thank you for allowing me to come on this. I want to do this more. Have me on.

David:
First time you’ve ever put me and fun in the same sentence.

Rob:
Hey, there’s a first time for everything and there’s a second time for everything, too. So if you hold out, maybe I’ll say it again.

David:
The only time people really talk about me being fun is when I’m talking about fundamentals, which people think are fundamentally boring.

Rob:
That’s the name of your 11th book that you’re currently writing for 2027, right? All right, let’s get into the show.

David:
Sean, welcome to the show. What’s on your mind today?

Sean:
Thanks, David. First of all, I’d like to say thank you for taking the time to have me on and answering my question. You and Rob have been instrumental in my decision to get into real estate, so it’s really quite surreal being here and talking to you both live, so thank you.

Rob:
Oh, hey, happy to do it.

Sean:
A bit of relevant background. My cousin and I have teamed up as partners. He is an investment banker living in New York City and I’m a corporate lawyer living in Boston. We have leaned into the concept of long distance real estate investing, given our expensive local markets. We own a couple of properties and want to continue building our portfolio. And we’re looking to enhance our returns on future investments by employing the BRRRR strategy and we are working with an investor focused realtor in an out-of-state market we have selected.
Our skill sets are great on the transactional and analytical sides, but we have little to no experience in renovation and construction, and any BRRRR investment would be made from afar. So we do not have the ability to see properties firsthand, which leads me to my question. Could you explain the sequencing of arriving at a renovation estimate for a BRRRR? Do we try to get contractors to the property and provide bids before we submit our offer? This would provide surety for our offer, but I can see it being hard to send contractors out for every property we want to offer on, particularly if you want to get bids from multiple contractors.
Alternatively, if we cannot get contractors to the property before making an offer, what should we do as inexperienced rehabbers to inform our renovation estimate without a bid from a contractor? We found that given the increasingly slim margins in the current market, picking the wrong end of estimate range could mean the difference between a good deal and a bad one. Any help is appreciated. Thank you.

Rob:
Sure, yeah, yeah. So David, I’m going to let you jump in on this one first. You actually answered this not too long ago because I had this question, if you recall, where I was like, “Well, do we get the offer accepted first and then get the contractor? Or are we trying to get the contractor first and then get the offer accepted?” So you provided some pretty good insight. Can you let us know what your process is?

David:
I love these questions. Why can’t everyone ask me a question that’s simple as, what’s the system or the sequencing? It’s always like, “What do I do because I don’t know what the market’s going to do?” And you’re like, “Well, great. Now I have to try to dive into that ocean of confusion.” This is really easy. Let me ask you before I answer that, Sean. Did you have chat GPT help you formulate that question?

Sean:
No, I did not. I’ve listened to your takes on AI and I agree with you. I wrote that myself.

David:
So you are AI. Dude, that was really good. Anytime someone has to ask you if AI helped you write it, that’s saying that you sound too good as a human to be believed. Are you married?

Sean:
I’m married. I think it’s the corporate lawyer in me coming out.

David:
Yeah, that’s not surprising either. Tell your wife that she married the pinnacle of masculine perfection, at least when it comes to the written word. She’s a very lucky woman. All right. So to simplify this, you’re asking here, do I get a bid from a contractor before I write my offer or do I do it after? Correct?

Sean:
Yes.

David:
Okay. You want to get a range from your contractor before you write the offer, but you’re not going to get it locked until after. And the reason being is if you try to do it what feels like perfect, which is what most people do. I want the bid before I write the offer because I got to get everything lined up before I squeeze the trigger. Someone else will buy it.
I mean, I’ve broken a lot of hearts in the real estate space by moving in and buying that thing right before somebody else had their offer written because they were taking too long. And then when you’re in contract, you get the information and if it doesn’t work out, you just back out of the contract. Really, I forget sometimes that people don’t realize how a real estate transaction works because I’m a real estate agent and so I do this all the time.
Writing an offer is an incredibly low commitment. I just want to say this again. It is like getting on a first date. It doesn’t really mean a whole lot. If the person smells like fettuccine Alfredo, if they’ve got a lot of nose hair, if there’s something weird going on, you just don’t go back for a second date and you’re out the price of an Applebee’s dinner or whatever it is, right?
People look at it like asking for a date is asking for someone’s hand in marriage and you’re going to have to pay a lot of money to reserve a wedding venue. That’s more like when you wave the contingencies. Two things to keep in mind that on execution, will make this strategy easier.
One, include a contingency so you can back out of the deal. If you can’t put a very, very low earnest money deposit in there, right? As low as you can get, because worst case scenario, if there’s no contingencies and it was a hot deal and it all falls apart, you’re [inaudible 00:07:12] out whatever your earnest money was. You’re not out the potential tens of thousands of dollars or more than it could be if the deal goes wrong and you feel like you’re compelled to close on it.
So my formula is to have a home, to get the property that I see, have someone go out there and make a video. If I like it, get my contractor to go walk it and the contractor shouldn’t need you to tell them every tiny little detail that’s done. They should look at it and say, “Yeah, it’s going to need paint. We’re going to need to frame up a bedroom right here.” What’s your plan for this thing? And I give them an overall vision and they will say, “Hey, it’s going to be somewhere between 25 and 50 grand, depending what you want done.” Okay.
That should be enough for you to make the decision on where to write the offer. You write the offer now during your inspection period, you have a home inspector go out there and a contractor go out there at the same time. This is probably the part that Rob was liking when I was talking about it before. The inspector talks to the contractor and is like, “Did you see that outlet right there is not working? Make sure you put that in your scope of work that you’re going to need to replace that electrical outlet or the panel over here isn’t working or that window is completely done. It’s going to need to be replaced.” And so that goes into the scope of work of the contractor.
At the same time that the contractor can say to the home inspector, “That’s weird. Why isn’t this faucet working?” And he can kind of look at the plumbing. The two of them work together to figure this out. Then they come back with a menu, right? This isn’t long distance real estate investing. Here’s all the work that needs to get done and here’s how much each of these things cost. Not, do the work equals 50 grand.
It needs to be itemized, which I’m sure you as a corporate lawyer, can understand because you guys are always trying to get us to just give you a retainer and waste all of our money and we’re trying to keep… I’m just kidding. It’s not really that bad. So once you’ve got that, now you can decide if you need to drop the price of the home, move forward with closing, or back out of the deal completely. What do you think?

Sean:
Yeah, that works. And so you answered one of my follow-up questions was, if you’ve estimated incorrectly, how do you fix that after the fact, where you say, “Okay. It looks like I just replaced a couple outlets,” but you get in there and you realize you need to totally rewire the place or “Hey, the floor’s going to be five grand.” “No, it’s actually going to be 20 because it’s rotted underneath and you need to rip it up.” You’re saying you’re going to use the inspection contingency that you have to say, “Hey, look. This isn’t what I thought it was. I need to pay you 20,000 less because these cost a lot more.”

David:
Here’s the magic words. Yes, you got the right idea. The execution of it, don’t say, “This isn’t what I thought it was.” Say, “Hey, this wasn’t disclosed.” That’s my favorite thing to say when I’m an agent, “Hey seller. Unfortunately, this part wasn’t disclosed when we made the offer. You didn’t tell us that the electrical’s not working and the roof is leaking and the walls are bad and it’s got rodents. You didn’t tell us. So in order for us to fix these things, we have to make these changes.”
And the listing agent will come back with a, “But why did you write the offer if you weren’t going to close?” “Well, we write the offer assuming that the only stuff wrong with the house is what you told me. You didn’t tell me about all the baggage that it’s coming with. So now, here’s what is going to be worth to us.” And it puts you in a position where they can’t question your motives, if you’re a bad person.
They can’t look at it and say, “Oh, you were never intending to pay that price in the first place.” And also, as a side note, when I’m listing a house, that’s one of the reasons that you disclose everything that you know is wrong with it ahead of time, so that the buyers can’t come back and ask for a discount because I can always, as a listing agent go back and say, “No, you knew about this. The disclosures were given to you. We even did an inspection report before you wrote your offer. You saw all of this. My seller is not going to grant any of those credits.”

Sean:
That’s very helpful. And the other follow-up question I had is, do you have any advice for getting to a sufficiently specific range of an estimate for purposes of submitting an offer? Right, so that’s an estimate that I’ll be creating and I need to go in and say, “Okay, floor is between five and 10 grand and doing the kitchen will be between 10 and 15.”
A lot of times I’ve spoken with people and they say, “Well, every job’s different. And I can’t really give you a good [inaudible 00:11:14], right? I need to see it.” Or even worse. I know you like the places that have five photographs and the [inaudible 00:11:23] MLS that look like they’re taken on a potato and those are the ones that you like to go after because they’re the value add.
Well, that’s really tough for me to estimate a rehab on those five potato pictures and I only see half of the house and I don’t see a floor plan. So can you give some advice on that as well?

David:
Have you read Long-Distance Real Estate Investing? I feel like you haven’t read it yet.

Sean:
Yeah. It’s right over my shoulder, as is BRRRR.

David:
It’s in the queue? Okay.

Sean:
No, no, I have read it and that’s the basis. So I’m trying to [inaudible 00:11:53] Long-Distance Real Estate Investing and BRRRR.

David:
You’re right. It’s impossible to judge by the pictures. The pictures are just like, we’re going to go back to online dating. Okay? I can’t get a good feel for what this person’s like based on their pictures, but I can get enough of a feel… By the way, I don’t do online dating. So if you guys out there see a profile that looks like me, it’s a catfish, don’t fall for it. It’s happened before.

Rob:
Yeah, they got me pretty good with that one.

David:
That’s how Rob and I met, actually. Funny story about that on the next episode of BiggerRomance. You can know enough from the pictures to know if you want to go on a date, but the date’s going to tell you what you need to know. Okay? Those pictures will tell you if you want to look into it deeper. You still need to send someone to the property with a phone to take a video of the house.
Now, if your contractor won’t do it, have the person get really good video and then send that to the contractor. And if they’re like, “Well, every job’s different, I need to look at it.” I’ll say, “Okay. Assume that we have to replace all of these cabinets and all of these appliances, and put a new floor in here. Give me a range from here to here of what you think it’ll cost.”
Now that helps because they’re worried you’re going to blame them if their number’s too high, but they’re also worried that if they go too low, they could have made more money off of you. That’s why they don’t want to give you the hard and fast answer, but if you could give them the video and say, “Give me a range,” they’re much more likely to say, “Okay, well, it could be anywhere from here to here.”
I’m not afraid of telling him something that I can’t actually back up. And then you still have negotiating power to go to the contractor and say, “Well, it needs to be on the lower end because you’re talking to other people.” So they got to still respect you a little bit. Does that make sense?

Sean:
Yes, that’s very helpful. Thank you.

David:
And ideally, you want your real estate agent to be the one that takes these videos for you. One of the reasons that you can use a buyer’s agent. If you just can’t find a way to do that, the listing agent usually doesn’t want to go and take video because that’s going to be helping you in the negotiations over them. So I’ve used people that are in the area from the BiggerPockets forums, if I needed a video taken. You just have to figure out some way to get in the door.

Sean:
Makes sense. Thank you.

David:
All right. Anything you want to add, Rob?

Rob:
No. I mean, there’s no room for someone like me at the top. You answered it perfectly.

David:
Rob, keeping his dollars per word really, really high right now. This is expert work.

Rob:
Awesome, Sean. Thanks for the question. If people want to connect with you on the internet, where can they do that?

Sean:
Yeah, sure. I’m on BiggerPockets. Sean Linnehan, S-E-A-N-L-I-N-N-E-H-A-N, and also on Instagram. Same name. Sean Linnehan, @seanlinnehan.

Rob:
Awesome, man. Thank you.

Sean:
Thank you.

David:
Thank you, Sean GPT.

Sean:
Thanks, David.

David:
All right. Thank you Sean for that incredibly accurate and well-worded statement [inaudible 00:14:27] that you gave there. Thanks for being on Seeing Greene. I thought that was pretty good. Rob, what’d you think about that?

Rob:
It was good, man. Honestly, I think it’s the first time we’ve ever heard sequencing on the show. So there’s a first for everything and now, the sequence of events that we move on to.

David:
That’s right.

Rob:
Favorite… Comments?

David:
Yes. We’re getting into the section of the show where we are going to share comments that you all have left on previous episodes on YouTube. If you would like to be featured on Seeing Greene, we’d love to have you. Head over to biggerpockets.com/david, where you can submit your question.
And remember, if you’re listening to this on YouTube, in addition to leaving a comment, please like the video, subscribe to the channel, and share the video with someone you love.
All right, our first comment comes from Jevon Music Group. I have grown to love my half hour drive to church every Sunday. Thanks to your videos, I learn so much each week. That’s right. Seeing Greene, making even church fun. Glad to hear that. Next one comes from a Davidovich. I love saying names like that.

Rob:
I think it’s a David Ovich.

David:
You’re probably right. I’m doing it completely wrong.

Rob:
Is it possible that you’ve read so many of these over the years that you’ve mispronounced their handle so much that they actually never knew that it was their own comment that they left?

David:
Oh, and so they were thinking that someone else left something brilliant, but it turns out it was them?

Rob:
They have no idea their question was answered. They’re like, “Oh, that guy has a name that sounds kind of like mine. That’s cool.”

David:
Yeah, because it’s much more likely that his name is David Ovich than it is Davidovich. All right, moving on here.

Rob:
[inaudible 00:15:55].

David:
Mr. David Ovich. Thanks for regularly creating great free content. I found a lot of useful information just by listening to you guys. Also, I love the tools that are made available with the pro membership. Yep, that pro membership is probably the best deal in real estate. Couple hundred bucks a year and you get unlimited use of calculators, discounts on all kinds of stuff-

Rob:
Like leases-

David:
Yep.

Rob:
To every state or something.

David:
My team uses the rent estimator tool constantly for our clients that are considering buying houses all across the country and want to know what the rent would be. So if you’re not already a pro member, definitely keep listening to the show and occasionally, you’ll get a discount. Next up from [inaudible 00:16:33]. Thank you David, for all that you do. Your podcast share immense knowledge and provide courage to take the steps necessary. I wish I knew about BiggerPockets during COVID time. I could have started early, but better than not buying ever. Thank you for your guidance. Oh, that’s sweet. That’s so sweet.

Rob:
That is really nice, isn’t it?

David:
Yeah, and look at all the exclamation points that are in there and smiley faces.

Rob:
That’s how you know that they meant it because they didn’t even do the emoticon version. They did the actual… Or they didn’t do the emoji version. They did the emoticon version. Yeah, exactly.

David:
Emoticon.

Rob:
They’re OG.

David:
Is that what happens when a transformer becomes an emoji?

Rob:
Yeah. I think an emoticon is the original emoji before it was like the yellow circles.

David:
Look at Rob with the history lesson for all of us.

Rob:
All right. That’s right.

David:
Moving on to our last comment from BigMike8981. David knows how to tell you the truth and give you the tough conversation that nobody wants to have with you. Bravo, my man. That is probably my favorite comment that we had today because that’s exactly what I strive to do.
And let me tell you, it is not fun to be the person that says, it is going to be difficult. You could get hurt and this is very tough right now when all of the competition is like, “Nah, just go in and buy it and you’ll figure it out later. Jump out of the plane and build your parachute on the way down.”
Rob, do you have any insight you want to add on any conversations we’ve had that you’re like, “That’s not what I wanted to hear?” Or any advice for me of how I can make the medicine go down a little smoother?

Rob:
Well, I invested a lot of money recently into bell bottoms, thinking that they were going to come back in and I was committed to them and you’re like, “Hey, can I sit down with you for a second? You can’t wear those to be BP Con. They’re not working. Stop trying to make them work.” And it hurt and I’ve since, donated them to Goodwill, but I’m honestly, in retrospect, I’m really happy. Thank you.

David:
I’m glad to hear that. That’s what real friends do. They tell each other what they need to hear, not what they want to hear. I recently reached out to you because you’re doing so good with your fitness and your diet and I was like, “Hey, I need to hear what diet you’re on” and your reply was, “You already know what to do. Eat more meat and workout. Leave me alone. I’m working.” So it’s not just me that gives helpful advice. Thank you, Rob, for absolutely nothing.

Rob:
It was a little nicer than that. It was a little, but see, I said that because you’ve done it before. I was like, “Look, you know, we all know. Wake up early, work out, eat healthy, repeat.” That’s the book that I’m going to write. Wake up early. It’s like-

David:
Make an acronym out of that, yeah. I’ll let you do the words while I’m reading the next part here and then you can come back and call it the [inaudible 00:19:02] method or whatever it’s going to be.

Rob:
Yeah.

David:
All right. Let’s get back to the questions from you, our audience and see what we can do to help you build wealth in your journey. Rob, I hear we have an update from you live on scene with the new method. What is it going to be?

Rob:
[inaudible 00:19:19]. Wake up early, eat healthy, and repeat. [inaudible 00:19:24].

David:
The [inaudible 00:19:24] Method. Whoop, there it is. All right. Our next question comes from Idan in LA.

Idan:
Hi, David. My name is Idan from Los Angeles and my question for you is, if I’m purchasing a rental property in a good growing area, area that should appreciate very well… For example, in North Carolina, I have a few neighborhoods that I know that they’re very good. If I’m purchasing a property that after all the expenses, I’m running the calculations through the BiggerPocket’s tools, after all the repair, CapEx, vacancies, mortgage, insurance, taxes, after everything, I’m negative cashflow 300, 400, 500 because of the interest today and the high prices. This is a very good area and I’m buying it in market prices not below too much.
Obviously, I’m trying to find a creative way to add value, but if I’m negative cashflow $300, $400 and I can afford it. I’m okay with it. I don’t need the cashflow right now and I’m counting on appreciation in the future. Does that make sense to do something like that, if I can afford it? And it’s important to me to be in a very good location. Any help about it will help. Thank you so much for everything you do for us. Thank you.

David:
All right. Idan bringing the most controversial question in all of real estate investing right to our doorstep. This is probably going to go viral as half of the country will love us and half will hate us. Welcome to the controversial firing, Rob. What do you have to say?

Rob:
Let me rephrase the question. Should I buy a property and lose money on it, if I believe that it will appreciate like crazy over the next few years? My answer is no. Because the thing is, when you are accepting of a loss… Listen, and again, I’m not going to fault anyone who does this, but given the current economic climate, I would say this. Losing two or 300 or 400 or 500, I don’t know what he said, dollars every single month, feels okay when you’re making a lot of money and that you feel like you can absorb it.
But it doesn’t feel so good when your other income sources deplete or whenever you lose your job or whatever happens in the next couple of years affects your financial situation. That two or $300 a month starts burning a hole in your pocket. I would not bet on appreciation in 2023 as your savior in this situation. Had you told me that in 2019, 2020, 2021, absolutely. But I think we got to be a little bit more conservative with that. I’m fine with breaking even, I will say that. Losing money, I’m out. What about you?

David:
All right. This is a little more nuanced than it sounds because it’s not as simple as, can I lose two or 300 a month if I might make more money somewhere else? I have lost money in real estate, especially lately with how things have gone, but it has never been from the cashflow not being enough to two or $300 a month. It’s been from city regulations, construction projects going wrong, permits not being given, work being done incorrectly that needs to be redone. There’s lots of ways you can lose money in real estate outside of just the cashflow not being there. But that doesn’t get discussed.
We typically only talk about, well, the calculator said that my cashflow would be this much and it was less than that. I’m losing money. The reason that I am not as worried about this particular gentleman losing two to $300 a month is because in general, that is the amount of money that somebody can make picking up an extra shift at a restaurant once a month or picking up a coffee shop shift twice a month. It’s not something that’s going to cause you to actually lose a property.
I’m more worried about a tenant destroying it, things going wrong with the property that you don’t have the money to fix. Getting into the short-term rental game without reserves to where you can’t keep up with what your competition is doing and slowly falling further and further behind and not having the option to rent it out, in a traditional sense. Those big things are much scarier to me than the possibility that he might lose a little bit of money.
I’d also say that if he’s banking on appreciation and there’s no reason to buy it, that’s speculation, okay? But if he’s buying it in an incredibly good area with constricted supply, increasing demand, where it is reasonable to think that rents are going to go up and you’re going to get a very good tenant, that actually makes the investment safer, even though it’s losing a little bit of money.
So we didn’t get quite enough information to give this particular gentleman a take on if he should buy the property or not. I would’ve needed to know the actual city, the ability that he could create revenue in other ways. Is there a value add to this property where he could add an [inaudible 00:23:45] to it?

Rob:
He said that there wasn’t really a value add and he said that he believed in the city itself. So I think it’s like… Assuming that those two things are correct, it’s a great appreciating city, he can’t add value, I think that’s sort of the particular situation here.

David:
Well, my take would be the X factor is, the money you’re making now isn’t necessarily the money you’re going to make in the future. Okay? So he says in the note here that he is a contractor making very good money in Los Angeles. Now, if that was going to continue, yeah, it’s okay to lose two or $300 a month for the short term because you’re going to make money later. The difficulty becomes if you lose your job and you can’t make that money. But then again, is two or $300 a month going to actually kill you, right?
You could probably cancel a couple cable subscriptions or eat out a little bit less. You could probably take that money out of the budget you have. That’s not the most dangerous thing. The most dangerous thing would be if your tenant doesn’t pay rent at all. We get focused on the numbers aren’t working in the calculator. We don’t think about what if the tenant just stops paying and it takes four or five months to evict them. That is so much more significant than $200 a month as far as how much money you’ll actually lose. Rob, does that weigh into your advice on the location of the property and the quality of the tenant?

Rob:
Kind of. I guess, what you’re saying is absolutely true. If the tenant doesn’t pay, they’re not only losing the two or 300 bucks, they’re losing the actual rent, too.

David:
Like 2000 or $3,000 a month and that, over three or four months-

Rob:
That’s significant.

David:
Yeah, that’s way more money than a couple hundred bucks.

Rob:
But I think that extra $300 on top of the payment… Sorry, the tenant not paying, is a lot more painful in that moment than the 300. And that’s why I’m like… Listen, I’m an aggressive investor, all right? I’m not the kind of person that makes very conservative purchases or investments, but I don’t… No matter how aggressive I am, rule number one is to never lose money. There are some situations where I have and there are some situations where the tax benefits make it to where I actually save a lot of money, but in general, if I could break even, that’s at least requirement number one. I think that’s always a fair way to approach it, no matter what, especially in 2023. But I could be swayed.

David:
It’s a hot topic, right? I don’t know if there isn’t a right or wrong answer here. It really does depend on the person and their financial position, right?

Rob:
No, no. There’s a right. It’s what I said. No, I’m just kidding. What if I just came in like guns blazing? Listen to me. I agree. There’s no wrong or right. There’s just what’s right for you.

David:
Yeah, because you could always just put more money down and the property cashflow is [inaudible 00:26:12], but the question becomes like, “Okay, now it’s cash flowing a hundred dollars a month instead of losing $200 a month,” but you had to put a hundred thousand dollars into the property. Is that a better use of your money than putting that same a hundred thousand dollars in reserves and you can get by if it doesn’t cash as much, right?

Rob:
Totally. Someone asked me yesterday if they were like, “Hey, can I just ask. Is it stupid for me to put half down on this house?” And I was like, “Look, maybe a year or two ago I would’ve been like, Hey, don’t do that. And right now, I’m kind of like, I mean, that’s fine. Honestly.” Could you make more money somewhere else? Yes. But could you be a lot happier if your mortgage payment was a lot lower and you didn’t have to worry about a high mortgage payment every month during whatever’s coming in 2023, 2024? I’m good with it. Honestly.

David:
So would you rather have the theoretical a hundred dollars a month of cashflow instead of $200 a month of losing money, but you had to put $75,000 down to get it? Is that 75 grand in reserve safer or is the cash flowing element safer? That’s the question that I think people need to be asking. And if you had to put 75 grand down to make it cashflow, most people would say, “Well, then I don’t want to do it.” Now you’re not buying real estate at all, and that’s kind of the circles that we’re going back and forth in right now, right?
So let us know in the comments. What do you think about this negative cashflow? What’s the right perspective to take? What would you have told Idan in this question and let us know. Should we do an entire show on the cashflow conundrum to cashflow or not to cashflow? That is the question.

Rob:
Thy question.

David:
Thank you.

Rob:
I believe.

David:
Or the question, as you would often say. Rob wants me to change my Instagram name to thedavidgreene24.

Rob:
Yeah. T-H-E-E.

David:
Yes. The dork game is strong with this one.

Rob:
Our next question comes from Josh in Baton Rouge.

David:
I always think of Gambit from X-Men whenever I hear Baton Rouge. Let me know in the comments, if any of you think of Gambit from X-Men every time you hear of Baton Rouge.

Rob:
What is that? X-men? I don’t remember that from my childhood.

David:
Oh, really? A dork like you, doesn’t remember [inaudible 00:28:01] X-Men. Not likely. The comments are going to be exploding right now with Cap. No way. All right. Josh here has a couple of short-term rentals in vacation markets in Arkansas and Florida, as well as a long-term rental in Louisiana. What are your thoughts on how the supply and demand for real estate will change in the coming decades as the baby boomer generation ages?
Some fear that this will result in a drastic enough change in population, that there’ll be an oversupply of many goods, including real estate, causing prices to fall rather than the fairly steady increase we’re all used to. I strongly believe that real estate will ultimately survive economic cycles, but I fear the effects of this on the medium term outlook for investors like myself in our 30s and 40s.
Do you think this is a legitimate concern or are the other forces at place strong enough to counter this effect? Thank you for all you do and thank you for all your resources. Wonderful question. I love this, Rob.

Rob:
Yeah, it’s good.

David:
What goes through your head? What’s your perspective here?

Rob:
Yeah, I was nervous you’d asked me first. I guess I would say that ultimately, real estate has existed since the beginning of time. People build houses and they sold them, lived in them, rented them. I don’t know when real estate truly became prevalent, but I mean, it’s been around for, in its current form, I would say at least a hundred years, right?
So it has survived many things. It has survived the Great Depression. It has survived World Wars, it has survived recessions. It has survived big booms in the economy. I would say yes, there’s a legitimate concern in some capacity, but I don’t think it’s anything that would really destroy the real estate market in any significant way.

David:
Well done. That’s a great answer for being unprepared for how you were going to… Did [inaudible 00:29:43] got that? Did you just start talking and then figure out where you wanted to go when you were halfway through it?

Rob:
Exactly. Well, I have a list of answers that are always kind of laminated by me that have just been waiting to use over the last year and a half since being on the show. So, that was it.

David:
In case of emergency, break glass and pull out laminated-

Rob:
Exactly.

David:
That was pretty good.

Rob:
Exactly.

David:
Yeah. I’ve actually thought a very similar thought, maybe six, seven years ago where I was like, you overthink things, right? I was buying in Phoenix. Are they going to run out of water? Should I not be buying in Phoenix? And then you start Googling Phoenix water supply and you get all these crazy conspiracy things about what the government’s doing to stop the water. It’s really hard to get information that you can rely on.
This is another one because while everything you said is true, Rob, it is also true. I don’t know in the last a hundred years… Please don’t quote me on this, I’m not sure. I don’t believe that population growth has ever been a concern. It’s now starting to become a concern in many developed countries, population growth is not only slowing, it’s going the wrong way. Okay?

Rob:
Definitely.

David:
So it’s one thing to consider here. If we don’t have as many babies, we’re not going to need as many houses. And I think I love his last point. Is this a legitimate concern or are other forces at play strong enough to counter this effect? Because that is the question. Okay, there’s opposing forces here, pros and cons, and you’re trying to weigh which one of them is stronger. So I think population decreasing is a legit concern and threat to real estate wealth.
Now let’s talk about the other side of that. First off, if we just stopped having babies completely right now, no babies were born. It would be like 25 years before that would act, that lag would hit us because you’ve got all the one and two year olds that still need to grow. They’re still going to need a place to live. So it’s not like if babies stop being born immediately, we’re in trouble. It’s going to be a long time before it catches up with us.
So if the population does slow, this doesn’t change tomorrow. In that much time, your property’s probably almost paid off, which is going to reduce some of the threat right there. Another thing would be, when I was looking at this, I assumed that what a dollar was worth is what a dollar would always be worth, but that is a shifting target, too. As inflation continually makes money worth less, you need more of it to buy the same thing.
So in 30 years, if we do have population problems, well, how much have properties appreciated and how much has rent appreciated? And is that threat as significant, if your property is worth five times as much? So if you had to sell it for half of what it should be worth, it’s still two and a half times more than what it is right now. It gets tricky when you start trying to work all of these things into the algorithm here. So with that information, Rob, does that change your perspective on this?

Rob:
Well, first of all, I know that the population decreasing is a real problem in other countries. I don’t know if that’s the case in the United States. I don’t know. So it is hard to really say. I think we have some time to figure that one out.

David:
Good point.

Rob:
I don’t know if that’s really a problem yet or I don’t know if it’ll really be a problem for, like you said, the next 10 to 15 years.

David:
And then there’s immigration, right? Are people going to keep coming to America from other countries, which would keep our population higher or is that going to change in 10 years and 20 years? Is America not a desirable place to come to? It is impossible to factor for all of those variables when you’re trying to make this question. So I love the question itself, because this is something that I think about all the time, coming from Josh. Overall, I think that there are enough tailwinds making real estate desirable to combat the headwinds of possible population growth or less people needing homes in the future.
I think a more realistic threat would be like 3D housing. What if they figure out a way to just build houses for $20,000 or something like that? And now we’ve got these homes that used to cost $500,000 to build or $200,000 to build, and you had to go through all this red tape and the city and the local municipalities made building incredibly hard and now people can just throw something up real quick, right? Assuming that this is something that’s actually safe. It’ll probably be a while before the technology goes there, but I’ve thought about that. That could just saturate the market with rental supply.

Rob:
That’s interesting. Man, you know what would be a really good show, is if we researched theories for real estate like 50 years from now, like what some of the thought leaders in this space think? What would be the case?

David:
Were worried about?

Rob:
Yeah, like ownership of real estate on Mars or things like this or whatever. If you own homes on a beach or whatever, and just talk about some of the bigger, [inaudible 00:33:53], I don’t know, questions that arise over, what does real estate look like in 50 to a hundred years?

David:
That would be very interesting because we get to hear why they thought green shag carpet was a good idea. Maybe that was meant to combat a threat at the time, or they’re like, one of the biggest threats to the real estate space is the open concept and we have to do everything we can to defeat that. So we’re just going to put walls everywhere inside of our houses. And to their dismay, they found out that we just tore all those homes down and blasted it on House Hunters talking about how these closed concepts are terrible?

Rob:
Yeah, well, I’ve always talked about, I would love to have Elon Musk on the show. I think that would be the perfect person for it. So hey Elon, I know you’re listening out there. Hit us up. Davidgreene24 on Instagram.

David:
Oh, I’m sure he is already following. I’m sure. Probably from one of his burner accounts.

Rob:
Probably.

David:
Yeah. All right. Our last question here comes from Alyssa Horn in Alaska. By the way, I forgot to say on our previous question, are you screaming at your computer or your car right now saying, “What are you guys talking about? You missed something.” Let us know in the comments if on this whole, will real estate become a problem in the future because of population growth? Let us know if you think we missed something and what should be brought into the conversation here.

Rob:
I love it. It’s very interesting.

David:
It’s a fun thought process.

Rob:
I’ll ask ChatGPT tonight and I’ll let you know. I’ll text you the answer.

David:
Rob knows how much I love that. All right, Alyssa says, “Hi, David. Thanks for taking the time to read this. My sister and I are looking at combined funds of the house hack a duplex in Anchorage, Alaska. However, we realize that the amount we could potentially charge for rent is greater than the amount we currently pay for rent in the place we currently live. Does it make more sense to continue renting and rent out the two sides of the property we buy? Mathematically, this seems like a no-brainer, but it also doesn’t seem normal. Are we missing something? First, for more context, we’re happy living in the place we rent, but want to work our way to financial freedom by building a real estate portfolio and obviously, people who rent don’t have a portfolio. Thanks so much for helping two Alaskan sisters find their way to vacations and warmer climates.”
All right. So here is how I understand Alyssa’s question. So she wants to buy real estate and buying real estate, if she moved into it, would increase her housing expense because her rent is low. But if she keeps paying the low rent, she never owns a property. Her alternative to this dilemma is to buy an investment property, rent out all of the units, which it looks like this is a duplex that they’re talking about. They’ll make more money that way. But now, they’re still renting out the property that they live in. They don’t live in the house they’re in. Now the downside to that is, they’re going to put 20 or 25% down if it’s an investment property versus 5% if it’s a house hack. So we factor all of these questions together. Welcome to Seeing Greene. This is what we get to do every single week. What advice do you have for Alyssa and her sister?

Rob:
I think you have to… It’s rare. Okay, it’s not rare, but it is common where rent is cheaper than mortgages. And so I had to do this, when I lived in LA, my rent was $1,850 for a 600 square foot home. I then was so tired of paying that much money to a landlord that I was like, “I’m going to buy a house. I don’t care if that makes me a little bit more house poor, at least I own it. I’m building equity.”
So I bought a house and my mortgage was $4,400, which was more than double. Now with that house, there were some house hacking opportunities. I had a studio underneath. I ended up building that tiny house. We all know the story there, but I went into that understanding I was going to pay more for the homeownership. Fast forward to today, that house has doubled in value due to the beautiful thing called appreciation and I’m very happy that I was house poor.

David:
[inaudible 00:37:31]. Rent’s gone up as well.

Rob:
Rent has gone up. Yeah. So I’m happy that I was house poor for all those years.

David:
Yes.

Rob:
It paid off in the end. It hurts now more because you’re like, “Dang, I’m not saving as much. I’m spending more every month. It hurts more.” But you are also getting principal pay down. Inversely, the landlord is getting the principal pay down in the other scenarios. So…

David:
I love how you brought this up so far. In the book I’m working on right now, it’s about all the ways you make money in real estate instead of just the cashflow. Okay? So there’s this principle, when you look at something two dimensionally, certain things make sense. Why would I buy a house when renting is cheaper? I frequently get this when I go on other people’s podcasts that are not real estate experts, right? So I’m getting ready to go on Valuetainment. We’re going to be talking with Patrick Bet-David’s crew. They say this all the time, “Renting is cheaper than owning. Why would anyone buy a house?” It makes sense when you’re looking at a snapshot, not a whole movie.
When you look at everything that real estate does to make money, it starts to change things. So her rent is less right now, but she doesn’t control the rent. The landlord does. Maybe she has a really nice landlord. What happens if they sell the house, they pass away, someone else takes it over? They realize that they could be charging more. That changes very quickly. And during that period of time, housing might’ve become more expensive. Also, in most markets, rent goes up every single year.
So though renting may be cheaper than owning right now, if you do five years of rent increases, it’s often not cheaper than owning because when you buy a house, your mortgage gets locked in place. Now, consider house hacking. Not only are you not having your rent increased on you every year, but you are charging more to your tenants every year and now becomes twice as valuable, that rent increases are working in your favor to build your wealth. And you extend this over five years, 10 years, 15 years, it starts to become way cheaper to own than rent, especially when you’re house [inaudible 00:39:18].
Now, we haven’t thrown in principal reduction. We haven’t thrown in potential tax advantages. We haven’t thrown in what you just said, Rob, which was appreciation. All of these other things end up being even more impactful than just the rent, and it becomes a no-brainer that you should own. The thing I want to highlight here is that it rarely looks wise when you’re just looking at right now. When you’re looking at 10 years down the road, 15 years down the road, I don’t know that I’ve ever seen a scenario where renting is actually cheaper, unless it’s like you’re living with your mom and she’s going to let you live for free or something like that. Does that change your take on this question?

Rob:
Yeah, definitely. I would say ultimately, almost everyone looks like a genius, like a real estate genius if they hold onto property for 30 years.

David:
Yeah.

Rob:
Like I said, it might hurt now, but if you hold onto it for 30 years, people are going to be like, “Oh, my gosh. You bought a house in Los Angeles when it was $600,000. That’s so cheap. I cannot believe that.” And people will be mad at you, that you got into real estate 30 years earlier. You know what I mean?

David:
But when you bought it at 600,000, did it feel cheap?

Rob:
No. God no. I was scared to tell everybody.

David:
And everyone was telling you that you were stupid, right?

Rob:
Yeah. I was scared to tell my parents. I was scared to tell my coworkers because my coworkers knew kind of how much I made. They were my peers and they were like, “You can’t afford that.” And they just didn’t know that I was like, “Well, I’m thinking about it. How can I afford it?”

David:
Yeah. You say, “Well, I’m going to rent out part of my house.” Oh, I don’t want to do that. That sounds like [inaudible 00:40:38]. I like my space.

Rob:
No, I don’t want that. I don’t want to know my tenant. Yeah, it’s all that whole thing.

David:
You like your space. You also like being poor forever. If you can’t afford to put money into a property, you got to put your comfortability and your convenience away, right? It’s going to cost you something. So might as well cost comfort instead, if you don’t have the money at the time. I remember you and I were heading to a real estate meetup when we were hanging out in LA to record at the Spotify Studios.
And we drove by a property that you pointed out in LA and you were like, “That house right there was… Hit the market, had been renovated.” My wife and I looked at it and it was $1.1 million. And we said, “That is insane that those people think they will ever get that much money for that property, right?” Fast forward with four or five years, is that about how long it’s been? Okay, and what do you think it’s worth now?

Rob:
Oh, like 1.8, 1.9, maybe two, somewhere in there.

David:
It was insane, but you were overpaying and then you go five years in the future and all of a sudden, if you could buy it for 1.1 right now, you’d be walking into $700,000 of equity and tons of cashflow.

Rob:
Yeah. And it was a little bit more like, “It’s so expensive. I wish I could afford that someday.” And then now, it’s like, in retrospect, it was a good deal. Everything is a good deal in the past, right?

David:
That’s a great point and that’s all we’re trying to say, is try to exist outside of just this moment. Think about your whole life and where you’re going to be in five or 10 years and factor it, that into your decision-making process. And if you got to sacrifice comfort or you got to have a little bit more housing than you wanted in order to own, but you’re in a good area where rents are going to be increasing and you’ve now taken control of your financial future and your housing expense, where you know the worst case scenario is, this is my mortgage and it can only get better from that?
I would rather see people do that than not have control and be at the mercy of a landlord or somebody else. Taking this long-term approach makes the most sense, which is why we are talking more and more about financial responsibility, playing defense, and making money in other ways outside of real estate, which is playing offense in business. Because when you have those two things going for you, you can use the delayed gratification approach with real estate and build a portfolio we’re talking about.

Rob:
Oh, one thing she said that people who rent, obviously don’t have a portfolio. False. I’m sure we’ve said this already, but honestly, the people that I’m proudest most in life of, are people who sacrifice short-term gain and continue renting and use the money they have to get into a rental property. And they sacrifice owning a house so that they can rent longer and build equity. I’m always like, “Hey, that’s actually pretty cool of you, that you did that.” So don’t feel bad if that’s where you end up netting out, Alyssa.

David:
All right. We hope you enjoyed today’s show. We sure enjoyed having it with you all. If you did, please do me a favor. Leave us a review on wherever you listen to your favorite podcast and let us know what you like about the podcast so other people can find it, and leave us a comment on YouTube, telling us what you thought of today’s show.
Hopefully we read your comment on a future episode and you will be supporting the show. Also, if you like to be featured here, we would love to have you. Head over to biggerpockets.com/david, where you can leave your question for us to answer on a future episode. Rob, for people that were absolutely blown away by your insight, intelligence, sense of humor, and dashing good looks, where can they get more Rob?

Rob:
You can find me on YouTube at Robuilt, R-O-B-U-I-L-T and Instagram @robuilt, if you want, short form real estate funnies. If you want long form real estate wackiness, go to YouTube. Up to you or do both.

David:
There you go. I’m there as well. You can find me @davidgreene24 on social media, David Greene Real Estate on YouTube or davidgreene24.com on the internet to find my webpage. Thanks again, everyone for joining us today. It’s been our pleasure to be teaching you and instructing you and encouraging you in your real estate journey. I really hope that we were able to help some of you brain souls who took action to ask us questions and I look forward to answering more of your questions this year. This is David Greene for handsome Rob Abasolo. Signing off.

Douglas Elliman CEO Scott Durkin and CNBC’s Robert Frank join ‘Power Lunch’ to discuss the real estate market.

Stoicism is an ancient Greek school of philosophy founded in Athens by Zeno of Citium in the early 3rd century BC. The philosophy has been popularized within entrepreneurship in the last ten years, and many prominent figures now use it as their personal operating system. Stoicism emphasizes personal virtue and wisdom, it teaches self-control and fortitude, it promotes rationality and restraint. These are not qualities ordinarily associated with entrepreneurs, who you probably know can be irrational, impulsive and hot-headed at times.

Channeling Stoicism could not only give an entrepreneur superpowers, it can help them navigate business challenges with grace and resilience, finding inner peace within external chaos. Use these prompts to apply Stoicism to your business. Copy, paste and edit the square brackets in ChatGPT, and keep the same chat window open so the context carries through.

Stoicism for entrepreneurs: 7 prompts for ChatGPT

View obstacles as opportunities

Notable stoic Marcus Aurelius once wrote, “The impediment to action advances action. What stands in the way becomes the way.” Challenges, therefore, are not setbacks, but opportunities for growth and learning. The obstacle is the way. What obstacles are crossing your path and how can you see them as favourable? What growth do they hold, what opportunities could overcoming them unlock? Use this prompt to get ChatGPT’s help in finding their secrets.

“Assume the role of a business coach with a deep understanding of stoic philosophy and its application to modern business. In my current entrepreneurial endeavors, I’m facing specific obstacles such as [describe the immediate challenges or situations you’re dealing with]. Can you help me reframe these current challenges as opportunities for growth and learning? How can I leverage these situations to benefit both my business and personal development?”

Hold less emotional attachment

On any given day you’ll be taken on a rollercoaster of emotions. Huge joy from a big client win or a great bit of press, followed by feeling like all is lost after some adverse news, then apathy, impatience and frustration when results don’t happen as fast as you want. Stoicism teaches emotional resilience, which every entrepreneur could use. Don’t be swayed by fleeting emotions. Maintain a calm demeanour throughout the most intense business volatility with this simple prompt.

“During my business activities, I often face situations such as [describe specific events or scenarios that trigger intense emotions]. Provide two simple exercises, based on the stoic principle of emotional detachment, that will help me cultivate emotional resilience and maintain a calm demeanor during these challenging times.”

Focus on what you can control

You can control what you put in, but not what you get out. It doesn’t matter how long you spent on that pitch, how much knowledge you have of that process, or how much effort you put into the marketing plan, you still cannot control the results of your actions. For entrepreneurs, this is frustrating. Stoicism teaches that we should focus on what we can control and accept what we can’t.

“In my business, I often find myself fixated on outcomes, especially in scenarios like [describe specific endeavors or efforts where the outcome was uncertain]. Can you provide guidance, drawing from Stoic principles, on how I can enjoy the process of doing the work rather than being fixated on the outcome? Additionally, suggest how I can change how I think about inputs to make them more enjoyable, so I become more indifferent to the results they may lead to.”

Pursue personal virtue

If you do the right thing for the right reasons, over a number of years you’ll build a reputation of integrity and fairness. People will trust you. Stoicism emphasizes personal virtue and integrity as the highest good. That means conducting business ethically and being excellent in everything you do. It sounds straightforward, but when the opportunity arises to cut some corners or score a quick buck, will your personal virtue hold out? Find ways to strengthen it with this prompt.

“Recently, I’ve been working towards achieving [specific goal], and I’ve encountered a situation where I could potentially achieve more by [action that might compromise personal virtue], even though I know the right approach would be [ethical alternative]. Drawing from Stoic principles, can you guide me on how to navigate this situation while upholding my personal virtue and integrity? How can I make decisions that align with ethical conduct and long-term excellence, even when faced with tempting shortcuts?”

Practice regular reflection

Learning from the past requires paying it some attention. We can’t carry forward its lessons without understanding what they are. Reflection, therefore, is essential for every entrepreneur. Stoics like Seneca engaged in regular reflective practices, analyzing their actions at the end of each day to become a better person tomorrow. Assess your decisions and improve future actions by following his lead. Create a reflection habit with ChatGPT, by asking it for your personal set of reflection questions.

“In my business, I’m working towards the following goals [list your goals] and it’s important that I [describe how you want to show up, and the values you want to live by]. To ensure continuous growth and learning, I want to adopt a daily reflective practice inspired by Stoic philosophy. Create a personalized set of five reflection questions based on what’s important to me, so I can assess my decisions and actions at the end of each day.”

Value simplicity

When something is too complicated it wastes energy. Complicated prospecting loses customers along the way. Complicated apps cause people to leave and never return. Complicated things to do every day cause headaches, cost motivation, and lead to inaction. Stoicism advocates for simplicity and the removal of unnecessary materialism and distraction. When entrepreneurs focus on what truly matters, processes are streamlined and complexity is eliminated, so they are free to secure results and move forward.

“In my business, one process that could be unnecessarily complex is [describe the specific business process in detail]. Given the Stoic emphasis on simplicity and removing unnecessary elements, can you provide suggestions on how to streamline and simplify this process, ensuring it’s more efficient and effective for both my team and our customers?”

Adopt a global mindset

If done right, entrepreneurship can be a great leveler. It doesn’t matter where you live, what you look like or what language you speak. Whatever your background, you can start a business and serve a customer base. You can serve people beyond those in your town. Cosmopolitanism is a big part of Stoicism. The Stoics believed in a shared brotherhood among all humans, which entrepreneurs can follow. Adopt a global mindset and view your business as a way to serve the broader community and not just local interests with this simple prompt for ChatGPT.

“Currently, my business focuses on [describe your business and its primary offerings or target market]. I want to think bigger and explore ways to serve a broader and more diverse community, inspired by the Stoic principle of cosmopolitanism. Can you provide insights and strategies on how I can expand my business’s reach and impact, ensuring it resonates with a global audience?”

Apply Stoic philosophy to your business with ChatGPT

Stoicism isn’t just a philosophy; it’s a roadmap for entrepreneurial excellence. Boost your business with these prompts from ChatGPT, inspired by Stoic thinking. Turn problems into chances to learn, keep your emotions in check, and focus on things you can change. Make tasks simpler, think about your day’s choices, and see your business as something that can help people everywhere.

Use these prompts to perform better in your business and feel closer to your goals. When you’re closer to your goals, you can do more for your customers. Simple ideas make big success.

Ashley:
This is Real Estate Rookie, Episode 336. My name is Ashley Kehr, and I’m here with my co-host, Tony J. Robinson.

Tony:
Welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kick start your investing journey. Today, we’re doing a Rookie Reply, which means we’re answering questions from you, our audience. Ashley and I love doing these episodes because we get to talk to you guys. We get to answer the questions that are most pressing in your brains and your minds. Today, we talk a lot about ARV. I’m not even going to tell you what that is yet because you guys need to listen through. We talk about the pitfalls of ARV, how to make sure you’re doing it the right way, common mistakes we see new investors make, and pretty much just give you a masterclass on all things ARV.

Ashley:
Then we’re going to talk about repairs and maintenance and capital expenditures, what the difference is, what those things are, and different ways to navigate it. Plus, we’ll tell you a couple personal stories of things that are going on with us and especially dealing with it on your short-term rentals. I want to give a shout out to Grant Warrington. That is Grant W-A-R-R-I-N-G-T-O-N. You can find him at Instagram on his name. He does a great job of teaching how to buy and fix apartments. He has some really cool Reels about different stuff, like the lights he uses for rehabs, why you should not paint the electrical outlets, and things like that. So go give him a follow and learn some stuff about doing a rehab.

Tony:
Last thing I’ll say before we jump in, I’m not going to read a review today, but I just want to encourage all of you guys, if you’re a part of the rookie audience and you want to help us spread the message of financial independence through real estate investing, please do leave an honest rating and review on whatever platform it is that you’re listening to.
Also, make sure to follow or subscribe. Those are triggers that platforms, like Apple Podcasts and Spotify, look at to gauge the popularity of a show. So if you are listening, make sure you actually subscribe within the platform that you’re listening to so that Apple and Spotify know that you actually do enjoy the show. Because, again, the more folks that know about the Rookie podcast, the more folks we’re able to help and hopefully inspire to go on this journey with us.
Not only do we want you guys to leave reviews, but we also want you to be a part of the Rookie podcast. So if you want to apply to be a guest on this show with me and Ashley, head over to biggerpockets.com/guest, put in your application, and you just might be one of the stories that we get to share.

Ashley:
And we love it when you include your wins or something you learned from the amazing guests that we have on the show. So please feel free to add that into the review. Okay, let’s get into today’s questions. The first question is from TC Cohen. “What are ways or available software that a rookie can find comps in order to estimate a potential ARV of a property?” ARV is the after-repair value, and the comps are other properties that are comparable in size, finishes to the property that you are looking for the after-repair value. So what this process is, this is where you’re going to look at a property and you want to estimate how much it’s going to cost to rehab, but you also want to estimate how much it’s going to be valued at after the rehab is done. Because you don’t want the rehab to cost $50,000, you’re buying the property for $100,000, but after it’s repaired, it’s only going to be worth 120, but you put 150 into it. That’s why it’s important to find the ARV, the after-repair value.
One of the ways to do that is to look at other properties that have sold in the area that are comparable to the one you’re going to be fixing it up. You also want to compare it to what the property will be after you do the rehab. So if you’re putting in an extra bedroom, you want to find comparables that will be three bedrooms compared to two bedrooms as the property is now.
To start us off, one of the great resources that actually BiggerPockets has is Invelo. If you are a BiggerPockets Pro member, you get like $50 free to spend on there. They also have some free resources on there for you to find comparables in the area. That would be a great starting point. There’s also similar software such as PropStream where you can get a free seven-day trial to actually look up a property that sold in your area. Tony, what are some of the resources that you’re using?

Tony:
I think a free way for a new investor who’s maybe never done this before is to ask your realtor or your agent. If you have an agent in that market, ask them, “Hey, I’m looking at buying this property and doing this kind of rehab with it. What would your opinion be of the after-repair value?” Depending on how busy the agent is, sometimes they might be able to give you an idea of, “Hey, here are some properties I’ve sold recently, that I’ve seen sell recently that are similar to your property that went for this dollar amount.” So asking your agent.
If you know other real estate investors in that market, I think potentially getting your hands on an appraisal is one of the best ways to get that idea of the ARV for a property. Because not only do you get the appraised value of a property in that neighborhood, but you also get to see the methodology that the appraiser used to come up with that value. You can also see then the comps that the appraiser used inside of that appraisal. So I think some free ways are going to a realtor or going to other investors in that market that maybe have appraisals that you can use.
Then the other thing is you can look through Zillow. Zillow is definitely not perfect, but it does show you recently sold properties. You can kind of filter Zillow to look at properties that have sold in and around that area. So you can definitely use Zillow as a free tool. You just have to know how to tweak the data. Then a third software, Ash, I actually just got a free trial of this or maybe not even a free trial, I think I’ve ended up paying for it a week ago, but it’s Privy. Have you heard of Privy?

Ashley:
I’ve heard of it, but I’ve never used it.

Tony:
I was just trying to do some comp work, and I said, “Let me try out Privy.” I haven’t tried it before. It’s similar to PropStream and I’m sure Invelo as well. But I like the user interface just a little bit more, and it has a little bit of… I don’t know if it’s AI. I feel a lot people use the term AI pretty loosely these days. Basically, it has this kind of model that says, “Hey, I’m looking for fix-and-flip properties that are at 70% of the ARV.” It’ll look at the properties in and around that subject property and estimate, where can I get to 70% of the ARV? So Privy’s actually a pretty cool one as well.

Ashley:
The only other ones I would mention are a couple free resources. Your local newspaper for your city might actually put out recent sold transactions. Here in Buffalo, it’s the Buffalo News, and I think Buffalo Business First does it, too. They go back six weeks or whatever. So when you get the newspaper, it’ll be from transactions from six weeks ago, I think. It will list all of the sold properties by town that their newspaper covers. It doesn’t tell you how many beds, how many baths, anything like that. But you could take those properties, and then you’d have to go and type in the address into Google. Especially if it was a property that was listed on the MLS, you’ll be able to find how many bed/baths, and if it’s comparable. But you can check out the newspaper for that. Also, it’s available online. Sometimes after you visit the newspaper website so many times they make you actually buy it. You can’t just get the transactions for free.

Tony:
Ash, are you telling me you have the Sunday newspaper dropped off at your doorstep every week right now?

Ashley:
No, I don’t because that’s why I try and go find it online so I don’t have to pay for it. But I do get the Business one, that one I do. Then the other one is the OARS, which is O-A-R-S. A lot of cities and towns have this software available. The town actually chooses that they have this software. I had no idea what it stood for, but I googled it, and it’s OPI Authorization and Reporting Systems. It’s a information system that is actually created by the US government, and it puts out data about properties. So if you go to your town assessor’s webpage, it may have a link to this. You can type in your property address. There will be a button there to pull comps, and it will actually give you a suggestion of what comparables are in the area based on approximate location to your property and bedroom/bathroom count, and square footage. So I think that’s a great starting point, especially for rookies who are maybe just looking for a couple of deals. They’re not trying to run comparables on 50 properties a day. You can use these free resources or free trials before actually committing and paying for a subscription.

Tony:
Ash, should we talk a little bit about common mistakes that folks make when it comes to estimating your ARV, pulling your comps? Because I think it’s easy to kind of get overly excited, I think, to start to pull comps for a property. So I think there’s a few things to kind of button down. First is that when you’re searching for comps, you want to make sure that your subject property and the comparable property… When we say comps, guys, we’re talking about comparable properties. You want to make sure that your comps are like-kind, that they’re similar to your subject property. So you want to make sure that there’s the stories. You ideally want to take a one-story to another one-story, so you don’t want to have a one-story home that’s a ranch to a two-story Victorian or something. I don’t know all my house types like that. One-story to one-story is ideal.
The years that they were built a lot of times can be a big factor. You don’t want to take a house that was built in the ’50s and compare it to new construction from 2023 because those are two totally different types of builds. Square footage, so if your subject property is 1,000 square feet, you don’t want to compare that to a house that’s 2,500 square feet or even 1,900 square feet. Lot size, if you’re sitting on an eighth of an acre, like the houses are in my neighborhood, I can’t compare that to Ashley who’s sitting on 200. Two totally different value propositions there. Then obviously, bedroom and bath count are important as well.
Now there is some ways that you can up-adjust or down-adjust the numbers a little bit to say that, as you’re looking for comps, maybe your subject property is a three-bedroom, one-bath, but there’s a comp next door that’s a three-bedroom, two-bath, so there’s a little bit of… You want to decrease your value just a little bit because you’re missing a bathroom. The amount you should decrease is hard to know. You got to guess a little bit unless you have some appraisers you can talk to or maybe real estate agents who point you in the right direction. But basically, if you’re close, you can use it, but you still have to decrease it a little bit. So like-kind is one thing. Ash, what other common mistakes do you see when it comes to estimating the ARV?

Ashley:
Yeah, those are all great points. I think another thing to add on to that is to really understand how assessors in your area are actually assessing the property value. If you’re going to refinance or you’re selling the property and somebody’s going to be buying it, they will most likely have to have an appraisal done by the bank or you will if you’re refinancing. You want to have some kind of comprehension of how they’re actually calculating it.
If you’ve seen on Instagram maybe before the memes of, “Oh, here’s how a appraiser calculates,” and it’s just like, “I’m going to guess this number. There is no try and trued method they have.” If you’ve ever looked at an appraisal, it’s almost like a chart. It will tell you what they are actually looking at as far as the appraisal. So they’ll grade the kitchen as to is it poor condition, good condition, excellent condition. They’ll also do that for the other ones. Then sometimes they’ll put dollar amounts to it. This parcel has 10 more acres than the other one. Maybe they’ll add $20,000 in value to the one with the 10 acres instead of the one acre, things like that.
But that can help you estimate and gauge what’s going through the appraiser’s mind. Obviously, you’re not going to have the same exact appraiser as if you’re looking at a appraisal report, but at least you’ll get an idea of what’s the list of things they’re actually going to be paying attention to. For example, I did an appraisal on a property and they didn’t count any of the sheds because they actually are removable. When you leave this property, you could lift those sheds up on a forklift, put them on a flatbed, and take them away with you to the next location. So since they weren’t actually fixed to the property, they weren’t counted into the appraisal and did not add any value as additional structures. So looking at those kind of things.
I recommend going onto Facebook right now or even Instagram and just, “Hey, does anybody I know in blah, blah city,” where you want to invest in, “have a copy of an appraisal?” If you have real estate agent friends, ask them, “Hey, do you know anyone that has had an appraisal done?” and you know them well enough they would give you a copy of it, whatever it is, and just go through and look at it. It’s super informational to take a look at that.
Then the last thing I would suggest is, especially with how the market is changing so much within the past couple of years with going up and down, up and down and all over the place, make sure you are looking at actual sold properties and not pending. Just because the property went pending doesn’t mean it has sold. It could fall out of contract. Also, you don’t know what the actual sales price is when it’s pending. Because even if they were asking $200,000, it doesn’t mean that it actually sold for $200,000 or it sold for more than that. The last thing you want to find out is it actually sold for $150,000. So make sure it’s a sold property, and it’s within a good window of time.
If you have to expand your reach a little bit when you’re looking at comps and go out a wider, what’s the word I’m looking… radius from where your property is, it’s better to do that than to look at a property that sold two years ago when everybody was getting top dollar before interest rates shot up. So definitely taking a look at those things and making sure it’s actually a sold property and not pending.

Tony:
Ash, you bring up two other important points about mistakes. It’s the search radius, and it’s the date range. I think you said it exactly in the same way that I view it in my mind and what my appraisers have told me as well is that the sequence is you want distance, similarity, and then date range, or, I guess, really similarity, distance, then date range. You want the similar properties and then as close you can get them within the most recent time possible. So similarity, distance, date range.
Like Ashley said, if I am buying in a suburban area where, again, each house is sitting on an eighth of an acre, I can’t go out into a five-mile radius because there’s way too many properties that are closer than that that would be good comps to mine. For me, when we had our house appraised when we refinanced a few years ago, it was in my neighborhood. All walking distance from my house was the radius that they used. Now, in a place like Joshua Tree where the majority of the properties are sitting on acreage, I think one of our closest comps or one of the comps that was included in our appraisal report was like four miles away. It’s because the parcels are so big, the number of comparable listings was significantly smaller, so they had to go a little bit wider. Ideally, you want to start as tight and small as possible with your radius and then expand out only if you can’t find good properties.
Then to Ashley’s point, you definitely want to focus on your date range. I know for me, Ash, typically when I’m looking, especially now, I try and start with the previous 90 days, and I don’t want to go anything greater than 90 days to begin with. Only if I feel like my radius is getting too big, then will I start to push it out to maybe six months. I feel like anything beyond six months is going to be tough, especially in this climate. Because the markets in a lot of places are shifting so much where if you try and go back, like you said, a year, the market’s completely different in summer of 2022 than it is in summer of 2023. So I think just those things, distance and date range, are incredibly important as well.

Ashley:
Another thing after you said that that reminded me is the time to close, too, on a property. In California, you can do a pretty quick close. You’re doing closes in 21 days, right?

Tony:
Mm-hmm, yeah.

Ashley:
In New York State, that’s almost impossible. So sometimes you are looking at 90 days to close on a property. During that time period, a lot of things can change during those 90 days. So that’s also something very important to look at, too, as to, when did the property go under contract? When did it actually go pending compared to when it actually sold? So you can see, okay, this property actually went pending, so they made that offer, weren’t going to buy it at that price six months ago, and then they went and closed on it. But the appraiser is going to still look at that closed price, like when the property actually closed, not when it went under contract.
But if something went under contract six months ago, and the interest rates were a little bit better and it was spring, everybody’s out house hunting, and they bought it for half a million, well, now they closed six months later because of different issues, whatever. But then the other comparables, their interest rates went right back up. It’s starting to become winter. People aren’t wanting to move in the winter, and the sold prices have dropped. So now you have one comp that’s really good, but then you have your two other comps that are bringing the properties down. So make sure you are taking that range of comps and not just relying on one or two. You have at least three of them, too, because there’s all these different factors that can come into play.

Tony:
Ashley, just out of curiosity, because I forget that sometimes it can take that long for you guys to close on stuff in New York. Do you have anything in your purchase agreements where it’s like, “Hey, if the market values shift by X percentage during our closing period, then we have the ability to renegotiate,” or are you at the mercy of the market?

Ashley:
Yeah, because most of our offers are all cash purchases, no contingencies. So if there was a contingency put on it, our offer probably wouldn’t.

Tony:
Gotcha, interesting.

Ashley:
I did actually just put an offer in this weekend. I was at my kids’ football game. Right before their game was starting, they’re doing their warmups, and I’m just scrolling Zillow. It’s better than Instagram.

Tony:
Yeah, [inaudible 00:19:31] what all real estate investors do.

Ashley:
So I see this property and I’m like, “I feel like that’s really close to another property we own.” I look and it’s two parcels away. Our other one is a little cabin, a little goat barn, a pond, and it’s 10 acres, and this was five acres with a little one-bedroom cottage on it. Part of the cottage had this beautiful glass room that’s off of it. It was listed for $124,000. I’m like, “Oh my god, we can rent this on Airbnb for this much money. At this price, this is great.”
So I texted it to Daryl, who was somewhere there at the game doing something before it started. I texted it to him. I’m going through, and I was like, “We need this, if we can get at this price.” So I texted my agent, and I said, “Make an offer at whatever they want. No contingencies, no expend… uh, I can’t talk, inspection, and we’ll just take it.” She texted me back, she said, “Okay, I asked the agent about verbal offers and she said they have gotten so many requests for showings they are three days booked out for showings already. So she’s not going to take any offers, and they’re now going to put a deadline on offers.”
So Daryl comes back over. He’s like, “Oh, that house sounds pretty good.” I was like, “Yeah, I already put an offer in. Sorry, I didn’t tell you.” So now the deadline is actually right now. It’s 1:02 p.m. right now on Tuesday, and the offers were due at 1:00 p.m. We just went $1,000 over asking because it’s a great deal even at that. If we don’t get it, there’s other properties, things like that. But I only want it if it’s a great deal.

Tony:
It makes me think, though, Ash, is there a time and place where maybe the ARV isn’t as important? For example, we’re working on a commercial deal right now. It’s a seller financed deal. We’re picking it up for 950, but they gave us a 30-year amortization period. For our rookies that are listening, that means that, just like a traditional mortgage, those payments are being stretched out over 30 years. It’s a 10-year term, so we either have to sell or refinance at the end of 10 years. It’s a 7% interest rate on a commercial property, which is pretty good given where we’re at. And I want to say, I think it was like 200K down, so our payment on this 13-unit motel is going to be like, I don’t know, four grand a month or something like that.

Ashley:
There’s no balloon payment or anything over [inaudible 00:22:15]?

Tony:
At year 10.

Ashley:
Year 10, okay.

Tony:
Year 10, yeah.

Ashley:
So you don’t have to refinance for 10 years.

Tony:
We don’t have to refinance for 10 years, so we got 7%-

Ashley:
[inaudible 00:22:22] years.

Tony:
… interest rate locked in for 10 years.

Ashley:
So any comp now is not going to be valid anyways.

Tony:
And it’s just like, does it even matter what the property’s going to appraise for right now? Because it’s like we have an entire decade to get this… Even if we did nothing in most markets for a decade, you’re going to see some level of appreciation. It’s just like, in that situation, we’re not necessarily super concerned about the comparables because we’ve got this really good fixed debt. I bring that up to say, if you’re a rookie and you’ve got a good deal like that, maybe there’s some creative finance involved and you don’t necessarily have to worry about going out and getting an appraisal at any point in time, then does it really matter what the property’s going to appraise for? As long as you’re cash flowing, I think that’s… Obviously, you don’t want to go too far underwater, but in the short term you can probably weather that storm.

Ashley:
When we talked to Pace Morby on here… Actually, I think we’ve talked to him a couple of times, went on BP, and then we had him on an actual episode. That’s a lot of what he talks about is that the purchase price isn’t always the most important thing. That if you can get seller financing or subject to and you don’t even have to go to a bank to refinance, who cares, to a certain extent, what your purchase price is if your payment is going to be zero percent interest and it’s going to make you cash flow on the property?
To your point, that’s exactly… One thing when I looked at that property, I didn’t sit there and actually analyze it. I have an EZ Calculator app on my phone, and I was like, okay, this is what my mortgage would payment would be if I actually put a bank loan on it or whatever. Then I looked at, this is my daily rate for Airbnb. I’m going to do conservative, do 65% occupancy, and this is how much it’d make month. I’m like, okay, I know property taxes would be about this. On my little phone calculator figuring this out in my head, and I’m like, okay, it would cash flow. So it doesn’t matter how much we’re paying for it because I know I can get terms at this price for it. So if it doesn’t refinance at a certain amount, this is what I get my… Well, we would be using private money, not bank lending on that one. Yeah, that’s a great point about the purchase price.

Tony:
Just, if you guys want to waste a bunch of time, for our rookies that are listening, just play around with a mortgage calculator and see how different the interest rates impact things. It’s like, if I were to buy a million-dollar home at a 2% interest rate, that’s about 3,700 bucks a month. At 7%, that’s 6,600 bucks a month. So just imagine the kind of leverage you can get if you are able to get some of this creative financing. Even if the purchase price is super high, your actual return is relatively low. Not to go too far off on a tangent, but just something to consider, that sometimes the ARV isn’t as important if the terms that you’ve got for that deal are incredibly strong.

Ashley:
Since part of the question was what kind of software can a rookie use to find comps, the calculator software that I use is called EZ Calculator. Where did I go? So it’s like, fncalculator.com is the actual website for it. It has one, two, three, four, five, six, seven, eight, nine, 10, 11, 16 different calculators on here. You could do a compound interest calculator, so if you want to figure out how much interest your money would make in the bank compared to investing it in real estate, you could figure that out. The currency converter, in case you’re buying something in Mexico. But all these… retirement 401(k) calculator. But the loan calculator is on there. A credit card payoff calculator. This is a calculator app that I use all the time for playing with mortgages to see what they would be based on down payment, or what the interest rate might be if I do bank financing or private money and things like that.
Oh, and actually, another couple apps that I’ll tell you, too, is a hunting app called onX Hunt. It’s actually for hunters. So if you’re tracking a deer, you know whose property you’re on, so if you need to ask permission to track the deer on their property, things like that. You can actually see the parcels. You can also see the satellite view of the land. It will actually tell you this is 80% forest, this is 10% field, this is 10% structure, whatever it may be. But that’s a super helpful app, too, for looking at a property to compare it to others. Another one is LandGlide, which is actually for real estate investors. They have a parcel view, and then they also have that satellite view, too, and give you a bunch of information about who owns it, things like that.
Let’s go on to our next question. This one is from Daniel Dow. “Curious, what mid-range repairs do you classify as CapEx versus general maintenance?” So CapEx is capital expenditures. Then he goes on to say, “For example, I would think we would all consider a clogged drain as maintenance and a new roof as CapEx. What about things, replacing a water heater, a garage door or toilet? Secondly, do you distinguish between these expenses in your books?”
So here’s one big way is if the vendor that’s actually doing this for you charges you sales tax or not, or they give you a capital improvements form. So if you are doing a capital improvement, you don’t have to pay sales tax on that expense. If you’re getting the new roof put on and you’re going to write it off as a capital expenditure, depreciate it over so many years, you don’t have to pay sales tax on it. So the vendor, the contractor will actually give you a form to fill out saying that you’re going to be using this improvement as a capital improvement, and then they will not charge you sales tax on having that service done. So if a vendor gives you that, you do fill that out and give it back to them, then you are obligated to report that in your books as a capital expenditure. You do, you do have the option to actually pay sales tax on it, though, and not do it as a capital expenditure, I suppose.

Tony:
I wasn’t aware of that, though. Actually, Ashley, you just educated me and taught me something new. I-

Ashley:
That’s at least in New York State, I would assume.

Tony:
I’ve never-

Ashley:
Yeah, maybe that’s just New York.

Tony:
I’ve never been charged sales tax for our service-related type expenses, at least not that I know of. Maybe they’re baking it in somehow.

Ashley:
Yeah, maybe that is just New York then.

Tony:
I think you do bring up a good point about the tax piece. It’s like, I know when I do a cost segregation study on my properties… For our rookies that are listening, a cost segregation study is basically you taking all the different parts of your house and separating out the depreciation schedule for each individual part of your home. So on a typical home purchase, they depreciate everything evenly over, what is it, like 27 and a half years or something like that, some really odd number, and everything’s equally depreciated over that time schedule. When you do a cost segregation study, you’re able to depreciate some things in a year or in 12 months, I’m sorry, or in five years or in some other period.
So when I think of capital expenditures, I’m thinking of replacing things that would show up on that kind of report. It’s like, hey, my roof, it’s going to have to be replaced at some point in time, major HVAC systems, things that they have a given use of time and it’s typically not something that’s super short. For example, the way that we split it up in our business, if a guest checks into one of our properties and they break the handle on the toilet, that is typically something we’re going to categorize as repairs. If we have to, like I said, replace the entire roof, that’s something…
Let me give a better example. If a single shingle comes loose from our roof, we’ll call that repairs and maintenance. If we’re replacing the entire roof, we’re calling that CapEx. So for me, it’s the size of the job. Then like I said, I don’t know if this is just the way that my brain processes it, but it’s like, what are the things that I’m going to depreciate over a long period of time is the stuff that I consider as CapEx. How does it work in your brain, Ash?

Ashley:
Here’s two dead giveaways. You’re adding value to the property, so maybe it’s something you didn’t have before that you’re adding value. You’re putting an addition on. You’re turning a bedroom into a bathroom or something like that. You’re adding something new to the physical property. The next thing would be is you are replacing something, such as the mechanics, you’re replacing the roof, things like that. Kind of the definition in accounting terms as far as for the depreciation, if it has a useful life of less than one year, it is a repair or maintenance. So if it’s something that’s going to have a longer life, you’re supposed to write it off as a capital expenditure.
But if it’s something that’s only going to be useful for less than a year, so like your HVAC filter, you have to put new filters in. They usually last three to six months, so that is not something that would be repair or maintenance on the property. I think generally looking at, is it adding value to the property? Are you replacing something that’s already in the property? Then also the gray area as far as the repairs and maintenance of how big is that repair or that maintenance. Is it going to add value for more than a year?

Tony:
In terms of setting money aside, every person listening should be setting money aside for capital expenditures, your CapEx, and your repairs and maintenance. Because our properties do tens of thousands of dollars a year and revenue sometimes over six figures, so we typically just have one bucket that we dump all of our repairs and maintenance and our CapEx into. Usually, for most of our properties, that tends to work pretty well. But we’ll take 5% of our gross revenue and put that aside for repairs and maintenance and CapEx. Honestly, that’s actually not even really true. Typically, we’ll just put aside 5% for CapEx really for the bigger expenses. Then because our properties and short-term rentals generate more revenue, we typically just handle the repairs and maintenance with whatever money was generated during that month. So that’s typically how we set things up. How do you do it on the short-term side, Ash?

Ashley:
I don’t have a ton of partners, so I know, for you, with all of your partners, you have to have that 5% for each property and saved separately because you have the different bank accounts. But for me, I just have three partners, and we each pretty much… We keep a minimum balance in our LLC accounts. We don’t go under that minimum balance. Then also, we each have our own accounts that have a good chunk of money. That’s where we each… It’s kind of our obligation to each other where, “You know what? We need to put this new roof on. Our reserves won’t cover it. We need to put in each $2,000 or whatever.” Then we go ahead and pull that money from our separate property savings. It used to be we would do 15%: 5% for vacancy, 5% for CapEx, and 5% for repairs and maintenance. Then it got to the point where you kind of grow and scale, and it’s like, wow, that’s a lot of money to be sitting-

Tony:
Sitting in reserves.

Ashley:
… in reserves. To have bad things happen at every property at once, that might not happen. Then same is true, if for some reason that did happen where something bad happened to every single property, we would just have to use the cash flow from that month to put towards taking care of it.

Tony:
That actually did happen to us where we had to just… I think it was earlier this year. We installed a bunch of hot tubs at our properties sometime in 2022. So over the course of 2022, we installed a bunch of hot tubs, and we had a less-than-stellar electrician install everything for us. You have to do electrical hookup, and it’s like a few thousand bucks to get the electrical done for a hot tub depending on where it is from the panel, and you got to run and maybe even dig, conduit, all that good stuff.
Anyway, for whatever reason, that electrician wasn’t available when we got a new hot tub, so we hired another guy. This guy was a little bit more sophisticated of an electrician. The properties just happened to be next door to each other, and he went to the wrong property first. He was looking at the electrical. He’s like, “Guys, I think something’s wrong here, the way this electrical was done.” So just by chance he ends up seeing the other guy’s work, and he was like, “I honestly would not let anyone get into these hot tubs until I fixed the electrical.” So we had to turn off the power to all the hot tubs, and we had to redo electrical on, I don’t know, I think it was eight or nine properties in the span of a month. Each one’s like a few thousand bucks per pop. Typically, that doesn’t happen-

Ashley:
And [inaudible 00:36:20] it’s like, having to do that, coordinate that around guests. Tell guests they can’t use the hot tub.

Tony:
Totally, they can’t use the hot tub. Yeah, that was a bit of a nightmare. But there are times, I guess, where, the quote/unquote, stuff can hit the fan all at the same time. It is good to have those reserves.

Ashley:
Well, with that coordinating guests, things like that, too, that’s one thing that stinks about short-term rentals is that when guests come, they’re on vacation. They don’t expect to have somebody there doing maintenance.

Tony:
Totally.

Ashley:
Where a long-term tenant, it’s like, “Yeah, come do maintenance because we live here.

Tony:
Yeah, come get it.

Ashley:
We want this space, like take care of it.” Once again, at my son’s football game this weekend, the person that manages our short-term rentals, she was on vacation. I knew she was on vacation, but she had never said like, “I’m going on vacation. Is it okay if I don’t respond? Can you watch over it, whatever and stuff?” because she was going to do that. But I still get the Airbnb messages that pop up on my phone, and I saw it. It was something about the WiFi. I was just like, “Oh, you know what? She’s on vacation.” But she actually started texting our group texts and she’s like, “Daryl, the WiFi’s not working.” So he called the service company, and they said, “We don’t have any outages, whatever.” So then she’s having them reset the modem and everything and can’t get it to work.
So Daryl calls back, and they’re like, “Okay. Well, we’ll send a service technician out,” and they end up sending a service technician out. Daryl’s like, “I’ll leave the game. I’ll go. I’ll check it out.” I’m like, “No, we have to learn to let these [inaudible 00:38:00] handle. It’s okay. Just wait.” Like, “If we get a four-star review…” I’m like, “Well, I’ll give her $75, okay? I’m going to say, ‘I’m so sorry for the inconvenience.’ I’ll send her back $75. Will that make you sit okay during this game?” So I sent her the credit. I was like, “I apologize. They’re going to send a service guy out to check it out. They shouldn’t need the interior access.” She’s like, “Okay, we won’t be here. Thank you so much.” The service technician gets there, and he is like, “Actually, I do need access.” So it was really nice. We just let the guests know he was going to go in. They were fine with it. We unlocked it from our phone, and he went in.
The breaker was off. That’s why the internet wasn’t working. This company is so amazing, and this internet provider, it definitely wasn’t some household name internet provider. The guy, he’s like, “Oh, it must’ve popped. I just turned it back on. Now everything is working, and you’re all set.” This is Saturday afternoon, and this technician is coming out to fix the WiFi. It’s like, here, we should have sent Daryl out or something to just turn the breaker on.

Tony:
Yeah, just a [inaudible 00:39:07].

Ashley:
Or, which in all the long-term properties, anytime an outlet isn’t working, whatever, we always have them check the breaker. For some reason with the internet, we just didn’t make that connection and ask them to check the breaker and stuff. Yeah, that was a-

Tony:
It’s crazy how there’s always little things that happen as you’re running your properties. But it’s kind of cool because, exactly what you said, it reinforces you… or I guess it reminds you that you need to always be optimizing your systems and processes.

Ashley:
Yeah, keep updating them.

Tony:
Totally. One of the things I do daily, or I try and do daily, but with our VA team, is I review the messages between my VAs and the guests who are checking out that day. A lot of times nothing happens. It’s just like, “Hey, cool, thanks. I’m in. Hey, I’m out.” But sometimes things happen, and I get to see how the VAs are handling those situations, and then I can give them feedback and say, “Hey, this is what we should be doing next time. Make sure you update the SOPs,” or, “Hey, we actually don’t have an SOP for this, but here’s what I want you guys to be doing moving forward.” So identifying those moments and then really updating them I think is-

Ashley:
The same with reviews. Are you looking at the reviews? Because we don’t really get a lot in the messaging of people telling us different things, but we get a lot of private feedback of different things. I’m actually surprised of how many people will still give you a five-star review and amazing things, and then they are actually really considerate and say, like this person with the internet, it’s just like, “It really was an inconvenience to us to not have the internet,” because there’s no cable or anything. That’s the only way to watch TV. Thankfully, it was a beautiful day out. They just said that was, but they did appreciate that. Then I think there was one other issue that came up, and we were like, “We just want to let you know,” and stuff like that. But I find that very helpful, too, to review those private notes that they send and use that, too, to update things that you wouldn’t even think of.

Tony:
We love looking through the messages on a more frequent basis, and then we try and look at the reviews weekly. It’s good to look at both. Because sometimes a guest, like you said, you’ll see something in the messages that doesn’t show up in the review, and then the inverse is true. Well, the guests won’t say anything at all during their stay, but then they’ll just rail on you in the review. It’s like, “Oh my gosh.” I think the absolute worse, and we see this sometimes, it’s where the messages are clean. The guests said they had a really good time, the public review is glowing, the private review is blank, and then they still give us a four-star. We’re like, “What the heck happened?”

Ashley:
Yeah.

Tony:
You have nothing to work with. But, yeah, it is good practice to review all that stuff.

Ashley:
Okay. As far as the last question, “Do you distinguish between these expenses in your books?” Your capital expenditures actually go on your balance sheet as an asset, and then your repairs and maintenance are actually an expense on your profit and loss statement. What this means is that, if you pay a roofer $10,000 and you have $50,000 in revenue and say that roof was your only expense for some reason, so you have that $50,000 revenue and then you’re subtracting that $10,000, you’re like, “Okay, I have a profit of $40,000. I’ll report it on my taxes.” But, no. Because it’s a capital expenditure, it’s not. It’s going to be depreciated, and your accountant will take a portion of that $10,000 and write it off for this year because the useful life of that roof is 27 and whatever years, and it’ll be depreciated over that amount of time, so you’re only writing off that portion of it.
That’s where cash flow comes in. When you’re actually calculating cash flow, you do take in those kind of expenses to calculate your cash flow. It’s just not taken into account for your profit and loss statement. This is why it’s so great to do tax planning so you can talk to your CPA. You’re doing all these capital improvements, but then you find out that you can only depreciate a portion of it. Now you have to pay taxes on part of that money that was actually spent in this year.

Tony:
I did just look it up and validate. Yeah, 27.5 years is the typical depreciation schedule for residential real estate.

Ashley:
Thank you guys so much for listening to this week’s Rookie Reply. If you have a question that you want answered, please go to biggerpockets.com/reply, or you can send a DM to Tony or I. I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson. We will be back on Wednesday with a guest. See you guys then.

Dave:
Hey, everyone. Welcome to On the Market. I’m your host, Dave Meyer, joined by Kathy Fettke, Henry Washington, James Dainard, fresh back from BPCON 2023.
Henry, what was your favorite memory of the conference this year?

Henry:
Oh wow. My favorite memory of the conference? Man, I had a lot of favorite memories. I think one of the best moments was getting to meet so many fans of On the Market. So I had a couple of pieces of feedback. One, tons of people said, “Hey, this is the show. This is the one I listen to. This is the one that gives me the information I need,” which is great feedback. And the other thing I heard multiple times was that there’s a lot of people in my camp about investing in the unsexy markets, as much crap as y’all give me about it. They were like, “No, we’re with you. We get it. We like these unsexy markets. There’s cashflow out there.” And I’m like, “That’s what I’m trying to tell people.”

Dave:
Well, if people agree with that feedback, they’re going to really like this episode because we’re going to be talking about a bunch of unsexy markets today.
Kathy, what about you? Any favorite memories from the conference?

Kathy:
Dave, your keynote was fabulous. You just looked like a pro up there and you simplified complicated topics and put them in little cartoons. It was a big comparison from last year where it was very heady and big graphs that no one understood. So just loved it. Loved it.

Dave:
James the emcee did a great job emceeing the conference. Do you have any highlights?

James:
Well, I agree with Kathy. Your keynote speech was incredible. You absolutely killed it.

Dave:
Oh, thank you.

James:
But it was hard to compete against the Velociraptor and Universal Studios.

Dave:
Dude, I can’t believe no one else said that yet.

Kathy:
That was amazing.

James:
I was talking about it, watching everybody scream, be terrified. Best ride I’ve ever been on. When I heard BiggerPockets rented out Universal Studios, I was like, okay, this will be kind of cool. I thought it was going to be like a mellow kind of meetup group thing. Way better. No lines. We got to rip the roller coaster. I don’t know if my voice was blown out from talking in the hallways too much or screaming on the Velociraptor, but either way, it took a full day for me to recover from BPCON.

Dave:
If you guys didn’t see this on Instagram or anything, BiggerPockets, for the conference this year, literally rented out all of Universal Studios. So I guess, probably normally, 50,000 or a hundred thousand people are there in a day, and we had 2,500 people. The whole place was open. There was bars everywhere. Free food, free games. It was so much fun. And the whole On the Market crew, we were obsessed with rollercoasters and we were just lapping rollercoasters for four straight hours. It was extremely fun.
Well, if y’all didn’t hear, BiggerPockets Conference was awesome this year. Next year, they’re doing it in Cancun. It’s going to be at an all-inclusive resort, and every year, they just keep getting better, so highly recommend it if you haven’t been yet. And if you have feedback similar to Henry’s where you think that On the Market is the best real estate podcast, best BiggerPockets podcast, best anything, we really appreciate reviews. So if you love this show, please give us a review on either Spotify or Apple.
Now today, we are going to get into a really, I think, helpful topic for a lot of people. We’re going to be talking about a boring old strategy, long-term rental property investing, and we’re going to identify eight different markets where you can still find cashflow. They also have really strong fundamentals like population growth and being under the median home price for the United States right now. And so these are markets that, honestly, most investors can get into. So hopefully, this information will help you if you’re sort of stuck trying to figure out how to invest in 2024. We have some markets and strategies that are going to work for you.
Before we get into this, all of these markets, the eight markets that we pulled, have to be under the median home price in the United States because, at least if you agree with me and a lot of us on this show, affordability sort of reigns right now. I want to quiz you all about what you think the median home price in the country is right now, according to HUDD, the Housing and Urban Development Department.
James, so what do you think the median home price is in the US right now?

James:
I think, last time I checked, it was around $410,000. But that was a few months ago when I looked, but $410k to $415, right in there.

Dave:
Henry?

James:
$475,000.

Dave:
Kathy?

Kathy:
I’m just going to go with a clean $420k.

Dave:
Classic California answer.

James:
Malibu lifestyle.

Dave:
Kathy, you won though. It is $430,000, according to HUDD. And these estimates, just so you all know, they vary a bit based on the source. So HUDD has one. Zillow has one. NAR has another. But they’re all, from my observation, between about $400k and $440k right now. And that is up somewhere between one and 3% year over year. And so when we get into the eight markets we’re covering today, all of them will have the median home price, and I think all of them are pretty well under that mark, so they’re relatively affordable for people to get into.
We are going to take a quick break, but then we’ll be back with our eight excellent markets for investing in 2024.
All right, James, kick us off with your first market. And again, just to remind everyone, these are markets that we think work for most investors, even in a high interest rate, somewhat riskier environment like we’re in right now, because they are highly affordable, they have great fundamentals, and they offer cashflow. So, James, what’s your first one?

James:
All right. So I’m excited to talk about this one because I was just there. I was on my conquest of the Carolinas and I was checking out North Carolina, South Carolina, all the coastal communities. And my first market I want to talk about is Myrtle Beach, South Carolina. I was there with my daughter and my family. We had an absolute blast. She got henna tattoos, great time. But more importantly, it’s a very solid market to look at.
And what we’ve seen is we’ve seen a lot of these coastal community towns, the vacation towns, after the pandemic, people have just been like, “Forget it. I’m just moving to where I want to hang out and have fun.” And this is one of those towns that people have been moving to. It is a very, very strong investing market. The average home price is at $336k, so it’s below the median home price. I feel like it has growth and it could easily get to the median home price over the next couple of years.
And the population is growing. It is grown nearly 4%, 3.87% year over year. And it is that whole pandemic lifestyle. People are like, “I want to live where I want a vacation, I think,” and it is growing. And I don’t blame them. When we were there, the beaches were awesome. The weather was great. It was very good people watching on the strip, had a good time. So I think people have learned that they want to live where they want to live and that’s why it’s growing so much.
And as far as an investor goes, back to that 1% rule, we all know about that 1% coverage rule and it’s been very hard to achieve the last couple of years with the pricing going up, and then interest rates are helping a little bit. And it’s kind of became an outdated metrics, but it’s close. It’s at 0.67%. It’s closer than most market is to get you to that 1% rule. So it’s got high growth. It’s got good income. And not only that, it’s below the median home price and it’s a great place to live. So based on quality living, I think it has a lot further growth and we’re really seeing this in these coastal community towns.

Dave:
Nice. That’s a great one. I just want to provide two points of clarification for everyone. First of all, population of growth of 4% is insane. The national average is about 1%, so four times the national average. And, James, I think in your research, you said that it was named the fastest growing city over the last year by US News and World Report, so that is obviously strong fundamentals.
Then I just wanted to follow up on the 1% rule that James just mentioned. What he’s referring to, if you haven’t heard, is something called the rent to price ratio. You divide one month of median rent by the median home price for a given market, and what you get is usually somewhere between 0.5% and 1.5%. And back in 2010, 2012, some investors came up with this rule called the 1% rule where you had to get it above 1%, which signified that you could probably get great cashflow. Now we all know, it’s not 2010 anymore, and so finding markets that average 1% on that rent price ratio is exceedingly rare. There are probably less than 10 in the entire country.
That doesn’t mean that you can’t find cashflow in these markets. You still can, because we’re in a different type of market environment. And I’ve actually done some research into this, and if you have a rent to price ratio of anywhere from 0.6 to 0.7 or above, there’s usually cash flowing properties in that city. Now remember, if I’m saying that the rent to price ratio for that market is 0.6 to 0.7, that is the average. So that means there are deals worse than that, and there are deals better than that in that market. And as an investor, it is your job to go find the ones that are better than the average one. So just when we say a rental price ratio is 0.7%, go out there and find yourself the 0.9% one because that means that they exist there. So I just wanted to go on that diatribe and explain those things.
But, Kathy, I think you had something to add here.

Kathy:
Oh, I just want to say I had to rewrite my book because of that 1% rule. People were like, “I’m not going to buy anything because I can’t get it.” But I wrote that in 2014, so I had to revise it, came out with a new one.
We are actually getting 1% in our fund, but that’s active. If you’re an active investor, you can probably still get it, meaning you’re buying something that’s not very expensive. You can improve it and still get it way under market, but they’re strong rents. It’s just not easy to do, especially if you’re investing from afar. That can be difficult to do. Unless you’re someone like Henry, he’s probably finding that, but it’s probably harder.
Anyway, Myrtle Beach, back to that. Love Myrtle Beach. The southeast is my jam. This is so underpriced. The entire southeast coastal market is so cheap. Find me somewhere in California where the median price is $336,000 for a coastal property. It doesn’t exist. So that’s why it’s growing so quickly. And the Carolinas specifically, they’re kind of referred to as the boomerang states because, a lot of times, the northeastern people who are just done with cold weather and they’re able to retire or live remotely, they’ll go to Florida and then sometimes think, “Wow, it’s too hot and too humid,” and so they boomerang back a bit to the Carolinas where it’s a little bit less hot and humid and still so affordable.
Darling town. I surfed there when I went to check it out. It’s still so affordable. Considering what we just said, that the median home price in the US is higher than that, and you could get coastal property in a really cute town, I mean, it’s great. I don’t invest there, but I could see where that would be a great opportunity.

James:
Yeah, and the beaches are awesome. I know we’re talking about unsexy markets, but definitely, beaches are stacked full of good looking people. I don’t know how that works for investing, but it’s a bonus. It is growing. Rents are up 33% over the last three years. I mean, it’s a growing town, it’s quality living, and it’s fun to go to. So I definitely will be back.

Dave:
I’ve always wanted to go because I’ve heard there’s great golf there. And I’m not great at golf, but I enjoy playing, so maybe-

James:
That is not true. Dave said he didn’t golf, and Dave crushed the ball all day long. I was lucky I was paired up.

Dave:
Very, very inconsistent. But James and I played two other investors and we crushed them. So that’s all that matters. We crushed them.
All right, James, what is your second market that you’re bringing us today?

James:
So the second market is Tallahassee, Florida, which I have never been to. To be honest, I don’t have a whole lot of desire to go there unless it’s for an FSU football game. I think that would be pretty fun. But it’s a very affordable market in Florida, and as we know, Florida has gotten very expensive and it’s been hard to get cashflow in a lot of these locations. Pricing’s way up in Florida. It’s hard to make deals pencil, but there’s still a lot of good markets around, like Tampa, Tallahassee, that you can invest in.
And what I like about it is the average home price is $272,000, so it’s really, really affordable. And as these rates keep staying persistent and the money seems like it’s going to be a lot higher than we thought, a lot of us were predicting that the rates were going to be down middle of next year, that might not happen. It’s a good market to be looking at because the pricing is so below the median home price and the quality of living is really good. So it has some runway, in my opinion.
The population growth, not as strong as Myrtle Beach, doesn’t have the same trend. It’s 0.72%, so it is growing below the national average. I don’t really like that as much, but it does have steady growth and the overall investment. But I think there is other potential here. The rent to price is at 0.54, so it’s below Myrtle Beach, half of the 1%. But like Dave said, that’s the average and who wants to be average?

Henry:
Yeah.

James:
You can find value in any market, but I do believe that this market has growth potential because it’s so affordable. The quality of living’s good. They would rank the ninth best quality of living in Florida. And so people do want to live there.
In addition to, there’s a lot of college there. College towns are great for steady rent income. And as college pricing and the cost of college goes up, so will housing. They’re going to go up one and the same. We’ve seen that in our Seattle market, we own a lot of rooming houses. So I do like college towns. I like the quality of living, and I think it’s very dependable for an investor to be looking at.

Henry:
Yeah, I like this because of, I just think college towns are great investment areas, especially when those college towns are surrounded by other major metropolitan areas. And so Tallahassee definitely ticks those boxes. People think of Florida State when they think of Tallahassee, but you’ve also got Florida A&M University and a host of other small universities that are out there. And so you’ve got a large student population. That means the universities are employing a large percentage of the people who are working there. And so housing, affordable housing is needed.
And when you can get property in a college town, the average home price retail is $270k. That means if I go in there and start looking for deals, I’m going to be buying stuff for sub a hundred, just over a hundred thousand dollars for properties because I want to get really good at finding good deals. And so going out to a college town and buying a property for between 100 and 150 grand, and being able to get the rent you’re looking for because college students need a place to live, man, that’s a dream.

Dave:
Knowing what I know about being a tenant in a college town has always scared me away from being a landlord in a college town.

Kathy:
Totally.

Dave:
But what you’re saying makes sense.

James:
And I think they rage at FSU. I heard they like to have a good time, so you kind of want to get bulletproof rental specs. Just make sure it can handle the durability.

Dave:
Yeah. I went to a pretty nerdy engineering school and we destroyed properties, so I can’t imagine what it would be like at FSU.
All right. Well, it sounds like a very interesting market. Again, yeah, so it sounds like Myrtle Beach has growth potential and a little bit more cashflow. Tallahassee may be lower cashflow potential, still possible, but might have more room to run because it’s really just very affordable in a state that is absolutely booming right now.

James:
Yeah, I think the equity can grow a lot quicker, and that’s going to make a big difference in your overall return. And if you can get that equity growth, that will offset your cashflow that might be a little underperforming.

Kathy:
100% in Myrtle Beach for sure. But I think also in Tallahassee, you might look at short-term and midterm rentals. We actually have a college in my town, and what I’ve noticed is that a lot of parents want to come and visit their kids. And so having a short-term rental, you’re still kind of getting the benefit of having students in town, but you have parents living in the rental if it’s a short-term. If you’ve got a big party house, Dave, like you do in a ski area, well, then your short-term rental might be a party house. But if it’s little, just enough for the parents, that can stay rented.

Dave:
All right. Well, moving to another state that is absolutely booming, Henry, what’s your first market?

Henry:
My first market is Jonesboro, Arkansas. So this is a town maybe not a lot of people have heard of, but the numbers are kind of ridiculous. So check it out. Average home price of $188,000. So you’re sub-200 on the average home price. So now we’re talking retail, which means if you’re looking for deals, you can get screaming deals. You’re talking sub a hundred thousand dollars, finding good deals out there. That’s crazy.
But population growth is 1.29%, so people are moving there. And that’s due to the economy. It is an economy that hosts a lot of manufacturing. So that’s what’s most of the workforce is doing out there. So you’ve got Nestle, Unilever, Frito-Lay, Riceland Foods and a couple of others. But as well as healthcare is big out there. So you’ve got a couple of big hospitals that are also employing a lot of the people out there. And so you’ve got population growth. You’re not too far from Memphis, and so you’re not too far from a major metropolis. You’ve got unemployment at 2.9% and your rent to price is 0.74. So there is cashflow.
And if you think about it, I was looking, the average rent for a two-bedroom or for a three-bedroom is just over a thousand dollars. So if you can get a deal and get average rents, then you’re going to be able to cashflow, especially if you’re finding a really good deal in this market.
The other thing about Jonesboro is, the vacancy rate is 6.7%, which means most everything is getting rented. So it’s got all the right stats. Definitely, definitely really good numbers. I’m surprised, because I’ve gotten leads for deals in Jonesboro and I’ve turned them down just because of how far it is proximity wise to where I live in Arkansas. And now, I’m thinking I might need to take a second look at some of these leads I’m getting out in Jonesboro.

Dave:
Okay. So this is not northwest Arkansas. I’m looking it up on a map right now. This is northeast Arkansas.

Henry:
Northeast Arkansas, yes.

Dave:
Yeah. Okay. And as you mentioned, closest major city is Memphis. It’s actually quite close to Memphis, yeah, as you said. So, Henry, do you hear about Jonesboro? Is it a big town? Yeah. Is it a place it’s commonly talked about in Arkansas?

Henry:
Yeah. People talk about it all the time. I’ve just avoided it because of how far it is from me. It’s about, I’d say a five-hour drive from where I currently invest. And so I just like to be able to get to my properties, it’s just a personal thing for me. But I mean, the market dynamics sound pretty good. Like I said, I get leads all the time coming through my website from this area and I just pass them on to investors I know that invest out there, but I’d never looked into it until this. This is cool.

Dave:
I mean, a market that is under $200,000, so less than half the median home price. Population growth is above the national average. The unemployment rate is below the national average. It has really good rent to price ratio. I mean, those are pretty tough to find these days. This one’s pretty good. Yeah.

Henry:
Pretty solid.

Kathy:
I’m sold.

James:
You know what also sounds nice is the price of a hundred grand. That is our earnest money check to write hundred deals. It’s like, Kathy, I think we might be doing this wrong. I’m like, I’m listening to this. I’m like, why not go out of state? But you got to get outside your comfort zone when you get to long distance investing and you got to set up the right systems. And it’s hard when you’re, like Henry says, I’m a backyard investor too, looking at these markets. But the math is saying that you should really explore it. And it’s for investors to figure out the systems that’s going to work. And so as these markets are getting more and more affordable compared to what the other markets, it is something I think everyone should be looking at. Yes, you have to set up new systems, but those are great metrics to get good cashflow.
And also, it allows you to invest very low risk. When you’re buying properties at a hundred grand and they sit vacant for a little bit, you can stomach that hit. But when you’re dealing with expensive stuff and expensive metro right now, you really have to make sure you’re on it or that debt cost, that vacancy cost, all these things can compound. I definitely think I need to get some operators in different states and just start partnering up. It’s a hundred grand. That would be nice. What’s your earnest money amount? Like $1,500 bucks. That’s awesome.

Kathy:
Oh man. The grass is always greener, right? We look it, James, but do you make hundreds of thousands of dollars on one transaction. And they’re so sexy.

Henry:
You’d have to do 10 deals.

James:
But you can also lose a hundreds of thousands of dollars on one transaction.

Kathy:
This is definitely my kind of market. I love that it’s kind of off the radar, but it’s got all the things that you need in a good buy and hold market. So yeah. Hey, Henry, James, you guys set something up there? I will be your buyer.

Henry:
I got you.

James:
Ditto.

Henry:
I got you.

James:
Yeah.

Dave:
All right. Well, Henry, you got another fire market for us next?

Henry:
Yeah. This is a market that I actually currently invest in, Joplin, Missouri. So this is about a 50-minute drive from Northwest Arkansas where I live, and I currently invest there. I have seven doors there now and I have another 16 doors under contract there now. So I am growing my portfolio in this market.
And why I’m growing my portfolio in this market is because of these pretty strong market dynamics. So average home price is just over $200,000, at $205k, $206,000. It’s got population growth of 1.1%. Now I know it’s not the highest population growth on this list, but for a small market in southwest Missouri, that’s pretty good. Low unemployment, 3% unemployment. And rent to price is at 0.65. And I’m buying cashflow deals in this market left and right. I just closed on a house in Joplin two days ago. I paid $67,000 for the house. I’m going to put $30,000 into it, and it is going to rent for over $1,500 a month. And it has an extra lot next door that I’m going to either be able to sell for about $15 to $20 grand, or I can build a new construction home on because so many builders are building homes out there to infill, because there’s not enough homes for the people who live and work in that Joplin market. And so I love Joplin.
Another reason I love Joplin that you’re not going to hear about or see about if you just do the research on your own is, because it’s about a 50-minute drive from Northwest Arkansas, as Northwest Arkansas is expanding because of all of the big companies out here, a lot of people are starting to feel like, hey, this is becoming a little bigger and busier than I like, and people are starting to spread out and go a little further out. And so, I think that that’s driving some of the population growth in the markets like Joplin as well. And so you’ve got people moving there, trying to get away from the hustle and bustle of Northwest Arkansas, if you can even say hustle and bustle in Northwest Arkansas in the same sentence. So I really, really do like this market, and I am growing and expanding in this market because of the solid dynamics.
As far as the economy goes, this is another manufacturing town, so there’s lots of different manufacturers out there. You’ve got General Mills out there. But it’s a really, really big healthcare community. So many hospitals. There’s a St John’s. We’ve got Ozark Medical. There’s Mercy clinics. There’s tons of different healthcare out there as well. So it’s a really solid market with solid market dynamics that’s growing steadily, not super fast, but growing steadily, and you’re just getting a lot of quality tenants because they have good jobs and they can actually afford the rents in the market.

Dave:
I had never heard of Joplin before the show Barry on HBO, if anyone watch that. But I’ve long liked the idea of finding a tertiary city outside a main area that’s like 50 to 60 miles away. When I was investing primarily in Denver, you saw Longmont, which is a city where Colorado State University is, but no one invested there, and Denver just got so hot. To Henry’s point, people just wanted to move somewhere a little quieter or maybe somewhere even more affordable. And these places that are sort of, they’re not like satellite cities, but it’s nice to be close to a place with a big airport, for example, or be able to go to a big city within an hour, hour and a half drive, but has more of a small town feel. So I’ve always just sort of liked that approach, and it sounds like Joplin fits the bill for that strategy.

James:
And look how wired Henry is on the market he invest in. Talk about market research. He generally passionately loves the market. He knows everything about it. A lot of times, people are just going in and buying that thing because they were told in a book or a podcast to do it. But Henry really dug into the market, knows it like the back of his hand, and that’s why he can grow is because he knows it. He believes in it so he can invest kind of carefree. So kudos to you, Henry. I mean, you definitely have this market down.

Henry:
Thank you, brother.

Dave:
All right. Well I’m going next and my first market is somewhere I’ve never really even been close to, but it is Tuscaloosa, Alabama, and the average home price there is $211,000, so less than half our median home price. Population growth, 1.4%, so just over the national average. And just as you’re saying, I think any market that’s growing is pretty good, but it’s always nice to be above the national average. The unemployment rate is at 2.4%. And the unemployment rate is pretty low everywhere in the country right now, but 2.4% is about 30% lower than the national average, so that’s great. And the rent to price ratio is excellent at 0.8%. So I think this is really strong fundamentals for Tuscaloosa.
Now, I looked all this up because I’ve never been here, but it is a small city. It is a college town, which we’ve just been talking about the benefits of. The University of Alabama is from there, so is Stillman College and Shelton State Community College, which contribute about $3 billion of economic impact to the area, which is about 25%. So that’s really interesting.
Normally, I always like to say, you want to look for an economy that’s well diversified, but when you have an economy that maybe, feel free to disagree with me, that is based on something really solid like a college or public sector jobs that are really stable, I think that is a relatively good foundation for an economy. So I really like that tourism has really been picking up. They also have one of the biggest, or maybe the biggest Mercedes-Benz assembly plant in the country. So there’s a lot that’s probably leading to that really high employment rate. And that’s all I know about Tuscaloosa. Have you guys, any of you ever been there?

Henry:
I have. I went to an Alabama-Arkansas football game a few years back.

Dave:
How awesome was that?

Henry:
At Alabama. I mean, it’s a thing. The whole everyone is there.

James:
So jealous.

Henry:
Everything else is closed. It’s only the stuff at the college that’s open. It was just a super intense environment.
But to kind of piggyback on your point, when this represents about 25%, you said, of the economy there, I think that that’s okay in this situation because University of Alabama is not going anywhere. Those people would start a war.

Dave:
Their fans are very passionate.

Henry:
If that school went anywhere. It is safe and sound there. But no, it was a great place. I enjoyed it. It didn’t feel that small to me. I was surprised to see it’s only 100k people because it felt much bigger than that.

Dave:
Well, I think a lot of times, these college towns, they don’t count students because they’re not full-time residents. I know, Boulder for example, Colorado, where the University of Colorado is, says it’s like a hundred thousand, and then when students are there, it’s like 140,000. So it goes up by like 40%. I bet Alabama’s even bigger than [inaudible 00:30:00]. But it makes you think, based on what you’re saying, Henry, that in addition to student rentals, short-term rentals probably do really well if it’s that big of a draw and people are coming for sports, among other things. The university obviously has other draws. I actually saw that they just broke ground on a $50 million performing arts center at the university. So there’s obviously a lot of attractions in the area that might warrant different types of rental strategies.

Henry:
Yeah. And I think that’s a good call out too about the short-term rentals because one of the things I like about my market, which is a college town as well where University of Arkansas is, is just, there’s not a ton of hotels. There’s a few. There’s definitely not a bunch of nice ones. And so, when you’ve got football season and people coming from all over to come to these football games, they got to have a place to stay. The hotel sell out super fast, and so these towns need Airbnbs because their economy is dependent on these people coming to visit.

Kathy:
That’s such a good point. That’s why I like these sort of off the radar markets because you don’t have builders flocking to them. They don’t even know they exist. So you’re not seeing new hotels and new homes, but when you’re seeing the kind of growth, population growth that this area is seeing, yeah, it’s going to be good for short-term, medium term, long term. It seems like, either way you go, you could make it work in this market.

Dave:
Definitely. Just make sure you have a big enough parking lot for people to tailgate in at your short-term rental.

Henry:
I wonder how much of the average home price Nick Saban’s house drives up that number.

Dave:
Add like three zeros to that number.

James:
I think we need to explore the market and do a live podcast at a football game. Like the college football set.

Henry:
Like college game day?

Dave:
That would be so awesome.

Henry:
We could put one of those school mascot hats on you when you-

James:
I’m a hundred percent in.

Dave:
Well, my next market does have a college in it. It’s the University of Wisconsin-Oshkosh. I don’t know if they have the same level football team as the other ones that we’ve been talking about.

Henry:
I feel like you just made that up.

Dave:
I actually didn’t. It’s a real thing. But the next market I have is Oshkosh, Wisconsin, which I have only heard of because, as a kid, did you guys wear OshKosh overalls or OshKosh?

Henry:
Yeah. OshKosh B’gosh, yeah.

James:
It reminds me of Chucky.

Dave:
Yes, exactly. Yes.
So Oshkosh, I’ve learned, is a really interesting town. It actually used to be known as the sawdust capital of the world because it has the most sawmills, I guess, in the world. No longer, but it did at one point. But really, they actually have really strong fundamentals. So just to go through the stats, average home price is $265,000. Population growth at 0.9%. Unemployment rate, 3.5%. And a rent to price ratio of 0.6%. It’s a small city of 67,000 people.
But I started looking at this because, I don’t know if you guys have seen this, but when you look at lists of places with hot housing markets, even during this weird market we’re in, Wisconsin is one of the places that’s always up there. Obviously, you see a lot of places in the southeast, but Wisconsin, consistently, for a year or two now, has been up there.
And so I looked into it. I literally just Googled, “why is everyone moving to Wisconsin?”, and found out that there’s just a lot to like about it and really ranks high in terms of education, in terms of healthcare and health, one of the highest states for quality of life and safe places to live. And so it seems that a lot of people are moving to Wisconsin, and I think Oshkosh is getting swept up into that. So sort of in our theory of auxiliary cities near big cities, maybe like near Milwaukee or Madison, Oshkosh is near those and also near Green Bay, and so might be one of those secondary cities where you can get cashflow now, but in a state that seems poised for growth, given the recent trends.
Wisconsin obviously is one of the hottest cities in the entire country. Sheboygan, Green Bay, it’s near all of those. So it’s kind of sandwiched in there and could sort of benefit from the tides that are raising all those ships, so to speak. It’s also on Lake Winnebago. It looks very beautiful from the pictures I saw. I really don’t know any more about it, but it seemed like an interesting market.

James:
I’m picturing a Lego town where everybody’s wearing Oshkosh, walking around.

Henry:
Everyone is a train conductor.

James:
Everybody’s a train conductor.

Dave:
Is that company still in business?

Henry:
Oh, they got to be.

Dave:
I bet it is.

James:
It’s timeless, Dave. That does not go out of style.

Dave:
Yeah. I hope not. Well, I would go check it out. I’ve been to Lake Geneva in Wisconsin. It was very beautiful, so I’m sure it’s really nice up there.

Henry:
So there is a lot of smaller cities in that Wisconsin, Illinois kind of region that are growing right now where you can get amazing cashflow, places like Racine, Wisconsin, which is smack in between Milwaukee and Chicago, which is perfect, because as those cities spread out and affordability gets worse there, you can buy duplexes there for $150 grand in cashflow. It’s insane these markets.

Dave:
And on the lake, really nice.

Henry:
Great dynamics out there.

Dave:
All right. Well, that turned into an advertisement for the entire state of Wisconsin, which we’ve barely been to, but on paper, it looks very good.
All right, Kathy, what about you? What’s your first market?

Kathy:
Well, I started to get a little hair standing up on my arms or whatever when I saw this one because I don’t like investing in places where it’s really dependent on one economy, specifically oil, as you know, my heartbreak story buying in North Dakota. So Odessa, Texas, it’s in the Permian Basin. There is a lot of oil there, so that’s good. There’s a couple of employers there you might’ve heard of. Halliburton, Schlumberger, these are massive oil companies there.
The average home price is $212,000, so that’s far below the average. Population growth, not so impressive, 0.64%. Unemployment rate, 3.8%. Though I looked at other sites and some said it’s not, it’s much higher than that. So again, it’s hard to get the actual information. Zumper said that rents increased 17% year over year, maybe in certain areas. That’s the thing about these oil towns is it’s really volatile. And right now, I don’t even know where prices are in oil, it just goes up and down.
But I know the Permian Basin is doing better than North Dakota. But here’s right off the bat why I would not personally invest in this area. 114,000 people. In the whole Permian Basin, it’s 500,000. I like to be in larger markets. I like to have a larger rental pool. So to me, it’s just too small of a market, too dependent on one economy that is an economy that is manipulated by not America. Well, also America, depending on politics, it’s manipulated. But then oil industry is manipulated in general. So I don’t like it. I wouldn’t invest there.
With that said, I bet people are making a ton of money investing in this town. So just like you said earlier, if you know your town and you know where to buy and you know where the jobs are there to stay, you’re going to do just fine. And the price point’s right.

Dave:
Just to clarify, the way that we came up with this list is, we came up with criteria, which is under the median home price, population growth, a good RTP above the national average, unemployment rate below the national average. And so what happened was, our analysts at BiggerPockets pulled that data and we were each assigned to look at one. So Kathy is presenting this, but that does not mean she is endorsing it, just to clarify.

Kathy:
And like I said, you could make money in any market, so you don’t have to worry so much about being in the right market if you know how to buy the right real estate. I know there’s locals in this market who are killing it because they know.

Henry:
You know how I know Kathy’s not into this market. Because she’s saying it wrong. Because if you’re into it, it’s not oil. It is ole. There’s an ole.

Kathy:
That’s right.

Henry:
There’s a ole town. There’s ole money out there.

Kathy:
Yeah.

Dave:
Does that mean you’ve bid down there, Henry?

Henry:
No. It just means I live in the south.

James:
But that is something to look for is the energy. We’re seeing a lot of different global things going on right now. There’s global conflicts. There’s supply chain issues. A lot of these major countries, we’re not getting along with a lot of major countries that do supply a lot of oil. And the US might need to start generating more energy. And there could be some runway in these oil towns, ole towns. There we go.

Kathy:
Are you saying I should hold onto my land in North Dakota for the day that someday we decide that we might need to have some oil here?

Henry:
Do you have minimal rights?

James:
Just hang on.

Kathy:
Okay. Because you said so.

Henry:
You’d be like the Malibu hillbillies.

Dave:
All right. Kathy, was your second market we assigned you a little bit more inspiring to you?

Kathy:
Yes. The second market is more diversified. It’s a very good, in my opinion, stable cashflow market. Oklahoma City, Oklahoma. This is a market where, if you just want cashflow and no surprises and not a volatile market, it’s going to be here. I know a lot of people who have invested in Oklahoma City and have been happy they did.
Population growth is just so, so, 0.94%, so about average. Average home price, $228,000, that’s way below what we saw in the median and you can probably make the numbers work there. Unemployment rate, 3.2%. And the rent to price ratio, about 0.6. But again, if you buy right, you can do better than that. Rent growth unfortunately has not been too impressive in Oklahoma City this past month, down 0.3%. But year over year, up 0.3%, so flat. Let’s just call it flat.
But that may be because, in 2022, rent growth was massive, one of the most and highest in the country actually, 24%. So something happened there, I would call it a pandemic. So rents went up massively. But that means that you can’t look at the past. You got to look at what’s next. And with rents going up that much so fast, it may stay flat for a bit so that wages can catch up.
But one of the issues is lack of housing and lack of affordable housing that we’re seeing everywhere. So if you are interested in more Section 8 housing, apparently there are 30,000 people on the wait list for Section 8 housing in Oklahoma City. And that can be a great investment, steady income from the government. 330,000 new jobs created over the past decade. So supply is low, but demand is high, which is why 40% of residents say they much rather rent than own because owning just doesn’t make sense for them right now. So a strong rental market, very diversified.
Now, I like to be in markets where there’s going to be a boom of some kind. I don’t want a boom market dependent on one thing, but I do want something that’s going to make it boom. And something that might make that happen and is very exciting, and one of the reasons why our new rental fund is in Oklahoma is the governor is pushing to get the state income tax to zero, like Texas, to compete with Texas. If that happens, I really think we’re going to see quite a boom.

Dave:
Interesting.

Henry:
Yep. So I love Oklahoma City. It’s another sleeper market because it is a major metropolis, but you can still get smaller city economics there, smaller city numbers there. Also, there is a little bit of a tech boom happening in Oklahoma City. Lots of tech companies are opening offices there, and so there’s lots of tech jobs which bring in younger employees. And so that creates growth over time. They did lose a lot of people to the Texas or Dallas area during the pandemic. A lot of people moved over to Texas, and that may be what’s pushing some of this. We’re trying to get to the zero income tax like Texas there. But it’s also, not only technology jobs, but it’s the home office for Sonic the fast food restaurant.

Dave:
Nice.

Henry:
So lots of good stuff happening there.

Dave:
I’ve never been to Sonic in my whole life and it’s one of my biggest regrets.

Henry:
Oh, the food isn’t worth it, but the drinks are great.

Dave:
The commercials of those two guys-

Henry:
They’re hilarious.

Dave:
Seared into my brain for the rest of my life, telling me to go to Sonic. Yeah, I’ve known a couple of people who invest in Oklahoma City and actually some of the cities around it, and it just seems like an excellent place. There’s just not a lot of downside or risk that I see. It just seems like pretty strong fundamentals everywhere.

Kathy:
Just tornadoes would be the risk and you have insurance for that.

Dave:
Just tornadoes.

Kathy:
Just tornadoes.

Dave:
Something never having lived in the Midwest or the South have ever thought about. But yeah.

Henry:
It’s about an hour and a half west of Tulsa, which is another decent market for cashflow. And then about three hours from here in Northwest Arkansas. So I mean, I like it.

Dave:
Cool. All right. Well those are our eight markets. And again, what we’re talking about here is markets where, even during a confusing market, where some markets are going to do well, some markets are not going to do as well, we think these eight markets offer strong potential, there are no guarantees, but strong potential to do well over the next year, even as affordability is low and there are some questions about what’s going to happen over the coming year.
And as we talked about a lot at the BiggerPockets Conference, if you’re going to be an investor, it’s okay to change tactics. It’s expected to change tactics based on what’s going on in the economy. But at least for, I know the four of us and for many of the people I talked to there, what people are not planning to do is to just stop investing altogether. It’s to try and figure out, like Kathy said earlier, what is working in this market and adjusting your strategy accordingly. So we hope that this is really helpful for you. We’d love to hear from you in the comments or reviews. If you invest in any of these markets, tell us a little bit more about them. Obviously, if you’re listening on YouTube, you can put those comments in there as well.

Henry:
Specifically OshKosh, is that still a thing? Can we still get overalls?

Dave:
Yes. Next episode, we are all going to be wearing OshKosh B’Gosh overalls and going to Oshkosh.

Kathy:
Really? Okay.

James:
I mean, the Minions still wear it. The Minions still rock Oshkosh. We love Minions.

Dave:
All right. Well, thank you all so much for listening. We really appreciate it, and we’ll see you for the next episode of On The Market.
On The Market was created by me, Dave Meyer, and Kailyn Bennett. The show is produced by Kailyn Bennett, with editing by Exodus Media. Copywriting is by Calico Content, and we want to extend a big thank you to everyone at BiggerPockets for making this show possible.